EU-China Comprehensive Agreement on Investment

EU-China Comprehensive Agreement on Investment Background - 25 BITs in force (all MS but Ireland) - Negotiations launched in February 2012 'Step up negotiations with China on a Comprehensive Agreement on Investment, with the aim of reaching an agreement by the end of 2020' (Von Der Leyen 2019) - Acceleration at the end of 2020: last minute concessions by China and the power transition in the US; Ratification of Regional Comprehensive Economic Partnership; End of the German Presidency of the Council; Investor-State Dispute Settlement - ISDS: Key role for the International Centre for the Settlement of Investments Disputes (ICSID) • Concerns because of lack of transparency, legitimacy, consistency, and insufficient review mechanisms - Ongoing discussions on ISDS Reforms at United Nations Commission on International Trade Law (UNCITRAL) - EU proposals for reforms: Investment Court System and Multilateral Investment Court Investment Court System (ICS) • Public, permanent, and professional judges appointed in advance • Two-tier system consisting of a first instance tribunal and an appellate tribunal • E.g.: CETA • CJEU Opinion 1/17 of 29 January 2019: Compatibility of ICS with EU Law Multilateral Investment Court (MIC) ∼ Council of the EU Negotiating Directives for a Convention Establishing a Multilateral Court for the Settlement of Investment Disputes, 12981/17 ADD 1 DCL 1, 20 March 2018.Objective: Address the critiques against ISDS mechanisms ∼ A MIC that would be permanent, independent, consistent in case- law, and with a comprehensive appeal system China's cautious and gradualist approach on ISDS: - First generation BITs: No effective enforcement mechanisms - Since 1998: More liberal approach to protect Chinese companies overseas (Berger 2008) or as a result of China's accession to the WTO (Gallagher and Shan 2009); to test ISDS with smaller developing countries (Irwin 2014) - Ekran Berhad v. People's Republic of China (ICSID Case No. ARB/11/15) 2011 - Tza Yap Shum v. Republic of Peru (ICSID Case No. ARB/07/6) 2007 Which Model for the EU-China BIT? ISDS, ICS, or MIC?; ISDS covering post-entry protection vs. pre-entry protection? • No investor-protection mechanism included in the CAI: ∼ (Art. 3, Sub-section 2, Section VI VAI) - 'The Parties agree to continue, on the basis of the progress already made, their negotiations with a view to negotiate an agreement on investment protection and investment dispute settlement (...) The Parties shall endeavor to complete such negotiations within 2 years of the signature of the present agreement.' ∼ (Art.15.1, Sub-section 2, Section VI CAI) - 'Previous agreements between the Member States of the European Union and/or the European Community and/or the European Union and China are not superseded or terminated by this Agreement.' Which Model for the EU-China BIT? Reliance on investor-protection mechanisms included in China-EU MS BITs. A fragmented framework: • 13 BITs provide ISDS provisions (ICSID or ad hoc tribunal) for any disputes arising out of investment; • Limitation of the scope of ISDS to the amount of compensation for expropriation in pre-1994 BITs; • Additional consent required for some disputes. Recalibration of Bilateral Investment Treaties ∼ IlAs no longer function as an international instrument serving business interests only ∼ Greater social expectations that should no longer be treated as simple economic externalities ∼ OECD Policy Framework for Investment 2015 'Investment should not be seen as an end in itself' (...) 'The growth and development impact of investment will depend as much if not more on the quality of the investment as it does on the quantity' ∼ G20 Guiding Principles for Global Investment Policymaking 2016 'Investment policies and other policies that impact on investment should be coherent at both the national and international levels and aimed at fostering investment, consistent with the objectives of sustainable development and inclusive growth' ∼ 'Normative Power Europe': Shared norms at the heart of the acquis Communautaire that define the EU's identity (Manners 2002) ∼ Article 21(1) 'The Union's action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world: democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international. law.' EU-China Comprehensive Agreement on Investment • Sustainability and human rights are important factors in the EU's China Strategy (Elements for a New EU Strategy on China, 2016) • Convince, persuade and negotiate with China ∼ New generation of Chinese BIT's do have sustainability provisions ∼ Only four Chinese BIT's include labor rights provisions • Reaffirmation of the commitment to the Charter of the UN and the principles articulated in the UDHR (Preamble) • Parties shall effectively implement the Paris Agreement including, their commitment with regard to its Nationally Determined Contributions (Section IV, Sub-section 2, Art. 6) • Commitment to 'effectively implement' the ratified ILO conventions and each Party shall make 'continued and sustained efforts' to pursue ratification of ILO Conventions No 29 and 105 (Section IV, Sub-Section 3, Article 4) - 'to 'make continued and sustained efforts' means to take steps forward' (Panel of Experts Report, EU-Korea FTA, 2021, Para. 272) Unilateral Measures Investment Screening Mechanism: • Very vivid debate on the need to coordinate foreign investments screening • • 'We need the money' (De Gucht 2012) Foreign Investment Screening Regulation (2019): 1. No veto power for the European Commission 2. Framework for (horizontal and vertical) information exchange (Art. 5) 3. Opinions released by the European commission on foreign investments that pose a threat to the security or public order of more than one MS (Art. 6) 4. Importance awarded to virtual infrastructure, date processing and cyber-security (Art. 4) • European Parliament resolution of 10 March 2021 with recommendations to the Commission on (2020/2129(INL)) corporate due diligence and corporate accountability • Introduction of a mandatory corporate due diligence obligation to prevent and address adverse impacts on human rights, the environment (including on climate change), and good governance in businesses' operations and value chains: 1. Supply chain traceability to be strengthened; 2. Scope of Union due diligence framework should be broad and cover all large undertakings; 3. Compliance with the due diligence obligations should be a condition for access to the internal market; 4. A proportionate approach should take into account the sector of activity, the size of the undertaking, the severity and likelihood of risks related to the respect of human rights, governance and the environment intrinsic to its operations; 5. Need for civil liability claims to be made available as well as effective remedies. Way Forward? • • Council of the EU to vote in 2022 (exclusive competence of the EU) - Not a mixed agreement (Opinion 2/15 (Singapore) - Qualified majority (Council EU) and Simple Majority (European Parliament) Prompt ratification process in China (//RCEP)? - • No official Chinese translation Impact of 'tit for tat' sanctions - "CAI is not on the table now" (Winkler, INTA Committee, 2021)