Introduction: The Scope and Strategic Significance of BRI
China’s Belt Road Initiative (BRI), the ambitious project initiated by President Xi Jinping in October 2013 has revamped the economic landscape – and beyond – Eurasia, it has the potential to spur a paradigm shift[1], sparking significant legal challenges and opportunities in the sphere of international trade and investment law. It stretches over 120 countries, covering more than 60% of world’s population and undertaking over 6000 projects with the notional value of more than $1 trillion.[2]
China’s long-term strategic plan to reclaim its dominance in the world arena includes this as a key component. The dissolution of the Silk Road in the twenty-first century is changing legal frameworks, dispute settlement procedures, and regulatory environments in several jurisdictions.
Legal Complexity: Navigating Diverse Jurisdictions
One of the primary legal hurdles of the BRI is the need to navigate and encompass diverse legal systems across participating nations. The area is home to a wide range of legal traditions, including both civil and common law. The sixty-five Participating States represents various developmental stages and diverse jurisdictions of law. For instance, nations like India and Pakistan follow common law principles, while other countries such as Mongolia and Burma adhere to continental civil law. The Middle Eastern countries in the group, with the exceptions of Iraq and Israel, typically operate under Islamic or other hybrid legal frameworks. This mosaic of laws creates a very complex and multifaceted landscape across the participating nations. It becomes necessary to harmonize diverse legal systems to facilitate smooth cross-border transactions as well as the execution of the project. On the other hand, China has been actively promoting for the incorporation of its own legal norms into contractual agreements, primarily through memorandums of understanding and soft law agreements, which might mark a gradual shift in the trends of the international commercial law. This includes the adoption of the Chinese laws in the domain of contract law, investment protection, and dispute resolution, as the BRI operates without a strict international legal structure or inflexible regulatory system governing its cross-border undertakings.
Investment Protection and Dispute Resolution Mechanisms
There has been highlighted emphasis on having a robust investment protection mechanism under the BRI. Most of the projects entail sizeable foreign direct investments, making bilateral investment treaties (BITs) an essential tool for the protection of investors’ rights. China has persisted in revising and negotiating new BITs with BRI partner countries including provisions for investor-state dispute settlement (ISDS) mechanisms. Among the 30-plus Bilateral Investment Treaties (BITs), China has signed with nations involved in this initiative, ISDS clauses are limited in scope, only covering compensation for expropriation cases. The traditional ISDS system have faced criticism over infringing state sovereignty and supposedly placing more emphasis on corporate interests. With this regard, there has been a growing bent towards reforming ISDS mechanisms, with some BRI agreements exploring alternative dispute resolution methods or modified ISDS clauses that will help strike a balance with the rights of the host states to regulate investor protection.
In contrast, India’s approach to investment protection and dispute resolution broadly differs from China’s BRI model. India has been revising its BIT framework, focusing on balancing between investor rights and state regulatory authority by eschewing typical ISDS terms. This contradicts to some BRI agreements that might essentially give investor protection top priority. India’s model BIT could have broader consequence, affecting how other countries in the region approach investment protection in relation to BRI projects. In the framework of extensive international development projects, this disparity in methods portrays how the idea of international investment protection mechanisms is still developing and how the argument over how to balance investor rights with state sovereignty is still going strong.
International Arbitration Trends
The ASEAN – China Investment Agreement’s success suggests that a Free Trade Agreement (FTA) would be effective for the BRI, given its huge geographical scope and the many countries involved.[3] This approach would be successful in addressing procedural gaps in the current ISDS system, offering a more cost-effective way to manage disputes throughout their lifecycle.
The necessity for effective dispute resolution procedures has been highlighted by the complexity of the BRI projects, which frequently involve stakeholders from plethora of jurisdictions. The reluctance of the parties to use national courts for dispute resolution has led to an increase in the popularity for arbitration clauses in such international investment contracts. A notable advantage of arbitration is the enforcement mechanism provided by the New York Convention, to which about sixty BRI participating countries are signatories to. A significant portion of the BRI project countries are covered by this convention, which permits arbitral awards from one member state to be enforced in another. Taking these facts into account, international arbitration has become the go-to method for the settlement of disputes in high stake ventures.
