Journal of International Economic Law 11(3), 507–526 doi:10.1093/jiel/jgn023. Advance Access publication 7 August 2008
INTERNATIONAL LAWAND THE SETTLEMENT OF INVESTMENT DISPUTES RELATING TO CHINA
ABSTRACT
This article examines how international investment law can be used to resolve investment disputes in China. After a general overview over the basic structure of international investment law, it explores the international legal rules applicable to foreign investors in China and Chinese investors in third countries. It focuses on China’s obligations under the Convention on the Settlement of Investment Disputes between States and Nationals of other States; the Convention establishing the Multilateral Investment Guarantee Agency, the WTO/GATT-regime and bilateral investment treaties. It thereby illustrates China’s cautious approach to international arbitration and other international standards relating to the protection of foreign investors and the current trend in Chinese politics to turn to international law to protect its investors in third countries. The article concludes that—also caused by increasing Chinese outward investment—the international investment regime relating to China has left its infant stage and provides remedies for foreign investors in China and Chinese investors abroad. I. INTRODUCTION
China1 is a preferred destination for foreign direct investment (FDI). According to the World Investment Report, the Chinese FDI2 inward stock amounted to 292.559 million US dollars in 2006. In addition, Chinese outward investment is also rising. Its FDI outward stock grew from (estimated)
* The author practices EU and competition law at SJ Berwin LLP, Munich. Monika Heymann, Apianstr. 5, 80796 Mu¨nchen, Germany. E-mail:
[email protected] 1
China is used in the present article as synonym for the People’s Republic of China (without Hong-Kong).
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FDI is defined by the UNCTAD, World Investment Report [Annex B, Definition and Sources, 45 (2007)] as ‘an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate)’.
Journal of International Economic Law Vol. 11 No. 3 ß Oxford University Press 2008, all rights reserved
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Monika C. E. Heymann*
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II. A SHORT INTRODUCTION TO THE BASIC STRUCTURE OF INTERNATIONAL INVESTMENT LAW
A. Multilateral investment law Multilateral investment law is determined by the absence of a general treaty governing substantive and procedural aspects of international investment law. A broader international consensus could only be reached on procedural rules; the most important multilateral treaty in this regard is the Convention on the Settlement of Investment Disputes between States and Nationals of
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UNCTAD, World Investment Report, Annex B, Annex table B.2, FDI stock, by region and economy 1990, 2000, 2006 (2007), 255, 257. UNCTAD, World Investment Report (2007), 44. The increase of the number of arbitral awards is a relatively new phenomenon in international investment law. In 1996 fewer than 10 cases were filed under international investment agreements. But, in 2006, the total cumulative number of known treaty-based cases increased to a new peak of 255 [UNCTAD, Latest Developments in Investor-State Dispute Settlement, IIA Monitor No. 4, 2 (2006), UNCTAD/WEB/ITE/IIT/2006/11]. See also Andreas F. Lowenfeld, International Economic Law (Oxford: Oxford University Press, 2003) 493: ‘The law that emerges from this rich load of sources—treaties, statutes, scholarly writings, and arbitral awards—is not wholly uniform. No body of law is monolithic and certainly one would not expect complete consensus on the subject of international investment, inevitably intertwined with history, economics and politics, local and international’. See also Calvin A. Hamilton and Paula I. Rochwerger, ‘Trade and Investment: Foreign Direct Investment through Bilateral and Multilateral Treaties’, 18 New York International Law Review 1 (2005), at 3.
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27.768 million US dollars in 2000 to 73.330 million US dollars in 2006.3 In the future, Chinese outward investment will increase even further as China has established a sovereign wealth fund—China Investment Corporation (CIC)—to invest part of its huge foreign currency reserves.4 As investment grows, it is likely that the number of legal disputes between foreign investors in China and the Chinese government and Chinese investors and their host states will rise. Therefore, the international legal regime governing investment disputes with Chinese participation will become more important. However, the international legal regime governing investment disputes is not a uniform well defined system of (international) law. Instead, international investment law consists of a complex system of international treaties (in particular bilateral, sectorial and regional treaties), customary law, an increasing number of arbitral awards5 and scholarly writings.6 As a consequence international investment law varies (sometimes significantly) from country to country and from investor to investor within a particular country.7 The purpose of this article is therefore to give an overview of the international law applicable to investment disputes relating to China. It first describes the basic structure of international investment law (Section II) and focuses then on the international investment law applicable in China (Section III).
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1. The absence of a general multilateral treaty All efforts and attempts to conclude an international multilateral investment treaty governing procedural as well as substantive rights and obligations of the investors and the host-states have failed.11 In the 1990s the efforts of the OECD to conclude the Multilateral Agreement on Investment (the ‘MAI’) were unsucessful. According to Graham,12 the failure was caused by substantive differences among the negotiation parties, a lack of high-level commitment by the states, the involvement of non-governmental organizations that were highly opposed to the proposed MAI and the lack of support by the business community. The disagreement on substantial issues concerned the treatment of regional economic organizations, in particular the European Communities under the planned most-favoured-nation clause and whether there should be a general exception for cultural industries.13 Another contentious point was the introduction of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, better known as the Helms-Burton Act, by the United States, which was regarded by the other countries as contrary to the spirit of the planned MAI and which suggested that the MAI could be ‘effectively toothless’.14 The Helms-Burton Act enabled nationals of the United States to bring suit in US courts with regard to their property expropriated in Cuba against inter alia non-US owned corporations who ‘traffic’ in such property and contained—contrary to international standards—a retroactive definition of expropriation.15 8
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Convention on the Settlement of Investment Disputes between States and Nationals of other States, 18 March 1965, 575 U.N.T.S. 515; 4 I.L.M. 532 (1965). Convention Establishing the Multilateral Investment Guarantee Agency, 11 October 1985, 1508 U.N.T.S. 99; 24 I.L.M. 1605 (1985). General Agreement on Tariffs and Trade 1994, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 17 (1999), 1867 U.N.T.S. 187; 33 I.L.M. 1153 (1994). Gerhard Loibl, ‘International Economic Law’, in Malcom D. Evans (ed.), International Law, (2nd edn, Oxford: Oxford University Press, 2006) 689 at 711. Edward M. Graham, Fighting the Wrong Enemy (Washington: Instititute for International Economics, 2000) 15–49. Ibid, at 31 and 32. Ibid, at 28–31. Ibid, at 28.
