What is Belt and Road Initiative?
Launched by President Xi Jinping in 2013, the Belt and Road Initiative is a global investment strategy aiming to finance and deliver infrastructure projects along a network of trade routes connecting China to other major Eurasian economies. The Initiative pledges investments of more than US$926 billion over 10,000km spanning 65 countries across Asia, Europe, the Middle East and Africa. The regions involved have a total population of 4.4 billion and represent 40% of global GDP.
The Belt and Road Initiative has two main elements: the Silk Road Economic Belt (the “Belt”) and the 21st Century Maritime Silk Road (the “Road”). The Belt is an overland network of road, rail and pipelines roughly following the ancient Chinese Silk Road trading route that will connect China’s east coast with Europe via a new Eurasian land bridge. The Road is a sea route with integrated port and coastal infrastructure projects running from China’s east coast to Europe, India, Africa and the Pacific through the South China Sea and the Indian Ocean.
Whilst some projects remain on the drawing board and will take years to be fully implemented, others are more advanced. One example is the US$62 billion China-Pakistan Economic Corridor, a flagship Belt and Road project that develops overland transportation and pipeline links from the port of Gwadar to the Chinese province of Xinjiang as a land-based alternative to the Straits of Malacca. It is expected to create up to one million jobs in Pakistan and has been hailed as an “economic revolution”. Other high profile projects include a US$1.1 billion port facility in Sri Lanka, a high-speed rail link in Indonesia and an industrial park in Cambodia.
The potential for disputes
Given the huge levels of investment in the pipeline and the vast territories covered, the opportunities potentially available from the Belt and Road Initiative are bound to capture the imagination of many. However, the scale and complexity of the projects involved means that the Initiative will be challenging.
In particular, depending on the economic and political circumstances of the hosting state, Belt and Road investments may be subject to significant risks ranging from political instability and security concerns to legal, regulatory and funding challenges and local protectionism and prejudices. Whilst some of these risks may be apportioned and mitigated at a commercial level, inevitably disputes will arise. Indeed, it is widely accepted in the business and legal sectors that the complexity and risks involved in the Belt and Road Initiative means there will be a significant role for lawyers, particularly dispute resolution lawyers.
Broadly three types of disputes are likely to emerge:
- perhaps most commonly, disputes between commercial parties, including in connection with related and ancillary services such as financing, customs clearance and foreign exchange.
- investor-state disputes which are generally resolved through the investor state dispute settlement mechanisms under various bilateral and multilateral investment treaties and instruments; and
- finally, state-to-state trade disputes which would typically be resolved under the auspices of the World Trade Organisation (“WTO”) (or, since 1 January 2015, through the Court of the Eurasian Economic Union in respect of states that are not WTO members);
Unsurprisingly the world’s leading dispute resolution services providers have moved to position themselves for the significant need for their services as part of the delivery of Belt and Road.
In January 2017, the Singapore International Arbitration Centre (“SIAC”) released updated arbitration rules and new SIAC Investment Arbitration Rules, likely with half an eye on attracting Belt and Road related investment claims.
In March 2018, the Court of Arbitration of the International Chamber of Commerce (“ICC”) set up a Belt and Road Commission to explore opportunities from the Initiative and develop appropriate dispute resolution procedures in support of Belt and Road disputes.
In April 2018, the Hong Kong International Arbitration Centre (“HKIAC”) set up a Belt and Road Advisory Committee and launched an online resource centre to support Belt and Road related business opportunities.
Dispute resolution – the Chinese way?
The Chinese arbitral institutions are also quick to throw their hats in the ring. In December 2017, the China International Economic and Trade Arbitration Commission (“CIETAC”) launched its Investment Arbitration Rules, understood to be the first set of investment arbitration rules ever promulgated by a Chinese arbitral institution. Notably, the new rules have sought to combine features of traditional Chinese domestic arbitration (e.g. the well-documented arb-med procedure) with best practices in international arbitration, and made specific provision for issues such as third party funding and emergency arbitrator procedures.