China’s Institutional Efforts
Meanwhile, China has been advocating for the China International Commercial Court (CICC), as its resolution venue. In order to increase the capacity of the courts, the Chinese legal system established five international commercial arbitration institutions and two international commercial mediation institutions. This includes – The China International Economic and Trade Arbitration Commission (CIETAC), The Shanghai International Economic and Trade Arbitration Commission, The Shenzhen Court of International Arbitration, The Beijing Arbitration Commission, The China Maritime Arbitration Commission, The Mediation Centre of China Council for the Promotion of International Trade, and The Shanghai Commercial Mediation Centre. However, there have been concerns regarding the impartiality of the aforementioned institutes, which have prompted parties to resort to established international arbitration centres, or to seek the creation of neutral, BRI-specific arbitration mechanisms.
Other Emerging Legal Challenges
Following this, there has been a growing push to integrate international ESG standards into BRI projects. This essentially means adhering to guidelines set by global financial organizations and the discharge of the best practices in environmental impact analysis.[5] However, the legal question is to ensure that these standards are upheld and enforced across different jurisdictions.
An intriguing counterpoint is provided by India’s approach to ESG in infrastructure development. The strict land acquisition regulations and requirements for environmental impact assessments set a high bar for these projects. This emphasis on sustainable development could influence how India and other countries in the region evaluate BRI projects from an ESG perspective, and India’s legal stance on ESG may shape regional expectations for project implementation, providing opportunities for improving the environmental and social outcomes of large-scale infrastructure projects across the BRI region.
The largest compliance challenge that arises with BRI projects arise from the cross-border nature of these projects, particularly on the side of the anti-corruption law. Countries that take part in the BRI project frequently rank and score poorly on international corruption indices, and therefore bribery and other forms of corrupt practices run a liability to occur.
Many Chinese companies involved in BRI projects are subjected not only to extraterritorial anti-corruption legislation, such as the United States Foreign Corrupt Practices Act or the United Kingdom Bribery Act, but also face local anti-corruption laws and regulations. This has attracted much interest to compliance programs and due diligence processes.
As a result, it has also emphasized on the necessity of strengthening intellectual property lines along the routes. The less established IP laws in several of the BRI’s member nations raise concerns about information confidentiality and technology transfer. The creation of specialized courts and the harmonization of IP laws are the two legal initiatives aimed at bolstering IP protection procedures. These changes may have a big effect on how international IP law is implemented and enforced.
Conclusion
The Belt and Road Initiative not only changes global trends of trade and investment but also deeply transforms the international legal structure. Higher regulatory standards and modifications to international business law and dispute resolution procedures are likely to be faced by these structures as developments advance.
However, the impact of the BRI on international law will be greatly influenced by how these legal issues are resolved and how well the endeavor integrates various legal traditions and national goals. Continued development of the initiative will have to ensure close coordination of actions between law and the policymakers, about developing a coherent legal framework able to support economic goals of the BRI within the limits of fairness, transparency, and compliance with the rule of law in international trade and investment.
Author(s) Name: Aditi Tahiliani (Symbiosis Law Sschool, Pune)
References:
[1] Shah, S.N.A. (2024) The belt and road initiative for Pakistan, Paradigm Shift (08 November, 2024), https://www.paradigmshift.com.pk/belt-and-road-initiative-pakistan/
[2] International Conference on Belt and road initiative: Sharing of policy experiences (2019) UNCTAD (08 November 2024), https://unctad.org/meeting/international-conference-belt-and-road-initiative-sharing-policy-experiences
[3] Dahlan, M.R. (2018) ‘Dimensions of the New Belt &Amp; Road International Order: An Analysis of the emerging legal norms and a conceptionalisation of the regulation of disputes’, Beijing Law Review, 09(01), pp. 87–112.
[4] Liu Tingmei (2019) “The China International Commercial Court (CICC) in 2018” (08 November, 2024), https://cicc.court.gov.cn/html/1/219/208/209/1316.html
[5] “BRI Cooperation: Mainstreaming ESG Investments,” Green Belt and Road Initiative Center (08 November, 2024), https://green-bri.org/bri-cooperation-mainstreaming-esg-investments/.
