- It's been a long-term ambition of the EU to make foreign investment fairer for European companies which compete against state-funded firms in China.
- Beijing has also committed to being transparent on subsidies for state-owned firms and forced technology transfers.
- Some politicians believe the agreement is lacking on enforcement, on human rights and say it could dent Europe's relationship with the United States.
The EU and China's new investment deal may fail to make it past European lawmakers after they raised three big concerns with the agreement.
After seven years of negotiations, the European Commission, the executive arm of the EU, announced the deal with China on December 30. The actual wording is still being finalized by lawyers and it will then have to be approved by the European Parliament before its implementation.
However, "the approval is by no means a given," Reinhard Bütikofer, a German lawmaker at the European Parliament, told CNBC on Wednesday.
Some politicians believe the agreement is lacking on enforcement, on human rights and say it could dent Europe's relationship with the United States.
What's in the deal?
It's been a long-term ambition of the EU to make foreign investment fairer for European companies which compete against state-funded firms in China.
The EU's trade chief Valdis Dombrovskis told CNBC last week that "the main purpose of this agreement is to address the economic imbalance in our relations."
"The EU's market is substantially more open to Chinese companies and investment than China's market is for EU companies and this agreement helps actually to address this imbalance," he said.
As a result, the investment agreement states that China "will no longer be able to prohibit access or introduce new discriminatory practices" on manufacturing and some service sectors too.
At the same time, Beijing has also committed to being transparent on subsidies for state-owned firms and forced technology transfers — when a government asks foreign firms to share their tech in exchange for market access — have been prohibited.
The deal also makes it easier for European firms to get the right paperwork approved by Chinese authorities.
"There are some improvements (on market access)," Bütikofer from the European Green Party said, but he questioned to what degree this deal increases access for all European companies — not just a handful of large corporations.
"On the level playing field the real issue is implementation," he said.
According to the European Commission, the implementation of the agreement will be monitored by top officials on both sides, and via a state-to-state dispute settlement mechanism.
But this is not good enough for Marie-Pierre Vedrenne, a French lawmaker at the European Parliament, who is worried the EU doesn't have the clout to defend its interests.
"There's a lot of proof" that China doesn't fully comply with international accords, she said. Research suggests that China has fallen behind with its commitments to its "phase one" trade deal with the U.S.
Speaking to CNBC's Street Signs on Wednesday, Jim O'Neill, chairman of the U.K. thinktank Chatham House, said: "It's quite clever, in a way, by the Chinese to have done that. Because it immediately brings the reality of China's economic size and its ongoing rise in the world economy as a bit of a spoiler for all of those who simplistically look at diplomacy in terms of how Western democracies would like it to be on a piece of paper. And this is going to be an ongoing issue."
'We need to be coherent'
Days before the investment deal was announced, European lawmakers criticized what they described as the "exploitation" of minorities by the Chinese state.
"Parliament strongly condemns the Chinese government-led system of forced labour, in particular the exploitation of Uyghur, ethnic Kazakh and Kyrgyz, and other Muslim minority groups, in factories within and outside internment camps in the Xinjiang Uyghur Autonomous Region," one of the positions stated.
Though lawmakers have made their position clear over human rights, they have argued the investment deal doesn't ask China to go further on labor conditions. The Chinese government has repeatedly denied mistreatment of Uighurs.
"I am not happy with the announcement of the deal," Samira Rafaela, a Dutch member of the European Parliament, told CNBC on Wednesday.
"At a certain point you can't just ignore the human rights violation in China," she said, adding that she will have a "hard time" voting for the deal.
European Commission President Ursula von der Leyen, meanwhile, said the deal promotes Europe's core values.
But Vedrenne also disagrees with this. "This agreement is important because China is a big player, but we need to be coherent," she said.
What about the U.S.?
The deal was announced just weeks before President-elect Biden arrives at the White House.
Some lawmakers are worried the timing is therefore not the best as it could jeopardize the relationship with the new administration.
"I think it is very important to be careful because we have now a new administration in the U.S.," Vedrenne said, adding that it is "important" that the EU doesn't become the playground for U.S.-Sino disputes.
Jake Sullivan, Biden's choice for national security advisor, suggested just days before the deal was announced that there should be "early consultations" with the EU over common concerns about China's economic policies.
The European Commission also said in early December that it wants to coordinate with the new administration on several policies including China.
"Nobody has this agreement with China," Vedrenne said, "it is a demonstration that the EU has the ability to have some agreements with key actors but I think it is very important to have a discussion with all partners."