Investor-State Arbitration in China’s Bilateral Investment Treaties

May  2014   Paper  3   Crossing  the  Ocean  By  Feeling  For  the  BITs:   Investor-­‐State  Arbitration  in  China’s  Bilateral   Investment  Treaties   Abstract   Although  China  began  to  sign  bilateral  investment  treaties  (BITs)  in  the   1970s,  it  refused  to  grant  foreign  investors  the  right  to  sue  their  host  government  in   international  arbitration  tribunals.  Few  realize  that  China’s  treaty  negotiators  have   in  fact  abandoned  this  restriction  in  almost  every  Chinese  BIT  signed  since  1998,   including  those  with  Latin  America.    Scholars  have  suggested  that  China  reversed  its   policy  in  order  to  support  Chinese  overseas  investors  or  to  fit  its  general  economic   liberalization  strategy.    However,  China’s  BITs  with  Mexico,  Peru,  and  Colombia  as   well  as  its  arbitration  case  with  Peru  contradict  these  theories.    I  argue  that  China   began  signing  open  BITs  to  test  the  risks  of  granting  open  access  to  European   countries  and  the  United  States,  for  whom  open  access  is  a  key  condition.  China   experimented  gradually  with  open  arbitration,  just  as  it  has  experimented  gradually   with  many  economic  changes  since  Reform  and  Opening  began  in  1978.  This  theory   has  interesting  implications  for  China’s  future  BITs—as  international  arbitration   tribunals  threaten  to  make  this  experiment  permanent,  China  has  added  new   restrictions  that  bring  China’s  BITs  closer  to  the  US  model  and  make  a  US-­‐China  BIT   more  likely.  However,  the  US  avoids  BITs  with  capital-­‐exporting  countries,  and   China  is  now  a  large  capital-­‐exporter.  The  main  obstacle  to  US-­‐China  BIT   negotiations  may  no  longer  be  the  two  nations’  differences,  but  rather  their   similarities.     1   Introduction   Although  the  People’s  Republic  of  China  began  signing  bilateral  investment   treaties  (BITs)  in  the  1970s,  China’s  negotiators  removed  the  teeth  from  the  early   BITs.  They  prevented  enforcement  by  blocking  foreign  investors  from  suing  the  host   government  in  international  courts.  Since  1998,  interestingly,  almost  all  Chinese   BITs  began  to  reject  these  restrictions  and  to  allow  foreign  investors  to  bring   governments  before  international  arbitration  tribunals.    Some  scholars  have  argued   that  China  reversed  its  policy  in  order  to  support  Chinese  overseas  investors.     Others  suggest  that  China  gave  in  to  pressure  from  developed  countries  or  the  WTO,   or  that  the  move  fit  China’s  general  economic  liberalization  strategy.    I  argue  against   these  theories,  drawing  upon  evidence  from  China’s  most  recent  BITs  and   arbitration  cases.    I  suggest  instead  that  the  Chinese  government  chose  to  allow   arbitration  in  BITs  with  small  developing  countries  starting  in  1998  as  an   experiment.  Since  European  and  American  governments  demanded  open  arbitration   as  a  prerequisite  for  signing  new  BITs  with  China,  China  began  signing  open  BITs   with  smaller  countries  to  test  the  risks  it  would  face  if  it  opened  up  to  its  largest   investors.       I  conclude  by  considering  the  implications  of  China’s  recent  treaty  behavior   on  its  future  BITs.  As  international  arbitration  tribunals  threaten  China’s  open   access  experiment,  it  has  struggled  to  maintain  what  I  call  “bilateral  sovereignty,”  or   the  right  to  control  its  treaties  bilaterally  without  interference  from  third-­‐party   tribunals.  China  has  added  new  provisions  to  its  latest  treaties  to  restrict   2   international  arbitrators’  room  for  interpretation.  China  has  adopted  restrictions   similar  to  those  in  American  BITs,  improving  its  prospects  of  concluding  a  BIT  with   the  US.    However,  the  US  avoids  BITs  with  capital-­‐exporting  countries  to  protect  the   sovereignty  of  its  courts,  and  China  now  exports  massive  amounts  of  capital.    The   main  obstacle  to  US-­‐China  BIT  negotiations  may  no  longer  be  the  two  nations’   differences,  but  rather  their  similarities.     China’s  Turning  Point  in  Offering  Investor  Access  to  Arbitration   Before  1998,  the  Chinese  government  shielded  itself  from  international   liability  by  restricting  private  foreign  investors’  access  to  arbitration  in  every  BIT’s   investor-­‐state  dispute  resolution  clause.    Investors  could  only  bring  governments  to   arbitration  under  these  clauses  if  their  dispute  “involv[ed]  the  amount  of   compensation  for  expropriation.”1  Like  Soviet  BITs,  Chinese  BITs  restricted   arbitration  to  maximize  its  control  over  and  minimize  its  liability  for  all  private   assets  invested  in  China.2   The  Chinese  government  thus  escaped  accountability  for  its  treaty  violations.   Investors  relying  on  these  old  BITs  could  only  sue  for  a  breach  of  the  treaty  in   Chinese  courts.    International  tribunals  worry  that  local  court  action  allows  “self-­‐ determination”  by  the  state,  meaning  that  Chinese  judges  cannot  be  expected  to  rule   1 2  The  wording  in  these  clauses  varies  slightly.  For  a  detailed  discussion  of  differences  in  the  wording  of    See  for  example  USSR  and  Czechoslovakia  BITs.     3   against  the  Chinese  state.3    Indeed,  international  law  scholar  Wenhua  Shan  reported   in  2005  that  Chinese  local  courts  still  suffer  from  bribery,  political  interference,  and   a  general  lack  of  objectivity,  although  the  government  has  recently  mandated  that   any  foreign  lawsuit  rejected  in  the  lower  courts  must  be  automatically  reviewed  by   the  higher  courts.4       Beginning  in  1998,  Chinese  negotiators  deliberately  permitted  investors  to   bring  governments  to  international  arbitration  for  any  violation  of  their  country’s   BIT.5    The  China-­‐Barbados  BIT  set  the  new  standard  for  open  access  to  arbitration:   “If  any  dispute…  cannot  be  settled  within  six  months…  the  Investor  shall  have  the   right  to  choose  to  submit  the  dispute  for  resolution  by  international  arbitration.”6   China  transplanted  the  wording  to  BITs  with  Bahrain,  the  Democratic  Republic  of   the  Congo  (DRC),  Botswana,  Iran,  Brunei,  and  eleven  other  countries  by  the  end  of   2002.7       The  Chinese  government  has  weathered  this  policy  change  without  a  flood  of   lawsuits  from  foreign  investors.  International  relations  scholar  Cui  Yankun  claims   that  the  probability  of  expropriation  in  China  today  is  “next  to  nothing.”8  Meanwhile,   3  Renta  4  SVSA  v.  The  Russian  Federation,  Arbitration  Institute  of  the  Stockholm  Chamber  of  Commerce   Award  on  Preliminary  Objections  024/2007,  20  March  2009,  quoted  in  Luke  Eric  Peterson,  “2.  Holdings  in   Spanish  Shareholders’  Yukos  Claim  Come  to  Light,”  International  Arbitration  Reporter  Vol.  2  No.  6  (17  April   2009),  6.   