Xiaoyu Fan
The Chinese Journal of Comparative Law, cxaa003, https://doi.org/10.1093/cjcl/cxaa003
Published: 01 April 2020
Book Review on China, the EU and International Investment Law: Reforming Investor-State Dispute Settlement, edited by Yuwen Li, Tong Qi and Cheng Bian, Routledge Press, 2019, Pp 248.
The current challenging global environment for investment, with rising protectionism, decreasing foreign direct investment (FDI), and a legitimacy crisis in investor–State dispute settlement (ISDS) mechanisms, among other issues, is causing many countries to establish new treaties so as to shape future treaty making and put forward new and innovative ideas in response to external challenges. As the second and third largest economies in the world respectively, China and the Europe Union (EU), through consensus and broad common interests in safeguarding multilateralism and investment liberalization, are also attempting to establish a new bilateral investment treaty (BIT). Initiated in 2013, the China–EU Comprehensive Agreement on Investment (CAI),1 a representative of the new generation of investment agreements, has already undergone 24 rounds of negotiations as of November 2019 and is expected to conclude negotiations in 2020. According to statistics from the Ministry of Commerce of the People’s Republic of China (MOFCOM) and the EU, the mutual investment flows between them are underdeveloped. At the end of 2018, China’s direct investment in the EU was US $90.5 billion, accounting for only 4.6 per cent of China’s FDI stock.2 In the period from 1995 to 2017, China’s cumulative value of mergers and acquisitions (M&A) transactions in the EU accounted for only 7 per cent of the value of the total stock of extra-EU M&As.3 In this context, the CAI is expected to resist external pressures from protectionism and increase FDI flows between China and the EU.
While both China and the EU need foreign investment to tackle their respective challenges, the international investment regime that is needed to promote such investment is facing a crisis of legitimacy. Although it is a key element of the current international investment regime, investor–State arbitration continues to be controversial. As the landscape of ISDS continues to change in various directions, debate concerning its inconsistency and lack of transparency in the investment and development community and the public at large persists. In order to resolve the pressing crisis of ISDS legitimacy, different regions and countries with different levels of development are carrying out ISDS reforms. As an example, one of the aims of the CAI is to find a new approach in the design of its ISDS mechanism through BIT negotiation. This kind of isolated, parallel reform has not only made the states’ economies more competitive in reshaping the international investment governance order but has also increased the complexity of the broader ISDS system. The EU has proposed multiple reforms in the establishment of its investment agreements, including the establishment of a multilateral investment court (MIC) in negotiations for the Transatlantic Trade and Investment Partnership4 with the USA as well as the integration of the investment court system into the Comprehensive Economic Trade Agreement between Canada and Europe,5 the EU–Vietnam Investment Protection Agreement,6 and the EU–Singapore Investment Protection Agreement.7 As CAI negotiations continue, it is likely that the EU will propose the inclusion of its two-tier permanent investment court. China’s response to such a proposal, however, remains in question.
In spite of the ongoing negotiations and surrounding legal concerns, legal research on core issues of the CAI negotiation process and its potential impact on ISDS reform are few and piecemeal. Thus, China, the EU and International Investment Law: Reforming Investor-State Dispute Settlement, which provides a comprehensive and systematic exploration of Chinese and EU perspectives, offers a timely contribution that is of great utility to practitioners, policy-makers, academics, and students alike. The contributors, a collection of expert practitioners and scholars working in this field, are a sufficient guarantee of the quality and authority of the book. The book is divided into three well-structured parts: Part 1: China–EU Comprehensive Agreement on Investment: Core Issues explores key and contentious issues in the negotiating of the China–EU CAI; Part 2: Reforming ISDS: Institutional Aspects discusses reforms of the ISDS from institutional perspectives; and Part 3: Reforming ISDS: Substantive and Procedural Aspects focuses on substantive and procedural issues involved in ISDS reform in the context of the China–EU CAI negotiation.
