Is There a Way in the Labyrinth of Treaty Norms Leading to the Applicable Rule?: Investor-State Investment Settlement under the China-Korea FTA, China-Japan-Korea BIT and China-Korea BIT Kong Qingjiang-' A. Introduction With t he signature of the Free Trade Agreement between the People's Republic of China and the Republic of Korea (CK FfA) .in 2015 and subsequent ratification, there will be three sets of rules with respect to investment flow between China and Korea, i.e. the Agreement among the Government of the People's Republic of China, the Government of japan and the Government of the Republic of Korea on the Promotion and Protection of Investment (CK) BIT, 2013), the Agreement of the ' Professor of law, China University of Political Science and l..lw; The Collaborative Innovation Cenr:re for Territorial Sovereignty and Maritime Interests. He wishes to thank Lukas for his comments on an earlier draft of this article. Government between the People's Republic of China and the Government of the Republic of Korea on the Promotion and Protection of Investment (CK BIT, zoo7), as well as the investment chapter of the CK ITA. A quick look at "these rules will show that there are overlapping and even conflicts among them. While the agreements were designed to facilitate the investment flow between the countries concerned, the rules will pose intimidating barriers to the investors. And even for professional lawyers, this will be a labyrinth of treaty norms. A question arises in this regard: shall there be an integrated approach so that there will be a coherent cannon of rules, which encompass a recognition of the rules in CK IT A, CJK BIT and CK BIT as mutually complimentary to each other, and lex posterior derogat priori. The article is to be structured as follows: Part A is an introduction that highlights the issues; Part B is an examination of the major investments rules in the three sets of liAs mentioned-above; Part C focuses on a discussion of how to determine the applicable rules among various treaties under the Vienna Convention and Part D concludes the article with a few remarks in the context of the liAs. B. Examination of Major Investment Rules 1. Definition and scope of investor-State investment disputes a. Definition of *investment" 179 The definition of "investment" has a significant impact on the rest issues that may arise under a BIT or the investment chapter of an FT A, especially in regards to whether a dispute arising out of "investment" is within the scope of investor-state arbitration. The CK BIT that entered into force in 2007 has a rather straightforward definition of "investment, • which refers to "investments" as: ... every kind of asset, used as investment by investors of one Contracting Party within the territory of the other Contracting Parry, in accordance with the applicable laws and regulations of that other Contracting Party at the time of investment and shall include, in particular, though not exclusively: (a} movable and immovable property as well as any other property rights in rem such as mortgages, liens, pledges, usufruct and similar rights; (b} shares, stocks, bonds and debentures or any other forms of participation in a company, business enterprise or joint venture; (c) claims to money or to any performance having an economic value associated with an investment; (d) intellectual property rights, including copyrights, trade marks, patents, industrial designs, technical I So processes, know-how, trade secrets and trade names, and goodwill; (e) any right conferred by law or under contract and any licenses and permits pursuant to law, including the right to search for, extract, cultivate or exploit natural resources. Any alteration of t he form in which assets are invested shall not affect their classification as investment.' It is noteworthy that the CK BIT adopts an asset-based method to define "investment." Unlike the CK BIT, an enterprise-based method was adopted by the CJK BIT to definite "investment." "Investment• is defined to in the C}K BIT as: every kind of asset that an investor owns or controls, directly or indirectly, which has the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that investments may take include: (i) an enterprise and a branch of an enterprise; (ii) shares, stocks or other forms of equity participation in an enterprise, including rights derived therefrom; 1 See CK PTA, at art. 1. (iii) bonds, debentures, loans and other forms of debt, including rights derived therefrom; (iv) rights under contracts, including turnkey, construction, management, production or revenue-sharing contracts; (v) claims to money and claims to any performance under contract having a financial value associated with investment; (vi) intellectual property rights, including copyrights and related rights, pate:tt rights and rights relating to utility models, trademarks, industrial designs, layout-designs of integrated circuits, new varieties of plants, trade names, indications of source or geographical indications and undisclosed information; (vii) rights conferred pursuant to laws and regulations or contracts such as concessions, licenses. authorizations and permits; and (viii) any other tangible and intangible, movable and immovable property, and any related property rights, such as leases, mortgages, liens and pledges.' Generally speaking, defining "investment" with an enterprise-based ' /d. at art. u.t; see CJK BIT, at art. 1. method represents the latest trend of BITs when defining this term. It is not difficult to find that both BITs (i.e., the CK BIT and the C)K BIT) carry an open list of specific kinds of investments with the wording "any other tangible and intangible, movable and immovable property, and any related property rights, such as leases, mortgages, liens and pledges" and "shall include, in particular, though not exclusively." The CK FfA and the CJK BIT share the same definition of "investment." Apparently, the CK Ff A's definition of "investment" is an exact copy of the one found in the CJK BIT. Both the CK FfA and C)K BIT are more sophisticated than the CK BIT as far as the definition of "investment" is at stake. There is an obvious discrepancy between them, that is, the former carries a longer list with an enterprise-based method, while the latt<;r has a rather short list with an asset-based method. An enterprise-based method with a longer list, which intends to protect more investment activities between the contracting parties, is instrumental to fulfilling the main purpose of the investment rules to protect bilateral investment activities. In contrast, the CK BIT provides for an old-fashioned way of defming "investment. • Apart from the method used in the definitions, there are some literal differences between the CK FTA, the CJK BIT and the CK BIT: First, the CK BIT puts more emphasis on the restrictive conditions attached to the notion of "investment; via the terms "within the territory" and "in accordance with the applicable laws and regulations." rather than the definition of "investment" itself. It only describes "investment" as "every kind of asset, used as investment." In contrast, the CK FTA and the C)K BIT explain what could be defined as 'used." it