Agreements and Dispute Settlement in China–Africa Economic Ties
Agreements and Dispute Settlement in China–Africa Economic Ties
Abstract and Keywords
Unencumbered by a history of an intrinsically hierarchical relationship, contemporary China–Africa economic ties appear to have the benefit of being on balance politically horizontal, economically reciprocal, and systemically transactional. A corpus of credible evidence now demonstrates that overall the economic ties of the last couple of decades in the areas of trade, investment, and other types of commercial relations have been remarkably successful. The trajectories also appear optimistic. Beginning from ancient times, political boundaries notwithstanding, commercial relations have always been ordered by law. The existing post-colonial modern world order is, however, largely formalistic and moderately harmonized. It expects formal rules and institutions for the ordering of economic affairs of the scale and complexity represented by China’s contemporary relations with Africa. This chapter identifies and critically appraises China–Africa’s use of agreements to order their economic relations, and the mechanisms of dispute settlement that these agreements envision.
Keywords: China–Africa agreements, China–Africa contracts, China–Africa investment, China–Africa arbitration, China–Africa trade, China–Africa infrastructure agreements, Belt and Road Initiative agreements
Unencumbered by a history of an intrinsically hierarchical relationship,1 contemporary China–Africa economic ties appear to have the benefit of being on balance politically horizontal,2 economically reciprocal,3 and systemically transactional.4 A corpus of credible evidence now demonstrates (p.217) that overall the economic ties of the last couple of decades have been remarkably successful in the areas of trade,5 investment,6 and other types of commercial relations.7 The trajectories also appear optimistic.8
Beginning from ancient times, political boundaries notwithstanding, commercial relations have always been ordered by law albeit customary law in Africa,9 Li and Fa in China,10 Sharia in the Islamic world,11 lex mercatoria,12 Common Law or Civil Law13 in Europe. The existing post-colonial modern world order is, however, largely formalistic and moderately harmonized. It (p.218) expects formal rules and institutions for the ordering of economic affairs of the scale and complexity represented by China’s contemporary relations with Africa.
This chapter identifies and critically appraises China’s use of agreements to order its economic relations with its African counterparts, and the mechanisms of dispute settlement that these agreements envision. The term ‘agreements’ is used in its broadest sense to include not only state-to-state international treaties but also transnational commercial and infrastructure contracts concluded between Chinese state-owned enterprises and African governments or other African-owned interests.
This chapter is divided into four further sections. Section 11.2 offers a cultural note on China and Africa’s understandings of law and legal institutions in light of Western notions that each has experienced in its own ways. We then delineate the contemporary substantive rules contained in China–Africa trade, investment, and commercial agreements, followed by description and evaluation of the dispute settlement provisions contained in each category of agreements (with profiles of some recent cases for purposes of demonstration). The final section offers a brief recap of the discussions and concludes with a few recommendations for improvement.
11.2 Agreements in China–Africa Economic Ties: A Cultural Note
No matter what form they take, legally enforceable agreements are essentially exchanges of promises. The meaning that various societies attach to them could be different. In Western societies, cultural proverbs such as ‘promises must be kept though the heavens fall’ are enforced through legal principles such as the parol evidence rule. The parol evidence rule, an elementary legal notion as it were, considers written contracts as the entirety of the parties’ understandings and excludes all exogenous evidence to prove the nature and content of the contract in question.14 Scholars who have had sufficient opportunity to study the cultural nuances involved in agreements between Western and Eastern interests note the differing understandings that each side assigns to agreements or contracts with a degree of amusement. For example, (p.219) Dean Philip McConnaughay, who spent ten years as the head of a major US firm in Tokyo and several years as dean of the Peking University’s School of Transnational Law in Shenzhen writes: ‘Asian and Western parties to a commercial transaction may both understand clearly the terms of their agreements but still hold [entirely] differing conceptions of the [meaning and effect of their] contract.’15 He further notes that Asians regard contracts as ‘“relational” in the same sense that Western commercial relationships are “legal”’.16 And as such, for Asian culture ‘situational and circumstantial considerations prevail…over contractual terms and expectations, conflict avoidance and negotiation or conciliations prevail over all-or-nothing adjudication, and custom and usage (along with the rest of these values) prevail over written law’.17
Former International Court of Justice president T. O. Elias had a similar observation vis-à-vis African and European understandings of legal rules and disputes. He notes in particular: ‘The ultimate purpose of law in a society, be it African or European, is to secure order and regularity in the conduct of human affairs and ensure the stability of the body politic. Where there is a divergence in the approach is that whereas African law strives consciously to reconcile the disputants in a lawsuit, English law often tends to limit itself to the bare resolution of the conflict by stopping at the mere apportionment of blame as between the disputants.’18 The fundamental difference is therefore, ‘[The African judgement] is a judgment by agreement intended to resort and preserve the social balance, and differed materially in principle from a judgment in European courts, which is a judgment by decree intended to enforce the legal rights of one party to the complete and permanent exclusion of the other, whatever the effect on the social equilibrium may be.’19
The existing conceptions of agreements, laws, and legal institutions in Africa and China may be deeply rooted in tradition but are not purely traditional. They have undergone centuries of transformation through interactions with the Western world, both voluntarily and involuntarily, but they are by no means totally Westernized. As the renowned French comparatist, René David, opines, the superimposition of colonial law in Africa has (p.220) resulted in the ‘complete deformation’ of customary law.20 Although China did not have the exact same experience, as China modernized its laws, ‘the confucianization of the law’ remains a part of it.21 As Professor James Nafziger writes, ‘Today, the Chinese continue to be concerned about the propriety and attitudinal change just as they are intent on rapidly developing formal law.’22
It is within this complex historical and cultural milieu that China and Africa are now attempting to order their economic relations by formal agreements, laws, and legal institutions. The following section details the sources and contents of the available substantive norms that govern China–Africa trade, investment, and other types of commercial interactions.
