The EU priorities for trade and investment relations with China are defined by the March 2019 Communication ‘EU-China – A strategic outlook’. In such Communication, the EU openly recognised China as a ‘strategic rival’ and ‘economic competitor’, while reiterating its importance as a “cooperation partner”. The Communication was the result of a growing realisation of the need to better deal with the challenges of China’s state-led economic model – based on extensive subsidisation, and a declared pursuit of the objective of becoming the global leader in major economic sectors, including through the use of measures such as forced technology transfers.

The Communication reflects the urgent need to rebalance the relationship with China through engagement – both bilaterally and multilaterally – and by upgrading the EU autonomous tools and making full use of enforcement tools.

Within the engagement pillar, it is worth recalling that the EU-China Agreement on Geographical Indications (GIs) will enter into force during the first part of 2021, granting protection to 100 EU and 100 Chinese GIs against imitation and usurpation, laying the ground to the future expansion of the list of protected GIs in the future (175 GIs from each side).

A major development was announced just a few weeks ago (30 December 2020), when, after more than 7 years of negotiations, the EU and China reached a “political agreement” for the Comprehensive Agreement on Investment (CAI). This is the most ambitious outcome that China has ever agreed with a third country, with China’s making substantive commitments on the three key pillars of the negotiations: market access, level playing field and sustainable development. The Comprehensive Agreement on Investment will create, amongst others, new market access opportunities in crucial sectors such as new energy vehicles, cloud services, or health. The deal will also help level the playing field, in that it includes obligations for the behaviour of state-owned enterprises and comprehensive transparency rules for subsidies.

Importantly, the Agreement will promote EU sustainability objectives. For the first time, China has agreed to solid provisions on sustainable development, including in relation to environment and climate, such as implementation of the Paris Agreement, as well as corporate social responsibility and labour issues (including in terms of commitments to implement and ratify the Fundamental ILO Conventions). These rules are subject to a transparent enforcement mechanism as in the EU’s Free Trade Agreements.

The Agreement needs to be legally reviewed and translated before being approved by the EU Council and the European Parliament.

The engagement efforts include a key multilateral dimension: in this respect, the EU expects China to fulfil its role as global power, by contributing to the update of WTO rules. Such rules do not cater for the unfair practices deployed by some Members, China in primis, and hence do not ensure the level playing field. Discussions have been ongoing with China at the EU-China joint working group on World Trade Organisation reform, established at the 2018 EU-China Summit, and will continue in 2021. The top priority in this regard is starting negotiations on stronger disciplines on industrial subsidies and the WTO Ministerial Conference in Kazakhstan this year will be a test case of China’s seriousness in ensuring that the WTO remains the cornerstone of the multilateral rule-based system.

However, more is needed. Even the Comprehensive Agreement on Investment is not the silver bullet for addressing all the challenges linked to China. The EU strategy on China rests on other pillars, very much needed to ensure that the EU defends its values and interests.

The EU will continue in the coming months developing autonomous measures to address the economic distortions created by China in the European internal market and globally. This is the case of the ongoing work related to the White Paper on foreign subsidies published in June 2020. Specific tools are being developed to inject a greater level of reciprocity with China, as the Commission’s proposal of an International Procurement Instrument – still being scrutinised by the Council. If adopted, this piece of legislation would keep the EU procurement market open to trade partners on the basis of reciprocity.

Such measures follow recently adopted tools which have a security angle, although with an important economic dimension. The tools developed to ensure the security of 5G networks, the EU investment screening mechanism that entered into force in October, and the ongoing modernisation of the EU export control regime are all tools aimed at better equipping the EU in addressing the challenges posed by China.

The China-related strategy also has a key dimension concerning the defence of EU core values. The EU Global Human Rights Sanctions Regime, adopted on 7 December 2020, allows the EU to target human rights violations and abuses worldwide. Individuals and entities listed under this regime will be subject to a freezing of funds, and will no longer be able to receive funds from persons and entities in the EU. It is for Member States and/or the High Representative to propose listings and, subsequently, for the Council to decide on them. Discussions on the first listings will start soon and bear developments in the coming months. 

The ongoing initiatives to strengthen due diligence requirements for EU businesses goes in the same direction of preserving key EU values. A legislative initiative on sustainable corporate governance is planned for 2021 in which the EU may propose mandatory human rights and environmental due diligence across supply chains.

In 2021 the EU will also continue to use enforcement actions, both through the use of the WTO dispute settlement, and of its trade defence instruments to address unfair trade, knowing that about 65% of all EU anti-dumping and anti-subsidy measures involve China.

Finally, the EU will also continue our cooperation with like-minded partners. The change in the US Administration allows to hope for a new phase of engagement with Washington, as made clear in the EU Joint Communication on EU-US relations adopted in December last year.

In conclusion, the agenda for the year ahead looks particularly dense when it comes to EU-China relations. The complexity of such a key trade and investment relation requires a mix of trade –and not just trade-related policy tools.

 

 

The opinions expressed are solely those of the authors and do not necessarily reflect the opinions of the Ministry of Foreign Affairs and International Cooperation and ISPI.