A Deep Freeze on Climate Change? 深度冷藏气候变化会谈?

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President Obama declared in his State of the Union address on January 27, to a standing ovation, that the United States would not take second place to anyone in the world, and specifically to countries such as China and India. The specific reference to China and India highlighted their growing importance on the global stage. India and China increasingly have been presenting a united front against the United States and the rest of the developed world, despite their own on-going political and territorial disputes (as we noted in our articles entitled, India, China, and the Doha Round, and India and China Turn Up the Heat on Climate Change).

We predicted in India and China Turn Up the Heat on Climate Change that an alliance between India and China could present a formidable barrier at the climate change meetings in Copenhagen in December 2009. Indeed, the talks have been regarded by many as a failure, and the resulting Accord as “low-ambition.” Just as India, with the support of China, had been blamed by the United States for the failure of the Doha Round in July 2008, China, with the support of India, has been blamed by many for the failure of Copenhagen.

The Copenhagen Accord, drafted by Brazil, China, India, South Africa (the “BASIC” countries) and the United States, is not legally binding, and was recognized but not approved by the 193 countries represented at Copenhagen. It seeks to limit a rise in temperatures to no more than 2 degrees Celsius above pre-industrial levels, and sets a goal that developed countries jointly will deliver $30 billion of aid over the next three years and $100 billion a year by 2020 to help developing countries cope with the impact of climate change.

Developing countries, including China and India, have made clear that they will join other countries to combat climate change, but not at the expense of their own economic interests. They conditioned acting on the receipt of significant concessions from the developed world, which they see as primarily responsible for the problem they are being asked to address.

Both China and India chose Copenhagen as the platform from which to demonstrate that they could not be bullied by the developed world. India’s Environment Minister Jairam Ramesh stated in an address following the meetings in Copenhagen that the alliance of BASIC countries highlighted the growing influence of emerging economies. He further characterized as a significant victory the commitment from developed countries to provide $100 billion/year in climate funding without having to make significant concessions in return. He indicated that close links with China would continue. China also declared that Copenhagen proved China could not be pushed around.

India has been concerned about the binding nature of the Copenhagen Accord. Even though India was among the countries that brokered the deal, sources have said that it announced its support for the Accord only after UN Secretary General Ban Ki-moon clarified to Prime Minister Manmohan Singh that the Accord was a political statement of intent with no legal force. In the aftermath of the Copenhagen meetings, Minister Ramesh even “pled guilty” for allowing provision for “international consultation and analysis” of domestic mitigation programs, a greater concession than merely informing the UN Framework Convention on Climate Change (“UNFCCC”) about domestic mitigation programs. When the environment ministers of the BASIC countries met on January 24, 2010, Minister Ramesh stated that the Copenhagen Accord has “no hope” of becoming a legally binding document.

The Copenhagen Accord did include a January 31, 2010 deadline for countries to outline their climate change plans and declare specific emission reduction targets. More than 50 countries respected the deadline, including India and China. India committed to reduce emissions by 20-25% by 2020 (in comparison to 2005 levels) through domestic mitigation efforts, but stated specifically that “its domestic mitigation actions will be entirely voluntary in nature and will not have a legally binding character.” India further stated that “mitigation actions will also not apply to agriculture sector. The emissions from agriculture sector will be excluded from the assessment of emissions intensity.”

China stated in a January 28 letter that it would endeavor to cut the amount of carbon produced per unit of economic output by 40 to 45 percent below projected growth levels by 2020, also from a 2005 base. However, given China’s projected rate of economic growth, China still would increase substantially its total carbon emissions while expecting the developed countries to decrease their emissions drastically.

Whether the Copenhagen meeting was successful cannot be determined strictly from the setting of targets, on the one hand, and the absence of any legally binding agreement, on the other. It may be that “success” will have to be measured by “progress,” with the standard for progress reasonably modest and determined by actual carbon emission reductions worldwide. Nonetheless, unmistakably there will be no global progress without the developing world. Copenhagen confirmed a China-India alliance as the base of a larger group of developing countries resistant to progress at their expense.

China, India, Brazil, and South Africa are now central to progress on climate change. They have asked the UNFCC to hold six meetings through 2010 in preparation for the next climate summit in Mexico City in December. The BASIC ministers themselves will meet once each quarter, first in Cape Town at the end of April 2010. The European Community had entered Copenhagen with even greater ambition than the United States. The BASIC countries proved that Europe, the United States, and other developed countries will make little or no progress without them.
 

