A Worthy and Substantive Cross-Strait Investment Protection Agreement
China Times editorial (Taipei, Taiwan, ROC)
August 10, 2012
Summary: Yesterday the SEF and ARATS held its latest Chiang-Chen Meeting. The two sides signed the Cross-Strait Investment Protection Agreement and Customs Agreement. These consultations took two years. The Cross-Strait Investment Protection Agreement attracted the attention not just of Taiwan businessmen, but of the general public. It is a substantive legal document deserving of recognition. It is worth taking the time to analyze its significance.
Full Text below:
Yesterday the SEF and ARATS held its latest Chiang-Chen Meeting. The two sides signed the Cross-Strait Investment Protection Agreement and Customs Agreement. These consultations took two years. The Cross-Strait Investment Protection Agreement attracted the attention not just of Taiwan businessmen, but of the general public. It is a substantive legal document deserving of recognition. It is worth taking the time to analyze its significance.
Compare the Cross-Strait Investment Protection Agreement to international bilateral investment protection agreements. This agreement may be the most important fruit of ECFA, the cross-strait economic cooperation framework agreement. Many points are worth noting. First of all, the agreement covers investments, investors, investment income, and relevant government provisions. The agreement is comprehensive. The wording is precise, and consistent with international standards. It establishes basic principles for investment protection. It emphasizes due process and non-discrimination. Besides protecting the security of investments, it specifies that investors must enjoy the same rights as local citizens, and calls for MFN treatment. The two sides pledged to improve treatment for investors, and a halt to new restrictive provisions.
One issue that delayed agreement concerned personal liberty and personal safety. The requirement that family members of detained businessmen be notified within 24 hours was not reflected in the text of the agreement. The agreement merely stated that the two sides must provide notice within the specified period of time, in accordance with existing notification requirements. This results were less than hoped for. But they should not be regarded as a failure. Negotiators for our side stressed the provisions of Article VIII of the Constitution, which require notification within 24-hours to protect personal freedom. They attempted to establish standards for the protection of cross-Strait investors. Their efforts should be applauded.
This set the bar quite high for the the other side. It was difficult to incorporate into their criminal procedure system. But it was also a lesson in constitutionalism. Article VIII of the Constitution provides strict protections for personal freedom. But even on Taiwan the government does not always fully comply with the relevant requirements. Our side stressed the Constitution. Our side called on the Mainland to respect the personal rights and interests of Taiwan businessmen. We called for treatment beyond that afforded local citizens. Such demands were not excessive. They were not incorporated into the agreement. But the government must engage in self-introspection. It must adhere more strictly to Article VIII of the Constitution on Taiwan. It must do so for the sake of foreign investments as well as its own citizens. These principles should apply to everyone. This should become the basis for future reciprocity.
The most praise-worthy aspect of the agreement concerns norms for investment levies. The agreement clearly defines levies to include direct expropriation and indirect expropriation. For Taiwan businessmen, this is highly significant. Taiwan businessmen encounter few cases of direct expropriation. But they encounter many cases of indirect expropriation. Indirect expropriation may not expropriation in name, but it is expropriation just the same. Examples include plant closings, deportations, forfeitures of equity, the repossession of land legally obtained, and so on. These all constitute indirect expropriation. These are expressly included in the agreement. The other side, especially local governments, often makes ever-increasing demands on Taiwan investors. The agreement will impose restraints. Detailed provisions allow investment transfers. This too was a plus.
The agreement calls for the timely payment of compensation. It calls for compliance with international standards. This too deserves praise. It clearly specifies that compensation must be calculated on the basis of fair market value. This constitutes a landmark provision for expropriation compensation, even for Taiwan.
The Cross-Strait Investment Protection Agreement is a rare reminder for investors on both sides of the Strait, especially on Taiwan. International investment protection agreements seldom include provisions for commercial disputes between private investors. This agreement does. Investors may include arbitration clauses in business contracts as an alternative to litigation. Arbitration institutions from either side are eligible, and either side may serve as the arbitration locale. This allows arbitration institutions on either side to handle arbitration on the other side. Taiwan businessmen will have many more options during investment negotiations.
Taiwan businessmen must of course understand the rule of law. They must understand beforehand the arbitration clause in the contract, if they wish to avoid litigation. Consider disputes between investors and local governments. The agreement includes multiple means of conflict resolution. The current agreement includes mediating institutions. It was a compromise arrangement. Critics wanted the inclusion of international arbitration mechanisms. But as one can imagine, this was not something the other side could accept. This is not an option for dispute arbitration between investors and the government even on Taiwan. Such a demand amounts to super-national treatment. One can only hope that attitudes may change in the future. The current agreement is a giant step forward from what we had before. That is no exaggeration.
In sum, two years of concerted effort were not wasted. We expect the two governments to earnestly implement this hard-won agreement, and ensure the two sides' precious cross-Strait investments.