European Parliament Sets Out Its Vision for an EU-China Strategy

On September 16, the European Parliament adopted a report that it characterized as setting out "its vision for a new EU strategy on China." The report is wide-ranging, dealing with issues such as human rights, freedom of the press, democracy, rule of law, sanctions, cyberhacking, and surveillance. We highlight here the issues from the report and the accompanying parliamentary debate that have a connection to trade and investment, including the following: China's economic role in the world, carbon border adjustments, movement of people in education, relations with Taiwan, the Comprehensive Agreement on Investment, forced labor, supply chains, the Beijing Olympics, BRI, Pacific trade, dual use goods, and a "level playing field."

During the debate on the Resolution through which the Parliament adopted the strategy, a few of the key points made on economic issues were as follows:

General

Jutta Urpilainen, Member of the Commission, on behalf of the Vice-President of the Commission / High Representative of the Union for Foreign Affairs and Security Policy. –

I believe that our overall approach towards EU China relations, our multifaceted approach that treats China as a partner, competitor and rival, remains valid. We need to engage with China as a key economic partner and political player without whom we cannot address global challenges effectively. At the same time, the EU must continue to speak its mind, stand its ground and push back in areas where fundamental disagreement with China exists, first and foremost on human rights.

CAI and the Olympics

Reinhard Bütikofer, on behalf of the Verts/ALE Group. –

We will continue telling Ms Merkel and all the others that CAI will remain in the freezer until China changes course. We will uphold the solidarity with Lithuania and we are encouraging our leaders not to go to Beijing, not to accept invitations to the Olympics, if the Chinese human rights situation does not change.

BRI

Hilde Vautmans, rapporteur. –

Chinese ‘Belt and Road’ money is pouring into Africa, the Western Balkans and Latin America. It is financing regimes and companies that trample on human rights. Reports of labour exploitation, land-grabbing, pollution and health issues are frequent. I call on our leaders to finally come up with a credible European alternative to the Belt and Road Initiative. We must support sustainable investments which do not exploit workers, which respect the environment and enhance good governance.

Forced labor

Christophe Hansen (PPE). –

An import ban on goods produced with forced labour is long overdue. What is happening in Xinjiang cannot be explained away as a difference of understanding between East and West, as some people are doing here in this House.

Taiwan

Andrius Kubilius (PPE). – …

The government of my country, Lithuania, in the spring decided to leave the so—called 17+1 format, which China created for relations with Central Europe in order to split the EU. Also, our government decided to upgrade relations with Taiwan and decided to open a Taiwanese, not Taipei, representation in Vilnius.

Of course, China became very angry over Lithuania, recalled the ambassador, and our business in China experienced different pressures and sanctions.

Turning to the Resolution, we provide excerpts below of the key points related to economic issues:

European Parliament resolution of 16 September 2021 on a new EU-China strategy (2021/2037(INI))

The European Parliament,

…

4.  Points out that some fields of cooperation such as ICT, space and aerospace can have a dual use application and can be used against Chinese citizens and the West;

5.  Underlines the importance of encouraging China’s commitment to tackling climate change and other environmental issues by reinforcing an EU-China partnership in this field and emphasises the need to ensure that both EU and China adhere to their respective commitments under the Paris Agreement; stresses the importance of the EU implementing a carbon border adjustment mechanism; notes that over the past three decades China has tripled its carbon emissions and it is now emitting 27 % of the world’s greenhouse gases; stresses the need to ensure coherence between China’s announced global ambitions in the fight against climate change and the environmental impacts of its investment strategies at home and overseas; calls on the Chinese Government to refrain from exporting its coal capacity to third countries, notably in the framework of the BRI;

…

8.  Supports the expansion of contacts between peoples on both sides as well as mutual student exchange visits, but encourages the Member States to better monitor the impact of Chinese Government interference in academic freedom;

…

10.  Underlines that the consideration and ratification process for the EU-China Comprehensive Agreement on Investment (CAI) cannot start until the Chinese sanctions against MEPs and EU institutions have been lifted;

