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CPEC’s legal dimension

February 12, 2018

The China-Pakistan Economic Corridor (CPEC), the flagship project of the global Belt and Road Initiative (BRI), is transforming the foundation of the economy of Pakistan on modern patterns by building Gwadar Port facilities, roads infrastructure throughout the country, and constructing new Special Industrial Zones. The first such zone has been kicked off at Gwadar on 29 January during the Gwadar Expo by Prime Minister Shahid Khaqan Abbasi.

The new commercial and economic business nevertheless involve a number of legal issues pertaining to the development of the new projects under the Long-Term Projects (LTP - 2018 to 2030) inaugurated in November last during the 7th Joint Coordination Committee (JCC) meeting held at Islamabad between the Ministry of Planning, Development and Reform of Pakistan and its counterpart National Development and Reform Commission of China.

For all economic and commercial projects within and outside the national borders, a dispute mechanism must be developed addressing the key issues. There are two ways to solve the disputes: One is litigation mechanism including judicial and legislative mechanism, and the other is the arbitration between the conflicting parties.

China is a close friend of Pakistan. There is, however, a need to develop the above mechanism to solve the potential disputes between the two Governments and the companies from Pakistan and China including the State-run enterprises, semi or full, and private companies disbursing Chinese funds, investments, loans, and aid etc. This may also involve other parties. International arbitration, agreed upon the Government of Pakistan and China, also cannot be ruled out.

One of the mechanisms is the International Centre for Settlement of Investment Disputes (ICSID), which functions under the World Bank’s umbrella. Many developing countries and small companies cannot afford the high cost of dispute settlement mechanisms for legitimate interests under the ICSID. A bilateral mechanism for dispute settlement is essential to successfully accomplish the BRI and CPEC projects. It is a good omen that during the Early Harvest Program (2015-18) no such dispute erupted but legal arrangements must be made for future.

Time limits and lengthy judicial procedures in Pakistan could be harmful for the on-going and prospective CPEC’s investments and funds in many shapes. A comprehensive framework needs to put in place at the earliest before any such dispute or litigation comes up.

Ministry of Planning, Development, and Reform of Pakistan and the National Development and Reform Commission of China need to commence such consultations within legal, legislative, and judicial context keeping in mind the Pakistani and Chinese legal system. Both systems are strikingly different in nature and scope and there could be many impediments and lacunas.

The broader aspects of the Pakistani and Chinese legal system also need to be understood. The points of harmony and conflict between the two legal systems must be analysed with a view to bridge the differences for the promotion of the CPEC projects.

The judiciary of Pakistan is a hierarchical system with two classes of courts: the superior judiciary and the subordinate judiciary. The superior judiciary is composed of the Supreme Court of Pakistan, the Federal Shariat Court and five High Courts, with the Supreme Court at the apex. Pakistan’s judicial system stems directly from the system that was used in British India as on independence in 1947, and the Government of India Act 1935 was retained as a provisional Constitution. As a consequence, the legal and judicial system of the British period continued with certain adaptations and modifications, where necessary, to suit the requirements of the new State. Laws also should not be repugnant to Islam and Islamic values in Pakistan.

China has a different legal system from that of Pakistan. It is a socialist system of justice. Its legal system is based upon primarily on the model of Civil Law. The Supreme People’s Court (SPC), the premier appellate forum of the land, supervises the administration of justice by all subordinate “local” and “special” people’s courts. It is the court of last resort for the whole People’s Republic of China except for Macau and Hong Kong. The Chinese judicial system is divided into four levels of court system. There is the Supreme People’s Court, Local People’s Courts, Courts of Special Jurisdiction, and Court of Final Appeal for Hong Kong and Macau. The distinction between the People’s Republic of China and Macau and Hong Kong should also be kept in mind when comprehensively drawing a legal framework for CPEC projects. There is no “separation of powers” in China unlike in Pakistan. Justice is quick in China while it could take generations to make judicial decisions in Pakistan. One has to see how Pakistan and China could bridge these gaps. The matter assumes further importance in the wake of the setting up of the Special Industrial Zones under the CPEC. State enterprises, public-private partnerships, and joint-ventures may become primary candidates for dispute settlement when two or more parties are involved in a project.

The two sides should decide how to take up such cases. A mutual consent must be drawn so that a legal and judicial cover can be given to CPEC projects. Many BRI countries are under-developing where economic and judicial decisions take many years to come to fruition. These countries should make legal system at par with the developed countries to resolve such disputes quickly


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