By Allison Lofgren, first-year law student at William & Mary Law School, and Jenik Radon, adjunct Professor at the School of International and Public Affairs, Columbia University (see full bios at the end of the article).
*Editors’ note: This article was drafted before the tentative text of the agreement was published by the European Union. A follow-up article will be posted in the coming weeks that answers the questions we posed in this piece and evaluates the strength of the commitments made by EU officials. As the agreement undergoes the requisite legal and technical revisions, we may still have further updates.
Seven years after talks between the European Union and China commenced, a surprise eleventh-hour investment agreement was struck on December 30, 2020, despite requests from the incoming administration of President Biden to wait. This deal, the EU-China Comprehensive Agreement on Investment (CAI), is intended to replace the bilateral investment treaties that the majority of EU member states currently have with China, effectively unifying and standardizing them.[1]
Negotiations began in 2013, but they had nearly stalled until the latter half of 2020. The timeline of the agreement begs the question: what’s the sudden rush? In September 2020, an EU policy briefing revealed that dealmakers had deep misgivings about the ability of the two sides to come to an agreement by the end of the year, but three months later, this goal was mysteriously met.[2] One factor was certainly the looming end of Germany’s tenure as the president of the Council of the EU; German chancellor Angela Merkel was reportedly a driving force in the conclusion of the negotiations, likely because German carmakers and manufacturers, in particular, stand to benefit significantly from the agreement.[3] However, it is unlikely that her encouragement was the sole motivation. This mystery will ideally be answered once the agreement is made public.
The agreement was so hasty that weeks later, we still do not have a copy. Representatives for the EU have told us directly that both sides are working to finalize the text of the agreement, which would then need to be legally reviewed and translated before it can be submitted for approval by both the EU Council and the European Parliament. In the interim, the EU has published several generic documents including a factsheet, several press releases, and the Agreement in Principle. Per the factsheet, the CAI has four main objectives:
- “guarantee an unprecedented level of access to EU investors in China
- allow EU companies to buy or establish new companies in key sectors
- help level the playing field for EU companies in China
- commit China to rules on state owned enterprises and transparency in subsidies[.]”[4]
European businesses do stand to benefit considerably from this commercial deal, which is anticipated to improve market access in China to specific sectors and remove barriers to investment.[5] However, what is new, and what should be welcomed, is a novel shift in approach, which the EU has highlighted as a move towards a “value[s]-based investment relationship” with China.[6] The EU’s Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, who presumably would have seen the working draft and would have been involved in its creation, announced that“[t]his deal … anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combatting forced labour. We will engage closely with China to ensure that all commitments are honoured fully.”[7]
This dedication to a “values-based trade agenda” is admirable, and it is an optimistic stepping-stone to achieving the world that we want, where trade and economic development cannot be divorced from, among other things, environmental concerns and human rights issues. Although the CAI does not appear to be a traditional stand-alone silo agreement, given Dombrovskis’ statement, it remains to be seen whether the dedication to values will actually underpin the deal, and if so, in what way. However, the fact that President Macron of France supports the agreement does bode well for this being a substantive, actual commitment. As the first article in this series mentioned, Macron is a staunch supporter of trade and investment deals that incorporate non-economic factors; for example, he has refused to sign off on the EU-Mercosur trade agreement until and unless the agreement includes clauses that require Mercosur countries, in particular Brazil, to implement climate resilience practices, such as stopping the deforestation of the Amazon.[8] Furthermore, the most recent meeting of the Council of the European Union, held on January 25, 2021, produced Council conclusions on Climate and Energy Diplomacy that included a commitment for the EU to “ensure that its trade agreements are consistent with its climate ambition.”[9]
In order to ensure that this investment agreement truly is rooted in the aforementioned proclaimed values, it must have adequate enforcement mechanisms that will bind the participants to actually comply with its provisions. An EU press release mentions several that will be included in the agreement: (1) designated officials in both the EU and China will monitor the commitments made in the agreement, (2) there will be a “State-to-State dispute resolution mechanism,” and (3) the Agreement will create “a specific working group to follow the implementation of sustainable development related matters, including on labour and climate.”[10] Although impressive sounding, these are all vague promises that leave many unanswered questions—in fact they raise more questions than they actually give answers. For example, what will the process be for the monitoring officials? Will monitoring result in enforcement if warranted or will there simply be endless political discussions? Will the dispute resolution mechanism truly guarantee compliance? What power will the working group have to ensure sustainable development practices? Hopefully, these questions will be answered, and the promises will be substantiated in the text, which we are awaiting.
