DO CHINA’S BITS MATTER? ASSESSING THE EFFECT OF CHINA’S INVESTMENT AGREEMENTS ON FOREIGN DIRECT INVESTMENT FLOWS, INVESTORS’ RIGHTS, AND THE RULE OF LAW KATE HADLEY* ABSTRACT Countries around the world pursue international investment agreements as an important component of their foreign policies. Government spokespeople and international organizations assert that investment agreements increase foreign direct investment (FDI) and support investors’ rights and the rule of law in developing countries. It is far from clear, however, whether investment treaties actually affect FDI flows or developing countries’ legal systems. There have been few studies of the effects of investment agreements, and those that exist have advanced conflicting conclusions. This Note fills this gap in our understanding of investment agreements by analyzing the effects of the fastest-growing and most important bilateral investment treaty (BIT) program in the world: China’s. This Note argues that China’s BITs seem to have been effective at promoting inbound FDI in China. On the other hand, they do not seem to have increased FDI flows into China’s developing country treaty partners; this applies both to aggregate FDI inflows and to FDI from China alone. This suggests that, while BITs serve as a credible commitment by the Chinese government to property protection and liberal investment policies, China’s BITs with other developing countries may serve primarily political, rather than economic, purposes. With respect to legal rights under the treaties, this Note argues that foreign investors’ rights under Chinese law have expanded and become more enforceable due to changes in the language of China’s BITs, and that these changes may promote rule of law development in China. The pro-investor and pro-rule of law changes to treaty language have occurred primarily through China’s BITs with developed, liberal partner countries. This suggests that the BIT programs instituted by developed countries and developed country groups, like the Organisation for Economic Cooperation and Development and the European Union, have been effective policy instruments for increasing investment flows and
* Kate Hadley received her JD from Yale Law School in 2013. She is currently working in the General Counsel’s Office of the U.S. Trade Representative. She would like to thank Professors Paul Gewirtz and Michael Reisman for their support and assistance on this project. Most of all, she thanks Margaret Roberts of the Harvard Government Department, who gave invaluable theoretical and technical assistance on the econometric studies described in Part III of this Note. © 2013, Kate Hadley.
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strengthening investors’ rights and the rule of law. Overall, therefore, this Note argues that, for China and the developed democracies, BITs seem to be achieving their declared goals of increasing inbound FDI into China and promoting property rights and the rule of law. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. THE LEGAL REGIME GOVERNING FOREIGN DIRECT INVESTMENT . . A. The Development and Spread of BITs. . . . . . . . . . . . . . . . . B. The Purposes of BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. THE EFFECT OF CHINA’S BITS ON FDI . . . . . . . . . . . . . . . . . . . A. Previous Studies of the Relationship between BITs and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. The Author’s Quantitative Analysis of the Effect of China’s BITs on FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Effect of BITs on Bilateral FDI Inflows to China . . 2. Effect of a BIT with China on FDI Inflows to Other Developing Countries . . . . . . . . . . . . . . . . . 3. Eight-year Study on Impact of a China BIT on Bilateral Chinese Outflows. . . . . . . . . . . . . . . . . . . IV. THE EFFECT OF BITS ON INVESTORS’ RIGHTS UNDER CHINESE LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. The Evolution of Key Provisions of Chinese BITs . . . . . . . . . 1. The Scope of the Agreement . . . . . . . . . . . . . . . . . 2. Substantive Treatment Provisions . . . . . . . . . . . . . 3. Transfer of Investments . . . . . . . . . . . . . . . . . . . . . 4. Expropriations and Compensation . . . . . . . . . . . . 5. Access to International Arbitration . . . . . . . . . . . . 6. Umbrella Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Transparency Provisions . . . . . . . . . . . . . . . . . . . . V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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INTRODUCTION
The People’s Republic of China’s (PRC or China) emergence over the past three decades as an active participant in international investment agreements and a recipient and source of foreign direct investment (FDI) has transformed the world economy and the legal architecture governing international investment. In 1978, when Premier Deng Xiaoping announced China’s new policy of “reform and opening up,” 256
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China was not a party to any investment agreements and was neither a recipient nor a source of FDI.1 A decade later, China had concluded sixteen bilateral investment treaties (BITs),2 and today it is party to 128 BITs and sixteen other agreements affecting investment.3 Since 1978, China also has become one of the leading destinations for FDI.4 These changes in China’s role in the FDI market and the international legal regime reflect a transformation in the Chinese government’s attitude toward foreign capital. Prior to 1978, China could be characterized as an inward-looking country, wary of foreign investment and jealous of any measure that could limit the government’s policy choices.5 China’s policies toward foreign investment began to evolve in 1979, as the government pursued foreign capital to boost the country’s
1. See U.N. CONFERENCE ON TRADE & DEV. (UNCTAD), FULL LIST OF BILATERAL INVESTMENT AGREEMENTS CONCLUDED, 1 JUNE 2013 (2012) [hereinafter UNCTAD CHINA BITS], available at http://unctad.org/Sections/dite_pcbb/docs/bits_china.pdf; UNCTADStat, UNCTAD, http:// unctadstat.unctad.org/ReportFolders/reportFolders.aspx (last visited Oct. 27, 2013) [hereinafter UNCTAD Annual FDI Flows]. 2. See UNCTAD CHINA BITS, supra note 1. 3. See UNCTAD, WORLD INVESTMENT REPORT 2012: TOWARDS A NEW GENERATION OF INVESTMENT POLICIES 199 (2012) [hereinafter WORLD INVESTMENT REPORT 2012], available at http:// www.unctad-docs.org/files/UNCTAD-WIR2012-Full-en.pdf. For a list of China’s BITs showing whether a copy is publicly available, see infra Appendix 1. 4. When Deng announced the reform program, China received almost no FDI, but by 1990, it ranked twelfth in the world in inbound FDI stock. See UNCTAD Annual FDI Flows, supra note 1. It reached seventh in 2011, when its inward FDI stock totaled nearly $712 billion. See WORLD INVESTMENT REPORT 2012, supra note 3, at 173-76. Since reform and opening up, China generally has been the second largest recipient of FDI, behind the United States, and it became the leading recipient in the first half of 2012. See UNCTAD, FDI Flows Retreated in the First Half of 2012: UNCTAD Revises Down Its Full Year Forecast, 10 GLOBAL INVESTMENT MONITOR 1, 2 (2012), available at http://unctad.org/en/PublicationsLibrary/webdiaeia2012d20_en.pdf. Outbound FDI from China grew more slowly, increasing from almost nothing in 1978 to $913 million in 1991 and then quadrupling to $4 billion in 1992. See Kevin G. Cai, Outward Foreign Direct Investment: A Novel Dimension of China’s Integration into the Regional and Global Economy, 160 CHINA Q. 856, 859-60 (1999); Leonard K. Cheng & Zihui Ma, China’s Outward FDI: Past and Future (Renmin Univ. School of Econ., Working Paper No. 200706001E, 2007). In 2011, China ranked fifteenth in the world in terms of outward FDI stock, which amounted to US$365 billion, and ninth in the world in terms of FDI outflows. See Web Table 02: FDI Outflows, by Region and Economy, 1990 –2011, World Investment Report 2012: Annex Tables (2012), UNCTAD, http://unctad.org/en/Pages/DIAE/ World%20Investment%20Report/Annex-Tables.aspx (last visited Oct. 27, 2013). 5. See Qiangjiang Kong, Bilateral Investment Treaties: The Chinese Approach and Practice, 8 ASIAN Y.B. INT’L L. 105, 107-09 (1999); Stephan W. Schill, Tearing Down the Great Wall: The New Generation Investment Treaties of the People’s Republic of China, 15 CARDOZO J. INT’L & COMP. L. 73, 77-78 (2007).
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economic and technological development.6 The number of BITs China has concluded since 1982 reflects this changing attitude. The language of China’s BITs has also evolved, concretizing and expanding the scope of the protections offered investors and giving them greater rights vis-a`-vis the contracting parties.7 Despite China’s prominent role as a source and recipient of international investment, however, few scholars have examined the effects of China’s BIT program on FDI flows and international investment law. This Note fills this gap by analyzing whether China’s BIT program has affected investment flows between China and its treaty partners and whether, through evolution in the language of the treaties, BITs have strengthened investors’ rights and the rule of law within China. It argues that, while BITs have successfully promoted FDI into China, they have not been as effective at increasing FDI inflows to China’s developing country treaty partners. Additionally, changes in the language of China’s BITs have expanded foreign investor’s rights under Chinese law and strengthened the mechanisms for enforcing those rights, which may, in turn, promote rule of law development in the PRC.8 These changes have occurred primarily through China’s BITs with developed, liberal partner countries, suggesting that the BIT programs instituted by developed countries and developed country groups, like the Organisation for Economic Cooperation and Development (OECD) and the European Union, have been effective policy instruments for increasing investment flows and strengthening investors’ rights and the rule of law in partner countries. Part II of this Note describes the legal regime governing FDI and explores the reasons countries conclude BITs and the purposes these treaties are meant to achieve. Next, Part III assesses the success of China’s BITs at promoting foreign investment. Finally, Part IV analyzes whether entering BITs with China has advanced the secondary goal of many developed democracies in concluding investment agreements— promoting investors’ rights and the rule of law. This Note concludes by arguing that, for China and OECD countries, BITs seem to be effective instruments for achieving economic and governance objectives.
6. Kong, supra note 5, at 110-11; Schill, supra note 5, at 78. 7. See infra Part IV. 8. In this Note, I borrow Susan Franck’s definition of the rule of law, meaning “the transparency and availability of law; adherence to announced legal principles or principled deviation from such principles; and the consistent, reliable, independent and impartial adjudication of those laws.” Susan D. Franck, Foreign Direct Investment, Investment Treaty Arbitration, and the Rule of Law, 19 GLOBAL BUS. & DEV. L.J. 337, 340-41 n.15 (2007).
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II.
THE LEGAL REGIME GOVERNING FOREIGN DIRECT INVESTMENT
Before assessing whether China’s BITs have served the purposes for which the parties concluded them, it is important to identify these purposes and the role BITs play in the legal regime governing foreign investment. This section briefly describes the development of and purposes underlying the modern BIT regime. A.
The Development and Spread of BITs
Liberalization of the international legal regime governing foreign investment has occurred primarily on a bilateral basis through BITs, formally designated Agreements for the Promotion and Protection of Investment. In such treaties, countries promise to accord favorable treatment to investors and investments of the partner country within their territory. Countries began concluding BITs in the 1950s and 1960s, in response to a wave of expropriation and nationalization by developing countries of foreign investors’ assets.9 These expropriations demonstrated the dangers of investing in developing countries and undermined the customary international law Hull Rule, under which expropriating countries were required to pay investors whose investments were expropriated “prompt, adequate, and effective” compensation.10 With the failure of the Hull Rule, developed countries turned to BITs as a more stable and effective way of protecting their investors.11 Since Germany and Pakistan signed the first BIT in 1959,12 BITs have become one of the most widely used tools for structuring economic relations. By the end of 2011, there were 2,833 BITs in force, and also 331 other agreements governing investment, principally bilateral and regional trade agreements.13 Although in the early decades, BITs were primarily concluded between a developed, FDI exporting country and a developing country,14 today, countries of diverse levels of development and regime types conclude BITs. The rise in the last decade of
9. See Zachary Elkins, Andrew T. Guzman & Beth Simmons, Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1962–2000, 2008 U. ILL. L. REV. 265, 267-68 (2008). 10. See Andrew T. Guzman, Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L L. 639, 644-51 (1998). For the original statement of the Hull Rule, see Letter from Cordell Hull to the Mexican Government, in 3 GREEN HAYWOOD HACKWORTH, DIGEST OF INTERNATIONAL LAW § 288 (1942). 11. See Guzman, supra note 10, at 651-52. 12. See UNCTAD, Bilateral Investment Treaties: 1959-1999, U.N. Doc. UNCTAD/ITE/IIT/ 2006/5 (2000). 13. WORLD INVESTMENT REPORT 2012, supra note 3, at xx. 14. Elkins et al., supra note 9, at 272.
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BITs between two developing countries has been significant.15 China’s rising importance as a BIT partner is partly responsible for this trend, combined with BIT programs in Iran, India, and the former Yugoslavia.16 B.
The Purposes of BITs
Economists and legal scholars believe that countries sign BITs to promote foreign investment with their treaty partners.17 They argue that developing countries, primarily importers of FDI, need investment but often face reluctance from developed country investors due to the perception that the developing country lacks strong property protections.18 For developing country governments, BITs are a way to reassure investors and thereby attract more investment by making a credible commitment to protect property rights.19 Developed countries are thought to conclude BITs primarily to protect investments made by their nationals in foreign countries, particularly countries where the rule of law is weak.20 Most developed countries have strong property rights protections, and consequently, BITs are not seen primarily as devices to increase inbound investment.21 Rather, by guaranteeing minimum standards of treatment and empowering investors to resolve their own disputes through international arbitration, BITs enable developed countries to protect their nationals’ investments without the costly and politically charged process of espousing investors’ claims.22 The language of the nearly three thousand BITs in effect supports this account of countries’ motives: most announce that their purpose is to promote economic cooperation and investments between the parties.23
15. See id. at 272-74. 16. See id. at 299-300; see also Kong, supra note 5, at 113 (describing China beginning to take an active role in signing BITs with developing countries in the late 1990s). 17. See, e.g., Elkins et al., supra note 9, at 277-82; Guzman, supra note 10, at 652-54; Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: An Evaluation of the Bilateral Investment Treaties and Their Grand Bargain, 46 HARV. INT’L L.J. 67, 71-72 (2005). 18. See Guzman, supra note 10, at 660-61; Salacuse & Sullivan, supra note 17, at 76. 19. See UNCTAD, THE ROLE OF INTERNATIONAL INVESTMENT AGREEMENTS IN ATTRACTING FOREIGN DIRECT INVESTMENT TO DEVELOPING COUNTRIES 1-2 (2009). 20. See Salacuse & Sullivan, supra note 17, at 76. 21. See Elkins et al., supra note 9, at 282. 22. See Franck, supra note 8, at 343-44; Tom Ginsburg, International Substitutes for Domestic Institutions: Bilateral Investment Treaties and Governance, 25 INT’L REV. L. & ECON. 107, 109-10 (2005). 23. See, e.g., Agreement Between the Government and the People’s Republic of China and the Belgium-Luxembourg Economic Union on the Reciprocal Promotion and Protection of Investments, China-Belg., pmbl., June 4, 1984 [hereinafter China-Belgium BIT], available at
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Some developed countries also have objectives beyond increasing FDI. These countries, particularly the liberal, market-oriented democracies, view BITs as part of a strategy to promote market liberalization around the world. The goals of the U.S. BIT program, for example, include “encourag[ing] adoption in foreign countries of marketoriented domestic policies that treat private investment fairly.”24 The OECD has also endorsed the “liberalisation of investment regimes” as a goal of investment treaties.25 Proponents of this view believe that BITs induce developing countries to remove legal impediments to foreign investment, creating more favorable conditions for private enterprise.26 Some countries also view BITs as part of a campaign to promote good governance and the rule of law. Proponents of this view argue that some developing countries sign BITs to remedy deficiencies in their own legal systems and to promote law enforcement.27 The institutions of international investment arbitration substitute for domestic institutions, allowing countries to refrain from taking arbitrary actions toward their own as well as foreign investors. Ultimately, the reforms initiated by BITs may stimulate domestic legal reform along similar lines.28 The United States and other Western democracies have supported this theory, as have some officials of developing countries.29
http://www.kluwerarbitration.com/BITS.aspx?country⫽China; Agreement Between the Government of the United Mexican States and the Government of the People’s Republic of China on the Promotion and Reciprocal Protection of Investments, China-Mex., pmbl., Feb. 12, 2009 [hereinafter China-Mexico BIT], available at http://unctad.org/sections/dite/iia/docs/bits/mexico_ china.pdf. Many BITs are available through the UNCTAD website at http://www.unctadxi.org/ templates/DocSearch.aspx?id⫽779, the Kluwer Arbitration website or the Chinese Ministry of Commerce. See infra Appendix 1 for a list of the relevant Chinese BITs and references to the footnotes containing the full citation of each BIT. 24. Jeffrey Lang, Keynote Address, 31 CORNELL INT’L L.J. 455, 457 (1998); see S. TREATY DOC. NO. 104-14, at 1 (1994); Finance and Development, U.S. DEP’T OF STATE, http://www.state.gov/e/eb/ ifd/ (last visited Sept. 21, 2013). 25. See ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD), A MULTILATERAL AGREEMENT ON INVESTMENT: REPORT BY THE COMMITTEE ON INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES (CIME) AND THE COMMITTEE ON CAPITAL MOVEMENT AND INVISIBLE TRANSACTIONS 5 (1995). 26. See Salacuse & Sullivan, supra note 17, at 76. 27. See JESWALD W. SALACUSE, THE LAW OF INVESTMENT TREATIES 113-14 (2009); Franck, supra note 8. 28. SALACUSE, supra note 27, at 113-14. 29. See id. (stating that the Minister of Finance of Uruguay said to a journalist of the Uruguay-United States BIT, “We are not signing this treaty for them, we are signing it for us.”); Press Release, U.S. Dep’t of State, Office of the Spokesperson, United States Concludes Review of Model Bilateral Investment Treaty (Apr. 20, 2012), http://www.state.gov/r/pa/prs/ps/2012/04/ 188198.htm.
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III.
THE EFFECT OF CHINA’S BITS ON FDI
This Part evaluates whether China’s BITs have achieved the main purposes of BITs by assessing the effect of China’s BITs on FDI flows. First, it summarizes the leading empirical studies of the connection between BITs and investment. Next, it describes the methodology of the author’s original study of the relationship between China’s BITs and FDI flows, which demonstrates that BITs with China are correlated with increased inbound FDI to China but not with increased FDI to developing country partners. This correlation suggests that China’s BITs serve as a credible commitment by the Chinese government to investor protection and, therefore, attract inbound FDI, but that China may sign BITs with developing countries for reasons other than promoting investment. A.
Previous Studies of the Relationship Between BITs and Investment
While economists and legal scholars generally agree that countries conclude BITs primarily to increase FDI, they disagree about their effectiveness. Many variables influence investors’ investment decisions, including various economic and political factors.30 This complexity makes it difficult to distinguish the effect of a BIT from other factors affecting investment. Particularly, there is a cause and effect problem: capital exporting countries may sign BITs only with countries whose policies and laws produce favorable investment policies, so that BITs reflect rather than cause an attractive investment environment.31 Alternately, BITs may serve to encourage and stabilize pro-investment policies.32 Several social scientists have employed econometric tools to disaggregate the many determinants of FDI flows, but they have come to conflicting conclusions concerning whether BITs affect investment. The United Nations (U.N.) conducted the first studies of the effect of BITs on FDI, published in 1988, 1991, and 1998. The first study found “no apparent relationship” between the number of BITs a country had signed and FDI inflows and concluded that only case
30. See Tim Buthe & Helen V. Milner, The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI Through International Trade Agreements?, 52 AM. J POL. SCI. 741, 742-43 (2008); Salacuse & Sullivan, supra note 17, at 96. 31. See Salacuse & Sullivan, supra note 17, at 96. 32. Id.
