European Institute for Asian Studies Briefing Seminar – „EU-China investment agreement: Projections, expectations and hurdles”
Speach by Victor Boştinaru – MEP
A one thousand billion euro deal
I would like to thank you for inviting me to participate to this event. I attach great importance to the relations between the EU and China. As some of you will know I have always fought for the deepening of these relations, but not only that. I have always called for an upgrade that could mean giving a real vision and strategy to these relations.
We are now at the 10th anniversary of the EU-China Comprehensive Strategic Partnership, and a lot has certainly been achieved in the relations. I would say especially in terms of trade, being the EU China’s largest trading partner, and China the second largest trading partner for the EU, right after the United States.
However, there is still a huge amount of work to be done, huge as huge is the potential that I see in these relations. Unfortunately too often, in its relationship with China, the EU is led by preconceptions, and this is a kind of brake which does not allow the potential to fly as it should.
The fundamental starting point is to understand that EU and China are not only geographically far away, but also extremely different from the historical point of view, but also in terms of culture, habits, traditions, just to name a few. And the aim of the relations between these two giants should not be to become best friends, but first of all to be conscious about the differences, and then to build a win-win situation which can bring benefits to both sides in all those fields where cooperation such benefits are possible.
It’s evident that economy and trade are among those fields, and this is particularly true today when the EU is confronted with the economic and financial crisis, and China represents a key counterpart due to its fast-pace growing economy.
But there are many other fields, for example global governance, climate change, the G20, urbanisation, international security and peace keeping operations, fight against piracy.
Exactly two weeks ago the 16th EU-China Summit was held in Beijing, and on that occasion it was adopted the EU-China 2020 Strategic Agenda for Cooperation. With this document the two sides agreed to take forward the Comprehensive Strategic Partnership in the coming years, and to promote cooperation in the areas of common interest.
What is now important is to rightly implement all what has been agreed, in the pragmatic and strategic way I was talking about before, with a clear political plan and long-term objectives to be coupled with short-term ones and all the necessary foundations.
The other important decision taken at the summit was related to the main subject of this conference, the launch of the negotiations on the Bilateral Investment Agreement.
Despite of the highly developed trade relations between the EU and China, a different situation exists with regard to investments on each other’s territory. Only something like 2% of the EU’s investments abroad goes to China, and only about 1,5% of China’s total investments abroad is directed to the EU.
This gives an idea of how undersized are investment relations between the EU and China, despite of the fact that they are two of the three world’s largest economies.
There are multiple explanations for this. The main reason for the low investment rate of the EU in China is certainly linked to the difficult market access, and to the conditions such technology transfer or joint-ventures which are often required and which discourage EU companies from investing there.
However, I also want to add that the information provided by the EU Chamber of Commerce in China shows that in general problems related to investments in China are over amplified. They certainly exist, but they often do not represent a fully blocking obstacle.
The main reason for the low level of Chinese investments in the EU lies instead in the different legal frameworks applicable to the different Member States. We have to consider that out of the 28 Member States, 27 have a Bilateral Investment Treaty with China, with the only exception of Ireland. It is not difficult to understand how complicated it is for the Chinese side to invest in a EU which is formally a single entity, but where the applicable legal framework for the investments changes from country to country.
In such conditions, I think that a bilateral investment agreement is absolutely needed. It will represent the real boost allowing European companies to benefit from the huge opportunities offered by a market like the Chinese one, and the other way around it will further favour the investments of the Chinese side into the European economy. Something that we know very well is something desperately needed today to restart the economy, in a situation where there is lack of liquidity and investments.
In terms of benefits, there will be a clear advantage on both sides linked to the certainty of the legal framework. There will be one single set of rules applicable to outgoing and incoming investments, rather than the different bilateral investment treaties I mentioned before. This will mean equal treatment for European and Chinese investors. But a well negotiated and well prepared investment agreement will also bring additional benefits, because often the BIT’s with the single Member States are not clear enough to give the full predictability and reliability sought by the investors.
The summit of two weeks ago marked the launch of the negotiations for what will be the first stand-alone EU investment agreement, but the process will not be an easy and fast one. It is evident that there are obstacles to be overtaken, and that time will be necessary not only for the negotiations themselves, but also to allow the examination and consent by the European Parliament.
This means that the Commission, when negotiating the agreement, will have to make sure that it meets all the requirements set by the European Parliament, and that the Parliament is adequately informed and involved during the negotiations, or there will be the concrete risk that negotiations will have to start again.
In addition, it must be ensured that the national parliaments are adequately informed and consulted during the whole process, to avoid problems in the subsequent ratification. I want to underline that in the negotiations the Commission must have a truly EU approach. I mean that the agreement must be negotiated in the interest of the whole 28 Member States, without making the interests of one or another Member State prevail.
What needs to be considered is also the fact that next year there will be parliamentary elections, but also a new Commission, a new President of the Commission, and a new President of the European Council. This transition period will mean a slowdown in the negotiations, which will be started by the current Commission, and most probably continued by the new one under the scrutiny of the new European Parliament.
Two of the main obstacles will most probably be represented by the perplexity of the Chinese side to freely open its market to the new investors and to reconsider the frequent subsidies to companies. We need to consider that the structure of the two economies is very different, and to get to an agreement it will be necessary, but at the same time not easy, to reconcile the two different approaches.
One more thing which I think is important to add on this point is that despite of the fact that we always talk about market barriers for foreign investments in China, also the Chinese often find protectionist measures to impede or obstruct their investments in Europe. This will certainly be another point of negotiation.
My fear is that another obstacle could be represented by the attempt by the EU side to introduce in the negotiations conditions which are not strictly linked with the investment agreement itself.
I think the Commission will have to be very cautious from this point of view, without losing sight of what is the real purpose of these negotiations, and what are the means, strictly related to that purpose, to be used. Acting differently I am afraid the all process will be endangered, because it is obvious that in a negotiation on cars it would be weird to ask that certain conditions are respected in the cultivation of tomatoes.
Another thing that we need to keep in mind is that the investment agreement with China will be negotiated at the same time as the Transatlantic Trade and Investment Partnership, and this means that they should as much as possible be coordinated, and the effects on each other thoroughly analysed. The talks on the Trans-Pacific Partnership should also be taken into consideration.
Going back to the issue that is most likely to appear, the market access, I think that from this point of view it is very encouraging the outcome of the plenum of the Chinese Communist Party Central Committee of less than a month ago, where it was set the agenda for economic reforms for the years to come.
The fact that the guiding line seems to be the slow opening of the market, with changes in the relations between the Government and the market, will probably mean that the elimination of market barriers for European investors will be easier than in different conditions.