The finalization of the China-EU investment agreement – after seven years of negotiations – on December 30, 2020, is a big deal, says London-based China lawyer Mark Schaub in an overview of the fallout of the deal for the China Law Insight. “Is it a Big Deal? – Yes. China is the EU’s second-largest trading partner and the EU is China’s largest trading partner. Over Euro1 billion per day of trade flows between these two giants.”
Living in London for the last year and being subjected to Brexit 24/7 made one feel as if the approval of the Brexit deal by the UK parliament was less news but rather the season finale of a reality TV show. However, as luck would have it 30 December had 2 not 1 big trade stories with China and the EU agreement major terms in principle of the EU-China Comprehensive Investment Agreement (“the EU-China Agreement”).
Like Brexit the EU-China Agreement still needs to go through an approval process. Although, ultimate approval seems likely it is less certain than the approval of the Brexit deal. Indeed, when one remembers that in 2016 the Wallonia region was able to hold up the EU’s free trade deal with an innocuous Canada – the risk of derailment cannot be fully excluded.
Is it a Big Deal? – Yes. China is the EU’s second-largest trading partner and the EU is China’s largest trading partner. Over Euro1 billion per day of trade flows between these two giants. In a world of increasing friction in cross border trade and investment the EU-China Agreement is a welcome signal that the large trading blocs (or at least two of them) see benefit in aligning and opening their markets as well as providing business with greater certainty and predictability. 2020 has not been great for predictability or certainty.
What Does it Cover? The main pillars of the EU-China Agreement are: (1) market access, (2) level playing field and (3) sustainable development.
A very brief overview is as follows:
Market Access – China will provide greater market access for European investors in China – this will be in some ways a concept similar to how Hong Kong SAR has been provided greater access under CETA. From China’s perspective the EU-China Agreement guarantees existing market access rights to EU markets in sectors like agriculture and fisheries (there they are again I never knew until recently the core importance of fishing to the world economy!). Chinese companies will also have greater access to sectors such as manufacturing, retail, wholesale and renewable energy. For EU business China has committed to an unprecedented increase in market access for EU investors by removing protectionist restrictions
Which Sectors are the Winners?
Sectors that will benefit include:
Manufacturing – especially automotive, transport vehicles, medical devices and chemicals. However, China will still be able to block foreign investment in some sectors, especially those with significant overcapacity or particularly sensitive sectors – but they do this also to domestic companies. The NDRC has clamped down on damaging overcapacity for decades. One example is that it will not be possible to establish or expand capacity in respect of traditional petrol-powered automobiles unless the existing factory’s productivity exceeds the industry average. Similar restrictions have applied to Chinese domestic enterprises for decades.
Services – in particular financial, international maritime, environmental, construction, computing, auxiliary air transport services, cloud services, and private health services. However, in some areas restrictions will remain and in others EU investment will be off-limits such as China’s internet services market (except for end user internet access services) and some fund management services.
Are you looking for more stories by Mark Schaub? Do check out this list.