EU and China reached the Comprehensive Agreement on Investment

Background

On 30 December 2020, the EU and China jointly announced that the negotiations for a Comprehensive Agreement on Investment (CAI) reached agreement in principle. At a time when the global economy, plagued by unilateralism and protectionism, is plunged into an unprecedented recession due to the COVID-19 pandemic, the influence of the EU-China Agreement on Investment is far-reaching.

The CAI has gone through seven years and 35 rounds of negotiations and is the first agreement signed by the EU with foreign jurisdictions after the EU obtained exclusive investment rights under the Lisbon Treaty in 2009. The CAI is also the first high-level economic and trade agreement concluded between China and developed economies, going beyond the scope of traditional bilateral investment agreements.

China has committed to a greater level of market access for EU investors than ever before, including some new important market openings. China is also making commitments to ensure fair treatment for EU companies so they can compete on a level playing field in China, including in terms of disciplines for state owned enterprises, transparency of subsidies and rules against the forced transfer of technologies. The CAI also contains principle provisions on sustainable development, corporate social responsibility and commitments in the field of labour and environment protection.

Highlights

We have highlighted the following new liberalisation initiatives and improved level playing field commitments, which closely relate to and benefit European investors in the relevant sectors.

• China has agreed to remove and phase out joint venture requirements in the automotive sector. China will commit market access for new energy vehicles.

• China has agreed to lift the investment ban for cloud services. They will now be open to EU investors subject to a 50% equity cap.

• China has agreed to bind market access for computer services - a significant improvement from the current situation. Also, China will include a 'technology neutrality' clause, which would ensure that equity caps imposed for value-added telecom services will not be applied to other services such as financial, logistics, medical etc. if they are offered online.

• China will offer new market opening by lifting joint venture requirements for private hospitals in key Chinese cities, including Beijing, Shanghai, Tianjin, Guangzhou and Shenzhen.

• China has agreed not to introduce new restrictions in R&D in biological resources and to give to the EU any lifting of current restrictions in this area that may happen in the future.

• China had already started the process of gradually liberalising the financial services sector and will grant and commit to keep that opening to EU investors. Joint venture requirements and foreign equity caps have been removed for banking, trading in securities and insurance (including reinsurance), as well as asset management.

Furthermore, with regard to market access restrictions which, on their own, do not discriminate against foreign investment, but which have a significant impact on the establishment and operation of their own enterprises, China has committed not to impose restrictions in most sectors of the economy on the number of enterprises, output, turnover, senior management, local research and development, export performance, headquarters establishment, etc, and has permitted foreign exchange transfers related to investments.

In terms of fair competition rules, both parties have reached consensus on issues closely related to business operations, such as state-owned enterprises, transparency of subsidies, technology transfer, standard setting, administrative enforcement and financial supervision, with a view to creating a law-based business environment. The CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to transfer technology to a joint venture partner, as well as prohibitions to interfere in contractual freedom in technology licencing.

Timeline

The European Commission published the text of the CAI for public information purpose on 22 January. The text is undergoing legal and technical review and will be final upon signature. The CAI will only become binding upon the parties under international law after completion of each party of its internal legal procedures necessary for the entry into force of the CAI.

Lookouts

The CAI will provide EU investors with greater market access, a higher level of fair business environment, stronger institutional guarantees and brighter prospects in China. On the other hand, with the current tension between China and the US, the conclusion of the CAI will inspire and encourage Chinese players to explore opportunities in Europe, boosting knowledge sharing and technology collaboration between the two economies.