United States: The King (Of Asian Investment Treaties) Is Dead. Long Live The King?

For U.S. companies looking to protect their investments in Asia from political and regulatory risk, one large door may have closed, but another could be opening. While U.S. domestic politics seem to have put an end to the long-heralded Trans-Pacific Partnership (TPP) and its investment protection chapter, an even farther-reaching treaty promoted by China could take its place. And even though it appears for now that the United States will not be a part of that treaty either, resourceful American businesses may be able to benefit from it nonetheless.

As President Donald Trump has made rather clear, the United States will not be part of the TPP. That, in turn, may doom the TPP itself. Japanese Prime Minister Shinzo Abe has said that the treaty would be "meaningless" without the United States. Gone with the TPP will be its Chapter 9, which guaranteed various legal protections for companies from TPP member states (such as the United States) who invested in other member states (such as Japan, Malaysia and Vietnam), as well as the ability to enforce those rights through international arbitration.

What will take TPP's place for global companies seeking to protect their investments in Asia? One possibility is the Regional Comprehensive Economic Partnership (RCEP), a multilateral trade agreement spearheaded by China that would include the 10 member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and the six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand). Negotiation of the RCEP began in 2012, with the aim of providing an alternative to the TPP. In fact, the scope of its coverage would be even greater than that of the TPP, potentially including more than 3 billion people (45 percent of the world's population), and a combined GDP of about $21.3 trillion, accounting for about 40 percent of world trade.

The text of the RCEP has not been published. Nonetheless, in April 2016, the negotiating text of a draft investment chapter of the treaty was leaked. The draft contains many of the common terms of investment treaties, including provisions on expropriation, nondiscrimination and other international law standards. In addition, the draft chapter provides for investor-state dispute settlement, including ICSID or UNCITRAL arbitration. If RCEP is ultimately enacted with those provisions included, it will have the broadest coverage of any investment treaty and could redefine the scope of legal protection for foreign investment within Asia.

It looks unlikely (to say the least) that the United States will either seek involvement in or be invited to join the RCEP in the near future. The same is likely true of the major European economic powers. Does that mean that companies from those countries will be shut out from the benefits of the RCEP's investment chapter, if it takes effect?

Not necessarily. The draft RCEP investment chapter provides that its protections are available to an "investor of a Party," which is defined to include a "juridical person" or "enterprise" of an RCEP member state that makes an investment in another RCEP state. What is a "juridical person" or "enterprise" of an RCEP state? The various negotiating states have proposed different definitions, but it appears that they may include "any entity" that is "constituted" or "organized" under the law of an RCEP state, including a corporation, trust, partnership, joint venture, sole proprietorship, association or branch, provided it carries out business activities in that state.

Thus, even a company from a non-RCEP member state (like the United States) could potentially gain protections under the RCEP by structuring its investment through an entity operating in an RCEP state. For example, a U.S. company with an operating subsidiary, joint venture or branch in Japan could invest in China through that Japanese entity, and the investment would then be covered under the treaty. If China then nationalized the investment, or discriminated against it and in favor of local competitors, or otherwise violated its rights under the RCEP, the Japanese entity could then initiate arbitration proceedings for monetary damages against the Chinese government. This approach could similarly be used with subsidiaries or branches in Singapore, Australia or other RCEP members, and would allow protection of investments in all other members, including not only China but also others such as India or Indonesia.

Some caveats are necessary. At least one negotiating state has proposed limiting coverage to business entities that have "substantial business activities" in the RCEP state whose nationality it claims, while another passage of the draft text indicates that the treaty will include a "denial of benefits" clause common to investment treaties. Those provisions could mean that a company seeking to gain treaty protection cannot structure its investments through a shell company, but instead must ensure that the investment vehicle has at least some genuine business presence in the country where it is based, including an office, employees and some degree of regular activity. That could create regulatory, tax and operational concerns in the country at issue. The type of structuring required would depend on the treaty text ultimately adopted.

The RCEP's potential to displace the TPP, and China's central place in that process, highlights the striking shift in roles among the world's economic powers. While until recently the United States was a leading champion of globalization, and particularly strong protections for foreign investment, it now appears that China may be taking its place. Recent statements by its senior officials have highlighted this point. While the steady and vast expansion of China's own overseas investments explains its side of the equation, the dramatic backlash against globalization on the U.S. side is a fairly sudden phenomenon.

Interestingly, another investment treaty, far less heralded than the TPP or the RCEP, remains under direct discussion between the United States and China, at least for now. The U.S.-China Bilateral Investment Treaty, if promulgated with terms similar to those in other U.S. treaties, could in some ways be even more consequential than the investment chapters of the TPP or the RCEP. In March 2016, former Chinese Commerce Minister Chen Deming announced that negotiations on the U.S.-China Bilateral Investment Treaty, underway for years, were nearly completed. Officials noted further developments over the summer and again in the fall of 2016. That, however, was before the U.S. election. Although President Trump has not publicly commented on the treaty, he has said that he intends to pursue bilateral trade agreements with other states, including the would-be members of the TPP. Whether that will also include China remains to be seen.

In the meantime, there are other, albeit more limited, options for treaty protection as to investments in China, India and other major Asian markets. China has in recent years signed modern and rather robust investment treaties with various states, including Canada, Germany, France, Switzerland and the Netherlands, which provide for enforcement through arbitration and allow for the possibility of structuring investments through offshore entities in order to gain coverage. India, too, has increasingly entered into investment treaties with a number of major developed states that allow for structuring to gain protection. Options (although fewer) exist for other Asian states (such as Indonesia, Malaysia and Vietnam) as well.

The United States' movement toward economic nationalism may complicate global companies' plans in a number of ways. But with a bit of creativity, firms can still benefit from investment protections afforded by existing treaties, and by the work of those states now seeking to fill the gap U.S. policy has left behind.

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 Mondaq.com.

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

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

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 by clicking here .

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 unsubscribe@mondaq.com 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.


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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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