China’s Stance on Investor-State Dispute Settlement: Evolution, Challenges, and Reform Options

Netherlands International Law Review (2020) 67:503–551 https://doi.org/10.1007/s40802-020-00182-3 ARTICLE China’s Stance on Investor‑State Dispute Settlement: Evolution, Challenges, and Reform Options Yuwen Li1 · Cheng Bian2 Accepted: 10 November 2020 / Published online: 15 December 2020 © The Author(s) 2020 Abstract China is one of the most active states in concluding bilateral investment treaties (BITs) globally. Its BITs can be categorized into three generations based on the homogeneity of the investor-state dispute settlement (ISDS) provisions within each generation. The China–EU Comprehensive Agreement on Investment and the China–US BIT under negotiation are expected to inaugurate a fourth generation, although China’s stance on ISDS in both treaties remains indeterminate. This article elaborates on the distinctive characteristics of ISDS provisions by mapping three generations of Chinese BITs, presenting the challenges that these ISDS provisions have brought to light in investor-state adjudication as well as in the context of the Belt and Road Initiative, and expounding on China’s policy options in ISDS reform. The on-going intense debate on ISDS reform presents China with an opportunity to shift from its traditional role of a rule-taker to a rule-maker in redesigning the ISDS mechanism. However, China’s current policy and practice do not demonstrate an ambition for such a transformation. Looking forward, it may well be in China’s long-term interest to endorse a Multilateral Investment Court as vigorously advocated by the EU. Keywords Belt and Road Initiative · China–EU CAI · China–US BIT · Chinese bilateral investment treaties · International investment law · Investor-state dispute settlement · Multilateral Investment Court * Yuwen Li Cheng Bian 1 Professor of Chinese Law, Director of Erasmus China Law Centre, Erasmus School of Law, Erasmus University Rotterdam, Rotterdam, The Netherlands 2 Academic Researcher, Erasmus China Law Centre, Erasmus School of Law, Erasmus University Rotterdam, Rotterdam, The Netherlands 123Vol.:(0123456789) 504 Y. Li, C. Bian 1 Introduction The conclusion of bilateral investment treaties (BITs) on the global scale has been one of the most dynamic fields of international investment law during the past few decades. Starting with the first BIT signed between West Germany and Pakistan in 1959, there have been 2897 BITs and 390 treaties with investment provisions concluded globally by May 2020.1 The proliferation of BITs worldwide is driven by some of the most active signatory countries, among which China plays a significant role. Since it signed the first BIT with Sweden in 1982, China has signed 138 BITs, and 126 of them are currently in force, second only to Germany in terms of the number of BITs concluded. In addition, China has concluded one trilateral investment agreement with Japan and South Korea in 2012 and 13 free trade agreements (FTAs) containing investment provisions.2 Chinese BITs can be distinguished into three generations in terms of their different levels of substantive protection and their disparate characteristics of investorstate dispute settlement (ISDS) provisions.3 The ISDS mechanism has always been 1 UNCTAD, Investment Policy Hub, International Investment Agreements Navigator, available at: https ://investmentpolicyhub.unctad.org/IIA (accessed 23 September 2020). 2 Specifically, China has entered into FTAs with Chile (2005) (renegotiated in 2017), Pakistan (2006), New Zealand (2008), Singapore (2008) (renegotiated in 2018), Peru (2009), ASEAN (2009) (renegotiated in 2015), Costa Rica (2010), Iceland (2013), Switzerland (2013), South Korea (2015), Australia (2015), Georgia (2017), and Maldives (2017). Some of these FTAs do not contain investment provisions (e.g., the China-Georgia FTA). Some only provide a general framework for the promotion of investment without viable investment protection provisions (e.g., the China-Switzerland FTA). Some incorporate the text of previously negotiated BITs between China and the same signatory state as an integral part of the investment provisions in the FTA (e.g., the China-Costa Rica FTA). And there are FTAs that include a comprehensive or updated investment chapter, where investment topics are extensively addressed next to trade, including the China-New Zealand FTA (2008), the China-ASEAN Agreement (2009), the ChinaSouth Korea FTA (2015) and the China-Australia FTA (2015). Based on the modality in which such investment chapters are stipulated, the ISDS mechanism in the China-New Zealand FTA (2008) in its essence is equivalent to the ISDS in second generation Chinese BITs, whereas the China-ASEAN Investment Agreement (2009), the China-South Korea FTA (2015) and the China-Australia FTA (2015) are in accordance with the ISDS in third generation Chinese BITs. Due to the limited scope of this research, China’s FTAs with investment provisions will not be further discussed. China FTA Network, China’s Free Trade Agreements, available at: http://fta.mofcom.gov.cn/english/fta_qianshu.shtml (accessed 23 September 2020). 3 In principle, Chinese BITs are divided into either three or four generations, and the time span for each generation is defined differently by various scholars. For instance, Congyan Cai has divided Chinese BITs into three generations, namely the Conservative Paradigm (1982–1998); the Liberal Paradigm (1998–2005); and the Balanced Paradigm (2006–). See Cai (2009), pp. 461–462. Manjiao Chi opines that the first generation includes BITs concluded before the late 1990s, the second generation includes BITs concluded after the late 1990s and before the 2010s, and the third generation includes BITs concluded after the 2010s. See Chi (2017), p. 163. Axel Berger has divided Chinese BITs into four generations. The first phase was from 1982 until the end of the 1980s. The second phase was from the early 1990s to the late 1990s. The third phase was from 1998 to 2008. And the fourth phase started from 2008 up until today. See Berger (2015), pp. 844–845. Matthew Levine divides Chinese international investment agreements (IIAs) into four generations. First generation of IIAs was concluded from 1982 to 1989 with developed and capital-exporting states, containing narrow dispute settlement clauses. Second generation of IIAs was concluded from 1989 until the late 1990s, which retains continuity with the first generation but was negotiated with developing states. Third generation of IIAs was concluded with both developed and developing states that includes rela- 123 China’s Stance on Investor-State Dispute Settlement:… 505 a salient component of Chinese BITs. In this article, we define three generations of Chinese BITs based on the scope of consent to arbitration in ISDS provisions. The first generation Chinese BITs were signed from 1982 to 1999 (see Appendix Table 2), during which period China concluded BITs both with capital-exporting developed countries to attract inward (...truncated)