Investment agreement will be in focus at summit
By Christopher Bovis |
Updated: 2018-07-04 16:52
Editor's Note: This article is part of Preview Policy Report for the 2018 China-EU Summit, which will be jointly published by China Watch Institute — the new think tank platform powered by China Daily — and Bruges-based EU-China Research Centre of the College of Europe.
The EU-China 2020 Strategic Agenda for Cooperation was adopted in 2016 with a trade agenda focusing on improving market access, promoting reciprocity, ensuring a level playing field, establishing fair competition across all areas of co-operation, dealing with overcapacity and engaging at a multilateral level. Ambitious economic reforms enacted in China have prioritized opening up China's economy to foreign investors to boost innovation and competitiveness by attracting more advanced industries and services. The current legal and regulatory framework between China and the EU comprises 25 bilateral investment treaties, or BITs.
China is the EU's biggest source of imports and also one of the EU's fastest growing export markets, with the EU now China’s biggest source of imports. China and Europe trade well over 1 billion euros a day. EU imports from China are dominated by industrial and consumer goods with bilateral trade in services amounting to just a tenth of total trade in goods. Of the EU's exports to China, only 20 percent are of services. Investment flows show great untapped potential, especially considering the size of the two economies. China accounts for less than 3 percent of overall EU foreign direct investment whereas Chinese investments in Europe are rising, but from an even lower base. The EU currently has a trade deficit with China.
An Investment Agreement is pivotal to the EU-China 2020 Strategic Agenda for Cooperation. Negotiations started in 2013 and cover joint overall objectives in relation to future EU-China investment relations. The EU's objectives translate into improving the protection and treatment of EU investments in China; reducing barriers to investing in China and increasing bilateral FDI flows.
The EU feels that investors need better market access and an environment which is non-discriminatory for investments before and after establishment, ensuring a level playing field to remedy any advantages enjoyed by Chinese State-owned enterprises and ascertaining the right of the parties to take measures necessary to achieve legitimate public policy objectives (including environmental, social, labor and corporate social responsibility objectives) on the basis of the level of protection that they deem appropriate, provided that such measures are not discriminatory or restrictive.
In particular, the EU has requested increased certainty and legitimate expectations on screening and assessment controls of European investment into China that are beyond national security requirements. The EU has also stressed the need for the highest possible level of uniform standards of legal protection, including the protection of intellectual property rights for European investors in China moving away from existing BITs which provide for different levels of investor protection and allowing for swift dispute resolution systems such as arbitration.
China’s objectives cover the need to improve the legal certainty of Chinese investors in the EU, with intra-corporate transferees and business visitors as well as their family members enjoying access to visas and granting of work permits, and to preserve its current access to the EU. China's key interests focus upon a uniform European treatment and protection for its investors, particularly clarity for control of FDI inflows on the basis of national security or industrial policy requirements and maintaining the already good access to the European markets since the EU has established a high degree of openness for foreign direct investments.
Investment treaty options
The EU and China can establish an investment protection agreement replacing the 25 existing BITs and achieving the improvement of the level of protection of EU investments in China and of legal certainty. An investment protection agreement could also address some issues not sufficiently addressed under existing BITs such as the non-lowering of standards, CSR environmental, social and labor standards as well as on fundamental rights and on the right of States to regulate in order to pursue legitimate policy objectives or the role of State-owned enterprises. However, the investment protection agreement could not address market access barriers to establishment and would not be expected to have an effect on actual FDI flows.
An investment protection agreement is preferable to China during negotiations since it has declared its main interest to be investment protection. As such, a negotiation of a pure investment protection agreement would be less complicated than the scenarios involving market access. However, the EU's main concern relates to the establishment of a level playing field regarding investment access and treatment in China which such an investment protection agreement would not address.
Alternatively, China and the EU can establish a combined agreement for market access and investment protection which can address the main problems of the current EU-China investment relationship.
A combined agreement for market access and protection would achieve the same results as an investor protection agreement with regard to increased legal certainty under investment protection and address the current imbalance regarding openness to FDI in China, even though a cautiously realistic approach needs to be maintained in relation to expected concessions on market access for certain sectors.
Under a combined agreement for market access and investor protection, China and the EU would stand to gain as regards economic growth, competitiveness, productivity and employment, without affecting the right of States to regulate to pursue legitimate policy objectives in areas such as the environment, employment, social rules and human rights.
Conclusions
Progress among the parties in agreeing the main institutional framework for FDI is expected during the Beijing Sino-EU Annual Summit in July 2018. A comprehensive EU-China investment agreement will benefit both the EU and China by ensuring open markets and access to investment in both directions and providing a simpler, secure and predictable legal framework to investors.
The EU would prefer to pursue an investment agreement seeking to combine both investor protection with market access elements. China's preference has been a pure investment protection agreement to replace the current BTIs. However, China has agreed that at the forthcoming Sino-EU Summit, it would be willing to pursue negotiations covering all issues of protection and market access.