Ideally, and admittedly this is pushing the envelope as it would deviate from standard accepted practices, if a country fails to meet the requirements of the agreement, then the rights and privileges granted to that country should be suspended or even rescinded through these mechanisms, which would give teeth to its commitments. Corporations would likely balk at the inclusion of such conditions, which could and would certainly complicate business development. However, if the agreement did have binding commitments to human rights or to climate change, which may be included given the recent EU commitment, corporations would be incentivized by the element of risk facing their financial futures to apply pressure to governments to comply.[11] This would effectively turn companies into lobbyists, perhaps even true supporters of the agreement.[12]
In contrast with the straightforward economic and symbolic advantages the EU will gain from the agreement, the benefits China is poised to collect are perhaps more strategic, especially because the European market, particularly service sectors, is already quite open to Chinese investors as a result of the General Agreement on Trade in Services.[13] Landing a major investment deal with the European Union was a clear diplomatic win for China as it deepened ties between the two parties, preempted a potential United States-EU united front against China, and created tension between the EU and the Biden administration. At the end of 2020, when it appeared likely that efforts to conclude negotiations were accelerating, President Biden’s senior aide, Jake Sullivan, tweeted that “The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China’s economic practices.”[14] Days later, and only a few weeks before President Biden’s inauguration, the agreement was signed.
A number of logistical hurdles remain before the Agreement is put into force. Importantly, after the deal is translated and legally reviewed, the European Parliament must approve it, which may be more difficult than the trade representatives anticipated. Recently, a number of members have expressed concern about China’s alleged human rights abuses.[15] The chair of the body’s China delegation, Reinhard Bütikofer, expressed dissatisfaction at the omission of a clause requested by the European Parliament that would require China to conform to “international agreements on modern slavery,” and stated that “the deal is just full of hot air” in regard to human rights commitments. [16] Instead of the proposed clause, the agreement merely includes a non-binding requirement for China to “effectively implement the International Labour Organisation Conventions (ILO) it has ratified,” and to “make continued and sustained efforts to ratify the ILO fundamental Conventions on forced labour.”[17] Since the 1930s, China has ratified 26 out of the 190 conventions that have been adopted by the ILO, including C182, the “Worst Forms of Child Labour Convention” from 1999.[18] Consequently, it is reasonable to expect that China may actionably work towards the ratification of the forced labor conventions.
It is possible that the agreement will outline what exactly China has to do to be considered having worked towards ratification of the ILO Forced Labour Conventions, but it is unlikely that such details will be included given the vague language often used throughout the world in trade and investment agreements. However, the mere fact that this condition is included the agreement demonstrates a positive trend towards a new normal of interconnected investment agreements and treaties intended to benefit the social good. This would constitute a significant, and very welcomed, shift away from the old normal of stand-alone trade agreements.[19]
The goals outlined by the European Union are certainly lofty, especially those concerning the incorporation of values into the agreement. Once the agreement is published, we will be able to test the substantiveness of that commitment, as well as the efficacy of the enforcement mechanisms. Enforcement does take time, but should ideally be straightforward and not part of a political process. Thinking out of the box, perhaps the time has come to establish an independent means of discipline such as letting civil society initiate the enforcement of the agreed value provisions. The proof will certainly truly be in the pudding and hopefully, it lives up to expectations and the words of Valdis Dombrovskis.
About the Authors
Allison Lofgren is a 1L at William and Mary Law School. In addition to being a Junior Editor of the Comparative Jurist Blog, she is also a member of the International Law Society and the Women’s Law Society. She graduated from the Walsh School of Foreign Service at Georgetown University. At Georgetown University, Allison obtained a bachelor’s degree in International Politics (with a concentration in International Law) and a minor in French. Before law school, she interned for the U.S. House of Representatives, the Overseas Private Investment Corporation (OPIC), and a U.S. District Court Judge. She is interested in international law, international trade, and global governance.
Jenik Radon, adjunct Professor at the School of International and Public Affairs (SIPA), Columbia University, is an international lawyer who has lectured and worked in over 70 countries, and has advised public authorities and civil society around the world on sustainable natural resource development, investment agreements, governance and business and human rights. He has been awarded the Cross Terra Mariana and the Cross of Service by Estonia and the Order of Honor by the republic of Georgia for his work.
