China is known for its unfair trade practices and in particular for subsidizing its own, mostly state-owned companies to the detriment of foreign companies. The China-EU Investment Agreement (CAI) should at least partially put an end to this and ensure fairer conditions. While Chinese companies have been pushing into the open European domestic market for years, the Chinese leadership has always made it difficult for European companies to invest in the People’s Republic. For example, they have to enter into “joint ventures” with Chinese companies and often reveal their know-how. This is connected with the risk of the uncontrolled outflow of technological knowledge.
The basic idea behind the CAI was therefore fundamentally correct: It should improve competitive conditions and give European companies fairer access to the Chinese market. But the project has failed for the time being: The EU Commission has put political efforts to ratify the CAI on hold. The reason for this are the recent diplomatic rifts, said the Vice President of the EU Commission, Valdis Dombrovskis. The commission followed the demands of the European Parliament, above all the liberal group Renew Europe. China sanctioned freely elected MPs in response to EU sanctions for human rights violations in Xinjiang, among other things. Some MEPs and the entire Human Rights Committee are on China’s sanctions list. As long as these measures are in place, it is absolutely right not to ratify the agreement by the EU.
Even before that, the agreement had attracted international criticism. For example the timing: the “breakthrough” of the negotiations was announced on December 29, 2020, shortly before the New Year. A highly unusual period for trade negotiations stretching over years or decades. Germany’s EU Council Presidency ended only a few days later. Did the German government want to score a hastily armed success shortly before the end of its presidency?
Human rights abuses in Xinjiang and Hong Kong
The timing was all the more astonishing, because in Hong Kong, Beijing is breaking an international treaty and undermining guaranteed basic democratic rights. In the Xinjiang region, the Muslim Uyghur minority is interned in camps, physically and psychologically abused, for example through forced abortions or sterilization, and through forced labor in cotton fields.
One month after the announcement that the EU was ready for an investment deal with China, Joe Biden was inaugurated as President of the United States. There would have been the possibility of a joint approach by the EU and the US towards China. But this opportunity was not used. Of course, a sovereign EU can and must be able to act alone, but cooperation with the US would have meant a much stronger negotiating position with China. The trump card of transatlantic cooperation was willingly weakened. This requires an alliance of the Democrats with regard to China.
CAI does not do enough to contain unfair trading practices
The content of the CAI also fell short of expectations. The envisaged, easier access for European companies to the Chinese market would therefore continue to be severely limited. Because the CAI regulations only affected a few industries – and there only very large companies with high investment volumes. The CAI would not have managed to finally secure broad access to the Chinese market for European companies and effectively contain China’s unfair trade practices. In particular, the important question of investment protection, which would give foreign companies more legal security in China, was not resolved, but rather postponed to an agreement to be negotiated later.
Even after the de facto stop of ratification, a passage from the investment agreement had already caused a sensation that was previously unknown to the general public. According to a text in the annex to the agreement, non-profit organizations that operate in China will in future only be allowed to be run by people with a passport from the People’s Republic. This could also affect the German political foundations in the People’s Republic and make their work virtually impossible.
What are the Liberals asking for?
As the liberal group in the European Parliament, we expect fundamental steps by China before a possible ratification process for the investment agreement is even conceivable. Basically, this is the withdrawal of the Chinese sanctions. The content includes the ratification of central conventions of the International Labor Organization and a concrete roadmap for implementation. Furthermore, the Chinese leadership must finally allow unrestricted access for independent United Nations observers to Xinjiang in order to examine the human rights situation.
Beijing pledged itself to work in the CAI to crack down on forced labor. In order to check this commitment, however, the EU cannot rely solely on assurances. Rather, the EU must speak a confident language of strength and pursue multiple measures. This includes an import ban on forced or child labor products modeled on the USA or the UK. The so-called toolbox for the defense of European trade interests and its instruments against dumping and unfair subsidies also urgently need to be revised.
With or without the agreement – China’s companies are highly subsidized, mostly state-owned, and can therefore afford to go on a shopping spree in the EU. Even with CAI market access for European companies in China, the situation would still be a long way from a level playing field. To rely primarily on a half-baked investment agreement that does not effectively address the major trade problems, while human rights are systematically trampled on in China, would have sent the wrong signal to Beijing. The EU must use the at least temporary failure of CAI to finally speak with a unified, clear voice and to coordinate internationally with democratic partners.
Svenja Hahn, member of the European Parliament for the FDP and part of the Renew Europe group.
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