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studies could evaluate whether a particular BIT had increased investment.33 The second U.N. paper did not break new ground in assessing BITs’ effect on investment.34 The third paper, the first to employ econometric analysis, included a multi-year study of FDI inflows into 133 countries and a study of bilateral FDI flows from fourteen source countries into seventy-two host countries.35 It found a weak relationship between BITs and FDI and argued that BITs slightly increase FDI inflows to host countries, particularly less developed countries.36 The study of bilateral FDI also found a weak positive influence.37 All three of these studies, however, were conducted before FDI and BIT signings exploded in the 1990s,38 and the third study was based on data drawn from various sources, undermining the reliability of its results.39 In the past decade, scholars have used more sophisticated models to analyze the relationship between BITs and investment, but their results still have conflicted. In 2003, the World Bank published a paper that used econometrics to study the effect of BITs on FDI flows from 1980 to 2000 between 537 bilateral country pairs, drawn from thirty-one developing countries and twenty OECD members.40 Overall, the study found a non-significant negative coefficient for total BITs a country had concluded, although a positive (extremely weak) association appeared beginning five years after a BIT was signed.41 The authors concluded there was “little evidence that BITs have stimulated additional investment.”42 The study also found that BITs and institutional capacity exhibited either no correlation or a small positive one.43 From this, the
33. See U.N. Ctr. on Transnat’l Corps. (UNCTC) & Int’l Chamber of Comm., Bilateral Investment Treaties, 1959-1991, U.N. Doc. ST/CTC/65 (1988). 34. See UNCTC, Bilateral Investment Treaties, 1959-1991, U.N. Doc. ST/CTC/136 (1992). 35. UNCTAD, Bilateral Investment Treaties in the Mid-1990s, U.N. Doc. UNCTAD/ITE/ IIA/7 (1998). 36. See id. at 111-12. 37. Id. at 122. 38. See Elkins et al., supra note 9, at 271 fig. 1; Beth A. Simmons, The International Investment Regime: Sovereignty, Investor Security, and Dispute Settlement Since the 1980s 10 fig. 2 (N.Y.U Straus Inst. for the Advanced Study of L. & Justice, Working Paper No. 04/10, 2011). 39. See UNCTAD, Bilateral Investment Treaties in the Mid-1990s, supra note 35, at 108. 40. See Mary Hallward-Driemeier, Do Bilateral Investment Treaties Attract FDI? Only a Bit . . . and They Could Bite 12, 31 (World Bank, Working Paper No. 3121, 2003). 41. Id. at 18-19. 42. Id. at 22. 43. Id. at 20-22.
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author concluded that BITs do nothing to strengthen domestic institutions and, therefore, do not promote property rights or the rule of law.44 In 2005, Jennifer Tobin and Susan Rose-Ackerman, of the Yale Political Science Department and the Law School respectively, performed an econometric study using data from 1984 to 2000 on inbound FDI to 176 low- and middle-income countries, with similar results.45 The authors analyzed the effect on investment of the total number of BITs a country had signed and introduced political risk as an independent variable in order to assess whether BITs strengthen domestic institutions. The study found that BITs had a negative effect on aggregate FDI inflows at high levels of political risk and began to have a small positive effect at high levels of stability.46 The authors concluded that BITs merely reflect whether countries already have strong domestic institutions and have no independent effect on attracting investment.47 They also examined whether BITs at least increased bilateral investment flows between treaty partners, analyzing bilateral flows between the United States and its developing country BIT partners. 48 They found that the presence of a U.S. BIT did not increase FDI inflows from the United States, nor did it alleviate political risk factors.49 Two other 2005 studies found the opposite results. Eric Neumayer and Laura Spess, of the London School of Economics, conducted a study, using data from 119 countries from 1970 to 2001, on the relationship between the total number of BITs signed by a country and inbound FDI.50 They found a consistent and significant positive relationship between BITs and FDI inflows.51 Professor Jeswald Salacuse of the Fletcher School and economist Nicholas Sullivan also conducted an econometric study, testing whether the presence of a BIT with the United States exhibited a positive correlation with total FDI
44. Id. at 22-23. 45. See Jennifer Tobin & Susan Rose-Ackerman, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties 13-16 (Yale Law School Ctr. for Law, Econ. & Pub. Pol’y Research, Working Paper No. 293, 2005). 46. Id. 47. Id. at 22-24. 48. Id. at 24-26. 49. Id. at 30. 50. See Eric Neumayer & Laura Spess, Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries?, 33 WORLD DEV. 1567, 1573-74 (2005). 51. Id. at 1575-80, 1582.
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inflows to developing country partners.52 They used data for over one hundred countries over the period 1998 through 2000, and for thirtyone countries over the period 1991 through 2000.53 The study found that a BIT with the United States had a “large, positive, and significant” association with a country’s inbound FDI inflows and is much more highly correlated with increased FDI than BITs with other OECD countries.54 In 2009, political economy professors Tim Buthe of Duke University and Helen Milner of Princeton conducted a study of total annual FDI inflows into 122 developing (non-OEDC) countries with a population of over one million.55 They found that, other things being equal, a higher number of BITs correlated with a greater amount of FDI, and that the effects of BITs went “well beyond” year-to-year investor friendly policy choices.56 On the other hand, a 2008 study of FDI flows from OECD countries to developing countries from 1959 through 200357 found no significant relationship between BITs and increased FDI.58 In particular, it found no support for the theory that BITs offering stronger investor protections correlated with increased FDI.59 B. The Author’s Quantitative Analysis of the Effect of China’s BITs on FDI The discussion above suggests that the question of whether, and under what circumstances, BITs affect FDI remains unsettled. This Note relies on the methods used in previous studies to address the narrower question of whether BITs with China have correlated with increased FDI. The studies presented herein rely on the author’s original econometric analysis to measure three aspects of FDI relating to China.60 The first regression measures the relationship between the
52. See Salacuse & Sullivan, supra note 17, at 104. 53. See id. at 104-11. 54. Id. at 105-06, 109-10. 55. See Tim Buthe & Helen V. Milner, Bilateral Investment Treaties and Foreign Direct Investment: A Political Analysis, in THE EFFECT OF TREATIES ON FOREIGN DIRECT INVESTMENT: BILATERAL INVESTMENT TREATIES, DOUBLE TAXATION TREATIES, AND INVESTMENT FLOWS 171, 190 (Karl P. Sauvant & Lisa E. Sachs eds., 2009). 56. See id. at 196-200. 57. See Jason Webb Yackee, Bilateral Investment Treaties, Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?, 42 L. & SOC’Y REV. 805, 815-21 (2008). 58. Id. at 818-19. 59. See id. at 823-24. 60. For an overview of the premises and methods of econometric analysis, see Salacuse & Sullivan, supra note 17, at 97-99.
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presence of a BIT with China and FDI flows from other countries to China (inbound FDI, from China’s perspective).61 It assesses whether the presence of a BIT between China and a partner country correlates with increased FDI flows from the partner country to China, shedding light on the effectiveness of BITs at increasing investment in the PRC beyond what it would have been without a BIT. The second regression measures the relationship between the presence of a BIT with China and total FDI inflows to developing countries, exploring whether a BIT with China correlates with increased aggregate investment in developing countries.62 The third regression measures the relationship between a BIT with China and FDI flows from China to developing countries, assessing whether a BIT correlates with increased bilateral FDI flows from China to a developing country partner.63 1.
Effect of BITs on Bilateral FDI Inflows to China
In the first part of the author’s original econometric analysis, which measures the effect of BITs on bilateral FDI inflows to China, the dependent variable was FDI flows into China from the partner country and the explanatory variable of interest was the presence of a BIT with China.64 The regression also included other explanatory variables known to affect FDI. These were: (1) the GDP of the partner country in constant year 2000 U.S. dollars; (2) the per capital GDP of the partner country in constant 2000 U.S. dollars; (3) the GDP growth rate of the partner country; (4) trade as a percentage of the partner country’s GDP; (5) inflation in the partner country; (6) the real effective exchange rate of the partner country; and (7) a measure of political stability in the partner country.65 These variables are typical of the explanatory variables included in studies of FDI flows.66 The GDP and
61. See infra Part III.B.1. 62. See infra Part III.B.2. 63. See infra Part III.B.3. 64. For a fuller explanation of the dependent variable and the explanatory variable of interest used and the sources for the data, see infra Appendix 2.2. 65. As other studies have done, I used the Polity IV democracy rating as a proxy for political risk. For most of the other variables, I relied on data from the World Bank’s World Development Indicators dataset. See infra Appendix 2.1 for a description of the explanatory variables used in all three studies and the sources for the datasets used. 66. See Buthe & Milner, supra note 55, at 193-96; Neumayer & Spess, supra note 50, at 1573-74; Salacuse & Sullivan, supra note 17, at 104-05; Yackee, supra note 57, at 816-18.
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GDP per capita of the partner country reflect the country’s wealth and development level, both of which are important determinants of FDI outflows. Annual GDP growth is important, since one would expect FDI outflows to increase with growth. Trade as a percentage of GDP controls for the trade openness of the partner country, since one might expect FDI outflows to increase as a country becomes more open to trade. The inflation rate reflects macroeconomic stability, and the real exchange rate shows the value of the currency, both of which could affect FDI. The dataset included entries for 149 countries for the years 1985 (the first year for which dyad-level data is available for China) to 2010.67 The econometric model measured FDI outflows to China as a percentage of GDP. This is more useful than absolute FDI outflows since it allows for comparisons between small and large countries.68 The dataset provided the opportunity to examine the relationship between a BIT with China and the level of investment flows from the partner country, as well as the relationship between the total number of BITs China had signed and bilateral inbound investment from both BIT and non-BIT countries. Like other econometric studies, the regression merely identified relationships in the data; it does not prove causation but may disclose interesting relationships that suggest causation to informed observers. As depicted in Table 1 below, the regression results indicate that the presence of a BIT with China correlates with increased FDI flows from the partner country to China. Unsurprisingly, the study shows that GDP, per capita GDP, and trade openness are positively and significantly correlated with increased investment in China. GDP growth is negatively and significantly correlated. This is in contrast to what other studies found, but the difference is not surprising because, while other studies analyzed FDI inflows, this study analyzed outflows. Furthermore, while fast-growing developing countries would be expected to attract the most FDI, slower growing developed countries supply the most FDI. As Table 1 shows, the presence of a BIT with China reflects a positive and significant (at the 0.05 level) correlation with higher FDI outflows to China.69
67. The set of countries is comprised of those countries for which the Chinese Ministry of Commerce has released data on inbound FDI. See infra Appendix 2.2 for a fuller explanation. 68. See Salacuse & Sullivan, supra note 17, at 105. 69. In the table, the estimate figures in the second column reflect the sign (positive or negative) and the magnitude of the correlation between each explanatory variable and bilateral inbound FDI flows. The figures in the third column show whether the correlation was significant.
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TABLE 1.70 Estimate
Significance
China BIT
2.891e⫺4
0.01439*
GDP (constant 2000 U.S. dollars)
1.163e⫺16
0.01543*
GDP per capita (constant 2000 U.S. dollars)
7.147e⫺08
2e⫺16***
GDP growth
⫺3.099e⫺5
0.00404**
Trade Openness
2.813e⫺5
2e⫺16***
Inflation (annual change in consumer price index)
2.489e⫺9
0.97309
Real Effective Exchange Rate (2005 ⫽ 100)
2.846e⫺6
0.02490*
Polity China’s Cumulative BITs
⫺2.661e⫺5 1.638e⫺5
0.00590** 0.08540
* p ⬍ 0.05; ** p ⬍ 0.01; *** p ⬍ 0.001
The magnitude of all the effects may appear numerically small, but this is because FDI to China as a percentage of a country’s GDP is always a tiny number. In reality, the effect is not insignificant. For example, as shown in column two row two of the table, the results indicate that the presence of a BIT with China is linked to an increase in FDI outflows to China of 0.02891% of a country’s GDP. In 2010, the GDP of the United States, in constant year 2000 U.S. dollars, was $11.5479 trillion.71 The regression results suggest that, if there had been a BIT between the United States and China in 2010, U.S. FDI flows to China would have been $3.338 billion higher.72 This is a minute fraction of U.S. GDP, but it is significant in terms of FDI: It is approximately equal to the FDI outflows of Denmark in 2010,73 and it is 3.2% of the total FDI inflows China received that year.74 Conversely, the results indicate that if Japan had not had a signed BIT with China in 2010, FDI from Japan to China
Smaller p-values reflect greater significance, so that values greater than 0.05 are not significant and values smaller than 0.001 are the most significant. See infra Table 1. 70. See infra Appendices 2.1-2.2 for a fuller description of these variables and the sources for the data used in this regression. 71. See World Development Indicators December 2012, WORLD BANK, http://data.worldbank.org/ data-catalog/world-development-indicators (last visited Oct. 27, 2013). 72. The calculation is $11,547,900,000,000 ⴱ 0.0002891 ⫽ $3,338,497,890. 73. Web Table 02: FDI Outflows, supra note 4. 74. Id.
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would have been $1.473 billion lower.75 This is a small percentage of Japan’s GDP, but its represents about a third of Japan’s FDI to China that year.76 Since the econometric model does not prove causation, the regression results do not definitively demonstrate that the BITs themselves cause increases in FDI to China. The results do suggest, however, that a significant connection exists between a BIT and increased FDI flows. These findings suggest that, holding other variables constant, the presence of a BIT with China means that investors from a particular foreign country are likely to invest more in China than investors from countries without a BIT. For China and the countries that invest in it, therefore, BITs seem to function as their governments intend—increasing bilateral investment from the partner countries. 2.
Effect of a BIT with China on FDI Inflows to Other Developing Countries
To test the effect of a BIT with China on inflows of FDI into developing countries, this regression analyzed aggregate annual inbound FDI into developing (non-OECD) countries with a population of more than one million.77 The dependent variable, FDI inflows, was calculated as a percentage of GDP to facilitate cross-country comparisons. The explanatory variable was the presence of a BIT with China. The model generally included the same explanatory variables as the first study, except that it included the total number of BITs each developing country had signed and did not include China’s total BITs. It also included the population of the host country, since one might expect the size of the country’s market to affect inbound FDI. The dataset was limited to developing host countries because the theory that BITs represent credible commitments to liberal economic policies applies primarily to developing countries,78 and because previous
75. The calculation for this example is $5,094,420,000,000 (Japan’s 2010 GDP in constant year 2000 dollars) ⴱ 0.0002891 ⫽ $1,472,796,822. See WORLD BANK, supra note 71. 76. FDI flows from Japan to China in 2010 were $4,083,720,000. See Web Table 02: FDI Outflows, supra note 4. 77. See infra Appendices 2.1 and 2.3 for a more complete explanation of the variables used in this regression and their sources. 78. See Buthe & Milner, supra note 55, at 190-91.
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studies have shown that including both “wealthy and poor” countries in analyses of FDI may yield misleading results.79 The analysis was restricted to country years during which the host country was independent and had a population of more than one million, because studies suggest that FDI in very small countries exhibits a different dynamic.80 Furthermore, several of the smallest countries that seem to receive the most FDI are tax shelters, where the expropriation dynamic is unlike that in other developing countries.81 Altogether, the dataset includes entries for 126 developing countries for the years 1985 through 2010.82 The regression results, as presented in Table 2 below, show that the presence of a signed BIT with China exhibits a negative and significant correlation with total FDI inflows, while the presence of an in-force BIT with China does not show any significant relationship (positive or negative) to inbound FDI flows. As Table 2 shows, GDP growth and trade openness exhibit strong and significant positive correlations with FDI inflows in both regressions. This suggests that, all else being equal, faster-growing developing countries and countries more open to trade attract more FDI. The presence of a signed BIT with China has a negative and significant relationship with total inbound FDI flows, meaning that, all else being equal, developing countries that were party to a BIT with China in a given year attracted less aggregate FDI than countries that were not. Although there has been almost no scholarship on BITs between developing countries (South-South BITs) this result is consistent with Salacuse and Sullivan’s finding that non-OECD BITs and total FDI inflows exhibited a significant negative relationship.83 It is not surprising that a BIT with China would have no significant effect on total inbound FDI flows. Until recently, China exported little FDI, and it is still an insignificant source in the context of total FDI
79. See id. at 191; Bruce Blonigen & Miao Wang, Inappropriate Pooling of Wealth and Poor Countries in Empirical FDI Studies, in DOES FOREIGN DIRECT INVESTMENT PROMOTE DEVELOPMENT? 221 (Theodore H. Moran, Edward M. Graham & Magnus Blomstrom eds., 2005). 80. See Buthe & Milner, supra note 55, at 191. 81. See id. at 180; Cheng & Ma, supra note 4, at 8-11; Tobin & Rose-Ackerman, supra note 45, at 2. 82. As mentioned above, this set of countries was comprised of developing (non-OECD) countries with a population exceeding one million for which World Bank data on FDI inflows was available. See infra Appendices 2.1 and 2.3 for further explanation of the variables and data sources. 83. See Salacuse & Sullivan, supra note 17, at 120-23.
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TABLE 2.84 Estimate: Signed BIT
Estimate: BIT in Force
China BIT
⫺9.629e⫺1 (.0310*)
⫺6.487e⫺1 (.1592)
Population
⫺4.691e⫺9
⫺5.688e⫺9
GDP (constant 2000 U.S. dollars)
⫺2.287e⫺12
⫺1.744e⫺12
GDP per capita (constant 2000 U.S. dollars)
⫺7.999e⫺5
⫺9.534e⫺5
GDP growth
3.052e⫺1 (⬍2e⫺16***)
3.041e⫺1 (⬍2e⫺16***)
Trade Openness
4.324e⫺2
4.402e⫺2 (⬍2e⫺16***)
Inflation (annual change in consumer price index)
1.075e⫺4
1.050e⫺4
Real Effective Exchange Rate (2005 ⫽ 100) ⫺2.263e⫺3
1.931e⫺4
2.394e⫺2
2.641e⫺2
⫺2.450e⫺3
⫺4.112e⫺3
2.457e1
2.377e1
Polity Cumulative BITs Date
(⬍2e⫺16***)
* p ⬍ 0.05; ** p ⬍ 0.01; *** p ⬍ 0.001
flows.85 The fact that a signed BIT with China exhibited a significant negative relationship with FDI inflows to developing countries, however, merits analysis. One explanation is that China concludes at least some BITs with developing countries for purposes other than promoting investment. For example, China has BITs with certain developing countries—the Democratic Republic of Congo, Cuba, Iran, North Korea, Myanmar, Pakistan, Syria, Yemen, and Zimbabwe—that attract little aggregate FDI.86 Since these regimes tend to be politically and economically isolated, with China often as a primary political supporter, it seems likely that the primary purpose of these BITs is political rather than economic. Under this theory, the significant negative relationship between a BIT with China and total FDI inflows does not exist because a Chinese BIT causes a reduction in FDI inflows, but rather because China, to show political support, has concluded BITs with some isolated regimes that attract little investment anyway. Further, these unstable or isolated regimes often take longer than the
84. See infra Appendices 2.1 and 2.3 for a fuller description of these variables and the sources for the data used in this regression. 85. In 2011, for example, although China was the ninth largest source of FDI flows, it provided only 3.8% of total FDI compared with 23.4% provided by the United States and 33.1% provided by the EU. See Web Table 02: FDI Outflows, supra note 4. 86. See WORLD BANK, supra note 71.
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norm to ratify BITs and have them come into effect, which could explain why the negative relationship is stronger for countries with signed BITs than those with ratified BITs.87 At a minimum, the results suggest that South-South BITs merit further study, since they may serve a different purpose than traditional developed-developing country BITs. 3.