Despite this, many remain sceptical that CIETAC will be seen as a credible alternative to the International Centre for Settlement of Investment Disputes (“ICSID”) for investor-state disputes. Nonetheless this will pave the way for CIETAC (and its Rules) to be adopted more widely in future investment agreements and/or treaty instruments involving Chinese parties, particularly where the Chinese state and/or investors (including the Chinese banks and financial institutions providing the funding) wield more bargaining power.
Elsewhere, the Shenzhen Court of International Arbitration (“SCIA”) came into being in January 2018 following the merger of two South China arbitration commissions. In an attempt to solidify its position as a regional arbitration hub, SCIA became the first Chinese arbitral institution to establish a presence in the United States, opening a representative office in Los Angeles in November 2017. It has since entered into cooperation arrangements with the ICC and ICSID, agreeing to share facilities and knowledge in administering international commercial disputes.
Perhaps most notably the highest court in the land, the Chinese Supreme People’s Court (“SPC”), has set up two international commercial tribunals in Shenzhen and Xi’an, collectively known as the China International Commercial Court (“CICC”), to deal with a broad range of international commercial disputes, particularly those arising from the Belt and Road Initiative.
CICC will be a “permanent adjudication organ” of the SPC and will be staffed with experienced judges well versed in international law, familiar with best practices in international trade and able to use English as a working language. It is understood that eight judges, drawn from a domestic list, have already been appointed.
There is however no indication that CICC will have in place a panel of international judges, as is the case with most of the world’s leading international commercial courts such as the Singapore International Commercial Court and the Dubai International Financial Centre Courts. This is not surprising, given that under the current PRC law judges of Chinese courts are required to be Chinese nationals. As a half-way house, CICC will be assisted by an International Commercial Expert Committee on substantive foreign law issues and to act as mediator.
The stated intention is that the CICC will work with international mediation and arbitral institutions to provide for a one-stop dispute resolution mechanism. The details of how this will work in practice are not yet available, and there is speculation as to whether the reference to “international arbitral institutions” in fact signals potential change to the status quo that foreign/international arbitral institutions are not currently allowed to operate within China. While this may be so, it is more likely that the wording was intended to point predominantly to those domestic Chinese arbitral institutions that have an international outlook (whether in terms of its caseload and/or overseas presence), which may help explain some of their recent efforts to “internationalise”.
Primarily, CICC has jurisdiction to deal with first instance international commercial cases that are within the jurisdiction of the lower-level Chinese courts and meet certain value threshold and procedural requirements. There is a possibility that, over time, CICC may take over SPC’s role in reviewing and approving lower courts’ decisions to refuse recognition and enforcement of foreign arbitral – indeed, several of the judges recently appointed to CICC’s panel have previously worked, or are currently working at the fourth civil division of SPC which is designated to deal with such cases. That said, there is some speculation as to whether the eight CICC judges may be required to keep their existing caseload in the SPC divisions or circuit courts in which they currently work, and it will be interesting to see how CICC controls and manages its own caseload.
It is clear that China’s ambitious Belt and Road Initiative has the potential to generate significant opportunities for lawyers and providers of dispute resolution services in the coming years. Established arbitral institutions such as HKIAC, SIAC and ICC are well-placed to benefit from this growth and will likely remain the preferred choice for now.
The establishment of CICC is a clear signal of China’s determination to modernise and internationalise the country’s dispute resolution offering, though it is too early to say whether the CICC will mature into a genuine and viable forum for international dispute resolution, whether for Belt and Road projects or more generally. However, an improved dispute resolution infrastructure in China and continued support from the judiciary are likely to help domestic Chinese arbitral and mediation institutions increase their appeal to international parties and capitalise on dispute resolution work arising, now or in future, from the Belt and Road Initiative.
This blog post first appeared on Practical Law Arbitration Blog on 2 August 2018