Foreign Policy Watch: India – EU

Europe’s China gambit will fall short of its stated goals


From UPSC perspective, the following things are important :

Prelims level: Comprehensive Agreement of Investment between China and the EU

Mains level: Paper 2- Contours of the post-pandemic world order

Thought the article is not directly related to India, the conclusion of the investment treaty between the EU and China serves as the prelude to the post-pandemic world order which surely matters for India. The article explains the implications of the agreement.

Investment agreement between EU and China

  • Recently, the EU and China announced the completion of a Comprehensive Agreement on Investment (CAI) between the two.
  • The CAI gives European firms enhanced access to the Chinese market, removes (or relaxes) Chinese government requirements on joint ventures and technology transfer in some sectors.
  • The European Commission has claimed that the CAI allows the EU to maintain its “policy space”, especially in “sensitive” sectors such as energy, infrastructure, agriculture, and public services
  • The deal also promises equal treatment with state enterprises and greater regulatory transparency in China.
  • Moreover, the Chinese government has undertaken some obligations on environmental sustainability and labour rights, notably by agreeing to make “continued and sustained efforts” to ratify the Forced Labour Convention.

Reaction to the agreement

  • The US reaction ranged from disappointment to outright hostility.
  • The incoming Biden administration would have preferred a unified front against China, by striking an economic deal with Europe first.
  • For others, it was the EU’s apparent misjudgement on China’s human rights promises.

Post-pandemic world order and role of democracies

  • The Europe-China agreement underscores a fundamental question of the post-pandemic world order: Can democracies remain true to their values while engaging in trade and investment with China?
  • To answer that, we must recognize two facts.
  • First, it is impossible to decouple the economies of the West from the Chinese economy without causing an economic catastrophe.
  • Second, there is little that Western countries can do to reshape China’s state-driven economic model or repressive human- and labour-rights regime.

What should be the approach in dealing with China

  • The West should pursue more limited, more attainable, and ultimately more defensible goals.
  • Two goals are paramount.
  • First, trade and investment rules should be such that Western firms and consumers are not directly complicit in human-rights abuses in China.
  • Second, such rules should safeguard democratic countries against Chinese practices that could undermine their domestic institutional arrangements on labour, environment, technology, and national security.

Lack of clarity over arbitration mechanism

  • The agreement contains an arbitration scheme that enables the parties to bring violation complaints against each other.
  • Arbitration scheme could serve as a means for the Chinese government to challenge specific entry barriers against Chinese firms.
  • How much this mechanism will be sensitive towards the issues such as treatment given to workers or the environmental protection is not clear.
  • Similarly, how much deference will panels show to exceptions to market access based on “national security” considerations is not clear.


We should not judge the CAI by whether it enables Europe to export its system and values. We should judge it by whether it allows Europe to remain true to its own.

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