EU-China Comprehensive Agreement On Investment

Indian Journal of International Law (2018) 58(1):171–203
https://doi.org/10.1007/s40901-019-00095-8
ARTICLE
EU-China comprehensive agreement on investment

in the context of Chinese bilateral investment treaty
program with the EU countries
Saren Abgaryan
Published online: 13 March 2019

The Indian Society of International Law 2019
Abstract EU-China negotiations for Comprehensive Agreement on Investment (CAI)

have the potential to become one of the most important developments in interna-
tional economic law as well as in investment treaty policymaking area. The sides have
already had 18 rounds of negotiations discussing all major parts of the new BIT, such
as the definitions, substantive and procedural protection standards, and still there
seems a relatively long way to go for finalizing the formulations of the clauses. The
first part of this article puts the China-EU CAI negotiations in historical, political and
economic context for giving a background for the concurrent negotiations. The sec-
ond part of the article provides discussion on substantive investment protection
standards found in China-EU28 bilateral investment treaties (BITs) that are currently
in force, for assessing the shortcomings of their formulations and pointing out the
importance of concluding a unified BIT between China and EU for providing a higher
level of legal clarity and certainty to their investors without compromising the reg-
ulatory powers of the state.
Keywords EU China Comprehensive agreement on investments Bilateral

investment treaty Treaty negotiations
The author would like to thank Prof. Shen Wei and Mesrop Manukyan for their invaluable comments to an
earlier draft of the article. The author bears responsibility for all the mistakes. The article has been
completed on 8 December 2018.
Saren Abgaryan (&)

KoGuan Law School, Shanghai Jiao Tong University, Shanghai 200030, China
e-mail: saren.abgaryan@yahoo.com; sarabg1@sjtu.edu.cn
123
172 Saren Abgaryan
1 Introduction
Current negotiations for China-EU Comprehensive Agreement on

Investment (CAI) are among the first steps that EU has taken as a whole
in foreign direct investment policy area. The willingness between EU
and China to strengthen trade and investment relationship has been
evident for more than two decades demonstrated through closing
economic ties and political rhetoric.1 China and EU have released
official documents supporting the agenda of strengthening relationship
between the parties such as ‘‘A Long Term Policy for China Europe
Relationship’’ (1995),2 EU’s released document titled ‘‘Building a
comprehensive partnership with China’’3 (1998), Chinese first (2003)
and second policy papers on EU (2014),4 ‘‘A Maturing Partnership:
Shared Interests and Challenges in EU-China Relations’’,5 ‘‘EU-China:
Close Partners, Growing Responsibilities’’6 (2006) and China’s contin-
uing BIT agreements with EU member states thereafter. Along with
closing economic ties, the investment flow from EU to China has
increased 25-fold within 1986 to 2001, and after the Chinese accession to
WTO it has continued increasing gradually.7
EU-China Comprehensive Agreement on Investments was presented
as a logical step forward based on past developments and the future
plans that countries want to achieve. It was spelled out in the first
Chinese policy paper (2003) on EU that the sides intend to strengthen
dialogue on investment, promote the establishment of bilateral
1
UNCTAD, China: WTO Accession and Growing FDI Flows (Press Information Notes, December 11, 2002).
2
European Commission, A Long-Term Policy for China Europe Relationship (Communication for
Commission, COM 279 final, 1995) \http://eeas.europa.eu/china/docs/com95_279_en.pdf[.
3
European Commission (EC), Building a Comprehensive Partnership with China (Communication from the
Commission, COM 181 final, Brussels, March 25, 1998).
4
Mission of the People’s Republic of China to the European Union, China’s Policy Paper on EU (Key
Documents On China-EU Relations, October 13, 2003) \http://www.chinamission.be/eng/zywj/zywd/
t1227623.htm[; Ministry of Foreign Affairs of the People’s Republic of China, China’s Policy Paper on the EU:
Deepen the China-EU Comprehensive Strategic Partnership for Mutual Benefit and Win-win Cooperation (Foreign
Policies, April 2, 2014) \http://www.fmprc.gov.cn/mfa_eng/wjdt_665385/wjzcs/t1143406.shtml[ .
5
European Commission, A Maturing Partnership - Shared Interests and Challenges in EU-China Relations
(COM533 final, 2003) \http://trade.ec.europa.eu/doclib/docs/2005/september/tradoc_124565.pdf[.
6
European Commission, EU-China: Closer Partners, Growing Responsibilities (Commission Policy Paper for
Transmission to the Council and the European Parliament, COM 632 final, 2006) \http://trade.ec.europa.
eu/doclib/docs/2006/october/tradoc_130875.pdf[.
7
Wenhua Shan, The Legal Framework of EU-China Investment Relations: A Critical Appraisal (Hart
Publishing, 2005) 16.
123
EU-China comprehensive agreement on investment 173
investment-promotion institutions, energetically encourage and guide

mutual investments between enterprises of the two sides.8
Historically speaking, the talks between China and the EU on a
unified investment agreement have started since 2010. It was
commenced by a high-level official meeting between European
Commission (EC) and the Chinese Prime Minister, in April of 2010,
during which the parties agreed to investigate ways of deepening
bilateral investment relationships, and to be certain that the best
conditions for investment are in place.9 In, May 2010, accordingly, the
parties came to the first agreement of launching Joint EU-China BIT
taskforce to evaluate the feasibility of EU-China investment
agreement.10
The first official document that has brought up the idea of EU-China
future BIT negotiations was a European Commission publication
stating that in a medium-term EU may consider getting into ‘‘a stand-
alone investment agreement and explore the desirability and feasibility
of such an investment agreement with China’’.11 The decision to start
bilateral negotiations towards a new EU-China bilateral investment
treaty has been announced in the EU-China Summit, held on Beijing in
21 November 2013.12 We need to note that the previous negotiations
were discussing the feasibility of the BIT, and thus this announcement
came to conclude the results of the ongoing studies and negotiations.
8
Chinese Government, China’s EU Policy Paper (Ministry of Foreign Affairs of the People’s Republic of
China, October, 2003) \http://www.china.org.cn/english/international/77157.htm[ (This is the first pol-
icy paper released by china on EU policy).
9
José Manuel Durão Barroso, Press Statement by President Barroso Following the Executive-to-
executive Meeting with Chinese Premier Wen Jiabao, European Commission Press Release Database, Beijing,
April 29, 2010 \http://europa.eu/rapid/press-release_SPEECH-10-197_en.htm?locale=en[.
10
European Parliament, European Commission Proposal on EU-China Investment Relations: Initial Appraisal of
a European Commission Impact Assessment (Impact Assessment, Commission Staff Working Document, SWD
185 final, December 2013).
11
European Commission, Towards a Comprehensive European International Investment Policy (Communi-
cation from the Commission to the Council, The European Parliament, The European Economic and Social
Committee and the Committee of the Regions, COM 343 final, July 7, 2010).
12
Hong Yan, China-EU Investment Treaty: Can it Be Achieved? (Commentaries) S. Rajaratnam School of
International Studies No. 224/2013, (December 2013), See also European Commission, Countries and
Regions: China, 16 April 2018, \http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/
[.
123
174 Saren Abgaryan
2 EU-China negotiations in context: understanding

the signiﬁcance of EU-China CAI
For understanding the urge of deepening investment and trade

relationship between EU and China, an important factor for consider-
ation is the economic interconnection between the parties. China and
EU are important trading partners with the bilateral trade totaling to
€573 billion in 2017.13 To put this into perspective, China is the second
most important trading partner for EU if we count the total amount of
trade between the parties accounting for 15% of total extra-EU trade in
goods, and EU constitutes China’s number one trading partner.14
During the recent decade, from 2006 to 2017, share of China in extra-EU
imports of goods has increased from 14% (2006) to 20% (2017)
amounting to €375 billion, and China’s share in exports has grown from
6% (2006) to 11% (2017) or €198 billion.15
In the category of trade in good EU has a trade deficit of €176 billion.
On the contrary, in the category of trade in services EU has a €11 billion
in surplus (2016). China accounts for more than 4% of total extra-EU
trade in services with a total of €75 billion, making it the third most
important country after USA and Switzerland.16 The trade between the
parties is projected to grow after EU-China commitment to continue
supporting the growth and as the parties pledged to increase bilateral
trade from USD 580 billion a year to USD 1 trillion by 202017 (Fig. 1).
Meanwhile being important trading partners the FDI flow between
the parties is moderate. In 2015, EU investment in China stood at €6
billion, and in the same year, Chinese investment in EU amounted to
€6.5 billion. Whit this amount, Chinese investments amount to 3.8% of
overall foreign inbound investments in EU, and merely 1.7% of overall
extra-EU investment flows to China.18 While it is noteworthy that since
2013 Chinese FDI into EU has increased exponentially, and the sides
have strong economic, political and trade relationship, the investment
13
European Commission, European Union, Trade in Goods with China (Directorate-General for Trade,
April 2018) \http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113366.pdf[.
14
European Commission, China-EU - International Trade in Goods Statistics (Eurostat, March 2018)
\http://ec.europa.eu/eurostat/statistics-explained/index.php/China-EU_-_international_trade_in_goods_
statistics#Overview[.
15
Ibid; See also, European Commission, supra note 13.
16
European Commission, International Trade in Services (Eurostat, January 2018) \http://ec.europa.eu/
eurostat/statistics-explained/index.php/International_trade_in_services[.
17
G Matei, EU-China BIT Negotiations, Journal of European Union Chamber of Commerce in China (2014).
18
The overall value of EU’s outward and inward FDI can be found in OECD statistics website, OECD
Data \https://data.oecd.org/fdi/fdi-flows.htm[.
123
Fig. 1 Below demonstrates EU-China Trade in goods statistics in billion euros from 2007 to 2017 (European
Commission, supra note 13)
statistics shows that the parties cannot be considered as highly inter-

dependent and there is a big potential for growth.
Considering the potential of FDI flow between China and EU, a
stronger investment protection agreement could help to encourage
investment relationship between the parties, create more equal and
balanced investment relationship and meanwhile provide higher
investment protection standards, reasons that lay behind the high-level
political boosts given to the BIT negotiations. During his visit to EU in
2014, the China’s president Xi Jinping and his EU counterparts have
called for a deeper cooperation between the sides and have endorsed
the process of EU-China BIT negotiations.19 In the language used
during the joint statement, it can be concluded that there is growing
interest to increase FDI proportion between the parties, stronger
willingness to enter into the investment agreement, which will have
investment protection and market access provisions.20
For EU, the BIT has the potential to solve major market access
problems along with clarification of protection provided for investors
and be a stepping stone in parties’ relationship towards a future FTA,
thus creating deeper trade and investment relationship with China. For
19
Ying Ding, A Seamless Joint By Cementing a Strategic Policy of Cooperation, China and Europe Forge
a More Practical Partnership, Beijing Review No. 15, April 10, 2014 \http://www.bjreview.com.cn/Cover_
Stories_Series_2014/2014-04/08/content_645420_2.htm[.
20
European Commission Statement, Joint Statement: Deepening the EU-China Comprehensive Strategic
Partnership for Mutual Benefit, European Commission Press release Database, Brussels, March 31, 2014.
123
176 Saren Abgaryan
China, these negotiations will be having more long-term importance by

