Regulating Subsidies in the EU-China Comprehensive Agreement on Investment: Implications for Global Subsidies Reform

The use of subsidies is a major irritant in multilateral trade relations and a source of tension between China and its main trade partners. Even though subsidies can be a useful tool in response to major policy concerns, such as the Covid-19 pandemic or climate change, their use can also lead to trade conflicts when they distort trade or negatively affect foreign producers. The EU is at the forefront of efforts to reform global subsidies rules at the WTO, including in ways that directly target Chinese practices, but there are few signs of progress in the multilateral context. This chapter assesses the extent to which the EU-China Comprehensive Agreement on Investment (EU-CAI) contributes to the EU’s objectives on subsidies reform. In addition to summarising the EU-CAI agreement’s substantive content on subsidies, it inquires whether the agreement effectively addresses the EU’s concerns. These concerns relate to the extensive use of subsidies in trade-distorting ways, the lack of transparency about subsidies and the burden on governments seeking to challenge subsidies through WTO litigation or through the imposition of countervailing measures. The EU-CAI negotiations make a marginal contribution to the EU’s pursuit of its objectives for global subsidies regulation, but this low-ambition outcome is not surprising in the context of a bilateral agreement focused on investment. While there currently appears to be no realistic pathway for the entry into force of the EU-CAI, the agreement may nonetheless provide some hints about the future direction of global subsidies reform, including at the multilateral level.