Institutionalization, compartmentalization and 'privatization' of conflicts: the driving forces behind EU-China relations, the world's largest trading relationship

Since the establishment of their diplomatic relationship in 1975, China and the EU have developed the world’s largest trade relationship, ahead of the EU-US relationship (€587 billion for the former versus €556 billion for the latter in 2020). 

✍️ Camille BRUGIER

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Since the establishment of their diplomatic relationship in 1975, China and the EU have developed the world’s largest trade relationship, ahead of the EU-US relationship (€587 billion for the former versus €556 billion for the latter in 2020). Despite important supply chains interruptions during the COVID-19 crisis, 2021 was a record year for bilateral trade between the two powers, as it increased by more than €100 billion (roughly the value of Sino-Russian bilateral trade) up to €695 billion. Two aspects specific to the EU-China relationship explain this phenomenal development: the institutionalised compartmentalisation of trade and political affairs on the one hand; and the Sino-European preference for managing trade conflicts within the private framework of their bilateral relationship on the other.

While trade figures are not yet impacted, the nature of the Sino-European relationship has taken a more hostile turn since 2019. In fact, this year marked the beginning of a series of confrontational moves between the two entities. On the Chinese side, sanctions were launched against - among others - European parliamentarians including the Frenchman Raphaël Glucksman, researchers and the German think tank Mercator Institute for China Studies ; sanctions also hit Lithuanian products following the opening of a Taiwanese representative office in Vilnius; On the European side, the European parliament buried the Comprehensive Agreement on Investment (CAI); sanctions against four Chinese leaders because of their role in the repression of the Uighur population were announced; the European Commission characterized China as a "systemic rival" in 2019; it launched specific trade defense tools targeted at China's actions; and most recently two EU complaints against China at the World Trade Organization (WTO): the first concerning trade discrimination practices against Lithuania (31 January 2022), and the second on the protection of intellectual property rights (22 February 2022).

While these tensions and parallel transatlantic rapprochements (US-EU Trade and Technology Council; bilateral settlements of 'old' trade disputes such as the one opposing Airbus to Boeing) do indicate the end of an era, the study of EU-China trade relations prior to 2019 unveils an original and relatively unexplored dimension of China's foreign policy, namely its functioning - but not tension-free - relationship with an actor identified as 'Western' that is non-American. This article seeks to identify the drivers of the EU-China trade relationship, still to this day the most important trade relationship in the world.

1) A highly institutionalized trade policy isolated from political issues

One of the specificities of the EU-China trade relationship until the turn of 2019 is its high degree of institutionalization and the compartmentalization of trade and political issues. The institutionalized setting comprises three pillars: the first deals with political, defense and human rights matters; the second with trade and sectoral issues; the third covers people-to-people exchanges, i.e. education, culture, etc.

European External Action Service, 2015

Figure 1: Pillar architecture of the EU-China relationship
Source : European External Action Service, 2015

The different pillars are constituted by a set of thematic bilateral dialogues, organized at the level of policy officers, which meet at regular intervals according to a pre-established calendar. The discussions are technical - including the human rights dialogue. This institutional setting is singular, especially in comparison with the Sino-US trade relationship, which is not institutionalized and where trade issues are integrated into broader discussions held sporadically at very high-level meetings.

In practice, Sino-EU institutionalization ensures continuity in trade negotiations in the face of the numerous political disagreements the two actors experience, for example on human rights issues. This institutional design was promoted by the EU in the late 1990s after it became clear that punitive measures were ineffective in advancing the cause of human rights in China. Indeed, the arms embargo (still enforced today) imposed by Western countries following the bloody repression of Tian Anmen did not push the Chinese government to integrate human rights into its management of the country. This change of policy on the European side did not mean abandoning intense lobbying of Beijing in favor of human rights, only the benching of the international “shaming” policy targeting China until then. The objective set by the EU was to "socialize" Chinese leaders and technocrats to human rights issues in a private, institutionalized framework of relations that favored recurrent meetings.

