


































Economics, Law and Policy 
ISSN 2576-2060 (Print) ISSN 2576-2052 (Online) 

Vol. 7, No. 1, 2024 

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108 

Original Paper 

The Construction of the RCEP Investment Dispute Settlement 

Mechanism: Currentcy, Dilemmas and Solutions 

Zhongqi Jiang
1*

 & Yunke Liu
1
 

1
 Xi’an Jiaotong University, Shaanxi, Xi’an, China 

*
 Zhongqi Jiang, Xi’an Jiaotong University, Xi’an, China 

 

Received: May 1, 2024       Accepted: May 26, 2024       Online Published: May 28, 2024 

doi:10.22158/elp.v7n1p108                 URL: http://dx.doi.org/10.22158/elp.v7n1p108 

 

Abstract 

The signing of RCEP signifies the official launch of the world’s largest and most promising free trade 

area in terms of population, playing a positive role in promoting regional trade, investment, and 

economic growth. Currently, based on the resurgence of neo-Calvinism, legitimacy crises in ISDS 

mechanisms, and the absence of ISDS mechanisms in RCEP, member countries are beginning to 

reexamine the RCEP investment dispute settlement mechanism. Overall, the RCEP investment dispute 

settlement mechanism fails to effectively balance the interests of host countries and investors. 

Therefore, based on comparative analysis of existing investment dispute settlement mechanisms, it may 

be advisable to explore establishing a new ISDS mechanism for RCEP that integrates both preventive 

measures and back-end mechanisms. 

Keywords 

RCEP, ISDS, Investment Dispute Settlement Mechanism, Mechanism Construction 

 

1. Introduction 

The Regional Comprehensive Economic Partnership (RCEP) comprises China, South Korea, Japan, 

New Zealand, Australia, and the ten ASEAN countries. As the world’s largest and most promising free 

trade area, the RCEP countries are closely interconnected, having concluded numerous bilateral or 

multilateral investment treaties that have deepened two-way investment. However, this development 

has also led to numerous investment disputes, presenting unprecedented opportunities and challenges 

for member countries. Traditionally, disputes between host countries and foreign investors are resolved 

by submitting the disputes to international investment arbitration institutions through the Investor-State 

Dispute Settlement (ISDS) mechanism. However, due to the legitimacy crisis of the ISDS mechanism, 

the resurgence of Calvo Doctrine, and the absence of an RCEP-specific investment dispute settlement 



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mechanism, member countries have begun to reassess the investment dispute settlement mechanisms 

under RCEP. Some scholars believe that the absence of the ISDS mechanism seems to have little 

impact on investment flows between member countries (Shiro & Luke, 2022, pp. 315-364), but it is 

clearly detrimental to the protection of foreign investment. The lack of an effective investment 

protection mechanism makes investors’ property rights vulnerable to infringement, greatly reducing 

their confidence and thus affecting the establishment of a high-quality, reciprocal economic partnership 

under RCEP, and hindering the realization of regional investment goals (Wang, 2022, pp. 86-96). 

Therefore, exploring the challenges in constructing an investment dispute settlement mechanism under 

the RCEP framework and proposing targeted Chinese solutions is of great significance for promoting 

new cooperation and development in the investment fields of RCEP member countries. 

 

2. Currentcy and Dilemmas of RCEP Investment Dispute Settlement Mechanisms 

RCEP has temporarily shelved the ISDS provisions and only included interstate dispute resolution 

provisions in Chapter 19. According to Article 19.3 of the RCEP, the RCEP investment dispute 

settlement mechanism operates in parallel with the dispute settlement mechanisms in bilateral or 

multilateral investment treaties between member countries. This means that disputing parties can 

resolve investment disputes either through the RCEP interstate dispute settlement mechanism or 

through bilateral or multilateral investment treaties. Although there appear to be multiple remedies 

available to host countries or investors, this fragmentation of dispute settlement leads to confusion and 

makes it difficult to effectively protect the legitimate rights and interests of both parties. 

2.1 RCEP Dispute Settlement Mechanism 

Chapter 19 of the RCEP establishes a broad dispute settlement mechanism, including consultation, 

mediation, conciliation, and expert panels, similar to the WTO dispute settlement mechanism, but it is 

only applicable between member countries and has certain limitations: firstly, it can only resolve 

interstate disputes, and only member states can initiate the RCEP investment dispute settlement 

mechanism, which is clearly politically motivated (Ma & Tang, 2023, pp. 54-67). Investors cannot use 

the RCEP to seek remedies, making the mechanism unfavorable for protecting investors’ legitimate 

rights and interests in terms of initiation, operation, and outcome. Secondly, even for interstate 

investment disputes, the RCEP dispute settlement mechanism mainly adopts remedies that require the 

defaulting party to perform the agreement, rather than monetary compensation, which greatly limits its 

role in protecting investors. Thirdly, the RCEP strictly limits the scope of the dispute settlement 

mechanism, excluding provisions such as national treatment, most-favored-nation treatment, 

performance requirements, and investment facilitation, which further hampers the protection of 

investors’ legitimate rights and interests. 