…

13.  Calls on China to abide by international standards including with regard to its impact on climate, the environment, biodiversity, poverty, health, labour rights and human rights; urges China, in the context of promoting sustainable trade and development, to take concrete action towards the ratification and implementation of the four outstanding fundamental Conventions of the International Labour Organization (ILO) and the International Covenant on Civil and Political Rights; regrets the fact that several international companies, notably in the apparel and textile sector, have been subject to an extensive and widespread boycott after expressing concerns about the reports of forced labour in Xinjiang and taking the decision to cut supply chain ties with Xinjiang, and strongly condemns the political coercion exercised against them by the Chinese Government; reiterates its request for the Commission and the European External Action Service (EEAS) to swiftly finalise a supply chain business advisory with guidance for companies on the exposure to risks of using Uyghur forced labour and providing support in urgently identifying alternative sources of supply;

14.  Underlines the need to ensure that the internal market legislation, as well as any due diligence framework or forced labour import ban, be efficiently and effectively used in order to exclude entities operating on the EU internal market that are directly or indirectly involved in human rights abuses in Xinjiang; calls further on European companies in China, as part of their corporate responsibility, to undertake a thorough investigation into the use of forced labour in their supply chains;

…

20.  Recommends that the leadership of the EU and the Member States decline invitations to the Beijing Winter Olympics in the event that the human rights situation in China and Hong Kong does not improve and no high-level EU-China Human Rights Summit/Dialogue with a tangible outcome takes place prior to the event;

…

22.  Believes that the future EU strategy on China should provide the necessary tools and data to address the political, economic, social and technological threats stemming from China, including via its BRI, Dual Circulation Strategy, 14th Five-Year Plan, and Made in China 2025, China Standards 2035 and 16+1 policies, including its military modernisation and capacity build-up, and the implications of this for the Union’s open strategic autonomy and for the multilateral rules-based order; notes that there is an urgent need to ensure political will and resources for the implementation of the EU’s Connectivity Strategy; calls for greater coordination between the EU’s Connectivity Strategy and the Blue Dot Network in order to provide a sustainable alternative to the BRI; welcomes the G7 leaders’ agreement to develop a partnership to build back better for the world – the Build Back Better World (B3W) initiative – as an alternative to China’s BRI; calls for EU Member States and institutions to embrace the initiative and contribute to it;

23.  Calls on the Commission to commission an EU-wide audit, broken down by Member State, of EU dependency on China in certain strategically important and critical sectors, including pharmaceutical supplies, if possible at both national and subnational level, building on its recent comprehensive analysis entitled ‘Strategic dependencies and capacities’ (SWD(2021)0352), which sets out plans to reduce risks related to undesired dependencies, while maintaining overall relations with China, which should be as reciprocal and balanced as possible and aligned with the EU’s values and strategic priorities;

…

37.  Welcomes the Council’s intention to reinforce the EU’s strategic focus, presence and action in the Indo-Pacific by launching a new EU strategy for cooperation in the Indo-Pacific, as well as a new strategy for connectivity; notes that any such new strategy should be in conformity with the EU-China strategy;

38.  Deems it pertinent for the Commission to provide timely and comprehensive reports on the Regional Comprehensive Economic Partnership (RCEP) – the world’s largest free trade agreement – in order to assess developments on the ground; is particularly interested in the implications for the EU’s strategic interests of matters such as standard-setting in the Asia-Pacific as well as provisions on rules of origin; notes that while the EU is not a party to RCEP, the agreement will have implications for the EU; highlights the absence of provisions in RCEP on trade and sustainability, including labour and social standards and climate and environmental objectives;

39.  Recalls, in the context of the regional dynamics, the importance of trade and economic relations between the EU and Taiwan, including on matters relating to multilateralism and the WTO, technology and public health, as well as essential cooperation on critical supplies such as semiconductors; notes that Taiwan is a full member of the WTO; reiterates its call on and urges the Commission and the Council to move towards a bilateral investment agreement with Taiwan and to urgently begin the impact assessment, public consultation, and scoping exercise with the Taiwanese authorities;

