Chinese President Xi Jinping met with German Chancellor Angela Merkel, French President Emmanuel Macron, President of the European Council Charles Michel, and President of the European Commission Ursula von der Leyen via video link on December 30, 2020. During the meeting, Xi and the European leaders announced that the two sides had completed investment agreement negotiations as scheduled.
The global economy is plagued by unilateralism and protectionism, now suffering a great recession due to the impact of the COVID-19 pandemic, which makes the conclusion of the agreement of far-reaching significance. The agreement came after 35 rounds of negotiations over the course of seven years. The European side calls it a comprehensive investment agreement, which is the EU’s first ever standalone investment agreement since foreign direct investment became its exclusive competence under the Lisbon Treaty in 2009. For China, the agreement goes beyond the scope of traditional bilateral investment agreements and covers four aspects: market access commitments, fair competition rules, sustainable development, and dispute settlement. It is the first high-level economic and trade agreement reached between China and a developed economy.
Facilitating Mutual Investment
The agreement provides China-EU mutual investment with greater market access, enabling a higher level of business environment, stronger institutional guarantees, and brighter cooperation prospects.
For China, the EU market has a high level of openness except for the reservations in agriculture, fishery, energy infrastructure, mining, and public services. However, in the past, the EU has introduced various clearly directed restrictive measures, such as tightening investment review, preventing foreign acquisitions of strategic assets during the pandemic, and politicizing 5G issues. Hence, China’s investment in Europe has continued to decline. The agreement will institutionally provide a fair, stable, open, and predictable market environment for Chinese companies to invest and operate in Europe, and will eliminate or alleviate various difficulties and uncertainties caused by the EU’s continuous strengthening of internal market protection in recent years for Chinese companies’ investment in Europe. China’s investment in Europe is expected to resume its growth momentum in the future.
For the EU, the agreement will expand its market access in China, help it share the opportunities brought by China’s development, and promote its economic recovery and growth after the pandemic abates. The agreement has surpassed China’s opening-up commitments under the WTO’s General Agreement on Trade in Services (GATS) in the areas of financial services, environmental services, computer services, construction services, ancillary services related to air transportation, and international shipping services. Moreover, the EU has also obtained other further opening-up commitments, which have not been involved in China’s opening-up process in recent years, including the establishment of private hospitals, removal of restrictions on new energy vehicle investments, and abolishment of the 50 percent equity cap for investment in the cloud computing field, among others.
Promoting Multilateral Trading System Reform
China and the EU are the world’s major economies. The conclusion of the agreement is a contribution made by the two major economies to promote economic globalization and free trade. The investment-related fair competition rules and consensus on sustainable development reached in the agreement will play a leading role in the ongoing reform of the multilateral trading system.
From the perspective of fair competition, its core lies in non-discrimination, commercial considerations, and transparency. Since the establishment of the WTO in 1995, economic globalization and free trade have encountered resistance due to many major international crises, which has increased the sense of urgency for the reform of the multilateral trading system. The agreement reached a consensus on issues like state-owned enterprises, subsidy transparency, and forced technology transfer. For example, it is emphasized that the commercial activities of state-owned enterprises are based on commercial considerations, and the purchase of goods and services follows the principle of non-discrimination. Although it is a bilateral commitment, based on the sizes of China and the EU in the global economy and trade, the efforts of both sides to create an internationalized, law-based, and enabling business environment will bring positive energy to the reform of relevant rules of the multilateral trading system.
From the perspective of sustainable development, in consideration of the fact that issues such as environment and labor have become the focus of multilateral and bilateral trade negotiations in recent years, China has made commitments for the first time in the agreement on specific provisions for sustainable development, including environmental protection and labor rights protection, an embodiment of China’s commitment to fulfilling its responsibility as a major country, and its new development philosophy and people-centered development ideas in international economic and trade practices. Under joint efforts of China and the EU, as more economies join in their commitments to address climate change, the formulation of sustainable development rules under the framework of the multilateral trading system is expected to gain new impetus.
Forming Higher-Level Economic and Trade Relations
The China-EU trading relationship is one of the most important bilateral economic and trade relations in the world. Last year, China-EU economic and trade cooperation successfully overcame dual impacts of the COVID-19 pandemic and Brexit, showing strong tenacity and great potential. According to statistics issued by China Customs, during the first 11 months of 2020, bilateral trade volume reached US $580.94 billion, a year-on-year increase of 3.4 percent.
China is now committed to building a new development pattern, which will provide Europe and the world with more market opportunities and create greater space for cooperation. The conclusion of the investment agreement and the official entry into force of the China-EU agreement on geographical indications on January 1, 2021 put Europe at the forefront of cooperation with China and laid a solid foundation for China-EU economic and trade relations to move to a higher level.
The agreement is generally welcomed by the EU business community and is bound to stimulate a new round of investment by EU companies in China, especially in the fields of new energy vehicles, financial services, health care, and biotechnology. The prospects for China-EU investment cooperation are promising. Moreover, the two sides should focus on the post-pandemic era and take the agreement as an opportunity to timely initiate discussions on the establishment of a bilateral free trade zone to forge closer China-EU trading ties.
Next, China and the EU should strengthen anti-epidemic cooperation, improve the accessibility and affordability of COVID vaccines, and provide global public goods to meet vaccine deployment needs in developing countries such as in Africa. It is important to promote economic cooperation, create green and digital partnerships, and find new growth points for cooperation. It is necessary to deepen interconnection, jointly promote economic recovery, and bring the global industrial chain and supply chain back on track as soon as possible. It is essential to promote multilateral cooperation, build an open world economy, and promote global development with the development of China and the EU.
YAO LING is director of the Institute of European Studies at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
