Europe facing China: a Copernican revolution

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By François Godement, Senior Advisor for Asia, Read original news here

“No longer a developing economy.” A “systemic rival” – and over economic issues a “strategic competitor”. A major coal power plant exporter that thereby impedes the fight against climate change. Worsening human rights policies – starting from Xinjiang and domestic lawyers, extending to EU and other foreign citizens. A “short and mid-term” military issue of concern for the EU with “large military maneuver”. A state whose aid to national companies and different standards does not allow for a level-playing field in third countries. A failure to implement reciprocal access to its domestic market, inter alia through heavy subsidies to its companies and manifold restrictions to foreign firms: the apex of this being the international expansion of Chinese fintech while access to its own market is denied. A rising protectionist trend in public markets. Multiple obstacles to European agricultural exports…

The latest communication from the Commission (and EEAS) on China really throws the book at China. Of course, it also maintains the need to “deepen its engagement with China for the promotion of common interests at the global level”. The part about China’s foreign policy is notably more discreet, with calls for more joint action on Iran, Africa.

But the above treatment is not the most important one. Two aspects of the Communication are more striking. The first isthe placing of a deadline on China to conclude an investment treaty by 2020. The Comprehensive agreement for investment, aka bilateral investment treaty, has gone through 19 rounds of negotiation in 7 years. The Commission also asks for “swift” completion of an agreement on geographical indications (it had been expected in 2018…), and “in the coming weeks” for another one on civil aviation. Towards a WTO reform, China must start to work on the issue of industrial subsidies. In short, China is asked to “deliver” on previous commitments. Brussels also calls for China to “cap its CO2 emissions before 2030” – the Paris Agreement committed China to that goal “around” 2030. It states that “the ability of EU and China to engage effectively on human rights will be an important measure of the quality of the bilateral relationship”: a tall order given the direction which China has taken under Xi Jinping.

All of the above can be read as an indication of the level of frustration after years of engagement, and probably anger at the fashion in which China implements a country by country approach, essentially going around the common EU institutions. Less than a month away from the next EU-China Summit on April 9, the tension is palpable.

But even this is not the main point. Above all, the Communication proposes to member states a list of 10 action points which are clearly aimed at changes in European policies, not at China. This is the Copernician revolution: instead of engaging endlessly with China and pleading for it to change its ways, the Commission suggests that Europe should change track and adopt a set of robust defensive policies, some of which will have an effect whatever China’s response may be. It recognizes that there are gaps in the EU’s competition law – anti-subsidy clauses apply more to intra-EU subsidies than to those originating elsewhere. Future legislation will have to deal with “the distortive effects of foreign state ownership and state financing”.

The Communication proposes to member states a list of 10 action points which are clearly aimed at changes in European policies, not at China.

The Communication places particular emphasis on “leverage”. “The EU should use linkages across different policy areas and sectors in order to exert more leverage in pursuit of its objectives” and must leverage international instruments to obtain reciprocity on public procurement. Although this is a common and realistic practice in international negotiations, it has never been acknowledged by the EU which always stuck to a more idealist approach by issue… Member states should speed up the implementation of financial instruments towards accession states and the neighborhood and they should also implement the new investment screening regulation. They should adopt a common approach towards the security of future 5G networks – one might add, in contrast with the present anarchy prevailing in plans for deployment. More generally, the EU should “foster industrial cross border cooperation, with strong European players, around strategic value chains”. Notably, this is a call for member states to act independently of directives from the EU: the EU is not seeking to run an industrial policy, it is encouraging member states to develop these in a pragmatic cross-border fashion.

These robust recommendations for action come at a very sensitive juncture. The EU Council has China on its agenda for March 21 – if this is not derailed in practice by the Brexit issue. Xi Jinping is visiting, again, a set of European countries. The EU-China summit then takes place, in the middle of what will be largely national campaigns for the European elections.

A soon to depart Commission, so often accused of neglecting European interests when member states themselves too often take opportunistic and short-term views, is laying down a realist agenda to face the onslaught of Chinese competition. It deserves clear support from the governments of Member States, and it should be a basis for the program of its successors.

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