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other States (the ‘ICSID Convention’),8 which lays down a voluntary dispute resolution system for states and investors. Another multilateral treaty covering some (minor) procedural aspects is the Convention Establishing the Multilateral Investment Guarantee Agency9 (the ‘MIGA Convention’), which provides, besides insurance for investments, mediation services for investment disputes. Finally, some aspects of (substantive) international investment law are covered by multilateral treaties on trade—for example, the General Agreement on Tariffs and Trade 199410 (the ‘GATT 1994’).
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Article 1, s 1 ICSID Convention. Article 1, s 2 ICSID Convention. This might not be true concerning the internal organization of the Centre, which balances the interests of investors and host countries alike. See in details Ibrahim F. I. Shihata, ‘The Settlement of Disputes Regarding Foreign Investments: The Role of the World Bank, with Particular Reference to ICSID and MIGA’, 1 Arab Law Quarterly 265 (1986), at 268. Ibid, at 269. Emphasis added, by the author. Article 26, s 4 Energy Charter Treaty. See detailed Christoph H. Schreuer, The ICSID Convention: A Commentary (Cambridge: Cambridge University Press, 2001), Art. 25, ss 241–319. Georges Rene´ Delaume, ‘ICSID Arbitration and the Courts’, 77 American Journal of International Law 784 (1983), at 784 describes the ICSID system as a ‘truly international arbitration machinery’.
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2. ICSID Convention The ICSID Convention has established the International Centre for Settlement of Investment Disputes (the ‘ICSID Centre’)16 which is an autonomous international organization whose purpose is to ‘provide facilities for conciliation and arbitration of investment disputes between Contracting States’.17 It functions very similarly to an (international) arbitration institution for commercial disputes between two private entities18 and provides a mechanism and procedural rules for the settlement of investment disputes through conciliation (Articles 28–35) or arbitration (Articles 36–55). The ICSID system, as the first international arbitration institution for disputes between states and individuals, has two important features: Firstly, the dispute settlement system offered by the ICSID Convention is available on a strictly voluntary basis.19 Even ratification of the ICSID Convention does not constitute consent to the settlement of an investment dispute through the ICSID procedures. An express consent is necessary. Article 25 of the ICSID Convention indicates that ‘the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (. . .) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre’.20 A state can give this consent through a direct agreement with the investor, through bilateral investment treaties (BITs) and multilateral instruments (e.g. the Energy Charter Treaty21). Once the parties have given their consent, the parties are bound by their consent. Article 25, paragraph 1, first sentence of the ICSID Convention indicates that after consenting to the jurisdiction of the Centre ‘no party may withdraw its consent unilaterally’. Secondly, ICSID arbitration is truly international;22 this means that the local courts of the host state or of the home country of the investor cannot intervene in ICSID proceedings and thus have no influence on the proceedings and their outcome. Pursuant to Article 26 of the ICSID convention, consent of the parties to ICSID arbitration is deemed to be exclusive of any other remedy, unless the parties agree otherwise. This means that once a dispute is submitted to the Centre the national judicial authorities of the
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3. The Multilateral Investment Guarantee Agency The MIGA Convention created the MIGA in 1988.26 MIGA primarily offers a political risk insurance program for investments,27 but it is also involved in the resolution and settlement of investment disputes—in particular as a mediator. 4. WTO rules on international investment law Even though all efforts to include a comprehensive regime for international investment law within the WTO/GATT system failed,28 the WTO/GATT system includes also some rules governing—at least indirectly—the protection of foreign investment. In principle, WTO rules can affect foreign investors in China and Chinese investors in third countries, who are WTO-members, in two ways. First, 23
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Ibrahim F. I. Shihata, ‘The Settlement of Disputes Regarding Foreign Investments: The Role of the World Bank, With Particular Reference to ICSID and MIGA’, 1 Arab Law Quarterly 265 (1986), at 271. For example a local court can neither issue anti-suit injunctions nor decide whether an ICSID Tribunal has jurisdiction. Neither national annulment proceedings nor proceedings to confirm, vacate or set aside the ICSID arbitral award are possible. A short overview of the history of the Multilateral Investment Guarantee Agency gives Ibrahim F. I. Shihata, above n 23, at 272. Article 2, s 1 (a) MIGA Convention. According to Saure´ negotiations in the WTO were doomed to failure because of the widespread belief among businesses in capital-exporting countries that WTO disciplines in this area would almost dilute the high level of protection afforded by the asymmetric bilateral investment treaties. See Pierre Sauve´, ‘Multilateral Rules on Investment: Is Forward Movement Possible?’, 9 Journal of International Economic Law 325 (2003), at 326.
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Contracting State cannot intervene in the ICSID proceedings.23 Contrary to commercial arbitration, none of the parties can take legal action before national courts during the ICSID arbitration proceedings;24 or after the award is rendered.25 Article 53 of the ICSID Convention expressly states, that ‘the award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this convention’. Furthermore, Article 52 of the ICSID Convention expressly forbids annulment proceedings before national courts. Instead, it creates a special regime regarding the annulment of ICSID awards. An ad hoc committee consisting of three arbitrators instead of local courts has the authority to annul the award. Moreover, the ICSID Convention excludes the possibility that an ICSID award may be reviewed by a national court during the enforcement proceedings. Article 54 of the ICSID Convention provides, that ‘each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State’.
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Geatan Verhoosel, ‘The Use of Investor-State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law’, 6 Journal of International Economic Law 493 (2003), at 494. See Andreas F. Lowenfeld, above n 6, at 96: ‘The Agreement that came out of the Uruguay Round is far from a comprehensive code on transnational investment or even on trade-related measures used by host countries to regulate such investment.’ Agreement on Trade-Related Investment Measures, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 143 (1999), 1868 U.N.T.S. 186 [Not reproduced in I.L.M.]. Andreas F. Lowenfeld, above n 31. Calvin A. Hamilton and Paula I. Rochwerger, above n 7, at 10. General Agreement on Trade in Services, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 284 (1999), 1869 U.N.T.S. 183; 33 I.L.M. 1167 (1994). Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 320 (1999), 1869 U.N.T.S. 299; 33 I.L.M. 1197 (1994). See Calvin A. Hamilton and Paula I. Rochwerger, above n 34.
