Seeking Strategic Sovereignty: The EU’s Relationship With China and the Indo-Pacific

Like every other country or region in the world, Europe is having to come to terms with China and its more assertive and unavoidable influence on world affairs. But the nature of the European Union (EU) and its internal complexities making doing so a major challenge for all its members.

"Who do I call if I want to speak to Europe?" – This question, apocryphally attributed to then US secretary of state Henry Kissinger in the 1970s, remains without a satisfactory answer despite all the efforts of the European Union (EU) to provide one. The reason lies in the institution’s architecture: It is an organization of 27 states, each with their own interests, where achieving cohesion is difficult, a major disadvantage in a fast-changing world requiring swift decisions to address complex problems.

Moreover, the sentiments of EU member states and those of its institutions have never been perfectly aligned. Every policy decision and process is complicated and the “qualified majority rule” (55 percent of members, i.e. 15 states, representing at least 65 percent of the total EU population, have to support a proposal) has limited the quality and ambit of any agreement – a low, if not the lowest, common-denominator solution. And once the members settle on a particular course after lengthy discussions and the reconciliation of all the many national priorities, the tendency has been to stick with the strategy for a long time, even decades.

“An economic giant, a political dwarf, a military worm”

The purpose of the EU was to build an organization on the common purpose of bringing peace to the continent. It focused on soft power since hard power was the business of the North Atlantic Treaty Organization (NATO). It was, therefore, founded on principles and values – peace, solidarity and multilateralism) – and in the decades since its formal establishment, has become one of the world’s biggest economic powers, thanks to its single market (in which four non-EU states also participate).

The EU’s administrative machinery, which is staffed by policymakers from across the membership , has become a “regulatory power”, a worldwide force in setting rules and standards for commerce and investment. In 1991, then Belgian foreign minister Mark Eyskens described the EU as “an economic giant, a political dwarf, and a military worm” – a fitting description that might well still apply today.

Shifts in the EU-US relationship

The EU has so far managed to paper over its weaknesses by relying on its traditional alliance with the United States. Politically, the transatlantic partners share common interests such as the protection and expansion of liberal democracy, the rule of law, and the free market, while depending on NATO for joint security.

The bedrock of the EU-US relationship was shaken, however, in 2011, when the then president Barack Obama announced a “pivot to Asia”, which reflected Washington’s acknowledgement that the geopolitical and geo-economic center of gravity in the world was shifting eastwards. This raised the question of whether Europe’s standing in the US had somehow been diminished. The concerns worsened under Obama’s successor, Donald Trump, who thought nothing about openly and sharply criticizing American allies. “The EU is possibly as bad as China, just smaller,” he complained in 2018. “It is terrible what they do to us.” Trump, a Brexit booster, appeared practically to wish the disintegration from within of the US’s traditional ally.

Breaking EU ranks

By nature, the EU’s structure is a perpetual work in progress, leaving open so many loopholes for other countries to exploit. For instance, 15 EU member states signed memoranda of understanding with China on the Belt and Road Initiative (BRI) without informing the European Commission. That showed that member states were comfortable with China negotiating outside the EU structure. China has also set up BRI agreements with EU candidate countries, potentially complicating their applications. Beijing has applied the same strategy to ASEAN, exploiting bilateralism, avoiding multilateral organizations, and consequently causing divisions.

A decade ago, China even shaped the Cooperation between China and Central and Eastern European Countries initiative, known as the “17+1” forum, which included a dozen EU member states. This grouping, which is aimed at promoting business and investment relations between China and Europe, essentially worked around the EU’s consensus principle. The format has recently appeared to be falling apart, however, as some countries have questioned whether it has resulted in the promised investment from China. In May, Lithuania dropped out of the coalition, calling on fellow EU members to maintain unity in their approach to Beijing.

Impasse over the EU-China Comprehensive Agreement on Investment

China, the Europe’s biggest trading partner, is more important economically for many EU member states than the US. But Chinese activities in Europe have for some time been regarded with suspicion. While the EU was open to Chinese investments, European trade and investment in China have faced impediments. European companies, which depend largely on exports, compete asymmetrically with Chinese state-owned enterprises (SOEs) that benefit from public financing, while in Europe subsidies – state aid – are technically forbidden. This prompted the EU to push Beijing for equal and reciprocal treatment.

Credit: DHL

This strategy bore fruit when in December 2020, after seven years of negotiations, Beijing and Brussels agreed to the Comprehensive Agreement on Investment (CAI). For Europe, the accord provided a way to counterbalance the Chinese state-driven investment strategy and the aggressive blocking of opportunities for European companies in China.

The timing of the deal suggested that China and the EU were hoping to take advantage of the “lame duck” period between US administrations (Biden, who had expressed concerns about the agreement, would not take office until January 2021). The CAI would reinforce China-EU relations and raise the EU’s stakes in the Indo-Pacific region. For Chinese leader Xi Jinping, the CAI could have tempered the expected rebuilding of the US-EU alliance after the beating it took under Trump.

But making haste is simply not the EU’s way. The usual delay in the approval process thrust Biden into the CAI equation. In the European Parliament, the support from mainstream parties appeared solid until some legislators started to criticize China over the issue of human rights of Uyghurs in the Xinjiang autonomous region. Two months after the CAI negotiations concluded, the US, EU, Canada and the UK coordinated sanctions on Chinese individuals. China retaliated with its own sanctions on five Euro-MPs, provoking the delay of the CAI. Two days later, Brussels and Washington announced the launch of the EU-US Dialogue on China to address the “challenges that China presents to the rules-based order that we both subscribe to”.

