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Mitigating Volatility: Protecting Chinese Investment in Post-Conict Regions

Matthew T. SIMPSON1

I.

INTRODUCTION

Over the past ten years Chinas economy markedly grew across nearly all sectors. As government controls liberalize, Chinese investors are realizing the value and opportunities associated with foreign direct investment (FDI). Most notably, global observers have witnessed an exponential increase in Chinese investment in post-conict regions. Given this dramatic rise in post-conict investment, and the volatility associated with the political and economic environments in post-conict regions, this article illustrates several mechanisms Chinese investors may wish to employ when investing in post-conict states. The article begins with an overview of Chinese investors recent propensity towards investing in post-conict regions. The analysis then turns to a core elements discussion of investment mechanisms that Chinese investors should look for when investing in post-conict regions including: bilateral investment treaties, domestic laws regulating foreign direct investment, tax treaties, incentives, and international investment organizations. The purpose of this analysis is to highlight for Chinese investors several of the safeguards that may provide protection and incentive for their investments in economically and politically volatile post-conict regions. II. CHINESE INVESTMENT IN POST-CONFLICT REGIONS Post-conict regions provide superior growth at inexpensive prices. According to the International Monetary Fund, economic growth in sub-Saharan Africa will top seven percent in 2008 and an estimated $5 billion of private equity is actively seeking opportunities in the region.2 This growth is occurring despite the political and economic volatility characteristic of these regions. Even the recent outbreak of violence
1 Matthew T. Simpson is a Peace Fellow with the Public International Law & Policy Group (PILPG) and will join Weil, Gotshal & Manges LLP in the fall of 2008. Mr. Simpson has advised high-level ofcials in various conict and post-conict regions including Darfur, Cyprus, Iraq, Southern Sudan, Sri Lanka and Montenegro on the legal and policy aspects of peace negotiations and post-conict constitution drafting. Mr. Simpson holds a JD from American Universitys Washington College of Law and received his B.A. from Hobart College. He can be reached by email at matthewtsimpson@gmail.com. 2 Barbara Wall, Conict Zones Sometimes Mean Investment Opportunities, INTERNATIONAL HERALD TRIBUNE (Feb. 29, 2008).

Electronic copy available at: http://ssrn.com/abstract=1168296

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in Kenya following national elections has not deterred investors in that country, some of which have increased their holdings, seizing upon low prices.3 In the words of one pension rm chief economist, given the choice between investing in Africa conict or no conict and a basket of Western banks, Africa would win every time.4 Africa is also not the only volatile region targeted by investors. Slim Feriani, managing director of Progressive Asset Management, used the turbulence in Pakistan as a buying opportunity, we believe the market has priced in a disastrous outlook for Pakistan and Pakistani equities, Feriani said. But from experience, crisis type situations like these offer exceptional entry points.5 Afghanistan has also attracted more than 750 foreign companies from 25 countries, which have collectively invested more than $1.3 billion in a variety of sectors.6 Chinese investors are no exception to this trend. Favoring the high rate of return associated with being an early investor in a burgeoning market, the Chinese are investing heavily in post-conict and volatile regions. Driving much of this investment is Chinas booming economy, which has averaged nine percent growth per year for the last two decades, and requires immense levels of natural resources. Chinese investors are thus often desperate to lock in supplies from relatively low-cost post-conict regions.7 Recognizing this propensity for investment in post-conict regions, and the fact that the ten Chinese companies responsible for the most outward foreign direct investment are all state owned enterprises,8 Chinese ofcials maintain several pro-investment policies, most notably Chinas Africa Policy, setting forth signicant political and nancial support for Chinese investment in Africa.9 Post-conict states often welcome this attention, as the Chinese, unlike many other investors, tend to invest with a no-strings attached approach, not conditioning their funding on demands for good governance, transparency, or improvements in human rights. The head of Angolas National Private Investments Agency (ANIP), Carlos Fernandes, recently praised Chinas approach to investing in Angola, noting that whilst

