The EU-China Comprehensive Agreement on Investment (CAI): A glance at the schedules

last updated on 29 March 2021 | reading time approx. 4 minutes

by Christina Gigler

The long-awaited schedules to the agreement in principle on the EU-China Compre­hensive Agreement on Investment (CAI) have been released by the European Com­mission on March 12, 2021. Annexes I and II follow a negative list approach with regards to national treatment, most-favoured nation treatment, prohibited performance requirements and requirements on senior management and boards of directors, whereas Annex III, as schedule of specific commitments and limitations on market access, follows a positive list approach.

Facilitated market access

Automotive

• Commitments: The limitation for traditional fuel-powered motor vehicles does not apply for the acquisition of existing traditional fuel powered motor vehicle enterprises. The limitation for NEVs does not apply if the total investment amount for the project is no less than USD 1 billion. 

• Limitations:
  Prohibition to set up new traditional fuel-powered motor vehicle enterprises; increasing production capacity for traditional fuel-powered motor vehicle enterprises by existing car manufacturers only if:
  
  • Utilization rate of automobile capacity in the previous two years was higher than the industry average of the same product category;
  • Proportion of new energy vehicles (NEVs) output in the previous two years was higher than the industry average;
  • Utilization rate of automobile capacity in the two previous years in the province where the project is located is higher than the average level of the same product category and there is no fuel vehicle enterprise of the same product category that is specifically disclosed by the industry regulator.
   
  New independent investment projects for pure electric vehicles may only be established in a province if: 
  
  • Utilization rate of automobile capacity in such a province in the previous two years was higher than the average level of the same product category;
  • Existing independent investment projects for pure electric vehicle of identical product categories by an enterprise in such a province have all been completed and the annual output has reached its constructed
    scale.
• Potential impact: For traditional motor vehicle projects, new investment projects are prohibited, which might stem from certain environmental considerations, whereas already existing projects may be extended under certain conditions. There are no limitations stated for increasing the production capacity of existing NEV projects.

Air Transportation/Aviation

• Commitments: After one year as from the  CAI’s entry into force, EU investors may invest in computer reservation system services.
• Limitations: Commitments on aircraft repair and maintenance services are subject to the establishment of a legal entity. For the commitment on ground handling services, the number of service suppliers in each airport may be limited depending on the size of the airport.
• Potential impact: The potential impact is rather low.

Medicine/ Healthcare

• Commitments: Commitment to establish wholly foreign owned privately funded hospitals and clinics, in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen and the whole island of Hainan.
• Limitations: The commitment is excluding Traditional Chinese Medicine hospitals and clinics. The majority of doctors and medical staff shall be of Chinese nationality. The establishment of hospitals or clinics is subject to quantitative limitations in line with China's needs.
• Potential impact: Despite the limitations, the commitments indeed expand the market access for foreign investors in the cities listed, as based on the Negative List of 2020 medical institutions are limited to the form of joint venture.

Research & Development (R&D)

• Commitments: Limited commitments.
• Limitations: Limitation for R&D relating to social sciences and humanities, human stem cells, genetic diagnosis or treatment technology.
   
  China requires approval of R&D activities conducted by foreign invested enterprises (FIEs) utilizing biological resources (including human, animal, plant and microbe resources) originated from, and protected by China. China also requires FIEs to conduct the aforesaid activities in the form of cooperation with Chinese institutions, and to share the benefits generated from such R&D as well as subsequent applications and commercialization with its Chinese partners.
   
  In all sectors, China reserves the right to adopt or maintain any measure with regard to subsidies for R&D.
• Potential impact: The potential impact is rather low.

Real Estate and Other Business Services

• Commitments: Commitment to remove joint venture requirements for real estate, rental and leasing services, repair and maintenance for transport, advertising, certain areas of market research, management consulting and translation.
• Limitations: Limitation on certain areas of market research like social survey and economic and social intelligence services not in connection with merchandised products, such as industry analysis, econometric modelling, demographic analysis, etc.
• Potential impact: The potential impact is rather low.

Water/Maritime Transportation

• Commitments: Commitments on international transport (freight and passengers), maritime cargo handling services, customs clearance services, container station and depot services and maritime agency services.
• Limitations: China reserves the right to adopt or maintain any measure with respect to domestic water transport (including maritime cabotage transport).
• Potential impact: Domestic water transport refers to passenger and freight transport between the ports or points of China. If vessels of the EU sail from one port of China to another to load cargo for foreign countries or discharge cargo from abroad, it shall be regarded as a part of the international maritime transport.

Non-Profit Organizations (NGOs)

• Limitations: Unless approved by the Chinese government: Foreign investors and covered investments may not invest in NGOs within the territory of China; NGOs established outside of China may not set up representative offices or branches in China. To conduct activities temporarily in China, foreign NGOs shall cooperate with domestic entities, and the term for such temporary activities shall not exceed one year.  
   
  The senior executives of NGOs which have been approved to be established within the territory of China shall be Chinese citizens.
• Potential impact: These limitations on NGOs are in fact not new, but have been existing since 2017. However, the limitation that senior executives shall be Chinese citizens is in fact new. The current legal framework only states that a representative office of an overseas NGO shall appoint a chief representative and may appoint one to three representatives based on business needs without mentioning any requirement on their nationality.
   

Ratification process

Given the ongoing reactions and criticism among the relevant stakeholders, particularly within the European Parliament, it can be expected that the ratification process will be a challenging and time-consuming one. It can be assumed that future events in China will also play a role in ratification, for example with regard to the observance and development of human and labour rights.

In a nutshell

With regards to market access, the CAI or rather its schedules generally speaking merely repeat or consolidate already existing commitments of China. There are only very few additional access commitments in key sectors such as automotive and medicine/healthcare, which might have a small but significant impact on foreign investment in China. 

The scope of the CAI might be narrower than some investors might have expected. However, one has to bear in mind that the CAI is no free trade agreement, but should rather be put in a broader context of the EU`s overall China strategy.