Abstract
Due to the EU’s proposal of Investment Court System (ICS), it is necessary for China to evaluate the ICS and consider its own stance towards Investor-State Dispute Settlement (ISDS). Under the initiative of One Belt One Road (OBOR), whether and to what extent China would accept ICS require an in-depth analysis of the coherences and divergences between the EU and China, as well as the effect of core features of the ICS. It could be concluded that bilateral ICS is not more effective than traditional ISDS system, whereas in general Multilateral Investment Court (MIC) is more likely to ensure a fair and efficient adjudication, with some deficiencies and even severe challenges that need to be addressed. From a Chinese perspective, it is suggested that (a) MIC should integrate Chinese elements; (b) MIC should become friendly to developing countries; (c) MIC should become friendly to investors; (d) MIC should be replaced by a substantial Multilateral Investment Treaty gradually.

I. Introduction

Since 1 December 2009 when Lisbon Treaty entered into force, foreign direct investment (hereinafter referred to as “FDI”) has formed part of the European Union (hereinafter referred to as “EU”)’s exclusive competence. Hence, the EU is in the process of establishing itself as a new leading participant in concluding bilateral investment treaties (hereinafter referred to as “BITs”), as well as free trade agreements (hereinafter referred to as “FTAs”) with investment chapters with a third state.

In 2013, the EU initiated its BIT negotiation with China, the first ever investment agreement negotiated by the European Commission (hereinafter referred to as “EC”) on behalf of its 28 member countries. Because of the size and importance of the EU-China bilateral investment relationship and the leading roles both parties have played in the global spread of BITs, the negotiation of EU-China BIT will be a watershed event in global investment treaty practice, and the prospective EU-China BIT will have significant influence beyond China and the EU. Currently, the EU and China have already completed 16 rounds of negotiation, with the most recent one being held in mid-December 2017 in Brussels. The negotiation has already stepped into specific text-based phase, indicating a critical stage of negotiation. Investor-state dispute settlement (hereinafter referred to as “ISDS”), which has long been considered a crucial ingredient of effective investment protection, may be one of the key factors that would influence the outcome of negotiation.

Traditional ISDS system, originating from 1960s, is an international arbitration system where arbitrators appointed by an investor and the host state on ad hoc basis adjudicate the investment disputes arising between the two parties. The ISDS system is expected to provide a neutral forum for settling investor-state disputes fairly, in substitute for the national court system of the host state and diplomatic protection of the home state.

However, with the boom of ISDS cases since late 1990s, the ISDS system has given rise to heated debates and criticisms worldwide, and has been questioned within the EU. Main concerns relate to the legitimacy and transparency of the system, the inconsistent and erroneous arbitral decisions, independence and impartiality of party-appointed arbitrators, and the cost- and time-intensity of arbitrations. Thus the EU is determined to reform and reshape the ISDS system. In the draft text of Transatlantic Trade and Investment Partnership (hereinafter referred to as “TTIP”)’s investment chapter in 2015, the EU proposed a bilateral Investment Court System (hereinafter referred to as “ICS”) to the other contracting party, i.e. the US. A tribunal is composed of one or three judges selected on a rotation basis by the President, rather than the disputing party, from judges pre-appointed by the two treaty parties for a fixed term. The award issued by the tribunal may be subject to review in an appellate tribunal, the composition of which is similar to that of the first instance tribunal. In fact, bilateral ICS is only a transition. What the EU really intended is launching a Multilateral Investment Court (hereinafter referred to as “MIC”) system, which resembles the World Trade Organization (hereinafter referred to as “WTO”) Appellate Body. Details of MIC are still open for discussion, but the MIC is expected to be a permanent body with key features of domestic and international courts.

The EU’s proposal of ICS has drawn a lot of attention from academics worldwide. Most of them assess the pros and cons of the bilateral ICS, discuss the suitability of a WTO-style dispute settlement mechanism in investment regime or challenges that the ICS would face, or focus on specific issues of ICS such as the enforceability of awards rendered by the court. Some of them explore the compatibility of ICS with the EU judicial system. These legal researches are beneficial to help analyze the potential effects of the envisaged ICS or MIC in general. However, each country’s policy priorities may be different due to various circumstances. Hence, the first and essential step to evaluate ICS/MIC would be exploring China’s policy preferences and concerns towards ISDS system, followed by assessing whether the function of ICS/MIC would address China’s concerns.

It has not been long since China began to accept comprehensive jurisdiction of traditional ISDS. Although a more balanced approach is adopted in recent years, in principle, China is still a supporter of traditional ISDS. As one of the largest home countries of foreign investment in the world, especially under the initiative of One Belt and One Road (hereinafter referred to as “OBOR”), China would focus more on investment protection. Thus, there may be concern that whether ICS or MIC would benefit Chinese investors.

This article aims to give suggestions on China’s stance towards the EU’s proposal of ICS or MIC in the context of the negotiating EU-China BIT. Its analytical approach focuses on the compatibility of ICS/MIC with the development of China in a broader context. This article is structured as follows. It first focuses on the current negotiation of the EU-China BIT and tries to identify its implications for ISDS clauses (part II); then it examines the current standings of the EU and China on ISDS clauses, demonstrating their differences (part III); further, it makes an in-depth analysis of the coherences and divergences between the EU and China, to reveal the common grounds of cooperation and divergent demands that needs to be met as to the reform of ISDS system (part IV and V); afterwards, it assesses the core aspects of ICS/MIC in light of China’s primary concerns toward the dispute settlement mechanism (part VI); on the basis of the comprehensive analysis, it gives suggestions from a Chinese perspective in relation to the envisaged MIC (part VII); finally it concludes in part VIII.