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because in most cases foreign investors are also traders,29 all trade rules within the WTO-system have (at least indirectly) an impact on foreign investors. Second, there are WTO rules relating directly to foreign investment. Two different types of rules can be distinguished. On the one hand, the WTO regime contains substantive rules applicable to some30 investmentrelated trade measures for goods, such as the Agreement on Trade Related Investment Measures (the ‘TRIMS Agreement’).31 The TRIMS Agreement is based on the assumption that measures relating to foreign investment could also violate some of the GATT disciplines, in particular Article III (national treatment) and Article XI of the GATT 1994 (quantitative restrictions). Article 2, paragraph 1 of the TRIMS Agreement thus forbids any member to ‘apply any TRIM [investment measure related to goods] that is inconsistent with the provisions of Article III or Article XI of the GATT 1994’. Annex II to the TRIMS Agreement sets out a—‘not very specific’32—illustrative list of possible violations. It states, for example, that local source requirements violate Article III (4) GATT, and that restrictions on the importation by an enterprise of products used in or related to its local production and restrictions on exportation of goods produced by an enterprise are contrary to Article XI of GATT 1994. On the other hand, various treaties concluded within the WTO/GATT system embody provisions relating to the treatment of foreign companies and therefore also (indirectly) protect foreign investors.33 Examples are the rules relating to trade in services (the ‘GATS’)34 or the protection of intellectual property rights (the ‘TRIPS Agreement’).35
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B. Bilateral, regional and sectorial investment law
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Jarrod Wong, ‘Umbrella Clauses in Bilateral Investment Treaties: Of Breaches of Contract, Treaty Violations, and the Divide Between Developing and Developed Countries in Foreign Investment Disputes’, 14 George Mason Law Review 135 (2006), at 140. Germany was the first country to conclude a BIT because Germany has lost its foreign investment as a result of the defeat in World War II and was thus especially sensitive to the political risks to which foreign investment is and was exposed [Kenneth J. Vandevelde, ‘A Brief History of International Investment Agreements’, 12 U.C. Davis Journal of International Law & Policy 157 (2005), at 168]. Lowenfeld, International Economic Law (Oxford: Oxford University Press, 2003) 473. UNCTAD, Recent Developments in International Investment Agreements (2006–June 2007), IIA Monitor No. 3, 2 (2007). Heribert Golsong, Introductory Note, 28 I.L.M. 575 (1989). UNCTAD, above n 40. As of 1 June 2007, Germany had concluded 134 BITs. UNCTAD, above n 40. UNCTAD, Total number of Bilateral Investment Agreements concluded, 1 June 2007 (USA). Ibid (Japan). However, the BIT between China and Russia was signed on 9 November 2006. UNCTAD, above n 44 (China). According to EU Statistics China’s ten most important trading partner in 2006 were the European Community, the United States, Japan, Hong-Kong, Korea, Singapore, Malaysia, Russia, Australia and Thailand (EU Commisson, China-EU Bilateral Trade and Trade with the world, 2007). See more detailed Andreas F. Lowenfeld, above n 6, at 474–84.
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1. Bilateral investment treaties The creation of BITs36 was the answer to the failure to conclude a general multilateral investment treaty. Germany and Pakistan concluded the first BIT in 195937 and since then the network of BITs has expanded in all parts of the world.38 In the 1990s the number of BITs increased dramatically and at the end of 2006, there were a total of 2,573 BITs.39 China signed its first BIT in 1982 with Sweden, followed by BITs with Romania and the then Federal Republic of Germany in 1983.40 As of end of 2006, China had concluded 120 BITs,41 and is thus ranked second (after Germany)42 worldwide in terms of the total number of BITs concluded. Other countries are parties to a smaller number of BITs. For example, the United States has concluded 49 BITs43 and Japan 12.44 China has entered into BITs with nearly all of its most important trading partners (with the exception of the United States and Russia),45 such as most EU-countries, Japan, Korea, Singapore, Malaysia, Australia and Thailand.46 The content of a typical BIT can be quickly described. In principle, it determines the substantial rights of a foreign investor and contains disputesettlement provisions (state-to-state and investor-to-state). In general, a BIT addresses the following four substantive issues: (1) definition of investment; (2) conditions for the admission of foreign investors to the host state; (3) standards of treatment of foreign investors (right to fair and equitable treatment, national treatment, most-favoured-nation clause) and (4) protection against expropriation.47 When the host state breaches any of its obligations
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towards a private investor contained in the BIT, the investor can generally seek withdrawal of a measure and/or damages against the host state. The scope of a BIT is in principle limited to the bilateral relationship between the two member countries.48 The BIT between China and Germany thus governs only the rights of a Chinese investor in Germany and of a German investor in China.
III. INTERNATIONAL INVESTMENT LAW AND CHINA
The following section focuses on the international investment law applicable to foreign investments in China and Chinese outward investments. It gives an overview of China’s obligations under the ICSID Convention (A), the MIGA Convention (B), the WTO/GATT regime (C) and the BITs (D).
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However, a BIT can have effects on another BIT through the application of the mostfavoured-nation clause. See more detailed below (part B). North American Free Trade Agreement, 17 December 1992, 32 I.L.M. 289 and 605 (1993). The North Atlantic Agreement applies to the United States of America, Canada and Mexico. Protocolo sobre promocio´n y proteccio´n de inversion provenientes de Estados no Partes del Mercosur, 5 August 1994 (annex to Treaty of Asuncio´n). Mercosur/CMC/Dec. No 11/94, reproduced in Ruben B. Santos Belandro, Bases Fundamentales del Derecho de la Integracion y Mercosur (Montevideo: Asociacio´n de Escribanos del Uruguay, 2001) 92. This Protocol applies to Argentinia, Brazil, Paraguay and Uruguay. Energy Charter Treaty, 17 December 1994, 33 I.L.M. 360 (1994). See Article 2 of the Energy Charter Treaty: ‘This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, . . .’. See more detailed on the Energy Charter Treaty: Thomas Wa¨lde, ‘International Investment under the 1994 Energy Charter Treaty’, 29 Journal of World Trade (1995), at 5. Address by the Secretary-General of the Energy Charter Secretariat HE Ambassador Andre´ Mernier at the 11th National Energy Conference ‘Energy and Development 2006’, Athens, 14 November 2006, http://www.iene.gr/docs/lectures_ea2006/mernier.pdf (visited 25 May 2008). Chun Humping, ‘China-ASEAN Investment Negotiations’, 7 Journal of World Investment and Trade (2006), at 143.
