The United States and China recently concluded two days of high-level talks as part of the sixth U.S.-China Strategic and Economic Dialogue (“S&ED” or the “Dialogue”), which took place in Beijing from July 9-10. The most concrete outcome of this year’s S&ED is the commitment by both sides to reach agreement on the main body of the U.S.-China Bilateral Investment Treaty (“BIT”) text by the end of 2014 and to commence negative list negotiations by early next year. Given the broad scope of BITs negotiated by the United States, the U.S.-China BIT negotiations present the most important opportunity for U.S. industry to address market access and other trade and investment barriers in China since China’s accession to the WTO in 2001.

For U.S. companies seeking to enter the Chinese market, especially in industries that historically have been prohibited or heavily restricted for foreign investment, the remainder of this year is a critical time to engage with U.S. and Chinese government officials. Companies should use this time before China releases its negative list to apprise U.S. and Chinese policymakers of the companies’ priority interests. In particular, companies will want to specify the existing Chinese laws, regulations, policies and practices that impede the establishment of new investments or the operations of investments once established, and propose text to eliminate the impediments. China has signaled a willingness to open up the financial services, healthcare/medical, accounting, e-commerce, cultural and other service sectors, and U.S. negotiators will be looking to companies, trade associations and other stakeholders to identify the market access and other barriers that the U.S. Government can communicate to their Chinese counterparts, ideally for inclusion in China’s opening negative list offer.

Beyond the U.S.-China BIT development, according to a closing statement by Vice Premier Wang, the two sides reached more than 90 outcomes from the S&ED. Additional economic-focused results of greatest relevance to foreign investors in China, as described in a U.S.-China Joint Fact Sheet, include the following:

  • China committing “to follow the guidance provided at the Third Plenum of the 18th CPC Central Committee, which is to promote the orderly opening-up of the finance, education, cultural, medical sectors, and other service areas, and to remove foreign investment access restrictions in child and old-age care, architectural design, accounting and auditing, commerce and logistics, electronic commerce, and other such service sectors, including accelerating the revision of the Catalogue Guiding Foreign Investment in Industries to further open up to foreign investment.”
  • China committing that “economic entities under all forms of ownership . . . are able to compete on a level playing field.”
  • China committing that “its three Anti-Monopoly Enforcement Agencies (AMEAs) are to provide to any party under investigation information about the AMEA’s competition concerns with the conduct or transaction, as well as effective opportunity for the party to present evidence in its defense.”

In parallel with the S&ED and U.S.-China BIT negotiations, China continues to move forward with pilot economic reforms in the Shanghai Free Trade Zone (“FTZ”).  Last week, China issued a revised negative list for the FTZ.  For a comparison with the previous (2013) list, see this matrix prepared by Covington.  An accompanying statement by the Shanghai municipal government claimed that the new list was “17.4%” less restrictive than the previous list, but the loosening has not extended to sectors of major interest to foreign investors. This rather minimal loosening of restrictions has been greeted generally by U.S. officials, including Treasury Secretary Lew, with disappointment. In any event, China’s progress in implementing reforms in the Shanghai FTZ is an important ongoing indicator of prospects for achieving other reform objectives announced by the new leadership, and bears close monitoring.

For further information about developments regarding the S&ED, the Shanghai FTZ, and the U.S.-China BIT negotiations, please see Covington’s recent advisory on these topics here.