opening up its market wider for attracting inbound foreign direct
investments, strengthening the economic relationship with EU and
could potentially serve as a reliable platform to promote China led Belt
and Road Initiative.
From perspective of EU going into a BIT agreement institutionally is
generally a new practice and could be legally possible only after the
Lisbon treaty. Investment treaty negotiations seem to be a logical
development after Lisbon Treaty entered into force in the end of 2009,21
which provided the competence to EU to conduct FDI policymaking,
and an important document for unification of EU’s FDI policy. Some
authors have come to claim that a unified EU policy on FDI can actually
give a bigger leverage in the hands of EU for negotiating a better deal,
than EU28 countries could do it individually.22 The bigger territory,
market size and economic growth gives EU a higher leverage during
negotiations. A universal policy eliminates the chance of EU countries
to compete among each other using tax breaks and incentives, prevents
bureaucratic and infrastructure adjustments etc.23
Asymmetrical FDI policy among EU states can potentially be costly
for some of the participants. Some of the concerns might be well
founded as in pre-Lisbon treaty stage EC has raised the concern that due
to BITs narrow content EU investors are being discriminated and lose
market share in global investments, lagging behind their NAFTA
counterparts.24 European commission has emphasized that the future
FTAs should stream for the highest possible degree of liberalization in
trade and investments. This wording is consistent with the wordings
used by EU during negotiations with China.
2.1 Implications of China-EU CAI negotiations
There are several milestones that EU would target as the result of

ongoing treaty negotiations such as relaxation of market access
21
Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European
Community, 13 December (Lisbon Treaty) (2007/C 306/01) Art 188(C). In the treaty Article 188(C) has the
following formulation: ‘‘The common commercial policy shall be based on uniform principles …. (on)
foreign direct investment, the achievement of uniformity in measures of liberalization.’’
22
E.g. see Sophie Meunier, Divide and Conquer? China and the Cacophony of Foreign Investment Rules
in the EU, Journal of European Public Policy 21.7 (2014) 996–1016; see also Martin H. Thelle, Eva R. Sunesen
and Joseph Francois, EU China Investment Study (Commissioned by the EU Commission, DG Trade, 2012).
23
Meunier, supra note 23.
24
European Commission, Issues Paper: Upgrading the EU Investment Policy (Note for the Attention of the
133 Committee, Brussels, May 30, 2006) \ https://www.iisd.org/pdf/2006/tas_upgrading_eu.pdf[.
123
restrictions, elimination of preferential treatment for domestic firms and

SOEs,25 restrictions on investments, the limited scope of business
activity in certain sectors, national treatment application to pre-
establishment investments, foreign ownership limitations and joint
venture requirements, most of which has been highlighted by the study
conducted by European Commission in 2012.26
According to OECD report in 2015, among the 58 countries included
in the study China has been considered as having the most restrictive
FDI regulations.27 Those restrictions have affected also to European
businesses and 77 percent of businesses have experienced difficulties with
establishment of their investments, including problems with intellectual
property and preferential treatment to state owned enterprises.28
A big issue that has been talked by EU officials and also addressed in
the EU-China Strategic Agenda for Cooperation29 is the conclusion of a
comprehensive EU-China investment agreement that among the issues
covers dispute resolution and market access.30 Market access seems to
be one of the cornerstones of new negotiations, as it will ensure that
China is more open for foreign investors, relaxing the restrictiveness of
its market entry. The regulations of market access in China has been
updated in 2012 and encourage European companies to invest in areas
where they can bring vast amount of innovation such as environmental,
high technology, health and so on. But some major areas such as heavy
industry and raw material industry were restricted, along with strictly
regulated financial and insurance industry, which was ‘‘disappointing’’
for foreign, including European partners.31
Thus, current BIT has the objective to bring negative list (or positive
list) approach to European investment in China and liberalize that
market in such way; which was not the case with the previous BITs that
EU members has signed with China. There is a need to acknowledge,
25
In relation to state-owned-enterprises and standard setting, the EU provided clarifications with respect
to the proposed disciplines. European Commission, EU-China Investment Agreement: Report of the 12th Round of
negotiations, Brussels 26–30 September 2016 (Directorate-General for Trade, 2016) \http://trade.ec.europa.eu/
doclib/docs/2016/october/tradoc_155061.pdf[.
26
European Parliament, supra note 10.
27
OECD, FDI Regulatory Restrictiveness Index OECD Stat Databank, 2015.
28
European Parliament, supra note 27.
29
EU-China Summit, EU-China 2020 Strategic Agenda for Cooperation (Delegation of the European Union to
China, 2013).
30
Shan Wenhua and Lu Wang, The China–EU BIT and the Emerging ‘Global BIT 2.0’, International
Center for Settlement if Investment Disputes Review 30.1 (2015) 260–267.
31
Francois Godement and Angela Stanzel, The European Interest in an Investment Treaty with China,
European Council of Foreign Relations, Policy Brief, (2015).
123
178 Saren Abgaryan
that including a market access provision inside a BIT certainly is outside

of traditional scope of Chinese BITs that have been concluded before,
however, this has been on the table of negotiations since the start.32 The
restricted areas for admission of foreign investments into China has
been decreased to 38 from a list that used to have 79 areas.33 As we
know up to now, Chinese BITs have included the definition of
investment as a transaction that has been completed according to
Chinese laws and policies, and, in the pre-establishment stage of the
investments the BITs are not applicable, which is a concern for EU,
since the governmental bodies that need to approve the investments
have a high discretion over decisions.34
A non-restrictive NT provision can solve favoritism against foreign
invested enterprises and can equalize treatment in all stages of
investments among domestic and foreign enterprises. Considering
recent news about China-US BIT negotiations, Chinese officials have
claimed that China believes that BIT negotiations on the basis of pre-
establishment national treatment with a negative list approach are in
accord with the direction of China’s economic restructuring.35 This
means that it is probable that China will include a similar provision in
EU-China BIT as well.
The next section puts the current negotiations in the context of
formerly concluded and existing BITs between China and EU countries,
and in the context of Chinese BIT making policy in general, observing
the limitations of the current agreements and suggesting the changes
that the parties might make for making the agreement more consistent
with the most recent Chinese BITs and BIT jurisprudence. EU-China
CAI can unify the protection standards provided by EU 28 countries and
China, it will effectively substitute to 26 currently existing BITs and will
be the first Chinese BIT to be applicable to Ireland. Considering the
extent of the change, EU-China BIT negotiations might be one of the
most important developments in international investment law in years
to come (Table 1).
32
Frank Bickenbach, Wan-Hsin Liu and Guoxue Li, The EU-China Bilateral Investment Agreement in
Negotiation: Motivtion, Conflicts and Perspectives, Kiel Policy Brief, No. 95 (2015).
33
Ibid.
34
Timothy P. Stratford, Assessing ‘National Treatment’ as a Basis for Securing Market Access Under a
Comprehensive Agreement on Investment with the PRC (Report prepared for the European Commission
Directorate-General for Trade, June 13, 2015) \http://trade.ec.europa.eu/doclib/docs/2015/october/
tradoc_153840.pdf[.
35
Qin Dexing (ed), China, US Likely to Progress on BIT Talks: Official, ECNS, July 7 2014\http://www.
ecns.cn/business/2014/07-08/122840.shtml[.
123
Table 1 All BITs signed between EU member countries and China
No. Partners Status Date of Date of entry

signature into force
1. Sweden – China BIT In force 29/03/1982 29/03/1982

2. Germany – China BIT Terminated 07/10/1983 18/03/1985
3. BLEU (Belgium-Luxembourg Terminated 04/06/1984 05/10/1986
Economic Union) – China BIT
4. Finland – China BIT Terminated 04/09/1984 26/01/1986
5. France – China BIT Terminated 30/05/1984 19/03/1985
6. Italy – China BIT In force 28/01/1985 28/08/1987
7. Denmark – China BIT In force 29/04/1985 29/04/1985
8. Netherlands – China BIT Terminated 17/06/1985 01/02/1987
9. Austria – China BIT In force 12/09/1985 11/10/1986
10. United Kingdom – China BIT In force 15/05/1986 15/05/1986
11. Poland – China BIT In force 07/06/1988 08/01/1989
12. Bulgaria – China BIT In force 27/06/1989 21/08/1994
13. Czech Republic – China BIT Terminated 04/12/1991 01/12/1992
14. Slovakia – China BIT In force 04/12/1991 01/12/1992
15. Hungary – China BIT In force 29/05/1991 01/04/1993
16. Portugal – China BIT Terminated 03/02/1992 01/12/1992
17. Spain – China BIT Terminated 06/02/1992 01/05/1993
18. Greece – China BIT In force 25/06/1992 21/12/1993
19. Estonia – China BIT In force 02/09/1993 01/06/1994
20. Croatia – China BIT In force 07/06/1993 01/07/1994
21. Lithuania – China BIT In force 08/11/1993 01/06/1994
22. Slovenia – China BIT In force 13/09/1993 01/01/1995
23. Romania – China BIT In force 12/07/1994 01/09/1995
24. Cyprus – China BIT In force 17/01/2001 29/04/2002
25. Netherlands – China BIT In force 26/11/2001 01/08/2004
26. Germany – China BIT In force 01/12/2003 11/11/2005
27. Latvia – China BIT In force 15/04/2004 01/02/2006
28. Finland – China BIT In force 15/11/2004 15/11/2006
29. BLEU (Belgium-Luxembourg In force 06/06/2005 01/12/2009
Economic Union) – China BIT
30. Czech Republic – China BIT In force 08/12/2005 01/09/2006
31. Portugal – China BIT In force 09/12/2005 26/07/2008
32. Spain – China BIT In force 14/11/2005 01/07/2008
123
180 Saren Abgaryan
Table 1 continued
No. Partners Status Date of Date of entry

