At the end of the year 2020, negotiations on EU-China Comprehensive Agreement on Investment (hereinafter refer to CAI), have finally ended as scheduled. From the perspective of long-term cooperation, the China-EU Investment Agreement will provide a solid institutional framework for China-EU economic and trade cooperation; it will also bring tangible benefits for the companies both in EU and China.
As the most ambitious agreement that China has ever concluded with a third country regarding investment, CAI will be the first agreement to deliver on obligations for the behavior of state-owned enterprises, comprehensive transparency rules for subsidies and commitments related to sustainable development.
- Ambitious opening by China to European investments
For European investors, the CAI will ensure them to achieve better access to a fast growing 1.4 billion consumer market, as a result of which they can compete on a better level playing field in China.
Firstly, the CAI binds China’s liberalisation of investments over the last 20 years and, in that way, it prevents backsliding. This makes the conditions of market access for EU companies clear and independent of China’s internal policies. It also allows the EU to resort to the dispute settlement mechanism in CAI in case of breach of commitments.
In addition, more requirements on new market access openings and commitments such as elimination of quantitative restrictions, equity caps or joint venture requirements in a number of sectors have been negotiated.
Examples of market access commitment by China:
- Manufacturing: China has made comprehensive commitments with only very limited exclusions (in particular, in sectors with significant overcapacity). In terms of the level of ambition, this would match the EU’s openness to their market. Roughly half of EU FDI is in the manufacturing sector (e.g. transport and telecommunication equipment, chemicals, health equipment etc.). China has not made such far-reaching market access commitments with any other partner.
- Automotive sector: China has agreed to remove and phase out joint venture requirements. China will commit market access for new energy vehicles.
- Financial services: 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.
- Health (private hospitals): China will offer new market opening by lifting joint venture requirements for private hospitals in key Chinese cities, including Beijing, Shanghai, Tianjing, Guangzhou and Shenzhen .
- R&D (biological resources): China has not previously committed openness to foreign investment in R&D in biological resources. China has agreed not to introduce new restrictions and to give to the EU any lifting of current restrictions in this area that may happen in the future.
- Telecommunication/Cloud services: 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.
- Computer services: 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 offered online.
- International maritime transport: China will allow investment in the relevant land-based auxiliary activities, enabling EU companies to invest without restriction in cargo-handling, container depots and stations, maritime agencies, etc. This will allow EU companies to organise a full range of multi-modal door-to-door transport, including the domestic leg of international maritime transport.
- Air transport-related services: While the CAI does not address traffic rights because they are subject to separate aviation agreements, China will open up in the key areas of computer reservation systems, ground handling and selling and marketing services. China has also removed its minimum capital requirement for rental and leasing of aircraft without crew, going beyond GATS.
- Business services: China will eliminate joint venture requirements in real estate services, rental and leasing services, repair and maintenance for transport, advertising, market research, management consulting and translation services, etc.
- Environmental services: China will remove joint venture requirements in environmental services such as sewage, noise abatement, solid waste disposal, cleaning of exhaust gases, nature and landscape protection, sanitations and other environmental services.
- Construction services: China will eliminate the project limitations currently reserved in their GATS commitments.
- Employees of EU investors: Managers and specialists of EU companies will be allowed to work up to three years in Chinese subsidiaries, without restrictions such as labour market tests or quotas. Representatives of EU investors will be allowed to visit freely prior to making an investment.
- Improving level playing field – making investment more transparent
- State owned enterprises (SOEs) – Chinese SOEs contribute to around 30 percent of the country’s GDP. CAI seeks to discipline the behaviour of SOEs by requiring them to act in accordance with commercial considerations and not to discriminate in their purchases and sales of goods or services. Importantly, China also undertakes the obligation to provide, upon request, specific information to allow for the assessment of whether the behaviour of a specific enterprise complies with the agreed the CAI obligations. If the problem goes unresolved, we can resort to dispute resolution under the CAI.
- Transparency in subsidies – The CAI fills one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the CAI obliges China to engage in consultations in order to provide additional information on subsidies that could have a negative effect on the investment interests of the EU. China is also obliged to engage in consultations with a view to seek to address such negative effects.
- Forced technology transfers – 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. These rules would also include disciplines on the protection of confidential business information collected by administrative bodies (for instance in the process of certification of a good or a service) from unauthorised disclosure. The agreed rules significantly enhance the disciplines in WTO.
- Standard setting, authorisations, transparency – This agreement covers other long-standing EU industry requests. China will provide equal access to standard setting bodies for our companies. China will also enhance transparency, predictability and fairness in authorisations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in competition cases.
- CAI and benefits for Chinese investments in the European Union
- Bring more stable market access for Chinese investment in Europe
The CAI will provide for the Chinese companies a much more stable market access to the European Union, with the foreign investment review becoming more and more strict in EU and its member states. It will change the current passive situation of Chinese enterprises investing in Europe and enhance the initiative of Chinese enterprises in bid negotiation. The market access commitment made by China as listed above is also applicable to the Chinese investment when they enter Europe, although EU sensitivities, such as in the field of energy, agriculture, fisheries, audio-visual, public services, etc. are still preserved.
- Enhance the transparency of subsidy regulations in China and effectively reduce the inefficiency of the review of the foreign subsidies by European Commission
The CAI fills an important gap in WTO rules regarding the trade in services by imposing transparency obligations on subsidies in the service sector; At the same time, due to the increased requirements for the transparency of subsidy regulations in China, Chinese enterprises would have more clear and stable expectations when facing the anti-subsidy review.
- Provide both EU and China with high level of fair competition rules and a better business environment
In recent years, when investing and operating in the EU, Chinese companies have encountered challenges in administrative law enforcement, government procurement, financial supervision and other areas. For example, Chinese companies might be excluded in strict EU public procurement biddings. China, being a third party country and having no secured access to the EU procurement market will closely watch how the CAI will be interpreted by the member states in this respect.
In CAI, both EU and China promise not to impose restrictions on the enterprise quantity, production, sales, executive directors, local headquarters and local research and development, export performance. And it allows the transfer of foreign exchange and personnel entry and residence related to the investment. This will significantly provide convenience for Chinese enterprises to invest in the European Union and decrease the compliance costs for them.
If you would like to receive more information about CAI or desire legal advice regarding doing cross-border business EU-China, please contact Amice Advocaten on email@example.com or look on our website www.amice-advocaten.nl
 European Union. (2020). Key elements of the EU-China Comprehensive Agreement on Investment. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2542