…

Fostering open strategic autonomy, including in trade and investment relations

41.  Underlines that investment and trade conditionality by itself is not enough to counter Chinese assertiveness; finds that the EU should increase strategic autonomy by addressing other dimensions of the EU-China relationship, notably digital and technological sovereignty; underlines, in this context, the need to invest in innovation and research and to develop a competitive and sovereign industrial strategy in areas including, yet not limited to, microchips and semiconductor production, rare earth mining, cloud computing and telecoms technology, in order to decrease the EU’s reliance on China, always with view to ensuring better coordination of those policies with those of other like-minded liberal democracies, while exploring the potential to pool resources and create new synergies;

42.  Notes that in 2020, in the context of COVID-19, China ranked as the EU’s largest partner for trade in goods for the first time, with the trade balance further deteriorating to the EU’s detriment; recalls, however, that the US is still the EU’s top partner in trade in goods and services combined; believes that China’s economic rise and predicted growth will have a considerable impact on global economic developments over the next decade; points out that for different reasons, mutual investment levels remain below their potential and recognises the economic opportunities that characterise the wider region; considers that the volume of trade between China and the EU will require a rules-based and values-driven framework which needs to be rooted in international norms; stresses that respect for human rights is a prerequisite for engaging in trade and investment relations with the EU and urges China to comply with its international obligations and to commit to respecting human rights;

43.  Underlines the key role of the European Parliament in the EU’s common commercial policy, in international negotiations, and in the oversight, scrutiny, ratification and monitoring of the implementation of trade and investment agreements; highlights the need for the Committee on International Trade to be consulted in a timely and proper manner and urges the Commission and the Council to maintain frequent dialogue and carry out comprehensive reporting, reflecting developments on the EU-China bilateral trade and investment agenda;

44.  Underlines the importance of the EU’s strategic trade and investment relationship with China and calls for the EU Member States and institutions to address China with one voice and in a coordinated manner; considers that investment initiatives under the 16+1 format must not undermine the unity of the EU, nor be counterproductive to efforts to speak with one voice;

45.  Calls on the Commission to analyse the EU’s economic dependencies in strategic sectors, such as critical raw materials, some of which are located exclusively in China, and highlights the urgent need to boost the resilience of European supply chains; calls for efforts to diversify and consolidate the EU’s access to the key strategic resources needed to power the EU’s twin engines of growth, with a particular emphasis on the 30 elements included in the fourth, updated list of critical raw materials in 2020; recalls the overall EU objective to build its open strategic autonomy under the common commercial policy; reiterates the increasing significance of the trade-security nexus in the EU’s international trade policy;

46.  Calls for greater transparency, coherence and coordination between the Member States on matters related to bilateral investment projects and deals, particularly on foreign direct investment (FDI) in strategic assets and critical infrastructure; draws attention to the links between economic dependencies and external political leverage at the level of the Member States; recalls the importance of strengthening the EU FDI Screening Regulation in the future in order to make sure that any potential investments that could pose a threat to the EU’s security and public order, in particular by state-controlled enterprises, are blocked; calls on the Member States to urgently adopt a national screening mechanism if they do not have one yet, in line with the Commission guidance from March 2020;

47.  Is convinced that the EU-China bilateral trade and investment relationship is of strategic importance and should be rules-based, with the multilateral trading system and the principle of reciprocity at its core; reiterates that while there are concerning trends towards economic decoupling, a more assertive enforcement of and adherence to commitments is necessary in the overall trade and investment relationship; calls on China to play a more active and responsible part in the WTO and other multilateral initiatives, matching its economic power with its level of development, and to fully adhere to all of its WTO and international obligations; calls on the Commission and the Chinese authorities to cooperate closely to reform the WTO rulebook in order to foster a more sustainable development, promote the green transition and digital revolution, and bring stability and legal certainty to the international trade arena;

