Introduction
Context

Benefits of bilateral investment
Comment


Introduction

On May 23 2013 the European Commission announced that it is to seek a negotiating mandate from member states for a bilateral investment treaty (BIT) between the European Union and China. The announcement came over a year after the two trading partners jointly announced their decision to launch BIT negotiations at the 14th EU-China Summit, held in Beijing in February 2012. It also came amid growing trade disputes between the two concerning anti-dumping duties on solar and other products. While an investment agreement between the European Union and China may not add much value to their economic relations, it may provide a point of common interest to move past the growing trade war.

Context

The main tension between the European Union and China is the solar anti-dumping investigation by the European Commission. The investigation has led to the imposition of provisional duties on appriximately €21 billion-worth of Chinese solar product exports.(1) In addition, the European Union has initiated an investigation on Chinese solar glass and the EU Directorate General for Trade has considered an investigation of telecommunications products from Chinese telecommunications giants Huawei and ZTE.(2) The decisions on solar panels and solar glass and the potential investigation of telecommunications are not without consequences. China has effectively retaliated with anti-dumping duties or investigations on European products including chemicals and wine, and rumoured to extend even to luxury automobiles.

However, revealing the already integrated economic relations between the European Union and China, a majority of the EU member states (especially Germany) oppose the commission's decision to impose duties on solar panels. Similarly, only four of the 28 member states and none of the major industry players (Ericsson, Alcatel-Lucent and Nokia Siemens) have supported the telecommunications investigation. This situation has led to calls for a negotiated settlement before any further escalation into a trade war. The June 21 2013 meeting in Beijing showed progress as both sides sought to avert further complications in their economic relationship.

Within the World Trade Organisation (WTO) dispute settlement system, the two trading partners have launched a total of eight disputes against each other, in addition to numerous other disputes in which they participated as third parties. An important example of the trade frictions is the 2009 case brought by China against anti-dumping measures that the European Union had imposed on Chinese iron and steel fasteners.(3) This was the first dispute in which China had challenged an EU anti-dumping measure. China filed a second dispute over EU anti-dumping duties on footwear in 2010.(4) The European Union retaliated by filing a dispute against China regarding anti-dumping duties on x-ray equipment exports from the European Union.(5) This 2011 dispute shows the continuing escalation of disputes between the European Union and China, especially within the realm of trade remedy actions such as anti-dumping investigations.

Benefits of bilateral investment

An investment agreement would lead to many mutual benefits for the two trading partners. While bilateral goods trade exceeded €433.6 billion in 2012, services trade remained at only €42.6 billion, due to lack of market access in China. On the other hand, in 2010 EU foreign direct investment stocks in China amounted to over €75 billion, while China's stocks in the European Union hovered below €7 billion.

A single EU-China BIT under the EU common commercial policy of the 2009 Lisbon Treaty would streamline and update existing agreements between China and EU member states. Some of the existing 27 BITs (with all member states except Ireland) were initially negotiated in the 1980s when China was only a foreign direct investment receiver. Now, as a foreign direct investment exporter, China is likely to be more willing to offer broader protection of investment and investors.

From the EU perspective, better investment (as well as trade) integration with China would be a boon to its growth as it struggles to shake the effects of the recent economic downturn. For its part, China would see benefits to its enterprises from a reduction in many of the barriers that they face in the European Union, including lack of knowledge about foreign markets, local government policies, cultural differences and excessive competition within industries.

The European Union has recently expanded its bilateral integration with trading partners in light of the slowdown of negotiations and progress within the WTO multilateral system. In addition to the investment negotiations with China, the European Union has embarked on comprehensive trade and investment negotiations with both the United States and Japan. While the latter negotiations are wider in scope and promise major economic gains for all sides, the EU-China BIT negotiations may be a strong first step towards mutually beneficial trade and investment integration.

Comment

An EU-China BIT would help both economies to grow in coming years. While a more comprehensive trade agreement, or even a partnership and cooperation agreement that includes more than economic issues, may be more beneficial, such agreements have been bogged down in tit-for-tat retaliation over anti-dumping duties. However, a smaller and less contentious deal within the investment sphere may be just what these two major world traders need in order to set aside differences and seek mutually beneficial economic integration.

For further information on this topic please contact Jasper M Wauters or Jordan Shepherd at King & Spalding LLP by telephone (+41 22 591 0804), fax (+41 22 591 0880) or email (jwauters@kslaw.com or jdshepherd@kslaw.com).

Endnotes

(1) Commission Regulation (EU) 513/2013 of June 4 2013, OJ L 152/5 (June 5 2013).

(2) See Directorate General of Trade, Press Release, "Statement by EU Trade Commissioner Karel De Gucht on mobile telecommunications networks from China" (May 15 2013).

(3) European Communities – Definitive Anti-dumping Measures on Certain Iron or Steel Fasteners from China (WT/DS397).

(4) European Union – Anti-dumping Measures on Certain Footwear from China (WT/DS405).

(5) China – Definitive Anti-dumping Duties on X-Ray Security Inspection Equipment from the European Union (WT/DS425).

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