Id. Id. 5 Id. 6 Id. 7 Ester Pan, China, Africa, and Oil, COUNCIL ON FOREIGN REL. (Jan. 26, 2007), available at http://www.cfr.org/publication/9557/#4 (last visited May 22, 2008). 8 Chinas Outward Foreign Direct Investment, OECD INVESTMENT NEWS (Mar. 2008), available at http://www.oecd.org/dataoecd/28/10/40283257.pdf (last visited May 22, 2008). 9 Chinas African Policy (promulgated by the Ministry of Foreign Affairs, Jan. 12, 2006), available at http://www.fmprc.gov.cn/eng/zxxx/t230615.htm (last visited May 21, 2008) (The Chinese Government encourages and supports Chinese enterprises investment and business in Africa, and will continue to provide preferential loans and buyer credits to this end. The Chinese Government is ready to explore new channels and new ways for promoting investment cooperation with African countries, and will continue to formulate and improve relevant policies, provide guidance and service and offer convenience.).
4

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other countries demanded conditions that limited Angolas development, China always understood that it had no right to impose conditions.10 As a result of the development of this apparently mutually agreeable relationship, since 2000, post-conict regions have witnessed an exponential increase in Chinese investment at a rate greater than Chinese investment in the rest of the world.11 In Africa alone, Sino-African direct investment rose to $1.6 billion between 2000 and 2005, as China sought access to African oil and other raw materials to feed its rapidly-expanding economy.12 The biggest target for Chinese investment on the continent was conictridden Sudan and its vast oil reserves and production.13 In 2005, the U.N. Conference on Trade and Development (UNCTAD) said Sudan received $351.5 million in Chinese direct investment, making it Beijings ninth-largest target for such ows worldwide.14 After Sudan, the biggest African recipients of Chinese direct investment in 2005 were Algeria with $171.2 million, Zambia with $160.3 million and South Africa with $112.3 million.15 III. RECOMMENDATIONS FOR PROTECTING CHINESE INVESTMENTS IN POST-CONFLICT STATES Given the highly volatile nature of the political and economic environments in post-conict states, Chinese investors would be wise to look for certain mechanisms and protections to ensure the safety of both their initial investment and return. Though these investments often offer high potential rates of return, they are accompanied by considerable risk, and several safeguards would provide an added level of protection in the event of political and economic deterioration. Below is an analysis of several safeguards that Chinese investors may wish to look for when investing in a post-conict or volatile region. The list is by no means exhaustive, but rather a menu of initial consideration.

10 Kissy Agyeman, Angolan Government Agency Praises Chinese Investment, GLOBAL INSIGHT DAILY ANALYSIS (May 1, 2008), available at http://www.uofaweb.ualberta.ca/chinainstitute/nav03.cfm?nav03=77107& nav02=76744&nav01=57272 (last visited May 21, 2008). But see Zephania Ubwani, Tanzania: Don His At China Non-Interference Policy, THE CITIZEN (DAR ES SALAAM) (Apr. 29, 2008), available at http://allafrica.com/stories/200804290836.html (quoting Prof Humphrey Moshi, Senior Research Fellow with the Economic Research Bureau at the University of Dar es Salaam as saying Chinas non-interference policy will promote bad governance and ultimately tarnish the image of China). 11 Chinas Outward Foreign Direct Investment, supra note 8. 12 Sudan Biggest Target for Chinese Investment in Africa, SUDAN TRIBUNE (Mar. 28, 2007), available at http://www.sudantribune.com/spip.php?article21011 (last visited Mar. 19, 2008). 13 Id. 14 Id. 15 Id.

