UrduPoint | 24 June 2020
Europe-China summit shows investment deal should not be expected anytime soon
by Umer Jamshaid
The 22nd EU-China summit had its purpose in moving the two sides closer to a long-negotiated investment agreement, but instead revealed the scope of tensions and differences that dominate the relationship amid COVID-19, the Hong Kong security law controversy, Europe’s dependence on Chinese imports and varying perceptions of what transparency is
BRUSSELS (UrduPoint News / Sputnik - 23rd June, 2020) The 22nd EU-China summit had its purpose in moving the two sides closer to a long-negotiated investment agreement, but instead revealed the scope of tensions and differences that dominate the relationship amid COVID-19, the Hong Kong security law controversy, Europe’s dependence on Chinese imports and varying perceptions of what transparency is.
The summit was held on Monday via video conferencing. Representing the EU were Council President Charles Michel, Commission President Ursula von der Leyen and High Representative for Foreign Policy Josep Borrell, and representing China were Premier Li Keqiang and, for only the part on exchanges, Chinese President Xi Jinping.
EU BETWEEN SCYLLA AND CHARYBDIS
Europe, symbolically located between the US and China on the world map, found itself caught in a trade war cross-fire between the two. The Old World’s fears were aptly phrased by US Secretary of State Mike Pompeo in a speech at the Copenhagen Democracy Summit last week.
"I know that there’s fear in Europe that the United States wants you to choose between us and China. But that’s simply not the case. It’s the Chinese Communist Party’s that’s forcing this choice. The choice isn’t between the United States; it’s between freedom and tyranny," Pompeo said.
Engaged in a commercial and political conflict with Washington, Beijing has been very assertive in seeking support from Brussels, but the summit made it somewhat clear that Europe refuses to get caught in a vice between the two powers. Until now, European diplomacy was all smiles to Beijing, but it seems Brussels is now aligning itself with Washington as one can gather from harsh resolutions in support of Hong Kong and accusations of China over disinformation and COVID-19.
"Europe will not be the battleground of the United States and China," European Commissioner for Internal Market Thierry Breton said on Sunday, while EU foreign policy chief Josep Borrell tried to give this stance a softer diplomatic wrapping by saying that Brussels values the relationships with both, but also expects reciprocity from both.
At a press conference following the talks, von der Leyen gave some details of what they had discussed. They apparently touched upon a little bit of everything that is going on in the world, including bilateral relations, Hong Kong, COVID-19, climate change, Afghanistan and the Iran nuclear deal, but it came as no surprise that the central topic was the long-awaited bilateral Comprehensive Investments Agreement on market access asymmetries.
Since 2013, when the EU and China launched talks for such an agreement, the EU has been preparing the ground brick by brick. The treaty’s purpose is to provide European companies with access to China’s market under non-discriminatory conditions that currently prevent them from competing on equals with Chinese companies and other foreign companies.
According to von der Leyen, the summit was "very intense, frank and open," and for the bilateral relations to be able to develop further, they must "become more rules-based and reciprocal, in order to achieve a real level playing-field."
"Engaging and cooperating with China is both an opportunity and necessity. But, at the same time, we have to recognise that we do not share the same values, political systems, or approach to multilateralism. We will engage in a clear-eyed and confident way, robustly defending EU interests and standing firm on our values," Michel said.
The stumbling block was on subsidies: Europe accuses China of heavily subsidizing its industries without any transparency. The EU wants fair competition, hence the call upon Beijing to "sign the bilateral Agreement on Geographical Indications in the coming weeks and see its entry into force in nearest future." This agreement, negotiated at the 2019 EU-China summit, will provide protected market access to products from specific geographic areas, such as Polish vodka, Prosciutto di Parma and French Champagne from Europe vis-a-vis Pixian Dou Ban (Pixian Bean Paste), Anji Bai Cha (Anji White Tea) and Panjin Da Mi (Panjin rice) from China.
According to Gilles Lebreton, a member of the European Parliament and a law professor at the University of Le Havre, both sides have bargain potential to move the deal ahead.
