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WHY THE US AND CHINA NEED A BILATERAL INVESTMENT TREATY

I. INTRODUCTION

The election of Donald Trump as President of the United States (“US”) marks a new era

of American leadership globally and has created uncertainty about how issues, such as

international trade, will be handled. President-elect Trump will be expected to appease his “Rust-

Belt” electorate, who have been hurt by trade when jobs were lost to more competitive markets.

Throughout his campaign and in the month since being elected, President-elect Trump has

promised to step away from trade agreements, enforce tough trade enforcement actions, curtail

Chinese steel capacity and name China a currency manipulator1. Trump’s proposed actions

against China could ignite possible retaliation, jeopardizing the potential completion of the US-

China Bilateral Investment Treaty (“BIT”), further hurting the US economy.

The process of opening world markets and the expansion of trade has greatly contributed

to prosperity in the US over the last fifty years2. Through emphasis on production of the US’s

most competitive industries and the import of high quality inputs, trade increases US worker

incomes and helps American companies and their workers remain competitive at home and

abroad3. As more than ninety-five percent of the global population is outside the US, the growth

of the US economy is dependent on continued expansion of trade and investment4. Free trade

1 See Phil Levy, Trade Under Trump, Foreign Policy, November 10, 2016,

http://foreignpolicy.com/2016/11/10/trade-under-trump/. 2 Increased trade has increased incomes in America nine percent higher than they might have been without trade

liberalization that has occurred since World War II. See Trade and Economy, U.S. Trade Representative,

https://ustr.gov/issue-areas/economy-trade 3 Trade encourages more competitiveness in the economy, imports increase consumer choice and lower prices of

goods, and helps US businesses grow. See id. 4 See About the Issues, Trade Benefits America, https://www.tradebenefitsamerica.org/about (discussing the

importance of trade agreements to U.S. businesses, farmers, and workers).

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agreements (“FTA”) and bilateral investment treaties (“BIT”) help achieve that goal through

principles of open market access and increased transparency.

Bilateral investment treaties are government to government agreements which create

binding rules which govern how foreign investors and investments are treated between the

agreeing governments5. BITs are designed to further open markets to foreign direct investment

(“FDI”) through the protection of investments abroad in countries where investor rights are not

already protected through existing agreements. Protection occurs through guarantees of fair and

equitable treatment6, fair compensation in case of expropriation7, full protection and security8,

national treatment (“NT”)9, and sometimes most favored nation clause (“MFN”)10. Most BITs

also contain a dispute resolution mechanism which allows an investor to bring a case against the

5 See Rudolph Dozer and Christoph Schreuer, Principles of International Law 20 (Oxford University Press, 2d ed.

2012). 6 Most bilateral investment treaties and other types of agreements contain provisions for fair and equitable treatment.

It is also the basis for which the most international arbitration claims are won. Per Dozer, fair and equitable

treatment provisions are meant to fill in the gaps for not covered by other provisions to fully guarantee investor

protection. There has been significant debate about the vagueness of this provision, and courts have determined that

its meaning will primarily be determined by the facts of the case. See Dozer, supra note 4, at 130, 132. 7 International trade agreements must balance the interest of investors with the interest and sovereignty of the

contracting nation. As such, international law has accepted that a host state has the right to expropriate an alien

investor’s property. However, certain requirements must be met for expropriation to be valid: 1) expropriation must

serve a public purpose; 2) it must not be discriminatory or arbitrary; 3) in some treaties, expropriation procedures

must follow due process; 4) and it must follow with prompt and effective compensation. See id. at 98-99. 8 As with other provisions in an international treaty, the meaning of full protection and security has been interpreted

by the courts in different manner depending on the facts of the case. However, the most frequent settings in which it

has been applied are: 1) the acts of insurgents or riots that harmed the investor; 2) government or military of the host

state were involved with the act that harmed the investor; 3) or government regulatory acts which disrupted business

stability harmed the investor. See id. at 160. 9 National treatment is arguably one of the most important provisions in an international treaty. It is meant to “level

the playing field” between a foreign investor and its local competition. The purpose of national treatment is to

encourage the host state to make no negative differentiation between the foreign investor and local companies when

creating regulations or applying its rules. See id. at 198. 10 Like national treatment, most favored nation treatment is meant to the level the playing field in the host nation.