enumerates different modalities of "used" as "owns or controls, directly or indirectly." The CK FTA and the CJK BIT also provide more details as to the "characteristics" of an investment, "such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk." The above mentioned two specific precisions cannot be found in the CK BIT, which demonstrates that the CK FT A and the C)K BIT are more delicately d rafted agreements concerning the definition of "investment." What's more, comparing the items specified in the aforementioned three agreements, the C)K BIT and the CK FT A add (i) an enterprise and a branch of an enterprise and (iv) rights under contracts, including turnkey, construction, management, production or revenue-sharing contracts as new modalities of"investment"; divide (b) shares, stocks, bonds and debentures or any other forms of participation in a company, business enterprise or joint venture into (ii) shares, stocks or other forms of equity participation in an •84 enterprise, including rights derived therefrom; (iii) bonds, debentures, loans and other forms of debt, including rights derived therefrom; enrich the modality of "intellectual property rights"; supplement "any other tangible and intangible property" to · "movable and immovable property as well as any other property rights in rem such as mortgages, liens, pledges, usufruct and similar rights." All the above mentioned literal differences lend support to the conclusion that the definition of "investment• in the CJK BIT is more sophisticated and concrete, The same approach is adopted by the CK IT A and represents a more advanced way of defining "investment" in China's lnternationallnvestment Agreements (liAs). b. Scope oflnvestor·State investment disputes When it comes to the scope of investor-state investment disputes, the aforementioned three agreements tackle this topic in nearly the same way, with only slight difference when it comes to the wording of the definition of investor-State investment dispute subject to international arbitration. The CK BIT presents a basic and general stance on the method of definition, which reads: . . . an investment dispute is a dispute between one Contracting Party and an investor of the other Contracting Party that has incurred loss or damage by reason of, or arising out of, an alleged breach of this Agreement with respect to an investment of an investor of that other Contracting Party.' The CJK BIT differs slightly from the CK BIT in th•t it defines "an investment dispute• as: A dispute between a Contracting Party and an investor of another Contracting Party that has incurred loss or damage by reason of, or arising out of, an alleged breach of any obligation of the former Contracting Party under this Agreement with mpect to the investor or its investments in the territory of the former Contracting Party.• C]K BIT not only details the ·an alleged breach of this Agreement" as "an aReged breach of any obligation of the former Contracting Party under this Agreement; but specifies ·an investment of an investor" as "the investor or its investments in the territory of another Contracting Party. • The CK FTA is not different from the C)K BIT in this regard. It only contains one minor change compared to the C]K BIT. Pursuant to CK ' See CK BIT, a t art. 9·'· • See CJK BIT, supra note 2, at art. •5·'· . t86 FTA: ... an investment dispute is a dispute between a Party and an investor of the other Party that has incurred loss or damage by reason of, or arising out of, an alleged breach of any obligation of the former Party under this Chapter with respect to the investor or its covered investments in the territory of the former Party. 5 The CK FTA adds "covered" to "investments in the territory." 2. Treatment of Foreign investors a. National Trea tment Pursuant to the CK BIT, national treatment is phrased as such: Each Contracting Party shall in its territory accord to investors of the other Contracting Party and to their investments treatment no less favorable than the treatment it accords in like circumstances to its own investors and their investments (hereinafter referred to as ·national treatment•) with respect to the expansion, operation, management~ maintenance., use, enjoyment, and sale or other disposal of investments (hereinafter referred to as "investment and business activities•).6 5 CK FTA, supra note 1 at art. u.u.1. Under the CJK BIT, the national treatment obligation is spelled out differently. The CjK BIT provides that: [E]ach Contracting Party shall in its territory accord to investors of another Contracting Party and to their inve~tments tre.:1tment no less favorable than that it accords in Uke circumstances to its own investors and their investments with respect to investment activities.' Similarly, the CK ITA reads: Each Party shall in its territory accord to investors of the other Party and to covered investment treatment no less favorable than that it accords in like circumstances to its own investors and their investments with respect to investment activities.8 These national treatment clauses differ in that under the CK BIT, the national treatment obligation is only with respect to the expansion, operation, management, maintenance, use, enjoyment, and sale or other disposal of investments. It is clear that the national treatment obligation under the CK BIT is thus merely limited to the post-establishment phase, while it is vague under the CJK BIT or the CK ITA whether national treatment shall be accorded to the prospective investors in the 6 CK BIT, supra note 3 at art. J .L 7 CjK BIT, supra note >at art. 3· 8 CK FTA, supra note tat art. u .3. pre-establishment phase. The vagueness is indicated under Article 2 .2 of C)K BIT and Article u.2.2 of CK ITA, which basically state that each Party shall, subject to its rights to exercise powers in accordance with the applicable laws and regulations, including those with regard to foreign ownership and control, admit investment of investors of the other Party. In contrast, the most-favored-nation treatment under both the C)K BIT and the CK ITA, which is clearly stated to be accorded to investors and covered investments "with respect to investment activities and the matters relating to the admission of investment," applies to the pre-establishment phase. b. Most-favored-nation Treatment According to the CK BIT, each Contracting Party shall in its territoty accord to investors of the other Contracting Party and to their investments and activities associated with such investments by the investors of the other Contracting Party treatment no Jess favorable than that accorded in like circumstances to t he investors and investments and associated activities by the investors of any third State (hereinafter referred to as "most-favored-nation treatment") with respect to investments and business activities, including the admission of investment.• However, it has the following exceptions: the benefit of any 9 See CK BIT, supra note 3 at art. 3·3· •89 treatment, preference or privilege by virtue of: (a) any customs union, free trade zone, economic union and any international agreement resulting in such unions, or similar institutions; (b) any international agreement or arrangement relating wholly or mainly to taxation; (c) any arrangement.