4  Wenhua  Shan,  The  Legal  Framework  of  EU-­‐China  Investment  Relations  (Oxford:  Hart  Publishing,  2005),   256-­‐258.   5  Exceptions  include  the  China-­‐Ethiopia  (1998),  China-­‐Bahrain  (1999),  and  China-­‐Qatar  (1999)  BITs.     Gallagher  and  Shan,  41,  320.   6  China-­‐Barbados  (1998)  BIT,  Article  9(2).   7  Gallagher  and  Shan,  42.   8  Cui  Yangkun,  “New  Developments  in  China’s  Bilateral  Investment  Treaties  (Zhongguo  dijie  shuangbian   touzi  tiaoyue  de  xin  fazhan),”  Law  and  Society  (Fazhi  yu  shehui)  March  2007,  706.   4   many  Chinese  companies  can  compete  with  foreign  businesses,  so  loosening   controls  on  the  economy  may  actually  help  Chinese  companies  grow  and  increase   their  efficiency.  Indeed,  ten  years  after  the  Barbados  BIT  went  into  effect,  no  foreign   investor  has  ever  tried  to  bring  the  Chinese  government  before  international   arbitration.9  Some  scholars  have  warned  that  this  investor-­‐state  relationship  is  only   a  “honeymoon,”  but  the  government  has  not  given  investors  many  excuses  to  spoil   the  occasion.   The  Going  Abroad  Explanation   Most  observers  have  concluded  that  the  government  began  promoting  open   international  arbitration  as  part  of  its  “Go  Abroad”  strategy  to  encourage  private   and  state-­‐owned  Chinese  companies  to  invest  overseas.  In  1998,  President  Jiang   Zemin  urged  government  officials  to  “study  how  to  speed  up  measures  to  develop   the  ‘Going  Abroad’  strategy.    Regions  like  Africa,  the  Middle  East,  Central  Asia,  and   South  America  with  large  developing  countries  [have]  very  big  markets  and   abundant  resources;  we  should  take  advantage  of  the  opportunity  to  get  in.”10  Axel   Berger  points  out  in  support  of  this  thesis  that  in  the  1990s,  China’s  outward   investment  increased  and  it  shifted  toward  signing  BITs  with  developing   9  Some  scholars  speculate  that  the  government  could  have  kept  a  BIT  dispute  private.  Nonetheless,   international  law  scholar  Tao  Jingzhou  reports  confidently  that  the  Investment  Law  division  of  the   Ministry  of  Commerce  assured  him  that  China  “has  never  been  involved  in  arbitration  arising  from  a  BIT.”     nd Tao  Jingzhou,  Arbitration  Law  and  Practice  in  China,  2  Edition  (Frederick,  MD:  Wolters  Kluwer,  2008),  17.   10  Chen  Yangyong.  “The  Shape  and  Significance  of  Jiang  Zemin’s  ‘Going  Abroad’  Policy  (Jiang  Zemin  zou   chu  qu  zhanlüe  de  xingcheng  jiqi  zhongyao  yiyi)”  Literature  of  the  Chinese  Communist  Party  (Dang  de   wenxian)  No.  1  (2009),  http://politics.csscipaper.com/cpc/document/7350.html  (6  Dec  2010).   5   countries.11  Scholars  both  inside  and  outside  China  have  credited  open  arbitration   access  to  the  “Going  Abroad”  strategy.12  Gallagher  and  Shan’s  landmark  2010  study   of  Chinese  investment  treaties  does  not  advance  this  argument,  but  it  does  admit   that  “these  changes  are  in  line  with  China’s…  increased  amount  of  outward  direct   investment.”13   However,  international  law  scholars  all  over  China  have  criticized  the  idea  that   the  “Going  Abroad”  strategy  justifies  granting  investors  the  right  to  sue   governments.  In  addition  to  benefiting  Chinese  investors,  they  warn,  two-­‐way  BITs   give  foreign  investors  the  chance  to  win  enormous  arbitration  awards  from  the   Chinese  government.  Chinese  academics  have  criticized  not  only  the  treaties  but   also  the  government  for  “lacking  a  clear  understanding  and  high  level  of   11  Axel  Berger,  “China  and  the  Global  Governance  of  Foreign  Direct  Investment:  The  Emerging  Liberal   Bilateral  Investment  Treaty  Approach,”  German  Development  Institute  Discussion  Paper  (Oct  2008),  24.   12  Chinese  sources  include  Fang  Xun,  “Research  and  Commentary  on  Chinese  BITs  under  ICSID  Jurisdiction   since  1990  (90  niandai  yilai  zhongguo  zai  BITs  zhong  jieshou  ICSID  guanxia  de  yanjiu  ji  pingxi),”  Law  and   Society  (Fazhi  yu  Shehui)  Sept  2010;     Chen  An,  “Distinguishing  Two  Types  of  Countries,”  Journal  of  World  Investment  and  Trade  Vol  8  No  6  (Dec   2007):  775;     Zhan  Weiling,  “Analysis  of  International  Investment  Arbitration  from  China’s  Perspective  (Yi  zhongguo   shijiao  fenxi  guoji  touzi  zhongcai)”  People’s  University  Law  School  International  Law  Discussion  30  May   2010,  http://www.rucil.com.cn/article/default.asp?id=1031  (6  Dec  2010).   Foreign  sources  include  the  Economist  Intelligence  Unit,  “Evaluating  a  Potential  US-­‐China  Bilateral   Investment  Treaty,”  report  prepared  for  the  US-­‐China  Economic  and  Security  Review  Commission,  (30   March  2010),  http://www.uscc.gov/researchpapers/2010/EIU_Report_on_US-­‐China_BIT-­‐-­‐ FINAL_14_April_2010.pdf  (6  Dec  2010);     Elodie  Dulac  and  John  Savage,  “The  Asia  Pacific  Arbitration  Review  2007:  China  BITs,”  Global  Arbitration   Review,  http://www.globalarbitrationreview.com/reviews/2/sections/4/chapters/19/china-­‐bits/  (6  Dec   2010).   Michael  Snarr  argues  that  the  open  BITs  encourage  Chinese  investors  to  invest  in  Europe.    Michael  S.   Snarr,  “Making  Progress  BIT  by  BIT  on  a  US-­‐China  Bilateral  Investment  Treaty,”  China-­‐US  Trade  Law  Blog   (2  February  2010),  http://www.chinaustradelawblog.com/2010/02/articles/investment/making-­‐progress-­‐ bit-­‐by-­‐bit-­‐on-­‐a-­‐uschina-­‐bilateral-­‐investment-­‐treaty-­‐caaeaeeaecaaeaaeae/  (6  Dec  2010).     13  Gallagher  and  Shan,  378.   6   awareness.”14  Chen  An,  China’s  own  nominee  for  arbitrator  at  the  International   Centre  for  Settlement  of  Investment  Disputes  (ICSID),  has  been  one  of  the  most   critical  voices.15     Chen  An  and  others  argue  that  despite  its  “Going  Abroad”  strategy,  China  does   not  benefit  from  strengthening  investors  with  arbitration  access.    First,  Chinese   investors  may  be  going  abroad  in  record  numbers,  but  foreign  investment  into   China  still  dwarfs  Chinese  investment  abroad  by  at  least  four  to  one.16  The  United   States  invests  more  than  50  times  as  much  in  China  as  China  invests  in  the  US;  for   Japan  this  figure  is  over  100  times.17  Though  Axel  Berger  supports  the  “Going   Abroad”  theory,  he  acknowledges  that  when  Chinese  negotiators  opened  access  to   arbitration  in  1999,  total  inward  FDI  was  over  66  times  higher  than  outward  FDI.18   It  is  worth  noting  that  while  inward  FDI  is  still  larger,  its  dominance  has   shrunk  considerably.  Data  from  China’s  Ministry  of  Commerce  2009  show  that  the   ratio  of  inward  FDI  to  outward  investment  had  dwindled  to  less  than  two  to  one,   $90  billion  to  $56.5  billion  by  2009.19  Chen  An  argued  that  China  should  not   14  Fang  Xun,  90.    Chen  An,  “Should  the  four  great  safeguards  in  Sino-­‐Foreign  BITs  be  hastily  dismantled?”  Journal  of   World  Investment  and  Trade,  Vol  7  No  6  (Dec  2006):  899-­‐933;  Chen  An,  “Distinguishing  Two  Types”   16  Fang  Xun,  90   17  Fang  Xun,  90.   