MFN clauses encourage the host state to treat relevant parties as favorably as they do third parties. See id. at 206; see

also Bilateral Investment Treaties, U.S. Trade Representative, https://ustr.gov/trade-agreements/bilateral-

investment-treaties.

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host state for violations of the treaty and are often brought before the International Centre for

International Settlement of Investment Disputes (“ICSID”), an arm of the World Bank11.

Like many countries worldwide, the US negotiates BITS using a model text which

represents the US’s policy position that it must use when it starts negotiations on investment

treaties with other countries12. Currently, the US has forty-nine BITs, forty-one which are in

force13. The 2012 US Model BIT has served as the starting point for all recent negotiations,

including the US-China BIT, which has gone through twenty-four rounds of negotiations since

its start in 200814. As two of the world’s largest and most dynamic global economies, a BIT

between the US and China could potentially be a way to expand bilateral investment and

increase FDI flows into both China and the US. US FDI in China in 2012, valued around $54

billion, represented only about 1.2 percent of the $2.2 trillion of total FDI in China, and China

FDI in the US is even lower15.

A high standard BIT could generate new investment opportunities for US companies in

China by allowing US companies to invest in sectors that are currently restricted, as well as

address and ban Chinese practices that violate international trade standards16. China also stands

to gain from a US-China BIT through the advancement of national policy goals, potential

11 Dispute resolution mechanisms in treaties offer investors a preferred alternative to host state local courts, as

investors fear local courts for their impartiality and inability to submit successful claims. International arbitration

through mechanisms, such as ICSID, are preferred because they are impartial, delocalized, cost effective, and can

provide international facilities, arbitrators, and other administrative needs. See id. at 232-239. 12The U.S. uses a model BIT as the basis for their negotiations. The Obama Administration initiated the review and

revision of the US Model BIT, releasing the completed version in 2012. See 2012 Model Bilateral Investment

Treaty, U.S. Trade Rep., https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf (last

visited December 11, 2016). 13 See Lauren Gloudeman and Nargiza Salidjanova, Policy Considerations for Negotiating a U.S.- China Bilateral

Investment Treaty, US-China Economic and Security Review: Staff Research Report, August 1, 2016, at 3. 14 See id. at 3. 15 See Henry M. Paulson, Demystifying Chinese Investment in the United States, Paulson Institute Blog, September

12, 2016, http://www.paulsoninstitute.org/think-tank/2016/09/12/demystifying-chinese-investment-in-the-united-

states/. 16 See Daniel C.K. Chow, Why China Wants a Bilateral Investment Treaty with the United States, 33 B.U. Int’l L.J.

101, 102 (2015).

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expansion of benefits of Chinese state-owned enterprises (“SOE”), and acquisition of US

technologies through mergers and acquisitions of US industries17. While the US-China BIT had

made significant progress throughout the past few years leading up to the 2016 elections,

significant challenges remain, and the future of the agreement is now uncertain under the

incoming Trump Administration.

This Article proceeds in two parts. Part I examines the historical background of the US-

China BIT negotiations and the current geopolitical landscape. Part II analyzes the benefits and

remaining challenges of the BIT, as well as why the US needs a US-China BIT. If the remaining

challenges of the BIT can be addressed, the agreement would provide much needed legal

certainty for foreign investors from both the US and China at a very uncertain time18.

II. BACKGROUND

Since the end of World War II, US-China relations have continued to grow and evolve

from a strained, tense relationship to a combination of intense competition and economic

interdependence19. The US and China began normalized trade relations in 2000 when President

Clinton signed the US-China Relations Act of 2000, which help China gain access to the World

Trade Organization in 200120. By 2008, which marked the beginning of the US-China BIT

negotiations, China had surpassed Japan as the largest holder of US debt, further entangling both

economies21. As the world’s second largest economy with the world’s largest growing middle

17 See id. at 106. 18 See Doug Tsuruoka, Bilateral Deal Could Defuse Sino-US Tension Over Chinese M&A, Asia Times, November

26, 2016, http://www.atimes.com/article/bilateral-deal-defuse-sino-us-tension-chinese-ma/ (discussing the US-China

BIT and its uncertainty in light of the new Trump Administration). 19 U.S. Relations with China, Council on Foreign Relations, http://www.cfr.org/china/us-relations-china-1949---

present/p17698 (last accessed December 12, 2016) 20 See id. 21 See id.

