Establish a Cross-Strait Arbitration Center
China Times editorial (Taipei, Taiwan, ROC)
December 8, 2010
The sixth Chiang-Chen summit will soon convene. One of the issues that has been attracting the most attention is whether concrete progress can be made on the cross-Strait investment protection agreement. The ultimate goal of course is the signing of an Investment protection agreement. Before one begins promoting investments, one must first reach an agreement concerning concrete mechanisms for investment protection. Such mechanisms are a prerequisite for investor confidence.
Based on the experience of Taiwan-based businessmen who have invested on the Mainland, the first priority is a bilateral investment protection agreement. This will help when one attempts to promote government mandated compensation. The economic strength of the public sector on the Mainland still far exceeds that of the private sector. When Taiwan-based businessmen invest on the Mainland, the most commonly encountered obstacle is official intervention in the private economy. This intervention is not necessarily under the official aegis of the government. But local governments or public authorities often resort to various means to deprive Taiwan-based businessmen of their rights, nullifying licenses that have already been approved, and depriving them of land, factories, or proxy rights they have already acquired, Under nations governed by the rule of law, these are referred to as "quasi-levies." They are another form of levy. Financial compensation should be provided via a public or quasi-public levy.
Taiwan-based businessmen have run into problems with levies or quasi-levies. Mainland capital entering Taiwan will surely encounter the same problems in the future. This is a problem for both sides, and a source of friction between investors and the government. When one of the parties involved is the government, the use of local dispute settlement procedures is apt to raise doubts about whether the administration of justice is even-handed. The use of arbitration procedures not involving the exercise of sovereignty would be more appropriate. Such issues should be dealt with in accordance with international standards. One method would be to resolve them through arbitration by the World Bank International Centre for Settlement of Investment Disputes. The International Convention has established arbitration mechanisms. But years ago cross-Strait disputes over participation in international organizations and sovereignty led to Taipei's exclusion from the convention. If consultations begin on the cross-Strait investment protection agreement, it will be tantamount to substantive negotiations on the two sides' political and diplomatic status. Would this be consistent with putting trade matters first and setting aside disputes over sovereignty? It would not, and would render such an approach impracticable.
Premier Wu Den-yih recently told reporters that the cross-Strait investment protection agreement should be classified as "international arbitration" in order to protect investments by Taiwan-based businessmen. But he admits that the term is a sensitive one for the other side. So-called "international arbitration" can be referred to the World Bank's international investment dispute settlement mechanism. It can also be referred to private arbitration institutions. The difference is that the former would be based on the Convention on the Settlement of Investment Disputes signed by national governments. The latter would be based on a bilateral agreement, and rely on private arbitration within the affected nation or nations. Our side has proposed arbitration by the Paris based International Chamber of Commerce (ICC). A cross-Strait investment protection agreement consistent with the international arbitration mechanism established by the International Convention is unlikely. An agreement to submit disputes to arbitration by foreign non-governmental organizations is also sure to provoke a politically sensitive reaction. As Premier Wu said, that too can be expected.
A natural question arises. Foreign nations such as France are not the only ones that have private arbitration entities capable of handling foreign disputes. The two sides of the Taiwan Strait have their own highly experienced arbitration entities. Taiwan-based businessmen have resorted to remote and expensive private foreign arbitration institutions. Why not rely on close by cross-Strait investment arbitration institutions for the arbitration of disputes? Consider the concerns of Taiwan-based businessmen. One of their concerns is the Mainland's Arbitration Commission. The China International Economic and Trade Arbitration Commission is one of the world's leading international investment arbitration entities. But it differs from purely private arbitration entities on Taiwan and in other countries. The Mainland's Arbitration Commission has quasi-official status. Suppose Taiwan-based businessmen become embroiled in disputes with local governments over quasi-levies. They cannot help being concerned about a lack of impartiality and favoritism toward local governments. This is something the two sides must consider when discussing options for a cross-Strait investment protection arbitration mechanism.
Other arbitration mechanisms for cross-Strait investment protection agreements are possible. One need not adopt the arbitration mechanism of the World Bank Convention for Investment Disputes. One can merely follow their example. The two sides can resort to existing arbitration institutions. With assistance from competent authorities on the two sides, the two sides can establish a center specifically for the arbitration of investment disputes between investors and local governments. This new arbitration center would have its own set of arbitration rules. It would have a sufficient number of qualified arbitrators. They would include internationally respected arbitrators whom both sides could accept as impartial and neutral.
The most important purpose of an investment protection agreement is the adequate protection of investors who require arbitration. The intention must be to avoid issues of political sovereignty. When discussing options for arbitration mechanisms, negotiators must see the big picture. They must focus on solving practical problems. They must avoid becoming mired in controversies in which one can no longer see the forest for the trees.