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Resolving the Tension Between State Sovereignty and Liberalizing Investor-State Disputes: China’s Dilemma

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Handbook of International Investment Law and Policy

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Abstract

China has grown into the largest global destination for foreign investment and the second largest outbound investment State. These developments underscore China’s centrality to the expansion and stability of the international economic order, not limited to the economic impact of its inbound and outbound investors.

An ensuing question is the extent to which China protects its national interests in resolving investor-State claims through the process known as investor-State dispute settlement (ISDS). This paper explores, firstly, China’s past experiences with ISDS, secondly, its methods of addressing these issues, and thirdly, the regulatory directions it might adopt in the future. In doing so, the paper comments on China’s historical and current ISDS experience and practice. It evaluates prospective regulatory measures by which it can avoid and resolve ISDS claims.

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Notes

  1. 1.

    See, e.g., Rooney KM (2007) ICSID and BIT arbitrations and China. J Int Arbitration 24:704 (arguing that, even after China’s accession to the Washington Convention became effective, it was some years before China provided for ICSID arbitration in early BITs). On the ICSID, see generally Parra AR (2017) The history of ICSID, 2nd edn; Kinnear M (2014) ICSID and international investment treaty arbitration: progress and prospects. In: Shan W, Su J (eds) China and international investment law: twenty years of ICSID membership; Trakman LE (2012) The ICSID under siege. Cornell Int Law J 45:603.

  2. 2.

    See, e.g., Schreuer C (2001) The ICSID convention: a commentary 10–69; Willems JY (2011) The settlement of investor state disputes and China new developments on ICSID jurisdiction. S C J Int Law Bus 8:1; Heymann MCE (2008) International law and the settlement of investment disputes relating to China. J Int Econ Law 11:507; and Database of ICSID Member States. International Centre for Settlement of Investment Disputes. https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx. Last visited 21 May 2019.

  3. 3.

    See Kragelund P (2009) Knocking on a wide open door: Chinese investments in Africa. Rev Afr Pol Econ 36:479; Bennell P (1997) Foreign direct investment in Africa: rhetoric and reality. SAIS Rev 17:127; Alden C, Davies M (2006) A profile of the operations of Chinese multinationals in Africa. S Afr J Int Aff 13:83; and Davies M (2008) China’s developmental model comes to Africa. Rev Afr Pol Econ 35:134. Huliaras A, Magliveras K. Truths, lies and misperceptions: United States and European Union reactions to the growing Chinese presence in Africa. In: Second European conference on African studies address at the University of Leiden Second European Conference on African Studies; UNCTAD (2007) Asian Foreign Direct Investment in Africa.

  4. 4.

    UNCTAD (June 6, 2018) World Investment Report 2018. https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130

  5. 5.

    See, e.g., Frequently asked questions – UNCTRAL and private disputes, UNCITRAL. http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration_faq.html#dispute. Last visited 21 May 2019 (for explanation that while the ICSID administers ISA, the UNCITRAL is not an administering authority. The UNCITRAL website states: “UNCITRAL does not administer arbitration or conciliation proceedings nor does it provide services … in connection with dispute settlement proceedings.”). Other institutions, most notably the Permanent Court of Arbitration (“PCA”), administer investor-state disputes under the UNCITRAL Rules. See generally Daly B, Goriatcheva E, Meighen H (2017) A guide to the PCA arbitration rules.

  6. 6.

    An example of China’s endorsement of ISA under the ICSID and UNCITRAL is contained in Article 5 and 9 of the Germany-China BIT which came into force on December 11 2005. Article 10(2) of that BIT is an umbrella clause, providing that each State party shall respect its treaty obligations relating to investors from the other State party. On the provisions in China’s Model BIT, see infra Parts IV and V.

  7. 7.

    Ekran Berhad v. People’s Republic of China (Ekran Berhad), ICSID Case No. ARB/11/15 and Ansung Housing Co., Ltd. v. People’s Republic of China (Ansung Housing), ICSID Case No. ARB/14/25

  8. 8.

