Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration – Book Review (Part II)

[Part I and Part III of this book are reviewed in earlier and subsequent postings]
Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration, Julien Chaisse, Tomoko Ishikawa and Sufian Jusoh (eds),
Springer, 2017, xii + 260pp, ISBN 978-981-10-588, 120 Euros
Reviewed by: Luke Nottage and Ana Ubilava

Part II of this book begins with a chapter focusing on “regionalization” within Southeast Asia through ASEAN. However, those reading the Trakman chapter may like to jump ahead one chapter to Hamanaka’s excellent analysis of the “China-Japan-Korea Trilateral Investment Treaty”. It adds clear explanations of the historical development of investment treaty programs in China compared to Japan, which is emerging as a more aggressive player now in regional treaty-making (as we saw in the TPPA negotiations) to support Japanese investors’ longer-standing large-scale outbound investments throughout Asia.
For example, in Table 1 (p124) Hamanaka points out that in a first phase (1980s-1990s), China’s BITs had no or limited National Treatment (NT) commitments, a stance extending into the second phase (2000s) only for developing countries, whereas China’s BITs with developed countries agreed to post-establishment NT and Most-Favoured Nation (MFN) treatment. In the third phase (from 2007), treaties extended to pre-establishment MFN but not pre-establishment NT. In Table 2 (p127), Hamanaka suggests that China’s second-generation treaties were pro-investor as China began emerging as an outbound FDI exporter, whereas the third generation incorporates “more balanced and detailed” provisions in line with greater appreciation of the. By contrast, Japan’s treaties demonstrated a pro-investor generational shift from 2002, consistently with its large FDI outflows. Hamanaka’s Table 2 suggests that this stance has persisted since 2007. In our view, that is certainly true regarding Japan’s program for standalone BITs, which has been ramped up in recent years especially with high-risk investment destinations in Africa and the Middle East. However, investment chapters within Japan’s FTAs (like the TPPA or bilaterally with Australia in 2015) can be seen as more balanced and detailed, although compared to China these treaties remain pro-investor by committing to more pre-establishment NT (ie freer market access or liberalisation of FDI).
Hamanaka then shows how China’s renegotiated BIT with Korea (agreed in 2007) was more pro-investor than the 1989 China-Japan BIT, especially regarding prohibitions on performance requirements, protections against expropriation and access to full ISDS (pp 129-31, Table 3). This prompted negotiations for a trilateral BIT, agreed in 2012 with most (even more pro-investor) features of the 2003 Japan-China BIT, but still without commitments to pre-establishment NT (with a “negative list”, requiring countries then to negotiate and schedule all exceptions to NT). Hamanaka goes on to show how pre-establishment NT with a negative list remains a major issue in negotiations for an investment chapter in a trilateral FTA (and presumably now also RCEP). However, he astutely points out (at p137) that Japan at least may be able to “free ride” on China’s negotiations that are also ongoing with the EU and particularly the US, which has been pressing hard for pre-establishment NT in a new China-US BIT (p137). This is because Japan has kept in force its 1989 BIT with China, alongside the 2012 trilateral BIT including Korea, and the 1989 BIT has a broad MFN clause allowing Japanese investors to “import” better liberalisation provisions in subsequent treaties concluded by China with third countries – whether BITs or FTAs.
Another China-related chapter further into Part II of this book deals with the “One Belt, One Road” initiative, announced by President Xi Jingpeng in late 2013. The subtitle of the chapter by Jun He (from China’s Ministry of Agriculture) is “China’s New Strategy and its Impact on FDI”, with a heavy focus (unsurprisingly) on the country’s interest in investing offshore in agricultural land developments. It is interesting to learn that this project to promote cross-border economic cooperation with 63 other countries westward from the Middle Kingdom in fact involves two “roads” or “lines” (pp 163-4), Beijing – Russia – Northern Europe and Beijing – Central / West Asia – Europe, as well as the maritime “belt” through Southeast Asia – South Asia – East Africa – Europe. (Perhaps for this reason, the project is now more often referred to as the “Belt and Road Initiative.)
Unfortunately, this chapter by He is very general, and has more than usual typos (see multiple examples on p175). It does not connect with the other chapters unpacking China’s investment treaty program, except briefly to urge negotiations over BITs to protect (outbound) investors, as well as efforts by firms to assess and minimize FDI risks (pp 174-5). Perhaps only after this book went to press, the China International Economic and Trade Commission (CIETAC) inaugurated tailor-made Investment Arbitration Rules in October 2017, following the lead of the Singapore International Arbitration Centre (SIAC) in January 2017. There is also now talk of China establishing an international commercial court (perhaps also influenced by Singapore’s initiative since 2015), as another type of hub for cross-border investment dispute resolution along the Belt and Road(s).
