Walk the talk on FTA negotiations

Linking agreement to success of investment treaty will not help in identifying interests of both sides and mapping overall scope

Chinese Premier Li Keqiang heralded the deepening of economic globalization through free trade at the World Economic Forum's "Dalian Summer Davos" held recently in the Northeast China coastal city.

A few days earlier in Brussels, at a joint press conference chaired with her French counterpart, German Chancellor Angela Merkel, who helms the largest economy in the European Union, also urged the 28-member bloc to speed up economic globalization by promoting free trade.

Both calls came ahead of the Hamburg G20 Summit to be held on July 7-8.

Following an executive order to pull out of the Trans-Pacific Partnership (TPP) trade agreement, an investigation targeting foreign-made steel was ordered by US President Donald Trump in April under the rarely-used section 232 of the Trade Expansion Act of 1962.

Such a blow was defined as "a purely protectionist's measure" by the European Steel Association.

Rising threats from Washington foreshadow the atmosphere in Hamburg, where leaders of the world's major 20 economies are expected to brainstorm on how to make breakthroughs to resist protectionism.

Given that European countries and China have long sought to explore initiatives to broaden free trade, why don't they jointly walk the talk?

The subject of a free trade agreement has stirred considerable debate between insiders and observers from both sides for quite a while.

Let's wind back the clock to March 2014.

That spring, Brussels rolled out the red carpet for President Xi Jinping, the first Chinese leader to visit the European Union headquarters in the four decades since ties were established in 1975.

In response to President Xi's call for a feasibility study of an EU-China FTA, the EU committed for the first time to opening talks on a free-trade accord if current negotiations on a bilateral investment treaty are successful.

In fact, there were already separate negotiations between the two sides for an upgrade of the 1985 Trade and Economic Cooperation Agreement. But the talks have stalled since 2011 due to divergences between the mandates and expectations of the parties.

Consequently, this historical visit saw a key turning point for a bilateral trade blueprint. However, the clock seems to have been stopped since then.

Feedback remains familiar; that the EU must stick to the step-by-step logic: first BIA, then FTA. In other words, the success of the investment pact is a precondition from the EU's perspective.

In May, the Chinese premier again demonstrated China's commitment to concluding a bilateral investment deal as well as expectations of launching a joint feasibility study on an FTA.

In reality, the atmosphere in Europe has become increasingly defensive in matters of trade.

The tension between the two largest trading partners rose after the EU's recent measures against Chinese steel, and accelerated legislative amendments on a new anti-dumping price-calculation methodology.

Moreover, leaders even discussed a foreign direct investment screening plan at the latest European Council summit. The proposal partly aims at blocking Chinese state-owned companies from investing in strategic sectors of EU member states.

All such actions were taken at the same time as they sought a conclusion of the EU-China comprehensive investment agreement, the objective of which is to ensure European businesses have open equal market access to China, and to protect investors from both sides in each other's markets.

Is it really premature to conduct a joint feasibility study on an FTA now, in a period full of hurdles?

Certainly not. The scenario that studies can't be launched because there are problems is not right.

The purpose of the study is to identify the interests of both sides, map the overall scope and impact, list the barriers and restrictions and potential areas of liberalization, and also to address other related problems including intellectual property, public procurement, competition policy, etc.

The EU and China's GDP accounts for approximately one-third of the global economy. Eurostat, the EU's statistical office, reported a record EU deficit in trade in goods with China of 180 billion euros ($204.40 billion; ￡158.28) in 2015.

But Joseph Francois, managing director of the World Trade Institute, says the deficit is a macroeconomic matter and China's trade surplus should not be an excuse to avoid an FTA study.

According to Pascal Kerneis, managing director of European Services Forum, most issues related to the services sector can be achieved through an investment agreement.

That is to say, apart from goods trading, the services sectors are also interested in an FTA to negotiate further commitments on cross-border services trade, temporary movement of business personnel, and market access in public procurement.

A Brussels-based German diplomat told me recently that the EU is not ready for the start of FTA talks but a feasibility study is certainly possible, which will have to be authorized by the European Commission.

However, the lack of willingness in Brussels is more political than economic or technical.

Another argument why now is the right time is because it will provide an alternative approach to change the status quo efficaciously.

The 14th round of EU-China investment agreement negotiations is likely to take place in July. What matters now is to discover new incentives to rebalance and deepen trade and investment relations.

Although a feasibility study does not always result in a final agreement, it will send a positive signal to each other that both are interested and committed to doing more.

As a result, it's likely to offer a critical window of opportunity during this specific period.

According to the European Commission's report on trade and investment barriers released on June 26 - an increase of 10 percent - European exporters reported 372 barriers around the world last year. But China ranks second on the list countries where the EU succeeded in tackling barriers.

Chinese efforts to strengthen domestic reforms and speed up the opening of domestic markets should not be ignored.

China's State Council on June 16 released a foreign investment negative list for free trade zones in an effort to further ease investment access.

A joint feasibility study on an EU-China FTA will convince many stakeholders and will inspire China's motivation furthermore.

Rome was not built in a day. The launch of a feasibility study is not equal to the launch of negotiations. As the very first step, it is far from a formal initiative of FTA talks.

The process of comprehensive evaluation usually takes a relatively long time with many technical issues involved. If we take the Australia-China FTA as an example, the gap between signing the deal (in 2016) and publishing the feasibility study (in 2005) was over a decade.

The Foreign Trade Association, a business association of European and international commerce representing over nearly 2,000 retailers, importers and brand manufacturers, last year commissioned the Centre for European Policy Studies to conduct an assessment as well as the impact of an EU-China FTA at the time of the Belt and Road Initiative.

They blame the missing piece of puzzle - a timely launch of a feasibility study - on the EU's insufficient trust toward China.

Canada has recently conducted online public consultations on a possible Canada-China FTA. In parallel, the two parties have held two rounds of feasibility and exploratory discussions. Promoting trade and investment in China is part of the mandate of the Canadian minister for trade.

In addition to the ongoing upgrade talks with Zealand and Singapore on their existing FTAs, China has reopened FTA talks with Norway and is actively engaged in China-Japan-Korea FTA negotiations.

In the meantime, preparations for upgrading FTAs with Switzerland and Australia are on the agenda.

There is no reason for the EU, the world's biggest economy and largest exporter of goods and services, to lag behind other advanced economies.

The author is contributing editor based in Brussels for Reference News, a daily newspaper published by Xinhua News Agency. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 07/07/2017 page12)