Globalization Monitor | 1 February 2021
China-EU comprehensive agreement on investment: Ineffective in protecting labour rights and acting on environmental justice
The recent China-EU Comprehensive Agreement on Investment appears to prioritise labour and sustainability issues. But without thinking about environmental action beyond emissions and enacting binding agreements on protecting workers’ rights, both parties fail at making meaningful change for both labour and environmental justice.
Background on CAI
On December 30, 2020, China and the EU concluded talks on the Comprehensive Agreement on Investment (hereinafter referred to as CAI). Both parties committed to the provisions in the agreement in principle. Discussions for the agreement began in early 2013 to address ‘major asymmetries in investment relationships’ and lasted for seven years.
The CAI will open up China’s manufacturing sector to EU companies, as well as construction, air transport, and telecoms. It will also remove joint-venture requirements and caps on foreign ownership in some sectors in China, including automotive, financial services and privatised health services - such as private hospitals in key cities.
The CAI is viewed by many as a symbol of geopolitical relations between China and the EU (and also between these two parties and the United States). But it is also a critical agreement between China and the EU on the issues of sustainable development, environmental and climate justice, labour rights, and democracy. For many Hong Kongers, the city’s hope for a democratic future is also affected. Ursula von der Leyen, who is the President of the European Commission, commented on CAI on December 30: ‘Today’s agreement is an important landmark in our relationship with China and for our values-based trade agenda. It will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs. It will also commit China to ambitious principles on sustainability, transparency, and non-discrimination. The agreement will rebalance our economic relationship with China.’
It is easy to dismiss international trade policies or multilateral agreements as empty words. They often reinforce globalization and related labour and environmental injustices perpetrated by capitalist nation-states. Yet, it is imperative to take stock of what provisions the parties involved have agreed upon. This is because such provisions have the potential to affect workers on supply chains implicated in the agreement. They may allow for development on the lands of marginalised communities. They may also make us reassess our demands on how to push for policies and actions that better support communities and workplaces.
What are the commitments of the EU and China to the environment?
The CAI is regarded as an important agreement in supporting global sustainability objectives because it comes right at the heels of further commitments from both the EU and China in addressing persistent environmental issues and climate change.
For the EU, von der Leyen’s administration has repeatedly asserted that sustainable development and addressing the climate emergency are top priorities in its agenda. In 2019, the European Economic and Social Committee (EESC) stated that sustainable development is one of its core values in globalisation governance. The European Commission also rolled out a European Green Deal in the same year, which provides an action plan to ‘boost the efficient use of resources by moving to a clean, circular economy’ and to ‘restore biodiversity and cut pollution’. EU leaders announced a target of reaching climate neutrality by 2050, and have agreed to decrease domestic emissions to ‘at least 55%’ below 1990s levels. Since the outbreak of COVID-19, the European Commission has also committed to ‘building back better.’ Stimulus packages and economic recovery policies will provide direct investment into green technologies and the just transitions of sectors. This last commitment, which also promises strengthened social and labour protection systems in the EU, requires the ‘mobilisation of public finance and private capital’.
Similarly, China has also set new targets to address climate change and environmental issues. In September 2020, President Xi Jinping announced to the UN general assembly that China would achieve carbon neutrality by 2060. Like the EU, China alsohas made adjustments to its nationally determined contributions to the Paris Agreement: it has agreed to peak CO2 emissions by 2030 or earlier, increase the share of non-fossil energy sources in its overall primary energy supply to around 25% by 2030; lower the carbon intensity of GDP by more than 65% from 2005 levels by 2030, and increase the forest volume by around 6 billion m3. However, unlike the EU, China has made no commitments to centering decarbonisation and tackling other environmental in its COVID-19 economic recovery response. On the contrary, China increased coal production capacity in 2020. And despite promising to invest in green infrastructure, the Chinese government continues to support fossil fuel industries such as oil and LNG. The CAI is seen as an opportunity for China and the EU to increase cooperation in taking climate action in a post-COVID world.
What are the environmental and labour provisions in the CAI?
