The Settlement of Investor State Disputes and China: New Developments on ICSID Jurisdiction

Abstract

This examination of new developments in investment arbitration with the Peoples’ Republic of China (“PRC”) is prompted by the recent decision on jurisdiction, Tsa v. The Republic of Peru 2009 (Tza), rendered by an arbitral tribunal under the auspices of the International Center for the Settlement of Investment Disputes (ICSID) in an expropriation claim brought by a Chinese investor having his residence in Hong Kong against Peru under the 1986 China-Peru Bilateral Investment Treaty (BIT). This BIT belongs to the first generation of treaties concluded by the PRC, which limited the scope of the arbitral tribunal’s jurisdiction to the amount of the compensation for expropriation by the host country, excluding from the scope of the arbitration the first stage of the dispute i.e., the entitlement to compensation. Further to the Opening Policy implemented by the PRC 30 years ago and the admission of the PRC at the World Trade Organization, the PRC has concluded a new generation of BITs granting full jurisdiction to ICSID. The content of Sino-foreign BITs had regularly been examined by scholars from the perspective of a potential ICSID claim by a foreign investor under an old generation of BITs against the PRC, using the most favored nation (MFN) clause mechanism to gain access to the more favorable procedural protection contained in the new generation of BITs entered into with third countries. Oddly enough, as a consequence of the “go abroad” policy and the activity of Chinese enterprises as investors around the globe, the first ICSID case, triggering a dispute resolution clause included in a Chinese BIT of the old generation, was initiated in 2007 by a Chinese investor with respect to an investment made in Peru. Tza raised a jurisdictional issue that had regularly been addressed in light of expected Chinese resistance to the enforcement of an ICSID claim. Instead, in Tza, the award on jurisdiction in an interesting bataille à front renversé reveals that it was Peru, as respondent, which objected to ICSID jurisdiction. Arbitral tribunals faced with subject-matter jurisdiction challenges brought by the host state retain jurisdiction by either applying the MFN clause to expand their jurisdiction or broadly construing the wording of the arbitration clause. In Tza, the tribunal adopted the second approach by adopting a broad interpretation of the scope of the arbitration clause so as to cover the entitlement to and the quantification of the compensation for expropriation, and rejected the MFN clause argument to incorporate the procedural process contained in the Peru-Colombia BIT into the basic BIT. This broad interpretation was also prompted by other provisions in the relevant BIT, amounting to a “fork in the road” clause, which created inconsistency between the pre-arbitration condition that determination of liability for expropriation be made in court, on the one hand, and the irrevocability of the election by the investor of a remedy in such courts, excluding his access to arbitration, on the other hand.