1. 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
2. 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
3. Chapter I: Free Trade Agreements within
Europe
1.1. The World Trade Organization
1.2. International Trade Law
1.3. FTAs – a source of economic growth
1.4. EU’s Dynamics regarding FTAs
1.5. European Free Trade Associations
1.6. How does EU negotiate with foreign trade
partners?
4. 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
5. 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
6. 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
7. 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
8. 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
9. 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
10. 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)
11. 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
12. 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
13. 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
14. 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
15. 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%
16. 2.1. Mutual trade in goods between China
and Europe in figures
-200,000
-100,000
0
100,000
200,000
300,000
400,000
2009 2010 2011 2012 2013
EU trade in goods with China (2009-2013)
Source: Eurostat
Imports Exports BalanceMillion €
17. 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
18. 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
19. 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
20. 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
21. 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
22. 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
23. 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
24. 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
25. • 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
26. • 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
27. • 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
28. The EU and the PRC have to actively explore a bilateral
trade agreement because together will be “the twin engines
for global economic growth”