The drama signaled trouble for the CAI, which remains as yet unsigned. Its future is unclear. Many in the European business sector are dismayed by the impasse, which has blocked improvements to their access to the Chinese market and halted the creation of jobs and efforts to boost competitiveness. The CAI would broaden and level the playing field for companies on each side in the other’s market, result in more transparency in the Chinese subsidy system, and allow for closer monitoring of Chinese investments in the EU in strategic sectors such as energy.

Could China have fulfilled its commitments? The agreement was reached just as Xi was launching his “dual circulation strategy” aimed at building self-sufficiency, which could be seen as the opposite of CAI’s aims. There is also the risk of a sudden rise in unemployment if Chinese SOEs were to act in Europe based on market considerations. Reformers among the Chinese officialdom would have welcomed the wider participation of EU competitors in the China market which would give impetus to their push for restructuring.

In search of strategic sovereignty

Regardless of what happens with CAI, that the EU and China could conclude a deal indicated that they had developed a closer relationship despite the US-China tensions, which had flared up under Trump.

The CAI was a flagship initiative of the EU’s “strategic sovereignty” concept – the idea that Europe can stake out its own independent position on the geopolitical chessboard and avoid getting entangled in the US-China competition. It ties into the calculation that what the EU needs is “more Europe”, that is, more federalism, a prescription which several member states unwilling to give up more autonomy despise.

Some EU leaders believe the organization is not up to the challenge of being a major geopolitical player. The EU “is not a strategic actor”, José María Aznar, a former Spanish prime minister, recently argued, noting that it lacks political will and leadership, and does not have a common defense and security strategy.

The launch in September of the AUKUS partnership among Australia, the UK and the US to supply Canberra with nuclear-powered submarines as well as facilitate cyber-technology cooperation, upset France, which had a conventional sub deal with the Australians. Paris was offended by its treatment by the US and Australia, accusing both of lying.

Yet, while Gallic noses particularly that of President Emmanuel Macron (no fan of either NATO or London’s Global Britain strategy) got out of joint, some EU members quietly viewed the AUKUS arrangement, which is aimed at bolstering the deterrence of Chinese military activities in the Indo-Pacific, to be consistent with Europe’s priorities in the region.

The EU’s Indo-Pacific strategy

As it happened – and it was surely not a coincidence – the EU released its “strategy for cooperation in the Indo-Pacific” on the same day that Biden and his Australian and British counterparts announced the launch of AUKUS. The unveiling of the EU’s approach to Asia was hardly noticed, and the surprise that AUKUS stirred revealed the shocking lack of coordination and consultation with the EU. To add to the awkwardness, also on that very day, the President of the European Commission Ursula von der Leyen delivered her State of the Union Address, in which she announced the “Global Gateway”, an EU connectivity strategy presented in a way that made it seem to be an alternative to the BRI.

“The Indo-Pacific is increasingly strategically significant for Europe,” the EU’s strategy for the region begins. “The EU intends to increase its engagement with the region to build partnerships that reinforce the rules-based international order, address global challenges, and lay the foundations for a rapid, just and sustainable economic recovery that creates long-term prosperity.” The document outlines key commitments including the building of “more resilient global value chains” through enhanced partnerships such as with Japan, South Korea and Taiwan for semiconductors. It undertakes to conclude trade negotiations with Australia, Indonesia and New Zealand, resume talks with Malaysia, the Philippines and Thailand, and forge a trade agreement with ASEAN. It mentions the need to conduct more joint exercises and port calls in the region to ensure maritime security.

China of course is not left out and is mentioned more times than expected, with the issue of human rights repeated in a dozen instances. The strategy does note China’s activities in the South and East China Seas and in the Taiwan Strait, stating that these “may have a direct impact on European security and prosperity”.

Was the publication of the Indo-Pacific strategy a relevant step forward in asserting EU strategic sovereignty? It was to the extent that it set out the European approach to the volatile and polarized region, promoted multilateralism, and expressed some wishful thinking that the US and China avoid the Thucydides Trap of inevitable conflict.

Its own power

The world used to be a place where the EU was comfortable, but times have changed. The global geostrategic landscape has shifted, and the EU should naturally wish to consolidate its members to become a genuine power and not a bystander in a G2 competition.

The EU focuses on geopolitics but with an economic emphasis. One essential way to bolster this approach would be to further an EU-China rapprochement, balancing the risks and opportunities. So far, the EU has been trading with China, while coldly expressing concerns about human rights. There are other topics that require frank bilateral discussion – climate, supply chains, artificial intelligence and other technologies, and the digital economy. These are all issues relevant to the growing relationship between the EU and India, Asia’s other emerging giant.

Shaping a common EU defense strategy in relation to the Indo-Pacific may be difficult because not all European countries feel that China represents a military threat in the way that the US or some Asian countries do. To be sure, the EU has no intention of forging a security alliance with Beijing. As for the growing efforts by the US to contain China as signaled by AUKUS and the Quad, the EU is not all that concerned. AUKUS and any other US actions could eventually inspire the EU to strengthen its relationship with China beyond than trade and investment – the path set out by the CAI, but that is unlikely so long as China behaves more like a partner in the Indo-Pacific than a strategic competitor.