Ends, Ways and Means in Borrell's Elaborated EU Strategy on China: Trade and Investment Dimension

Updated: Mar 4, 2021

Earl Wang

The latest official policy paper of the EU unfolding its strategy on China is the strategic communication in March 2019. It is the document in which the key word “systematic rival” has been quoted by basically all analytical pieces on EU-China relations and is still frequently discussed among practitioners, think tankers and academics now. Formally recognising China as a systematic rival - aside from a cooperation and negotiating partner and an economic competitor simultaneously - demonstrated a shift in EU’s strategic thinking towards Beijing.

The COVID-19 pandemic during 2020 further made Brussels and Member State capitals realise the innateness and ambition of Beijing red-handed. The approach of the 2019 EU strategic document on China was officially agreed upon by the European Council in October 2020.

Many brilliant analyses have discussed how the pandemic served as a catalyst for the citizens and governments of Europe to turn sceptical and critical with regards to Beijing. This article focuses on analysing the trade and investment dimension of the recent elaboration on EU’s strategy towards China by High Representative of the Union for Foreign Affairs and Security Policy/Vice-President of the European Commission (HR/VP) Josep Borrell in September 2020 while the US-factor in EU’s strategic-planning towards Beijing is also touched upon.

In an article in June, HR/VP Borrell depicted EU’s path ahead: to follow its “own way” – based on the Union’s values and interests – when facing the rivalry between the US and China. Through this figurative piece of the boat (EU) sailing through the sea storm (world politics amid US-China rivalry), Borrell called on the EU to be its own captain and move forward together.

In September, Borrell further elaborated this EU strategy and, in particular, focusing on the relations with China in a piece published in Istituto Affari Internazionali (English version) and Institut Montaigne (French version). In the first half of the article, Borrell pointed out straight to the core that staying united is key to EU’s successful strategy to face a “more assertive, expansionist and authoritarian” China since no single national capital possesses the strength to handle Beijing alone.

To analyse the second half of Borrell’s piece, this article applies the framework of the ends, ways and means to look into EU’s China strategy amid the US-China rivalry.

The ends for the EU is not to lean fully towards either of the two great powers. The EU aims to take its “own way” for defending its values and pursuing its interests in global affairs.

As for the ways, first, the EU is to continue working with China on policy areas that Beijing serves as a partner. Simultaneously, enhancing EU’s strategic autonomy is essential, particularly the Union’s technological and economic capacities. This is indispensable for the Union to uphold its values and interests when interacting with China since Beijing is also a competitor and a systematic rival. Second, it is to understand that China’s rhetoric of endorsing multilateralism is, in fact, a selective adherence to the spirit that the EU fundamentally pursues. Borrell’s piece did not provide examples of such phenomenon. However, Hong Kong and the South China Sea territorial disputes can both showcase that Beijing shied away from a multilateral way of tackling the issues when multilateralism does not fit its advantage. At the same time, the EU is to look at China’s concrete achievements – actions – rather than the commitments – words – concerning the reciprocity in EU-China trade and investment relations.

When it comes to the means, Borrell’s article illustrates some the EU has possessed or is getting ready to adopt for implementing the EU strategy towards China. First, the trade defence instruments (TFI) to counter unfair trade practices – dumping or state-subsidy for example – into EU’s soil. In mid-June 2020, China, in fact, lost a lawsuit in the World Trade Organization when urging the EU to recognise its market economy status when the EU set high tariffs on Chinese exports into the Union that involve unfair trade behaviours.

Second, the screening regulation of foreign direct investment (FDI) into the EU. This EU-wide investment screening mechanism came into force in April 2019 and started its full application to Member States starting from October 2020. This framework of scrutinizing foreign investment into the EU is usually interpreted by observers to tackle the trend of Chinese FDI buying up European companies and industries, especially causing threats to critical infrastructure and sectors that may hinder national security. 5G technology is just one that attracts a lot of public attention and debates.

So far, the EU has means to defend itself when facing unfair trade practices from China outside the European Single Market, but what if these practices began to come from exporters inside the Single Market that are subsidised by China? That is why a new measure to counter foreign subsidies inside the European Single Market is on its way of being formulated, and will serve as the third means of the EU strategy vis-à-vis China introduced by Borrell.

There is one more means at EU’s disposal although not covered by Borrell’s elaborated EU strategy on China. In July 2020, the EU has actually designed a new position in the Commission: Chief Trade Enforcement Officer (CTEO) and concurrently Deputy Director General for Trade. The duty of this position is to make sure that other economies honour the commitments signed in trade agreements with the EU. China – finalising the negotiation on an agreement on investment with the EU after 7 years – will highly be possible to be among one of the top files on the desk for the CTEO to follow closely.

After deconstructing and looking into the ends, ways and means in HR/VP Borrell’s elaboration on how the EU plans to interact with Beijing, it is reasonable to provide the evaluation that EU’s strategy on China is becoming clearer and more pragmatic. But again, Brussels and national capitals comprehend that the core of the strength and potential of this strategy lies on the practices of unity among constituents of the EU family – EU institutions and Member States.

On the articulation of EU’s strategy on China under the Washington-Beijing rival context, the US factor naturally comes into play. Relations between two sides of the Atlantic has not been a bed of roses under the Trump administration. Even said so, the “EU-US Dialogue on China” for transatlantic coordination on issues related to China was successfully established at the end of October 2020. After the result of the US presidential election, the EU and the designated Biden team have also been expressing their willingness to rebuild transatlantic partnership on coping with global challenges – China being on the list. Meanwhile, same as the interactions with Beijing, the EU has also reiterated the determination to elevate its strategic autonomy in its relations with Washington.

The EU is now facing a touchstone regarding its strategy on China and also its potential cooperation on issues regarding China with the forthcoming Biden administration: the EU-China comprehensive agreement on investment (CAI). Several European observers, experts and members of the European Parliament strongly advised Brussels not to rush into inking this investment pact at the moment.

Two principal reasons are behind this rationale. First, critical issues on investment between the EU and China have not been sufficiently and properly resolved in the current negotiated text – not to mention the “forced labour” issue of the Uighur minority in Xinjiang. Second, agreeing on this agreement before less than a month of Biden’s presidency risks hindering the trust and aspiration to rebuild transatlantic coordination and cooperation – even if not alignment – on the challenges that Beijing poses. On this aspect, the designated National Security Advisor, Jake Sullivan, tweeted that the upcoming Biden administration would like to have a consultation with European leaders on this matter in advance. Moreover, the serving US Deputy National Security Advisor, Matt Pottinger, expressed the perplexity and astonishment of the US side concerning the timing of EU’s decision on this investment agreement with China. Despites these warning signals, Brussels together with Berlin and Paris confirmed the successful conclusion of the CAI negotiation with Beijing in principle on December 30 2020.

What is Beijing contemplating in its strategy – regarding both internal and external audience – for agreeing upon this investment agreement with Brussels on the eve of 2021? How will the EU Council and the European Parliament vote on the investment pact? What impacts will the CAI have on China’s negotiation with the US on economic, trade and investment issues? How will transatlantic coordination on Chinese issues turn out after the decision of the EU to conclude this investment agreement with Beijing when Biden is getting ready to sit in the Oval Office? How effective will the CAI be for European businesses to enjoy actual reciprocity and level playing field in EU-China trade and investment relations? To what extent does the EU have the capacity to ensure Beijing’s compliance – which the latter has not been reputed for – with the stated commitments in the text of the CAI in reality? These are all questions of top importance in EU-China relations to follow up in 2021 and the years ahead.

Earl Wang is APRA's Chief Editor / Head of Think Tank Team.

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