    Hela Schwarz GmbH v. People’s Republic of China (Hela Schwarz), ICSID Case No. ARB/17/19

  9. 9.

    See Bath V (2011) The quandary for Chinese regulators: controlling the flow of investment into and out of China. In: Bath V, Nottage L (eds) Foreign investment and dispute resolution law and practice in Asia. p 67.

  10. 10.

    See Statistics of FDI in China in January – May 2018. Ministry of Commerce People’s Republic of China (Mar 6 2019). http://english.mofcom.gov.cn/article/statistic/foreigninvestment/201807/20180702767267.shtml

  11. 11.

    See infra Part III and note 111.

  12. 12.

    See generally ICSID, The ICSID Caseload – Statistics (Issue 2018-1), (2018), https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%202018-1(English).pdf (discussing the ICSID caseload, noting that the ICSID caseload has grown from a single case in 1972 to approximately 10 cases in 1990, to 53 new cases filed in 2017).

  13. 13.

    See Bath V (Mar 28, 2010) The Chinese legal system and the Stern Hu case. East Asia Forum. https://www.eastasiaforum.org/2010/03/28/the-chinese-legal-system-and-the-stern-hu-case/ (discussing the Stern Hu case where an Australian businessman of Chinese origins was found guilty in 2010 by a Chinese court of stealing commercial secrets and accepting bribes).

  14. 14.

    See Rubinacci L (Mar 7 2012) EU-China investment relationship, update on State of play. DC Trade Civil Society Dialogue. http://trade.ec.europa.eu/doclib/docs/2012/march/tradoc_149185.pdf. See also European Commission, Public Consultation on the future relationship between the EU and China (July 6, 2011) http://trade.ec.europa.eu/consultations/?consul_id=153

  15. 15.

    Rubinacci, supra note 14 at 13

  16. 16.

    Trakman L (2014) China and foreign direct investment: does distance lend enchantment to the view? Chin J Comp Law 1:1. https://doi.org/10.1093/cjcl/cxt015

  17. 17.

    See Bath, supra note 9 (discussing China’s shifting position in regard to investment arbitration).

  18. 18.

    See Shan W, Gallagher N, Zhang S (2012) National treatment for foreign investment in China: a changing landscape. ICSID Rev 27:120; Qin JY (2003) WTO-Plus obligations and their implications for the World Trade Organization legal system: an appraisal of the China accession protocol. J World Trade 37:483, 490; YY Kueh (ed) (1997) The political economy of Sino-American relations: a greater China perspective; Kinnear M (2009) The continuing development of the fair and equitable treatment standard. In: Bjorklund AK, Laird IA & Ripinsky S (eds) Investment treaty law: current issues III. Remedies in international investment.

  19. 19.

    See Sheppard A (2016) The approach of investment treaty tribunals to evidentiary privileges. ICSID Rev 31:670, 682.

  20. 20.

    See further infra section “Challenges to ISA?”

  21. 21.

    See, e.g., MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile, ICSID Case No. ARB/01/07, Award (May 25, 2004) (for an expansive interpretation of an MFN clause); Emilio Agustin Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7 (Jan. 25 2000) (Decision on Jurisdiction) at [54]-[56]; Siemens v. Republic of Arg., ICSID Case No. ARB/02/8, Aug. 3, 2004) (on the limits placed on the scope of an MFN clause in a BIT). See generally, Maupin JA (2011) MFN-based jurisdiction in investor-state arbitration: is there any hope for a consistent approach? J Int Econ Law 14:157 (on the controversy associated with the meaning and scope of MFN clauses); Banifatemi Y (2009) The emerging jurisprudence on the most favored nation treatment in investment arbitration. In: British Institute of International and Comparative Law (ed) Investment treaty law: current issues III, remedies in international investment law, emerging jurisprudence of international investment law.