48.  Is concerned about the increasingly unbalanced bilateral economic and trade relationship between the EU and China; stresses that rebalancing and a more level playing field are vital to EU interests; believes that China and the EU must build a level playing field and forge a fruitful relationship in spite of the differences between their respective economic systems; highlights, in this regard, the EU’s ongoing work in strengthening its trade toolbox, while recognising the need to maintain an open dialogue on common challenges such as the global fight against climate change; stresses the urgent need for the EU to complete its range of autonomous measures including a more stringent EU FDI Screening Regulation, legislation on foreign subsidies that distort the internal market, the swift adoption of an assertive and effective international procurement instrument, measures on the export of dual-use technology, an effective anti-coercion instrument, a package of sustainable corporate governance legislation, and supply chain legislation with mandatory due diligence requirements, which should also provide for an import ban on forced labour goods; believes that additional targeted measures under the EU Global Human Rights Sanctions Regime should be considered as necessary;

49.  Repeats its deep concern about the many barriers that European businesses face when accessing and operating on the Chinese market; is worried that China’s ‘dual circulation strategy’ referred to in its 14th Five-Year Plan will further deteriorate the business environment for EU companies; highlights, once again, its particular concern about the market distorting practices such as, but not limited to, industrial subsidies, the beneficial treatment of Chinese state-owned enterprises, intellectual property theft, forced technology transfers and data localisation, industrial overcapacity in sectors such as steel and the related dumping of exports, other unfair trading practices and the overall increasing political interference in the business environment, including the private sector; calls on the Commission and the Member States to step up their cooperation with like-minded partners at the WTO to develop a joint approach to tackle these unfair Chinese trading practices; welcomes the EU-US dialogue on China as a means to cooperate on topics such as reciprocity, multilateralism, market-distorting practices and the economy and other structural issues where EU-US coordination can bring an added value; is convinced of the vital significance of proper information on the legislative and regulatory developments on the Chinese market, given its opaque and state-driven nature; recalls, in this context, the importance of frequent and frank discussions with EU institutions, the European Union Chamber of Commerce in China and all our partners on the ground;

50.  Considers it pertinent to specifically discuss the negative trade-related effects of and possible remedies for distortions caused by the global excess capacity of steel and aluminium, alongside the importance of tackling industrial subsidies at the WTO; urges China to re-engage in the work of the Global Forum on Steel Excess Capacity in order to eliminate overcapacity and restore a level playing field; notes that despite China’s plans to close down outdated production sites and modernise production, its annual crude steel output has set a record for four straight years; encourages the Chinese authorities to follow through with their pledges to reduce the output of crude steel;

51.  Reminds, in this regard, of the links between trade, patents and standards; believes that standardisation and the normative elements of increasing international competition are essential for the EU’s trade policy and should be one the key pillars of its strategic industrial policy; recalls that standardisation is being reported as an area of risk where China may diverge and decouple; highlights that counterfeiting is a top priority for the EU’s efforts in the commercial aspects of intellectual property protection; is concerned that China remains at the origin of a dominant share of counterfeit and pirated goods arriving in the EU in terms of both value and volume; underlines how the EU-China Agreement on Geographical Indications (GIs) represents a first step in the fight against counterfeiting and urges the Commission to step up its efforts to protect the EU’s intellectual property, including patents; is concerned about the emerging practice of Chinese courts claiming worldwide jurisdiction over the determination of fair, reasonable and non-discriminatory licensing terms for standard essential patents, and barring companies from challenging their decisions; underlines that this practice amounts to allowing Chinese companies not to pay a fair price for the use of standard essential patents and endangers European research; asks the Commission to engage with the Chinese authorities on this matter; calls for closer attention to be devoted to infringements in the fields of digitalisation and communications within all the relevant bodies, including the UN’s International Telecommunication Union, together with the EU’s like-minded partners, in particular the US; calls for more policy discussions about the implications of Chinese initiatives such as Made in China 2025 or, increasingly pertinently, China Standards 2035; is concerned, in this context, about China’s increasing digital authoritarianism and its efforts to promote its digital governance model around the world; emphasises the need to conclude the WTO E-Commerce Agreement under the Joint Statement Initiative in order to promote a basic level of openness and a level playing field with China;