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A. BILATERAL INVESTMENT TREATIES Bilateral investment treaties (BITs) provide signicant protection for Chinese investments in post-conict regions as they ground the investment in rules-based systems that provide for greater transparency of the parameters and environment in which the investment operates, as well as providing appropriate opportunities for remedies should a dispute over the investment arise. BITs protect business investments in foreign jurisdictions enabling investors to seek damages from the foreign government through a claim before an independent arbitral tribunal.16 As of 2008, over 2,200 BITs were in force worldwide.17 Most BITs are designed for relationships similar to the Sino-post-conict region relationship. They are often between developed capital exporting states and developing capital importing states, and are typically initiated by the capital exporting states to protect their investors and provide them with stability in foreign jurisdictions. Without a BIT, international investors must exclusively rely on host country law for protection, which entails a variety of risks to their investments.18 Capital importing states typically sign BITs with the expectation of attracting much needed foreign investment,19 and the capital and technological inows associated with it. As of April 2008, China had signed 101 BITs, the vast majority of which are with developing or net capital importing states.20 One challenge associated with the establishment of investment relationships between developed capital exporting states and post-conict capital importing states via BITs, is the opportunity for exploitation of the post-conict state. As the capital exporter, China wields a great deal of power and inuence over the terms and scope of the agreement. Chinese investors would benet from recognizing this asymmetry of power and wealth associated with BITs, and tailoring the terms with an eye towards mutual benet. While at rst glance an aggressively exploitative BIT may offer shortterm gain for Chinese investors, post-conict states are by denition those with fresh memories of conict, and therefore are much more likely (than other developing states whose recent histories are less tumultuous) to circumvent or simply disregard the terms of an agreement. Given this high propensity for derogation, Chinese investors would be wise to encourage BITs with more mutually benecial terms, to minimize the post-conict states sense of exploitation, and increase the lifespan of the agreement.
16 John W. Boscariol and Orlando E. Silva, Protecting Foreign Investors BIT by BIT, THE INVESTORS WEEKLY (Jul. 7, 2004), available at http://www.tradeobservatory.org/headlines.cfm?refID=36214 (last visited May 22, 2008). 17 UNCTAD INVESTMENT INSTRUMENTS ONLINE, UNCTAD ANALYSIS OF BITS (AUG. 17,2004), available at http://www.unctadxi.org/templates/Page__1007.aspx (last visited May 22, 2008). 18 Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: An Evaluation of Bilateral Investment Treaties and Their Grand Bargain, 46 HARV. INTL L. J. 67, 75 (2005). 19 Boscariol & Silva, supra note 16. 20 UNCTAD Investment Instruments Online, UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (last updated Apr. 7, 2008), available at http://www.unctadxi.org/templates/DocSearch__779.aspx?PageIndex=2& TextWord=China,%20%20,l&CategoryBrowsing=False&syear= (last visited May 23, 2008).

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Chinese investors should also be aware of recent suggestions that BITs do not in fact increase investment ows to the capital importing state. According to the World Bank, empirical studies have not found a strong link between the conclusion of a BIT and subsequent investment inows.21 While many still contend that BITs are indeed advantageous to both parties, the possibility that the agreement will not spur the bargained-for increased investment may make post-conict states less disposed to offering greater investment protection. 1. Elements

Although the substantive investment obligations imposed on host governments may differ from one BIT to another, they typically include the following:22 The foreign investor must be treated no less favorably than a domestic investor (national treatment) or investors from any other state (most-favored-nation treatment); and The foreign investor must be treated fairly in accordance with international law, and be entitled to the full protection and security given to domestic investors; and Expropriation, or measures equivalent to expropriation, must be for a public purpose, non-discriminatory, under due process of law, and accompanied by payment of prompt, adequate, and effective compensation.23

A BIT may also include obligations relating to transfers of funds out of the host territory, performance requirements, and measures concerning the nationality of senior management and boards of directors. Some BITs contain umbrella clauses [that require a host government to observe] all of its contractual obligations with respect to investments in its territory.24 In addition, many BITs have specic provisions for certain types of measures or sectors, including taxation, subsidies, national security, nancial services, and cultural activities. 2. Dispute Resolution Mechanisms

In the event of a breach of the agreement, investors have the opportunity to seek recourse via a predetermined dispute resolution mechanism. In addition to government-to-government procedures, BITs often contain a private investor-state
21 WORLD DEVELOPMENT REPORT, 2005: A BETTER INVESTMENT CLIMATE FOR EVERYONE, THE WORLD BANK (2005), available at http://go.worldbank.org/4DP5PX4M30 (last visited May 24, 2008). 22 Boscariol & Silva, supra note 16. 23 North American Free Trade Agreement art. 1102, U.S.-CAN.-MEX., (Dec. 17, 1992), 32 I.L.M. 289, 641-42 (1993). 24 Interpretation of Umbrella Clauses in Investment Agreements, OECD (Oct. 2006), available at http://www.oecd. org/dataoecd/3/20/37579220.pdf (last visited May 24, 2008).

