Investment treaty win-win for China, US

When the two of us were on opposite sides of the table negotiating China’s accession to the World Trade Organization in the 1990s, we knew the task would be hard but that we were opening new frontiers with much at stake for both countries. China joined the WTO in 2001 and the dividends have been many, including robust US-China trade and the further integration of China into the global economy.

Now, almost 13 years later, our countries are taking another important step with the negotiation of a Bilateral Investment Treaty, which would extend the largely trade-related benefits of WTO membership to open investment opportunities in each other's country much wider. At its core, a BIT would ensure that the United States and China afford non-discriminatory treatment to each other’s investors and investments. This means that investors in both countries would have equal opportunities to invest in the establishment of factories, farms and other businesses covered by the BIT, and enjoy equal legal protections from expropriation and restrictions on the sale of investments—all regardless of national origin. The potential for new growth is especially strong in service sectors such as financial services, telecommunications, and media and broadcasting, where existing barriers to FDI are high. As our governments prepare to meet early next month for an annual summit known as the US-China Strategic & Economic Dialogue, we have confidence that a BIT can, like China’s WTO accession, bring substantial benefits to both countries and strengthen the US-China relationship as a whole.

According to official Chinese Ministry of Commerce statistics, the total stock of Chinese FDI in the US grew from virtually zero in 2000 to roughly $17 billion in 2012, with $4 billion flowing from China to the United States in 2012 alone. Yet China still accounts for less than 1 percent of total FDI in the U.S. There is tremendous potential for further investment growth with benefits for job creation and the US economy as a whole.

By contrast, in 2012, the total stock of US FDI in China stood at about $70 billion. That year, $3 billion flowed from the US to China, amounting to roughly 3 percent of China’s total annual FDI. Though American firms have established a significant presence in China, current investment flows—like Chinese flows to the US—are still a small fraction of what they could be with the relaxation of market barriers under a BIT, particularly in services. The growth potential lies not just in the headline numbers but, again, in the job creation and productivity upgrades that increased investment can bring.

A BIT can provide the framework to unleash far more investment in both directions. It would ensure that the United States and China provide each other’s investors with the ability to buy, sell, and maintain ownership and control of investments, without facing discrimination on the basis of national origin. It would also establish clear criteria by, for example, narrowing national security reviews to those sectors of essential security relevance, as well as limiting other barriers to investment related to intellectual property, technology transfer, technical standards, and the treatment of state-owned enterprises. And it would establish credible legal mechanisms for resolving investment disputes.

A breakthrough in negotiations occurred in July 2013 when our two governments agreed that a BIT between our two nations would cover all sectors of the economy unless explicitly identified in a so-called “negative list”, and would ensure non-discriminatory treatment for US and Chinese investors throughout the entire lifecycle of investments, including at the initial entry stage (known as “pre-establishment”) and once the investment begins to be made.