- BIT/MIT and Corporate Structure : from the Comparison between CJK Investment Treaty and Cross-Strait Investment Agreement in view of P to G disputes resolution
- July 17, 2014
- Law Firm: Lee Tsai Partners Attorneys-at-Law - Taipei Office
The government of China, Japan and Korea entered into a multilateral investment treaty on May 13, 2012 (the "CJK MIT" ), which came into effect on May 17, 2014 and replaces the existing 1989 bilateral investment treaty (the "BIT") between China and Japan and the 2007 BIT between China and Korea. Taiwan and China also entered into the Cross-Strait Bilateral Investment Protection and Promotion Agreement (the "Cross-Strait IA") on August 9, 2012.
Both CJK MIT and the Cross-Strait IA seek to protect the investment in the territories of another contracting party with generally similar contents. The prominent difference can be found in the measures for resolving disputes between investors and governments (the "P to G disputes") under the two regimes. In general, the P to G disputes primarily emerge from the conditions of fair treatment and expropriation (including economic impact on investment value). A comparison of the dispute resolution measures of the two regimes helps clarify opportunities for effective and fair resolution of disputes when they arise and can serve as reference for corporate structure to invest in China.
- Comparison of dispute resolution measures
Article 13 of the Cross-Strait IA provides that if an investment dispute of P to G cannot be resolved by negotiation, the dispute should be resolved in the following manners: (1) mediation coordinated by the superior government, (2) referral to the Cross-Strait Investment Dispute Resolution Agency for mediation, and (3) resolution via administrative remedies or judicial proceedings in the local competent court. This shows that this regime resolves P to G disputes by way of mediation or litigation conducted under the jurisdiction of the government.
In comparison, Article 15 of the CJK MIT provides that if the disputes cannot be negotiated and resolved in four months, and had completed the administrative procedure of remedy, the disputes can be referred to (1) the local competent court in the place where the investment is made, (2) arbitrated in accordance with the ICSID Convention, (3) arbitrated in accordance with the UNCITRAL Arbitration Rules, or (4) arbitrated in accordance with other arbitration rules subject to the agreement of the contracting parties in dispute. This indicates that this regime resorts to international arbitration to resolve P to G disputes.
Different dispute resolution approaches have their advantages. Mediation seeks to offer compromise proposals for both parties to give in the purpose of a win-win outcome. However, this runs the risk of failure of mediation, unenforceable mediation results, and the dreadful cost of time in delay. On the other hand, arbitration seeks to acquire a legally-binding award on the disputes between the parties via the arbitration tribunal constituted by impartial third parties. With the assurances under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as "New York Convention"), the arbitral awards are usually enforceable. In addition, the UNCITRAL Arbitration Rules provide that the disputing parties can also settle their disputes and, with the approval of the arbitration tribunal, a consent award can be rendered. Thus, arbitration also has the advantage of mediation.
In the future, when Taiwan restarts negotiation with China for the Cross-Strait IA, the experience from CJK MIT can be referenced to incorporate arbitration as a means of dispute resolution so that the Taiwan investors can enjoy more comprehensive protection. In the choice of arbitration rules, although Taiwan is not a signatory to the ICSID Convention and the International Center for Settlement of Investment Disputes (ICSID) may not support the proceedings of arbitration, still the new Cross-Strait IA can adopt the UNCITRAL Arbitration Rules and stipulate the terms of composition of the arbitration tribunal, the appointment of arbitrators and supplemental arbitration matters.
- Reference for Corporate Structure
In general, the protection of Taiwan investors in China has been greatly improved. Dispute resolution by way of mediation is effective in most circumstances. However, if the investors still intend to handle subsequent investment disputes with governments by way of arbitration, the room for flexibility in the choice of investors needs to be created as such.
Not only CJK MIT, Cross-Strait IA or other MIT/BIT, the definition of investor is not limited to natural persons and often includes juristic persons, such as corporate, set up in the contracting country. For example, even when the shareholders of a corporate are natural persons in Taiwan, if the corporate was set up under Japan or Korean law, his/her investment in China will be protected under the CJK MIT. Thereupon, the MIT/BIT can be factoring into the arrangement of corporate structure. Nonetheless, please be noted, there is no immutable choice of nationality of corporate to invest in China. The corporate structure should be considered with all kinds of international treaties/agreements with China on industries, taxation and investment protection as well other commercial factors.