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6 White Paper on the Business Environment in China
adversarial retreat. A high standard, carefully negotiated BIT BITs also protect investors in several other ways. BITs limit a
presents one opportunity for such engagement.” 10 foreign government’s ability to require that American investors
meet burdensome conditions to operate in their markets. Final-
Still, if a balanced BIT can be concluded, both nations stand ly, BITs ensure that American investors can move capital freely
to gain. In a conclusion reached by The Diplomat, the U.S. in and out of the country in which they have invested.1
would encounter more profit opportunities in China, while
China would further its agenda to “Go Out” and promote BITs give American investors access to a neutral, third-par-
maturation of its economy 9. We respectfully concur. ty arbitrator when a problem arises with another investor or the
host government. This provision can be extremely helpful for
BIT: Background investors in countries where the legal system is not mature or
well-established. Notably, the dispute settlement provisions do
(This section “BIT” is incorporated from our 2015 White Paper.) not give foreign investors more rights than those already estab-
lished in US law, thanks to America’s mature legal system, but the
During the 2013 Strategic and Economic Dialogue, the benefits for American investors in China would be significant. 1
United States and China—the world’s two largest economies—
agreed to restart negotiations on a bilateral investment treaty BITs are tools to break down market access barriers and
(BIT). The United States currently has BITs with 42 countries. 1 give American companies greater protections overseas, but they
can’t address every problem that companies face abroad. For
A BIT is an agreement between two countries that outlines example, American companies in China face challenges in pro-
a road map for foreign investment in each other’s countries. tecting and enforcing their intellectual property rights (IPR). A
When countries enter into a BIT, both countries agree to pro- BIT would not fix those problems directly. Indirectly, however,
vide protections for the other country’s foreign investments. A a BIT would help US companies protect their IPR in China.
BIT provides major benefits for American investors in another The BIT would remove ownership restrictions that force US
country, including national treatment, fair and equitable treat- companies in some sectors to partner with Chinese firms in
ment, protection from expropriation and performance require- order to invest. Without these restrictions, companies are in a
ments for investments, and access to neutral dispute settlement. better position to protect their IPR because they can own 100
A BIT ensures that foreign governments will treat American percent of their operations instead of sharing their IPR with a
investors the same as domestic companies, a practice known partner.1
as “national treatment.” BITs also guarantee that American in-
vestors are given the same types of preferences that other for- A BIT does not address government subsidies to Chinese
eign investors are given in a market, also called “most-favored companies or give equal access to government procurement
nation” treatment. Under a strong US-China BIT, the Chinese markets. Those issues must be addressed under separate initia-
government would treat US companies the same as Chinese tives, either bilaterally or by getting China to join the World
companies. 1 Trade Organization’s (WTO) Government Procurement
Agreement.1
The promise of equal treatment applies to investments made
prior to the time the BIT enters into force and to new invest- A BIT would, however, bar the Chinese government from
ments in the market. That means that BITs bar foreign govern- granting preferential treatment to state-owned enterprises
ments from using investment restrictions, like ownership caps, to (SOEs) and private Chinese companies. In addition, a BIT
prevent American companies from investing in their markets.1 would obligate SOEs to treat US investors fairly. This require-
ment would help protect US companies in China from unfair
This is particularly important in China, which currently re- treatment. Some SOEs are given authority to regulate aspects
stricts investment in more than 100 industry sectors, ranging of an industry even though they act as a commercial competitor
from manufacturing to services to agriculture. By contrast, the in that industry. In these situations, the BIT would ensure that
United States restricts foreign investment outright in only five US companies’ competitors do not have the ability to regulate
sectors, and maintains 24 mostly minor conditions or restric- in their own favor.
