After seven years of talks the EU has secured one of its top priorities in relations with China: an investment agreement that Brussels insists will resolve longstanding problems faced by European companies.
But the agreement is likely to be controversial with human rights advocates, given allegations of abuses in China. It could also create friction with the incoming US administration of Joe Biden, who has made clear that he wants an alliance with the EU to bring joint pressure to bear against Beijing over aggressive trade practices.
Businesses will also now want to study the small print of the new rights created by the agreement, and how they will be enforced.
1. What does the deal do for the EU?
The deal tackles a number of EU grievances.
These include longstanding concerns that the bloc’s companies are being forced to share valuable technological knowhow in exchange for being allowed to compete on the Chinese market, along with fears that the country’s state-owned enterprises are unfairly favoured and that the Chinese system of state subsidies is opaque.
The deal will “significantly improve the level playing field for EU investors”, including by “prohibiting forced technology transfers and other distortive practices”, the EU said in a statement.
Other parts of the deal concern specific sector-by-sector market access rights, removing barriers such as requirements for companies to have partnerships with local firms in joint ventures, and eliminating caps on levels of investment.
Areas where EU companies will win enhanced access rights include the automotive sector, telecoms equipment, cloud-computing, private healthcare and ancillary services for air transport. The deal will also put the EU on the same footing as the US when it comes to operating in the Chinese financial services market.
2. Does it resolve problems in the EU-China trade relationship?
Speaking to the Financial Times on Wednesday, Valdis Dombrovskis, the EU’s trade commissioner, cautioned that the deal “is not a panacea to address all challenges linked to China, but it brings a number of welcome improvements”.
Crucially, the investment treaty is far narrower in scope than the comprehensive free trade agreements that the EU has negotiated with the likes of Canada, Japan and — most recently — the UK. It essentially covers certain non-tariff barriers to business and investment.
Mr Dombrovskis identified overcapacity in steel production, unequal access to public procurement contracts and trade in counterfeit goods as issues in the EU-China trade relationship that the deal could not address.
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 just one element, just one thread in a complex tapestry of the EU-China relationship, and of course it is clear that many complex challenges still need to be addressed,” Mr Dombrovskis said.
3. What does China get out of it?
For China, the deal is good diplomacy: the incoming Biden administration in the US has made clear that it wants to build an alliance of democracies to put pressure on Beijing over both its human rights record and aggressive trade practices. The deal on the investment treaty strengthens ties with Brussels at a pivotal moment.
China entered the talks with fewer market access goals than the EU, which argued that it was the victim of an unlevel playing field. Still, the deal locks in existing rights for Chinese companies in the EU market at a time when the EU is looking to expand its legal arsenal against unfair foreign competition.
It also offers China new openings in manufacturing and the growing EU market for renewable energy.
EU officials stress that the market opening on renewables is limited (capped at 5 per cent for each EU member state market) and contingent on reciprocal openness from China.
4. How will the deal affect relations with the new US administration?
The EU has taken a risk by pushing ahead, particularly in the light of its parallel efforts to revive the transatlantic relationship after severe tensions during Donald Trump’s presidency.
Just four weeks ago, it publicly urged the US to join it in an alliance to assert the interests of the democratic world against “authoritarian powers” and to meet the “strategic challenge” of China.
Critics say the EU deal undermines that call for partnership; the EU insists that it is merely winning similar trade benefits to those established in the so-called “Phase 1” trade deal struck by Mr Trump with Beijing.
The EU also argues that the deal can help other countries be more assertive in their dealings with China by establishing a new reference point in terms of commitments from Beijing.
“We want to engage very closely with the US,” Mr Dombrovskis said. “I am not seeing the Phase 1 deal or our comprehensive agreement on investment as hindering this co-operation in any way.”
5. Is the deal consistent with EU goals on human rights?
The EU claims that “universal, indivisible and interdependent” human rights are “at the heart” of its relations with other countries. But the accord has raised concerns among rights activists because of allegations — denied by Beijing — that Uighur Muslims detained in the western region of Xinjiang are being used as forced labour.
The bloc says it has won unprecedented commitments from Beijing, including that China shall make “continued and sustained efforts” to ratify two International Labour Organization conventions against forced labour — but human rights advocates argue this does not go far enough as a guarantee.
Reinhard Bütikofer, chair of the European Parliament’s delegation for relations with China, wrote on Twitter on Tuesday that “it is ridiculous [for the EU] to try selling that as a success”.
The EU emphasises that the agreement includes a strong “implementation and enforcement mechanism” that covers the commitments on labour rights, as well as other dispute-settlement arrangements.
Mr Dombrovskis said that neither the Phase 1 deal with the US nor a Regional Comprehensive Economic Partnership agreed this year by Asian and Pacific countries have “sustainable development commitments coming anywhere close” to the EU-China accord.
Tensions over this point are certain to feature prominently during the EU’s work on ratifying the agreement — a process that will require endorsement of the deal by the European Parliament.