Just as the United States appears poised to adopt restrictions on outbound investment to China and is increasing forced labor sanctions on western China’s Xinjiang province, a new Chinese initiative could undercut those measures and divide the U.S. from European allies.
China and the European Union (EU) signed a Comprehensive Agreement on Investment (CAI) in 2020 to promote free investment flows between the EU and China. The EU never ratified the agreement because China responded in May 2021 to European sanctions on Xinjiang’s forced labor practices with sanctions targeting EU lawmakers and academics. That Chinese response and China’s subsequent support for Russia’s invasion of Ukraine stunned the Europeans and froze the ratification process.
The CAI is cause for concern to the Biden administration because the text, which was concluded just one month before President Biden took office, does not contemplate the possibility that the EU might want to join American-led export controls and outbound investment restrictions on China.
For example, the third paragraph in CAI Section II, Article 3 states that “Neither Party shall directly or indirectly require, force, pressure or otherwise interfere with the transfer or licensing of technology between natural persons and enterprises of a Party and those of the other Party.”
Exceptions might apply, but that provision (probably intended to prevent forced technology transfer) and others should be reviewed and perhaps updated to clarify current conditions, prevent unnecessary litigation and avoid Chinese punitive reciprocity.
China has just launched a campaign to revive the CAI. China’s ambassador to the EU observed on Feb. 8 that the parties should consider simply removing all sanctions and moving on with the agreement. China’s official press reported that the Commerce Ministry hosted a Feb. 9 symposium for European enterprises where an assistant minister reassured participants they were “welcome to continue increasing investment in China and play a positive role in deepening bilateral cooperation.”
Relatedly, China is taking steps to mollify European human rights concerns, a major stumbling block during the seven years of CAI negotiations. Chinese officials will reportedly participate in a human rights dialogue with the EU. The governor of Xinjiang is scheduled to visit Brussels and London within days after that human rights dialogue despite widespread European criticism. The British government agreed to a meeting, but with a mid-level official and for the sole purpose of discussing human rights.
Last April, China also ratified two International Labor Organization (ILO) conventions on forced labor, satisfying a commitment to the EU undertaken during CAI negotiations. We can expect to see Chinese propaganda asserting that these steps reflect Chinese respect for human rights.
Time is of the essence. If China persuades Europe to ratify the original CAI text without clarifications or revisions, China may subsequently claim that any EU participation in multilateral restrictions violates the agreement. China could thus divide and conquer the Americans and Europeans on investment and export control issues by simply following China’s traditional pattern of playing adversaries against each other.
While China is pursuing that strategy, rumors are circulating in Washington that the U.S. will soon introduce new technology and investment restrictions in the form of either presidential executive orders or congressional legislation. The U.S. and EU have discussed export controls and investment screening in the context of the Trade and Technology Council. The Americans hope the EU will join forces in preventing cutting-edge technologies and foreign investments from assisting China’s adaptation of dual-use civilian technologies to military use. The recent Chinese spy balloon incident has increased calls in the U.S. for action
With regard to human rights, the Uyghur Forced Labor Protection Act (UFLPA) and new evidence of human rights abuses in Xinjiang are strengthening American resolve to combat forced labor practices. In December, Congress doubled federal funding to combat forced labor with an FY-2033 appropriation of $101 million. The U.S. government has extended the scope of its China forced labor enforcement efforts from the cotton industry to the solar, aluminum and other manufacturing sectors. The office of the U.S. Trade Representative promised as recently as Jan. 20 that a forced labor trade strategy would be forthcoming “soon.”
It is far from certain that the Chinese will succeed in their under-the-radar campaign to revive CAI or that the Europeans will decide to join U.S.-led multilateral restrictions on China. It is up to the Europeans to decide what is in their best interests, but the lack of transparency regarding meetings between European and Chinese leaders in addition to China’s sudden desire to discuss Xinjiang with European governments are cause for concern. Skeptics have condemned China’s human rights record and cautioned against trusting Chinese assurances in international agreements.
What is clearer is that this recent sequence of events follows China’s past pattern of engaging on human rights only to the extent sufficient to overcome foreign objections and then get on with business. The history of China’s early human rights dialogues dates back to such meetings with the United States in the late 1990s. Those formal, official dialogues produced no tangible results in China. The United Nations human rights conventions the Americans prodded China into signing resulted in no lasting changes in Chinese human rights practices. But parallel discussions of commercial issues resulted in U.S. agreement to admit China into the World Trade Organization in 2001.
So, the Europeans are now where the United States was 25 years ago in the tug-of-war with China over the intersection between business interests and human rights. Caveat emptor.
Jeff Moon is a former assistant U.S. trade representative for China, American diplomat, business executive and consultant.