Legal Issues Regarding State-Controlled Entities in International Investment Law and Investor-State Arbitration

With the surge in the investment activities of State-controll enterprises (“SCEs”) under globalization, either by way of SCEs operating within its home States or SCEs investing abroad, investment disputes between SCEs and foreign investors or host countries may arise. On one hand, while in SCEs’ home States, the disputes between SCEs and foreign investors are mainly resulted from the de jure or de facto support for SCEs from their home State; on the other hand, while SCEs invest abroad, they are also surrounded by controversy due to their connections with their home States, resulting in stricter national protective regulations from the host State. All of these may constitute a violation of various obligations under international investment agreements (“IIAs”), and thus triggering the use of investor-State arbitration. Since a SCE is neither a typical “State” nor a typical “private investor”, SCEs’ involvement in the disputes not only would complicate the cases, but would also affect the application of the relevant laws under the existing IIAs and the investment arbitration regime.
The thesis addresses the legal issues in international investment law and investment arbitration which may occur in the process of resolving disputes from the standpoint of SCEs’ connection with their home States. The thesis seeks to provide an overview of the legal framework and to cover possible enhancement of the mechanism, the discussion of which could be divided into three parts. The first part mainly identifies the types of disputes that may arise when SCEs operate in their home countries or when SCEs invest abroad, and applies the the substantive provisions of IIAs to the disputes. The purpose is to explain that SCEs may indeed be involved in disputes under IIAs, and to discuss problems in the application of IIA’s substantive provisions. The second part then addresses the specific legal issues that may arise when the said disputes are resolved in the investment arbitration. The purpose is to explain the operation of the existing dispute resolution mechanism. The third part builds upon, but moves beyond, the discussion in the previous parts of the thesis to explore whether the current dispute resolution mechanism could accommodate international investment disputes in which SCEs are involved, and, if not, how to improve the existing mechanism.
The thesis argues that the tests developed under the existing dispute resolution mechanism, which mostly involve the determination of whether the activities of SCEs are commercial or governmental in nature, are of limited use. In fact, it is usually difficult to determine whether the activities of SCEs are commercial or governmental. In addition, the disputes involving SCEs are, on most of the occasions, resulted from the host State not being able to strike a balance among their industrial policy and the need for sustainable development and national security etc. Cases involving SCEs have various context in terms of the State’s local situation, the extent of government’s control over SCEs, and the positioning of the SCEs in their home countries. Hence, the thesis suggests that, in order to reduce or effectively resolve the disputes, instead of just relying on the tests distinguishing between commercial and governmental, the IIAs and the investment arbitration should be adjusted so as to harmonize the said domestic policies for which the host States and the home States utilizing SCEs. To be specific, the contracting parties to the IIA may consider incorporating a “SCEs provision” into the IIA, integrating certain considerations to prevent or effectively resolve future SCEs-related disputes.