11.3 China–Africa Economic Agreements and Substantive Contents and Norms
For purposes of legal analysis, China–Africa agreements could be broadly classified into trade agreements, investment agreements, commercial agreements, and other types of agreements. Since 2000, China–Africa economic relations have been coordinated under the Forum on China–Africa Cooperation (FOCAC).23 Although it has been nearly two decades since its initiation, no effort seems to have been made to transform FOCAC into a formal economic partnership agreement of any kind. All types of agreement discussed herein are thus necessarily distinct and sectoral.
11.3.1 Trade Agreements
At the most general level, China and forty-seven African member states trade within the World Trade Organization’s (WTO) legal regime.24 The preponderance of the world’s trade today takes place within the WTO legal framework. Although the WTO itself is a relatively recent addition to the world order (1995), ‘it is not so young’25 because the principles it is predicated on (p.221) developed over a period of several decades beginning from the end of the World War II under the General Agreement on Tariffs and Trade (GATT).26 Created by a binding multilateral treaty27 for the purpose of providing ‘common institutional framework for the conduct of trade relations’28 in goods, services, and intellectual property,29 the WTO enshrines some basic substantive principles, most notably: (1) the most-favoured nation (MFN) treatment; (2) national treatment; (3) tariff reduction on imports; (4) elimination of quotas; and (5) transparency of trade-related domestic laws.30
Technically, China and African member states of the WTO carry on their trade relations under these principles. In reality, however, many of these principles are supplanted by China’s unilateral trade concessions and bilateral trade agreements with more than forty African states.31 Presumably WTO compatible,32 these trade concessions and bilateral agreements,33 according to the Chinese Ministry of Foreign Commerce, offer qualifying African states preferential treatment including duty-free privileges to nearly all imports from Africa to China.34 As yet, China has not taken a meaningful step to formalize its trade relations by free trade agreements with Africa. As of this writing, the first such effort is underway with Mauritius.35 If it materializes, the China–Mauritius FTA could signal a significant step in formalizing China’s (p.222) trade relations with African states and may even offer a possible model, if done well, for future use.
11.3.2 Investment Agreements
Unlike international trade, international investment does not benefit from a multilateral treaty regime.36 As a result, nations order their investment relations through bilateral investment treaties often called BITs. BITs are essentially reciprocal promises by and between the contracting states for the benefit of their respective nationals, natural or juridical. They set forth international rules or introduce external standards for the treatment of foreign investors in each other’s territories. As of this writing, China has concluded BITs with thirty-five African countries.37 Of the thirty-five concluded BITs, sixteen have come into force.38
When China began concluding BITs as it was opening up in the early 1980s, its principal focus was primarily to attract investment from the developed world of the North. As such, a great majority of the thirty BITs that it signed in the 1980s was with European nations, with only one with an African state (Ghana).39 Unlike most, if not all, developing countries, China pursued its BIT programme using its own BIT model that changed considerably over time. The model that China concluded in the 1980s, called first-generation BIT,40 was rudimentary but contained certain basic principles such as non-discrimination, MFN, fair and equitable treatment, some compensation for expropriation, but not the principle of national treatment.41
(p.223) Chinese BITs concluded in the 1990s, called second generation, add a modified form of national treatment. A good example of what is called a modified national treatment clause is the following: ‘Either Contracting Party shall, to the extent possible, accord treatment in accordance with the stipulations of its laws and regulations, to the investments of the investors of the other Contracting Party the same as that accorded to its own investor.’42 Although this provision is contained in some of the second-generation BITs, its permissive formulation and limited use has made it an unremarkable distinguishing feature. The main difference between the two generations is on dispute settlement (see Section 11.4).
Chinese BITs concluded since 2000 are modern in the sense that they include not only the basic principles of non-discrimination, MFN, fair and equitable treatment but also national treatment.43 They also enshrine what is called the Hull Rule44 for expropriation.45
In legal terms, therefore, Chinese investors in some African nations, and investors of some African nations in China benefit not only from each other’s domestic investment laws but also from external or international standards of treatment contained in these BITs.
In addition to the protection that emanates from these state-to-state investment treaties, investors or other Chinese entities doing business in Africa or African persons or entities doing business in China almost invariably order their affairs through commercial or other types of private agreements no matter who is on the other side; that is to say whether the other contracting party is a state agency or instrumentality, a state-owned enterprise or a purely private person or entity. The Section 11.3.3 takes a brief look at these commercial agreements.
According to data compiled by CARI, in 2016 alone, Chinese companies entered into construction contracts worth US$50 billion.46 The Addis Ababa–Djibouti47 and Nairobi–Mombasa rail projects are examples of mega Chinese projects.48 Operationalizing any one of these projects requires a series of contracts and sub-contracts ranging from financing agreements to construction to management. Each contract presumably sets forth the basic terms of the agreement, choice of law, judicial forum selection, and alternative mechanisms of dispute settlement such as arbitration.
Because these contracts are not publicly available, the contents cannot be analysed here; however, a few foundational points are worth highlighting. First, although these agreements are in principle arm’s length, given the element of hierarchy inherent in providing the financial resources and know-how, it is fair to expect that they manifest themselves in the contracts both in terms of the substantive contents and dispute resolution. Second, major international project contracts often use form contracts such as model contracts published by the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils) (FIDIC). These kinds of contracts regulate the details of the relationship including the allocation of risk, claims procedures, milestones, supervision, performance bonds, dispute settlement, and so on. The Chinese international infrastructure agreements would presumably follow this or similar form contracts with the required modifications. Third, because most of the projects are financed and executed by Chinese companies, it is fair to assume that there would be some level of uniformity of terms. Finally, some anecdotal evidence suggests that in at least some of these contracts, Chinese law is selected as the applicable law and dispute settlement is referred to China International Economic and Trade Arbitration Commission (CIETAC) in Beijing or some other Chinese arbitral institution.
