China Africa trade-investment links: international ... · PDF fileBackground •Facts: booming trade and investment relations between China and Africa •Underpinned by a network of

China – Africa trade-investment links: international economic

law perspectives

Professor Melaku Geboye Desta Leicester De Montfort Law School

Leicester, England

Presented at: “China's new development model: Impacts on Africa and Latin America”, March 25-26, 2014, Facultad de Ciencias Económicas - Universidad de Buenos Aires (UBA), Argentina

Background

• Facts: booming trade and investment relations between China and Africa

• Underpinned by a network of international legal arrangements

• Backed by multiple dispute settlement mechanisms

• Legal issues least understood

Trade and investment

• Trade and investment

– so closely linked

– so distinctly regulated

Trade and investment

• Trade: – Multilateral

– ‘Regulated’ bilateral/regional/preferential

• Investment: – Bilateral

– Facilitated/implemented by multilateral treaty

• Commonalities – Philosophy: liberalization of barriers to trade/investment

– History: Havana Charter (but different evolutionary paths)

– General principles – but with variations: non-discrimination, transparency, rule orientation, etc.

China and the WTO system

• Timeline – 1947: China as original Contracting Party to GATT

– 1951: China withdrew from GATT

– July 1986: application for resumption of status

– Sep. 1986: Uruguay Round launched • China as full participant in the Uruguay Round

negotiations and a Signatory to the Final Act and the WTO Agreement

– 2001: China’s accession concluded • Doha Development Agenda launched

Terms of accession

• China: onerous terms willfully accepted – WTO-plus obligations v WTO-minus rights

• selective safeguard • non-market economy status, etc.

• Africa: mostly sponsored into GATT – Nearly all sub-Saharan African members of the WTO

joined GATT via sponsorship – GATT Art. XXVI:5(c): “If any of the customs territories, in respect of

which a contracting party has accepted this Agreement, possesses or acquires full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement, such territory shall, upon sponsorship through a declaration by the responsible contracting party establishing the above-mentioned fact, be deemed to be a contracting party.”

– Hence little or no commitments

Africa: member or observer

Participation within the WTO

• WTO as member-driven organization

• Focus on two key roles:

– Legislative – negotiations

– Adjudicatory – dispute settlement

Participation – trade negotiations

• China – A RAM sitting in a corner?

– Less active than most anticipated/feared?

– Or a country that has moved from a “rule taker” to a “rule shaker” to a “rule maker” (Gao 2012)

– Or are negotiations simply a difficult area to succeed in?

• Africa: – Lack of commitments as a double-edged sword

– Often on the margins: preferences, etc.

– Coalitions undermined by conflicting interests – to many Africa’s?

Participation: negotiations

Participation – dispute settlement

• China in phases (Qi 2012) – First five or so years:

• ready to settle • US steel safeguards case 2002: one of a crowd • learning by watching from a safe distance: participation as

3rd party

– Since 2006: • Increasing assertiveness • Developing in-house skills • 2011 Shrimp case: with fully in-house lawyers • Early theories about culture, etc. disproved • Economic interest is all that matters

– Trade remedies: fertile area for disputes with China

China as complainant: 12 cases

China as respondent: 31 cases

China as both

Participation – dispute settlement

• Africa

– Even less of a player in dispute settlement

– Too small to be sued?

– Egypt and South Africa: respondents in four cases each

China-Africa cooperation in the WTO

• Significant potential in trade negotiations

• Less so in other areas

• China’s recent DFQF scheme

– Not all African countries are LDCs

– Unlikely to matter in the short term: conformity between export capacity and import needs

China-Africa relations in the field of investment

• The investment regime

– Largely bilateral – over 3000 BITs

– Some regional-sectoral

• NAFTA, ECT

– ICSID as multilateral framework – investor-state dispute settlement (ISDS)

Bilateral Investment Treaties (BITs)

• China and Africa: – Actively involved

– China: a total of 128 BITs (UNCTAD 2013)

– 32 BITs with African countries

– Only 13 in force: • Cape Verde, Egypt, Ethiopia, Gabon, Ghana,

Madagascar, Mali, Mauritius, Morocco, Mozambique, South Africa, Sudan, Zimbabwe

– Many natural resources-rich countries missing • E.g. Angola, DR Congo, Nigeria or Zambia

