The EU and China agree to an investment agreement

The European Union (EU) and China reported on December 30 that negotiations for a Global Agreement on Investment (CAI) have concluded in principle.

This agreement follows a call between the Chinese President, Xi Jinping, and the President of the European Commission, Ursula von der Leyen, the President of the European Council, Charles Michel, and the German Chancellor, Angela Merkel, on behalf of the presidency of the Council of the EU, as well as French President Emmanuel Macron.

China has committed to a higher level of market access for EU investors, including some major new market openings.

China is also committed to ensuring fair treatment for EU companies so that they can compete under better playing conditions in China, including in terms of disciplines for state-owned companies, transparency of subsidies, and rules against forced transfer of technologies.

For the first time, China has also agreed to ambitious provisions on sustainable development, including commitments on forced labor and the ratification of relevant ILO core conventions.

Investment

The Agreement will create a better balance in the EU-China trade relationship. The EU has traditionally been much more open than China to foreign investment. This is true when it comes to foreign investment in general. China is now committed to opening up to the EU in several key sectors.

The President of the European Commission said: “Today’s agreement is an important milestone in our relationship with China and for our values-based trade agenda. It will provide unprecedented access to the Chinese market for European investors, allowing our companies 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.»

Executive Vice President and Trade Commissioner Valdis Dombrovskis said: “This agreement will give European companies a huge boost in one of the largest and fastest growing markets in the world, helping them to operate and compete in China. It also anchors our values-based business agenda with one of our most important business partners. We have obtained binding commitments on the environment, climate change and the fight against forced labor. We will work closely with China to ensure that all commitments are fully honored.»

Other issues

The rules negotiated in this Agreement establish a high point of reference in terms of transparency, equality of conditions, market access commitments and sustainable development.

EU work on planned autonomous measures in areas such as grants or due diligence will continue on a priority basis.

The conclusion in principle of the negotiations is a first step in the process; the deliberations for the adoption and ratification of the agreement have not yet been carried out and will be carried out with full transparency.

During the call, the leaders also addressed climate change, the COVID-19 pandemic, Hong Kong and human rights.

They took stock of the overall EU-China agenda, making significant progress on a number of key issues, while serving to underline the EU’s continued expectations and concerns in other areas.

The EU also raised the negotiations for the 2025 Strategic Cooperation Agenda and proposed that negotiators from both sides resume their work now that significant progress has been made in the ISC negotiations.

The EU side recalled its invitation to President Xi to join a meeting of EU-China leaders with the participation of the Heads of State and Government of the EU member states to be held in Brussels in 2021.

Global EU-China investment agreement

Ambitious openness and a level playing field for European investments

In terms of market access for EU companies, China has made significant commitments in manufacturing, the most important sector for EU investment in China.

Manufacturing accounts for more than half of total EU investment, including 28% for the automotive sector and 22% for basic materials. This includes the production of electric cars, chemicals, telecommunications equipment and health equipment, among others.

In addition, China is committed to making EU investments in various service sectors, such as cloud services, financial services, private healthcare, environmental services, international shipping and air transport related services.

In the sectors covered, European companies will gain certainty and predictability for their operations, as China will no longer be able to prohibit access or introduce new discriminatory practices.

The CAI will help level the playing field for EU investors by setting very clear rules on Chinese state-owned enterprises, transparency of subsidies, and a ban on forced technology transfers and other distorting practices.

The agreement includes guarantees that will make it easier for European companies to obtain authorizations and complete administrative procedures. It also ensures access to China’s standard-setting bodies for European companies.

Incorporate sustainability into our investment relationship

The CAI will link the parties in a value-based investment relationship supported by principles of sustainable development. This is the first time that China has accepted such ambitious arrangements with a trading partner.

Among others, China is making commitments in the areas of work and the environment such as not lowering protection standards to attract investment, respecting its international obligations, as well as promoting responsible business conduct of its companies.

In addition, China has agreed to effectively implement the Paris Agreement on climate change, as well as to effectively implement the International Labor Organization (ILO) conventions that it has ratified.

Finally, China has agreed to make continuous and sustained efforts to ratify the core ILO Conventions on forced labor.

Application

The implementation of the commitments in the Agreement will be monitored at the level of Executive Vice President by the EU and Deputy Prime Minister by China.

The dispute resolution mechanism between states that underpins the agreement meets the highest standards found in existing EU trade agreements. The Agreement also creates a specific working group to follow the implementation of issues related to sustainable development, including labor and climate.

Continuation of negotiations on investment protection

The global agreement reached includes the commitment of both parties to try to complete the negotiations on investment protection and investment dispute resolution within two years after signing the CAI.

The common goal is to work towards modernized protection standards and dispute resolution that takes into account the work done in the context of UNCITRAL on a Multilateral Investment Tribunal. The EU’s objective remains to modernize and replace existing Member States’ bilateral investment treaties with China.

Next steps

Both parties are now working to finalize the text of the agreement, which will need to be reviewed and legally translated before it can be presented for approval by the EU Council and the European Parliament.