The terms of agreements are demonstrations of the perception and reality of the inherent balance of power between the contracting parties, and as such are excellent indicators of the sustainability of the relationship. That is because they offer clear and enforceable evidence of the exact power balance.
China also has other types of bilateral agreements with African states, including judicial assistance treaties, taxation, and currency treaties. China has entered into at least thirty-six judicial assistance treaties including with at least five African states.49 These treaties cover such areas as court judgement enforcement (thirty-three of thirty-six), the taking of evidence (thirty-six of thirty-six), service of process (twenty-eight of thirty-six), arbitration (twenty-eight of thirty-six), information exchange (thirty-six of thirty-six), criminal (nineteen of thirty-six), and judicial record (one of thirty-six).50 A good example of China–Africa judicial assistance treaties is the one signed between China and Ethiopia on 4 May 2018.51 This treaty covers such areas as reciprocal enforcement of each other’s courts’ judgements (articles 21–27), arbitral awards (articles 28–31), service of judicial documents (article 9–12), and taking of evidence (articles 13–19). These provisions appear standard with no notable peculiarities.
China has signed at least 104 bilateral tax treaties as of 2016; fourteen of these are with African states.52 These countries include Botswana, Egypt, Zambia, Zimbabwe,53 and South Africa.54 The agreements seek to harmonize the tax laws and avoid double taxation.55
Chinese tax treaties are reportedly based on the OECD Model Tax Convention and the UN Income and Capital Model Tax Convention.56 (p.226) Although these treaties are model and principle based, great variability is to be expected. Some have caused concerns about their equitability.57
China’s currency agreements also appear to be on the rise.58 It is reported that Angola, Ghana, Nigeria, South, Africa, Zimbabwe, and Zambia, among others use the renminbi as their reserve and settlement currency.59 The use of the renminbi is presumably regulated by agreements, the texts of which do not appear to be publicly available.
11.4 Dispute Settlement in China–Africa Economic Agreements
Economic agreements designed to regulate the behaviours of two or more contracting parties do not always achieve their objectives in the ways desired and anticipated by both or all parties. A certain percentage of agreements inevitably lead to disagreements, and a smaller percentage of those escalate to legal dispute requiring formal resolution. In modern times, the number of formal disputes is often one indicator of the scale and complexity of the economic relations. For example, before opening up, China did not have many, if any, trade, investment, or commercial disputes with foreign entities because the economy was at a standstill and there were limited or no foreign interests doing business in China. As its economy grew, the number of economic disputes of all types grew exponentially. A good demonstration is provided by CIETAC’s caseload statistics. It shows that in 1985, it administered a total of thirty-seven cases. By 2016, that number grew to 2,183, of which 485 involve foreign-related cases.60 Similarly, but to a less extent, the Cairo Regional Center for International Commercial Arbitration (CRCICA) has also registered a rise in the number of cases over the last decade. For example, the total number of cases filed with the CRCICA in 2008/9 was 637.61 That number rose to 1,161 by 2016.62 As the scale of the economic relations between China and Africa increases so will the number of disputes. With this reminder, this section focuses on formal dispute settlement (p.227) mechanisms in trade, investment, and commercial agreements between China and African parties.
The principal dispute settlement mechanism in world trade today is the WTO dispute settlement system. The WTO has an elaborate and perhaps relatively successful dispute settlement mechanism. This system grew out of the GATT dispute settlement mechanism.63 The WTO has an independent treaty on dispute settlement to which every member state is required to accede as a condition of membership. It is called Dispute Settlement Understandings (DSU).64 The DSU’s twenty-seven articles set forth the details of the dispute settlement mechanism. Without getting into the details, a case is at first referred to the Dispute Settlement Body (DSB), which is the General Assembly itself. And the DSB sets up a panel for the resolution of the particular dispute. The panel’s resolution would be adopted by the DSB unless all members decided to reject it unanimously. The losing party would have an opportunity to appeal to the seven-member Appellate Body.65
China has been an active participant since it joined the WTO.66 As of this writing, China has had fifteen cases as complainant, thirty-nine cases as respondent and 142 cases as third party.67 Only the United States and the European Union have been more active participants.68 Africa’s participation is limited, with South Africa having the largest number of cases—five cases as respondent and seven as third party.69 The complainants against China were Canada, the European Union, Guatemala, Japan, Mexico, and the United States.70
(p.228) So far, no African state has filed a case against China. Similarly China has not filed a trade case within the WTO system against any African state as of this writing.71 This is not surprising given the volume of trade and the unilateral concessions that China grants to African states. As the trade relations grow in scale and complexity, disputes are likely to arise and when they do the WTO mechanism remains available for all member states.
All of China’s BITs with African states provide for investor–state arbitration and state-to-state arbitration. These provisions have shown significant evolution since the first China–Africa BIT in 1989, i.e. China–Ghana BIT. This BIT limited international arbitration on the quantum of compensation only.72 As a part of China’s first-generation BIT, this BIT did not permit the arbitrability of the lawfulness of expropriation or allegations of any violations of the substantive treaty protections limiting access to domestic legal processes.73
The second-generation Chinese BITs, including those with African states such as Egypt concluded in 1994, made minor modification to dispute settlement, limiting arbitrability to quantum but permitting the ICSID Secretary General to make the default appointment authority (i.e. when the parties disagree on the chair of the tribunal).74
The most contemporary Chinese BITs with African states makes no limitations on arbitrability. A good example is the BIT with Tunisia concluded in 2006.75 It states in relevant part:
Article 9 Settlement of Disputes between investors and one Contracting Party
(1) Any dispute between a Contracting Party and an investor of the other Contracting Party, related to an investment, shall be as far as possible settled amicably through negotiations.
