With talks concluding in December 2020, the Comprehensive Agreement on Investment (CAI) between the European Union and China renews a mutual commitment to openness, trade, and cooperation. First proposed in 2012, the CAI aims to facilitate commerce and investment between these two major international powers. With the final agreement addressing the economic asymmetry between an open European market and a state-protected Chinese one but also reaffirming EU-China cooperation, negotiations were a complex yet crucial diplomatic exercise for all actors involved. In the midst of growing tensions between the United States and China and the arrival of a new leader in the White House, the CAI represents a key geopolitical landmark. While the agreement has not yet been ratified by the European Parliament as of May 2021, it has already been described as one of the most important advancements in the EU-China relationship ever. However, recent diplomatic disputes between the EU and China have raised concerns about its ratification.
The CAI, an economic opportunity for Europe
With the Chinese market being one of the most economically powerful markets in the world, the CAI is an important economic opportunity for European firms. While the agreement does not significantly extend Chinese access to European markets, China has agreed to open investment opportunities in research, telecoms, digital and health services to private European entities. Moreover, the CAI incorporates statutes on regulating Chinese state-owned firms, corporate technology transfers, and sustainable development. Given the impending economic difficulties following the pandemic in Europe, this investment deal imposes itself as a crucial opportunity for the Union to sustain economic growth and expand its international reach.
Still, many experts have tempered the CAI’s achievements, as it largely reiterates previous Chinese commitments within the WTO framework and fails to provide a clear framework for the protection of foreign investment in China. Nevertheless, in the context of worsening relations between the West and China along with heightened Chinese statism, this agreement is an opportunity for continued cooperation between the two parties. As Julian Chaisse, law professor at the University of Hong Kong, explains, “domestic rules can be done and undone at will in China whereas the CAI crystalizes the reforms in international rules that can only be modified after EU approval.” On the Chinese side, the CAI predominantly inscribes itself in a logic of expanding international economic opportunities and trade partners, in particular since the degradation of US-China relations. Furthermore, by awarding small-scale concessions to Europe, Beijing aims to symbolically renew its public commitment to the globalization of trade, a key engine of its economic model.
The CAI, a high-stakes geopolitical issue
With the installation of the Trump presidency and its administration’s stances against globalization, the EU was abruptly confronted with its over-dependence on its formerly close relationship with the American government. The CAI therefore gives the EU the crucial opportunity to establish itself as a self-reliant, influential, and unified power. But the breakneck speed at which the deal was finalized has led Biden’s new government to accuse the EU of ignoring Washington’s long-term geo-economic agenda and strategy regarding China. At a time when the US is seeking to create a unified Western political front against China, the CAI might represent a threat to the trans-Atlantic relationship. Nevertheless, given the degradation of the US-China relationship and the tensions between Washington and Brussels over this deal, the Chinese government would greatly benefit and is pushing for a diplomatic rapprochement with the EU. Still, recent international tensions between China and a number of European countries have questioned the future ratification of the CAI by the European Parliament.
What does the CAI say about current and future Euro-Chinese diplomacy ?
On March 22, the European Union sanctioned four Chinese citizens after reports of forced labor among Uyghurs in the Xinjiang region. Following this condemnation, the Chinese government retaliated by sanctioning several Members of the European Parliament and Subcommittee on Human Rights for severe domestic interference. While this escalation has only recently emerged, it is part of a broader geopolitical trend of Western countries opposing China following their blatant human rights abuses, aggressive moves on Hong Kong, and lack of transparency on the coronavirus situation. Furthermore, many political observers see the European sanctions as an attempt to restore American confidence and diplomatic cooperation. From a Chinese standpoint, the adoption of retaliation measures illustrates Beijing’s willingness to stand up against Western coalitions to defend domestic sovereignty and assert their international status. While the agreement is yet to be suspended, this diplomatic escalation has seriously questioned the expected ratification by the European Parliament. In a broader geopolitical context, the adoption of European sanctions against China for human rights abuses, the first of its kind in 30 years, will surely affect the long-term preservation of constructive relations between the two political entities. Still, the most significant repercussion of a possible postponement of the CAI remains the loss of economic opportunities for European firms. At a time when they are particularly fragile following Covid-19 lockdowns, the automobile, health care and financial sectors are at risk of paying the consequences of these disputes. Nevertheless, at a meeting organized shortly after the escalation of sanctions, both sides demonstrated their preserved willingness to progress on the deal. Given the spiraling down of US-China relations in the past four years, the European Union finds itself at a geopolitical crossroad where they have to choose between allying with the United States or asserting itself as an independent diplomatic and economic force. Whichever option the EU choses, it will certainly determine future relations between the EU, China, and the United States.