The Subtle Balance of the Comprehensive Agreement on Investment
The European Union and the People’s Republic of China’s relations date back to 1975. In almost half a century, the two countries settled important milestones in their collaboration; the 1985 EU-China Trade and Cooperation Agreement and the 2003 EU-China Comprehensive Strategic Partnership. The turning point, however, has been the 2020 Comprehensive Agreement on Investment (CAI).
It was in 2013 when the first idea of an investment agreement between two of the most influential countries in the world took a turn. The year after, negotiations started. Six years later, on the 20th of December 2020, the negotiations on the EU-China Comprehensive Agreement on Investments were concluded, defining thereafter a new chapter in the relations between the two superpowers. But why is this agreement so important and unique? A general view of the text already explains its novelty.
The text is based on three key points: market access, level playing field, and sustainable development. This last point is essential: it is the first time that China commits itself to sustainable development in a bilateral agreement. Never before has the Middle Kingdom explicitly declared, in an international document, its commitment and awareness towards sustainable development.
The agreement and its key points
The agreement, as of December 2020, expands into six sections, one of those specifically dedicated to sustainable development - an absolute step forward for China.
The core idea of the CAI is the establishment of clear rules governing investment and reducing barriers to mutual investment, in order to strengthen economic and trade relations.
As one of the three pillars that hold the agreement, the first element to analyse is market access. What does it mean, and why is it so important?
Firstly, the importance of market access lies in the fact that from the EU point of view, enterprises will not face any more problematic barriers in accessing the Chinese market, and the same applies to Chinese enterprises in the EU. Moreover, article 2.1 of section 2 of the agreement thoroughly explains this important passage through its analysis of the benefits enterprises can obtain from easier market access, as well as stating that both parties should not impose limitations on: enterprises that may carry out a specific economic activity, the value of transactions or assets in the form of numerical quotas, the total number of operations, and the total numbers of natural persons that may be employed in a particular sector. Moreover, parties cannot restrict or require a specific type of legal entity or joint venture through which an enterprise may carry out an economic activity.
The next section of the agreement presents an interesting and critical word, which is the core of the first two pillars: transparency. Article 2 states: “Each Party shall ensure that its laws, regulations, administrative guidelines, procedures, judicial decisions and administrative rulings of general application with respect to any matter covered by this Treaty are promptly published, or otherwise made publicly available in such a manner as to enable interested persons and the other Party to become acquainted with them.”
Transparency nowadays holds extreme importance in the international field. With the breakout of Covid-19 pandemic, many states asked for more transparent information both from a health system point of view and from an economic one. China has never been keen on transparency, and putting it in one of the sections of the agreement is of course a great leap forward. Transparency is at the basis of a level playing field, meaning that these equal conditions are true and solid only if transparency is at play. Equal access, equal information, equal opportunity. That is the main idea of the CAI. That is what the future of EU-China relations is based upon.
Lastly, sustainability. The third pillar of the agreement concerns a topic indispensable for tomorrow’s world. Since 1992, sustainability and the green transition have been ongoing issues in every discourse, agreement, and negotiation.
It is common knowledge that a transition to a better environment and way of living and working is essential for the world and for the generations to come. China, although positioning itself as a leader in many fields, has never practically considered sustainability prior to recent times, when the country finally adopted the 2030 Agenda for Sustainable Development in 2015. China is taking a forward step in pushing its sustainable development by eradicating extreme poverty, building an ecological civilization and contributing to global climate and sustainability governance.
In the CAI, the parties are committed to create a better world, a better way of living, and are committed to do that through sustainable development. The EU and China recognise that economic development, social development, and environmental protection are all interdependent and mutually reinforcing dimensions of sustainable development.
The parties leave it to each other to determine the most suitable way of reaching the objective of sustainability while committing to reviews and mutual communication.
What to expect now
At the end of 2020, when the negotiations reached a conclusion, the obvious next step would have been quick ratification. However, as of today, the CAI is stalled. Why? What created doubt and uncertainty around an agreement that was considered to be a milestone in Chinese-European relations?
The halt was the result of the European Union Parliament’s cancellation of the review meeting for the agreement’s approval. This meant a stall of the second phase, where the EU Parliament plays a key role.
At the end of March 2021, the European Union openly condemned the People’s Republic of China. The reason why the meeting was cancelled was due to the alleged human rights violations in the Xinjiang Uighur Autonomous Region (XUAR).
Sanctions were imposed on individuals: first from the EU to China for human rights violations and then, as a response, from China to the EU for malicious spreading of lies and false information.
The agreement should have created a strong openness and a good understanding between the parties, but now everything is unsteady.
European companies, already prepared to easily access the Chinese market and explore new horizons, are now delaying their entrance, while colossal clothing companies are trying to avoid the Chinese media and accusatory pressure on them.
[Global clothing brands have found themselves stuck in the middle of this diplomatic crisis, both being accused of enabling China’s oppression of the Uighurs in Xinjiang as well as facing pressure from China through banned online stores and erasure from digital maps. --- Editor’s note]
Human rights violations against the Uighur minority in Xinjiang are already been condemned by the US and Canada. The European Union is, at this moment, strengthening ties with the West, and losing the economic grip on the East.
Both parties, strong in their argumentations and declarations in negotiation as now in condemnation, have intense and delicate months ahead of them.
With these allegations and the EU’s condemnation of them on one hand, and the importance of the Comprehensive Agreement on Investment on the other, the deal of the decade is now poised on a rift that is difficult to heal.
1. Objectives and general definitions; 2. Investment liberalisation; 3. Regulatory framework; 4. Investment and sustainable development; 5. Dispute settlement; 6. Institutional and final provisions  In sectors or subsectors where market access commitments are undertaken and subject to the terms, limitations and conditions specified in [Annex], neither Party shall adopt or maintain with regard to market access through constitution, acquisition1 or maintenance of an enterprise by an investor of a Party, either on the basis of its entire territory or on the basis of a regional subdivision measures that: (a) impose limitations on: (i) the number of enterprises that may carry out a specific economic activity whether in the form of numerical quotas, monopolies, exclusive rights or the requirement of an economic needs test; (ii) the total value of transactions or assets in the form of numerical quotas or the requirement of an economic needs test; (iii) the total number of operations or the total quantity of output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;2 (iv) the total number of natural persons that may be employed in a particular sector or subsector, or that an enterprise may employ and who are necessary for, and directly related to, the performance of economic activity in the form of numerical quotas or the requirement of an economic needs test. (b) restrict or require a specific type of legal entity or joint venture through which an enterprise may carry out an economic activity.  section3, subsection2, art2  Agenda 21 on Environment and Development  https://sdgs.un.org/2030agenda https://oecd-development-matters.org/2020/02/28/how-china-is-implementing-the-2030-agenda-for-sustainable-development/  CAI, Section 4, subsection1, article 1.2  Four individuals (one of them a top security director)  https://www.fmprc.gov.cn/web/fyrbt_673021/t1863102.shtml (China condemn 10 EU citizens and 4 entities)  H&M and Other Brands Face Backlash From Chinese Consumers - The New York Times (nytimes.com)  Xinjiang cotton: Western clothes brands vanish as backlash grows - BBC News  Why H&M, Nike and Others Are Being Boycotted in China - The New York Times (nytimes.com)