19 April 2018
CIETAC Investment Arbitration Rules seek to fill a gap in Chinese investment treaty disputes
By Meg Utterback, Daisy Mallett, Holly Blackwell, James McKenzie, Josephine Lao, and Ma Xiao
China has been at the forefront of a number of recent developments in the dispute resolution space. One notable development is the announcement by the China International Economic and Trade Arbitration Commission (CIETAC) of its new rules governing the arbitration of international investment disputes (Rules) and the CIETAC Investment Dispute Resolution Centre in Beijing (CIETAC IDRC), the default centre to administer those Rules. According to CIETAC’s Secretary-General, the Rules seek to “fill the gap” in the area of Chinese international investment arbitration and develop and promote the international investment arbitration practice in China.
The Rules are intended to support Chinese companies “going out” in furtherance of China’s Belt and Road initiative and to support the independent and impartial resolution of international investment disputes between investors and host countries. The Rules are also intended to provide an alternative for Chinese investors who may be concerned about potential bias against them in offshore forums due to a lack of understanding of Chinese law and practice. The Rules retain traditional arbitration characteristics such as flexibility, efficiency, and economy but incorporate elements of both Chinese and international arbitration law and practice.
How the Rules will be adopted in practice, however, remains to be seen. The Rules could be included in investment contracts between Chinese investors and host country governments. They could also be incorporated into China’s investment treaty regime. Currently, China has more than 130 bilateral and multilateral investment treaties in place, including 56 bilateral investment treaties with countries on the Belt and Road. Many of these treaties were negotiated at a time when China’s role was largely that of host country to foreign investment and provide limited options for investor recourse to arbitration. In many treaties, only claims for compensation for expropriation can be referred to arbitration, and the majority of China’s earlier investment treaties only provide for ad hoc arbitration. Applicable procedural rules vary by treaty and many treaties allow the tribunal the discretion to determine its own procedural rules.
The Rules will be a unique addition to China’s choice of potential procedural rules, should it decide to pursue more expansive protections in either negotiating new investment treaties, or renegotiating old ones. In the nearer term, the Rules are an option (subject to party consent and/or tribunal discretion) in ad hoc arbitrations if disputes arise under China’s existing treaties. The Rules may also provide an alternative for non-Chinese investors and host countries attracted to international arbitration with Chinese or civil law characteristics.
The Rules became effective on Chinese National Day, 1 October 2017. The Rules are designated as subject to “trial implementation”. According to Chinese practice, this means that the Rules are effective but may yet be revised.
To date, there have been few China-related investor-state arbitrations, as historically these types of disputes have been resolved diplomatically or by settlement between the parties. This is likely to change, with growing outbound Chinese investment and increased Chinese investor awareness of investment treaty rights. Like other recent developments in arbitration in China, the intent behind the Rules is to provide dispute resolution options that may be more even-handed toward Chinese parties.
The Rules presage China taking its own, distinct role in the resolution of international investment disputes, particularly those involving Chinese investors; a role that has historically been assumed by foreign arbitration institutions and ad hoc tribunals. However, it remains to be seen what gap exactly the Rules will fill. Matters arising on Belt and Road projects may provide opportunities to observe how the Rules might play a role in China-related investor-state arbitrations. In the meanwhile, the Rules are a welcome addition to Chinese international arbitration practice.
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