Anyway, Part II of this book begins not with the further China-focused chapters by Hamanaka and He, but instead with an explanation by Jusoh and Chaisse about “ASEAN regulation on foreign investment”. Their discussion centres on ACIA, which was signed in 2009 to reflect “a consensus that cross-border investment has a positive role to play in all ten ASEAN member states” (p117). A focus is on this intra-ASEAN treaty’s centrality for the creation of the ASEAN Economic Community bringing Southeast Asia even closer together. This project was mostly achieved by the end of 2015, but remains subject to ongoing work programs – especially in the services sectors. This chapter could have placed more emphasis on significant historical ambivalence towards inbound FDI on the part of several Southeast Asian states. That can be seen in two earlier intra-ASEAN investment treaties. This would also help explain some significant restrictions on investments subject to liberalisation and protections even through ACIA; it covers investments only in manufacturing, agriculture, fisheries, forestry, mining, and services related to these sectors, but not for example those in other services sectors.
Some differences as well as mostly commonalities could also have been signposted between ACIA and the five ASEAN+ investment agreements, including even the Australia-NZ-ASEAN FTA investment chapter that was signed in the same year (2009). However, some features of those ASEAN+ agreements (except the ASEAN-India Investment Agreement, despite being signed in late 2014) are mentioned instead in Losari’s later chapter entitled “A Baseline Study for RCEP’s Investment Chapter: Picking the Right Protection Standards”. In assessing standards likely to find common ground in the (still ongoing) ASEAN+6 RCEP negotiations, Losari’s careful and comprehensive study also compares provisions in bilateral FTAs concluded by major Southeast Asian economies as well as the WTO’s agreement on trade-related investment measures (an important precedent given the tendency of Southeast Asian states to retain performance requirements impacting on foreign invetors), the TPPA, and recent FTAs with the European Union (EU). In the context of the EU’s FTA signed in 2015 with Vietnam, substituting a two-tier investment court (with members pre-selected only by the states party) for the one-shot ISDS procedure (with arbitrators selected, by host states and foreign investors, if and when a claim is filed), Losari suggests that: “Although finality may be compromised, … ensuring increasing governance in the system and more harmonized interpretation … should prevail over such concern” (p158).
We should now add that the Singapore-EU Investment Protection Agreement concluded in April 2018 also adopts this investment court procedure now favoured by the EU, replacing an earlier TPPA-like ISDS procedure in the Singapore-EU FTA investment chapter originally signed in 2015. This may bolster the chances of a permanent investment court model, or at least core features like a built-in appellate review mechanism for serious errors of law, being introduced into the ASEAN+6 FTA. This seems particularly likely given broader concerns about conventional ISDS evident in other Asian states negotiating RCEP, such as India and Indonesia, as well as even some developed countries like Australia (particularly over 2011-2013) and the Ardern coalition government elected in New Zealand (which similarly renounced ISDS for future treaties, after gaining power in November 2017).
By contrast, Feldman, Vignolo (from the OECD) and Chiffelle (World Economic Forum) are quite upbeat in their insightful chapter on “The Role of Pacific Rim FTAs in the Harmonization of International Investment Law: Towards a Free Trade Area of the Asia-Pacific”. They identify a convergence in state practice across the region (such as liberalisation commitments combined with greater clarifications about host state regulatory space), contributing to harmonization of international investment law, as well as the current or future conclusion of mega regional agreements. In particular, they suggest that the pending China-US BIT could help bridge differences between the TPPA (which they described still as including the US, but not China) and RCEP (including China but not the US), while acknowledging divergent views of China and US regarding market access for FDI (including pre-establishment NT), prohibitions on performance requirements, transparency in ISDS, and so on.
Feldman et al suggest that such remaining challenges to regional harmonisation could be addressed in various ways (p199). One approach is the China-Australia FTA, leaving some issues to be further negotiated through a work program (albeit, it should be noted, in the shadow of a BIT that remains in existence). A second is a plurilateral opt-in approach, as with the 2014 Mauritius Convention on Transparency in Treaty-based Investor-State Arbitration (which Australia signed on 18 July 2017). A third is a more pro-active role by APEC in brokering a broad FTAAP. However they note that four RCEP negotiating states are not APEC members (notably India), while four APEC members have not been involved in either the TPPA or RCEP (Hong Kong, Taipei, Russia and Papua New Guinea). Feldman et al also note the complication of the EU shift since 2015 to an investment court system in lieu of conventional ISDS, impacting on EU treaties already concluded in the region (including already the EU-Vietnam FTA) or under negotiation (for example with China).

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.