30 Oct 2021

The suspension of the negotiation of the China/EU Comprehensive Agreement on Investment (CAI)

On December 30th, 2020, China and the European Union (the ‘’EU’’) have agreed in principle on a Comprehensive Agreement on Investment (the ‘’CAI’’). The text is a result of 7 years of negotiation between the world’s two largest economies to better attract foreign investments from both sides. Through these negotiations, China consented to lift certain restrictions on access to the Chinese market for European companies, protect European investors against forced technology transfers, and improve labor and sustainability standards.

The agreement has not been finalized yet and was expected to be adopted in the first half of 2022. However, the ratification of the CAI might be delayed. Indeed, on May 4th, 2021, the European Commission (the ‘’Commission’’) decided to temporarily ‘’suspend some efforts’’ to ratify the agreement. According to the statement released by the EU Trade Commissioner, Mr. Valdis Dombrovskis, the temporary suspension of negotiations is due to ongoing political disagreements resulting in reciprocal sanctions between the two parties.

The EU imposed restrictive measures against four Chinese individuals and a Chinese organization, including asset freezes and a travel ban. In response, China has taken countersanctions targeting EU officials and entities.

Nevertheless, the recent decision to suspend the ratification of the CAI would not necessarily hurt the negotiations already held by the EU and China. According to EU law, the ratification process is not legally tied to these negotiations since any international treaty shall be ratified by the European Parliament along with the approval of the Council of the EU. Moreover, it is worth mentioning how Mr. Dombrovskis’ spokeswoman stated that the Commission will continue to work on the technical aspects of the CAI including the improvement of the legal content and translation of the agreement.

In the meantime, given the fact that China has risen to the world’s biggest consumer market, in our experience companies simply can’t afford to stay out of the market and, therefore, will find alternative and sometimes pragmatic solutions for themselves, pending the political situation. Given said circumstances, we acknowledge the suspension of the CAI to be certainly the wrong signal but, at the same time, expect the business impact to be more limited than one may be led to believe.

Overall, although the date of the ratification of the CAI remains unclear due to recent political differences between the EU and China, we believe that the text will finally be approved and keep its original spirit by offering significant commercial opportunities for your future investments in China.

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