The EU-China Comprehensive Agreement on Investments – Promoting Sustainable Business and Human Rights through Investment Arbitration

Print Friendly, PDF & Email

AuthorVanessa Tsang*

European Union
Comprehensive Agreement on Investments

On 30 December 2020,[1] the EU and China, two of the world’s largest economies, finally concluded the Comprehensive Agreement on Investments (CAI),[2] ending the long negotiations which began in 2013.[3] As shown below, there is a prospect that the CAI will promote labor rights and rights related to environmental protection by encouraging sustainable business practices. The dispute settlement mechanism provided in the CAI will help to enforce these commitments.


The CAI has dedicated a chapter codifying the Parties’ commitments to promoting sustainable development in Section IV, with specific references to improving labor rights and the environment.[4] Section IV recognizes States’ right to regulate environmental and labor matters.[5] According to the CAI, the Parties are committed to promoting corporate social responsibilities (CSRs),[6] taking into account relevant international guidelines and principles,[7] such as the UN Guiding Principles on Business and Human Rights (UNGPs).[8] Principle 9 of UNGPs provides that States should “maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises . . . through investment treaties or contracts.”[9] Accordingly, Parties to the CAI should strive to ensure its laws and policies encourage a high level of protection for the environment and labor.[10]

With regards to labor protection, Article 4(2) of Sub-Section 3 of Section IV says that Parties will make “continued and sustained” efforts to ratify the International Labour Organization (ILO) Conventions on forced labor,[11] which China has yet to ratify.[12] This article may set the ball rolling to give the EU the legal grounds to urge China to realize its promises to promote labor rights. In the past, the EU has raised similar claims against South Korea. For instance, the panel formed under the Trade and Sustainable Development Chapter of the EU-Korea trade agreement found that South Korea had breached its labor commitments under the agreement.[13] In Southeast Asia, Vietnam agreed to ratify the ILO conventions when signing the EU-Vietnam trade and investment agreement.[14]

With regards to environmental protection, the CAI reinforced the Parties’ commitments to combating climate change.[15] The linkages between climate change and human rights are recognized in the Preamble of the Paris Agreement.[16] Climate change will negatively impact the human rights to life, freedom, physical security, health, and safety.[17] These threats can come from extreme weather events, such as heatwaves, drought, floods, more frequent formations of tropical cyclones, coastal flooding, wildfire, excessive rainfall, etc.[18] At present, China is the world’s largest greenhouse gas (GHG) emitter, contributing around 26.1% of the world’s GHG.[19] The EU is also among the top GHG emitters, contributing around 7.5% of the world’s GHG. Hence, it will be significant to reinforce the Parties’ climate change commitments in the CAI. In doing so, the CAI may improve human rights through climate change regulations and potentially extend the benefit to the international community as a whole.


In the CAI, the relevant clause on CSRs, Article 2 of Sub-Section 1 of Section IV (the “CSR Clause”), stipulates that “[e]ach Party agrees to promote responsible business practices[.]”[20] Applying Article 31 of the Vienna Convention on the Law of Treaties, it is argued that the interpretation of this CSR Clause may impose a positive duty on the Parties to formulate and implement laws and policies to promote CSR. This reading of the CSR Clause will be consistent with sub-article 1 of the same CSR Clause, which says that “[t]he Parties recognise the important contribution of Corporate Social Responsibility . . . to strengthening investment’s positive role in sustainable growth, and in this way contributing to the objectives of this Agreement.”[21] The Preamble of the CAI states that the Parties are “[d]etermined . . . to promote investment in a manner supporting high levels of environmental and labour rights’ protection[.]”[22] The relevant clauses on environmental and labor protection in Section IV specifically mention that “laws and policies” should be provided for in this respect.[23] The use of the words “high levels” entails that it may not be adequate if the Parties only afford some level of environmental or labor protections, but it needs to be comprehensive and implemented with considerable force.

At the domestic level, parties to the CAI can promote CSRs through legislation, such as in areas concerning the fundamental rights to health and clean water.[24] For instance, China has enacted the General Provisions of Civil Law (GPCL) since 2017. Article 9 of the GPCL provides that private actors shall contribute to resource conservation and environmental protection in civil activities.[25] In the future, it is foreseen that there will be more local laws and provisions obliging investors, especially those who establish greenfield investments in China, to take on the external costs they created during the production process.


Investment treaties usually confer rights and benefits for investors. However, jurisprudence shows that an investor may also bear the risk of being counterclaimed by States for violating environmental and human rights standards. For instance, the Tribunal in Urbaser v. Argentina confirmed the Tribunal’s jurisdiction to hear a counterclaim raised by a State against foreign investors for breaching environmental and human rights standards.[26] The Tribunal held that corporations could be subjects of international law[27] after considering the corporation’s specific activities relating to the human rights at issue and international conventions,[28] such as the UDHR.[29] Similarly, the Tribunal in Aven v. Costa Rica found that the fact that the North American Free Trade Agreement requires investors to comply with the host State’s environmental standards, in principle, enables counterclaims raised by States for breaching national measures.[30]

In comparison, the EU-China CAI provides a state-to-state dispute settlement (SSDS) mechanism in Section V, as opposed to an investor-state dispute settlement (ISDS), which will be set up to resolve any dispute arising out of the CAI.[31] This stands in contrast to the approach provided in the EU’s investment agreements with Canada,[32]Singapore[33] and Vietnam,[34] which all provide for ISDS. Investors who believe that the CAI has been breached may have to lobby with China or the EU to take on their cases against the other contracting party.

