Caixin
Sep 15, 2020 05:55 AM
WORLD

China, EU Push to Finalize Investment Treaty Talks This Year

Chinese and European Union flags  at European Commission headquarters in Brussels
Chinese and European Union flags at European Commission headquarters in Brussels

Chinese and European leaders agreed Monday in a virtual summit to speed up and conclude negotiations on a bilateral investment agreement within the year in a sign that the two sides are willing to cooperate in the pandemic recovery despite disputes over technology and geopolitical tensions.

Leaders reached the agreement during a China-European Union summit via video link between Chinese President Xi Jinping and German Chancellor Angela Merkel, who holds the rotating presidency of the EU for the second half of the year; Charles Michel, president of the European Council; and Ursula von der Leyen, president of the European Commission.

The China-EU Comprehensive Agreement on Investment has been under negotiation since 2014. If concluded, it would be subject to EU member states' ratification.

EU-China relations have soured over a number of disputes, including security concerns about Chinese telecom giant Huawei and China’s national security law on Hong Kong, which complicated investment treaty negotiations.

There’s particular pressure to conclude a deal this year while Merkel is still chairing the rotating EU presidency, said Joerg Wuttke, president of the European Union Chamber of Commerce in China. Merkel, who holds a flexible China policy and refused to exclude Chinese telecom giant Huawei from the country's 5G market, is regarded as a partner by Beijing in the push for a bilateral investment treaty. The German chancellor has announced she will not run for office again next year.

"If there is no political agreement in December, I think the topic is gone," Wuttke said.

During the summit, Xi said China and the EU should adhere to peaceful coexistence, openness and cooperation, multilateralism, as well as dialogue and consultation for the sound and stable development of their relations, the official Xinhua News Agency reported.

Describing the four-party discussions as "open, constructive and tense," von der Leyen said during a press conference after the summit that the two sides agreed on three aspects of an investment accord, including discipline on the behavior of state-owned enterprises, forced technology transfer and transparency on subsidies.

However, the European Commission president said that "a lot still remains to be done," particularly on market access and sustainable development. She said European investors face too many barriers in key sectors in China, such as telecommunications, the computer sector, new energy and transportation.

"If we are to achieve our shared objective of finalizing negotiations this year, China has to convince us that it is worth having an investment agreement," she said. "We are really serious about having access to the Chinese market and tearing down the barriers."

Merkel said at the same press conference that "overall, cooperation with China must be based on certain principles — reciprocity, fair competition. We are different social systems, but while we are committed to multilateralism, it must be rules-based."

Wuttke, the EU chamber in China president told reporters Thursday that there has been a “huge gap” between the two sides in the negotiations.

Mainly on the Chinese side, Wuttke said, the gap covers subsidies of state-owned enterprises, bio-security and information, communication and telecom products. He said “the hardest part” is to include the International Labor Organization rules that deal with trade unions and forced labor.

Wuttke suggested that the best scenario would be for the two sides to reach a political agreement on bilateral investment in December, and with Merkel's negotiation skills and political weight in the EU, the agreement then could pass through member states and reach eventual implementation.

While senior Chinese officials, including Foreign Minister Wang Yi, have repeatedly expressed willingness to conclude an investment treaty within the year, European trade officials remains cautious.

“We were asked to conclude negotiations this year — this may be difficult, because there are a number of systemic issues that still need to be addressed,” Valdis Dombrovskis, the European Commission’s executive vice president in charge of economic policy, told the Financial Times in June.

The EU’s goals include eliminating limits on EU investment in China such as equity caps and joint venture requirements. Brussels also seeks to secure nondiscriminatory regulatory treatment relative to China’s state-owned enterprises and more transparency on state aid, the report said.

For example, the European Chamber's Wuttke said, hospitals in China's southern Guangdong province were told to buy domestic brands, excluding products from joint ventures established by European companies in China.

But Wuttke said the Chinese leadership did listen to foreign business groups. He and executives from other foreign chambers met with Chinese Vice Premier Hu Chunhua for 2½ hours Tuesday to "get our points across."

Hu was quoted by Xinhua as saying during the meeting that "China is making institutional changes to accelerate the improvement of the foreign investment promotion, protection and service system, with a focus on addressing the concerns of foreign firms, as the country remains committed to opening up."

"China missed the best opportunity to strike a deal," an international relations expert told Caixin on the condition of anonymity. "When Europe faced trade war pressure from the U.S. in 2018, Beijing had the best shot. Now Europe's interest is just flagging."

Contact reporter Lu Zhenhua (zhenhualu@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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