Editor's note: Since its establishment, as a regional, non-governmental, non-profit international organization in the field of finance, the Asian Financial Cooperation Association (AFCA) has been committed to promoting experience and information sharing among various financial industries and fields in the BRI region, building an international platform for financial business exchange and cooperation and common governance. AFCA, on thebasis of Belt and Road Financial Cooperation Committee (BRFCC), conducts Asian Financial Cooperation Association Belt and Road Financial Cooperation Practice Report. With the business sector as the entry point, the report systematically reviews the cooperation in recent years, deeply analyzes relatively prominent problems and challenges, and offers practical suggestions in line with the actual needs of partner entities.

Copyright Statement：Belt and Road Financial Cooperation Committee of Asian Financial Cooperation Association owns the copyright on this report, including all the text, images and data. No organization or individual is permitted to use the above-mentioned work by reproducing, extracting or in any other ways without the authorization of the Committee. Those who have been authorized by the Committee to use the workshall use it within the scope of the authorization, and the quoted content shall be marked with “Source: Belt and Road Financial Cooperation Committee of Asian Financial Cooperation Association”. Those who violate the above statement will be held legally responsible by Asian Financial Cooperation Association.

Chapter 10 Investment Protection and Dispute Settlement on the Belt and Road Initiative

Following the ongoing efforts on furthering the Belt and Road Initiative, considerable disputes involving civil and commercial cases and investment disputes have emerged. Against the backdrop of that BRI countries have complex political and legal environment, different legal systems, and intertwined cultures and national customs, building investment protection and dispute settlement mechanism characterized by diversity, flexibility and efficiency feature prominently for the smooth implementation of the Belt and Road Initiative. On January 23, 2018, The Central Leading Group for Comprehensively Continuing Reform deliberated and approved “The Opinion Concerning the Establishment of the Belt and Road International Commercial Dispute Resolution Mechanism and Institutions” (“The Opinion”). The Opinion points out that to build the international commercial dispute settlement mechanism and institutions for the Belt and Road Initiative, the principles, including planning together, building together and benefiting together, justice, efficiency and convenience, respect for party autonomy, and diversified dispute resolution, should be upheld. That is of remarkable significance, both realistically and historically, to resolve international business disputes in an equal and fair, professional and efficient, transparent and convenient, and low-cost manner, and to optimize the business environment in accordance with the law, and to build a new platform for international legal cooperation.

With current investment protection and dispute settlement mechanism mainly based on litigation and arbitration, the usage of alternative dispute resolution methods such as mediation and conciliation are limited. Dispute settlement of the initiative still face multiple challenges like high complexity, local protectionism, and difficult execution. In the future, it is necessary to establish a diversified dispute settlement mechanism, to innovate commercial arbitration mechanism for the initiative, and to accelerate the construction of an international commercial court, thus to safeguard the establishment and improvement of the Belt and Road international commercial dispute resolution mechanism and institutions.

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Current Situation of Investment Protection and Dispute Settlement on the Belt and Road Initiative

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The current dispute settlement methods involving civil and commercial cases and investment disputes primarily encompass cross-border litigation, international commercial arbitration, investment arbitration between investors and host countries, and diversified alternative dispute resolution methods represented by mediation. Those different modes, applied to cross-border conflicts with various characteristics, represent following features in settling disputes of civil and commercial cases and investment disputes during the course of the Belt and Road Initiative.

01

Civil and commercial dispute resolutions based on cross-border litigation and international arbitration

Litigation, boasting advantages such as strong judicial effect, appealability for review and powerful enforceability, is the most important approach settling transnational civil and commercial disputes. Therefore, relevant parties are inclined to use cross-border litigation resolving transnational commercial disputes. International multilateral conventions concerning cross-border civil and commercial litigation are mainly the “Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters” concluded at Hague in 1965, and “the Convention on the Taking of Evidence from Abroad in Civil or Commercial Matters” concluded at Hague in 1970. With regard to the recognition and enforcement of judicial decisions, on 2 July 2019, delegations of dozens of countries (including China), confirmed the content of “the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters” to be signed at the22nd Diplomatic Session of HCCH, instead of signing it, thus enabling it open for signatures from all countries. However, tough problems arise when settling civil and commercial disputes between parties of BRI countries by domestic litigation, such as determination of jurisdiction, the ascertainment of foreign law, the service of judicial documents, extraterritorial investigation and evidence taking, the recognition and enforcement of judgments, and the translation of legal documents.