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2. Regional and sectorial international investment law Regional and sectorial investment law either applies only to a certain geographic area or to a certain sector. Examples of regional investment treaties are the North American Free Trade Agreement49 and the Protocol of Colonia for the Promotion and Reciprocal Investments within the MERCOSUR.50 The Energy Charter Treaty51 is a sector specific investment treaty for investments in the energy sector.52 As regards China, regional and sectorial investment treaties have virtually no importance because China has neither signed nor ratified such an agreement. China is, however, currently negotiating its accession to the Energy Charter Treaty53 as well as an investment agreement with the member states of the Association of Southeast Asian Nations (ASEAN).54
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A. The ICSID Convention and China
1. China’s reluctant acceptance of the ICSID Convention China ratified the ICSID Convention twenty-seven years after the Convention entered into force and it only gradually accepted the voluntary dispute resolution mechanism provided by the ICSD Convention as it ratified the ICSID Convention with a declaration under Article 25(4) of the ICSID Convention stating that the Chinese government would only consider submitting to the ICSID Centre investment ‘disputes over compensation resulting from expropriation and nationalization’.57 In addition, even after the ratification of the ICSID Convention China continued to conclude BITs without reference to ICSID arbitration.58 Many Chinese BITs concluded after 1993 still contain the ‘old’ Chinese standard clause indicating that if the investor-host state dispute could not be settled through negotiations, the dispute should be submitted to the competent national court of the host state. An ad hoc arbitral tribunal should only have jurisdiction when the dispute involved the amount of the compensation from expropriation and nationalization.59 Only some exceptional BITs—e.g. the BIT between China 55 56
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http://www.worldbank.org/icsid/cases/pending.htm (visited 23 May 2008). Global Arbitration Law Review, News, First Chinese Claimant registered at ICISD, http:// www.globalarbitrationreview.com/news/news_item.cfm?item_id=3739 (visited 25 May 2008). The exact wording of the declaration is the following: ‘[P]ursuant to Article 25(4) of the Convention, the Chinese Government would only consider submitting to the jurisdiction of the International Centre for Settlement of Investment Disputes over compensation resulting from expropriation and nationalization’. [ICSID/8-D, Notifications concerning classes of disputes considering suitable or unsuitable for submission to the centre, 1 (2008)]. See for example Article 8, s 2 and 3 of the BIT between China and Slovenia (1993) (the full text of all cited BITs are published in the IIA Database (Investment Instrument Online Database) on the official homepage at the United Nations Conference on Trade and Development): ‘If the dispute [between the investor and one Contracting State] cannot be settled through negotiations within six months, either party to the dispute shall be entitled to submit the dispute of the competent court of the Contracting State accepting the investment [x 2]. If a dispute involving the amount of compensation for expropriation cannot be settled within six month (. . .), it may be submitted at the request of either party to an ad hoc arbitrary tribunal. (. . .) [x 3]’. See also Article 9 of the BIT between China and Qatar (1999); Article IX of the BIT between China and Indonesia (1994) or Article 9 of the BIT between China and Egypt (1994). See for example Article VII of the BIT between China and Turkey (1990) or Article 13 of the BIT between China and Singapore (1985). However, some BITs also included provisions that an ad hoc international tribunal would be competent for all investor-state disputes. See for example the BIT between China and the United Kingdom (1986) (Article 7) or the BIT between China and Switzerland (1987) (Article 12).
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Even though China became a member of the ICSID Convention already in 1993, until now, no case has been brought against China under the ICSID system because China has been reluctant to accept the jurisdiction of the ICSID Centre. However, in February 2007, the ICSID centre registered the first arbitration request by a Chinese company.55 Tza Yap Shum, the Chinese owner of a fish flour company (TSG Peru), is claiming 20 million US dollars from the Republic of Peru for breaches of the BIT between China and Peru.56
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Article 8, s 2 BIT between Lithuania and China (1993): ‘If the dispute can not be settled through negotiations within six months, the investor of the one Contracting Party shall be entitled to submit (. . .) b) the dispute relating to the amount of compensation and other disputes agreed upon both parties may be submitted to the International Center for Settlement of Investment Disputes established under the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature in Washington D.C. on 18 March 1968; . . .’. Article 9, s 3 BIT between China and Bahrain (1999): ‘The dispute on the amount of compensation resulting from nationalization and expropriation, if unable to be settled within five months after resort to negotiations (. . ..), shall be submitted at the request of either party to: (a) International Centre for the Settlement of Investment Disputes (ICSID) under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, done at Washington on March 18, 1965; . . .’. See also Jun Xiao, ‘Das neue deutsch-chinesische Investitionsschutzabkommen—Ein Prototyp der chinesischen Bilateral Investment Treaties neuer Generation’, 9 zeitschrift fu¨r europarechtliche studien 441 (2006), at 455. Entered in force in 2004 (UNCTAD, above n 47). Article 10, s 3 of the BIT between China and the Netherlands indicates that: ‘If the dispute [between an investor and the host state] has not been settled amicably within a period of six months, from he date either party to the dispute requested amicable settlement, each Contracting Party gives its unconditional consent to submit the dispute at the request of the investor concerned to: a) the International Centre for Settlement of Investment Disputes, for settlement by arbitration or conciliation under the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature at Washington on 18 March 1965; or b) an ad hoc arbitral tribunal, unless otherwise agreed upon by the parties to the dispute, to be established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL)’. Entered into force in 2003 (UNCTAD, above n 47). Article 8 BIT between China and Bosnia and Herzegovina (2002). Entered into force in 2005 (UNCTAD, above n 47). Article 9, s 3 BIT between China and Germany (2003). Entered into force in 2006 (Investment Treaty News, http://www.iisd.org/pdf/2007/itn_ feb14_2007.pdf (visited 28 March 2007). Article 9 BIT between China and Finland. Article 9 BIT between China and Cote d’ Ivoire. Another Example is the BIT between China and Jordan, which was negotiated in 2001.