(2) If the dispute cannot be settled amicably through negotiations within six months from the date it has been raised by either party to the dispute, it shall be submitted: to the competent court of the Contracting Party that is party to the dispute; or to the International Center for settlement of Investment Disputes (the Center) under the Convention on the Settlement of Disputes between States and Nationals of Other States, done at Washington on (p.229) March 18, 1965; Once the investor has submitted the dispute to the jurisdiction of the concerned Contracting Party or to the Center, the choice of one of the two procedures shall be final.76
This BIT appears to be China’s most recent formulation of dispute settlement. Although China became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1991, it has not been an active player until very recently. Indeed, while about 20 per cent of all ICSID cases since ICSID’s inception has involved African states,77 China has appeared as a respondent state in only three cases, with Chinese parties initiating two ICSID cases since its inception.78
This shows that China has been able to avoid investment claims for more than two decades despite intense investment activity. Unlike China, many African countries have not been able to avoid investment cases against them despite lower investment volumes. Recent China–Africa investment relations have not so far led to formal investor–state disputes but some infrastructure projects have already produced disputes. Section 11.4.3 looks at these types of commercial dispute settlement.
11.4.3 Commercial (Infrastructure, Loan Agreements, etc.)
All types of transnational commercial agreements contain dispute settlement provisions. In modern times, the preferred means of dispute settlement is international arbitration. This is particularly true in contractual relationships coming from developing domestic judicial processes such as China and most, if not all, African states. International arbitration as a means of commercial dispute settlement has grown exponentially in both China and Africa, as we have seen above. This is largely because parties coming from different states could avoid jurisdictional problems and local parochialism and potentially obtain an award that they can enforce in multiple states through the New York Convention.79 However, to be a reliable means of dispute settlement, international arbitration needs to be structured equitably.
In the past, Africa’s experience with international arbitration vis-à-vis the developed world of the global North has been unequal, with the cases (p.230) arbitrated outside of Africa before all non-African arbitrators80 largely because of Africa’s economically and politically subordinate position even in the post-colonial period. Because most China–Africa contracts (infrastructure, loans, etc.) are not publicly available, it is difficult to assess the fairness and equitability of the choice of the seat of the arbitration, the choice of law, and means of appointment of arbitrators. It is hoped that these choices are dictated by principles of fairness and equity including impartiality and independence of the decision makers and the institutions that administer these proceedings, and not by economic hierarchy.
11.5 Other Agreements
A notable example of what falls under other agreements is China’s tax treaties with African states. An example of this is the China–South Africa tax treaty. This treaty has its own dispute settlement provision but what it envisions is exclusively domestic administrative and possibly judicial processes. The relevant provision of this treaty provides:
ARTICLE 25 MUTUAL AGREEMENT PROCEDURE
1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement.
2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the provisions of this Agreement.
3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in this Agreement.
4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of paragraphs 2 and 3. When it seems advisable for reaching agreement, (p.231) representatives of the competent authorities of the Contracting States may meet together for an oral exchange of opinions.81
China seems to have used exactly the same formulation with its other economic partners outside of Africa.82 These treaties do not offer international arbitration to individual taxpayers. Unlike BITs, they also do not anticipate state-to-state arbitration for violations of the terms of the agreement. Presumably, therefore, if a dispute arises, the aggrieved state party’s choice appears to be limited to seeking judicial resolution before the World Court inasmuch as consent could be established or obtained.83
11.5.1 Belt and Road Initiative Agreements
A passage from The Economist’s 3 August 2017 print edition captures the economic scale and geographic reach of One Belt, One Road (OBOR) very well:
Launched by China in 2013, the One Belt, One Road policy, known as OBOR, has two parts. There is a land-based ‘belt’ from China to Europe, evoking old Silk Road trade paths, then a ‘road’ referring to ancient maritime routes. OBOR will span 65 countries, and China has so far invested over $900bn in projects ranging from highways in Pakistan to railway lines in Thailand. Western multinationals, spotting a bonanza, are selling billions of dollars of equipment, technology and services to Chinese firms building along it.84
The same article, citing credible sources, suggests that about 87 per cent of the projects are executed by Chinese firms.85 Belt and Road Initiative (BRI) directly touches and concerns several African countries, primarily Egypt, Ethiopia, Morocco, and South Africa.86
(p.232) Chinese government sources indicate that as of the last BRI summit in May 2017, 270 BRI agreements were signed with sixty-eight countries. The details of these agreements are not public.87 What is clear is that China has detailed implementation plans and has also begun signing cooperation agreements.88 Because BRI is a fairly young initiative, the legal paperwork that it has generated so far is largely in the form of action plans, declarations, and similar types of what are often called ‘soft law’89 instruments.90 An example is the Action Plan for the Harmonization of Standards along the Belt and Road (2015–17).91 This Action Plan envisions the signing of standardization cooperation agreements.92 For example, the China–Egypt BRI cooperation Five-Year Plan envisions a broader and lasting economic cooperation possibly governed by a complex web of cooperation agreements, treaties, contracts, etc. The following passage demonstrates the complexity of the legal relationship: ‘In further moves, the two countries will seek greater co-operation in terms of production capacity, while strengthening bilateral investment ties, developing the China–Egypt Suez Economic and Trade Co-operation Zone, and nurturing financial co-operation between their respective financial institutions and enterprises.’93
(p.233) As the projects take shape and mature, and the action plans move to the level of execution, it is hoped that more and more of the various agreements will become publicly available allowing scholarly scrutiny in the years to come.
China uses modern and formal legal agreements to order its economic relations with African states with a mix of modernity and lingering cultural hesitation. Formal and legally binding agreements appear to play a secondary role to instruments of overall understanding and exchange of tentative promises such as declarations, action plans, and memoranda of understanding. As a demonstration of this suggestion, it is enough to note that the principal platform of economic cooperation, FOCAC, remains the same kind of platform that it was eighteen years ago with no sign of being transformed into a formal economic partnership agreement. In Western-led economic initiatives, as a matter of cultural practice, formal rules and institutions precede major initiatives and projects. Although the rate of success of formal rules and informal approaches would require a deeper scientific study, the lack of formality and transparency appear to impact public perception of fairness and predictability.
