China: Negotiations for the EU—China Bilateral Investment Treaty for trade and investment

Last Updated: 25 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.

  1. Main Provisions

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

  • To improve the legal certainty for investors in the host country;
  • To expand the existing standards of protection of investment;
  • To reduce barriers for investors when investing in the host country; and
  • 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 is expected to be excluded from any provisions granting access to E.U. and Chinese markets is audiovisual.

  1. 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”

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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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