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China-U.S. BIT Could Be a Treat to the Global Economy

Aug 11 , 2016
  • Wu Sike

    Member on Foreign Affairs Committee, CPPCC

The 26th round of talks on the China-US bilateral investment treaty (BIT) was held in Beijing in July, which was the second of such negotiations in just one month and grabbed much of the global attention. During the previous round of talks, China and the United States already had in-depth consultations on the negative lists. The two sides agreed to continue to implement the important consensus reached by the two heads of state, and to speed up negotiations so as to conclude a mutually beneficial, win-win investment treaty.

The BIT talks have lasted for eight years since initiation in 2008. If it is calculated from 1979 when the two countries established diplomatic ties, the two have already worked together for 37 years on their bilateral investment and trade relations, under which they would grant national treatment to each other. The two countries made continuing progress in the recent talks, and expressed their goodwill to conclude the talks before the end of Obama’s presidency. It is undeniable, however, that uncertainties are still ahead for the BIT talks.

In the US domestic political arena, the anti-globalization and anti-free trade sentiment is running high, and the views that foreign trade and competition with other countries would drive up unemployment rate are also fairly prevalent. In this year of presidential election, some Americans even ridiculously claimed that it was the trade with China that helped Donald Trump to gain in popularity. Under such a scenario of public opinion, it could be understood that the BIT talks would become more difficult and challenging.

On the economic front, China and the US still have wide disagreement on such core issues as the formulation of standards, the case-by-case approval system and the security review system. They are also locked in heated bargaining about the negative lists. In fact, China is making efforts in gradually shortening the negative list, including improving laws and regulations, speeding up the construction of free trade zones and quickening the pace in opening the service sector. The US, however, still claims that China has too many restrictions on investment in such fields as finance, insurance, culture and telecommunications.

As a matter of fact, the BIT talks could help the US improve its US-dominated global economic governance system. The China-US BIT, if reached, could serve as an indispensable piece to its global arrangement, in addition to the agreements such as the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA).
First, the US needs global capital to support the size of its economy, which is the biggest in the world. In the past few years, China’s investment in the US kept setting records, and in 2015, China’s outbound direct investment in the US amounted to $15 billion. The US, however, still views Chinese companies in a biased manner, and usually applies ambiguous criteria in examining and reviewing investments by Chinese enterprises, thus creating difficulties including high barriers for Chinese companies in gaining access to the US market. If China and the US could complete the BIT deal, bilateral investment and trade would become more standardized and convenient. It would also help gradually integrate the fragmented global multilateral investments. All these will have important and positive influence on China and the US as well as the growth of the global economy, which is still haunted by a downturn.

Second, if the China-US BIT deal could be reached, their bilateral cross-border investment pattern will be reconstructed, which will put to test of Chinese enterprises’ core competitiveness in such aspects as technological innovation, internationalized operations and legal system construction, after joining the global value chains. This in turn will force China to further open its service industry, and will help drive the development of the service industry and trade in services through the use of foreign investments.

If China and the US could reach the BIT agreement, it will help promote regional integration, effectively amalgamate the TPP and RCEP, lay a solid foundation for the trade integration, and further promote the economic and trade development in the Asia-Pacific region. It will be beneficial in promoting global trade and investment liberalization and facilitation, and will help the further opening of China’s service industry.

The BIT talks, which have already lasted for eight years, are now in a critical stage. If the negotiations could not be concluded this year, the talks would have to face greater uncertainty when a new administration of the US government takes office next year. Therefore, the two sides should give consideration to the impact of the BIT, lead the talks in the right direction, care for the other side’s concerns, and show willingness and resolve in promoting the conclusion of the talks as early as possible.

The essence of the negative lists is whether or not they could effectively lower the barriers for investment and trade. For this purpose, the talks should focus on if the levels in lowering the investment and trade barriers could meet each other’s expectations.

In the future, the BIT will have powerful and greater-than-expected effects on the two countries. It will play an indispensable and exemplary role in setting up an open global investment and trade system, and reducing discrimination against and barriers on investment and trade, and resisting investment and trade protectionism. The treaty will have important and far-reaching driving force on the economic development of China, the US and the world as whole.

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