EU plans tightening foreign investment, with eye on China

BRUSSELS — The European Union is planning to tighten rules on foreign investment in its 27 members and boost production autonomy for sensitive strategic goods, two measures bound to hit China — amid already precarious relations between the two massive trading powers.

The moves comes at a time when the ratification of a business investment deal with Beijing hangs in the balance because of a rapidly deteriorating political climate over accusations that China abuses an ethnic minority.

Brussels has long been unhappy about Chinese subsidy-driven imports driving European producers out of business, and on Wednesday promised rules to make sure that EU industries would no longer be undercut by foreign investors that have faced slacker rules up to now.

Internal Market Commissioner Thierry Breton said that with the proposal, the EU is “closing a gap in our rule book to make sure that all companies compete on an equal footing.”

Battered by the COVID-19 pandemic, the EU economy has taken an unprecedented hit. The virus also laid bare dependencies on strategic products in sensitive sectors, from energy to heath, in which the EU wants to become far more autonomous. That also would come at a cost to Beijing.

EU officials drew up a list of 137 products of high dependency in such sectors as raw materials, active pharmaceutical ingredients and products essential to move the bloc closer to its climate change goals.

“About half of imports of these dependent products originate in China,” said EU Vice-President Valdis Dombrovskis. He called on industry to push through a “diversification of suppliers.”

The planned EU measures on clamping down on trade distortions through foreign subsidies would also affect China. Under the current system in the 27-nation bloc, a massive market of 450 million consumers, subsidies granted by non-EU governments like China do not face the same vetting as those from EU nations.

“Companies have been free to use foreign subsidies to buy up businesses here in Europe. Some have been able to undercut their competitors in public tenders not because they are more efficient, but because they get financial support from foreign countries. And that’s not fair,” said EU Vice-President Margrethe Vestager. “It has to stop.”

The moves comes as relations are at a low ebb. In March, the EU imposed asset freezes and travel bans on a group of Chinese officials in Xinjiang, where Beijing has been accused of rights abuses. China retaliated by slapping sanctions on 10 Europeans, including lawmakers and academics, and four institutions. Beijing said they had damaged China’s interests and “maliciously spread lies and disinformation.”

Amid such an atmosphere, the fate of the investment deal tentatively agreed in December remains unclear. The long-awaited business investment agreement followed seven years of intense discussions.

The EU hopes the agreement, known as CAI, will help correct an imbalance in market access and create new investment opportunities for European companies in China, by ensuring they can compete on an equal footing when operating in the country.

Dombrovskis said, however, that the tentative agreement, which still needs ratification by the European Parliament among others, is still is far from a done deal, especially because of the sanctions.

“The next steps concerning the ratification of a Comprehensive Agreement of Investment will depend on how the situation evolves,” he said.

Raf Casert, The Associated Press