Is the European Union’s investment agreement with China underrated?

The European Union-China Comprehensive Agreement on Investment binds Chinese liberalisation of its foreign investment regulations under an internation

Publishing date: 13 April 2021
Authors: André Sapir Uri Dadush

Download

The authors are grateful to Bruegel colleagues and to Petros Mavroidis for helpful comments, and to Mia Hoffmann for superb research assistance.

The European Union is very open to foreign direct investment. By comparison, despite considerable liberalisation in the past two decades, foreign investors in China’s markets still face significant restrictions, especially in services sectors. Given this imbalance, the EU has long sought to improve the situation for its companies operating or wanting to operate in China.

After eight years of negotiations, the EU and China concluded in December 2020 a bilateral Comprehensive Agreement on Investment (CAI). The text awaiting ratification aims to give foreign investors greater market access, enforceable via state-to-state dispute settlement. It does not yet, however, cover investor protection (such as against expropriation). Meanwhile, investor protection is covered by bilateral investment treaties between EU countries and China, which remain in force.

The CAI has been met in some quarters with scepticism on economic and geopolitical grounds. The main criticism is that it provides little new market access in China, and that this small economic gain for the EU comes at the price of breaking ranks with its main political ally, the United States. Our assessment, which focuses on the economic implications, is different. It is true the CAI provides only modest new market access in China, but this is because China has already made progress in recent years in liberalising its foreign investment regulations unilaterally. The CAI binds this progress under an international treaty, marking an improvement for EU firms insofar as their market access rights can be effectively enforced.

Most important, the CAI includes new rules on subsidies, state-owned enterprises, technology transfer and transparency, which will improve effective market access for EU firms operating in China. These bilateral new rules could also pave the way for reform of the multilateral rules under the World Trade Organisation, with the aim of better integrating China into the international trading and investment system – a goal shared by the EU, the United States and other like-minded countries.

From an economic viewpoint therefore, the CAI is an important agreement, and one worth having. However, its ratification by the European Parliament is unlikely while China continues to apply sanctions against some members of the European Parliament and other critics of China’s human rights record.

Recommended citation

Dadush, U. and A. Sapir (2021) 'Is the European Union’s investment agreement with China underrated?' Policy Contribution 09/2021, Bruegel

About the authors

André Sapir

André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.
Uri Dadush

Uri Dadush is a Non-resident fellow at Bruegel, based in Washington DC, and a Research Professor at the School of Public Policy at the University of Maryland where he teaches courses on trade policy and on macroeconomic analysis and policy. He is also a Non-Resident Fellow at the Policy Center for the New South in Rabat, Morocco and Principal of Economic Policy International LLC, providing consulting services to international organizations. He was a co-chair of the Trade, Investment and Globalization Task-Force of the T20 and Vice-Chair of the Global Agenda Council on Trade and Investment at the World Economic Forum.

He was previously Director of the International Economics Program at the Carnegie Endowment for International Peace. Prior to that he was Director of International Trade, Director of Economic Policy, and Director of the Development Prospects Group at the World Bank. Based previously in London, Brussels and Milan, he spent 15 years in the private sector, where he was President of the Economist Intelligence Unit, Group Vice President of Data Resources Inc., and a consultant with McKinsey and Co.

His books include: Trade Preferences, Foreign Aid and Self-Interest; Trade Policy in Morocco: Taking Stock and Looking Forward (with Pierre Sauve' , co-editor); WTO Accessions and Trade Multilateralism (with Chiedu Osakwe, co-editor); Juggernaut: How Emerging Markets Are Transforming Globalization (with William Shaw); Inequality in America (with Kemal Dervis and others); Currency Wars (with Vera Eidelman, co-editor); and Paradigm Lost: The Euro in Crisis. He is presently working on a book on the crisis in the world trading system.

His columns have appeared in the Financial Times, the Wall Street Journal, Foreign Affairs, Foreign Policy, Il Sole 24 Ore, Le Monde, Liberation, L’Espresso and El Pais.

He has a BA and MA in Economics from Hebrew University of Jerusalem and a PhD in Business Economics from Harvard University.