MNI SOURCES: New EU Trade Laws Seen Aggravating China Tensions

Rising tensions in EU-China relations are set to ratchet higher this autumn as the European Commission prepares a raft of legislative instruments aimed at many of China's trade and investment policies, as well as targeting Beijing's record on human rights, EU sources say.

The new regulations include an anti-coercion instrument to counter 'economic blackmail', supply chain due diligence which will force companies to vet supply chains for human rights abuses, an international public procurement instrument to establish a level playing field, and a foreign export subsidy instrument.

More broadly, the sources point to an EU gravitational pull back towards the U.S. after the rupture of the Trump years and President Joe Biden's efforts to reaffirm the western alliance, narrowing the EU's room for manoeuvre. Just last week, a senior MEP told MNI Brussels should aim at a new dialogue with Beijing and even a "gradual rapprochement" (MNI INTERVIEW: EU Trade Committee VP Seeks New Dawn With China Aug 3).

But they concede that there are many factors, notably environmental as well as economic cooperation, that greatly complicate a review that Brussels is undertaking this autumn on the bloc's relationship with Beijing.

'SYSTEMIC RIVAL'

"There is an increasing awareness in the EU that China is more of a systemic rival than before. In fact, it's become the dominant factor in relations," one source close to Commission thinking on trade policy told MNI.

"The dilemma is how to take account of the systemic rivalry part, and also the fact that they need China to secure other key policy objectives, such as on climate policy and economic recovery, where trade with China is a must," the source said.

The EU's relations with China this autumn deteriorated sharply in March when the two economic superpowers engaged in tit-for-tat sanctions. The spat put on ice a bilateral Comprehensive Investment Agreement actively promoted by German Chancellor Angela Merkel and which had raised eyebrows in Washington and London.

In its last review of China policy in 2019, the EU described the country as a "negotiation partner, an economic competitor and a systemic rival", but did not emphasise the 'systemic rival' aspect in subsequent public comments. That now appears to be changing, not least because of the lure of Washington.

One concrete manifestation of a revival in EU-U.S. trade cooperation is the EU-U.S. Trade and Technology Council, which will hold its first meeting in September. The TTC remit is to look at a whole range of trade and digital issues, many of which will implicitly target China, such as setting digital rules to ensure democratic values are protected.

"This is another example of how the EU strategy of putting different aspects of China and EU relations into different boxes is not working any more, because in China it's all interrelated with these different points," the EU trade source said.

FUNDAMENTAL SHIFTS

"There have been some fundamental shifts in EU-China relations," says Etienne Soula of the German Marshall Fund's Alliance for Securing Democracy in Brussels, who maintains that Beijing's frequent efforts to denigrate EU Covid policies have played a key role in shifting the EU's view.

"The EU took it personally," Soula says. "This wasn't just about grand games of influence - this was China trying to aggrandise itself to the detriment of the EU. With the vaccination campaigns now, you can see the same thing, with China making ground in Africa and South America, again to the detriment of the EU."

Noah Barkin, an expert in EU-China relations at U.S. research group Rhodium, said: "A lot of people in Brussels are scratching their heads about what a positive agenda for China looks like going forward."

"Unlike Trump, Biden is going out of his way to reach out to the EU and that makes it harder to say no to the US on China," he added.