Christopher Bovis is a professor of international businesslaw at University of Hull. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
Editor's Note: This article is part of Preview Policy Report for the 2018 China-EU Summit, which will be jointly published by China Watch Institute — the new think tank platform powered by China Daily — and Bruges-based EU-China Research Centre of the College of Europe.
The EU-China 2020 Strategic Agenda for Cooperation was adopted in 2016 with a trade agenda focusing on improving market access, promoting reciprocity, ensuring a level playing field, establishing fair competition across all areas of co-operation, dealing with overcapacity and engaging at a multilateral level. Ambitious economic reforms enacted in China have prioritized opening up China's economy to foreign investors to boost innovation and competitiveness by attracting more advanced industries and services. The current legal and regulatory framework between China and the EU comprises 25 bilateral investment treaties, or BITs.
China is the EU's biggest source of imports and also one of the EU's fastest growing export markets, with the EU now China’s biggest source of imports. China and Europe trade well over 1 billion euros a day. EU imports from China are dominated by industrial and consumer goods with bilateral trade in services amounting to just a tenth of total trade in goods. Of the EU's exports to China, only 20 percent are of services. Investment flows show great untapped potential, especially considering the size of the two economies. China accounts for less than 3 percent of overall EU foreign direct investment whereas Chinese investments in Europe are rising, but from an even lower base. The EU currently has a trade deficit with China.
An Investment Agreement is pivotal to the EU-China 2020 Strategic Agenda for Cooperation. Negotiations started in 2013 and cover joint overall objectives in relation to future EU-China investment relations. The EU's objectives translate into improving the protection and treatment of EU investments in China; reducing barriers to investing in China and increasing bilateral FDI flows.
The EU feels that investors need better market access and an environment which is non-discriminatory for investments before and after establishment, ensuring a level playing field to remedy any advantages enjoyed by Chinese State-owned enterprises and ascertaining the right of the parties to take measures necessary to achieve legitimate public policy objectives (including environmental, social, labor and corporate social responsibility objectives) on the basis of the level of protection that they deem appropriate, provided that such measures are not discriminatory or restrictive.
In particular, the EU has requested increased certainty and legitimate expectations on screening and assessment controls of European investment into China that are beyond national security requirements. The EU has also stressed the need for the highest possible level of uniform standards of legal protection, including the protection of intellectual property rights for European investors in China moving away from existing BITs which provide for different levels of investor protection and allowing for swift dispute resolution systems such as arbitration.
China’s objectives cover the need to improve the legal certainty of Chinese investors in the EU, with intra-corporate transferees and business visitors as well as their family members enjoying access to visas and granting of work permits, and to preserve its current access to the EU. China's key interests focus upon a uniform European treatment and protection for its investors, particularly clarity for control of FDI inflows on the basis of national security or industrial policy requirements and maintaining the already good access to the European markets since the EU has established a high degree of openness for foreign direct investments.
Investment treaty options
The EU and China can establish an investment protection agreement replacing the 25 existing BITs and achieving the improvement of the level of protection of EU investments in China and of legal certainty. An investment protection agreement could also address some issues not sufficiently addressed under existing BITs such as the non-lowering of standards, CSR environmental, social and labor standards as well as on fundamental rights and on the right of States to regulate in order to pursue legitimate policy objectives or the role of State-owned enterprises. However, the investment protection agreement could not address market access barriers to establishment and would not be expected to have an effect on actual FDI flows.
An investment protection agreement is preferable to China during negotiations since it has declared its main interest to be investment protection. As such, a negotiation of a pure investment protection agreement would be less complicated than the scenarios involving market access. However, the EU's main concern relates to the establishment of a level playing field regarding investment access and treatment in China which such an investment protection agreement would not address.
Alternatively, China and the EU can establish a combined agreement for market access and investment protection which can address the main problems of the current EU-China investment relationship.
A combined agreement for market access and protection would achieve the same results as an investor protection agreement with regard to increased legal certainty under investment protection and address the current imbalance regarding openness to FDI in China, even though a cautiously realistic approach needs to be maintained in relation to expected concessions on market access for certain sectors.
Under a combined agreement for market access and investor protection, China and the EU would stand to gain as regards economic growth, competitiveness, productivity and employment, without affecting the right of States to regulate to pursue legitimate policy objectives in areas such as the environment, employment, social rules and human rights.
Conclusions
Progress among the parties in agreeing the main institutional framework for FDI is expected during the Beijing Sino-EU Annual Summit in July 2018. A comprehensive EU-China investment agreement will benefit both the EU and China by ensuring open markets and access to investment in both directions and providing a simpler, secure and predictable legal framework to investors.
The EU would prefer to pursue an investment agreement seeking to combine both investor protection with market access elements. China's preference has been a pure investment protection agreement to replace the current BTIs. However, China has agreed that at the forthcoming Sino-EU Summit, it would be willing to pursue negotiations covering all issues of protection and market access.
Christopher Bovis is a professor of international businesslaw at University of Hull. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
