China: The EU – China bilateral investment treaty (BIT)

Last Updated: 6 May 2015
Article by Ramón García-Gallardo and Xiao Jin

More than five years after the United States ("U.S.") and China agreed to start negotiations of a bilateral investment treaty ("BIT"), the launch of the negotiations between the European Union ("E.U.") and China towards a BIT was announced at the Sixteenth China-E.U. Summit held in Beijing on 21 November 2013.

1. Why the E.U. and China Need a BIT

Despite the value of trade flows of goods and services between the E.U. and China exceeds E.U.€1 billion every day. Investment between the E.U. and China – although growing considerably over the past two decades – shows great potential. China accounts for less than 5% of European investments abroad, whereas foreign direct investment ("FDI") from China represents less than 3% of the total FDI inflows into the E.U. Both the E.U. and China hope that with this comprehensive BIT, together with the domestic economic reforms in China and the E.U.´s efforts to overcome the financial crisis will alleviate the clear discrepancy between the levels of trade and investment and will give a new impetus to the existent mutually beneficial cooperation.

The E.U.-China treaty will be the E.U.'s first ever standalone investment agreement since FDI became its exclusive competence under the Lisbon Treaty in 2009. Once it enters into force, the new agreement will streamline the existing BITs between China and 27 of the 28 E.U. Member States (all, except Ireland). These agreements, which are differing from one another in certain specific content, were signed during the 1980s and 1990s and are no longer compatible with the current investments levels, the economic reality in countries, their domestic interests and their status in the international arena.

From the E.U. perspective, a recent report highlights that barriers to European investors in China exist at all levels and in different forms. Problems such as obligations to set up joint ventures with local partners, mandatory transfer of technology and local content requirements negatively accentuate the lack of a predictable and secure economic environment affecting existing and prospective investors. There are problems that cannot be solved by the current BITs between the E.U. Member States and China.

Similarly, from a Chinese perspective, the aforementioned BITs reflect mainly European interests at a moment when China's economic development was lagging behind and the country was desperately seeking to boost FDI. They are also seen as an inadequate tool to reduce the increasing protectionist sentiment against Chinese investment in Europe.

Furthermore, the Government of China seems to be using the negotiations with the U.S. and the E.U. to consolidate the opening of its domestic markets to greater competition and import international standards into its legal system.

2. Main Provisions

With this new BIT, the E.U. and China intend to address the following issues in a comprehensive manner:

  1. To improve the legal certainty for investors in the host country;
  2. To expand the existing standards of protection of investment;
  3. To reduce barriers for investors when investing in the host country; and
  4. To increase the flow of FDI between them.

While still unknown at this stage, it is likely that both parties intend to achieve those goals by inserting a number of provisions that will make the E.U.-China BIT compelling to foreign investors:

2.1. Non-discrimination

The non-discrimination principle constitutes a cornerstone in different fields, specifically international economic law and investment. The principle is split into two variants: the national treatment ("NT") and the most favored nation ("MFN") clauses.

On one hand, NT is the essential standard that the E.U. and China will grant to ensure equal competitive opportunities to foreign investors behind their borders, by extending foreign investors treatment as favorable as that accorded to national investors in like circumstances. On the other hand, under the MFN clause, both parties will extend to those investors and investments covered by the BIT, treatment which is no less favorable than that which they could accord to foreign investors of any third country.

The MFN and NT clauses in the E.U.-China BIT are also likely to cover the pre-establishment phase of the investment by conferring rights on the investor both at the moment when the investment will be effectively materializing and prior to that stage.

The above obligations are expected to apply to all sectors and sub-sectors, which means that no existing or future measures may discriminate against the investor against another foreigner, unless China or the E.U. introduce specific reservations in connection with market access (see sub-section 2.7.). In this sense, from the investors' perspective, the conditions to entry will be more transparent and predictable, as the regime will be regulated by the agreement itself and not subject to changes by both Parties.

2.2. Treatment of Investors

The obligation to (a) accord fair and equitable treatment, and (b) provide full protection and security of investments appear in the great majority of agreements involving investment issues. Both concepts, specifically that of fair and equitable treatment, have been broadly interpreted by arbitral tribunals. As a result, in order to balance the State's public policy space and the investor's legitimate expectations, the E.U. and China will most probably include a list of scenarios under which host countries are allowed to adopt policies that are not necessarily in line with the aforementioned principles.

2.3. Expropriation

To date, virtually all BITs in force contain a clause on expropriation. Given that direct expropriation – a mandatory legal transfer of the title to the property or its outright physical seizure – is today very rare, the agreement between the E.U. and China will mainly focus on the regulation of the notion of indirect expropriation.

Like in the E.U.-Canada Comprehensive Trade and Economic Agreement ("CETA") and the U.S. BIT Model of 2012 – the one followed in the U.S.-China BIT negotiations, the E.U.-China BIT is expected to add an Annex enclosing a definition of "indirect expropriation", which involves total or near-total deprivation of the investor's fundamental attributes of property in its investment, including the right to use, enjoy and dispose of it, without formal transfer of title or outright seizure.

