EU’s latest policy to China: Engagement Trajectories 牛新年快樂

(Kalpakchiev, 2021)

Covid, Vaccines and Diplomacy

Recent investigations over the origin of Covid, be It frozen food samples travelling to China or the Huanan seafood market have an important stake in turning the tides and sentiments in Brussels. While the scenario initially suggested – that the source has been Italy – might result in popular backlash and harm relations, a possible underreported food safety issue related to frozen goods could be beneficial for both parties, including strengthening the control of supplies with common regulations and overall health improvements. Clearly, EU is suffering a major efficiency drawback at the moment due to the decentralized decisions it is reliant upon. UK’s encapsulation means the EU must diversify supply and investigate options for SinoVac and Sputnik V in order to achieve its Vaccine strategy to cover 70% of adult population. Since the EuroMaidan and Crimea, EU is at odds with Russia and the whip diplomacy of Lavrov towards Borell was allowed as lives are at stake. This means that release of trials to a wide basis of Chinese citizens, if possible also expats living on its territory, can enhance the trust. China could then conclusively provide particular volumes of vaccine jabs for procurement.

China could also step up a campaign against fake news – it is possibly less known that countries in Central and Eastern Europe are in state of flux, as claims like microchips (nanotech) being injected with the vaccine keep many people wary. Country-wise Eastern Europe’s Estonia, Latvia, Lithuania, Bulgaria, Romania and Slovenia have shown diminished expectations at the 17+1 Summit, as their permanent representations in Brussels (also HQ of Nato) are influenced by US, which pushes its Intermarium infrastructure connectivity strategy. Conversely, even if it is aimed against Russia, the EU, led by German pragmatism over energy, health and economics, is ready to provide clearance for Sputnik V possibly over similarity with dNA in west Eurasia. If China is willing to make strategic moves, deploying SinoVac to Ukraine and thus winning Poland – US and France’s ally would be reasonable. Turkey’s usage of SinoVac can also act as a bridge towards strengthening the brittle trust that has been re-established between Turkey and Greece after the near war stand-off over Cypriot gas and the Libyan peace accords threated by arms delivery. This is a perfect opportunity for China to shoulder EU’s aspirations in the shared neighbourhood.

Accessing the Green and Digital Deal

China’s 16+1 strategy that has partially materialized into the Thessaloniki-Macedonia-Serbia-Hungary investment corridor brings continuous wariness over potential disruption in internal cohesion and enlargement towards the Balkans. There is mounting pressure in Brussels to improve the scrutiny of public procurement contracts, especially when it comes to distributing the Next Generation EU fund, the Mechanism for recovery and sustainability and React EU, which constitute the Green New Deal. China has strong positions in steel, water dam, railways and photovoltaic industries and the best way to potentially utilize such opportunities is to seek the establishment of common enterprises on EU soil that can implement the Green Deal. At least 19% of national plans are to be distributed for strengthening the digital foundations and nurturing EU digital multinationals. Here, the deployment of 5G networks has been a tricky case. Even if the EU by itself has not singled out China, it has given such discretion to member states themselves, which has been utilized by Sweden, potentially to protect Nokia’s growth. Poland has inferred damage on Huawei’s local reputation by lodging claims that the operator has been spying on national security issues, but has dismissed full ban due to alleged costs for local enterprises. Although Spain has been forced by US to make a strategic choice, bearing in mind Borell’s post, it is unlikely that a mercantilist view of utilizing an opportunity will be discarded. France, being traditionally protective has preferred to gradually sideline Huawei by 2028. Baltic and South East Europe States’ restrictions only point out that this might be a concerted action as a result of external pressures, but in reality they are simply following higher investments from elsewhere. Importantly, Germany plans to allow for a diversification of network suppliers, but focus instead on assemblage and components’ standardisations. Hence, targeting German manufacturers and standardisation agencies, as well as the ENISA cyber certification agency in Greece would make most sense for China. EU’s position on digital sovereignty is rather weak, as it has no semiconductor supply chain, hence it probably seek stronger reciprocity and access to Chinese markets. The digital, trade and innovation separation from the US market gave a lesson to EU companies that the political turmoil might significantly harm production if factories are based there.