The European Parliament, which is much more committed to symbolic sanctions for human rights violations than the European Commission, has recently challenged this "pillar" approach to the relationship. In response to the European Parliament's sanctions against four of its leaders, China led a counter-offensive against a number of European nationals and institutions. The European Parliament, which was then preparing to vote on the ratification of the Comprehensive Agreement on Investment (CAI) signed with China in December 2020 by the European Commission, pushed the latter - without even needing a formal vote - to suspend the ratification process. With this political action, the European parliament also put an end to the compartmentalization of trade and political issues in the Sino-European "pillar" relationship, which had prevailed until then in practice.

In addition to the role of the institutional 'pillar' relationship, the phenomenal expansion of the EU-China trade relationship has also been aided by the bilateral management of their trade disputes. Until 2019, while China and the EU used the multilateral forum of the WTO on an ad hoc basis to signal a major disagreement ('signalling'), they ultimately resolved their disputes within their institutionalized bilateral dialogues.

2) The privatization of conflicts

In the event of a major trade dispute, states have two options, which are not mutually exclusive: 1) negotiate a solution bilaterally, and/or 2) file a complaint with the WTO Dispute Settlement Body - provided both states are members of the institution. In the WTO, when a complaint is filed, the parties conduct "consultations" with each other to find a solution. If they fail to do so within a 60 day period, a 'panel' is set up - a kind of court that decides, after the hearings of both members, whether there was a breach international trade law.

Despite disputes with China over similar products of practices such as steel overproduction, phytosanitary barriers on agricultural products, dumping of solar panels, or export barriers to rare earths - the US and the EU have, until recently, handled these conflicts in radically different ways.

While disputes between Washington and Beijing are more numerous (39 since 2001) and tend to persist, China-EU disputes (16 since 2001) are rarer and seldomly go beyond the "consultation" phase. On many issues, the EU and China were able to find amicable solutions and had the possibility to bring the negotiations back into the institutionalized thematic dialogues and working groups presented above.

This "privatization" of trade disputes has been central to the construction of the EU-China trade relationship, which has become the first trade relationship in the world. It illustrates the specificity of the EU-China relationship. Indeed, privatization was a very strong demand from the Chinese side. For China, "privatization" allowed it to maintain an image of great power, to preserve its prestige in international forums. Indeed, as the "losers" and "winners" of WTO disputes are highly publicized, losing would have led to a weakening of the prestige of the Chinese state on the international scene, but above all vis-à-vis its own population. Since Chinese foreign policy is largely conducted eyeing its own people, the preference for bilateral management was obvious. For its part, the European Union, although very experienced and powerful within the WTO, decided to accede to this request in order to ensure faster and less costly dispute resolution for its companies, but also to preserve its reputation as a "benevolent actor" of international law by protecting itself from possible losses to China.

The EU-China trade relationship has therefore relied heavily on its high degree of institutionalization, the separation of political and commercial issues and the privatization of conflict management to develop into the most important relationship in the world. The turn of 2019 shows a new dynamic at work, notably with the questioning of compartmentalization by the action of the European Parliament. Indeed, while the institutionalization of the relationship persists (working groups and dialogues continue to exist and allow negotiators from both sides to meet), trade issues are permanently intertwined with political affairs. Despite the current contractions of EU-China relations, it is worth questioning the objectives of the EU's strategic shift and its interest in adopting an approach more similar to the US approach - namely a more aggressive approach involving shaming and repeated complaints to the WTO - when to date the US has not obtained more political concessions from China than the EU.

About the author :

Camille Brugier is a China researcher at the Institut de Recherche Stratégique de l'Ecole Militaire (IRSEM) where she specializes in China's trade and foreign relations. She teaches a course on contemporary China at the Le Havre campus of Sciences Po. Before joining IRSEM, she taught for two years at the Toulouse I Capitole Law School and worked for two years for the International Relations Department of the Ministry of Higher Education, Research and Innovation. She holds a PhD from the European University Institute in International Relations.

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June 2022