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Update: EU/China Comprehensive Investment Agreement Threatened by Sanction Fallout

As profiled in a January 5, 2021 CIUA Investment Tracker blog post, the new year started off with a landmark investment deal – the Comprehensive Agreement on Investment (CAI) – between the European Union and China. The agreement, set to replace the mix of investment agreements between individual EU member states and China, is currently in the midst of a  lengthy process of pre-ratification translation and scrutiny. 

This agreement, which was criticized, maligned, and even “greeted with a shrug by economists” after it was announced, now faces vast uncertainty following tit-for-tat sanctions between the EU (along with the United States, United Kingdom, and Canada) and China. The sanctions were imposed by the EU on four officials and one “entity” in Xinjiang on the basis of “serious human rights violations and abuses.” Canada, the U.K., and the U.S. subsequently imposed coordinated sanctions in “solidarity” with the EU. China responded with sanctions of its own on 10 individuals and four “entities” in the European Union – ranging from members of European Parliament to the Mercator Institute, a China-focused think-tank located in Germany. Sanctions from China have also now been levied against officials and entities in Canada, the U.S., and the UK

European officials have signalled that the sanctions may prevent the CAI from proceeding. The Financial Times reports that “Valdis Dombrovskis, the EU’s trade commissioner, said that the fate of the freshly negotiated [agreement] was tied up with the diplomatic dispute” and that “the European Parliament’s large centre-left Socialists and Democrats group has already made clear that ending the sanctions against the parliament is a “precondition” for work on ratifying the investment agreement to advance.” The agreement, which already had faced backlash from observers and politicians over its perceived lack of human rights-related accountability, is now facing an uphill battle towards ratification. 

The broader political environment clearly stands in the way of formal international economic cooperation between the West and China. From the EU/broader Western perspective, human rights-related concerns in China are top-of-mind and any future, large-scale bilateral economic agreements must reconcile, and sufficiently address, these concerns. From the Chinese perspective, Western nations are simply “using human rights issues as a pretext for interfering in China’s internal affairs and frustrate China’s development.” Moving forward, it is difficult to imagine a quick reconciliation of these competing viewpoints.

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