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April 11, 2016

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China, Brazil, India, South Africa and Russia forge legal framework

THE BRICS Dispute Resolution Shanghai Center was recently established in Shanghai, a milestone in legal collaboration among Brazil, Russia, India, China and South Africa. The results are expected to have far-reaching impact on BRICS countries and on world politics and economics.

Enhancing legal cooperation among BRICS members not only helps developing countries to bolster their negotiating positions on the world stage but also pushes forward the establishment of a fair and equitable international system.

Given the huge differences of the BRICS in terms of geography, politics, economy, culture, traditions and legal systems, member nations will inevitably confront challenges as they deepen ties in finance, trade and investment. More cross-border disputes will need to be addressed, requiring impartial and efficient dispute resolution. That is where the new center in Shanghai comes into play.

Most of bilateral and multilateral treaties on international trade and investment contain clauses specifically aimed at dispute resolution. For instance, the North American Free Trade Agreement includes a sophisticated dispute resolution mechanism. Moreover, in the World Trade Organization, there are special provisions regulating dispute resolution organs and procedures.

Now the Sino-US Bilateral Investment Treaty negotiations are underway. Almost half of the clauses in the 2012 US Investment Treaty are related to investment dispute settlement. One more example is the Trans-Pacific Partnership Agreement, whose core issue in the field of investment regulation is to solve disputes between investors and host countries. Thus, it can be seen that in all legal documents related to international trade and investment, dispute resolution is a major consideration.

The US and other Western countries currently dominate international economic and trade rules. The major players in the world’s most important dispute resolution mechanisms are also from Western countries. In recent years, although China has participated in settling a few major international cases, there is still a long way to go in improving China’s case quantity and quality. Therefore, building a comprehensive and diversified BRICS dispute resolution mechanism is beneficial not only to raise China’s voice in the cause of global governance but also to offer a good demonstration of peaceful settlement of international disputes.

Building a diversified dispute resolution mechanism has significant practical value for settling trade, investment and other commercial disputes among BRICS members. China is the only member of the five countries to belong to the Washington Convention and the International Center for Settlement of Investment Disputes. As there are no bilateral or multilateral free trade agreements between China and other BRICS countries, the lack of alternative dispute resolution channels could cast shadows on settling possible disputes between investors and host countries.

In 2014, the New Development Bank set up its headquarters in Shanghai. Its operation opened more opportunities to participate in BRICS investment and construction projects. However, with the investment environment of the BRICS as a whole not perfect, disputes between investors and the host countries are expected to grow. Therefore, constructing an alternative dispute resolution mechanism is extremely urgent.

This provides a testing ground for China’s diversified dispute resolution mechanism. China is undergoing deeper reform on all fronts while proactively promoting the rule of law. The fourth plenary session of the 18th Communist Party of China explicitly pointed out that safeguarding legal rights and improving dispute resolution are key components to the construction of the rule of law. More efforts should be made to improve mediation, arbitration, administrative verdicts, administrative appeals, litigation and other dispute settlement mechanisms to strengthen the legal framework and coordinate administrative mediation and judicial mediation.

At the same time, China is exploring development through the establishment of free trade zones to create a business environment that features internationalization and the rule of law. In the course of free trade zone development, the resolving of dispute in a fair and efficient manner reflects, to some extent, the degree of sophistication of the local legal environment. In that regard, the establishment of the China (Shanghai) Pilot Free Trade Zone has ushered in more reform and innovation. For example, a Court of Arbitration has been established in the zone, along with arbitration rules and the inauguration of a commercial dispute resolution mechanism that links both litigation and non-litigation.

Last April, the State Council issued a plan to further deepen the reform in the Shanghai pilot free trade zone. It stated that efforts must be better tuned to international practices and rules for commercial dispute settlement. The plan also calls for establishment of a nationwide arbitration legal services alliance as well as an Asia-Pacific institution exchange and cooperation mechanism.

Du Lijun is the section chief of International Department, China Council for the Promotion of International Trade Shanghai Sub-Council.


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