China-EU investment deal allows for arbitration to settle disputes, documents show

Frank Tang in Beijing, South China Morning Post

Posted at Jan 24 2021 07:39 AM

The new investment agreement signed between China and the European Union allows for the use of arbitration to settle trade disputes, and introduces stricter clauses on market access and technology transfer, the full text of the deal reveals.

The two sides wrapped up seven years of negotiations on the Comprehensive Agreement on Investment (CAI) in late December, but the document was not released by Brussels until Friday.

The deal has been hailed as a breakthrough in the China-EU relationship, which has been fraught with trade disputes, though critics argue Europe granted China too many concessions, especially with regards to the issue of forced labour.

According to the text, in the event of a trade dispute, either side can request the establishment of an arbitration panel. If China were the complainant, the hearing would be in Brussels, and if the EU had a gripe the hearing would be in Beijing, it said.

The ruling panel is required to deliver a report within 50 days of the hearing, and any remedial action should be taken within 15 months of a ruling, unless both sides agree to an extension.

As well as promising to open up its markets to European companies, China agreed in the deal to regulate its state-owned enterprises (SOEs) and rectify restrictions that are unpopular with EU firms such as forced technology transfers.

On the former, the two sides agreed that SOEs should make decisions based solely on commercial considerations, while on the latter, they said the transfer or licensing of technology must be based on market terms and regulatory regimes should be impartial, according to the documents.

The investment agreement has been widely praised for its strategic significance at a time when the global economy has been battered by the coronavirus pandemic. There are hopes it might also help to repair economic relations that have been wracked by trade protectionism championed by the United States under Donald Trump.

European companies have long complained of uneven playing fields and obstacles to entering and expanding their businesses in the world's second-largest economy, especially in the automotive industry, and the financial, environmental, computer and health care services sectors.

Zhang Monan, chief researcher on American and European studies at the China Centre for International Economic Exchanges in Beijing, said the deal was a demonstration of intent.

"It shows China's commitment to push forward a rule-based opening," he said.

About 28 per cent of the EU's investment in China is in the automotive sector, followed by 22 per cent in basic materials and chemicals, 9 per cent in financial services, 7 per cent in consumer products and 5 per cent in energy, according to the fact sheet released by the EU delegation to China.

While the investment deal has been signed, it has yet to be ratified by either Beijing or Brussels. The European Parliament said it would "carefully scrutinise" the agreement and that China's record on human rights would be taken into account when EU members voted on it.

According to the text, the two sides reaffirmed their commitment to the declarations of the International Labour Organization. The EU had earlier urged China to end its use of forced labour in Xinjiang - even though Beijing denies any such practices.

Tom Jenkins, a former president of the European Economic and Social Committee, expressed concern about the absence in the CAI of clauses on freedom of association and collective bargaining.

Also, "(there are) no sanctions if a party is found in breach of its obligations" on sustainable development, he said on Twitter.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.

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