One of the EU`s main concerns is the power conferred on the Chinese State Council, under the negative list, to authorise or reject the use of foreign investment. This discretion of the Council of State creates uncertainty for foreign investors who are unable to assess in advance whether their application is approved or rejected by the supreme authority. As far as investments are concerned, the EU`s outstanding demands on China and the conditions under which the EU will sign the AI are: these agreements have become possible because China has shown greater political will – without violating China`s bilateral WTO accession agreement – and the EU has shown commercial pragmatism in accepting alternative concessions within and outside the financial sector. Can this formula be magical again to help the EU and China agree on access to financial markets before concluding the IACs? Nearly a decade has passed and, although some progress has been made, many tensions remain. Today, EU officials say the chances of reaching an agreement by the end of the year – a deadline that Agatha Kratz, associate director of the research consultancy group, has described as “futile” – are slim. European Commission President Ursula von der Leyen recently said after a high-level dialogue with Chinese President Xi Jinping: “China must convince us that it is worth having an investment agreement.” And the EU is preparing to put in place mechanisms to protect and limit foreign investment in Europe that would operate independently of the AIC. Access to financial markets under the Phase 1 agreement As far as the EU is concerned, it must recognise that the national treatment offered by China when it joins the WTO is subject to the GATS timetable, including financial services. Therefore, the EU`s requirements are WTO-plus in nature and are based on the principle of reciprocity. In other words, China has failed to meet its WTO obligations, with the exception of protecting its financial market through bureaucracy, as it has done for electronic payment services. Beyond the Phase 1 agreement, the EU must once again be pragmatic in recognising that alternative and competitive concessions, both inside and outside the financial services sector, could be a “potential landing zone” on the basis of national treatment.
After all, China remains the EU`s second largest market, with many opportunities for EU companies to use it. China is also under pressure because it is counting on German Chancellor Angela Merkel to pressure the deal as an ally. Merkel currently chairs the rotating EU presidency, but only for the rest of the year. With its influence on European policy, it could help China adopt the agreement by EU member states. But she won`t be here long. Merkel has announced that she will retire next year. With the AI, the EU wants to create new investment opportunities for European companies by opening up the Chinese market and eliminating discriminatory laws and practices that prevent them from competing on an equal footing with Chinese and third-country companies in the Chinese market.