signature into force
33. France – China BIT In force 26/11/2007 20/08/2010

34. Malta – China BIT In force 22/02/2009 01/04/2009
3 An analysis of practicality of the China-EU CAI
China has been one of the world’s most active BIT makers, with BITs
signed with more than 130 states. Through this practice, Chinese BITs
have undergone four stages of development: 1982–1989 that has started
from launch of BIT program, 1990–1997 that has started with ICSID
accession of China, 1998 to 2008, and from 2009 to present and along
this transition of BIT making practice it had a gradual shift from
restrictive investment treatment standards towards more liberal ones.36
The most significant factor that shaped the evolution of Chinese BIT
making practice has been the Chinese domestic policy. After ‘‘opening
up policy’’ in 1987 China started encouraging foreign investments in its
economy, however, for maintaining vast amount of control over its
regulatory powers, China adopted restrictive clauses in its BITs for
protecting its national (state) interests. Only after the ‘‘going global
policy’’ (after 1999) China encouraged outbound investments where
Chinese BIT policy transformed towards a liberal one, with the main
goal of protecting the internets of Chinese firms abroad.
China has launched its BIT program with China-Sweden BIT37 (an EU
member) and currently EU member countries in total have entered into
26 BIT agreements with China which provide investment treaty
protection for 27 countries of EU.38 While this is almost an all-inclusive
web of treaties that are designed to internationalize the protection
provided to foreign investments, most of those BITs do not address the
most recent developments in recent investor-state jurisprudence. Addi-
tionally, Chinese practice of signing BITs has evolved gradually since 1982
36
Norah Gallagher and Shan Wenhua, Chinese Investment Treaties: Policies and Practice (Oxford: Oxford
University Press, 2009), there are generally two models of separations suggested in the literature, we have
taken 3 stage separation suggested by Gallagher and Shan to discuss it in our work.
37
China - Sweden BIT (1982).
38
Ireland is the only country that has not entered into a BIT agreement with China. Belgium and
Luxembourg have signed a BIT with China as a union called Belgium - Luxembourg Economic Union
(BLEU).
123
moving from a restricted approach towards more liberal investment

protection agreements. Almost half of the BIT signed between EU 28 and
China are representing older model of texts, considering the vast
developments that has happened in the investor-state dispute settlement
and increasing number of claims brought against host countries.
The first and second generation of China – EU28 BITs in some cases
did not include substantial investment treatment standards that are
commonly included in BITs, e.g., national treatment, umbrella clause.
For example, the treaties that lack NT clause, do not guarantee equal
protection for treatment equivalent to the domestic parties. This allows
states to have protectionism in favor of domestic investors, and
possibility of unequal grounds of treatment between foreign and
domestic companies. In this case, China and some EU states do not
bring national treatment standard under the protection of the treaty and
rely on local laws. Thus, at least theoretically those BITs with restrictive
NT clause are providing considerably lower level of protection to
investors of both sides compared to the ones that included third
generation clauses in their text.39
Additionally, many of the past BITs for defining substantive standards
use vague terms, which could be interpreted inconsistently by arbitral
tribunals. Below we discuss the substantive treatment standards provided
by the currently existing EU 28-China BITs in the context of most recent
BITs concluded by China and the developments of BIT jurisprudence.
This section is directed to review the agreements that China signed with
EU countries looking into certain protection clauses that are included in
those agreements and assess the tentative text of the new treaty.
3.1 National treatment standard
National treatment (NT) standard guarantees a level playing field

among domestic and foreign investors, obliging the host states to
provide the foreign investors treatment ‘‘not less favorable’’40 or
treatment ‘‘the same as’’41 to its own (domestic) investors. It creates
competitive equality among the foreign and domestic investors.42 The
39
Thelle, Sunesen and Francois, supra note 23.
40
E.g., China - BLEU BIT (2005) Art 3(1), China - Cyprus BIT (2001) Art 3(3).
41
E.g., China - Iceland BIT (1994) Art 3(3), China - UK BIT (1986) Art 3(3), China - Slovenia BIT (1993)
Art 3(2).
42
UNCTAD, National Treatment (UNCTAD Series on Issues in International Investment Agreements,
United Nations, New York and Geneva, 1999) 1; Jian Zhou, National Treatment in Foreign Investment Law:
A Comparative Study from a Chinese Perspective, Touro Int’l L. Rev. 10 (2000) 39.
123
182 Saren Abgaryan
standard has been qualified as the single most important standard of

treatment contained in investment treaties which sets the tone of how
crucial this standard is.43 NT is a relative standard of treatment that sets
the minimum standard of treatment same as to its domestic investors
(which cannot be lower than the minimum standard of treatment of
aliens in customary international law) with the presumption that
foreign investors can receive a more favorable treatment, and not vice
versa.
The NT standard in Chinese investment treaty context has seen
considerable discussion.44 It is established that the earlier generation of
Chinese BITs follow the practice adopted in first Chinese Model BIT45
and do not contain an NT clause. The earlier batch of 12 BITs (all of the
BITs signed before 1995) signed between EU and China follow this
practice, and do not contain an NT clause, i.e., the Chinese BITs signed
with Sweden (1982); Denmark (1985); Austria (1985); Poland (1988);
Poland (1988); Bulgaria (1989) Hungary (1991); Greece (1992); Estonia
(1993); Croatia (1993); Lithuania (1993); Romania (1994). Starting from
2002 we can notice a policy shift according to which every single BIT
signed since includes an NT clause.46
However, even the China-EU28 BITs that contain NT clause,
universally do not offer pre-establishment NT and provide protection
only in post establishment stage of investments.47 A post-establishment
NT protection allows the host states to maintain a high discretion over
screening the foreign investments when they are still in admission or
market access stage, thus it is not intended for liberalization of
investment flows but rather on investment protection after they are
made in the host country’s territory.48
This approach has been criticized by many EU investors, and in pre-
negotiation stage of the EU-China CAI, EU has raised this issue to
43
UNCTAD, supra note 43, at 2.
44
For example, see Wang Wei, Historical Evolution of National Treatment in China, Int’l Law. 39 (2005)
759, Cai Lei, Where does China Stand: the Evolving National Treatment Standard in BITs?, The Journal of
World Investment & Trade 13, no. 3 (2012) 373–389; Gallagher and Shan, supra note 37, at 157–174; Shan
Wenhua, Norah Gallagher, and Sheng Zhang, National Treatment for Foreign Investment in China: A
Changing Landscape, ICSID Review 27, no. 1 (2012) 120–144.
45
First Model BIT has been adopted by MOFCOM in early 1980s.
46
Wang Wei, supra note 45, at 776.
47
China - Canada BIT (2012) Art 6 can be considered the first divergence from this rule.
48
UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (United Nations, New
York and Geneva, 2007) 33–5.
123
formulate the NT clause for ensuring it covers also pre-admission stage

of the foreign investments.49 From the rhetoric of Chinese officials, it
seems that China might agree to this concession and allow a more
liberal NT formulation that includes also the pre-establishment or
admission stage of the investments, based on a negative list as in its
upcoming investment treaties with EU and USA, which are under
negotiation.50
NT clauses in China-EU28 BITs can be categorized into four main
groups based on the formulation of the clauses. Categorization of
stipulations of NT clauses in existing EU-China BITs will enable a better
understanding of current landscape of NT clause, which seems to be
one of cornerstones of EU-China negotiations.51 The first approach is
not having a NT clause in BIT, a practice followed by a dozen China-
EU28 BITs (as discussed above).
The next category of national treatment clauses found in a number of
China-EU28 treaties stipulate that the signatory parties shall provide
each other’s investors treatment not less favorable then to their own
investors, ‘‘to the extent possible accord treatment in accordance with
the stipulations of its laws and regulations’’. The wording ‘‘to the extent
possible’’ combined with ‘‘in accordance of its laws and regulations’’ is
used in UK - China BIT (1986), Slovenia - China BIT (1993), Iceland -
China BIT (1994), Yugoslavia (Macedonia) - China BIT (1997) consid-
erably limits the scope of clause, by making the standard largely
symbolic obliging signatory parties to undertake good will efforts for
providing national treatment to foreign investors.52 This approach has
also been called a ‘‘good will’’, ‘‘best effort’’ requirement, since the BIT
provision does not impose any material restrictions on the state.53
Accordingly, discriminatory measures against foreign investors do not
49
Incisa Giuseppe and Matteo Vaccaro, The Evolution of China’s Policy and Treaty Practice in
International Investment Law: An Outline, Bocconi Legal Papers 4 (2014) 103.
50
Covington & Burling LLP, The US-China Bilateral Investment Treaty’s Potential to Unlock Significant
Business Opportunity, (2014) 1–2, \https://www.cov.com/files/upload/US-China_BIT_Capabilities.pdf[;
European Parliament, supra note 10, at 3.
51
National treatment is one of the hardest standards to achieve since it touches a number of
economically and politically sensitive issues, and countries before granting it usually include significant
qualifications of the NT clause of their respective treaties, see at UNCTAD, supra note 43, at 1–5.
52
Stephan W. Schill, Tearing Down the Great Wall: The New Generation Investment Treaties of the
People’s Republic of China, Cardozo J. Int’l & Comp. L. 15 (2007) 94–95; Cai, Lei, supra note 45, at 375.
53
Shihata FI Ibrahim, Recent Trends Relating to Entry of Foreign Direct Investment, ICSID Review 9, no.
1 (1994): 55.
123
184 Saren Abgaryan
need to be eliminated and a discriminatory treatment might be allowed

as long as those measures are ‘‘in accordance with stipulations of its laws
and regulations’’ and are conducted ‘‘to the extent possible’’.54
The next category of Chinese-EU28 BITs, which is a less restrictive
variation of the previous category, the NT clause spells out that the host
state needs to provide the investors of contracting state treatment not
less favorable than accorded to its own investors ‘‘without prejudice to
its laws and regulations’’. This formulation can be found in Chinese
BITs with Latvia (2004), France (2007) and Malta (2009). According to
the literal interpretation, the contracting countries subject NT standard
to the local laws of the countries and accordingly host state may provide
a less favorable treatment to foreign investors provided that the
treatment is in accordance to its domestic laws and regulations.55 Thus,
domestic law qualification substantially diminishes the protective nature
of NT clause and gives the host state further policy flexibility.56
A few EU28 - Chinese BITs have combination of a full-scale, post-
establishment NT clause followed by a substantially qualified proto-
col.57 A full-scale NT formulation can be found in China-Czech and
Slovak Republic BIT with the formulation as follows:
The treatment and protection accorded by either contracting party within its
territory to investors of the other Contracting Party with respect to investments,
returns and business activities in connection with the investment shall not be
less favorable than that accorded to its own investors.58
This clause, however, is restricted and the investors cannot rely on the
full scope of the clause as the Protocol of the same BIT states that:
It shall not be deemed treatment less favourable for either Contracting Party to
accord discriminatory treatment, in accordance with its applicable laws and
regulations, to investors of the other Contracting Party, in case it is really
necessary for the reason of public order, national security or priority in the sound
development of national economy. [emphasis added]59
54
Gallagher and Shan, supra note 37, at 167.
55
Ibid, 168.
56
Cai, supra note 45, at 375.
57
See e.g., Czech and Slovak Republic - China (1991) Art 3(2) and Protocol (1); Japan - China BIT
Protocol (3); Korea - China BIT (1992) Art 3 (2) and Protocol (2).
58
China - Czech and Slovak Republic (1991) Art 3(2).
59
Ibid, Protocol (1).
123
In the context of China-Czech and Slovak Republic BIT ‘‘public order’’,

