CHINA, THE USA AND THE EU – A G3 MECHANISM FOR DIALOGUE AND COOPERATION

As the global landscape evolves from a bipolar to a multi-polar world, the international community is also undergoing a transformation. After over two decades of robust development, the global economy is now facing a recession following a pandemic lasting 3 years whose nature has not been seen in nearly a century. The pandemic has laid bare daunting issues: the gap between advanced economies and developing countries, rising populism, the Russia–Ukraine conflict, the climate crisis along with the potential risks of emerging technologies like generative AI.

These global challenges make it imperative that China, the United States and Europe, as the top three economies, form a kind of ‘G3’ mechanism for regular high-level dialogue and coordination to lead the recovery of the world economy and the governance of international affairs. These three major players possess the ability to put issues on the agenda and discuss solutions in areas of common concern and global challenges and to effect change.

This ‘triumvirate of powers’ will most likely be the decisive factor in how globalisation and new paradigms of global governance are developed and implemented. There are several issues the three major players must work together on making joint decisions in order for the world to progress in a peaceful and productive way.

First, in terms of impact on the climate, China, the EU and the USA account for around 40% of global greenhouse gas emissions and consume nearly half the world’s energy. Therefore, they hold the lion’s share of the responsibility to lead the charge in sustainable development and, although they have set their own goals for carbon neutrality, the road to a net-zero society is still long, particularly in the context of the Russia–Ukraine conflict, which has led to soaring energy prices.

Second, against a backdrop of both huge economic potential and security concerns, there is a growing consensus that countries should pursue digital sovereignty. The EU was the first economic entity to act in this area by launching the General Data Protection Regulation (GDPR), which entered into force in 2016. This was followed in the USA by the California Consumer Privacy Act (CCPA) in 2018 and China’s Personal Information Protection Law (PIPL) in 2021. However, while these are steps in the right direction, the world also requires more normative agreements and regulations to manage the thriving and dynamic digital economy.

Third, instability in the international community is impeding the effective regulation of global markets. The scarcity of international public goods has to a certain extent led to a widening of the gap between developing and developed countries. China, the USA and the EU recognise this problem and have responded with their own programmes – the BRI, B3W and Global Gateway – in an attempt to resolve the global infrastructure deficit. Yet, the good being done through these programmes could also result in a squandering of resources in the absence of efficient coordination.

Alongside these issues, the Russia–Ukraine conflict has loomed large. The Chinese government states that China plays a more active role in mediating between the two sides because it is an independent and significant third party. Originally a conflict between Russia and Ukraine, the involvement of NATO member countries, including European countries and the USA, meant that Russia was also essentially fighting the West. In contrast, as a country not involved in the war, China has considerable room to mediate.

Recently, a Chinese special envoy visited five countries as well as the EU’s headquarters, following which there was a big push in favour of China playing a major role in mediating the conflict between Russia and Ukraine. Why not hold a Seven-Party Talks summit? Such a summit could include the five permanent members of the United Nations Security Council, plus the EU and Ukraine, which could help to develop a peaceful solution to the Russia–Ukraine issue.

Considering all the myriad issues involved, we at the Center for China and Globalization believe there are seven areas in which a G3 mechanism – with China, the USA and the EU at the core – could focus on in terms of regular high-level dialogue.

Promoting reforms of the WTO

While bilateral or multilateral investment and trade agreements are on the rise, the WTO will remain a central institution for promoting investment and trade facilitation, reducing tariff and non-tariff barriers, and eliminating differential treatment in international trade. Today, it still plays an irreplaceable role in promoting trade liberalisation, optimising global resource allocation, and expanding the production and flow of commodities. WTO reforms would boost the international community’s confidence in the multilateral trading system and multilateralism itself.

In the future, we hope a G3 can take the initiative in WTO reforms to ensure that the WTO once again gives full play to its role in maintaining and mediating international multilateral trade. First, reforms of the WTO could begin with plurilateral agreements in place of multilateral agreements to improve efficiency and implementation. Second, a reformed WTO should fully consider the demands and capabilities of developing countries, and endeavour to find common interests among disagreeing parties, which must also practise patience and maintain a win-win mindset to avoid a zero-sum outcome. Finally, as we enter an era of digital trade, the WTO should take advantage of the potential to promote e-commerce negotiations, enhance digital transitions in cross-border goods and services trade, narrow the digital gap, strengthen privacy protection and ensure fair competition.

Resurrecting the China–EU Investment Agreement

Although China and the EU share extensive common interests and already have a solid foundation for cooperation, over the past 2 years China–EU relations have deteriorated rapidly and an impasse has been reached on the Comprehensive Agreement on Investment (CAI), which had been hailed as the impetus for a second wave of reform and opening up in China. The agreement contains many conditions and benefits not even previously enjoyed by the USA and establishes a more open and higher-level standard for European companies. In an effort to overcome this impasse, China’s National People’s Congress ratified the International Labour Organisation’s 1930 Forced Labour Convention and the 1957 Abolition of Forced Labour Convention, all with a view to revive the China–EU BIT. The resumption of communication would promote negotiation and the lifting of sanctions, allowing the CAI to go into effect as soon as possible. This would be a boon to Chinese and European enterprises.

China, the EU and the USA joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The intensified economic and technical competition between China and the USA has led to a bigger push for the Biden Administration to rejoin the CPTPP, which may provide an opportunity for both countries to come under the pact’s common umbrella. China’s membership could help reduce friction by bringing the country closer to progressive global trade norms, while also adding a new platform for dialogue between China and the USA that could drive a rebound in US–China relations and establish a new channel for China and the USA to resolve trade disputes.