18  Berger,  15.   19  Inward  FDI:  Ministry  of  Commerce  News  Office  (Shangwubu  xinwen  bangongshi),  “The  2009  Situation  of   Foreign  Direct  Investment  in  China  (2009  nian  1-­‐12  yue  quanguo  xishou  waishang  zhijie  touzi  qingkuang),”   Ministry  of  Commerce  of  the  People’s  Republic  of  China  Website  (Zhonghua  renmin  gongheguo   shangwubu),  15  Jan  2010,   http://www.mofcom.gov.cn/aarticle/tongjiziliao/v/201002/20100206785656.html    (6  Dec  2010).   Outward  investment:  Ministry  of  Commerce,  “2009  Statistical  Bulletin  of  China’s  Outward  Foreign  Direct   Investment  (2009  nian  zhongguo  duiwai  zhijie  touzi  tongji  gongbao),”  Department  of  Outward  Investment   15 7   strengthen  investors  until  outward  investment  equals  inward  investment,  but  that   day  is  fast  approaching.20  For  example,  in  2009  Americans  invested  $3.6  billion  in   China  and  received  $908  million  in  return,  a  ratio  slightly  less  than  four  to  one.21   Japan  invested  $4.1  and  China  returned  only  $84  million,  around  fifty  to  one.22  China   is  slowly  balancing  its  investments  to  and  from  developed  countries.   The  Chinese  government  would  not  have  opened  arbitration  access  to   encourage  investors  to  go  abroad  because  few  investors  cared  about  the  treaties.   Chinese  companies  respond  to  measures  that  affect  their  business  directly  and   frequently,  rather  than  measures  that  promise  expensive,  five-­‐year  court  cases  with   uncertain  prospects  for  a  favorable  decision.  According  to  Chen,  Chinese  companies   do  not  pay  attention  to  BITs  when  making  investment  decisions.23    Only  eighteen   percent  of  overseas  investors  knew  whether  they  were  investing  under  BITs  with   open  access  to  arbitration.24  In  fact,  Chinese  investors  moved  abroad  so  rashly  that   the  Ministry  of  Commerce  coined  a  special  slogan:  “Companies  Going  Abroad:   Bravery  Also  Needs  Caution.”25     and  Economic  Cooperation  Website  (Duiwai  zhijie  touzi  he  jingji  hezou  si),  13  Sept  2010,   http://hzs.mofcom.gov.cn/accessory/201009/1284339524515.pdf  (6  Dec  2010).   20  Chen  An,  “Should  the  Four  Great  Safeguards  in  Sino-­‐Foreign  BITs  Be  Hastily  Dismantled?”  Journal  of   World  Investment  and  Trade  Vol.  7  No.  6  (Dec  2006),  914.   21  Ministry  of  Commerce  News  Office;  Ministry  of  Commerce,  82.   22  Ibid.,  78.   23  Chen  An,  “Four  Great  Safeguards,”  917.   24  Ibid.,  918.   25  Ministry  of  Commerce  2009  Order  No.  5  (Zhonghua  renmin  gongheguo  shangwubu  ling  2009  nian  di  5   hao),  “Management  Measures  for  Investors  Abroad  (Jingwai  touzi  guanli  banfa),”  Xinhua  News  16  Mar   2009,  http://news.xinhuanet.com/fortune/2009-­‐03/16/content_11021992.htm  (6  Dec  2010).   Economic  Information  Newspaper  (Jingji  cankao  bao),  “Experts  Suggest:  Chinese  Companies  Going  Abroad   Bravery  Also  Needs  Caution  (Zhuanjia  jianyi:  woguo  qiye  zouchuqu  danda  hai  xu  xinxi)”  Xinhua  News  17   Mar  2009,  http://news.xinhuanet.com/fortune/2009-­‐03/17/content_11023052.htm  (6  Dec  2010).   8   If  the  Chinese  government  simply  wanted  to  encourage  overseas  investment,   it  had  at  its  disposal  a  slew  of  safer,  faster,  and  more  effective  options.  Investors  did   not  surge  abroad  when  China  ratified  its  first  round  of  new  BITs  from  1999  to  2003.   They  waited  until  2004,  when  the  State  Council  replaced  the  old  outward   investment  “examination  regime”  with  a  “registration  requirement.”26  By   streamlining  the  outward  investment  process,  the  State  Council  exerted  far  more   power  at  far  less  risk  than  when  it  negotiated  open  access  to  arbitration.  In  2009,   the  Ministry  of  Commerce  again  pushed  outward  investment  to  new  heights  by   granting  investors  taxation,  insurance,  foreign  exchange,  and  residence  permit   (hukou)  benefits.27  If  their  goal  were  to  encourage  outward  investment  through   open  arbitration  access,  China’s  negotiators  chose  a  remarkably  blunt  and  ill-­‐suited   instrument.   Similarly,  the  Chinese  government  did  not  choose  its  new  BIT  partner   countries  to  match  the  interests  of  Chinese  overseas  investors.    If  China  had   designed  the  new  BITs  to  help  its  investors,  we  would  expect  the  government  to  sign   new  treaties  with  Latin  American  and  African  countries  receiving  massive  Chinese   investment  and  to  avoid  BITs  with  developed  countries  investing  in  China.  Its  most   important  resource  suppliers  like  Venezuela,  Bolivia,  and  Argentina  frequently   nationalize  private  companies.  China  would  suffer  little  risk  in  signing  BITs  with   these  countries,  since  almost  none  of  their  citizens  invest  in  China.   26  Gallagher  and  Shan,  12.    Invest  in  China  Guide  (Zhongguo  zhinan),  “Six  Large-­‐Scale  Ministry  of  Commerce  Measures  to  Support   Companies  Investing  Overseas  (Shangwubu  liu  da  jucuo  zhichi  qiye  duiwai  touzi),”  27  Oct  2009,   http://fdi.gov.cn/pub/FDI/tzdt/dt/t20091027_113505.htm?fclose=1  (6  Dec  2010).   27 9   Instead,  China  rushed  to  sign  BITs  with  countries  that  received  little  Chinese   investment.  Berger  points  out  that  China  shifted  toward  signing  BITs  with   developing  countries  in  the  1990s.28  However,  it  signed  with  most  of  its  developing   country  partners  before  the  shift  to  open  arbitration  in  1999.  From  1999  to  2003,   China  signed  and  ratified  BITs  almost  exclusively  with  small  developing  countries   that  had  little  investment  to  or  from  China.  Proponents  of  the  “Going  Abroad”  theory   cite  these  years  as  evidence  of  China  protecting  its  investors.29  China  did  choose  to   sign  with  fifteen  countries  in  Latin  America,  Asia,  and  Africa,  regions  that   constituted  roughly  90  percent  of  China’s  total  outward  investment.    However,  the   specific  countries  that  China  chose  accounted  for  zero  Chinese  investment  in  Latin   America,  a  half  of  a  percent  of  its  investment  in  Asia,  and  two  percent  of  its   investment  in  Africa.30    The  Netherlands  stands  out  as  the  only  developed  country  to   sign  a  BIT  with  China  during  this  initial  period.31  After  four  years  spent  signing  BITs   mostly  with  developing  countries,  China  renegotiated  its  old  European  BITs  en   masse.    After  signing  a  BIT  with  Germany  in  2003,  China  signed  eight  more  BITs  with   developed  nations  in  less  than  two  years.  It  concluded  80  percent  of  its  2004-­‐05   28  Berger,  19.    Fang  Xun,  90.   30  The  Africa  figures  omit  Nigeria,  a  significant  capital-­‐importer  from  China,  because  Nigeria’s  2001  BIT   came  as  a  surprise  to  the  Chinese.  They  had  signed  a  restricted  BIT  with  Nigeria  in  1997,  but  the  Nigerian   government  failed  to  ratify  it  domestically.  Ironically,  when  they  returned  to  the  negotiating  table  in  2001,   they  signed  a  BIT  that  was  less  favorable  to  Nigeria  due  to  the  open  access  provision.   