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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 257  July 29, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Alexa Busser ([log in to unmask])
*Challenges for the EU-China BIT negotiations*
* <#m_-8036080763384912505__edn1>
Yong Liang** <#m_-8036080763384912505__edn2>

The EU and China have been negotiating an investment agreement since 2013.
[i] <#m_-8036080763384912505__edn3> The EU-China Summit Joint Statement
released on April 9, 2019 set an ambitious target for the conclusion of a
EU-China Comprehensive Investment Agreement in 2020. However, some critical
concerns remain to be addressed.

   - *Market access. *Although both parties have agreed on a “negative
   list” approach, they face difficult challenges with defining a short and
   narrow list of reservations. Contrary to the EU, China has never adopted
   negative lists in bilateral agreements (except in the 2017 supplementary
   agreements relating to the comprehensive economic partnership agreements
   with Hong Kong and Macao). China’s experiments conducted in pilot free
   trade zones since September 2013 have not been successful enough to warrant
   further experimentation. Furthermore, EU members, for their part, have
   reservations at the state level under the EU’s two-tier legal system, while
   China is a unitary state that has to adopt a single negative list.
   Balancing the EU and member states’ expectations for market access and
   China’s possible concessions is a difficult exercise. To move negotiations
   forward efficiently, both parties may want to take the third version for
   market access considered in the U.S-China bilateral investment treaty (BIT)
   negotiations as a basis. China may make reservations in sensitive
   industries (e.g., national defense, infrastructure, finance, media) and
   attempt to minimize EU member states’ reservations.

   - *National treatment (NT).* Among China’s 26 BITs with EU members, only
   15 provide for NT, and none of them includes pre-establishment NT.
   Pre-establishment NT is not just a contentious matter in the negotiations,
   but controversy persists about the definition of “Chinese investors”. Even
   though none of China’s statutes grant more advantages to Chinese
   state-owned enterprises (SOEs) than to private entities, SOEs enjoy more
   favorable preferences regarding subsidies, tax deferral and credit support.
   While China’s just-adopted Foreign Investment Law grants pre-establishment
   NT, it does not clarify the status of SOEs, which may be specified in
   future State Council regulations. In the EU-China BIT negotiations, China
   may adopt neutral competition principles in allocating subsidies, tax
   referral, finance, or other support, as well as providing for equal access
   to information and government procurement, to ensure non-discriminatory
   treatment of EU investors.

   - *Investment court system (ICS). *To address the flaws of
   investor-state dispute settlement (ISDS), the EU advocates an ICS in
   negotiating investment agreements with other partners, while historically
   China has been skeptical about—even averse to—international
   dispute-settlement mechanisms. As a host and home country vis-a-vis the EU,
   China aims to balance benefits in both capacities. China has adopted ISDS
   in most of its agreements since entering into the 1998 China-Barbados BIT,
   and it has been involved in some ISDS cases. Due to significant differences
   between the ISDS and ICS approaches, China has not taken a clear stand on,
   nor expressly opposed, the ICS. In the above-mentioned Joint Statement,
   both the EU (and member states) and China envisage cooperating in support
   of ISDS reform. In particular, China may request further negotiations on
   specific issues, including the selection of third-party ICS members, the
   appeal tribunal authority and the enforcement of decisions (since the EU is
   not a signatory to the ICSID Convention
   and the New York Convention
   as well as clarifications on some substantive matters (especially fair and
   equitable treatment, indirect expropriation). China may adopt the ICS if
   the parties agree on these pending issues.

   - *Other issues**. *Besides seeking high standards for investment
   protection and liberalization, the EU also seeks to include such
   “investment-plus” (or “investment-extra”) issues as democracy, taxation,
   intellectual property, labor and environmental protection, and sustainable
   development in the negotiations. Although China has incorporated
   sustainable development, public health and environmental protection in the
   preambles of recent agreements, it is reluctant to adopt them as binding
   obligations, enforced through ISDS. Instead, China prefers negotiations,
   mediation, conciliation, *ad hoc* state-to-state committees, or other
   approaches. The EU must know that these issues cannot be settled under an
   “all-or-nothing” strategy. The more pragmatic and effective way is to set
   these issues as non-binding obligations (e.g., stated purposes, objectives,
   guiding principles) or as obligations actionable through joint
   consultations, negotiations, mediation, or periodic policy reviews—and
   upgrade them step-by-step through further negotiations.

Concluding the EU-China BIT is a considerable challenge. However, as
economies are becoming increasingly interconnected and interdependent, and
with both parties considering cooperation as a counterpoint to the
“America-First” policy, an agreement should be possible in the near future.
The parties’ ambition to reach an agreement in 2020 and China’s
just-adopted Foreign Investment Law (which promotes investment and provides
high standards of investment protection) are strong signals to that effect.

* <#m_-8036080763384912505__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinion of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_-8036080763384912505__ednref2> Yong Liang ([log in to unmask]),
Ph.D., is Associate Professor, Fudan University Law School Shanghai. The
author is grateful to Julien Chaisse, Huiping Chen and an anonymous peer
reviewer for their helpful comments.
[i] <#m_-8036080763384912505__ednref3> European Parliament, “Resolution of
9 October 2013 on the EU-China negotiations for a bilateral investment
agreement,” 2013/2674(RSP)
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Liang Yong, ‘Challenges for the EU-China BIT
negotiations,’ Columbia FDI Perspectives, No. 257, July 29, 2019. Reprinted
with permission from the Columbia Center on Sustainable Investment (*
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Alexa Busser, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 256, Evan Gabor and Karl P. Sauvant, “Incentivizing sustainable
   FDI: The Authorized Sustainable Investor,” July 15, 2019
   - No. 255, Kinda Mohamadieh, “A legally binding instrument on business
   and human rights to advance accountability and access to justice,” July 1,
   - No. 254, Marion A. Creach, “Assessing the legality of
   data-localization requirements: Before the tribunals or at the negotiating
   table?,” June 15, 2019

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - *On September 25, 2019*, CCSI, will host its 14th Annual Columbia
   International Investment Conference: “Aligning Corporations with the
   Sustainable Development Goals.”
   conference aims to clearly define SDG-aligned corporate activity in order
   to bring coherence and rigor to SDG measurement, reporting, and tools,
   helping to avoid the divergence and incoherence that has undermined the
   usefulness of ESG criteria and tools to date. *For more information, and
   to register, please see our website here
   - *On September 25, 2019*, CCSI, the UN Sustainable Development
   Solutions Network (SDSN), and Le Club des Juristes, with support from
   Iberdrola and under the guidance of Prof. Jeffrey Sachs, Special Advisor to
   the UN Secretary-General on the SDGs, and Laurent Fabius, President of the
   Constitutional Council of the French Republic, will host a conference to
   discuss the Global Pact for the Environment
   . *For more information, and to register, please see our website here
   - *On September 27, 2019*, CCSI, the Sabin Center for Climate Change
   Law, Landesa, and Wake Forest Law School will be hosting a day-long
   conference on the intersection between land use, the climate crisis and
   clean energy transition, and human rights. *For more information, and to
   register, please see our website here

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

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