Molding the Framework for the Future
May 11, 2015
Since 2008, the United States of America and China have been attempting to negotiate a bilateral investment treaty, or BIT, which would propel both economies forward, while positively affecting the global financial situation. Due to the two countries’ political differences, however, an agreement has yet to be made. The paper discusses the history of BITs, both the traditional American and Chinese models, and the issues that have arisen thus far in talks, while simultaneously looking forward to how a treaty between the two nations could push the global economy.
Introduction Evident by their GDPs of $9 trillion and $16 trillion respectively, China and the United States of America are currently two of the largest powerhouses in the world, financially speaking (WorldBank, 2014). Having established their enormous spending powers, the two have been attempting for years to negotiate a bilateral investment treaty, or BIT. Due to the nature of their combined wealth, a treaty of this magnitude between the US and China would not only have resounding effects on the two nations, but the world as whole. Though BITs between a developed nation and a developing is not novel, there has yet to be a BIT this size, due to the sheer magnitude of the two countries, particularly China, as developing countries typically do not have such large populations or GDP to support; though China has a large amount of wealth, they still have many strides to make before being considered a developed nation, making the country an interesting and tricky blend of being both wealth and developing. Comparatively, few BITs exist between developed nations, or nations that have wealth statuses similar to the US and China. Combined with the fact that both the United States and China have their individual models for BITs, there is a significant amount of work that must be done in order for a BIT to be formally proposed, let alone ratified and signed by both countries. Should this happen, the two parties must be able to negotiate, demonstrating that they have every intention of working with each other, not against. Idealistically, the BIT would permit the United States to continue its assertion as the dominant economic power, yet show its slight flexibility in terms of negotiations, while reinforcing China’s willingness to lower protective barriers, propelling the world economy forward.
Defining a BIT BITs make up the largest portion of IIAs, or international investment agreements. According to the United Nations’ Investment Policy Hub, a BIT is “an agreement between two countries regarding promotion and protection of investments made by investors from respective countries in each other’s territory” (United Nations, 2013). Broadly speaking, BITs are utilized to lower trade barriers between two nations while simultaneously keeping foreign investors in check. Typically, the BITs include the specific outline of what foreign investments are protected under the treaty, exactly what the protections are, clear circumstances under which foreign investors are able to enter the market, and conflict resolution, should a dispute arise from the BIT (Wei, 2012). Having established the basic format of BITs that is accepted throughout the world, it is important to note that each country has its own basic method of negotiating and writing BITs. As previously stated, BITs between developing and developed nations is not uncommon, but BITs between two developed countries is rare. This is due to the fact that each country has its own system of creating the treaties; typically, when two countries are in negotiations, the country with more economic power dominates the talks. When both countries are equally, or closely, matched, negotiations become significantly more complicated, as each side is less willing to compromise on what they view to be key issues. Such