The impact of “EU-China Comprehensive Agreement on Investment” on employment in China

On 30 December 2020, China and European Union (“EU”) concluded in principle the EU-China Comprehensive Agreement on Investments (“CAI”), a bilateral treaty that will replace existing bilateral investment treaties between individual EU Member States and the Mainland China (“China”), which will provide a uniform legal framework.

The CAI’s main purpose would be to enhance the protection and reduce the barriers of bilateral investments, which in turn significantly improves the market access for EU companies in China and vice versa. In addition, the CAI also promotes the sustainable development initiatives by highlighting the core environmental standards and labour rights.

Commitments made by China in CAI

The labour right in China, especially the forced labour in certain regions, had been the most significant hurdle in the previous 34 rounds of negotiation of the CAI. However, in this 35^th round of negotiations, China has made three essential commitments, specifically:

1. China commits to working towards the ratification of the outstanding International Labour Organization (“ILO”) fundamental Conventions and takes specific commitments in relation to the two ILO fundamental Conventions on forced labour that it has not ratified yet;
2. China commits that, it will not lower the standard of protection in the areas of labour and environment in order to attract investment; and
3. China further commits to uptake of corporate social responsibility and responsible business practices by Chinese companies.

Among the ILO fundamental Conventions that have not yet been ratified by the Chinese government, C29 and C105 are concerned with the forced labour, namely the “Forced or Compulsory Labour” and “Abolition of Forced Labour” respectively; they both provide details of forced labour, expropriation of forced labour, and their liability and remedies.

The commitment China has undertaken sends a very strong signal to ratify the ILO fundamental Conventions on forced labour (C29 and C105), as the ratification is a sovereign act of each member of the ILO expressing the State’s intention to be bound by the terms of an International Labour Convention; the EU is prepared to support China’s efforts in this regard. Such efforts will be key to the successful adoption and ratification of CAI.

Impact and Trend

Considering above, we expect that the CAI shall have the significant impact on the legislation of employment law in China, as well as the relevant negotiations between China and other countries/regions in the future, as China has never made any of such clear and unequivocal commitment in the investment agreements with other countries/regions or regional organisations (including the global organisation such as WTO) previously.

The CAI will be reviewed and approved by National People’s Congress in China and the Parliaments of EU countries, and the entire process may last around one year for the agreement to come into effect. The relevant provisions on prohibition of forced labour may also be included in the legislations in China (e.g., the Labour Law and Labour Contract Law) in the future once the CAI is in force, which could fulfil the commitments made aforesaid.

Deacons will continue to monitor and release the latest development of policy and law amendment.