Prospective economic developments

The same fears apply to EU’s readiness to extend its Horizon Europe and other twinning programs that are traditionally reserved for partners subscribing to trade agreements and their rules is also waning, as EU companies are said to have restricted access to Chinese standardisation bodies, while having to adjust to local market preferences and digital solutions. China could step up its willingness to participate in common Horizon Europe research and Innovation projects, which would lead to industrial gains and improved trust in R&D supply. Of particular interest to the EU could be nuclear fusion, geospatial observation, electrification of vehicles. The recent the Comprehensive Agreement on Investment can be expected to trigger continued statements on issues regarding labour rights protection, safety nets and the like in China voiced out by the European Parliament in the immediate months, as this is its main possibility to exert pressure. EU think tanks have also watched the Australian case closely, as it showed that continuous rivalry with China might impede partnerships. New local laws addressing market distortions via foreign subsidies of companies, as well as the so-called carbon border tax, which puts levies on carbon dioxide intensive supply chains, are going to be EU’s own arsenal to establish some sort of sovereignty in its partnerships. European companies are probably going to be forced into strengthening diversification of supplies for critical materials, semiconductors, cloud computing equipment, etc. When it comes to bilateral interactions, EU will possibly also look into providing more know how on decarbonisation to China, an offer which it knows will be interesting, as otherwise carbon tax adjustments (to be enacted in around two years) will reduce competitiveness of imported goods. Fears over the long-term absorption of the critical automotive industry supply chain through investments in local e-vehicle production by German companies are mounting, too. One area that has inspired recent developments in the EU is the launch of the digital yuan, which EU has followed suit with plans for digital euro. Interestingly, the EU Central Bank has launched a campaign against bitcoin and cryptocurrencies as volatile investments, a line which resonates well with Chinese policy to restrict private alternatives, as well as improved usage of Euro as reserve currency that can balance the dollarization of emerging economies and reduce external shocks. Hence, China could use its leverage in cloud computing, attempt to seek cyber certifications for transfers between digital yuan and digital euro – something which would facilitate long-distance trade, as well as initiate instruments for technological transfers in carbon reduction and utilization in various sectors in exchange for know-how on e-vehicles.

Division of competences in Brussels

As mentioned above, pressure is mounting in the Permanent diplomatic representations of central and eastern European countries, as they have stepped up collaboration with the United States over fears from Russian aggression. As an externality, the US is forcing them to tune down their engagement with Chinese initiatives, restrict flows of energy and technological goods, etc. There is a particular institutional decoupling evident in Brussels at the moment, as the EU Parliament, whose China delegation is chaired by the Greens, which together with Renew Europe are the strongest human rights defenders, have voiced and will defend further concerns over usage of 5G for collecting evidence over industrial secrets and consumer preferences, labour rights protection, as well as Chinese restrictions over exports of critical raw materials. Environmental regulations over their extraction are planned to be developed via the EU-China and EU-ACP Delegations with the idea that EU will provide know-how in exchange of access to mining. The European Commission, as the exclusive trade negotiation arm on behalf of member states, has stepped up an approach of pragmatic engagement in economics and multilateralism, while leaving other institutions, such as the Parliament and the EEAS to work on contentious issues. Therefore, China could utilize this divide in competences by working with the EU Parliament on common environmental standards for extraction of critical raw materials and exchanging access to its market, which will be mandated to the Commission for servicing common infrastructure projects in the Neighbourhood.

Recommendations for engagement

The best way to work towards better understanding of particular position for Chinese stakeholders remains the usage of large-scale events in the EU Parliament with the support of various industrial associations interested in stronger economic collaboration, producing written analyses and position papers that are endorsed by think-tanks (for example Mercator, Institutio Affari Internationali, Royal Academy of International Affairs, Bruegel, EPC, Clingendael), as well as finding oddly minded parliamentarians, such as those belonging to European Conservatives and reformists, Identity and Democracy and the European People’s Party.

In executing such a strategy, the following recommendations can be taken into consideration:

  1. Collaborate with Turkey and Europe to stabilize Lybia and enable a common Belt and Road trajectory into the AfCTPA
  2. Initiate a common investigation over food safety standards for EU-China trade that can serve as „lessons“ learned platform for deepening relations over regulatory issues
  3. Publish trials of SinoVac and preserve readiness to provide a sufficient volume of Covid-19 vaccines to member states and common partners in need, such as Ukraine and Turkey that can act as a bridge for internal support in EU
  4. Establish common enterprises on EU soil as a way to circumvent the scrutiny of procurement contracts that are to be distributed through Next Generation EU (Green New Deal)
  5. Target German standardisation agencies and the EU ENISA agency in Greece to improve the leverage of Chinese 5G technology
  6. Dismantle fears of industrial espionage by showing willingness to participate in common Horizon Europe research and Innovation projects
  7. Utilize existing policy transfers on cloud computing, certification of digital yuan to digital euro payments, carbon utilization technologies by initiating instruments for these
  8. Deploy reciprocity towards EU institutions by providing gains to the EU parliament as legislator, which will tune down critique, and exchanging market access for access to EU procurement contracts
  9. Seek stronger links with industrial associations in Brussels and plan joint events in the premises of the EU parliament

Background Sources:

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