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and Lithuania (1993)60 or China and Bahrain (1999)61 —contained a ‘limited ICSID clause’ that accepted the jurisdiction of the ICSID centre for disputes over compensation from expropriation or nationalization. One possible explanation for China’s reluctant acceptance of the ICSID Convention is that until the beginning of the 21st century China was primarily a destination for foreign investment, and thus wanted to keep control over possible disputes with foreign investors. This explanation is confirmed by the fact that China started to accept ICSID jurisdiction in BITs with the beginning of the 21st century when Chinese outward investment started to rise.62 Such BITs include the BIT between China and the Netherlands (2001)63, China and Bosnia-Herzegovina (2002),64 China and Germany (2003)65 and China and Finland (2004).66 Moreover, newly negotiated, but not yet ratified or signed, BITs also contain an ICSID arbitration clause. An example is the BIT between China and Cote d’Ivoire.67
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The legal effects of the Chinese declaration under Article 25(4) of the ICSID Convention China made its declaration under Article 25(4) of the ICSID Convention that indicates ‘[a]ny Contracting State may, at the time of ratification, acceptance of approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre’. The convention is, however, silent on the legal effects of such a declaration. It is therefore argued by some authors that the Chinese declaration is a reservation68 in the sense of Article 2(1)(d) of the Vienna Convention on the Law of Treaties (the ‘VCLT’).69 Article 2(1)(d) VCLT defines a reservation as a declaration whereby a state purports to exclude or to modify the legal effect of certain provisions of a treaty in their application to that state. Thus, the question is: Does the Chinese declaration under Article 25(4) of the ICSID Convention mean that China’s acceptance of the jurisdiction of the ICSID Centre is limited to investment disputes over compensation resulting from expropriation and nationalization? Or is it just a declaration of intent as to which disputes China wants to accept in the future without any further legal effects? As noted earlier, the ICSID Centre has jurisdiction under two conditions. First, the state has ratified the ICSID Convention and second, it has consented expressly to its jurisdiction in accordance with Article 25(1) of the ICSID Convention. A reservation is thus unnecessary because no state 68
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See for example Mark A. Cymrot, ‘Investment Disputes with China’, 61-OCT Disp. Resolution Journal 80 (2006), at 82. Vienna Convention on the Laws of Treaties, 23 May 1969, 1155 U.N.T.S. 331; 8 I.L.M. 679 (1969).
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2. New problems created by the increased acceptation of ICSID jurisdiction However, this new development has lead—primarily caused by the earlier reluctant approach—to further questions. The first one relates to China’s declaration under Article 25(4) of the ICSID Convention stating that it will only submit disputes over compensation arising from nationalization and expropriation to the ICSID Centre. Does this declaration mean that the consent given by the newly negotiated BITs that all disputes can be submitted to the ICSID Centre is only valid for disputes over compensation from expropriation and nationalization? The second question concerns the legal consequences of the recently concluded Chinese BITs which include a provision indicating that the ICSID Centre has the authority to decide all investment disputes. Does this new treaty practice impact earlier BITs without an ICSID jurisdiction clause or with a ‘limited ICSID jurisdiction’ clause in the sense that the ICSID Centre will also have jurisdiction over older BITs under the most-favoured-nation clause?
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The legal effects of the recently concluded BITs under the most-favoured nation clause The following section discerns whether the newly concluded Chinese 70 71
72
73 74
Christoph H. Schreuer, above n 21, Article 25, ss 622–624. Ibid, Article 25, s 626 (2001): ‘[N]otifcations under Article 25 x 4 are for purposes of information only and are designed to avoid misunderstandings. They do not have any direct legal consequences. (. . .). In particular, they do not bind the Contracting States making the notification, which may withdraw or modify its notification at any time’. Accordingly, the following statement made by Mark A. Cymrot, above n 69 is incorrect: ‘Disputes arsing out of government agency arbitrary conduct and discrimination generally fall outside the scope if China’s accession’. This argumentation also finds support in the fact that a reference to the Chinese declaration is missing in all newly concluded BITs, whereas in the BIT between China and South Korea (1992) there was still an express reference to the Chinese declaration. Art. 9, s 10 of the latter BIT stated that: ‘. . . any dispute except those disputes which shall not be submitted to the International Centre for the Settlement of Investment Disputes established by the Washington Convention (hereinafter referred to as ‘‘the Centre’’) through the notification of reservation by the People’s Republic of China to the Centre shall, upon request of an investor of either State or the Government of the other State, be submitted to the Centre in the event that the People’s Republic of China becomes a Party to the Washington Convention’. (emphasis added) Article 2, s 3 BIT between China and Germany (2003). Article 3, s 1 BIT between China and Germany (2003).
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accepts the jurisdiction of the ICISD Centre with the ratification of the ICSID Convention. In addition, Article 25(4) of the ICSID Convention clearly states that a declaration made under this Article and its subsequent notification ‘shall not constitute the consent required by [Article 25] paragraph (1)’. The wording thus underlines that even if a state declares that it is accepting ICSID jurisdiction for certain investment disputes under Article 25(4) that such a declaration would be without legal effects. We can, therefore, argue that—a contrario— a declaration indicating that a state will not accept ICSID jurisdiction is just as well without legal effects. This approach is confirmed by the drafting history of the ICSID Convention. According to the drafters the object and purpose of Article 25(4) was to clarify that the ratification of the ICSID Convention does not constitute any form of consent to accept the jurisdiction of the Centre and should not create any expectations by investors.70 We can, therefore, conclude that China’s declaration under Article 25(4) was for informational purposes only and has no direct legal consequences. China is free at any moment to accept the jurisdiction of the Centre for all investment disputes.71 Accordingly, the consent given to ICSID arbitration in the above cited BITs with Germany or the Netherlands is not limited to disputes over compensation from nationalization or expropriation. Instead, the consent encompasses all obligations in the respective BIT.72 A German or Dutch investor can sue the Chinese government for arbitrary and discriminatory measure73 or a violation of the obligation of ‘fair and equitable’ treatment74 before an ICSID arbitral tribunal.
