Why defrosting the EU-China investment deal will be difficult

Good morning. A scoop to start: Kyiv is willing to discuss with Moscow the status of Crimea if its troops reach the border of the Russian-occupied peninsula, a top adviser to president Volodymyr Zelenskyy told the FT.

Today, our Brussels team picks over the carcass of the EU’s moribund China investment deal, and our man in Turkey says a visit by Russia’s foreign minister will test Ankara’s diplomatic dance.

There will be no Europe Express tomorrow or on Monday. Have a great Easter weekend.

Shelf life

Three years ago, EU commission president Ursula von der Leyen hailed the EU-China Comprehensive Agreement on Investment as an “important landmark” in the two economies’ relations.

Today, Brussels views the CAI in a far less positive light, write Sam Fleming and Andy Bounds.

Context: The EU-China deal has been in the deep freeze since 2021 after China slapped sanctions on members of the European parliament in response to EU penalties. Relations have slumped to their lowest ebb in decades, amid tensions over the Ukraine war and Taiwan.

The commission president last week warned that the EU was going to have to “reassess” the deal, in a speech that warned Beijing is becoming “more repressive at home and more assertive abroad”.

The tone from China has been markedly more upbeat.

Fu Cong, China’s ambassador to the EU, last week told the Financial Times that politicians should muster the “courage” and political force to ratify the agreement. Beijing wanted both sides to lift their sanctions to unblock the deal, he said, adding that China was willing to listen to “views or proposals from the other side”.

So why the contrast? In its heyday, the CAI was seen as conferring bigger economic wins on EU business than their Chinese counterparts.

Today, however, it has gained political attractions in Beijing. Any progress would signal that Europe is standing apart from the US and its attempts to decouple significant parts of its economy from China.

As the US-China rivalry hardens, Beijing is eager to seize on anything that suggests deep economic ties with Europe.

As von der Leyen and France’s president Emmanuel Macron meet their counterparts in Beijing today, there is little pressure back home for the CAI to be reheated in its current form.

Among member states there are two camps: those who back von der Leyen’s tougher approach to China, and those that do not think it is tough enough. “I can’t think of anything the Chinese could offer that would revive CAI,” said one EU diplomat.

The BDI, Germany’s business federation, yesterday echoed von der Leyen’s call for a reassessment before ratification can resume.

There are also far more alluring prizes on the EU’s agenda, including an elusive trade deal with the four Mercosur economies in South America.

As Brussels looks at ways of “de-risking” aspects of its trade with China, including outbound investment screening, the CAI — in its current form at least — seems set to remain stuck on the shelf.

Chart du jour: In bulk

Only 2-10 per cent of containers flowing through EU ports every year are actually checked by authorities, according to a report published by Europol yesterday. An easy opening for criminals and drug traffickers: Last year, some 160 tonnes of cocaine was seized in Rotterdam and Antwerp alone.

Balancing act

Russia’s top diplomat Sergei Lavrov begins a two-day visit to Turkey today, testing Ankara’s prowess at managing its relationship with Moscow while appeasing western allies, writes Adam Samson.

Context: Russia has become an increasingly important trading partner for Turkey, after president Recep Tayyip Erdoğan declined to join western sanctions against Moscow, irritating Nato allies. Russia accounted for 5.4 per cent of Turkish exports in February, against 2.3 per cent in the same month last year.

Lavrov’s meeting with his counterpart Mevlüt Çavuşoğlu comes at a delicate time, just over a month before a pivotal election.

Several executives in an Erdoğan stronghold in central Turkey told the FT that they were happy to serve Russia. A number of regular citizens said if it was in their country’s economic interest to retain relations with Moscow, it was the right thing to do.

This matters a great deal to Erdoğan, whose popularity has been severely dented by Turkey’s economic crisis. Analysts say the elections on May 14 will be his toughest test in two decades in power.

Erdoğan has played a pivotal role in the Ukraine conflict that has garnered favour from the EU and the US, including brokering a deal for Ukrainian grain exports and shipping Kyiv inexpensive drones.

But concerns have risen in western capitals over whether Turkey is helping Russia’s war effort by exporting so-called dual use goods: seemingly innocuous items that can also have military applications.

Turkey has said that it found no instances of this and is prepared to investigate if provided with examples.

What to watch today

1. Ursula von der Leyen and Emmanuel Macron meet China’s president Xi Jinping.

2. Sergei Lavrov meets Mevlüt Çavuşoğlu in Turkey.

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