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European Union and China conclude 7+ years of talks on the Comprehensive Agreement on Investment (CAI)

By Ken Temple

Historic economic accord reached “in principle”, yet to be ratified 

The EU and China finally set ideologies and politics aside to focus on pure business and forge a landmark partnership agreement that will begin to heal their respective economies. Perhaps Angela Merkel is attempting to leave a legacy other than her catastrophic lapse in judgement, which sparked the refugee fiasco wreaking havoc across Europe since 2015 and spurring on Brexit?

Is this the true deal of the century? Well, that still remains to be seen, but we can safely say that as 7 years of gruelling negotiations come to a successful conclusion, this landmark agreement is a strong candidate for the deal of the decade. Let’s dig in.

On Wednesday, December 29th, two days before their self-imposed deadline, the EU leaders, including European Commission President Ursula von der Leyen, German Chancellor Angela Merkel (on behalf of the EU Council Presidency), French President Emmanuel Macron and European Council President Charles Michel joined China’s President Xi Jinping in announcing the momentous treaty. The EU and China began hammering out their bilateral market access and investment regulations back in October of 2013 and have since held 35 rounds of high level negotiations. 

Under the treaty, Chinese companies are guaranteed competition protection and market access that is already in place, as well as additional opportunities to invest in the manufacturing and renewable energy sectors.

For the EU companies, the deal is designed to lower bureaucratic and legal hurdles for EU companies when it comes to entering the Chinese market, specifically, certain joint-venture requirements and limits on foreign equity. Marked strides have been made in facilitating smooth investment and market penetration for the vehicle manufacture (including new energy transport), insurance, financial and fixed asset management, telecommunications, air transportation, private healthcare and IT companies, as well as certain supporting industries. The pact will also insulate EU investors from questionable judiciary mechanisms, such as forced technology transfer and discrepancy in operating and compliance standards versus state-owned entities.

China has pledged to uphold obligations on transparency regarding subsidies provided in the services sector, as well as China’s commitment to share information and to consult on specific subsidies that could affect the investment interests of the EU in a negative way. 

There is to be a clear prohibition of investment requirements that compel transfer of technology. Confidential business information will be protected and there will be no interference in contractual freedom in technology licensing.

President von der Leyen commented:

“Today‘s agreement is an important landmark in our relationship with China and for our values-based trade agenda. It will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs. It will also commit China to ambitious principles on sustainability, transparency and non-discrimination. The agreement will rebalance our economic relationship with China”.

Regarding market access and fair competition, the EU’s Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis has been quoted as hailing the result as: “most ambitious outcomes that China has ever agreed with a third country” adding that henceforth, European businesses are expected to operate in China with more certainty and confidence. The Commissioner elaborated further saying: 

“This deal will give European businesses a major boost in one of the world's biggest and fastest growing markets, helping them to operate and compete in China. It also anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combatting forced labour. We will engage closely with China to ensure that all commitments are honoured fully.”

President Xi addressed the unprecedented toll on the global economy and the uncertainty wrought by the pandemic of 2020. The President said that as two ancient civilisations and major markets, it is right for China and the EU to assume a joint proactive role in driving the world forward, while promoting global peace, stability and progress. He noted that China is dedicated to ushering in a new sustainable development paradigm that will generate more market opportunities and push back the horizons of prosperity and cooperation for the entire world. 

Both sides let their actions speak for themselves, as they signalled their commitment to openness and mutually beneficial, long-term cooperation. 

President Xi outlined five key areas where a joint commitment to cooperation is essential, namely: fostering economic recovery; closing ranks and presenting a joint front against pandemics; promoting sustainable, renewable future; multilateral development and collaboration; coordinating development strategies for the benefit of all. The President reaffirmed China’s unwavering commitment to multi-national prosperity and development, commending the agreement as fair and balanced. 

Despite the time and effort expended to allow the two global powerhouses to reach accord, the outcome is not without its detractors. Notably, the chair of the European parliament’s delegation for relation with China, Reinhard Bütikofer is one of the staunchest critics of the treaty. On Tuesday 29 December 2020, he decried the agreement as a ridiculous strategic mistake citing allegations of breaches in human rights, which have been firmly and consistently rebuffed by Beijing. 

Predictably, the US policy makers are also livid that the EU dared to put its own interests ahead of America’s and quite uncharacteristically do what is right for the EU’s future without first asking for permission.

“The Biden-Harris administration looks forward to consulting with the EU on a co-ordinated approach to China’s unfair economic practices and other important challenges.”

commented a spokesperson from Joe Biden’s office. 

Thus far, the bilateral pact has been agreed “in principle”, for it to come into effect, the accord must be ratified by both sides and the forecast agenda in Brussels is for the first quarter of 2022. This agreement will most certainly test the EU’s resolve and commitment to a multi-polar world and a brighter tomorrow. Will the block prove to be a trustworthy, independent trading partner or will the EU quail at the sound of the US whistle and come to heel? 

The world is watching. Either way, we are witnessing history in the making.

Happy Niu (牛) Year everyone!

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