UPDATED: EU unveils plan to cut dependency on China, others

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The European Union unveiled on Wednesday a plan to cut its dependency on Chinese and other foreign suppliers in six strategic areas like raw materials, pharmaceutical ingredients and semiconductors after the pandemic-induced economic slump.

The 27-nation bloc outlined the urgency of the task citing Europe’s reliance on China for about half of 137 products used in sensitive ecosystems, mainly raw materials and pharmaceuticals and other products key to the bloc’s green and digital goals.

The updated industrial strategy plan was devised after the COVID-19 pandemic showed bottlenecks in supply chain and the executive European Commission plans to conduct in-depth reviews of supply chains in raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors and cloud and edge technologies, to decide how to deal with them.

“Today’s updated Industrial Strategy is about making sure our industries are equipped to drive the digital and green transformations of our economy while ensuring the competitiveness of our industries, also in the context of the recovery from the coronavirus crisis,” European Commission Vice-President Margrethe Vestager told a news conference.

The EU measures could include “diversifying supply and demand relying on different trading partners whenever possible, but also stockpiling and acting autonomously whenever necessary”, the 19-page document said.

To reduce import dependency, EU countries could pool resources for Important Projects of Common European Interest (IPCEIs) in next-generation cloud, hydrogen, low-carbon industry, pharmaceuticals and a second IPCEI on cutting-edge semi-conductors.

An IPCEI would allow EU governments to pump in funding under easier state aid rules and for companies to work together on the entire range of the project, from design to production and downstream applications. 

Earlier, the European Commission has dialled down efforts to promote its planned investment agreement with China, recognising that EU lawmakers will not approve any such deal while Beijing maintains sanctions on five of their colleagues.

The Commission said in a statement on Wednesday the China comprehensive agreement on investment (CAI) could not be divorced from other EU-Chinese developments and that the sanctioning of EU lawmakers was “unacceptable and regrettable”.

“The prospects for CAI’s ratification will depend on how the situation evolves,” the Commission said.

That came after EU trade chief Valdis Dombrovskis told Agence France-Presse on Tuesday the EU executive had “in a sense” suspended political outreach activities and that the environment was not conducive for ratification of the agreement.

The EU executive has hailed the CAI, struck at the very end of 2020, as a means to redress unbalanced economic ties.

But concerns over China’s human rights record and scepticism from the United States had already cast doubt on the deal’s approval process even before China’s tit-for-tat sanctions.

For now, the Commission is giving the agreement a legal review and translating into EU languages, with the parliament only likely to evaluate it in 2022.

Dombrovskis has recognised that the CAI will struggle to secure acceptance in the European Parliament, where Social Democrats and Greens oppose it.

“The Chinese side has badly miscalculated,” German Greens lawmaker Reinhard Buetikofer, one of the five blacklisted members of parliament, told a news conference, adding he did not expect ratification for at least two years.

Bernd Lange, chair of parliament’s trade committee, said the deal was “in the freezer” and would stay there for a long time.

French President Emmanuel Macron and German Chancellor Angela Merkel support the deal, but the CAI will only be ratified after Germany’s election in September, when Merkel will have stepped down.

This could make a difference, particularly if the Greens are part of the next government in Berlin.

China still has strong EU allies, however. Hungary blocked for a second time an EU statement criticising China’s new security law in Hong Kong, diplomats said, in a move likely to undermine efforts to confront curbing of freedoms in the former British colony.

The EU, which aims to support Britain and the United States in upholding human rights in Hong Kong, was due to issue the formal statement on Monday at a meeting of EU foreign ministers.

Photo: EC – Audiovisual Service