China – Russia Bilateral Investment Treaty

             Generally, the rights and duties that Russia owes to Chinese investors derives from a bilateral investment treaty (the “Treaty”) between the two nations. The Treaty, signed in 2006 and entered into force in 2009, provides Chinese nationals who invest in Russia with a remedy if a dispute arises between them and the Russian government. Article 9 of the treaty explains that a party may seek relief from three different venues, (1) a court in the jurisdiction of the contracting nation who is a party to the dispute, (2) the International Centre for Settlement of Investment Disputes (ICSID) or (3) an ad hoc tribunal in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). The treaty also contains a Most Favorable Nation (MFN) clause. The MFN provision ensure that each nation will provide to the other nations investors treatment which is no less favorable than to investors from any other nation. This means that if, for example, Russia signs an investment treaty with Japan that provides investors from that nation with more protection than provided for under the Treaty, then Chinese investors will afforded the same protections as their Japanese counterparts.

            While the treaty seems to provide a clear remedy for Chinese investors who are entering the Russian market, there is much uncertainty about the enforcement of the terms of the Treaty. The Russian government has consistently challenged the jurisdiction of ad hoc arbitration panels in disputes concerning claims of expropriation brought by foreign investors. In Renta 4 S.V.S.A v The Russian Federation the Arbitration Institute of the Stockholm Chamber of Commerce investigated the terms of a bilateral investment treaty between Spain and Russia that contained language identical to the Treaty currently in force between Russia and China. In Renta 4, seven Spanish entities claimed that the Russian government has expropriated their investments in the Yukos Oil Company. Specifically, the investors claimed that the actions by the Russian government were in violation of Articles 4 and 6 (dealing with expropriation) of the relevant treaty. The Russian government challenged the arbitration panel’s jurisdiction, claiming that Article 10(1) of the agreement, which directs disputes to go to arbitration, only covers disputes concerning the amount or method of payment owed to the investor. Russia argued that there was still dispute as the whether the alleged expropriation had actually occurred and that issue should be decided by a Russian court. Russia’s arguments did not sway the arbitration panel. They reasoned, “[s]uch pointless and unprecedented complications would be absurd”.

            Russia has consistently made similar arguments in the past but considering the massive implications of its current energy agreements with China it would be surprising to see the Kremlin trying to advance such arguments if a potential dispute arises with a Chinese investor. Russia has been pressing for stronger cooperation with the Asia-Pacific region and it would be counterproductive to advocate such frivolous arguments against China. In an article by Sergey Lavrov he explained that “a strong, stable, secure and prosperous relationships with the Asia-Pacific region is absolutely imperative for us”. The Kremlin’s westward vision for growth is well publicized, but it will be interesting to see if the country’s attitude towards China would chill if its influence over Central Asia were challenged.

Sources:

Статья Министра иностранных дел России С.В.Лаврова «К миру, стабильности и устойчивому экономическому развитию в Азиатско-Тихоокеанском регионе, available at http://www.mid.ru/brp_4.nsf/newsline/5F3B945C0F67ADF844257BFB002574F0

Gordon Smith, Chinese Bilateral Investment Treaties: Restrictions on International Arbitration, available at http://www.kennedys-law.com/files/Uploads/Documents/GordonSmithChineseBilateralInvestment_122010.pdf

СОГЛАШЕНИЕ МЕЖДУ ПРАВИТЕЛЬСТВОМ РОССИЙСКОЙ ФЕДЕРАЦИИ

И ПРАВИТЕЛЬСТВОМ КИТАЙСКОЙ НАРОДНОЙ РЕСПУБЛИКИ О ПООЩРЕНИИ

И ВЗАИМНОЙ ЗАЩИТЕ КАПИТАЛОВЛОЖЕНИЙ, available at http://unctad.org/sections/dite/iia/docs/bits/russia_china_ru.PDF

Noriko Yodogawa and Alexander Peterson, An Opportunity for Progress: China, Central Asia, and the Energy Charter Treaty, 8 Tex. J. Oil Gas & Energy, (2013).

Josh Mak, Is Russia’s Withdrawal from the Energy Charter Treaty of Limited Legal Significance Given That it Had Previously Failed to Ratify the Treaty, (2012), available at http://www.martindale.com/energy-law/article_Josh-Mak-LLP_1576678.htm

Qiu Jinxin and Tang Tingmao, Bilateral Investment Treaties and Outbound Investment by Chinese Companies, King & Wood Mallesons, (2010).