After close to eight years of negotiations, China and the European Union (EU) agreed on an investment deal. The deal known as the Comprehensive Agreement on Investment (CAI) was concluded on December 30, 2020. According to the China Briefing the bilateral treaty will replace the 26 existing bilateral investment treaties between 27 individual member countries and China. The objective of the CAI would be to increase investment opportunities in each other's market with improved legal protection measures along with reducing barriers to investment. The CAI will be the most ambitious agreement that China has ever concluded with a third country.
The agreement is expected to create a better balance in the China-EU economic relationship. According to an EU press release, the cumulative foreign direct investment (FDI) flows from the EU to China over the last 20 years have reached more than €140 billion (US$171 billion). The same figure for China stands at €120 billion (US$146 billion). According to Eurostat data, the EU exported €198 billion (US$242 billion) worth of goods to China in 2019 and imported goods worth €362 billion (US$442 billion) from China during the same year-- a bilateral trade worth close to US$700 billion.
The CAI will improve the level playing field for EU companies as Chinese state owned enterprises are to act in accordance with commercial criteria and there will be no forced transfer of technology. However, China's benefits from Chinese FDI into the EU will be limited as the EU has been open to FDI with very few restrictions. Therefore, CAI will significantly encourage EU investment in China benefitting EU firms to access the vast Chinese market.
Now the CAI has vastly intensified EU-US tensions as Joe Biden is to take office of Presidency calling on to build a block of "democracies" against China. Biden's call for building anti-China blocs with the EU is easier said than done. Biden embodies the US establishment and the system unlike Trump, a caricature of the system. That is why he needs to accept the pragmatic reality very early in his administration's dealing with China. China is not Soviet Union, the Upper Volta with nuclear weapons as US strategic policy planners used to describe the Soviet Union.
China has now become an increasingly dominant economic super power that countries around the world want to engage with as opposed to zero-sum ideological war the US wants to wage against China. While EU officials are bitterly divided over the deal, EU Trade Commissioner Valdis Dombrovskis called the deal "sthe most ambitious outcomes that China has ever agreed with a third country". As a result, the US is now increasingly becoming isolated when it comes to China. More importantly some analysts also believe that the EU's move for closer ties with China was a deliberate attempt to take advantage of the power vacuum in the US and the EU wants to remain an independent player and not willing to be dragged into the US-China confrontation.
In fact, the US slapped new tariffs on EU goods, especially targeting goods from France and Germany just within hours of signing the agreement. Deputy National Security Adviser Mathew Pottinger was so incensed that he descended into a tirade accusing the EU of disregarding the interest of the US on the eve of a new administration. Pottinger's view is quite contrary to what the President of the European Commission Ursula von der Leyen said about the agreement -- "This agreement will uphold our interests and promotes our core values". She further added, "Tomorrow's post-COVID world needs a strong EU-China relationship, to build forward better".
Now the UK is out of the EU, unable to come to hold the brief for the US position within the EU, the role fell to Poland, a country now run by one of the newly emerging far-right neo-fascist political parties in Europe to raise serious objections to the deal with China. Polish Foreign Minister Zbigniew Rau is suggesting that the EU should have had earlier consultation with the incoming Biden administration and keep trans-Atlantic allies on board. But EU officials completely ignored the objection.
There are think tank experts who also opposed the deal. Noah Barkin, a Fellow at the German Marshall Fund, a think tank wrote in Foreign Affairs, " It is hard to believe it (the CAI) as a geo-political gift to Beijing and a slap in the face to an incoming Biden administration that has vowed to repair trans-Atlantic ties and work more closely with Europe".
But Barkin seems to have failed to see that the EU's decision testifies to increasingly collapsing US economic and geopolitical influence. More importantly, the US's decades long wars across Middle East and Africa have caused massive refugee problems for Europe. These refugees are now mostly accommodated in mass refugee prison camps across Europe. There is now growing inclination in the EU to develop strategic links to powers Washington targets for war and regime change to keep its own borders secure. Le Monde echoing the sentiment wrote, Europe would not "let itself be trapped in a hard conflict with China".
There are others also very critical of the deal. The Financial Times columnist Gideon Rachman opined, "Even in the current geopolitical order, China has repeatedly demonstrated its willingness to use its economic power as a strategic weapon". Even religious fervour was invoked against the dea. Reinhard Butikofer, a German member of the European Parliament, said 'The values we all cherish in our Sunday sermons must be adhered to if we are not to fall victim to a new systemic rival".
China's The Global Times sees the CAI very positively, stating, "If China and the EU reach free trade agreement, that would mean much closer connectivity between Europe and Asia….Once the base of globalisation is safeguarded, moves for prevailing confrontation and a new cold war will lose their motivations".
Other experts on China also see the deal in favourable terms as Wu Xinbao of the Centre for American Studies at Fudan University in Shanghai told the South China Morning Post, "The deal will deepen the economic ties between China and the EU, with negotiating a free trade agreement being the expected next step". He further added, "And it will also thwart the US' plan to join hands with Europe and isolate China from the future of globalisation".
The global system since the end of the WWII has been engineered under the US stewardship. That very system is now increasing becoming not only incapable of accommodating the rising economic power like China but also has become quite dysfunctional. As such the US attempts at arm-twisting the EU into compliance in its neo-Cold war against China is unlikely to succeed. Also, the intense US campaign to vilify China to isolate the country in 2020 also yielded no results, there were hardly any takers.
In fact, it is likely that the CAI would preempt policy coordination between the US and the EU on China under the new Biden administration which could create a united front against China than dealing with each other separately. More importantly, EU and the US are in many ways differing, even competing actors in many fronts in the global arena. No wonder the US is finding itself isolated when it comes to China.
The newly formed alliance between China and the EU complicates the incoming Biden administration's game plan at this point in time, but the deal is most unlikely to prevent a EU-US strategic cooperation deal on China further in the future. There is and has always been an emotional and cultural trans-Atlantic bond that can be invoked in challenging times claiming common "liberal" values and a "shared cultural" heritage to confront the "common enemy" or more precisely "the other".
With the NATO alliance undermined by the Trump administration, the abysmal US COVID response and the continuing questioning of the legitimacy of the presidency starting with Trump and now with Biden are now leading the EU to rethink its strategic options. The very recent storming of the Capitol in Washington by Trump supporters and the consequent four deaths and very different responses to the event by the President elect and the incumbent will also weigh in to rethink of the American political system and its stability not only by the EU but also by many others around the world.
Both Chancellor Angela Merkel and President Emmanuel Macron now emphasise the need for Europe to develop its own "strategic autonomy" moving away from almost three quarters of a century of strategic alliance with the US. On that count, for the EU this was an opportune time to display its "strategic autonomy" in foreign relations before the new US administration sets in. This alarms the US in its bid to build a united US led alliance against China.
Jake Sullivan who is to be President elect Biden's National Security Adviser twitted that the Biden administration would "welcome early consultations with our European partners on our common concerns about China's economic practices". EU officials, however, point out that the deal puts the EU on par with the US, which has secured the same benefits in its so-called Phase 1 trade pact with China.
But it will be unwise to think the core of the US-EU alliance will be dented as result of this deal or any future deals the EU might enter with China. This is clearly expressed in an EU document seen by The South China Morning Post which insists that the deal "will not affect our commitment to transatlantic cooperation, which will be essential for addressing a number of challenges created by China". In other words, the CAI will not necessarily derail the US-EU broader cooperation on China, or more precisely against China.