2021.03.29 ZHANG, Yue (Brett)
On March 12, 2021, the European Commission published the market access annexes to the EU-China Comprehensive Agreement on Investment (the “CAI”). The annexes contain the Schedule of the European Union and the Schedule of China. According to the Schedule of China, EU investors can enjoy more preferential treatment regarding market access in the telecommunications sector.
I. Background
The CAI is a comprehensive, reciprocal and in-depth agreement between China and the EU regarding cross-border investment activities. It aims to establish a unified legal framework for cross-border investments between China and the EU and will replace the existing bilateral investment treaties between China and the 26 member states of the EU.
The CAI focuses on promoting the liberalization and convenience of cross-border investments. It covers the following core areas: (1) market access commitments; (2) fair competition rules; (3) sustainable development; and (4) dispute settlement.
The negotiation of the CAI began in 2013 and was eventually completed on December 30, 2020 following 35 rounds of negotiations over seven years. On January 22, 2021, the European Commission published the text of the CAI version as concluded at the end of the negotiation, followed by the text of the China Schedule on March 12, 2021.
It should be noted that the published texts of the CAI and the China Schedule are by no means the final signed versions. According to the arrangement of the parties, the parties will carry out the legal review, translation and other proofreading/wording work on the CAI as soon as possible in order to finalize the executable version for the parties to sign. It will come into force once the parties have approved the executed versions by their respective internal laws.
II. Market Access and Shareholding Limits
According to Entry 12 - Telecommunication Service in the China Schedule, China has made the following commitments in relation to foreign investment in the telecommunications sector on top of the current PRC legal framework:
1. EU investors may invest in Internet Data Center Services (including Content Delivery Networks) with up to 50% shareholding
This is the highlight of the CAI. According to the current PRC foreign investment policy, Internet Data Center Services (commonly known as cloud services) and Content Delivery Network Services (commonly known as CDN services) are value-added telecommunication services only open to qualified Hong Kong and Macau investors (i.e., CEPA investors). There are no exceptions, even in the Pilot Free Trade Zones. Once the CAI comes into force, EU investors will enjoy the same treatment as CEPA investors when investing in Internet Data Centers and Content Delivery Networks.
2. Foreign investors may not invest in Internet Access Services in general, but can provide Internet Access Services to users of the internet for browsing purposes.
This is consistent with the current foreign investment policy implemented in the Pilot Free Trade Zones.
3. EU investors may invest in International Communication Facility Services, Satellite Communication Services, Cluster Communication Services, Network Access Facilities Services, Network Trusteeship Services, Domestic Communication Facilities Services, Fixed Communication Services, Cellular Mobile Communication Services, Data Communication Services or IP Telephone Services with up to 49% shareholding
This goes beyond the existing scope of the types of the basic telecommunication services that China has promised to open up to investors from the WTO member states in its accession to the WTO. It includes services that are not explicitly covered by the PRC WTO commitments, such as International Communication Facility Services and Satellite Communication Services.
4. EU investors may invest in Online Data Processing and Transaction Processing Services (not including E-commerce) and Code and Protocol Conversion Services with up to 50% shareholding
Again, this is consistent with current foreign investment policy implemented nationwide in the PRC.
5. EU investors may invest in Domestic Internet Virtual Private Network Services with up to 50% shareholding.
Again, this is consistent with the current foreign investment policy implemented in the Pilot Free Trade Zones.
III. Our Comments
The CAI has reached an unprecedented level of market openness in relation to EU investments in the telecommunications sector. It consolidates and, in several areas, outpaces all existing applicable policies, both nationwide and in the Pilot Free Trade Zones. After the CAI is officially signed and comes into effect, EU investors will have virtually the same conditions as CEPA investors. This marks a brand-new opportunity for potential EU investors to enter the Chinese telecommunications market.
At the same time, we also recommend paying attention to the following issues in the future:
（1）At present, the text contained in the CAI and the China Schedule are not the final signed version. Following execution, the parties will need to fulfill their respective internal approval procedures to become effective and binding. Therefore, EU potential investors may need to monitor any future adjustments on the CAI text and the resultant implications.
（2）As common practice, to implement any of the special market access policies for telecommunication services, the Ministry of Industry and Information Technology ("MIIT") usually issues a separate guideline to clarify the relevant conditions, requirements and procedures. Therefore, if potential EU investors want to enjoy the CAI treatments to carry out investment activities, they may need to follow specific requirements as may be prescribed in future MIIT guidelines.
（3）The CAI only provides a simple definition of EU investors, that is, “Investor of a Party” (either a natural person or an enterprise). But it does not require other qualifications that EU investors need to meet. For the purpose of preventing other non-EU investors from “forum shopping” the CAI treatments by setting up shell companies in EU countries, the PRC government may further set out additional qualifications for EU investors. Therefore, potential EU investors may need to watch for such qualifications as may be proposed by the PRC government and evaluate how difficult such conditions can be met.
