China, EU agree to start talks on investment treaty


China and the European Union will begin talks on a landmark treaty aimed at boosting investment that lags behind burgeoning trade and at tackling thorny market access issues, the two sides announced at a summit on Thursday (21 November).

Chinese Premier Li Keqiang and European Commission President Jose Manuel Barroso said in speeches in Beijing that the potential agreement would increase openness and deepen cooperation as well as boosting investment, which has not kept pace with trade growth.

"Trade volume between the two sides has increased at a very fast pace, but we must realise that there is still great potential for China and the EU to increase direct investment between each other," Li said in his speech at the close of the annual summit.

Europe is China's most important trading partner and for the EU, China is second only to the United States. But the bilateral relationship has been weighed down by a series of trade rows ranging from steel and wine to solar panels.

In 2012, bilateral trade in goods and services reached €483.5 billion, according to the EU delegation to China. China exported €289.7 billion in goods to Europe last year to Europe's €143.9 billion in goods to China.

However, EU imports from China last year decreased for the first time since the financial crisis, falling 0.9%.

EU officials say the planned investment pact, the announcement of which had widely been expected at the summit, is a test of China's willingness to compromise and play by rules set down by the World Trade Organization that ban subsidising of companies to undercut foreign competitors.

Despite doubling trade with China since 2003, the EU accuses Chinese companies of benefiting from unfair state aid allowing them to dump goods in Europe, selling them at below cost.

"Trade and investment issues remain high on our agenda and we have made a substantial step forward by launching negotiation on an investment agreement, covering both investment protection and market access," European Council President Herman Van Rompuy said at the summit.

"A level playing field, transparency and confidence in the rule of law are essential on both sides for business to thrive," he said.

The summit comes on the heels of the High-Level Economic and Trade Dialogue (HED) that was held in Brussels on October.

EU leaders have said they looked at the summit as a chance to establish the direction of relations with China for the next decade under new Chinese President Xi Jinping, who took office in March.

Li called on both sides to fight protectionism and lift trade, and said he wanted EU countries to increase exports of high-tech products to China as part of an effort to bring total trade volume between the two to $1 trillion by 2020.

The two sides also signed a cooperation pact on urbanisation, under which Europe will offer advice based on its experience.

China had embarked on a major effort to have more people live in its cities as part of its rebalancing of the economy towards a consumer driven one. Chinese government officials at the summit said they were "still perfecting" the urbanisation plan.

The beginning of talks for an EU-China investment treaty represents a positive step in bilateral relations, after the two countries' became embroiled in a number of trade spats over the past year.

Earlier in the year, the EU accused China of dumping solar panels on the European market and illegal subsidies. This was followed by a tit-for-tat accusation from China that the EU had dumped wine on the Chinese market.

EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.  Besides the leaders’ annual meeting, the main three pillars are the high-level economic and trade dialogue (launched 2007), the strategic dialogue (2010) and the high-level people-to-people dialogue (2012).

China has emerged as the world's third economy, after the EU and the US. Rising trade and financial flows between the EU and China in the last decade have considerably heightened their economic interdependence. The EU remains China's biggest trading partner while China is the EU's second largest trading partner.

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