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Investment Treaty Practice of China, Japan and Korea Arbitration Academy 2012: Class 1 (July2, 2012) Professor Hi-Taek Shin Seoul National University School of Law [work in progress: not to be quoted without permission] Notes • The powerpoint files are provided to students of Arbitration Academy 2012. • As these files are work under progress, no quotation is permitted without the author’s written permission. • In preparing the lecture, the author draws upon the expertise and previous studies by G. Wang, W. Shan and N. Gallagher (on Chinese practice), and S. Hamamoto and L. Nottage (on Japanese practice). However, all mistakes, if any, are the author’s own. • The author recommends that students review the most recent data contained in World Investment Report 2012 released on July 5, 2012 China, Japan and Korea in the World Economy GDP: 1,116 billions(USD) Population: 50 millions Beijing Seoul Tokyo GDP: 5,869 billions(USD) Population: 127 millions GDP: 7,298 billions(USD) Population: 1348millions Source: IMF Base year: 2011 List of countries by GDP(Current, USD) 1 United States 15,094 billions 2 China 7,298 billions 3 Japan 5,869 billions 4 Germany 3,577 billions 5 France 2,776 billions 6 Brazil 2,492 billions 7 United Kingdom 2,417 billions 8 Italy 2,198 billions 9 Russia 1,850 billions 10 Canada 1,736 billions 11 India 1,676 billions 12 Australia 1,488 billions 13 Spain 1,850 billions 14 Mexico 1,154 billions 15 Korea 1,116 billions Source: IMF Base year: 2011 FDI Inflows into China, Japan, Korea and other major countries (USD millions) 2007 inflows 2008 ranking inflows 2009 ranking inflows 2010 ranking inflows ranking United States 215,952 1 306,366 1 152,892 1 228,249 1 China 83,521 7 108,312 3 95,000 2 105,735 2 China, Hong Kong 54,341 11 59,621 8 52,394 4 68,904 3 United Kingdom 196,390 2 91,489 4 71,140 3 45,908 7 Russian Federation 55,073 10 75,002 6 36,500 7 41,194 8 Korea 2,628 66 8,409 40 7,501 35 6,873 32 Japan 22,550 26 24,426 17 11,939 27 -1,251 207 World 1,970,940 1,744,101 1,185,030 1,243,671 Source: UNCTAD FDI Outflows from China, Japan, Korea and other major countries (USD millions) 2007 outflows 2008 ranking outflows 2009 ranking outflows 2010 ranking outflows ranking United States 393,518 1 308,296 1 282,686 1 328,905 1 Germany 170,618 3 77,142 7 78,200 3 104,857 2 France 164,310 4 155,047 4 102,949 2 84,112 3 China 22,469 19 52,150 13 56,530 6 68,000 5 Japan 73,548 8 128,019 5 74,699 4 56,263 7 Korea 19,720 22 20,251 21 17,197 19 19,230 18 United Kingdom 272,384 2 161,056 3 44,381 7 11,020 27 World 2,174,803 1,910,509 1,170,527 1,323,337 Source: UNCTAD Number of BITs Germany 136 China 127 Switzerland 118 United Kingdom 104 France 101 Egypt 100 Netherlands 98 Italy 94 Belgium and Luxembourg 93 Korea, Republic of 92 Japan 16 0 20 40 60 80 100 120 140 160 Source: UNCTAD, MOFAT, METI, MOFCOM China, Japan and Korea in Global Network of International Investment Agreements BITs FTAs with Investment Chapter Entered into force Signed / not entered into force Entered into force Signed / not entered into force China 100 27 6 1 Japan 15 1 13 0 Korea 86 6 8 0 Source: UNCTAD, MOFAT, METI, MOFCOM Recent FDI Flows and Stocks of China (USD millions) 700,000 600,000 578,818 500,000 473,083 400,000 300,000 378,083 0 297,600 327,087 Outward Stocks 147,949 95,799 83,521 22,469 2007 108,312 52,150 2008 95,000 56,530 2009 Outward Flows Inward Stocks 229,600 200,000 100,000 Inward Flows 105,735 68,000 2010 Source: UNCTAD China: from Capital-importer to both Capital-importer and Capital-exporter China - the second largest economy in the world - the second largest recipient of foreign investment - the fifth in terms of outward direct investment ‣ the current Chinese investment policy-orientation is to promote both capital