At the most recent US-China Strategic and Economic Dialogue
(S&ED) in July 2013 (the ninth round of "technical"
discussions since talks resumed in 2008), the United States and
China achieved a breakthrough on the negotiation of a high-standard
US-China bilateral investment treaty (BIT). The two governments
agreed to move from "technical discussions" to
"substantive BIT negotiations," which are expected to
proceed this fall. Additionally, China conceded on two key elements
that increase the likelihood that a future BIT will be meaningful
to US investors.
First, China agreed that, under the BIT, US investors seeking to
enter China will be treated no less favorably than Chinese
investors seeking to establish businesses in China (subject to
negotiated exceptions)—meaning that, in theory, unique
restrictions on foreign investors in China should be greatly
diminished. Second, China agreed to negotiate the BIT on a
"negative list" approach—such that
non-discrimination and other protections of the BIT will apply to
all sectors, unless China negotiates exceptions.1 These
concessions represent an important departure from China's
existing BITs (which number more than 100).
Underscoring the significance of this development, US Treasury
Secretary Jacob Lew remarked at the end of the S&ED: "The
commitment made today stands to be a significant breakthrough and
marks the first time China has agreed to negotiate a Bilateral
Investment Treaty, to include all sectors and stages of investment,
with another country."2
The concessions by China, and the apparent renewed commitment by
both governments to negotiate an agreement, are significant for US
and other multinational businesses—both those seeking to
invest in China and those with existing investments.
First, China is committing to engage in a significant negotiation
to further open sectors of its economy to US investors, including
through elimination or relaxing of investment approval
mechanisms. This will provide one of the most significant
opportunities to improve market access for US companies in China
since China's negotiations to join the World Trade Organization
(WTO) in the late 1990s.
Second, the negotiations offer the possibility of addressing
difficult issues that were imperfectly resolved by China's WTO
accession—including China's preferential treatment of its
state-owned enterprises, "performance" requirements such
as technology transfer requirements mandated by national or local
Chinese authorities, and newer issues such as cross-border data
flows.
Third, while difficult negotiations lie ahead, there are now more
concrete prospects for concluding a BIT in the foreseeable
future—offering US investors an additional tool to resist
inappropriate government action in China, including remedies such
as investor-State dispute settlement. (Companies that are
incorporated in, or have subsidiaries incorporated in, states that
already have BITs with China—e.g., various EU Member
States—may be able to invoke investor-State dispute
mechanisms under those BITs, but such BITs are more limited than
what the United States is likely to negotiate.3)
Finally, the Chinese government's recent concessions demonstrate its own affirmative interest in obtaining increased protections for Chinese investments in the United States—underscoring its concern about negative reactions to Chinese investments in the US and recent high-profile transactions that failed to achieve approval by the US government on national security grounds. As China's Vice Premier Wang Yang characterized the BIT breakthrough at the S&ED talks, "The United States pledges to welcome investment from China, including investment of [state-owned enterprises] and sovereign wealth funds. [The] U.S. side also pledged that [Committee on Foreign Investment in the United States (CFIUS)] security review will only...be based on national security rather than other factors."4 Given China's own interests in concluding a BIT, the United States may have better prospects for negotiating positive outcomes than it does in other fora with China.
While the July S&ED meetings represent an important breakthrough in the negotiation of a US-China BIT, many important points remain open for negotiation, which could take many months (or years) to resolve. Among others, those issues include:
- negotiating which sectors will receive greater or lesser coverage under the BIT—by negotiating the scope of the "negative list" exceptions;
- negotiating provisions that specifically protect investments against actions by state-owned enterprises and other state mechanisms of influence;
- negotiating additional protections against performance requirements (such as forced technology transfer), which have often been imposed on US investors in China; and
- negotiating any provisions that directly or indirectly restrict a state's ability to violate BIT commitments where it claims national security is at stake.
1 In a different context, China's recent announcement of the Shanghai Free Trade Zone includes a negative list concept.
2 US Department of Treasury, U.S. and China Agree to Negotiate a Breakthrough Investment Treaty, http://www.treasury.gov/press-center/news/Pages/U.S.-and-China-Agree-to-Negotiate-a-Breakthrough-Investment-Treaty.aspx.
3 At the same time as these important developments on a US-China BIT, the EU and China are also preparing to begin their own BIT talks, following agreement at the 14th EU-China Summit in 2012. European Commission, Commission Proposes to Open Negotiations for an Investment Agreement with China, May 23, 2013, http://europa.eu/rapid/press-release_IP-13-458_en.htm. This agreement with the EU would presumably replace the existing BITs between individual EU Member States and China.
4 US Department of State, The U.S.-China Closing Statements for U.S.-China Strategic and Economic Dialogue, http://www.state.gov/s/d/2013/211850.htm.
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