Belt and Road requires new global dispute regime

By He Quanlin and Chen Xiaochen Source:Global Times Published: 2018/2/1 22:43:41

Illustration: Peter C. Espina/GT

In recent years, the Belt and Road (B&R) initiative has developed rapidly. Countries and regions along the route of the initiative have conducted in-depth cooperation in infrastructure, energy, trade, investment and finance since President Xi Jinping proposed the B&R initiative in 2013. However, along with such cooperation, disputes are also rising, making it extremely urgent to establish a dispute settlement regime for the B&R.

The existing dispute settlement regime cannot meet the increasing needs of the B&R. There are two main ways to solve disputes: one is the litigation mechanism, including legislative and judicial methods, while the second mainly involves arbitration and mediation.

When it comes to the litigation mechanism, there are varied legal systems in economies along the B&R, which makes it more difficult to resolve disputes in this way. The legal systems include the Continental law system, the Anglo-American law system and the Islamic law system. Moreover, most of the economies involved are developing countries, where domestic legal systems are imperfect. In Jordan, judicial proceedings for commercial disputes generally take three to four years, according to data from China's Ministry of Commerce.

As for arbitration and mediation, these methods play an important role in effectively promoting dispute settlement, but there are many problems when such methods are applied to B&R disputes. It can be expensive and time-consuming to resort to international arbitration institutions. The International Center for Settlement of Investment Disputes (ICSID) is one of the most important such institutions. But the average arbitration fee per case at the ICSID is about $500,000, which is unaffordable to most low-income countries along the B&R.

What's more, there is a lack of enforcement mechanisms for arbitration awards. For example, in order to ensure the enforcement of arbitration, according to Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the World Trade Organization (WTO) provides a mechanism called cross-retaliation. When the losing country refuses to implement or fails to reach a consensus with the winning one within 20 days, the winning country can retaliate against the losing one under WTO authorization. But retaliation against developed countries by developing countries tends to have little impact, reflecting the power politics in the WTO.

Finally, because it is based on maritime law, the international arbitration system mainly deals with disputes on maritime trade. But B&R disputes are mostly land-based trade disputes. Therefore, it is necessary to create a new regime for international arbitration and mediation.

Furthermore, Chinese overseas enterprises sometimes fail to defend their rights when seeking international arbitration for disputes. For example, Ping An Insurance Group of China submitted an arbitration request to the ICSID, alleging that the intervention of the Belgian government had caused great losses to the company and demanding that the Belgian government provide reasonable compensation. Eventually, in 2015, the ICSID rejected all of Ping An's claims. This outcome shows that enterprises in developing countries have low levels of internationalization and experience in dispute settlement.

This also demonstrates that the existing dispute settlement regime cannot adequately protect the legitimate interests of Chinese enterprises overseas, and that developing countries lack discourse power in international arbitration institutions. Therefore, a fair and transparent dispute settlement regime is necessary.

China already has the capacity to build dispute settlement regimes and institutions. For one thing, since the financial crisis in 2008, developing countries have become an important force for the improvement of the global economy, and China has made a great contribution to the development of the world economy. According to data from the World Bank, China's contribution to world economic growth among major countries and regions from 2012 to 2016 reached 34 percent.

Also as of 2017, China had established 11 free trade zones, which can serve as pilot sites for international arbitration institutions. In 2016, the Hong Kong International Arbitration Center settled in the China (Shanghai) Free Trade Zone. Meanwhile, the Shenzhen Court of International Arbitration has expanded its powers to include international dispute settlements between governments and enterprises.

In conclusion, the defects of the existing dispute settlement regime make it necessary for China to build a new one for the B&R, and this is something that China has the ability to do.

As the initiator of the B&R initiative, China has a responsibility to build an associated dispute settlement regime, contributing to global governance.

He Quanlin is an intern research fellow at the Chongyang Institute for Financial Studies, Renmin University of China (RDCY). Chen Xiaochen is director of the International Studies Department at RDCY.


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