< for facilitating small scale frontier trade in border areas.'" Pursuant to the CJK BIT, each Contracting Party is required within its territory, to accord to investors of another Contracting Party and to their investments, treatment no Jess favorable than that it accords in like circumstances to investors of the third Contracting Party or of a non-Contracting Party and to their investments with respect to investment activities and the matters relating to the admission of investment." The most-favored-nation treatment provision cannot be construed so as to oblige a Contracting Party to extend to investors of another Contracting Party and to their investments any preferential treatment resulting from its membership of: (a) any customs union, free trade area, monetary union. similar international agreement leading to such union or free trade area, or other forms of regional economic cooperation; (b) any international agreement or arrangement for facili tating small scale trade in border areas; or (c) any bilateral and multilateral international agreements involving aviation, fishery and ,. /d. at art. ) ·4· " See C)K BIT, at art. 4-L '90 maritime matters including salvage." The CK ITA provides for similar provisions on most-favored-nation treatment and its exceptions. According to the CK ITA each Party shall, within its territory, accord to investors of the other Party and to covered investments treatment no less favorable than that it accords in like circumstances to investors of any non-Party and to their investments with respect to investment activities and the matters relating to the admission of investment in accordance with paragraph 1 of Article u .z." The exceptions to the most-favored-nation treatment are limited to: ... any preferential treatment resulting from its membership of: (a) any customs union, free trade area, monetary union, similar international agreement leading to such union or free trade area, or other forms of regional economic cooperation; (b) any international agreement or arrangement for facilitating small scale trade in border areas; or (c) any bilateral and multilateral international agreements involving aviation, fishery and maritime matters including salvage." In this regard, the agreement adds that the treatment accorded to investors of any non-Party and to their investments as referred to in paragraph 1 does not include treatment accorded to investors of any u /d. at art. 4.2-. '' See CK ITA, at art. u.4.1 . ... I d. at art. 12.4.2. 191 non-Party and to their investments by provisions concerning the settlement of investment disputes between a Party and investors of any non-Party that are provided for in other international agreements.'5 c. Access to t he Courts of justice The issue here is whether the hosting state shall provide fair and equitable opportunity to the foreign investor to seek recourse to its domestic courts for redress where a dispute arises between the investor and the host state concerning expropriation and other measures affecting the foreign investment. Both the obligation of national treatment and the obligation of most-favored-nation treatment apply with respect to access to the courts of justice and administrative tribunals and authorities both in pursuit and in defense of their rights."' The C)K BIT provides that: Each Contracting Party shall in its territory accord to investors of another Contracting Party treatment no less favorable than that it accords in like circumstances to its own investors, investors of the third Contracting Party or of a non-Contracting Party, with respect to access to the courts of justice and administrative tribunals and agencies in all degrees of jurisdiction, both in pursuit •s Jd. at art. U·4·3· ,. See CK BIT, supra note 3. at art. l5· and in defense of such investors' rights.'' Similarly, the CK IT A reads: Each Party shall in its territory accord to investors of the other Party treatment no less favorable than that it accords in like circumstances to its own investors and investors of any non-Party, with respect to access to the courts of justice and administrative tribunals and agencies in all degrees of jurisdiction, both in pursuit and in defense of such investors' rights.'8 d. Minimum Standard of Treatment Pursuant to the CjK BIT, each Contracting Party shall accord to investments of investors of another Contracting Party fair and equitable treatment and full protection and security.'9 This is called "minimum standard treatment• in most liAs, although under the CJK BIT it is addressed under the title "General Standard of Treatment." In this regard. the minimum standard of treatment amounts to "fair and equitable treatment" and "full protection and security.' The C)K BIT further defines the concepts of "fair and equitable treatment" and "full protection and security," which do not require treatment in addition to '7 See CJK BIT, supra note 1, at art. 6 ' 8 See CK FTA, supra note 1, at art. u.6. ,. See CjK BIT, supra note 2, at art. 5· or beyond any reasonable and appropriate standard of treatment accorded in accordance with generally accepted rules of international law. Under the CJK BIT, fair and equitable treatment and full protection and security are narrower than or at most equivalent to the treatment accorded. in accordance with generally accepted. rules of international law. Under the CK FT A, the minimum standard treatment obligation is differently phrased: "each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security."w It is not difficult to find that the minimum standard of treatment is equated to the "treatment in accordance with customary international law; which is broader than "fair and equitable treatment" and "full protection and security."~ Under the CK ITA. "fair and equitable treatment• and "full protection and security" are more clearly explained: The obligation to provide "fair and equitable treatment includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process of law"; and the obligation to provide "full protection and 10 See CK FTA, supra note 1, at art. u .5.1. ~ See CK ITA, supra note 1, at art. u .s.>. 