Following the UK’s formal accession to the CPTPP, if the EU, as a unified market, were to join the current high-standard trade agreement, the impact would be even greater. Moreover, a framework economic and trade agreement between China, the EU and the USA within the CPTPP could also provide a template for WTO reform. Lastly, given the booming digital economy in Asia Pacific countries, China has also applied to join the Digital Economy Partnership Agreement (DEPA) initiated by New Zealand and Singapore. It would be an added bonus if the USA were to join the pact to promote regional digital economy in conjunction with China.

Cooperation with the Global South 

A G3 should also emphasise cooperation with global south countries to balance the gap between developing and developed countries. China, as a member of BRICS, has engaged heavily with developing countries in commerce and trade. The BRICS mechanism is an increasingly influential force in the global financial sector and political security. Sub-Saharan African countries have long been economically low on global industrial chains, supply chains and value chains, which means they have had less of a voice in political matters. An established G3 could unleash Sub-Saharan economic potential, including its rich natural and human resources, to close the gaps in regional development. Similarly, as they continue to modernise, Latin American countries have created solid economic foundations and achieved a high degree of global integration. A G3 should assist Latin America in getting out of the middle-income trap, given the region’s waxing clout on global affairs, especially in the context of the climate crisis.

Cooperation on infrastructure projects

At the right time, a G3 could also work to achieve some level of coordination on global infrastructure development by coordinating between the Belt and Road Initiative, the EU’s Global Gateway, and the new Group of Seven Partnership on Global Infrastructure and Investment. If investments under these initiatives are uncoordinated and shaped by geopolitical competition, there is a danger they could lock countries into high-carbon paths for decades to come. Since being launched in 2013, the BRI has become a vector of globalisation, growth and investment in many regions, yet reshaping the BRI into a more multilateral endeavour in the promotion of global governance and development has also become a necessary step in the next phase of its development.

The global demand for investment in infrastructure is clear, but the lack of funding, along with the issue of matching supply and demand, are structural issues that have existed for years in international development financing. Since its launch in 2015, the Asian Infrastructure Investment Bank (AIIB) has operated according to the model and principles of multilateral development banks, adhering to international, high normative standards, and been recognised by multilateral organisations. In the right conditions, it would be possible for the AIIB to cooperate with development banks from the EU and the USA such as the European Bank for Reconstruction and Development and the Inter-American Development Bank to focus more on expanding the scope and regional distribution of infrastructure investment, thereby providing urgently needed funding for eligible infrastructure investment projects around the world.

Cooperation on green development

In somewhat more of a bright spot, green issues may offer a more promising field to forge consensus and meaningful reform. Specifically, China could work with the EU and the USA to promote the creation of a dedicated UN institution focused on climate change given that is a unique crisis that affects many aspects of global cooperation. This would augment the UN, which is already playing a leading role in addressing climate change through the UN Environmental Programme (UNEP) and UN Framework Convention on Climate Change (UNFCCC).

Green development will also reshape the way we deal with products across their entire life cycle, from design and production through to use and end-of-life disposal or recycling. Redesigning this whole process calls for new business models and forms of collaboration across industries and regions. Pressure to reduce carbon emissions and the environmental footprint of products will drive the ‘greening’ of supply chains and encourage multinational enterprises from China, the USA and the EU to adopt green technologies and business models, creating new prospects for cooperation.

For example, the rapid growth of the EV industry will generate increasing demand for lithium-ion batteries. China’s Contemporary Amperex Technology Co., Ltd. (CATL) is currently the world’s largest EV battery maker, accounting for about 30% of the global market. CATL cooperates closely with other MNCs such as America’s Tesla for new EV production, and German chemical company BASF for cathode active materials and battery recycling.

Industry will play a major role in achieving our environmental goals. Enterprises are responsible for a big share of carbon emissions, but it is also their innovation and cooperation that will help to develop the technologies that will make the green transition possible. To fully exploit this potential, more can be done to orient firms towards the environment, social responsibility and corporate governance (ESG) by enhancing green innovation and developing ESG-oriented financing and accountability mechanisms. Governments can also act to promote cross-border economic cooperation to boost green trade and investment.

Cooperation on global data security 

Finally, as the ‘petroleum’ of the 21st century, data is driving the world economy, but it also brings many challenges. Cross-border data flows are critical, yet complexities such as national security, geopolitics, and privacy protection have kept countries from agreeing on promoting free data flows and enhancing data localisation. A G3 could take the lead to establish a D20 that provides countries with a platform to reach a consensus on cross-border data flows in countries with relatively advanced digital economies. In addition, establishing a ‘global data organisation’ would lead the way in creating standards for global data security and data use since the world has yet to reach a comprehensive multilateral solution to either issue.

It is our firm belief that economic cooperation will render military coalitions obsolete. The creation of a trilateral exchange mechanism between China, the USA and Europe, founded on economic, trade and financial development, would contribute greatly to normalising and institutionalising exchanges between the most powerful players in the world today, which would have a global impact.

At present, even though dialogue between China and the USA is strained, it remains very important. The creation of a G3 would provide an alternative path for resolution when relations between the two countries encounter difficulties. While Europe’s values are more oriented to those of the USA, it must also consider China’s importance as an economic partner. China needs to take advantage of Europe’s relatively neutral position on Sino–US relations to play a more active role in coordinating the Russian issue. It is within this global context that a trilateral platform that leverages the strengths of both of the world’s existing and emerging powers would bring the greatest benefit for the international community as a whole and maximise the potential for success in resolving a number of common issues that face the world today.

 

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