EU-China bilateral investment agreement

The Lisbon Treaty brought foreign direct investment (FDI) under the EU’s exclusive competence (Article 207 TFEU). The EU-China BI agreement, if concluded, would be the first of this kind, replacing the 26 BI agreements EU Member States (MS) have with China. In May 2013, the Commission asked the Council for a mandate to negotiate an agreement, which it is expected to approve on 18 October.

Despite the magnitude of the EU-China trade relationship, investment on both sides is low. In 2011, EU investment stocks in China accounted for 2% of total EU FDI abroad, while Chinese investment in the EU was 0.4% of total FDI in the EU (Eurostat). However, Chinese outbound FDI has surged in recent years, including in the EU. China’s emergence as a direct investor is an opportunity for the EU in terms of job creation, increased competition and better access to capital for EU firms, but also a reason for concern, more of a political and security nature, than economic.

A BI agreement with China holds the promise for EU investors of accessing the vast Chinese consumer market and bringing the Chinese investment environment closer to EU norms. The EU is particularly keen to address China’s restrictive FDI regime. Stakeholders have underlined the many barriers EU investors face in China, before and after investing: licensing and regulatory approval procedures, foreign ownership limitations, prohibition to invest/restricted scope of business, joint venture and technology transfer requirements and subsidies given to Chinese companies. An EU-wide agreement with China raises hope of solving the two main problems: market access barriers and the lack of a level playing field (Chinese investors enjoy ample access to the EU market, mainly to EU MS with few or no restrictions in place, but this is not reciprocated). It should also lead to more transparency, legal certainty and fair treatment of EU investors. The Commission’s objectives in the talks are therefore to reduce barriers to EU investors in China and improve their protection; create a more level playing field and provide a simpler legal framework.

China’s interest in the BI agreement reflects its preference for a unified framework to replace the 26 BI agreements, as well as its wish to participate in shaping global investment rules (China has also agreed to restart talks on a BI treaty with the United States).

The EP Committee on International Trade recently adopted its position on the EU-China negotiations for a BI agreement (rapporteur Helmut Scholz, GUE/NGL, Germany). The resolution demands talks on a BI agreement only start if China agrees to discuss its market access rules. The EP’s consent to a potential agreement is conditional on transparency and parliamentary oversight of the negotiations. In addition, the resolution calls for cultural and audiovisual services to be excluded from the market access talks. Binding clauses on social responsibility, social and environmental standards, on protection of European public services, intellectual property and data protection should be included. Crucially, the resolution urges the Commission to negotiate an agreement that ensures equality of investment environments, a level playing field and fair competition between Chinese state-owned enterprises and EU private companies.

The most difficult issue in the talks will be market access, but other issues might prove just as challenging, such as convincing China to adhere to EU standards on human rights, labour rights and the environment. In any event, the conclusion of a BI agreement will be a long-term process.