International arbitration, with features of confidentiality, neutrality, efficiency and finality, and so on, is widely applied among investors in the Belt and Road Initiative. What’s more, international arbitration methods gain general support from national jurisdictions because their civil and voluntary nature prevents international allocation of judicial jurisdiction from substantial impairment. Up to October 28, 2020, “the Ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards” (“New York Convention”) in 1958 boasted 166 member states, containing almost 90% of countries and regions with transnational commercial business. The arbitral awards are popular among BRI investors for their cross-border implementation performances prevail over the judgments rendered by any one of the national courts. According to the “China International Commercial Arbitration Annual Report (2019-2020)” issued by the China International Economic and Trade Arbitration Commission (CIETAC) on September 18, 2020, 486,955 new cases were accepted at 253 Chinese arbitration institutions across China in 2019, with an aggregate disputed amount of CNY759.8 billion, increased by 9.3% (CNY64.8 billion) in 2018. Among them, 3,333 arbitration cases were accepted by CIETAC in 2019, an increase of 12.53% year-on-year; and 617 cases involving 72 foreign countries and regions, and Hong Kong, Macao and Taiwan regions of China, an increase of 18.20% year-on-year.[1]

[1] See “Annual Report on International Commercial Arbitration (2019-2020) was released” https://www.sohu.com/a/419288667_362042.

02

International investment dispute resolved mostly by arbitration

For investment disputes between foreign investors and host countries, the common Belt and Road approaches contain local remedies, diplomatic protection from home countries, judicial remedies from home countries or the third countries, international arbitration or mediation, etc. Being different from the commercial disputes between equal subjects, international investment disputes generate between investors and host governments who serves as investment managers. Thus, two subjects are not on equal footing for foreign investors are relatively disadvantaged. Capital importing countries and capital exporting countries hold different viewpoints on how to settle investment disputes between investors and host countries. The former prefers local remedies, while the latter, in an attempt to protect investors, calls on international solutions such as diplomatic protection and international arbitration.

Seeking for local remedies faces a series of problems including wide divergence between legal systems and traditions, varied investment policies, nationalism and local protectionism. Thus, at present, the primary settlement for international investment disputes is international arbitration. According to data published on the official website of the United Nations Conference on Trade and Development (UNCTAD), up to August 2019, 94 of the 131 BRI countries that have signed cooperation agreements with China have been involved in investment arbitration disputes as host countries (respondents in investment arbitration). The number of investment arbitration cases in BRI countries as host countries accounts for 71.23% of the total number of known investment arbitration cases. This shows that the investment arbitration cases in BRI countries as host countries take large proportion of the total investment arbitration cases, which also reflects the fact that the investee countries have failed to provide comprehensive investment protection to foreign investors, and the implementation of relevant treaty obligations is not very optimistic.[1]

International Centre for Settlement of Investment Disputes (ICSID), the first arbitration institution initiated by World Bank for the professional settlement of international investment disputes, provides for settlement of investment disputes by conciliation and arbitration for contracting states and nationals of other contracting states, also serving as the principal institution to govern international investment disputes between investors and governments of host countries. ICSID plays a remarkable role in alleviating investment disputes between developed countries based on exporting capital, and developing countries based on importing capital since its foundation. As of June 30, 2020, ICSID had registered 768 cases under the ICSID Convention and Additional Facility Rules, of which 96.4% were arbitration cases. [2]

[1] LI Jing, SUN Jiajia:The Belt and Road Investment dispute settlement mechanism and case studies. China Legal Publishing House.p.13.

[2] The ICSID Caseload Statistics （2020-2 Edition）, https://icsid.worldbank.org/resources/publications/icsid-caseload-statistics.

ICSID, as an international permanent body, provides corresponding panel lists of conciliators and arbitrators for two parties involved to choose. The conciliators and arbitrators will constitute ICSID Tribunals or ad hoc Committees respectively to conduct conciliation or arbitration for each specific dispute. In practice, investors encounter numerous obstacles when applying arbitration to resolve international investment disputes. For instances, the case, “Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium”, accepted by ICSID in 2015, was concluded that Tribunal decided the Claimants’ claims dismissed for lack of jurisdiction. In 2017, as for the first arbitration case between Chinese investor and BRI countries—”International Economic & Technical Cooperative Corp. and others v. Republic of Mongolia”, the Tribunal distinguished their reading of China-Mongolia Bilateral Investment Treaty (BIT)’s constricted jurisdiction clause from “narrow” reading, deciding the same result as above, rejecting all of the requests for arbitration of the Chinese investors.[1]

[1] LI Zhi, LIU Yongping, “The Study of the Application of Mediation in the Settlement of International Investment Disputes in the Belt and Road Initiative”, Chinese Yearbook of Private International Law and Comparative Law, Issued 1, 2018.

