China has over 80 of these agreements in place, yet they remain somewhat obscure. What are these BIT agreements and what benefits do they bring to the 80 nations that signed them?
Op-Ed Commentary: Chris Devonshire-Ellis
Jul. 1 – China has been entering into bilateral investment treaties (BITs) with other countries since the early 1980s, when the nation began its path to reforms under then-Premier Deng Xiaoping. Although many have now been superseded by more complicated and sophisticated trade agreements such as double tax treaties (DTAs) and other bilateral mechanisms, BITs remain important, especially for investors from emerging nations with relatively immature tax laws and regulatory environments. Such treaties also help to underpin the bilateral investment conditions between China and other developed nations.
The purpose of a BIT between two countries is reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country. These treaties typically cover the following areas:
- Scope and definition of investment;
- Admission and establishment;
- National treatment;
- Most-favored-nation treatment;
- Fair and equitable treatment;
- Compensation in the event of expropriation or damage to the investment;
- Guarantees of free transfers of funds; and
- Dispute settlement mechanisms, both state-state and investor-state.
The sheer longevity of a given BIT goes some way to explaining their usefulness, and investors into China from other countries should be aware of the contents of these documents. China has over 80 BIT in place, and continues to use them in its bilateral relationships. For example, while the BIT signed between China and Switzerland was ratified way back in 1987, others still continue to be put into position. The recent BIT agreement between China and Canada was negotiated at the Vladivostock APEC summit just last year, and has just been tabled before the Canadian Parliament.
While BIT agreements as a general rule of thumb may now be purely a matter of academic or historical interest, for some countries (such as Cambodia, which currently has zero DTAs in place) these treaties provide a useful mechanism for understanding the legal, tax and dispute resolution mechanisms for investors into the country. As such, BITs are a useful starting point to clarify legal and tax treatments under bilaterally agreed conditions and should be understood as a bilateral document of first resort when understanding the investment environment, and protection mechanisms that China offers its many trading partners. These tend to be of particular importance for understanding the rights of companies investing from or into emerging markets throughout Asia, Africa, Latin America and the Middle East.
China has the following BIT agreements in place:
Albania, Austria, Belgium-Luxembourg Economic Union, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Netherlands, Norway, Portugal, Romania, Russia, Slovenia, Spain, Sweden, Switzerland, Turkey and the United Kingdom.
Latin, Central & South America
Argentina, Benin, Bolivia, Chile, Colombia, Cuba, Ecuador, Guyana, Jamaica, Mexico, Peru, Trinidad and Tobago, and Uruguay.
Bahrain, Iran, Jordan, Lebanon, Kuwait, Syria, Qatar, and the UAE.
Botswana, Cameroon, Cote D’Ivorie, Djibouti, Ethiopia, Egypt, Ghana, Madagascar, Morocco, Tunisia, and Uganda.
Asia & Oceania
Australia, Brunei, Cambodia, Indonesia, Japan, Laos, Mongolia, New Zealand, Philippines, Singapore, Sri Lanka, Thailand, North Korea, South Korea, and Pakistan.
These documents may be downloaded in full, on a complimentary basis, from the Dezan Shira & Associates online resource library. We recommend that these are studied to examine the benefits these simple, yet effective G2G documents can bring, especially for the countries whose sole treaty with China is the BIT.
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Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates. Established in 1992, the firm provides foreign direct investment advice into China on behalf of companies around the world, including SMEs from emerging markets within Africa, the Middle East, Latin America and emerging Asia. Please email firstname.lastname@example.org for assistance or visit the firm’s website at www.dezshira.com for more information.
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