US BIT Talks with China and India: A Recap



September was an eventful month for US bilateral economic relations: The United States and India held their inaugural Strategic and Commercial Dialogue (S&CD) on September 22, and Chinese President Xi Jinping made his first state visit on September 25. There were hopes that both events could produce some kind of progress toward a bilateral investment treaty (BIT)—especially in the US-China case.

Progress earlier in the year had built momentum: In January 2015, Presidents Barack Obama and Narendra Modi announced that the US-India BIT negotiations should resume expeditiously; in early September, China and the United States held their latest round of BIT talks and exchanged revised negative list offers—the list of the sectors that would be excluded from investment liberalization in a prospective deal.

But the outcomes of both events last week, as related to BITs, were primarily just reaffirmations of “commitments to make progress”—unsurprisingly given the substantial distance between BIT standards. This post provides a recap on the status of the talks.

The Backdrop

The BIT negotiations between US-China and US-India have proceeded in fits and starts over the past several years, each facing their distinct challenges. The BITs aim to facilitate greater foreign direct investment (FDI) in each other’s markets through the removal of barriers and strengthen investor protections in China and India. Indeed, the investment environments of China and India can be challenging, as several sectors are partially or fully closed off and prevalent local content or performance requirements favor domestic firms.

Chinese investment in the United States has increased in recent years—as of year-end 2014, China’s foreign direct investment (FDI) stock in the United States was valued at $48 billion (7 percent of China’s total outward FDI), while Indian FDI in the United States was nearly $8 billion (6 percent of India’s total). The stock of US FDI in China and India was $68 billion and $28 billion in 2014, just 1.3 percent and 0.6 percent of the US total, respectively. The increase in two-way FDI compared to just a decade ago is notable. But as simple benchmarks, the low percentages indicate that both bilateral pairs are underperforming in potential two-way FDI.

Table 1 FDI stock between the United States, China, and India
  2004 2014
  US$ billions % of total outward FDI of source % of total inward FDI of host US$ billions % of total outward FDI of source % of total inward FDI of host
US FDI stock in China 17.6 0.8 7.2 65.8 1.3 6.1
US FDI stock in India 7.7 0.4 20.1 28.0 0.6 11.1
Chinese FDI stock in US 0.7 1.5 0.0 48.0 6.6 1.0
Indian FDI stock in US 0.6 8.1 0.0 7.8 6.0 0.2
Addendum US$ billions % share global FDI
Global FDI in China 246 2.2
Global FDI in India 38 0.3
Global FDI in US 2,161 19.1
Note: India FDI stock in US based on mirror data due to missing data.
Sources:  United Nations Conference on Trade and Development (UNCTAD); US Bureau of Economic Analysis; Chinese bilateral data for 2014 from Rhodium Group.

The United States has 41 BITs in force, the majority with developing countries.1 In 2012, the revised model BIT was released, renewing expectations for US BIT negotiations. The new requirements primarily related to stronger transparency, labor, and environment commitments, clarified treatment of state-owned enterprises, and stricter limits on technology transfer (see Schott and Cimino 2014). These features in particular complicate discussions with major emerging markets, like China and India. And in part, they help explain why the United States has pursued few BITs in recent years—only two in the past decade—opting instead to negotiate investment obligations within its FTAs, the comprehensive nature of which allows for balancing concessions and tradeoffs with other parts of the agreement.2

There is a compelling case for greater integration between US-China and US-India via a comprehensive trade and investment agreement, whether bilaterally or regionally (for example, see Bergsten, Hufbauer, and Miner 2014 and Bergsten 2015). But this cooperation undoubtedly has a longer term outlook. Successfully negotiating the BITs with China and India would serve as a stepping stone towards this end.

US-China BIT

China has more than 100 BITs, most recently concluding a trilateral investment treaty with Japan and Korea and a BIT with Canada. These BITs somewhat upgrade Chinese past practices; still, Chinese BITs retain flexibility for investment restrictions through carve-outs and “nonconforming” measures.

A BIT with the United States would seek to narrow these exceptions and broaden investment protections. Central to US concerns in the talks is securing pre-establishment rights for firms seeking to invest in China, market disciplines on state-owned enterprises, restraints on forced technology transfer, and stronger intellectual property (IP) protection. Central to Chinese concerns are restrictions on US high-technology exports, the widespread US practice of antidumping and countervailing duties, and the alleged bias in reviews by the Committee on Foreign Investment in the United States on proposed Chinese investments in the US (see Schott and Miner 2015 and Moran 2015).