194 security requires each Party to provide the level of police protection required under customary internationallaw."u It is noteworthy that pursuant to both the C)K BIT and the CK Ff A, a •determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, does not ipso facto establish that there has been a breach of •fair and equitable treatment" and "full protection and security."'' Two unique points are equally noteworthy. One is that the C)K BIT solidifies the concession of the host state by requiring that each Contracting Party shall observe any written commitments in the form of an agreement or contract it may have entered into with regard to investments of investors of another Contracting Party.,. The other is that unlike the CK BIT and the C)K BIT, the CK Ff A specifically imposes an obligatjon of "non-discriminatory treatment with respect to measures it adopted or maintained relating to losses suffered by investments in its territory owing to war or other armed conflict, or revolt, insurrection, riot, or other civil strife."'' .. /d. '' See C)K BIT, supra note 2, at art. 5.1; CK FTA, supra note 1, art. "·5·3· ,. See C)K BIT, supra note •· at art. 5·•· 1s See CK FfA, supra note 1, at art. t2.5·4· 195 3· Expropriation and compensation Whether and to what exter.t expropriation of foreign investment is permissible in the host state is an important issue that a BIT must address. Under the CK BIT, the rule concerning expropriation is spelled out as follows: 1. Neither Contracting Party shall expropriate, nationalize or take other similar measures, directly or indirectly, (hereinafter referred to as "expropriation") against the investments of the investors of the other Contracting Party in its territory, unless t he following conditions are met: (a) for the public interests; (b) in accordance with domestic law and international standard of due process of law; (c) without discrimination; (d) against compensation in accordance with paragraph. >6 In contrast, the CJK BIT has a far more sophisticated rule for expropriation: 1. No Contracting Party shall expropriate or >6 See CK BIT, supra note J, at art. 4· nationalize investments in its territory of investors of another Contracting Party or take any measure equivalent to expropriation or nationalization (hereinafter referred to in this Agreement as "expropriation") except: (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with its laws and international standard of due process oflaw; and (d) upon compensation pursuant to paragraphs 2, 3 and 4.'7 Similarly, the CK FTA provides in relation to expropriation that: Neither Party shall expropriate or nationalize a covered investment or take any measure equivalent to expropriation or nationalization (hereinafter referred to in this Chapter as "expropriation") except: (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with its laws and international standard of due process of law; and (d) upon compensation pursuant to paragraphs 2 l? CjK BIT, supra note 1, at art. u.t. through 4.~ Evidently, the CJK BIT and the CK Fr A adopt a similar standard concerning expropriation. Compared with the CK BIT, both the CJK BIT and the CK Fr A are more assertive towards ·measures equivalent to expropriation," while the CK BIT refers to •direct or indirect" expropriation.'• Therefore, more government measures are subject to the disciplines under the CJK BIT and the CK FrA than under the CK BIT. When a measure is established as being •equivalent to expropriation• is established, the next step is certainly the determination of compensation. When it comes to compensation, the CK BIT, the CJK BIT and the CK FrA adopt a similar standard similar to each other, i.e., •fair market value of the expropriated investments.""' In contrast, the CK BIT's reference to •fair and teasonable compensation•"' is not as specifically operational as the CJK BIT and the CK FrA. Moreover, both the CJK BIT and the CK Fr A provide that the fair market value shall not reflect any change in value occurring because the expropriation had ~ See CK FTA, supra note t , at art. 12.9. "' Set CK FTA, supra note1, at art. t1.9.1; CJK BIT, supra note 2, at art. u; CK BIT, supra note 3. at art. 4.1 " See CJK BIT, supra note 2, at art. 11.2; and CK FTA, supra note 1, at art. u.9.2. ~ See CK BIT, supra note 3, at art. 5·'· become pubUcly known earlier.32 There is an obvious difference between the CK BIT and the two other agreements in that pursuant to the CK BIT, ·compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation occurred (emphasis added),"l:l while according to both the C)K BIT34 and the CK FT A15, •the compensation shall be equivalent to the fair market value of the expropriated investments at the time when the expropriation was publicly announced or when the expropriation occurred, whichever is the earlier (emphasis added)." The three liAs require that the compensation shall be paid without delay and shall carry interest from the date of expropriation until the date of payment. In this regard, the main difference is that the CK BIT only prescribes • appropriate interest, • while the C)K BIT and the CK FT A mandates the payment of interest "at commercially reasonable rate." The three liAs aU require that the payment of compensation shall be effectively realizable, freely transferable and freely convertible into the currency of the Contracting Party of the investors concerned and into freely usable currencies. However, while the CJK BIT and the CK FT A do P Supra note 30. » See CK BIT, supra note), at art. 4.2. " See C)K BIT, supra note>, at art. u.>. " See CK FTA, supra note J, at art. 1.2.9.>. 199 not impose restrictions on the "freely usable currencies, • y; the CK BIT requires the currencies to be "as defined in the Articles of the Agreement of the International Monetary Fund."" It is also noteworthy that all the three liAs - the CK BIT, the C)K BIT and the CK FT A - mandate that "the investors affected shall have a · right of access to the courts of justice or administrative tribunals" according to the legal procedure of the host state making the expropriation "for a prompt review of the investors' case and the amount of compensation in accordance with the principles set out in this Article.",s 4· Exclusion of disputes from the subject matters of international arbitration a. Time of limitation A comparison reveals that all the aforementioned three agreements employ time of limitation as a mean to exclude disputes from falling within the scope of international arbitration. The three agreements provide for a three-year time of limitation for arbitration, which suggests that no claim may be submitted to arbitration if more than three years ,. See CjK BIT, supra note 1 , at art. 3.) and CK ITA, supra note 1, at art. 1.2.9. 37 See CK BIT, supra note 3, at art. 42. ' 8 See CK BIT, supra note 3, at art. 4.3; CjK BIT, supra note 2, at art. 1L4 and CK ITA, supra note~ at an. u.9. 200 have elapsed."' The only difference worth mentioning is that, unlike the CK BIT, both the CK IT A and the C)K BIT insert "whichever is the earlier" after "the date on which the disputing investor first acquired, or should have first acquired," which adds clarity and specificity to the limitation. Needless to say, a shorter time limitation for arbitration means fewer cases will be brought to international arbitration. Behind the change lies a rather conservative approach towards international arbitration. b. Intellectual property The aforementioned three liAs only prescribe intellectual property (("IP)") in the provisions concerning definition of investment and there is no IP content concerning investor-state investment disputes. According to Article 31 of Vienna Convention, the whole text of treaty should be taken into consideration when interpreting provisions. As lP is a form of investment listed in the definition of "investment," IP disputes between investors and state could resort to arbitration in the case of no IP exclusion. c. Prudent carve-out A prudent carve-out clause in a BIT or investment chapter in an IT A '~ See CK BIT, supra note), at art. 9.7; CK) BIT, supro note 2, at art. 15.u and CK ITA, supra note 1J at art. 12.12.u. 201 is a provision that explicitly specifies that the arbitral