China as a Global ISDS Power
Image credit: Sun Rise on River in Shenyang by Aaron Sorrell (CC BY 2.0) via Flickr.
Diane A. Desierto, Keough School of Global Affairs, University of Notre Dame
24 August 2018
China is fast becoming the world’s most impactful geopolitical player today for investor-State dispute settlement. In contrast to its history of protesting “unequal treaties” in the 19th and early 20th centuries against imperial powers (Great Britain, France, Germany, the United States, Russia, and Japan), alongside its accession to the World Trade Organization in 2005 China has also steadily expanded its international investment treaty programme, consistent with China’s exponential growth both as a leading source and recipient of foreign investment. With its surplus dollar reserves and many homegrown industry champions rivalling long-time global corporate business entities, China is now well-positioned to be the world’s greatest single source of foreign outbound investment. While China’s earliest bilateral investment treaties (such as the 1982 China-Sweden BIT) rejected investor-State dispute settlement in favor of State to State adjudication, to date, the United Nations Conference on Trade and Development (UNCTAD) database reports that China is a party to 145 BITs (many of which were concluded in the last 15 years); 23 economic partnership or mega-regional economic agreements with investment provisions (including the forthcoming 16-member Regional Comprehensive Economic Partnership or RCEP); and 21 investment related treaties and other instruments. China’s presence in investor-State dispute settlement has also been slowly rising, with claims initiated by Chinese investors such as in China’s first ISDS case Tza Yap Shum v. Peru (where the tribunal found for the claimants), China Heilongjiang v. Mongolia (award not public, reportedly the tribunal dismissed the claim on jurisdictional grounds), Ping An Life Insurance v. Belgium (claims dismissed for lack of jurisdiction), Sanum Investments v. Lao People’s Democratic Republic (pending), and Beijing Urban Construction v. Yemen (pending). On the other hand, China has also become a respondent in ISDS cases such as Ekran Berhad v. People’s Republic of China (suspended by agreement and did not reach award on the merits), Ansung Housing v. People’s Republic of China (claims dismissed, with award of costs for China), and Hela Schwarz GmBH v. People’s Republic of China (pending).
China’s presence as a power in ISDS is expected to strengthen and deepen with the commencement of its projects under the Belt and Road Initiative (BRI). BRI is the most historic foreign investment capitalization to date by a single State since the United States invested the equivalent of around US$100 billion (in 2016 rates) for economic assistance to help rebuild Western European economies after the end of World War II. China’s BRI will make a direct investment of between US$1 trillion to US$ 8trillion for China-initiated massive infrastructure projects (ports, dams, roads, bridges, utilities, among others) throughout 70 countries around the world. While it was initially expected that any disputes from the BRI projects would fall under China’s current investment treaty program, in spring 2018 the Chinese government announced plans to set up its own Belt and Road dispute settlement mechanism, where the Supreme People’s Court will establish “international commercial courts” in Xi’an, Shenzhen, and Beijing. As of this writing, the status of these planned international commercial courts, vis-à-vis investor-State dispute settlement provisions in China’s international investment treaties, has not yet been officially articulated. Given the vast magnitude, territorial coverage, and generational duration of the BRI projects, however, China is nonetheless very likely to assume global dominance in the writing and rewriting of future of international investment rules and especially ISDS. Current multilateral reform efforts at UNCITRAL (where China is also represented) may eventually be outpaced, however, by the practical and operational realities of China’s dominance in foreign investment and rule-making around the world for decades to come.
Prof. Dr. Diane Desierto (JSD, Yale) is tenured Associate Professor of Human Rights Law and Global Affairs at the University of Notre Dame; External Faculty Fellow at the WSD Handa Center for Human Rights and International Justice at Stanford Global Studies; Professor of International Law and Human Rights at the Philippine Supreme Court's Philippine Judicial Academy; External Executive Director (Associate Dean rank) at the University of the Philippines Law Graduate School at Bonifacio Global City, Philippines; International Arbitration Partner at Desierto & Desierto Law (Manila/ASEAN); Legal Expert for the ASEAN Secretariat (trade, investment, environment, maritime security); International Arbitrator, British Virgin Islands International Arbitration Centre (BVIAC), and faculty at the Hague Academy of International Law.
She is a Scientific Advisory Board Member of the European Journal of International Law and EJIL:Talk! Editor; Research Committee Head for International Economic Law & Development at the Asian Society of International Law; Member of the Advisory Board of Oxford Investment Claims and Co-Chair of the Oxford Investment Claims Summer Academy.