After seven years and 35 rounds of negotiations, the European Union (EU) and China have agreed for a Comprehensive Agreement in Investments (CAI). The deal was announced by the EU leadership in the presence of German Chancellor Angela Merkel, French President Emmanuel Macron and Chinese President Xi Jinping.
Merkel played a key role in finalising the deal before handing over the rotating EU presidency to Portugal. Days before a new administration takes charge in Washington, this is a significant diplomatic achievement for Beijing.
As both the EU and China are economic heavyweights, the economic and strategic significance of the deal cannot be underestimated. The EU-China bilateral trade in 2019 was more than $630 billion. Similarly, the bilateral investments in the last 20 years are about €260 billion — EU companies have invested more than €140 billion in China, and Chinese FDI in the EU is about €120 billion.
The CAI is not an FTA. But it will serve an important tool to open Chinese market for EU companies. European Commission president Ursula von der Leyen rightly asserts that the deal “will provide unprecedented access to the Chinese market for European investors”. The Global Times editorial calls it “a New Year gift from China and the EU to the whole world” and “a portrayal of the two sides’ common strategic courage”.
Despite all the talk of ‘geopolitical’ EU and a common transatlantic front against assertive China, the deal has once again shown that what matters the most to its member states is economics. Some EU countries may also like to project it as a sign of their strategic autonomy from the United States. Moreover, the CAI, linked with recently-signed Regional Comprehensive Economic Partnership (RCEP), is an opportunity the EU could not ignore easily.
In the last one year, Beijing has been under pressure from the Donald Trump administration and evolving geopolitics in the Indo-Pacific. Brussels had also agreed to launch an EU-US dialogue on China. But before the new US administration’s China strategy is formulated, Beijing has agreed to most long-standing European demands concerning market openings, forced transfer of technologies, information about state enterprises, subsidies and commitments to sustainable development. Europe took full advantage of geopolitical situation in the Indo-Pacific and grabbed the deal.
After the Lisbon Treaty, the EU gained competence in FDI. The CAI will put in place a single EU-China investment framework replacing 25 bilateral investment treaties. Under the CAI, China has offered comprehensive commitments in manufacturing, particularly in transport, chemicals, as well as telecommunication and health equipment. It has eliminated or phased out joint venture requirements or equity caps in the automotive sector, banking, insurance, securities and asset management. The real estate services, rental and leasing services, advertising, market research, management consulting and translation services, cloud services are all opened.
European companies can now open private hospitals in major Chinese cities and invest in cargo-handling, container depots and stations, maritime agencies, etc. European specialists will be able to work for three years without labour market restrictions.
Although Portuguese presidency has put relations with India on priority, and will stage a major India summit, New Delhi will have to reformulate its EU strategy. The FTA negotiations are frozen since 2013. With prospects of liberal investment opportunities in a lucrative Chinese market, ‘decoupling’ from China narrative will become weaker in Europe. A large part European investments in China are in the automotive and chemicals, and German companies will be happy to invest more in China. So beyond geopolitical talk, New Delhi will have to make India attractive to European companies, including a serious intent of signing FTA.
It seems the final CAI text will be signed in early 2022 under the French EU presidency. Till then, the European parliament and some member states may raise issues concerning human rights and lack of transparency in China. But practically it will mean little as deal is already agreed by all 27 and strongly backed by Germany and France. Both China and the EU have played this game before. At one point of time, France and Germany were even willing to lift arms embargo against China. Under Trump, the US signed its own phase one trade deal with China. So instead of finding faults with European behaviour, India should make economy attractive to outsiders, including Europeans.
The EU not naïve about timing and the political significance of the deal. However, despite labelling China as a ‘systemic rival’ and ‘economic competitor’, Brussels does not want to be on the wrong side of a rising power. The CAI deal rather shows that it is ready to take advantage from an emerging geopolitical dynamics in the Indo-Pacific.
Unless New Delhi is ready for a comprehensive FTA with the EU, Europe’s primary focus in Asia will continue to be on the RCEP-integrated China.
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