A Chinese Perspective on the Investment Court System in the Context of Negotiating EU-China BIT

• Author: Ning Hongling and Qi Tong
• Pages: 93-127

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2018] THE INVESTMENT COURT SYSTEM 93

A CHINESE PERSPECTIVE

ON THE INVESTMENT COURT SYSTEM

IN THE CONTEXT OF NEGOTIATING EU-CHINA BIT

NING Hongling

QI Tong

Abstract

Due to the EU’s proposal of Investment Court System (ICS), it is necessary for China to

evaluate the ICS and consider its own stance towards Investor-State Dispute Settlement

(ISDS). Under the initiative of One Belt One Road (OBOR), whether and to what extent China

would accept ICS require an in-depth analysis of the coherences and divergences between the

EU and China, as well as the effect of core features of the ICS. It could be concluded that

bilateral ICS is not more effective than traditional ISDS system, whereas in general

Multilateral Investment Court (MIC) is more likely to ensure a fair and efficient adjudication,

with some deficiencies and even severe challenges that need to be addressed. From a Chinese

perspective, it is suggested that (a) MIC should integrate Chinese elements; (b) MIC should

become f riendly to developing countries; (c) MIC should become friendly to investors; (d)

MIC should be replaced by a substantial Multilateral Investment Treaty gradually.

I. INTRODUCTION

Since 1 December 2009 when Lisbon Treaty1 entered into force,

foreign direct investment (hereinafter referred to as “FDI”) has

formed part of the European Union (hereinafter referred to as

“EU”)’s exclusive competence.2 Hence, the EU is in the process of

establishing itself as a new leading participant in concluding bilateral

investment treaties (hereinafter referred to as “BITs”), as well as free

trade agreements (hereinafter referred to as “FTAs”) with investment

chapters with a third state.

In 2013, the EU initiated its BIT negotiation with China, the first

ever investment agreement negotiated by the European Commission

(hereinafter referred to as “EC”) on behalf of its 28 member

countries.3 Because of the size and importance of the EU-China

bilateral investment relationship and the leading roles both parties

have played in the global spread of BITs, the negotiation of EU-

1 Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the

European Community, Dec. 13, 2007, 2007 O.J. (C 306) 1.

2 Treaty on the Functioning of the European Union, Mar. 25, 1957, art. 207.

3 EU investment negotiations with China and ASEAN, EUR. COMM’N. (Oct. 18, 2013),

http://trade.ec.europa.eu/doclib/press/index.cfm?id=975.

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94 TSINGHUA CHINA LAW REVIEW [Vol. 11:91

China BIT will be a watershed event in global investment treaty

practice, and the prospective EU-China BIT will have significant

influence beyond China and the EU. Currently, the EU and China

have already completed 16 rounds of negotiation, with the most

recent one being held in mid-December 2017 in Brussels. The

negotiation has already stepped into specific text-based phase,

indicating a critical stage of negotiation. Investor-state dispute

settlement (hereinafter referred to as “ISDS”), which has long been

considered a crucial ingredient of effective investment protection,4

may be one of the key factors that would influence the outcome of

negotiation.

Traditional ISDS system, originating from 1960s, is an

international arbitration system where arbitrators appointed by an

investor and the host state on ad hoc basis adjudicate the investment

disputes arising between the two parties. The ISDS system is

expected to provide a neutral forum for settling investor-state

disputes fairly, in substitute for the national court system of the host

state and diplomatic protection of the home state.

However, with the boom of ISDS cases since late 1990s, the

ISDS system has given rise to heated debates and criticisms

worldwide, and has been questioned within the EU. Main concerns

relate to the legitimacy and transparency of the system, the

inconsistent and erroneous arbitral decisions, independence and

impartiality of party-appointed arbitrators, and the cost- and time-

intensity of arbitrations.5 Thus the EU is determined to reform and

reshape the ISDS system. In the draft text of Transatlantic Trade and

Investment Partnership (hereinafter referred to as “TTIP”)’s

investment chapter in 2015, the EU proposed a bilateral Investment

Court System (hereinafter referred to as “ICS”) to the other

contracting party, i.e. the US.6 A tribunal is composed of one or

4 August Reinisch, The Likely Content of Future EU Investment Agreements, (M. Bungenberg, J.

Griebel, S. Hobe & A. Reinisch eds.), INTERNATIONAL INVESTMENT LAW: A HANDBOOK, at 1900

(2015).

