German-Chinese Video Symposium: EU-China Comprehensive Agreement on Investment (CAI)

March 5, 2021

The German-Chinese Video Symposium was held to discuss the recently signed EU-China Comprehensive Agreement on Investment (CAI), in particular its benefits and shortcomings when it comes to the issue of European market access in China. Since the EU’s relationship with China has become a more controversial topic in the wake of a more cooperative US administration, all in attendance underlined the need for a symposium with experts on the topic.

The guest speakers were Reinhard Bütikofer, Chairman of the European Green Party and its spokesperson in the EU Parliament Committee on Foreign Affairs (AFET), Jörg Wuttke, Vice President and Chief Representative of BASF in China as well as President of the EU Chamber of Commerce in China, Matthias Naß, International Correspondent of the German weekly DIE ZEIT and author of the recently published book “Drachentanz: Chinas Aufstieg zur Weltmacht und was er für uns bedeutet”, and Dr. Dahai Yu, Managing Director of Dr. Yu Beratung und Beteiligung GmbH. The session was moderated by Ambassador Dr. Volker Stanzel, former German Ambassador to China and Japan and currently Senior Fellow at the Foundation for Science and Politics (SWP), and Dr. Beate Lindemann, Executive Chairman of Global Bridges. More than 60 members of Global Bridges attended.

Dr. Stanzel introduced the symposium by saying that CAI was a success for both the German and the Chinese side. For China, it is the second major trade agreement signed in the span of barely two months, the other being the Regional Comprehensive Economic Partnership (RCEP) of China and ASEAN. For Germany, the agreement was the product of seven years of negotiations and was finalised during the German EU council presidency, signifying a major win for Chancellor Merkel. Dr. Stanzel went on to introduce the speakers, after which he invited Reinhard Bütikofer to speak.

Mr. Bütikofer stated from the onset that he was a critic of the CAI and questioned the profitability of the deal for European business. He conceded that market access in China had improved somewhat with the deal, but lamented the weak dispute resolution mechanisms that the deal provided for to deal with issues of technology transfer. Other issues that in his opinion were not sufficiently included in the agreement were competitive neutrality and reciprocity principles as well as obligations to comply with ILO regulations on the side of China. He also pointed out that in a country such as China, where state funding plays a much larger role than it does elsewhere, state subsidisation of Chinese businesses and the exclusive use of Chinese companies for public procurement presents serious threats to the competitiveness of European companies. Mr. Bütikofer recommended that the EU Parliament should consider autonomous measures to solve remaining issues, among them also the issue of forced labour and other human rights violations in China, before ratifying the treaty. On a political level, he lamented that the EU had not consulted the US before signing the treaty in order to signify strong transatlantic cooperation to both the US and China.

Matthias Naß joined the preceding speaker in criticising the geopolitical implications of the treaty. He argued that the growing consensus of academics, politicians, and businesspersons from both sides of the Atlantic is that engagement with China has not worked in the past, referring to the EU China strategy paper of 2019, in which China was identified as a “systemic rival”.  He also posited that the issue of China can only be dealt with by the US and EU together, which is why he criticised the timing of the agreement, arguing that it sent a clear signal of uncooperativeness to the new US President Biden, who, in contrast to his predecessor, is willing to work closely with the EU. Mr. Naß also contended that the haste in which the agreement was finalised, having been negotiated for seven years and finalised in only a few month, indicated that China aimed at driving a wedge between the EU and the new US administration.

Jörg Wuttke, as a proponent of CAI, highlighted the strong points of the deal and praised the speedy finalisation of the deal, attributing it to European diplomatic aptitude and Chinese willingness to sign both CAI and RCEP before the end of 2020. He argued that in contrast with the Phase One Agreement between the US and China, that CAI does not harm other parties or violate WTO rules. Though he conceded that the agreement lacks in some respects, he insisted that a step-by-step improvement of the EU-China trade relationship is the best one can hope for. Concerning the apprehensions of the previous speakers about offending the American partners, he argued that no concrete plan for an EU-US-China comprehensive trade agreement had been put forward by the new administration, and doubted that ganging up on China would help the situation. Signing the deal was the only reasonable course of action, especially considering that the deal would also help American companies. Mr. Wuttke also lauded the resolution mechanisms the deal provides concerning state-owned enterprises, saying that for the first time, European business had a “seat at the table” in China. He finished by expressing worry about the Chinese leadership not seeing the link between the human rights violations in Xinjiang and Hongkong and its European partners’ apprehensions in dealing with China.