"EU re-industrialization is underway in the ’strategic sectors’ defined by the Competitiveness Council. In the European Parliament there is a consensus on its necessity. The Commission has finally opened its eyes to the distortions of competition caused by China," Lebreton told Sputnik.
"Obviously, this will heighten tensions with China, but I think China will be forced to let us do it, because the EU is still more flexible than president Trump and the US! In return, China will keep a free hand with Hong Kong," the lawmaker further opined.
With regard to the Hong Kong anti-sedition law, the European representatives reiterated the already traditional "grave concerns at steps taken by China to impose national security legislation from Beijing," saying that Brussels "considers those steps not in conformity with the Hong Kong Basic Law and China’s international commitments."
For the EU, Hong Kong is not only a matter of human rights violations and breach of UK-set One Country, Two Systems principle, but also a matter of economic interest. As noted by Michel, half of all European investments in China go through Hong Kong and there are 1,600 European companies operating in Hong Kong, which the EU does not want to see trapped in political tensions between Beijing and the autonomous region.
CHINA’S SILENT ECONOMIC EXPANSION
Over the years, China has managed to acquire shares, in some cases the majority of them, in many European companies in a seemingly opportunistic manner.
For example, in the midst of the Greek economic crisis in 2016, Chinese shipping firm Cosco bought the majority stake of the Piraeus port of Athens. Speaking of political implications, just under two years later, Greece announced it was joining the Belt and Road Initiative, China’s flagship monumental global trade project. Media in Europe released article upon article about the perceived "Chinese threat," with reported maneuvers targeting Accor, Toulouse Airport, Coface in France, Kuka in Germany, Pirelli in Italy, and Syngenta in Switzerland.
Until 2019, when the impact of US sanctions became hard to ignore, China has invested more than 60 billion Euros annually ($68 billion) in Europe. Chinese acquisitions in Europe plunged 94 percent in June 2019, to $2.6 billion, their lowest level in eleven years. Since then, Chinese take-overs have ebbed.
But China remains the EU’s second biggest trade partner after the US, and the EU is still China’s first. China supplies the EU with industrial and consumer goods, machinery, equipment and clothing, while EU exports to China are predominantly machinery, equipment, motor vehicles, aircraft, and chemicals. The two trade on average over 1 billion euros a day, but both have their concerns in this regard.
The EU would like to reduce certain imports area to bring back its internal market healthiness. For example, the EU textile industry has suffered a blow caught in a vicious circle as European companies producing textile machines, such as Picanol in Belgium, sold them mainly to China, and the EU then buys clothing produced on these machines at an incredibly lower cost compared to clothing in Europe.
China, for its part, is concerned about the new European legislation on foreign investments, especially Chinese acquisitions. As put by Chinese Envoy to the EU Zhang Ming, "Beijing hopes that the EU will create a fair, impartial and non-discriminatory environment for investment," attaching a warning that said "Capital is very sensitive and cannot be fully controlled - in the event of a change of wind, the capital will vote with its feet."
When Donald Trump came to power and decided to "make America great again" by trying to repatriate industrial activities, especially those based in China, the EU scoffed at Trump’s attitude as if to say "How ridiculous in a globalized world!" For his part, Trump started a trade war with China, which is still on.
The coronavirus pandemic showed the Europeans how incredibly dependent they are on China: pharmaceuticals, chemical agents, masks, hospital accessories, respirators are all coming from China, and less so from India. This is due, above all, to discouraging fiscal policies and high cost of labor in Europe. Europe has lost much of its industrial base. Tens of thousands of deaths due to COVID-19 could have been avoided if Europe’s decision-makers had not taken deindustrialization so lightly.
So after decades of nonchalance and active trade with China, Europe might be pressing its foot on the brake, especially in light of Washington’s allegations that China is to blame for creating the virus and letting it slip into the world from a laboratory in Wuhan, a central Chinese city from where the first reports about the pandemic came last December.