Application of the PRC's bilateral investment treaties to the Hong Kong and Macao SARs : legal and policy analysis

Abstract

This study focuses on the application of the bilateral investment treaties (BITs) of the People’s Republic of China (PRC) to Hong Kong and Macao, which is a question peculiar to China. This question has been raised by two recent investor- state arbitration cases, i.e., the cases of Tza Yap Shum v Peru and Sanum Investment Ltd v Laos. It is found that the international tribunals and courts in both cases have reached the conclusion that the PRC’s BITs do apply to the Hong Kong or Macao Special Administrative Regions (SARs), which is in sharp contrast to the Chinese government’s official position that the treaties ratified by the PRC do not automatically apply to the Hong Kong and Macao SARs. Therefore, a contradiction emerges between the position held by the international tribunals and the stance maintained by the Chinese government.

This thesis has endeavored to fulfill a threefold task. First, it provides a comprehensive global survey regarding the question of the territorial application of BITs, by looking into the international legal origin (i.e., Article 29 of the Vienna Convention on the Law of Treaties (VCLT), and the practice by states on the territorial application of BITs (such as the United States, the United Kingdom, the Netherlands, Denmark, and Australia). It is found that Article 29 of the VCLT fails to provide an adequate answer to the territorial application of treaties, especially for the states with “special territories”, and the selected states’ treaty practice appears to reveal that specifying the territorial scope of application in the BITs both expressly and consistently is the best solution.

Second, the thesis stresses the importance of the two investor-state arbitration cases, i.e., Tza Yap Shum and Sanum. By conducting a focal case study on the two cases, this thesis presents an objective appraisal and confrontation of the issue at hand. Specifically, two contradictory camps, i.e., the anti-application and the pro- application camps, have been identified and analyzed. This work has made a specific contribution to the discussion of the issue by delving into the reasons behind the contradiction, from the theoretical, legal, political, and economic perspectives.

Third, this research attempts to shed new light on the question of applying the PRC’s BITs to the SARs, by discussing the practical significance, especially under the developing economic context. By looking into the PRC’s BITs practice, it illustrates that the territorial application of the PRC’s BITs to Hong Kong and Macao is an issue of great ambiguity and deviates from the positive international benchmark. By conducting an impact analysis, this thesis has sought to provide the readers with an innovative prism through which the problem of applying the PRC’s BITs to the SARs can be considered and resolved. It is argued that the result of the impact analysis tends to favor the pro-application position, namely, that extending the PRC’s BITs to the SARs may be a more beneficial option. It further puts forward some feasible policy suggestions with regard to implementing the territorial extension of the PRC’s BITs to the SARs.