imports and capital exports. In the late 1970s: China first adopted the ‘open-door’ policy • Attracting foreign direct investment (‘FDI’): one of the top policy priorities in the open-door policy. – Legislated special foreign investment laws to promote and control inflow of FDI into China. – The first BIT: with Sweden in 1982. • The counter-parties of earlier BITs included Western capitalexporting States (U.K., Italy) and Japan • The investment policy orientation of Chinese BITs: promote inward foreign investment • Very cautious in offering the level of protections to foreign investors: – No national treatment commitment – Only disputes concerning the amount of compensation for expropriation allowed for investor State arbitration. In 1998: a ‘Going Abroad’ strategy focusing on investing abroad • A more liberal BIT regime since 1998, after China adopted a ‘going abroad’ policy. • Reflecting China’s increasing overseas investment, the new BIT policy is set for the promotion and protection of both inward and outward investments. • Chinese Model BIT – First Model BIT used in 1980s – Second Version adopted in early 1990s – Current Version implemented since late 1990s • New generation of China’s BIT offers – enhanced protection standard on expropriation and national treatment – All investor-State disputes to be referred to arbitration China’s FTAs with Investment chapter Partner investment chapter Date of signature Date of entry into force investment as part of Agreeme 2004. 11. nt on Investment of the Frame (2009. 8. signed th 1 ASEAN work Agreement on Comprehe 2005. 7. e Agreement on nsive Economic Cooperation Investment) Between the PRC and ASEAN 2 Chile no investment chapter 2005. 11. 2006. 10. 3 New Zealand ch 11 2008. 4. 7 2008. 10. 1 4 Singapore ch 10 2008. 10. 23 --- 5 Pakistan ch 9 2009. 2. 21 2009. 10. 10 6 Peru ch 10 2009. 4. 28 2010. 3. 1 7 Costa Rica ch 9 2010. 4. 2011. 8. 1 Source: MOFCOM Recent FDI Flows and Stocks of Japan (USD millions) 900,000 831,074 800,000 700,000 600,000 500,000 680,331 740,930 542,614 Inward Flows Outward Flows 400,000 Inward Stocks 300,000 Outward Stocks 200,000 100,000 0 -100,000 203,372 132,851 73,548 22,550 2007 128,019 24,426 2008 200,141 74,699 11,939 2009 214,880 56,263 -1,251 2010 Source: UNCTAD Japan: Traditional Capital-exporter Japan - a member of the G8, and the third largest economy in the world - the seventh in terms of outward FDI - ranked 207th in the world for inward FDI ‣ Japan’s investment policy reflected its position as a capital-exporter Japan starts to pursue protection of investment as a capital-exporter after 2002 • Prior to 2002, rather passive in concluding BITs: – Between 1977 (Egypt) and 2001 (Mongolia), only nine BITs. • No model BIT • In 2002, policy shift in international investment treaty practice – concluded its first FTA (with Singapore, including an investment chapter) and the pro-investor BIT containing liberalization commitment (with Korea). – Since 2002, seven ‘new-generation’ BITs and thirteen FTAs with investment chapters. – Japanese BITs seek market liberalization in addition to protection of investment Japan’s FTAs with Investment chapter Partner investment chapter Date of signature Date of entry into force 1 Singapore ch 8 2002. 1. 13 2006. 11. 30 2 Mexico ch 7 2004. 9. 17 2005. 4. 1 3 Malaysia ch 7 2005. 12. 13 2006. 7. 13 4 Philippines ch 8 2006. 9. 9 2008. 12. 11 5 Chile ch 8 2007. 3. 27 2007. 9. 3 6 Thailand ch 8 2007. 4. 3 2007. 11. 1 7 Brunei ch 5 2007. 6. 18 2008. 7. 31 8 Indonesia ch 5 2007. 8. 20 2008. 7. 1 9 ASEAN ch 7 2008. 4. 14 2008. 12. 1 10 Viet Nam ch 12 2008. 12. 25 2009. 10. 1 11 Switzerland ch 9 2009. 2. 19 2009. 9. 1 12 India ch 8 2011. 2. 15 2011. 8. 1 13 Peru Art 2.3 refers to Japan-Peru BIT 2011. 5. 31 2012. 3. 