Wait a second! China just agreed to negotiate on the basis of the US model BIT

Two weeks ago China and the US announced that they will restart the negotiations for a bilateral investment treaty, BIT for short. This may come as no surprise as the talks proceeded for years on a “technical level” due to the fact that the US side underwent a major review of its BIT practice. With the 2012 model BIT on the table the way was cleared for a restart of the negotiations.

The big news of the latest U.S.-China Strategic and Economic Dialogue is that the BIT negotiations would cover all stages of investment. Basically this means that China accepted the US model as the basis for discussion. USTR calls it a “Breakthrough Announcement” and that’s what it is, a breakthrough, not only for the US-China negotiations but also for Chinese BIT policy-making in general which is entering a fourth stage. During the first three stages, China has been very cautious in granting foreign investors market access rights, or to put it rather technically pre-establishment national treatment. Even in its free trade agreements with substantive investment chapters, China refused to grant its negotiating partners anything more than pre-establishment MFN.

Of course, it is difficult to speculate about the final outcome of the negotiations especially if they will lead to a substantial opening up of the Chinese economy as some in Washington (and Beijing) may hope. However, China agreed to negotiate on the basis of the “negative list” approach. According to this approach, only exceptions to the pre-establishment national treatment provision are listed in an annex. Potentially, this approach leads to a greater liberalisation of the investment regimes (parties negotiate about the exceptions) compared to the GATS-type “positive list” approach (parties negotiate about the liberalisation measures). This is not a mere technicality! This structural issue will have a major impact on the degree of investment liberalisation an US-China BIT will actually lead to.

The Chinese concession will also have implications for other countries. First of all, China negotiated a number of BITs and FTAs with so-called pre-establishment MFN clauses. These clauses do not lead to an liberalisation in itself but they “import” more favourable provisions from other treaties. The potential US-China BIT would entail such more favourable provisions. Second, China is currently negotiating BITs with a number of other countries. Especially the investment negotiators in Brussels will have a close look at the US-China negotiations in light of the enisaged EU-China BIT negotiations which are expected to start at the end of the year.

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3 comments

  1. Hi Axel,

    Nice piece, with which I am in agreement. If you have the time check out my recent post related to this development:http://www.gegafrica.org/authors/2012-08-26-20-25-06/item/305-china-s-transition-and-world-trade-developments

    Best regards,
    Peter

  2. Many thanks for your reply, Peter. Will read you post with great pleasure tomorrow.

  3. Here’s my reply to Peter’s blog post on the posibility and necessity of a multilateral investment agreement with a special focus on China’s role: http://gegafrica.org/authors/2012-08-26-20-25-06/item/305-china-s-transition-and-world-trade-developments#comment59

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