Analysis of the potential Free Trade Agreement between the European Union and the People’s

Republic of China

Student: Kirileanu Matei (385220)Supervisors: Professor Dr. Hansjorg Herr Professor Dr. Guo Jiannan

Structure

Chapter I: Free Trade Agreements within Europe

Chapter II: Could the EU and the PRC conclude a FTA?

Chapter III: Case studies

Chapter IV: Recommendations and Conclusions regarding the potential FTA between the PRC and the EU

Chapter I: Free Trade Agreements within Europe

1.1. The World Trade Organization1.2. International Trade Law1.3. FTAs – a source of economic growth1.4. EU’s Dynamics regarding FTAs1.5. European Free Trade Associations1.6. How does EU negotiate with foreign trade partners?

1.1. The World Trade Organization

• 161 member countries

• aims to lowering trade barriers

• providing legal ground rules for international commerce

• agreements signed and negotiated by governments and ratified in national parliaments

• implements trade between nations

1.1. The World Trade Organization

• main trade topics – goods, services, intellectual property

• solved issues like tariff reductions, anti-dumping policies, subsidies

• provides technical regulations, product standards, custom procedures

• decides upon export quotas

• Doha Round – TRIPS agreement completed

1.2. International Trade Law

• legal norms for free trade

• treaties and acts of international intergovernmental organizations

• lex Mercatoria – “Law for traders on the ground”

• regulations regarding the international monetary system and international development law

1.3. Free Trade Agreements – a source of economic growth

• Free trade – policy via which governments allow imports and exports between countries

• most of the countries impose protectionist policies to protect economies

• tariffs to imports

• subsidies to exports

1.3. Free Trade Agreements – a source of economic growth

• governments believe free trade improves welfare and increases standards of living

• 500 million people out of poverty

• without trade restrictions - drops in cost of goods- higher level of innovation - competitiveness- rapid growth of the global economy

Issue: too many FTAs => noodle bowl effect

1.4. EU’s Dynamic regarding FTAs

• The European Union - single market- global player- largest importer and exporter

• ranks first as an investor and recipient of foreign investment

• managed to establish commercial relations with countries from all over the world

• foreign trade in goods and services reached 35% of GDP

1.4. EU’s Dynamic regarding FTAs

• Currently Negotiating with the US - Transatlantic Trade and Investment Partnership (TTIP)

• TTIP would bring an estimated gain of 119 billion euros per year when fully implemented

• The European Union Central American Association Agreement (EU-CAAA) – Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama

• provisional trade agreement with the Andean region (Columbia and Peru)

• FTA with South Korea (2011) and Mexico (2000)

1.5. European Free Trade Associations

• Russia, Belarus, Kazakhstan, Armenia, Ukraine, Moldova, Tajikistan - signed agreements for free movement of goods

• Commonwealth of Independent States (CIS)

• Rules for - public procurement contracts - customs transit of goods - applying anti-dumping and countervailing measures - lifting technical barriers to trade

• Central European Free Trade Agreement (1992) – CEFTA 2006

1.6. How does the EU negotiate with foreign trade partners

• Through a common commercial policy (DG Trade)

• The EU negotiates on the behalf of its member states

• EU Commission in close liaison with the Council and the Parliament

• Public consultation

• assessment of the impact of the agreement

1.6. How does the EU negotiate with foreign trade partners

• FTAs designed to create new opportunities– Cheaper and faster trade– Increasing investment opportunities – Protect investment– predictable policiy environment

• Chief negotiator

• Multiple round of negotiations

• Depending on the complexity – 2 to 3 years, sometimes more

Chapter II: Could the EU and the PRC conclude a FTA?