The 21st round of US-China BIT negotiations was held in early September 2015. The latest round has focused on finalizing the negative list offers, with the expectation that the list is narrow and excludes few sectors from liberalization. China’s revised list was welcomed by US Trade Representative Michael Froman for improving upon the original offer, but in practice, it fell short of significant market opening—and as a result, Froman concluded there remains “a substantial distance from the kind of high standard agreement necessary to achieve our mutual objectives.”3

Hence despite the politically-timed release of the revised offer, expectations were dampened for a major BIT announcement coming out of the Xi-Obama meetings. Indeed the joint statement only affirmed incremental progress: “[I]n light of the progress made in the BIT negotiations and both sides’ improved negative list proposals in September, the United States and China commit to intensify the negotiations and to work expeditiously to conclude the negotiation of a mutually beneficial treaty that meets these high standards.”

US-India BIT

India has concluded 82 BITs, including with EU member states, ASEAN, and Japan. India’s BIT negotiations—including with the United States—were put on hold in early 2013 as India conducted an internal review of its model BIT. An update of its 1993 template was widely welcomed. However, the draft released in March 2015 for public comment hardly serves as a constructive baseline for moving forward with the US talks, as several serious gaps remain, not just with the US standard, but with common BIT practice more generally.4 Notable among these is an extremely narrow definition of investment as an “enterprise” in the host state with “real and substantial business operations” in India, which excludes, among other things, portfolio investment, intangible assets, and importantly, intellectual property rights. In addition, India’s model BIT excludes the most favored nation provision and pre-establishment treatment for foreign investors, has weaker environment and labor obligations, and places limits on recourse to investor-state dispute settlement (ISDS).

The US-India BIT talks began in 2009 but soon stalled. In January 2015, Presidents Obama and Modi reaffirmed their commitment to make progress and effectively sanctioned resuming the talks. But positive rhetoric will not be enough to bridge the wide gap that remains between the two countries' approaches to standards, as evident from India’s draft model BIT.5

Major US concerns in the BIT talks also include India’s use of local content requirements, forced technology transfer, and level of IP protection. Moreover, a number of Indian sectors of interest remain partially restricted to FDI, including civil aviation, banking and insurance, broadcasting, and depositories. For the Indian side, major concerns include differences relating to environment and labor standards and approaches to ISDS.6 Top priorities for India are provisions on FDI in services and visa reform that would facilitate the movement of Indian skilled workers to the US.

The United States and India held bilateral discussions on progress toward a BIT in March 2015. In practice, formal negotiations cannot resume until India finalizes its BIT review—no hard timeline has been set. Thus the US-India S&CD was not expected to produce concrete progress toward the BIT; indeed, the joint statement made no mention of the talks, reflecting the reality that near-term prospects are dim. An economic cooperation factsheet issued by the United States referred only to plans “to continue discussions to assess the prospects for a high standard BIT.”


The US talks with China and India have been difficult, but negotiators are well aware that BITs with such important commercial and strategic partners need a high quality outcome and should not be rushed for political expediency.

The two efforts could reinforce each other: The US-China BIT is much farther along than US BIT talks with India, and a successful outcome could put competitive pressure on India to engage with the United States (Subramanian 2013). In addition, the outcome of the Trans-Pacific Partnership (TPP) negotiations between the United States and 11 countries will likely inform the US approach to investment provisions and the ISDS debate in these and future BIT talks moving forward.

Both BITs would be important steps toward greater economic integration at a time when the United States has yet to complete major negotiations with the BRICS emerging markets—Brazil, Russia, India, China, and South Africa.


1. US BITs are with a diverse array of countries from Argentina, Bolivia, Honduras, Panama, and Uruguay in Central and South America; Bangladesh in Asia; Croatia, Latvia, Poland, Russia, and Turkey in Europe; and the Republic of Congo and Rwanda in Africa.

2. Also, as a practical matter, BITs only require a two-thirds vote of the Senate, while FTAs require majorities in the House and Senate (Schott and Cimino 2014).

3. “Froman Says China's Latest BIT Offer Insufficient; Seeks Progress At Xi Visit,” Inside US Trade, September 24, 2015.

4. For a summary, see Kavaljit Singh, “India/US bilateral investment treaty will be no easy ride,” Financial Times, beyondbrics blog, January 26, 2015.

5. India expert Richard Rossow from the Center for Strategic and International Studies (CSIS) called the draft model BIT “a big setback” for making progress on the talks, concluding “we're starting a little bit further [back] than before that model was released.” See “Indian Minister Downplays Prospect Of U.S. BIT Revival At Dialogue,” Inside US Trade, September 24, 2015.

6. For more detail on the concerns, see Michael Stokes, Niraj Patel, and Karl F. Inderfurth, 2012, BIT and Beyond: Advancing the U.S.-India Economic Relationship, Center for Strategic and International Studies.

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