EU-China Investment Deal in Freeze Mode, But European Union Can’t Afford to Stand on Fence Anymore

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As predicted four months ago, the EU-China investment deal was dead on arrival. But it took almost five months to find the diplomatic ground to bury it. On 20 May 2021, almost nine out of 10 Members of the European Parliament voted against the EU-China Comprehensive Agreement on Investment (CAI)— 599 out of 687 members, or 87 percent of the total—that was pushed through by the European Commission as a new year gift to China on 30 December 2020. This near unanimity in reversing the deal is a precursor to a strategic introspection by the combined interests of the 27 countries that comprise the EU. Capillaries of this introspection will find their way into the geoeconomics of the region. The EU will need to rethink its first principles thrice over and decide what it stands for.

First, it will need to see whether the vote against the CAI is a function of it being cornered or pressured by the US. In other words, in case Washington and Beijing sign another deal and the chessboard of international engagements changes once again, will the EU follow the US’s lead? This question is important, because the US-led narrative on allowing Huawei into the 5G rollouts of EU’s member states has changed and almost all countries have rejected Chinese firms in this sector. It is also important because this rejection of the China deal rides a strong fine print—the counter sanctions by Beijing on “several European individuals and entities, including five MEPs,” which in turn is being packaged as “an attack on fundamental freedoms.” The announcement says the CAI or any other agreement with China will not move forward while the sanctions are in place. In a corollary, if China pulls back on sanctions, the EU will pull back its rejection.

This is geopolitical naivete. It almost seems like the EU is negotiating with a bully rather than working together for absolute “fundamental freedoms” the region claims to stand on. China cannot and will not be tamed. It will not adhere to the rule of law. It will not give up on its uncouth wolf warriors. It will not change its debt trap diplomacy. It will not end the weaponisation of political systems, in this case the fault lines of democracies, to smother democracies. If it is counter sanctions today, it will be intellectual property theft tomorrow, and 5G data surveillance of free citizens next. Under Xi Jinping, China has become a hydra-headed monster. Further, the gentle fine print the EU has placed is little more than good manners. Behind this fine print lie the dark lobbies of the EU’s largest corporations. There is danger that the tail of EU capitalism will wag the dog of member states and sovereign democracies into submission.

Second, if a deal as large and as appealing as the CAI is off the table, the EU will need to rethink its economic narrative to rebuild its international economic relations. The perception that the US has receded and is not a dependable ally is clear, and it is up to US President Joe Biden to fix that. But it is equally true that the world has to prepare for multi-polarity—the 21st century will oversee the end of the monopoly of the US and China as a duopoly of dominance. Further, with almost 30 percent of global GDP, the largest trading block today is the China-dominated Regional Comprehensive Economic Partnership (RCEP). While it includes large countries that individually trade with the US and the EU (Japan, Australia and South Korea), as a formal trading block with agreements in place, RCEP is larger than NAFTA (now USMCA or United States-Mexico-Canada Agreement).

The question the EU faces is: Would you give up on strategic and national security, the base that supports economic and social discourse, for a few Euros more? This is a question before India too. It makes headlines in Australia, The Philippines, Japan, South Korea, and Canada. The metamorphosis of China into a rogue nation under Xi Jinping is expressing its roguery in one country after another, one humiliation at a time. As a union that has practiced unity, the EU can, indeed it must, offer its experience with platforms of negotiations to such countries to come together, despite differences and disparate interests.

For instance, South Korea can offer 6G technology for markets, Japan can offer markets for immigration, India can offer markets for investments, Taiwan has both money and technology to offer. But all can be unified into a trading block that is defined by rule of law and bound together by strategic interests into a powerful economic block, larger than the world has ever seen. Imagine the entry of the EU, Japan, India, Australia, Indonesia, and Brazil into USMCA. A start has been made with the 7 May 2021 EU-India negotiations. India is the EU’s third-largest trading partner; the EU is India’s second-largest export destination; the total India-EU trade in goods and services stands at US $115 billion. This can multiply.

And third, keeping the economic and strategic aggression of China at bay, the EU needs to revert to mean. As an existential exploration, it must re-examine who it is, what it stands for, where it’s headed. The values of liberty, equality and fraternity it has floated and disseminated across the world in the 20th century need to be expanded into the 21st century. Right now, these values, and through them the citizens of EU nations, are being ruthlessly smothered by Beijing.

That the EU continues to imagine business as usual with such a country shows the internal contradictions of values, now sugar-coated by petty corporate interests. Of course, the EU can equally go back and say it was wrong, it can embrace authoritarianism, it can learn from China and asphyxiate democracy and freedoms, it can copy-paste China’s National Intelligence Law and turn every entity and resident into a spy, it can attempt—and fail—to grab territories. That is not a Hobson’s choice before the EU, it is not a zero-sum as Beijing would like to project.

The ideas and their manifestations have become far more complex than ever before. They have also become sharper binaries. The EU cannot afford to stand on the fence any longer. The US $17.3 trillion combined GDP needs to walk the talk. And while the complete rejection of CAI with no fine prints weakening it would be the first step, putting its political force behind its values would be next. In the best traditions of democracy and interests, freedom and fraternity, this is a debate the EU will engage in for the rest of 2021.

This article was first published on ORF.

Disclaimer:Gautam Chikermane is vice president at ORF. Views expressed are personal.

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