On International Investment Arbitration China Has Corporate Identity Recognition Standards

The State-owned enterprise(SOE)is an important part of Chinese Market Economy and is also an important way for sovereign state to invest abroad.With the development of globalization,more and more SOEs have gone abroad to carry out foreign investment.Also,many oversea investors have come to invest in China.The two investment methods reflect the two identities that SOEs in international investment may have.When investing abroad,they are foreign investors,and when the host country accepts foreign investment,they are investment cooperation partners.The increase of exchanges and interactions will inevitably bring disputes and frictions.With the increase of the number,scale and influence of state-owned enterprises,the protection of investment interests of SOEs has become an urgent problem to be solved in international investment activities.In international investment disputes,ICSID,which aims to resolve "investor-state" investment disputes,is the current dispute resolution approach that both dispute parties tend to choose.The arbitration tribunal has jurisdiction over investment disputes is a prerequisite for investors to obtain ICSID arbitration relief.According to the Washington Convention,the basic conditions that investment entities must meet to submit a case to arbitration are that the applicant is a qualified investor and the respondent is another contracting state.Because of the two different positions,in international investment activities,SOEs have two identities.One is a foreign investor,and the other is a corporate entity that acts as a host country enterprise and simply cooperates with foreign investors.In investment arbitration,there are two identities with different positions: one is the applicant who initiated the arbitration initiatively,and the other is the respondent.The dual nature of both political and commercial nature of SOEs is a condition for them to switch their status in international investment activities.Moreover,after causing disputes,they can be the applicant and invoke state responsibility,making the state a prerequisite for the respondent of the application.Based on the characteristics of state-owned enterprises,dual status in international investment and international investment arbitration,this paper discusses the identification of Chinese SOEs in ICSID arbitration,that is,in the perspective of the applicant,whether state-owned enterprises can be identified as qualified investors from the perspective of the applicant,so as to initiate arbitration to the host country.In the perspective of the respondent,whether the behavior of SOEs can be attributed to the country,making the host country a qualified respondent.The article is mainly divided into five parts:Chapter Ⅰ points out that with the development of transnational investment activities,the role of SOEs is becoming more and more prominent.But at present,the definition of SOEs is fuzzy.This is not only reflected in the general provisions of the investment treaties on this issue,but also reflected in the inability to conclude a uniform definition of the domestic laws of each country.Also,there is no clear definition about ‘investor’ in Washington Convention.This problem sets up obstacle for the solution of the identification of SOEs.In addition,although there is no precedent principle or binding precedent system in investment arbitration,in practice,later arbitral tribunals often cite previous awards and decisions in their arguments.Different arbitral tribunals cite different precedents to decide cases,which will lead to different results of the case.The inconsistency of the award will aggravate the difficulty of identification of SOEs.In view of the increase of China’s participation in international investment activities and the increasing enthusiasm of ICSID arbitration to resolve disputes,it is necessary to analyze the identity identification criteria of SOEs from the double perspectives of applicant and respondent in order to realize a good settlement of investment disputes between investors and host countries.Chapter Ⅱ discusses in the perspective of SOEs as applicants,Broches test emerge because of the uncertainty of the ‘nationals’ clause of Washington Convention on the qualifications of applicants.Broches test determine the eligibility of SOEs by stipulating the exclusion criteria for non-applicants--those who are government agents or perform basic government functions.However,as for the application of Broches test,whether the behavior nature,the behavior purpose or the combination of the two should be adopted for identification,the criteria itself does not give an answer.In practice,the arbitral tribunal will choose Draft Articles on Responsibility of State(Draft)to supplement the Broches test.in international investment arbitration practice,CSOB,BUCG and Rumeil are classic cases of identification of SOEs and they all apply the Broches test.In BUCG,which involved Chinese SOEs,the tribunal made clear that identification of SOEs should focus on the nature of the act rather than the purpose.Chapter Ⅲ discusses in the perspective of respondent.The Convention provides that