EU at crossroad on China trade policy; US agenda 'too American'

By Al Mayadeen English
Source: News websites
20 Aug 2023 13:42

A geoeconomics expert says the EU is caught between the US hammer and the Chinese anvil regarding its anticipated future trade policies.

The flags of China and the EU are displayed inside the Great Hall of the People in Beijing (AFP)

Recent US curbs on investments in some areas of the tech industry in China could be merely a power flex given their unilateral nature and risk a weak effect if Europe does not join in.

However, Brussels jumping on the restrictions against its largest trading partner would drag the bloc into the American agenda and pose a major risk to their already fragile economies, South China Morning Post newspaper reported on Saturday.

Last week, US President Joe Biden signed an executive order prohibiting American companies from a list of business operations in "sensitive technologies and products" in China.

The European Commission is also on the path to issue similar measures by the end of the year, yet this plan would prove easier said than done. Moreover, Biden's vague strategy has made the EU's task more difficult.

While senior officials expressed their relief that Washington's bans were "much narrower" than expected - months after reports suggested that the decision will be extra-hawkish - fears of US sanctions targeting European companies remained a real source of concern.

"We want to protect our European citizens and businesses from risks that could arise from sensitive technology and investments flowing out in a way that can threaten international peace and security," said EU trade spokesperson Miriam Garcia Ferrer.

"We are in close contact with the US administration and look forward to continued cooperation on this topic," she added.

More noise than action

The White House document is aimed against investments in Chinese businesses specialized in chip-design software, tech manufacturing, quantum computing, and artificial intelligence. These sectors are primarily dominated by the US, Japan, and the Netherlands, but the Chinese government has been striving to develop domestic alternatives.

According to experts, non-partnering with Brussels on the decision can push European countries to conduct trade with China in euros rather than USD.

"I think there’s a broad recognition, especially with hard lessons learned ... that all of these trade and investment controls are naturally much more effective when they’re multilateral," said Emily Benson, a trade and technology expert at the Centre for Strategic and International Studies.

Benson cited as the example of last year's US-imposed ban on The Netherlands' ASML chipmaker, describing the move as problematic.

European countries were surprised by Washington's diluted restrictions, while experts considered that the United States has made more noise than actions - similar to the "de-risking" policy in comparison to "decoupling". Brussels is now closely monitoring how impactful the measures would be on the Chinese industry before taking any steps.

"It’s actually quite lean and mean," said Maaike Okano-Heijmans, a senior research fellow at the Clingendael Institute, a think tank linked to the Dutch government.

"The difference with this US action compared to the export controls is really remarkable. I think it was a mistake to just unilaterally throw out export controls. There is a realization in the US that this can only be successful if trusted partners are on board."

Despite growing US pressure on Europe to follow suit on the anti-China policy, the continent seems to be less in a hurry as many bloc members downplay the significance of this course of action. Senior officials also admitted to not having a near-future plan to screen China-bound investments.

Too American

During a Washington trip last March, European Commission chief Ursula von der Leyen released a joint statement with Biden hinting at a more aggressive EU approach to investments in China.

"[We] have a common interest in preventing our companies’ capital, expertise, and knowledge from fuelling technological advances that will enhance the military and intelligence capabilities of our strategic rivals, including through outbound investment," the statement read.

Later that month, von der Leyen said, "We are currently reflecting on if and how – Europe should develop a targeted instrument on outbound investment [in China]."

Giving her trade team under three months to pull together a first draft of restrictions, her attitude was considered hasty, leaving observers suggesting that it was circumstantial and only reflected the heat of the moment. Team members were left scrambling to figure out solutions to technical issues regarding cash outflow into Chinese markets and how to track them - something they have not dealt with previously.

But the initial documents were deemed by some European states as "too American", while some also raised concerns that Brussels has indulged in protectionism and is trying to extend a controlling grip on their countries' national securities.

This was not the only criticism against the European Commission's President who was accused of putting the wagon in front of the horse.

Even her senior trade officials were taken aback when she unveiled the creation of a trade and technology council during her visit to India. Likewise, they were not briefed about the intention to impose a prohibition on products manufactured through forced labor, a declaration made during her 2021 State of the Union speech.

"She says jump, we say how high," one official described her plans.

Berlin not too excited

As trade officials are forming a list of critical tech areas as part of the end-of-year screening policy, some reports said it is unlikely there will be a unified vote on the plan - which according to EU laws is required to pass decisions.

Each country's trade volume with China is different, and each of the capital's economies would be vulnerable to investment restrictions to a different extent. This factor would make the process of finding one legislation to fit all near impossible.

Germany, Europe's largest economy, is among countries that have shown a noticeable lack of interest in adopting measures targeting their companies' investments in China, Benson said, commenting on a trip to Berlin during which she met with relevant ministries.

"The best way I can describe it is just a huge eye roll," she said.

Elmar Hellendoorn, a geoeconomics expert at the Atlantic Council, considered that the EU is caught between a hammer and an anvil.

On the one hand, Washington could sanction European companies that break anti-China sanctions and do not yield to US controls while an EU sector-specific embargo could push Beijing to respond, on the other.

"The Europeans need to think carefully about outbound investment," he said.

"Otherwise, the Americans are simply going to say that European companies in which American capital is locked in, well there might be extraterritorial reach for this new executive order."