‘‘national security’’ and ‘‘sound development of national economy’’ are
not defined terms and allow considerable discretion for the host state to
interpret the concepts broadly.60 Those exceptions can be considered as
self-judging stipulations, and the tribunals need to further consider
whether according to the state the discriminatory treatment to foreign
investor was due to maintaining public order, national security or
development of national economy; stipulations which are difficult to
scrutinize due to their connection to host state’s sovereignty.61
Gradually, starting from 2000s China has started to accept a more
liberal NT clauses in BITs, however, those clauses are subjected to
‘‘grandfather clause’’ carve out, such as the Netherlands – China BIT
(2001), Germany – China BIT (2003), Finland – China BIT (2004), Czech
Republic – China BIT (2005), Spain – China BIT (2005), Portugal –
China BIT (2005). In those BITs the ‘‘grandfather clause’’ stipulates that
the NT clause is not applicable to existing non-conforming measures,
continuation of any such non-conforming measures, and amendment of
non-conforming measures provided that they do not increase the non-
conformity of those measures. On the other hand, the BITs encourage
China to take appropriate steps for gradually eliminating those non-
conforming measures. An important feature of grandfather clauses
found in China - EU28 BITs is that, commonly, the caveat is non-
reciprocal and is only granted to China.
The practices discussed above shows that the BITs signed between
China and European countries before 2000 substantially qualify NT
clause to ‘‘local laws and regulations’’ or oblige the countries to apply
the standard based on best effort.62 Even after 2000, when China started
to accept more general NT clauses, for instance China-Spain BIT,63
China-Portugal BIT64 however still substantially restricting the scope of
NT clause with regards to China with ‘‘grandfather’’ clause. Meanwhile,
this goes hand-in-hand with China-France BIT and China-Malta BITs
with a more restrictive ‘‘without prejudice to its laws and regulations’’
kind of restriction. This shows that China can be flexible in formulation
of the national treatment clause and is potentially open to a more liberal
wording.
60
Schill, supra note 53, at 96.
61
Ibid, 96; see also Shan, Gallagher and Zhang, supra note 45, at 134.
62
Shan, Gallagher and Zhang, supra note 45, at 132–134, 120–144.
63
China-Spain BIT (2005) Protocol (Ad Art 2 and 3).
64
China-Portugal BIT (2005) Protocol (Ad Art 2 and 3).
123
186 Saren Abgaryan
3.2 Most favored nation treatment
MFN clause ensures level playing field and equality of competitive

conditions among the foreign investors originating from different
countries that seek to make investments in a host state, by eliminating
discrimination based on national considerations.65 MFN clauses ensure
that the host state provides to investors originating from a foreign
country not less favorable treatment than it provided to any other third
states in the specific agreed space of relation covered by the treaty.66
The clause is now found in vast majority of BITs and is an important
influence for multilateralization of bilateral investment relationships
between the states.67
In the overly fragmented international investment law, where most
of the relations between the states are based on bilateral agreements,
MFN treatment helps to create uniformity.68 MFN clause brings
dynamics into the investment treaty that is fixed in a time, allowing the
party state of basic treaty to utilize any future more-preferable de facto
and de jure treatment in scope of their MFN clause that the other party
grants to investors of any third state. This dynamic effect of MFN clause
eliminates the need for the countries to extensively renegotiate past
BITs.69 MFN is a relative standard, meaning that the scope of the clause
is based on the host state’s conduct towards any other third state
investors.70 Thus, as soon as the state provides a more favorable
treatment to a third state, the treatment is automatically extended to all
the other states that it has a treaty with MFN clause; and consequently,
if the state does not provide better treatment to any third state the MFN
clause would not have any practical importance.
Virtually every BIT signed by China includes an MFN clause for
providing a level playing field among the foreign investors and not
subjecting any of them to a ‘‘treatment less favorable’’.71 The BITs
65
UNCTAD, Most-Favored-Nation Treatment (UNCTAD Series on Issues in International Investment
Agreements II, United Nations, New York and Geneva, 2010) 30.
66
OECD, International Investment Law: A Changing Landscape (OECD Publications 2005) 128.
67
For general discussion on this influence see e.g., Stephan W. Schill, Mulitilateralizing Investment
Treaties Through Most-Favored-Nation Clauses, Berkeley J. Int’l Law 27 (2009) 496–569; UNCTAD, supra
note 66, at 3.
68
Schill, supra note 68, at 501.
69
Chukwumerije Okezie, Interpreting Most-Favoured-Nation Clauses in Investment Treaty Arbitrations,
Journal of World Investment & Trade 8.5 (2007) 611.
70
Christoph Schreuer and Rudolf Dolzer, Principles of International Investment Law (Second Edition) (Oxford
University Press, 2012) 206.
71
E.g., China-Italy BIT (1985) Art 3(1); China-UK BIT (1985) Art 3(2).
123
signed between China and EU countries are not an exception. While full
scale MFN treatment standard can play crucial role for creating equality
of competitive conditions between the foreign investors, EU28- China
bilateral investment treaties have certain qualifications and curve outs
that can significantly limit the effectiveness of the clause.
Almost every EU28-China BIT adopts a post-establishment MFN
clause, which applies only to investments that have already been made
‘‘in accordance to the laws and regulations’’ of the states. Post-
establishment MFN clause does not cover entry conditions of making
the investment and does not materialize unless the investment is
already made in the territory of the host state.72 China-Malta BIT (2009),
China-Czech Republic BIT (2005) China- Iceland BIT (1994) specifically
emphasize the post-establishment nature of MFN clause by applying it
to ‘‘management, use, enjoyment or disposal of their investments’’.
Post-admission MFN treatment allows the host country to preserve a
great deal of discretion over admission and establishment of foreign
investment.73
The only exception is Finland-China BIT that applies MFN clause
with respect to the ‘‘establishment, acquisition, operation, management,
maintenance, use, enjoyment, expansion, sale or other disposal’’ of
investments74 (emphasis added). Applying MFN clause in ‘‘establish-
ment’’ and ‘‘acquisition’’ stages of investment, seeks to avoid any
selective preferential liberalization of market access conditions for the
investments.75
MFN clauses of several Chinese-EU BITs have grandfather provision
curve out that effectively excluding all existing non-conforming
measures from the MFN clause, with an obligation to progressively
remove those discriminatory measures. Grandfather clauses can be
found for example in the following BITs signed between China and
Netherlands (2001); Finland (2004); Czech Republic (2005); BLEU
(2005), Portugal (2005); Spain (2005); Slovakia (Protocol effected in
2005). This exception allows the parties further flexibility concerning
certain measures, activities and sectors,76 encourages but does not
72
UNCTAD, supra note 66, at 30.
73
General considerations of advantages of granting post-entry MFN clause or restricted MFN clause are
described in UNCTAD, International Investment Agreements: Key Issues (United Nations, New York and
Geneva, Volume I) 81–85, 90–91.
74
China-Finland (2005) Art 3(3).
75
UNCTAD, supra note 66, at 30–35.
76
Ibid, 49.
123
188 Saren Abgaryan
oblige the parties to eliminate the non-conforming measures and, in

case of voluntary elimination the investors can enjoy the more
favorable benefits.77 The important characteristic of China-EU28
grandfather provision is that it is granted only to China, in a non-
reciprocal manner which might be an indication of inherently non-equal
negotiation powers of the contracting parties.
Virtually every single MFN clause in EU-China BITs includes an
exception for excluding the treatment provided to other countries that
are in the same economic unions, have taxation related advantages,
facilitate frontier trade.
The last characteristic of MFN clause in China-EU28 BITs, is that the
agreements do not specify whether the MFN clause can be applied to
procedural clauses and investor-state dispute settlement clause in
specific. It has become a recommended practice for BIT makers to have
this clarification due to the debates existing in scholarly literature and
inconsistent investment treaty jurisprudence. MFN clause can be
invoked to import more favorable substantive treatment standards from
BITs signed with the host state and a third-party state.78
However, invoking MFN clause for importing more favorable
procedural and dispute settlement rights has been rather controversial.
On one hand, tribunals have adopted a narrow interpretation and found
that MFN clauses do not apply to procedural clause in investment
treaties79 and on the other hand, tribunals have followed post-Maffezini
v. Spain jurisprudence and established that MFN clause can be applicable
for importing more favorable procedural rights into the basic treaty.80
Chinese BIT related jurisprudence has followed the narrow interpre-
tation approach finding that the wording of MFN clause does not allow
77
Gallagher and Shan, supra note 37, at 154–155.
78
See e.g., MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile, ICSID Case No. ARB/01/7, Award
(25 May 2004); Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Award (27 August 2009); CME Czech Republic BV v The Czech Republic, UNCITRAL, Final Award
(14 March 2003) etc.
79
Some of the cases following this approach are Plama Consortium Limited v Republic of Bulgaria, ICSID
Case No ARB/03/24, Decision on Jurisdiction (8 February 2005); Telenor Mobile Communications AS v Republic
of Hungary, ICSID Case No ARB/04/15, Award (13 September 2006); Salini Costruttori SpA and Italstrade SpA
v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction (15 November 2004),
etc.
80
Some of the cases following this approach are Emilio Agustın Maffezini v Kingdom of Spain, ICSID Case
No ARB/97/7, Decision on Jurisdiction (25 January 2000); Siemens AG v The Argentine Republic, ICSID Case
No ARB/02/8, Decision on Jurisdiction (3 August 2004); Gas Natural SDG SA v The Argentine Republic, ICSID
Case No. ARB/03/10; Siemens AG v The Argentine Republic, ICSID Case No. ARB/02/8 etc.
123
the investors to import a more favorable dispute settlement clause from

