After years of negotiation, the European Union and China have recently concluded what they’ve dubbed the “Comprehensive Agreement on Investment”. Diplomats have hailed this as a milestone and a boon to the European and Chinese economies at a time where the world is in investors? What implications does this have for international relations? This article will analyse the main components of the agreement and its implications on the world stage.
For decades following Communist victory in China in 1949, European-Chinese relations were practically non-existent. It would not be until Deng Xiaoping came to power following Mao’s death in the 1970s that China would gradually open up its economy to foreign investment.
The first negotiations for this deal began in February 2012 at the 15th EU-China summit. This was followed up by an impact assessment published by the European Commission in May 2013 and an authorisation by the Council for the Commission to negotiate with China. Building on this momentum, European Council President Herman Van Rompuy and Commission President José Manuel Barroso visited Beijing in November 2013, with the South China Morning Post reporting that the leaders had high hopes of reaching a deal within 30 months.
This was followed by the first talks taking place in January 2014. However, it would not be until 2016 that the parties would reach an agreement on the general shape the deal would take. Further rounds of negotiations would take place on specific details related to the agreement on areas including financial services, capital transfer between the jurisdictions, state-to-state dispute settlement, investment-related sustainable development, competition-related issues, and the role of state-owned enterprises among others. The final rounds of negotiations centred around issues related to the level-playing field, transparency around state subsidies and forced technology transfer, the latter of which has long been a source of concern for foreign investors operating in China. The parties finally reached agreement on the key components in the final days of 2020, pending approval from the European Parliament and the Council, which is expected to take place by late 2021.
The European Commission has described the deal as “the most ambitious agreement that China has ever concluded with a third country” with regards to investment, and its press release claimed that the agreement will solidify the economic liberalisation that China has undertaken in the last few decades, thus ensuring stability and confidence among foreign investors that rules in China will not change arbitrarily and on short notice. As a safeguard, the agreement contains a dispute resolution mechanism in the event that either side does not keep to the commitments they have made. In addition, the Commission has assured that “sensitive areas” will be protected in the agreement, including energy, agriculture, fisheries, and public services among others.
China has committed to improving access to European companies in several key industries, including the automotive sector, financial services, telecommunication and construction to name a few. In addition, China has committed to taking steps to ensure the existence of a level playing-field, including the following:
- Greater transparency in subsidies for China, particularly in the services sector and in circumstances in which EU investments may be harmed.
- Clear rules against the forced transfer of technology in China and closing loopholes exploited by the Chinese government to facilitate these transfers.
- Enhancing transparency, predictability and fairness in decisions related to standards under which EU companies operated in China. This is designed to minimise political pressure on EU operators and to ensure technical standards and regulations are clear and fair.
As the European Commission’s press release highlights, EU investment into China has amounted to €140bn in the last 20 years and Chinese investments in the EU were valued at €120bn in the same timeframe. While significant, there is room for significant growth. Up until now, differences in regulatory standards and business practices, along with tariffs, have long served as barriers to greater volume of trade, which this agreement aims to address. In addition, this agreement could be a boon to both China and the EU at a time of great economic instability in the wake of a global pandemic and increasing global geopolitical tension. Any agreement which enables greater cross-border flows of capital, goods and services could serve as a lifeline to the fortunes of many across Europe and China.
However, there are also broader implications to be considered, especially as this news comes before the agreement has been approved by the European Parliament and the Council of the EU. Commentators have described this as a geopolitical victory for China on the one hand, and, on the other hand, as an act by Europe to distance itself from the orbit of the United States. An opinion piece on the Financial Times describes the agreement as a “strategic win” for China and a tacit acceptance by EU of China’s authoritarian policies in Hong Kong and Xinjiang, where already-restricted freedoms have been curtailed further by Xi Jinping in recent years.
Further, given the increasing geopolitical tension between the United States and China, this agreement can be interpreted as the EU making it known that it intends to pursue its own external relations strategy independent of the wishes of the United States. This comes as European and American leaders have increasingly diverged on major foreign policy matters since the Cold War, including the war on Iraq and, more recently, President Trump’s often antagonistic relationship with the U.S.’ European allies in NATO.
The CAI is a significant step in improving EU-China relations and the first significant foreign policy achievement under the term of the European Commission led by Ursula von der Leyen, who pledged to increase the EU’s presence on the world stage. Despite the promises and pledges made by both parties, it remains to be seen whether the agreement marks a change in China’s approach in how it treats foreign investors, or, as commentators fear, whether it simply marks an acceptance of the Chinese government’s authoritarian tendencies at home and abroad. In any case, it appears that European leaders are keen to engage with China and to realign the EU’s relationship with the U.S. so that it achieves greater foreign policy independence in the coming years and decades