  22. 22.

    See generally, Shan W, Gallagher N (2009) Chinese investment treaties: policies and practice. Oxford (for discussion of the second and third generation BITs).

  23. 23.

    See Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction (Aug. 3, 2003). But see Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24 (Decision on Jurisdiction) (Feb. 8, 2005).

  24. 24.

    China Heilongjiang International Economic & Technical Cooperative Corp., et al v. Mongolia (Heilongjian v. Mongolia), PCA Case (China-Mongolia BIT 1991).

  25. 25.

    China-Mongolia BIT at rt. 8. See too China’s Model BIT at rt. 4(iv).

  26. 26.

    Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6 (Feb. 12, 2015) (Annulment Proceeding) https://www.italaw.com/sites/default/files/case-documents/italaw4371.pdf, at 57 et seq

  27. 27.

    See Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, (June 19, 2009) (Decision on Jurisdiction and Competence); Tza Yap Shum v. The Republic of Peru ICSID Case No. ARB/07/6, (Jul. 7, 2011) (Award on Merits). See Renta 4 S.V.S.A. v. The Russian Federation, SCC Arb No. 024/2007 (Mar. 20, 2009) (Award on Jurisdiction); Czech Republic v. European Media Ventures SA EWHC 2851, (Dec. 5, 2007). See also Eliasson N (2011) China’s investment treaties: a procedural perspective. In Bath V, Nottage L (eds) Foreign investment and dispute resolution law and practice in Asia.

  28. 28.

    Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6 (Annulment Proceeding)

  29. 29.

    Agreement between the government of the Republic of Peru and the government of the People’s Republic Of China concerning the encouragement and reciprocal protection of investments, concluded in Beijing on June 9, 1994, entered into force Feb. 1, 1995, 1901 U.N.T.S. 257 (Peru-China BIT), at art. 1(2)(a).

  30. 30.

    Tza Yap Shum, supra note 27, ¶ 31

  31. 31.

    Id. ¶ 31

  32. 32.

    Id. ¶ 32

  33. 33.

    Peru-China BIT, supra note 29, at ch. 10, art. 126

  34. 34.

    ICSID Convention, Regulations and Rules, at art. 26

  35. 35.

    Peru-China BIT, supra note 29, at art 3(5). See also Eliasson, supra note 27.

  36. 36.

    Tza Yap Shum, supra note 27, at ¶ 218

  37. 37.

    Id. ¶ 88

  38. 38.

    Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6 (Feb. 12, 2007) (Decision on Jurisdiction and Competence); Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/ (July 7, 2011) (Final Award on the Merits), summary available at http://www.italaw.com/documents/TzaYapShumAwardIACLSummary.pdf

  39. 39.

    Id. ¶ 144

  40. 40.

    See Renta 4 S.V.S.A. v. The Russian Federation, SCC Arb No. 024/2007 (Mar. 20, 2009), ¶101 (on the general applicability of an MFN clause); RosInvestCo UK Ltd v. The Russian Federation, SCC.Arb No. 079/2005 (Oct., 2007), at ¶130.

  41. 41.

    Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6 (Feb. 12, 2015) (Annulment Proceeding)

  42. 42.

    Id. ¶144

  43. 43.

    Id. ¶ 205

  44. 44.

    Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium (Ping An v. Belgium), ICSID Case No. ARB/12/29 (Apr. 30, 2015) (Award)

  45. 45.

    Ren Q (2016) Ping An v. Belgium: temporal jurisdiction of successive BITs. ICSID Rev – For Invest Law J 31:129. https://doi.org/10.1093/icsidreview/siv046

  46. 46.

    Id.

  47. 47.

    Id. §67

  48. 48.

    Id. §99 (citing Resp. Mem. Jur., ¶134 on the financial advice it received from Morgan Stanley)

  49. 49.

