The EU—China Comprehensive Agreement on Investment: Lessons Learnt for Indonesia

Abstract

30 December 2020 marked a historical landscape for the European Union (EU) and China as they reached an agreement in principle on investment agreement known as the EU–China Comprehensive Agreement on Investment (CAI) after 35 rounds of negotiations since February 2012 (European Commission 2021c). Although its future is unclear amid the ongoing tension between the EU and China (Peel and Fleming 2021), the CAI was originally expected to come into force after 2022. Our paper aims to assess specific concessions made by the EU and China and provides lessons learnt for Indonesia on the ongoing negotiation of the Indonesia–EU free trade agreement (FTA), so-called the Comprehensive Economic Partnership Agreement (the IEU CEPA). The negotiation was launched on 18 July 2016, and at the time of writing, there had been 10 rounds of negotiations (European Commission 2021b). Although some believe that CAI would replace the existing bilateral investment treaties (BITs) between China and the EU Member States (Jones Day 2021), the text of CAI indicates otherwise. China has BITs with almost all EU Member States, save for Ireland, with a total of 25 BITs. Despite having CAI as an investment agreement, China and the EU Member States do not terminate these existing BITs as Section VI of CAI clarifies that previous agreements between the Member States of the EU/the European Community and China are not superseded or terminated by the agreement. Thus, the BITs will remain in effect alongside CAI unless China and the EU Member States decide otherwise in the future. Section 2 presents a comprehensive overview of the main areas covered under CAI. Section 3 assesses potential impacts of CAI on Indonesia’s investment. Section 4 evaluates the current state of the IEU CEPA negotiations and lessons learnt from CAI. Section 5 concludes and offers policy recommendations.