Disputes Relating to the Belt and Road Initiative
The BRI is a system initiated by China to encourage cooperation and economic relations between China and the Silk Road Economic Belt which is land-based, as well as the 21st Maritime Silk Road.
The BRI extends to over 70 countries and is steadily attracting more non-Chinese investors, developers (countries inclusive) and contractors both local and international.
The ” Belt” aspect of the BRI spans the economic and overland links of transportation which connect China to Europe and Central Asia, while the “Road” aspect covers a collection of maritime routes which connects the Middle East, Africa, Asia, the Indian Ocean and Europe to China.
An initiative this massive which involves a lot of construction projects is sure to garner a lot of disputes, especially with so many partners and an estimate of USD 90 bn already invested in projects, either already started or proposed. The BRI accounts for about a sizeable portion of the world’s economy, and so, a complex economic system such a BRI should make provisions for dispute resolution mechanisms to cater to the number of disputes that are certain to arise from its numerous relations.
Types of Disputes within the Belt and Road Initiative system
Three types of disputes are common to the BRI. They are;
State vs state disputes
This arises between China and other countries where China has invested within the BRI system, the disputes are usually about large projects undertaken by China in the host country and it involves state to state contracts and agreements between both private firms and state-owned ventures. The latter type of dispute is often common in China initiated projects. Disagreements between Chinese investors and stakeholders in the host country have often resulted in interstate disputes.
International law obligates the host country that allows foreigners into her land, to ensure a decent manner of approach towards them. It also makes provision for the host country to demand compensation for any damages caused by the visiting nationals due to the hosts’ country’s failure to meet the required standards stated above.
Transactional disputes
The Belt and Road Initiative is characterized by many mega-deals. But recent times have shown that the scale of such deals is being reduced, however, not drastically. Be it a mega-deal or a mid-sized investment, there is a need for the provision of two sets of contractual agreements with regards to performance (in the construction of infrastructure,) as well as financial agreements. In the execution of these contracts, a representative from both the host country and from China is required.
In the incidence of a dispute, the customary process of resolving It legally should be carried out through the right channels of either domestic or international law.
One reason why issues come up invaluable business transactions within the BRI can be due to the following;
An inability to fully grasp or understand the complexities of the contractual terms, between parties from the partnering states, as well as a lack of experience in operating within the boundaries of a contract. This could increase the tendency of a deal running into problems further on.
A clear example of this is seen with Sinopec Oilfield Services. These guys incurred a whopping RMB 3 Billion loss on a pipeline project, just because the Saudi Arabian who owned the project had a ‘change of mind’ concerning the project’s design. To further worsen the whole thing, Sinopec Oilfield Services encountered hurdles in getting compensation for this breach of contract.
Investment and international trade disputes
Disputes that occur within the region of the BRI could be characterized under this. Disputes like this could also mean such disputes between China and a country within the BRI system, which is in partnership with China.
However, it should be worthy of note, that not all disputes occurring within the BRI regions qualify as an investment and international trade dispute relative to the BRI. Any traditional dispute occurring along those routes should be resolved through the WTO (World Trade Organization). However, considering the difficulty of this, alternative methods for resolving these disputes should be sought out.
Handling Disputes and Reducing Risk
The options below are set out to handle disputes and reduce litigation risks in the BRI projects.
Settling disputes through the HKIAC
Being under China’s “one country two systems” arrangement, while maintaining a unique legal system based on common law, Hong Kong is in a peculiar position to serve as a dispute resolution center for the BRI.
There are already arrangements in place between the HKIAC and the People’s Republic of China for mutual recognition of judgments regarding money judgments and final awards of arbitration.
Entities within close range to Hong Kong find it an appealing option for dispute resolution because of; its ease of access geographically speaking, to countries within the BRI. Also, its neutrality as well as the application of best practices within its legal and arbitral systems relative to both national and international disputes, makes it a good fit for this purpose.
Independents, neutrality and international best practices in international dispute settlement.
In 2016, World Bank accredited Hong Kong with a rating of 6.32 on a scale of 1 to 7 points on Judicial Independence, where 1 represents ‘not dependent’ and 7 represents ‘very independent’.
The judiciary of Hong Kong’s keeps on topping the list in terms of independent arbitration centers, due to their highly transparent legal system, an important criterion considered when quality in the practice of law aa well as clauses specific to region, and the authority of enforcing arbitral awards are being negotiated.
Decision to arbitrate disputes in BRI agreements
A fundamental technique to minimize the risk of needing dispute resolution in local courts on the BRI, that are potentially less favorable and/or being unable to execute an obtained award or judgment, is by carefully inculcating arbitration clauses into a partnership agreement, and ensure that it enforces the settlement of disputes through arbitrary methods under the set-out rules guiding arbitration.
The HKIAC makes provision for these in terms of dispute resolution associated with the BRI.
The HKIAC is highly experienced when it comes to carrying out the arbitration of disputes between contracting partners of the BRI.
Conclusion:
In this article, we have treated the definition as well as the purpose of the BRI. Also, we considered some challenges encountered in terms of disputes and some preferred ways to solve these challenges.
Are you involved in the BRI? Are you seeking to resolve your dispute through International arbitration? Then, let Rattsakuten assist you with that.
Ours is a team of seasoned and highly trained lawyers who specialize in International commercial arbitration. Want to make an enquiry or an initial consultation? Feel free to give us a call right now!