    Sebastian. Green Martínez; Case Comment: Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium – A Jurisdictional Black Hole Between Two BITs? TDM 1 (2017), www.transnational-dispute-management.com/article.asp?key=2407

  50. 50.

    Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen ICSID Case No. ARB/14/30 (May 31, 2017)

  51. 51.

    Id. See further Pathirana D (Sept 26, 2017) A look into China’s slowly increasing appearance in ISDS cases. Investment Treaty News. https://www.iisd.org/itn/2017/09/26/a-look-into-chinas-slowly-increasing-appearance-in-isds-cases-dilini-pathirana/

  52. 52.

    ICSID, Case Details – Beijing Urban Construction Group Co. Ltd. V Republic of Yemen (June 7, 2018), https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/14/30

  53. 53.

    See, e.g., Guluzade A (07 May 2019) Explained, the role of China’s state-owned companies. World Economic Forum. https://www.weforum.org/agenda/2019/05/why-chinas-state-owned-companies-still-have-a-key-role-to-play/

  54. 54.

    See Harpaz MD (2015) China and international tribunals. In: Toohey L, Picker C, Greenacre J (eds) China in the new international economic order. p 43.

  55. 55.

    ICSID, supra note 12

  56. 56.

    Agreement between the government of the People’s Republic of China and the government of Malaysia concerning the reciprocal encouragement and protection of investments, Nov. 21, 1988

  57. 57.

    Ekrhan Berhad v. People’s Republic of China ICSID Case No. ARB/11/15

  58. 58.

    Id. (proceedings suspended pursuant to the Parties’ agreement on July 22, 2011)

  59. 59.

    Id.

  60. 60.

    The provision for an ISA tribunal to adhere to “domestic legal procedure” is contained in Article 4(ii) of China’s Model BIT.

  61. 61.

    See Article 7(4), modeled on Article 4(iv) of China’s Model BIT providing for compensation.

  62. 62.

    Ansung Housing Co., Ltd. v. People’s Republic of China (Ansung Housing v. China), ICSID Case No. ARB/14/25 (Mar. 9 2017)

  63. 63.

    Id. ¶ 56

  64. 64.

    Agreement between the Government of the Republic of Korea and the Government of the People’s Republic of China on the promotion and protection of investments, entered into force on Dec. 1, 2007 (“China-Korea BIT”).

  65. 65.

    China-Korea BIT, art.9(7) provided, “An investor may not make a claim pursuant to paragraph 3 of this article if more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, the knowledge that the investor had incurred losses or damage.”

  66. 66.

    ICSID Case No. ARB/17/19 (Jun. 21, 2017).

  67. 67.

    Hela Schwarz GmbH v. People’s Republic of China ICSID Case No. ARB/17/19 (Mar. 9, 2018) (Procedural Order No. 1); Hela Schwarz GmbH v. People’s Republic of China ICSID Case No. ARB/17/19 (Aug. 10, 2018) (Procedural Order No. 2)

  68. 68.

    ICSID Case No. ARB/11/15 (proceedings suspended pursuant to the Parties’ agreement on July 22, 2011)

  69. 69.

    See, e.g., ICSID, Venezuela Submits a Notice under Article 71 of the ICSID Convention, (Jan 26, 2012), http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=Announcements&pageName=Announcement100; See Garcia LB (Jan 24, 2012) We have to get out of the ICSID. Venezuela Analysis. http://venezuelanalysis.com/analysis/6766. See generally, Appleton S (Mar 31, 2010) Latin American arbitration: the story behind the headlines. International Bar Association. http://www.ibanet.org/Article/Detail.aspx?ArticleUid=78296258-3B37-4608-A5EE-3C92D5D0B979

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    See Appleton S (Mar 31, 2010) Latin American arbitration: the story behind the headlines. International Bar Association. http://www.ibanet.org/Article/Detail.aspx?ArticleUid=78296258-3B37-4608-A5EE-3C92D5D0B979 (for commentary on these events, as well as investment arbitration in Latin America).

