What is in the EU-China Investment Treaty?

After seven years of talks, the EU has secured one of its main priorities in relations with China: a investment agreement that Brussels insists on solving the long-standing problems facing European businesses.

But the deal is likely to be controversial with human rights activists, given allegations of abuse in China. It could also create friction with the new US administration of Joe Biden, who has made it clear that he wants an alliance with the EU to exert joint pressure against Beijing due to aggressive business practices.

Businesses will also now want to study the fine print of the new rights created by the agreement and how they will be enforced.

1. What does the agreement bring to the EU?

The agreement addresses a number of EU grievances.

These include long-standing concerns that companies in the bloc are being forced to share valuable technological know-how in exchange for being allowed to compete in the Chinese market, as well as fears that the country’s state-owned enterprises may be unfairly favored and that the Chinese public subsidy system opaque.

The deal “will dramatically improve the level playing field for European investors,” including by “banning forced technology transfers and other distorting practices,” the EU said in a statement.

Other parts of the agreement relate to sector-by-sector specific market access rights, the removal of barriers such as requirements for companies to partner with local companies in joint ventures, and the elimination of barriers. caps on investment levels.

Areas in which EU companies will gain enhanced access rights include the automotive sector, telecommunications equipment, cloud computing, private healthcare and ancillary services for air transport. The deal will also put the EU on an equal footing with the US when it comes to operating in China’s financial services market.

2. Does it solve the problems in EU-China trade relations?

Working with molten iron in a special steelworks in Dongbei in Dalian, Liaoning province, China © Reuters

Speaking to the Financial Times on Wednesday, Valdis Dombrovskis, EU trade commissioner, warned that the deal “is not a panacea for tackling all challenges related to China, but that it brings a number of improvements welcome ”.

Importantly, the investment treaty has a much narrower scope than the comprehensive free trade agreements the EU has negotiated with countries like Canada, Japan and – more recently – Great Britain. It mainly covers certain non-tariff barriers to business and investment.

Mr Dombrovskis identified overcapacity in steel production, unequal access to government procurement and trade in counterfeit products as problems in EU-China trade relations that the agreement could not resolve.

The EU is also seeking to tackle broader issues, such as China’s use of industrial subsidies, through reform of the World Trade Organization.

“This agreement is only one piece, just a thread in a complex tapestry of the EU-China relationship, and of course, it is clear that many complex challenges still need to be tackled,” said Dombrovskis.

3. What does China get out of it?

For China, the deal is good diplomacy: The new Biden administration in the United States has made it clear that it wants to build an alliance of democracies to pressure Beijing for both its human rights record and its aggressive business practices. The investment treaty agreement strengthens ties with Brussels at a pivotal moment.

China entered the negotiations with fewer market access targets than the EU, which argued it was the victim of unequal competitive conditions. Still, the deal locks down existing rights of Chinese companies in the EU market at a time when the EU seeks to expand its legal arsenal against unfair foreign competition.

It also offers China new openings in the manufacturing sector and the growing European renewable energy market.

EU officials stress that market openness to renewables is limited (capped at 5 percent for each market in EU member states) and depends on China’s reciprocal openness.

4. How will the deal affect relations with the new US administration?

Valdis Dombrovskis, EU trade commissioner, said the deal brought “a number of welcome improvements” © Kenzo Tribouillard / Pool / AP

The EU has taken a risk moving forward, especially in light of its parallel efforts to revive transatlantic relations after serious tensions during Donald Trump’s presidency.

Just four weeks ago, he publicly urged the United States to join him in an alliance to affirm the interests of the democratic world against the “authoritarian powers” and meeting China’s “strategic challenge”.

Critics say the deal with the EU undermines this call for partnership; the EU insists that it is only gaining trade advantages similar to those established in the so-called “phase 1” trade agreement hit by Mr Trump with Beijing.

The EU also argues that the deal can help other countries assert themselves more in their relations with China by setting a new benchmark in terms of Beijing commitments.

“We want to engage very closely with the United States,” Dombrovskis said. “I don’t see the phase 1 agreement or our comprehensive investment agreement as an obstacle to this cooperation.”

5. Is the agreement in line with the EU’s human rights objectives?

The EU claims that “universal, indivisible and interdependent” human rights are “at the heart” of its relations with other countries. But the deal has raised concerns among human rights activists over claims – denied by Beijing – that Uyghur Muslims detained in the western Xinjiang region are being used as forced labor.

The bloc says it has secured unprecedented pledges from Beijing, including that China will make “continued and sustained efforts” to ratify two International Labor Organization conventions against forced labor – but human rights activists argue that this does not go far enough as a guarantee.

Reinhard Bütikofer, Chairman of the European Parliament Delegation for Relations with China, written on twitter Tuesday that “it’s ridiculous [for the EU] try to sell this as a success ”.

The EU stresses that the agreement includes a strong “implementation and enforcement mechanism” that covers labor rights commitments, as well as other dispute settlement arrangements.

Mr. Dombrovskis said neither the Phase 1 agreement with the United States nor a comprehensive regional economic partnership agreed this year by countries in Asia and the Pacific have “sustainable development commitments that come close” to the EU-China agreement.

Tensions on this point will certainly feature prominently in the EU’s work on ratifying the deal – a process that will require approval of the deal by the European Parliament.

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