 

 

 



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2.2 International Investment Arbitration Mechanism 

Although the RCEP does not include ISDS provisions, investment or trade treaties between member 

countries typically contain ISDS clauses. Despite providing a relatively mature mechanism for 

resolving investment disputes, international investment arbitration still faces issues such as lack of 

democracy, high costs, and inconsistent arbitral awards. Currently, the exposure of inherent flaws in the 

international investment arbitration mechanism has led to a serious legitimacy crisis. The resurgence of 

Calvo Doctrine, coupled with the absence of public law controls in international investment arbitration, 

generally favors capital-exporting and legally advanced countries (Shan & Wang, 2019, pp. 20-28). 

The RCEP member countries vary greatly in their levels of development, including both developed and 

numerous developing countries. Given the advantages of the ISDS mechanism for developed countries, 

most RCEP members are cautious about this mechanism. For example, ICSID, as a permanent 

institution for resolving investment disputes between host countries and investors, has not been signed 

by Laos, Myanmar, and Vietnam among the 15 RCEP member countries to date. The utilization rate of 

ICSID is also low among the other 12 member countries, possibly because RCEP members believe that 

ICSID’s inherent bias towards investors may undermine the integrity and effectiveness of host country 

regulations. 

2.3 Local Remedies and Diplomatic Protection 

Local remedies in the host country, also known as Calvo Doctrine, originated in Latin America and are 

a traditional means of resolving investment disputes between host countries and investors. In the 1980s, 

due to the need to attract foreign investment for domestic economic development and the rise of 

international investment arbitration mechanisms, Calvo Doctrine showed a declining trend. However, 

in recent years, there have been signs of a “resurgence”. Since the RCEP dispute settlement mechanism 

only applies to interstate disputes, if a host country refuses to accept international investment 

arbitration, investors can seemingly only seek diplomatic protection from their home country or accept 

the territorial jurisdiction of the host country after exhausting local remedies. The development levels 

between China and other RCEP member countries vary significantly, and their domestic legal systems 

differ. Additionally, the influence of interest groups in some countries may result in issues such as 

unfairness, lack of transparency and independence, making it difficult for host countries to overcome 

the drawbacks of “territorial protectionism”. Furthermore, since diplomatic protection is a right of the 

investor’s home country rather than an obligation, the home country may not necessarily exercise this 

right when the investor’s legitimate rights and interests are violated. The main reason is that the home 

country must consider multiple factors when exercising diplomatic protection. Compared to the 

property interests of investors, factors such as national interests and diplomatic relations are more 

important, which could lead to greater interstate conflicts. 

 

 

 



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3. China’s Proposal for Constructing the RCEP Investment Dispute Settlement Mechanism 

3.1 ISDS Reform Models and Incompatibility with RCEP 

The resurgence of the Calvo Doctrine in some countries, especially developing ones, has intensified the 

strong resistance of other countries to the international investment arbitration mechanism. Nevertheless, 

the unique advantages of international investment arbitration make it the most recognized mechanism 

for resolving investment disputes by the international community. On the one hand, completely 

abandoning the international investment arbitration mechanism would deprive investors of the 

opportunity to directly sue the host country, leaving them only with traditional local remedies and 

diplomatic protection from their home country to safeguard their legitimate rights and interests. On the 

other hand, without guarantees similar to the Washington Convention for the enforcement of arbitral 

awards, mechanisms like mediation, consultation, or conciliation lack effectiveness and recognition, 

which is a significant reason why international investment arbitration remains an irreplaceable means 

of resolving investment disputes. 

In international investment arbitration practice, the ISDS mechanism poses severe challenges to the 

national sovereignty and public interests of host countries. Issues such as inconsistent arbitral awards, 

lack of transparency, and erosion of regulatory authority have led to a “crisis of confidence” in the 

ISDS mechanism (Qi, 2018, pp. 79-87). Against this backdrop, more and more countries have started to 

reform dispute resolution clauses in investment treaties and attempt to establish new mechanisms for 

resolving investment disputes. Latin American countries have adopted an “abandonment” attitude 

towards the ISDS mechanism, with some countries withdrawing from ICSID. The United States insists 

on a partial improvement model, making incremental reforms to the details of the ISDS clauses without 

changing them entirely. For example, in the USMCA, the scope of disputes eligible for arbitration is 

narrowed, and strict limits are placed on arbitration applications. The European Union has established 

an investment court system with a two-tier appeal process and optimized appeal mechanisms, 

attempting to judicialize the ISDS mechanism and establish a new ISDS framework (Xiao, 2021, pp. 