Percents  calculated  from  2003  data  in  Ministry  of  Commerce,  “2009  Statistical  Bulletin,”  78-­‐82.  List  of   open-­‐access  BIT  partners  taken  from  Gallagher  and  Shan,  42.   31  List  from  Gallagher  and  Shan,  42.   29 10   BITs  with  developed  countries  that  exported  far  more  capital  to  China  than  they   imported.32     China  maintained  its  focus  on  developed  country  BITs  by  resuming   negotiations  with  the  US  and  Canada  in  2007  and  2008,  respectively.33  The  US   negotiations  had  fallen  apart  in  1989  over  the  Chinese  government’s  brutal   response  to  the  Tiananmen  Square  demonstrations.  But  even  before  Tiananmen,   they  had  reached  a  stalemate  since  the  Chinese  refused  to  accept  the  US’s   unshakable  requirement  of  open  access  to  arbitration.34  By  finally  offering  the  US   side  open  arbitration,  the  Chinese  side  rekindled  negotiations  in  2007.  The  Going   Abroad  Theory  cannot  explain  why  China  would  continue  to  pursue  of  open  access   BITs  with  capital  exporters.     Other  Theories   Some  scholars  have  argued  that  China  accepted  open  access  to  arbitration   because  developed  countries  and  the  World  Trade  Organization  (WTO)  forced  China   to  accept  new  international  economic  norms.    In  their  landmark  2009  study  of   Chinese  BITs,  Gallagher  and  Shan  assert  that  China’s  State  Council  first  approved   open  access  during  BIT  negotiations  with  Canada,  meaning  that  “the  breakthrough   32  List  from  Gallagher  and  Shan,  42.    Gallagher  and  Shan,  383.   34  Stephan  Schill,  “Tearing  Down  the  Great  Wall:  The  New  Generation  Investment  Treaties  of  the  People’s   Republic  of  China,”  Cardozo  Journal  of  International  and  Comparative  Law  Vol.  15  (2007):  82;  Chen  An,   “Distinguishing  Two  Types,”  773.   33 11   was  actually  achieved  by  the  efforts  of  the  Canadians  in  1997.”35    Indeed,  Canada   could  have  exerted  particularly  great  pressure  on  China  because  the  Asian  Financial   Crisis  had  just  slashed  China’s  foreign  exchange  reserves.36    Similarly,  scholars  point   out  that  when  China  joined  the  WTO  in  2001,  the  WTO  forced  it  to  eliminate  some   investment  protections  and  pressured  it  to  liberalize.37       The  China-­‐Canada  and  China-­‐Germany  BIT  negotiations  demonstrate  that   Chinese  negotiators  do  respond  to  pressure  from  developing  countries.  German   negotiators  persuaded  China  to  remove  key  phrases  safeguarding  “local  laws  and   regulations”  that  appear  in  all  other  Chinese  BITs.38  Two  months  later,  China   reinstated  these  phrases  into  its  next  BIT  and  never  allowed  another  country  to   remove  them.    China’s  quick  change  of  heart  suggests  that  the  Germans  successfully   pressured  them  into  removing  the  clauses.     However,  China  did  not  cave  in  to  foreign  pressure  over  access  to  investor-­‐ state  arbitration,  a  point  illustrated  by  the  timing  of  the  negotiation  process.  The   Chinese  government  chose  to  open  access  to  arbitration  at  a  moment  when  no   developed  countries  could  have  forced  its  hand.    China  and  Canada  broke  off  BIT   negotiations  in  1997  with  the  onset  of  the  Asian  Financial  Crisis,  though  China  soon   recovered  comfortable  levels  of  foreign  exchange.    In  1998,  the  Chinese  State   35  Gallagher  and  Shan,  41.    Ken  Davies,  “China’s  foreign  exchange  reserves,  1977-­‐2010,”  Chinability  Blog,   http://www.chinability.com/Reserves.htm  (6  Dec  2010).   37  Schill,  99;  Cui  Yankun,  706;  Gallagher  and  Shan,  320.   38  Article  1(1)  of  the  China-­‐Germany  BIT  omits  “subject  to  local  laws  and  regulations”  in  the  definition  of   investment,  while  Article  2(1)  lacks  the  usual  requirement  to  “Admit  such  investment  in  accordance  with   its  laws  and  regulations.”    The  wording  of  the  National  Treatment  clause  also  excludes  the  usual  caveat.   36 12   Council  suddenly  chose  to  approve  a  request  by  Ministry  of  Commerce  negotiators   to  grant  open  arbitration  in  the  Suriname  BIT.    Although  the  1998  Suriname  BIT  fell   through,  the  Ministry  of  Commerce  used  the  State  Council’s  approval  to  sign  open   access  into  the  Barbados  BIT  in  1999.    Chinese  negotiators  have  agreed  to  open   access  in  almost  every  BIT  since  then.  Gallagher  and  Shan  credit  China’s  “more   liberal  policy  since  joining  the  WTO  in  2001,”  but  China  signed  open  arbitration   clauses  before  entering  the  WTO.39   Unable  to  pin  down  any  truly  decisive  factor,  scholars  also  credit  the  change   to  China’s  broader  effort  to  open  up  its  economy,  facilitate  inward  and  outward   investment,  and  show  greater  respect  for  international  treaties.40  The  German   negotiators  to  the  China-­‐Germany  BIT  reported  that  the  Chinese  side  had  itself   demanded  open  access  to  arbitration  because  it  was  determined  to  provide  “the   international  standard  of  investment  protection.”41  Gallagher  and  Shan  suggest  that   China  slowly  accepted  international  law  on  many  fronts  around  that  time,  granting   BIT  access  to  arbitration  as  part  of  that  trend.  China’s  open  access  to  arbitration   “was  no  doubt  influenced  by  several  factors,  including  China’s  ratification  of  the   ICSID  Convention  in  1993,  its  more  liberal  policy  towards  international  law  and   international  commitments  since  joining  the  WTO  in  2001,  and  its  definite  shift  in   39  Gallagher  and  Shan,  320.    Schill,  99-­‐100.   41  Schill,  43.   40 13   policy  towards  international  arbitration.”42    They  identify  Chinese  policies  as  liberal   but  cannot  explain  why  the  government  was  motivated  to  liberalize  its  policies.   The  Chinese  government  did  not  open  up  to  arbitration  as  part  of  a  general   trend;  it  must  have  had  a  compelling  reason.  China  slowly  developed  market-­‐based   socialism  and  joined  the  WTO  because  each  offered  clear  economic  benefits,  but   open  arbitration  does  not  offer  any  proven  economic  benefit.  Susan  Franck  agrees   with  protectionist  Chinese  scholars  that  “the  specific  impact  of  investment  treaty   arbitration  is…  unclear.”43   Recent  Evidence:  China  Holds  Back    One  final,  contrary  clue  is  that  although  the  Chinese  government  seems   eager  to  sign  an  open  BIT  with  any  individual  country,  it  has  blocked  attempts  to   retroactively  open  its  remaining  old  BITs.  In  three  separate  ways,  the  Chinese   government  has  fought  to  prevent  international  arbitration  tribunals  from  granting   open  access  to  all  the  countries  still  left  with  restrictive  Chinese  BITs.     First,  in  2006,  arbitration  tribunals  hinted  that  a  foreigner  investing  under  an   old  BIT  might  be  able  to  sue  the  government  through  the  “Most  Favored  Nation”   clause.    Investors  can  claim  a  violation  of  the  Most  Favored  Nation  (MFN)  clause  if   they  are  treated  worse  than  investors  from  a  third  nation.  