This is an onsite, slightly edited republication of the complete G|O Briefing newsletter
Today in The Geneva Observer, a quintessentially local question as we grapple with the perennial vexing conundrum of balancing human rights (OHCHR) with commerce (WTO) and labor (ILO). It assumes a new dimension with China’s growing economic power and political influence and the world increasingly being divided into three blocks: the US, China and Europe.
Amidst the frustrating confusion about the global roll-out of the COVID-19 (WHO) vaccines, we kept an eye on the ongoing discussions at the WTO about patent waivers. It doesn’t bode well. At pixel time, today’s meeting ended in a stalemate and was marked by acrimonious criticism of the EU, reported Jamil Chade. And John Zarocostas reports on how the WHO’s visit to Wuhan is putting the spotlight on the issue of biosafety in global health security.
“Living in China is confusing now,”Chinese writer Yan Lianke said a couple of years ago during a lecture in Shanghai,“because it can feel like being in North Korea and the United States at the same time.”Today, his country is both internment camps and a booming market for luxury goods.Trust him to understand it: Lianke is a former government propaganda writer turned satirist. His observation comes to mind as, almost simultaneously, new revelations about repression in Xinjiang have emerged while Brussels posted the text of the Comprehensive Agreement on Investments (CAI) between China and the EU, a highly controversial agreement as we recently reported.
In today's guest essay, Daniel Gros, the Director of the Center for European Policy, argues that both from an economic and a geopolitical point of view, “critics of the Comprehensive Agreement on Investement (CAI) ” may be overstating its importance. You can read his piece at the end of this Briefing.One of the questions Gros's piece poses is one of principle; for example, does the volume of investments matter when faced with such documented increasing repression? And, as a matter of policy, is the CAI the last avatar of a Western posture towards China articulated around the idea that deepening economic and financial ties would lead to political change in Beijing? Or, as defenders argue, the conclusion of such an agreement will only reinforce what appears to be Xi Jinping’s hubris?
Elsewhere in the ecosystem
A new member for the WEF’s Board of Trustees, whose annual meeting is again postponed.
The WEF has appointed Julie Sweet, CEO of Accenture, on its Board of Trustees it announced today.The Forum also announced that the pandemic had forced it to delay once again its Special Annual Meeting. It was supposed to be held in May in Singapore, but will now take place in August.
Unsung heroes of the pandemic are being increasingly recognized
Last December, the United Nations General Assembly adopted a resolution on International cooperation to address challenges faced by seafarers, the unsung heroes of the pandemic. The International Maritime Organization (IMO) announced today that 53 Member States and one associate Member State have so far accepted the industry-led Neptune Declaration and recognized seafarers as key workers. And for today’s Briefing quiz: What country is the largest exporter of goods but isn’t on the list? Not yet, anyway, hopes IMO’s Secretary-General Kitack Lim, who encourages more governments to join the Neptune Declaration.
The Limits of the EU-China Investment Agreement
By Daniel Gross*
During the last days of 2020, the European Union and China finalized a Comprehensive Agreement on Investment that they had been negotiating for seven years. In the weeks since, the CAI has attracted a lot of Western commentary – much of it damning. But now that the full text of the agreement is available, it seems that critics may be overstating its importance.
For starters, some argue that the EU is relying too much on the Chinese market to keep its economy growing. But trade and investment data do not bear this out. In 2019, China was only the third-largest market for EU goods exports. The United States remains the EU-27’s most important trading partner by far, followed by the United Kingdom.
EU exports to China are actually somewhat lower than one would expect, given that China’s GDP (even at market exchange rates) is now close to 80% of that of the US, whereas EU exports to China are only about 50% of those to the US. Moreover, the relative importance of the US and China as export markets for the EU has not changed much over the past decade. This means that the EU’s transatlantic exports have increased almost as quickly as its trade with China – despite China’s much higher GDP growth rate.
The same is true of the EU’s trade with China’s democratic neighbors. Between 2009 and 2019, for example, EU exports to South Korea increased at almost the same rate as those to China. And the intensity of EU-South Korea trade is twice as high as one would expect, given that the EU-27 economy is about ten times larger than South Korea’s.
From a trade perspective, therefore, Europe is not “betting on China.” On the contrary, bilateral economic relations are somewhat weaker than the Chinese economy’s size would imply.
This is even more apparent when it comes to bilateral EU-China direct investment. The EU’s direct investment in the US is almost 15 times larger than its investment in China, while Chinese investment in the EU amounts to about one-twentieth of US investment. And bilateral investment flows have recently stagnated at low levels, with no substantial new investment by a Chinese state-owned enterprise in Europe over the past year.
Furthermore, a look at the CAI’s details reveals that, belying its name, the agreement is far from comprehensive. The main concrete benefit for European firms is the partial opening of China’s automotive and financial sectors. But the accord’s main provisions reiterate pre-existing commitments or promises of “best efforts” in areas such as regulatory transparency and social standards (including China’s pledge to continue working toward ratifying the Forced Labor Convention). The dispute-settlement mechanism also remains vague, and mainly enjoins both sides to consult and reach an agreement.
Critics of the CAI neglect to mention that the EU had little leverage because investment in Europe is already mostly liberalized. The EU therefore could not offer meaningful improvements for Chinese investors. And you if you have little to offer in a negotiation, you cannot expect much from the other side. Under these circumstances, we should not have expected an agreement that addresses every social or human-rights problem Europeans see in China.
Lastly, many have criticized the EU’s conclusion of the CAI on geopolitical grounds, for handing China a diplomatic victory just when a new US administration with a more positive transatlantic outlook was preparing to take office. But it is ultimately an international agreement’s substance that determines its geopolitical impact.
We learned this in March 2019, when, to great fanfare, Italy signed onto China’s Belt and Road Initiative (BRI), a transnational infrastructure investment scheme whose official aim is to bolster economic relations between Asia and Europe. At the time, many questioned the geopolitical wisdom of Italy becoming the first G7 country to join the Chinese-led initiative.
But reality set in rather quickly. All Italy had done was sign a memorandum of understanding that had no impact on trade or investment, as one would expect from a vague declaration of intent to strengthen economic ties. Disappointment at the lack of tangible benefits has turned a geopolitical victory for China into a defeat, with the same Italian minister who previously championed the BRI now taking a much more critical position toward China.
Likewise, the CAI will be judged a few years from now by its implementation and the concrete steps China takes to fulfill its promises. If European companies do not perceive any improvement, and China makes no progress on labor standards, the CAI might come to be viewed as another empty gesture.
*Daniel Gros is Director of the Centre for European Policy Studies.