52.  Calls for greater attention to be paid to European SMEs that engage in commercial and investment relations with China and welcomes the Commission’s support for SME-friendly initiatives such as the Access2Markets portal, the Rules of Origin Self-Assessment (ROSA) tool or the China Intellectual Property Rights (IPR) SME helpdesk;

53.  Takes note of the conclusion in principle, at political level, of the EU-China CAI, while acknowledging the Commission’s efforts to address shortcomings linked to market access asymmetries, a level playing field and sustainable development through rules-based engagement; recalls, however, that trade relations do not take place in a vacuum;

54.  Calls on the Commission to consult with Parliament before taking any steps towards the conclusion and signature of the CAI; urges China to take concrete steps towards ratifying and implementing the fundamental ILO Conventions Nos 29 and 105 on forced labour; highlights that China has also committed to effectively implementing the ratified ILO Conventions and to working towards the ratification of other ‘up-to-date’ fundamental ILO Conventions;

55.  Notes that 26 EU Member States have old-style bilateral investment treaties with China;

56.  Recalls, however, that the CAI alone would not solve all issues ailing our economic and political relationship, and therefore has to be considered in the context of a strengthened and more assertive EU toolbox of unilateral measures; underlines that the European Parliament would scrutinise the agreement thoroughly, including the section on sustainable development;

57.  Stresses that proper implementation and effective enforcement would be key determinants of the utility and success of the agreement in redressing structural asymmetries in the trade and investment relationship; highlights the role and relevance of structured and frequent exchanges with the office of the Commission’s Chief Trade Enforcement Officer (CTEO) in efforts to evaluate the future implementation of the CAI provided it is adopted; recalls and reinforces, in this context, the importance of parliamentary diplomacy in facilitating mutual understanding, transparent communication and honest dialogue;

58.  Welcomes the entry into force of the EU-China Agreement on GIs and reiterates the importance of its effective implementation and enforcement on the markets of both parties; welcomes the anticipated expansion of the current agreement to add a further 350 GI names from both sides; underlines that this limited agreement on GIs could serve as a model and basis for future GI agreements; highlights the crucial role that the CTEO will play in monitoring and improving compliance with the agreement; calls on the CTEO to respond immediately should the agreement not be implemented correctly;

59.  Emphasises that China still has a long way to go before it is a free market economy, given the extreme influence the state has on the economy and on businesses’ decisions relating to prices, costs, production and inputs; calls on China, therefore, to take more open-minded measures with regard to its own firms and foreign firms operating in the country;

60.  Calls for increased funding for 5G rollout projects and research into 6G, artificial intelligence (AI) and big data technology, in order to ensure future network security and increased digital sovereignty which will be vital for digitalisation and economic growth, but also for closing the technological gap with China and for eliminating the risks that NATO members and its partners may be exposed to with the integration of China’s 5G technology into the telecommunication networks, as such action could erode the future of democratic governance; calls further for a coordinated EU cybersecurity strategy and for an increase in the Member States’ capabilities in this field, in order, inter alia, to strengthen protection against threats to the EU’s critical infrastructure emanating from third countries, including China;

61.  Underlines the importance of working on AI regulation and on an ethical and civil liability framework for AI systems and affiliated technologies that boosts human-centred and privacy-sensitive innovation, in partnership with key strategic partners that share the EU’s liberal and democratic values; underlines that systems of social scoring are not in line with the EU’s fundamental values; stresses the need for the EU to preserve the rights of the individual; stresses, therefore, that such policies and tools of surveillance should under no circumstances be used in the EU; underlines, therefore, that the EU must work to limit and counter the transnational reach of digital repression;