Eight-Year Study on Impact of a China BIT on Bilateral Chinese Outflows
This time-series study used a dataset of China’s outflows to each non-OECD country with a population over one million over an eightyear period, from 2003-2010.88 Of the 126 countries included in the study, thirty-one were not party to a BIT with China during the relevant period, twenty-three signed or ratified a BIT during the relevant period, and ninety-five had either signed or ratified a BIT prior to 2003. Necessity drove the selection of this time period, since China’s Ministry of Commerce did not begin publishing data on China’s outbound investment flows until 2003. The time series model pools the results from each of the country years and calculates a coefficient depicting the correlation between a BIT with China and Chinese FDI in the developing host country. The regression reveals whether, holding other things constant, China’s FDI flows into a partner country change after a BIT is signed or ratified.89 The dependent variable in this study was China’s FDI inflows to the host country as a percentage of GDP. The study included explanatory variables for GDP, GDP growth, trade openness, GDP per capita, population, the real exchange rate, the total number of the developing country’s BITs, and political instability. As Table 3 shows, the regression results showed no significant relationship between the presence of a BIT with China and FDI flows from China to a developing country. The explanatory variables that exhibited a strongly significant correlation with FDI flows from China
87. As shown in row one of Table 2 above, the presence of a signed BIT with China exhibited a significant negative relationship with aggregate FDI inflows, whereas the presence of a ratified BIT exhibited no significant effect. 88. See infra Appendices 2.1 and 2.4 for a complete account of the variables used in this regression and their sources. 89. For a description of the “fixed-effects” technique, which may be used when studying a series of bilateral relationship, see Salacuse & Sullivan, supra note 17, at 108. Briefly, the model assumes that many explanatory variables that might affect FDI, such as infrastructure or labor force skill-level, are constant, and consequently does not include them. Id.
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TABLE 390 Estimate: Signed BIT
Estimate: BIT in Force
China BIT
1.706e⫺7 (.638610)
1.092e⫺7 (.740548)
Population
5.23e⫺1
5.573e⫺1
GDP (constant 2000 U.S. dollars)
1.069e⫺3 (.000220***)
1.057e⫺3 (.000234***)
GDP per capita (constant 2000 U.S. dollars)
2.552e2
5.494e2
⫺1.266e6
⫺1.248e6
GDP growth Trade Openness
1.032e6
Inflation (annual change in consumer price index)
2.951e6
(.000896***)
Real Effective Exchange Rate (2005 ⫽ 100) ⫺2.716e6 (.034544*) Polity Cumulative BITs Date
1.010e6 (.001170**) 2.837e6 ⫺2.714e6 (.034779*)
2.084e6
1.935e6
⫺5.549e5
⫺5.443e5
4.539e9
4.728e9
* p ⬍ 0.05; ** p ⬍ 0.01; *** p ⬍ 0.001
to a developing country were GDP and openness to trade; both relationships were positive. The real effective exchange rate exhibited a less significant negative correlation, suggesting that countries with currencies that are inexpensive compared to other currencies attracted more investment from China, all other things being equal. Like the results of the second regression, these findings suggest that China may conclude BITs with developing countries for purposes beyond increasing FDI. While it is possible that these BITs are intended to increase FDI but are simply unsuccessful, the fact that China has concluded BITs with a majority of developing countries but is still a relatively small exporter of FDI suggests that the government’s large BIT program may be motivated, at least in part, by political considerations. For example, China may conclude BITs as part of its policy to cultivate good relations with governments around the world for political objectives like persuading states not to recognize Taiwan and long-term considerations like resource access and durable political ties.91 Certainly, China is creating an extensive network of international
90. See infra Appendices 2.1 and 2.4 for a full description of these variables and the sources for the data used in this regression. 91. For a description of China’s policy priorities, including its policy of using international diplomacy to isolate Taiwan and its fear of future resource competition, see Andrew J. Nathan & Andrew Scobel, How China Sees America: The Sum of Beijing’s Fears, FOREIGN AFF., Sept.-Oct. 2003. For
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agreements that, in the future, may affect investors’ rights, investment law, and even the parties’ legal systems. IV.
THE EFFECT OF BITS ON INVESTORS’ RIGHTS UNDER CHINESE LAW
This Part assesses whether BITs with China have fulfilled their secondary purpose of promoting property rights and the rule of law. To measure progress toward property protection, this Part analyzes the expansion of investors’ rights over time under China’s BITs. To measure whether developed countries have been successful in promoting property rights and the rule of law, this Part analyzes how changes in the language of China’s BITs have occurred—whether BITs with developed democracies have been particularly important in expanding investors’ rights or increasing transparency.92 It argues that BITs have had success on both axes: investors’ rights in China are more expansive now than when China concluded its first BITs, and the private rights protected have expanded most significantly through agreements with developed democracies. Further, several of the reforms pioneered by OECD BITs may improve the consistency and transparency of China’s legal regime governing investment and, perhaps, China’s legal system more broadly. A.
Methodology
There are several provisions that are regarded as essential to protecting and promoting investment, and most BITs contain some version of these.93 The language of the provisions varies across agreements, however, so that different BITs accord investors different levels of protection. Drawing on comprehensive studies of BITs—particularly the 1995 book, Bilateral Investment Treaties, by Rudolf Dolzer and
arguments that China concludes trade agreements to further these political objectives, see Guoyou Song & Wen Jin Yuan, China’s Free Trade Agreement Strategies, 35 WASH. Q. 107, 112-13 (2012); Henry Gao, China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade 8-9 (Paper presented at the Asian Reg’l Conf. on Free Trade Agreements, Dec. 2009), available at http://www.networkideas.org/ideasact/dec09/pdf/Henry_Gao.pdf. 92. I use membership in the OECD as a proxy for countries seeking to expand private rights and strengthen the rule of law because OECD members are developed democratic states, many of which have particularly expressed this objective, and because the OECD itself has endorsed this as a goal of BITs. See, e.g., OECD, PROMOTING PRIVATE INVESTMENT FOR DEVELOPMENT: THE ROLE OF ODA 15 (2006). 93. See RUDOLF DOLZER & MARGRETE STEVENS, BILATERAL INVESTMENT TREATIES (1995) (describing the variations of the clauses governing the admission and treatment of investment, expropriation, and the settlement of disputes in BITs from 1954 through 1995).
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Margrete Stevens, prepared under the auspices of the International Centre for Settlement of Investment Disputes (ICSID)94—and recent scholarship on China’s BITs,95 this Part identifies changes in critical provisions of China’s BITs and analyzes the implications of those changes for investors’ rights and the rule of law. This analysis is based on close readings of the key provisions in all of China’s BITs for which an official version is publicly available.96 Having identified changes that affect investors’ rights or the rule of law, this Part analyzes how these changes were introduced and incorporated into China’s BITs— whether through agreements with developed democracies (OECD members), developing democracies, developing non-democracies, or indiscriminately across regime types.97 Based on this data, this Part analyzes whether BITs have proven to be effective instruments at strengthening property rights and legal reform. B.
The Evolution of Key Provisions of Chinese BITs
This Section examines developments in key provisions of China’s BITs to determine whether, and to what extent, they have strengthened investor protections and the rule of law. It argues that, over time, China’s BITs have become more protective of investors and more
94. Id. 95. See Guiguo Wang, China’s Practice in International Investment Law: From Participation to Leadership in the World Economy, in LOOKING TO THE FUTURE: ESSAYS IN HONOUR OF W. MICHAEL REISMAN 845 (Mahnoush H. Arsanjani et al. eds., 2011); Schill, supra note 5; Axel Berger, China’s New Bilateral Investment Treaty Programme: Substance, Rationale and Implications for International Investment Law Making (paper prepared for the Am. Soc’y Int’l Law Int’l Econ. Law Interest Grp. Conference, Washington, D.C., Nov. 14-15, 2008). 96. See infra Appendix 1 for a chronological list of China’s BITs depicting which ones are publicly available. 97. To quantify regime type, I used the Polity IV dataset. See Monty G. Marshall & Keith Jaggers, Polity IV Project: Political Regime Characteristics and Transitions, 1800-2010, INTEGRATED NETWORK FOR SOCIETAL CONFLICT RESEARCH, http://www.systemicpeace.org/polity/polity4.htm (last visited Oct. 27, 2013) [hereinafter Polity IV data]. Specifically, I relied on the Polity 2 score. Because I wanted to ascertain whether institutionalized democracies— governments that incorporate the rule of law, checks and balances, and transparency—were more likely than other types of governments to conclude BITs that strengthened private rights and the rule of law even if the country was a developing country, I divided countries into those with a Polity 2 score above 6 and those with a score below 6. A score of 6 reflected stronger than “mixed” institutions and corresponded with increased regime stability and autocracy scores of zero. See MONTY G. MARSHALL, POLITY IV PROJECT: DATASET USERS MANUAL 13-17 (2011), available at http://www.systemicpeace.org/inscr/inscr.htm; Polity IV data, supra. Other studies have also relied on the Polity IV dataset to measure regime type or political risk. See, e.g., Yackee, supra note 57, at 816-18 (using as control variables the Polity IV democracy rating as a standard proxy for political risk).
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supportive of the rule of law. The analysis below shows that nearly every critical provision has undergone changes of this kind. It also shows that these changes have generally been introduced through BITs with developed democracies, and that subsequent agreements with OECD members are more likely than other BITs to contain the more protective provisions. Over time, many liberalizing changes have been incorporated into China’s BITs with developing countries. Among developing countries, reforms that protect investors’ rights and strengthen the rule of law are often more likely to appear in BITs with stable democracies than those with autocracies or weakly democratic states. This suggests that developed democracies (and to a lesser extent developing democracies) may have been successful at using BITs to strengthen investors’ rights in China and to strengthen the rule of law.98 1.
The Scope of the Agreement
The first critical provisions that all BITs contain are the definitions that determine the scope of the assets and persons protected by the agreement, particularly the definitions of covered “investments” and “investors.”99 Early BITs defined “investment” in a brief and general way, but recent BITs have established a more complex formula.100 Most modern definition clauses define “investment” as “every kind of asset” and also elaborate specific property rights.101 In their study of BIT language, Dolzer and Stevens cited as an example of a “standard” definition that contained in the BIT between Germany and Guyana, defining “investments” as: [E]very kind of asset, in particular: (a) movable and immovable property as well as other rights in rem such as mortgages, liens and pledges; (b) shares of companies and other kinds of interest in companies; (c) claims to money which has been used to create an economic value or claims to any performance having an economic value;
98. This Note examines only the legal rights, both substantive and procedural, that particular BITs bestow on foreign investors. Although certainly important, the on-the-ground effect of these expanded legal protections is outside the scope of this study of the de jure rights and enforcement mechanisms that BITs create. 99. See DOLZER & STEVENS, supra note 93, at 26-31. 100. Id. at 26. 101. Id.
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(d) copyrights, industrial property rights, technical processes, trade-marks, trade-names, know-how, and good-will; (e) business concessions under public law, including concessions to search for, extract and exploit natural resources . . . .102 Building on this formula, some developed countries have added language specifying that “investments” include assets “directly or indirectly” owned or controlled by investors of the contracting parties.103 This language is considered important because many investment disputes involve investments effected through subsidiaries and not directly held by the national of the BIT party.104 Other treaties employ “more stringent” language, requiring that “investments” be specifically approved by the host state or effected “in accordance with [the host state’s] laws,” and emphasizing the host state’s discretion over the scope of the BIT’s application.105 The definition of investments contained in China’s BITs is generally expansive and has been fairly consistent over time. China’s first BIT, with Sweden in 1982, stated that investment “shall comprise every kind of asset invested by investors of one Contracting State in the territory of the other . . . in accordance with [its] laws and regulations.”106 The definition included a non-exclusive list of five types of investments— the same as those that Dolzer and Stevens identified as typical.107 All 123 of China’s BITs for which an official version is publicly available contain essentially the same list.108 The definition of “investor” is also in
102. Id. at 27 (citing Germany-Guyana BIT, infra note 162, art 1(1)). 103. See U.S. DEP’T OF STATE & OFFICE OF THE U.S. TRADE REP., 2012 U.S. MODEL BILATERAL INVESTMENT TREATY art. 1 (2012), available at http://www.state.gov/documents/organization/ 188371.pdf [hereinafter U.S. MODEL BIT]; U.S. DEP’T OF STATE & OFFICE OF THE U.S. TRADE REP., U.S. MODEL BILATERAL INVESTMENT TREATY art. 1 (2004), available at http://www.state.gov/ documents/organization/117601.pdf. 104. See Schill, supra note 5, at 85. 105. DOLZER & STEVENS, supra note 93, at 30-31. 106. Agreement Between the Government of the People’s Republic of China and the Government of the Kingdom of Sweden on the Mutual Protection of Investments, China-Swed., art. 1(1), Mar. 29, 1982 [hereinafter China-Sweden BIT], available at tfs.mofcom.gov.cn/aarticle/ h/au/201001/20100106724195.html. 107. See id. 108. For representative “investment” provisions, see Agreement Between the Government of the People’s Republic of China and the Government of the Socialist Republic of Vietnam Concerning the Encouragement and Reciprocal Protection of Investments, China-Viet., art. 1(1), Dec. 2 1992 [hereinafter China-Vietnam BIT], available at tfs.mofcom.gov.cn/aarticle/h/at/ 201002/20100206778724.html; Agreement Between the Government of the People’s Republic of China and the Government of Barbados Concerning the Encouragement and Reciprocal Protec-
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accordance with international norms and has been consistent over time.109 Although the definition of investment in China’s BITs has not been transformed since 1982, some treaties contain definitions that, arguably, are more protective of investors than others. As Dolzer and Stevens observed, countries concerned with investor protection are particularly interested in protecting investments effected through subsidiaries.110 To ensure that these investments are protected, some BITs explicitly cover indirect investments.111 Although most ICSID tribunals have held that indirect investments are protected even absent such a clause, others have held the opposite.112 Consequently, BITs that refer to indirect investments are potentially more protective of investors than those that do not.113 The first of China’s BITs to allude to indirect investments was the 1988 agreement with Australia, which referred to assets “owned or controlled” by investors of a contracting party.114 The 1988 Japan BIT covered companies in which an investor had a “substantial interest,” meaning “the exercise of control or decisive influence.”115 China’s BITs with Argentina, Estonia, Saudi Arabia, Germany, Spain, Portugal, New Zealand, Mexico, and Canada also mentioned
tion of Investments, Barb.-China, art. 1(1), July 20, 1998 [hereinafter China-Barbados BIT], available at tfs.mofcom.gov.cn/aarticle/h/bk/201002/20100206785127.html; Agreement Between the People’s Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments, China-Ger., art. 1(1), Dec. 1, 2003 [hereinafter China-Germany BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_germany. pdf. See infra Appendix 1. 109. See, e.g., China-Vietnam BIT, supra note 108, art. 1(1) (defining “investor” as (a) natural persons who have the nationality of one of the contracting parties or (b) any “legal person” or “entity” established “in accordance with the laws” of the parties and, in the case of Vietnam “having its seat in the territory”). 110. DOLZER & STEVENS, supra note 93, at 30-31. 111. Id.; see 2012 U.S. MODEL BIT, supra note 103, art. 1 (defining “investment” to mean “every asset that an investor owns or controls, directly or indirectly”). 112. See Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, ¶ 137 (Aug. 3, 2004); CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Decision on Jurisdiction, ¶ 48 (June 17, 2003). 113. See Schill, supra note 5, at 85-86. 114. Agreement on Reciprocal Encouragement and Protection of Investments, China-Austl., art. 1(1)(a), July 11, 1988 [hereinafter China-Australia BIT], available at http://tfs.mofcom.gov.cn/ aarticle/h/av/201002/20100206778946.html. 115. Agreement Concerning the Encouragement and Reciprocal Protection of Investment, China-Japan, art. 12, protocol 9, Aug. 27, 1988 [hereinafter China-Japan BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_japan.pdf.
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“direct or indirect” ownership or “ownership or control.”116 Additionally, unlike all previous Chinese BITs, the 2001 Netherlands BIT and the 2003 Germany BIT do not specify that an “investment” must be made “in accordance with [the host state’s] laws and regulations.”117 In an additional protocol, the Netherlands BIT specifies that the agreement applies only to investments made in accordance with the parties’ domestic laws,118 but the Germany BIT does not. Consequently, Chinese scholar Guiguo Wang has argued that the Germany BIT restricts the PRC’s discretion concerning what investments are protected by the agreement more than other Chinese BITs, which provides greater protection to investors.119 Examining the types of countries with which China has signed the more protective BITs sheds light on how the language of China’s BITs
116. See Agreement Between the Government of the People’s Republic of China and the Government of the Argentine Republic on the Promotion and Reciprocal Protection of Investments, China-Arg., art. 1(2), Nov. 5, 1992, 1862 U.N.T.S. 3 [hereinafter China-Argentina BIT]; Agreement Between the People’s Republic of China and the Government of the Republic of Estonia on the Promotion and Reciprocal Protection of Investments, China-Est., art. 1(3), Sept. 2, 1993, 1849 U.N.T.S. 29 [hereinafter China-Estonia BIT]; Agreement Between the Government of the People’s Republic of China and the Kingdom of Saudi Arabia on the Reciprocal Promotion and Protection of Investments, China-Saudi Arabia, art. 1(1), Feb. 29, 1996 [hereinafter ChinaSaudi Arabia BIT], available at http://www.kluwerarbitrattion.com/BITs.aspx?country⫽China; Agreement Between the People’s Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments, China-Ger., art. 1, Oct. 7, 1983 [hereinafter China-Germany 1983 BIT], available at http://tfs.mofcom.gov.cn/article/Nocategory/ 201002/20100206787159.shtml; Agreement Between the People’s Republic of China and the Kingdom of Spain on the Promotion and Reciprocal Protection of Investments, China-Spain, art. 1(1), Nov. 14, 2005 [hereinafter China-Spain BIT], available at http://tfs.mofcom.gov.cn/ aarticle/Nocategory/201111/20111107819474.html; Agreement Between the People’s Republic of China and the Portuguese Republic on the Encouragement and Reciprocal Protection of Investments, China-Port., art. 1(1), Dec. 9, 2005 [hereinafter China-Portugal BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206775363.html; Free Trade Agreement Between the Government of New Zealand and the Government of the People’s Republic of China, N.Z.-China, art. 135, Apr. 7, 2008, 2590 U.N.T.S. 101 [hereinafter New Zealand FTA]; ChinaMexico BIT, supra note 23, art 1(1); Agreement Between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments, China-Can., art. 1(3), Sep. 9, 2012 [hereinafter China-Canada BIT], available at http://unctad.org/sections/dite/iia/docs/bits/canada_china.pdf. 117. See Agreement on Encouragement and Reciprocal Protection of Investments Between the Government of the People’s Republic of China and the Government of the Kingdom of the Netherlands, China-Neth., art. 1(1), Nov. 26, 2001 [hereinafter China-Netherlands BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_netherlands.pdf; China-Germany BIT, supra note 108, art. 1(1). 118. See China-Netherlands BIT, supra note 117, protocol ad art. 1. 119. See Wang, supra note 95, at 858, 861-62.