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dispute mechanism enabling private foreign entities to sue host governments for damages arising out of their failure to comply with their investment obligations.25 The International Center for the Settlement of Investment Disputes (ICSID) offers both substantive provisions for the resolution of disputes, as well as institutional support.26 Other mechanisms, such as the United Nations Commission on International Trade Law (UNCITRAL), may also prove effective at resolving disputes.27 3. Enforcement of Awards

Essential to all BITs is the New York Convention on the Enforceability of Arbitral Awards, which requires its signatories to uphold and enforce any valid decision of an arbitral panel.28 The New York Convention is widely recognized as a foundational instrument of international arbitration requiring courts of contracting states to give effect to an agreement to arbitrate when seized of an action in a matter subject to an arbitration agreement. States must also recognize and enforce awards made in other states, subject to specic limited exceptions.29 B. DOMESTIC LAWS Chinese investors should also look for the existence and enforcement of certain domestic laws in the post-conict region. Key elements of these laws include: (1) freedom to invest; (2) transfers; (3) treatment; (4) dispute settlement; (5) incentives; and (6) ownership requirements. 1. Freedom to Invest

Despite attempts in 1995 by the Organization for Economic Co-operation and Development (OECD) member governments to negotiate a Multilateral Agreement on Investment providing for high standards for the freedom to invest, negotiations were discontinued and states are responsible for developing their own standards on an individual and ad hoc basis. As such, there are a variety of domestic laws providing for the freedom to invest.
25 This mechanism is available regardless of whether the investor already has a contractual or arbitration arrangement with the host state or one of its governmental entities. 26 THE WORLD BANK, ABOUT ICSID (2008), available at http://www.worldbank.org/icsid/about/about.htm (last visited May 22, 2008). 27 UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, FAQ ORIGIN, MANDATE AND COMPOSITION (2007), available at http://www.uncitral.org/uncitral/en/about/origin_faq.html (last visited May 20, 2008). 28 UNITED NATIONS CONFERENCE ON INTERNATIONAL COMMERCIAL ARBITRATION, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (July 6, 1988), available at http://www.uncitral.org/ pdf/english/texts/arbitration/NY-conv/XXII_l_e.pdf (last visited May 24, 2008); Boscariol & Silva, supra note 16. 29 UNCITRAL, 1958 CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS THE NEW YORK CONVENTION (2007), available at http://www.uncitral.org/uncitral/en/ uncitral_texts/arbitration/NYConvention.html (last visited May 24, 2008).

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In Bulgaria, the law on FDI allows for a foreign person to invest under the terms set out for Bulgarian persons and grants foreign investors equal rights with Bulgarian persons, unless otherwise provided by law.30 In Vietnam, [f]oreign investors may establish in Vietnam an enterprise with one hundred (100) per cent foreign owned capital.31 In Mongolia, foreigners may invest in all areas of production and services which are not prohibited by the laws of Mongolia.32 The Ukraine has a similar provision in its FDI law. Chinese investors would be wise to look for similar provisions in domestic law, to ensure their investments are not expropriated on the grounds that they were made in a prohibited industry or sector. 2. Transfers

The right to transfer freely assets out of the state is an important protection Chinese investors should look for when investing in post-conict regions. Often, foreigners are more likely to invest in a state if they can access their prots by freely transferring their assets out of the state. The freedom to transfer assets adds predictability and security to a foreign investment. In Syria, foreign investors may repatriate all of their assets.34 In Bosnia and Herzegovina, domestic law provides foreign investors with the freedom to repatriate their earnings, including prots, dividends, and interest.35 Egyptian law allows foreign investors to repatriate prots upon their proper registration with the government agency responsible for investment.36 Transfer laws are often one of the most important domestic laws for foreign investors to consider. Before initiating an investment in a post-conict region, Chinese investors should ensure the transferability of revenue, prots, and assets out of the post-conict state. It requires little explanation to make the point that earning a signicant return on an investment is only worthwhile if you have access to the fruits of your endeavour.

