Comprehensive Agreement On Investment
One of the EU`s main concerns is the power conferred on the Chinese State Council, under the negative list, to authorise or reject the use of foreign investment. This discretion of the Council of State creates uncertainty for foreign investors who are unable to assess in advance whether their application is approved or rejected by the supreme authority. This bilateral agreement is expected to give an additional boost to trade relations between the EU and China, particularly in the food and beverage market, which accounts for a significant share of EU products sold on the Chinese market each year. Indeed, in 2019, China was the third largest destination for agri-food products in the EU, with 14.5 billion euros ($17.022 billion). In the same year, China was also the second preferred destination for EU exports, identified by its GI specifications, including wines, agri-food products and spirits. At the end of September, after 32 rounds of negotiations on the Comprehensive Investment Agreement (IAC), the main differences between the EU and China (besides sustainable development) were market access, including access to financial services markets. In this context, the concessions that China has offered to the United States under the U.S.-China Economic and Trade Agreement (the “Phase One Agreement” signed on January 15, 2020) are, in this context, the EU`s mandate for its negotiating objectives. It should be noted that an additional list of 175 geographical indications will be protected by both parties within four years of the agreement`s entry into force. The IAI negotiations aim to create a single legal framework for EU-China investment relations by replacing the 25 outdated bilateral investment agreements (ILOs) concluded by China and EU member states before the Lisbon Treaty came into force in 2009, when the EU acquired the greatest jurisdiction over most investment issues.
The AI should go far beyond traditional investment protection and also cover market access, investment-related sustainable development and the same competitive conditions as the transparency of subsidies and rules applicable to state-owned enterprises (SOEs) and the forced transfer of technology. Beyond strictly bilateral relations, their trade and investment behaviour is also influenced by other external factors related to their global role and their relations with other countries and regional alliances. Among other things, the trade war between the United States and China has certainly played a key role in this regard. The EU is China`s largest trading partner and China is the EU`s second largest trading partner (with more than one billion euros traded per day). Although there are still many restrictions on market access for trade in goods, it is mainly services and investment that are two sectors with high untapped potential in EU-China trade (only 2% of EU investment (FDI) goes to China, while 30% of them go to the US). In order to increase investment potential, the EU and China began negotiations for a “Comprehensive Investment Agreement” (IAC) in early 2014. This is expected to be the approval of a generation and a true game changer (the potential for two-way investment is billions of euros). Nearly a decade has passed and, although some progress has been made, many tensions remain. Today, EU officials say the chances of reaching an agreement by the end of the year – a deadline that Agatha Kratz, associate director of the research consultancy group, has described as “futile” – are slim. European Commission President Ursula von der Leyen recently said after a high-level dialogue with Chinese President Xi Jinping: “China must convince us that it is worth having an investment agreement.” And the EU is preparing to put in place mechanisms to protect and limit foreign investment in Europe that would operate independently of the AIC.