The conclusion of the U.S.-China Strategic & Economic Dialogue (S&ED) came with the announcement that the United States and the People’s Republic of China agreed to reinitiate talks regarding a Bilateral Investment Treaty (BIT). Officials on both sides praised the development.
It makes sense that both sides in the S&ED would emphasize the agreement to begin discussions over a BIT, as most of the S&ED focused on highly contentious issues. In particular, both sides traded barbs over the other’s cyber policy. The United States demanded that China cease its commercial and government cyber-espionage activities, while China returned with demands for the United States to end its actions of hacking into university systems in the People’s Republic. Both sides need to walk away with some type of win – thus, the BIT.
Reengagement on bilateral investment is a positive step in the US-China dynamic, but everyone should not be overly optimistic about where new talks will lead. Prior discussions on investment floundered and it is quite possible that new talks will as well. The reason that a formal investment treaty may prove unlikely is that there already exist standard patterns of investment between the two countries. After a period of decline during the global financial crisis, US investment in China is once again picking up. The United States also has no BIT with two of its most important trading and investment partners: Canada and the European Union.
Added to the already existing financial architecture is the fact that BITs are not easily passed by the United States Congress. Formalizing investment between the United States and a foreign country means that a great many interests in the United States will have to be heard from before Congress will act. Furthermore, the US Congress remains wary of China’s impact in the realm of human rights, intellectual property, environmental safety, consumer safety, financial transparency, and banking stability. Similar apprehensions are held by some central leaders on China’s side regarding US regulatory systems, banking and financial requirements, and trade protection laws. In short, the BIT has a steep hill to climb before becoming real.
New talks on investment do have one positive impact regardless of the end result of those talks: developing rules regarding US-China economic interaction. The current bilateral relationship is made difficult by the territorial disputes in the Asia-Pacific, China’s policy regarding the DPRK, its activities in the IOR, and its cyber policy, but the two countries are making strides economically. US-China trade remains robust with more firms in both countries entering into joint enterprises. Continuing to institutionalize economic behavior may well have the side effect of easing tensions within the strategic and political realms.
Please note that the views expressed in this piece do not represent the official policy or position of the National Defense University, the Department of Defense, or the U.S. government.