manufacturing

European Union and China announce Comprehensive Agreement on Investment

The EU and China have been negotiating an investment agreement since 2014. Today, December 30, 2020, the parties announced reaching a deal in principle on the Comprehensive Agreement on Investment. The European Commission released a lengthy press release identifying the key elements of the agreement. European Commission – Press release, Key elements of the EU-China Comprehensive Agreement on Investment, Brussels, 30 December 2020, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2542. The press release is embedded below.

12-30-2020-European-COmmission-press-release-Key-elements-of-the-EU-China-Comprehensive-Agreement-on-Investment

In a separate press release from the EC Directorate-General for Trade today, the following was stated:

“EU and China reach agreement in principle on investment

“The EU and China have today concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI). This deal follows a call between Chinese President Xi Jinping and European Commission President von der Leyen, European Council President Charles Michel and German Chancellor Angela Merkel on behalf of the Presidency of the EU Council, as well as French President Emmanuel Macron. China has committed to a greater level of market access for EU investors than ever before, including some new important market openings. China is also making commitments to ensure fair treatment for EU companies so they can compete on a better level playing field in China, including in terms of disciplines for state owned
enterprises, transparency of subsidies and rules against the forced transfer of technologies. For the first time, China has also agreed to ambitious provisions on sustainable development, including commitments on forced labour and the ratification of the relevant ILO fundamental Conventions.

“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 as regards foreign investment in general. China now commits to open up to the EU in a number of key sectors.

“President of the European Commission, Ursula von der Leyen said: ‘Today‘s agreement is an important landmark in our relationship with China and for our values-based trade agenda. It will provide unprecedented access to the Chinese market for European investors, enabling our businesses 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 Commissioner for Trade, Valdis Dombrovskis, said: ‘This deal will give European businesses a major boost in one of the world’s biggest and fastest growing markets, helping them to operate and compete in China. It also anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combatting forced labour. We will engage closely with China to ensure that all commitments are honoured fully.’

“The rules negotiated in this Agreement set a high benchmark in terms of transparency, level playing field, market access commitments and sustainable development. The EU’s work on planned autonomous measures in areas such as subsidies or due diligence will continue as a matter of priority.

“Today’s conclusion in principle of the negotiations is a first step in the process; deliberations for the adoption and ratification of the agreement are yet to take place and will be conducted in full transparency.

“During today’s 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, recording important 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 Strategic Agenda for Cooperation 2025, and proposed that negotiators from both sides should resume their work now that significant progress has been made in the CAI negotiations. The EU side recalled its invitation for President Xi to join an EU-China Leaders’ meeting with the participation of the Heads of State and Government of the EU member states to be held in Brussels in 2021.”

European Commission, Directorate-General for Trade, Press release, 30 December 2020, EU and China reach agreement in principle on investment, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2233.

Level playing field and sustainable development issues

As noted in my post of yesterday, the “level playing field” and sustainable development interests of the EU that were contained in the EU-UK Trade and Cooperation Agreement are likely to become part of more bilateral, plurilateral and multilateral agreements. Indeed some of these interests are also reflected in the Comprehensive Agreement on Investment with China. While the text of the agreement is not yet available, the embedded press release above contains the following discussion of level playing field and sustainable development issues:

Improving level playing field – making investment fairer

State owned enterprises (SOEs) – Chinese SOEs contribute to around 30 percent of the country’s GDP. CAI seeks to discipline the behaviour of SOEs by requiring them to act in accordance with commercial considerations and not to discriminate in their purchases and sales of goods or services. Importantly, China also undertakes the obligation to provide, upon request, specific information to allow for the assessment of whether the behaviour of a specific enterprise complies with the agreed the CAI obligations. If the problem goes unresolved, we can resort to dispute resolution under the CAI.

Transparency in subsidies – The CAI fills one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the CAI obliges China to engage in consultations in order to provide additional information on subsidies that could have a negative effect on the investment interests of the EU. China is also obliged to engage in consultations with a view to seek to address such negative effects.

