Analyses

Why is stronger foreign investment protection needed in relations with China?

One of the key elements of the protection of foreign investment (and thus the foreign investor) is the mechanism for resolving disputes between the state and the foreign investor. The mechanism itself may take different forms...

Instytut Boyma 06.07.2021

One of the key elements of the protection of foreign investment (and thus the foreign investor) is the mechanism for resolving disputes between the state and the foreign investor. The mechanism itself may take different forms – the most common is ISDS (investor-state dispute settlement), which is an arbitration, but there is also a modified version, ICS (investment court system), used by the EU within the framework of e.g. CETA (Comprehensive Economic and Trade Agreement) between the EU and Canada, which is similar in shape to an international court. In the case of China, we should speak of ISDS. 

The idea of a dispute settlement mechanism between a state and a foreign investor is, on the one hand, not to involve states in the protection of their investor who has entered into a dispute with another state (such intervention creates the risk of a deterioration in international relations), and on the other hand, to provide the foreign investor with protection independent of the judicial system of the state in which he invests (i.e. transferring it from the national to the international level) and legal standards that he might not have in a given domestic law.

ISDS is included in international agreements that define the elements of foreign investor protection. These may be BITs (bilateral investment treaties), bilateral agreements on the promotion and mutual protection of investments, as well as other agreements, including multilateral, to some extent having as their object foreign investments. The standards of investor protection, which are relevant in the process, are in turn determined by a number of different sources of international investment law, including not only treaties, but also international custom or general principles of law (Jeżewski, 2011: 96-107). 

The People’s Republic of China, like most other countries, is present in a complex structure of foreign investor protection. In the case of China, according to UNCTAD, there are 145 signed BITs and 24 agreements with investment provisions (not all of which have entered into force). In addition, China is a member of international organisations that influence investor protection standards (e.g. WTO), or its legal system addresses the position of a foreign investor, e.g. the Law on Foreign Investment of the People’s Republic of China. Why, then, should we speak of the need for stronger protection of foreign investors in the case of the Middle Kingdom?

Firstly, the influence of politics on the judicial system in China can be described as both indirect and direct. The indirect one manifests itself, for example, in statements by representatives of the administration, such as that of the President of the Supreme People’s Court of China, Zhou Qiang, in which he criticised the independence of the courts (Hornby, 2017). The direct stems from the dominant role of the Chinese Communist Party in the lives of citizens and its intertwining with the judicial system. This is succinctly captured in , The Constitutional System of the People’s Republic of China:

“The Constitution includes the principle of independent adjudication by the courts, but at the same time introduces supervision of the jurisprudence of all courts by the Supreme People’s Court and by higher courts in relation to lower courts (Articles 123-127 of the Constitution). The Supreme People’s Court is accountable to the Supreme People’s Court and its Standing Committee, and the other courts are accountable to the bodies that appoint their judges (Article 128), i.e. to the assemblies of people’s representatives of the respective court level. It is therefore impossible to speak of the independence of the Chinese judiciary”(Rowiński and Jakóbiec, 2006: 68). 

Impact of politics on the judicial system and the lack of independence of the judiciary is a manifestation of the institutional weakness of the state, characteristic of some developing countries. BITs and ISDS mostly occur in relations between developing and developed states (Jeżewski, 2011: 98). China escapes a simple division into developed and developing states, however, its judicial system is characterised by the strong influence of the ruling party. The inverse relationship, captured by the 2020 “World Justice Project Rule of Law Index®” and defined by “Government powers are effectively limited by the judiciary” was only 0.30, giving China a position of 122 out of 128 globally and 14 out of 15 regionally.

Given that a potential dispute may arise between an element external to China, i.e. the foreign investor, and the State, i.e. an internal element influencing the judicial system in the State, elevating the protection of the foreign investor to an international level plays an important role in protecting its rights.

Secondly, the level of ISDS protection between China and individual countries varies greatly. For example, BITs between China and EU members can be divided into two generations – the first, older, granting a lower level of protection to the foreign investor and the second, newer, granting a higher level of protection (Grieger, 2020: 3-4). For example, the BIT between Poland and China should be classified as first generation. The Agreement between the Government of the People’s Republic of Poland and the Government of the People’s Republic of China on Mutual Promotion and Protection of Investments, done in Beijing on 7 June 1988, is a BIT of the older category, containing a low level of protection.

