EU and China risk Washington reaction with new investment pact

Europe has long sought to increase access for its companies to China's vast markets

European Commission President Ursula von der Leyen, European Council President Charles Michel, German Chancellor Angela Merkel, French President Emmanuel Macron and Chinese President Xi Jinping are seen on a screen during a video conference, in Brussels, Belgium December 30, 2020. REUTERS/Johanna Geron/Pool
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The EU and China announced a major investment accord on Wednesday, despite pleas from US president-elect Joe Biden's aides to Brussels to hold off and co-ordinate policies with his administration next year.

Ursula von der Leyen and Charles Michel, presidents of the EU Commission and Council, held a video call with China's President Xi Jinping to "conclude in principle the negotiations" on the pact.

After the meeting, German Chancellor Angela Merkel and France's President Emmanuel Macron were due to join the call with Mr Xi for what a European official called "an exchange of views".

The pact, which is expected to take months before it is finalised and fully ratified as a legal text, would boost ties between two of the world's biggest economies.

But the end-of-year rush to conclude the political part of the agreement could upset Mr Biden as he prepares to enter the White House, hoping to co-ordinate with his western allies.

Europe has long sought to increase access for its companies to China's vast markets, but Beijing's alleged lack of respect for international labour standards was a final hurdle to an agreement.

Brussels insists the Comprehensive Agreement on Investment is the "most ambitious" anyone has convinced China to sign.

It lowers barriers for EU businesses, bolsters fair competition and strengthens commitments to sustainable development.

The bloc says it has managed to have Beijing agree to "continued and sustained efforts" to ratify International Labour Organisation conventions on forced labour.

But European legislators expressed major concerns that there is no way to compel China to make good on that vow.

They accuse Beijing of running a "government-led system of forced labour" against the Uighur and other Muslim minorities in Xinjiang province.

"EU leaders do know that the CAI language on ILO and forced labour is not worth the ink. They are not stupid," Reinhard Butikofer, head of the European Parliament's delegation on China, wrote on Twitter.

epa08911225 French President Emmanuel Macron (R) attends a EU-China video-conference meeting along with Chinese President Xi Jinping, German Chancellor Angela Merkel, European Commission President Ursula von der Leyen and President of the European Council Charles Michel, who were all tuning in on video link, at the Fort de Bregancon in Bormes-les-Mimosas, southern France, 30 December 2020.  EPA/SEBASTIEN NOGIER / POOL
Emmanuel Macron attends the video conference from southern France. EPA

Members of the European Parliament said the outline deal, which comes on the same day as the bloc signs its farewell trade pact with Britain, is being rushed through by leading economy Germany before its rotating EU presidency ends.

China pushed past the US in the third quarter this year to become the EU's top trade partner as the Covid-19 pandemic disrupted the American economy while Chinese activity rebounded.

The political accord comes just weeks before Mr Biden will be sworn in as US president, and with his team expressing concern over the EU's outreach to Beijing and urging Brussels to consult with Washington.

While the EU takes a softer approach on China, departing US President Donald Trump has carried out a trade war to batter Beijing into concessions.

Despite vast differences with his predecessor on many issues, Mr Biden looks set to continue a tough line, although he is looking to forge a more multinational front to tackle Beijing.

The EU insists the investment agreement with China, which it regards as a "systemic rival", will not hamper its relations with the new US administration and says that in part it matches the "Phase 1" trade deal Mr Trump signed with Beijing in January 2020.

The bloc says the deal, which it began negotiating in 2013, helps to rectify what it considers to be the long-standing imbalance in the way Brussels and Beijing treat investors and the access they allow them.

It also says it secured guarantees from China on key European concerns by ending obligations to transfer technology, reinforcing respect for intellectual property, strengthening Beijing's environmental commitments and addressing state subsidies.

While the deal should pave the way for EU companies to make inroads in areas including China's electric car, health, telecoms and financial services sectors, it also looks set to open up Europe's renewable energy market to Beijing.

But an EU official said the agreement would still allow individual member states to block access to Chinese companies for reasons of national security.

The preliminary agreement is likely to take months to be worked into shape by legal teams and translated, and it will then have to be ratified by the EU's 27 member states and approved by the European Parliament.