  71. 71.

    Compare ICSID, List of Contracting States and Other Signatories to the Convention, http://icsid.worldbank.org/ICSID/ with World Bank, Member Countries, http://web.worldbank.org/

  72. 72.

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    See Peterson LE (2012) South Africa pushes phase-out of early bilateral investment treaties after at least two separate brushes with investor-state arbitration. Inv Arb Reporter. http://www.iareporter.com/articles/20120924_1

  75. 75.

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  76. 76.

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  77. 77.

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  79. 79.

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    ICSID (2018) The ICSID caseload – statistics. World Bank, Issue 1. https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%202018-1(English).pdf

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    See, e.g., Titi C (2017) The European Union’s proposal for an international investment court: significance, innovations and challenges ahead. TDM 1. Available at www.transnational-dispute-management.com; Howard DM (2017) Creating consistency through a world investment court. Fordham Int Law J 41:1. But cf. Uzelac A (2019) Why Europe should reconsider its anti-arbitration policy in investment disputes. Access Justice East Eur 1:7.

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    CIETAC Investment Rules, art. 32, 55

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    See generally Cotula L (2011) Law and power in foreign investment in Africa: shades of grey in the shadow of the law; Agyemang AA (1988) African states and ICSID arbitration. CILSA 21:177 (discussing the African signatories, particularly their consent to jurisdiction, their position in the institution, and the appointment of African arbitrators); Johnson AR (2010) Comment, Rethinking bilateral investment treaties in Sub-Saharan Africa. Emory Law J 59:919 (discussing BITs in relation to African countries).

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    See, e.g., Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany (Vattenfall), ICSID Case No. ARB/09/6 (Mar. 11, 2011). On a successful ISDSA claim by Eli Lilly against Canada, see Eli Lilly and Company v. The Government of Canada, UNCITRAL, ICSID Case No. UNCT/14/2 (Mar. 16, 2017).

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    Illustrating these variable conceptions of ‘fair and equitable’ treatment is a series of cases commencing with the ICSID award in Maffezini v. Kingdom of Spain, ICSID Case No ARB/97/7 (Nov. 13, 2000) (Award on Merits) [64]; MTD Equity Sdn Bhd and MTD Chile S.A. v. Republic of Chile, ICSID Case No ARB/01/7 (May 25, 2004) [178]; and Ian A Laird, MTD Equity Sdn Bhd and MTD Chile S.A. v. Republic of Chile — Recent Developments in the Fair and Equitable Treatment Standard, Trans. Dispute Management, Oct. 2004.

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    ICSID Case No. ARB/03/19 (May 19, 2005) (Order in Response to a Petition for Transparency and Participation as Amicus Curiae) at ¶ 19, 22

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    ICSID tribunals began to admit third party interventions in 2007, after the ICSID’s new rule 37 came into force. See eg. Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22 (Feb. 2, 2007); Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v. The Argentine Republic, ICSID Case No. ARB/03/19 (Feb. 12, 2007). See International center for settlement of investment disputes, ICSID Convention, Regulations and Rules 95–96 (2006); Baldwin E, Kantor M, Nolan M (2006) Limits to enforcement of ICSID awards. J Int Arbitration 23:1 (discussing ‘tactics’ that may be employed in attempts to ‘delay’ or ‘avoid’ compliance with ICSID Awards).

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  1. Faculty of Law, University of New South Wales, Sydney, NSW, Australia

    Leon Trakman

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  1. School of Law, City University of Hong Kong, Kowloon, Hong Kong

    Julien Chaisse

  2. School of Business and Law, University of Portsmouth, Portsmouth, UK

    Leïla Choukroune

  3. Institute of Malaysian and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia

    Sufian Jusoh

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Trakman, L. (2021). Resolving the Tension Between State Sovereignty and Liberalizing Investor-State Disputes: China’s Dilemma. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-3615-7_34

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