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class, China is predicted to overtake the US as the world’s number one economy, further

increasing the need for improved US-China relations22.

China is only second to Germany in having the world’s most signed BITs, and while

China’s BITs contain most standard provisions found in other international BITs, they have not

always included liberal provisions, such as investment- state dispute settlement (“ISDS”),

national treatment, or pre-establishment protections23. More recently as China has become

focused on foreign investment outside of its borders, China has negotiated stronger, more robust

BITs in interest of protecting its own foreign investment, which is evident in the 2012 Canada-

China Foreign Investment Protection Agreement (“FIPA”).

Canada has a Model FIPA24, which is like the US Model BIT in many ways. However, in

the Canada- China FIPA, Canada did not achieve the high-standard investment treaty it normally

strives toward and negotiated limited protections for Canadian investors25. Most notably, the

Canada-China FIPA does not include pre-establishment national treatment26. Under the FIPA,

Canadian investors cannot file a MFN claim through ISDS provisions, and allows broad

flexibility for SOEs and Chinese FDI screening27. Further, Canada’s agreement with China has

been criticized for benefiting China much more than Canada, as there is a clause which allows

existing restrictions to stay in place. Canadian companies will still face arbitrary practices, while

Chinese companies will receive more protections in Canada28. However, China did agree to

incorporate direct and indirect expropriation clauses, a stronger commitment than China has

22 See id. 23 See supra note 13, at 9; see also Ko-Yung Tung and Rafael Cox-Alomar, The New Generation of China BITs in

Light of Tza Tap Shum v. Republic of Peru, 17 Am. Rev. Int’l Arb. 461 (2006). 24 Canada’s Model FIPA most closely resembles the 2004 US Model BIT. See supra note 13, at 11. 25 See id. at 10-12. 26 Under pre-establishment national treatment provisions, an investor receives equal market access throughout all

phases on investment. See id. at 12. 27 See id. at 10-12. 28 See id. at 10-12.

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previously made in its BITs29. Canada-China FIPA provides good example of China’s most

recent agreements and an indicator of future areas of tension between the US and China30.

The US does not have as many BITs as China, as it is difficult for partners to meet the

high standards set out in the US Model BIT and for the BIT to then passed in Congress31. “The

US ratification process—requiring a two-thirds vote of the Senate—is prolonged and uncertain.

Indeed, many US trading partners prefer to negotiate comprehensive investment chapters in their

free trade agreements (FTAs) with the United States, which are similar in content to BITs but

differ in the process in which the United States ratifies and implements the pact32.” According to

the Office of the US Trade Representative (USTR)33, the US Model BIT is designed to provide

US investors with six benefits: national treatment and most-favored nation treatment for

investors and pre-establishment protection, including establishment or acquisition, management,

operation, expansion, and disposition; limits on direct and indirect expropriation and procedures

for the payment of “prompt, adequate, and effective compensation” when expropriation occurs;

ability to transfer investment-related funds across borders “without delay and using a market rate

of exchange”; restriction of the use of performance requirements; right to employ senior

managerial personnel, regardless of nationality; and international arbitration provisions34.

29 See supra note 13, at 11, 30 See id. at 9 (discussing China’s method of drawing from other countries’ Model BIT for the basis of negotiations,

as it does not have its own model BIT). 31 See supra note 15. 32 See id. 33 USTR is part of the Executive Office of the President. USTR is responsible for developing and coordinating U.S.

international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. The

head of USTR is the U.S. Trade Representative, a Cabinet member who serves as the president’s principal trade

advisor, negotiator, and spokesperson on trade issues. See Mission of the USTR, U.S. Trade Rep.,

https://ustr.gov/about-us/about-ustr (last accessed December 13, 2016). 34 See Bilateral Investment Treaties, U.S. Trade Representative, https://ustr.gov/trade-agreements/bilateral-

investment-treaties.

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The beginning of BIT negotiations between the US and China was hindered by basic

philosophical differences on how to approach provisions of the agreement35. Historically, the US

has negotiated for the protection of investors during the market access phase of investment so

that they are protected before being fully established in a foreign country36. US model BIT calls

for national and MFN treatment for the entire investment process (subject to a few exceptions)37.

