At the end of 2020, the European Union and China concluded negotiations on the Comprehensive Agreement on Investment (CAI), their first bilateral investment treaty, after seven years of negotiations. The treaty enjoys broad support among EU member-state governments and will likely speed through the European Council.
But public opinion in Europe is rapidly shifting against China. The European Parliament, which also has to ratify the deal, is on the fence. If the Biden administration wants to scuttle the deal in an attempt to isolate China, it should lobby members of the EU parliament to take a tougher stand on Chinese forced labor practices.
This is both sound strategy and the right thing to do. If it does, 2021 may be the year that Beijing starts to pay a price for the treatment of its Uighur minority.
The CAI is an investment agreement, not a trade agreement. It does not deal with quotas, tariffs, or non-technical barriers to trade. Its goals are to provide European companies more market access and legal safeguards in their direct investments in mainland China. Large European corporates that operate in China, such as German automakers, will be the main beneficiaries
CAI will eliminate joint venture requirements and caps on foreign equity in manufacturing, financial services, real estate, environmental services, construction, and auxiliary services for shipping and air transport. It will impose new transparency rules for Chinese government subsidies to domestic companies, create a mechanism for disciplining state-owned enterprises that compete unfairly, and set rules against forced technology transfers, through which European firms have had to hand over valuable intellectual property to their Chinese partners-turned competitors.
European companies will also get equal access to Chinese standard-setting bodies, which will give them more assurance that Chinese regulators cannot tilt the playing field in the future. The full text of the agreement has not been published, so it is unclear how much Beijing has conceded in the fine print.
The German economy will be the biggest winner, followed by the Netherlands and France. These three countries have historically accounted for more than three-quarters of Chinese foreign direct investment in the EU. For Chinese investors, CAI would increase access to European energy markets, particularly renewables.
Against the backdrop of escalating U.S.-Chinese competition, though, the deal is obviously as much about geopolitics as it is about economics. It is likely the last great international achievement of German Chancellor Angela Merkel, who plans to step down in September after 16 years in power and has long resisted the more China-skeptic factions within her government. It is an attempt to lock in and expand the China-EU economic relationship at the eleventh hour, so that even a U.S.-Chinese cold war could put it in jeopardy. It is also a symbolic assertion of European strategic autonomy.
This is why, even though the CAI’s individual provisions are mostly common sense, Washington is displeased with the deal. Incoming National Security Adviser Jake Sullivan tweeted a thinly veiled jab at Merkel: “The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China’s economic practices.”
President Joe Biden’s team also wants to coordinate with Europe on the new administration’s response to China’s human-rights policies. In its final days, the Trump administration banned the import of tomatoes and cotton from China’s Xinjiang region because of fears about the use of forced labor there. Now that Biden has been sworn in, Congress is considering going even further, with sweeping legislation to create a presumption that all goods imported from China are manufactured with forced labor and put the onus on importing firms to prove otherwise.
The CAI creates a fig leaf that will allow European economies to prioritize investment over human rights. To seal the deal, Beijing, agreed to “work toward ratification” of the basic International Labor Organization (ILO) conventions, which provide for the right to set up labor unions, collective bargaining, and avoidance of forced labor. This is a meaningless promise without a concrete timetable, though. Shi Yinhong, professor of international relations at the prestigious Renmin University of China and one of the country’s most influential academics, recently admitted that full accession to ILO rules is “impossible.” Berlin and Paris know this—but they support the deal anyway.
But the last word has not yet been spoken. To take effect, CAI must be formally adopted by a “qualified majority” of EU member states. (Blocking the deal would require at least four member states representing at least 35 percent of the EU’s population.) It must then pass through the European Parliament.
The first part is relatively easy—none of the EU’s heavyweight national leaders are currently opposed. Germany is the deal’s main sponsor and biggest potential beneficiary. France wants a more “sovereign Europe,” capable of making decisions and deals independently of the United States. Italy and Spain have long been relatively pro-China: Both joined China’s Belt and Road Initiative despite public pressure from the Trump administration. Most smaller EU member states believe that letting Brussels act as their proxy will give them more leverage in dealing with Beijing.
Poland is the main CAI-skeptic. Heavily dependent on Washington for defense, Warsaw has argued against the deal on labor standards grounds. But even if Warsaw were to rally the three Baltic states, it probably couldn’t reach the 35 percent population threshold. Poland’s usual partner, Hungary, not only supports the CAI, but is one of the most pro-China countries in Europe.
In September, Germany will hold elections that are expected bring to power a government that includes the Greens, which have established themselves as the main China-skeptic voice in Germany. So Merkel will push—probably successfully—to pass the deal in the European Council in the spring to tie her successor’s hands.
The bigger hurdle will be the European Parliament. The parliament’s political factions have not yet formally set their positions on the deal, but there is already considerable opposition.
The Greens are opposed on human-rights grounds. Among the center-left Social-Democrats, some categorically oppose the deal like the Greens, while others are on the fence, saying that they will oppose the deal if it doesn’t protect workers’ rights. The nationalist European Conservatives and Reformists, which is dominated by parliamentarians from Poland’s ruling party, are critical. And even within the largest faction—Merkel’s center-right European People’s Party and Emmanuel Macron’s centrist Renew Europe —there are transatlanticists and human-rights defenders worried about the strategic implications of the deal.
Last month, the European Parliament adopted a resolution condemning the use of forced labor in China by an overwhelming majority. And the Uighur issue is not only about human rights. New evidence indicates that the community’s forced labor permeates Chinese supply chains, including in hard-to-trace commodities.
Regardless of the fate of the CAI, China’s has already scored a tactical win: denying Biden early momentum in repairing relations with Europe.
But ratification is not assured. In the European Parliament, left-wing MEPs angry about China’s human-rights record, such as the crackdown last week on democratic candidates in Hong Kong, could partner with their transatlanticist conservative colleagues to sink the deal.
When European leaders go to Washington, they stop by the Senate and Congress and meet influential legislators to talk foreign and trade policy. When Biden comes to Europe for the first time as president, he should do the same—visiting Strasbourg to meet the EU parliamentarians. Berlin and Paris are not the only power centers in the new Europe. If the Biden administration’s goal is to sink the CAI and pull the Europeans back onside, the Uighur issue is the obvious wedge and the European Parliament their best ally.
