EU-China relations under strain as controversial investment deal ‘put on ice’

European trade chief says agreement is suspended due to sanctions against Beijing

Angela Merkel and Xi Jinping
German Chancellor Angela Merkel and China’s leader Xi Jinping
(Image credit: Michele Tantussi/Getty Images)

The European Commission has put on hold plans to ratify an investment agreement with China amid tit-for-tat sanctions between Brussels and Beijing.

EU Trade Commissioner Valdis Dombrovskis told AFP that the deal would be suspended “for the moment” as “it is clear that in the current situation, with the EU sanctions against China and the Chinese counter-sanctions, including against members of the European Parliament, the environment is not conducive to the ratification of the agreement”.

The deal was “already on ice”, Politico says, with members of the European Parliament “vowing never to ratify it” after China responded to EU sanctions by placing its own sanctions on “European officials and academics”.

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‘Deteriorating climate’

Efforts to finalise the “massive investment deal” were first put under strain by the EU’s decision to impose sanctions on Beijing in relation to the ongoing persecution of the Uighur minority population in Xinjiang, The Guardian reports.

The sanctions in March were the first time the bloc had imposed measures on China in 30 years, prompting the Chinese foreign ministry to accuse the EU of “grossly” interfering in domestic affairs with sanctions based on “lies and disinformation”, says Euronews.

Brussels and Beijing finalised the “controversial investment agreement” in December following “seven years of marathon negotiations”, The Guardian adds, with German Chancellor Angela Merkel giving talks a “final push” over the line.

Amid ongoing reports of human rights abuses in Xinjiang, the UK, Canada and the US also imposed sanctions on four Chinese officials in March. However, the European Commission has, until now, “been highly defensive of the accord”, Politico reports.

Asked if the deal will be finalised, a spokesperson for Dombrovskis said “we are not there yet”, adding: “Chinese retaliatory sanctions targeting members of the European Parliament and an entire parliamentary committee are unacceptable and regrettable. The prospects for the [agreement’s] ratification will depend on how the situation evolves.”

But the decision to suspend the ratification has been interpreted as “the clearest sign to date” that the commission is “alive to the rapidly deteriorating political climate” between Brussels and Beijing, Politico says.

The decision comes “despite heavy German pressure to get the deal done”, the news site adds, with The Guardian noting that “the Chinese market is especially important to German carmakers and manufacturers who have a large presence in the country”.

‘Politically impossible’

The announcement of the deal late last year “angered China sceptics and human rights activists in Europe”, The Guardian says, with three of the main political parties in the European Parliament refusing to countenance a debate on ratification as long as sanctions on China remain in place.

The left-wing Socialists and Democrats, the centrist Renew Europe and the Greens have all said that they will refuse to engage with the process as long as tit-for-tat sanctions are in force, with EU sources telling Euractiv that their stance is also shared by large sections of the centre-right European People’s Party, the European Conservatives and Reformists and far-right Identity and Democracy group.

Before the announcement that the ratification will be delayed “China had been urging EU leaders to make faster progress on the treaty”, but Dombrovskis’s comments reflect that the deal had become “politically impossible” amid rising tensions, the site adds.

When the deal was agreed, it was seen as a “diplomatic victory” for China’s President Xi Jinping, while advocates in Brussels defended the pact “as a long-overdue opening to China’s vast market that would benefit European companies”, The Guardian reports. It would have seen Beijing loosen its “notoriously stringent rules on foreign companies”, the paper adds, including the “need to operate through joint ventures with local partners”.

The delay will come as a particular blow to Merkel, who was a driving force behind the negotiations and is due to step down as German chancellor ahead of national elections scheduled to take place later this year.

Failing to ratify the agreement would be a “big defeat” for the departing chancellor, The Economist’s Berlin bureau chief Tom Nuttall tweeted, and offers “an opportunity for the various pretenders to her throne to outline a different vision for German/EU-China relations”.

The deal is not off the table completely, but deteriorating relations mean the likelihood of further progress looks uncertain, according to Michael Reiterer, distinguished professor at Brussels School of Governance.

“As long as members of the European parliament are on the sanction list” ratifying the deal looks “impossible”, he told The Guardian.

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