EU Suspend EU-China CAI Ratification Amid Ongoing Political Tensions

On 4 May 2021, the European Commission decided to temporarily suspend efforts to ratify the EU-China Comprehensive Agreement on Investment (“CAI”). It is reported that this is due to ongoing political tensions. Despite this move, it is not expected that negotiations will have to begin from scratch if and when the suspension is lifted.

By way of background, the EU imposed a recent package of Magnitsky-style sanctions pursuant to Implementing Regulation (EU) 2021/478 which came into force on 22 March 2021, concerning restrictive measures against persons and organisations in mainland China for, according to the EU, serious human rights violations and abuses. The sanctions include asset freezes and travel bans. The sanctions have, for example, targeted four Chinese individuals and a Chinese organisation. In consequence, mainland China has taken retaliatory countersanctions against EU officials and entities.

EU Trade Commissioner, Valdis Dombrovskis, has stated that efforts to win approval for a proposed EU-China investment deal have been effectively suspended following what EU lawmakers believe are tit-for-tat sanctions by mainland China. Specifically, it is understood that Chinese countersanctions have targeted members of the European Parliament and also an entire parliamentary committee.

In an interview with Agence France-Presse news, Mr. Dombrovskis commented that, given the EU sanctions and the Chinese countersanctions in place against members of the European Parliament, the current political environment “is not conducive for ratification of the investment agreement”. 

Negotiations on a CAI with mainland China began in 2014. Through these negotiations, the EU has sought to lift restrictions on access to the Chinese market for its companies, protect European investors against forced technology transfers, and level the playing field by requiring mainland China to commit to improved labour and sustainability standards.

It does not necessarily follow that the recent decision to suspend ratification of the CAI would negatively impact the negotiations already held by the EU and mainland China towards the CAI. In fact, the ratification of the CAI is not legally tied to such negotiations. Therefore, it is unlikely that the decision by the Commission to suspend the ratification of the CAI would result in the restarting of negotiations from scratch, if and when the suspension is lifted. It is understood from legal doctrine, that the entry into force of the CAI is dependent only on the commitment to ratify by the European Parliament and the decision of the Council of the EU through qualified majority voting.

The consequence of the current suspension by the European Commission may however lead to several scenarios, including:

• That the agreement is put on hold indefinitely as a result of its geopolitical significance in the relationship between the EU and mainland China;

• That once sanctions have been lifted, the EU and mainland China are able to move forward, and that ratification of the CAI would take place (the EU’s concerns over human rights violations would still present a stumbling block and would therefore be a challenge to get the CAI ratified);

• That the EU or mainland China decide to change aspects of the agreement such as the deal’s declarations and/or guarantees.

In sum, it can reasonably be assumed that should negotiations resume, they would likely do so from the point at which they were suspended and not from scratch. In fact, a spokeswoman for Mr. Dombrovskis stated that the European Commission will continue to work on the technical aspects of the agreement including the legal scrubbing and translation of the agreement, despite the current impasse in the EU-China political relationship.

The CAI, which was concluded on 30 December 2020, has many purported benefits for the EU. These include working towards rebalancing the asymmetry in market access and investment between the EU and mainland China. The agreement also aims for new openings for EU operators in various sectors, in addition to the autonomous market access already afforded by mainland China over the last 20 years. In addition, the EU has previously stated that the CAI will make it easier for European companies to obtain authorisations and complete administrative procedures, as well as to access mainland China's standard-setting bodies. Aside from investor protections, mainland China had reportedly committed to adopting higher labour and sustainable development standards. According to the EU, the country had “agreed to effectively implement the Paris Agreement on climate change as well as to effectively implement the International Labour Organisation Conventions it has ratified”. These commitments resemble the “trade and sustainable development” chapters which the EU has included in its recent Free Trade Agreements.

According to earlier statements from the EU side, it had previously been hoped that the EU-China CAI would be ratified in the first half of 2022.