84-97). 

However, none of these three models can serve as a reference template for the investment dispute 

resolution mechanism under the RCEP framework: Firstly, the inherent advantages of the ISDS 

mechanism make the abandonment model of Latin American countries incompatible with the core 

interests of RCEP member states. Secondly, the RCEP member countries include the ten ASEAN 

nations, some of which have a defensive attitude towards the ISDS mechanism. The partial 

improvement model of the United States does not meet the interests of these countries. Finally, the 

judicial reform model of the European Union essentially reflects an avoidance of arbitration, which is 

also a response to the resurgence of the Calvo Doctrine. The investment court system originated in the 

EU, which consists mainly of developed countries, while the RCEP member countries include 

developed, developing, and underdeveloped nations. Establishing a unified investment court involves 

issues of national judicial sovereignty, and the rule of law development levels among RCEP member 



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countries are uneven, making it unsuitable to establish a unified court. Additionally, countries like 

China and Japan do not support the establishment of an investment court. Therefore, it is difficult for 

the RCEP to establish an investment court by referring to the judicial reform model of the European 

Union. 

3.2 Constructing Multi-level RCEP Investment Dispute Resolution Mechanism 

3.2.1 Design of the RCEP Investment Dispute Prevention Mechanism 

The construction of an investment dispute settlement mechanism should follow the principle of 

maximizing common ground (Ma & Tang, 2023, pp. 54-67). Investment dispute prevention measures 

refer to mechanisms aimed at reducing the actual occurrence of disputes and preventing their escalation 

(Wang, 2018, pp. 13-23), applicable to investor-host country disputes under the RCEP framework. 

Unlike traditional investment dispute settlement mechanisms that intervene after disputes arise, this 

mechanism intervenes before disputes occur, aiming to reduce the likelihood of disputes and prevent 

their escalation through prevention measures. Compared to international investment arbitration, this 

mechanism is not only efficient, convenient, and low-cost but also crucial for breaking the “regulatory 

chill” phenomenon and maintaining the regulatory authority of the host country. In the field of 

international investment, the regulatory authority of the host country refers to its power to safeguard 

national economic sovereignty and interests. The investment dispute prevention mechanism not only 

avoids the application of international investment arbitration, protecting the regulatory authority from 

challenges, but also tests and improves regulatory measures, strengthening the management of 

investors and their investments, thereby responding to the Calvo Doctrine (Wang, 2020). 

An effective investment dispute prevention mechanism should include two aspects: “enhancing the host 

country’s capacity to serve investments to eliminate potential disputes” and “establishing a response 

mechanism to prevent dispute escalation”. Enhancing the host country’s capacity to serve investments 

requires increasing the transparency and stability of investment policies, promoting the disclosure of 

relevant government affairs, and appointing officers to notify policy changes. On the one hand, 

consideration should be given to establishing information sharing and review agencies responsible for 

building various investment policies and information sharing platforms and reviewing policy 

applications. These agencies can also create coordination platforms to eliminate differences in policy 

understanding and promote the healthy development of investment policies. The new generation of 

investment treaties shows great interest in establishing similar platforms. According to a UNCTAD 

report, over 30% of the new generation of international investment treaties include commitments from 

states to engage stakeholders, including the establishment of an investment-related coordination center 

(Investment Facilitation in International Investment Agreements: Trends and Policy Options, n.d.). 

On the other hand, the exploration of setting up foreign investment facilitation windows is 

recommended, with various departments responsible for business approvals, investor appeals, and 

administrative supervision, to protect investor interests and improve administrative efficiency. The 

investment dispute response mechanism should include an early warning system and an investment 



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ombudsman system. There are already practical examples of early warning systems, such as Peru’s 

“Coordination and Response System for Investment Disputes” established in 2006. The early warning 

system should be integrated across all levels of government agencies, responsible for tracking key 

enterprises and industries, monitoring investment activities, and issuing risk warnings to all parties, 

including investors, regarding measures that may cause investment disputes. The effective operation of 

this system relies on the joint efforts of government agencies, coordination departments, and other 

relevant entities. In international practice, there are many reference examples of the investment 

ombudsman system, such as the ombudsman offices in the United States and Japan, and the Foreign 

Investment Ombudsman in South Korea. Consideration should be given to establishing functional 

departments for information collection, regular meetings, and coordination. The information collection 

department is mainly responsible for gathering warnings from the early warning system and investors’ 

appeals. Regular meetings handle issues, respond to disputes, and provide solutions to administrative 

agencies. The coordination department is responsible for collaboration between this institution and 

other administrative departments. Establishing the above institutions and procedures helps achieve 

comprehensive investment dispute prevention, addressing investor grievances in the “pre-dispute” 

stage, eliminating potential investment disputes, and attracting more sustainable foreign investments 

through balanced public-private relationships (Bi & Zhan, 2023, pp. 64-74). 