a third-party BIT.81 In Tza Shum Yup v. Republic of Peru case arbitral
tribunal found that definition and wording of MFN clauses found in
China-Peru BIT does not restrict it to merely procedural rights.
However, tribunal tries to interpret the intention of the parties as
expressed in China-Peru BIT and found that MFN clause cannot be
invoked for importing a more favorable dispute settlement clause from
a third-country BIT.82
In Beijing Urban Construction Group v Yemen case the tribunal focused
on the fact that MFN clause of China-Yemen BIT refers to treatment in
related to activities in the territory of the signatory parties, and as
international arbitration is not related with the host country’s territory,
found that MFN clause cannot be extended to ISDS clause.83
China-EU28 BITs do not specify whether the MFN clause can be
applied on the investor-state dispute settlement clause or procedural
clauses in general. Thus, for avoiding ex post unclarity surrounding
MFN clause, the states are recommended to address the question during
the BIT drafting process, as it was done in China-Canada BIT, China-
Peru FTA, and China-New Zealand FTA.84
3.3 Umbrella clause
Many of China-EU BITs contain a clause obliging the sates to follow

and adhere the commitments undertaken in relation to the foreign
investors. Such clauses are commonly designated as ‘‘umbrella clauses’’,
also referred as ‘‘mirror effect’’, ‘‘elevator’’, ‘‘parallel effect’’, ‘‘sanctity of
contract’’, ‘‘respect clause’’ and ‘‘pacta sunt servanda’’.85 Umbrella clauses
present the possibility that mere contractual agreements or commit-
ments assumed by a state can be protected by the investment treaty,
and breach of those agreements can be elevated and considered as
breach of treaty.
81
Señor Tza Yap Shum v The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and
Competence (19 June 2009); Ansung Housing Co Ltd v People’s Republic of China, ICSID Case No. ARB/14/25,
Award (9 March 2017); Sanum Investments Limited v Lao People’s Democratic Republic, UNCITRAL, PCA Case
No. 2013-13, Award on Jurisdiction (13 December 2013).
82
Señor Tza Yap Shum v The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and
Competence, (19 June 2009) [216].
83
Beijing Urban Construction Group Co Ltd v Republic of Yemen, ICSID Case No. ARB/14/30, Decision on
Jurisdiction, (31 May 2017) [120].
84
China-Canada BIT (2012) Art 5(3).
85
K Yannaca-Small, Interpretation of the Umbrella Clause in Investment Agreements, OECD Working
Papers on International Investment, OECD Publishing (2006) 3.
123
190 Saren Abgaryan
By including an umbrella clause in an investment treaty, the parties

can elevate the contractual undertaking into international law obliga-
tions.86 It transforms state’s responsibility towards a private investor
under a contract into an international responsibility.87 Thus, this clause
becomes a protective umbrella (hence the name) for investment
contracts or other undertakings of the state, violation of which can be
considered a violation of the BIT.88 It is considered as a well-established
contention, that not every contractual breach can amount to breach of
international law,89 but certain contractual breaches might amount to
breach of international law.90
Academic discussion and the case law dealing with scope of umbrella
clause, however, has proven to be very controversial, becoming among
the most disputed topics in international investment law.91 On one
hand it has been argued that ordinary commercial contracts are not part
of the umbrella clause, and the clause mainly concerns to large scale
investor-state contracts and concession contracts.92 On the other hand, a
more prevailing side in academia seems to support a more expansive
interpretation of the clause, stating that it protects investors contractual
rights against any interference by the states in form of mere breach of
contract or administrative or legislative acts.93
It has been observed that ordinary meaning of ‘‘shall observe any
commitments/obligations’’ points towards a wider interpretation of the
clause, and it needs to be interpreted broadly unless the language of the
86
Todd Weiler (Ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA,
Bilateral Treaties and Customary International Law (Cameron May, 2005) 326.
87
Karl Joachim, The Promotion and Protection of German Foreign Investment Abroad, ICSID Review 11,
no. 1 (1996) 23.
88
Christoph Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in The
Road, J. World Investment & Trade 5 (2004) 249–250.
89
Lasso Oppenheim, Robert Jennings & Arthur Watts, Oppenheimer’s International Law 927 (9th ed. 1992),
as cited in Jarrod Wong, Umbrella Clauses in Bilateral Investment Treaties: Of Breaches of Contract, Treat
Violations, and the Divide between Developing and Developed Countries in Foreign Investment Disputes,
Geo. Mason L. Rev. 14 (2006) 145, (‘‘It is doubtful whether a breach by a state of its contractual obligations
with aliens constitutes per se a breach of an international obligation…’’).
90
Ibid, 250.
91
Stephan W. Schill, Enabling Private Ordering: Function, Scope and Effect of Umbrella Clauses in
International Investment Treaties, Minn. J. Int’l L. 18 (2009) 5.
92
CN Brower, ’The Future for Foreign Investment - Recent Developments in the International Law of
Expropriation and Compensation’’ in VS Cameron (ed.), Private Investors Abroad - Problems and Solutions in
International Business in 1975 (Southwestern Legal Foundation Symposium Series, Private Investors Abroad,
Matthew Bender, New York, 1976) 93, 105; as cited on Anthony C Sinclair, The Origins of the Umbrella
Clause in the International Law of Investment Protection, Arbitration International 20, no. 4 (2004): 428.
93
See e.g., Francis A Mann, British Treaties for the Promotion and Protection of Investments, British
Yearbook of International Law 52, no. 1 (1982) 241–254; Wong, supra note 90, at 137; Thomas Walde, The
Umbrella Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases, J. World
Investment & Trade 6 (2005) 183.
123
umbrella clause specifically limits or restricts its scope. However, it

seems that the application of this standard is easier in theory than in
practice considering the vast discussion of the clause in arbitral practice.
An example of umbrella clause can be found in Chinese BITs with UK
where the treaty obliges the contracting state to:
Observe any other obligation it has entered into with regard to investments in its
territory by investors of the other Party.94
In relation to umbrella clause, China – EU28 BITs vary in their
formulations. Firstly, nearly half of Chinese BITs signed with EU
countries do not have an umbrella clause in their texts,, such as Chinese
BITs with Sweden (1982); Italy (1985); Poland (1988); Bulgaria (1989);
Slovakia (1991); Hungary (1991); Estonia (1993); Croatia (1993);
Lithuania (1993); Slovenia (1993); Romania (1994); Cyprus (2001);
Czech Republic (2005). This is a considerable limitation for those BITs,
since they do not provide the level of protection explained above. This
practice might be a result of uncertainty around the clause, where
countries found that the implications might be overly burdensome.
For the BITs that contain an umbrella clause, the wording and
definitive scope can practically effect on tribunal’s interpretation of the
text in cases of disputes.95 Tribunals are inclined to interpret the
provision expansively when the investment treaties include a wide
definitive scope. For example, China-UK BIT (1986) defines the scope of
umbrella clause with the phrase ‘‘any obligation’’ can be interpreted
more broadly than the term ‘‘commitments’’ found in China-BLEU BIT
(2005).96 When ‘‘any’’ qualifier is not used with ‘‘commitment/
obligations’’, the tribunals tend to give it a narrower interpretation;
for example, jurisprudence has interpreted the scope ‘‘obligations’’97 that
alleged breaches of a contract concluded with a state do not
automatically ‘‘elevate’’ it to the level of breaches of international
treaty law.98 Probably the most definite wording is found in Austria-
94
China-Portugal BIT (2005) Art 10(2).
95
In the following cases tribunals adopted a narrow interpretation: SGS Société Générale de Surveillance SA
v Islamic Republic of Pakistan, ICSID Case No. ARB/01/13; El Paso Energy International Company v. The
Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction (27 April 2006) etc. A wider
interpretation has been adopted in Eureko B.V. v. Republic of Poland, Partial Award (19 August 2005) [246];
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6.
96
China-BLEU BIT (2005) Art 7(2), the term ‘‘commitments’’ seems to have a narrower meaning that that
of ‘‘any obligations’’ commonly found in China-EU 28 BITs.
97
Pakistan-Switzerland BIT (2003) Art 11.
98
SGS Société Générale de Surveillance SA v Pakistan, ICSID case No ARB/01/13, Decision on Jurisdiction (6
August 2003) [166].
123
192 Saren Abgaryan
China BIT which explicitly states that parties shall observe ‘‘any
contractual obligations’’ it may have entered and can potentially be
interpreted to include all kinds of contracts.99
Most of Chinese-EU 28 BITs have the ‘‘any’’ qualifier and thus widen
the scope of umbrella clause, some examples are ‘‘any other obligations’’
in China-Portugal BIT, ‘‘any commitments’’ in Latvia-China BIT, ‘‘any
obligations’’ in China-UK BIT and can provide a wide ground for
interpretation. However, the terms ‘‘any obligations/commitments’’
might be interpreted in the BIT jurisprudence differently and inconsis-
tently. The scope of umbrella clause in regard to what undertakings of a
state can enjoy protection from an investment treaty is a widely debated
topic. Some tribunals have looked at the language of the umbrella
clauses and established that umbrella clause shall not be interpreted too
expansively otherwise it could be ‘‘quite destructive’’ for national and
international legal order100 and have given a narrow interpretation.
While others have interpreted widely finding that contractual claims are
also treaty claims.101 Thus, it can be advised to the negotiating parties to
take into consideration these developments and clarify the scope of
umbrella clause, for enabling further ex ante clarity to China-EU CAI.
3.4 Fair and equitable treatment
The importance of FET clauses can be simply demonstrated by the

metrics that the most of international investments claims successfully
brought against respondent countries include violation of FET
standard.102 Fair and Equitable treatment is an absolute standard of
treatment, FET clause is inherently non-relative standard, it is a fixed
rule and it can only change when there is a change in interpretation of
the rule in international law or when the language of the relevant treaty
is changed.103 The case law and academic discussion points that ‘‘fair
99
See for instance Eureko BV v Republic of Poland, Partial Award, (19 Aug 2005) [246], where the tribunal
adopted a wide interpretation stating that ‘‘[T]he phrase, ‘shall observe’ is imperative and categorical. ‘Any’
obligations are capacious; it means not only obligations of a certain type, but ‘any’ - that is to say, all -
obligations entered into with regard to investments of investors of the other Contracting Party’’.
100
El Paso Energy International Company v The Argentine Republic, ICSID Case No. ARB/03/15, Decision on
Jurisdiction, (27 April 2006) [82].
101
Sempra Energy International v Republic of Argentina, ICSID case No ARB/02/16, Decision on Objections
to Jurisdiction, (11 May 2005) [100–101].
102
UNCTAD, Investment Policy Hub, Website, UNCTAD, Investment Policy Hub, \http://
investmentpolicyhub.unctad.org/ISDS/FilterByBreaches[.
103
A A Fatouros, Government guarantees to foreign investors, The International Executive 5, no. 1 (1963)
23–25.
123
and equitable’’ treatment is a single and unified standard of treatment

