Preparations for EU-China Summit Begins

The European Commission will present a series of action points to stop unfair trade practices by China ahead of a crucial EU-China summit in April 2019. 

Background

The European Union (EU) is a political and economic union of 28-member states. The EU has developed an internal single market through a standardized system of laws that apply to all member states. The European Commission (EC) is an arm of the EU that is responsible for proposing and implementing legislation, upholding EU treaties and managing the day-to-day affairs of the Union. 

China is the second largest economy in the world and is the EU’s second-biggest trading partner. The EU is currently China’s biggest trading partner. In the jointly adopted EU-China 2020 Strategic Agenda for Cooperation, the EU reaffirmed its respect for China's sovereignty and territorial integrity, while China reaffirmed its support to EU integration. An annual EU-China Summit is held to discuss political and economic relations as well as global and regional issues, with the next summit slated for April 2019. 

The EU has been caught in the crosshairs of a trade war between its closest political ally, the US and an important economic partner, China. Trump’s protectionist and offensive tactics against Chinese companies such as Huawei, has left the EU questioning their own policies towards China, especially pertaining to tariffs and security risks.

Analysis

On March 12, 2019, the EC released a paper entitled “EU-China – A strategic outlook,” calling upon China to stop unfair treatment of European companies. The document states, “China’s publicly stated reform ambitions should translate into policies or actions commensurate with its role and responsibility.”

The document outlines 10 action points and calls upon the European Council to endorse them. The scope of the action points includes human rights concerns, climate change, security, international institutions, tariffs, labor, environment, state financing, 5G networks and the safety of critical assets. The document comes weeks before the annual bilateral EU-China summit, setting the tone for discussions to come. It highlights the paradoxical tension where Beijing is simultaneously a cooperative partner, an “economic competitor” and a “systemic rival promoting alternative models of governance”

The EU’s identity as primarily an economic union is reflected throughout the document that especially grapples with fiscal grievances, including alleged Chinese failures to protect intellectual property rights. Seeking a “more balanced and reciprocal relationship,” the document chastises Chinese economic practices that restrict access of foreign countries to its markets and stifles competition by subsiding local competitors. 

Another bone of contention is Chinese overseas investment practices that, under the guise of economic growth, seize control of strategic assets and “neglect(s) socio-economic and financial sustainability.” Crucially, these practices circumvent domestic law in recipient countries. Organizations with Beijing-backed financing places foreign rivals of private origin, at a disadvantage. Here, the grievance is centered around takeovers led by Chinese state-subsided firms. The paper calls for the EU to develop a new array of tools to fight such aggressive Chinese trade tactics. One proposed method is the reintroduction of plans that seek to prevent companies from winning the EU’s public procurement contracts if they are based in countries that discriminate against European competitors. 

One such public procurement project is that of 5G networks. Donating an entire action point towards critical digital infrastructure, the document calls for “a common EU approach to the security of 5G networks.” The recommendation comes on the heels of significant debate amongst US-allied powers over the use of Huawei’s hardware. 

Counterpoint

Italy announced its intentions to sign a memorandum of understanding with China backing Beijing’s Belt and Road initiative. Other EU nations, including Malta and Hungary, have also backed the project, highlighting disagreements over China among EU members. Immediately following the EU-China summit, China’s premier, Li Keqiang is slated to join a meeting in Croatia of the 16+1 group, that includes 11 EU members. The EC’s recommendations may fall on deaf ears should consensus not be reached within the economic and political union. 

Assessment

Our assessment is that the EC’s recommendations come at a critical juncture while preparations are underway for the annual EU-China summit. We believe that the document is aimed at setting the tone for the summit and to create certain leverage over negotiations in light of a slowing global economy.

Image Courtesy - Diliff [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)]