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(1) Investments and activities associated with investments of investors of either Contracting Party shall be accorded fair and equitable treatment and shall enjoy protection in the territory of the other Contracting Party. (2) The treatment and protection referred to in paragraph 1 of this Article shall not be less favorable than that accorded to investments and activities associated with such investments of investors of a third State.77
Can a Lithuanian investor thus argue that the ICSID clause in the ChineseGerman BIT applies to him because the Lithuanian-Chinese BIT gives him the right to have his investment treated no less favourably than the investment of any third state? Two decisions of ICSID arbitral tribunals78 are particularly relevant in this context: Maffezini v Kingdom of Spain79 and Plasma Consortium Ltd. v Republic of Bulgaria80. 75
76 77 78
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Ruth Teitelbaum, ‘Who’s afraid of Maffezini? Recent Developments in the Interpretation of the Most Favored Nation Clauses’, 22 Journal of International Arbitration 225 (2005), at 234. Ibid, at 226. Article 3 BIT between China and Lithuania (1993) (emphasis added by the author). Another decision concerning the most-favoured-nation clause and dispute resolution provisions is for example: ICSID Case No. ARB/02/13, Salini Costruttori S.p.A and Italstrade v Hashemite Kingdom of Jordan, Decision on Jurisdiction of 29 November 2004. ICSID Case No. ARB/97/7, Emilio Augustı´n Maffezini v Kingdom of Spain, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000 (English Translation form Spanish Original) (hereinafter Maffezini Decision). ICSID Case No. ARB/03/24, Plasma Consortium Ltd. v Republic of Bulgaria, Decision on Jurisdiction of 8 February 2005 (hereinafter Plasma Decision).
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BITs containing an ICSID clause may have effects on earlier BITs without such a clause through the application of the most-favoured-nation clause. A most-favoured-nation clause is contained in many BITs and usually indicates that neither contracting party will subject the investment of the other party to a treatment less favourable than that which it accords to investments of nationals from a third state. Even though the exact content and extent of a most-favoured-nation clause can vary significantly, its objective is the same: All investment should be treated the same (non-discrimination).75 In recent investment disputes the question arose as to whether a mostfavoured-nation clause also encompasses provisions concerning the settlement of disputes. Can an investor rely on the BIT which gives him the best procedural rights and/or the best forum for litigation (so called ‘treaty-shopping’)?76 Could, for example, a Lithuanian investor rely on the BIT between China and Germany from 2003 to invoke the jurisdiction of the ICSID Centre for other matters than the amount of compensation after expropriation? As noted above the BIT between China and Lithuania does not recognize the jurisdiction of the ICSID centre for all disputes arising out of the BIT, but it contains the following most-favoured-nation clause:
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81 82 83 84 85
86 87
Ruth Teitelbaum, above n 76, at 225. Maffezini Decision, above n 80, at s 40. Maffezini Decision, above n 80, at s 54. Maffezini Decision, above n 80, at s 55. Maffezini Decision, above n 80, at ss 56 and 62: ‘As a matter of principle, the beneficiary of the [MFN] clause should not be able to override public policy considerations that the contracting parties might have envisaged as fundamental conditions for their acceptance of the agreement in question, particularly if the beneficiary is a private investor . . .’. Plasma Decison, above n 81, at s 184. Plasma Decision, above n 81, at s 207.
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Maffezini was the first case where an ICSID arbitral tribunal applied the most-favoured-nation clause to dispute settlement provisions and is thus particularly controversial.81 At issue was an eighteen-month waiting period before the investment disputed could be submitted to international arbitration under the BIT between Argentina and Spain. The claimant invoked the most-favoured-nation clause and argued that the shorter waiting period of the BIT between Chile and Spain (only six months) should be applied.82 Maffezini succeeded with his argumentation, even though the relevant mostfavoured-nation clause in the Argentina-Spain BIT did not refer expressly to dispute settlement. The tribunal concluded that ‘today dispute settlement arrangements are inextricably related to the protection of foreign investors’.83 It also stated that ‘International arbitration and other dispute settlement arrangements have replaced . . . older and frequently abusive practices of the past. These modern developments are essential, however, to the protection of the rights envisaged under the pertinent treaties; they are also closely linked to the material aspects of the treatment accorded’.84 However, the tribunal also underlined that the application of the most-favoured-nation clause has some limits arising from public policy considerations.85 In the Plasma Case, the arbitral tribunal explicitly rejected the argument that a most-favoured-nation clause could be used to invoke ICSID arbitration when there is no ICSID arbitration clause in the relevant BIT.86 The tribunal found that the most-favoured-nation clause at issue did not encompass a consent to ICSID arbitration because the ‘Contracting States cannot be presumed to have agreed that those provisions [dispute settlement provisions] can be enlarged by incorporating dispute resolution provisions from other treaties negotiated in an entirely different context’.87 Thus, the recent case-law of ICSID tribunals shows that even though the most-favoured-nation clause was applied to dispute resolution provisions, this application was limited to rules on procedure. But they did not use the most-favoured-nation clause to substitute the consent by the respective state to ICSID jurisdiction as required by Article 25(1) of the ICSID Convention. It seems, therefore, quite unlikely that an ICSID tribunal will accept a case of a Lithuanian investor relying on the most-favoured-nation
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3. Conclusion As China is accepting the jurisdiction of the ICSID centre in an increasing number of BITs, the ICSID Convention will become increasingly important for investment disputes relating to China. The first claim of a Chinese investor registered on 12 February 2007 will be just the beginning of ICSID disputes with Chinese participation. However, this first dispute will probably be limited to the determination of the amount of compensation because Article 8(3) of the BIT between China and Peru limits the jurisdiction of the ICSID Centre to those disputes.91 B. China and the MIGA In contrast to the ICSID Centre, MIGA has already been actively involved in resolving investment disputes in China by mediating disputes between foreign investors and the Chinese government. The exact scope of MIGA’s role in settling investment disputes in China is unknown because the mediation services are offered on a confidential basis and MIGA publishes only selected cases. As far as China is concerned, MIGA has published two cases. Both concern disputes between China and foreign investors over investment projects insured by MIGA which were resolved amicably after MIGA became involved. One concerned for example a dispute between a foreign investor
88 89
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Maffezini Decision, above n 80, at s 38; Plasma Decision above n 81, at s 187. See for example, Freshfields Bruckhaus Deringer, ‘Resolving disputes in China through Arbitration’, (Fresh fields Bruckhaus Deringer, 2006) at 53 and 54. See for example ICSID Case No. ARB/03/10, Gas Natural SDG, S.A. v Argentine, Decision on Preliminary Questions on Jurisdiction, s 36. See Article 8, s 1–3 of the BIT between China and Peru (1994). The BIT http://www.sice. oas.org/Investment/BITSbyCountry/BITs/PER_China_s.pdf (visited 25 May 2008).