tions that would be removed if the United States is given reci-
procity in China’s market. Since foreign investors already enjoy Even if a BIT cannot address all SOE-related issues, even if
access to the United States’ market, a BIT would primarily serve issues are currently outside of the BIT’s scope – a BIT is still
to better protect American investors in China.1 good for Americans operating businesses in China. The Obama
administration spent three years revising the US “Model BIT,”
A BIT would ensure US companies would not have to meet which is used as a basis from which the US negotiates its BIT
unfair investment requirements, such as licensing requirements, agreements. In that process, the United States made important
which are not required of Chinese companies. The US-China modifications that effectively address concerns about SOEs.1
Business Council states that currently, US investors often face
difficulties—and at times discrimination—when applying for At the time of writing, the United States and China are in
business licenses in China.1 the middle stages of negotiating the BIT. When the BIT text
78
adversarial retreat. A high standard, carefully negotiated BIT BITs also protect investors in several other ways. BITs limit a
presents one opportunity for such engagement.” 10 foreign government’s ability to require that American investors
meet burdensome conditions to operate in their markets. Final-
Still, if a balanced BIT can be concluded, both nations stand ly, BITs ensure that American investors can move capital freely
to gain. In a conclusion reached by The Diplomat, the U.S. in and out of the country in which they have invested.1
would encounter more profit opportunities in China, while
China would further its agenda to “Go Out” and promote BITs give American investors access to a neutral, third-par-
maturation of its economy 9. We respectfully concur. ty arbitrator when a problem arises with another investor or the
host government. This provision can be extremely helpful for
BIT: Background investors in countries where the legal system is not mature or
well-established. Notably, the dispute settlement provisions do
(This section “BIT” is incorporated from our 2015 White Paper.) not give foreign investors more rights than those already estab-
lished in US law, thanks to America’s mature legal system, but the
During the 2013 Strategic and Economic Dialogue, the benefits for American investors in China would be significant. 1
United States and China—the world’s two largest economies—
agreed to restart negotiations on a bilateral investment treaty BITs are tools to break down market access barriers and
(BIT). The United States currently has BITs with 42 countries. 1 give American companies greater protections overseas, but they
can’t address every problem that companies face abroad. For
A BIT is an agreement between two countries that outlines example, American companies in China face challenges in pro-
a road map for foreign investment in each other’s countries. tecting and enforcing their intellectual property rights (IPR). A
When countries enter into a BIT, both countries agree to pro- BIT would not fix those problems directly. Indirectly, however,
vide protections for the other country’s foreign investments. A a BIT would help US companies protect their IPR in China.
BIT provides major benefits for American investors in another The BIT would remove ownership restrictions that force US
country, including national treatment, fair and equitable treat- companies in some sectors to partner with Chinese firms in
ment, protection from expropriation and performance require- order to invest. Without these restrictions, companies are in a
ments for investments, and access to neutral dispute settlement. better position to protect their IPR because they can own 100
A BIT ensures that foreign governments will treat American percent of their operations instead of sharing their IPR with a
investors the same as domestic companies, a practice known partner.1
as “national treatment.” BITs also guarantee that American in-
vestors are given the same types of preferences that other for- A BIT does not address government subsidies to Chinese
eign investors are given in a market, also called “most-favored companies or give equal access to government procurement
nation” treatment. Under a strong US-China BIT, the Chinese markets. Those issues must be addressed under separate initia-
government would treat US companies the same as Chinese tives, either bilaterally or by getting China to join the World
companies. 1 Trade Organization’s (WTO) Government Procurement
Agreement.1
The promise of equal treatment applies to investments made
prior to the time the BIT enters into force and to new invest- A BIT would, however, bar the Chinese government from
ments in the market. That means that BITs bar foreign govern- granting preferential treatment to state-owned enterprises
ments from using investment restrictions, like ownership caps, to (SOEs) and private Chinese companies. In addition, a BIT
prevent American companies from investing in their markets.1 would obligate SOEs to treat US investors fairly. This require-
ment would help protect US companies in China from unfair
This is particularly important in China, which currently re- treatment. Some SOEs are given authority to regulate aspects
stricts investment in more than 100 industry sectors, ranging of an industry even though they act as a commercial competitor
from manufacturing to services to agriculture. By contrast, the in that industry. In these situations, the BIT would ensure that
United States restricts foreign investment outright in only five US companies’ competitors do not have the ability to regulate
sectors, and maintains 24 mostly minor conditions or restric- in their own favor.
tions that would be removed if the United States is given reci-
procity in China’s market. Since foreign investors already enjoy Even if a BIT cannot address all SOE-related issues, even if
access to the United States’ market, a BIT would primarily serve issues are currently outside of the BIT’s scope – a BIT is still
to better protect American investors in China.1 good for Americans operating businesses in China. The Obama
administration spent three years revising the US “Model BIT,”
A BIT would ensure US companies would not have to meet which is used as a basis from which the US negotiates its BIT
unfair investment requirements, such as licensing requirements, agreements. In that process, the United States made important
which are not required of Chinese companies. The US-China modifications that effectively address concerns about SOEs.1
Business Council states that currently, US investors often face
difficulties—and at times discrimination—when applying for At the time of writing, the United States and China are in
business licenses in China.1 the middle stages of negotiating the BIT. When the BIT text
78