tribunal for international investment disputes between investors and countries does not have jurisdiction over prudential carve-out issues. The CK BIT does not have any clause concerning prudential measures, while the C)K BIT uses two clauses in Article 20 to reserve the right of "taking measures relating to fi111ancial services for prudential reasons." Although the CJK BIT accords the Contracti.ng Party the power to take financial measures for prudential reasons, it does not authori~e Contracting Party to take measures that do not conform with the CJK BIT as a means of avoiding its obligation under the BIT."' In this regard, it is noted that CjK BIT does specify what measures are eligible. In the event of dispute thereafter, such issues shall be decided by the arbitration tribuna.! established by the Contracting Parties. Under the CK FT A, the prudent carve-out clause is incorporated into a Services-Investment Linkage clause." Unlike the CjK BIT, the CK FTA specifies the obligations which cannot be compromised by •any measure affecting the supply of financial service by a financial service supplier of a Party through commercial presence in the territory of the other Party, •<> thus providing more predictability and transparency as to which measures are eligible as prudential carve-out measures. "' See CjK BIT, supra note>, at art. >o.> ., See CK FT A, supra note 1, at art. u .18. " See CK Ff A, supra note 1, at art. u .18.2. 201 5· Pre-set consultation, fork-in-the-road provision and exhaustion of local remedies Pre-set consultation refers to the situation where an investor is · required to resort to consultation for the purpose of resolving the investment dispute between itself and the host state; only a failure of the attempt will entitle the investor to resort to international arbitration. The CK BIT requires a pre-set consultation before the investor of one Contracting Party can resort to other means of resolution of disputes between it and the government of the other Contracting Party. *In the event of an investment dispute, the investment dispute shall, if possible, be settled by consultation or negotiation."., While both the C)K BIT and the CK ITA have a sophisticated clause concerning pre-set consultation, they also share the same wording: Any investment dispute shall, as far as possible, be settled amicably through consultation between the investor who is a party to the investment dispute and the Party that is a party to the investment dispute.44 The difference be.tween the C)K BIT and the CK IT A lies in that the former adds that: " See CK BIT, supra note 3, at art. 9.2 . .. See CK FTA. supra note 1, at art. u .u .> and CJK BIT, supra note>, at art. •5·•· 203 A written request for consultation shall be submitted to the disputing Contracting Party by the disputing investor before the submission of the investment dispute to the arbitration. 45 Then the CJK BIT lists the specific requirements for the written request by four conditions and three notices. Therefore, the idea of pre-set consultation stays the same in the aforementioned three agreements, and the CJK BIT carries a more specific modality requirement for the pre-set consultation. The spedflc requirement of pre-set consultation sets more obstacles when foreign investor when they intend to submit a claim to international arbitration. The change ·is reflective of the general attitude towards international arbitration. This attitude is partly a result of the recent legitimacy crisis of investor-State arbitration and China is among the counties who take a more conservative attitude towards investor-State arbitration. A fork-in-the-road provision means that both domestic courts' jurisdiction and international tribunal's jurisdiction over an investor-State investment dispute is final and one-way, and investors can not turn around as long as their choices are made, while exhaustion of local remedies means domestic judicial or administrative procedure is a pre-condition for international arbitration. 45 See CJK BIT, supra note 2, at art. •S·•· 204 The aforementioned three agreements all contain fork-in-the-road provisions .. , wltich means that the choice of the disputing investor shall be final and the disputing investor may not submit thereafter the same dispute to the other court or tribunal for a resolution. Besides fork-in-the-road provision, both three agreements require of prior domestic administrative review procedure before international arbitration 47 with a soft wording as "the disputing Contracting Party may require the investor concerned to go through the domestic administrative review procedure specified by the laws and regulations of that Contracting Parry before the submission to the arbitration. • While the three agreements specify that a four-month period for the domestic administrative review procedure, both the CJK BIT and the CK FTA require the disputing state to "require the investor concerned to go through the domestic administrative review" "without delay." Equally noteworthy is that a note is inserted to emphasize the right to arbitration of the investor regardless of the decision made under the domestic administrative review procedure ... 46 See CX FTA, supra note 1, at a~. u.u.s; CJK BIT, supra note 2, at art. •S·J; and CK BIT, supra note 3, at art. 9+ 47 See CK FTA, supra note 1, at art. u.u.7; CJK BIT, supra note 2., at art. 15.7; and CK BIT, supra note J, at art. 9·3· ... /d. 205 6. Investor-State Investment Dispute Arbitration a. Arbitration inst itution and arbitration rules The CK IT A and the CJK BIT have the same provision concerning arbitration institutions and arbitration rules: which said investors can submit disputes to either a competent domestic court or an arbitration tribunal that arbitra tes under the ICSID Convention, the ICSID Additional Facility Rules, the UNCJTRAL Arbitration Rules or any arbitration rules agreed upon by the disputing Party ... Under the CK BIT, the ai~itration institutions include tribunals established under the ICSID Convention and an ad hoc arbitration tribunal established under the UNClTRAL Arbitration Rules or any other arbitration rules agreed upon by both parties. ;o A comparison shows that the lCSID Addit ional Facility Rules are only available under the CK IT A and the C]K BIT, while the arbitration institution can be the same in the three !lAs. The additional arbitration rules available to the parties make the arbitration procedure more specific and less indistinct. b. Applicable law in arbitration Only the CK BIT mentions the application law in arbitration: 49 See CK FTA, supra note 1, at art. u.u.J and C)K BIT, supra note>, at art. 15-2. "' See CK BIT, supra note J, at art. 9·3· The arbitration award shall be based on the law of the Contracting Party to the dispute including its rules on the conflict of laws, the provisions of this Agreement as well as the principles of international law accepted by both Contracting Parties."' According to the CK BIT, applicable law in arbitration is the domestic law of contracting party with its conflict laws, as well as the principle of international law accepted by both contracting parties. Both CJK BIT and CK IT A do not contain such kind of clause in their texts. c. Remedies available in arbitral awards The CK BIT provides in arbitral awards for no remedy. Under the CJK BIT and the CK ITA, "monetary damages and applicable interest" and "restitution of property"" are two kinds of remedies available in arbitral awards. In lieu of restitution, monetary damages and any applicable interest paid by contracting party could also become available remedies. This evolution provides better protection to foreign investors, which conforms to the general purpose of the preamble of liAs. Thus, China shows its will to provide better protection to investors, based on the fact that Chinese "' See CK PTA, supra note 3, at art. g.6 . " See C)K BIT, supra note 2, at art. '5·9·•; CK FTA, supra note t, at art. u.u.g.b(ii). 