3.2.2 Design of the Back-end Mechanism for RCEP Investment Disputes 

Given the widespread acceptance of the ISDS mechanism and its substantial contributions to resolving 

investment disputes, it is not advisable for Latin American countries to completely abandon the ISDS 

mechanism; instead, they should proactively reform it to align with the trends in investment 

development. Considering the developmental levels of RCEP member countries and their attitudes 

towards the ISDS mechanism, a model similar to the ISDS provisions in the “Agreement among China, 

Japan, and Korea for the Promotion, Facilitation and Protection of Investment” could be adopted. This 

includes establishing “friendly consultations” as a preliminary step in the ISDS process and integrating 

mediation with arbitration to develop a novel ISDS mechanism. This not only reflects the cultural value 

of “peace as a priority” in East Asian countries but also helps maintain the sovereignty of host 

countries, addressing the erosion of regulatory rights by traditional ISDS mechanisms. Furthermore, 

actively promoting the integrated development of arbitration and mediation mechanisms also 

contributes to meeting the diverse needs of dispute resolution and enhancing efficiency in resolving 

disputes Introducing mediation into arbitration procedures and integrating the development of 

investment arbitration with mediation can fully leverage the advantages of both approaches, avoiding 

procedural delays, shortening the duration of disputes, saving costs, and resolving disputes quickly and 

professionally. 

Addressing the inherent deficiencies of international investment arbitration mechanisms can also be 

considered from the perspectives of arbitrator appointment and regulatory bodies. On the one hand, the 

appointment of arbitrators can draw insights from the “Code of Conduct for Arbitrators in International 



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Investment Dispute Resolution” issued by the International Law Commission. This code primarily 

stipulates provisions on its applicability, arbitrators’ independence and impartiality, and assistant roles. 

Overall, there should be enhanced independence and impartiality among tribunal members, who must 

operate independently from the parties and arbitration institutions to ensure fairness and transparency 

in arbitration processes. On the other hand, establishing independent regulatory bodies comprising 

members from each RCEP member state can oversee and assess the operations of arbitration 

institutions. These bodies can publicly disclose the functioning of arbitration institutions to enhance the 

contracting parties’ trust in the arbitration mechanism. Regulatory mechanisms may include regular 

evaluations and audits of arbitration institutions, along with procedures for handling complaints. It is 

noteworthy that in the practice of international investment arbitration, most disputes are related to the 

interpretation of terms. Some scholars argue that the legitimacy crisis in international investment 

arbitration arises when arbitral tribunals fail to adhere to norms and continuously blur the boundaries 

between interpretation and legislation during the decision-making process. Inappropriate interpretations 

of relevant terms by investment arbitral tribunals may lead to inconsistent arbitration outcomes 

(Maximilian, 2017). Therefore, to address the issue of inconsistent interpretations, it is crucial to 

regulate the application of interpretation rules by arbitral tribunals. Guidance should be provided to 

strengthen the application of unified interpretation rules for investment arbitration tribunals. Tribunals 

should respect host country sovereignty and adopt restrictive interpretation principles when terms 

cannot be clearly defined even after exhausting relevant interpretation rules. Furthermore, the 

interpretation of international investment treaty texts should not be solely left to investment arbitral 

tribunals. Member states also need to guide arbitral tribunals in accurately interpreting texts and 

correcting tribunal errors through appropriate means. Specifically, member states should provide 

guidance for the interpretation of terms, potentially using joint interpretation to clarify the meanings of 

core provisions in international investment treaties and limit the scope of arbitrary interpretation 

clauses. 

 

4. Conclusion 

Overall, the existing investment dispute settlement mechanism in the RCEP cannot effectively balance 

the interests of investors and host countries. Therefore, it is necessary to establish a diversified and 

unified investment dispute settlement mechanism in the RCEP, taking into account the development 

situation of each party. Attempts can be made to combine the dispute prevention mechanism with the 

back-end mechanism, establish a pre-dispute prevention mechanism for investment disputes including 

the strengthening of the host country’s investment service capacity and the investment dispute response 

mechanism, and reform the ISDS mechanism in accordance with the “Agreement among China, Japan, 

and Korea for the Promotion, Facilitation and Protection of Investment” to establish a new type of 

ISDS mechanism combining the development of mediation and arbitration. This will not only help to 

efficiently resolve investment disputes among RCEP parties, but will also enhance the international 



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competitiveness of the RCEP agreement. 

 

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