30 Law on Foreign Investment in Bulgaria, art. 2, Act No. 97 (1997), available at http://www.foost.org/ bulgarien/recht/en/foreigninvest/bul_f_Invest_law.php (last visited May 24, 2008). 31 Law on Foreign Investment in Vietnam, art. 15 (1996), available at http://www.vietnamembassy.org.uk/ chapter2.html (last visited May 24, 2008). 32 Foreign Investment Law of Mongolia, art. 4(1), Act. No. 86 (1993), available at http://www.mongol embassy.org/doc/foreign_investment_law_of_mongolia.doc (last visited May 24, 2008). 33 The Law of Ukraine on the Regime of Foreign Investment, art. 4 (1996), available at http://www. sympatico.ca/tem-ukraine/law_r.htm (last visited May 24, 2008) (Foreign investment can be made in any objects, investment in which is not prohibited by the laws of Ukraine.). 34 Syria Investment Law No. 10, art. 25 (Apr. 25, 1991), available at http://www.caeu.net/ Investment_Laws/en/syria/syria_en.htm (last visited May 24, 2008) ([T]he Central Bank of Syria shall allow the transfer abroad of the external funds invested in the project, together with the prots and revenues, in the same currencies brought in, or in any other transferable currency.). 35 Law on Direct Foreign Investment Policy in Bosnia and Herzegovina, art. 11, sec. c (1998), available at http://www.vladars.net/pdf/law_direct_foreign_investment_BiH.pdf (last visited May 24, 2008). 36 ANIMA: EUROMEDITERRANEAN NETWORK OF INVESTMENT PROMOTION AGENCIES, INVESTING IN EGYPT (2008), available at http://www.animaweb.org/pays_egypte_pourquoiinvestir_en.php (last visited May 24, 2008).

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Domestic investment laws can address the treatment of foreign investors by the domestic government in three main ways: (1) national treatment; (2) most-favoured nation treatment; and (3) expropriation. Given the political instability of post-conict regions, Chinese investors should take into consideration these protections in the event of domestic government interference with their investment. Treatment laws also ensure level playing elds in regions where corruption and bribery are often rampant. Many states provide foreign investors protection equal to that of domestic investors (national treatment). Bosnia and Herzegovina guarantees, foreign investors shall have the same rights and obligations as the residents of Bosnia and Herzegovina.37 In Jordan, the non-Jordanian Investor investing in any project . . . shall be afforded the same treatment as the Jordanian investor.38 Saudi Arabian law provides that foreign investors shall enjoy all the benets, incentives, and guarantees enjoyed by a national project according to regulations and directives.39 Similar to national treatment, most-favoured nation (MFN) treatment occurs when a state treats all foreign investors alike. A state will not treat a foreign investor from state A differently than a foreign investor from state B simply because the foreign investors are from different states.40 MFN treatment ensures a foreign investor equal terms of business with other foreign investors.41 Finally, many domestic investment laws contain provisions protecting foreign investments from unjust expropriation. Some states provide that domestic governments may only expropriate foreign investments if the expropriation is in the public interest and accompanied by just compensation. Bosnia and Herzegovina provide that FDI shall not be subject to any act of nationalization, expropriation, requisition, or measures which have similar effects, except in the public interest in accordance with applicable laws and regulations, without any type of discrimination and against the payment of appropriate compensation.42 Iranian law stipulates that the government guarantees fair compensation where the promulgation of a special legislation deprives the owner of capital from ownership.43 Ukrainian law provides that the government may not seize

Law on Direct Foreign Investment Policy in Bosnia and Herzegovina, supra note 35 at art. 8, sec. a. Jordan Investment Promotion Law of 1995, art. 24, sec. B (amended in 2000), available at http://www.jordanecb.org/pdf/Investment_Promotion_Law.pdf (last visited May 24, 2008). 39 Saudi Arabia Foreign Investment Act, art. 6, (2000), available at http://www.saudia-online.com/ txtinvestment.htm (last visited May 24, 2008). 40 Law on Direct Foreign Investment Policy in Bosnia and Herzegovina, supra note 35 at art. 8, sec. b. 41 For more information on MFN treatment with regards to bilateral, regional, and multilateral agreements see UNITED NATIONS, UNCTAD SERIES ON INTERNATIONAL INVESTMENT POLICIES FOR DEVELOPMENT (2004), available at http://www.unctad.org/Templates/webyer.asp?docid=5736&intItemID=2310&lang=l&mode=downloads (last visited May 24, 2008). 42 Law on Direct Foreign Investment Policy in Bosnia and Herzegovina, supra note 35 at art. 16. 43 Law Concerning the Attraction and Protection of Foreign Investments in Iran, art. 3 (1994), available at http://www.tco.gov.ir/law/English/Regulation/Internal/foreign-law.htm (last visited May 24, 2008).
38

37

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foreign investments, with the exception of emergency measures in the event of natural disaster, accidents, epidemics, or epizootic.44 Given the political instability and high propensity towards signicant government overhauls and interference in post-conict regions, Chinese investors should look for the existence of all three forms of treatment to protect their investments and ensure their competitiveness. 4. Dispute Settlement

