There are rumors - unsubstantiated at present - that there have been some transactional concessions on the side for specific companies in the aerospace and telecom sectors. Of course, the reassurance from Europe that investment remains open is clearly a win, in a moment when China, which practices economic decoupling under the guise of the "dual circulation" economy, fears more restrictions by its partners. This does not include sectors covered by investment screening for security reasons, a reservation amply matched by China’s 2019 Foreign Investment Law, which defines in broad and general terms the sectors for which transactions can be blocked.
Some other concessions, because they are reciprocal, may also be regarded as a win for China. That is especially the case for the residency and work permits granted for up to 3 years to senior managers and specialists working locally for a foreign investor. Although visa and work permit hassles are an important issue for European and other foreign investors in China, reciprocity given to Chinese employees - even if their contract has to conform to local rules - will result in wage competition. A feature of the CAI is that it prohibits employment quotas by nationality (except for private clinics where Chinese doctors must be a majority).
Overall, the gains for European – or mutualized – investment market access appear minimal, but neither can the result be described as negative. They concentrate in large measure in services because investment in manufacturing and non-services remains far less covered than trade by WTO related agreements. The agreement is also limited to local entry and operation – cross-border services are not in any way part of the agreement. This matters, for example, over the huge issue of data localization. While it seems unlikely that European (rather than American firms) can effectively invest and compete with local cloud giants in China, it would be more important for European investors to get guarantees on data transfer and storage. Inversely, Alibaba, Tencent and Huawei have the investment resources to compete with American and other firms over clouds in Europe. One reason why it is difficult to assess the potential of the CAI in terms of market access is that the impact assessment of an investment agreement has been performed in 2013, before the negotiations started. In the meantime, China’s economy and policies have undergone huge changes.
Leveling playing field
The CAI’s ambition is not limited to market access, but puts a big emphasis on a level playing field in many areas - the second pillar. This comes under various headings. In Brussels’ own words, "in addition to rules against the forced transfer of technologies, CAI will also be the first agreement to deliver on obligations for the behavior of state-owned enterprises, comprehensive rules for transparency on subsidies and commitments related to sustainable development" (which is the third pillar). This claim must be verified from the content of the CAI, and by drawing comparisons from other agreements by the European Union: the Economic Partnership Agreement with Japan (2018), the Free Trade Agreement with Korea (2017) and Vietnam (2019).
Indeed, while the CAI is a unique agreement and has no template per se, there is a pattern for the EU’s trade and investment negotiations. The EU has aimed in recent years at crafting ambitious "new generation" and WTO-plus agreements, including often similar approaches to the issue of state support and subsidies, to intellectual property rights and sustainable development, encompassing both environment and labor ethics, if not actual standards. There is often a word for word repetition of dispute arbitration and resolution mechanisms in these agreements that in fact follows a WTO compatible model, with only deadlines for each step differing from one case to another. Evidently, EU negotiators have worked from a common mold and applied this to China’s case. This is consistent with the claim to have brought China, for the first time, to sign its "most ambitious agreement ever concluded with a third country".
This is literally true, although we should always remember that China in the past has been extremely generous with non-binding, or non-sanctioned, or non-precisely defined commitments. Even in commercial endeavors, letters of intent often remain without follow-up. One only needs to look at the text of China’s 2001 accession protocol to the WTO as a reality check. For example, the text already included commitments on transparency, subsidies and state enterprises. And China has shown recently that respecting international agreements, laws or conventions, when not suitable to its interests, was not a problem (Hong-Kong). In addition, the EU has launched in June 2020 a consultation around a Trade Policy Review. New keywords, such as resiliency, industrial policy, new tools, and upgrading of the WTO’s dispute settlement mechanism, are appearing. One may wonder if the present generation of trade and investment agreements will long remain a model.