Negotiations for a bilateral investment treaty between the European Union and China are expected to be formally launched during the EU-China Summit next week. Though the launch would be just the first step in a long negotiation process, it would also be a giant leap for upgrading the investment relationship between the EU and China.

On 24 October 2013, the fourth meeting of the EU-China High Level Economic and Trade Dialogue was held in Brussels.  Among other points, the most recent talk between the world’s two biggest traders reaffirmed the willingness to formally launch negotiations for a bilateral investment treaty (BIT) during the EU-China Summit to be held in Beijing later this month.

This move is significant for several reasons.

• There is huge potential for investment flow between the European Union and China.

According to provisional Eurostat data, in 2012 Chinese investments into the EU(27) amounted to €3.5 billion, and only accounted for 2.2 per cent of total foreign direct investment (FDI) flowing into the EU. By contrast, in the same year EU firms invested €9.9 billion in China, accounting for approximately 11.4 per cent of all China’s inward FDI. It is worth noting that the EU’s outward FDI to China only accounted for 2.4 per cent of total outbound investment flowing from the EU to the rest of world in 2012. By contrast, bilateral trade in goods and services is more than €1 billion per day.

• The existing BITs between China and EU Member States are to be upgraded.

China signed its first BIT with Sweden in 1982, and currently has similar arrangements with each and every EU Member State (except Ireland).  However, these BITs were negotiated and executed in the past 30 years, during which China went through substantial changes in all aspects of society, including a significant increase in outbound investment.  Some of the BITs were updated to reflect such changes, e.g., the China-Netherlands BIT was amended to include national treatment in 2001.

Overall, the EU-China BIT will not be a simple compilation of the existing BITs between China and EU Member States, but an upgrade of the investment relationship between them.

• The negotiation of a EU-China BIT is likely to be a long process.

The negotiation of a BIT between two giant economic entities is likely to be a long process.  For example, the China-US BIT negotiation is still in its preliminary stage more than 30 years after both parties opened the dialogue in 1980.  The China-Canada agreement took 18 years and went through 22 rounds of formal negotiations. 

The difficulties of these negotiations must not be underestimated.  The EU-China BIT will go further than the existing bilateral agreements with individual Member States.  The EU negotiators are keen to include provisions on market access, including access to services, and on intellectual property.  The negotiation process is likely to be complicated by calls from the European Parliament to include provisions on fundamental rights and values (social, environmental, consumer, etc.). 

From a procedural point of view, this will be the first trade agreement negotiated by the EU since the assignment of trade and investment agreements to the exclusive competence of the EU under the Lisbon Treaty.  This gives the European Parliament a key role to play in approving any final agreement.

In sum, if both parties formally launch the negotiations in November, it will be a small step in the negotiation process, but a giant leap for upgrading the investment relationship between EU and China.

If EU industry has concerns about obstacles to FDI in China, including discrimination and absence of mutual treatment, it is not too late to raise them with the Directorate General for Trade of the European Commission.

Bryan Fu also contributed to this article.