China-Africa investment treaties: do they work?Lorenzo Cotula, Xiaoxue Weng, Qianru Ma and Peng RenChina-afriCa investment treaties: do they work?iiedAbout the authorsLorenzo Cotula is a principal researcher in law and sustainable development at the International Institute for Environment and Development (IIED), where he leads the Legal Tools for Citizen Empowerment programme. He is also a visiting research fellow at the Centre for the Law, Regulation and Governance of the Global Economy (GLOBE), Warwick Law School. Xiaoxue Weng is a researcher in IIEDs Natural Resources Group. She works on natural resource governance, the evolving role of Chinese and other foreign investment in Africas agriculture, forestry and mining sectors, and their impacts on rural livelihoods and resource governance. Xiaoxue engages closely with policy makers and civil society in both Africa and China. Qianru Ma is a programme officer in the Overseas Investment, Trade and the Environment programme at the Global Environmental Institute (GEI). She did postgraduate studies in economic law and public international law in China and France, and works on legal perspectives on environment and development issues linked to Chinas overseas investments.Peng Ren is the programme manager of GEIs Overseas Investment, Trade and the Environment programme. He has led GEIs work on sustainable overseas investment for the past ten years, aiming to improve social and environmental performance in Chinas overseas investment. He was involved in policy engagement around the release of Chinas Environmental Protection Guidelines for Economic Cooperation Abroad. AcknowledgementsThe authors would like to thank the anonymous interviewees for sharing their experiences; and Axel Berger, Thierry Berger, Lila Buckley, Xiuli Han, Lauge Poulsen, Jason Yackee and Yaguang Zhou for their helpful comments on an earlier draft of the report. This report was funded by UKaid from the Department for International Development, but the views expressed do not necessarily represent those of the UK government.Produced by IIEDs Natural Resources GroupThe Natural Resources research group works to shape fairer, more sustainable governance of natural resources by generating the evidence needed to improve policies, institutions and legal frameworks. This report was prepared as part of IIEDs Legal Tools for Citizen Empowerment programme a collaborative initiative to strengthen local rights and voices in natural resource investments. Besides strengthening capacity to harness the law at local to national level and facilitating international lesson sharing, the programme generates evidence and promotes public debate on legal frameworks governing investments.First published by the International Institute for Environment and Development (UK) in 2016Copyright © International Institute for Environment and Development (IIED)All rights reservedISBN: 978-1-78431-439-2IIED order no.: 17588IIEDFor copies of this publication, please contact IIED:International Institute for Environment and Development80-86 Grays Inn RoadLondon WC1X 8NHUnited KingdomEmail: newbooksiiedTwitter: iiedFacebook: facebook/theIIED Download more publications at iied/pubsA catalogue record for this book is available from the British Library.Citation: Cotula L, Weng X, Ma Q and Ren P (2016) China-Africa investment treaties: do they work? IIED, London.Cover: Chinese President Xi Jinping addresses the Forum on China-Africa Cooperation (FOCAC), held from 3 to 5 December 2015 in Sandton, Johannesburg. (Photo credit: GCIS/GovernmentZA, Creative Commons, via Flickr)Typesetting: Judith Fisher, regent-typesetting.co.uk Printed by Full Spectrum Print Media, an ISO14001 accredited printer in the UK, using vegetable based inks on a 100% recycled materialiied 1China-Africa investment treaties: do they work?Lorenzo Cotula, Xiaoxue Weng, Qianru Ma and Peng Reniied 3ContentsContentsList of boxes, figures and tables 4Acronyms 5Executive summary 71 Introduction 111.1 Topic and rationale 111.2 Focus and methods 141.3 Report outline and main findings 152 The China-Africa investment landscape 172.1 General outlook 172.2 The natural resource and infrastructure sectors 192.3 The place of investment treaties 203 China-Africa BITs: what is in the treaties? 233.1 Policy context 233.2 Trends in treaty content 253.3 South-South cooperation and China-Africa BITs 304 Do BITs matter to Chinese businesses investing in Africa? 344.1 Linking investment treaties and practice 344.2 BITs and investment decisions 384.3 Chinese companies and political risk 435 Conclusion and recommendations 485.1 What is in the China-Africa BITs? 485.2 Do the treaties influence investment decisions? 495.3 Possible ways forward 50References 53China-afriCa investment treaties: do they work?4 iiedList of boxes, figures and tablesBox 1. Investment treaties: what they are and why they matter 13Box 2. Investment treaty clauses: key concepts 26Box 3. The blurred lines between BIT policy phases 28Box 4. A recalibrated treaty? The China-Tanzania BIT 30Box 5. Brazils investment facilitation and co-operation agreements 32Box 6. Contract-based versus treaty-based arbitration 46Figure 1. Trends in China-Africa investment treaty making (1989-2013) 24Figure 2. African countries bilateral investment treaties with China (2016) 25Figure 3. How effectively do BITs protect investments from expropriation? 39Figure 4. How effectively do BITs protect investments from adverse regulatory change? 39Figure 5. How important are BITs in your companys investment decision making? 40Figure 6. How do you recover loss caused by host government conduct? 