China, however, has only protected investors in its BITs once an investor is fully established its

investment in the country38.

After a few years after slow negotiations, China indicated a willingness to negotiate

commitments to open all sectors of its economy to US investment, except for sectors set out in

their negative list39. The adoption of a negative list approach as opposed to China’s current

regime of a positive list would provide significant protection to US investors40. Additionally,

during the 2014 Strategic and Economic Dialogue (“S&ED”), China indicated a willingness to

expand its provision of national treatment to pre-establishment phase of investment. However,

there remain significant challenges remaining in narrowing down the negative list, as well as

addressing China’s less robust provisions for labor, the environments, and state-owned

enterprises (“SOE”)41. While significant challenges exist before negotiations can come to a close,

35 See Jonathan S. Kallmer, What a US-China Investment Treaty Would Mean for US Cos., Crowell & Moring LLP,

July 25, 2013, https://www.crowell.com/files/What-a-US-China-Investment-Treaty-Would-Mean-for-US-Co.pdf. 36 See id. 37 See id. 38 See supra note 23. 39 In most BITs with other countries, the US has taken a negative list approach to market access. The negative list

approach allows all sectors except those set out in the list as exclusions are open to investment by foreign investors.

The US has very few sectors closed to foreign investment (like nuclear energy, domestic air services, credit unions,

etc.) but has restrictions or criteria an investor might meet. An example of the US negative list can be seen in the

Annex of the US-Uruguay BIT and the BIT with Rwanda. See Summary of US Negative Lists in Bilateral Investment

Treaties, US-China Business Council,

file:///C:/Users/bmoun/AppData/Local/Evernote/Evernote/Databases/Attachments/Negative%20list%20summary.pd

f; see also BIT Documents, U.S. Trade Rep., https://ustr.gov/trade-agreements/bilateral-investment-treaties/bit-

documents (last accessed December 15, 2016). 40 See supra note 15, at 13. 41 See id. at 15.

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a US-China BIT provide many opportunities that would help build the relationship between the

two countries and grow the global economy.

III. WHY TWO WORLD POWERS NEED A BIT

As two of the largest exporting and importing world powers, a US-China BIT would set

the precedent for future BITs with other major developing nations and have the potential to

expand trade relations in the Asia-Pacific region. For both nations, a high standard BIT could

highly benefit each. However, both countries have concerns that could determine the direction

and future of the negotiations.

The US stands to significantly from a BIT. A BIT could increase bilateral investment and

open successful sectors in China that have been closed off to US investment or are highly

restricted42. Addressing Chinese investment barriers would help US companies compete with

domestic Chinese enterprises and allow them to gain the same benefits enjoyed by Chinese

companies43. Additionally, the ISDS provisions would ensure that the agreement is enforceable,

guaranteeing US companies protection against discriminatory policies or regulations, such as

licensing requirements that Chinese companies are not required to meet and preferential

treatment of domestic companies44.

If a high standard, far-reaching US-China BIT can be achieved, it is possible that it could

address US concerns about the Chinese government’s role in the economy and lack of

transparency45. Beyond expanding market access, a BIT could protect US companies from

having to give China proprietary information, such as trade secrets and intellectual property,

42 See id. at 13-14; see also supra note 16, at 103. 43 See supra note 13, at 13. 44 See id. at 18. 45 See id. at 22.

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which China currently requires as part of doing business there46. Increased regulatory

transparency in China would significantly improve US companies’ ability to invest and succeed

in China.

Increased bilateral investment could also encourage more Chinese investment in the US,

which could help grow the US economy and create more US jobs. A 2015 Report on the

“Sustainable Development of Chinese Enterprises Overseas” by the United Nations

Development Program China and Chinese Government Think Tanks stated that Chinese foreign

investment is good for local growth as Chinese firms pay local taxes, employ host country

workers, engage in local procurement, aid local innovation, provide technology transfers and

follow local environmental laws.47 President-elect Trump promised during his campaign trail and

after being elected to bring manufacturing back to the US48. FDI through the US-China BIT

would accomplish this and build better foreign relations.

