March 31, 2021


EU/CHINA: CAI down but not out

BY Antonio Barroso, Gabriel Wildau

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  • Last week’s row between the EU and China has raised doubts about the future of the so-called Comprehensive Agreement on Investment (CAI).
  • Since member states will likely green-light the agreement, the European Parliament remains the key veto player in the ratification process on the EU side.
  • Beijing’s actions in the coming months will likely have a strong impact on the treaty’s ratification chances.

China’s move to sanction ten individuals and four institutions in response to Brussels’s own sanctions led to a rare bout of unity among EU leaders regarding the Asian country. The general perception on the EU side is that Beijing has overreacted, especially given the inclusion of lawmakers in the list of sanctioned individuals. From a tactical standpoint, there is also astonishment at why, after hailing the CAI as an important geopolitical victory, Beijing would include key Members of the European Parliament (MEPs) whose support is crucial to get the treaty ratified.

Reinforcing the hawks

The debate about China in Europe is not highly politicized. Rather, the discussion happens at the level of policy elites, who are split between hawks and doves. The latter believe that political and economic issues can and should be separated when dealing with Beijing. Therefore, the EU should maintain close economic ties with the Asian giant while being able to put pressure on Beijing on issues such as human rights or the reform of multilateral trade rules. Hawks, meanwhile, believe that China’s increasing global assertiveness poses a fundamental challenge to EU values. They are skeptical that Brussels can deepen cooperation with Beijing and believe Europe should stand up to China. Needless to say, Beijing’s reaction to the EU sanctions related to the Xinjiang issue has only helped to strengthen the hawks.

As previously explained, the agreement must be ratified both by EU governments in the Council and by the European Parliament (EP). On the member states’ front, Beijing’s move is unlikely to significantly shift member states’ position towards approving the CAI, despite the controversy. To be sure, countries such as France – which has had several recent diplomatic spats with Beijing – have strongly criticized China’s decision. Paris’ position will thus remain a key factor to watch in the coming months. However, most national governments are likely to remain receptive to the pressure by businesses who believe the CAI is crucial to maintain EU firms’ access to the lucrative Chinese market.

Therefore, the EP, where the division between hawks and doves is more evident, remains the key ratification constituency. Given that the agreement’s final text is unlikely to come before the institution until end-2021/early-2022, the evolution of the China-EU relationship over the coming months will crucially determine the chances that the chamber ratifies the deal. For instance, any further moves by Beijing regarding Hong Kong or Taiwan would only give further argument to hawks to block the treaty’s ratification.

Beijing’s rationale

It is highly unlikely that Chinese leaders made an intentional decision to put the CAI in jeopardy. As previously discussed, Beijing views the CAI as a crucial bulwark against Washington’s efforts to build a transatlantic united front against Beijing. Along with the Regional Comprehensive Economic Partnership (RCEP), Chinese leaders routinely point to CAI to rebut claims that the country’s increasingly forceful foreign policy is sparking a concerted international backlash. Beijing prefers to believe that rich democracies will respond to cold-hearted economic incentives when push comes to shove, despite vocal criticisms on human rights. Beijing’s decision to target MEPs with retaliatory sanctions may, therefore, reflect a miscalculation of the risk that the latest sanctions pose to the CAI.

China’s foreign policy apparatus has become accustomed to tit-for-tat exchanges of sanctions and tends to calibrate responses carefully to avoid escalation, but the response to Brussels’s Xinjiang sanctions presented a special challenge. The EU’s targeting of province-level officials and institutions in Xinjiang suggested no obvious counterparts in Brussels. Given China’s long-held principle of non-interference in domestic affairs, Beijing would not punish EU officials for alleged human rights abuses not involving China. Beijing instead chose to seek a version of reciprocity by punishing individuals and institutions who have allegedly slandered China by criticizing policies in Xinjiang. This approach naturally led to advocacy groups, think tanks, and MEPs. Chinese diplomats may not fully appreciate how sanctioning a think tank will be viewed as an attack on the cherished value of free speech in Europe, since Beijing tends to view foreign think tanks as de facto government institutions.

To mitigate the risk to the CAI, Beijing may seek to avoid further hostile actions against Europe in the coming months. Behind the scenes, officials may also urge European companies to advocate for the CAI within Europe. The problem is that individual Chinese diplomats’ incentives continue to favor ostentatious displays of loyalty and fighting spirit. Even if Beijing avoids further coercive policies towards the EU, individual diplomats now routinely publish fiery criticisms through foreign embassies or social media that fuel hawkish sentiment in the West.

Our previous forecast that top leaders would eventually move to rein in “wolf warrior” diplomacy has so far not been realized. It is possible that only a demonstrable setback, such as an EP rejection of the CAI, can force a course correction.

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