Part 1 (Chapters 2–5) presents the relevant issues in negotiating the China–EU CAI, including the motivation for negotiations, key concerns and disputes, public policy elements, and human rights issues, among others. Covering a wide range of topics, it can be seen that the CAI is bound to be a high-level, free, and open, fair, and transparent modern bilateral investment agreement. From the EU’s standpoint, there are serious concerns about China’s market access, mandatory technology transfer, low-levels of intellectual property protection, a monopoly of Chinese State-owned enterprises, and other issues relating to unfair competition among EU investors in China. From China’s standpoint, there are concerns that the EU Regulation Establishing a Framework for the Screening of Foreign Direct Investments into the Union,8 which came into force on 10 April 2019, and the EU members’ updated FDI screening system9 may increase the regulatory barriers faced by Chinese enterprises. In response, incorporating new issues such as public policy and human rights protection into the CAI, an important means to protect and balance the protection of investors and the rights of States to regulate, may protect the public interests of the host State. Therefore, resolving the above problems in an atmosphere conducive to negotiation is the key to furthering mutual trust and the further development of China–EU investment relations in the new era. As the editors of this volume rightly observe in their introduction, ‘the China–EU CAI is bound to transcend what traditional BITs include and shift the paradigm towards a global new generation investment agreement’.10
Part 2 (Chapters 6–10) focuses on the institutional reform of ISDS, conducting an extensive analysis of the EU’s approach to replacing investment arbitration with investment courts. The relatively high cost, slow decision-making, low transparency, inconsistency, and imbalance between investor protection and government regulatory power have become points of critique against the ISDS mechanism. In order to resolve the crisis of legitimacy, there are five common proposals that States have utilized in their newly developed international investment agreements (IIAs): (i) not including ISDS; (ii) a standing ISDS tribunal; (iii) limited ISDS; (iv) improved ISDS procedures; and (v) an unreformed ISDS mechanism.11 In this context, the EU proposes to establish a permanent multilateral investment court with the goal of improving the consistency and predictability, independence, and impartiality of rulings. Although the inclusion of ISDS in the China–EU CAI is quite certain, any forecast of the fate of the Investment Court System in the negotiations of the China–EU CAI would be premature. As there is no widely accepted ISDS model, it is difficult for China to adopt a definite position towards ISDS reform and the MIC proposed by the EU at this stage. China, however, is working hard to contribute extensive practical and institutional experience to ongoing ISDS reform through domestic arbitration and mediation in dispute settlement. In this light, China has already taken some steps, including the expansion of jurisdiction of existing commercial arbitral institutions to cover foreign investment disputes,12 the establishment of new courts to hear international commercial cases,13 and building joint arbitration centres to resolve investor–State and commercial disputes with other regions.14 As Tong Qi convincingly explains in this volume, in order to amplify its voice in the international discourse on ISDS reform and break the monopoly of existing Western-initiated institutions, China should choose this kind of policy, including its three parts. China should, first, take advantage of the current ISDS system while improving it by addressing China’s concerns; second, actively promote multilateral negotiations under the United Nations Commission on International Trade Law and reach consensus with other important participants, such as the EU; and, third, try to establish a China-led ISDS institution along the Belt and Road Initiative and equip it with features similar to the paradigm shifters, including an emphasis on dispute prevention and State-to-State coordination.15
Part 3 (Chapters 11–17) discusses substantive and procedural issues related to ISDS reform in the negotiations of the China–EU CAI, including the role of national courts in the settlement of investor–State disputes, the consistency and transparency of rulings, China’s State-owned enterprises, victim protection in ISDS, and corruption tackled by investment arbitral tribunals. These problems are not only important aspects of ISDS reform but also the primary differences between China and the EU in their negotiations. As major economies, China and the EU’s methods for dealing with these issues may act as a model for future global international investment agreement development and investor–State arbitration practice. The EU’s claims regarding ISDS, however, are inconsistent, however, as tribunal decisions on the same legal issues based on the same or similar clauses can have significant variation. To correct this, the EU has proposed a permanent MIC to replace the ad hoc tribunal. On 19 July 2019, the government of China submitted a note regarding the possible reform of ISDS, stating that China is open to proposals for improving the ISDS mechanism, is in favour of the study of a permanent appeal mechanism as a proposed reform, and supports the adoption of alternative dispute resolution mechanisms.16 China has not made its official position on a MIC known; however, after an in-depth analysis of the consistencies between the EU and China in a broader context, it can be concluded that a MIC is not completely unacceptable for China. In the third Vienna Investment Arbitration Debate, which was held on 22 June 2018, Colin Brown, an officer of the EU, proposed several features of the envisaged MIC.17 Supposing that these ideas were truly realized, the envisaged MIC would likely be imitated by China.18 Since China and the EU intend to upgrade their investment agreements and improve their investment relationships by providing increased investment protection, efforts should be made to reach consensus within the CAI negotiations on various unresolved issues relating to transparency in ISDS, China’s State-owned enterprises, anti-corruption issues, and victims’ protection in connection to investor human rights and environmental abuses. Reaching consensus on these issues may prove difficult; however, from China’s standpoint, opening-up and domestic reforms have long been part of China’s policy. Properly addressing concerns regarding domestic State-owned enterprises and corruption in the China–EU CAI negotiations will help China promote the development of domestic State-owned enterprise reform and assist in its struggle against corruption. Furthermore, this not only builds trust in China in the eyes of European investors but would also be a strong signal to investors in other parts of the world that China has a corruption-free, transparent, stable, and desirable investment environment.
In summary, this book provides a comprehensive and thorough analysis of the two most important aspects of contemporary international investment and investment law: the China–EU CAI negotiations and ISDS reform. On the one hand, due to the opacity of CAI negotiations and the complexity of ISDS reforms, this book offers a timely contribution for the public. On the other hand, although this book discusses many controversial issues faced by the China–EU CAI negotiations, the answers it provides to these issues are not always satisfactory as they work within an often cutting-edge and complex issue area, regarding two systems rooted in complicated institutional environments with systemic differences. Nevertheless, in this volume, both Chinese and European scholars put forward specific suggestions so as to provide a reference as CAI negotiations move forward and to better design future ISDS mechanisms. In doing so, this book is strongly recommended as a valuable resource for practitioners and policy-makers, scholars, and students interested in international investment law, the CAI, and ISDS reform.
