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A BIT with China Is the Wrong Solution to the Wrong Problem

Photo via TwicePix/Flickr

The United States is currently negotiating a bilateral investment treaty (BIT) with China. When most people think of a “bit,” they think of something that goes in a horse’s mouth, or maybe a small piece of something. Unfortunately, this kind of BIT can be much more harmful than either of those things. A BIT is a treaty between two countries in which each country promises to give rights and privileges—but impose no obligations—to investors from the other country. Usually these investors are large corporations. If you wonder why the United States would negotiate a treaty that grants rights and privileges to foreign corporations (rights and privileges home-grown corporations don’t have, by the way), you’re not alone. 

And if you are wondering why the United States would negotiate such a treaty with China right now—when the United States already has a $315 billion merchandise trade deficit with China—you’re also not alone. 

The AFL-CIO opposes the move to negotiate a BIT with China. Here are some reasons you should be concerned, too:

  1. The United States is negotiating from a “model BIT” (and unlike other trade negotiations, this sample text is public, so we know for the most part what a BIT with China would look like). The model BIT does not effectively protect fundamental labor rights, including freedom of association, collective bargaining and freedom from forced labor. Given that the Chinese government does not adequately protect its workers in these critical areas, making it easier for U.S.-based companies to invest in China could exacerbate, rather than improve labor abuses in China. 
  2. U.S. companies attracted to China by the prospect of a low-labor rights regime could actually make our trade deficit with China worse if they export their artificially cheaper products to the United States, displacing products from the United States or other countries. This practice is sometimes called “social dumping.”  
  3. Without adequate and effective labor protections, global corporations essentially pit both countries against each another in a competition to lower their costs, which suppresses wages and working conditions for all. This is sometimes called the “race to the bottom.” 
  4. The model BIT contains investor-to-state dispute settlement (ISDS), a process that allows foreign investors who think a law or regulation may impact the value of its investment to skip a country’s domestic courts and bring their claims to a private panel (this process is called arbitration). In other words, foreign investors can bypass state and federal courts (the courts where all U.S.-owned businesses have to bring their claims) and instead pursue their legal claims in front of undemocratic, unaccountable panels of attorneys—not judges. 
  5. Most of the attorneys who form the arbitration panels come from elite law firms, and alternate between acting as panelists and acting as mouthpieces for global investors. 
  6. ISDS has been used to challenge democratically-enacted laws designed to promote public good. When corporations win, citizens lose, either because their government has to fork over precious taxpayer dollars to pay off the investor, or because the government agrees to withdraw the law or regulation at issue. 
  7. Despite the fact that the U.S. government and various state governments already have spent millions defending ISDS claims, the U.S. government still included it in the model BIT. 
  8. In the China context, state-owned enterprises, which are essentially an arm of the Chinese government, could use ISDS. This would allow a foreign country to use what is supposed to be a commercial process to engage in what should be resolved through diplomacy. 
  9. The model BIT would do nothing to address the Chinese government’s record of violating trade commitments. Since it joined the World Trade Organization (WTO), the Chinese government has ignored commitments regarding market access for U.S. firms; enforcement of intellectual property rights; subsidies; dumping; export restrictions; currency exchange manipulation; and according equal status to national and foreign products. The U.S. government has had to resort to legal challenges over a wide variety of infractions, from chicken feet to electronic payment processing to rare earth minerals. 
  10. U.S. workers already have been hurt by trade with China—losing more than 2.7 million jobs since 2001 and having their wages suppressed—by $37.0 billion in lost wages in 2011 alone. Workers cannot afford more bad trade policy decisions. 

The current U.S. approach to BITs is unacceptably flawed, and if the United States pursues a BIT with China now, it is likely to cause further harm to U.S.-based producers and America’s working families. Workers in both the United States and China deserve better.  

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bilateral investment treaty

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