107 investors are becoming increasingly active in overseas investment activities. 7· Denial of benefits The "denial of benefits" clause intends to prevent foreign investors from abusing liAs so as to maximize their interest via "treaty shopping"53• As treaty shopping becomes increasingly popular among international investors, many countries tend to have in place a denial of benefits clause in their liAs to avoid damages caused to host country's sovereignty. The CK BIT does not contain a denial of benefits clause, while the CJK BIT provides in this regard that: 1. A Contracting Party may deny the benefits of this Agreement to an investor of another Contracting Party that is an enterprise of the latter Contracting Party and to its investments if the enterprise is owned or controlled by an investor of a non-Contracting Party and the denying Contracting Party: 9 The term "treaty shopping" or "·naionality planning" refers to a conduct where a foreign investor routes their inveslment through a third country in order to benefit from a favorable investment treaty that such third country has with their actual or planned host stare. See Skinner, M., Miles, C., A., and Luttrell,$., Access and Advantage In Investor-State Arbitration: The Law And Practice OfTreaty Shopping, 3 JWELB z6o at pz6o-z61 (zo•o). (a) does not maintain normal economic relations with the non-Contracting Party; or (b) adopts or maintains measures with respect to the non-Contracting Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Agreement were accorded to the enterprise or to its investments. 2 . A Contracting Party may deny the benefits of this Agreement to an investor of another Contracting Party that is an enterprise of the latter Contracting Party and to its investments if the enterprise is owned or controlled by an investor of a non-Contracting Party or of the denying Contracting Party, and the enterprise has no substantial business activities in the territory of the latter Contracting Party. Note: For the purposes of this Article, the term •non­ Contracting Parties • shall not include any separate customs territory within the meaning of the General Agreement on Tariffs and Trade or of the WTO Agreement that is a member of the World Trade Organization as of the date of entry into force of this Agreement. 54 The CK PTA contains a similar denial of benefits clause, which reads: 1. A Party may deny the benefits of this Chapter to an investor of the other Party that is on enterprise of the latter Party and to its investments if the enterprise is owned or controlled by an investor of a non-Party and the denying Party: (a) does not maintain normal economic relations with the non-Party; or (b) adopts or maintains measures with respect to the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments. 2. A Party may deny t he benefits of this Chapter to an investor of the other Po rty that is an enterprise of the latter Party and to its investments if the enterprise is owned or controlled by an investor of a non-Party or of the denying Party, and the enterprise has no substantial business activities in the territory of the latter Party.:B 54 C)K BIT, supra note 2 , at art. 22. 210 C. Determination of the Applicable Rule among Various Treaties: under the Vienna Convention Given the possible labyrinth of norms contained in the various valid treaties between the same Contracting Parties, there are several ways of determining and applying the appropriate rule: Making a concrete act of individual application in accordance with the conflict-of-convention clause/ conflict of convention provision(s), if applicable; or Laying down a subsidiary rule concerning the application of the rules. In both cases, applying the rule requires the determination of the applicable rule in the first place. The Vienna Convention on the Law ofTreaties (Vienna Convention), which provides a set of rules for determining the applicable rule between various treaties, illustrates the above methods. 56 Article 30 of the Vienna " CK FTA, supra note>, at art. \2.>5- 56 The ICSID practices show that arbitration tribunals almost invariably start by invoking the Vienna Convention on the Law of Treaties (VCLT) when interpreting treaties. In referring to the rules of interpretation contained in the VCLT, tribunals sometimes point out that these rules rellect customary international law. Treaty Interpretation and the Vienna Convention on the Law ofTreaties: 30 Years on, >4-25 (>o>o). 2U Convention, entitled "Application of successive treaties relating to the same subject-matter, • states: 1. Subject to Article 103 of the Charter af the United Nations, the rights and obligations of States parties to successive treaties relating to tht somP. s ubjP.rt -mnttP.r shall be determined in accordance with the following paragraphs. 2. When a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail. 3· When all the parties to the earlier treaty are parties a/sa to the later treaty but the earlier treaty is not terminated or suspended in operation under article .59· the earlier treaty applies only to the extent that its provisions are compatible with those of the latter treaty. 4· When the parties to the later treaty do not include all the parties to the earlier one: (a) Asas between States parties to both treaties the same rule applies as in paragraph 3; (b) Asas between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations. 212 5· Paragraph 4 is without prejudice to articleArticle 4J, or to any question of the termination or suspension of the operation of a treaty under article 6o or to any question of responsibility which may arise for a State from the conclusion or application of a treaty the provisions of which are incompatible with its obligations towards another State under another treaty. The Vienna Convention leaves the applicable rule to be determined by the Contracting Parties; the treaty that the Contracting Parties have chosen to prevail among the conflicting treaties between them is the one that shall prevail. 57 The following conflict·of·conventions clause can be found in the C)K BIT. Article 25 of the C)K BIT, entitled "Relation to Other Agreements• states that: Nothing in this Agreement shall affect the rights and obligations of a Contracting Party, including those relating to treatment accorded to investors of another Contracting Party, under any bilateral investment agreement between those two Contracting Parties existing on the date of entry into force of this Agreement, 57 Vienna Convention on the Law of Treaties art. 30, May ZJ,l969~ us U.N.T.S. 331. so long as such a bilateral agreement is in force. 