The Comprehensive Agreement on Investments (the “CAI”), a bilateral treaty that will replace the 26 existing bilateral investment treaties between 27 individual EU Member States and P. R. China, has been officially concluded on the 30th December 2020.  

In addition to rules against the forced transfer of technologies, CAI will be the first agreement to deliver on obligations for the behavior of state-owned enterprises, comprehensive transparency rules for subsidies and commitments related to sustainable development.

Notwithstanding the fact that the content of the articles of the CAI has not yet been disclosed to the public, the cornerstones of the agreement can be summarized as follows:

Ambitious opening by P. R. China to European investments

Firstly, the CAI binds China's liberalization of investments over the last 20 years and, in that way, it prevents backsliding. This makes the conditions of market access for EU companies clear and independent of China's internal policies. It also allows the EU to resort to the dispute resolution mechanism in CAI in case of breach of commitments.

In addition, the EU has negotiated further and new market access openings and commitments such as the elimination of quantitative restrictions, equity caps or joint venture requirements in a number of sectors. The overall package is far more ambitious than what China has committed to before.

On the EU side, the market is already open and largely committed for services sectors under the General Agreement on Trade in Services (GATS). EU sensitivities, such as in the field of energy, agriculture, fisheries, audio-visual, public services, etc. are all preserved in CAI.

Some examples of market access commitments by P. R. China:

● Manufacturing: P. R. China has made comprehensive commitments with only very limited exclusions (in particular, in sectors with significant overcapacity). In terms of the level of ambition, this would match the EU's openness. Roughly half of EU FDI is in the manufacturing sector (e.g. transport and telecommunication equipment, chemicals, health equipment etc.). China has not made such far-reaching market access commitments with any other partner.

● Automotive sector: P. R. China has agreed to remove and phase out joint venture requirements and will commit market access for new energy vehicles.

● Financial services: P. R. China had already started the process of gradually liberalizing the financial services sector and will grant and commit to keep that opening to EU investors. Joint venture requirements and foreign equity caps have been removed for banking, trading insecurities and insurance (including reinsurance), as well as asset management.

● Health (private hospitals): P. R. China will offer new market opening by lifting joint venture requirements for private hospitals in key Chinese cities, including Beijing, Shanghai, Tianjin, Guangzhou and Shenzhen.

● R&D (biological resources): P. R. China has agreed not to introduce new restrictions and to give to the EU any lifting of current restrictions in this area that may happen in the future.

● Telecommunication/Cloud services: P. R. China has agreed to lift the investment ban for cloud services. They will now be open to EU investors subject to a 50% equity cap.

● Computer services: P. R. China has agreed to bind market access for computer services and will include a ‘technology neutrality' clause, which would ensure that equity caps imposed for value-added telecom services will not be applied to other services such as financial, logistics, medical etc. if offered online.

● International maritime transport: P. R. China will allow investment in the relevant land-based auxiliary activities, enabling EU companies to invest without restriction in cargo-handling, container depots and stations, maritime agencies, etc. This will allow EU companies to organize a full range of multi-modal door-to-door transport, including the domestic leg of international maritime transport.

● Air transport-related services: While the CAI does not address traffic rights because they are subject to separate aviation agreements, P. R. China will open up in the key areas of computer reservation systems, ground handling and selling and marketing services. In fact, P. R. China has also removed its minimum capital requirement for rental and leasing of aircraft without crew, going beyond GATS.

● Business services: P. R. China will eliminate joint venture requirements in real estate services, rental and leasing services, repair and maintenance for transport, advertising, market research, management consulting and translation services, etc.

● Environmental services: P. R. China will remove joint venture requirements in environmental services such as sewage, noise abatement, solid waste disposal, cleaning of exhaust gases, nature and landscape protection, sanitation and other environmental services.

● Construction services: P. R. China will eliminate the project limitations currently reserved in their GATS commitments. Employees of EU investors: Managers and specialists of EU companies will be allowed to work up to three years in Chinese subsidiaries, without restrictions such as labor market tests or quotas. Representatives of EU investors will be allowed to visit freely prior to making an investment.