• 2.1. Mutual trade in goods between China and Europe in figures

• 2.2. Trade in China – Legal Context

• 2.3. China’s trade barriers for foreign investors

• 2.4. The EU’s and PRC’s strategic agenda for cooperation

2.1. Mutual trade in goods between China and Europe in figures

• Significant progress in the last 5 to 10 years

• China signs bilateral treaties with european countries – more leverage power in negotiating with the EU

• EU interested in a FTA in order to reduce impact of recession

• From 2005 to 2013: EU – China trade doubled• Bilateral trade in 2013

- 428.1 billion euros in goods- 49.9 billion euros in services ( big potential for expansion)

• Foreign investment (2012) - EU to PRC: 20%- PRC to EU: 2.6%

2.1. Mutual trade in goods between China and Europe in figures

2009 2010 2011 2012 2013

-200,000

-100,000

0

100,000

200,000

300,000

400,000

EU trade in goods with China (2009-2013)Source: Eurostat

Imports Exports BalanceMillion €

2.2. Trade in China – Legal Context

• China Trade Law – according to the state-designed development strategies

• Trade institutions – Chinese international trade promotion organization– The foreign trade administrative department of the State

Council: decisions on restricting or banning import/export of goods and technologies

• Accent on the promotion of foreign trade

• Following the principles of openness, fairness, impartiality, efficiency

2.3. China’s trade barriers for foreign investors

• 45% of EU companies reported losses of business opportunities due to poor market access and regulatory barriers

• Service companies face barriers in sectors like banking, construction, telecommunications

• Foreign law firms cannot hire chinese lawyers

• Lack of transparency and predictability

2.3. China’s trade barriers for foreign investors

• Very difficult to access the public procurement market in China

• China uses country specific standards

• Lack of a level playing field for foreign funding issue

• Violation of intellectual property rights – 64% of counterfeit goods seized at the EU borders came from China

• Problems may be solved by signing a Bilateral Investment Treaty (BIT) – will regulate EU-PRC economic relations – open the way for a future FTA

2.4. The EU’s and PRC’s strategic agenda for cooperation

• 2020 Strategic Agenda for Cooperation – based on common goals of:– EU’s 2020 strategy– China’s Two Centenary goals + The 12th Five Year Plan

• “converging interests of investment, firmly safeguarding and interconnecting growth”

• “Simpler and more secure legal framework”

• Prosperity, transparency

2.4. The EU’s and PRC’s strategic agenda for cooperation

• PRC to cooperate more closely with the European Bank for Reconstruction and Development (OFDI)

• Intellectual property protection – elimination of piracy and counterfeited products

• Europe – China Standardisation Information Platform: allowing Chinese Yuan/ Euro bilateral swap

2.4. The EU’s and PRC’s strategic agenda for cooperation

• More investment in the energy sector

• Decent jobs for young citizens

• Encourage small businesses to invest

• Sustainable development and reducing carbon emissions

• China to highly increase OFDI by 2020

Chapter III: Case studies

• The Photo Voltaic Episode

• Chinese OFDI in the EU28• Over 1000 Chinese greenfield projects and acquisitions

in the EU (2000 to 2014)• Altogether 46 billion euro

Chapter IV: Recommendations and Conclusions regarding the potential FTA

between the PRC and the EU• The EU and the PRC – powerful regional economic blocks

• PRC is the second trade partner for the EU

• There is a need for a stable agreement

• Signing a FTA will encourage bilateral investment, not only trade

• Higher reliance and dependance between them

• China has shown to the world how a socialist market economy can work in a communist state

• With the rapid globalization of production networks, PRC had an advantage, providing low-cost labour and huge, attractive market

• Exports have been an important driving factor of Chinese economic growth

• The capital gained will be invested in less developed countries

• The EU would make a wise move when reducing regulatory obstacles concerning FDI

• IMF suggested that the EU’s strategy should be subject of small changes, while in the next years 90% of the demand will come from outside the Single Market

• Eastern- European Countries could develop strong economic relations with the PRC, if they were allowed to use more frequently the principle of subsidiarity

• If ex-industrial cities would regain importance, the communities will regain hope, eventually being more cohesive

• 2020 would be a feasible target for signing a FTA, based on the strategic agendas that the EU and the PRC have

• The Chinese president, Mr. Xi Jinping, acknowledged that “together they make up one third of the global economy”

• Both should aim for reforming the society towards a moderately prosperous society, reducing the big gap between the rich and the poor

The EU and the PRC have to actively explore a bilateral trade agreement because together will be “the twin engines for global economic growth”

Thank you!Danke Schӧn!

Xiexie Nin!