The CAI makes one of the most recent agreements between China and the EU that touches on environmental and labour issues. Sustainable development has been on the China-EU relations agenda since 2007. Through the Partnership and Cooperation Agreement, the EU and China have had discussions on environmental protection and climate change. These discussions continued in the CAI negotiations in 2020.
The CAI purportedly supports several global sustainability objectives. The EU perceives two environmental commitments from China as ‘unprecedented, meaningful change.’ The first one is that China will effectively implement the Paris Agreement. The second one is that China will support the uptake of corporate social responsibility in Chinese companies. The CAI also includes other provisions related to green sectors and investments. China will remove joint venture requirements in environmental services such as sewage, noise abatement, solid waste disposal, and nature and landscape protection. EU electric car firms also gain the right to operate in China. In return, the EU will give China better access to the renewable energy market (in which China already dominates in terms of photovoltaic panels and wind turbine production, as well as in renewable energy investment). The CAI also demands that China shall not use environmental and labour standards for protectionist purposes. This was an argument China levelled against the EU in last November, when the EU proposed a carbon border tax. This carbon tax would raise the cost of products from countries taking inadequate action against climate change (including China). Seeing this as a trade barrier, China accused the EU of being protectionist. It is unclear as of now why the EU is demanding that China not use environmental and labour standards for protectionist purposes - one speculation is that it is for the same fear of trade barriers.
From a decarbonisation standpoint, China’s agreeing to implementing the Paris Agreement sounds like a good thing. Should China reach carbon neutrality before 2060, it would lower global warming projections by about 0.2-0.3 degrees. Lowering the carbon intensity and increasing its non-fossil fuels shares require stepping away from energy sources such as coal and oil. This will decrease emissions and help further combat air pollution. The provisions on lowering barriers to access renewable energy and electric transport markets may also further the two parties’ efforts in transitioning to a climate-neutral future.
Supporting firms to take up corporate social responsibility (CSR) also sounds good on paper. CSR in a broad sense refers to the responsibility of a company to contribute to the ‘well-being of communities and society they affect and on which they depend’ in addition to the pursuit of profit. The CAI has no roadmap yet on how China will implement this, but China’s Green Belt and Road guidelines on green investment and CSR can give us a sense of how this policy might be implemented. According to those guidelines, corporations will be ‘driven to voluntarily obey local environmental protection laws, regulations, standards and codes, honor environmental and social responsibilities and release annual environmental reports’. Corporations will also be encouraged to prioritize low-carbon, energy-saving, environment-friendly materials and processes, protective measures at or near the site, and R&D efforts on key technologies to address climate change.
However, are these provisions sufficient? So far, China is already on track to hit its peaking and carbon intensity targets. China’s nationally determined contributions (NDCs) are still woefully inefficient to the aim of the Paris Agreement at limiting global warming to 1.5-2°C above pre-industrial levels, despite recent adjustments. This indicates that demanding China to effectively implement its NDCs to the Paris Agreement is picking low-hanging fruit.
The corporate social responsibility agreement is also low-hanging fruit in supporting sustainability. CSRs, especially when implemented in a top-down approach, have failed to meet goals of both environmental protection and ending labour exploitation. Voluntary approaches, such as the one implemented in the CAI, are equally as ineffective. For example, the Bank of China, despite including rhetoric of ‘greenness’ and ‘sustainability’ in its voluntary 2019 CSR report, focused its efforts only on developing green finance and project environmental risk assessments. Its investments in coal projects, in contrast, remain untouched despite the uptake of CSR.
Sustainable development, which we define as transitioning to climate-neutrality in ways that are environmentally just, involves more than decreasing emissions, investing in green technology and energy, and agreeing to support greenwashing CSR campaigns. At the very least, it means trade agreements should be committing to investing in low-carbon industries and providing clear ways in which the agreements can help these low-carbon sectors offer more job opportunities to those who work in high-carbon industries. The low-carbon sectors outlined in the EU Green Deal include not only renewables and electric cars, but also sustainable agriculture, construction (e.g. steel and cement), textiles, plastics, electronics and other transport. However, in the CAI, agreement provisions focus on high-carbon sectors such as air transport and maritime services, as well as energy-intensive sectors such as computer reservation systems and telecom cloud services. China will receive some new concessions on investment in the manufacturing and energy sectors, although its stakes in EU renewable energy companies cannot exceed 5%. The small percentage of allowable access shows that the EU is still unwilling to let go of its comparative advantage in its renewables industry. This indicates that competition, not cooperation, is still the primary geopolitical mechanism in combating climate change. The lack of overlap between Green Deal sectors and CAI sectors also poses the question of whether sustainable transition is, in fact, a top priority in China-EU trade and investment relations.