03

Mediation gradually becomes the main way of dispute settlement along the Belt and Road Initiative

Majority of the 65 BRI countries encourage parties to settle disputes through mediation mechanisms. What’s more, activities on the application of mediation mechanisms are also being carried out in various countries. In recent years, countries have successively promulgated laws related to the mediation system to safeguard the operation and development of the system by laws and regulations, such as “the Directive on Certain Aspects of Mediation in Civil and Commercial Matters” (Directive 2008/52/EC) passed by the European Parliament and the Council in 2008, “the Act to Promote Mediation and Other Methods of Out-of-court Dispute Resolution” enacted by Germany in July 2012, and “the Federal Law No. 193-FZ ‘On Alternative Procedure of Dispute Settlement with the Participation of an Intermediary (mediation procedure)’ “ enacted by Russia, which entered into force on January 1, 2011, etc.[1]

“The United Nations Convention on International Settlement Agreements Resulting from Mediation” (the “Convention”) was adopted by UNCITRAL at its fifty-first session on 27 June 2018. Furthermore, the 73rd session of UN General Assembly, after adopting the Convention on 20 December 2018, authorized that the Convention would open for signature in August 2019 in Singapore and would be known as the “Singapore Convention on Mediation”. The Convention, entering into force on September 12, 2020, encompassed 53 signatories including China, India and the United States as of September 2020. As a non-litigation dispute settlement mechanism, mediation is able to maximize the mutual benefits and win-win outcomes for both parties based on the voluntariness and confidentiality of them. After the Convention enters into force, mediation can be considered as a major option for dispute resolution in cross-border transactions by enterprises, enabling the implementation of mediation results to have more certainty and assurance.

For international investment disputes, ICSID also recognizes the unique role of mediation in settling these disputes. However, at present, arbitration occupy a large part in the dispute settlement approaches adopted by ICSID. Although ICSID can also provide international investment mediation, in practice, the number of cases submitted to ICSID for mediation is relatively small and the success rate is low.[2]

[1] WANG Li, Belt and Road International Commercial Mediation, Peking University Press, 2020, pp.368-470.

[2] LI Zhi, LIU Yongping, “The Study of the Application of Mediation in the Settlement of International Investment Disputes in the Belt and Road Initiative”, Chinese Yearbook of Private International Law and Comparative Law, Issued 1, 2018.

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Preface

Current Macro-policy Environment of the Belt and Road Initiative Financial Cooperation I: Current Macro-policy Environment of Financial Cooperation

Current Macro-policy Environment of the Belt and Road Initiative Financial Cooperation II: Main Challenges for the Current Macro-policy Environment of Financial Cooperation

Current Macro-policy Environment of the Belt and Road Initiative Financial Cooperation III: Suggestions on Improving Macro-policy Environment for Financial Cooperation

Credit Support for the Belt and Road Initiative I: Latest Development in Credit Support for the Belt and Road Initiative

Credit Support for the Belt and Road Initiative II: Challenges in Credit Support for the Belt and Road Initiative

Credit Support for the Belt and Road Initiative III: Recommendationson Strengthening Credit Support for the Belt and Road Initiative

The Belt and Road Equity Financing I: Current Situation of the Belt and Road Equity Financing

The Belt and Road Equity Financing II: Problems of the Belt and Road Equity Financing

The Belt and Road Equity Financing III: Suggestions for the Belt and Road Equity Financing

Issuance of Belt and Road Bonds I: Current Situation of the Issuance of Belt and Road Bonds

Issuance of Belt and Road Bonds II: Problems of the Issuance of Belt and Road Bonds

Issuance of Belt and Road Bonds III: Suggestions Related to the Issuance of Belt and Road Bonds

The Belt and Road Insurance Services I: The Current Situation of the Development of Beltand Road Insurance Service Construction

The Belt and Road Insurance Services II: Problems of the Belt and Road Insurance Service Construction

The Belt and Road Insurance Services III: Suggestions for the Construction of the Belt and Road Insurance Service

Payment and Settlement of the Belt and Road Initiative I: Current Situation of Payment and Settlement of the Belt and Road Initiative

Payment and Settlement of the Belt and Road Initiative II: Problems of Payment and Settlement of the Belt and Road Initiative

Payment and Settlement of the Belt and Road Initiative III: Suggestions for Payment and Settlement of the Belt and Road Initiative

Building the Belt and RoadInitiative Investment and Financing Platforms I: the current situation

Building the Belt and RoadInitiative Investment and Financing Platforms II: Existing Problems

Building the Belt and RoadInitiative Investment and Financing Platforms III: Some Suggestions

BRI Inclusive Financial Cooperation I: The Current Situation of BRI Inclusive Financial Cooperation

BRI Inclusive Financial Cooperation II: Problems of BRI Inclusive Financial Cooperation

BRI Inclusive Financial Cooperation III: Suggestions on Inproving BRI Inclusive Financial Cooperation

Investment Risk Assessment and Management of the Belt and Road I: The Status Quo of BRI Investment Risk

Investment Risk Assessment and Management of the Belt and Road II: Response and Management of BRI Investment Risk

Investment Risk Assessment and Management of the Belt and Road III: Suggestion on Improving Investment Risk Management of the Belt and Road

AFCA BeltandRoad亚洲金融合作协会“一带一路”金融合作委员会官方公众号（Official Account of AFCA BRFCC），旨在搭建“一带一路”金融合作平台，分享“一带一路”金融思想与经验，研究区域经济金融形势，促进区域互动合作。58篇原创内容Official Account

Typesetting: Xu Han (Intern),Development Department I of AFCA

Email: lihan@afca-asia.org