the eligible respondent is another State party,so SOEs itself is not naturally a qualified applicant.In view of SOEs with the mixture of political and economic characteristics,the arbitration tribunal tends to adopt the Draft to judge behavior attribution principles.The draft article 4,5,8 identify the SOEs from the structure,function and control standard.In Maffezini,the arbitration tribunal make a comprehensive analysis.This is also the first time ICSID arbitration tribunal analyze SOEs’ behavior which can be attributed to the host country.In White and Egypt,the arbitration tribunals also analyze the terms of the Draft,finally come to the conclusion that the enterprise’s behavior cannot be attributed to the country.Among them,In Egypt,the arbitration tribunal established the principle of ‘effective control’and concluded that the act was not directed by the Egypt.Visible,in determining whether the behavior of SOEs can be attributed to the state,thus triggering the issue of state responsibility,the arbitration tribunal has adopted a strict standard.It often takes into account various factors in a comprehensive manner,such as the structure of SOEs,the control and influence of the state or the government over SOEs,and the nature or purpose of the behavior of SOEs.Chapter Ⅳ compares the identity identification SOEs from two perspectives on the basis of the previous two chapters.In the perspective of the applicant,the criteria for the identification of SOEs are relatively loose,while the arbitral tribunal takes a more cautious attitude in determining whether the behavior of SOEs is attributable to the state,thus requiring the state to assume its state responsibility under international law.The two criteria,one lax and the other strict,reflect the arbitral Tribunal’s tendency to protect private investment and depoliticize private investment.However,we should also realize that the key point in the two sets of standards is the behavior nature of SOEs.Since SOEs have political and commercial hybrid characteristics,the arbitration tribunal cannot identity simply ‘one size fits all’.As long as it is determined by the arbitration tribunal to be engaged in investment activities as a commercial act,it will be deemed as a private act of SOEs.After this point is made clear,in order to protect the development interests of foreign investors and the country to the maximum extent,the identification standards of SOEs must be cautious.Favoring either party will lead to the absence of the protection of the main interests from another perspective.Chapter Ⅴ points out that the establishment of identification standards of SOEs can provide reference for China’s international investment activities.China’s basic national conditions lead to a large number of SOEs.In order to reverse the western criticism of ‘Chinese international capitalism’ of SOEs,it is necessary to continue to deepen the reform of SOEs and break the obstacles for SOEs to participate in international investment activities.Secondly,innovation of investment agreements is also an effective way.At present,few BITs concluded by China explicitly identify the identity of SOEs,and most of them adopt the general definition.The general provisions make the content of the agreement uncertain.The ‘investor’ clause in the China Investment Agreement may cause private investors to be able to obtain investment arbitration relief,while SOE investors are excluded from the door of investment arbitration relief.Therefore,China should clarify the legal status of SOEs in the definition clause of ‘investors’ when signing the investment agreement.In addition,China should also make active use of its international discourse power and strive to promote the establishment of rules for identification of Chinese enterprises in international investment arbitration.The existing recognition standards are based on the previous arbitration practice.China should be familiar with and make use of the ICSID arbitration mechanism,actively express China’s ideas in specific investment disputes,and expound China’s propositions.Through the expression of viewpoints in specific cases,China should strive to contribute to the shaping of the rules for the practice recognition of international investment arbitration.Finally,the act of SOEs in White case was not recognized as a state act by the arbitration tribunal,but in the end the applicant got compensation.This arbitration practice can provide a new way of dispute settlement for SOEs to participate in international investment activities.Since the identification standard of SOEs in the perspective of the respondent is relatively strict,SOEs are often not considered as acts of the state.But seek remedy through domestic court of host country first,as long as domestic court does not act,can take host country to violate fair and just treatment or the MFN treatment to submit arbitration application to arbitral tribunal.There is currently no dispute in the international community that domestic courts can be recognized as national institutions.This approach seems to set up a pre-procedure,but in fact,through a roundabout way,improve the possibility of the final victory of international investment arbitration.