CHINA-US: PROSPECTS FOR A BILATERAL INVESTMENT TREATY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00447R000302180001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: May 11, 2010
• Sequence Number: 1
• Publication Date: November 4, 1985
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
4 November 1985
China-US: Prospects for a Bilateral Investment Treaty 25X1
Summary
Negotiations for a bilateral investment treaty, under way since
mid-1983, appear indefinitely stalled. The Chinese fear resolution of four
major issues--treatment of investment, currency transfers, compensation
for expropriation, and arbitration of disputes--will result in infringements
on their sovereign rights. Moreover, Beijing does not appear to view a
treaty as an essential ingredient for maintaining an adequate level of
foreign investment. As a result, we expect the Chinese to continue to
raise objections to major US concerns, and we do not look for an
agreement soon.
BIT Talks Friendly But Inconclusive
Negotiations for a US-China Bilateral Investment Treaty (BIT) which began
formally in June 1983, were suspended in April 1985 after six rounds. Though no
agreement was reached and no seventh round was scheduled, the talks remained
This memorandum was prepared byl (Office of East Asian Analysis.
Information available as of 4 November 1985 was used in its preparation. Comments
and queries are welcome and may be directed to the Chief, Development Issues Branch,
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friendly, each side expressing a desire to conclude a treaty. However, firmly held
positions on four issues continue to prevent agreement:
? Treatment of Investment. In BITs already concluded with other Western nations,
the Chinese have been very reluctant to grant more than most-favored nation
(MFN) status.* MFN grants an investor access to Chinese markets equal only to
the access allowed other foreign investors. Beijing is not willing to grant US
desires for national treatment, under which US investors would obtain the
broader access to Chinese markets accorded to China's own domestic
enterprises. In that case, the Chinese leadership believes that it would lose too
much control over its own markets.
? Currency Transfers. China's other BITs permit investors access only to the
foreign currency accounts of the enterprise in which they invested, thus inhibiting
their ability to purchase from abroad those goods that can be obtained
domestically. In this way, China tries to protect domestic industries, maintain
employment levels, and regulate foreign exchange reserves.
? Compensation for Expropriation. The right of a host country to expropriate and
the right of an investor to compensation for expropriation are recognized in
international law, but it is not clear in Chinese BITs whether the timing and
amount of compensation would be determined by international or Chinese
standards. Beijing maintains that international law favors developed countries
and is holding out for more "equitable" treatment.
? Arbitration of Investment Disputes. China is also reluctant to agree to
international standards for dispute settlement. In BITs already concluded, China
has limited outside arbitration to issues of compensation.
What is a BIT?
A Bilateral Investment Treaty is a comprehensive investment agreement
signed by a developing and a developed nation. It is designed to make the
investment environment in the developing nation more attractive to
investors from the developed nation. It establishes rules of conduct for
both the investor and the host government to ensure both of noncapricious,
nondisruptive, and nondiscriminatory behavior.
* China has signed BITs with the following countries: Belgium, Luxembourg, France,
Germany, Italy, Netherlands, Norway, Romania, Sweden, Switzerland, and Finland.
The US is in various stages of BIT negotiations with: Egypt, Panama, Haiti, Morocco,
Senegal, Turkey, Zaire, Cameroon, Bangladesh, and Costa Rica.
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Conclusion of an Agreement Unlikely
China is under little pressure to sign a BIT with the United States. Large US
firms with the legal and financial resources necessary to engage in prolonged and
detailed contract talks presently are able to negotiate many of the safeguards that
would be covered by a BIT. As a result, the United States continues to be a major
investor in China even without a BIT. Moreover, because of a projected trade deficit this
year, China is particularly disinclined to yield on issues relating to foreign exchange
controls and currency transfers.
Furthermore, we believe China may be more interested in using BITs as a means
of establishing legal precedents favorable to the third world than increasing foreign
investment. China has explicitly stated its commitment to standards expressed by the
Group of 77 in the Charter of Economic Rights and Duties of States particularly with
regard to treatment of investment and compensation for expropriation.
Until China believes that the signing of a BIT will cause investment to rise
significantly or that abiding by international norms will serve Beijing's broader political
interests, it is unlikely to alter its present negotiating position. Therefore, a prompt
conclusion of a comprehensive BIT is highly unlikely.
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Distribution
National Security Council
1 - David Laux, Senior Assistant for China, Taiwan and Hong Kong,
Room 302, OEOB
Department of State
1 - James Lilley, Deputy Assistant Secretary for East Asia and Pacific
1 - Richard Williams, Director, Office of Chinese Affairs
1 - Joan Plaisted, Deputy Director of Economic Affairs, Office of Chinese Affairs
1 - DAS William Piez, Director, Office of Economic Policy
1 - John Danylyk, Chief, INR/EC Communist Economic Relations Division
Department of Defense
1 - James Kelly, Deputy Assistant Secretary, EAP, International Security
Affairs
1 - DIA/DB4E2
Department of Commerce
1 - Mike Farren, Deputy Assistant Secretary for International Trade
1 - Christine Lucyk, Director, PRC Office, East Asia and Pacific
1 - Office of Intelligence Liaison
United States Trade Representative
1 - Joe Massey, Assistant for Japan and China
Department of Agriculture
Department of the Treasury
1 - Mary Yee, Office of East-West Economic Policy
1 - Doug Mulholland, Intelligence Liaison
Central Intelligence Agency
1 - NIO/EA
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- ? 25X1
1 - DDI, Room 7E44
1 - D/OEA, Room 4F18
1 - OEA/Research Director, Room 4G48
1 - C/OEA/CH, Room 4G32
1 - C/OEA/CH/DEF, Room 4G32
1 - C/OEA/CH/DEV, Room 4G32
1 - C/OEA/CH/DOM, Room 4G32
1 - C/OEA/CH/FOR, Room 4G32
1 - Senior Review Panel, Room 5G00
1 - PDB Staff, Room 7F30
1 - FBIS/NEAAD/China Branch, Room 306, Key
1 - C/EA/RR, Room 5E18
5 - CPAS/IMB/CB, Room 7G07
1 - C/PES/DDI, Room 7F24
1 - CPAS/ILS, Room 7G50
1 - OGI/EC, Room 3G48
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