China also stands to gain from a US-China BIT. A BIT would achieve several national

policy goals set out in its thirteenth Five- Year Plan49. “Innovation, coordination, the

environment, opening up, and sharing” will create China’s “new normal50.” A US-China BIT

would help China realize that goal.

46 See supra note 29. 47 See supra note 16. 48 See Chris Arnold, In Economy as in Business, Trumponomics May Mean Building Big Things, NPR, November 9,

2016, http://www.npr.org/2016/11/09/501476997/trump-provides-clues-into-economic-plan-during-acceptance-

speech. 49 China’s Five-Year Plan are a series of social and economic development initiatives set forth by the Communist

Party of China The early plans supported its centrally planned economy. As China began to open up its economy,

the plans have become more general and have set targets for both society and the economy. The Thirteenth Five-

Year Plan has included a series of strategic objectives, such as addressing environmental issues and investing

abroad. See Highlights of Proposals for China’s 13th Five-Year Plan, Xinhuanet, April 11, 2015,

http://news.xinhuanet.com/english/photo/2015-11/04/c_134783513.htm; see also Scott Kennedy and Christopher K.

Johnson, China’s 13th Five-Year Plan, Wall Street Journal, May 23, 2016,

http://blogs.wsj.com/chinarealtime/2016/05/23/chinas-13th-five-year-plan-qa-with-scott-kennedy-and-christopher-k-

johnson/. 50 China’s “New Normal” reflects the lowered growth in the Chinese economy. China is entering a new stage of

development and is looking to become less export driven and more diversified, building more sustainable growth.

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As part of China’s attempt to “open up” its economy, China is working to reform state-

owned enterprises to become a mixed economy of both state and private ownership51. In early

2016, Chinese Premier Li Keqiang, Chair of the State Council, announced the reform and

China’s intention to further liberalize its economy52. China desires to expand the reach and

power of SOEs, as well as institute changes that reflect the need for greater efficiency. A US-

China BIT could potentially help China SOEs further invest in the US through mergers or

acquisitions (“M&A”) and be acknowledged as important commercial players53.

Innovation remains a critical part of China’s national policy goals. Through a BIT with

the US, China hopes to acquire innovative technology. Through M&A, China will have access to

US companies’ technology and intellectual property (in addition to all physical property)54.

While a negative list will outline the sectors in which China will or will not have access to, it is

likely there will be key sectors that China needs access to, such as food and agricultural

companies and their seed technologies. In the past few years, Chinese firms have acquired

companies, like Smithfield Foods, with limited difficulty55. However, more recently, Chinese

acquisitions of US technology have received more scrutiny56. A US-China BIT would make it

more difficult for the US to block Chinese firms from acquiring companies in sectors not on the

negative list.

As part of China’s economic direction, it is expected that China will become more integrated into the global

economy. See Martin Wolf, China’s Struggle for a New Normal, Financial Times, March 22, 2016,

https://www.ft.com/content/28ea640e-ef62-11e5-aff5-19b4e253664a (discussing China’s challenges facing a

decline in economic growth and how to interface in the global economy). 51 See Chinese Government Sets Timetable for Reform of Centrally-Administered SOEs, China Daily USA, May 16,

2016, http://usa.chinadaily.com.cn/business/2016-05/20/content_25385992.htm. 52 See supra note 43. 53 See supra note 16. 54 See id. 55 See Reginald Cuyler, Leaving Home the Bacon: Judicially Reviewing CFIUS’ Approval of Shuanghui Acquiring

Smithfield Foods, 6 No.2 U. Puerto Rico Bus. L.J. 206 (2015). 56 See Chad Bray, U.S. Regulator Signs Off on ChemChina-Syngenta Deal, NY Times, August 22, 2016,

http://www.nytimes.com/2016/08/23/business/dealbook/us-china-chemchina-syngenta-merger.html?_r=0.

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The US and China will both economically gain from a BIT. However, business

opportunities are not the only incentive for both nations to enter an agreement; as seen above,

both countries have national policy reasons for negotiating a BIT. Despite the apparent benefits,

policymakers on both sides have concerns about a bilateral treaty, which could affect the timing

and possibly the conclusion of an agreement.