Numerous  investors  have   42  Gallagher  and  Shan,  320.    Susan  Franck,  “Foreign  Direct  Investment,  Investment  Treaty  Arbitration,  and  the  Rule  of  Law,”  Global   Business  and  Development  Law  Journal  Vol.  19,  (2007):  373.   43 14   attempted  to  use  MFN  claims  to  replace  a  specific  clause  in  their  treaty  with  a  more   favorable  BIT  signed  by  the  host  government.    The  arbitration  community  is  deeply   divided;  Lochnie  Hsu  reports  that  “[t]he  smorgasbord  of  decisions  [on  MFN  clauses]   cannot  be  fully  reconciled.”44    Tribunals  found  in  Plama  v  Bulgaria,  Berschader  v   Russia,  Telenor  v  Hungary,  and  Wintershall  v  Argentina  that  the  MFN  clause  has  to   specifically  enumerate  the  areas  that  it  protects.45    The  Renta  4  v.  Russa  and   RosInvest  Co.  v  Russia  tribunals  found  that  the  MFN  clause  has  to  explicitly  exclude   any  areas  that  it  does  not  cover.46    Chinese  treaty  experts  noticed  the  RosInvest   precedents,  which  could  allow  investors  with  restrictive  Chinese  BITs  to   automatically  enjoy  the  benefits  of  a  new,  open  BIT.47     Chinese  negotiators  have  responded  to  these  cases  in  China’s  most  recent   BITs  by  restricting  the  Most  Favored  Nation  clause  from  applying  to  arbitration.     First,  China’s  2008  BIT  with  Mexico  restricts  MFN  treatment  to  “the  operation,   management,  maintenance,  use,  enjoyment,  or  disposal  of  investments.”48  Because   this  BIT  does  not  explicitly  include  or  exclude  dispute  resolution,  the  Plama,   Berschader,  Telenor,  and  Wintershall  tribunals  would  reject  jurisdiction  over  MFN   44  Lochnie  Hsu,  “MFN  and  Dispute  Settlement:  When  the  Twain  Meet,”  Journal  of  World  Investment  &   Trade  Vol.7  No.  1,  (February  2006):  25-­‐37.   45  Plama  Consortium  Limited  v.  Bulgaria,  ICSID  Decision  on  Jurisdiction,  Case  No.  ARB/03/24  (8  Feb  2005);   Berschader  v.  Russia,  SCC  Award,  Case  No.  080/2004  (21  Apr  2006);  Telenor  Mobile  Communications  A.S.   v. Republic  of  Hungary,  ICSID  Award,  Case  No.  ARB/04/15  (13  Sept  2006);  Wintershall  Aktiengesellschaft v. Argentine  Republic,  ICSID  Award,  Case  No.  ARB/04/14,  (8  Dec  2008), http://ita.law.uvic.ca/alphabetical_list_content.htm  (6  Dec  2010). 46  Renta  4  S.V.S.A  et  al.  v.  Russian  Federation,  SCC  Award  on  Preliminary  Objections,  Case  No.  24/2007  (20 Mar  2009);  RosInvestCo  UK  Ltd.  v.  The  Russian  Federation,  SCC  Award  on  Jurisdiction,  Case  No.  Arb. V079/2005  (Oct  2007),  http://ita.law.uvic.ca/alphabetical_list_content.htm  (6  Dec  2010). 47  Xu  Chongli,  “From  Substance  to  Process:  Dispute  over  the  Scope  of  Use  of  Most  Favored  Nation Treatment  (Cong  shiti  dao  chengxu:  zuihuiguo  daiyu  shiyong  fanwei  zhi  zheng),”  Law  and  Business Research  (Fasheng  yanjiu)  Vol.  2,  2007. 48  China-­‐Mexico  BIT  2008,  Article  4(1),  in  Gallagher  and  Shan,  515. 15   cases  brought  under  this  BIT,  while  the  Renta  and  RosInvest  tribunals  might  allow   the  case.49    However,  the  investor  treatment  clause  in  the  2008  Colombia-­‐China  BIT   explicitly  states  that  “this  treaty’s  Most  Favored  Nation  treatment  rules  do  not  apply   to  any  treaty-­‐based  investment  dispute  resolution  mechanism,  such  as  the  rules   from  this  treaty’s  8th  and  9th  Articles.”50  No  arbitration  tribunal  could  find   jurisdiction  to  hear  a  MFN  case  from  this  BIT.  China  is  attempting  to  ban  restricted-­‐ BIT  investors  from  gaining  open  access  to  arbitration  through  the  back  door,  so  to   speak.   Second,  the  Chinese  government  has  taken  measures  to  block  investors  from   stealing  open  access  to  arbitration  through  “shell  companies.”  Investors  have   figured  out  that  they  can  invest  in  restricted-­‐BIT  countries  through  fake  company   offices,  even  just  a  mailbox,  in  a  third-­‐party  country  with  open  access  to  arbitration.   Then  international  tribunals  will  allow  them  to  file  claims  under  the  third-­‐party   country’s  BIT  with  the  host  country  rather  than  under  China’s  restricted  BIT.51     China  attempted  to  stop  this  so-­‐called  “treaty  shopping”  by  applying  their   BITs  only  to  companies  with  “substantial”  investment.  Its  2008  Mexico  and   Colombia  BITs  require  a  company  investor  to  be  “constituted  or  otherwise   49  Though  the  Renta  and  RosInvest  tribunals  argue  that  one  would  still  have  to  consider  other  factors   before  borrowing  provisions  from  another  treaty,  including  the  general  versus  specific  nature  of  the   original  provisions  the  investor  sought  to  replace.   50  China-­‐Colombia  BIT  (Zhonghua  renmin  gongheguo  zhengfu  he  gelunbiya  gongheguo  zhengfu  guanyu   cujin  he  baohu  touzi  de  shuangbian  xieding),  22  Nov  1998,  Article  3(3)，   http://vip.chinalawinfo.com/newlaw2002/SLC/SLC.asp?Db=eag&Gid=100670197  (3  Dec  2010).       Note:  The  Colombian  Senate  just  ratified  the  BIT  in  late  October.  Yongxian  Huang,  “Colombian  Senate   ratifies  Sino-­‐Columbian  Investment  Treaty  (Gelunbiya  can  yiyuan  pizhun  gezhong  touzi  baohu  xieding),”   Xinhua  News    27  Oct  2010,  http://news.ifeng.com/world/detail_2010_10/27/2913388_0.shtml  (6  Dec   2010).   51  Gallagher  and  Shan,  81.   16   organized  under  the  law  of  a  Contracting  Party”  and  “engaged  in  substantive   business  operations  in  the  territory  of  that  Contracting  Party.”52  China  is  again   attempting  to  ban  investors  in  restricted-­‐BIT  countries  from  stealing  open  access  to   arbitration.    This  effort  will  only  succeed,  however,  if  other  countries  use  similar   language  to  prevent  Chinese  investors  from  suing  under  their  BITs.   Finally,  the  Chinese  government  argued  against  its  own  citizen  to  prevent  an   international  tribunal  from  hearing  an  expropriation  case  under  a  restricted  BIT.  In   2007  a  Hong  Kong  investor  named  Tza  Yap  Shum  attempted  to  bring  expropriation   charges  against  Peru  at  ICSID,  the  first  time  an  investor  has  ever  filed  an   international  arbitration  case  under  a  Chinese  BIT.  He  did  this  in  spite  of  the  fact   that  the  1994  China-­‐Peru  BIT  specifically  restricts  disputes  to  those  “involving  the   amount  of  compensation  for  expropriation.”53  To  assist  Peru  in  its  defense  and   thereby  ensure  that  the  tribunal  did  not  find  jurisdiction  over  the  case,  China  sent   one  of  the  original  negotiators  of  the  BIT,  a  team  of  international  law  scholars,  and   thousands  of  pages  of  court  documents.54  Fan  Jianghong,  the  Chinese  negotiator,   testified  that  China  had  intended  this  clause  to  prevent  international  arbitrators   from  deciding  whether  or  not  a  state  had  expropriated  a  given  investor’s  assets.55       52  China-­‐Mexico  BIT  2008,  Article  1(a);  China-­‐Colombia  BIT  2008,  Article  1(2).    1994  China-­‐Peru  BIT,  Article  8(3).   54  Tza  Yap  Shum  v.  Republic  of  Peru,  ICSID  Decision  on  Jurisdiction  and  Competence,  Case  No.  