EU bid to ratify investment pact with China on hold

The European Commission said "the ratification process of the CAI cannot be separated from the evolving dynamics of the wider EU-China relationship."

The EU-China Comprehensive Agreement on Investment was in limbo after Brussels announced on Wednesday that it had suspended efforts to ratify the agreement as relations between the partners soured amid tit-for-tat sanctions.

A European Commission spokesperson confirmed the news, which was first reported by AFP, saying “the ratification process of the CAI cannot be separated from the evolving dynamics of the wider EU-China relationship.”

They added that the prospects for the deal’s ratification “will depend on how the situation evolves.”

In an interview with AFP, EU Executive Vice President Valdis Dombrovskis said, “We now in a sense have suspended ... political outreach activities from the European Commission side.”

“It’s clear in the current situation with the EU sanctions in place against China and Chinese counter sanctions in place, including against members of European Parliament (that) the environment is not conducive for ratification of the agreement,” Dombrovskis said.

Trying to ratify the deal “will depend really on how broader EU-China relations will evolve,” he added.

Dombrovskis, a former Latvian prime minister, is in charge of spearheading that approval process in the EU, which has already met with pushback from key members of the European Parliament.

After seven years of tough negotiations, the CAI was agreed in principle in late December after getting a final push from Germany.

For now, the commission is giving the agreement a legal review and translating into EU languages, with the parliament only likely to evaluate it in 2022.

Dombrovskis has recognized that the CAI will struggle to secure acceptance in the European Parliament, where Social Democrats and Greens oppose it.

French President Emmanuel Macron and German Chancellor Angela Merkel support the deal, but the CAI will only be ratified after Germany’s election in September, when Merkel will have stepped down. This could make a difference, particularly if the Greens are part of the next government in Berlin.

Unlocking new investment

The CAI holds the promise of unlocking new investment opportunities for both China and the EU. European companies would be granted greater access to rapidly expanding and highly lucrative Chinese industries including manufacturing, health care, and cloud computing.

In return, China would gain limited entry into the bloc’s manufacturing and renewable energy market at a time when the EU was throwing billions of dollars toward a green transition.

The deal also contains provisions on labor standards. China committed to “make continued and sustained efforts” to ratify certain international labor organization conventions. But the pact always faced an uphill battle in the European Parliament.

In late March, the EU imposed sanctions on four Chinese officials and one state-sponsored company it believed to be involved in alleged human rights violations in Xinjiang. It was the first time the 27-member bloc imposed punitive measures on China in 30 years.

The Chinese Foreign Ministry said the sanctions were based “on nothing but lies and disinformation” and that the EU had “grossly” interfered in China’s internal affairs. It added that the sanctions “severely undermined China-EU relations.”

Beijing imposed its own sanctions on 10 Europeans, including five members of the European Parliament, and four entities, including an entire parliamentary committee. The EU spokesperson on Wednesday called the retaliatory sanctions “unacceptable and regrettable.”

Separately, the European Commission proposed rules on Wednesday to restrain companies that benefit from foreign subsidies to buy EU businesses or take part in public tenders.

According to the proposals, a commission investigation would be triggered if it identifies possible distortive foreign subsidies in takeovers of EU companies with a turnover of 500 million euros (US$600 million) or more in the bloc or in procurement contracts from 250 million euros and above.

The rules don’t specifically mention China.

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