IV. OBSTACLES THAT REMAIN

The US has a significant annual and historical trade deficit with China57. When China

became a member of the WTO in 2001, the US hoped that China would become a more reliable

trading partner, and while China started to make significant improvement in becoming a more

liberalized market economy, progress has recently slowed58. The trade deficit with China has

only further focused the US’s attention on China’s failure to fully become a market economy59.

Per USTR in its “2015 Report to Congress on China’s WTO Compliance60,” difficulties in the

U.S.-China trade and investment relationship stem from China’s interventionist policies and

practices and the role of state-owned enterprises in China’s economy61. China’s compliance with

WTO rules has become a major topic in US domestic politics and has affected the rhetoric

around the US-China relationship62. It will be important to address some of the concerns and

57 See David Schinn, China’s WTO Compliance: The US Reaction, China Policy Institute, November 14, 2016,

https://cpianalysis.org/2016/11/14/chinas-wto-compliance-the-reaction-from-the-u-s/. 58 See id. 59 See id. 60 See 2015 Report to Congress on China’s WTO Compliance, U.S. Trade Rep., December 2015,

https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf. 61 See supra note 51. 62 December 11, 2016 marked China’s fifteenth anniversary of its WTO accession agreement. Per the agreement,

China would gain market economy status within the WTO if it met certain conditions. Market economy status would

constrain anti-dumping measures used against China by the US and EU if prices of exports are not shown to meet

market economy conditions. China is currently demanding recognition of being a market economy, but the US and

the EU are resisting. See Douglas Bullock, China Doesn’t Deserve Its “Market Economy’ Status By WTO, Forbes,

December 12, 2016, http://www.forbes.com/sites/douglasbulloch/2016/12/12/china-doesnt-deserve-its-market-

economy-status-by-wto/#117d4ce02d70.

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rhetoric surrounding the BIT to achieve and conclude a high standard BIT that benefits both

nations.

The role of the Chinese government in the Chinese economy continues to raise concerns

in the US63. The Chinese government continues to have significant authority and influence over

Chinese companies, and there is concern that the company might be making the investment to

further the Chinese government’s goals64. The US’s concern about China’s non-economic

motives for investing in the US has led to strict review of Chinese investments65.

US federal law requires that FDI by Chinese SOEs are scrutinized and allows the US to

block investments if there are concerns about national security66. Through a BIT, China hopes

that it would be more difficult to stop Chinese investments in the US through protection under

NT and MFN clauses67. The Committee on Foreign Investment in the United States (“CFIUS”) is

the mechanism through which the US reviews foreign investment68. CFIUS conducts its

investigations in private, and the uncertainty around the process has created tension between the

US and foreign investors69. China has voiced on several occasions complaints about the process

and that it has unfairly blocked Chinses investment in the United States70. While the US has

confirmed that it is open to Chinese investment, CFIUS will still play an important role even

after a BIT is signed and reserves the right to reject foreign investment for national security

63 See supra note 13, at 23. 64 See id. 65 See id. 66 See supra note 16, at 106. 67 See id. 68 CFIUS is an inter-agency committee authorized to review transactions that could result in control of US business

by foreign companies. The Secretary of the Treasury is the Chairperson of CFIUS, but eight other departments sit on

the committee. CFIUS primarily makes recommendations to the President about national security concerns posed by

investments of foreign parties. See Composition of CFIUS, Dept. of Treas., https://www.treasury.gov/resource-

center/international/foreign-investment/Pages/cfius-members.aspx (last accessed December 14, 2016); see also

supra note 55, at 207. 69 See supra note 55, at 207. 70 See supra note 13, at 13-14.

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purposes. However, it is possible that the US can improve transparency in the process and better

aid Chinese companies throughout the process71.

China, similarly, as strict review procedures for foreign investment. In 2016, China

released its foreign investment law, stating that foreign investment in sensitive areas will receive

additional national security review72. The US has expressed its concerns about the review and

China’s definition of national security and its inconsistencies of principles of a bilateral

investment treaty73. The US has also criticized the Chinese government for the continued

preferential treatment of domestic SOEs and raised apprehension that China would continue to

preferentially treat domestic companies over US companies even with a BIT74.

