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1 1 (January 12, 2018)

handle is hein.crs/govcczr0001 and id is 1 raw text is: 01;0i E.$~ & gn'a', ggmm rq\\ , q 'S a X 11LULANJILiN, Updated January 12, 2018 A U.S.-China Bilateral Investment Treaty (BIT): Issues and Implications Over the past three decades, U.S.-China commercial ties have expanded significantly. In 2017, China was the United States' largest trading partner (with total merchandise trade estimated at $633 billion), while the United States was China's largest trading partner. Yet the level of bilateral foreign direct investment (FDI), while growing, is relatively small. In 2008, the United States and China launched negotiations for a bilateral investment treaty (BIT), an agreement that typically contains provisions to encourage and provide reciprocal investment protections in order to enhance bilateral commercial ties. In 2013, China agreed to negotiate a high standard BIT with the United States, which would include opening new sectors to FDI and generally treating U.S.-invested firms in China the same as Chinese firms. The two sides were unable to reach an agreement by the end of the Obama Administration's term, and the Trump Administration has not shown interest in restarting the talks. Many analysts contend that a BIT could significantly boost bilateral FDI and trade flows. ,hat N , ,WT,,? U.S. BITs address six core principles or issues for investors, including national treatment and most-favored nation (MFN) treatment at all stages of investment, rules on expropriations and compensation if this occurs, ability to transfer funds in and out of the country, limits on performance requirements (such as domestic content targets or mandated technology transfer), neutral arbitration of disputes, and freedom by investors to appoint their own senior officials. To take effect, BITs must be approved by the U.S. Senate by a two-thirds vote (see CRS In Focus IF10052, U.S. International Investment Agreements (IlAs), by Martin A. Weiss and Shayerah Ilias Akhtar). BITs are intended to improve the investment climate among the partners, promote free market policies, and expand commercial ties. FDI inflows can boost a country's economy by creating (or sustaining) jobs, generating tax revenues, enhancing domestic research and development and access to technology, increasing domestic competition, and expanding the types of goods and services available to consumers. FDI outflows abroad may help firms become more competitive by boosting their overseas sales of goods and services, generating exports from the home country, and expanding a firm's access to foreign talent. ULz-C~.,a F§ , HW ,fflee, , FDI is generally the most commonly used measurement of international investment flows, although some contend such measurements do not cover all investments. According to the U.S. Code of Federal Regulations, FDI is defined as the ownership or control, directly or indirectly, by one foreign person of 10% or more of the voting securities of an incorporated business enterprise or an equivalent interest in an unincorporated business enterprise, including a branch. The U.S. Bureau of Economic Affairs (BEA) is the main U.S. federal agency that collects and reports data on U.S. FDI outflows and inflows. It reported that Chinese FDI flows to the United States in 2016, based on an ultimate beneficiary owner (UBO) measurement, were $10.3 billion, while U.S. FDI in China was $9.5 billion. BEA further reported that the stock of Chinese FDI in the United States on a historical-cost (book value) basis through 2016 was $58.2 billion (UBO), while the stock of U.S. FDI in China was $92.5 billion. Some analysts contend that BEA's data do not reflect the full value of Chinese FDI in the United States. They note, for example, that many of acquisitions of U.S. firms do not appear to be reflected in BEA's FDI in the year the deal was completed. They further contend that BEA data often attribute the source of the FDI inflows according to where the funds originated from, such as offshore financial centers, which may not reflect the nationality of the actual investor. The Rhodium Group (RG), a private consulting firm, has sought to calculate its own estimates of U.S.- China FDI flows, based on the value of completed transactions by Chinese-owned firms. Using this method, it estimates Chinese FDI flows to the United States in 2016 at $42.6 billion (which was 4.5 times BEA's estimate) and U.S. FDI in China at $13.8 billion (34% higher than BEA's data). Figure I. Estimates of U.S.-China FDI Flows in 2016 (in billions of dollars) 50 7 : 45 40 35 ,s , :.................. BEA: 13S F D Flow, RG: :U.S. FDI Flow t, BEA: ChimeE FD1 1113 Chqlnese FD to c la Chin.a F lo, , .Co jile U.S. fi ow '. t , F U. Sources: BEA and the Rhodium Group. In terms of the stock of Chinese FDI in the United States through 2016, RO's estimate, at $110.1 billion, was 89% larger than BEA's UBO estimate, while RO's estimate of the stock of U.S. FDI in China, $240 billion, was 159% larger than BEA's data.

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