ARB/07/6   (19  Jun  2009),  http://www.transnational-­‐dispute-­‐management.com/article.asp?key=1576  (6  Dec  2010);   Chen  An,  “Queries  to  the  Recent  ICSID  Decision  on  Jurisdiction  Upon  the  Case  of  Tza  Yap  Shum  v.  Republic   of  Peru,”  Journal  of  World  Investment  and  Trade  Vol  10  No  6  (Dec  2009):  861.   55  Fan  Jianghong,  Witness  Statement,  10  Sept  2009,  at  para.  24,  in  Tza  Yap  Shum  v  Republic  of  Peru,  38.   53 17   However,  the  tribunal  found  for  Tza  Yap  Shum,  against  both  China  and  Peru.     It  determined  that  the  word  “involving”  cast  doubt  on  China’s  intentions  according   to  the  Vienna  Convention’s  guidelines  on  interpreting  treaties.  It  argued  that  any   investor  who  sued  the  state  for  expropriation  in  local  courts  would  be  shut  off  from   subsequent  international  arbitration  by  the  “fork-­‐in-­‐the-­‐road  clause.”    Since  the   BIT’s  preamble  pledges  to  “encourage  investment,”  the  tribunal  argued  that  the  BIT   must  allow  some  form  of  dispute  resolution,  and  thus  it  must  allow  entire   expropriation  cases.  It  rejected  the  Chinese  argument  that  China  had  clarified  its   intentions  through  a  clear  “official  policy,”  though  almost  every  old  BIT  contained  a   similar  provision  and  many  international  scholars  believe  in  such  a  policy.56    The   decision  drew  upon  precedent  from  a  similar  wording-­‐based  decision  in  European   Media  Ventures  v.  Czech  Republic.57     Chinese  scholars  were  outraged  by  the  tribunal’s  decision.  Chen  wrote  that   the  decision  came  to  the  “great  surprise  of  Chinese  scholars.”  These  scholars,   including  Chen,  wrote  a  flurry  of  articles  protesting  it.58     The  Chinese  government  voiced  its  own  protest  by  writing  a  new  clause  into   its  latest  BITs  that  will  block  similar  cases  in  the  future.  China’s  negotiators  inserted   a  brand-­‐new  clause  at  the  end  of  the  China-­‐Colombia  BIT  that  would  have  ensured   that  Tza  Yap  Shum  could  not  access  international  arbitration.  The  clause  requires   56  Chen  An,  “Queries  to  the  Recent  ICSID  Decision,”  847-­‐8;  Tza  Yap  Shum  Decision.    European  Media  Ventures  SA  v.  Czech  Republic,  UNCITRAL  Award  on  Jurisdiction  (15  May  2007),   unpublished  but  reviewed  in  The  Czech  Republic  v.  European  Media  Ventures  SA  [2007]  EWHC  2851.   58  Chen  An,  “Queries  to  the  Recent  ICSID  Decision,”  831;  Wang  Nan,  “The  Problem  of  Using  China’s   Foreign  Bilateral  Investment  Treaties  Toward  Hong  Kong  (Zhongwai  shuangbian  touzi  xieding  dui   xianggang  de  shiyong  wenti),”  20  Apr  2010.   57 18   investors  who  claim  that  the  government  expropriated  their  assets  using  taxes  to   first  argue  their  case  with  the  host  government’s  tax  department,  then  allow  their   home  government  to  decide  if  the  taxation  was  actually  tantamount  to   expropriation.59  Since  Tza  Yap  Shum  had  claimed  that  the  Peruvian  government   unjustly  froze  his  assets  for  tax  violations,  this  clause  would  have  given  the  Chinese   government  a  chance  to  throw  out  his  case.  It  is  reasonable  to  assume  that  China   essentially  wrote  this  provision,  not  Colombia,  because  China  allows  its  partners   little  influence  over  the  terms  of  its  BITs.  As  the  Chinese  and  Peruvian  negotiators   testified  during  Tza  Yap  Shum  v  Peru,  “the  negotiations  between  Peru  and  China   were  substantially  based  on  the  Chinese  draft  of  the  BIT.”60  Thus  China  responded   specifically  to  Tza  Yap  Shum  by  blocking  his  strategy  in  its  later  BITs.   An  Experiment  in  Open  Access   A  plausible  explanation  for  China’s  decision  on  arbitration  should  address   four  puzzles:  the  government’s  timing,  BIT  partner  country  selection,  sacrifice  of   sovereignty,  and  recent  efforts  to  stop  universal  open  BIT  access.    I  argue  that  the   Chinese  government  chose  to  begin  testing  open  arbitration  on  small  developing   countries  in  1998  in  order  to  prepare  for  impending  negotiations  with  developed   countries  that  demanded  access  to  arbitration.     59  “Tax  Measures  (Shuishou  cuoshi),”  Article  14(5),  China-­‐Colombia  2008  BIT    Tza  Yap  Shum  decision,  37.   60 19   First,  this  experiment  with  smaller  countries  would  explain  the  Chinese   government’s  particular  timing  and  partner  country  selection,  which  did  not  match   its  Going  Abroad  strategy.    For  the  first  four  years,  the  government  only  signed  new   treaties  with  small  developing  countries  and  a  safe  European  country,  the   Netherlands,  in  order  to  minimize  the  experiment’s  risk.  With  no  arbitration  cases  in   its  first  four  years,  China  began  to  renegotiate  its  BITs  with  European  countries   from  2003-­‐2006.  These  European  BITs  had  finished  their  first  10-­‐  or  15-­‐year  terms   around  1999.  Thus  the  European  governments  had  probably  been  pressuring  the   Chinese  government  to  renegotiate  its  BIT  since  around  the  time  of  the   Surinam/Barbados  decision.     Still  free  from  arbitration  cases,  the  government  began  to  negotiate  with  the   Canadians  and  US  in  2007  and  2008.  With  no  disputes  in  nine  years,  it  offered  open   access  to  the  US  and  Canada,  aware  that  neither  country  would  sign  a  BIT  without   this  key  clause.61  One  Chinese  scholar  even  argued  that  the  US  and  China  would   quickly  sign  the  BIT  now  that  China  had  eliminated  the  arbitration  roadblock.62    So   the  timing  and  partner  country  selection  can  be  explained  by  an  incremental   experiment:  first,  China  tested  the  new  open  BITs  on  small  developing  countries  in   order  to  study  the  risks  of  opening  renegotiated  European  BITs;  second,  it   renegotiated  open  European  BITs  to  test  the  waters  for  open  BITs  with  the  US  and   Canada.     61  Gallagher  and  Shan  note  that  these  are  the  two  “toughest”  BITs  for  China  to  negotiate  because  of  this   requirement  and  the  length  of  their  usual  BITs.  Gallagher  and  Shan,  384.   62  See  Cai  Congyuan,  “China-­‐-­‐US  BIT  Negotiations  and  the  Future  of  Investment  Treaty  Regime:  A  Grand   Bilateral  Bargain  with  Multilateral  Implications,”  Journal  of  International  Economic  Law,  Vol.  12  No.  2   (2009):  457-­‐506,  http://econpapers.repec.org/article/oupjieclw/  (6  Dec  2010).   20   The  Chinese  government  relinquished  domestic  sovereignty  in  order  to   benefit  from  new  BITs  with  capital-­‐exporting  countries.  While  opening  access  to   arbitration  alone  does  not  spark  a  flood  of  investment,  it  offered  China  the  chance  to   conclude  new  BITs  that  would  most  likely  increase  both  inward  and  outward   investment  flows.  The  Chinese  government  was  eager  to  discover  the  benefits  that  a   BIT  with  the  US,  one  of  its  largest  and  most  recalcitrant  investment  partners,  could   provide.   