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Future Retail Trade Deals: EU And China Agreement

$1.2 billion traded daily

Second to the U.S, China is Europe’s largest export trade partner and the biggest in imports. An average of over €1 billion ($1.2 billion) trades between countries on a daily basis. Though the EU-China Comprehensive Investment Agreement (CAI) is tentatively approved, it is expected to uphold major economic significance. Binding both parties into a value-based investment, grounded by sustainable development principles.

The treaty will correct the market imbalance by giving Europe the same level of market access. Encouraging and facilitating stronger foreign investments in China, creating a non-discriminatory environment for investors.

Just last month, China had also signed up to the ASEAN trade deal with 15 countries in building the Regional Comprehensive Economic Partnership (RCEP). Covering a market of over two billion people and an output of $26.2 trillion (roughly 30% of the world’s GDP). From the blocs combined, China will also leverage from this treaty in further exerting its influence across the Indo-Pacific region.

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Open Market Access and Level Playing Field

One of the core benefits coming from this trade deal is the alignment and opening up market access. Therefore, granting European companies to receive fairer treatment when competing in the Chinese market. Restrictions will be removed for EU investors and China will open up its financial services, cloud services, and logistics. China will be simultaneously be committing to Europe’s manufacturing, R&D, and the likes. The agreement helps level the playing field for European investors by enlisting clear rules. Clarification and transparency of subsidies and Chinese state-owned enterprises encourages foreign investment.

Sustainable Development

Initially, the agreement came with resistance and objections over a slew of China’s violations. Including human rights violation, restrictions in freedom of expression with regards to Hong Kong, and other concerns with surveillance and detention practices by the Communist Party. However, the deal will now uphold China to commit to high standards of conduct by eliminating forced technology transfers and distortive practices.

Future Impact

While negotiations are still confidential and awaiting approval in writing, agreements are bound. The investment agreement will assert businesses with greater certainty and predictability for the future hence improving trade. Specifically for those looking to expand to the Mainland whether through direct operations or in equity. Therefore, reducing regulatory obstacles and sensitive data sharing. Meanwhile, the treaty may also open up opportunities for Chinese corporations in outbound acquisitions. ‘Bargain deals’ from vulnerable businesses in the effect of the pandemic – of which European governments had initially blocked foreign business takeovers earlier this year.

Reinforcement of logistical routes

The trade deal also benefits China greatly in various aspects. Specifically the pandemic, owing to greater market access and cooperation prospects, strengthening ties between the two trading blocs. Case in point, Alibaba BABA -2.4% has been investing heavily into Europe in recent years. The company aims to reinforce logistic routes between China and the West in preparation for its European expansion.

Although the treaty is further holding China accountable for human rights abuses, logistical progress is in the works. Both parties are working on improving their supply chain controversies, as the issue shed light on Xinjiang’s Uyghur cotton mills. Many global fashion brands from Louis Vuitton to Nike NKE -0.1% allegedly (now denied) sourced their cotton from forced labor camps.

Lastly, arguments raised whether Europe would be at the risk of losing leverage and encouraging Chinese assertiveness. When the U.S. and Australia are currently engaged in tariff wars with China, thus challenging geopolitical relations and seen as a diplomatic coup as such.

Source: Forbes Retail

Interested in global trade and retail stores? Check out our article about Retailers betting on Bricks-and-Mortar.

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