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has evolved. As noted above, the first BIT that contained an indirect investment provision was the agreement with Australia, an OECD member. Of the eleven BITs containing such provisions, eight (seventythree percent) were with OECD members,120 two were with non-OECD democracies (Argentina and Estonia, which became an OECD member in 2010), and one was with a non-democratic country (Saudi Arabia).121 Following the Australia agreement, of the twenty BITs China concluded with OECD democracies for which the text is available, forty percent contained the more liberal provision.122 Of the fifty-one
120. These were the BITs with Australia, Japan, Germany, Spain (2005), Portugal, Mexico, and Canada, and the New Zealand FTA. For data on OECD membership, see List of OECD Member Countries, OECD, http://www.oecd.org/general/listofoecdmembercountries-ratificationofthe conventionontheoecd.htm (last visited Oct. 27, 2013). 121. For a list of the agreements canvassed for this study and the sources of each agreement, see infra Appendix 1. In this section and subsequent sections, these figures include only the agreements for which an official version is publicly available. See id. 122. The agreements with Australia, Japan, Argentina, Germany, Spain (2005), Portugal, Mexico, and Canada explicitly protected indirect investments. See supra notes 114-16. The agreements with New Zealand, Turkey, Hungary, Portugal, Spain (1992), Greece, South Korea, Poland, Netherlands, Finland, France, Switzerland (2009) did not. See infra Appendix 1 and the agreements listed therein; see, e.g., Agreement Between the Government of the Republic of Finland and the Government of the People’s Republic of China on the Encouragement and Reciprocal Protections of Investments, China-Fin., Sept. 4, 1984 [hereinafter China-Finland BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_finland.pdf; Agreement Between the Swiss Federal Council and the Government of the People’s Republic of China, China-Switz., Jan. 27, 2009 [hereinafter China-Switzerland BIT], available at http://unctad.org/ sections/dite/iia/docs/bits/Switzerland_China_new.pdf; Agreement Between the People’s Republic of China and the Republic of Turkey Concerning the Reciprocal Promotion and Protection of Investments, China-Turk., art. 3, Nov. 13, 1990 [hereinafter China-Turkey BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_turkey.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Hellenic Republic for the Encouragement and Reciprocal Protection of Investments, China-Greece, June 25, 1992 [hereinafter China-Greece BIT], available at http://unctad.org/sections/dite/iia/docs/bits/ china_greece.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Polish People’s Republic on the Reciprocal Encouragement and Protection of Investments, China-Pol., June 7, 1998 [hereinafter China-Poland BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_poland.pdf; Agreement Between the Republic of Hungary and the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, China-Hung., May 29, 1991 [hereinafter China-Hungary BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_hungary.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of France on the Reciprocal Promotion and Protection of Investments, China-Fr., May 30, 1984 [hereinafter China-France BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/ au/201001/20100106725132.html; Agreement Between the People’s Republic of China and the Kingdom of Spain Concerning the Reciprocal Promotion and Protection of Investments, ChinaSpain, Feb. 6, 1992, available at http://www.kluwerarbitration.com/BITs.aspx?country⫽China.
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BITs that China concluded with all democracies after the Australia agreement, twenty percent contained the more liberal provision.123 Among non-democracies (none of which are OECD members), only one out of forty-nine publicly available BITs (two percent) addressed indirect investments.124 However, the other more liberal “investment” provision contained in the Germany-China BIT has not yet been adopted in another agreement. Thus, it appears overall that BITs with developed democracies were more likely to contain the more protective “investment” provision; among developing countries, democracies were more likely than non-democracies to conclude BITs containing the more liberal provisions. 2.
Substantive Treatment Provisions
This Section examines developments in substantive treatment provisions in China’s BITs to identify whether there have been any changes in language that afford investors greater protection. Besides the definition of “investment,” other essential provisions establish the minimum standard of treatment the parties are required to accord covered investments in their territories. These provisions include affirmative promises (for example, “fair treatment”), prohibited types of measures (such as “arbitrary” actions), and either most favored nation (MFN) or national treatment obligations. a.
Fair and Equitable Treatment Provisions
Nearly all BITs contain a promise of “fair and equitable treatment” (FET) for the other party’s investors and investments.125 The content of this promise—whether it refers to the minimum standard required by international law or imposes a higher standard—is not established.126 Recently, international tribunals have interpreted it to in-
123. These agreements were those with the eight OECD democracies listed in supra note 122 and the BITs with Argentina and Estonia. See China-Argentina BIT, supra note 116, art. 1(2); China-Estonia BIT, supra note 116, art 1(3). 124. See China-Saudi Arabia BIT, supra note 116, art. 1(1). For a list of the other agreements with non-democracies signed since the Australia BIT and sources for these agreements, see infra Appendix 1. 125. DOLZER & STEVENS, supra note 93, at 58. 126. STEPHAN W. SCHILL, THE MULTILATERALIZATION OF INTERNATIONAL INVESTMENT LAW 263 (2009). F. A. Mann, for example, argued that “fair and equitable treatment” (FET) clauses “envisage conduct which goes far beyond the minimum standard and afford protection to a greater extent and according to a much more objective standard than any previously employed form of words.” F. A. Mann, British Treaties for the Promotion and Protection of Investments, 52 BRIT.
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clude elements that echo the rule of law concepts endorsed by liberal democracies, such as predictability of the legal framework, procedural due process, transparency, and protection against discrimination and arbitrariness.127 Some BITs between developing countries do not contain a fair treatment provision, and other BITs explicitly incorporate the minimum standard of customary international law.128 Many BITs join FET provisions to the promise of “full protection and security” for investments by investors of the other contracting party.129 The precise content of this promise is unclear, and it has been a less important source of protection than FET clauses.130 All of China’s publicly available BITs contain provisions promising fair and equitable treatment and protection and security for investments.131 The language of these provisions varies little across agreements and has not substantially evolved since the 1982 Sweden BIT. The 2008 Free Trade Agreement (FTA) with New Zealand pioneered one change, however, specifying that “fair and equitable treatment” included “the obligation to ensure that, having regard to general principles of law, investors are not denied justice or treated unfairly or inequitably in any legal or administrative proceeding.”132 This provision essentially codified the outcome in the Saipem v. Bangladesh arbitration that a breach of international due process standards by domestic courts is a BIT violation over which an ICSID tribunal has
Y.B. INT’L L. 241, 244 (1981); see also UNCTAD, FAIR AND EQUITABLE TREATMENT 10-13 (2012), available at http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf (explaining that FET has been interpreted to extend beyond the minimum international standard); but see Catherine Yannaca-Small, Fair and Equitable Treatment Standard in International Investment Law 8-10 (OECD, Working Paper No. 2004/3, 2004), available at http://www.oecd.org/daf/inv/international investmentagreements/33776498.pdf (describing the traditional understanding that FET referred to “the international standard of justice” and the continued adherence to that interpretation by some actors). 127. Schill, supra note 5, at 104-05; see CMS Gas Transmission Co. v. The Arg. Republic, ICSID Case No. ARB/01/8, Award, ¶ 277 (May 12, 2005); Tecnicas Medioambientales Tecmed S.A. v. The United Mex. States, ICSID Case No. ARB(AF)/00/2, Award, ¶ 152 (May 29, 2003); Metalclad Corp. v. The United Mex. States, ICSID Case No. ARB(AF)/97/1, Award, ¶ 74 (Aug. 30, 2000) (finding the refusal to grant a construction permit for a waste landfill was a breach of FET). 128. DOLZER & STEVENS, supra note 93, at 60. Treaties concluded by the United States, Belgium-Luxembourg, France, and Switzerland commonly refer to the international law standard. Id. 129. Id. 130. See id. at 60-61. 131. See infra Appendix 1 and the agreements cited therein. 132. See New Zealand FTA, supra note 116, art. 143.
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jurisdiction.133 Since the impact of the Saipem decision and the scope of ICSID tribunals’ supervisory jurisdiction over the performance of national courts is not yet well-defined, this provision arguably expanded investors’ rights and supported the development in China’s courts of procedures that meet international standards. Two subsequent agreements, the 2008 BIT with Columbia and the 2009 FTA with Peru, contained similar provisions.134 Thus the pro-investor change to the FET provision—specifying that FET included protection against denial of justice—was introduced by a BIT with a developed democracy. Following the New Zealand FTA, it was more likely that a subsequent BIT with a democracy would contain the investor-favoring provision than a BIT with a non-democracy. Since 2008, two-thirds of BITs or FTAs with democracies contained the denial of justice clause, while no agreements with non-democracies did.135 b.
Refraining from Arbitrary or Discriminatory Measures
Some BITs also contain a promise to refrain from discrimination and arbitrary measures that affect the investments of investors of the other party.136 The United Kingdom-Malaysia BIT provides a typical example of such a provision, providing that neither party shall “[i]n any way impair by unreasonable or discriminatory measures the management,
133. See Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No. ARB/05/7, Award (June 30, 2009). 134. See Bilateral Agreement for the Promotion and Protection of Investments, ChinaColom., art. 2(4), Nov. 22, 2008 [hereinafter China-Colombia BIT], available at http://www. unctadxi.org/templates/DocSearch.aspx?id⫽779 (stating that “‘fair and equitable treatment’ includes the prohibition against denial of justice in criminal, civil, or administrative proceedings”); Free Trade Agreement, China-Peru, art. 132, Apr. 28, 2009, available at http://fta. mofcom.gov.cn/topic/enperu.shtml (containing the same language). 135. Among democracies, the New Zealand, Colombia, and Peru agreements contained the provision, while the Mexico, Switzerland, Canada, and Malta agreements did not. Among non-democracies, neither the Singapore nor the ASEAN FTAs contained the provision. See, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Singapore on the Promotion and Protection of Investments, China-Sing., Nov. 21, 1985 [hereinafter China-Singapore BIT], available at http://unctad.org/sections/dite/ iia/docs/bits/china_singapor.pdf; Agreement Between the Government of the People’s Republic of China and the Government of Malta on the Promotion and Protection of Investments, China-Malta, Feb. 22, 2009 [hereinafter China-Malta BIT]; Agreement on Investment of the Framework Agreement on Comprehensive Economic Cooperation Between the People’s Republic of China and the Associations of Southeast Asian Nations, China-ASEAN, Aug. 15, 2009 [hereinafter China-ASEAN BIT], available at http://fta.mofcom.gov.cn/inforimages/200908/ 20090817113007764.pdf. 136. DOLZER & STEVENS, supra note 93, at 61-62.
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maintenance, use, enjoyment or disposal of investments in its territory of nationals of the other Contracting Party.”137 These provisions are intended to make concrete, and therefore enforceable, the vague promise of “fair and equitable treatment.” Accordingly, many nondiscrimination provisions are joined to FET provisions.138 For China, the 1983 Germany BIT was the first to prohibit “discriminatory measures,” and it applied only to China’s joint venture law.139 The next anti-discrimination provision appeared in the 1985 Denmark BIT, which provided that each party “guarantees that, without prejudice to its laws and regulations, it shall not adopt any discriminatory measures” against an investment or joint venture of investors of the other party, including obstructing the “management, maintenance, use, enjoyment, or disposal of such investments.”140 Over the next several years, the Kuwait, United Kingdom, Switzerland, and Australia BITs contained similar provisions prohibiting unreasonable or discriminatory measures.141 In the 1990s, about one-third of China’s BITs contained an anti-discrimination provision.142 Following the ChinaBotswana BIT of 2000, nearly every Chinese BIT contained such a provision.143 The 2001 Cyprus BIT was the first to remove the qualifica-
137. See id. at 62 (quoting United Kingdom-Malaysia BIT, infra note 228, art. 2(2)). 138. Id. at 61-62. 139. China-Germany 1983 BIT, supra note 116, art. 3. 140. Agreement Concerning the Encouragement and Reciprocal Protection of Investments, China-Den., art. 3(4), Apr. 29, 1985, 1443 U.N.T.S. 69 [hereinafter China-Denmark BIT]. 141. See Agreement Between the Government of the People’s Republic of China and the Government on the State of Kuwait for the Promotion and Protection of Investments, ChinaKuwait, art. 2(2), Nov. 23, 1985 [hereinafter China-Kuwait BIT], available at http://tfs. mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China, China-U.K., art. 2(2), May 15, 1986 [hereinafter China-U.K. BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the People’s Republic of China and the Government of the Confederation of Switzerland, China-Switz., art. 4(2), Nov. 12, 1986, available at http:// tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206774475.html; China-Australia BIT, supra note 114, art. 3. 142. Of the 58 BITs signed after the Australia BIT and before the Botswana BIT, fourteen (twenty-four percent) contained an “unreasonable or discriminatory measures” provision. 143. After the Botswana BIT, only eight out of thirty-nine BITs (twenty-one percent) did not contain such a provision. Cf. Agreement Between the Government of the Republic of Botswana and the Government of the People’s Republic of China, Bots.-China, June 12, 2000 [hereinafter China-Botswana BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ botswana.pdf.
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tion relating to the parties’ existing laws and regulations,144 and seven subsequent agreements also contained unqualified provisions.145 As with the FET provision, the pro-investor prohibition on arbitrary measures was pioneered in a BIT with an OECD country. Beginning with the Denmark BIT, sixty-one percent of BITs with OECD countries146 and forty-eight percent of BITs with developing democracies contained a similar provision,147 compared to only forty-two percent of
144. See Agreement Between the People’s Republic of China and the Government of the Republic of Cyprus for the Reciprocal Promotion and Protection of Investments, China-Cyprus, art. 3(2), Jan. 17, 2001 [hereinafter China-Cyprus BIT], available at http://tfs.mofcom.gov.cn/ aarticle/Nocategory/201111/20111107819474.html. 145. The agreements containing unqualified “unreasonable or discriminatory measures” provisions are those with Germany, Finland, Spain (2005), Portugal, South Korea (2007), New Zealand, and Switzerland (2009). See, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Korea on the Promotion and Protection of Investments, China-S. Kor., art. 3, Sept. 7, 2007 [hereinafter China-S. Korea BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html. 146. The agreements with Denmark (art. 3), United Kingdom (art. 2), Switzerland (1986) (art. 4), Australia (art. 3), New Zealand (1988) (art. 3), Spain (1992) (art. 3), the Netherlands (art. 3), Germany (art. 2), Finland (art. 2), Spain (2005) (art. 2), Portugal (2005) (art. 2), South Korea (2007) (art. 5), New Zealand (2008 FTA) (art. 143), and Switzerland (2009) (art. 4) contained the provision. The agreements with Japan, Turkey, Portugal, Greece, Poland, the Czech Republic, France, Mexico, and Canada did not. See infra Appendix 1 and the agreements listed therein; see, e.g., Agreement Between the Government of New Zealand and the Government of the People’s Republic of China on the Promotion and Protection of Investments, China-N.Z., Nov. 22, 1988 [hereinafter China-New Zealand BIT], available at http://unctad.org/sections/dite/ iia/docs/bits/china_newzealand.pdf. 147. BITs with the following developing democracies, concluded after the Denmark BIT, contained the provision: Argentina (art. 3), Israel (art. 2), Macedonia (art. 2), South Africa (art. 3), Belize (art. 3), Botswana (art. 2), Cyprus (art. 3), Trinidad (art. 3), Guyana (art. 2), Benin (art. 2), Latvia (art. 2), India (art. 14), Colombia (art. 2), Malta (art. 2), and Peru (art. 133). The other sixteen agreements with developing democracies concluded after the Denmark BIT did not contain the prohibition on arbitrary measures. See infra Appendix 1 and the agreements listed therein; see, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Macedonia Concerning the Encouragement and Reciprocal Promotion of Investments, China-Maced., June 9, 1997 [hereinafter China-Macedonia BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206778517.html; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of South Africa Concerning the Reciprocal Promotion and Protection of Investments, ChinaS. Afr., Dec. 30, 1997 [hereinafter China-South Africa BIT], available at http://tfs.mofcom.gov.cn/ article/h/aw/201002/20100206778967.shtml; Agreement Between the Government of the Republic of Trinidad and Tobago and the Government of the People’s Republic of China on Reciprocal Promotion and Protection of Investments, China-Trin. & Tobago, July 22, 2002 [hereinafter China-Trinidad & Tobago BIT], available at http://unctad.org/sections/dite/iia/docs/bits/ china_trinidad.pdf; Agreement Between the Government of the Republic of India and the Government of the People’s Republic of China for the Promotion and Protection of Investments,
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BITs with non-democracies.148 This discrepancy was even more pro-
India-China, Nov. 21, 2006 [hereinafter China-India BIT], available at http://unctad.org/sections/ dite/iia/docs/bits/India_China.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Latvia on the Promotion and Protection of Investments, China-Lat., Apr. 4, 2004 [hereinafter China-Latvia BIT], available at http:// tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; The Government of the People’s Republic of China and the Government of the Republic of Benin, China-Benin, Feb. 18, 2004 [hereinafter China-Benin BIT], available at http://unctad.org/sections/dite/iia/docs/bits/ China_Benin.pdf; Agreement on Promotion and Reciprocal Protection of Investments, ChinaIsrael, April 10, 1995 [hereinafter China-Israel BIT], available at http://tfs.mofcom.gov.cn/aarticle/ h/at/201002/20100206778904.html; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Guyana on the Promotion and Protection of Investments, China-Guy., Mar. 27, 2003 [hereinafter China-Guyana BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/bk/201002/20100206785133.html. 148. Agreements with Kuwait (art. 2), the U.A.E. (art. 2), Egypt (art. 2), Oman (art. 2), Saudi Arabia (art. 2), Lebanon (art. 2), Cameroon (art. 4), Cape Verde (art. 2), Brunei (art. 3), Sierra Leone (art. 2), Nigeria (art. 2), Jordan (art. 3), Myanmar (art. 2), Bosnia (art. 2), Cote d’Ivoire (art. 2), Djibouti (art. 2), Uganda (art. 2), Tunisia (art. 2), North Korea (art. 2), Russia (art. 3), and Pakistan (art. 47) contained the provision. The other twenty-nine agreements with nondemocracies did not. See infra Appendix 1 and the agreements listed therein; see, e.g., Agreement Between the People’s Republic of China and Bosnia and Herzegovina on the Promotion and Protection of Investments, China-Bosn. & Herz., June 26, 2002 [hereinafter China-Bosnia & Herzegovina BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bosnia.pdf; Agreement Between the Government of the Union of Myanmar and the Government of the People’s Republic of China Concerning Encouragement and Reciprocal Protection of Investments, China-Myan., Dec. 12, 2001 [hereinafter China-Myanmar BIT], available at http://www. kluwerarbitration.com/BITs.aspx?country⫽China; Agreement Between the Government of the People’s Republic of China and the Government of the Federal Republic of Nigeria for the Reciprocal Promotion and Protection of Investments, China-Nigeria, Aug. 27, 2001 [hereinafter China-Nigeria BIT], available at http://tfs.mofcom.gov.cn/article/h/aw/201002/ 20100206795412.shtml; Agreement Between the Government of the Hashemite Kingdom of Jordan and the Government of the People’s Republic of China on the Reciprocal Promotion and Protection of Investments, China-Jordan, Nov. 1, 2001 [hereinafter China-Jordan BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_jordan.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Cote d’Ivoire on the Promotion and Protection of Investments, China-Cote d’Ivoire, Sept. 23, 2002 [hereinafter China-Cote d’Ivoire BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_cotedivoire.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Djibouti on the Promotion and Protection of Investments, China-Djib., Aug. 18, 2003 [hereinafter China-Djibouti BIT], available at http://unctad.org/ sections/dite/iia/docs/bits/china_djibouti.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the United Arab Emirates for the Promotion and Protection of Investments, China-U.A.E., Jul. 1, 1993 [hereinafter China-UAE BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the People’s Republic of China and the Government of the Sultanate of Oman for the Promotion and Protection Investments, China-Oman, Mar. 18, 1995 [hereinafter China-Oman BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/
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nounced before the provision became the norm in 2000.149 After the Cyprus BIT introduced the more stringent version of the provision, fifty-eight percent of China’s BITs with OECD countries contained the stronger provision, compared to ten percent of BITs with non-OECD democracies and zero out of fourteen BITs with non-democracies. Thus, BITs with OECD countries were significantly more likely to
20111107819474.html; Agreement Between the Government of the Lebanese Republic and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, China-Leb., Jun. 13, 1996 [hereinafter China-Lebanon BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the Republic of Cameroon and the Government of the People’s Republic of China for the Reciprocal Promotion and Protection of Investments, ChinaCameroon, May 10, 1997 [hereinafter China-Cameroon BIT]; Agreement Between the Government of the Arab Republic of Egypt and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, China-Egypt, Apr. 21, 1994 [hereinafter China-Egypt BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/ 201111/20111107819474.html; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Cape Verde Concerning the Encouragement and Reciprocal Protection of Investments, Apr. 21, 1998 [hereinafter China-Cape Verde BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the People’s Republic of China and the Government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam Concerning the Encouragement and Reciprocal Protection of Investment, China-Brunei, Nov. 17, 2000 [hereinafter China-Brunei BIT], available at http://www.unctadxi.org/templates/DocSearch.aspx?id⫽779; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Uganda on the Reciprocal Promotion and Protection of Investments, China-Uganda, May 27, 2004 [hereinafter China-Uganda BIT], available at http://www.unctad.org/sections/dite/iia/docs/ bits/Uganda_China.pdf; Agreement Between the People’s Republic of China and the Republic of Tunisia Concerning the Reciprocal Encouragement and Protection of Investments, China-Tunis., Jun. 21 2004 [hereinafter China-Tunisia BIT], available at tfs.mofcom.gov.cn/aarticle/h/aw/ 201002/20100206778975.html; Agreement Between the Government of the People’s Republic of China and the Government of the Democratic People’s Republic of Korea on the Promotion and Protection of Investments, China-N. Kor., Mar. 22, 2005 [hereinafter China-N. Korea BIT], available at tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778942.html; Agreement Between the Government of the Russian Federation and the Government of the People’s Republic of China on the Promotion and Reciprocal Protection of Investments, China-Russ., Nov. 9, 2006 [hereinafter China-Russia BIT], available at tfs.mofcom.gov.cn/aarticle/h/au/201002/ 20100206774767.html; Free Trade Agreement Between the Government of the People’s Republic of China and the Government of the Islamic Republic of Pakistan, China-Pak., Feb. 21, 2009, available at http://fta.mofcom.gov.cn/pakistan/xieyi/fta_xieyi_en.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Sierra Leone on the Promotion and Protection of Investments, China-Sierra Leone, May 16, 2001 [hereinafter China-Sierra Leone BIT]. 149. Through 2000, fifty-five percent of BITs with OECD countries and twenty-seven percent of BITs with non-OECD democracies contained such a provision (making thirty-eight percent of BITs with democracies overall), compared with twenty-five percent of BITs with non-democracies.
