Karl Falkenberg / Feb 2021
That the EU’s new investment agreement with China (CAI) was seen by some as an affront to Washington should never have caused surprise.
After four failed years of Trump’s bilateral Sino-diplomacy, commentators and politicians expected a new and united transatlantic front against Chinese perceived misconduct, in trade, human rights and on Hong Kong.
But according to the deal’s critics, Europe has now brutally dashed those hopes, making an ill-fated, mistimed and ironically Trumpian stab at flying solo on China itself. Some go so far as to describe the EU move as “a geopolitical blunder”.
Even former Commission president Jean-Claude Juncker went so far as to call the deal “cheap” this week.
And yet there is a different, and I would suggest more constructive way of looking at the new EU-China deal, where it forms not the end, but the beginning of a new era in EU-US trade cooperation, on China certainly, but equally on a range of other issues such as climate change and WTO reform.
However, to get such trade cooperation started in earnest, the onus to make the first move lies squarely on the Biden administration, which needs to remove the Trump legacy and rebuild confidence.
For starters, this would mean lifting ill-designed US national security sanctions against exports of EU steel and aluminium products, something the EU called for last week, but the Biden administration makes very little haste with. In return, the Europeans would remove their countermeasures on a range of US products.
Then there are Trump’s economic sanctions against German-Russian pipeline project Nord Stream. Both in the US as in the EU many are convinced the pipeline is a bad idea. Perhaps it is. But even so, sanctioning a close partner is never likely to make that partner seek greater trade coordination.
Precisely because a new Atlantic partnership is sorely needed, it is critical to ground it in sound and mutually accepted assumptions, in the reality of how rules-based trade diplomacy has always worked, as opposed to the world according to Donald J. Trump.
Those in the Biden administration who say the EU should have “coordinated” its negotiations with the US before signing the CAI agreement ignore that reality. The EU does not need Washington’s imprimatur to conduct its international negotiations. Our transatlantic relationship is not a feudal one, as Trump envisaged it.
Yes, Europe and the US are partners, but they are equal partners. In international trade they are also competitors, defending their own commercial interests. And as long as the rules of the game are respected, there is no established practice of coordinating trade deals with third parties.
Certainly, when President Obama was in talks about the TPP, the trade deal for the Pacific, he did not coordinate his plans with Europe. Nor would the EU have expected this.
The European Commission is correct, moreover, to point out it is playing a game of catch up, most notably with America’s own bilateral “Phase One” deal with China, yet another Trump legacy in trade.
President Biden or his Secretary of State Anthony Blinken, who recently accused China of genocide, could have easily announced a plan to revoke Trump’s “Phase One” deal. Had they done so last year, American invitations to coordinate on China would have been harder for the EU to turn down, perhaps even politically impossible.
But once again, there has been nothing of the sort from the Biden administration, no discernable moves to distance itself from Trump’s trade policies and the deal he made with Xi Jinping. The underlying idea of bilateral trade balancing in that deal is a worrying departure from multilateral trade rules. But not a word in President Biden’s first international policy speech at the State Department.
Coordinating trade approaches to an economy the size of China would, let’s be clear, be sensible. However, for this to be possible, the EU and US need to start from a base-line position that is roughly equal. Securing the same rights for investors from all EU Member States as compared to the different pre-existing bilateral agreements is an important achievement for the EU.
Ironically, now that both the EU and the US have their own investment deals with China, the conditions for developing an effective transatlantic partnership in this area may therefore well be better than before.
Both sides have learned in the past that agreeing a deal with Beijing is one thing. Getting to enforce its terms can be very different. Now there is nothing to stop EU and US officials from comparing their respective deals with China and establish a common implementation and enforcement procedure for those agreements.
Compared to trading accusations, it would be an infinitely better use of their time.
However, to get its Western partners to build a broader and united front against China, the US needs to begin by taking a good look in the mirror. Neither CAI nor the EU, but the ghost of Donald Trump is the greatest obstacle to close transatlantic trade coordination.
The sooner Biden banishes it, the better.