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The EU reaches an eleventh-hour deal on investment with China

REUTERS/Johanna Geron/Pool
A much-anticipated call.
  • Annabelle Timsit
By Annabelle Timsit

Geopolitics reporter

Published

European leaders reached a compromise with China on an investment agreement nearly a decade in the making, two days before the new year—the EU’s self-imposed deadline.

Earlier today (Dec. 30), European Council president Charles Michel and European Commission president Ursula von der Leyen spoke via videoconference with Chinese president Xi Jinping. They were later joined by French president Emmanuel Macron and German chancellor Angela Merkel.

In a statement, the EU said both sides “concluded in principle the negotiations for a Comprehensive Agreement on Investment,” or CAI, and highlighted concessions obtained from China on labor rights, market access, and climate change. The deal is not a trade agreement; it covers European investment in China and vice-versa. EU firms in China are locked out of some industries, face regulatory hurdles, and have fewer legal recourses on the ground, while the EU argues its market is open to Chinese investment.

The end of the negotiations comes at an opportune time for these leaders: Germany’s rotating presidency of the EU ends this week, and Merkel is on her way out as Germany’s chancellor. The timing also benefits Macron, since the next phase—ratification and review—will happen during France’s turn as president of the European Council in 2022. And for China, it’s a way to show that it still has partners in the West after a difficult year, while scoring points against the incoming Biden administration, which said it wanted to work with Europe to form a united front against “China’s economic practices.”

The text of the deal hasn’t been made public yet. In a document released after the call, the EU outlined some key, but vague, points of the agreement, including that it:

  • Removes restrictions, like joint venture requirements and foreign equity caps, for EU firms operating in parts of the financial, environmental, manufacturing, transport, telecoms, computer, and R&D sectors in China.
  • Forces state-owned services firms to declare the subsidies they receive from the Chinese government.
  • Outlines rules to prevent the forced transfer of technology as a condition for market access for EU firms in China.
  • Commits China to “working towards the ratification” of International Labour Organization conventions, which include a ban on forced labor.

Today’s call is merely a high-level political endorsement on the principles of the CAI. In order to become law it has to be reviewed and ratified by members of the European Parliament and EU member states. The EU said it wants that process completed by 2022. But opposition to the deal is already brewing. Reinhard Bütikofer, the German head of the European Parliament’s delegation on China and an outspoken critic of the CAI, said on Twitter that MEPs might vote no over concerns that China won’t follow through on its commitments on forced labor. Some are also concerned that the deal won’t contain strong-enough language on human rights: Former Belgian prime minister Guy Verhofstadt tweeted that “any Chinese signature on human rights is not worth the paper it is written on.”

A deal may have been reached, but this saga is not over.

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