EU announces key elements of China-EU comprehensive investment agreement MEPs: review has since crystallized

The European Commission on March 12 published a timetable of commitments agreed under the China-EU Comprehensive Investment Agreement (CAI) agreed in principle by Chinese and European leaders on December 30, 2020. Following the publication of the text of the agreement following the conclusion of the CAI negotiations in January, the market access proposal published on Friday is the next step in the process of adopting and ratifying the agreement, the EC said. It provides the basis for related political deliberations and public debate.

The EC presented that “cumulative EU foreign direct investment in China has exceeded 148 billion euros over the last two decades. China’s total direct investment in the EU is close to €120 billion. In terms of the size and potential of the Chinese economy, the total amount of EU FDI in China is still relatively small”. Valdis Dombrovskis, Executive Vice-President of the EC and EU Trade Commissioner, said, “The Comprehensive Investment Agreement rebalances the EU-China investment relationship. The market access offer announced today demonstrates how it will help level the playing field and provide greater market access for EU companies and investors. The agreement provides a clear and enforceable framework of rules, which will provide EU companies with greater access and more certainty when investing in China.”

For its part, the EC described, “In terms of investment, the China-EU Comprehensive Investment Agreement will be the most ambitious agreement that China has completed with a third country. In addition to rules prohibiting forced technology transfer, the CEIBS will be the first agreement to implement obligations on the conduct of state-owned enterprises, full transparency of subsidies and commitments related to sustainable development.” According to the EC, “The CEIBS will ensure that EU investors have better access to a fast-growing market of 1.4 billion consumers and that they can compete on a level playing field in China. This is important for the global competitiveness and future development of EU industries.”

According to the EC, “By reaching this agreement with the European side, China is ambitiously opening up to European investment: first of all, the China-EU comprehensive investment agreement binds China’s investment liberalization of the last two decades, thus preventing a regression. It makes the market access conditions for EU companies clear and independent from China’s internal policies. It also allows the EU to resort to dispute settlement mechanisms in the CEIBS in case of breach of commitments. In addition, the EU has negotiated market access openings and commitments in additional and new sectors, such as the removal of quantitative restrictions, shareholding restrictions or joint venture requirements. These restrictions have seriously hampered the activities of our companies in China. The overall agreement is more ambitious than China has previously committed to.”

The EC stated that “On the EU side, the services market has been liberalized and significant commitments have been made for the services sector under the General Agreement on Trade in Services (GATS). The EU has retained the CEIBS in sensitive sectors involving, for example, energy, agriculture, fisheries, audiovisual, and public services.” As a next step, the EC noted that the text of the agreement will now be legally reviewed and translated before being submitted by the Commission to the Council of the European Union and the European Parliament for adoption and approval. According to EU procedural rules, once the executive body, the European Commission, reaches a trade agreement with another country, it needs to pass the joint consent of the European Council and the European Parliament before it can be implemented in its entirety, in which the European Parliament’s Committee on International Trade will play the role of a counsellor and a prior vote in the deliberative part of the European Parliament.

Notably, the Wall Street Journal reported Thursday that the European Union will sanction four Chinese officials and one entity for human rights violations by Chinese Communist authorities against the Muslim minority in Xinjiang, with Bernd Lange, chairman of the European Parliament’s Committee on International Trade, commenting on the combination of the two, saying, “[The news of sanctions] comes on the same day that the European Commission announced the timetable for the EU-China Investment Agreement (CAI). (CAI) timetable on the same day that the EC announced it. It shows that we need to strike a balance between cooperation and unilateral action, and that it is Time for member states to act against human rights violations.”

Commission Vice President Winkler Gyula also tweeted Friday, “A welcome and important step! Finally, we can start debating the content, because until now, most of the debate has focused on the context. The abstract has become concrete and our review will become concrete.”

According to the EU Mission in China press release, examples of China’s market access commitments under the agreement include

Examples of China’s market access commitments.

Manufacturing: China has made full commitments with only very limited exclusions (especially in sectors with significant overcapacity). In terms of ambition, this would be matched by the openness of the EU. About half of the EU’s direct investment is in manufacturing (e.g. transport and telecom equipment, chemicals, medical equipment, etc.). China has not made such far-reaching market access commitments with any other partner.

Automotive sector: China has agreed to eliminate and phase out joint venture requirements. China will commit to market access for new energy vehicles

Financial services: China has started to gradually open up its financial services sector and has committed to continue opening it to EU investors. Joint venture requirements and foreign shareholding restrictions have been removed for banking, securities and insurance transactions (including reinsurance) and asset management.

health (private hospitals): China will provide new market opening by removing joint venture requirements for private hospitals in major cities (including Beijing and Shanghai, Tianjin, Guangzhou and Shenzhen).