The SSDS provided for in the CAI will allow States first to resolve the dispute through the diplomatic channel. Like the World Trade Organization, the SSDS starts with the consultation phase, followed by recourse to an independent arbitration panel.[35] After the arbitration, States may agree on the terms of compliance and remedial measures.[36]Compensation may not necessarily be the dispute’s outcome, but various measures may include retaliation. Before that, Article 4 of Sub-Section 1 of Section IV provides a working group to follow and allow Parties to raise problems regarding implementing sustainable development matters, such as climate change and labor.[37] Lastly, Article 19(1) of Section V provides that the hearings be open to the public.[38] Non-parties may also submit amicus curiae briefs under Article 19(2) of Section V. This article will enhance the enforcement of the Parties’ sustainability commitments through the monitoring by NGOs and other interested parties.


Whether the Parties will use the CAI to promote change in human rights practice is still an open question, which might not be answered until the enforcement of the agreement and the negotiation on the final terms for investment protection. In a positive light, the CAI will, in principle, promote labor rights and rights related to environmental protection through imposing sustainable business practices.

[1] EU and China reach agreement in principle on investment, Eur. Comm’n (Dec. 30, 2020),

[2] Comprehensive Agreement on Investment, E.U.-China, not yet signed, [hereinafter CAI].

[3] EU investment negotiations with China and ASEAN, Eur. Comm’n (Oct. 18, 2013),

[4] CAI, supra note 1, § IV.

[5] Id., §§ IV(2) art. 1, IV(3) art 1.

[6] Id., § IV(1) art. 2(2).

[7] Id.

[8] U.N. Office of the High Commissioner for Human Rights, Guiding Principles on Business and Human Rights (June 16, 2011), [hereinafter UNGPs]. The UNGPs, as endorsed by the Human Rights Council in 2011, is an important international instrument, codifying States’ commitments in promoting corporate social responsibilities in domestic states. G.A. Res. 17/4 (July 6, 2011).

[9] Id., Principle 9.

[10] CAI, supra note 1, §§ IV(2) art. 2(1), IV(3) art. 2(1).

[11] Id., § IV(3) art. 4(2).

[12] Int’l Lab. Org. (ILO), Ratifications of C029 – Forced Labour Convention, 1930 (No. 29), (last visited Feb. 6, 2021); ILO, Ratifications of C105 – Abolition of Forced Labour Convention, 1957 (No. 105), (last visited Feb. 6, 2021).

[13] Panel Report, Panel of Experts Proceeding Constituted Under Article 13.15 of the EU-Korea Free Trade Agreement, pp. 78-79 (Jan. 20, 2021), See Panel of experts confirms Republic of Korea is in breach of labour commitments under our trade agreement, Eur. Comm’n (Jan. 25, 2021),

[14] EU set to sign trade and investment agreements with Vietnam on Sunday, Eur. Comm’n (June 25, 2019),

[15] CAI, supra note 1, § IV(2) art. 6.

[16] Paris Agreement, preamble, Dec. 12, 2015, T.I.A.S. No. 16-1104 (“Acknowledging that climate change is a common concern of humankind, Parties should, when taking action to address climate change, respect, promote and consider their respective obligations on human rights, the right to health, the rights of indigenous peoples, local communities, migrants, children, persons with disabilities and people in vulnerable situations and the right to development, as well as gender equality, empowerment of women and intergenerational equity[.]”).

[17] Intergovernmental Panel on Climate Change, Changes in impacts of climate extremes: human systems and ecosystems, in Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation 231-290 (C.B. Field et al. eds., 2012).

[18] Id.

[19] This Interactive Chart Shows Changes in the World’s Top 10 Emitters, World’s Resources Institute (Dec. 10, 2020), (last visited Feb. 17, 2021).

[20] CAI, supra note 1 § IV(1) art. 2(2).

[21] Id., § IV(1) art. 2(1).

[22] Id., Preamble.

[23] Id., §§ IV(2) art. 2(1), IV(3) art. 2(1).

[24] Health right is regarded as a fundamental human right that is indispensable for exercising other human rights. U.N. Office of the High Commission for Human Rights, CESCR General Comment No. 14: The Right to the Highest Attainable Standard of Health (Art. 12), U.N. Doc. E/C.12/2000/14 (Aug. 11, 2000).

[25] General Provisions of the Civil Law (promulgated by Nat’l People’s Cong., Mar. 15, 2017, effective Oct. 1, 2017), art. 9,

[26] Urbaser v. Argentina, ICSID Case No. ARB/07/26, Award ¶ 1153 (Dec. 8, 2016),

[27] Id., ¶¶ 1194-95.

[28] Id., ¶ 1195.

[29] Id., ¶¶ 1196-97.

[30] Aven v. Republic of Costa Rica, Case No. UNCT/15/3, Award ¶¶ 739-42 (UNCITRAL 2018),

[31] CAI, supra note 1, § V.

[32] See Comprehensive and Economic Trade Agreement, art. 8.18-.45, Oct. 30, 2016,

[33] See Investment Protection Agreement, E.U.-Sing., art. 4.1-.19, Oct. 15, 2018,—singapore-investment-protection-agreement-2018- .

[34] See Investment Protection Agreement, E.U.-Viet., art. 4.1-.22, June 30, 2019,

[35] CAI, supra note 1, § V art. 3(2).

[36] Id., § V arts. 16-17.

[37] Id., § IV(1) art. 4 (“The Parties recognise the importance of reviewing, monitoring and assessing the impact of the implementation of this Agreement on sustainable development through their respective processes and institutions.”).

[38] Id., § V art. 19(1).

* Vanessa Tsang is an LL.M. candidate at Columbia Law School. She specializes in international law and international arbitration studies. She also serves as an LL.M. Editor at The American Review of International Arbitration. Before that, Vanessa was a Local Pathways Fellow with the United Nations Sustainable Development Solutions Network. Vanessa is a holder of a J.D. degree at The University of Hong Kong.