58 It is further noted and confirmed that, when an issue arises between an investor of a Contracting Party and another Contracting Party, nothing in this Agreement shall be construed so as to prevent the investor from relying on the bilateral investment agreement between those two Contracting Pa rties which is considered by the investor to be more favorable than this A greement."' In light of this conflict-of-conventions clause, a foreign investor may invoke a CJK BIT provision to assert his rights. He may also choose to invoke a different provision in the CK BIT to assert his rights. Article 30 of the Vienna Convention does not affect his right to invoke either provision. However, a problem arises when a foreign investor does not invoke either provision as the legal basis for his claim. In that context, the question arises: which provision, either the provision contained in the CK BIT or in the C)K BIT, should prevail? The question also arises equally when it comes to the issue of determining which treaty provision should prevail between the CK FI'A and the CK BIT, and between the CK FI'A and the CJK BIT, S8 C)K BIT, supra note >, at art. '5· " See Note following Article 25 of C)K BIT, supra note 2. 214 The Vienna Convention provides a set of rules for interpreting treaties.6o Among the principles contained in Article 31 of the Vienna Convention, an interpretation that looks at the treaty's object and purpose is particularly popular. In the context of BITs, this often leads to an interpretation that is favorable to investors. For instance, the Tribunal in Noble Ventures v. Romania said: The object and purpose rule also supports such an interpretation. While it is not permissible, as is too often done regarding BITs, to interpret clauses exclusively in favor of investors, here such an interpretation is justified. Considering, as pointed out above, that any other interpretation would deprive Art. II (2)(c) [an umbrella clause] of practical content, reference has necessarily to be made to the principle of effectiveness, also applied by other Tribunals in interpreting BIT provisions.'" 6o According to Article 31, treaties have to be interpreted in good faith in accordance with the ordinary meaning to be given to the tc.rms of the treaty in their context and in the light of the object and purpo~ of the Treaty. Article 32 further notes that recourse may be had to supplementary means of interpretation, including the preparatory work and the circumstances of its conclusion, only in order to conform the meaning resulting from the application of the aforementioned methods of interpretation. Reference should also be made to the principle of effectiveness (effet utile), which, too plays an important role in interpreting treaties. 6 ' Christoph S<:hreuer, Diversity and Harmonization of Treaty Interpretation in Investment Arbitration, T REATY lr91131 (2010). The most frequent way to find a trea ty's object and purpose was to look at the preamble. The Tribunal in Siemens v. Argentina said in this respect: The Tribunal considets that the Treaty has to be interpreted neither liberally nor restrictively. as neither of these adverbs is pan of Article 31(1) of the Vienna Convention. The Tribunal shall be guided by the purpose of the Treaty as expressed in its title and preamble. It is a treaty "to protect" and "to promote" investments. The preamble provides that the parties have agreed to the provisions of the Treaty for the purpose of creating favorable conditions for the investments of nationals or companies of one of the two States in t he territory of the other State. Both parties recognize that the promotion and protection of these investments by a treaty may stimulate private economic initiative and increase the well-being of the peoples of both countries. The intention of the parties is clear. It is to create fav.orable cor.ditions for investments and to stimulate private initiative.6 ' The ICSID practices therefore lend themselves to the following 6' /d. at 131-13>. conclusion: where the provisions in the CK BIT, the CjK BIT and the CK IT A are different, whichever is in the interest of investment flow and instrumental to the protection of foreign investment shall prevail. D. Concluding Remarks The similarities and differences in the CK BIT, the CjK BIT and the CK FT A offer various possibilities for how to determine the applicable rules. Article 30 of the Vienna Convention provides a partial solution: the conflict-of-<:onventions clause, which can be found in the consecutive agreements in question, may be referred to in order to determine the applicable rule. Among the aforesaid three agreements, unfortunately, there is a conflict-of-conventions rule in the CjK BIT regarding its relation to the CK BIT. At the simplest level, it seems plausible that the foreign investor would be allowed to choose the applicable treaty provision among the three sets of investment rules. A closer look will reveal, however, that even this seemingly simple method has narrow limits. First, both the CJK BIT and the CK FTA contain a denial of benefits clause to exclude treaty shopping. Second,; if the investor invokes neither the CK BIT provision nor the CjK BIT provision to determine his rights and obligations, the issue of determining the applicable treaty rule still remains. The Vienna Convention offers further rules for the application of successive treaties relating to the same subject-matter and interpretations of treaty rules. Article 30 of the Vienna Convention provides that the earlier treaty applies only to t he extent that its provisions are compatible with those of the latter treaty when all the parties to the earlier treaty are also parties to the later treaty, but the earlier treaty is not terminated or suspended in operation under Article 596 3 Article 30.4(a) also stipulates that when the parties to the later treaty do not include all the parties to the earlier one as between States parties to both treaties, the earlier treaty applies only to the extent that its provisions are toMpatible with those of the latter treaty.44 It can be inferred from the paragraphs that lex posterior derogat priori when the provisions of an earlier treaty are incompatible with those of the latter treaty. This rule applies to the issue of determining the applicable rules between the CK BIT, the C)K BIT, and the investment chapter of t he CK ITA. Faced with conflicts between the various rules, a tribunal mandated with the jurisdiction to settle an investor-state dispute needs to ask itself the following questions: 1. Is treaty-shopping allowed in the three instruments? z. Lex posterior derogat priori? 