In any case, this chapter has discussed China’s agreements and dispute settlement in three broadly classified areas: trade, investment, and commerce. In trade relations, China and most of its African trade partners operate within the multilateral trading system of the GATT/WTO legal regime. They not only share the fundamental substantive rules and principles but also the mechanisms of dispute settlement under the DSU. More importantly, however, China has bilateral trade agreements with more than forty African states. It is fair to assume that the more than forty bilateral treaties provide more favourable trade terms and concessions than required under the WTO on reciprocal terms. It also appears that China routinely offers unilateral trade concessions to many African states outside of bilateral treaties.
The investment legal framework is a bit more systematic primarily because of BITs and domestic investment laws that give them effect or regulate investment without them. The relative permanency and the involvement of private interests enable policymakers to ensure the relative stability, durability, and transparency of the investment legal frameworks. The China–Africa investment regime, dominated by BITs as everywhere else, appears to have some of these characteristics, although many of the BITs would require significant modification to account for modern developments in the areas of both substantive rules and dispute settlement.
(p.234) In the area of commerce, the legal landscape is even more sporadic. The substantive rules come from the domestic contract laws that the parties select in each individual case. In terms of dispute settlement, however, many China–Africa deals, like most other transnational deals, select international arbitration as the preferred means of resolving disputes. The availability of the New York Convention for the enforcement of awards across international borders has made international arbitration the preferred means of dispute settlement because it avoids jurisdictional obstacles and improves the potential for enforcement as there are no equivalent treaties for the enforcement of court judgements. As indicated above, however, unless equitably structured to ensure impartiality and independence of the decision makers as well as institutions selected to administer it, international arbitration could be a source of injustice and even abuse.
Finally, as they attempt to grow their trade, investment, and commercial relations, whether within the OBOR initiative or otherwise, China and Africa need to make sure that they avoid the inequities that often accompany relationships of power not only because these are morally wrong but also because that is the only way that the relations can be profitably sustained.
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(1) See Philip Snow (1987) The Star Raft: China’s Encounter with Africa, xiii–xiv. Africa’s historical relationship with the now developed world of the North has either been colonial or post-colonial aid dependency. The nature of the historical relationship has never permitted purely reciprocal and mutual beneficial commercial interactions to flourish.
(2) See Ian Taylor (2006) China and Africa, Engagement and Compromise, 30–1.
(3) See Deborah Brautigam (2009) The Dragon’s Gift: The Real Story of China in Africa, 308 (‘China does not claim to know what Africa must do to develop.’)
(4) Although the overwhelming majority of Western media coverage continues to pursue a narrative of exploitation and neo-colonialism akin to Africa’s past relations with the West, more than a decade of data now shows measurable advantages to Africa’s economy. Ironically, it is not unusual to see reports containing evidence of progress in a creatively negative light. Consider David Pilling’s Financial Times article entitled ‘Chinese Investment in Africa: Beijing’s Testing Ground’ (13 July 2017). He reports on the one hand that: ‘A few numbers illustrate the shift. In 2000, China–Africa trade was a mere $10bn. By 2014, that had risen more than twenty-fold to $220bn according to the China–Africa Research Initiative at Johns Hopkins School of Advanced International Studies in Washington, though it has fallen back because of lower commodity prices. Over that period, China’s foreign direct investment stocks have risen from just 2 per cent of US levels to 55 per cent, with billions of dollars of new investments being made each year. China contributes about one-sixth of all lending to Africa, according to a study by the John L Thornton China Center at the Brookings Institution.’ The article goes on to cite Jeffrey Sachs, director of the Earth Institute at Columbia University, as describing Chinese investment in Africa as ‘the most important single development for Africa in this generation.’ But the overall message of the article is that China is using Africa as a testing ground. The article reads in relevant part: ‘Beijing’s engagement with Africa is more multi-layered than is often recognised. China, Ms Jing says, has used Africa almost as a testing ground for its growing international ambitions, whether through peacekeeping missions or construction of the roads, ports and railways intended to bind much of the developing world, via a new Silk Road, to the Middle Kingdom.’ The article is available at https://www.ft.com/content/0f534aa4-4549-11e7-8519-9f94ee97d996 (accessed 13 February 2018).
(5) The Johns Hopkins University School of Advanced International Studies China–Africa Research Initiative (CARI) keeps useful compilation of data. It shows a rapid growth since 2002 with few occasions of slowing down. The data shows that the volume of trade between China and Africa has comfortably been around US$200 billion since around 2015. See data on China–Africa Trade at http://www.sais-cari.org/data-china-africa-trade/
(6) Although the estimates of Chinese investment in Africa tend to defer, almost every source acknowledges that it is considerable. For example, David Dollar of Brookings Institute suggests that in 2014 China had about as much ODI in Africa (US$32 billion) as in the United States (US$38 billion). David Dollar (2016) China’s Engagement with Africa: From Natural Resources to Human Resources, 34. CARI estimates Chinese investment between 2003 and 2014 at approximately US$124 billion. See CARI, Excel spreadsheet at http://www.sais-cari.org/data-chinese-and-american-fdi-to-africa (last visited 7 October 2016). The American Enterprise Institute and the Heritage Foundation’s China Global Investment Tracker estimates China’s total investment in sub-Saharan Africa to be US$241.75 billion (Scissors 2018). See China Global Investment Tracker’s Data at https://www.aei.org/china-global-investment-tracker/. CARI further estimates that China has loaned approximately US$86 billion to African states during the same time period for various projects (2001 to 2014). See http://www.sais-cari.org/data-chinese-loans-and-aid-to-africa. Chinese-financed projects include railways (see The Guardian, ‘Next Stop the Red Sea: Ethiopia Opens Chinese-Built Railway to Djibouti’ at https://www.theguardian.com/world/2016/oct/06/next-stop-the-red-sea-ethiopia-opens-chinese-built-railway-to-djibouti (5 October 2016)), power plant transmissions (see e.g. Modern Power Systems, ‘The Chinese in Africa: An Electrifying Story: A New International Energy Agency Report Shows that Chinese Companies Are Leading the Way in the Electrification of Sub-Saharan Africa’ at http://www.modernpowersystems.com/features/featurethe-chinese-in-africa-an-electrifying-story-4991516/ (26 August 2016)), ports (see D. Smith (2015) ‘China Denies Building Empire in Africa’ at https://www.theguardian.com/global-development/2015/jan/12/china-denies-building-empire-africa-colonialism (Chinese firms are carrying out a US$653m (£430m) expansion of the main airport in the capital, Nairobi), and various other projects.