Footnotes
[1] Keegan Elmer, What is the China-EU CAI and how is an Investment Deal Different from a Trade Deal? South China Morning Post (Dec. 24, 2020, 12:00 PM), https://www.scmp.com/news/china/diplomacy/article/3115199/what-china-eu-cai-and-how-investment-deal-different-trade-deal.
[2] Id.
[3] Hans von der Burchard, Merkel Pushes EU-China Investment Deal over the Finish Line despite Criticism, Politico (Dec. 29, 2020, 11:40 PM), https://www.politico.eu/article/eu-china-investment-deal-angela-merkel-pushes-finish-line-despite-criticism/.
[4] European Commission, EU and China Comprehensive Agreement on Investment (Dec. 30, 2020), https://trade.ec.europa.eu/doclib/docs/2020/december/tradoc_159239.pdf.
[5] Jim Brunsden, Michael Peel & Sam Fleming, What is in the EU-China Investment Treaty? Fin. Times (Dec. 31, 2020), https://www.ft.com/content/8b810ff7-457d-46a3-8ec8-4ac52f6f1862.
[6] Commission Press Release IP/20/2542, Key Elements of the EU-China Comprehensive Agreement on Investment(Dec. 30, 2020) https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2542 [hereinafter Press Release IP/20/2542].
[7] Commission Press Release IP/20/2541, EU and China Reach Agreement in Principle on Investment (Dec. 30, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2541 [hereinafter Press Release IP/20/2541].
[8] Michalis Polygiannis & Jenik Radon, A Trade Agreement with a Possible Twist: The EU-Mercosur Agreement, Compar. Jurist (Jan. 13, 2021), https://comparativejurist.org/2021/01/14/a-trade-agreement-with-a-possible-twist-the-eu-mercosur-agreement/.
[9] The Council conclusions state that “[t]he EU will ensure that its trade policy and its trade agreements are consistent with its climate ambition. The Council acknowledges that the Commission has proposed, with the European Green Deal Communication of December 2019, to make the respect of the Paris Agreement an essential element for all future comprehensive trade agreements. The Council welcomes the initiative of the Commission in the WTO context to ensure multilateral trade rules support the global transition towards a climate neutral and resilient economy. The EU will seek to ensure undistorted trade and investment for EU businesses in third countries, a level playing field, and a fair access to resources and green technologies, noting the important role of industrial alliances. In order to ensure the EU’s green technological leadership, EU external action will pursue bilateral strategic research partnerships with technology leaders and cooperation through global fora such as Mission Innovation and the Clean Energy Ministerial, while supporting the uptake of EU energy standards globally.” Council Conclusions on Climate and Energy Diplomacy – Delivering on the External Dimension of the European Green Deal No. 5263/21 of 25 Jan. 2021, 1, 10 available at https://www.consilium.europa.eu/media/48057/st05263-en21.pdf.
[10] Press Release IP/20/2541, supra note 7.
[11] See Interview with Columbia’s Jenik Radon, Lawyer, Negotiator, Professor and Scholar: How to Restore Trust with America’s Allies, Earth Inst. (Jan. 11, 2021), https://ac4.earth.columbia.edu/news/interview-columbias-jenik-radon-lawyer-negotiator-professor-and-scholar-how-restore-trust.
[12] See id.
[13] Press Release IP/20/2542, supra note 6.
[14] Emily Rauhala, Stalled E.U.-China Investment Deal Signals European Skepticism on China, Willingness to Work with Biden, Wash. Post (Dec. 26, 2020, 7:00 AM), https://www.washingtonpost.com/world/eu-china-investment-deal-stalls/2020/12/25/44b38174-455d-11eb-ac2a-3ac0f2b8ceeb_story.html.
[15] Thomas Colson, The EU could Throw out its Landmark Trade Deal with China over Concerns about Beijing’s Human Rights Record, Bus. Insider (Jan. 17, 2021, 9:45 AM), https://www.businessinsider.com/china-human-rights-european-parliament-concerns-over-eu-china-deal-2021-1.
[16] Id.
[17] Press Release IP/202541, supra note 7.
[18] Int’l Lab. Org., NORMLEX Information System on International Labour Standards: Ratifications for China, https://www.ilo.org/dyn/normlex/en/f?p=1000:11200:0::NO:11200:P11200_COUNTRY_ID:103404 (last visited Jan. 27, 2021).
[19] See Polygiannis & Radon, supra note 8.
Citation for Cover Image
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