He Who Makes the Rules Owns the Gold

This chapter analyses the ever-increasing importance of Chinese influence on international investment law, which is a key branch of international economic law. By using the mechanics of the current architecture to assume a leadership role, China will likely become the new architect of the legal and financial orders. New infrastructure and development banks, a growing usage of the yuan and other incipient transformations, herald an upcoming era of new international law architects. While new institutions may initially work in conjunction within the existing framework, it is probable that the new architects’ alternatives will reach a critical mass and achieve an independent role in the international economic and legal orders. This transformation will likely lead to rewriting the rules and will serve to devalue the institutions which have enforced the global governance architecture over the previous seventy years. At a minimum, the replacement of the present architects will present a definitional, let alone enforcement problem with respect to international law. A different code of conduct may conflict with current norms and international law will need to focus on this potential dichotomy between former and new standards and customs. The failure to address this impending clash of customs may lead to a fracture of global cooperation and enforcement of international law, reduced prosperity, and heightened economic and military conflict.

A New Era in Cross-strait Relations? A Post-sovereign Enquiry in Taiwan’s Investment Treaty System

The author provides a post-sovereign enquiry in Taiwan’s investment treaty system. Going beyond the traditional legal divisions, Taiwan showed that it can bypass such limitations, being a main trend-setter in innovating the area of international economic law. Specifically, a close look at Taiwan’s nexus of investment treaty is eye-opening; Taiwan concluded twenty-nine BITs and six ample economic cooperation agreements with related investment provisions. The number and the importance of these agreements reveal that the concept of international recognition does not directly influence the behaviour of states which are willing to interact legally and economically. In this regard, non-diplomatic relations might be used as a step forward, as Taiwan is closer to conclude an agreement with another post-sovereign entity, the European Union. This global actor may open up the scene for a multi-tier dynamic where some of its component member states are in principle against any liaison with Taiwan, but will be bound to it because of their membership to the EU. To solve such legal contradiction, the established instruments of international law cannot be applied, and a new theoretical framework shall be developed. To this end, the starting point must be to discuss sovereignty thoroughly. The chapter assesses the polity’s effort for the development of diplomatic structures by means of investment agreements, in this way avoiding the problems related to recognition. This kind of agreement can be considered as a litmus test, showing Taiwan’s capacity to shift traditional categories of Westphalian international law and emerge as a self-standing actor.

Substantive Provisions of the East Asian Trilateral Investment Agreement and their Implications

The Korea–China–Japan Investment Promotion, Facilitation and Protection Agreement is the first treaty in the economic field that binds the three Northeast Asian countries together under a single legal instrument. The existence of effective dispute settlement procedures under the treaty will contribute to the creation of a favourable investment climate in the host country. Nevertheless, there have been fears about frivolous or vexatious claims that could inhibit legitimate regulatory actions by governments. How to compose an investment chapter of the Korea–China–Japan FTA that is being negotiated is a pressing demand for all in the region. Any pertinent answers to such a quest require a thorough comparison of the benefits and drawbacks of any development of relevant rules and governance. In the end, a quest for better international investment governance in Northeast Asia in the future requires sound evaluation of lessons from the past and present.

Lessons Learned from the Canada–China FIPA for the US–China BIT and beyond

Key lessons can be made from analysing a unique and recent BIT, the Canada–China Foreign Investment Protection Agreement (FIPA), in order better to predict and identify the opportunities and challenges for potential BIT counterparties of China (such as the United States, the European Union (EU), India, the Gulf Cooperation Council, and Columbia). The Canada–China FIPA and the anticipated US–China BIT (and EU–China BIT) collectively fall into a unique class of investment agreements, in that they represent a convergence of diverse ideologies of international investment norms/protections with two distinct (East/West) underlying domestic legal and economic systems. The purpose of this chapter is to appreciate and utilize the legal content of the Canada–China FIPA in order to isolate the opportunities and challenges for investment agreements currently under negotiation (focusing on the US–China BIT). This analysis is conducted from the perspective of China’s traditional BIT practice and political–economic goals, relative to that of its counterparty. This chapter briefly addresses the economic and broader diplomatic relationship between China and Canada, comparing that with the United States. It then analyses a broad selection of key substantive and procedural obligations of the Canada–China FIPA, addressing their impact, individually and cumulatively, to extract what lessons can be learned for the United States (US) and other negotiating parties. This analysis identifies the degree of investment liberalization and legal protection that Canada and China have achieved, and whether these standards are reciprocally applied. The analysis is not divorced from the relevant political economy and negotiating position between China and the counterparty and the perceived economic benefits of each party, as well as any diplomatic sensitive obstacles between the parties. While this chapter does not exhaustively analyse each substantive and procedural right, it provides enough of a comprehensive basis to reveal those challenges that remain for future bilateral negotiations with China.

Use of Investor–state against China’s Enforcement of the Anti-Monopoly Law

Since China introduced the Anti-Monopoly Law (AML) in 2008, China achieved an impressive competition law enforcement field record. However, lawyers and scholars still argue that Chinese competition authorities applied AML disproportionately against foreign companies. Despite the possibility of judicial reviews, many foreign companies still have reservation on the independent of judiciary of China, and they are still reluctant to appeal the decisions before the Chinese courts. In addition, there are some incidents where Chinese competition authorities used the AML to promote its own industrial policy. In this regard, foreign companies are not 100 per cent sure to trust the decisions of the Chinese competition authorities that they apply the AML fairly to safeguard the fair competition between Chinese companies and foreign companies. In this regard, foreign investors are trying to find a system to make sure that they are subject to ‘fair and equitable’ treatment or at least to ‘national treatment’ under the trade agreements between China and its major trading partners. The author is of the view that it is time for the foreign investors in China to consider the ISDS as an option to challenge procedural aspects of the Chinese competition law enforcements. By bringing an AML cases before the ISDS, foreign investors may induce Chinese competition authorities to comply with the due process and fair application of the competition laws, thus safeguarding transparency and predictability of the competition law enforcement of China.