and ‘‘fair’’ and ‘‘equitable’’ terms do not represent separate standards.104
FET standard has been qualified as an overarching principle that fills
gaps and informs understanding of specific clauses.105 Thus, the clause
includes a very wide and ambiguous scope of protection for foreign
investors giving tribunals much discretion to decide whether the state
has treated the foreign investor fairly and equitably. The protection can
cover:
conduct [that is] … arbitrary, grossly unfair, unjust or idiosyncratic, is
discriminatory and exposes the claimant to sectional or racial prejudice or
involves a lack of due process leading to an outcome which offends judicial
propriety—as might be the case with a manifest failure of natural justice in
judicial proceedings or a complete lack of transparency and candor in an
administrative process. In applying this standard, it is relevant that the treatment
is in breach of representations made by the host State which were reasonably
relied on by the claimant.106
Due to the fact that the language of FET clause varies from treaty to
treaty, there is no one universal meaning linked to the clause, thus, for
right interpretation of the standard the tribunals need to look into
particular treaty language, context, and history and interpret it
according to the principles set forth in Vienna Convention on the
Law of Treaties, as well as the relevant arbitral jurisprudence.
Considering the existing debate on the particular meaning of FET
clause, one of the main disputed areas is its relationship with minimum
standard of treatment in customary international law and international
law in general. Depending in the particular case and the BIT language,
FET can be interpreted in three ways: (i) FET is a part of minimum
standard required by customary international law,107 (ii) FET is a part of
104
Dolzer and Schreuer, supra note 71, at 123.
105
Ibid, 123–124.
106
Waste Management Inc v United Mexican States (Waste Management 2), ICSID Case No. ARB(AF)/00/3,
Award, 30 April 2004) [98].
107
See e.g., OECD Draft Convention on the Protection of Foreign Property, Notes and Comments to Art
1; FTC Note of Interpretation on 31 July 2001, Art 1105; also see Dissenting Opinion of Samuel K.B. Asante
in Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, (15 June 1990) [583–584];
Alex Genin, Eastern Credit Limited Inc and AS Baltoil Genin v Republic of Estonia, ICSID Caseno ARB/99/2,
Award, (25 June 2001) [367]; also see NAFTA cases, e.g., Mondev International LTD v United States of America,
ICSID Case No. ARB(AF)/99/2, Award, (11 October 2002) [117–125]; The Loewen Group Inc and Raymond L
Loewen v United States of America, ICSID case no. ARB(AF)/98/3, Award, (26 June 2003) [128].
123
194 Saren Abgaryan
international law including all sources108 and (iii) FET is an indepen-

dent, free standing standard of treatment.109 France - China BIT110
addressed to this matter by stating that fair and equitable treatment
shall be granted in accordance with ‘‘generally accepted principles of
international law’’. This particular language allows to think that FET
clause in France-China BIT according to the established sources of
international law. The remaining EU28-China BITs do not provide
clarification on interpretative standards of their respective FET clauses.
China-Slovakia BIT on the other hand does not have a FET provision in
its text.
In China-EU28 BITs fair and equitable treatment clauses appear in
several variations. First variation is the scope of FET clause, which
differs from treaty to treaty, ranging from ‘‘investments,111 ‘‘investments
and activities associated’’,112 ‘‘investments and returns and business
activities’’.113 It is noteworthy that some terminated China-EU BITs
have used the ‘‘investments and activities associated’’114 wording in their
text which has been modified in their respective renewed BITs, with a
narrower scope of ‘‘investments’’.115 This might be showing a trend of
the parties trying to narrow down the subject matter scope of the FET
clause.
Generally, the word investment is defined virtually in all BITs with
the list of details that are included such as ‘‘movable, immovable
property; shares… etc.’’ Further, the term ‘‘returns’’ used in China-
Czech Republic BIT is also defined to ‘‘amounts yielded by investments,
including profits, dividends, interests, capital gains, royalties and fees’’.
While the phrase ‘‘activities associated’’ is not defined in BITs which can
be used by tribunals to expand the scope beyond the investments. It is
108
See e.g., EDF International SAUR International SA and Leon Participaciones v Argentine, ICSID Case No.
ARB/03/23, Award (11 June 2012); Compañía De Aguas Del Aconquija SA and Vivendi Universal SA v Argentine
Republic, Case No. arb/97/3, Award, (20 August 2007) [7.4.6–7.4.7], (in latter case while tribunal state that
the treaty language allows interpreting FET standard as a stand-alone clause, it, however, ended up
interpreting FET according to international law.)
109
See e.g., Saluka Investment BV v Czech Republic, UNCITRAL, Partial Award (17 March 2006); Compañía
De Aguas Del Aconquija SA and Vivendi Universal SA v Argentine Republic, Case No. arb/97/3, Award (20 August
2007).
110
France - China BIT (2007) Art 3.
111
See e.g. China - Sweden BIT Art 2(1); China - UK BIT (1986) Art 2(2); China - Portugal (2005) Art 3(1);
China - Netherlands BIT (2001) Art 3(1).
112
See e.g., China - Bulgaria BIT (1989) Art 3(1), China - Poland BIT (1988) Art 3(1).
113
China - Czech Republic BIT (1991) Art 3(1).
114
China - Portugal BIT (1992) Art 3(1), China – Netherlands BIT (1985) Art 3(1)
115
China - Portugal BIT (2005) Art 3(1) (renegotiated BIT); China – Netherlands BIT (2001) Art 3(1)
(renegotiated BIT).
123
evident that the parties have preferred to adopt a narrower subject-

matter scope of FET clause, which could be driven with the intention to
lower the discretion of tribunals.
Second difference is that in certain BITs FET is combined with other
treatment standards such as ‘‘full protection and security’’. A commonly
worded FET clause can be found in China-Czech Republic BIT:
Investments of the investors of either Contracting Party shall at all times be
accorded fair and equitable treatment and shall enjoy full protection and security
in the territory of the other Contracting Party.
The combination of those clauses can be found also in NAFTA, OECD
Multilateral Agreement on Investment (1998) and in a number of US
BITs. The jurisprudence has addressed this side by side usage of FET
and full protection and security.116
Chinese BITs with EU countries commonly do not provide any
clarification on the scope of FET clause, even though the case law has
proven that arbitral tribunals can potentially interpret the clause
incoherently. China-France BIT subjects FET clause to ‘‘generally
accepted principles of international law’’.117 This is a response to the
current debates connected with FET clause and the ambiguity around it
and the notion expressly subjecting it to international law can be
directed to waive some ambiguity around the clause. Notwithstanding,
it is hard to identify any clear preferences in the China’s or EU side in
subjecting the FET clause to international law.
3.5 Full protection and security
Majority of EU28-China treaties contain a ‘‘protection and security’’

protection clause in relation to investors. The fact that ‘‘full protection
116
The importance of ‘‘full protection and security’’ clause has been overlooked in 1990s. Since then the
standard has been proven to become an independent treatment standard that investors more frequently rely
on. Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No ARB/05/22, Award, (24 July
2008) [729] case tribunal found that the treatment ‘‘implies a State’s guarantee of stability in a secure
environment, both physical, commercial and legal’’. In Asian Agricultural Products Ltd v Republic of Sri Lanka,
ICSID Case No. ARB/87/3, Final Award, (27 June 1990) [77–86] case the ‘‘the mere lack or want of diligence’’
and the fact that ‘‘a well-administered government could be expected to exercise under similar
circumstances’’ was sufficient to establish breach of full protection and security clause in the United
Kingdom–Sri Lanka BIT. Some other cases have limited the protection standard, such as in Rumeli Telekom
A.S. and Telsim Mobil Telekomunikasyon Hizmetleri AS v Republic of Kazakhstan, ICSID Case No ARB/05/16,
Award, (29 July 2008) [668] case: ‘‘The Arbitral Tribunal agrees with Respondent that the full protection and
security standard. . . obliges the State to provide a certain level of protection to foreign investment from
physical damage’’. The case load provides the necessary insight that full protection and security clauses are a
separate treatment standard which can be relayed upon by investors for bringing their claims against host
states.
117
China - France BIT (2007) Art 3.
123
196 Saren Abgaryan
and security’’ has in many cases been combined with FET clause, can be
one of the reasons why some tribunals have treated the standards as
similar or the same118 or have interpreted the FET clause to preclude
the protection provided by ‘‘protection and security’’ clause. For
example, in Occidental v Ecuador case the tribunal stated that ‘‘…a
treatment that is not fair and equitable automatically entails an absence
of full protection and security of the investment’’. Notwithstanding, the
substance of FET and full protection and security standard are different.
In Latvia – Chia BIT can be found a commonly found a variation of full
protection and security (FPS) clause:
Investments of the investors of either Contracting Party shall enjoy the constant
protection and security in the territory of the other Contracting Party.119
The arbitral decision on FPS clauses are relatively recent occurrence.
Between 1990s and 2004 there were only 6 awards that were related to
FPS clause, by 2010 there were 40 awards that considered whether there
has been a breach of the clause, and by 2018, there are already 213
arbitral cases that considered FPS clause (some of them still pending)
and 20 awards found breach of this clause by the state.120 This data
shows the increasing importance of FPS clause in light of state’s
treatment to foreign investments and can be one of the reasons that
there are several debates around the FPS clauses. FPS clauses have
particular application for foreign investors in times of civil unrest, public
disturbances and violence, including illegal disturbances and can also
include nonviolent situations when the investors are deprived from
legal security and physical protection121 .
There have been considerable arbitral awards that interpret FPS
clause narrowly to only include protection against physical security of
the investment, and this has seen extensive discussion by a number of
authorities in academia.122 However, the FPS provisions have been also
118
Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, (8 December 2000)
[84–95].
119
Latvia - China BIT (2004) Art 2(2).
120
Mahnaz Malik, The Full Protection and Security Standard Comes of Age: Yet Another Challenge for
States in Investment Treaty Arbitration? International Institute for Sustainable Development (2012) 1; also look at
the statistics provided UNCTAD Investment Policy Website, Investment Dispute Settlement section
according to Breaches category: http://investmentpolicyhub.unctad.org/ISDS/FilterByBreaches.
121
UNCTAD, Investor- State Disputes Arising from Investment Treaties: A Review (UNCTAD Series on
International Investment Policies for Development, United Nations, New York and Geneva, 2005) 40–41.
122
See e.g., Malik, supra note 121, at 7–9; Christoph Schreuer, Full Protection and Security, Journal of
International Dispute Settlement, Vol. 1, No. 2 (2010) 354–358; Dolzer and Schreuer, supra note 71, at 149–153;
Saluka Investments BV v The Czech Republic, UNCITRAL, Partial Award, (17 March 2006) [484]; Eastern Sugar
BV (Netherlands) v Czech Republic, Partial Award, (27 March 2007) [203].
123
interpreted broader to include legal protection, business protection,

