Evaluating the EU and China Comprehensive Agreement on Investment | Experts’ Opinions

ByCatalina Russu

Evaluating the EU and China Comprehensive Agreement on Investment | Experts’ Opinions

At the end of 2020, the EU and China concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI). China has committed to a greater level of market access for EU investors than ever before including some important new market openings. According to the EC, the Agreement will create a better balance in the EU-China trade relationship. We asked several investment experts to evaluate this agreement.

How do you evaluate this agreement?

Emilio Laguillo, Lawyer and Senior consultant

“The Chinese-EU agreement on investment aims to address several issues regarding investment treatment. Each side’s rules and practices on FDI differ more than what is acceptable, which renders investment treatment highly unbalanced; moreover, when compared with other trading partners, Chinese-EU FDI treatment lags behind in introducing fair, predictable rules; finally, there is also a wide range of bilateral investment treaties between some EU Member States and China that creates an unlevel playing field for investors from the different Member States. To remedy all that, CAI seeks the liberalization of investment treatment through market access and performance measures, so the same regime applies equally on both sides. In addition, a large portion of the investment is channeled through Hong Kong and some tax-havens. CAI will confer its favorable treatment exclusively to investments made to/from mainland China, excluding Hong Kong and Macao, which should increase tax collection from such investments. However, given China’s peculiar approach to the rules-based order, there is uncertainty as to how much China will live up to the agreement. There are also some concerns on the long-term technology autonomy of Europe given China’s policy on capturing Western technology. To some extent, CAI could also jeopardize EU-US transatlantic cooperation.”

 

Dr. Manfred Manthey, retired Professor of International Management, Pforzheim University/Germany

“In terms of better market access for EU companies, China has made extensive commitments to the manufacturing sector which is most important for EU investment in China. This sector comprises electrical vehicles, chemicals, telecommunications equipment, and medical devices. Among other things, China has removed the export restrictions in this sector as well as the domestic content requirements for EU investors in China. Furthermore, commitments for EU investment in various services sectors were made such as cloud services, financial services, private healthcare, environmental services, international maritime transport, and aviation services. China is now also committed to ensuring fair competitive conditions for EU companies in China. This refers to fair competition with state-owned enterprises, to the transparency of subsidies and – very importantly – the rules against forced technology transfer between joint ventures. The forced technology transfers regulations have now been deleted and the new CAI rules prohibit interference in the freedom of contract when registering a technology licence. The majority of EU investors welcome the new regulations. Whether the intended improvements will have a positive effect on European companies will depend on their consistent implementation and enforcement. Since the EU and China were unable to conclude an investment protection agreement, it was only agreed to complete this within two years of signing the CAI. However, most of the EU countries have signed bilateral investment protection agreements.”

 

Sigitas Brazinskas, international development consultant

“After a challenging period and global changes, finally it is expected that the CAI will balance the trends between earlier dominated globalization and the currently under COVID-19 impact emerging regionalization when countries start doing more business with neighbours. The CAI includes a very important and historically sensitive chapter regarding intellectual property. This will eliminate or allow parties to foresee possible disputes at a large scale. It also anticipates areas where CAI is not applied, what subsidies can be used, and how disputes can be negotiated. The agreement includes essential principles and complies to EU policy in terms of green economy, climate change, and corporate social responsibility. Therefore, as a pioneer and a strong player in these spheres, the EU will be able to act on the global scene, transfer knowledge and technologies and make a tremendous positive impact on global situation improvement and business growth.”

 

How will this agreement impact the development sector in China?

Emilio Laguillo, Lawyer and Senior consultant

“Both parties commit themselves to pursue sustainable development, including economic, social, and environmental development dimensions in their investment relationship. In areas such as private sector development, it should be expected an increase of corporate social responsibility activities aligned with international principles and guidelines (UN Global Compact, etc.), enactment of ILO’s labor standards, and finally, more participation from the public and other stakeholders in the implementation of sustainable development measures for which CAI lays down some provisions. Environment protection and climate change is another area where the parties make commitments. China should implement the Paris Agreement and its Nationally Determined Contributions. Projects in environmental goods and services as well as climate change mitigation and adaptation are encouraged, as well as the setting up of policy frameworks favorable to climate-friendly technologies. Finally, and relevant for development practitioners, there is a treaty reservation made by China regarding foreign non-profit organizations. When conducting temporary activities in China, they must cooperate with domestic entities for a term of no more than a year. They cannot establish representative branches in China unless approved and, if approved to be established in China, their senior representative must be a Chinese citizen.”

 

Dr. Manfred Manthey, retired Professor of International Management, Pforzheim University/Germany

“For the first time, China has also agreed on ambitious sustainable development issues, including commitments against forced labor to ratify the relevant conventions of the International Labor Organization (ILO) as well as to implement the Paris Climate Agreement. The package also includes the establishment of a Sustainability Working Group that will report directly to the Joint Committee at the Senior Vice President level on the progress of the Sustainability Chapter implementation. The Sustainability Chapter could have a significant impact on the Chinese development sector with job opportunities for labor and “Green Technology” experts. Due to political reasons, the CAI has not so far been ratified.”

 

 

Sigitas Brazinskas, international development consultant

“The CAI will facilitate the development sector not only in China but more importantly in neighbouring countries as well. Transport links and infrastructure development are an inseparable sphere of investments and trade. One of the great examples could be the future revival of former routes such as the Silk Road through Central Asian countries. Therefore, development is expected to be manifold in terms of countries and areas involving infrastructure, energy supply, roads, border crossings and control, customs operations, overall security, digitalization, capacity building, and others. Landlocked countries and regions will gain through better access to markets and trade and diminishing trade barriers. It is expected the development sector will be needed for various competences and will make a tremendous impact on cooperation facilitation.”

 

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