Beware of Chinese Bearing Gifts

The exponential growth of Chinese direct investment has been accompanied in some cases by controversy and even resistance, both in developing and in developed economies. Around the world, critics have expressed fears and denounced some of the potential dangers of this investment, such as lowering of local labour standards, hollowing out of industrial core through repatriation of assets, and acquisition of dual use technology. Alarmist media headlines have warned against a Chinese takeover of national economies one controversial investment deal at a time. The ensuing political backlash has often received considerable media attention and increased scrutiny over subsequent deals. What explains the political challenges posed by the spectacular explosion of Chinese direct investment over the past few years in the United States (US) and the European Union (EU)? How and why have attitudes and policies in the West changed over the past decade towards Chinese FDI? This chapter considers two alternative explanations for the political challenges triggered by Chinese investment in Western countries. The first is that Chinese FDI causes political unease because of its novelty. The second is the perception that there is something inherently different about the nature of Chinese FDI and therefore it should not be treated politically like any other foreign investment. These two explanations lead to a different set of predictions for the future of Chinese FDI in Europe and the US. The first section analyses how the novelty of Chinese FDI may pose political challenges to Western politicians and publics and compares the current phenomenon with past instances of political problematic sources of FDI. Section II examines the argument that there is something inherently different about Chinese FDI, notably as stemming from an emerging economy, a unique political system, and a non-ally in the security dimension. The third section explores the domestic political context in which these challenges are raised: in Europe, the euro crisis and the rise of populism; in the US, the focus on geopolitical competition and the rise of economic nationalism. The conclusion raises some implications of these political challenges on the future of Chinese outward investment.

Nationwide Regulatory Reform Starting from China’s Free Trade Zones

Before conducting profound reforms of the trade and investment legal framework, China often implements the reform on a small scale, generally in specified geographic zones as testing grounds. After these testing grounds generate fruitful results, the reform may be implemented nationwide. A typical example is the five special economic zones established in the 1980s. After the Cultural Revolution, the first round of Chinese regulatory reform in trade and investment took place in 1978. Led by the late Premier Deng Xiaoping, China implemented the opening-up policy. Deng established five special economic zones to attract foreign investment by allowing a greater role for individual autonomy and Western-style market forces. Lessons learned from the special economic zones were implemented nationwide. For example, the corporate Sino-foreign joint venture was first tested in special economic zones and, after it proved successful, was adopted nationwide. These zones are also the pioneers in China to use tax holidays to attract foreign investment and many regions in inland China followed their example. In the 1990s, special economic zones gradually ended their mission as testing grounds. Among all the regulatory reforms conducted in the free trade zones (FTZs), adopting a negative list to regulate the foreign investment market access is important, because it significantly departs from China’s long-time domestic practice and aims to bridge China’s investment law with high-standard international agreements. This chapter focuses on the negative list adopted by China’s FTZs to regulate access to foreign investment markets and explores its significance, analyses its insufficiencies, and proposes suggestions for improvement.

China’s Inward Investment

One of the most important components in China’s economic reform programme has been the economy’s gradual opening to inward foreign direct investment (IFDI) and foreign invested enterprises (FIEs). While China has become more and more open to IFDI over time, it remains far more closed than most large economies. In recent years, we have seen the apparent contradictory trends toward developing what appears to be a more liberal legal environment for IFDI combined with highly publicized examples of pushback against FIEs in China. In order to understand China’s approach towards IFDI and FIEs, it is necessary to understand the historical background of IFDI and FIEs in China, the objective function that China applies to IFDI and FIEs, and the fact that the impact of IFDI and FIEs on China’s economy is often underestimated. These features will influence any investment treaties that might be reached with China and how they will be implemented. This chapter also provides a broad-brush perspective on China’s approach toward IFDI and FIEs. It then describes the results of novel method of estimating the economic benefits that IFDI and FIEs have brought to China. Finally, the chapter provides perspectives for those interested in the potential for the negotiation and implementation of investment agreements with China.

Implementing Investor–state Mediation in China’s Next Generation Investment Treaties

This chapter discusses the possible proposal of implementing an investor–state mediation mechanism in China’s next generation IIAs, especially for disputes where the Chinese state will be acting as the Respondent. It first discussed the rise of mediation in international commercial and business dispute settings and mediation’s potential applications in resolving investor–state claims. It then discussed the background of recent rise of ADR in China and why that might lead to the adoption of an investor–state mechanism in the country’s future BITs, and how such a mechanism shall be devised. At the end, it wrapped up the discussion by arguing that rather than returning to political means of settling investor–state disputes, the recent rise of interest-based investor–state mediation indicates the benevolent interaction between parties as they become more experienced with investment treaty claims.

Protecting Chinese Investment Under the Investor–state Dispute Settlement Regime

The case of Ping An v Kingdom of Belgium is a significant addition to investor–state dispute settlement (ISDS) jurisprudence. It concerns the first mainland Chinese company to file a claim with the International Centre for the Settlement of Investment Disputes (ICSID) and is the first known ICSID case involving the Kingdom of Belgium as a respondent. The dispute emanated from actions that were taken during the 2008 global financial crisis—therefore it is of considerable public importance. The level of protection available to Chinese investments where China has entered into successive treaties is one of the main issues to be explored in this chapter. The commentary also analyses the facts surrounding the Ping An claim and considers how the award rendered by the tribunal could affect future claims.