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CPEC and dispute resolution

There is a strong need to develop mechanisms to solve potential disputes among the governments of Pakistan and China, their regulators and their corporations, both private and public, in light of CPEC

Ali Tahir

Much has been written about CPEC. However not enough has been said from a legal point of view. There is a strong need to develop mechanisms to solve potential disputes among the governments of the two countries, their regulators and their corporations, both private and public. As complex as it gets, there may be a range of other actors that may have an impact on its success or failure. International arbitration agreed between the two countries would seem like an easy answer, yet CPEC is unlike any other trade deal and its complexity does not allow for simple answers.

Let’s deal with the easy part first. The International Centre for Settlement of Investment Disputes (ICSID), a subsidiary of the World Bank, could help Pakistan and China in resolving disputes but it may prove to be problematic as well. It is too costly, and even simple dispute resolutions can cost millions, or more. This is not to Pakistan’s benefit. Another downside is that both parties would have to rely on a third party to solve their problems, which might lead to a further break down in relations between the two friendly nations.

Much the same could be said of other state to state dispute resolution mechanisms, such as the Permanent Court of Arbitration in the Netherlands,  the London Court of International Arbitration or the World Trade Organization’s tribunals. The problem is in fact much broader, with ramifications of such dispute resolutions effecting the sovereignty of both countries, their domestic regulations, and the enforcement of international obligations.

So if not international arbitration bodies, what then?

Domestic courts aren’t the best solution either. Lengthy judicial procedures in Pakistan would have a detrimental impact on CPEC. In fact, back in August the Chief Justice did call for a CPEC judicial policy, however due to the  inherent defects in our commercial litigation this will prove costly, and even worse, timely. Jurisdictional arguments would also prove to be a problem in any such case as well.

An ISDS Treaty could help codify the fundamentals of the substantive laws to be applied to the disputes between Pakistan and China, with the directive principle that the interpretation of special laws should lead towards harmonisation of regulations and rules along the lines of the European Union

The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011, an act designed to recognize and enforce foreign arbitration awards in Pakistan, is equally challenging, with judicial responses suggesting that the High Courts would be ready to ‘stay’ foreign awards. Stays have had a damaging effect in the public’s confidence in our commercial litigation, and it seems that the nuisance is to survive for a while longer.

So if Pakistani courts are not the answer, then can we trust the Chinese courts? The short answer to that question is no. China’s legal system is vastly different from Pakistan, as it is not only based on civil law and there are also no separation of powers in China. Justice may be quick, but as a socialist justice system, not always based on principle. Whatever our judicial system may be like, it has always taken obedience to principle, if not in practice, then at least in theory.

Yet the gaps have to be bridged. The differences between the two systems need to be understood and special treaties need be signed on dispute resolution, which would eventually help establish tribunals which could have exclusive jurisdiction over CPEC related issues, as well as their own procedures and laws. Such tribunals could consist of people from both sides, selected based on their merit and with the understanding of both nations.

This sounds similar to Investor-State dispute settlement mechanisms (ISDS). An ISDS is an instrument of global trade law, where the investors are given a forum to bring forward their anti-discrimination grievances. In fact, while ISDS provisions are a major component of investment treaties, this time it would be a full treaty in itself, and not a part of a larger treaty. Such ambitious projects need ambitious mechanisms after all.

Through such an ISDS treaty, Pakistan and China would develop a unique, bilateral private international law. The treaty would grant each person locus standi and call for tribunals with exclusive jurisdiction to rule on their claims. It would have its own code of procedure, one that will boost the confidence of both the Pakistani and Chinese governments, as well as businesses. It could also help codify the fundamentals of the substantive laws to be applied to the disputes between the two countries, with the directive principle that the interpretation of the special laws should lead towards harmonization of regulations and rules along the lines of the European Union. Without this, or another mechanism of its sort, CPEC could a problem of epic proportions.

The project is now worth $62 billion, but provided the region builds up investor confidence, that is amount relatively nothing in the scheme of things. If we let this opportunity slip because of an inefficient legal system, or put our trust entirely in the hands of the Chinese by deferring to their legal system, we are doomed.

The link between the law and economy even puzzled the genius of Karl Marx. If you want to achieve economic growth and guarantee the success of CPEC, non-discriminatory application of the law including enforcement of contracts and speedy court decisions are a must. Yet an efficient judiciary always springs up from a stable political economy, the argument might be circular, but it has to start somewhere. Why not start with tribunals for CPEC?

The writer is a barrister, who has an interest in Pakistani current affairs, economy, constitutional developments, foreign policy and international law

Published in Daily Times, June 5th 2018.


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