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By Len Bracken
May 19 — China has said it will make a new bilateral investment treaty (BIT) offer to the U.S. “in the near future,” but it isn't clear whether this will be prior to the Strategic and Economic Dialogue scheduled for early June in Beijing, a senior State Department official said May 19.
If the two sides hope to conclude the agreement this year, it's important for the U.S. to receive the Chinese offer listing industries that would be excluded from treaty rules requiring non-discriminatory treatment of foreign investors as soon as possible, Undersecretary of State Catherine Novelli said.
Novelli told the Washington International Trade Association that Chinese negotiators understand the importance of making a timely and “sufficiently narrow” list of exclusions, known as a “negative list,” but the U.S. remains in a “waiting zone” and isn't sure “what will come back to us.”
Twenty-four BIT negotiating rounds have been held since 2008. China missed a self-imposed deadline in March to offer its third list of industries that would be exempt from the open investment rules of the agreement. The previous two Chinese lists were seen by U.S. negotiators as too lengthy. A Chinese official told Bloomberg BNA in April that it is unlikely the two sides would reach an agreement in 2016 (78 ITD, 4/22/16).
Novelli said “huge progress” has been made on the rules, but the two sides find themselves at a “crossroads” as to what sectors and industries those rules will apply. The Chinese are debating what areas of the economy should be open to foreign investment, Novelli said, noting that the Chinese legal system is structured on the principle that “nothing is allowed unless it is specifically permitted,” which requires a certain relinquishing of control that some in China have resisted.
“That requires a whole-of-government conversation and a whole-of-sector conversation, and it has to be driven at a very senior level,” she said. “Folks at a senior level have told us they want to move forward, that everyone is working and rolling up their sleeves.”
The exercise of developing the U.S. negative list took a long time even though the U.S. has an open economy, requiring reviews by all departments and agencies. So it isn't surprising that it's taken the Chinese a long time, Novelli said. But rather than a “mighty” push by Chinese leaders to get it done, “there is much more of a conversation going on” in China, she said.
Wendy Cutler, managing director of the Asia Society Policy Institute in Washington, D.C., said that in 2013 when the Chinese agreed to the negative-list approach to the talks, they saw this as a “door to reform” since it would require working through thousands of local and national-level regulations. Given that there are so many “economic actors” involved in the process, she said the Chinese are probably having a hard time formulating a new list. Cutler until recently was a senior official at the Office of the U.S. Trade Representative, which co-chairs the BIT negotiations with the State Department.
Novelli said that while the growth of Chinese investment in the U.S. has been rapid, the total value is still relatively low compared with EU investment in the U.S., which she said was roughly $4 trillion in 2015. The Rhodium Group, which closely tracks Chinese foreign direct investment in the U.S., said it reached a new record level of $15.7 billion in 2015, up 30 percent from the previous year, and up considerably from just over $2 billion in 2005.
Cutler said the BIT with China is an important indicator of China's readiness to join the 12-nation Trans-Pacific Partnership agreement spearheaded by the U.S., since the BIT rules closely follow those in the TPP investment chapter.
“If the political will is there, and the leadership decides this is something they want to do, don't discount the ability of China to move to express interest to join TPP,” she said.
To contact the reporter on this story: Len Bracken in Washington at firstname.lastname@example.org
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More information on Chinese foreign direct investment in the U.S. is available at http://rhg.com/notes/chinese-fdi-in-the-us-2015-recap.
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