Moreover, according to the Climate Justice Alliance, just climate transitions mean a shift away from not only the extraction of non-renewable resources, but also from the extraction of labour and communities. There should be a shift towards democratic environmental governance. Workers should be centred and defining transitioning away from polluting industries. Labour rights should be at the heart of CAI talks if both parties took ‘just transitions’ seriously.
One of the labour issues that activists and politicians have been hoping the CAI could being addressing is forced labour. In Xinjiang in particular, China is rounding up Uighur minorities into internment camps and then ‘releasing’ them to work at labour-intensive sweatshops. The government has marketed this forced sweatshop labour as increasing employment and income. However, most of these sweatshops are parts of fossil fuel industries and cotton production. The latter is a fast fashion-supplier industry. Both industries raise many additional environmental concerns.
Currently, China has only ratified four out of eight fundamental conventions of the International Labour Organisation’s (ILO). The CAI is asking China to ratify these standards on forced labour. These include the forced labour convention (ILO C029) and the abolition of forced labour convention (ILO C105), which contain clauses that mandate the signatory to address the causes of forced labour and raise workers’ awareness on how to protect themselves against abusive recruitment and employment practices and how to seek help if needed. If these conventions are ratified by China, along with the continued pressure from EU to allow the formation of labour unions, they would have provided workers (in Xinjiang and otherwise) with more protection against exploitation and extractivist labour, and with more power to organise against environmental injustices that may occur in the workplace.
However, the CAI only has a non-binding commitment from China to work towards ratifying the ILO conventions. The EU will ‘insist upon a calendar’ from China for ratifying the conventions. However, forced labour and other labour injustices are occurring right now, with China denying that such labour conditions are taking place. Even if China ratifies the conventions on forced labour, it is doubtful whether it will honour its commitments in upholding workers’ rights. Moreover, the CAI does not mention allowing union formation. The Agreement will not demand China to ratify other ILO fundamental conventions such as ‘Freedom of Association and the Right to Organize Convention’ (ILO C087) and ‘Right to Organize and Collective Bargaining Convention’ (ILO C098). The Agreement also does not recognise foreign investors’ responsibilities to respect workers’ rights or environmental standards in the host state. Without transparency or binding commitments from investors or the Chinese government to improve workers’ rights and protections against labour violations - forced or otherwise, the CAI falls short on improving on labour rights and making strides towards climate justice.
Where does this leave us?
While the CAI contains certain provisions for decarbonisation, it under-achieves in terms of strengthening labour protections and opening up potential pathways to facilitate just climate transitions in the EU and China. It can have negative impacts on both environmental protection and labour conditions. This is not surprising. In general, investment agreements such as the CAI, as well as NAFTA and the WTO before it, have been completely ineffective in making positive changes on both human rights and environmental justice. It therefore seems pretentious to ‘make recommendations’ for future investment agreements. Rather, it is more pertinent to say that decent labour conditions (including living wages and permanent jobs) and low-carbon sector investments (other than just clean energy) continue to be key areas to keep pressuring for national-level policy change. More importantly, it must be emphasised that both China and the EU have to shift away from the project of modernisation and economic growth, including trade agreements such as the CAI. Instead, degrowth policies and supports for labour-friendly and bottom-up environmental governance should be prioritised in international relations.
 Climate neutrality refers to achieving net zero greenhouse gas emissions. Carbon neutrality refers to only achieving net zero carbon dioxide emissions by balancing carbon dioxide emissions with carbon dioxide removal, either through carbon offsetting or through decreasing or eliminating carbon dioxide production.
 Carbon intensity refers to the amount of carbon emitted per unit of energy consumed.
 A peaking target refers to the project timeline in which a country reaches its peak carbon emissions. China’s target of peaking emissions at 2030 is a very unambitious goal.