Trade
Building China’s Belt and Road Initiative BIT by BIT
Authors: Zachary Haver, Washington DC and Wendy Leutert, Indiana University
China is actively promoting international investment, trade and infrastructure connectivity through Chinese leader Xi Jinping’s hallmark Belt and Road Initiative (BRI). Once wary of international investment law as a threat to domestic sovereignty, Beijing is embracing bilateral investment treaties (BITs) to protect investments associated with the BRI.
As of October 2020, 138 countries have signed agreements to participate in the BRI. These bilateral accords may identify specific areas of cooperation or simply express a shared intent to collaborate. According to the World Bank, the 71 economies along key BRI transport corridors, including China, account for 35 per cent of global foreign direct investment, 40 per cent of global merchandise exports and 60 per cent of the world’s population.
BITs provide the primary legal framework governing Chinese investments under the BRI. In these treaties, two states agree to grant certain protections to the investments of individuals and corporations of the other. One of the most important is investors’ access to international arbitration in the event of disputes with host states, such as disputes over the expropriation of a foreign investor’s assets. In the absence of a comprehensive multilateral regime, BITs are the most important source of law governing international investments and investor-state disputes,.
China has signed a total of 145 BITs with 130 countries as of October 2020, second only to Germany. In total, 100 countries have signed both a BIT and a BRI cooperation document with Beijing. These 100 countries constitute 77 per cent of total BIT treaty signatories and 72 per cent of all BRI countries. BITs therefore define the legal playing field for potential investor–state disputes in nearly three-quarters of the countries participating in the BRI.
Recent support from Chinese government bodies suggests that BITs will remain the most important legal instrument protecting overseas investments in the context of the BRI. For example, in 2015, the Supreme People’s Court issued guidance in which it endorsed international arbitration for the resolution of BRI-related disputes.
BITs protect Chinese firms that operate, own and invest in the infrastructure projects that constitute most BRI commercial activity. Through build-operate-transfer arrangements or concessions, Chinese companies construct and operate infrastructure projects for fixed periods, typically for 20–30 years or longer. One example is China Merchants Port Holdings’ terminal at Sri Lanka’s Port of Colombo. Under a 35-year agreement, China Merchants Port Holdings first built and now operates Colombo International Terminals as a joint venture with the Sri Lanka Port Authority.
BITs also apply to Chinese firms involved in other types of project arrangements. They cover build-own-operate projects, where companies build, own and operate infrastructure for an indefinite period. Shenzhen Energy’s Sunon Asogli Power Plant in Ghana is one example. BITs also apply to overseas projects in which a Chinese firm holds an equity share, including the Kribi Deep-Sea Port that China Harbour Engineering Company is developing in Cameroon.
BITs do not cover infrastructure projects that Chinese firms simply build as contractors. For these works, Chinese companies are typically only responsible for engineering, procurement and construction. But project types in which Chinese firms act as owners, operators and investors are increasingly common. This makes investor protections more important than ever for Chinese companies.
Specific BIT provisions — or lack thereof — also benefit Chinese companies at the expense of host states. For instance, the majority of China’s BITs lack security exceptions, which can waive a state’s duty to comply with part or all of its treaty obligations when its essential national security interests are at risk. Security exceptions allow states to balance their security and economic interests within the BIT legal framework. Without security exceptions, China’s treaty partners could struggle to legally justify actions taken against Chinese firms on the basis of national security.
Although China is embracing BITs to protect its BRI investments, important concerns remain. The definition of ‘investor’ in many BITs does not distinguish between state-owned and private entities, and the issue remains ambiguous due to a lack of related international arbitration. Two 2017 decisions involving Chinese…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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