China Passes Belt and Road Trade Dispute Mechanism, But Who Will Have Final Say?

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The Chinese government has approved a guideline to establish a mechanism to solve trade and investment disputes among the Belt and Road nations, which was passed during a meeting of the Leading Group for Deepening Overall Reform of the 19th Communist Party of China Central Committee.

It was agreed that the principle of wide consultation, joint contribution, and shared benefits should be observed in establishing the mechanism and institution. The basic text states that a dispute settlement mechanism connecting litigation, mediation, and arbitration 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.

Members of the group called for equal protection for both Chinese and foreign parties’ rights to create a stable, fair, and transparent law-based business environment.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “It is uncertain how much the legal authority of China is expected by Beijing to influence disputes, which by their cross-border nature, are also bound by other nations’ sovereign laws. While China does recognize certain international arbitration bodies, it does not always do so and has previously insisted on arbitration bodies that it controls. If this is the case along the Belt and Road, 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 does have an existing trade dispute body, the China International Economic and Trade Arbitration Commission (CIETAC); however, the organisation has had problems arising from political influence in the past, and is not always considered to be transparent. All joint ventures in China must contain within their articles a trade dispute clause, which typically refers such matters to CIETAC. However, China does not always recognize international arbitration in matters concerning its own sovereignty, including the notorious refusal to recognize the United Nations own “Convention of the Law of the Sea”, which Beijing is a signatory to, while at the same time ignoring its decisions when it suits. Examining exactly how China proposes to handle trade dispute mechanisms along the Belt and Road, while potentially attempting to impose its own arbitration rules on other nations is going to be an interesting legal development to follow. Of vital importance is under what circumstances the new arbitration process kicks in, and whether it takes precedence over existing trade dispute mechanisms. If so, legal counsel globally will need to look at the implications, regardless of whether their clients even have a presence in China or not.

When signing up for Belt and Road participation, foreign governments, in the wake of all the political excitement and potential funding will still need to read the small print.


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