Tomorrow's Silk Road
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TOMORROW’S SILK ROAD ASSESSING AN EU-CHINA FREE TRADE AGREEMENT JACQUES PELKMANS WEINIAN HU FEDERICA MUSTILLI MATTIA DI SALVO JOSEPH FRANCOIS EDDY BEKKERS MIRIAM MANCHIN PATRICK TOMBERGER TOMORROW’S SILK ROAD ASSESSING AN EU-CHINA FREE TRADE AGREEMENT CEPS TEAM PROF. JACQUES PELKMANS (OVERALL STUDY LEADER) DR. WEINIAN HU FEDERICA MUSTILLI MATTIA DI SALVO WTI TEAM PROF. JOSEPH FRANCOIS (WTI TEAM LEADER) DR. EDDY BEKKERS DR. MIRIAM MANCHIN DR. PATRICK TOMBERGER CENTRE FOR EUROPEAN POLICY STUDIES (CEPS), BRUSSELS The Centre for European Policy Studies (CEPS) is an independent policy research institute in Brussels. Its mission is to produce sound policy research leading to constructive solutions to the challenges facing Europe. The views expressed in this book are entirely those of the authors and should not be attributed to CEPS or any other institution with which they are associated or to the European Union. This book, commissioned by the Foreign Trade Association, aims to provide an independent and in-depth contribution on the status of bilateral economic exchanges and persistent trade barriers between the European Union and China. A second objective is to encourage a frank and open dialogue, based on a scientific evaluation and without prejudice, of the possibility of a preferential trade agreement between the two sides. The study was carried out by CEPS, in cooperation with the World Trade Institute at the University of Bern. ISBN 978-94-6138-518-5 © Copyright 2016, Foreign Trade Association and Centre for European Policy Studies. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior permission of the Centre for European Policy Studies. Centre for European Policy Studies Place du Congrès 1, B-1000 Brussels Tel: (32.2) 229.39.11 E-mail: [email protected] Internet: www.ceps.eu Table of Contents Foreword ................................................................................................................................. i Preface ................................................................................................................................... ii Glossary ................................................................................................................................. iii Executive Summary ................................................................................................................1 Introduction .........................................................................................................................33 Part I. The Global and Bilateral Context ................................................................................35 1. Why an EU-China free trade area? ............................................................................35 1.1 The context for a free trade area study ...............................................................35 1.2 Is there a case for an EU-China FTA? ...................................................................37 2. China and the EU in a rapidly changing world economy ............................................44 2.1 Chinese weight as an EU trade partner: Anticipate 2030 .....................................44 2.2 Competitiveness and reforms in the EU and China ..............................................46 2.3 Comparing China and the EU’s trade strategies: Multilateral, plurilateral and bilateral .......................................................................................................48 3. Bilateral economic relations: Trade and investments ................................................53 4. Global value chains: Significance for the EU and China ..............................................60 Part II. Design and Substance of an EU-China FTA .................................................................64 5. What would an EU-China FTA look like? ....................................................................64 6. Market access in industrial goods: An analysis of tariffs ............................................68 6.1 Analysing bilateral trade and its sectoral composition .........................................68 6.2 Industrial tariff profiles of the EU and China ........................................................74 6.3 Where China and the EU differ: Tariff peaks ........................................................75 7. Market access in goods: Trade defence remedies .....................................................80 7.1 Relevance of trade defence for an FTA ................................................................80 7.2 Recent bilateral application of trade defence ......................................................81 7.3 Market economy status for China: Law, economics or a political compromise?...83 8. Market access in agriculture: Tariffs and tariff-rate quotas .......................................89 8.1 Bilateral agro-food trade and its composition .....................................................89 8.2 Tariff and TRQ barriers in bilateral agro-food trade .............................................91 8.3 Tariffs peaks in agro-food ....................................................................................94 8.4 Tough barriers: Tariff rate quotas ...................................................................... 100 9. Technical barriers to trade ...................................................................................... 103 9.1 Mapping bilateral TBTs and their scope ............................................................. 103 9.2 TBTs between China and the EU: Empirical evidence at sector and product levels ............................................................................................ 106 9.3 Transforming China’s technical regulation, standards and conformity assessment..................................................................................... 113 9.4 Some inferences about lowering TBTs in an EU-China FTA ................................ 119 10. Reducing SPS barriers in an EU-China FTA ............................................................... 121 10.1 Market access barriers of the Chinese SPS regime ............................................. 121 10.2 Concerns from China and WTO partners about EU SPS barriers......................... 127 10.3 Lowering SPS barriers in an EU-China FTA ......................................................... 129 11. Market access in services: China and the EU ........................................................... 131 11.1 Introduction ...................................................................................................... 131 11.2 Measuring the extent of market access in services: China and the EU ............... 132 11.3 Sectoral services market access: China and the EU ............................................ 135 11.4 Potential value added of an EU-China FTA, based on prior experiences ............. 154 12. Public procurement ................................................................................................ 157 12.1 China’s offers to accede to the WTO GPA .......................................................... 158 12.2 Barriers to EU Public Procurement as seen by Chinese investors in Europe ....... 164 12.3 Possible directions for EU-China negotiations on public procurement ............... 165 13. Intellectual property rights and geographical indications ........................................ 167 13.1 Introduction ...................................................................................................... 167 13.2 EU-China IP Dialogue ......................................................................................... 168 13.3 China’s IPR legislation and enforcement ............................................................ 169 13.4 IPR protection and enforcement measures in China’s FTAs ............................... 173 13.5 IPR protection and enforcement measures in EU FTAs ...................................... 174 13.6 Geographical Indications ................................................................................... 175 14. State-owned enterprises (SOEs) and competition policy ......................................... 181 14.1 The SOE problem in China and early reforms .................................................... 181 14.2 Reformed SOEs and barriers to market access .................................................. 183 14.3 Can the EU and China reach an agreement on SOEs? ........................................ 188 14.4 Competition policy ............................................................................................ 193 15. Investment and the BIT ........................................................................................... 204 15.1 Why a CAI? ........................................................................................................ 204 15.2 Why are the existing BITs insufficient? .............................................................. 209 15.3 Investment issues an EU-China CAI should address ........................................... 210 15.4 EU approach to CAI ........................................................................................... 215 15.5 China’s approach to CAI .................................................................................... 219 15.6 What’s next? ....................................................................................................