physical protection (police protection) and even economic regulatory
powers.123
In the texts of Chinese BITs with EU countries the standard can be
found in several variations. Hungary-China BIT and a number of EU-
China BITs provided investors ‘‘protection’’124; Netherlands-China BIT
follows ‘‘constant protection and security’’ wording adopted in other
BITs as well,125 Germany - China BIT adopts the ‘‘full protection and
security’’ wording.126 Other China-EU BITs have also the following
wordings: ‘‘adequate protection’’ in China-Italy BIT (1985), ‘‘protection
and security’’ China-Denmark BIT (1985), ‘‘fully protected’’ in Austria –
China BIT (1985), ‘‘most constant protection and security’’ in China-UK
BIT (1986). Sweden-China BIT, Slovak Republic – China BIT, Cyprus –
China BIT, Finland- China BITs on the other miss an FPS clause.
On one hand it has been argued that tribunals predominantly seem to
be against the textualism surrounding FPS language, thus, finding that
regardless the BIT uses ‘‘full’’, ‘‘continuous’’, ‘‘constant’’ or ‘‘adequate’’
qualifiers before protection and security, it does not change the
meaning of the clause.127 Tribunals have found that there are no major
differences between different formulations of FPS, and even if the BIT
text only provided ‘‘protection’’ instead of ‘‘full protection and security’’
it would not change the level of protection provided to investor.128
Applying the reasoning of certain decisions of arbitral tribunals,129 we
can conclude that while the scope of full protection and security
treatment has seen different interpretations according to the specific
123
Thoms W Wälde, Energy Charter Treaty-based Investment Arbitration, Transnational Dispute
Management, 1(3) (2004) 390–391; See e.g., National Grid plc v The Argentine Republic, UNCITRAL, Award, (3
November 2008) [189]; Companıa de Aguas del Aconquija SA and Vivendi Universal v Argentina, ICSID Case No.
ARB/97/3, Award (20 August 2007); Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case
No. ARB/05/22, Award, (24 July 2008).
124
Hungary - China BIT (1991), Estonia-China BIT (1993), Croatia - China BIT (1993), Lithuania - China
BIT (1993), Slovenia - China BIT (1991), Romania - China BIT (1994), Poland - China BIT (1988).
125
Netherlands - China BIT (2001), Latvia - China BIT (2004), BLEU - China BIT (2005), Portugal - China
BIT (2005), Spain - China BIT (2005), Malta - China BIT (2009).
126
Similar wording is adopted in Germany - China BIT (2003) and also in the following BITs: Czech
Republic - China BIT (2005), Greece - China BIT (1992), Bulgaria - China BIT (1989).
127
Nartnirun Junngam, The Full Protection and Security Standard in International Investment Law:
What and Who Is Investment Fully Protected and Secured From, 7 Am. U. Bus. L. Rev. 1 (2018) 57–58; MNSS
BV and Recupero Credito Acciaio NV v Montenegro, ICSID Case No. ARB(AF)/12/8, Award, (4 May 2016) [351];
Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award, (27 June 1990)
[50].
128
Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No. ARB/05/8, Award, (11 Sep 2007)
[354].
129
Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July
2008); National Grid PLC v Argentina, Award, (3 November 2008) [189].
123
198 Saren Abgaryan
wording of the BIT and the specific facts of the case, the ‘‘full’’ qualifier
used along with ‘‘protection and security’’ and ‘‘most constant’’ qualifier
used with ‘‘protection and security’’ can potentially enlarge the scope of
clause, to go beyond the physical protection of the investments.
3.6 Expropriation
The concept of direct expropriation is relatively straightforward, an

investment is nationalized or otherwise directly expropriated through
formal transfer of title or outright physical seizure and usually the
dispossession to the detriment of a private person coincides with the
appropriation to the profit of a public person.130 Some measures carried
out by the state might not have the form of physical seizure of the
property but might substantially and permanently damage the interest
of investor, highly decrease the economic value of its property, deprive
the owner from the opportunity to manage or control its property in a
meaningful way, and those state actions are called ‘‘indirect expropri-
ation’’.131 The measures implemented by state while might not be
qualified as direct expropriation, can interfere with property rights to
such an extent that these rights are rendered so useless that they must
be deemed to have been expropriated,132 are termed in several ways:
‘‘creeping’’, ‘‘de fact’’ or ‘‘indirect’’ expropriation.
Chinese BITs with EU countries refer to direct expropriation by
stating that the contracting parties shall not ‘‘expropriate, nationalize’’133
the investments of foreign investors. Indirect expropriation in Chinese -
EU 28 BIT context is termed as ‘‘similar measures’’,134 ‘‘measures having
similar effects’’135 and ‘‘measure the effects of which would be
tantamount’’136 to expropriation or nationalization. In China-BLEU
BIT has the wording explicitly refers to indirect expropriation:
Each Contracting Party undertakes not to adopt any measure of expropriation or
nationalization or any other measure having the effect of directly or indirectly
130
C Yannaca-Small, ‘Indirect Expropriation’ and the ‘Right to Regulate’ in International Investment
Law, in OECD, International Investment Law: A Changing Landscape: A Companion Volume to International
Investment Perspectives, (OECD Publishing, Paris, 2005) 5.
131
UNCTAD, Expropriation (UNCTAD Series on Issues in International Investment Agreements II,
United Nations, New York and Geneva, 2012) 5–7.
132
Starrett Housing v Iran, Interlocutory Award No. ITL 32-24-1, (19 December 1983) [154] 4 Iran-United
States Claims Tribunal Reports 122.
133
E.g., China - Italy BIT (1985) Art 4(2).
134
China - Italy BIT (1985) Art 4(2), China - Lithuania BIT (1993) Art 4(1).
135
China - Finland BIT (2004) Art 4(1), China - Germany BIT (2003) Art 4(2).
136
China - Greece BIT (1992) Art 4(1).
123
dispossessing the investors of the other Contracting Party of their investments in

its territory.
The most basic definition has been used in China-Bulgaria BIT where the
states are obliged to not ‘‘expropriate or nationalize’’ foreign investments but
there is no stipulation about indirect or creeping expropriation or similar
measures. This definition can be contrasted with the most expansive definition
found in China-Germany BIT which spells out that investments shall not
‘‘directly or indirectly be expropriated, nationalized or subjected to any other
measure the effects of which would be tantamount to expropriation or
nationalization’’. In fact, this formulation is among the few plainly referring to
indirect expropriation among all China-EU 28 BITs.137 China-Greece BIT also
uses ‘‘any other measure the effects of would be tantamount to expropriation or
nationalization’’ as the definition of indirect expropriation. Alternative
wordings are ‘‘measures having effect equivalent to’’ in China-Denmark BIT,138
‘‘other similar measures having equivalent effect to’’ in Portugal-China BIT,139
‘‘measures that have similar effect’’ Austria BIT.140
The reluctance of states to have a detailed definition of indirect
expropriation can be connected with the development of BIT jurispru-
dence that measures ‘‘similar’’ ‘‘equivalent’’ or ‘‘tantamount’’141 to
expropriation is wide enough to include indirect expropriation and
creeping expropriation.142 It has been further argued that the notion of
expropriation per se is wide enough to include indirect expropriation.143
Finding of expropriation can vary from case to case, thus a more
detailed definition is desirable both for investors, states and also for
tribunals.
According to the customary international law, states have the right to
expropriate or nationalize the property of domestic or alien property,
however, the actions of the state to be considered as lawful
expropriation need to meet four requirement set by customary
international law: the actions should be carried out a) to serve public
policy purpose, b) according to due-process of law, c) not be carried out
137
China - France BIT (2007) Art 5(2) ‘‘any other measures that have a direct or indirect effect on the
investment made by another Contracting investor’’; China - BLEU BIT (2005) Art 4(1) ‘‘any other measure
having the effect of directly or indirectly dispossessing the investors of the other Contracting Party of their
investments in its territory’’.
138
China - Denmark (1985) Art 4(1), China - UK BIT (1986) Art 5(1), China - Czech and Slovak Republic
(1991) Art 4(1) (terminated), China - Czech Republic (2005) Art 4(1).
139
China - Portugal BIT (2005) Art 4(1), China - Spain BIT (2005) Art 4(1).
140
China - Austria BIT (1985) Art 4(1).
141
142
ADC Affiliate Ltd and ADMC Management Ltd v Hungary, ICSID Case No. ARB/03/16, Final Award on
Jurisdiction, Merits and Damages, (27 September 2006) [426]; Waste Management Inc v Mexico (No. 2), ICSID
Case No. ARB(AF)/00/3, Final Award, (20 April 2004) [143].
143
123
200 Saren Abgaryan
in arbitrary or discriminatory basis and d) be accompanied with prompt,

adequate, and effective compensation.144 The customary international
law requirements mentioned above are encoded into China-EU28 BITs
under the clause of expropriation. In Chinese-EU BITs expropriatory
measures carried out by the governments can be qualified as lawful if
the measures were carried out:
(i) for public purpose145;