Article 10(1) of the Poland-China BIT not only narrows the dispute between the foreign investor and the state to the mere amount of compensation, but also introduces an onerous procedure – the investor files a complaint with the competent authority of the host state, and the latter has one year to consider the case and only after this period can the investor turn to the national court of the host state or an international arbitration tribunal to review the compensation. In an EU context, it is therefore important to harmonise the protection of the European foreign investor in China. The absence of such harmonisation directly in the pending EU-China Comprehensive Agreement on Investment (CAI for short) is a mistake. Moreover, it may be pointed out on the example of the Poland-China BIT that it contains in Article 3(2) in connection with Article 3(1) the most-favoured-nation clause – the solution that a party to the agreement grants to the other party to the agreement treatment no less favourable than that granted in a given area to other parties. Despite the existence of this clause, there are, in my opinion, serious doubts that, on its basis, it is possible to grant a Polish investor the right to assert his rights in arbitration more broadly than just with regard to a review of compensation. Hence, in my opinion, it is necessary to modernise the protection of a European investor, especially one who finds himself in a similar situation to that of a Polish investor. 

There are at least two reasons for stronger (i.e. precise, swift, real and “internationalised”) foreign investor protection in relations with China – the lack of independence of the Chinese judiciary and, for EU members, the need to modernise and standardise protection.

Przypisy:

Bibliografia

Publications

Jeżewski, M (2011). Międzynarodowe Prawo Inwestycyjne, Warszawa, Wydawnictwo C.H.Beck. s. 96-107, s. 98

Rowiński, J; Jakóbiec, W (2006). System Konstytucyjny Chińskiej Republiki Ludowej, Warszawa, Wydawnictwo Sejmowe, s. 68

Publications and websites of the institutions on the Internet

Hornby, L. China’s top judge denounces judicial independence, Financial Times, 17 stycznia 2017, dostęp 22.02.2021: https://www.ft.com/content/60dddd46-dc74-11e6-9d7c-be108f1c1dce

Grieger, G. EU–China Comprehensive Agreement on Investment. Levelling the playing field with China, European Parliamentary Research Service, wrzesień 2020, dostęp 22.02.2021: https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/652066/EPRS_BRI(2020)652066_EN.pdf

World Justice Project Rule of Law Index® 2020, dostęp 22.02.2021: https://worldjusticeproject.org/sites/default/files/documents/WJP-ROLI-2020-Online_0.pdf oraz https://worldjusticeproject.org/rule-of-law-index/country/2020/China/Constraints%20on%20Government%20Powers/

Investment Policy Hub, UNCTAD, dostęp 22.02.2021: https://investmentpolicy.unctad.org/country-navigator/45/china

czytaj więcej

Charitable activities of the Vietnamese in Poland: their scope and sources

The scale of assistance provided to medics by the Vietnamese community during the 2020 pandemic inspires admiration and gratitude. It stems from the sense of belonging to Poland and deeply rooted in the culture order to help those in need and repay the debt incurred at the time when they themselves needed such help.

Transcultural Winter School 2021 (8th of November — 12th of November)

This year’s research project TSRG 2021 as a collaborative initiative between Leadership Excellence Institute Zeppelin and the Boym Institute continued with a Transcultural Winter School in Zeppelin University, in Friedrichshafen.

Development Strategies for Ulaanbaatar According to the Conception for the City’s 2040 General Development Plan – Part 2

This is the second part of an inquiry into Ulaanbaatar’s winning 2040 General Development Plan Conception (GDPC). In this part of paper, I look into some of the plans and/or solutions proposed in Ulaanbaatar’s 2040 GDPC.

Internet, cryptocurrencies & blockchains in North Korea

North Korea is considered as a secretive state, but, paradoxically, the country is developing last trend technologies. With prohibitions restricting the flow of money, the country is turning to bitcoin and other cryptocurrencies to finance their programs, instead of coming under new pressure.

How China uses its narratives on the Russo-Ukrainian war to court the Global South

Three years after Russia’s full-scale invasion of Ukraine, it is entirely clear that this conflict has irrevocably changed the geopolitical landscape both in Europe and beyond and its repercussions will be felt far beyond the battlefield for years to come.

Online Course: “Conflict Resolution and Democracy”

The course will be taught via interactive workshops, employing the Adam Institute’s signature “Betzavta – the Adam Institute’s Facilitation Method“, taught by its creator, Dr. Uki Maroshek-Klarman. The award-winning “Betzavta” method is rooted in an empirical approach to civic education, interpersonal communication and conflict resolution.

Indonesian Day 2025

80th anniversary of Indonesian Proclamation of Independence and 70th anniversary of Poland-Indonesia diplomatic relations. April 23rd, at 10:00 am, aula im. prof. Waldemara Michowicza, ul. Lindleya 5A, Łódź.

How to deal with gender-based segregation?