1 Source: METI Recent FDI Flows and Stocks of Korea (USD millions) 160,000 140,000 138,984 121,957 120,000 100,000 80,000 120,441 97,911 117,732 127,047 Inward Flows 94,679 Outward Flows 74,777 Inward Stocks 60,000 Outward Stocks 40,000 20,000 0 19,720 2,628 2007 20,251 8,409 2008 17,197 7,501 2009 19,230 6,873 2010 Source: UNCTAD Korea: converted to a net capitalexporter, but selectively maintains a capital-importer perspective Korea - a capital-exporting country, seeking more investment opportunities and greater protection overseas - a capital-importing country when negotiating with states such as Japan, the United States, and the EU, which are maj or sources of FDI into Korea ‣ This dual policy recognizes both the potential benefits of IIAs in promoting and protecting Korean companies’ overseas investment and in creating a favourable investmen t climate attractive to foreign investors in Korea. Until the mid-1990s: a net capital-importing country • From 1964 to early 1980s: BITs with major European capital-exporting countries. – BITs largely conformed with the standard models of the respective European counterparty in an effort to promote private investment • Since late 1970s, Korea started concluding BITs with other developing countries (since late 1980s with transition economies). After mid-1990s: a net capital exporter • From the 1990s, Korea’s BIT counterparties: diverse countries in different stages of economic development. • Model BIT developed in 2001 • Since 2003, Korea started conclusion of FTAs (first with Chile) which include comprehensive investment chapters. • Korea has FTAs with the U.S.A. and EU. • FTA negotiation with China has officially started. • Talks on tri-party FTA among China, Japan and Korea Korea’s FTAs with Investment chapter Partner investment chapter Date of signature Date of entry into force 1 Chile ch 10 2003. 2. 15 2004. 4. 1 2 Singapore ch 10 2005. 8. 4 2006. 3. 2 3 EFTA Art. 1.4 2005. 12. 15 2006. 9. 1 4 ASEAN Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation among the Governments of the Republic of Korea and the Member Countries of the Association of Southeast Asian Nations 2009. 6. 2 2009. 9. 1 5 India ch 10 2009. 8. 7 2010. 1. 1 6 EU no investment chapter 2010. 10. 6 7 Peru ch 9 2011. 3. 21 2011. 8. 1 8 United States ch 11 2007. 6. 30 2012. 3.15 2011. 7. 1 (provisionally applied) Source: MOFAT Tri-lateral Investment Agreement • BITs in place by and between China, Japan and Korea: – China-Japan (1988) – China-Korea (1992, 2007) – Japan-Korea (2002) • Tri-lateral Investment Agreement by and among China, Japan and Korea signed on May 13, 2012 – in the process of domestic ratification process of each state. China, Japan and Korea: Common FTA Partner Countries (1) Singapore investment chapter Date of signature Date of entry into force China-Singapore ch 10 2008. 10. 23 --- Japan-Singapore ch 8 2002. 1. 13 2006. 11. 30 Korea-Singapore ch 10 2005. 8. 4 2006. 3. 2 (2) Peru investment chapter Date of signature Date of entry into force China-Peru ch 10 2009. 4. 28 2010. 3. 1 Japan-Peru Art 2.3 refers to Japan-Peru BIT 2011. 5. 31 2012. 3. 1 Korea-Peru ch 9 2011. 3. 21 2011. 8. 1 Objective (1) China-Japan BIT (1988) Japan-Korea (2002) Korea-China (2007) • Encouragement (policy preference) • Protection • Liberalization (legally binding commitment) • Protection • Promotion (policy preference) • protection FTA Investment Chapter FTA Investment Chapter Objective (2) China-Peru (2009) Japan-Peru (2011) Korea-Peru • Promotion (policy preference) (Art. 128) • Protection • Liberalization (legally binding commitments) • Protection • Liberalization (legally binding commitment) (2011) • Protection China-Singapore • Promotion (2008) • Protection Japan-Singapore (2002) Korea-Singapore (2005) • Liberalization (legally binding commitments) • Protection • Liberalization (legally binding commitments) • Protection