Forced technology transfers – The CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to transfer technology to a joint venture partner, as well as prohibitions to interfere in contractual freedom in technology licencing. These rules would also include disciplines on the protection of confidential business information collected by administrative bodies (for instance in the
process of certification of a good or a service) from unauthorised disclosure. The agreed rules significantly enhance the disciplines in WTO.

Standard setting, authorisations, transparency – This agreement covers other longstanding EU industry requests. China will provide equal access to standard setting bodies for our companies. China will also enhance transparency, predictability and fairness in authorisations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in competition cases.

Embedding sustainable development in our investment relationship

“In contrast to other agreements concluded by China, the CAI binds the parties into a value based investment relationship grounded on sustainable development principles. The relevant provisions are subject to a specifically tailored implementation mechanism to address differences with a high degree of transparency and participation of civil society.

“China commits, in the areas of labour and environment, not to lower the standards of protection in order to attract investment, not to use labour and environment standards for protectionist purposes, as well as to respect its international obligations in the relevant treaties. China will support the uptake of corporate social responsibility by its companies.

“Importantly, the CAI also includes commitments on environment and climate, including to effectively implement the Paris Agreement on climate.

“China also commits to working towards the ratification of the outstanding ILO (International Labour Organisation) fundamental Conventions and takes specific commitments in relation to the two ILO fundamental Conventions on forced labour that it has not ratified yet.” (Emphasis in original).

Fact Sheet on the EU and China Comprehensive Agreement on Investment

The European Commission posted today a one page fact sheet reviewing sectors where EU companies have invested in China and summarizing some of the major achievements from the EC perspective. The fact sheet is embedded below.

201229_China_investment_factsheet_final.pdf

Early reactions to the announcement

Early press accounts identify pluses and minuses of the agreement in principle with Chinese media indicating China has continued to protect some of its sectors while securing some improved access to EU manufacturing sectors. The western press have outlined sectors where there are specific improvements and have flagged potential negative reactions from the incoming Biden Administration in the U.S. which has expressed interest in coordinating with the EU on addressing issues with China. There are also questions about whether the European Parliament will find the efforts to address human rights issues in China sufficient to obtain the support of Parliament in the ratification process. See, e.g., South China Morning Post, China-EU investment deal: draft text shows Beijing to broadly open market to European firms, but some sectors remain off limits, 30 December 2020, https://www.scmp.com/economy/global-economy/article/3115842/china-eu-investment-deal-draft-text-shows-beijing-broadly; Financial Times, EU and China agree new investment treaty, 30 December 2020, https://www.ft.com/content/6a429460-4bfb-42d4-9191-73ba97dde130; Bloomberg, EU, China Give Political Nod to Market-Opening Investment Pact, December 30, 2020, https://www.bloomberg.com/news/articles/2020-12-30/eu-and-china-seal-investment-agreement-to-open-chinese-market; New York Times, China and E.U. Leaders Strike Investment Deal, but Political Hurdles (The agreement, which would roll back restrictions on investment, faces some opposition in Europe and objections from the Biden camp), December 30, 2020, https://www.nytimes.com/2020/12/30/business/china-eu-investment-deal.html.

Conclusion

It has been a busy December for the European Union as they have worked to complete both the Trade and Cooperation Agreement with the United Kingdom and to get to an agreement in principle on the Comprehensive Agreement on Investment with China. The investment agreement with China appears from the press releases to move forward on a range of issues that are important to other trading partners including the United States and which may be used by some in ongoing or future negotiations with China. How important the agreement proves to be if ratified will depend on the difference between agreed language and actual practice in China and in the effectiveness of the dispute settlement system that is provided should problems arise with implementation.

Of particular interest to me was the ability of the European Union to achieve both level playing field and sustainability provisions in the agreement. These are core elements of the EU’s negotiating agenda. The acceptance by China holds hope that similar provisions can work in WTO reform.