US and China in investment talks

A treaty would provide more protection for bilateral investments

The US and China have agreed to begin talks on an investment pact that would help protect and expand investments between the two countries.

Bilateral investment treaties are designed to eliminate barriers to investment through reciprocal rules that govern issues like arbitration.

US companies are said to be concerned that Chinese investment regulations favour domestic companies.

US officials said a formal announcement would be made later.

The news comes as high-level delegations from China and the US meet as part of regular talks aimed at tackling trade and currency frictions.

The strategic economic dialogue, as the talks are called, was instigated by US Treasury Secretary Henry Paulson in 2006, but has been criticised for making little progress.

Lengthy negotiations

For their part, Chinese companies are reportedly worried about a US investment review process that addresses acquisitions that raise national security concerns.

A bilateral investment treaty might make it easier to settle disputes between US companies and the Chinese government.

It would also likely stipulate greater investor protection for companies than that entailed by World Trade Organization membership.

US foreign direct investment in China totalled $22.2 bn in 2006, up from $17bn in 2005, according to the US Trade Representative's office.

US officials said they expected a difficult and lengthy negotiation with a reasonably good chance of success.

The US is likely to favour open investment except for a limit list of exceptions, while China is expected to assume little liberalisation except in areas it specifies.

The US has bilateral investment treaties (BITs) with almost 40 countries.

Proponents say they serve to deepen global economic integration and development.

However, critics say the treaties, particularly those with poorer countries, give too much power to multinational companies.