EU and China announce an “in principle” investment agreement

On December 30, 2020, after seven years of discussion, Brussels and Beijing announced the conclusion of the negotiations for an “in principle” Comprehensive Agreement on Investment (CAI) between China and the European Union. The deal, the draft of which was released on January 22, was celebrated by the European Commission due to the Chinese commitment to granting a higher level of market access to EU investors, including opening new markets and ensuring fair treatment for EU companies operating in the country. Overall, according to some observers, the CAI is expected to create a better balance in EU-China trade, addressing asymmetries regarding European market openness, although there is room for improvement regarding its labour and environmental provisions.

According to the President of the European Commission, the CAI 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.” Ursula von der Leyen added that the deal “will also commit China to ambitious principles on sustainability, transparency, and non-discrimination. The Agreement will rebalance our economic relationship with China.”

The Europeans praised the CAI for the broader access of EU investments to the Chinese market, enabling competition on a more level playing field in China, including the country’s commitment to disciplining state-owned enterprises, transparency of subsidies, and rules against the forced transfer of technology. Key sectors of the European economy are expected to benefit from the agreement, such as manufacturing, including the production of electric cars, chemicals, telecoms, and health equipment. The Chinese government also committed to EU investment in numerous services sectors, such as cloud services, financial services, private health care, environmental services, and international maritime and air transportation.

As IISD has observed, the EU’s high expectations are due in part to the “negative list” approach, which means that all sectors come under the purview of the agreement, except those specifically listed. Thus, experts have argued that the “negative list” demonstrates the Chinese “determination to promote a wider, broader, and deeper opening-up to the outside world.”

Nevertheless, as schedules and annexes to the agreement have not been released, it may be that China’s commitments do not go beyond domestic reforms such as the Foreign Investment Law, which came into effect last year.

Sustainability and labour

Within CAI’s framework, Brussels and Beijing also agreed on sustainable development, environmental, and climate commitments, including the full implementation of the Paris Agreement and the prohibition of lowering environmental protection standards to attract investment. According to the European Commission, sustainable development issues will be subject to a strict enforcement mechanism by an independent panel of experts.

In addition, the agreement establishes that both parties should adopt corporate social responsibility (CSR) and responsible business practices, as well as the ratification of ILO fundamental conventions, especially commitments on the ratification of the two conventions on forced labour.

The implementation of all commitments outlined in the CAI will be monitored by the EU Executive Vice-President and the Chinese Vice-Premier. The text is now being translated and reviewed by both sides before being submitted to the respective parliaments. The EU and China are committed to finishing up the negotiations on investment protection and investor–state dispute settlement within two years after CAI’s signing.