Geopolitics, China, and Investor-Stale Arbitration
In C B Picker, L Toohey and J Greenacre (eds), China in the International Economic Order (Cambridge, 2015) ch 16
14 Pages Posted: 26 Feb 2018
Date Written: January 1, 2015
Until recently, China was not particularly interested in investor-state arbitration. It viewed institutions such as the International Center for the Settlement of Investment Disputes (ICSIDI) with deep distrust due to its emphasis on state sovereignty and ideological considerations. Furthermore, China lacked experience in international litigation. However, in recent years, its altitude has changed dramatically, and it is clear that China has invested immense resources to prepare itself and its investors for future arbitration. This is evident, for example, in China's growing interest in the functioning of the ICSID and its inclusion of arbitration in its growing practice of negotiating investment treaties that regulate investor-state disputes. This practice is also evident in China's three model Bilateral Investment Treaties (Model BITs), on which its various regional and bilateral trade and investment agreements are significantly based.
China is the largest recipient of foreign direct investment (FDI) and fifth in outward investment, recently overtaking the United States as the world's largest trading nation. It is a net importer of, among other products, oil, gas, and coal, and it is investing significantly in Africa, Asia, and South America to meet its energy supply needs. A Special Report of the Asia Society indicates that FDI from China to the United States is doubling annually, and China's total projected investments are expected to reach close to US$2 trillion by 2020.
China's ongoing integration has made it the second most prolific negotiator of BITs. It has signed over 130 BITs to date, second only to Germany. This statistic is all the more striking considering that China concluded its first BIT only in 1982 with Sweden and its second BIT with Germany in 1985. It ratified the ICSID Convention in 1993. Equally striking is the comparatively recent developments of China's three Model BITs. The first was initiated in the early 1980s, the second developed in 1992, and the third in 1998. These documents are analysed in the subsequent sections below.
However, despite prolific inbound and outbound investment, China has had limited experience with investor-state arbitration to date. No claim by an inbound investor in China has been the subject of an arbitration award, and few Chinese outbound investors have brought claims against China's BIT partners. Nonetheless, China is clearly anticipating the possibility, and a number of distinctive provisions in its BIT may be the subject of a future claim.
This chapter identifies how China has developed its bilateral investment treaty regime through a succession of three model BITs. It then scrutinizes China's approach to resolving investment disputes in light of China's geometric growth in FDI inflows and outflows, but limited experience with arbitration. Section 2 evaluates China's current model BIT, including its legal and economic significance, and speculates on its future BIT program. Section 3 analyzes the virtual absence of arbitration claims by inbound investors against China, including the political and economic reasons for that absence. Section 4 considers claims by outbound Chinese investors against China's BIT partners and the legal and economic nature of those claims. Section 5 considers the global significance of China adopting a new model BIT. Section 6 evaluates China's likely influence on a uniform BIT movement in light of its global economic and political state.
Furthermore, this chapter considers whether China's growing geopolitical influence over international investment practice will cause a paradigm shift in a priori principles of law, notably in relation to investor protections and state defenses. It evaluates the extent to which China is likely· to accommodate Western liberal values to protect its growing outbound investors, while affirming its stature as a planned economy striving to protect its national interests, including slate-owned enterprises, from inbound foreign investors.
Finally, the chapter examines whether China has developed its own unique paradigm in regulating international investment, including investor-state disputes, the extent of divergence between that paradigm and those propagated by Western liberal slates, and whether that variance is growing or receding. It explores the potential re-calibration of free market investor protections in light of the domestic policies of planned economics that replicate, in whole or in part, China's success in inbound and outbound investment. It concludes by considering whether, given China's growing global economic and political influence, its evolving paradigm as an investment nation is likely to lead to corresponding paradigm shifts in global investment jurisprudence.
Keywords: China, International Center for the Settlement of lnvestment Disputes (ICSIDI), Bilateral Investment Treaties, BIT, foreign direct investment, outbound investment, inbound investment, Investor-state Arbitration
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