By Jerome A. Cohen
Here is a good article looking into China’s plan to develop dispute mechanisms in relation to its Belt and Road Initiative (BRI), Dispute settlement on China's terms: Beijing's new Belt and Road courts. In short, the People’s Republic of China is now setting up various mechanisms to deal with BRI contract disputes between Chinese investors (including Chinese state-owned enterprises) and foreign companies.
There are many unanswered questions about how this new option will develop. Will PRC negotiators try to insist that local host partners agree to PRC court or arbitration jurisdiction? Will host nations insist that disputes arising from BRI projects in their countries be dealt with in their own courts or arbitration tribunals?
When Western foreign direct investment (FDI) began in earnest in China in 1979, there was a period of jousting as foreign companies sought to assure arbitration outside of China. No one dreamed of submitting to PRC court jurisdiction but some investors were agreeable to working out arbitration in China under mutually acceptable rules. In that brief period PRC negotiators were usually under orders to try until the last moment to persuade the foreigners to accept PRC arbitration but not to lose the deal because of their efforts.
In a few years, however, the PRC insisted that, if a project was to take place in China, any relevant disputes had to be arbitrated in China under PRC procedures, institutions and governing law, and such was the appeal of investing in China that the PRC usually had the bargaining power to obtain FDI on its dispute resolution terms. Some potential investors, however, refused to sign up, at least until subsequent years demonstrated a basis for relying on PRC arbitration.
Soon the China Council for the Promotion of International Trade (CCPIT)/ China International Economic and Trade Arbitration Commission’s (CIETAC) monopoly on arbitration of FDI disputes in China was broken by some 200 Chinese cities, each of which, under local Party control, sought to get a piece of the foreign-related arbitration action. Wise foreigners sought to avoid most of these, although the Beijing Arbitration Commission gradually inspired foreign confidence, in some cases more than CIETAC did. Then, of course, civil or uncivil war developed within CIETAC itself as Shanghai, Shenzhen and other CIETAC branches challenged the Beijing Headquarters.
I think most BRI contracts, at least at the start, may favor Singapore arbitration, the Hong Kong International Arbitration Center or some other neutral, prestigious institution located in a place with a credible judicial system for enforcement of awards and interpretation of relevant law. Or the International Chamber of Commerce (ICC) or some other well-known organization may be authorized by the parties to conduct arbitration in a place of mutual convenience under its rules as modified by the parties to suit their needs in matters relating to procedure, language and substantive law. I doubt whether national courts, in China or elsewhere, will play much of a role, at least in BRI’s early years.
Construction contracts are hideously complicated to draft, apply and arbitrate. For example, a decade or so ago I presided for 12 days over an ICC hearing of a dispute between a South Korean investor and a Saudi Arabian company involving a joint venture factory investment in Saudi Arabia that went awry. I loved asking questions every day but then ruined the rest of my summer by having to draft a long award that would have benefited from greater knowledge of engineering than I or my two fellow arbitrators possessed. Things sometimes became even more complicated if, as called for in some international construction contracts in China and Taiwan, the hearing had to be conducted in Chinese and the award written in Chinese!