bilaterals.org | The EU-China Comprehensive Agreement on Investment: Stuck half-way?

CCSI | 8 March 2021

The EU-China Comprehensive Agreement on Investment: Stuck half-way?

by Axel Berger and Manjiao Chi

China and the EU agreed in principle on a Comprehensive Agreement on Investment (CAI) on December 30, 2020, after 35 rounds of negotiations since 2014. In the EU (and the US), critical voices pointed at the uncertain enforceability of key provisions and the negative impact on cooperation between the EU and such key partners as the US vis-à-vis China. For China, the CAI is held as a diplomatic success. In fact, the recently published draft text suggests that the CAI is less comprehensive than the title indicates, and that important elements remain unresolved.

As Europe is already open to Chinese investors, additional market opening is expected from China. EU efforts mostly focused on issues of limited market access, technology transfer and the regulatory environment. The CAI addresses these issues in the sections on investment liberalization and regulatory frameworks. China commits to opening its markets in some sectors, including electric vehicles and financial and air-transport services. However, one could ask whether China is not already unilaterally
opening up these sectors, and the CAI just locks-in those reforms. Arguably, however, preventing the revocation of economic reforms in China is an important achievement in and by itself. Conversely, given Europe’s increasing scrutiny of Chinese investments, securing a high level of market access in Europe was high on the China’s agenda: while the EU does not make any substantial additional market access commitments to China, it guarantees the existing level of access. Securing market access and locking-in reforms may be important outcomes, but they are unlikely to substantially increase two-way investment flows.

Potentially more important is the prohibition of forced technology transfer and joint venture requirements, which appear more comprehensive than what China agreed to in its WTO accession protocol or in the Phase One Deal with the US. In addition to technology transfer requirements imposed by the state, China and the EU also commit not to “directly or indirectly require, force, pressure or otherwise interfere with the transfer or licensing of technology between natural persons and enterprises”. Furthermore, the CAI includes a number of “level-playing-field” provisions that may improve the transparency of subsidies, enhance procedural transparency, predictability and fairness of regulatory and administrative procedures, and regulate the operations of state-owned enterprises.