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clause and invoking ICSID jurisdiction. Moreover, the abovementioned decisions concerned most-favoured-nation clauses that were worded differently from the most-favoured-nation clause in the BIT between China and Lithuania. The respective most-favoured-nation clauses did not limit the most favourable treatment to the area of fair and equitable treatment, as the BIT between China and Lithuania does. Instead, they are formulated more broadly and in principle encompassed all matters covered by the relevant BIT.88 However, the possibility that the inclusion of an ICSID arbitration clause in recent BITs has further legal consequences through the application of most-favoured-nation clauses in earlier BITS cannot be ruled out completely.89 The doctrine of stare decisis does not exist in international investment arbitration90 and the outcome of future decisions on this issue will depend on a multitude of factors such as the exact content and scope of the invoked most-favoured-nation clause and the negotiating history of the relevant BIT.
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and China relating to the unilateral reduction of the prices paid to certain electric power producers by China in the late 1990s.92 C. China and the WTO/GATT system
92
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94 95
96
97 98
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See Agency Averts Claim for Power Project in China, http://www.miga.org/guarantees/ index_sv.cfm?stid=1576 (visited 25 May 2008). WTO Doc. 01-5996, Accession of the People’s Republic of China – Decision of 10 November 2001, WT/L/432. See section II under the subsection A.4. Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 354 (1999), 1869 U.N.T.S. 401; 33 I.L.M. 1226 (1994) [hereinafter DSU]. See Gaetan Verhoosel, ‘The Use of Investor-State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law’, 6 Journal of International Economic Law 493 (2003), at 494. Ibid. WT/DS339—Measures affecting imports of automobile parts. Complaint by the European Communities, Canada and the United States against China. Argentina, Australia, Brazil, Japan, Mexico, Chinese Taipei and Thailand have reserved their rights to participate in the Panel proceedings as third parties. See China–Measures Affecting Imports of Automobile Parts, Constitution of the Panel Established at the Requests of the European Communities, the United States and Canada, Note by the Secretariat, 30 January 2007. See summary of the dispute http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds339_e.htm (visited 25 May 2008).
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China’s accession to the WTO in 200193 also had consequences for the international law regime relating to foreign investment in China. Although the WTO/GATT system does not include a comprehensive legal regime for the protection of investment, it does include some rules (indirectly) governing the protection of foreign investment.94 These obligations can be enforced against China by the other member states of the WTO through the WTO dispute resolution mechanism. As the WTO Dispute Settlement System, embodied in the Dispute Settlement Understanding (DSU),95 is state-centric, foreign investors have no standing to submit a ‘claim’ and can only try to enforce China’s obligations under the WTOIgATT regime indirectly.96 Investors can pressure their home governments97 to initiate proceedings and they may benefit from rulings against China. For example, the beneficiaries (depending on the outcome) of the current WTO dispute over China’s tax on imported auto parts between China, the European Communities, Canada and The United States98 may also be foreign investors in China. This WTO dispute challenges Chinese regulations that require the same tariff for vehicles that contain a certain amount of imported automobile parts as for complete imported vehicles. The European Communities, The United States and Canada argue among other things, that the Chinese measure violates Article 2 of the TRIMs Agreement99 because the measure restricts
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See for example the Argumentation of the European Communities: ‘China has acted inconsistently with Article 2.1 and Article 2.2 of the TRIMs Agreement in conjunction with paragraph 1(a) of the Illustrative List annexed to the TRIMs Agreement by applying investment measures related to trade in goods that are inconsistent with the provisions of ArticleIII or Article XI of GATT 1994 and by applying investment measures related to trade in goods, compliance with which is necessary to obtain an advantage, and which require the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production. Further, China has acted inconsistently with Article 2.1 and 2.2 of the TRIMs Agreement in conjunction with paragraph 2(a) of the Illustrative List annexed to the TRIMs Agreement, by applying investment measures related to trade in goods that are inconsistent with the provisions of ArticleIII or ArticleXI of GATT 1994 and by applying investment measures related to trade in goods, compliance with which is necessary to obtain an advantage, and which restricts the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports; . . .’ (WT/DS339/8, China – Measures Affecting Imports of Automobile Parts, Request for the Establishment of a Panel by the European Communities, 18 September 2006 http://trade-info.cec.eu.int/wtodispute/show.cfm?id=290& code=1 (visited 30 March 2007). See Beijing Times, WTO Department begins work, 27 November 2001 http://english. people.com.cn/200111/27/eng20011127_85444.shtml (visited 4 April 2007). Gaetan Verhoosel, above n 97, at 497; Calvin A. Hamilton and Paula I. Rochwerger, above n 34. Ibid. Ibid, Gaetan Verhoosel. See for example Article 3, s 1 of the BIT between China and Germany (2003): ‘Investments of investors of each contracting Party shall at all times be accorded fair and equitable treatment in the territory of the other Contracting Party’. Identical provisions are for example contained in the BITs between China and Bolivia (Art. 3, s 1); China and Bahrain (Article 3, s 1); China and Vietnam (Article 3, s 1); China and Cuba (Art. 3, s 1); China and Greece (Article 2, s 2) or China and Australia [Article III (a)].
