China-US Bilateral Investment Treaty Prospects

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　　The agreed resumption of China-US Bilateral¹ Investment Treaty, or BIT, is being cited as the most significant outcome of the recently concluded China-US Strategic and Economic Dialogue.

 

　　Whilst some experts are optimistic about the outcomes, some remain skeptical² due to the drastic differences between the two sides economic policies.

 

　　CRI's Lucy Du has more.

 

　　The future negotiations³ will cover six major areas, including performance requirements, labour and environment standards, investor⁴-state dispute settlement, national treatment, non-conforming measures and sectoral⁵ restrictions⁶.

 

　　A major breakthrough was achieved last week when the two sides agreed upon the Pre-establishment National Treatment or PENT with a "negative list" approach. The PENT grants foreign investors⁷ national treatment in the pre-establishment phase of business.

 

　　This is a major move for China, who has previously⁸ limited its agreements to post-establishment national treatment. The "negative list" approach also signals China's widening of FDI activities protected by national treatment status.

 

　　He WeiWen is the co-director at the China-US Study Centre and former Counsellor at Chinese Consulate⁹ General in New York. Whilst welcoming the agreement, he stresses the importance of symmetrical attitudes.

 

　　"I have to mention that PENT and negative list are reciprocal. It does not apply to China only but to the US as well. For example, there is the recent case of Shuanghui's acquisition of Smithfield, and there is much cry in the US over worries about the fate of pork production. And in this case we should say is pork production on a negative list? If not it means that the pre-establishment of the Chinese company has the right to make an investment".

 

　　He believes that aside from the PENT and negative list, other issues are insignificant¹⁰. This view is not shared by all.

 

　　Meric Sar is an arbitration¹¹ attorney and BIT researcher at Georgetown University. He argues that the government would not look over any area of contention¹² given the inherent cost of entering into a BIT.

 

　　"A BIT forsees a self contained legal mechanism¹³ where an investor can sue the whole State by circumventing¹⁴ the local courts. States tend to not like this. To give the autonomy and power to an arbitral tribunal to decide on State is something sovereign States choose to do only if it pays off."

 

　　An effective BIT needs to protect FDIs while allowing each country to retain their respective public policy prerogative¹⁵.

 

　　"For every businessman, every regulation is an interference to business and it brings certain costs. Contemporary BITs try to bring coverage¹⁶ over regulations and try to pull governments to act in a more transparent¹⁷ way. However as I said this is an experiment and what is reached will give shape to future BITs with more substantive¹⁸ protections."

 

　　Over the last half century BITs have become the key legal mechanism for fostering and governing cross-border direct investment.

 

　　The latest figures show China's FDI rose by 4.9% year on year, amounting to nearly 62 billion U.S. dollars, for the 1st half of 2013. For the same period, Chinese outflowing FDI rose 29 percent year on year to 45.6 billion U.S. dollars.

 

　　Meanwhile, the US has long been the world's largest host and investor. The negotiations has been marked out as the most important in recent history, with many hoping that it will usher¹⁹ in a new global template for future multilateral investment agreements.

 

　　For CRI, I am Lucy Du.

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