Towards a win-win BIT for China and the EU （Jiang Shixue）

The first round of the long-awaited negotiations between China and the EU regarding a bilateral investment treaty (BIT) kicked off in Beijing on January 21, 2014. China signed a BIT, the first one with a European country, Sweden, as early as 1982. Since then, China has reached this type of agreement with almost all EU members -- except for Ireland. These treaties have undoubtedly contributed to the steady growth and smooth flow of bilateral investment between China and the EU over the past decades.

The 14th China-EU Summit in February of 2012 agreed that both sides would start BIT negotiations as soon as possible. On May 23, 2013, the European Commission decided to ask its member states for their consent on a mandate to open negotiations concerning a BIT with China; the Council of the EU approved this mandate on October 18, 2013. In the "China-EU 2020 Strategic Agenda for Cooperation," released at 16th China-EU Summit in November 2013, it was acknowledged that the BIT "will provide for progressive liberalization of investment and the elimination of restrictions for investors to each other's market. It will offer a simpler and more secure legal framework to investors from both sides by securing predictable long-term access to EU and Chinese markets respectively, and providing strong protection to investors and their investments."

It is important to note that the BIT should replace the existing bilateral investment treaties between China and EU member states through one single comprehensive agreement. The reason why there should be "one single comprehensive agreement covering all EU member states" relates to the Lisbon Treaty, which became effective on December 1, 2009. According to the treaty, the EU has exclusive competence on foreign direct investment, meaning that it allows the EU, and not its individual member states, to conclude comprehensive investment agreements.

The existing China-EU BITs were signed at a time when China was mainly the recipient of foreign investment coming from Europe and other parts of the world. Nowadays, the situation has changed, particularly on the Chinese side. Since the 1990s, for instance, "going global" -- i.e. encouraging Chinese enterprises to invest in foreign countries -- has become an important component of China's reform and opening up strategy. The government has taken many much-needed measures to pursue this strategy and results appear satisfactory. According to China's official sources, the total stock of China's outward direct investment had reached US$531.9 billion by late 2012, ranking 13th in the world. As a result, it is in China's interest to upgrade the existing BITs to include more clauses to protect China's overseas capital.

China is now the EU's second trading partner, right behind the United States, and the EU is China's biggest trading partner. Every day, around US$15 billion worth of goods and services are traded between both sides. In the area of direct investment, however, China accounts for merely 2 to 3 percent of overall European investments abroad, whereas Chinese investments in Europe accumulate to even less.

According to the EU, "an EU-China investment agreement will, among other things, improve the protection of EU investments in China and reduce barriers to investment in China. This will help increase investment flows between the EU and China and improve access to Chinese markets." The BIT is in fact a two-way street, protecting Chinese investment in the EU, the most favored destination of Chinese investors among all developed countries, as well as safeguarding European capital in China. So it turns out a win-win for both sides in terms of the attraction and protection of bilateral investments. Yet the significance of a China-EU BIT stretches beyond that of pure investment. Based on the possibility of a successful BIT, the two can think of a more bold initiative: reaching a free trade agreement.

Any treaty negotiation is by no means an easy task. The China-U.S. BIT has gone through almost 11 rounds in five years and the light at the end of the tunnel remains dim as of yet. It is believed that the China-EU BIT might not be as hard as the one between China and the U.S. For instance, the EU expects that negotiations on the agreement should be completed within 2.5 years. This prediction might come true, but it would be naïve to expect the road ahead to be without bumps and humps, although it is still too early to make any accurate predictions about the exact drafting of the agreement.

The devil appears in the details. It is certain that bargaining over specific issues such as market access, a negative list, national treatment, labor standards, environment, transparency of the state-owned enterprises, etc., will be extremely tough. In any case, the ball is starting to roll.

China's Spring Festival now lies around the corner and along with this traditional feast, the start of the China-EU BIT negotiations represents "double happiness" for Chinese investors. As the old Chinese saying goes, "when horses arrive, success follows;" therefore this round of negotiations will surely triumph in the Year of the Horse.

http://www.china.org.cn/opinion/2014-01/27/content_31318336.htm

（Contact Jiang Shixue：jiangsx@cass.org.cn）