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contain the investor- and transparency-favoring provisions than BITs with developing countries. c.
MFN Provisions
Nearly all modern BITs include MFN provisions promising that investors of the contracting parties will receive treatment no less favorable than that which the other party accords investors of any other country.150 Under MFN provisions, investors from any country that has a BIT with the host country may invoke substantive benefits that the host extended, under another BIT, to investors from a third state.151 The scope of MFN clauses has been hotly contested because, while it is clear that they apply to substantive provisions, ICSID tribunals have come to different conclusions concerning whether they extend to procedural rights. The ICSID tribunals that decided Wintershall Aktiengesellschaft v. Argentina, Plama v. Republic of Bulgaria, and Salini Construttori S.p.A. v. Jordan, held that MFN clauses do not apply to procedural provisions, meaning investors could not rely on the MFN clause contained in the BIT between their country and China to benefit from more pro-investor procedural provisions contained in subsequent Chinese BITs.152 The tribunals in Impregilo S.p.A. v. Argentina and Maffezini v. Spain, however, reached the opposite conclusion, holding that MFN clauses applied to procedural rights.153 Procedural rights associated with access to international arbitration are arguably the most important
150. DOLZER & STEVENS, supra note 93, at 65. The China-Australia BIT contains a standard MFN clause, in which the parties promise to “treat investments and activities associated with investments in its own territory . . . on a basis no less favourable than that accorded to investments and activities associated with investments of nationals of any third country.” China-Australia BIT, supra note 114, art. 3(c). Generally, MFN clauses are subject to exceptions for preferences stemming from the parties’ membership in customs unions or regional organizations. See, e.g., id. 151. See Schill, supra note 5, at 100. 152. See Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award (Dec. 8, 2008); Plama Consortium Ltd. v. Republic of Bulg., ICSID Case No. ARB/03/24, Decision on Jurisdiction, ¶ 227 (Feb. 8, 2005) (stating that the MFN clause of the BIT at issue “cannot be interpreted as providing consent to submit a dispute . . . to ICSID arbitration and that the Claimant cannot rely on dispute settlement provisions in other BITs to which Bulgaria is a Contracting Party in the present case”); Salini Costruttori S.p.A v. Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, ¶ 112 (Nov. 9, 2004) (stating that the MFN clause may be used to secure “the application of substantive provisions” but not “the application of the dispute settlement clause”). 153. See Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, (June 21, 2011) (deciding that the ICSID tribunal had jurisdiction to hear a claim brought by an Italian investor on the basis of the MFN clause in the Argentina-Italy BIT); Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Objections to Jurisdiction (Jan. 25, 2000) (approving the application of
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rights BITs confer because they allow for the enforcement of all other rights under the agreement.154 Consequently, extending MFN clauses to procedural rights would strengthen the protections afforded by many BITs and lessen the importance of differences among agreements. The MFN guarantee in China’s BITs has changed little over time. All BITs for which the text is publicly available contained an MFN clause employing standard language and including the usual exceptions for membership in regional organizations and customs unions.155 Some provisions stood alone,156 and some in later BITs were combined with national treatment promises, with the investor to receive the more favorable of the two.157 One change has occurred in two recent agreements, however: the 2008 New Zealand FTA and the 2012 Canada BIT each specify that the MFN obligation does not extend to “dispute resolution procedures” from other agreements.158 These provisions resolve against the investor the question that the ICSID tribunals mentioned above considered and decided oppositely. Only two agreements include the changed MFN provision—the New Zealand FTA and the Canada BIT. This means that, beginning with the New Zealand agreement, half of the agreements with OECD countries included the provision,159 compared to none of the agreements with developing democracies or with non-democracies.160 While
the MFN clause in the Spain-Argentina BIT to the waiting period required before an investor could bring an ICSID case). 154. See Schill, supra note 5, at 102-03. 155. See, e.g., China-Kuwait BIT, supra note 141, art. 3; China-S. Korea BIT, supra note 145, art. 3. 156. See, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Kingdom of Norway on the Mutual Protection of Investments, China-Nor., art. 3, Nov. 21, 1984 [hereinafter China-Norway BIT], available at http://unctad.org/sections/dite/ iia/docs/bits/china_norway.pdf. 157. See, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Madagascar for the Reciprocal Promotion and Protection of Investments, China-Madag., art. 4(1), Nov. 21, 2005 [hereinafter China-Madagascar BIT], available at http://unctad.org/sections/dite/iia/docs/bits/madagascar_china_fr.pdf (stating that in “accordance with its laws and regulations, each [party] shall accord . . . to investors of the other . . . treatment no less favorable than that accorded to its own investors or the treatment accorded to investors of the most favored nation, if it is more advantageous”). 158. New Zealand FTA, supra note 116, art. 139; China-Canada BIT, supra note 116, art. 5. 159. The BITs with Mexico and Switzerland did not include the provision. 160. The BITs with Columbia, Peru, and Malta (democracies) did not include the provision, and nor did the FTAs with Singapore or ASEAN (non-democracies). I grouped ASEAN with the non-democratic countries because six of its members—Laos, Cambodia, Brunei, Burma, Vietnam,
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it could be argued that, in this instance, BITs with OECD countries have become less protective of investors than other agreements, the true effect of the provision on investors’ rights and the Chinese legal regime governing FDI is unclear. The provision eliminated the possibility that an arbitral tribunal might apply an MFN provision to procedural rights, and, therefore, arguably it diminished investors’ rights. On the other hand, it is not settled that MFN provisions normally apply to procedural protections, so the provision may not have diminished investors’ rights. Further, by establishing a clear rule, the provision arguably promotes the consistent application of the BITs and provides clarity concerning investors’ procedural rights, strengthening the rule of law. d.
National Treatment Clauses
Many BITs contain national treatment clauses requiring the host state to accord to investors and investments of the other party treatment no less favorable than that it accords its own.161 Some BITs combine the national treatment and MFN obligations,162 while others separate them.163 Among BITs that separate them, some promise unrestricted MFN treatment but limit the national treatment promise.164 Other BITs contain exceptions to national treatment for laws and regulations essential to the host country’s security or economy, which gives the parties freedom to maintain or introduce discriminatory measures.165 One of the most important changes in China’s BITs has been the addition and evolution of national treatment provisions. Generally, China’s early BITs did not contain national treatment provisions, and the two that did qualified the obligation.166 The U.K. BIT promised
Singapore—were considered non-democracies during the period of ASEAN’s existence, compared to two—Indonesia and the Philippines—that are consistently ranked democratic and two—Thailand and Malaysia—that have fluctuated. See Polity IV data, supra note 97. 161. DOLZER & STEVENS, supra note 93, at 63. 162. See, e.g., Treaty Concerning the Encouragement and Reciprocal Protection of Investments, Ger.-Guy., art. 3, Dec. 6, 1989, 1909 U.N.T.S. 3 [hereinafter Germany-Guyana BIT]. 163. See, e.g., 2012 U.S. MODEL BIT, supra note 103, arts. 3-4. 164. E.g., China-U.K. BIT, supra note 141, art. 3(3); see DOLZER & STEVENS, supra note 93, at 64-65. 165. Schill, supra note 5, at 96; see, e.g., China-Japan BIT, supra note 115, protocol ad art. 3. 166. Prior to the 1986 U.K. BIT, no Chinese BITs contained a national treatment promise. Between the U.K. BIT and the 1991 Czech Republic BIT, only one of the twelve Chinese BITs, the agreement with Japan, contained a national treatment provision. See infra Appendix 1 for the list of Chinese BITs and sources for those canvassed.
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national treatment “to the extent possible,”167 and the Japan BIT required national treatment but provided that “discriminatory treatment, in accordance with [a party’s] laws and regulations” was not prohibited if it was “necessary for the reason of public order, national security, or the sound development of national economy.”168 In 1991, the Czech and Slovak Republic BIT pioneered a provision promising treatment “not less favorable than that accorded to [the host country’s] own investors” but providing that the promise does not apply to (a) “any existing non-conforming measures,” (b) “the continuation of any such non-conforming measure,” or (c) “any amendment of any such non-conforming measure to the extent that the amendment does not increase the non-conformity of [the] measure.”169 The following year, the Spain BIT promised national treatment “in accordance with the stipulations of [the host’s] laws and regulations.”170 Both of these provisions are more protective of investors than the U.K. and Japan BITs, although the Spain phrasing seems to preserve considerable discretion for the host state, and the Czech language only guarantees a standstill in discrimination. In the 1990s, a few other BITs contained provisions that essentially repeated the language of the Japan, Czech, or Spain BITs,171 although the majority still contained only an MFN provision.172 That changed beginning with the Botswana BIT in 2000, after which every Chinese
167. China-U.K. BIT, supra note 141, art. 3(3). 168. China-Japan BIT, supra note 115, protocol 3. 169. See Agreement Between the Government of the Czech and Slovak Federal Republic and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments, China-Czech-Slovk. Rep., art. 3(2), protocol ad art. 1, Dec. 4, 1991, available at http://unctad.org/sections/dite/iia/docs/bits/slovakia_china.pdf. 170. China-Spain BIT, supra note 116, art. 3(4). 171. See Agreement on the Encouragement and Reciprocal Protection of Investments Between the Government of the Republic of Korea and the Government of the People’s Republic of China, China-S. Kor., art. 2, protocol ad art. 2, Sept. 30, 1992, available at http://unctad.org/ sections/dite/iia/docs/bits/korea_china.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Slovenia Concerning the Encouragement and Reciprocal Protection of Investments, China-Slovn., art. 3(3), Sep. 13, 1993 [hereinafter China-Slovenia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/ china_slovenia.pdf; China-Macedonia BIT, supra note 147, art. 3(3); China-S. Africa BIT, supra note 147, art. 3(2). 172. BITs with the following countries, concluded in the 1990s, contained a National Treatment provision: the Czech and Slovak Republic (art. 3), Spain (1992) (art. 3), South Korea (1992) (art. 4), Slovenia (art. 3), Macedonia (art. 3), and South Africa (art. 3). The other forty-seven BITs did not. See infra Appendix 1 for the list of Chinese BITs and sources for those canvassed.
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BIT except two (Tunisia and Brunei) contained a national treatment provision.173 Nearly all, however, contained only a qualified national treatment promise, since the agreements employed language similar to the Spain BIT, promising national treatment “without prejudice to [the host country’s] laws and regulations.”174 Another change began with the 2001 Netherlands BIT, which contained an unqualified national treatment promise, followed by a protocol containing an exemption for non-conforming measures and a promise that the parties would “progressively remove the nonconforming measures.”175 This language seems the most investorfriendly of all of the national treatment provisions thus far, as it requires a standstill in anti-foreign discrimination and commits the parties to phasing out discriminatory regulations. It also seems the most likely to support development of the rule of law in China by promoting consistent rules that apply equally to all persons in China’s economy. Twelve subsequent agreements have employed this phrasing.176 As with all of the other pro-investor changes discussed thus far, changes to the national treatment clause were introduced in BITs with OECD countries, namely the United Kingdom and the Netherlands.177 Furthermore, during the period when the national treatment provision was becoming incorporated into China’s BITs— between the U.K. BIT and the 2000 Botswana BIT, after which it become nearly universal— three out of ten BITs with OECD countries, or thirty percent, contained national treatment provisions of some kind.178 Twenty-four percent of the twenty-one BITs with non-OECD democracies contained
173. Forty-one of the forty-three publicly available Chinese BITs concluded since the Botswana BIT contain a national treatment provision. See id. 174. See, e.g., China-Botswana BIT, supra note 143, art. 3(2); China-Djibouti BIT, supra note 148, art. 3(2); China-Russia BIT, supra note 148, art. 3(2). 175. China-Netherlands BIT, supra note 117, ad art. 3. 176. These are the BITs with Germany, Finland, Spain (2005), Slovakia, the Czech Republic, Portugal, Korea (2007), New Zealand, the 2009 agreement with Switzerland, Peru, ASEAN, and Canada. See, e.g., Agreement Between the Czech Republic and the People’s Republic of China on the Promotion and Protection of Investments, China-Czech, Dec. 8, 2005 [hereinafter ChinaCzech Republic BIT], available at http://unctad.org/sections/dite/iia/docs/bits/China_czechrep. PDF. 177. See China-U.K. BIT, supra note 141, art. 3(3); China-Netherlands BIT, supra note 117, art. 3(3). 178. The agreements with the United Kingdom, Japan, Portugal, and Spain contained qualified national treatment provisions. The agreements with Switzerland, Australia, New Zealand, Turkey, Greece, and Poland contained no national treatment provisions, only MFN provisions. See infra Appendix 1.
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national treatment provisions,179 and none of the thirty BITs with non-democracies did.180 Since the Botswana BIT, agreements with OECD countries were more likely to contain the more stringent provision first introduced in the Netherlands BIT: eighty-two percent of OECD BITs contained the stronger provision,181 compared to seventeen percent of BITs with developing democracies,182 and only the FTA
179. The agreements with the Czech and Slovak Republics, South Korea, Slovenia, Macedonia, and South Africa contained qualified national treatment provisions. The agreements with Pakistan, Hungary, Bolivia, the Philippines, Argentina, Estonia, Lithuania, Uruguay, Ecuador, Chile, Jamaica, Israel, Mauritius, Bangladesh, Barbados, and Belize did not. See infra Appendix 1 for the list of Chinese BITs and sources for those canvassed; see, e.g., Agreement between the Government of the People’s Republic of China and the Government of the Republic of Mauritius for the Reciprocal Promotion and Protection of Investments, China-Mauritius, May 4, 1996 [hereinafter China-Mauritius BIT], available at http://www.kluwerarbitration.com/BITs. aspx?country⫽China; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Bolivia Concerning the Encouragement and Reciprocal Protection of Investments, China-Bol., May 8, 1992 [hereinafter China-Bolivia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bolivia.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Republic of the Philippines Concerning the Encouragement and Reciprocal Protection of Investments, ChinaPhil., July 20, 1992 [hereinafter China-Philippines BIT], available at http://unctad.org/sections/ dite/iia/docs/bits/china_philippines.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Oriental Republic of Uruguay Concerning the Encouragement and Reciprocal Protection of Investments, China-Uru., Dec. 2, 1993 [hereinafter China-Uruguay BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_uruguay. pdf; Agreement Between the Government of the Republic of Ecuador and the Government of the People’s Republic of China on the Reciprocal Promotion and Protection of Investments, China-Ecuador, Mar. 21, 1994 [hereinafter China-Ecuador BIT], available at http://unctad.org/ sections/dite/iia/docs/bits/china_ecuador_sp.pdf; Agreement Between the Government of the People’s Republic of China and the Government of Jamaica Concerning the Encouragement and Reciprocal Protection of Investments, China-Jam., Oct. 26, 1994 [hereinafter China-Jamaica BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_jamaica.pdf; Agreement Between the Government of the Republic of Chile and the Government of the People’s Republic of China Concerning the Encouragement and the Reciprocal Protection of Investment, ChinaChile, Mar. 23, 1994, available at http://unctad.org/sections/dite/iia/docs/bits/chile_china.pdf [hereinafter China-Chile BIT]; Agreement Between the Government of the People’s Republic of China and the Government of the People’s Republic of Bangladesh Concerning Encouragement and Reciprocal Protection of Investments, China-Bangl., Sept. 12, 1996 [hereinafter ChinaBangladesh BIT]. 180. See infra Appendix 1 and the agreements cited therein. 181. The Netherlands, Germany, Finland, Spain, Portugal, South Korea (2007), New Zealand, the 2009 agreement with Switzerland, and Canada BITs contained the more favorable provision. Only the France and Mexico BITs did not. See id. 182. The Czech Republic, Guyana, and Peru agreements contained the Netherlands provision, and the Cyprus, Trinidad & Tobago, Benin, Latvia, Madagascar, Slovakia, India, Colombia, and Malta agreements did not. See id.
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with ASEAN among sixteen BITs with non-democratic countries.183 Thus, BITs with developed democracies were the most likely to effect changes that strengthened investor protections and promoted legal reform, and BITs with developing democracies were more likely than BITs with developing non-democracies to do so. 3.
Transfer of Investments
Capital transfer provisions are among the most important protections in BITs because they ensure that a host state does not restrict an investor’s ability to repatriate the profits of an investment.184 Capital exporting countries generally favor provisions that promise the immediate, unrestricted transfer of all types of investments in a freely convertible currency at the market exchange rate.185 Accordingly, some BITs contain provisions along these lines.186 For other countries, allowing free capital transfer conflicts with foreign exchange and monetary policies.187 Consequently, some capital transfer provisions contain qualifying phrases, such as “subject to [a party’s] laws and regulations,”188 or explicitly preserve the contracting parties’ right to pursue foreign exchange control policies.189 Additionally, while many BITs specify that transfers must be made “without undue delay,” the term is often undefined.190 Other BITs specify that the transfers must be completed within a specified period or in accordance with inter-
183. See id. 184. See DOLZER & STEVENS, supra note 93, at 85-96. 185. The U.S. Model BIT, for example proposes the following language: “(1) Each Party shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory.” 2012 U.S. MODEL BIT, supra note 103, art. 7(1). It further provides that transfers be “made in a freely usable currency at the market rate of exchange prevailing at the time of transfer.” Id. art. 7(2). 186. See, e.g., Germany-Guyana BIT, supra note 162, arts. 5, 7. 187. See Schill, supra note 5, at 111. 188. E.g., China-Philippines BIT, supra note 179. 189. See, e.g., Agreement Between the Government of the Kingdom of Thailand and the Government of the People’s Republic of China for the Promotion and Protection of Investments, Thai.-China, protocol 1, Mar. 12, 1985 [hereinafter China-Thailand BIT], available at http:// unctad.org/sections/dite/iia/docs/bits/china_thailand.pdf (stating that the “free transfer shall be effected in accordance with . . . foreign exchange control laws and regulations”). 190. See, e.g., China-Brunei BIT, supra note 148, art. 6; Agreement on Reciprocal Promotion and Protection of Investment Between the Government of the People’s Republic of China and the Government of the Islamic Republic of Iran, China-Iran, art. 8(1), July 22, 2000 [hereinafter China-Iran BIT], available at http://unctad.org/sections/dite/iia/docs/bits/China_Iran.pdf.
