This document analyzes the potential for a free trade agreement between the European Union and China. It begins by reviewing existing EU trade agreements and policies. It then examines current trade relations between the EU and China, noting their significant growth in recent years. However, it also identifies trade barriers that foreign investors face in China. The document outlines cooperation agendas between the EU and China, focusing on increasing investment and standards. It studies the impacts of past episodes and Chinese investment in Europe. In conclusion, it recommends that a free trade agreement would further encourage bilateral investment and economic cooperation between the large economic partners.

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”

29. Thank you!
Danke Schӧn!
Xiexie Nin!