I. Background
According to IAR on Dec. 4th, 2017, a BIT dispute between Chinese state-owned investors appears to have been initiated against Mexican government.
In 2014, the Chinese investors along with Mexican partners won a tender to build a new train-line between Mexico City and Querétaro. However, Mexican Congressmen finally disapproved the contract, due to the allegations of conflict of interest between a Mexican consortium member and Mexican president, Mr. Enrique Peña Nieto.
In 2015, two Chinese investors contacted the Mexican government and indicated that they intended to pursue arbitration under China-Mexico BIT. They claimed that Mexican authorizes’ expropriation of their investment lacked good faith, transparency and due process, defying the obligations of article 7 under the BIT. Thus, the claimant asked for $600 million for its breach.
II. Contentious Focuses and analysis
According to the China-Mexico BIT, which came into effect on Jun. 6, 2009, if a party would like to initiate an arbitration proceeding, they have to exhaust the local remedies. Have the Chinese investors fulfilled the requirement? Besides, there are some other contentious problems to analyze.
i. Qualification of Investors
According to the definition of enterprise under China-Mexico BIT, “enterprise” means any entity constituted or organized under the applicable law, whether or not for profit, and whether privately owned or governmentally owned, including any corporation, trust, partnership, sole proprietorship, joint venture or other association. It seems there is no doubt that the two Chinese state-owned investors are qualified investors. Thus, there are entitled to initiate international arbitration in accordance with ICSID.
ii. Exhaust of local remedies
Under the China-Mexico BIT, it provides that only when exhausting the local remedies can parties submit application of arbitration to ICSID. And the claimant has to deliver a written notice of intent to apply arbitration to the defendant party. The local remedies here are referred to the domestic administrative review procedures which is supposed to be taken during the six-month consultation or negotiation period. However, if the domestic administrative review procedures can’t be completed within 4 months dating from filing the review, the investor can directly proceed to international arbitration. Therefore, even though the Mexico government delayed the reviewing procedures, it can hardly substantially hinder Chinese investors from pursuing arbitration.
iii. Scope of investment
In this case, the Chinese investors alleged for the protection of the tender benefits, but whether is it beyond the scope of the investment under the treaty? According to the stipulations on the scope of investment under China-Mexico BIT, which evidently recognizes that interests arising from the commitment of capital or other resources in the territory of a Contracting Party to economic activity in such territory as part of the investment. Thus, the Chinese tender for a construction contract shall be considered within the scope and be protected.
iv. Due process
According to article 7 of the BIT，any expropriation shall be done in accordance with the due process of law. No matter whether Chinese investors are involved in bribes and other illegal behaviors, that Mexico government didn’t provide any hearing or other remedy procedures, arbitrarily withdrawing the contract, is in defiance of the due process.
v. Time period
According to art. 13.7, a dispute may be submitted not later than three years from the date that the investor first acquired or should have first acquired knowledge of the events which gave rise to the dispute. In this case, the Mexican withdrawal date (November, 2014) shall be regarded as the start of the time period. To avoid the mistake occurring in Ansung Housing v China, Chinese investor shall submit application to ICSID as soon as possible.
III. Conclusion
As there is not enough evidence to predict the consequence of the case and there also existing many uncertain elements, we have to continuously keep an eye on the case and learn the newest situations of the case.
This case may arise from the local political or economic factors. Actually in the present international investment environment, we can find out that there are full of various risks, especially the political risk, which is unavoidable. As for the going-out enterprises, they’d better take preventive measures and make good preparation in advance, not solely dependent on the dispute settlement mechanism. Only in this way can they have a priority over others in the aggressive international competition.
(Edited by Qin Li, revised by Tong Qi)
Category: Investment News