This  arbitration  experiment  has  many  precedents  in  China’s  cautious  path  of   economic  reform.  Grandfathers  of  reform  Deng  Xiaoping  and  Chen  Yun  have   famously  advocated  “Crossing  the  river  while  feeling  for  the  stones.”  The   government  began  incrementally  reforming  the  agricultural  sector  from  1979   onward,  increasing  the  state’s  grain  prices,  then  allowing  above-­‐quota  grain  sales  on   the  market,  and  finally  abolishing  the  state  monopoly  purchasing  system.  The   central  government  allowed  local  officials  to  form  township  and  village  enterprises,   slowly  relinquished  the  sectoral  monopolies  held  by  state-­‐owned  enterprises  (SOEs),   and  finally  began  privatizing  the  lowest-­‐performing  SOEs.  In  each  area  of  its   domestic  economy,  China  has  been  gradually  experimenting.  It  should  not  be  such  a   surprise  that  it  might  also  “feel  for  the  stones”  in  liberalizing  its  BITs.   At  the  same  time,  the  Chinese  government  blocks  retroactive  opening  of  all   its  old  BITs  because  it  is  still  testing  open  arbitration.  The  2008  Mexico  and   Colombia  BITs  demonstrate  that  the  government  is  still  adjusting  its  approach  to   arbitration.  Since  the  government  has  not  yet  settled  firmly  on  arbitration,  as  most   21   observers  assume,  it  resists  the  universal  conversion  of  its  more  than  eighty   remaining  BITs  that  still  restrict  arbitration.  Among  these  restricted  BIT  partners   are  large  capital  exporters,  most  notably  the  UK  and  Japan.   Instead  of  individual  countries,  the  Chinese  government  is  worried  about  the   epistemic  community  of  lawyers,  arbitrators,  and  scholars  who  influence  the   decisions  of  international  arbitration  tribunals.  Although  each  BIT  is  negotiated   between  only  two  countries,  the  international  disputes  are  all  settled  by  ICSID,   Stockholm  Chamber  of  Commerce,  UNCITRAL  and  other  tribunals  which  rely  heavily   on  precedents  from  other  tribunals’  judgments  on  other  countries’  BITs.63  The   parties  select  their  lawyers  and  arbitrators  freely,  however,  a  few  popular   individuals  are  recycled  continually  through  both  positions.    For  example,  the  head   arbitrator  of  Renta  v  Russia  runs  the  law  firm  that  represented  Berschader  in   Berschader  v  Russia.64  Another  of  the  three  Renta  arbitrators  had  represented  EMV   in  EMV  v  Czech  Republic.65  Renta’s  lawyer  has  represented  at  least  two  other   investors  in  recent  MFN  cases.66  This  is  only  a  quick  survey  of  the  scholars  involved   in  Renta  that  have  appeared  in  other  recent  MFN  cases.     Chinese  and  other  scholars  have  been  worried  by  ICSID  and  the  international   arbitration  community’s  broad  BIT  interpretations  since  long  before  Tza  Yap   63  Jeswald  Salacuse,  The  Law  of  Investment  Treaties  (New  York:  Oxford  University  Press,  2010):13-­‐14.    Renta  Decision;  Berschader  Decision.   65  Renta  Decision;  EMV  Decision.   66  Siemens  v  Argentina;  Austrian  Airlines  v  Slovak  Republic   64 22   Shum.67    Chen  Wenzhu,  for  example,  argues  that  ICSID  is  guilty  of  “serious  abuse.”68   Uglješa  Grušic  shows  that  ICSID  tribunals  consistently  give  liberal  interpretations   that  expand  its  jurisdiction.69  However,  she  argues  that  these  decisions  “reflect  the   intention  of  the  parties”  because  they  support  the  object  and  purpose  of  investment   instruments,  which  is  to  promote  and  protect  investments.”70  Still,  the  Chinese  and   Peruvian  governments  agreed  on  how  the  Tza  Yap  Shum  tribunal  should  have   interpreted  the  wording  of  their  BIT,  but  the  tribunal  contradicted  them.  I  would   suggest  that  these  rulings  may  reflect  the  parties’  original  intentions  often,  but  not   always.     Implications  for  China-­‐US  BIT  Negotiations   The  open  access  experiment  theory  outlined  above  has  important   implications  for  China’s  future  BIT  negotiations.  As  the  Chinese  negotiators  were   hoping,  their  experimentation  with  new,  liberal  provisions  makes  a  China-­‐US  BIT   more  likely.  However,  blocking  retroactive  opening  by  international  courts  also   impacts  the  China-­‐US  BIT.   67  Yu  Jingsong,  “The  Recent  Development  and  Effects  of  China’s  International  Investment  Treaties  (Guoji   touzi  xieding  de  jinqi  fazhan  ji  dui  zhongguo  de  yingxiang),”Legal  Expert  (Faxuejia),  Mar  2006;  Zuo  Yanjun,   “Research  into  Problems  of  ICSID’s  Jurisdiction  over  BITs  (BIT  zhong  yu  ICSID  guanxiaquan  youguan  wenti   de  tanjiu),”  CNKI  Database  (Jul  2010),  http://www.docin.com/p-­‐12137840.html  (6  Dec  2010).   68  Chen  Wenzhu,  “Investigation  into  the  Reform  of  the  ICSID  Arbitration  Mechanism,  (ICSID  zhongcai  jizhi   gaige  yanjiu),”  Law  View  (Fazhi  zaixian),  CNKI  Database,  (6  Dec  2010). 69  Uglješa  Grušic,  “The  Evolving  Jurisdiction  of  the  International  Centre  for  Settlement  of  Investment   Disputes,”  Journal  of  World  Investment  and  Trade  Vol  10  No  1  (Feb  2009):  100.   70  Ibid,  100.   23   China  is  struggling  not  for  state  sovereignty  but  for  “bilateral  sovereignty”— the  power  to  sign  BITs  without  ceding  international  tribunals  space  to  broadly   interpret  the  BIT  provisions.  As  China  gives  up  some  sovereignty  in  the  context  of   these  BITs,  it  at  least  expects  to  make  the  rules  governing  this  loss  of  sovereignty.   For  this  reason,  it  strongly  opposes  the  influence  of  the  third  actor,  the  epistemic   community.  The  most  recent  China-­‐Mexico  and  China-­‐Colombia  BITs  show  China’s   willingness  to  uphold  liberal  measures,  but  also  its  determination  to  specifically   curtail  the  space  of  the  epistemic  community.  Instead  of  blocking  arbitration   directly,  China  attacked  the  tribunals’  power  by  limiting  the  MFN  clause  and   imposing  the  new  Tza  Yap  Shum-­‐inspired  tax  dispute  procedure.   China  may  have  more  success  securing  its  bilateral  sovereignty  in  the  future   because  it  has  begun  to  copy  new  protectionist  measures  designed  by  the  veteran   US  negotiators.    Until  now,  China  has  struggled  to  define  its  intentions  and  close   loopholes  which  expose  it  to  legal  interpretations  handed  down  by  the  epistemic   community,  which  occurred  in  the  Tza  Yap  Shum  dispute  over  the  word  “involving.”   But  China  has  begun  to  copy  the  time-­‐tested  treaties  of  the  US.  For  example,  the   China-­‐Colombia  BIT  for  the  first  time  copies  the  US  provision  on  exceptions  for   “essential  security.”  Chen  An  recommended  this  measure  in  order  to  buffer  China’s   BITs  against  the  creeping  jurisdiction  of  international  tribunals.71  China  also  copied   the  new  Colombia  BIT  tax  provision  from  the  US’s  own  taxation  provisions.72   71  Chen  An,  “Four  Great  Safeguards,”  911.    See  for  example  the  2000  US-­‐Honduras  BIT,  Article  XIII.   72 24   Chinese  scholars  have  discussed  other  protections  commonly  used  by  the  US,   such  as  differentiating  treatment  between  developed  and  developing  countries.     