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the importation of automobile parts by a foreign investor in China and requires him to buy domestic products.100 If the European Communities, Canada and The United States win that case, foreign investors in China would benefit, as they could import cheaper automobile parts from third countries to China. Furthermore, investors in China can report possible WTO violations to the China-WTO Notification Enquiry Centre, which was set up by the then Chinese Ministry of Foreign Trade and Economic Co-operation (MOFTEC) in 2001101 and hope that as a consequence the Chinese authorities comply with their relevant WTO obligations. The only possibility for an investor to invoke a breach of a WTO/GATT obligation directly against the host state (China) would be through BITs. Some authors argue that investors can seek relief for breaches of WTO law through BITs.102 They identified two ways how WTO law can come into play in bilateral investment disputes.103 First, WTO law may be directly applicable when the BIT contains a clause requiring fair and equitable treatment in ‘accordance with the rules and criteria of international law’.104 However, the standard Chinese ‘fair and equitable treatment’ clause does not contain a reference to international law.105
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D. Bilateral investment law and China Bilateral investment law plays a crucial role for Chinese investors abroad and foreign investors in China as it is the most important source for substantial obligations of China and the respective third state with regard to international investment law. The bilateral investment law relating to China has changed over the last years due to China’s economic transformation from a country receiving FDI to a country with outward investment. This development has not only influenced the number of Chinese BITs, but also their content. The economic transformation led to a new generation of Chinese BITs in the beginning of the 21st century. They differ from earlier Chinese BITs in two important aspects.109 First, as noted above, the new generation of Chinese BITs are marked by an increasing acceptance of international arbitration (including ICSID) and second, they incorporate a national treatment clause.110 The first generation of Chinese BITs did not contain a national treatment clause and the referral of an investment dispute to international arbitration was only accepted in a limited number of cases. 106
107 108
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Gaetan Verhoosel, above n 97, at 504; Calvin A. Hamilton and Paula I. Rochwerger, above n 34. Ibid, Gaetan Verhoosel, at 506. Article 2, s 2 of the BIT between China and the United Kingdom (1986) states: ‘Investments of nationals or companies of either Contracting Party shall at all times be accorded fair and equitable treatment . . .’. This development was not absolutely homogenous. Depending on the bargaining power of the third country some BITs concluded in the 1980s contained also a reference to ICSID or a national treatment clause. For example, the China-British BIT, concluded in 1986, embodied already a national treatment clause. Art. 3, s 3 stated: ‘. . . either Contracting Party shall to the extent possible, accord treatment in accordance with the stipulations of its laws and regulations to the investments of nationals or companies of the other Contracting Party the same as that accorded to its own nationals or companies’. See also Juan Xiao, above n 63, at 444.
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It might thus be questionable whether a Chinese investor or a foreign investor in China can rely directly on WTO law in the context of a Chinese BIT. Second, WTO law may come into play as ‘interpretative context’ pursuant to Article 31(3)(c) of the VCLT.106 According to Article 31(3)(c) of the VCLT the treaty interpreter shall take into account ‘any relevant rules of international law applicable in the relations between the parties’. This means that WTO law can be used to ‘colour’ the meaning of ‘fair and equitable’,107 if both parties to the relevant BIT are also members of the WTO. An arbitral tribunal in an investment dispute involving China and a British investor, for example, could thus refer to WTO law in order to determine whether a Chinese measure has breached the ‘fair and equitable treatment’ requirement in the BIT between China and The United Kingdom.108
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The arbitration clause As noted earlier, the most recently concluded Chinese BITs refer all investment disputes to ICSID arbitration, whereas the earlier BITs contained no provision relating to investor-state investment disputes111 or the old Chinese standard dispute resolution clause, only referring disputes on the amount of compensation for expropriation or nationalization to international arbitration. The typical-newly concluded-Chinese BIT makes the Chinese consent to the jurisdiction of an international arbitral tribunal subject to two conditions. The Chinese BITs require in general that the foreign investor in China must refer the issue to administrative review in China before he can submit a dispute to international arbitration. In addition, the BIT limits the possibilities of an investor to submit an investment dispute to international arbitration after it has been submitted to a Chinese court. The BIT between China and Germany (2003) illustrates this approach. Whereas Article 9 gives the German investor the right to submit a dispute to the ICSID Centre, this right is restricted by the Protocol to the BIT between China and Germany. The protocol indicates that: with respect to investments in the People’s Republic of China an investor of the Federal Republic of Germany may submit a dispute for arbitration under the following conditions only: (a) the investor has referred the issue to an administrative review procedure according to Chinese law, (b) the dispute still exists three months after he has brought the issue to the review procedure and (c) in case the issue has been brought to a Chinese court, it can be withdrawn by the investor according to Chinese law.112
The national treatment clause The national treatment clause in the new generation of Chinese BITs is of limited importance for foreign investors in China. Generally, it is just a ‘best effort’ clause. Again, the BIT between China and Germany exemplifies this concept. 111 112
The BIT between China and Sweden (1982) contains no provisions on dispute settlement. The administrative review is not conducted by a Chinese Court, see Juan Xiao, above n 63, at 447.
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1. The content of a typical Chinese BIT in the 21st century: asymmetric and cautious approximation to international standards The new generation of Chinese BITs has two features. First, they contain asymmetric obligations. China assumes fewer obligations than its respective treaty partner. Second, they are determined by a relatively quick, but still cautious approximation to modern international standards and to international arbitration. These characteristics can be best illustrated by a closer look at the arbitration and national treatment clause in Chinese BITs.
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IV. CONCLUSION
The international investment regime relating to China has left its infant stage and provides remedies for foreign investors in China and Chinese investors abroad. However, because of its mainly bilateral structure the international investment law regime in China (and worldwide) is imperfect. Not every investor in China and every Chinese investor abroad have the same rights. Moreover, China is only cautiously accepting international arbitration for investment disputes. The development in the last ten years shows that China is willing to adopt and accept international obligations relating to investment protection. This development comes along with increasing Chinese outward investment. The Chinese government seems to believe in international law as an adequate protection for its investors in third countries. And as a consequence, foreign investors in China also benefit from the improvement of the international investment regime. In the next ten years, we can therefore expect to see Chinese investors and the Chinese government as parties in international arbitral proceedings involving investment disputes. The first ICSID case Tza Yap Shum v Republic of Peru (Case No. ARB/07/6) with Chinese participation is only the beginning. 113
Kong Qingjiang, ‘Bilateral Investment Treaties: The Chinese Approach and Practice’, 8 Asian Yearbook of International Law 105 (1998/99), at 124.
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Wheras Article 3(2) of the BIT obliges China and Germany to accord national treatment to foreign investors, the Protocol dilutes the Chinese obligation. It indicates that with regard to China Article 3(2) does not apply to ‘any existing non-conforming measures maintained within its territory; the continuation of any such non-conforming measure and any amendment to any such non-conforming measure to the extent that the amendment does not increase the non-conformity of these measures’ and that China will ‘only’ take all appropriate steps in order to progressively remove the non-conforming measures. The national treatment clause in the new Chinese BITs is thus not yet perfect and China remains extremely cautious as to what extent it will treat foreign investors as national investors. It seems that China has still not overcome its initial concerns about the national treatment clause, which were that national industries have to be protected from competition and that China is determined to maintain state enterprise monopolies.113