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Making Progress BIT By BIT On A U.S.-China Bilateral Investment Treaty 美中双边投资条约一步一步前进

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Despite the joint announcement of the United States and China that both countries would “expedite negotiation on a bilateral investment treaty” (abbreviated in English as a “BIT”), the notion of a BIT between the United States and China, two of the world’s five largest economies, remains inconceivable for some. On the U.S. side, there are significant political obstacles: free trade and foreign investment typically are not successful campaign platforms for U.S. politicians during an economic recession, especially in an election year. U.S. politicians would not likely accept a BIT while strong disagreement remains over China’s currency policies. China’s pegging of the yuan to the dollar remains an irritant (indeed, the only trade issue on President Obama’s agenda in Beijing in November), notwithstanding that it may have enabled critical flows of debt-financing while the United States endured the depths of a recession while still needing billions for military actions in Iraq and Afghanistan. There are obstacles on Chinese protection and enforcement of U.S. intellectual property, controlled Chinese capital markets, and laws raising national treatment concerns for American investors trying to establish investments in China, according to Amy Tsui’s BNA Int’l Trade Daily article.  Political support for a BIT with China does not look promising, particularly with a Congress whose Democratic leadership is often openly suspicious of Chinese trade and investment intentions.

China has its own policy disagreements with the United States, including on trade issues such as the United States’ safeguard duties on Chinese tires. China also has been reluctant to embrace international arbitration of investor-state investment disputes to the degree that the United States would demand using the 2004 U.S. Model BIT as the basis for negotiations.

Notwithstanding these obstacles, there are reasons to believe that a U.S.-China BIT is not a question of “whether” but “when.” When the Bush Administration announced in June 2008 that the United States and China had been discussing a BIT as part of the Strategic Economic Dialogue, at least one observer wondered whether the announcement meant a deal had been completed. According to a U.S. official, talks of a U.S.-China BIT already had been going on for seventeen months. Under the Obama Administration, it appears that discussions are continuing “in technical stages [but] have not yet reached political decisions.” (“ACIEP Report on Model BIT Lacks Consensus on Critical Issues,” Inside U.S. Trade, Oct. 2, 2009.)

BITs are smaller in scope than free trade agreements (“FTAs”). The negotiations, therefore, are much more attainable, in terms of both the substance and the political capital expended to reach an agreement. BITs tend to favor the country in the agreement that is the larger exporter of capital, which usually has meant that the United States stood to benefit far more than its treaty partner. Of the approximately 60 countries with whom the United States previously has agreed on BITs or FTA investment chapters, Canada and South Korea are the only significant exporters of capital.

U.S. businesses see BITs as a way to open up access to foreign markets, and China would be no exception. For many years, U.S. industries have been looking for ways to improve access to China’s one billion consumers and to eliminate restrictions on or disincentives to foreign investment, particularly as, during recent years of high economic growth, the Chinese have accumulated unprecedented wealth for a developing country.

China, unlike most of the United States’ treaty partners in prior BITs, has become a significant exporter of capital, but this fact probably makes a BIT even more likely. Since 1998, China has been renegotiating BITs it had with many European countries in order to provide greater protection for its own investors doing business in Europe. Recently, China also has been in BIT negotiations with Canada. As China increases its investments in the United States, it becomes increasingly likely that China will want the same protections for its investors doing business there.

There have been critics in the United States fearing that BIT provisions for international investor-state arbitration circumvent U.S. judicial, legislative and regulatory processes, and many certainly would oppose a BIT with China given the implications for U.S. environmental and labor standards. And yet, there is little reason for anyone to believe that the United States would be overrun with foreign claims under a U.S.-China BIT. Notwithstanding Canada’s significant investments in the United States market, in the sixteen-year period since the adoption of NAFTA’s investment chapter no arbitration tribunal has required the United States to pay on a single claim.

Political concerns over U.S. national security restrictions on investment have subsided since 2005 when CNOOC’s bid to purchase UNOCAL was blocked, as discussed in our previous post in December. Specific transactions still may be blocked, but those decisions appear to be driven more by the national security analysis of a particular case than by reactionary measures to calm an agitated Congress, as discussed in our earlier post in January.

U.S. industry representatives have recommended that the United States should consider softening the “essential security” exception in its Model BIT language to allow foreign investors greater assurances that their investments will not be disrupted by disguised protectionist motivations.  (“ACIEP Report on Model BIT Lacks Consensus on Critical Issues,” Inside U.S. Trade, Oct. 2, 2009.)  While they plainly intend for the exception to be softened as to foreign countries’ restrictions on foreign U.S. investment, the reciprocal nature of such a provision would be appealing to the Chinese as well. There may not be enough sympathy in Congress, however, for such a departure.

Negotiation of a China-U.S. BIT will not be quick and easy, but it remains likely. China is an expanding market attracting foreign investment from around the globe. American enterprises want to invest there and would like more security for their investments. Such incentives historically have driven the United States to negotiate BITs.

This time, however, there is an added and critical dimension. China has amassed capital and is beginning to invest abroad. The United States not only is an attractive market; the United States also needs a substantial share of that investment for the growth of its own economy. Chinese businessmen, like Americans, want investment security. This time, therefore, the BIT partners share a common vision of an agreement that will attract investment to their own countries while protecting their citizens investing abroad. Such unusual balance may make the negotiations more difficult, but they also make a positive result more likely.
 

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