Multiple  scholars  have  suggested  that  China  could  restrict  arbitration  for  developed   countries  while  allowing  open  BITs  with  developing  countries.73  Yet,  it  would  have   to  severely  limit  its  MFN  clauses  in  order  to  prevent  developed-­‐country  investors   from  simply  borrowing  these  more  advantageous  terms  used  in  developing  country   BITs.    This  proposal  imitates  the  US  strategy  of  confining  its  BITs  to  developing   countries  so  that  only  the  few  outward  investors  from  these  countries  have  the  right   to  sue  the  US  government.74  Interestingly,  other  Chinese  scholars  have  criticized   differentiated  treatment  of  developed  and  developing  countries  because  it  could   damage  China’s  reputation  as  a  leader  among  developing  countries.     Since  China  seeks  to  align  itself  with  BITs  based  on  the  US  model,  not  only  to   conclude  a  US-­‐China  BIT  but  also  to  secure  its  bilateral  sovereignty,  it  has  improved   the  chances  of  successful  US-­‐China  BIT  negotiations.    American  scholars  suggest  that   the  BIT  negotiations  are  not  promising  because  the  US  brings  a  43-­‐article  model  BIT   to  the  table,  far  more  detailed  than  China’s.  But  the  detailed  provisions  of  the  US  BIT   would  also  benefit  Chinese  capital  exporters.  Zhao  Jun  argues  that  since  China  and   73  Chen  An  “Distinguishing  Two  Types  of  Countries”;  Zhao  Jun,  “Discussion  on  Broadening  the  Usage  of  BIT   MFN  Clauses  for  Procedural  Matters  (Lun  shuangbian  touzi  tiaoyue  zuihuiguo  daiyu  tiaokuan  kuozhang   shiyong  yu  chengxuxing  shixiang),”  CNKI  Database  (6  Dec  2010).   China  could  also  fine-­‐tune  its  treaties  to  the  new  standard  set  by  the  Free  Trade  Area  of  the  Americas   (FTAA),  which  refers  to  a  specific  MFN  court  case  in  order  to  clarify  its  disagreement  with  that  decision.   74  Economist  Intelligence  Unit,  7.   25   the  US  are  now  both  major  capital-­‐exporters  and  –importers,  “the  knife  cuts  both   ways”  and  thus  China  should  remain  calm  in  the  negotiations.75     Indeed,  China  has  recently  shown  interest  in  standard  US  provisions  it  had   previously  avoided.  One  such  area  is  environmental  and  labor  standards.    While  the   Chinese  had  previously  avoided  all  mention  of  environment  and  labor  concerns,  its   2003  Guyana  BIT  mentions  environmental  protection  in  the  Preamble.76  Even  more   surprising,  the  2008  China-­‐Colombia  BIT’s  new  “essential  security”  clause  mentions   that  environmental  protection  could  justify  an  exception  to  the  BIT’s  other   provisions.77   China’s  shift  toward  the  US  BIT  model  may  improve  its  chances  of  concluding   a  BIT  with  the  US,  except  that  the  US  has  thus  far  only  signed  BITs  with  capital-­‐ importing  countries.  The  US  government  avoids  signing  BITs  with  capital-­‐exporting   countries  to  protect  the  sovereignty  of  its  national  courts.78    Thus  the  main  obstacle   to  US-­‐China  BIT  negotiations  may  no  longer  be  the  two  nations’  differences,  but   rather  their  similarities.  China  faces  an  uphill  battle  because  it  exports  hundreds  of   times  more  capital  to  the  US  than  it  did  during  the  previous  negotiations  in  the   1980s.  Ironically,  the  US  may  balk  at  agreeing  to  open  arbitration  with  China,   although  China  changed  its  policy  in  part  to  please  the  US.     75  Zhao  Nan,  2.    China-­‐Guyana  2003  BIT,  Preamble.   77  China-­‐Colombia  2008  BIT,  Article  5.     China  also  appears  to  be  eliminating  performance  requirements  as  required  by  the  WTO  TRIMS   Agreement,  though  Chinese  scholars  have  suggested  ways  to  get  around  it.   Zhao  Jun，2.   78  Economist  Intelligence  Unit,  7.   76 26   China  might  actually  improve  its  chances  of  concluding  a  BIT  with  the  US  if  it   convinces  the  US  to  restrict  the  access  to  arbitration.    The  US  could  then  sign  its  first   BIT  with  a  capital-­‐exporter  without  compromising  the  exclusive  sovereignty  of  the   US  courts.  The  US  would  not  restrict  arbitration  in  its  treaties  with  developing   countries,  while  European  countries  would  not  restrict  arbitration  for  any  treaties.     Thus  the  US  would  need  to  differentiate  the  China  BIT  from  its  other  BITs,  which   would  require  excluding  access  to  arbitration  from  the  Most  Favored  Nation  clause.     If  the  US  or  China  did  indeed  begin  to  differentiate  its  treaties  between   developing  and  developed  countries,  the  new  BITs  would  deepen  inequalities   inherent  ind  the  bilateral  negotiations  process.    This  would  strike  a  blow  to  the   global  equality  of  the  entire  bilateral  investment  treaty  system.    In  the  end,  the   damage  that  differentiation  would  do  to  the  global  BIT  network  could  finally  push   developing  countries  to  unite  in  pursuit  of  a  nondiscriminatory  multilateral   investment  treaty.   Conclusion   Previous  scholars  have  not  convincingly  explained  why  China  began   accepting  international  investor-­‐state  arbitration  in  1998.    China’s  most  recent  BITs   and  the  Tza  Yap  Shum  arbitration  case  show  that  China  still  opposes  giving  all  its   BIT  partners  access  to  arbitration.  Thus  their  actions  cannot  be  explained  by  the     “Going  Abroad”  strategy,  WTO  and  developed  country  pressure,  or  China’s  general   economic  liberalization.  The  Chinese  government  has  accepted  open  arbitration  but   27   continues  to  oppose  universal  access  because  it  is  experimenting.  It  chose  to  test   open  arbitration  on  small  developing  countries  in  order  to  study  the  risks  of   renegotiating  European  BITs  and  signing  new  ones  with  the  US  and  Canada.     Today,  rather  than  avoiding  universal  access  because  of  any  one  particular   country,  China  is  trying  to  reserve  its  right  to  deny  open  access  in  future  BITs.  Thus   China  seeks  to  prevent  international  arbitration  tribunals  from  establishing  a   precedent  would  allow  all  of  its  BIT  partners  open  access.  China  has  added  new   provisions  to  its  latest  treaties  to  restrict  international  arbitrators’  room  for   interpretation.  It  is  attempting  to  maintain  its  “bilateral  sovereignty,”  or  the  right  to   share  power  with  its  partner  countries  without  the  interference  of  international   tribunals.     China  has  begun  to  protect  itself  against  international  tribunals  by  adopting   the  same  protections  used  in  American  BITs.  Therefore,  it  now  faces  better   prospects  of  concluding  a  BIT  with  the  US.    However,  the  US  avoids  BITs  with   capital-­‐exporting  countries  to  protect  the  sovereignty  of  its  courts,  and  China  is  now   a  capital-­‐exporter.    The  main  obstacle  to  US-­‐China  BIT  negotiations  may  no  longer   be  the  two  nations’  differences,  but  rather  their  similarities.     28