China-EU Investment Deal Riles Incoming US Administration

THE INVESTMENT AGREEMENT between China and the EU has been long in the making — seven years. Nevertheless, no sooner has agreement in principle finally been reached than it is running into criticism for undermining the prospective unified front of allies US President-elect Joe Biden plans to construct to confront Beijing. Prospective members of Biden’s administration are quietly but firmly making it clear that the agreement is premature. They say that Beijing’s last-minute concessions to get the deal done before Biden takes office were tactical moves to drive a wedge between the US and the EU.

The Comprehensive Agreement on Investment has been a high priority for Brussels. Itis being touted there as a big win.

It will open multiple industries in China to EU businesses, ranging from electric carmaking to healthcare and cloud computing. It will also put EU financial services on the same footing as US rivals by matching the opening of the insurance and asset management sectors achieved for US firms in the Phase One US-China trade deal struck a year ago. EU firms will also get similar assurances as US firms on subsidies, forced technology transfer and non-discrimination compared to state-owned enterprises.

Beijing also agreed in a late concession to making ‘continued and sustained efforts’ to ratify International Labour Organization conventions against the use of forced labour. However, the enforcement mechanisms for holding China to its promises look woolly.

For Beijing, the accord mostly secures existing EU market access rights. These would hamstring Brussels from driving Chinese firms out of some EU market sectors, as Washington has attempted in its domestic markets. However, the one-sided nature of the economic gains in the EU’s favour strongly suggests that China has prioritised geopolitical gains while leaving open plenty of potential pressure points on Brussels outside the agreement should it subsequently need to apply the squeeze.

That would seem to be confirmed by reading between the lines of President Xi Jinping’s pro-forms comments and statement during a video link-up with EU leaders that the agreement will make ‘significant contributions to the building of an open world economy’. It will undoubtedly allow Beijing to reinforce its narrative of market opening and reform.

The agreement’s legal text has still to be finalised and will then need to be ratified by both sides to come into force. Another reason for striking the deal now is to do so before German chancellor, Angela Merkel, a strong supporter of it, leaves office in 2021.

Brussels aims for the deal to take effect in early 2022, leaving plenty of time for the Biden administration to correct the misalignment it perceives the agreement creating. The incoming US national security adviser, Jake Sullivan, has already said that the new US administration ‘would welcome’ early consultations — welcome in the sense of is demanding.

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Filed under China-E.U., Trade

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