Swiss, China Investment Agreement In Force

by Ulrika Lomas, Tax-News.com, Brussels

16 April 2010

It has recently emerged that the agreement between Switzerland and China on the Promotion and Reciprocal Protection of Investments, designed to stimulate bilateral economic relations and increase prosperity in both states, has entered into force.

According to Switzerland’s Federal Administration, Swiss State Secretary Jean-Daniel Gerber has notified the Ambassador of the People's Republic of China, Dong Jinyi, of Switzerland's ratification of the agreement, thus allowing its entry into force with immediate effect.

The Federal Administration notes that: “The core of the agreement between the Swiss Confederation and the People's Republic of China on the Promotion and Reciprocal Protection of Investments lies in the commitment of each Contracting Party to protect and promote in its territory investments of investors of the other Contracting Party. The agreement, which was signed in Bern during the visit of the Chinese Premier, Wen Jiabao, on January 27, 2009, conforms to today's investment protection standards. It replaces the original agreement, which has been in force since 1987.”

Providing clarification, the Swiss Federal Administration explains that the term "investment" is broadly defined to mean every kind of asset invested in accordance with the national laws of the destination country of the investment.

It adds: “The states undertake not to resort to nationalization or expropriation, except, in particular, when it is in the public interest, and in return for compensation. In addition, both countries are committed to allowing investors of the other country free transfer of payments in connection with an investment. The agreement also provides for broad dispute settlement mechanisms in case of disputes between an investor and the host Contracting Party, one of the most important improvements in the new agreement, as well as between the two Contracting Parties.”

As a result of this new agreement, Swiss investors will be among the first actors in the Chinese market to benefit from high protection standards under international law. The modest levels of Chinese investment in Switzerland to date are also expected to increase as a result.

Bilateral investment agreements improve legal certainty and protection against non-commercial risks, thereby increasing both the appeal and the competitiveness of the state concerned for foreign investment. Bilateral investment agreements are important since, despite the importance of direct investment in the global economy, there are no universal rules for international investments comparable, for example, to the World Trade Organization's regulations on international trade in goods and services.

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