The roots of modern treaty rules on foreign investment can be traced back to 1778 when the United States and France concluded their first commercial treaty. The early treaties addressed trade issues and contained rules requiring compensation in case of expropriation.1 The United States negotiated a series of agreements on Friendship, Commerce, and Navigation [hereinafter FCN] after 1919.2 After 1945, trade matters were regulated in separate treaties, and FCN treaties deals with more detail on foreign investment.3 State welcomes foreign investment for a variety of reasons. Foreign investment has been regarded as an engine of economic growth, a source of foreign currency income, a stimulator of the local economy, and a source of foreign skills, information and know-how.4 The first-ever Bilateral Investment Treaty (BIT)5 was entered into between Germany and Pakistan in1959 and this is the start of modern investment treaties.6 BITs are drafted to address a specific circumstance: that of an investor of one state locating assets in the territory of another state.7
5 The use of bilateral investment treaties (BIT) and bilateral investment agreements (BIA) are both seen throughout the content, but BIT and BIA are identical instruments that engage two parties in respect to bilateral investment. Reference to BIT or BIA is because of the title of the instrument, e.g. Cross-Strait Investment Protection and Promotion Agreement is referred to as” Cross-Strait BIA” in short.
6 See DOLZER &SCHREUER,supra note1, at 18.
7 KENNETH J.VANDEVELDE,BILATERAL INVESTMENT TREATIES:HISTORY,POLICY, AND INTERPRETATION
1 (2009).
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An investment agreement may cover four aspects. These four aspects are protection of investment, such as provisions on compensation for expropriation;
liberalization of investment, such as granting foreign investors a right to establish investment; promotion on investment, such as provisions on investment insurance;
regulation on investment, such as prohibiting its corrupt payments by investors.8
As the number of BITs across the world keeps inclining, the matter of dispute settlement under these BITs arouses concern. Talking about disputes settlement under BITs, dispute resolution provisions deal with two kinds of disputes: State-State disputes and Investor-State ones. Investor-State disputes arising under international investment treaties are not ordinary commercial disputes. Treaty-based Investor-State disputes are special: first, such disputes are not a matter of simple contract claims governed by contract law; second, at the heart of many Investor-State conflicts is a public policy question; third, due to the involvement of public policy issues, Investor-State disputes are political in nature and often become highly politicized; fourth, underlying the dispute is an intended long-term investment relationship, and that is a complex connection; fifth, the amounts of money at stake in the dispute are large.9
Cross-Strait relationship has been an intense yet close one mainly due to political
8 Id. at 5.
9 See Jeswald W. Salacuse, Is there A Better Way? Alternative Methods of Treaty-Based, Investor-State Dispute Resolution, 31(1) FORDHAM INT’L L.J. 138,140 (2007).
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concern. In August 2012, People’s Republic of China [hereinafter China] and Republic of China [hereinafter Taiwan] signed the Cross-Strait Bilateral Investment Protection and Promotion Agreement [hereinafter “Cross-Strait BIA” or “the Agreement”], and this is one of the fruitful result owing to years of negotiation. In order to effect negotiations with China on operational issues without compromising the government’s position on denying the other side’s legitimacy, the Taiwan government created the “Straits Exchange Foundation” (SEF), a nominally non-governmental institution directly led by China Affairs Council, an instrument of the Executive Yuan. The China responded to this initiative by setting up the “Association for Relations Across the Taiwan Straits”
(ARATS), directly led by the Taiwan Affairs Office of the State Council. The existence of SEF and ARATS allows both China and Taiwan to engage with each other on a semi-official basis without compromising their respective sovereignty policies.
Deregulated control over foreign exchange led to a rapid increase in outward investment by Taiwan’s enterprises. Problems engendered by increased contact necessitated a mechanism for regular negotiations.
Cross-Strait BIA is unique not only because the special characteristic embedded, but also the differences marked with other BITs. These special characteristic and differences include containing a personal safety clause, and regarding to disputes settlement mechanism, not only does the Agreement cover State-State dispute
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settlement clause and Investor-State dispute settlement one, disputes between investors and juridical person or other institutions of the other Party (Investment-related Commercial Disputes) are also included.
The author focuses on the Investor-State dispute settlement clause under Cross-Strait BIA (Art. 13) and aims to enhance the operation. To achieve this goal, the author first draws attention on Investor-State dispute settlement provisions in modern BITs, as well as cross-strait practices, so as to have well-rounded idea on what shall be embedded in Investor-State dispute settlement provisions. The author finds that in comparison to Investor-State dispute settlement provisions contained in modern BITs, Art. 13 offers not a channel that involves a neutral third party and has binding effect, and this is also the part that does not meet the public’s expectation.
With knowledge to Investor-State disputes settlement provisions in modern BITs and cross-strait practices, the author makes analysis and interpretation on Art. 13, and furthermore pinpointing the possible obstacles and problems Parties may encounter in applying the clause. First of all, the current Investor-State dispute settlement clause the Agreement possesses five channels in resolving investment disputes but none of them has binding natures. Without binding effect, the possibility of not enforcing the decision is high if parties are not satisfied with the result. Second, unlike neutral-third-party involvement, there is no position for such a role in Art. 13. Lack of neutral third party
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may thus give doubt to parties in the existence of bias. Third, there is ambiguity in Art.
13 wording. With the ambiguity, it leaves room for multiple interpretations and later on affects the application of this clause.
Bilateral investment has been ongoing for a long time. In drafting Cross-Strait BIA, past experiences are taken into account. Lessons from these experiences shall not be neglected, and whatever difficulties Taiwanese investors encountered prior to the signatory to the Agreement must be bear in mind and the author tries of find a way out via Art. 13. One limitation of the thesis is not due to the accessibility to information; the author is looking at this Investor-State dispute settlement clause from Taiwanese investor’s perspective. However, the ultimate goal is to achieve what the Preamble says,
. . . protect the rights and interests of investors across the Taiwan Straits,
promote mutual investments, create an impartial investment environment,
and enhance cross-strait economic prosperity . . .
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