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European Parliament ponders the price of principle on China

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Hello from Brussels. Today’s big event takes place across the Atlantic in Washington, where the US Senate is holding confirmation hearings for Katherine Tai as US trade representative. Given that she seems to hold no eccentric opinions and is well known on Capitol Hill, it would be a big surprise if her nomination didn’t go through easily.

With Ngozi Okonjo-Iweala set to take over as the World Trade Organization’s director-general on Monday, the big jobs in global trade will all be staffed up and we can get going. We’ll look next week at exactly what we get going on.

Today’s main piece is about the European Parliament trying to satisfy its conscience without creating hostages to fortune over the EU-China investment deal. Tall Tales is another Brexiter illusion encountering unfortunate reality. Our chart of the day looks at why supply bottlenecks are not the only problem facing the EU’s vaccine drive.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to [email protected] or email me at [email protected]

I’ve got chills ‘bout ratifying

(It’s from a song.) It was almost as if European Commission president Ursula von der Leyen was actively trying to rile the European Parliament (EP) over the EU’s bilateral investment deal with China. After jamming through a (still provisional) deal in the dying days of last year, she triumphantly wrote on Twitter that the Comprehensive Agreement on Investment (CAI) “promotes our core values” and “provides us a lever to eradicate forced labour” — a highly quixotic claim given China’s continued oppression of Uighurs. Ouch. For a parliament jealous of its role as ratification gatekeeper and guardian of labour standards in trade deals, this went down badly. 

Two months later and the full agreement, including details of EU companies’ access to China’s market, is still unpublished, and various parliamentary groupings are trying to work out how to use the deal as a lever to make Beijing reduce the practice of forced labour, as detailed here. They’ve got probably a year at least to add amendments or make side agreements before the deal is ready for ratification.

It’s a tricky one. Demanding a partner government ratify an International Labour Organization convention as a precondition of passing a trade deal worked with the EU-Vietnam agreement last year. But Beijing will take less kindly than Hanoi to being ordered about by what it no doubt regards as a gang of interfering neocolonials in Brussels.

Bernd Lange, the German chair of the EP’s international trade committee, comes from the centre-left Socialists and Democrats parliamentary grouping and is somewhere close to the median opinion on trade in the EP. He’s a moderate kind of chap, with his long-term membership of the IG Metall trade union informing his support for labour standards combined with a concern for the commercial interests of industry. Lange played an important role in getting previous deals such as the controversial bilateral agreement with Canada over the line, and will be an important indicator of the parliamentary centre of gravity over the CAI.

Lange insists China must commit to ratifying the ILO core convention on forced labour. “I think CAI only has a chance of being adopted if China makes additional obligations,” he told us. But he hasn’t yet demanded that Beijing do so as a precondition à la the Vietnam deal, rather than making promises about adopting it later. Iuliu Winkler, a vice-chair of Lange’s committee from the centre-right European People’s party grouping, has taken a similarly cautious position.

There’s a credibility problem here. Let’s be honest: Beijing will probably not sign up to — and definitely not implement — effective forced-labour rules for the foreseeable future. Certainly, it won’t do so in time for the EP to deliver French president Emmanuel Macron the gift of presiding over a ratification party for the CAI next year. (France has the rotating presidency of the council of member states in the first half of 2022.) Requiring ratification of the ILO convention as a precondition thus pretty much commits MEPs to voting the CAI down if it is put before them.

That’s a big deal to some. It’s not just Germany with its huge export sector that wants more access to China’s market. Winkler’s native Romania, for example, is a big supplier of inputs to those German manufacturers. “The EU is a union of values but also of interests,” he says.

However, the weaker alternative of ratifying the CAI in return for China producing a cast-iron road map (or some other mixed metaphor, perhaps a concrete timeline or a titanium alloy route-finder) for future action on forced labour is, let’s say, touchingly trusting, given Beijing’s unparalleled skills at bureaucratic obstructionism. There’s not much direct cost to reneging: the labour standards provisions in the deal are not subject to trade sanctions if violated.

Reinhard Bütikofer, a German Green MEP and one of the deal’s most vocal critics, worries that resolve will crumble on the labour issue in a majority of the EP, especially if members’ home governments apply pressure to sign. “If opposition to the CAI hangs from the single nail of forced labour, it will probably fail,” he told us.

Is there another way than choosing between rigid hostages to fortune and soggy naivety? Well, the European Commission is offering one. Its officials, particularly director-general for trade, Sabine Weyand, continually emphasise the wider toolbox of “autonomous” instruments the EU has or is creating against unfair and unethical competition. Sanctions for human rights violations, tools against subsidised takeovers, procurement and competition: China is an obvious target for them all.

As we reported last week, there are also new plans to permit outright blocks on imports made with forced labour. That more targeted approach to labour rights might persuade MEPs to ease off on ILO ratification as a precondition for passing the CAI. As Lange said: “There are several elements in the China strategy and if they go ahead, CAI might get a [EP] majority.”

There’s solid logic to this, but a timing problem. It could take a long time to create and implement those instruments, particularly the proposals for forced-labour import bans. Marie-Pierre Vedrenne, a French MEP from the centrist Renew Europe grouping, said: “Maybe the right strategy is to work first on those other tools and only then to have the CAI.”

That might put off adopting the CAI for a while, perhaps depriving Macron of his 2022 ratification celebration. It could, however, be a good solution for an EP that has worked itself into a state of high dudgeon and might be looking for a way to climb back down with dignity. 

Charted waters

Much has been written (including by us) on the EU’s (mis)handling of vaccine procurement. However, it appears that the problem is not just one of supply bottlenecks but of administration.

Our Europe team reports today that there are delays in using available vaccine doses in several member states — including Germany, France, Italy and the Netherlands — in contrast with rapid deployment in Denmark, Estonia and Lithuania.

Some EU countries are facing a squeeze on vaccine supply. Chart showing per cent of distributed doses administered and total doses distributed

Tall tales of trade

People walk past the Bank of England in the City of London
Brexiters had argued that the EU would always need the City of London to finance its companies © AP

There used to be a Brexiter argument that the EU would always need the City of London to finance its companies, that it would only be damaging its own economies if it tried to steal some of that business and therefore that London’s financial services would thrive outside the EU.

A moment of silence for those Brexiter innocents as this week’s warning from the Bank of England governor sinks in and they realise that, yes, some EU governments would choose a relocation of financial services business to their own economies even at the cost of increasing inefficiency and escalating conflict with the UK. Irrational, isn’t it? Destructive economic nationalism, isn’t it? Well I never. Look in the mirror, guys.

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