EU-China FTA: to Manage and Improve EU-China Trade Relations?

Bin YEJean Monnet Fellow, Robert Schuman Centre, EUI, FlorenceAssociate Prof., Institute of European Studies, CASS, Beijing

Florence, 31 July 2015

China’s FTA Network• Currently, China has 19 FTAs under construction, among which 14 Agreements

have been signed and implemented already.• China's Free Trade Agreements

– China-ASEAN FTA, China-Pakistan FTA, China-Chile FTA, China-New Zealand FTA, China-Singapore FTA, China-Peru FTA, Mainland and Hong Kong Closer Economic and Partnership Arrangement, Mainland and Macau Closer Economic and Partnership Arrangement, China-Costa Rica FTA, China-Iceland FTA, China-Switzerland FTA;

– China-Korea FTA, China-Australia FTA.

• Free Trade Agreements under Negotiation– China-GCC(Gulf Cooperation Council) FTA, China-Norway FTA, China-Japan-Korea FTA, RCEP,

China-ASEAN FTA Upgrade Negotiations, China-Sri Lanka FTA

• Free Trade Agreements under Consideration– China-India Regional Trade Arrangement Joint Feasibility Study; China-Columbia FTA Joint

Feasibility ; China-Maldives FTA Joint Feasibility Study; China-Georgia FTA Joint Feasibility Study; China-Moldova FTA Joint Feasibility Study

Cited from http://fta.mofcom.gov.cn/english/index.shtml on 31 July 2015

China, Trade with World

China’s ambition to accept high standard trade rules

• China has expressed its ambition to accept new trade rules. The continuous steps to prepare to adapt high-level trade and investment rules– In 2013, China expressed a desire to join TISA.– 2.0 version of BIT talks with the USA and the EU– To entirely amend Chinese foreign investment law– Shanghai Pilot FTA Zone with gradually shorten negative sector list,

and other provincial FTA Zones ; Catalogues of Industries for Guiding Foreign Investment was recently cut.

– The current China FTAs is approaching to being the new generation of FTA. The China-Korea FTA and China-Australia FTA will be reviewed for upgrading.• The China-South Korea FTA includes areas such as finance,

telecommunications as well as so-called ‘twenty-first century new issues’ related to the environment, labour and competitive neutrality.

• The China-Australia FTA also stipulates market access, investment and trading rules and related standards.

EU’s lukewarm reaction to Chinese FTA Proposal

• The trade chapter in PCA negotiation between the EU and China has been actually shelved.

• Since 2012, China has turned to propose an FTA with the EU. However, so for EU reactions to the Chinese proposal have been only lukewarm.

• The EU is regarding whether the ongoing EU-China BIT can be achieved as a condition to further consider a so called deep and comprehensive FTA.

Why China need an FTA with the EU?

• China needs new trade and investment rules to deepen and promote its domestic reform. – Although some standards in the new generation of EU’s FTA are

too high for China, with the slower economy becoming “New Normal” and the industrial upgrading in China, those sustainable clauses such as environment protection, IPR protection, competition neutrality, and labour protection which might be implemented under some condition will play positive and significant functions for China’s sound growth in the future.

• China needs to engage in the new round of trade rules making. The EU is supposed to be the best potential partner to negotiate a high-level, high-quality and balanced trade FTA.

Potential Impacts to China and EU-China Relations

• The new trade rules have the functions to restrain the government’s power to intervene the economy. A high level EU-China FTA would also promote the rule of law in China.

• According to a preliminary study, an ambitious EU-China FTA could give a boost to annual trade of up to nine per cent which could reach €0.89 trillion by 2020.

• To manage trade relations under an EU-China FTA

To manage trade relations under an EU-China FTA

• Alternate channel to resolve bilateral trade disputes – The dispute settlement mechanism in an FTA could provide alternate

channel to resolve bilateral specific trade disputes. – Such clauses as Consultations, Mediation Mechanism and

Establishment of the arbitration panel in NAFTA Chapter 19 process, the EU-South Korea or the proposal TTIP text can be modelled by the future EU-China FTA.

• The WTO- extra and WTO-plus clauses introduced to satisfy the major concerns of European Companies and Chinese Companies– The major problems concerned by European companies on China

include the IPR problem, public procurement market, non-tariff barriers and market access.

– The most concerned problems by Chinese companies on Europe include technical trade barriers, complicated EU level and national legal system and rules, and market access as well.

The ongoing EU-China BIT talk• China committed to give the EU investors pre-

establishment national treatment and to use negative list approach to open investment market (BIT 2.0).– Pre-establishment national treatment commitment means

China will abandon its thirty years old investment approval system. MOFCOM is soliciting comments to entirely amend Chinese foreign investment law.

– Negative list approach will prevent authorities from setting up new market threshold. • negative measure list • negative sector list

– Regarding to ISDS in the BIT, it seems both sides are going to inform the existing arbitration system by introducing an appeal system in the future.

Conclusion• China has ambition to accept high level trade rules to

promote its transforming. European style trade rules or European standards would engage China’s reform.

• An EU-China FTA would benefit both sides. For China, it would be a catalyst to deepen economic reform, a guard for its free and fair market economy and an instrument for improve rule of law.

• EU might lose the best timing to react for China’s FTA proposal, if China-Japan-Korea FTA came back and China was going to seek alternate partners.