After a lengthy process of negotiation, lasting seven years and 35 rounds, the EU and China finally agreed, at the political level, to enter into a Comprehensive Investment Agreement (CAI) that is innovative, win-win and a statement of geostrategic significance for both parties.
By José Sales Marques | Expert in European Affairs
The online conference, with President Xi Jingping, European Council President Charles Michel, Commission President Ursula von der Leyen, President Emmanuel Macron and Chancellor Angela Merkel sealing the deal, offered one of 2020’s most powerful images in the field of international politics. As it happened three weeks before Joe Biden’s inauguration, and in spite of last-minute efforts by his team to have it delayed, it is a statement of the EU’s strong belif in the Union’s strategic autonomy.
The new agreement replaces the 26 Bilateral Investment Treaties (BITs) that EU member states had signed with the PRC before 2009, the year when the Treaty of Lisbon entered into force. Under this constitutional framework, the Union was granted exclusive competence over foreign direct investment (FDI), under its Common Commercial Policy. The exclusivity meant that the power to negotiate and conclude investment treaties with third countries (extra-EU) shifted from the member states to the EU; more specifically, the European Commission. The previous bilateral treaties covered investment protection after it actually happened, while the new agreement deals with market access as well, a major issue-area in current EU–China relations, particularly regarding European investors’ access to the Chinese market.
Both parties presented the agreement as an historical achievement with mutual gains. The EU highlighted the economic advantages of the treaty. The deal, they said, will guarantee an unprecedented level of access for EU investors to China, allow EU companies to buy or establish new companies in key sectors, and help level the playing field for their entry and operations in the Chinese market, with Chinese authorities’ commitment to rules in regard to subsidies for their SOEs (State Owned Enterprises), which is considered to be of crucial importance by EU businesses in China.
On the other hand, conveying the official view from Beijing, Global Times (GT) underlined the significance of the deal as an enhancement of China-EU cooperation, calling the deal a New Year gift from both parties to the world. Together with the Regional Comprehensive Economic Partnership (RCEP), this new deal adds more weight to pluralistic global trade, said GT. Chinese investors will continue to access the European Union market that has been quite open until recently, when new rules were introduced screening foreign investment on the basis of national interest, security and public safety. These new instruments are, according to commentators, partially responsible for the poor performance of Outbound Chinese Investment in the EU in the course of the last few years, falling from a peak of 37.3 billion Euros in 2016 to a “meagre” 11.7 billion Euros in 2019. The agreement will bring greater certainty to Chinese investors and secure their access to the environmental sector, including renewables. The stock of Chinese investment in the EU stands at 120 billion euros, while EU investment stock in China reached 140 billion euros in 2019.
There is no evidence to suggest that the CAI will be extended to Macau and Hong Kong. However, the new agreement will definitely have impact in other cities of the Greater Bay Area belonging to Guangdong province, which is the main region of China attracting foreign direct investment and home to some of the leading industries that are included in CAI; namely, health, car manufacturing industries (traditional and new energy vehicles), high-tech industries, financial services and environmental services, among others.
It seems clear that German automakers are one of the sure winners of this new deal, which will further open the Chinese market for them. It might explain the critical role that Chancellor Merkel played on the European side to make sure the political agreement would be settled under her watch, as the rotating presidency of the European Union. She is also a firm believer in EU-China cooperation. Macron also wanted to show up, even if he had no institutional role to justify his presence at the said online conference. France will be holding the rotating presidency of the EU during the first quarter of 2022 and some commentators expect Macron to be the one closing the written deal which still needs to be turned into a legally binding text, requiring the approval of the European Council and the ratification of the European Parliament. In the meantime, António Costa, the Portuguese prime minister that holds the EU rotating presidency for this semester, had to kickstart the intensive work of drafting the final version of the agreement, which he said he hopes to do expeditiously. This new China-EU agreement gives hope to those who believe that the “cold war mentality” that has been asserting itself in international politics since Trump came to power will soon be giving way to dialogue and cooperation, in a multilateral and multipolar world.