The concept of expropriation is being examined in a dispute (relating to the nationalization of the investor's shareholding in Fortis in the aftermath of the 2008 global financial crisis) involving a Chinese investor, Ping An, and Belgium under the Belgium-China BIT.

2.4. Other Provisions

Other relevant provisions for the protection of investors are likely to be included under the E.U.-China BIT:

  • The transfer of funds into or out of the country, without delay, at a market rate of exchange;
  • The abolition of performance requirements;
  • The elimination of restrictions on the appointment of senior management of the board of directors; and
  • The subrogation by insurance or other third-party companies.

Finally, the E.U. is willing to impose a fair level playing field to all State-owned companies that could play a part in the implementation of the agreement. However, the actual mechanism to complement this policy is unknown and remains subject to negotiation.

2.5. Dispute Settlement

While European and Chinese investors could resort to the domestic judiciary with any concerns they may have or to make good any damage suffered, this may not always guarantee that they will be adequately protected. As a result, the E.U. BIT will provide for some type of international dispute-settlement mechanism to enforce its rules and resolve disputes brought by either the affected country or private parties (the so-called Investor-State Dispute Settlement or "ISDS").

Typically, ISDS is only permitted when the claimant can prove that there has been a breach of one of the investment protection obligations – among others, non-discrimination, and fair and equitable treatment or expropriation – which has resulted in loss or damage. The arbitration rules to be applied in the E.U.-China BIT should be those of ICSID or its Additional Facility, the United Nations Commission on International Trade Law ("UNCITRAL") or another body or set of rules agreed between the parties to the dispute. Before a claim will be submitted to an arbitration tribunal, however, the investor and the challenged state will be expected to seek amicable settlement, through a pre-defined procedure and within a set time frame. Only when the dispute could not be resolved through consultation, the investor could submit a claim to an international arbitration tribunal.

Nonetheless, the ISDS mechanism remains a controversial issue currently attracting great criticism in connection with negotiations leading to international agreements with investment protection clauses. It is expected then that, following the trend initiated by the E.U.-Canada CETA, the BIT will bring a number of innovative ISDS-related elements.

First of all, ISDS will be bound by conditions for full transparency: all documents submitted by the parties as well as those produced by the arbitral tribunals will be publically available on a website; all hearings will be open to the public and their transcripts published; and interested parties, such as NGOs and trade unions, will be able to make submissions.

Other particular features to be brought within the E.U.- China BIT in this regard are, for example, that an investor will not be entitled to bring multiple claims against the host country; an ISDS tribunal will be prohibited from ordering the reversal of domestic laws; a list of internationally recognized and pre-determined arbitrators will be established; a system will be inserted to prevent frivolous or unfounded claims being submitted by private parties; costs will be borne by the unsuccessful party; claims by shell companies will not be permitted; and, interestingly, an appellate mechanism for the reversal or annulment of arbitral tribunals' awards is foreseen.

2.6. Right to Regulate

Also, the BIT between the E.U. and China will not be allowed to jeopardize the ability of host states to regulate FDI in the public interest. Strong additional guarantees, in the lines of the E.U.-Canada CETA, will be introduced to make sure that the investment protection provisions fully preserve the right of governments to regulate and implement public policy objectives and avoid any abuse of these rules, either with the negotiation of a general exception clause or by the insertion of exceptions in each clause.

2.7. Market Access

The E.U. and China BIT will also provide for market access in certain sectors. The more open attitude towards foreign investments shown by the Chinese government and the E.U.'s willingness may lead to the acceptance of an enhanced market access on the basis of a "negative list" approach. With this "negative list" there is a general obligation from which a country can "opt-out" certain sectors or sub-sectors from the application of some of the clauses or principles found in the agreement, such as MFN or NT.

As a result, China and the E.U. would be legally bound to open their markets unless they list the sectors considered to be sensitive. Thus, in principle, all sectors would be open to foreign investment except for those specifically in the agreement. For example, one of the sectors which s expected to be excluded from any provisions granting access to E.U. and Chinese markets is audiovisual.

3. Road Ahead: Level Playing Field

Both parties' aim to complete the negotiations no later than two and a half years after the first round of negotiations took place in Beijing on 21-23 January 2014. So far, there have been three rounds of negotiations (in addition to the first one on 21-23 January 2014 in Beijing, a second round took place in Brussels on 24-25 March 2014 and a third one in Beijing on 17-19 June 2014) between both countries.

The E.U.-China BIT is important as it will bring benefits to the economic operators of both sides and is considered a stepping-stone for a future free trade agreement between both countries. Also, together with the other major agreements being presently negotiated, such as the E.U.- U.S. TTIP or the China-U.S. BIT, this agreement will be a milestone in achieving a global framework on investment policy covering the majority of worldwide investment flows.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions