China-US BIT negotiation and the emerging Chinese BIT 4.0

Introduction International investment law, a subject of international law to which Professor Sornarajah has made a significant contribution, has entered into an extremely interesting and exciting era. On the one hand, investment treaties continue to grow, with major investment players entering into mega-investment treaties. The rules in these treaties have also been converging, and this has brought about a shift toward a “global” bilateral investment treaty (Global BIT) 2.0. On the other hand, the debate on the inclusion of investor-state dispute settlement (ISDS) in such treaties has captured extensive attention worldwide, with the increasing number of ISDS cases, which have been brought before international arbitration tribunals. As a major player in international investment and relevant treaty activities, China’s approach to international investment treaties has attracted wide attention and interest. Recent years have seen dramatic changes in China’s BIT practices, the most significant of which being China’s acceptance of preestablishment national treatment and a “negative list” approach in the China-United States (US) BIT negotiations during the Fifth United States-China Strategic and Economic Dialogue in July 2013. As a result, a new “fourth generation” of Chinese BITs (Chinese “BIT 4.0”) seems to be taking shape. This chapter attempts to discuss China’s newly emergent fourth generation BIT by first exploring the background against which this new generation of treaties has developed. It will then discuss specific issues which China’s new model BIT would need to address. These include the issues of investment liberalization, substantive protection (fair and equitable treatment (FET), expropriation, and umbrella clauses), social responsibility (environment and labor clauses), and dispute settlement (ISDS) reform. It concludes with an exploration of the would-be or should-be “Chinese characteristics” of China’s BIT 4.0, including respect for a country’s choice of political, social, and economic systems, allowances for countries in economic transition and accommodation of diverse local developmental needs inside the country. The background: why a BIT 4.0 now? China’s recent move towards a new generation BIT is a result of a combination of economic, political, and international factors. Economically, China’s shift from being mainly a capital-importing state to being both a capital-importing and a capital-exporting state now requires the country to play a more proactive role in promoting international investment. Politically, domestic reform has also reached a new stage under China’s so-called Reform Version 2.0, which in turn requires its investment regime to be looked at afresh.