China and the European Union (EU) have agreed upon an investment deal this week that will see European companies given greater access to Chinese markets as Europe seeks to address what it sees as unbalanced economic ties.
The agreement has been in the works for nearly seven years and will most likely take another year to fully come into force. EU officials have said that it forms part of a new relationship with China, which the EU views as a partner and systemic rival simultaneously.
“Following intensive negotiations carried out by the European Commission on the EU’s side, the EU and China concluded in principle the negotiations for a Comprehensive Agreement on Investment (CAI). This delivers on the commitment made at the EU-China summit in April 2019 where the two sides agreed to aim for conclusion of negotiations by the end of 2020,” a European commission statement on the deal read.
“Participants welcomed the active role of the German Presidency of the Council, and of Chancellor Angela Merkel in particular, who has put special emphasis on EU-China relations and fully supported the EU negotiation with China.”
“This Agreement is of major economic significance and also binds the parties into a values-based investment relationship grounded in sustainable development principles. Once in effect, the CAI will help rebalance the trade and investment relationship between the EU and China. China has committed to an unprecedented level of market access for EU investors, giving European businesses certainty and predictability for their operations,” it said.
Through the agreement, European firms will now have permission to operate in China in sectors including advertising, private hospitals, electric cars, real estate, airline reservation systems, the maritime industry, telecom cloud services and ground handling. Requirements that meant companies had to operate as part of joint ventures with Chinese partners will also be lifted.
Companies with a large presence in China that will likely benefit include Allianz, BMW, Daimler, Peugeot and Siemens, according to Reuters.
“The Agreement will also significantly improve the level playing field for EU investors by laying down clear obligations on Chinese state-owned enterprises, prohibiting forced technology transfers and other distortive practices, and enhancing transparency of subsidies. EU companies will henceforth benefit from fairer treatment when competing in the Chinese market,” the commission’s statement continued.
“The Agreement also includes important commitments on environment and climate, including to effectively implement the Paris Agreement, and on labour standards. China has committed to effectively implement ILO Conventions it has ratified, and to work towards the ratification of the ILO fundamental Conventions, including on forced labour.”
The new deal now means Europe will enjoy a similar relationship with China as the United States, which has struck a ‘Phase I’ deal with the Asian economic powerhouse. President-elect Joe Biden’s nomination for national security adviser, Jake Sullivan, tweeted last week that the new administration would welcome early consultations with Europe on China’s economic practices.
As well as opening up China’s markets for European firms, the deal also includes commitments on labor rights and climate change. All commitments are reciprocal, but the EU market was already much easier to access. The EU gave up some of its position on energy but says its offer to China is mainly guaranteeing the continuation of the existing openness.
“On the EU side, further work will now be undertaken in accordance with its legal rules and procedure to sign, ratify and conclude the Agreement. The two sides will aim to conclude negotiations on investment protection within two years of the signature of CAI,” the statement said.
“Ensuring successful implementation of this Agreement once concluded will require high level and sustained political engagement with China. The Agreement also provides for a robust enforcement and monitoring mechanism. The European Commission will monitor the implementation of the commitments in the Agreement on the EU’s side.”
The deal was finally agreed upon and signed after an online meeting between the heads of EU institutions and Chinese President Xi Jinping, who claimed the agreement showed China’s commitment to and confidence in opening up other economic powers.
It would stimulate the global economy as it recovers from the coronavirus pandemic and increase mutual trust, he added.
Meanwhile European Commission President Ursula von der Leyen hailed the agreement as an important landmark in the EU’s continuing efforts to improve its relationship with China.
“The EU will take stock of the overall development of EU-China relations, including but not limited to the CAI and its implementation in all its dimensions, during the French Presidency in 2022,” the statement said.
“Looking beyond the CAI negotiations, the EU reiterated its expectation that China will engage in negotiations on industrial subsidies in the WTO. The EU Leaders also emphasized the need to improve market access for EU traders in sectors such as agri-food and digital, and to address overcapacity in traditional sectors such as steel and aluminium as well as in high tech.”