44Table 1. Breakdown of 55 interviewees 37iied 5ACronymsAcronymsADR alternative dispute resolutionBIT bilateral investment treatyCAITEC Chinese Academy of International Trade and Economic Cooperation, Ministry of Commerce, ChinaFDI foreign direct investmentFOCAC Forum on China-Africa Cooperation GEI Global Environmental InstituteICSID International Centre for Settlement of Investment DisputesIIED International Institute for Environment and DevelopmentMOFCOM Ministry of Commerce, Peoples Republic of China RCEP Regional Comprehensive Economic PartnershipSADC Southern African Development CommunitySAIS School of Advanced International Studies, Johns Hopkins UniversitySMEs small and medium-scale enterprisesSOEs state-owned enterprisesUNCTAD United Nations Conference on Trade and Development UNGA United Nations General AssemblyUS United StatesWTO World Trade Organizationexecutive summaryiied 7Executive summaryOver the past 15 years, Chinas investments in Africa have increased rapidly and China has become Africas largest trading partner. International economic diplomacy inspired by principles of South-South cooperation has accompanied this increased interdependence. There is an extensive literature on China-Africa economic relations. But there are continuing misperceptions about those relations, and little empirical evidence on the policy tools that underpin Chinas economic diplomacy in Africa and how they affect the conduct of Chinese companies.International treaties to promote foreign investment are one prominent tool that China and sub-Saharan African states use in contemporary economic diplomacy. Globally, these international agreements increasingly are comprehensive regional or bilateral economic treaties with a chapter on investment. But the China-Africa agreements involve more narrowly focused bilateral investment treaties (BITs) between China and one African counterpart. This report explores the content of the China-Africa BITs, and whether they achieve their stated goal of promoting foreign investment. It draws on a literature review; a legal analysis of the treaties; and 55 interviews with Chinese businesses operating in sub-Saharan Africas natural resource and infrastructure sectors, and with industry experts. Because of significant data limitations, this report is an exploratory study that aims to pave the way to further research.Why the topic mattersInternational agendas emphasise the role of private investment in realising the Sustainable Development Goals, so it is particularly relevant to investigate treaties designed to promote investment. Under many investment treaties worldwide, states agree to provide each others investors with specified standards of treatment in the expectation that this will promote mutually beneficial investments. In practice, there is mixed evidence of whether investment treaties promote investment. This would question the rationale of states signing these treaties, and calls for more fine-grained data and analysis. At the same time, legal proceedings that investors have brought around the world to challenge public action including in sensitive policy areas such as public health, land governance and environmental protection highlight the previously ignored costs of investment treaties. Shifting perceptions about the costs and benefits of investment treaties have fostered increased public scrutiny of treaty negotiations, particularly in high-income countries. China-afriCa investment treaties: do they work?8 iiedDespite the growing academic literature on the subject and in contrast to the lively discussions on investment treaty policy in Europe and North America, public debate on BITs in China and sub-Saharan Africa is limited. A better understanding of the legal, political and economic significance of these BITs, and of the extent to which they influence investment, is therefore important as it can inform policymaking in Africa, China and beyond. What is in the treaties?The China-Africa BITs are framed as policy tools to promote foreign investment as part of South-South economic cooperation. Compared to many North-South investment treaties, the China-Africa BITs present some notable specificities that make them more deferential to national regulation. But ultimately, the China-Africa BITs adapt repertoires of treaty provisions that European governments, the United States (US) and Canada developed to negotiate with low and middle-income countries. Like traditional North-South treaties, the China-Africa BITs aim to promote foreign investment by protecting such investment from adverse state conduct, thereby mitigating political risk. Since the late 1990s, China-Africa BITs have shifted towards more robust protection. The investment treaty policies of other emerging economies such as Brazil and India show that there is greater scope for departing from conventional North-South BIT models. For example, treaties recently concluded by Brazil emphasise investment facilitation. Despite important commonalities, the China-Africa BITs are quite diverse. Although this partly reflects changes in Chinas investment treaty policy, it also suggests that China seems willing to accommodate proposals from partner countries where possible. This flexible approach to negotiations seems a distinctive feature of the China-Africa BITs and of Chinas investment treaty stock more generally. It sets China apart from other big capital exporters such as the US and might give African states an opportunity to set agendas and negotiate effectively.Do the treaties influence investment decisions?In interviews with representatives from Chinese companies, respondents pointed to low awareness of investment treaties among all staff, including those in their legal departments. They also indicated that Chinese business take little account of BITs when making investment decisions, at least in the sectors reviewed. While our findings are preliminary and subject to revision, they suggest the China-Africa BITs may not be fulfilling their stated goal of promoting foreign investment.