EU-China Investment Agreement draws pushback over ILO standards and Human Rights concerns

Concerns about the CAI agreement but the accord could mean solid gains for EU companies doing business in China.

This is an onsite edited excerpt of the G|O Briefing newsletter

The landmark EU-China Comprehensive Agreement concluded in late December is drawing a stiff backlash from civil society advocacy groups as well as in the European Parliament over the alleged failure by Brussels to secure stronger commitments from Beijing to address the country's poor track record on labor standards and widespread human rights violations.

Foremost, they single out the use of forced labour and the situation of the Uyghurs in Xinjiang—issues on the agenda of Geneva-based agencies such as the International Labour Organization (ILO) and the UN Human Rights Council and the Office of the High Commissioner for Human Rights.

In a  letter addressed to the President of the European Commission Ursula von der Leyen and the President of the European Council Charles Michel, more than 35 human rights, trade union, and faith groups—including the International Trade Union Confederation (ITUC) and the International Federation for Human Rights (FIDH)—have called for the accord to include “enforceable human rights clauses” and also flag their concerns over the further deterioration of the human rights situation in Hong Kong since the deal was concluded.

At a minimum, they outline, a set of conditions should be implemented before the agreement is ratified. These include: ensure China ratifies the International Covenant on Civil and Political Rights (ICCPR), and core ILO Conventions on forced labour (No. 29) and the abolition of forced labour (No. 105), Freedom of Association (No. 87) and the Right to Organize and Collective Bargaining (No.98).

"One UN rights expert noted that at present it’s not possible for companies to carry out due diligence audits in Xinjiang as “it's very difficult to have access to this area ... As a result, many companies are struggling and on top have advocacy groups on their back” for failing to audit their supply chains.

“We expect the EU to put more teeth into the agreement ...We fear the current document does not yet capture these measures,” Antoine Madelin, head of advocacy at FIDH told The Geneva Observer.

Indeed, ILO diplomats and UN human rights experts, speaking on condition of non-attribution, told The G|O that efforts to get China to join the cited core ILO conventions has been ongoing since at least 2003.

Moreover, one UN rights expert noted that at present it’s not possible for companies to carry out due diligence audits in Xinjiang as “it's very difficult to have access to this area ... As a result, many companies are struggling and on top have advocacy groups on their back” for failing to audit their supply chains.

Diplomatic sources said the German Chancellor Angela Merkel who has been the driving force for the investment accord, also pressured China to agree to language on core standards as a prerequisite to secure safe passage through the European Parliament.

As a result, Brussels secured language from Beijing that China would make continued and sustained efforts to ratify the ILO fundamental conventions on forced labour.

However, the best endeavours language does not go far enough, critics say.

Western diplomats admit in private that the language here is vague and does not include a firm date. The same sources said some EU member states are likely to call for changes to strengthen the labour and human rights commitments.

Similarly, Sarah Brooks of the International Service for Human Rights (ISHR) told The G|O the EU is relying too much on goodwill.  She said there have to be robust commitments on human rights.

“Kicking the can further into the future is not an option.”

Diplomatic sources said the Biden administration is also likely to weigh in and “ask for changes” from the EU to strengthen the segment on core rights. The same sources said that given the political climate, “there will be a lot of difficulties.”However, they expect that given the huge stakes at play and in particular the potential benefits for EU companies doing business in China, it would as one diplomat put it “be hard for the EU to walk away from it.”

The big unknown, however, diplomats say, is whether President Xi Jinping will go the extra mile, or walk away from the deal over the core rights issue. Some diplomats believe a way forward could be found but it will require some further tough negotiations.Given the huge size of the Chinese economy, it would be hard to imagine the EU—and Germany in particular, which has huge investments in China, especially in the auto and machinery sectors—decoupling from the deal.

In contrast to the weak segment on rights, the terms secured by Brussels for EU investors concerning market access and disciplines covering manufacturing, services, state-owned enterprises, forced technology transfers, and standard setting, authorizations and transparency, are likely to enhance the ability of European companies doing business in China, sources said.

According to the EU, cumulative EU foreign direct investment (FDI) flows from the EU to China over the last 20 years have reached more than €140 billion, while Chinese FDI into the EU is almost €120 billion.

“This is a very important agreement for European service businesses who today face manymarket access barriers on the Chinese market, more than the manufacturing sectors,” said Pascal Kerneis, Managing of the European Services Forum in a statement.

For service companies, the establishment of a commercial presence abroad is the preferred way to operate internationally. ESF welcomes the commitment by China to eliminate restrictions like equity caps or joint venture requirements and to open up progressively many services sectors like financial services, telecommunications and IT and computer related services, he said.

The accord also includes, for example, language on transparency on subsidies provided in the services sector, something which is considered a plus over the WTO General Agreement on Trade in Services which has yet to agree on such disciplines.

Professor Xiankun Lu, Managing Director of LEDECO, a Geneva-based trade consultancy, told The G|O the content of the agreement “far exceeded traditional bilateral investment agreements.” Lu, a former senior Chinese trade diplomat, said the agreement will also “promote the solution of difficulties in China's reform and opening up.” This is good news, he said, for EU-invested companies but also for private Chinese companies.

The agreement, he said, will also promote the balance between China, the US and the EU in the “great triangle.”