After seven years of negotiations, China and the European Union laid the first stepping stone towards a long-awaited investment treaty that promises to open up the Chinese market to European companies. The Comprehensive Agreement on Investments (“CAI”) is the most ambitious agreement in terms of market access, fair competition, and sustainable development that China has ever concluded with a third country, said Valdis Dombrovskis, the EU’s trade commissioner.
THE OUTLINE OF THE CAI
One of the main issues with the CAI was to find principles that would reflect both the spirits of the two parties, China and the European Union. Only having an alignment of values allows building the foundation upon which they can aspire to create an efficient and lasting cooperation and increase the bilateral investments that can most definitely help the EU recover from the economic collapse that covid caused.
The European Commission has released the document that summarises the result of the negotiations of 30 December 2020, reminding however that it is to be considered as ad referendum, meaning that it is not a legal text, but it is subject to finalization of details and further modifications deemed as fundamental by the two parties to be bound by this agreement.
In the preamble, both parties reaffirm their full commitment to the Charter of the United Nations (26 June 1945) regarding the principles articulated in the Universal Declaration of Human Rights (10 December 1948). Both sides have also agreed to promote investment to support high levels of environmental and labor rights protection, including fighting against climate change and forced labor.
Regarding this last part, there has been quite a controversy. In fact, Reinhard Bütikofer, chair of the European parliament’s delegation for relations with China, defined the agreement as a “strategic mistake.” He tweeted that it was “ridiculous” for the EU side to try to sell as “a success” commitments that Beijing has made on labor rights in the deal. Also, rights activists are still scrutinizing the deal closely over allegations that China uses Uighur Muslims detained in large numbers in Xinjiang province as forced labor. Beijing, however, denies these claims.
The document then focuses on several different topics:
- Market access and investment liberalization
- Level playing field (state-owned enterprises, forced technology transfers, transparency in subsidies)
- Domestic regulation
- Transparency in standard-setting
- Financial services
- Sustainable development
- State to state dispute settlement mechanism
- Institutional and final provisions
NEW MARKET ACCESS
The principles stated in the document seem to positively respond to the requests made by the EU upon China, facilitating the way for a never before seen level of access for EU investors in the China market. EU investors will be allowed to set up new companies in key sectors.
The elimination of quantitative restrictions, equity caps, and/or joint venture requirements in various sectors will level the playing field for EU companies in China. This will provide rules to discipline Chinese SOE (state owned enterprises that make un 30% of China’s GDP) behavior, thus guaranteeing transparency in subsidies and facilitating sustainable development.
By binding China at an international level, the CAI will enhance and protect foreign investors’ rights and interests.
In other words, this agreement makes the conditions of market access for EU companies independent from China’s internal policies. Besides, the CAI parties have agreed to establish a unique dispute resolution settlement mechanism in case of any breach.
CONCLUSION
In principle, the conclusion of the CAI negotiations is a turning point in EU- China relations. But we must remember that this is only the first stepping stone towards a new market; the text has not been finalized, and it must be adopted and ratified by all the parties involved.