63 See Vienna Convention, supra note 57, at art. )0·3· .. See Vienna Convention, supra note 57, at art. 30.4(a). Since Article 25 of the CJK BIT serves as the conflict -of-conventions rule to determine the applicable rule between the CK BIT and the CJK BIT, the foreign investor shall be allowed to choose the applicable law to support his claims.; Where he does not make such a choice, lex posterior derogat priori shall apply. When it comes to determining of the applicable rule among the CK BIT, the C)K BIT and the CK ITA. the denial of benefits clauses rule out the possibility that the foreign investor chooses the applicable rule.65 Where no choice is allowed concerning the applicable rules, the author again suggests that lex posterior derogat priori shall apply. The Vienna Convention and t he traveaux preparatoirs resonate in this regard. Article 31 of the Vienna Convention concerning treaty interpretation suggests that the object and purpose of the treaty should be taken into consideration as secondary criteria. As the Feasibility Study Report of the CK ITA, the important travaux pr~paratoires,66 further exhibits, the CK 6S Huang Shixi (:ll!t!tlll!), Guoji Touzl Zbongcai Zhongdi Tiaoxuan Tiaoyue Wenti (0011;.tu Article 15.1 Article 9 An investment An investment An investment dispute is a dispute is a dispute is a dispute between dispute between a dispute between a Party and an Contracting Party one Contracting investor of the and an investor of Party and an other Party that another investor of the has incurred Joss Contracting Party other or damage by that has incurred Contracting reasono( or Joss or damage by Party that has Scope of arising out of, an reason of, or incurred loss or alleged breach of arising out of, an damage by Investor-State any obligation of alleged breach of reason of, or investment disputes the former Party any obligation of arising out of, an under this the former alleged breach Chapter with Contracting Party of this respect to the under this Agreement with inv~tor or its Agreement with respect to an covered respect to the investment of an investments in investor or its investor of that the territoty of investments in the other the former Party. territory of the Contracting former Party. Contracting Party. Article 12.9 Article u Article 4 Expropriation t, Neither Party t. No Contracting t. Neither shall expropriate Party shall Contracting or nationalize a expropriate or Parry shall covered investment or take any measure equivalent to expropriation or nationalliation {hereinafter referred to In this Chapter as "expropriation") except: (a) for a public purpose; (b) on a non-discriminat ory basis; (c) in accordance with its laws and international standard of due process of law; and {d) upon compensation pursuant to paragraphs ~ through 4· ~- The compensation shall be equivalent to the fair market value of the expropriated investments at the time when the expropriation was publicly announced or when the expropriation occurr~, whichever is the earller. The fair nationalize investments in its te.rritory of investors of another Contracting Parry or take any measure equivalent to expropriation or nationalization (hereinafter ~ferred to in this Agreement as "expropriation") except: (a) for a public purpose; (b) on a non-discriminator y basis; (c) in accordance with its laws and International standard of due process of law; and (d) upon compensation pursuant to paragraphs 2 , 3 and 4· 2 . The compensation shall be equivalent to the fair market value of the expropriated investments a t the time when the expropriation was publicly announced or when the expropriation occurred, whichever is the earlier. The fair 1)) expropriate, nationali~e or take other similar measures, directly or indirectly, (hereinafter referred to as • expropriation") against the investments of the investors of the other Contracting Party in its territory, unless the following conditions are met: (a) for the public interests; (b) in accordance with domestic law and international standard of due process of law; (c) without discrimination; (d) against compensation in accordance with paragraph 2 . 2. Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation occurred. The fair market market value market value shall value shall not shall not reflect not reflect any reflect any any change in change in market change in value market value value occurring occurring occurring because the because the because the expropriation bad expropriation expropriation become publicly had become had become known earlier. publicly known pu blic!y known 3.The earlier. The , the disputing Contracting Party may require, without delay, the investor concerned to go through the domestic administrative review procedure specified by the laws and regulations of that Contracting Party before the submission to the arbitration set out in paragraph 3· · The domestic administrative review procedu.re shall not exceed four months from the date on which an application for the review is filed. If the procedure is not completed by the end of the four months, it shall be deemed to be completed and the disputing investor may submit the investment dispute to the arbitration set out in paragraph 3· The investor may file an application for the review unless the four months consultation period as provided in oaral!ranh ~ has '39 through the domestic administrative review procedures specified by the laws and regulations of that Contracting Party before the submission to international arbitration. The domestic administrative review procedures shall not exceed four months from the date an application for the review is first filed including the time required for documentation. If the procedures are not completed by the end of the four months, it shall be considered that the procedures are complete and the investor may proceed to an international arbitration. Th~ investor may file an application for the review during the four months consultation or negotiation the review elapsed. period as unless the four Note: It is provided in months understood that paragraph z of consultation any decision made this Article. period as under the Each provided in domestic Contracting paragraph 3 has administrative Party hereby elapsed. review procedure gives its consent Note: It is shall not prevent for submission understood that the disputing by the investor any decision investor from concerned of the made under the submitting the investment domestic investment dispute for administrative dispute to the . A Contracting Party may deny the benefits of this Agreement to an investor of another Contracting Party that is an inveslments if enterprise of the the enterprise is latter Contracting owned or Pany and to its controlled by an inveslments if the investor of a enterprise is non-Pany or of owned or the denying controlled by an Party, and the investor of a enterprise has non-Contracting no substantial Pany or of the business denying activities in the Contracting Pany, territory of the and the enterprise latter Pany has no substantial For the purposes business activities of this Article, in the territory of the term "non- the latter Party" shall not Contracting Pany. include any Note: For the separate purposes of this customs Aiticle, the term territory within "non- Contracting the meaning of Parties" shall not the General include any Agreement on separate customs Tariffs and territory within Trade or of the the meaning of the wro General Agreement that Agreement on is a member of Tariffs and Trade the Worl(! 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