BRI and the Rise of Cross-Border Disputes: What Role Will China Play?
Legal resolution for cross-border disputes has been a key issue in discussions surrounding the Belt and Road Initiative (‘BRI’). An increase in trade connectivity will likely lead to a rise in disputes between trading partners in BRI countries, in which cultural, linguistic and judicial norms vary. The complexity and multi-jurisdictional nature of BRI projects has prompted a review of existing dispute resolution processes by Chinese and international legal professionals, which has seen an emerging desire for less formal procedures, such as mediation and arbitration.
Given that the majority of BRI outbound investment is driven by state-owned Chinese companies, China has been keen to resolve BRI-related cross border disputes on its own terms. In the past two years, China has proposed or launched a number of China based initiatives to provide resolution to BRI disputes. China’s attempt to set the rules in BRI disputes has been arelatively decentralized process: it has not been led by an single government agency, but has instead been driven by multiple organisations at a local and national level. China’s Supreme Court, the most authoritative in the country, has been instrumental in establishing BRI courts and setting out guidance for BRI arbitrations. However, government-affiliated Chinese arbitration institutions, such as the China International Economic and Trade Arbitration Commission (‘CIETAC’) and the Wuhan Arbitration Commission (‘WAC’), as well as private law firms, are also involved.
Give that the majority of BRI outbound investment is driven by state-owned Chinese companies, China has been keen to resolve BRI-related cross border disputes on its own terms.
Chinese companies will continue to push to set terms in contracts requiring BRI-related disputes to be settled under Chinese jurisdiction, instead of in the jurisdictions where the disputes arise, where they are concerned that arbitration may be disadvantageous. But questions have also been raised abroad about whether a China-led dispute resolution system will be equitable. According to CNBC, a US business news outlet, international legal professionals doubt the impartiality of China-based international courts, which may reduce confidence in a China-led BRI legal framework.
However, China has also demonstrated willingness to embrace international arbitration in the context of BRI. In 2015, China’s Supreme Court published 18 model cases on its website, heard both within and outside China, to serve as guidance for lower courts on how to address future cross border disputes, including recognizing and enforcing international arbitral awards in accordance with the New York Convention, one of the key instruments in international arbitration, of which China is a signatory. Hong Kong, with its sophisticated legal system, language expertise, and experience in dealing with legal disputes involving Chinese companies, is likely to be favored by Chinese companies seeking international arbitration.
And Hong Kong is eager to maximize opportunities arising from the BRI: in 2017, former Justice Secretary Rimsky Yuen said that Hong Kong has introduced two amendment bills to its Arbitration Ordinance to better serve disputes that may arise from BRI-related projects. Additionally, the judgements of the Hong Kong International Arbitration Centre (‘HKIAC’) are enforceable in the signatory countries of the New York Convention, which includes a majority of BRI countries. In 1999 Hong Kong and China also signed an agreement on the Mutual Recognition and Enforcement of the Arbitration Award, which allows awards made in Hong Kong to be enforceable in China.
It is still too early to determine whether these China-centered efforts will gain traction in BRI countries, particularly given that some countries are also developing their own frameworks for dispute resolution. For example, in Kazakhstan – where nearly 21 percent of China’s cross-border M&A investment took place between 2000 and 2016 – the government has introduced
new legislation in an attempt to simplify domestic arbitration procedures. This signals Kazakhstan’s desire to improve its own commercial arbitration mechanisms, rather than simply allowing a China-led framework to evolve, and it may also epitomize sentiment along the Belt and Road. However, perhaps the greatest stumbling block for China, particularly in more developed countries along the BRI with more robust democracies, is a mistrust of the Chinese legal system itself. China will have to work hard to show the world that it is ready to begin setting legal standards on the international stage.