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Comment: The EU is entitled to its own investment deal with China

This opinion piece reacts to and debates four key criticisms expressed in various media outlets in recent days of the EU-China investment agreement currently seen as in the final stages of negotiations.

Several media outlets have published a series of criticisms of a potential EU China Comprehensive Investment Agreement.

The four criticisms I will be grappling with are the following: the EU should wait and focus on working together with the United States’ Biden administration on China; the agreement does not contain the EU’s new investor-state dispute settlement mechanism known as the Investment Court System; the language agreed so far is not strong enough on labour rights especially forced labour; the negotiation process is opaque and we don’t know what the EU is conceding to China.

Opacity kills buy-in

Let me start with the last argument – because this argument is entirely correct and is the crux of the matter. It is even the source of the current criticisms of the deal from usually knowledgeable people.

This lack of openness is a harbinger of many problems down the road for the deal if and when it will reach the ratification stage in the EU.

While the European Commission has become much more transparent about its bilateral trade and investment negotiations with third countries since the big failure of and backlash against the transatlantic trade pact TTIP in 2016, the EU China investment negotiations have been held in great secrecy.

Transparency and openness about the negotiation has even regressed between 2017 when the Commission started writing its ’round reports’, and 2020 when these one-pagers became terse and totally sanitized. A mockery, really, of what transparency should be about.

This lack of transparency means there is no buy-in from critical stakeholders in the EU.

Ratifying any trade and investment agreement in the European Parliament has become very difficult – and probably rightly so. Citizens are entitled to ask and know about EU trade policy. And citizens are totally right to care about the ‘non business’ dimensions of EU commercial policy such as human rights, labour and environment.

The Commission cannot afford to yet again have to handle a situation with China that is similar to the one with the EU Mercosur at the moment. China won’t be amenable to a Mercosur-style agreed ex-post ‘sustainability roadmap’ to eradicating forced labour in Xingjian because suddenly the NGOs are on the back of politicians, and there suddenly is panic the deal won’t pass a vote in plenary in Strasbourg.

Remember it’s not China that originally asked for the deal.

Citizens and politicians also have the right to know what China wants from the EU in terms of market access.

There is talk of Chinese asks in the area of energy. Why can’t we know what exactly they want? Us not enforcing our new EU-wide investment screening legislation to the energy sector? Or just non discrimination and due process commitments for legitimate investments that operate within the EU energy market rule-book?

Clearly, the above are very different types of concessions, with very different consequences for the EU.

Can’t Commission officials now finally start learning the lessons of lack of transparency in commercial policy and now better prepare to discuss such a deal with the wider public before problems arise?

Why shouldn’t the EU defend its very own interests?

Perhaps EU officials fear competitors – e.g. Washington – meddling in the negotiations if the EU is too transparent? Well, these ‘competitors’ will be spying and finding out anyway. Let’s not be naïve about that.

Now that we mentioned Washington: here I do not agree with fellow think tankers and colleagues who have recently argued that the EU should wait and work together with the Biden administration.

In fact, it should to its own deal now and work with the Biden administration.

This is why: Firstly, in these negotiations the EU is scrambling to undo some serious damage the US-China Phase One deal has done to EU business through WTO-incompatible provisions contained therein. The damage covers industry (notably aerospace), agri-food and financial services among others.

Initial noises from the Biden administration do not point to an immediate annulment of the Trump administration Phase One deal – to the contrary.

The EU should be allowed defend its interests no matter what. Even a Biden administration will not give the EU a free lunch on such things and renegotiate Phase One with the poor Europeans in mind.

Secondly, the EU will only be taken seriously as a partner by anyone – including the US – if it manages to bring something to the table that is genuinely valuable.

And you know what? China has agreed to provisions prescribing transparency for industrial subsidies and disciplines for state-owned enterprises.

Yes yes, you might answer, this is just lip-service. But it is absolutely the first time ever that China is ready to sign a written text with such a commitment and Europe got there first. It is genuinely a great achievement. Not even the brutalist Trump administration got Beijing to sign up to that.

Now the EU and the US can go together to the multilateral World Trae Organization and say: here is what we got with China on intellectual property and state-capitalist practices – now let’s seek to lock this in in Geneva with the help of a wider set of friends.

Both the EU and the US can now push together to make Beijing abide by the rules it signed up to in their bilateral deals.

Hardly any European firm wants investor-state dispute settlement with China

The criticism that the new deal does not contain the EU’s investment court system is risible.

The new investment agreement will supersede the existing bilateral investment agreements between individual member states and China.

Hardly any European business has ever sued the Chinese state over claims of expropriation under those BITs: it’s too dangerous for you to take on Beijing alone as a business in an international court. Also European business is not asking for investor-state dispute settlement. It is asking for diplomatic involvement from the EU with Beijing to protect their interests. Sadly this is the only way to go with a state like China.

But you know what happens once the deal comes into force? Those Chinese state-owned firms everyone dreads, well they won’t be able to sue European states in opaque investment arbitration courts if one of the latter decides to shut down a Chinese-owned energy facility to meet – say – climate goals.

If there is no deal, well, Chinese firms will continue to have free hand here. And no cooperation with the US will change that.

For a genuine China human rights strategy

Finally: forced labour.

It’s clear, the EU will need to seek something more than just vague language on International Labour Organisation conventions from China in the deal.

Yet a much more effective policy would be to roll out a robust unilateral human rights policy towards China in – parallel to – any investment agreement ratification process.

How about looking into that brand new EU Magnitsky act and start using it?

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