A lucrative business or a golden cage? China establishes an international commercial court
Marcin Menkes - 26-09-2018
A few weeks ago, the Chinese Supreme Court announced the establishment of an International Committee of Trade Experts at the newly created Court for International Commercial Disputes. This is another step to win entrepreneurs' trust in the Belt and Road Initiative (BRI) and the dispute resolution system. From the perspective of business planning in China, this creates a significant dilemma whether to lose cooperation opportunities or risk engagement under such conditions.
The Court for International Commercial Disputes is supposed to be the element that completes the Chinese offer to investors, which is now composed of the Belt and Road Initiative and the Asian Bank for Reconstruction and Development. Despite its “international” denomination, the body – established by the Chinese Supreme Court – will be a domestic court. There is still a large number of unclear elements regarding the organisation of this court. It is therefore difficult to determine how much the Chinese court offer, especially for major projects, may entail high legal risk.
The Belt and Road Initiative was presented in 2013 by the Secretary General of the CPC Xi Jinping. The initiative, sometimes referred to as the Chinese “Marshall Plan”, is a constantly evolving investment project that aims to connect China with the markets of Africa and Europe. It consists mainly of gigantic infrastructure projects along the “belt”, i.e. overland road and railroad corridors constituting the “the 21st-century Silk Road”, and the “road”, i.e. sea route corridors around the Indian Peninsula and further through the Persian Gulf.
At the same time, the initiative is a strong move in China's struggle for dominance over the global economy, that is also intended to be a strong developmental impulse for the economy (a new source of economic growth), and a marketing coat for China's giant foreign investment – “buying out” overseas economies.
Since its announcement, the concept of the Initiative has been constantly growing. Currently, the term is used by the Chinese to refer to almost every foreign investment, without a clear geographical or subject criterion. Ultimately, BRI is to cover 65 other countries that jointly produce over 30% of global GDP, associating 62% of the world's population and disposing of 75% of known energy reserves.
The estimates of the project costs are so divergent that it is difficult to find a credible source. At the same time, the mentioned amounts – over USD 200-250 billion already invested and USD 1-5 billion of the total BRI value – give an idea of the project's scale.
The geopolitical situation also fosters the initiative. In other countries that constitute the pillars of the post-war international order, the isolationist policy gains in popularity. This particularly concerns the presidency of Donald Trump, who buried the Transatlantic Trade and Investment Partnership (TTIP) between the US, Canada and the EU, withdrew the US from participation in the Trans-Pacific Partnership (TPP), undermined the North American Free Trade Agreement (NAFTA) or paralyzed the appeal procedure in the World Trade Organization (WTO).
It has twofold consequences for China. On the one hand, the conflicted allies have a weaker position in bilateral negotiations with such a big economy. On the other hand, China, which was previously accused of undermining the WTO or monetary order (IMF), suddenly appears to be the bedrock of stability. Entrepreneurs are left with an alternative in the form of the Belt and Road Initiative (rather than TPP) or financing within the framework of the Asian Infrastructure Investment Bank (alternative to the World Bank).
Given the scale of the investment, and the volume of trade – it is not difficult to note that the Belt will shorten the time needed for maritime transit of Chinese goods, which gives an idea of the possible impact on the global economy – economic disputes will be unavoidable.
The court, or the missing link of the “silk road”?
The Court for International Commercial Disputes emerges as a somewhat natural solution. So far, two branches of the court have been established, one in Shenzhen (in the southern province of Guangdong for disputes arising over the Maritime Road) and another in Xi'an (in the Central-Eastern province of Shaanxi for disputes arising over the land Belt). The third branch in Beijing is designed to coordinate the court's work. The aura of internationality and professionalism is strengthened by the recently established International Committee of Trade Experts. Its members include recognized academicians and practitioners from around the world, although for now we only know a handful of names. The offer seems to be impeccable. The problem is that key information is still missing.
The name itself can be misleading. China uses the term “international commercial court”. The fact that Chinese statments suggest that the competences of this court will include more than just trade and will potentially tackle inter-state disputes (not only private ones) or the protection of direct investments may be of less significance. The lack of suggested international character may raise greater concerns.
The court – established by the Chinese Supreme Court – will be a national court. The relationship between the two courts is uncertain. Although the name of the new body refers to the Singapore International Commercial Court (SICC), it seems unlikely that China would allow foreign judges to sit in it, or even to remove barriers for foreign counsels. It should be noted that, apart from the economic purpose of establishing a court in official documents, there is also political goal. The court is supposed to support the implementation of “governmental strategies”. For foreign entrepreneurs who plan to engage in large projects, this must sound ominous.
What is the scope of disputes?
The international nature of the court raises another question about the scope of disputes that such a court will settle. Only those arising in China? All disputes related to the Belt and Road Initiative? The national nature of the court implies that the parties concerned would have to express their consent to its jurisdiction over foreign disputes. Another question is about the applicable law, which will be the Chinese law.
Finally, China does not make any reference to actions that aim to ensure the execution of such sentences in none of the publicly available documents. While the situation in China seems relatively simple, it is not that obvious in relation to the other countries of the Belt and Road Initiative, or the entrepreneurs' countries of origin. Polish entrepreneurs will be confronted with a rather special situation. Poland and China are parties to the Agreement on Legal Assistance in Civil and Criminal Cases of 1987 (Journal of Laws of 1988 No. 9, item 65). As a result, judgments of domestic courts should, in principle, be recognized in the other country, which will not be the case for the majority of foreigner businesses.
If not the Chinese court for international commercial disputes, then what? The rudimentary information published by the Chinese Supreme Court and rumours about the shape of the economic court have been present for a long time. The first substantive information became publicly available over three months ago. We still do not know the answer to a number of key questions. For now, it is difficult to predict if the use of the Chinese court offer, especially for major projects, will entail high legal risk.
Hong Kong is still safer
This should not constitute an obstacle from taking advantage of the opportunities that the Initiative creates for entrepreneurs. A conscious business decision must, however, take into account clear contractual provisions, in particular those related to the choice of applicable law, court (from a country-party to a mutual legal assistance treaty) or arbitral tribunal (under the jurisdiction of a state- party to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards). Finally, an interesting alternative to legal risk reduction may be the choice of Hong Kong jurisdiction for the settlement of contracagreement disputes. It must be noted that this Special Administrative Region has retained the autonomy of the legal system, largely originating from the English common law.
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