(ii) in accordance to due process of law146;
(iii) on a non-discriminatory basis147; and
(iv) with appropriate compensation.
Compensation Value: The EU-China BIT practice on valuation can

be divided into two categories: BITs that oblige the state to pay full
market value compensation commonly with Hull formula or similar
formulation and BITs that allow a more flexible valuation mechanism.
The former approach Hull formula of prompt, adequate and effective
compensation is commonly included in most IIAs, including in Chinese
IIAs. In the Chinese BITs with EU countries, state that the contracting
parties need to compensate ‘‘without (undue/unreasonable) delay’’,
‘‘effectively realizable, freely transferable and freely convertible’’ and the
term ‘‘adequate’’ can be found as ‘‘value’’,148 ‘‘real value’’;149 ‘‘market
value’’,150 ‘‘actual value’’,151 ‘‘fair market value’’.152 Those various
144
Dolzer and Schreuer, supra note 71, at 90–91.
145
China - EU28 BITs use the following wording for referring to public purpose requirement: ‘‘public
purpose‘‘ (China - Czech Republic (2005)), ‘‘public interest’’ (China - Bulgaria BIT (1989) and in China -
Cyprus BIT (2001)), ‘‘public purpose related to the internal needs’’ (China - Moldova BIT (1992)), ‘‘public
benefit’’ (China - Germany BIT (2003)), ‘‘public purpose, security or national interest’’ (China - BLEU BIT
(2009)).
146
‘‘Domestic legal procedure’’ (China - Bulgaria BIT (1989)), China - Hungary BIT (1991), China -
Croatia BIT (1993)), ‘‘the process of national law’’ (China - Estonia BIT (1993)), ‘‘due process of law’’ (China -
Sweden BIT), ‘‘legal procedure’’ (China - Austria BIT)
147
‘‘non-discriminatory’’ (Poland - China BIT), ‘‘without discrimination’’ (Bulgaria - China), ‘‘clear and not
discriminatory’’ (Greece - China BIT), Several China-EU 28 BITs are missing the requirement such as China-
Italy BIT (1985), China -Austria BIT (1985), China - UK BIT (1986), China - Germany BIT (2003).
148
See e.g., China - Italy BIT (1985) Art 4(2), China - Denmark BIT (1985) Art 4(1), China - Greece BIT
(1992) Art 4(2); China - Estonia BIT (1993) Art 4(2), China - Lithuania BIT (1993) Art 4(2), China - Cyprus
BIT (2001) Art 4(2), China -Germany BIT (2003) Art 4(2), China - Latvia BIT (2004) Art 4(2); and China -
Malta BIT (2009) Art 4(2).
149
See, China - UK BIT (1986) Art 5(1); China - Slovakia BIT (1991) Art 4(1)(c); China - Czech Republic
BIT (2005) Art 4(1)(c); China - France BIT (2007) Art 5(2).
150
See, China - Croatia BIT (1993) Art 4(2); China - Slovenia BIT (1993) Art 4(2); China - Romania BIT
(1994) Art 4(2); China - Portugal BIT (2005) Art 4(2); China - Spain BIT (2005) Art 4(2).
151
China - BLEU BIT (2005) Art 4(3).
152
China - Netherlands BIT (2001) Art 5(1)(c); China - Finland BIT (2004) Art 4(2).
123
wordings of ‘‘genuine value’’,153 ‘‘value’’,154 ‘‘market value’’,155 ‘‘actual

value’’156 has been interpreted as a full reparation corresponding with
‘‘fair market value’’ in case law.
China-Sweden BIT stipulates that compensation shall ‘‘place the
investor in the same financial position as that in which the investor
would have been if the expropriation or nationalization had not taken
place.’’ This definition of ‘‘value’’ is more flexible and could potentially
be different from full market value compensation. In Tza Shum Yup v.
Peru China, based on China-Peru BIT which required compensation of
the ‘‘value’’ of investment, the tribunal found that the compensation
needs to put investor in the same position as the company would be
‘‘without the expropriatory act’’.157
China-Slovenia BIT on the other hand diverges from this general
practice of BITs and provides detailed factors that need to be taken into
account by tribunals for their quantum awards, stating that compen-
sation shall be determined according to ‘‘generally recognized principles
of valuation and on equitable principles taking into account, inter alia,
the capital invested, depreciation, capital already repatriated, replace-
ment value and other relevant factors’’. In case of providing a detailed
account of measuring the investment, tribunals in this case before
considering customary international law will first of all look at the
requirement found in the Slovenia-China BIT.
4 Conclusion: the importance of a China-EU comprehensive

agreement on investments
China-EU negotiations for Comprehensive Agreement on Investment

will bring uniformity into the legal framework governing foreign
investors relations with China and EU. The CAI will unify the
investment protection standards between EU28 countries and China,
replacing the 26 bilateral investment treaties that are currently in force.
Essentially, this is a negotiation between 29 countries which assumes
153
CME Czech Republic BV v The Czech Republic, UNCITRAL, Final Award, (14 March 2003) [96–97].
154
Siemens AG v The Argentine Republic, ICSID Case No. ARB/02/8, Award, (17 January 2007) [353–355].
155
Tidewater v Venezuela Tidewater Investment SRL and Tidewater Caribe CA v Bolivarian Republic of Venezuela
(ICSID Case No. ARB/10/5), Award, (13 March 2015) [151–154].
156
Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA v Argentine Republic, ICSID Case No.
ARB/03/19, Award, (9 April 2015) [88].
157
Señor Tza Yap Shum v The Republic of Peru, ICSID Case No. ARB/07/6, Summary of Award [8].
123
202 Saren Abgaryan
that vast amount of effort needs to be dedicated for all the countries
reaching into agreement over the same text of investment treaty.
It can be observed from dynamics of the negotiations that some kind
of pre-establishment national treatment clause (based on a positive list
or a negative list) is one of the cornerstones of the current negotiations.
In fact, the majority of current EU28-China BITs either do not contain a
national treatment clause, or the clause is formulated in a way that
makes it largely symbolic, by either relying on the ‘‘best effort’’ of the
state or subjecting the clause to national legislation of the host country.
Chinese legislation imposes significant market access restrictions
depending on the industry sector that the foreign investors intend
investing. Consequently, certain industry sectors are closed for foreign
investment, some have substantial restrictions, while others encourage
the FDI, however, impose technology transfers to domestic companies
or force a JV with domestic companies. The restrictive regulations have
a positive impact for China, especially looking at the matter from
technology slipovers perspective. However, those restrictions can be
concerning for the EU investors since giving away the control over their
intellectual property to domestic firms might not be a sustainable
business practice.
It seems that the parties will strive for creating a better balance
between investors rights protection and the national interests of the
countries, on one hand, for providing sound protection against political
risks in these jurisdictions and on the other hand not imposing
requirements that can have a chilling effect on the regulatory capacity
of the state. In this context, while we have discussed national treatment,
most-favored-nation, full protection and security, fair and
equitable treatment, umbrella and expropriation clauses of China-
EU28 treaties, it is hard to predict or project how the sides will draft the
clauses for creating a balanced approach of regulation and investment
protection. Our recommendation on this matter is rather simple, the
parties could take legal clarity and certainty as the benchmark of
drafting those clauses. A ex ante clarity of the clauses will result to
coherent interpretation of the clauses by tribunals ex post. Thus, for
example clarifying whether the MFN clause is applicable to dispute
settlement clause; or shall fair and equitable treatment be interpreted
having customary international law as a floor or the ceiling for the
clause; shall full protection and security concern to only physical
protection of the investment or also include business and legal
123
protection of the investments; and on what kind of commitments is

umbrella clause applicable, can bring significant clarity for treaty
interpretation.
The jurisprudence has proven that vague wording of the BITs can
result to incoherence in interpretation of the above questions, causing a
legitimacy crisis of the whole field of investment arbitration. The EU-
China CAI negotiations can clarify most of the questions raised in this
paper or the disputed legal questions in arbitral jurisprudence for
drafting a treaty which can bring legal certainty for foreign investors
and enable a coherent interpretation by arbitral tribunals.
It is clear that many of China-EU28 BITs that are currently in force do
not take a balanced approach for balancing the interests of the state and
investors. The China-EU28 treaties concluded before 2000s represent
texts that were influences with Chinese opening up policy in 1989,
where China successfully tried to encourage inbound foreign invest-
ments at the same time maintaining strong regulatory power through
narrow NT, MFN clauses and though restricted dispute settlement
clauses (by limiting the scope of investor-state dispute settlement clause
to the claims on quantum disputes from expropriation). Chinese
approach has progressively shifted towards providing stronger protec-
tion standards for investors only after going global policy, where
Chinese enterprises were encouraged to invest aboard and there was a
practical need for protecting their interest.
China-EU CAI negotiations are a significant development for
international economic law considering that EU28 countries have the
highest volumes of inbound (USD 303 billion) and outbound (USD 435
billion) foreign direct investment globally and China holds third highest
FDI investment volume with combined USD 260 billion (excluding
Hong Kong).158 An updated and unified investment treaty will create
higher legal clarity and certainty, provide higher level of protection
standards for investments at the same time maintaining the regulatory
capacities of the states.
Publisher’s Note Springer Nature remains neutral with regard to
jurisdictional claims in published maps and institutional affiliations.
158
UNCTAD, World Investment Report (Investment and New Industrial Policies, United Nations, New
York and Geneva, 2018) 184.
123

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Indian Journal of International Law (2018) 58(1):171–203

EU-China comprehensive agreement on investment

Published online: 13 March 2019

Abstract EU-China negotiations for Comprehensive Agreement on Investment (CAI)

Keywords EU China Comprehensive agreement on investments Bilateral

Saren Abgaryan (&)

Current negotiations for China-EU Comprehensive Agreement on

investment-promotion institutions, energetically encourage and guide

2 EU-China negotiations in context: understanding

For understanding the urge of deepening investment and trade

statistics shows that the parties cannot be considered as highly inter-

China, these negotiations will be having more long-term importance by

2.1 Implications of China-EU CAI negotiations

There are several milestones that EU would target as the result of

restrictions, elimination of preferential treatment for domestic firms and

that including a market access provision inside a BIT certainly is outside

Table 1 All BITs signed between EU member countries and China

No. Partners Status Date of Date of entry

1. Sweden – China BIT In force 29/03/1982 29/03/1982

No. Partners Status Date of Date of entry

33. France – China BIT In force 26/11/2007 20/08/2010

3 An analysis of practicality of the China-EU CAI

moving from a restricted approach towards more liberal investment

3.1 National treatment standard

National treatment (NT) standard guarantees a level playing field

standard has been qualified as the single most important standard of

formulate the NT clause for ensuring it covers also pre-admission stage

need to be eliminated and a discriminatory treatment might be allowed

In the context of China-Czech and Slovak Republic BIT ‘‘public order’’,

3.2 Most favored nation treatment

MFN clause ensures level playing field and equality of competitive

oblige the parties to eliminate the non-conforming measures and, in

the investors to import a more favorable dispute settlement clause from

3.3 Umbrella clause

Many of China-EU BITs contain a clause obliging the sates to follow

By including an umbrella clause in an investment treaty, the parties

umbrella clause specifically limits or restricts its scope. However, it

3.4 Fair and equitable treatment

The importance of FET clauses can be simply demonstrated by the

and equitable’’ treatment is a single and unified standard of treatment

international law including all sources108 and (iii) FET is an indepen-

evident that the parties have preferred to adopt a narrower subject-

3.5 Full protection and security

Majority of EU28-China treaties contain a ‘‘protection and security’’

interpreted broader to include legal protection, business protection,

The concept of direct expropriation is relatively straightforward, an

dispossessing the investors of the other Contracting Party of their investments in

in arbitrary or discriminatory basis and d) be accompanied with prompt,

(i) for public purpose145;

Compensation Value: The EU-China BIT practice on valuation can

wordings of ‘‘genuine value’’,153 ‘‘value’’,154 ‘‘market value’’,155 ‘‘actual

4 Conclusion: the importance of a China-EU comprehensive

China-EU negotiations for Comprehensive Agreement on Investment

protection of the investments; and on what kind of commitments is

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