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national standards.191 All of China’s publicly available BITs include a capital transfer provision securing investors’ ability to repatriate the profits of their investments.192 Capital transfer provisions usually include a nonexclusive list of the types of “funds related to investment” that the parties promised to allow investors to repatriate, and the lists in China’s agreements are typical of such provisions.193 China’s BITs generally promise that the transfer should be made in freely convertible currency and at the “normal,” “official,” or “market” rate of exchange.194 The difference in these two phrasings points to a critical tension in China’s capital transfer provisions, namely that free transfer of assets conflicts with the government’s foreign exchange and currency control policies.195 To address this, most of China’s BITs provide that each party will allow capital transfer “subject to its laws and regulations.”196 The 2003 Netherlands BIT broke from this model, however, containing an unqualified transfer provision combined with an additional protocol stating that, with respect to the transfer provision, parties should “comply with relevant formalities stipulated by the present Chinese laws and regulations relating to exchange control” (emphasis added).197 The protocol then stated that the formalities “shall not be used as a
191. See, e.g., Treaty Between the Federal Republic of Germ. and the Kingdom of Swaz. Concerning the Promotion and Reciprocal Protection of Investments, ad art. 7, June 30, 1993 (stating that transfers “shall be deemed to have been made ‘without delay’ within the meaning of Article 7(1) if effected within such period as is normally required for the completion of transfer formalities”); Germany-Guyana BIT, supra note 162, ad art. 7 (stating that the period required to effect a transfer “may on no account exceed two months”). 192. See infra Appendix 1 and the agreements listed therein. 193. See, e.g., China-Botswana BIT, supra note 143, art. 6 (enumerating (a) profits, dividend, interests and other legitimate income; (b) proceeds obtained from the total or partial sale of liquidation of investments; (c) payments pursuant to a loan agreement in connection with investments; (d) royalties in relation to [intellectual property rights]; (e) payments of technical assistance or technical service fees, [and] management fees; (f) payments in connection with contractual projects; [and] (g) earnings of nationals of the other Contracting Party who work in connection with an investment in its territory). For examples of typical capital transfer lists, see DOLZER & STEVENS, supra note 93, at 86-90. 194. See, e.g., China-Philippines BIT, supra note 179, art. 6 (referring to the “official exchange rate”); China-Argentina BIT, supra note 116, art. 5(2) (referring to the “normal applicable rate of exchange”); China-Germany BIT, supra note 108, art. 6 (guaranteeing transfer at the “prevailing market rate of exchange”). 195. See Schill, supra note 5, at 111. 196. See, e.g., China-Sweden BIT, supra note 106, art. 4; China-Vietnam BIT, supra note 108, art. 5; China-Trinidad & Tobago BIT, supra note 147, art 7(1); China-India BIT, supra note 147, art. 7(1). 197. China-Netherlands BIT, supra note 117, art. 7, protocol ad art. 7.
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means of avoiding [China’s] commitments or obligations” under the BIT.198 The first additional protocol provision purports to freeze China’s foreign exchange control restrictions by not allowing new laws and regulations that restrict transfers. Since the second promise was vague, it is unclear whether the provision limits China’s discretion. The 2003 Germany BIT more clearly expanded investors’ rights against the government. It contains an unlimited capital transfer provision and the same clause preserving existing exchange controls as the Netherlands BIT.199 The additional protocol also provides, however, that, “[t]o the extent that the formalities mentioned above are no longer required according to the relevant provisions of Chinese law, [the transfer provision] shall apply without restrictions.”200 Thus, the BIT explicitly puts in place a “standstill” in China’s foreign exchange system by prohibiting the imposition of new measures restricting capital transfers. Since the Netherlands and Germany BITs, eight other agreements have contained similar provisions.201 The original Germany BIT was also one of the relatively few BITs to specify a time limit during which a transfer should be made. Most of China’s BITs specified that the transfer should be made “without delay” or “without undue delay,”202 but the 1983 Germany BIT was the first to specify a time limit (three months) for the transfer.203 Subsequently, the Italy BIT specified that “without delay” meant the “time normally necessary” for such a transfer and could not exceed six months.204 The 1986 Switzerland BIT set a limit of ninety days, and four other agreements imposed limits ranging from two to six months.205 The pattern of which BITs contain transfer provisions that ex-
198. Id. protocol ad art. 7(3). 199. China-Germany BIT, supra note 108, protocol ad art. 6(a). 200. Id. protocol ad art. 6. 201. See China-Finland BIT, supra note 122, ad art. 6; China-Spain BIT, supra note 116, art. 6; China-Czech Republic BIT, supra note 176, art. 6; China-Portugal BIT, supra note 116, art. 6, ad art. 6; China-S. Korea BIT, supra note 145, art. 6; New Zealand FTA, supra note 116, art. 142; China-Mexico BIT, supra note 23, art. 8; China-Switzerland 2009 BIT, supra note 122, art. 5, ad art. 5. 202. See, e.g., China-Sweden BIT, supra note 106, art. 4; China-Belgium BIT, supra note 23, art. 5; China-Kuwait BIT, supra note 141, art. 6(1). 203. China-Germany BIT, supra note 108, art. 5. 204. Agreement Between the Government of the People’s Republic of China and the Government of Italy Concerning the Encouragement and Reciprocal Protection of Investment, China-It., art. 8, Jan. 28, 1985 [hereinafter China-Italy BIT], available at http://mofcom.gov. cn/aarticle/h/au/201001/2010016725272.html. 205. See China-Switzerland BIT, supra note 122, art. 6; China-Spain BIT, supra note 116, ad art. 6 (allowing six months); China-Finland BIT, supra note 122, art. 6 (allowing two months);
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pand investors’ rights and promote the liberalization and transparency of China’s laws and regulations fits with the patterns identified in the preceding subsections, namely that BITs with developed democracies are more likely than BITs with other types of countries to contain the more pro-investor provision. All ten of the countries that concluded BITs freezing China’s foreign exchange regulations were OECD members. Beginning with the Netherlands BIT, ten out of the twelve BITs with OECD countries (eighty-three percent) contained standstill provisions.206 All of the nine subsequent agreements with developing democracies and the eleven agreements with non-democracies contained the traditional provision protecting transfers “in accordance with [China’s] laws and regulations.”207 Similarly, all seven of the agreements containing a time limit defining the period in which transfers must be carried out were with OECD countries.208 4.
Expropriations and Compensation
All BITs contain provisions protecting against the expropriation or nationalization of investments and requiring compensation in the event of expropriation.209 Expropriation clauses generally prohibit expropriation except those undertaken: (1) for a public purpose, (2) in a non-discriminatory manner, (3) in accordance with law, and (4) against compensation.210 These criteria are almost universal, but other provisions vary across BITs. Nearly all BITs mention “expropriation,” “nationalization,” and either “similar measures” or “measures having equivalent effect.”211 The last phrase is meant to capture indirect or creeping expropriations, which have become increasingly the focus of expropriation disputes as outright expropriations have
China-S. Korea BIT, supra note 145, art. 8 (preferring one month and allowing two at most); China-Switzerland 1986 BIT, ad art. 5 (same). 206. The BITs with the Netherlands, Germany, Finland, Spain (1992), the Czech Republic, Portugal, Korea (2007), New Zealand, Mexico, and the 2009 agreement with Switzerland contained such provisions. See supra notes 197-201. The BITs with France and Canada did not. See China-France BIT, supra note 122; China-Canada BIT, supra note 116. 207. See infra Appendix 1 and the agreements listed therein. 208. As mentioned above, these agreements were the BITs with Germany, Italy, Switzerland (1986), Spain (1992), Finland, Korea (2007), and Switzerland (2009). See infra notes 217-19. 209. DOLZER & STEVENS, supra note 93, at 104. 210. Id. at 104-07. 211. Id. at 98-100.
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become uncommon.212 Some BITs are even more specific, referring to “any direct or indirect measure.”213 BITs also contain different language regarding the compensation owed following an expropriation. Many BITs adopt the language of the Hull Rule, requiring “prompt, adequate, and effective” compensation.214 Some specify that compensation should equal the fair market value of the investment before the expropriation occurred or “[became] publicly known.”215 Most BITs specify how compensation should be paid, often requiring that payment be “without delay,” with interest, in freely transferable currency, and at the prevailing exchange rate.216 Some BITs define “without delay” as within a specific period.217 Additionally, some provide that investors may obtain review by national courts of the legality of an expropriation or the amount of compensation, while others do not.218 All of China’s investment agreements prohibit expropriation or nationalization except in accordance with the four standard conditions.219 Nearly all of China’s BITs attempt to capture measures beyond de jure expropriation: the most common phrasing prohibits expropriation, nationalization, or “similar measures.”220 The 1988 Mauritius BIT
212. See Michael S. Minor, The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992, 25 J. INT’L BUS. STUD. 177, 180 (1994). 213. See, e.g., Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Argentina on the Promotion and Reciprocal Protection of Investments, Swed.-Arg., art. 4(1), Nov. 22, 1991 [hereinafter Sweden-Argentina BIT]. 214. DOLZER & STEVENS, supra note 93, at 108. 215. Id. at 108-09; see, e.g., Germany-Guyana BIT, supra note 162, art. 4(2) (stating that “compensation shall be equivalent to the value of the expropriated investment immediately before the date on which the actual or proposed nationalization, expropriation or comparable measure has become publicly known”). 216. DOLZER & STEVENS, supra note 93, at 112; see, e.g., Germany-Guyana BIT, supra note 162, art. 7; Sweden-Argentina BIT, supra note 213, art. 4. 217. See DOLZER & STEVENS, supra note 93, at 112-13. 218. Id. at 106-07 (quoting as typical Denmark-Hungary BIT, art. (5)(3), May 2, 1988 (providing that “the investor shall have a right under the law of the Contracting Party making the expropriation, to prompt review, by a judicial or other independent authority of that Party, of his or its case and of the valuation of his or its investment”)). 219. See, e.g., China-Sweden BIT, supra note 106, art. 3(1); China-Vietnam BIT, supra note 108, art. 4; China-Germany BIT, supra note 108, art. 4(2). 220. See, e.g., China-Vietnam BIT, supra note 108, art. 4(1); Agreement between the Government of the People’s Republic of China and the Government of the Republic of Zimbabwe on the Encouragement and Reciprocal Protection of Investments, China-Zim., art. 4(1), May 21, 1996 [hereinafter China-Zimbabwe BIT], available at http://www.kluwerarbitration.com/BITs.aspx? country⫽China; China-Barbados BIT, supra note 108, art. 4; China-Benin BIT, supra note 147, art. 4(1); China-ASEAN BIT, supra note 135, art. 8.
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was the first to explicitly prohibit “direct or indirect” expropriation,221 which Dolzer and Stevens identified as the most straightforward, investor-protective expropriation provision.222 Several subsequent BITs contained similar provisions, and the Germany and Colombia BITs were even more explicit in covering indirect measures having the effect of expropriation.223 China’s early BITs often lacked specificity concerning the amount of compensation an expropriating state should pay. None adopted the Hull Rule formula of “prompt, adequate, and effective compensation.”224 Instead, the standard formulation stated that a party must pay compensation “equivalent to the value of the expropriated investment” and that it must be freely transferable, in convertible currency, and paid without “unreasonable delay.”225 Beginning with the 1988 Australia BIT, several agreements were more specific. The Australia agreement stated that the compensation must amount to the “market value of the investment,” which should be ascertained “in accordance with generally recognized principles of valuation.”226 The 1992 South Korea BIT specified that the value calculation should “tak[e] into account, inter alia, the capital investment depreciation, capital already repatriated, and other relevant factors.”227 Sixteen subsequent BITs contained language similar to the Australia or Korea agreements.228 Among these, some of the later BITs, such as the Guyana and Finland agree-
221. China-Mauritius BIT, supra note 179, art. 6. 222. See DOLZER & STEVENS, supra note 93, at 99-101. 223. The 2003 Germany BIT provides that investments “shall not be directly or indirectly expropriated, nationalized, or subjected to any other measure the effects of which would be tantamount to expropriation or nationalization.” China-Germany BIT, supra note 108, art. 4(2). The 2008 Colombia BIT prohibits “direct or indirect” expropriation and specifies that “indirect expropriation results from a measure or a series of measures . . . having an equivalent effect to direct expropriation without formal transfer of title or outright seizure.” China-Colombia BIT, supra note 134, art. 4. 224. See Schill, supra note 5, at 108 225. See, e.g., China-Vietnam BIT, supra note 108, art. 4. 226. China-Australia BIT, supra note 114, art. 8. 227. China-S. Korea BIT, supra note 145, art. 5(2). 228. These are the BITs with Malaysia (art. 5), Turkey (art. 3), the United Arab Emirates (art. 6), Slovenia (art. 4), Oman (art. 4), Macedonia (art. 4), the Netherlands (art. 5), Trinidad (art. 6(2)), Guyana (art. 4); Finland (art. 4(2)), Spain (art. 4); Portugal (art. 4); Russia (art. 4), and Malta (art. 4) as well as the Pakistan (art. 49) and New Zealand (art. 145) FTAs. See, e.g., Agreement between the Government of the People’s Republic of China and the Government Malaysia Concerning the Reciprocal Encouragement and Protection of Investments, China-Malay, Nov. 21, 1988 [hereinafter China-Malaysia BIT], available at http://www.kluwerarbitration.com/ BITs.aspx?country⫽China.
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ments, were even more detailed concerning the fair market value calculation.229 Another potentially important change in the expropriation provisions of China’s BITs was that an increasing number of agreements provided for access to national courts to review the legality of an expropriation and the amount of compensation. Although some scholars have argued that customary international law requires the availability of judicial review of an expropriation, the area is sufficiently unsettled that many BITs include an independent requirement.230 The 1984 Norway BIT was the first time China concluded an agreement promising access to national courts following an expropriation.231 A substantial minority of agreements contained a similar provision following the Norway agreement, and the provision became common following the Poland and Barbados BITs of 1998.232 The provision both protects investors’ right to judicial review and connects the host country’s national court system to the international investment dispute arbitration system. The way in which these changes— explicit protection of indirect investments, a more rigorous standard for calculating compensation, and national court review of expropriation— entered China’s BITs supports the argument that pro-investor and pro-rule of law changes are initiated first through BITs with OECD countries and, secondarily, through agreements with developing democracies. All three changes defined and expanded investors’ private property rights, and the second two arguably support the rule of law by ensuring predictable, transparent calculations of compensation and exposing national courts
229. See China-Guyana BIT, supra note 147, art. 4(2) (stating that value “shall be determined in accordance with the generally recognized principles of valuation as if the investments were sold as an ongoing concern on the open market” and shall “include interest at the average commercial rate from the date of expropriation until the date of payment”); China-Finland BIT, supra note 122, art. 4(2) (“The value shall be determined in accordance with generally recognized principles of valuation.”). 230. DOLZER & STEVENS, supra note 93, at 106. 231. See China-Norway BIT, supra note 156, protocol 2(a) (stating that “if an expropriated national or company of one contracting party considers the expropriation to be in contravention of the laws of the contracting party taking the expropriatory measure, the competent legislative or judiciary authorities of the contracting party taking the expropriatory measure may, at the request of the said national or company, review the case of the expropriation”). 232. See, e.g., China-Belize BIT, art. 5(1); China-Brunei BIT, supra note 148, art. 4(2); ChinaBosnia Herzegovina BIT, supra note 148, art. 4(3).
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to competition with or review by international arbitral tribunals.233 The second two changes were first introduced in BITs with OECD countries (Australia and Norway), and the prohibition on indirect expropriation appeared first in the BIT with Mauritius, a developing democracy.234 Once the changes were introduced, the new provisions were more likely to appear in OECD BITs than non-OECD BITs and more likely to appear in agreements with developing democracies than agreements with non-democracies. After the Mauritius agreement, forty-two percent of OECD BITs mentioned indirect expropriation,235 compared to twenty-two percent of BITs with developing democracies236 and eleven percent of BITs with non-democracies.237 After the Australia agree-
233. See Franck, supra note 8, at 365-73 (arguing that BITs strengthen the rule of law in developing countries by introducing arbitration as a supplement to national courts and spreading international norms of justice and procedural fairness). 234. See Polity IV data, supra note 97. 235. The agreements with Germany (art. 4); Korea (art. 4); France (art. 5); Mexico (art. 7); and the 2009 agreement with Switzerland (art. 6) referred to indirect expropriations, whereas agreements with Poland (art. 4); Netherlands (art. 5); Finland (art. 4); Spain (art. 4); Portugal (art. 4); New Zealand (art. 145); and Canada (art. 10) did not. See infra Appendix 1 and the agreements and sources contained therein. 236. Among BITs with developing democracies, the Mauritius (art. 6); Belize (art. 5); Colombia (art. 4); and Peru (art. 133) agreements contained such a reference. The Bangladesh (art. 4); Macedonia (art. 4); South Africa (art. 4); Barbados (art. 4); Botswana (art. 4); Cyprus (art. 4); Trinidad & Tobago (art. 6); Guyana (art. 4); Benin (art. 4); Latvia (art. 4); Madagascar (art. 4); Czech Republic (art. 4); India (art. 5); and Malta (art. 4) BITs did not. See id. 237. The agreements with Brunei (art. 4); Jordan (art. 5); and Uganda (art. 4) mentioned indirect expropriation. The agreements with Zimbabwe (art. 4); Lebanon (art. 4); Zambia (art. 4); Cambodia (art. 4); Algeria (art. 4); Syria (art. 4); Cameroon (art. 5); Sudan (art. 4); Cape Verde (art. 4); Ethiopia (art. 4); Qatar (art. 4); Bahrain (art. 4); Iran (art. 6); Sierra Leone (art. 4); Nigeria (art. 4); Myanmar (art. 4); Bosnia (art. 4); Cote d’Ivoire (art. 4); Djibouti (art. 4); Tunisia (art. 4); DPRK (art. 4); Russia (art. 4); Pakistan (art. 49); Cuba (art. 4); and ASEAN (art. 8) did not. See id.; see, e.g., Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Zambia Concerning the Encouragement and Reciprocal Protection of Investments, China-Zam., June 21, 1996 [hereinafter China-Zambia BIT], available at www.kluwerarbitration.com/print.aspx?ids⫽KLI-KA-1042053-n; Agreement Between the Government of the Kingdom of Cambodia and the Government of the People’s Republic of China for the Promotion and Protection of Investment, China-Cambodia, July 19, 1996 [hereinafter China-Cambodia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ cambodia.pdf; Agreement Between the Government of the People’s Republic of China and the Government of the Democratic and Popular Republic of Algeria concerning Encouragement and Reciprocal Protection of Investments, China-Alg., Oct. 17, 1996 [hereinafter China-Algeria BIT], available at http://www.kluwerarbitration.com/print.aspx?ids⫽KLI-KA-1042053-n; Agreement Between the Government of the People’s Republic of China and the Government of the Syrian Arab Republic concerning the Reciprocal Promotion and Protection of Investments, China-Syria, Dec. 9, 1996 [hereinafter China-Syria BIT], available at http://unctad.org/sections/dite/iia/docs/
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ment, thirty-three percent of OECD BITs,238 nineteen percent of developing democracy BITs,239 and eleven percent of non-democracy BITs provided specifics concerning the value of compensation for expropriation.240 The results are even more pronounced for provisions
bits/Syria_China%20BIT.pdf; Agreement Between the Government of the Federal Democratic Republic of Ethiopia and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, China-Eth., July 20, 1998 [hereinafter China-Ethiopia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ethiopia. pdf; Agreement Between the Government of the People’s Republic of China and the Government of the State of Qatar Concerning the Encouragement and Reciprocal Protection of Investments, China-Qatar, Mar. 20, 2000 [hereinafter China-Qatar BIT], available at http://unctad.org/sections/ dite/iia/docs/bits/china_qatar.pdf; Agreement Between the Government of the People’s Republic of China the Government of the State of Bahrain Concerning the Encouragement and Reciprocal Protection of Investment, China-Bahr., June 12, 2000 [hereinafter China-Bahrain BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bahrain.pdf; Agreement Between the Government of the Republic of Sudan and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, ChinaSudan, May 30, 1997 [hereinafter China-Sudan BIT], available at tfs.mofcom.gov.cn/aarticle/h/ aw/201002/20100206778964.html; Agreement Between the People’s Republic of China and the Government of the Republic of Cuba Concerning the Encouragement and Reciprocal Protection of Investments, China-Cuba, April 20, 2007 [hereinafter China-Cuba BIT], available at http:// www.kluwerarbitration.com/BITs.aspx?country⫽China. 238. The following agreements contained specifics: Australia (art. 8); Turkey (art. 3); Mexico (art. 7); Korea (2007) (art. 5); the Netherlands (art. 5), Finland (art. 4(2)), Spain (2005) (art. 4); Portugal (2005) (art. 4); and the New Zealand FTA (art. 145). The following did not: Japan (art. 5); New Zealand (art. 6); Portugal (1992) (art. 4); Spain (1992) (art. 4); Greece (art 4); Israel (art. 5); Poland (art. 4); Germany (art. 4), Czech Republic (2005) (art. 4), and France (art. 7), Switzerland (2009) (art. 6), and Canada (art. 10). See infra Appendix 1; see, e.g., Agreement Between the People’s Republic of China and the Portuguese Republic on the Encouragement and Reciprocal Protection of Investments, China-Port., Feb. 3, 1992, available at http://tfs.mofcom. gov.cn/aarticle/Nocategory/201111/20111107819474.html. 239. The following agreements with developing democracies contained such provisions: Korea (art. 5); Slovenia (art. 4); Macedonia (art. 4); Trinidad (art. 6), Guyana (art. 4); and Malta (art. 4). The following did not: Pakistan (art. 4); Hungary (art. 4); the Czech and Slovak Republics (art. 4); Bolivia (art. 4); the Philippines (art. 4); Argentina (art. 4); Estonia (art. 4); Lithuania (art. 4); Uruguay (art. 4); Ecuador (art. 4); Chile (art. 4); Jamaica (art. 4); Mauritius (art. 6); Bangladesh (art. 4); South Africa (art. 4); Barbados (art. 4); Belize (art. 5); Botswana (art. 4); Cyprus (art. 4); Benin (art. 4) Latvia (art. 4); Madagascar (art. 4); India (art. 5); Colombia (art. 4); and the Peru FTA (art. 133), See infra Appendix 1; see, e.g., Agreement Between the Government of the Republic of Lithuania and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments, China-Lith., Nov. 8, 1993 [hereinafter China-Lithuania BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ lithuania.pdf. 240. Only the agreements with Malaysia (art. 5), the United Arab Emirates (art. 6), Oman (art. 4), and Russia (art. 4) and the Pakistan (art. 49) FTA contained such specifics. See infra Appendix 1.