5 See UNCTAD, Investor-State Dispute Settlement, UNCTAD S eries on Issues in International

Investment Agreements II, New York and Geneva, 2014.

6 See Commission draft text TTIP – investment, EUR. COMM’N (Sept. 2015), http://trade.ec.europa.e

u/doclib/docs/2015/september/tradoc_153807.pdf; EU’s proposal for Investment Protection and

Resolution of Investment Disputes(TTIP) (the EU’s proposal), EUR. UNION (Nov. 12, 2015),

http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf.

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2018] THE INVESTMENT COURT SYSTEM 95

three judges selected on a rotation basis by the President, rather than

the disputing party, from judges pre-appointed by the two treaty

parties for a fixed term. The award issued by the tribunal may be

subject to review in an appellate tribunal, the composition of which

is similar to that of the first instance tribunal. In fact, bilateral ICS is

only a transition. What the EU really intended is launching a

Multilateral Investment Court (hereinafter referred to as “MIC”)

system, which resembles the World Trade Organization (hereinafter

referred to as “WTO”) Appellate Body. Details of MIC are still open

for discussion, but the MIC is expected to be a permanent body with

key features of domestic and international courts.7

The EU’s proposal of ICS has drawn a lot of attention from

academics worldwide. Most of them assess the pros and cons of the

bilateral ICS, 8 discuss the suitability of a WTO-style dispute

settlement mechanism in investment regime9 or challenges that the

ICS would face,10 or focus on specific issues of ICS such as the

enforceability of awards rendered by the court.11 Some of them

explore the compatibility of ICS with the EU judicial system.12

These legal researches are beneficial to help analyze the potential

effects of the envisaged ICS or MIC in general. However, each

country’s policy priorities may be different due to various

circumstances. Hence, the first and essential step to evaluate

7 See The Multilateral Investment Court project, http://trad e.ec.europa.eu/doclib/press/index.cf

m?id=1608 (last visited Oct. 10, 2018).

8 Belen Olmos Giupponi, Recent Developments in the EU Investment Policy: Towards an

Investment World Court? 26 J. OF ARB. STUD. 175, 175 -230 (2016); Robert W. Schwieder, TTIP and

the Investment Court System: A New (and Improved?) Paradigm for Investor-State Adjudication, 55

COLUM. J. OF TRANSNAT’L L. 178, 178-227 (2016).

9 Stephen S. Kho, Alan Yanovich, Brendan R. Casey and Johann Strauss, The EU TTIP Investment

Court Proposal and the WTO Dispute Settlement System: Comparing Apples and Oranges? 32(2)

ICSID REV. 326, 326–345 (2017); Filippo Fontanelli et al., Lights and shadows of the WTO-Inspired

International Court System of Investor-State Dispute Settlement, (Loukas Mistelis and Nikos Lavranos

eds.), 1 EUR. INV. L. AND ARB. REV. 191, 191-263 (2016).

10 Eduardo Zuleta, The Challenge of Creating a Standing International Investment Court, (Jean E.

Kalicki & Anna Joubin-Bret eds.), RESHAPING THE INVESTOR-STATE DISPUTE SETTLEMENT SYSTEM:

JOURNEYS FOR THE 21ST CENTURY 403, 403-23 (2015).

11 August Reinisch, Will the EU’s Proposal Concerning an Investment Court System for CETA and

TTIP Lead to Enforceable Awards? —The Limits of Modifying the ICSID Convention and the Nature of

Investment Arbitration, 19 J. OF INT’L ECON. L. 761, 761–786 (2016); Rob Howse, Designing a

Multilateral Investment Court: Issues and Options, 36 Y. B. OF EUR. L. 209, 209–236 (2017).

12 Dr. Laurens Ankersmit, The Compatibility of Investment Arbitration in EU Trade Agreements

with the EU Judicial System, 13 J. FOR EUR. ENVTL & PLANNING L. 46, 46-63 (2016).