The EU-China climate alliance: new plans and old troubles

The EU-China climate alliance: new plans and old troubles

The success of common EU and China climate ambitions will, to a large degree, depend on overcoming persistent disagreement in the fields of trade and investment.

At the 19th EU-China summit, set against the backdrop of US-President Trump’s announcement of withdrawal from the Paris Climate Agreement, the two economies and major emitters of greenhouse gases reconfirmed their commitment to mitigating the effects of climate change. With the 2015 Paris Agreement the 195 signatories commit themselves to reduce the negative impacts of climate change by trying to keep 21st century global temperature rise well below 2 degrees Celsius above pre-industrial levels.

Such an alliance provides unrivaled potential for innovation in energy efficiency and renewable energy sources, which are at the heart of uni- and bilateral efforts for achieving the countries’ respective climate pledges. The decision of the EU and China to take the lead on climate change has been welcomed worldwide, however, the alliance’ efficacy must be doubted. Their economic relations seem to be problematic at the core, as trade and investment reappear as stumbling blocks on the most recent summit. Will the disagreement in trade and investment policy hamper common climate ambitions? It seems so.

Potential constrained

To be sure, EU-China cooperation and effectiveness on climate change holds great potential. EU demand for renewables has stimulated Chinese investment in renewables which has in turn reduced the global price of renewable energy production by 40% since 2010. The cornerstone of the partnership has been the establishment of a nationwide emissions trading system, the development of carbon capture and storage (CCS) solutions and the harmonization of energy labels of appliances, equipment and buildings. An informal 2017 EU-China joint statement, which is more concrete than any before, clearly demonstrates the alliance’s ambitions:

The EU and China recognise the importance of developing global free trade and investment, and promoting the multilateral rule-based system to allow the full development of the low greenhouse gas emission economy with all its benefits.

Still, none of the bilateral initiatives including the EU-China 2016-2020 Roadmap on energy cooperation are binding; collaboration is mainly institutional and project-based. And there is more.

Old troubles emerge

On trade policy the partners seem to be on a different page. A major disagreement concerns the recognition of China as a market economy under the World Trade Organization (WTO) rules. If granted market economy status, the EU will have to use information provided by China for assessing the practice of dumping that is selling a product under production costs. Additionally, China still strongly intervenes in and distorts international trade by subsidizing Chinese exports. Thus, in 2013, the EU imposed antidumping and anti-subsidy duties on Chinese solar power exports.

Investment policy is characterized by lack of agreement, too. Because of business barriers such as investment restrictions and particular procurement rules, placing China on 78th out of 190 countries in terms of ease of doing business, EU foreign direct investment has had a hard time entering the Chinese market. Such obstacles are supposed to be overcome with an holistic EU-China Investment Agreement, which would facilitate market access for EU companies in China and increase the investment flow between the two economies. However, disappointed by the slow pace of negotiations on investment, which were launched in 2013, Germany, France and Italy are calling for the EU to impose limits on Chinese acquisitions, especially in the high tech industry.

In need for solutions

The ideas presented at the 19th EU-China summit are laudable. They present a step forward in addressing climate change and give impetus to green investment and the development of a global low carbon economy. But the lack of a formal joint statement on the matter, likely due to the underlying disagreement in trade and investment, is worrying.

In order to give teeth to the cooperation announced at the summit, trade and investment relations have to be deepened through mutual protection of investment and businesses by means of a formalized Investment Agreement governing the multilateral trading system. Why? Because the success of EU-China climate ambitions will, to a large degree, depend on overcoming persistent disagreement in the fields of trade and investment.

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