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guaranteeing access to courts. Since the Norway agreement, seventyone percent of OECD agreements,241 forty-one percent of agreements with developing democracies,242 and nineteen percent of agreements with non-democracies promised review of an expropriation by national courts.243 5.
Access to International Arbitration
Nearly all BITs contain provisions providing for a binding international arbitration to settle differences between the contracting parties concerning the interpretation of the treaty.244 Most also contain a provision permitting private investors to initiate arbitration proceedings before an international tribunal to settle investment disputes.245 Differences in these provisions determine whether, and under what circumstances, a BIT allows investors to initiate arbitration, and when they must obtain consent to arbitrate or pursue their claim in national courts. Some (mostly older) BITs do not contain investor-state dispute resolution provisions of any kind.246 Others contain a weak form of the
241. The following agreements promised access to courts: Norway (art. 5), Denmark (art. 4), United Kingdom (art. 5), Japan (art. 5), New Zealand (art. 6), Turkey (art. 3), Greece (art. 4), Poland (art. 4), Germany (art. 4), Finland (art. 4), the 2005 Spain agreement (art. 4), Czech Republic (art. 4), the 2005 Portugal agreement (art. 4), Korea (2007) (art. 4), Mexico (art. 7), Switzerland (2009) (art. 6), and Canada (art. 10). The following did not: Italy (art. 4), the 1986 agreement with Switzerland (1986) (art. 7), Australia (art. 8), the 1992 Portugal agreement (art. 4), the 1992 Spain agreement (art. 4), the Netherlands (art. 5), and France (art. 5). See id. 242. The following agreements promised access to courts: Pakistan (art. 4), Czech & Slovak Republics (art. 4); the Philippines (art. 4), Korea (1992) (art. 5), Chile (art. 4), Israel (art. 5), South Africa (art. 4), Barbados (art. 4), Belize (art. 5), Trinidad (art. 6), Guyana (art. 4), India (art. 5), Colombia (art. 4). The other nineteen agreements with developing democracies did not. See id. 243. The agreements with Singapore (art. 6), Sri Lanka (art. 6), Bulgaria (art. 4), the U.A.E. (art. 6), Lebanon (art. 4), Brunei (art. 4), Jordan (art. 5), Bosnia (art. 4), Tunisia (art. 4) contained an access to courts promise. The other forty-one agreements did not. See id.; see, e.g., Agreement Between the Government of the Democratic Socialist Republic of Sri Lanka and the Government of the People’s Republic of China on the Reciprocal Promotion and Protection of Investments, China-Sri Lanka, Mar. 13, 1986 [hereinafter China-Sri Lanka BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_srilanka.pdf; Agreement Between the Government of the People’s Republic of Bulgaria and the Government of the People’s Republic of China Concerning the Reciprocal Encouragement and Protection of Investments, Bulg.-China, June 27, 1989 [hereinafter China-Bulgaria BIT], available at http://unctad.org/sections/dite/iia/ docs/bits/china_bulgaria.pdf. 244. DOLZER & STEVENS, supra note 93, at 119. 245. Id. 246. See, e.g., China-Sweden BIT, supra note 106.
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provision that does not comprise the parties’ consent to arbitration of any disputes but merely acknowledges the possibility that the investor and a state party may agree to submit a dispute to ICSID arbitration.247 Since its early agreements, China’s practice concerning access to international arbitration of investment disputes has transformed and come into line with international standards. China’s early BITs did not provide for the international arbitration of all investment disputes. The first BIT with Sweden lacked any investor-state dispute settlement provision at all.248 Thereafter, agreements contained restricted dispute settlement provisions providing that investors could submit to arbitration a dispute concerning the “amount of compensation for an expropriation, nationalization or other similar measures” that had not been settled within a certain waiting period (usually six months).249 For other types of disputes, investors could only obtain relief through the host state’s domestic courts unless the host state consented to submit a particular dispute to arbitration.250 In China’s case, this was “hardly a sufficient bulwark against governmental interferences” due to corruption and lack of judicial independence.251 This situation changed in the late 1990s with the advent of the “new generation” BITs.252 In the 1997 BIT with South Africa, the parties agreed that if “any dispute” between an investor of one party and the other party “in connection with an investment in the territory of the [party]” could not be settled within six months, the investor “shall be entitled to submit the dispute to an international arbitral
247. See, e.g., Agreement between the Government of Sweden and the Government of Malaysia Concerning the Mutual Protection of Investments, Malay.-Swed., art. 6, Mar. 3, 1979, available at http://unctad.org/sections/dite/iia/docs/bits/sweden_malaysia.pdf (providing that if a dispute concerning an investment arises between an investor of one of the Contracting Parties and the other party, “it shall upon the agreement by both parties to the dispute be submitted for arbitration to [ICSID]”); Agreement on Economic Co-operation between the Government of the Kingdom of the Netherlands and the Government of the Republic of Kenya, Neth.-Kenya, art. 11, Sept. 11, 1970 available at http://unctad.org/sections/dite/iia/docs/bits/ netherlands_kenya.pdf; Agreement Between the Government of Sweden and the Government of the Arab Republic of Egypt on the Mutual Protection of Investments, Swed.-Egypt, at art. 6, July 15, 1978. 248. See China-Sweden BIT, supra note 106. The Thailand BIT also contained no investorstate dispute settlement provision. See China-Thailand BIT, supra note 189. 249. See, e.g., China-Belgium BIT, supra note 23, art. 10(3). 250. See, e.g., China-Switzerland BIT, supra note 122, art. 12(1)(b). 251. Schill, supra note 5, at 91. 252. See id.
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tribunal.”253 Two years later, the BITs with Barbados254 and Belize255 contained similar provisions. After the 2000 Botswana BIT,256 only one agreement (the 2005 BIT with the Democratic People’s Republic of Korea257) lacked an unrestricted investor-state dispute settlement provision. The 2003 BIT with the Netherlands pioneered another important change to China’s standard dispute resolution provision. Until the Netherlands BIT, all of China’s agreements required investors to choose between submitting a dispute to national courts or to international arbitration, and the agreements made that choice final; if an investor submitted a dispute to national courts, the option of international arbitration was foreclosed.258 The Netherlands agreement, however, provided that if a dispute was submitted to domestic courts, it could still be submitted to arbitration if the investor “withdr[ew] its case from the [Chinese] court.”259 Since 2001, nine other agreements contained similar provisions.260 The Netherlands provision expanded investors’ rights by expanding their options. Arguably, it also promoted the improvement of Chinese courts by introducing competition with international arbitration tribunals and creating the possibility that international tribunals will hear cases that began in Chinese courts. Understanding how the transition from the first to second generation BITs occurred is critical, since the scope of a BIT’s dispute resolution provision defines which of its protections can be enforced against a party outside of its own courts.261 Broad dispute resolution provisions afford investors greater freedom of choice and, at least in theory, promote the rule of law by exposing national courts to competition with and scrutiny by international arbitration tribunals.262 The South Africa BIT was the first to contain the unrestricted provision.263 Thereafter, all of the thirteen BITs with developing democracies
253. See China-S. Africa BIT, supra note 147, art. 9(1)-(2). 254. China-Barbados BIT, supra note 108, art. 9(2). 255. China-Belize BIT, art. 7. 256. China-Botswana BIT, supra note 143, art. 4. 257. China-N. Korea BIT, supra note 148, art. 9(2). 258. See, e.g., China-Barbados BIT, supra note 108, art. 9; China-Botswana BIT, supra note 143, art. 9; China-Cyprus BIT, supra note 144, art. 9(3); China-Jordan BIT, supra note 148, art. 10(3). 259. China-Netherlands BIT, supra note 117, art. 10(2). 260. These are the agreements with Germany (ad art. 9), Latvia (art. 9(2)), Finland (art. 9(2)), the Czech Republic (art. 9(2)), New Zealand FTA (art. 153), Mexico (art. 13(4)), the 2009 agreement with Switzerland (art. 11), ASEAN (art. 14), and Canada (Annex C.21). 261. See Yackee, supra note 57, at 814. 262. See Schill, supra note 5, at 88; Yackee, supra note 57, at 806, 814. 263. See China-S. Africa BIT, supra note 147, art. 9(1)-(2).
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contained the same provision.264 Eleven out of the twelve BITs with OECD countries (ninety-two percent)265 and seventy-four percent of the nineteen BITs with non-democratic developing countries contained the broader provision.266 The first BIT with an OECD country to contain the new provision, the Netherlands agreement, expanded its protections by allowing investors to withdraw disputes from Chinese courts and submit them to arbitration.267 Subsequently, seventy percent of China’s BITs with OECD countries contained the Netherlands provision,268 compared to eleven percent of the BITs with developing democracies269 and ten percent (only the ASEAN FTA) of agreements with nondemocracies.270 Thus the original transformation occurred in a BIT with a developing democracy and the second change occurred in a BIT with an OECD country. After the changes, OECD BITs were most likely to contain the most investor-favoring provision, followed by BITs with developing democracies, and then BITs with non-democracies.
264. See id. art. 9(2); China-Barbados BIT, supra note 108, art. 9(2); China-Belize BIT, art. 7; China-Botswana BIT, supra note 143, art. 9; China-Cyprus BIT, supra note 144, art. 9(3); China-Trinidad & Tobago BIT, supra note 147, art. 10(2); China-Guyana BIT, supra note 147, art. 9; China-Benin BIT, supra note 147, art. 9; China-Latvia BIT, supra note 147, art. 9(2); China-Madagascar BIT, supra note 157, art. 9(2); China-India BIT, supra note 147, art. 9; China-Colombia BIT, supra note 134, art. 9; China-Malta BIT, supra note 135, art. 9(2). 265. Only the 1998 Poland BIT, which came six months after the South Africa BIT, contained the first generation restricted provision. See China-Poland BIT, supra note 122, art. 10. The following agreements contained the broader provision: Netherlands (art. 10(2)); Germany (ad art. 9); Finland (art. 9(3)); Spain (art. 9); Czech Republic (art. 9(2)); Portugal (art. 9); Korea (2007) (art. 9); New Zealand FTA (art. 153); Mexico (art. 13(4)); the 2009 agreement with Switzerland (art. 11); and Canada (Annex C.21). 266. The BITs with Iran (art. 12); Brunei (art. 9); Sierra Leone (art. 9); Nigeria (art. 9); Jordan (art. 10); Myanmar (art. 9); Bosnia (art. 8); Cote d’Ivoire (art. 9); Djibouti (art. 9), Uganda (art. 9), Tunisia (art. 9), Russia (art. 9); Pakistan (art. 54); and Cuba (art. 9) provided a right to international arbitration. The agreements with Cape Verde; Ethiopia; Qatar; Bahrain; and the Democratic People’s Republic of Korea did not. See infra Appendix 1. 267. See China-Netherlands BIT, supra note 117, art. 10(2). 268. These were the Germany BIT (ad art. 9), the Finland BIT (art. 9(3)), the Czech Republic BIT (art. 9(2)), the New Zealand FTA (art. 153), the Mexico BIT (art. 13(4)), the 2009 agreement with Switzerland BIT (art. 11), and the Canada BIT (Annex C.21). The Portugal (art. 9), Korea (2007) (art. 9(4)), and France (art. 7) BITs contained the old provision. See infra Appendix 1. 269. The Latvia BIT contained the Netherlands provisions. See China-Latvia BIT, supra note 147, art. 9(2). The other eight BITs with developing democracies contained the old provision. 270. See China-ASEAN BIT, supra note 135, art. 14.
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6.
Umbrella Clauses
In contrast to the provisions so far discussed, which apply to the acts of the contracting parties in their governmental capacity, umbrella clauses apply to the government’s actions as a party to a contract. A typical provision states that each party “shall observe any other obligation it has assumed with regard to investments in its territory by nationals or companies of the other Contracting Party.”271 Umbrella clauses aim to bring within the scope of a BIT (and, therefore, within investors’ right to arbitration) commercial actions of the host government. They are particularly important to some capital exporting countries because many FDI projects, including large infrastructure projects and natural resource projects, are conducted through private contracts between the state or a state agency and the investor.272 Absent an umbrella clause, a breach of contract by the government that was not a breach of another substantive treatment provision would be outside the scope of the BIT.273 The language of umbrella clauses tends to be nearly the same across international agreements, and China’s agreements are no exception.274 The 1984 BIT with Belgium and Luxembourg was the first of China’s BITs to contain an umbrella clause.275 The language of the provision was standard and remained substantively identical in all subsequent BITs containing such a provision.276 Since the Belgium agreement, about forty percent of China’s BITs have included an umbrella clause.277 Depending on how broadly arbitral tribunals interpret the Chinese state, umbrella clauses have the potential to significantly broaden investors’ rights under BITs by bringing violations of contracts by state-owned enterprises under the treaty.278
271. Germany-Guyana BIT, supra note 162, art. 8(2); see Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Malaysia for the Promotion and Protection of Investments, Malay.-U.K., art. 2(2), May 21, 1981, available at http://unctad.org/sections/dite/iia/docs/bits/uk_malaysia.pdf. 272. See Schill, supra note 5, at 109. 273. See DOLZER & STEVENS, supra note 93, at 82. 274. See id. at 81-82. 275. See China-Belgium BIT, supra note 23, art. 9 (“Each Contracting Party shall observe any obligations it may have entered into with investors of the other Contracting Party”). 276. See, e.g., China-Malta BIT, supra note 135, art. 10(2) (“Each Contracting Party shall observe any commitments it may have entered into with the investors of the other Contracting Party with respect to their investments.”) 277. See infra notes 279-81 and accompanying text. 278. See Schill, supra note 5, at 111.
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The pattern of BITs containing umbrella clauses is somewhat inconsistent with the trends among other pro-investor provisions. Beginning with the Belgium BIT, sixty percent of investment agreements with OECD countries contain umbrella clauses.279 As with other clauses expanding investors’ rights, umbrella clauses appear less frequently in BITs concluded with developing countries. Of the eighty-four developing country agreements since the Belgium BIT, thirty-seven percent contain umbrella clauses.280 However, the percentage is higher for BITs with non-democracies than with developing democracies, fortythree and twenty-seven percent, respectively.281 Since the umbrella clause favors investors’ rights, the fact that an OECD BIT pioneered the provision and that subsequent OECD agreements are more likely to contain such a provision is consistent with the findings concerning other provisions. It is more unusual that BITs with non-democracies are more likely to contain the provision than BITs with developing democracies. 7.
Transparency Provisions
In addition to the standard provisions, some of China’s BITs contain provisions promoting transparency in the legal systems of the parties. The first agreement to contain such a provision was the 1988 BIT with Australia, which required that each party make “public and readily accessible” all laws and policies “that pertain to or affect investment” and, if requested, provide copies of specified laws and policies or consult with the other party “with a view to explaining specified laws and policies.”282 Six subsequent agreements contained similar provi-
279. These are the agreements with Belgium, Denmark, United Kingdom, Switzerland (1986), Australia, Spain (2005), Greece, Netherlands, Germany, Finland, Spain (1992), Portugal (2005), Korea (2007), and Switzerland (2009). The agreements with Finland, Norway, Italy, Japan, Portugal (1992), Czech Republic, France, New Zealand FTA, Mexico, and Canada do not contain umbrella clauses. See infra Appendix 1. 280. Agreements with the following countries contain umbrella clauses: Mauritius, South Africa, Belize, Trinidad, Guyana, Benin, Latvia, Malta, Thailand, Singapore, Kuwait, Sri Lanka, U.A.E., Egypt, Lebanon, Cape Verde, Iran, Brunei, Sierra Leone, Nigeria, Jordan, Myanmar, Bosnia, Cote d’Ivoire, Djibouti, Uganda, Tunisia, DPRK, Russia, and Pakistan. China’s other agreements to do not contain umbrella clauses. See id. 281. Among BITs with developing democracies, nine of thirty-three agreements concluded since the Belgium BIT (those with, Mauritius, South Africa, Belize, Trinidad, Guyana, Benin, Latvia, and Malta) contained umbrella clauses. Among BITs with developing non-democracies, twenty-two of the fifty-one agreements concluded since the Belgium BIT contained such clauses. See id. 282. China-Australia BIT, supra note 114, art 6.
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sions.283 Since these provisions contain mandatory language, they may promote transparency in China’s rules and regulations and thereby promote the rule of law. The distribution of agreements with transparency provisions is consistent with this study’s findings overall. After the Australian BIT, twenty-five percent of subsequent agreements with OECD countries contained a transparency provision,284 compared with only one agreement with a developing democracy (three percent of the total)285 and one with a non-democracy (two percent of the total).286 Thus, BITs with developed democracies were the most likely to incorporate transparency provisions that enhanced investor rights and rule of law, followed by agreements with developing democracies, and lastly agreements with non-democracies. V.
