The European Union (EU) and China have finally agreed an investment deal after almost seven years of negotiations.
According to an internal European Commission paper, the deal, known as the Comprehensive Agreement on Investments (CAI), removes barriers to foreign investments in China for certain EU industries, such as new energy vehicles, cloud computing services, financial services and health.
“The CAI will also be the first agreement to deliver on obligations for the behaviour of state-owned enterprises and comprehensive transparency rules for subsidies,” a European Commission statement read. China has also agreed to “make continued and sustained efforts” to pursue the ratification of ILO fundamental Conventions on forced labour, it read.
The EU had been asking for a level playing field in real estate, manufacturing, construction, and financial services and forced technology transfers from European firms with facilities in China. EU companies working in China face one of the most restrictive foreign direct investment (FDI) regimes in the world, according to the Organization for Economic Cooperation and Development.
For China the deal includes investment possibilities in renewable energies on a reciprocal basis.
The Commission’s statement also said that the necessary substantive commitments from China had been achieved on the three key pillars of the negotiations: market access, level playing field and sustainable development. “The negotiated result is the most ambitious outcome that China has ever agreed with a third country,” it read.
Beijing had long resisted lifting restrictions on EU investments in China, but as the inauguration of Joe Biden as president of the United States draws nearer, the Chinese leadership appears to have been more flexible in its stance. A deal with the EU on market access is seen by many as a public relations victory for the president, Xi Jinping.
However, the agreement comes after Jake Sullivan, who is to be Biden’s national security adviser, wrote on Twitter last week that the Biden administration would “welcome early consultations with our European partners on our common concerns about China’s economic practices.”
EU officials argue the deal puts the bloc on par with the US, which has secured the same benefits in its so-called Phase 1 trade pact with China.
Of the EU members, only Poland raised serious objections to the deal with China, suggesting that earlier consultations with the Biden administration were needed.
Some European parliamentarians are still preparing to fight over labour standards and human rights. “Trade policy does not take place in a vacuum — how the question of forced labour is addressed in the CAI will determine the agreement’s fate,” warned Bernd Lange, Chairman of the European Parliament’s trade committee on Twitter.
The draft CAI approved by ambassadors of EU countries still needs to be ratified by EU governments and the European Parliament.
According to Eurostat data, in 2019 the EU exported goods worth approximately €198 billion ($242 billion) to China and imported goods worth €362 billion, with a bilateral trade worth $650 billion.
China continued to be the second largest FDI recipient after the US in 2019, including — according to the Rhodium Group — $1.6 billion of freshly announced FDI projects by EU companies in China in the last quarter of this year.
