In the last days of last year, a shocking announcement came from the diplomatic world. China and the EU will complete the negotiations on the Comprehensive Agreement in Investment (CAI) within a few days, just waiting for both sides to finalize the details and approve the text. The agreement is “expected” to be implemented in 2022.

This news, coupled with the signing of the Regional Comprehensive Economic Partnership (RCEP) between China and 14 Asia-Pacific nations last November, has been cast by the international media as a final victory for Chinese diplomacy in 2020. Moreover, the EU and China have reached the investment agreement against the backdrop of the heated Sino-U.S. relationship, which has led many veteran politicians and public opinion to criticize the EU for once again betraying universal values such as democracy and freedom, splitting the strength of the West against China. In particular, before the agreement was signed, the EU published the “EU-U.S. Agenda for Global Change.” In this foreign policy document, the EU expressed its proposal to re-establish a closer transatlantic partnership with the U.S. to enhance cooperation in response to the rise of China in recent years. The above agreements seem to be a slap in the face to “yesterday’s me” and are seen as a rift in the relationship between Europe and the U.S.

Such a “black or white” cold war mentality has become the norm in social media over the past few years. However, if the above “absolute standard” is applied to the whole world, the first phase of the U.S.-China trade agreement and the signing of RCEP between Australia, Japan and South Korea and China can also be considered as diplomatic acts of “selling out democracy and freedom.” In fact, the overall U.S.-China trade deficit over the past four years is still higher than it was before Trump took office.

While Trump’s executive order against individual Chinese companies is an attempt to address the threat posed by China, the various EU countries have also imposed different restrictions on Chinese investment. The European Commission proposed a white paper in June last year to regulate the entry of foreign state-owned or state-sponsored enterprises into Europe. It even succeeded in getting Beijing to accept the inclusion of provisions on labor rights and disclosure of information about state-owned enterprises in the EU-China agreement. However, it has not received the same level of attention from the local media.

Now before we enter the “European thinking realm,” the author is obliged to point out that the nature of the EU-China agreement is practically a “proposal that cannot be turned down.” First of all, unlike the trade agreements mentioned earlier, the EU-China CAI is essentially an agreement that addresses market entry and a fair investment environment. These include entry conditions for different industries, a prohibition on forced technology transfer, disclosure of government subsidies, and commitments on sustainable development and labor rights - all of which the European Chamber of Commerce in China has been fighting for years. Since Europe has long been ahead of China in these aspects, on the whole, it is China that has “unilaterally” opened up its market to the EU. The most controversial element for the EU was the opening of the energy market, but this is limited to renewable energy and not to nuclear energy, which Chinese companies have been hoping to tap into. According to word from the diplomatic community, the reason why the negotiation went so quickly is that the Chinese had accepted almost all the demands made by the EU in the last few rounds of negotiation and managed to catch the last ride in 2020.

From the standpoint of the Eurocrats, the deal is the most important investment framework agreement at the EU level since the Treaty of Lisbon. Essentially, it is intended to consolidate the existing bilateral investment agreements signed between China and the 26 EU countries (except Ireland). Since the Lisbon Reform Treaty, the European Commission has been given the power to negotiate and handle investment agreements on behalf of the EU member states. The EU-China agreement also differs from the conventional agreements in that it focuses on market entry and a fair competition environment. In contrast, negotiations on investment protection and dispute arbitration have been put on hold for the time being. It is hoped that the relevant negotiations will be completed two years after the implementation of the agreement.

On the one hand, this is an attempt to respond to the doubts of EU member states and the business community about the European Commission. They believe that the governing body’s over-idealism has kept European investment and trade in China in straitened circumstances, and that there has been a lack of concrete policy measures to allow European companies to compete with U.S. companies in China, and to further open up Beijing’s market. On the other hand, it reduces the risk of EU member states intervening in the agreement (because there is a chance that all member states will have to unanimously approve if an “investor-state dispute settlement” is involved), thus strengthening the voice of the European Commission. Therefore, the European Commission is happy to see the agreement go through, as it will set a precedent for future negotiations with other countries, such as the U.S.

Finally, from the standpoint of the key European leaders. As a matter of fact, a Europe-China agreement that would enable China to make commitments in areas such as state subsidies, sustainable development, and labor rights, which have been the subject of debate for many years, is already a job well done. They have also been fighting for years to bring Chinese business and economic diplomacy within the EU’s control by using the “Brussels model.” That is, through the attractiveness of one single market in exchange for other countries’ acceptance of the EU’s unidirectional regulations. This directly compresses the diplomatic space of dovish member states towards China to derail on their own.

Since the agreement has to be passed by the European Parliament, a legislature that is very insistent on human rights and democratic values, the responsibility for the final breakdown does not lie on its side, and can even become a bargaining chip in the next round of negotiations. The EU also took this opportunity to show the U.S. and the world that the EU’s “strategic autonomy” is not just empty words. Therefore, it seems that the EU is the biggest winner of this EU-China agreement.

(Dr. Wilson Chan Wai-Shun, Secretary General of Global Studies Institute in Hong Kong)

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