– Can have significant implications

Evolving interests and positions

• Approaches: evolving with economic priorities – Early days (1980s):

• China’s interest to attract FDI

• BITs mainly with OECD countries and its neighbours – E.g. with Norway (1984), Italy, Thailand, Denmark, Austria,

Kuwait and Singapore (1985)

• mid-1990s: China discovers Africa – First BIT with an African country: Ghana (1989)

– Egypt (1994), Morocco (1995), Mauritius and Zimbabwe (1996), Gabon, Sudan, and South Africa (1997), Cape Verde and Ethiopia (1998), Mozambique (2001), Madagascar (2005) and Mali (2009).

• Why is timing important? – Differences in the content of first generation BITs (pre-1998) and

second generation (post-1998) (Qi 2012)

Evolving interests …

• Comparison – Early days: Africa and China united by a shared

mistrust of ICSID and BITs • Limited substantive obligations in BITs

• Strict control on the flow of inward investment

• Keeping certain sectors totally closed to private capital (whether foreign or domestic), others closed to foreign investment, and still others restricted by mode of participation (e.g. joint venture only) or by degree of foreign control or equity participation (e.g. foreign ownership restricted to a maximum of 49%)

• Encouraging foreign investment in certain areas with tax concessions and other inducements

Evolving interests …

• Gradually: – China’s shifting economic interests

– From capital-importer to capital exporter

– Rebalancing the state’s interest against the foreign investor’s

– China’s position getting closer to traditional OECD positions

• Negotiations driven by economic interests rather than considerations of solidarity with other developing countries

Evolving interests …

• Comparison … right to compensation – E.g. Article 4(2) of the China-Ethiopia BIT provides that ‘2.

The compensation mentioned in Paragraph 1, (d) of this Article shall be equivalent to the value of the expropriated investments at the time when expropriation is proclaimed, be convertible and freely transferable. The compensation shall be paid without unreasonable delay.’

– E.g. Art. 4(3) of China-Uganda BIT: ‘The compensation shall also be made without delay, be effectively realizable and freely transferable.’ See Agreement between the Government of the People's Republic of China and the Government of the Republic of Uganda on the Reciprocal Promotion and Protection of Investments (27 May 2004, not yet in force)

Evolving interests …

• Comparison … right to go to arbitration – E.g. Article 9(3) of the China-Ethiopia BIT:

• ‘If a dispute involving the amount of compensation for expropriation cannot be settled within six months after resort to negotiations as specified in Paragraph I of this Article, it may be submitted at the request of either party to an ad hoc arbitral tribunal or arbitration under … ICSID’

– Article 8(2) of China-Uganda BIT (2004): • explicitly permits the investor to take the host state to

arbitration under ICSID without limiting the grounds of claim before the arbitration tribunal

What to make of this evolution

• Positive development: – Increased use of int’l treaties and dispute settlement

mechanisms to protect its interests

• A turn towards rule of law? – ‘the notion of the rule of law has never been part of traditional

Chinese culture. … The relationship between the governments and the people has always been that of master to servants. The WTO accession has somehow forced the Chinese government to change the way it manages the country and, more fundamentally, it has actually helped to change how the Chinese people view their relationship with the government. This is an overturning of the traditional national consciousness. It makes possible a true understanding by the Chinese people of the meaning of the rule of law, forming the foundation to the possibility of democracy in China.’ (Huang Dongli)

What to make of this evolution

• The same can be said about China’s increasing resort to BITs of the investor-protective variety

• China has become more and more confident and comfortable in the use of int’l law to protect its interests

• The difference between China and the traditional capital-exporting western countries is looking increasingly negligible

A few general lessons

• Great opportunities: – Competition for Africa’s products, even primary goods,

serves Africa’s interests – Chinese investment promises significant potential for

Africa

• No illusions: – China-Africa international legal relations increasingly

resemble typical North-South arrangements

• Caution: – African governments also need to remain vigilant – Africa’s institutional deficiencies expose it to serious risks – The possible turn to rule of law is encouraging but neither

side has the established traditions in this respect