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Weapons of Mass Destruction (WMD)

EU-China Investment Deal Threatens US-Europe Relations

By Natalie Liu January 01, 2021

has received an unwelcome housewarming gift from the European Union in the form of a wide-ranging investment treaty agreed to in principle between the EU and China.

The agreement, concluded this week after seven years of talks, is a significant coup for Germany, which saw its six-month term as EU president expire on Thursday and which sees China as a major market for its auto and other industries.

And it may be an even bigger win for Beijing, which is facing harsh global criticism over its human rights record and is seeking new foreign investment as many companies move operations out of the country in response to the U.S.-China trade war and other concerns.

But the deal was met with dismay by aides to U.S. President Donald Trump, whose administration has engaged in a long-running trade war with Beijing. And while Biden advisers have been less vocal about their approach to China, they had signaled reservations about the pact and a desire for more input before it was concluded.

EU officials say the agreement, known as the EU-China Comprehensive Agreement on Investment (CAI), will allow European companies to compete more equally with state-owned companies in China, which is now the bloc's second-largest trading partner after the United States.

It includes provisions for settling disputes, requires greater disclosure of Chinese state subsidies and restricts China's practice of demanding that foreign investors share their technology in exchange for market access.

The European Commission, which handled the negotiations, says the deal will ensure "that EU investors achieve better access to a fast-growing 1.4 billion consumer market, and that they compete on a better level playing field in China."

Chinese state media described the agreement, which still must be ratified by the European Parliament in a process that could play out over several months, as "a New Year gift to the world."

In Washington, however, the view is very different.

Matt Pottinger, Trump's deputy national security adviser, issued a statement saying, "Leaders in both U.S. political parties and across the U.S. government are perplexed and stunned that the EU is moving towards a new investment treaty right on the eve of a new U.S. administration."

In a strong indication of the potential damage to U.S.-European relations, Pottinger added: "There is nowhere for bureaucrats in Brussels or Europe to hide. We can no longer kid ourselves that Beijing is on the verge of honoring labor rights, while it continues to build millions of square feet of factories for forced labor in Xinjiang."

Biden and his advisers have had less to say about the deal. But his nominee for national security adviser, Jake Sullivan, tweeted earlier this month that the incoming administration "would welcome early consultations with our European partners on our common concerns about China's economic practices."

Kasper Zeuthen, a spokesperson at the European Union's delegation in Washington, told VOA, "We have signaled to the Biden transition team our openness to cooperate closely on a number of issues relating to China. As for CAI specifically: the transition team cannot engage with foreign governments at this stage. So we have not had detailed discussions. But we have always been very open about what we are doing."

It isn't clear how closely the EU consulted with the outgoing U.S. administration on the negotiations. However, Secretary of State Mike Pompeo left no doubt about the Trump team's view of China's global ambitions in a December 9 speech in the Southern U.S. state of Georgia.

Warning that the Communist Party of China's endgame is "to dominate the free world," he said, "It's taken this country and indeed, the free world, a long time to understand the trajectory of China today." As if to drive home the point, the State Department retweeted the speech days before the EU-China deal was announced.

In the view of some independent analysts, Beijing has succeeded through the deal in driving a wedge between the United States and Europe, just at a time when Biden is proclaiming his desire to rebuild America's traditional alliances on the continent.

"Geopolitically, the CAI will signal that the EU does not see itself as 'wholly in the U.S. camp' in the U.S.-China rivalry, but will rather pursue a 'middle of the road/playing both horses' strategy between them," said Jacob F. Kirkegaard, a Brussels-based senior fellow at the Peterson Institute for International Economics and German Marshall Fund, in a written response to questions from VOA.

"This is undoubtedly a major political coup for China, as the EU is a major player in all multilateral economic organizations and it will now likely be more difficult for the Biden administration to utilize such organizations — say WTO, UNCTAD, etc. — to try to confront Chinese economic policies." UNCTAD is the United Nations Conference on Trade and Development.

Kirkegaard said Beijing will now be seen to have "managed to — to a degree — split apart the two major 'Western powers' at a time when they otherwise — after the strife of the Trump years — perhaps could have come together more closely to confront China."

The deal, he added, also signals that fundamentally, the EU does not see itself as having major security interests in the Asia-Pacific region and can therefore continue to pursue a somewhat mercantilist strategy toward China heavily influenced by economic interests.

Andreas Fulda, a German political scientist teaching at the University of Nottingham, said the conclusion of the deal marked "a dark day for anyone who strives for a value-led European common foreign and security policy."

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