China and E.U. Leaders Strike Funding Deal, however Political Hurdles Await

The heads of state and government of China and the European Union agreed on Wednesday to make it much easier for companies to operate on each other’s territory. However, the landmark pact is met with political opposition in Europe and Washington that could ultimately kill it.

A large group in the European Parliament, which must ratify the agreement before it can enter into force, rejects the agreement on the grounds that it is not doing enough to stop human rights abuses in China. In addition, a top advisor to President-elect Joseph R. Biden Jr. has signaled that the new administration is not happy with the deal.

Chancellor Angela Merkel has made the agreement a priority because of its importance for German automobile manufacturers and other manufacturers with major activities in China.

The agreement will “significantly improve the competitive environment for European companies in China,” said Hildegard Müller, President of the German Association of the Auto Industry, in a statement before the announcement. “It will give new impetus to a global, rules-based framework for trade and investment.”

China’s leader Xi Jinping also made reaching the deal a priority and empowered negotiators to make enough concessions to persuade Europeans to move on.

A video call – including Mr. Xi; Ursula van der Leyen, President of the European Commission; and Charles Michel, President of the European Council, the forum for EU leaders, took place at 1:00 p.m. Brussels time to reach an agreement in principle. An official signature is due to come later and many details remain to be worked out.

European officials said a breakthrough came in mid-December when China made a major concession to increase its commitment to international standards on forced labor. China also agreed to step up its efforts to combat climate change.

Valdis Dombrovskis, the European trade commissioner, said the deal was the “most ambitious” pact of its kind that China has ever agreed to.

“The value of the deal goes beyond euros and cents as it also anchors our value-based trade agenda with one of our largest trading partners,” Dombrovskis said in a statement on Wednesday.

The conclusion of the pact is a diplomatic victory for China, whose international standing has been damaged in terms of dealing with the coronavirus pandemic and crackdown in Hong Kong and the predominantly Muslim province of Xinjiang.

These issues – and the caution of China’s pledges to genuinely open up to foreign investment – became the focus of opposition to the deal as the final details were clarified. For the Chinese, the agreement has shown that the country is not exposed to any diplomatic isolation worth mentioning when it comes to dealing with human rights.

China also appeared keen to reach an agreement before Mr Biden took office in January. He reckoned that closer economic ties with the Europeans could prevent the new government from trying to develop an allied strategy to challenge China’s trade practices and other policies.

Speaking on Monday, Mr. Biden said the United States is “stronger and more effective on all issues that matter to US-China relations when we are flanked by nations who share our vision for the future of the world Share the world. ”

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Dec. Dec. 23, 2020 at 8:59 p.m. ET

Right now, he said, there is “an enormous vacuum” in American leadership. “We need to regain the trust and confidence of a world that has begun to find ways to work around us or without us.”

The White House also opposed the deal, but had little leverage among Europeans to block it. The Trump administration has been trying to isolate China and its businesses for months. She announced new restrictions this week on those tied to the People’s Liberation Army, only to be rejected by countries that are still ready to engage the Chinese.

The decision by the Europeans to overlook objections from Camp Biden was an indication that relations with the United States will not automatically fall back on the relative bonhomie that prevailed during the Obama administration.

President Trump’s fondness for burning bridges with long-standing allies inspired Europe to largely ignore the United States in pursuing trade deals with countries like Japan, Vietnam and Australia. European diplomats said this week that while they hope for a more cooperative relationship with the Biden administration, they could not subordinate their interests to the US election cycle.

The pact relaxes many of the restrictions placed on European companies in China, including the requirement that they operate through joint ventures with Chinese partners and share sensitive technology.

The deal also opens China to European banks and contains provisions to cut secret government subsidies. Foreign companies often complain that the Chinese government is secretly subsidizing domestic companies to give them a competitive advantage.

Members of the European Green Party, among others, say the deal is not enough to open up China’s markets, honor previous commitments on trade and the environment, or tackle human rights abuses, including forced labor and mass internment of Uyghurs and other Muslims in far west Xinjiang.

Opponents may be able to collect enough votes to block ratification in the European Parliament.

The negotiators for China and the European Union have been working on an agreement for nearly seven years, but progress suddenly accelerated after Mr Biden defeated Mr Trump in the elections.

Unlike Mr Trump, who has often been hostile to Europe, Mr Biden is expected to try to work with the European Union to curb Chinese ambitions. However, it could take many months for these efforts to materialize.

United States law prohibits members of the new administration from dealing directly with foreign officials until Mr Biden takes office on January 20. In an interview in early December, Mr Biden said he planned a full review of trade relations with China and consulted allies in Asia and Europe to develop a coherent strategy before making changes to US trade terms.

“I will not take any immediate steps,” he said.

In the meantime, Mr Biden’s advisers have used public statements to warn European officials against rushing to act and to convince them of the benefits of waiting for coordination with the new American administration.

The decision of Mr. Biden to serve as National Security Advisor, Jake Sullivan, wrote on Twitter this month that the new administration would “welcome early consultations with our European partners about our shared concerns about China’s economic practices.”

Chinese officials have been pushing to keep the deal on track in recent weeks, especially after the opposition became public in Europe.

When talks stalled last week, the Chinese Ministry of Commerce said in a statement that the deal “would be of great importance to the recovery of the world economy.” It was said that both sides had to be ready to meet “halfway”, but that China would protect “its own security and development interests”.

Despite the provisions of the treaty on forced labor, Chinese officials have repeatedly denied that the country is practicing in Xinjiang or elsewhere, despite evidence to the contrary. The vehemence of these rejections raises questions about how China can be expected to comply with obligations to protect workers’ rights.

“The so-called forced labor in Xinjiang is an outright lie,” said a Foreign Ministry spokesman Wang Wenbin recently. “Those responsible for such despicable slander should be convicted and brought to justice.”

Ana Swanson reported from Washington, Keith Bradsher from Beijing and Monika Pronczuk from Brussels.

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