By Eriks K. Selga *
(FPRI) — In January 2018, the Chinese Communist Party put forward a Central Committee Opinion developing the idea for creating a Chinese international commercial court, aimed at servicing Belt and Road Initiative (BRI) disputes. Six months later, two Chinese International Commercial Courts (CICC) were established to deal with maritime and overland trade cases with minimum claims of approximately 44.5 million USD. These courts are a logical step for securing China’s interests in light of the estimated five trillion USD of BRI investment, which has been on very rocky waters. Multiple BRI-related cases have already taken place in various international courts, and more can be expected.
The importance of dispute settlement instruments was stressed at the 2019 Belt and Road Forum, where one of the deliverables was the establishment of an International Dispute Prevention and Settlement Organization between over 30 countries. The CICCs will be an important part in China’s participation in the initiative. However, procedural uncertainties, a lack of neutrality, and practical barriers raise concerns to how the interests in the formation of the CICCs extend politically.
The Chinese International Commercial Courts
The CICCs consist of a court in Shenzhen and another in Xi’an. The courts will entertain disputes if the projects meet the monetary threshold, and the disputes will be resolved in the PRC’s highest court of law, the Supreme People’s Court (SPC). It is organized as a “one-stop shop” that can hear any case the SPC deems appropriate, as long as the matter has a “significant nationwide impact,” according to the CICC establishment provisions. This can be understood as China wanting to keep the scope of the commercial disputes the courts can oversee beyond a certain commercial type, or under certain numerical thresholds.
As a permanent adjudicative organ of the SPC, the CICCs are staffed by 8 Chinese judges experienced in international trade law. The law of the SPC does not allow for judges from different nationalities, putting it at odds with competing international commercial courts, like the Singapore International Commercial Court or Dubai International Financial Centre Courts, which are staffed by an array of foreign judges. The CICC will be supported by an International Commercial Expert Committee mediating on substantive foreign law issues. Yet, even this provides cause for reservation, as the weight of their opinions and various other procedural issues lack enumeration. Such issues may not cause much worry to Chinese legal scholars with a deep tradition of mediation, but Western practitioners are left to wonder whether the ambiguity is purposeful—and they are especially worried given the financial stakes at hand.
Lawyers practicing in the CICCs must be licensed in China, and the working language of the court is mandarin. Its Rules of Procedure are also brief, consisting of only 40 articles based on Chinese civil procedure law instead of international arbitration rules. A convenient online system for submitting documents and payments sets the courts apart from the above-mentioned competitors.
The CICCs will also have to implement the “requests for instructions” system, requiring courts to report and seek higher court approval prior to decisions in cases of potential interest to Chinese leadership. This mechanism is used in other areas of law to ensure that a judicial interpretation is in line with party policy. It has been significantly criticized for decades as a major obstacle to court independence. The party leadership is particularly emphasized in the courts’ 2019 task list, where reference to “revolutionizing” the CICCs—an implication of the absolute leadership of party—highlighted that the courts are not an exception to the Chinese political-legal governance. Judicial independence of the CICCs is thus, de jure, non-existent.
So far, the CICCs have accepted only a handful of cases since their inception in 2018, none of which have been directly tied to BRI. An Italian pharmaceutical company selling products through Hong Kong was tried for a product liability matter. Multiple disputes revolved around arbitration clauses, of note being the China Travel Service in Hong Kong. Thailand’s Red Bull was also involved in litigation related to the right to produce the drink. At the time of writing, all cases are still undergoing proceedings. All of these cases were passed down from the SPC to the CICCs, similar to other international commercial courts during their nascence.
China has quickly learned that pouring money into strategically important areas across the world can have unexpected backlash, and a more nuanced touch is required. For the BRI, the reforms have taken shape in better risk, compliance, and sustainability management directives in Chinese investments abroad. The CICCs are meant to assuage the concerns of both local and foreign parties regarding the gravitas attached to and possible endpoints of major infrastructure investments.
The fact that the CICCs retain a dependent relationship to the SPC emphasizes that the courts are not differentiated in terms of autonomy from different Chinese judicial instruments. This will make it more difficult for China to sell the courts’ legitimacy to foreigners. However, the creation of the foreigner-composed International Commercial Expert Committee is an important step towards easing these worries about impartiality and professional capacity to work with foreign law. On a more general note, the courts are an important step towards adapting to Western judicial conventions—a worthy concession to secure confidence that China is taking the BRI seriously.
It is unlikely that the courts will amass the prestige to become a true competitor to other international commercial courts, especially at this early of a stage. What remains unanswered is the extent to which it will veer BRI investment parties to accept the CICCs as their courts of choice. The Chinese could use their financing capacity to pressure the use of these courts. This could lead to a steady stream of cases allowing the court to quickly gain experience and, depending on how it fares, trust. The cases will also provide important insight for the West into how the Party-led judiciary functions.
China’s decision to open its processes up to international scrutiny signals confidence in its own efforts, and perhaps more importantly its willingness to be transparent and communicate them.
*About the author: Eriks K. Selga is an Associate Scholar at FPRI’s Eurasia Program and a lawyer at PricewaterhouseCoopers Legal Latvia.
Source: This article was published by FPRI