(7) Chinese companies’ construction contracts have now exceeded US$50 billion. See CARI data at http://www.sais-cari.org/data-chinese-contracts-in-africa. Moreover, CARI data shows that from 2000 to 2015, Chinese loans to African interests amounts to US$94.4 billion. See http://www.sais-cari.org/data-chinese-loans-and-aid-to-africa.
(8) A 2015 report sponsored by Baker and McKenzie projects that China will invest up to US$1 trillion in Africa in the next decade or so: see H. Warren (2015) ‘Spanning Africa’s Infrastructure Gap: How Is Development Capital Transforming Africa’s Project Build-Out’.
(9) For a comprehensive treatment of this subject, see generally, T.Olawale Elias, The Nature of African Customary Law (1956).
(10) See John W. Head and Yanping Wang (2005) Law Codes in Dynastic China: A Synopsis of Chinese Legal History in the Thirty Centuries from Zhou to Qing, 35–50.
(11) For a comprehensive treatment see Raj Bhala (2011) Understanding Islamic Law (Sharia).
(12) For definition see Bloomberg Law at https://definitions.uslegal.com/l/lex-mercatoria/ (‘Lex mercatoria refers to a body of oral, customary mercantile law which developed in medieval Europe and was administered quite uniformly across Europe by merchant judges, adjudicating disputes between merchants.’)
(13) For a comprehensive treatment see generally, René David and John E. C. Brierley, Major Legal Traditions of the World Today (1985).
(14) Wex Legal Dictionary/Encyclopedia describes it thus: ‘The parol evidence rule governs the extent to which parties to a case may introduce into court evidence of a prior or contemporaneous agreement in order to modify, explain, or supplement the contract at issue. The rule excludes the admission of parol evidence. This means that when the parties to a contract have made and signed a completely integrated written contract, evidence of antecedent negotiations (called “parol evidence”) will not be admissible for the purpose of varying or contradicting what is written into the contract.’ Available at https://www.law.cornell.edu/wex/parol_evidence_rule.
(15) Philip J. McConnaughay (2001) ‘Rethinking the Role of Law and Contracts in East–West Commercial Relations’, Virginia Journal of International Law, 41: 427, 440 (quoting in part Arthur T. von Mehre (1984) ‘Some Reflections on Japanese Law’, Harvard Law Review, 71: 1486, 1494, n. 25).
(16) ibid., 443.
(18) T. Olawale Elias (1956) The Nature of African Customary Law, 268–9.
(19) ibid., quoting Arthur Philip (1945) Report on Native Tribunals, Ch. IV, para. 188–92. Further noting that ‘The native method would tend to adjust disturbances of social equilibrium to restore peace and goodwill, and to bind or rebind the two disputing groups together in a give-and-take reciprocity. The European method would tend to widen the gulf between two groups by granting all the rights to one of them to the exclusion of the other, because it would in general concern itself with acts and legal principles and take no cognizance of social implications.’ ibid., quoting Arthur Philip, Reports on Native Tribunals in Kenya, 176.
(20) René David and John E. C. Brierley (1985) Major Legal Traditions of the World Today, 561.
(21) This notion represents the inclusion of the teachings of Confucius described in James Zimmerman (2010) China Law Deskbook: A Legal Guide for Foreign-Invested Enterprises, 36–8. (‘To the confucianist, legal institutions were secondary to the judgment of moral men.’ p. 40.)
(22) James A. R. Nafziger and Ruan Jiafang (1987) ‘Chinese Methods of Resolving International Trade, Investment, and Maritime Disputes’, 619, 624.
(24) See WTO, Membership list and map at https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm.
(25) K. C. Kennedy (2008) International Trade Regulation, Readings, Cases, Notes, and Problems, 5.
(26) General Agreement on Tariffs and Trade, 55 UNTS 194 (30 October 1947). Comprehensive information on GATT and WTO is available on the official website of the WTO at https://www.wto.org/. For scholarly commentary, see generally, J. H. Jackson (2000) The Jurisprudence of GATT and the WTO: Insights on Treaty Law and Economic Relations.
(27) See ‘Agreement Establishing the World Trade Organization’, on the WTO website at <http://ww.wto.org/. There are approximately sixty associated agreements and decisions, for a total of 550 pages. See the WTO’s legal texts at www.wto.org/english/docs_e/legal_e/legal_e.htm.
(28) WTO Treaty, Article II.
(29) The texts of all these agreements are available on the official website of the WTO.
(30) See Kennedy (2008), 4.
(31) See Chinese Ministry of Foreign Commerce sources at http://english.mofcom.gov.cn/article/zt_minister/lanmua/201102/20110207420927.shtml.
