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5 White Paper on the Business Environment in China
1.6 US-China Business Investment Treaty (BIT)
DURING THE 2013 Strategic and Economic Dialogue, freely in and out of the country in which they have invested.1
the United States and China—the world’s two largest BITs give American investors access to a neutral, third-par-
economies— agreed to restart negotiations on a bilateral
investment treaty (BIT). e United States currently has BITs ty arbitrator when a problem arises with another investor or
with 42 countries. 1 the host government. is provision can be extremely helpful
for investors in countries where the legal system is not mature
A BIT is an agreement between two countries that or well-established. Notably, the dispute settlement provisions
outlines a road map for foreign investment in each other’s do not give foreign investors more rights than those already
countries. When countries enter into a BIT, both countries established in US law, thanks to America’s mature legal sys-
agree to provide protections for the other country’s foreign tem, but the bene ts for American investors in China would
investments. A BIT provides major bene ts for American be signi cant. 1
investors in another country, including national treatment,
fair and equitable treatment, protection from expropriation BITs are tools to break down market access barriers and
and performance requirements for investments, and access give American companies greater protections overseas, but
to neutral dispute settlement. A BIT ensures that foreign they can’t address every problem that companies face abroad.
governments will treat American investors the same as domestic For example, American companies in China face challenges
companies, a practice known as “national treatment.” BITs in protecting and enforcing their intellectual property rights
also guarantee that American investors are given the same (IPR). A BIT would not x those problems directly. Indirectly,
types of preferences that other foreign investors are given in however, a BIT would help US companies protect their IPR
a market, also called “most-favored nation” treatment. Under in China. e BIT would remove ownership restrictions that
a strong US-China BIT, the Chinese government would treat force US companies in some sectors to partner with Chinese
US companies the same as Chinese companies. .1
rms in order to invest. Without these restrictions, companies
e promise of equal treatment applies to investments are in a better position to protect their IPR because they can
made prior to the time the BIT enters into force and to new own 100 percent of their operations instead of sharing their
investments in the market. at means that BITs bar foreign IPR with a partner.1
governments from using investment restrictions, like owner-
ship caps, to prevent American companies from investing in A BIT does not address government subsidies to Chinese
their markets. 1 companies or give equal access to government procurement
markets. ose issues must be addressed under separate initia-
is is particularly important in China, which currently tives, either bilaterally or by getting China to join the World
restricts investment in more than 100 industry sectors, Trade Organization’s (WTO) Government Procurement
ranging from manufacturing to services to agriculture. By Agreement.1
contrast, the United States restricts foreign investment
outright in only ve sectors, and maintains 24 mostly minor A BIT would, however, bar the Chinese government from
conditions or restrictions that would be removed if the United granting preferential treatment to state-owned enterprises
States is given reciprocity in China’s market. Since foreign (SOEs) and private Chinese companies. In addition, a BIT
investors already enjoy access to the United States’ market, would obligate SOEs to treat US investors fairly. is require-
a BIT would primarily serve to better protect American ment would help protect US companies in China from unfair
investors in China.1A BIT would ensure US companies treatment. Some SOEs are given authority to regulate aspects
would not have to meet unfair investment requirements, of an industry even though they act as a commercial competi-
such as licensing requirements, which are not required of tor in that industry. In these situations, the BIT would ensure
Chinese companies. e US-China Business Council states that US companies’ competitors do not have the ability to
that currently, US investors often face di culties—and at regulate in their own favor.