Both the US and China must continue to work on these areas of conflict before BIT

negotiations conclude. The US-China BIT must have robust, high standards to include for

transparency, strong ISDS provisions, and address SOE treatment. It is unlikely that a BIT would

be passed in the US without strong guarantees of a level playing field.

CONCLUSION

The current geopolitical landscape between China and the US is currently strained at best.

The past few Administrations have worked diligently to further the relationship, as well as

establish America’s role in the Asia Pacific region through the Trans-Pacific Partnership

(“TPP”). However, President-elect Donald Trump has announced, through his “America First”

policy, that he intends to reject the TPP and label China as a currency manipulator75. The Trump

71 See supra note 13, at 14. 72 See id. 73 See id. 74 See id. 75 See Howard Stoffer, What Trump’s “America First” Policy Could Mean for the World, Time Magazine,

November 14, 2016, http://time.com/4569845/donald-trump-america-first/.

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Administration has further indicated that trade enforcement will be a priority and plans to

increase tariffs significantly on imported Chinese goods, potentially violating WTO rules76.

So, while the US and the EU77 become more protectionist, China has committed to a

decade long strategy of opening markets and investing abroad. China intends to revive the Silk

Road trading routes through its “One Belt, One Road Strategy78,” has established the Asian

Infrastructure Investment Bank79, and is pushing forward on the Regional Comprehensive

Economic Partnership (“RCEP”) 80. While there are serious challenges remaining and legitimate

concerns about a US-China BIT, the US cannot afford to not move forward on this treaty nor can

it afford to make decisions that could initiate a trade war.

A high standard BIT between the US and China would be good for the global economy.

As two of the largest economies, the US and China need to work together to encourage foreign

investment in the US and in China. The Trump Administration has promised to bring companies

76 See id. 77 Since 2015, there has been a wave of nationalism in the United States and Europe, resulting in Donald Trump’s

election and “Brexit,” the UK’s exit from the European Union. Disappointing economic growth worldwide has

spurred nationalism, anger about immigration, and concerns about the future. Europe is continuing to see a

resurgence in nationalism even aside from Brexit. Germany and France both face elections in the upcoming year and

nationalist parties are rising to the front. Nationalism worldwide could hurt international cooperation and the global

economy. See Gideon Rachman, Nationalism is Back: Bad News for International Cooperation, The Economist,

November 20, 2014. http://www.economist.com/news/21631966-bad-news-international-co-operation-nationalism-

back. 78 China is rebuilding the historic Silk Road trade route that runs from China’s borders to Europe. As part of China’s

economic reform, it is looking to expand to allow for growth and help with its slowing economy. This strategic

position will allow China to reposition itself as a global economic and cultural leader. See Anna Bruce-Lockhard,

Why is China Building a New Silk Road?, World Economic Forum, June 26, 2016,

https://www.weforum.org/agenda/2016/06/why-china-is-building-a-new-silk-road. 79 In 2016, China’s Asian Infrastructure and Investment bank opened. The multibillion dollar, multilateral bank was

created to help finance infrastructure across Asian. While US partners, like Canada and the UK signed up, the US

has remained skeptical and worried that China is using the bank to further its global economic agenda. See Jane

Perlez, China Creates a World Bank of Its Own, and the US Balks, NY Times, December 4, 2015,

http://www.nytimes.com/2015/12/05/business/international/china-creates-an-asian-bank-as-the-us-stands-aloof.html. 80 The Regional Comprehensive Economic Partnership (“RCEP”) is a regional trade deal between China, Australia,

India, Japan, Republic of Korea, New Zealand, and ASEAN countries. The RCEP is a ASEAN centered agreement

which aims to lower trade barriers and improve market access. The agreement has been often positioned as in

conflict with the US-ASEAN trade agreement, the Trans-Pacific Partnership, which concluded negotiations in 2015.

See About the RCEP Negotiations, Australian Dept. of Foreign Affairs and Trade,

http://dfat.gov.au/trade/agreements/rcep/pages/regional-comprehensive-economic-partnership.aspx.

Brittany Mountjoy

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back to the US and create new jobs for American workers, and China is facing a slowing

economy. A BIT could both create jobs in the US, as well as expand markets for China. It will be

up to the Trump Administration to continue to forge strong relationships with China and not take

protectionist measures that create a disastrous trade war that could hurt the entire global

economy.