(32) Although WTO compatibility of regional trade agreements is in principle not optional, a combination of expansive reading of the exceptions and lack of feasible enforcement has made the issue of compatibility a rarely raised matter. Indeed, some have suggested that the large number of preferential treatments contained in regional and bilateral trade deals have converted the WTO’s MFN principle into LSN (Least Favoured Nation) principle. See Report by Consultative Board to the Director-General Supachai Panitchpaki (2004) ‘The Future of the World Trade Organization: Addressing Institutional Challenges in the New Millennium’ (2004), para. 60, reproduced in Kennedy (2008), 435–6.
(33) One such example is the Sino-Ethiopian Agreement for Trade, Economic and Technological Cooperation (1996). [The text of this agreement is not publicly available. Text available with the author]. References to China’s other bilateral trade agreements (not including any African states) are available at http://www.china.org.cn/business/node_7233287.htm#a5 but texts are not available.
(34) See Chinese Ministry of Foreign Commerce sources at http://english.mofcom.gov.cn/article/zt_minister/lanmua/201102/20110207420927.shtml
(35) See China’s free trade agreements at http://fta.mofcom.gov.cn/enarticle/chinamauritiusen/enmauritius/201712/36683_1.html (In November 2016, China and Mauritius announced the launch of the FTA Joint Feasibility Study which becomes the first joint feasibility study China has ever launched with an African country. The study showed that signing the FTA is in line with both the interests of China and Mauritius and will help further deepen the bilateral trade and economic relations between China and Mauritius.
As China’s first free trade area with an African country, the completed China–Mauritius free trade area will not only help further expand the bilateral trade and investment exchanges between China and Mauritius, and will inject fresh momentum to the transformation and upgrade of the relationship between China and Africa and promote the Belt and Road Initiative in Africa.)
(36) The reasons for the absence of a multilateral investment treaty are complex and no attempt is made here to elaborate; however, it is useful to note that there is an element of power relations meaning that the economically powerful nations would prefer to negotiate with less developed nations individually rather than in groups, which may include developed countries. See, e.g. Jeswald W. Salacuse (2010) ‘The Emerging Global Regime for Investment’, 427, 464.
(40) See Norah Gallagher and Wenhua Shan (2009) Chinese Investment Treaties, 35 (describing the three generation of Chinese BITs with an emerging fourth one).
(41) See, e.g. China–Ghana BIT (12 October 1989); see also China–Sweden BIT (29 March 1983). It must be noted here that although China used its own model BOT text, there was notable variability within the model. At last one closer study of these BITs has concluded that the variability did not demonstrate a North–South or South–South bias. See Won Kidane (2016) ‘China’s Bilateral Investment Treaties with African States in Comparative Context’, pp. 141, 175–6.
(42) China–Iceland (31 March 1994), Article 3(3).
(43) See e.g. China–Uganda BIT (27 May 2004).
(44) The Hull Rule requires ‘prompt, effective and adequate compensation’. For a discussion see Frank G. Dawson and Burns H. Weston (1962) ‘“Prompt, Adequate, and Effective”: A Universal Standard of Compensation?’, 727, 733–4.
(45) See China–Uganda BIT (27 May 2004), Article 4.
(1.) Neither Contracting Party shall take any measures of expropriation or nationalization or any other measures having the effect of dispossession, direct or indirect, of investors of the other Contracting Party of their investments in territory, except for the public interest, without discrimination and against compensation.
(2.) Any measures of dispossession which might be taken shall give rise to prompt compensation, the amount of which shall be equivalent to the real value of the investments immediately before the expropriation is taken or the impending expropriation becomes public knowledge, whichever is earlier.
(3.) The said compensation shall be set not later than the date of dispossession. The compensation shall include interest at a normal commercial rate from the date of expropriation until the date of payment. The compensation shall also be made without delay, be effectively realizable and freely transferable.
(46) See CARI data at http://www.sais-cari.org/data-chinese-contracts-in-africa.
(47) See Andrew Jacobs (2017) ‘Joyous Africans Take to the Road, with China’s Help’ (reporting the project’s cost as US$4 billion).
(48) Conor Gaffey (2017) ‘Kenya Just Opened a $4 billion Chinese-Built Railway, Its Largest Infrastructure Project in Fifty Years’ (reporting the project’s cost as US$4 billion).
(49) Ratification status is available at http://www.fmprc.gov.cn/web/ziliao_674904/tytj_674911/wgdwdjdsfhzty_674917/t1215630.shtml.
(50) For a discussion of these treaties and more references see generally, King Fung Tsang (2017) ‘Chinese Bilateral Judgment Enforcement Treaties’, 1, 5–7.
(51) Copy on file with author.
(52) See Chinese government sources at http://www.chinatax.gov.cn/eng/n2367726/c2370422/content.html.
(54) The text of the China–South Africa Tax Treaty is available at http://www.chinatax.gov.cn/n810341/n810770/c1153605/part/1153607.pdf. Its basic task is to eliminate the possibility of double taxation. One of the core provisions states: ARTICLE 23
METHODS FOR ELIMINATION OF DOUBLE TAXATION
Double taxation shall be eliminated as follows:
((a)) in China, where a resident of China derives income from South Africa the amount of the South African tax paid on that income in accordance with the provisions of this Agreement, may be credited against the Chinese tax imposed on that resident. The amount of the credit, however, shall not exceed the amount of the Chinese tax on that income computed in accordance with the taxation laws and regulations of China;
((b)) in South Africa, Chinese tax paid by residents of South Africa in respect of income taxable in China, in accordance with the provisions of the Agreement, shall be deducted from the taxes due according to South African fiscal law. Such deduction shall not, however, exceed an amount which bears to the total South African tax payable the same ratio as the income concerned bears to the total income.
(57) See, e.g. ‘KRA Says Kenya Risks Losing Billions in China Tax Treaty’, Daily Nation (3 December 2017) at https://www.nation.co.ke/business/996-4212418-52miiaz/index.html (The taxman says the country risks losing billions of shillings in tax exemptions if the deal, signed in Nairobi on September 21 but yet to be enforced, is not amended.)
