Xinhua | Jun 22, 2015
China to put first its investment treaty with US and other agencies
by Xinhua Writers Gao Pan, Shi Yingshan
Talks on a bilateral investment treaty (BIT) will be high on the agenda during the upcoming annual Strategic and Economic Dialogue (S&ED) between China and the United States in Washington, D.C. and the two sides could seize the opportunity to finalize the deal before U.S. President Barack Obama leaves office in January 2017, U.S. experts said.
The investment treaty talks between China and the U.S. so far are “quite good” and “have gone a lot further than people expected, ” Adam Posen, president of Washington-based Peterson Institute for International Economics, in an interview with Xinhua.
The two sides have exchanged initial negative list offers, which outline sectors that are closed to foreign investment, at their latest round of talks in Beijing earlier this month, which ushered in a new phase of bilateral negotiations.
In principle, each side will open all sectors to the other side ‘s investors except those that are explicitly banned. Given the world’s two largest economies have different development levels, national conditions and growth modes, the negative lists exchange would be a challenge to both countries.
“This will be the most challenging BIT negotiation that either country has ever undertaken,” U.S. Trade Representative Michael Froman said in April, noting that the U.S. would like to see China keep its negative list short and narrow.
China’s Vice Finance Minister Zhu Guangyao said in the same month that China had shortened its negative lists for the pilot free trade zones in Shanghai, Guangdong, Tianjin, and Fujian, but the negative list offers for the BIT talks will be decided through tough bilateral negotiations.
While China’s initial negative list offer “may be longer than the U.S. wants,” the fact there’s a negative list is already “a huge progress,” said Posen, who expected the two countries to move forward the investment treaty talks during the two-day high-level S&ED meetings starting Tuesday.
Yukon Huang, a senior associate in the Asia Program of the Carnegie Endowment for International Peace, said the issue of negative list is “probably overemphasized in some ways” as it’s so precise and easy to focus on.
“From Chinese side, I think this is still part of the bargain session. They’re not going to reveal their automatic intentions without more significant discussions about how it will be handled, ” Huang told Xinhua in a separate interview, noting that more flexibility is needed to deal with negative list offers.
Huang said it is necessary to realize that “both sides want to have a BIT,” as it will help address a number of investment concerns between the U.S. and China, and investors from both countries will get better access to each other’s markets.
The BIT is also very important for moving forward China-U.S. economic relations as “it is only the documentary agreement dealing with international economic issues between the U.S. and China in the foreseeable future,” added Huang, a former World Bank ‘s country director for China.
David Dollar, a senior fellow at the Brookings Institution, said there will be a lot of discussions to move the BIT negotiations more quickly at the upcoming S&ED meetings.
“The important question is would there be any what we call ‘ early harvest’,” said Dollar, referring to China’s willingness to open some sectors for foreign investment soon before a treaty is agreed upon.
If China opens up some sectors soon and improves market access for U.S. and other foreign investment, that will “create a much stronger foundation in the United States for moving ahead with the bilateral investment treaty,” said Dollar, a former U.S. Department of Treasury’s economic and financial emissary to China.
Dollar believed it’s in China’s interest to open more sectors for foreign investment as China could gain a lot of efficiency from increased market competition.
While negotiations on the investment treaty will not be easy, experts are optimistic that the U.S. and China could finish the BIT talks under Obama administration. “There is more room for agreement than people realized,” Posen said. “I certainly think ( it’s) doable before President Obama leaves office.”
“We try very hard to conclude negotiations” of the investment treaty next year based on “reality and hard work of both negotiation teams,” Zhu said in April, noting that the BIT talks are considered the most important issue in the two nation’s economic relationship.
Once the investment treaty is struck, it would require a two- thirds vote in the U.S. Senate for approval. “My feeling is the ratification will have to wait until after the next presidential election,” said Huang.
“We often have a situation where a trade agreement is negotiated under one president, and then approved under the next one, and even if the party switches,” echoed Dollar, citing the North American Free Trade Agreement (NAFTA), covering Canada, Mexico and the U.S., as an example to illustrate his point of view. NAFTA was first negotiated under former Republican President George H.W. Bush, and then approved under the following Democratic President Bill Clinton.
“I think basically they would vote yes because they would be hearing from, particularly from American business community. This is very important for the development of the U.S. economy,” Dollar said of the Senate’s support for BIT.
Posen was confident that the BIT would be finally approved by the Senate, though the U.S. and China have had tensions over issues such as the South China Sea dispute, cyber security.
“The U.S. has successfully in the past segregated economic issues from political issues,” Posen said, “We have areas of difference. We have areas of common interests. The BIT is in both countries’ interests.”
“The Senate tends to be more mature in dealing with these issues than the House,” Posen said, adding that’s why the U.S. Constitution stipulates foreign treaties should be approved by the Senate instead of the House.
Talks on the investment treaty began in 2008 as both countries sought to increase mutual investment, which only accounted for a tiny share of their respective overseas investment.
The U.S. and China have less than a 5 percent share of investment in each other’s markets, according to the U.S.-China Business Council. “Since these are the two largest economies in the world, that means there is significant room for growth,” the business association said.
The investment treaty is expected to continue to expand two-way trade and investment and cement the foundation of China-U.S. economic ties.
“Naturally the negotiation will take time, but it has already sent a very clear message to both countries and the wider international community that China-U.S. business ties will get even closer and put the overall China-U.S. relationship on a more solid footing,” Chinese Premier Li Keqiang said of the BIT talks at a press conference in March.