Many have argued that this is the wrong time to agree to any investment deal with Beijing and that concluding 2020 with the signing of the CAI has actually sent out from Brussels a truly awful geopolitical message.

Jaws dropped in Washington and eyebrows were raised in several European capitals when the President of the European Commission, Ursula von der Layen, announced on Twitter that “today the EU and China have concluded in principle negotiations on an investment agreement”. It wasn’t that the negotiations came as a surprise; after all, they had been going on for seven years. It was the timing that alarmed Washington—seemingly rushed through just three weeks before the inauguration of Joe Biden as the 46th President of the United States. To say the least, the China-EU Comprehensive Agreement on Investment (CAI), signed on 30 December, raises more questions than answers and it’s hard not to view the timing as a political gift to Beijing and a slap in the face to the incoming Joe Biden administration that has vowed to repair transatlantic ties with Europe. Jake Sullivan, Biden’s national security advisor, issued a last-minute plea for Brussels to hold off signing the deal, at least until they had a chance to discuss it. He was ignored.
It would be easy to blame Donald Trump for Europe’s move. Relationships between Europe and America soured following a series of disastrous NATO and G-7 summits over recent years, when a nationalistic Trump found himself alone against the rest. Few will forget the image of Trump rudely pushing aside fellow NATO leaders in order to get to the front row of a photo-call at the end of his first summit in 2017. Even though Trump will soon be gone from the stage, European leaders remain wary, noting that he received more than 74 million votes, a clear sign that Trumpism will be around for some time to come. This worries some EU members, but it was only a minor consideration.
Europe may be vastly subordinate to the US in defence, but in trade the bloc has become a superpower. In 2019, EU exports to China were at their highest ever at EUR 198 billion, and imports at EUR 361 billion. By comparison, in the same year, those for the US and China were $106 billion and $452 billion. This agreement can be seen, therefore, as a new and powerful expression of European strategic autonomy. “After all”, they say in Brussels, “the US doesn’t defer to us when concluding its own agreements, so why should we defer to Washington?” Many European politicians see an increasingly multipolar global system and after four years of Trumpism the interests of Europe and the US growing even more divergent. China’s rise, they feel, is concomitant with America’s decline and is largely unstoppable. They argue that it is better to reach a modus vivendi with the new economic hegemon than to become embroiled in a mega-clash to preserve America’s faltering position.
Of course, there are plenty of China critics in Europe who take the opposite view and see the CAI as a setback in their fight against the regime. In a year in which Beijing violently ended the democratic movement in Hong Kong; in a year that has seen a marked extension of Uyghur ethnic cleansing in Xinjiang; and in a year in which China only gradually and sometimes even falsely informed the global public about the spread of coronavirus, these critics are sickened by the sight of Brussels shaking hands with Beijing, making a deal that acknowledges them as respected partners. They refute the argument that where free trade leads, free ideas follow, pointing to the undisputed fact that China has proven that the introduction of capitalist elements into a state system doesn’t inevitably result in the spreading of democratic values. In fact quite the opposite. Beijing’s communist party has successfully used the gradual transition towards a pseudo market economy as a means to secure their autocratic power.
While critics accuse EU leaders of shocking naivety, an optimistic Brussels argues that the CAI will improve European companies’ access to the Chinese market and create a more “level playing field for EU investors”. It will, the bloc said in a statement, “prohibit forced technology transfers and other distortive practices” and remove barriers, such as the current requirement that companies form partnerships with local firms in joint ventures. Quite, but analysis of the CAI reveals that the EU’s motives are really a curious mix of self-interest, cynicism about Europe’s limited clout and pessimism about the prospects for joint action with Joe Biden’s America.
Many have argued that this is the wrong time to agree to any investment deal with Beijing and that concluding 2020 with the signing of the CAI has actually sent out from Brussels a truly awful geopolitical message. For Beijing, however, the timing is exquisite since it drives a huge wedge between the US and Europe and presents the incoming Biden team with a fait accompli. So why did the EU sign when it did? For an answer, you need to look towards Germany.
The CAI was pushed hard by Angela Merkel, the German Chancellor and it’s no coincidence that the agreement was concluded as the clock struck midnight at the end of her country’s presidency of the EU. While Ms Merkel is a champion of liberal values, her approach to China is largely driven by commerce. For example, she knows that the German car industry has had a rough few years, and China is its largest market. Germany dominates the EU, more so since the departure of the UK. Germany’s outsized economic clout has made Berlin the EU’s political fulcrum. Once plagued by the strength of the deutschmark, Germany has hugely benefitted from the euro’s lower exchange rate, which made its goods more competitive abroad. Last year alone, Germany exported nearly EUR 100 billion worth of goods to China, accounting for more than half the value of all the EU exports to the country. Germany bought even more from China, making the country its biggest overall trading partner. The US may be Germany’s biggest export market, but it is China that has driven Germany’s export growth.
The CAI may have been a goal for Germany, but there was substantial opposition to the deal among other European heads of state. The Netherlands feared that China would never obey the mandatory worker’s rights regulation and prohibitions on forced labour. Eastern Europeans, particularly reliant on US military spending to secure their borders, argued that it would not be wise to close the deal before Joe Biden’s inauguration, thus reducing his room for manoeuvre in any US talks with China. Other sceptics, including French President Emmanuel Macron, eventually agreed to the CAI, but doubts remain. Many are mystified as to how Merkel convinced Macron, but one possible clue is that the deal will not be ratified until the first half of 2022, when France chairs the EU Council.
Opponents of the deal are hoping that the lengthy “legal scrubbing”, where the Commission’s lawyers review and correct the text, followed by the requirement for translation into all the languages of the EU, will create sufficient delay to allow leaders to reconsider its implications and even change their minds. For some, a major worry is that the deal will make life considerably easier for Chinese businesses in the EU, as their workers brought in from China currently need to run through occasionally tricky visa hoops. Europe’s current China-born population has grown to more than 1 million and crucially under the deal EU governments will not be allowed to impose quotas or other limits on the number of specialised workers that come into their country. Experience of the Belt and Road Initiative has shown beyond doubt that when Chinese businesses become established in new countries, floods of Chinese workers quickly arrive to staff them. This makes many EU leaders nervous about “labour dumping”.
These are early days in the life of this highly contentious agreement, and the European Parliament is now the decisive battleground. Ask members if the EU erred by agreeing to a deal now and they are divided. Some insist that Europe risked irrelevance if it had waited for a new American President, adding that the accord does not preclude coordinated action later. Others regret the decision to hand China a political win at Mr Biden’s expense. Many Eurocrats take a middle view and are keen to avoid falling into the growing rift between the US and China. Far better, they say, to be pragmatic and create a kind of equidistance between the two and use their position as a primary economic bloc to hedge bets and smile both ways.
After the US “phase one trade deal” with Beijing and the Asian mega “Regional Comprehensive Economic Partnership” in 2020, the EU was keen not to be left behind. There are good reasons for this framework for trade with China, but some underlying questions remain. How dependent does Europe want to be on China and its state-capitalist economy? How can core European values be ensured while doing business with a powerful authoritarian state? How can the important leverage that Europe has as one of China’s most important trading partners best be used and even enhanced through effective coalition building? A premature agreement and the non-transparent way in which it came about in a last minute rush is not an appropriate answer to these questions.
Unfortunately, the CAI hands Beijing diplomatic leverage at a time when its actions would call for condemnation. It complicates transatlantic conversations at a time when conditions for renewed cooperation have greatly improved. And it challenges European cohesion at a time when it is most urgently needed.
John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998.