On its own, the EU-China investment deal has little hope of holding Beijing to account
- Given China’s history of ignoring bilateral agreements, how can the EU’s modest and incremental investment agreement hope to improve Beijing behaviour in problematic areas?
- A collective approach, rooted in effective transatlantic cooperation, would at least have a fighting chance
Furthermore, while equity restrictions form a formidable barrier to market access, they are hardly the only one. Foreign companies often face other regulatory hurdles, which they can clear only by securing approvals from multiple Chinese government agencies – an often time-consuming and frustrating process.
According to the latest US-China Business Council survey, conducted last spring, securing licensing and related approvals is the sixth-biggest challenge that American firms face when operating in China.
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In any case, the investment agreement’s content is only part of the story: China often disregards its bilateral commitments. Australia is a case in point.
The EU investment agreement’s attempt to address market distortions caused by the Chinese government’s hands-on approach to economic management is similarly dubious. With Chinese firms receiving large subsidies and other official financial help, it has become increasingly difficult for foreign companies to compete, both in China and in third countries.
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To address these distortions, the investment agreement includes provisions to enhance the transparency of services-related subsidies. But its mechanism for discussing other harmful subsidies – where some of the greatest problems lie – is unenforceable.
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Make no mistake: given China’s highly centralised government, its leaders could quickly ratify the ILO conventions. They simply don’t want to. Chinese leaders have consistently resisted international obligations that permit intrusive inspections, including in response to increasingly dire reports of forced labour by Uygur Muslims in Xinjiang.
With the forced-labour issue reportedly the last to be settled in the investment agreement negotiations, it seems clear that sealing the deal required the EU to yield on this vital human rights issue. And for what? This modest and incremental agreement will deliver only limited economic gains to Europe.
The agreement might have made sense in 2013, when negotiations began. But it is certainly not equipped to address the challenge China poses to the global economy today. On the contrary, it may strengthen China’s hand in rebuffing international calls for meaningful reform.
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In deciding whether to approve the investment agreement, the European Parliament and EU member states should think long and hard about China’s track record of disregarding its trade and investment commitments, cutting foreign entities’ market access in informal and opaque ways, and brazenly violating human rights. Such an honest assessment would produce a clear conclusion: bilateral deals are not enough.
But, if history is any guide, no single economy can compel China to change its most problematic behaviour, from excessive subsidies and industrial overcapacity to human rights violations. A collective approach, rooted in effective transatlantic cooperation, at least has a fighting chance.
Wendy Cutler, a former acting deputy US trade representative, is vice-president of the Asia Society Policy Institute. Copyright: Project Syndicate