Improving level playing field – making investment fairer

● State owned enterprises (SOEs) - CAI seeks to discipline the behavior of Chinese SOEs by requiring them to act in accordance with commercial considerations and not to discriminate in their purchases and sales of goods or services. Importantly, P. R. China also undertakes the obligation to provide, upon request, specific information to allow for the assessment of whether the behavior of a specific enterprise complies with the agreed the CAI obligations. If the problem goes unresolved, we can resort to dispute resolution under the CAI.

● Transparency in subsidies – The CAI fills one important gap in the WTO rulebook by imposing transparency obligations on subsidies in the services sectors. Also, the CAI obliges P. R. China to engage in consultations in order to provide with additional information on subsidies that could have a negative effect on the investment interests of the EU.

● Forced technology transfers– The CAI lays very clear rules against the forced transfer of technology. The provisions consist of the prohibition of several types of investment requirements that compel transfer of technology, such as requirements to transfer technology to a joint venture partner, as well as prohibitions to interfere in contractual freedom in technology licensing. These rules would also include disciplines on the protection of confidential business information collected by administrative bodies (for instance in the process of certification of a good or a service) from unauthorized disclosure. The agreed rules significantly enhance the disciplines in WTO.

● Standard setting, authorizations, transparency –This agreement covers other longstanding EU industry requests. P. R. China will provide equal access to standard setting bodies for our companies and enhance transparency, predictability and fairness in authorizations. The CAI will include transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review, including in competition cases.

Monitoring of implementation and dispute settlement

● In the CAI, P. R. China agrees to an enforcement mechanism (state-to-state dispute settlement), as in the trade agreements.

● This will be coupled with a monitoring mechanism at pre-litigation phase established at political level, which will allow the parties to raise problems as they arise (including via an urgency procedure).

Increasing EU business with P. R. China will help boost EU economic growth, therefore, influence of the CAI may be predicted from these aspects:

● Guarantee a high level of access to EU investors in China;

● Allow EU companies to buy or establish new companies in key sectors;

● Commit P. R. China to rules on state owned enterprises and transparency in subsidies.

The CAI will significantly improve the market access conditions for EU companies in P. R. China, in terms of predictability and new market openings. This is important for the global competitiveness and the future growth of EU and Chinese economy.

Source：

1.EU-China Comprehensive Agreement on Investment

https://ec.europa.eu/commission/presscorner/detail/en/FS_20_2544

2.Key elements of the EU-China Comprehensive Agreement on Investment

https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2542

3.EU–China Comprehensive Agreement on Investment Levelling the playing field with China

https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/652066/EPRS_BRI(2020)652066_EN.pdf

4.Q&A: EU-China Comprehensive Agreement on Investment (CAI)

https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_2543

「TEAM MEMBERS」

Alice Sun  Partner

E-mail：suntao@zlwd.com

Ms. Alice SUN is partner of P.C.WOO & ZHONGLUN W.D.LLP, counsel of China French Chamber of Commerce and Industry (South China), arbitrator in Wuhan Arbitration Commission and Changsha Arbitration Commission. Ms. Alice SUN's main fields of legal practice include cross-border M&A, private equity investment, restructuring, insolvency, public-private-partnership, etc. Before joining our law firm , Ms. Alice Sun has been working at ADAMAS Law Firm (Paris) and LPA-CGR Law Firm (Paris/Guangzhou/Shanghai).

Bingjie Xia  Assistant Lawyer

E-mail：xiabingjie@zlwd.com

Bingjie Xia graduated from Sun Yat-sen University (Bachelor of Law) and Leiden University (Master of Public International Law LL.M). She also had exchange experiences in Taiwan Tunghai University and Southampton University. She attended International Human Rights Law Summer Program in Oxford University, mainly studying international human rights law along with gender and sexuality. Ms.Xia’s expertise includes public international law, international human rights law and maritime law. Her working language is Mandarin and English.