The “state-led-economy” issue in the BIT negotiations and its policy implications for China

Abstract

The state-led-economy provisions in the U.S. model BIT, which was released in April 2012, aims to impose strict regulations on the SOEs and exert great influence on state-led economy model. China and the U.S. are now in the midst of negotiating a BIT, and the U.S. government insists on negotiating on the basis of its 2012 model BIT. If China is to accept the 2012 U.S. model for the proposed BIT between the two nations, unprecedented international obligations will be placed in the field of international investment. In this context, in order to provide a reference for the BIT negotiation, the author will analyze, from the perspective of normative jurisprudence, which economic activities are included in the scope of state-led economy provisions, whether China should accept the clauses and the possible impact of accepting it. China’s economy has indivisible relationship with State-owned enterprises (SOEs). At present, most of these SOEs have clustered in those sectors that play crucial roles in the national economy such as energy, telecommunication and finances. Despite several rounds of reform on the SOEs aiming at a separation of governmental functions from corporate management, and a modern market-oriented governance structure, Chinese SOEs remain monopolies or de facto monopolies with exclusive access to many important industries relevant to national economy and people’s livelihood. Further, SOEs can enjoy a lot of privileges in their operation, some even have certain regulatory authority which is supposed to be exercised by the government. This kind of economic model is called State-led economy. The 2012 U.S. model for bilateral investment treaties (BIT) is characterized by the inclusion of the state-led economy provisions, which means that there are more restrictive regulations governing SOEs and their special treatment, and countervailing their competition implication in the host country and their home country. Apart from creating a fair and impartial environment for the investors, this international investment regime, represented by 2012 U.S. BIT model, is in some way, intended to alter the host country’s economic governance regime. In accordance with the decision of the 5th round of the U.S.–China Strategic and Economic Dialogue, both parties are dedicated to proceeding the BIT negotiations (The 5th Round of the U.S.–China Strategic and Economic Dialogue: broad consensus achieved and positive progress made, People’s Daily, p 3, 2013). The U.S. government has insisted that they would base its 2012 model as a blueprint of BIT text negotiation. Seemingly to illustrate, the 6th round of the U.S.–China Strategic and Economic Dialogue has reached a consensus that an earlier launch of negotiation on the negative list will be expected in 2015 (The 6th Round of the U.S.–China Strategic and Economic Dialogue: broad consensus achieved and positive progress made, People’s Daily, p 3, 2014; Ministry of Commerce of the People’s Republic of China, The 14th Round of the U.S.–China Investment Treaty Negotiation is Held in Washington, D.C., 2014). If China is to accept the new BIT model, it will bring China a bundle of increasing obligations under this system and an unprecedented impact on China’s mode for economic development. As a contracting party, China will have to carry out a comprehensively economic reform to comply with the disciplines specified in the BIT. It is also understandable that the incorporation of the state-led economy provision in the China–U.S. BIT will in turn accelerate the domestic economic reforms. In this context, research on the issue of state-led economy in the BIT negotiation will be of significance to China’s dealing with the core issue in the BIT, China’s fulfillment of treaty obligations and its promotion of domestic economic reform via BIT negotiations. In order to provide a reference for the BIT negotiation, the author will identify from the perspective of normative jurisprudence, the economic activities that fall within the scope of state-led economy provisions, project the possible impact of state-led economy provisions and how China should handle negotiation surrounding the state-led economy issue.