(60) See CIETAC statistics at http://www.cietac.org/index.php?m=Page%26a=index%26id=40%26l=en.
(61) See CRCICA Annual Report for 2008/9, p. 9, available at http://crcica.org/FilesEnglish/Annual%20Report_2016-10-31_08-59-10_0.pdf.
(62) See CRCICA Annual Report 2016, p. 4, available at http://crcica.org/FilesEnglish/Annual%20Report_2017-05-31_11-51-17_0.pdf.
(63) For a description of the evolution of the GATT dispute settlement system from its inception in 1948 to its end assimilation into the WTO system, see A. Lowenfeld (2008) International Economic Law, 145–60. For GATT cases and analyses, see William J. Davey and Andreas F. Lowenfeld (1991) Handbook of WTO/GATT Dispute Settlement.
(64) Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,
opened for signature 15 April 1994, Marrakesh, Morocco, 33 I.L.M 1140–1272 (1994), ‘Annex 2, Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)’.
(65) Information about the Appellate Body and its working is available at https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm.
(66) A summary of all cases since 1995 is available at https://www.wto.org/english/res_e/publications_e/dispu_settlement_e.htm.
(67) See WTO case database at https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm.
(68) See WTO case database at https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm (United States, 115 as complainant, 135 as respondent, 142 as third party; European Union, 97 as complainant, 84 as respondent, 169 as third party).
(69) See WTO case database at https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm.
(72) See China–Ghana BIT (1989), art. 10. Text available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/737.
(74) See China–Egypt BIT (1994), art. 9. Text available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/730.
(75) China–Tunisia BIT (2006). Available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/788.
(76) China–Tunisia BIT, art. 9. Text available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/788.
(77) See ICSID Caseload Statistics Special Focus Africa (May 2017) available at https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%20Africa%20(English)%20June%202017.pdf.
(78) See UNCTAD Database at http://investmentpolicyhub.unctad.org/ISDS/CountryCases/42?partyRole=2.
(79) The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) (1958) currently has 157 state parties. The text and comprehensive information is available at http://www.newyorkconvention.org/.
(80) See generally, Won L. Kidane (2017) The Culture of International Arbitration.
(81) Double Taxation Agreement between China and South Africa, art. 25, text available at http://www.dezshira.com/library/treaties/double-taxation-agreement-between-china-and-south-africa-3652.html.
(82) See Double Taxation Agreement between China and Malaysia. Text available at http://www.chinatax.gov.cn/n810341/n810770/c1153105/part/1153106.pdf.
(83) The International Court of Justice’s (the World Court’s) jurisdiction is consent based, however, there are instances where the Court may have compulsory jurisdiction based on a pre-existing consent. For basis of jurisdiction see ICJ official website at http://www.icj-cij.org/en/basis-of-jurisdiction.
(84) The Economist (2017) ‘Western Firms Are Coining It along China’s One Belt, One Road’. Digital version available at https://www.economist.com/news/business/21725810-general-electric-got-23bn-orders-infrastructure-project-last-year-western-firms.
(85) See ibid. (A database of open-source information collated by the Reconnecting Asia Project, run by the Centre for Strategic and International Studies, a think tank in Washington, DC, shows that ‘86% of OBOR projects have Chinese contractors, 27% have local ones and only 18% have contractors of foreign origin.’)
(86) See Hong Kong Trade Development Council (HKTDC) Research at http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative-Country-Profiles/obor/en/1/1X000000/1X0A36I0.htm.
(87) See Wu Gang (2017) ‘China Touts More Than 270 Belt and Road Agreements’. This statement is attributed to Chinese president Xi Jinping. Article available at https://www.caixinglobal.com/2017-05-15/101090756.html.
(88) See HKTDC at http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative-Implementation-Plans-and-Cooperation-Agreements/obor/en/1/1X3CGF6L/1X0A3857.htm.
(89) Black’s Law Dictionary defines ‘soft law’ as collectively, rules that are ‘neither strictly binding nor completely lacking in legal significance’. Black’s Law Dictionary, 8th ed. (2004). For a scholarly discussion of soft law v. hard law, see Gregory C. Shaffer and Mark A. Pollack (2010) ‘Hard Law vs. Soft Law: Alternatives, Complements, and Antagonists in International Governance’.
(90) See HKTDC, The Belt and Road Initiative: Implementation Plans and Cooperation Agreements (10 January 2018) available at http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative-Implementation-Plans-and-Co-operation-Agreements/obor/en/3/1X3CGF6L/1X0A3857.htm.
(92) See ibid. It says in particular: ‘As part of the Action Plan, China is looking to deepen mutually beneficial co-operation with regard to the standardisation and recognition of standards with a number of key countries along the Belt and Road routes. This will include prioritising the signing of standardisation co-operation agreements with the national standards bodies of several countries, including Mongolia, Russia, Kazakhstan, Vietnam, Cambodia, Thailand, Malaysia, Singapore, Indonesia, India, Egypt, and Sudan, as well as with members of the Gulf Co-operation Council (such as Saudi Arabia). In a number of infrastructure sectors, such as the power, railway, marine, aviation, and aerospace industries, as well as in the emerging industries of energy conservation and environmental protection, new-generation information technology, smart transportation, high-end equipment manufacturing, biotechnology, new energy sources and new materials, China will invite key countries along the Belt and Road routes to undertake studies with regard to the desired international standards. The objective will be to jointly develop international standards and improve the internationalisation level of those standards.’
(93) HKTDC, ‘China and Egypt Announce Five-Year Plan for Strengthening their Comprehensive Strategic Partnership’ (21 January 2016) available at http://china-trade-research.hktdc.com/business-news/article/One-Belt-One-Road/China-and-Egypt-Announce-Five-Year-Plan-for-Strengthening-their-Comprehensive-Strategic-Partnership/obor/en/1/1X3CGF6L/1X0A52O6.htmv.