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One Belt One Court: Chinese Courts Raise Eyebrows

March 8, 2018

China is currently undertaking what is arguably the Marshall Plan of the 21st Century - building a network of railroads and shipping lanes linking itself with 70 countries across Asia, Africa, Europe, and Oceania. The ‘Belt and Road Initiative’ (BRI) is one of the largest infrastructure and investment mega-projects in history-- covering 65% of the world's population and 40% of the global GDP as of 2017. The project is already being touted as a marker of Chinese hegemony in the 21st century. China has invested at least $900 billion in projects along the belt and road, mainly in infrastructure, transport, and energy. These include a gas pipeline in Pakistan, a motorway in Hungary, and a high-speed rail link in Thailand. Given the enormity of the project, various legal, economic, and geopolitical concerns are bound to arise. Multi-jurisdictional dealings between Chinese entities and their emerging market counterparts can pose immense regulatory challenges, especially in the realms of financing and execution.

 

What has raised eyebrows is China’s approach to settling these issues. China has recently announced its decision to set up three international courts to deal with any disputes arising from projects under the BRI. This has further triggered apprehensions about China settling issues on its unilateral terms and conditions. The courts will be based in Beijing, Xi'an, and Shenzhen, and have been established under the authority of the Supreme People’s Court of China. The Xi’an court will manage commercial disputes for the Silk Road Economic Belt, which connects China, West Asia and Europe. The Shenzhen court will manage commercial cases for the Maritime Silk Road, which connects China, Southeast Asia, Africa and Europe. A central court set up in Beijing will have functions similar to a "headquarter".

 

A dispute settlement mechanism will be created on the basis of China's current judiciary, arbitration and mediation agencies, and by absorbing and integrating legal service resources home and abroad, according to a statement issued after the CPC meeting, as reported by the state-run Xinhua news agency.

 

There has been clear skepticism about the objectivity and neutrality of these courts. This might also have bearings on corporate investments in the BRI, since companies would be wary of a biased mediation process. "The judiciary is subservient to the Chinese Communist Party and its interests, which will raise legitimate concerns around impartiality,” says Hugo Brennan, analyst at risk consultancy Verisk Maplecroft.

 

 

There have already been complaints about China’s excessive control and interference in the trade proceedings under the BRI. The extent to which other countries cooperate with Chinese hegemony over the dispute settlement process is yet to be determined. Chris Devonshire-Ellis, founder at Dezan Shira & Associates, says,

 

“...it will be interesting to note the reaction of other participating nations who may not appreciate China imposing trade dispute legislation upon their own judiciary and sovereign legislature.”

 

China, which has consistently accused western institutions such as the IMF and World Bank of prejudice, must now prove its own impartiality. To ensure a trustworthy reputation, the new court will need to establish an early, good track record of objective and fair decisions.

 

Most bilateral treaties and the ASEAN treaty provide for similar conflict resolution processes- consultation, followed by mediation, followed by arbitration by an ad hoc arbitration tribunal- with no preset venue or choice of law, either procedural or substantive, according to a recent brief on the issue by law firm Dezan Shira & Associates. The Chinese government is trying to force other sides to accept Chinese mediation and arbitration through its proposal to have these three courts rule on all BRI disputes.

 

As per the Economic Times, there are alternatives to accepting arbitration in China. These include an agreement reached in September 2017 between the Singapore International Mediation Centre and the China Chamber of International Commerce Mediation Centre (CCOIC), which entered into an MoU to resolve BRI cross-border disputes. The law firm, Dezan Shira & Associates also noted,

 

“Despite these steps by China, the choice of arbitration venue and law, both procedural and substantive, should be left to negotiation between the concerned parties... third party jurisdictions with established rules and an experienced body of jurists are always preferable to those jurisdictions affiliated with one or the other of the parties to a contract”

 

For the members of the Belt and Road Initiative, Chinese influence in the dispute resolution seems to be a fait accompli. For China itself, however, this could be a real opportunity, if it is able to display impartiality and a recognition of accepted principles of law and natural justice through these courts, it would send a strong signal of confidence to foreign investors beyond the initiative itself and be a big boost for President Jinping's modernization agenda. On the other hand, if the courts were to be hamstrung to the views and ideas of the party, or even the government, it would give ammunition to detractors such as India, and to a certain extent even the United States, in the ideological battle being waged on initiative. The jury is still out.

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