R&D (Bioresources): China has never before committed to opening up foreign investment in bioresources R&D. China has agreed not to adopt new restrictions, and any current restrictions that may be lifted in the future have also been lifted for the EU.

Telecom/Cloud Services: China has agreed to lift the ban on investment in cloud services. It will now be open to EU investors, whose shareholding is capped at 50 percent.

Computer services: China has agreed to bind market access to computer services, which is a significant improvement over the current situation. In addition, China will include a “technology neutrality” clause that will ensure that the share cap on value-added telecom services will not apply to other services such as financial, logistics and medical services provided online.

International maritime transport: China will allow investment in related land-based ancillary activities, enabling EU companies to invest in cargo handling, container yards and stations, maritime agencies, etc. without restrictions. This will allow EU companies to organize a full range of multimodal door-to-door transport, including domestic routes for international maritime transport.

Services related to air transport: Although the CEIBS does not cover air rights due to the constraints of a separate airline agreement, China will open up key areas such as computer reservation systems, ground handling, and sales and marketing services. China has also eliminated minimum capital requirements for the rental and leasing of aircraft without crew, which goes beyond the scope of the GATS.

Business services: China will eliminate joint venture requirements in real estate services, leasing services, repair and maintenance of transportation, advertising, market research, management consulting and translation services.

Environmental services: China will eliminate its current joint venture requirements in environmental services such as sewage, noise abatement, solid waste disposal, exhaust gas cleaning, nature and landscape conservation, sanitation and other environmental services.

Construction services: China will remove the restrictions on items it currently retains in the GATS.

Employees of EU investors: Managers and experts of EU companies will be allowed to work in Chinese subsidiaries for up to three years without restrictions such as labor market checks or quotas. Representatives of EU investors will be allowed to visit freely before investing.

Improving the level playing field – making investments fairer

State-Owned Enterprises (SOEs) – Chinese SOEs contribute about 30% of the country’s GDP. The China-EU comprehensive investment agreement seeks to guide the behavior of SOEs by requiring them to act on the basis of commercial considerations, rather than discriminating in the purchase and sale of their goods or services. Importantly, China also assumes the obligation to provide specific information upon request in order to assess whether the behavior of a particular enterprise is consistent with its obligations under the CEIBS. If the issue remains unresolved, we can resort to the CEIBS to resolve the dispute.

Transparency of subsidies – The CEIBS imposes transparency obligations on subsidies in services, filling an important gap in WTO rules. In addition, the CEIBS requires China to undertake consultations in order to provide additional information on subsidies that may negatively affect the EU’s investment interests. China is also obliged to conduct consultations in order to seek to eliminate such negative effects.

Forced technology transfer – The CEIBS sets very clear rules regarding the prohibition of technology transfer. These include prohibitions on several types of investment requirements that force technology transfer, such as requirements to transfer technology to a joint venture partner, as well as requirements that prohibit interference with freedom of contract in the licensing of technology. The rules would also include protection from unauthorized disclosure of confidential business information collected by administrative agencies (e.g., in the certification process for goods or services). The agreement significantly strengthens the WTO rules.

Standard Setting, Authorization, Transparency – The agreement covers other long-standing EU claims. China will provide our companies with equal access to standard-setting bodies. China will also improve the transparency, predictability and fairness of authorizations. A comprehensive EU-China investment agreement will include transparency rules for regulatory and administrative measures to improve legal certainty and predictability, as well as procedural fairness and the right to judicial review (including in competition cases).

Integrating sustainable development into our investment relationship

Unlike other agreements completed by China, the China-EU Comprehensive Investment Agreement binds the parties to a value-based investment relationship based on the principles of sustainable development. The relevant provisions are subject to a specially tailored implementation mechanism that resolves differences in a highly transparent and participatory manner with civil society.

China is committed to not lowering protection standards in the areas of labor and environment to attract investment, not using labor and environmental standards for protectionist purposes, and complying with international obligations in relevant treaties. China will support companies in fulfilling their corporate social responsibility.

Importantly, the CEIBS also includes commitments to the environment and climate, including the effective implementation of the Paris Climate Agreement. China is also committed to pursue ratification of the outstanding ILO fundamental conventions and has made specific commitments to the two outstanding ILO fundamental conventions on forced labor.

Monitoring implementation and dispute settlement

In the China-EU Comprehensive Investment Agreement, China agreed to the same enforcement mechanism (state-to-state dispute settlement) as in our trade agreements.

This will be combined with a monitoring mechanism at the pre-litigation stage established at the political level, which will allow us to raise issues as they arise (including through urgent procedures).