Independent or short-sighted? The CAI and its geopolitical implications

By Robin Vandendriessche

On the 30th of December 2020, just three weeks before President Biden’s inauguration and on the second last day of Germany’s presidency of the Council, the EU and China concluded in principle the negotiations on the Comprehensive Agreement on Investment (CAI). Negotiations have lasted for nearly seven years but gained considerable momentum in the last weeks of 2020. The CAI, according to the European Commission, will be the most ambitious agreement that China has ever concluded with a third country, allowing EU investors to better access the fast-growing 1.4 billion consumer market.

Many critics do not seem to share that optimistic assessment. Over the past years, China has intensified the oppression of the Uyghur minority in the Xinjiang region,  has cracked down on Hong Kong’s democracy, and has increasingly threatened Taiwan. The fact that the EU rewards China with this deal now does not send a strong signal to Beijing. Furthermore, it is not clear how much the EU would gain from this deal. Clauses in the deal that will discipline the behavior of China’s state-owned enterprises are not likely to have a significant impact as China failed to fulfill similar commitments in the past. The same applies to China’s commitment to “work towards” enforcing international conventions on labor standards. Free trade unions are not likely to be created any time soon. 

Not many Europeans seem to believe that the CAI will succeed in leveling the playing field in China’s economy or eliminate its lack of reciprocity in market access. Especially the smaller member states, which have far lower rates of investment in China, were prepared to wait for a more balanced agreement. It was no coincidence that only French President Macron and German Chancellor Merkel participated in the final talks between China and the EU institutions. Germany accounts for nearly half of all European investment in China, while France has the second biggest European business presence there.

European diplomats often criticized the Trump administration for adopting a unilateral approach towards China without consulting its European partners. Now, the Europeans did the same by signing a political agreement on the CAI just three weeks before the Biden administration took office. From a Chinese point of view, this was a logical move as the new U.S. administration sought a unified approach towards China. Beijing knew all too well that concluding the CAI could drive a wedge between the United States and the EU at a time when President Biden proclaimed to rebuild alliances. Even though the EU, and especially its larger member states, must have known that this move would not go down well with the new U.S. administration, it saw the Chinese desire to conclude the CAI before the Biden administration took office as a unique window of opportunity

The conclusion of the deal shows that the EU takes “strategic autonomy” over a value-led European common foreign and security policy. Although this move will satisfy the proponents of European strategic autonomy it will not help to work together with the U.S. on common interests such as halting China’s abuse of human rights or its lack of reciprocity. The EU has repeated the mistake of the Trump administration when it went solo in its trade war against China. By not waiting a few more years, the EU failed to take advantage of favorable dynamics, such as a more willing U.S. administration, that would significantly strengthen the EU position vis-à-vis China.

The politics of the CAI have become even more complicated since the EU, joined by the U.K. the U.S., and Canada, in March 2021 slapped sanctions on Chinese officials involved in the crackdown on the Uyghur minority in Xinjiang. This coordinated move together with the U.S. could not be more different than the one to conclude the CAI in December 2020. As a response China sanctioned five members of the European Parliament, thereby infuriating the institution that has to ratify the CAI, putting the fate of the deal in serious doubt. 

The CAI does not seem as ambitious as the European Commission proclaims. Its swift conclusion was made possible by the economic interests of its French and German supporters and Chinese geopolitical preferences. Instead of waiting like several other member states would have preferred, the deal was concluded and the opportunity to present a united front against China with a more willing U.S. administration was lost. Recent sanctions and Chinese counter-sanctions have put the future of the deal in serious doubt but at the same time delivered an opportunity for the EU to correct its mistake and start working together with its allies on a more coordinated China-strategy.

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