Interview on the project Supporting the Economic Empowerment of Afghan Women through Education and Training in Kazakhstan and Uzbekistan. Magdalena Sobańska-Cwalina and Krzysztof M. Zalewski (The Boym Institute) in discussion with: Yakup Beris, Johannes Stenbaek Madsen, Maria Dotsenko, Gulnar Smailova,

Online Course: “Conflict Resolution and Democracy”

The course will be taught via interactive workshops, employing the Adam Institute’s signature “Betzavta – the Adam Institute’s Facilitation Method“, taught by its creator, Dr. Uki Maroshek-Klarman. The award-winning “Betzavta” method is rooted in an empirical approach to civic education, interpersonal communication and conflict resolution.

Patrycja Pendrakowska for Observer Research Foundation: “Guiding democracy through Covid19: Poland shows us what not to do”

We would like to inform, that Observer Research Foundation has published article of Patrycja Pendrakowska - the Boym Institute Analyst and President of the Board.

Coronavirus outbreak in Poland – General information and recommendations for entrepreneurs

Kochański & Partners and the Boym Institute engaged in delivering information about latest after-effects of COVID-19 pandemia, which has begun to spread in Poland during the past days.

Book review: “North Korean Defectors in a New and Competitive Society”

Book review of "North Korean Defectors in a New and Competitive Society", written by Lee Ahlam - assistant professor in the Department of Educational Leadership and Human Resource Development at Xavier University Cincinnati, Ohio.

Interview: Why Does Poland Need ‘17+1’?

Interview with Michał Wójcik - Director of the Department of International Cooperation of the Ministry of Marine Economy and Inland Navigation (DWM MGMiŻŚ). In the Ministry, he is leading the  Coordinating Secretariat for Maritime Issues , monitoring the cooperation of Central and Eastern European States with China.

Patrycja Pendrakowska as a founding member of the WICCI’s India-EU Business Council

By sharing knowledge, business opportunities, and best practices the Council generates awareness of women's contributions in developing the India-EU relations.

Book review: “Europe – North Korea. Between Humanitarianism And Business?”

Book review of "Europe – North Korea. Between Humanitarianism And Business?", written by Myung-Kyu Park, Bernhard Seliger, Sung-Jo Park (Eds.) and published by Lit Verlag in 2010.

Voices from Asia – introduction

We would like to cordially invites all to the new series "Voices from Asia" that is devoted to the Asian perspectives on the conflict in Ukraine. In this series, we publish analysis by experts based in Asia or working on Asian affairs who present their positions on this matter.

Invest and cooperate with Serbia or Poland? A dilemma for South Korean companies

This paper explains why Serbia may replace Poland as a strategic outsourcing centre for South Korean companies in Central and Southern Europe.

Lessons for China and Taiwan from the war in Ukraine

The situation of Taiwan and Ukraine is often compared. The logic is simple: a democracy is threatened by a repressive, authoritarian regime making territorial claims and denying it the right to exist.

Liquidation of the Polish colony in Manchuria (north-eastern China)

Ms. Łucja Drabczak - A Polish woman born in Harbin, she spent her childhood in China. She returned to Poland at the age of 10. She is the author of the book 'China... Memories from my childhood'. She contacted us to convey special family memories related to leaving Manchuria in 1949.

Kyrgyzstan on the Path to Political Stabilisation

On 10 January, early presidential elections were held in Kyrgyzstan, following the resignation of the incumbent, President Zheenbekov. The atmosphere in which the vote was conducted remained tense. This had been the case since the results of the October elections were announced, in which the opposition grouping failed to win a single parliamentary seat.

Peace is a precondition for LiFE. How systemic conflicts endanger developmental goals

The G20 can play a pivotal role in dealing with the mounting global challenges by proposing policy coordination and solutions disincentivising armed conflicts.

Join us for the Adam Institute’s Latest Online Course

Conflict resolution models have been primarily crafted and codified by men. The Adam Institute for Democracy and Peace invites you to be part of that much-needed change through an experiential and innovative Online Course "Conflict Resolution in the Context of Gender".

WICCI’s India-EU Business Council – a new platform for women in business

Interview with Ada Dyndo, President of WICCI's India-EU Business Council and Principal Consultant of European Business and Technology Centre

The North Korean nuclear dismantlement and the management of its nuclear wastes

Evidence suggests that North Korea stores its high-level nuclear waste (HLW) in liquid form in tanks on the same site where it is made, and has not invested in infrastructure to reduce, dentrify, or vitrify this waste. However, this is just the tip of the iceberg, one of many aspects of the North Korean nuclear waste problem.