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
Monika C. E. Heymann*
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 München, 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).
2
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
508
Journal of International Economic Law (JIEL) 11(3)
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).
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
3
4
5
6
7
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.
Settlement of Investment Disputes Relating to China
509
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’).
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
9
10
11
12
13
14
15
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.
510
Journal of International Economic Law (JIEL) 11(3)
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
16
17
18
19
20
21
22
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 René 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’.
Settlement of Investment Disputes Relating to China
511
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’.
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
24
25
26
27
28
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 Sauré 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 Sauvé, ‘Multilateral Rules on Investment: Is Forward
Movement Possible?’, 9 Journal of International Economic Law 325 (2003), at 326.
512
Journal of International Economic Law (JIEL) 11(3)
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
29
30
31
32
33
34
35
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.
Settlement of Investment Disputes Relating to China
513
B. Bilateral, regional and sectorial investment law
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
36
37
38
39
40
41
42
43
44
45
46
47
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.
514
Journal of International Economic Law (JIEL) 11(3)
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.
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
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).
48
49
50
51
52
53
54
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 promoción y protección de inversion provenientes de Estados no Partes del Mercosur,
5 August 1994 (annex to Treaty of Asunción). Mercosur/CMC/Dec. No 11/94, reproduced in
Ruben B. Santos Belandro, Bases Fundamentales del Derecho de la Integracion y Mercosur
(Montevideo: Asociación 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 Wälde,
‘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 André 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.
Settlement of Investment Disputes Relating to China
515
A. The ICSID Convention and China
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
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
57
58
59
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).
516
Journal of International Economic Law (JIEL) 11(3)
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
60
61
62
63
64
65
66
67
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 für 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.
Settlement of Investment Disputes Relating to China
517
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?
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
69
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).
518
Journal of International Economic Law (JIEL) 11(3)
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.
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).
Settlement of Investment Disputes Relating to China
519
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:
(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
79
80
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 Augustı́n 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).
520
Journal of International Economic Law (JIEL) 11(3)
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
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.
Settlement of Investment Disputes Relating to China
521
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.
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
90
91
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).
522
Journal of International Economic Law (JIEL) 11(3)
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
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
92
93
94
95
96
97
98
99
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).
Settlement of Investment Disputes Relating to China
523
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
100
101
102
103
104
105
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)].
524
Journal of International Economic Law (JIEL) 11(3)
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
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
109
110
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.
Settlement of Investment Disputes Relating to China
525
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.
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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Journal of International Economic Law (JIEL) 11(3)
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
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.