(Bloomberg) -- The European Union and China announced the political approval of an agreement to open the Chinese market further to EU investors, marking a major step in talks that began in 2013.
The breakthrough in negotiations on an EU-China investment deal signals the bloc's determination to focus on economic opportunities in Asia even amid criticism of Beijing's record on human rights. The accord could enter into force in early 2022.
For the EU, the deal risks irking the incoming U.S. administration, which has urged the Europeans to consult with them over China's economic practices. Failure by the U.S. and EU to forge a common position would give Beijing an advantage as western leaders reassess geopolitical relations in the wake of Donald Trump's presidency.
“This agreement is of major economic significance,” the leaders of the bloc's two main institutions, Charles Michel and Ursula von der Leyen, said in a statement on Wednesday after a video conference with Chinese President Xi Jinping. “China has committed to an unprecedented level of market access for EU investors, giving European businesses certainty and predictability for their operations.”
The incoming U.S. administration under President-elect Joe Biden has already signaled reservations about the deal. Jake Sullivan, Biden's national security adviser, on Dec. 22 called for “early consultations with our European partners on our common concerns about China's economic practices.”
An official in Biden's transition team, who asked not to be identified, said Wednesday the incoming administration looked forward to consulting with the EU on a “coordinated approach to China's unfair economic practices and other important challenges.”
Market Access
For the 27-nation EU, the pact expands access to the Chinese market for foreign investors in industries ranging from cars to telecommunications. Furthermore, the agreement tackles underlying Chinese policies deemed by Europe and the U.S. to be market-distorting: industrial subsidies, state control of enterprises and forced technology transfers.
For China, the accord bolsters the country's claim to be a mainstream geopolitical force and may limit risks resulting from a tougher EU stance on Chinese investments in Europe. It also strengthens Beijing's longstanding call for the start of negotiations on a free-trade pact with the EU, which has insisted on an investment deal first.
China ranked as the EU's second-largest trade partner in 2019 (behind the U.S.), with two-way goods commerce valued at more than 1 billion euros ($1.2 billion) a day.
Read More: The China-EU Investment Deal Is a Mistake: Andreas Kluth
Environmental Conditions
The investment deal “demonstrates China's determination and confidence in advancing a high level of opening to the outside world, and will provide greater market access for China-EU mutual investment, a higher quality business environment, stronger institutional guarantees and brighter cooperation prospects,” Xi said, according to state media.
The announcement on Wednesday represents a high-level political blessing to the investment pact, which will also cover environmental sustainability. Both sides plan to put the finishing touches on it over the coming months.
“A strong agreement would be a powerful statement to show that constructive engagement can produce results,” Joerg Wuttke, president of the EU Chamber of Commerce in China, said in an emailed statement.
Human Rights
Once finalized, the accord will need the approval of the European Parliament, where some voices have expressed objections as a result of alleged human-rights violations in China. The deal includes Chinese pledges on labor standards meant to address such concerns, including in relation to ratification of related United Nations-backed conventions, according to EU officials, who asked not to be identified because of the continuing preparations.
“It's not a given that the EU Parliament will give its consent,” Reinhard Buetikofer, a German Green member of the assembly, told Bloomberg Television on Tuesday. “We'll give it a tough scrutiny.”
The EU's push for an agreement highlights global cross-currents after Trump shook the post-war system over the past four years by sidelining the World Trade Organization, starting a tariff war against China and hitting or threatening U.S. allies in Europe with controversial import duties.
When the Trump administration in January 2020 struck a first-phase commercial accord with China that eased their economically damaging fight, the EU criticized the deal as a “managed-trade outcome” that might itself violate WTO rules and merit a legal challenge.
Deal Highlights
Following are some of the Chinese concessions to European investors in the agreement, according to an EU official who spoke on the condition of anonymity:
- Chinese market opening: improved access across industries including air-transport services, where joint-venture requirements for computer-reservation systems are being removed, and new opportunities in sectors including clean vehicles, cloud services, financial services and health
- Chinese state-owned enterprises: non-discrimination commitment when SOEs are buyers of services
- Chinese subsidies: enhanced transparency, notably for services
- Chinese forced technology transfers: prohibited
While the accord largely commits the EU to maintain its relative openness to Chinese investors, according to the European official, the deal offers greater access for them to the bloc's:
- energy wholesale and retail markets (but excluding trading platforms)
- renewable-energy markets (with a 5% cap at the level of EU countries and a reciprocity mechanism)
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