Dr. Dahai Yu, also in favour of the agreement, rejected the notion of having to wait for the US to sign a treaty amenable to all, and instead argued that CAI sent a strong signal of European and Chinese support for multilateralism. He predicted that European business would profit from the deal and especially underlined that the deal would safeguard European business activities in China and create a balance of Chinese and European foreign investment. Calling CAI the “most far-reaching trade agreement China ever made”, he nevertheless warned that one should not expect too much of the agreement, as it is only an investment and not a free trade agreement.

Dr. Stanzel introduced the discussion that followed by asking how European companies would profit from CAI. Dr. Yu replied that he was sure of the benefits for European companies from the deal, as it would open new opportunities for foreign investment and make operating in China easier. He also predicted that the deal would facilitate the opening up of the Chinese society to the world.

Answering a question pertaining to the inclusion of the new US administration in the negotiations, Jörg Wuttke argued that waiting for the US to join negotiations would have likely led to nothing. In his view, the negotiating mechanisms would have had to be agreed upon, China would have had to agree to negotiate with the EU and US together, and even then, the deal that would have come out might not have been better. He regretted that CAI had flaws, but insisted that not taking the deal would not have benefitted either party. He was surprised that even this deal was signed, as China is moving away from globalisation towards self-reliance because of increasing antagonism from the US and EU.

Matthias Naß proceeded to analyse the agreement politically, saying that China’s goal in the past had been to divide the EU by making separate agreements with each of its member states, and that China’s plan with CAI was to divide the EU from the US and its partners in the Pacific. In his opinion, the agreement was just another sign that the EU is not living up to its full potential politically and therefore presenting itself as weaker than it really is.

Jörg Wuttke replied to Mr. Bütikofer, saying that Europe would have looked more timid if it had waited for the Americans to join the deal and posited that the EU has to be able to strike their own deals autonomously, a sentiment shared by Dr. Yu. The EU’s partners in the Pacific, such as Australia, had negotiated RCEP with China, which Wuttke considered a much weaker deal than CAI. Overall, he criticised the lack of engagement with China, which despite its persistent economic growth is turning away from global trade due to Western antagonism towards it.

Asked about how he would handle the ratification process of CAI, Reinhard Bütikofer identified several problems with the deal, such as the human rights violations in Xinjiang. He called them “crimes against humanity, or even genocide” that have roused much opposition to the deal and cannot simply be overlooked as they once have been. In addition, Bütikofer stressed that the deal is irrelevant if the Chinese government declares a matter to be of national interest and cannot be applied in this case, which to him signifies the weakness of the agreement. He urged autonomous action to curtail the deal in the ratification process in order to fix some of the more glaring problems of it. With regards to US involvement, he pointed out that negotiations had been moving slowly for seven years until the election of President Biden, after which the Chinese were eager to conclude the deal. He attributed that to the Chinese foreign policy goal to prevent a stronger transatlantic bond.

Answering the question of why the EU could not have waited a few months to involve the US in the talks about CAI, Jörg Wuttke hypothesised that such an action would have made China even less eager to sign a deal, as it would be unwilling to negotiate with both the US and EU. In addition, the Chinese are in his view moving away from striking trade deals and, as the Chinese economy cannot be contained, any deals made now would help greatly in the future, when China might not be inclined to agree to them.

Reinhard Bütikofer closed the discussion by saying that while the rise of China cannot be prevented, the EU would have to form strong alliances with likeminded democratic countries, not just the US but all countries that share its values, to present a strong united front against China. This would enable them to push for a more sustainable growth of China, in accordance with universal norms and values. In closing, he urged the participants to not put too much faith in CAI.

Dr. Stanzel thanked all participants for joining, after which Dr. Lindemann thanked the speakers for their edifying remarks and invited them to take part in the German-Chinese Video Symposium with the China Institute of International Strategic Studies on the 25^th of March 2021 with the topic “How does the Biden administration affect the trilateral relationship between the United States, Europe, and China?”.