CAI will benefit China, EU and rest of the world

In the past year, the unprecedented business environment created by the pandemic has greatly dampened the investment confidence of international investors.

On Dec 30, Chinese and European leaders jointly announced the completion of the China-European Union Comprehensive Agreement on Investment (CAI) negotiations as scheduled.

This undoubtedly brought a ray of certainty to the current international business environment full of instability and uncertainty.

After seven years and 35 rounds of negotiations, China and the EU reached a balanced, high-level and mutually beneficial CAI on the occasion of the 45th anniversary of the establishment of diplomatic relations between China and the EU.

The China-EU CAI is the first economic and trade agreement in which China has made commitments in the form of a negative list in all sectors, including services and non-services, demonstrating the country's determination to promote a wider, broader and deeper opening-up to the outside world.

When the CAI takes effect, it will replace 25 bilateral investment agreements concluded between China and 26 of the 27 EU member states. (Ireland is yet to forge an agreement while Belgium and Luxembourg have a common agreement.)

Three main points should inform any discussion of the CAI.

First, the China-EU CAI will further promote China-EU investment cooperation and foreign direct investment inflows and outflows. The CAI is a very important policy tool to attract FDI by creating a stable and predictable business environment.

According to the Ministry of Commerce, the EU is China's third-largest source of FDI and fourth-largest destination for outward FDI in terms of bilateral FDI stocks.

Additionally, according to data from Rhodium Group LLC, at the end of the third quarter of last year, the cumulative value of EU FDI in China was $181 billion and Chinese FDI in EU was $138 billion. Currently, both Chinese and European investors are interested in further promoting China-EU investment cooperation.

The Business Confidence Survey 2020 released by the European Union Chamber of Commerce in China shows that 65 percent of the companies surveyed consider China as the first or top three current and future investment destinations.

The Report on the Development of Chinese Enterprises in the EU 2019, published by the China Chamber of Commerce to the EU, illustrates that Chinese enterprises regard the EU as an important strategic pivot point for their global development.

More and more Chinese enterprises have set up R&D centers and manufacturing plants in EU member states and attach importance to technological innovation to lay the foundation for long-term development.

The high-level and reciprocal market access commitments reached between China and the EU in the CAI will solidify not only the European companies already in China and Chinese companies already in the EU, but also those that may be new entrants in both markets as a result of the agreement.

Second, the China-EU CAI is committed to providing a transparent, stable and predictable trade and investment environment for multinational enterprises, releasing positive signals of upholding multilateralism and supporting economic globalization.

The World Investment Report 2020, published by the United Nations Conference on Trade and Development, highlights the existing challenges to the system of international production arising from the new industrial revolution, growing economic nationalism and the sustainability imperative. The challenges have pushed the international production system to an inflection point.

This has been further exacerbated by the outbreak of the COVID-19 pandemic, and the protectionism pressure on countries has risen significantly. In this context, the China-EU CAI benchmarks high-level international economic and trade rules, covering topics closely related to business operations.

Some of the key topics are State-owned enterprises, subsidy transparency, technology transfer, standard setting, administrative enforcement and financial supervision. The emphasis is on the following factors: creating a fair and competitive business environment under the rule of law for enterprises; supporting economic globalization; highlighting the role of China and Europe as two important forces in the multipolarization process; and working together to address global grand challenges.

Third, the China-EU CAI is characterized by a new generation of high-level investment agreements and able to facilitate global investment governance reform. While making commitments to openness, the China-EU CAI pays much attention to retaining the necessary regulatory powers.

While promoting bilateral investment cooperation, it also emphasizes that investment needs to be conducive to sustainable development, which is characteristic of a new generation of high-level investment agreements.

At present, global investment governance is facing profound changes, and due to the different interests of countries at different stages of development, the international community has widely divergent views on cooperation under the multilateral investment framework, resulting in conflicting visions and misalignment of strategic priorities when relevant parties plan the blueprint for global investment governance.

As of Oct 15, 2020, there were 2,901 bilateral investment agreements (BITs) and 390 other investment agreements, and these inconsistent forms and contents of international investment agreements have formed a "spaghetti bowl effect", leading to the fragmentation of international investment cooperation.

In addition, the traditional international investment dispute settlement mechanism is also in need of deeper reform due to the legitimacy crisis. The consensus reached by China and the EU on the CAI on some controversial issues in the current international investment agreement and institutional reform not only provides a model for negotiations and solutions between developed and developing countries on related issues, but also benefits global investment governance reform.

This is also another contribution of China's wisdom to global investment governance since its presidency of the G20 Summit in 2016, when it advocated the formulation of the G20 Guiding Principles for Global Investment Policymaking.

In summary, the China-EU CAI is an important milestone event in the history of China-EU economic and trade cooperation, which will benefit not only China and the EU but also the world economic recovery and revitalization in the post COVID-19 era.

Currently, China and the EU should continue to move in the same direction and complete the signing of the agreement as well as the domestic approval process as soon as possible. That will enable enterprises in China and the EU to benefit from higher standards of investment protection and higher levels of openness.

The writer is a senior research fellow of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences in Beijing.

The views don't necessarily reflect those of China Daily.