CONCLUSION
This Note assessed whether BITs involving China have been effective with respect to two of the most important purposes of international investment agreements: increasing investment flows and expanding investors’ rights. It argued that China’s BITs have had at least some success along both dimensions. The presence of a BIT between China and another country was correlated at a significant level with increased investment flows from the partner country to China, suggesting that BITs may have promoted FDI from partner countries to China. Conversely, there was no significant relationship between the presence of a BIT with China and increased FDI flows from China to a developing country partner. This suggests that while BITs with China seem to have been effective at promoting inbound FDI to China, they have not promoted FDI in China’s developing country partners. This trend may indicate that BITs represent a credible commitment to pro-investor policies from the PRC government to capital exporting countries, but that a BIT with China does not necessarily serve as a credible commitment by other developing countries. This suggests that perhaps some of China’s BITs with developing countries are concluded for political purposes and not primarily to increase investment flows.
283. See China-Turkey BIT, supra note 122, art. 2(4); China-Latvia BIT, supra note 147, art. 10; China-Finland BIT, supra note 122, art. 12(1); New Zealand FTA, supra note 116, art. 146; China-ASEAN BIT, supra note 135, art. 19; China-Canada BIT, supra note 116, art. 17. 284. See China-Australia BIT, supra note 114, art. 6; China-Turkey BIT, supra note 122, art. 2(3); China-Finland BIT, supra note 122, art. 12(1); New Zealand FTA, supra note 116, art. 146; China-Canada BIT, supra note 116, art. 17. 285. See China-Latvia BIT, supra note 147, art. 10. 286. See China-ASEAN BIT, supra note 135, art. 19.
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Additionally, significant changes expanding investors’ rights and strengthening consistency and transparency in China’s legal system have taken place. Important developments have been implemented primarily through BITs with developed democracies and, to a lesser extent, through BITs with developing democracies. This suggests that pro-investor and pro-rule of law developments in China’s BITs have occurred as a result of other countries’ policies—particularly OECD countries and developing democracies—rather than merely as a result of China’s growing role as a capital exporting country. Thus, it seems that the BIT programs of developed democracies have been successful in promoting stronger property rights foreign investors and some reforms that promote consistency and transparency in China’s legal system.287 Furthermore, many of these changes have been incorporated into China’s BITs generally, including those with developing non-democratic regimes, suggesting that the developed democracies’ BIT programs have supported the development of a more liberal body of international investment law. The fact that China’s BITs seem to have increased inbound FDI to China but not to its developing country partners has important implications for future BITs and suggests avenues for further study. First, it suggests that BITs between developing and capital exporting countries can serve as credible commitments to pro-investor policies and attract additional foreign investment. Second, it suggests that SouthSouth BITs exhibit a different dynamic than traditional developeddeveloping country BITs. The purposes of these new BITs may be political rather than economic, and they may not represent credible commitments or increase investment in the way that BITs with developed countries can. Since this Note only studied the effects of BITs between China and other developing countries, further study of the purposes and effectiveness of South-South BITs is warranted. In addition, examining the political benefits of South-South BITs could also be useful in understanding the reasons for the emergence of this body of law. This Note’s findings concerning BITs, investors’ rights, and the rule of law also have important implications. A study of China’s BITs suggests that developed democratic countries have led the way in
287. As mentioned above, this Note did not assess the on-the-ground effects of the de jure legal reforms it analyzed. A study of whether the pro-investor, pro-rule of law provisions this Note has identified have, in practice, improved the consistency and transparency of China’s investment law would be an important next step in understanding the effect of international investment agreements on property rights in China and the Chinese legal system.
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creating a body of international law that is increasingly favorable to international investors and that, at least on its face, should promote the rule of law in developing countries by promoting consistency and transparency in national laws and regulations and in domestic courts. This is particularly important to the United States and to other developed democracies that consider it to be in their national interest to promote property rights and the rule of law around the world.288 Overall, BITs seem to be achieving their declared goals for both China and developed democracies. BITs involving China seem to have served the interests of the PRC by increasing inbound investment flows. For OECD countries, BITs with China have increased investors’ interest in the world’s most dynamic economy, expanded foreign investors’ rights, and have the potential to strengthen the consistency and transparency of China’s legal system. Whether BITs have also strengthened China’s political ties with other developing countries or improved the quality of the law governing domestic investors remains to be seen.
288. See supra notes 24-28 and accompanying text.
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APPENDIX 1.289 BITs China has Concluded, in Chronological Order by Date of Signature Partner
Date of Signature
Date Entered into Force
Footnote with citation
Sweden
29 Mar. 1982
Germany
7 Oct. 1983
18 Mar. 1985
106 116
France
30 May 1984
19 Mar. 1985
122
Belgium/Luxembourg
4 June 1984
5 Oct. 1986
23
Finland
4 Sept. 1984
26 Jan. 1985
122
Norway
21 Nov. 1984
10 July 1985
156
Italy
28 Jan. 1985
28 Aug. 1987
204
Thailand
12 Mar. 1985
13 Dec. 1985
189 140
Denmark
29 Apr. 1985
29 Apr. 1985
Austria
12 Sept. 1985
11 Oct. 1986
Singapore
21 Nov. 1985
7 Feb. 1986
135
Kuwait
23 Nov. 1985
24 Dec. 1986
141
Sri Lanka
13 Mar. 1986
25 Mar. 1987
243
United Kingdom
15 May 1986
15 May 1986
141
Switzerland
12 Nov. 1986
18 Mar. 1987
141
Australia
11 July 1988
11 July 1988
114
Japan
27 Aug. 1988
14 May 1989
116
Malaysia
21 Nov. 1988
31 Mar. 1990
228
New Zealand
22 Nov. 1988
25 Mar. 1989
146
Pakistan
12 Feb. 1989
30 Sept. 1990
Bulgaria
27 June 1989
21 Aug. 1994
Ghana
12 Oct. 1989
22 Nov. 1991
Turkey
13 Nov. 1990
20 Aug. 1994
Papua New Guinea
12 Apr. 1991
12 Feb. 1993
Hungary
29 May 1991
1 Apr. 1993
Mongolia
25 Aug. 1991
1 Nov. 1993
Czech & Slovak Republic
4 Dec. 1991
1 Dec. 1992
243
122
122
169
289. Titles in bold indicate that the text of the agreement is publicly available and the agreement was included in this paper’s study of the text of China’s investment agreements. — Indicates the agreement is not in force. No entry in the third column indicates the agreement did not provide a date for entry into force and the UNCTAD website did not specify a date.
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Partner
Date of Signature
Date Entered into Force
Footnote with citation
Portugal
3 Feb. 1992
1 Dec. 1992
238
Spain
6 Feb. 1992
1 May 1993
122
Uzbekistan
13 Mar. 1992
12 Apr. 1994
Bolivia
8 May 1992
1 Sept. 1996
Kyrgyzstan
14 May 1992
8 Sept. 1995
Greece
25 June 1992
21 Dec. 1993
Armenia
4 July 1992
18 Mar. 1995
Philippines
20 July 1992
8 Sept. 1995
Kazakhstan
10 Aug. 1992
13 Aug. 1994
South Korea
30 Sept. 1992
4 Dec. 1992
Ukraine
31 Oct. 1992
29 May 1993
Argentina
5 Nov. 1992
1 Aug. 1994
Moldova
6 Nov. 1992
1 Mar. 1995
Turkmenistan
21 Nov. 1992
4 July 1994
Vietnam
2 Dec. 1992
1 Sept. 1993
Belarus
11 Jan. 1993
14 Jan. 1995
Laos
31 Jan. 1993
1 June 1993
Albania
13 Feb. 1993
1 Sept. 1995
Tajikistan
9 Mar. 1993
20 Jan. 1994
Georgia
3 June 1993
1 Mar. 1995
Croatia
7 June 1993
1 July 1994
United Arab Emirates
1 July 1993
28 Sept. 1994
148
Estonia
2 Sept. 1993
1 June 1994
116
Slovenia
13 Sept. 1993
1 Jan. 1995
171
Lithuania
8 Nov. 1993
1 June 1994
239
Uruguay
2 Dec. 1993
1 Dec. 1997
179
Azerbaijan
8 Mar. 1994
1 Apr. 1995
Ecuador
21 Mar. 1994
1 July 1997
179
Chile
23 Mar. 1994
1 Aug. 1995
179
Iceland
31 Mar. 1994
1 Mar. 1997
Egypt
21 Apr. 1994
1 Apr. 1996
Peru
9 June 1994
1 Feb. 1995
Romania
12 July 1994
1 Sept. 1995
Jamaica
26 Oct. 1994
1 Apr. 1996
Indonesia
18 Nov. 1994
1 Apr. 1995
Oman
19 Mar. 1995
1 Aug. 1995
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122
179
171
116
108
148
179
148
313
GEORGETOWN JOURNAL OF INTERNATIONAL LAW Date of Signature
Date Entered into Force
Morocco
27 Mar. 1995
27 Nov. 1999
Israel
10 Apr. 1995
13 Jan. 2009
Serbia
18 Dec. 1995
13 Sept. 1996
Saudi Arabia
29 Feb. 1996
1 May 1997
116
Mauritius
4 May 1996
1 Apr. 2009
179
Zimbabwe
21 May 1996
1 Mar. 1998
220
Lebanon
13 June 1996
10 July 1997
148
Zambia
21 June 1996
--
237
Cambodia
19 July 1996
1 Feb. 2000
237
Bangladesh
12 Sept. 1996
25 Mar. 1997
179
Algeria
17 Oct. 1996
--
237 237
Partner
Footnote with citation
147
Syria Arab Republic
9 Dec. 1996
1 Nov. 2001
Gabon
9 May 1997
16 Feb. 2009
Cameroon
10 May 1997
--
148
Sudan
30 May 1997
1 July 1998
237
Macedonia
9 June 1997
1 Nov. 1997
147 147
South Africa
30 Dec. 1997
1 Apr. 1998
Yemen
16 Feb. 1998
10 Apr. 2002
Swaziland
3 Mar. 1998
--
Cape Verde
21 Apr. 1998
1 Jan. 2001
148
Ethiopia
11 May 1998
1 May 2000
237
Poland
7 June 1998
Barbados
20 July 1998
1 Oct. 1999
108
Belize
16 Jan. 1999
Costa Rica
25 Mar. 1999
Qatar
9 Apr. 1999
1 Apr. 2000
237
Bahrain
17 June 1999
27 Apr. 2000
237
Congo
20 Mar. 2000
--
Botswana
12 June 2000
--
143
Iran
22 July 2000
1 July 2005
190
Brunei Darussalam
l17 Nov. 2000
--
148
Cyprus
17 Jan. 2001
29 Apr. 2002
144 148
Sierra Leone
16 May 2001
--
Mozambique
10 July 2001
26 Feb. 2002
Kenya
16 July 2001
--
Nigeria
27 Aug. 2001
--
314
148
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DO CHINA’S BITS MATTER?
Partner
Date of Signature
Date Entered into Force
Footnote with citation
Jordan
1 Nov. 2001
--
148
Netherlands
26 Nov. 2001
1 Aug. 2004
117
Myanmar
12 Dec. 2001
21 May 2002
148
Bosnia & Herzegovina
26 June 2002
1 Jan. 2005
148
Trinidad & Tobago
22 July 2002
24 May 2004
147
Cote d-Ivoire
23 Sept. 2002
--
148
Guyana
27 Mar. 2003
26 Oct. 2004
147
Djibouti
18 Aug. 2003
--
148
Germany
1 Dec. 2003
11 Nov. 2005
108
Benin
18 Feb. 2004
--
147
Latvia
15 Apr. 2004
1 Feb. 2006
147
Uganda
27 May 2004
--
148
Tunisia
21 June 2004
--
148
Sweden
27 Sept. 2004
--
Finland
15 Nov. 2004
15 Nov. 2006
DPRK
22 Mar. 2005
1 Oct. 2005
Belgium & Luxembourg
6 June 2005
1 Dec. 2009
Equatorial Guinea
20 Oct. 2005
--
Spain
14 Nov. 2005
1 July 2008
Namibia
17 Nov. 2005
--
Guinea
18 Nov. 2005
--
Madagascar
21 Nov. 2005
1 June 2007
Slovakia
7 Dec. 2005
25 May 2007
Czech Republic
8 Dec. 2005
1 Sept. 2006
176 116
148
116
157
Portugal
9 Dec. 2005
26 Jan. 2008
Vanuatu
7 Apr. 2006
--
Russian Federation
9 Nov. 2006
1 May 2009
148
India
21 Nov. 2006
1 Aug. 2007
147
Pakistan (FTA)
24 Nov. 2006
July 2007
148
Seychelles
10 Feb. 2007
--
Romania
16 Apr. 2007
1 Sept. 2009
Cuba
20 Apr. 2007
1 Dec. 2008
Bulgaria
26 June 2007
10 Nov. 2007
Korea, Republic of
7 Sept. 2007
1 Dec. 2007
Costa Rica
24 Oct. 2007
--
France
26 Nov. 2007
20 Aug. 2010
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Partner
Date of Signature
Date Entered into Force
Footnote with citation
New Zealand (FTA)
7 Apr. 2008
1 Oct. 2008
116
Mexico
11 July 2008
6 June 2009
23
Singapore (FTA)
23 Oct. 2008
Colombia
22 Nov. 2008
--
134
Switzerland
27 Jan 2009
13 Apr. 2010
122
Mali
12 Feb. 2009
16 July 2009
Malta
22 Feb. 2009
1 Apr. 2009
Peru (FTA)
28 Apr. 2009
134
ASEAN (FTA)
15 Aug. 2009
15 Feb. 2010
Bahamas
4 Sept. 2009
--
Costa Rica (FTA)
Apr. 2010
1 Aug. 2011
Chad
26 Apr. 2010
--
Libya
4 Aug. 2010
--
D.R. Congo
11 Aug. 2011
--
Uzbekistan
19 Apr. 2011
1 Sept. 2011
Canada
9 Sept. 2012
--
316
135
135
116
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APPENDIX 2. Sources for the Variables Included in the Econometric Studies 1.
Explanatory Variables Used in All Three Regressions
Presence of a BIT with China (Signed and in-Force) This variable, either a 1 or a 0, represents the presence or absence of a BIT with China for each year of the dataset. The data was taken from the UNCTAD and Ministry of Commerce databases.290 For each study, I ran two regressions, one using the presence or absence of a signed BIT between China and the country in question and the other using the presence or absence of a BIT in force between China and the country in question. GDP GDP is the sum of gross value added by all resident producers in the economy of the country in question plus product taxes and minus any subsidies not included in the value of products.291 Data are in constant 2000 U.S. dollars for each year. Dollar figures for FDP are converted from domestic currencies using yearly official exchange rates or (for the few countries for which official exchange rates are not available) using an alternate conversion factor.292 The data was collected from the WDI 2012 database.293 GDP Per Capita Data on the GDP are in constant 2000 dollars divided by total population for the year in question.294 The data was collected from the WDI 2012 database.
290. See UNCTAD CHINA BITS; supra note 1; Bilateral Investment Treaty List, DEP’T OF TREATY LAW, P.R.C. MINISTRY OF COMM., http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/ 20111107819474.html (last visited Dec. 28, 2012). 291. See WORLD BANK, supra note 71. 292. Id. 293. See id. 294. See id.
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GDP Growth Rate The annual percentage growth rate of GDP is calculated at market prices based on constant local currency.295 Like GDP, it is calculated without making deductions for depreciation of assets or depletion and degradation of natural resources. The data are collected from the World Bank’s World Development Indicators 2012 (WDI 2012) database. Trade as a Percentage of GDP Trade as a percentage of GDP is the sum of the exports and imports of the country in question for the year in question.296 It is calculated in current U.S. Dollars. The data are collected from the 2012 WDI database. Inflation, Consumer Prices (Annual Percent) As reported in the 2012 WDI report, inflation is measured by the yearly percent increase in the consumer price index (CPI).297 The CPI reflects the annual percentage change in the costs to the average consumer of acquiring a stable basket of goods and services, which may be altered at specified intervals. Real Effective Exchange Rate Index (2005 ⫽ 100) This figure represents the nominal effective exchange rate, which measures the value of a currency against a weighted average of several other currencies, divided by a price deflator (or index of costs).298 Political Openness and Stability To represent this variable, I used the Polity 2 number from the Polity IV dataset published by the Center for Systemic Peace.299 The measure ranges from ⫺10 to 10 (most open and stable) and reflects, on the one hand, suppression of political participation, opacity of executive recruitment, and absence of institutional constraints and, on the other hand, institutions and procedures through which citizens can
295. 296. 297. 298. 299.
318
Id. Id. Id. Id. Polity IV data, supra note 97.
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express preferences, institutionalized constraints on the power of the executive, and guarantees of civil liberties.300 2. Effect of China’s BITs on Bilateral FDI Flows from Other Countries to China Bilateral Inbound FDI Flows from Other Countries into China This number represents the net inflows per year of investment used to acquire a lasting management interest (ten percent or more of voting stock) in an enterprise operating in China. It comprises equity capital, reinvestment of earnings, other long-term capital, and shortterm capital.301 The data are in current (or nominal) U.S. dollars, meaning the value of the dollar for that particular year. Data from years 1985 through 2011 was collected from editions of the China Statistical Yearbook302 and cross-checked with UNCTAD data where possible.303
300. Marshall, supra note 97, at 13-17. 301. See WORLD BANK, supra note 71. 302. NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2012); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2011); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2010); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2009); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2008); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2007); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2006); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2005); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2004); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2003); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2002); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2001); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (2000); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1999); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1998); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1997); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1996); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1995); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1994); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1993); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1992); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1991); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1990); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1989); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1988); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1987); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1986). 303. See UNCTADS Statistics, UNCTADSTAT, http://unctad.org/en/Pages/Statistics.aspx (last visited Dec. 30, 2012).
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Total Number of China’s BITs Numeric variables show how many BITs China had signed with all other countries. The data was taken from the UNCTAD database,304 which lists treaties concluded up to June 1, 2012, and the China Ministry of Commerce website.305 3.
Effect of China’s BITs on Aggregate FDI Flows to Developing Countries
Total Inbound FDI Flows into Developing Countries This number represents the aggregate net inflows per year of investment used to acquire a lasting management interest in an enterprise operating in the developing country host. FDI is defined as the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital, as shown in the balance of payments. Data are in current U.S. dollars.306 The data was collected from the WDI 2012 database.307 Population The statistics include the population for each year from 1985 to 2010 as reported in the WDI 2012 database. Cumulative BITs Signed by Developing Country The variables represent the total number of BITs signed by each country in the dataset up to and including the year in question. The data was collected from the UNCTAD database.308 4.
Effect of China’s BITs on Bilateral FDI Flows from China to Developing Countries Bilateral Inbound Outward FDI Flows from China to Developing Countries
This number represents the aggregate net inflows per year of investment from Chinese investors (including the PRC government) used to acquire a lasting management interest in an enterprise operat-
304. UNCTAD China BITs, supra note 1. 305. Bilateral Investment Treaty List, supra note 290. 306. See WORLD BANK, supra note 71. 307. See id. 308. Country Specific Lists of BITs, UNCTAD, http://unctad.org/en/Pages/DIAE/ International%20Investment%20Agreements%20(IIA)/Country-specific-Lists-of-BITs.aspx (last visited June 1, 2012).
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ing in the developing country host. The data was collected from the Statistical Bulletin of China’s Outward Foreign Direct Investment, published by the Chinese Ministry of Commerce and the National Bureau of Statistics.309
309. P.R.C. Ministry of Comm., Nat’l Bureau of Statistics of China & Admin. of Foreign Exch., 2010 Statistical Bulletin of China’s Outward Foreign Direct Investment (2011); P.R.C. Ministry of Comm., Nat’l Bureau of Statistics of China & Admin. of Foreign Exch., 2008 Statistical Bulletin of China’s Outward Foreign Direct Investment (2009).
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