Footnotes
1 " China–EU Comprehensive Agreement on Investment (2020) https://trade.ec.europa.eu/doclib/press/index.cfm?id=2115 accessed 26 February 2020.
2 " Ministry of Commerce of the People’s Republic of China, ‘年度中国对外直接投资统计公报’ (Chinese Outbound FDI Bulletin) (2018) 37 http://hzs.mofcom.gov.cn/article/date/201512/20151201223578.shtml accessed 19 November 2019.
3 " Doc SWD (2018)103/F1–EN, 15 https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Archive:Foreign_direct_investment_statistics accessed 21 November 2019.
4 " Transatlantic Trade and Investment Partnership as proposed by the European Commission on 12 November 2015, Trade in Services,Investment and E-commerce, Chapter II Investment, Sec.3.
5 " Consolidated Comprehensive Economic Trade Agreement Text published on 26 September 2014 by the European Commission, Chapter 10. (2016) http://data.consilium.europa.eu/doc/document/ST-10973-2016-INIT/en/pdf accessed 26 February 2020.
6 " EU-Vietnam Investment Protection Agreement, Chapter 3, Sec. B.(2018) https://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157394.pdf accessed 26 February 2020.
7 " EU-Singapore Investment Protection Agreement, Chapter 3, Sec. A. https://eur-lex.europa.eu/resource.html?uri=cellar:55d54e18-42e0-11e8-b5fe-01aa75ed71a1.0002.02/DOC_2&format=PDF#page=29 accessed 26 February 2020.
8 " European Commission, ‘EU Foreign Investment Screening Regulation Enters into Force’ (10 April 2019) http://europa.eu/rapid/press-release_IP-19-2088_en.htm accessed 19 November 2019.
9 " In July 2017, for example, the German Federal Ministry of Economics and Energy passed the ninth amendment to the Foreign Trade and Payments Ordinance, expanding the scope of foreign investment review. So far, greenfield investment is also included in its institutional framework. See Foreign Trade and Payments Ordinance http://www.gesetze-im-internet.de/englisch_awv/index.html#gl_p0016 accessed 19 November 2019.
10 " Yuwen Li, Tong Qi and Cheng Bian (eds), China, the EU and International Investment Law (Routledge 2019) 4.
11 " United Nations Conference on Trade and Development, World Investment Report 2019 (2019) 20, Key Messages and Overview.
12 " The Shenzhen Court of International Arbitration (SCIA) 2016 Arbitration Rules provide that the SCIA ‘accepts arbitration cases related to investment disputes between states and nationals of other states’. In 2017, the China International Economic Trade Arbitration Commission issued its Arbitration Rules for international investment disputes. See SCIA Arbitration Rules, art 2.2 http://www.sccietac.org/web/doc/view_rules/861.html accessed 19 November 2019; see China International Economic and Trade Arbitration Commission International Investment Arbitration Rules (for Trial Implementation) http://www.cietac.org/index.php?m=Page&a=index&id=390&l=en accessed 19 November 2019.
13 " In June 2018, the Supreme People’s Court (SPC) set up two International Commercial Courts in Shenzhen and Xi’an, which appear to be able to hear other kinds of cases. Judge Xiaoli Gao of the SPC, appointed as a judge of the Commercial Court, once pointed out that the SPC was looking at three types of investment and trade disputes that would be under the jurisdiction of the Court: State–State disputes, investor–State disputes, and disputes between commercial parties.
14 " For example, in 2015, the China Law Society proposed a China–Africa Joint Arbitration Centre. This proposal was adopted by Chinese government and 50 African countries at the Johannesburg Summit and the sixth Ministerial Conference of the Forum on China–Africa Cooperation http://www.shiac.org/cajac/index.aspx accessed 19 November 2019.
15 " Tong Qi, ‘China’s Policy on ISDS Reform: Institutional Choice in a Diversified Era’ in Yuwen Li, Tong Qi and Cheng Bian (eds), China, the EU and International Investment Law (Routledge 2019) 112.
16 " Submission from the Government of China to Working Group III: Investor-State Dispute Settlement Reform https://undocs.org/en/A/CN.9/WG.III/WP.177 accessed 19 November 2019.
17 " See European Commission, ‘The European Union’s Approach to Investment Dispute Settlement: The 3rd Vienna Investment Arbitration Debate’ http://trade.ec.europa.eu/doclib/docs/2018/july/tradoc_157112.pdf accessed 12 October 2018.
18 " Ning Hongling and Tong Qi, ‘A Chinese Perspective on The Investment Court System in The Context of Negotiating EU-China BIT’ (2018) 11 Tsinghua China L Rev 91.
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