times discrimination—when applying for business licenses in
China.1 Even if a BIT cannot address all SOE-related issues, even
if issues are currently outside of the BIT’s scope – a BIT is
BITs also protect investors in several other ways. BITs limit still good for Americans operating businesses in China. e
a foreign government’s ability to require that American inves- Obama administration spent three years revising the US
tors meet burdensome conditions to operate in their markets. “Model BIT,” which is used as a basis from which the US
Finally, BITs ensure that American investors can move capital negotiates its BIT agreements. In that process, the United
States made important modi cations that e ectively address
66 concerns about SOEs.1
1.6 US-China Business Investment Treaty (BIT)
DURING THE 2013 Strategic and Economic Dialogue, freely in and out of the country in which they have invested.1
the United States and China—the world’s two largest BITs give American investors access to a neutral, third-par-
economies— agreed to restart negotiations on a bilateral
investment treaty (BIT). e United States currently has BITs ty arbitrator when a problem arises with another investor or
with 42 countries. 1 the host government. is provision can be extremely helpful
for investors in countries where the legal system is not mature
A BIT is an agreement between two countries that or well-established. Notably, the dispute settlement provisions
outlines a road map for foreign investment in each other’s do not give foreign investors more rights than those already
countries. When countries enter into a BIT, both countries established in US law, thanks to America’s mature legal sys-
agree to provide protections for the other country’s foreign tem, but the bene ts for American investors in China would
investments. A BIT provides major bene ts for American be signi cant. 1
investors in another country, including national treatment,
fair and equitable treatment, protection from expropriation BITs are tools to break down market access barriers and
and performance requirements for investments, and access give American companies greater protections overseas, but
to neutral dispute settlement. A BIT ensures that foreign they can’t address every problem that companies face abroad.
governments will treat American investors the same as domestic For example, American companies in China face challenges
companies, a practice known as “national treatment.” BITs in protecting and enforcing their intellectual property rights
also guarantee that American investors are given the same (IPR). A BIT would not x those problems directly. Indirectly,
types of preferences that other foreign investors are given in however, a BIT would help US companies protect their IPR
a market, also called “most-favored nation” treatment. Under in China. e BIT would remove ownership restrictions that
a strong US-China BIT, the Chinese government would treat force US companies in some sectors to partner with Chinese
US companies the same as Chinese companies. .1
rms in order to invest. Without these restrictions, companies
e promise of equal treatment applies to investments are in a better position to protect their IPR because they can
made prior to the time the BIT enters into force and to new own 100 percent of their operations instead of sharing their
investments in the market. at means that BITs bar foreign IPR with a partner.1
governments from using investment restrictions, like owner-
ship caps, to prevent American companies from investing in A BIT does not address government subsidies to Chinese
their markets. 1 companies or give equal access to government procurement
markets. ose issues must be addressed under separate initia-
is is particularly important in China, which currently tives, either bilaterally or by getting China to join the World
restricts investment in more than 100 industry sectors, Trade Organization’s (WTO) Government Procurement
ranging from manufacturing to services to agriculture. By Agreement.1
contrast, the United States restricts foreign investment
outright in only ve sectors, and maintains 24 mostly minor A BIT would, however, bar the Chinese government from
conditions or restrictions that would be removed if the United granting preferential treatment to state-owned enterprises
States is given reciprocity in China’s market. Since foreign (SOEs) and private Chinese companies. In addition, a BIT
investors already enjoy access to the United States’ market, would obligate SOEs to treat US investors fairly. is require-
a BIT would primarily serve to better protect American ment would help protect US companies in China from unfair
investors in China.1A BIT would ensure US companies treatment. Some SOEs are given authority to regulate aspects
would not have to meet unfair investment requirements, of an industry even though they act as a commercial competi-
such as licensing requirements, which are not required of tor in that industry. In these situations, the BIT would ensure
Chinese companies. e US-China Business Council states that US companies’ competitors do not have the ability to
that currently, US investors often face di culties—and at regulate in their own favor.
times discrimination—when applying for business licenses in
China.1 Even if a BIT cannot address all SOE-related issues, even
if issues are currently outside of the BIT’s scope – a BIT is
BITs also protect investors in several other ways. BITs limit still good for Americans operating businesses in China. e
a foreign government’s ability to require that American inves- Obama administration spent three years revising the US
tors meet burdensome conditions to operate in their markets. “Model BIT,” which is used as a basis from which the US
Finally, BITs ensure that American investors can move capital negotiates its BIT agreements. In that process, the United
States made important modi cations that e ectively address
66 concerns about SOEs.1