Most domestic laws encouraging investment provide the parties of an investment dispute with the option of selecting the dispute settlement forum. Bosnia and Herzegovina provides that FDI disputes shall be resolved by the relevant courts in Bosnia and Herzegovina, unless the parties concerned agree on another procedure for the resolution of disputes, including but not limited to local or international conciliation or arbitration.45 Jordanian law provides that if a dispute between a foreign investor and the Jordanian government is not settled within six months, the parties may resort to litigation or may refer the dispute to The International Center for the Settlement of Investment Disputes (ICSID) for settlement by conciliation or arbitration.46 Some states, however, restrict the available dispute resolution devices. Iranian law restricts dispute resolution to the domestic court system. Iranian law provides that [i]n case of disputes, investigation of claims for fair compensation guaranteed by the Government shall be undertaken by competent Iranian courts.47 Similarly, in Saudi Arabia, disputes not settled amicably shall be settled according to regulations.48 In light of the variance among state dispute settlement mechanisms, Chinese investors should avail themselves of as much information as possible relating to the options and forums for dispute settlement. Restricted mechanisms such as those found in Iran and Saudi Arabia make the likelihood of the positive resolution of disputes less likely, and therefore increase the risk associated with investment. 5. Ownership

States may impose restrictions on foreign ownership of property. Three broad types of ownership restrictions exist: (1) asset ownership restrictions in general; (2) real estate acquisition restrictions; and (3) equity ownership restrictions. States also have a fourth option of placing no restrictions on foreign ownership. Ownership restrictions clearly have the potential to impact greatly any Chinese investment in post-conict regions,
44 45 46 47 48

The Law of Ukraine on the Regime of Foreign Investment, supra note 33 at art. 9. Law on Direct Foreign Investment Policy in Bosnia and Herzegovina, supra note 35 at art. 16. Jordan Investment Promotion Law of 1995, supra note 38 at art. 33. Law Concerning the Attraction and Protection of Foreign Investments in Iran, supra note 43 at art. 3. Saudi Arabia Foreign Investment Act, supra note 39 at art. 13.

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especially given the fact that a signicant percentage of Chinese investment is in natural resources, and therefore Chinese investors should avail themselves of as much information as possible regarding domestic ownership laws. Asset ownership restrictions expressly prohibit foreign investors from owning particular types of domestic assets. In Ghana, the Ghana Investment Promotion Centre Act of 1994 prohibits foreigners from entering certain industries, including: beauty salons, barbershops, taxi services (if the taxi eet is less than ten vehicles), and selling goods or services from a kiosk.49 Further, Vietnam will not license any foreign investment project in sectors or regions which may have adverse effects on national defense, national security, cultural and historical heritage, ne custom, and tradition, or the ecological environment.50 States may use this type of absolute ownership restriction to safeguard protected domestic industries. Equity ownership restrictions generally occur when a state permits foreign investors to enter a domestic industry but requires a certain percentage of a domestic rms ownership to remain in domestic hands. In Algeria, foreign companies may own up to 71 percent of a hydrocarbons rm, while foreign purchasing banks many only own 51 percent of a rm.51 In Iran, foreign investors may only own 49 percent of an Iranian company, though this percentage also depends on the merits of each project.52 Some states have real estate acquisition restrictions, which prohibit foreign investors from owning domestic land. Although less of these laws exist today, many instances of state practice still exist. China itself is a good example of such a restriction, as the land belongs to the people. Foreign investors therefore cannot own land, but may obtain long-term land leases.53 Similarly, in the United Arab Emirates, only domestic citizens can own land.54 Some states place no limitations on foreign ownership or control of corporations. In Vietnam, foreign investors can own 100 percent of domestic companies, provided these companies are not involved in protected industries.55

49 Ghana Investment, sec. 18 (1994), available at http://www.gipc.org.gh/UploadFiles/Publications/ Investment_Law070627114453.pdf (last visited May 24, 2008). 50 Law on Foreign Investment in Vietnam, supra note 31 at art. 15. 51 UNITED STATES COMMERCIAL SERVICE, ALGERIA OPENNESS TO INVESTMENT (2008), available at http://www.buyusa.gov/algeria/en/openness_to_foreign_investment.html (last visited May 24, 2008). 52 Law Concerning the Attraction and Protection of Foreign Investments in Iran, supra note 43 at General Note. 53 Joyce Palomar, Land Tenure Security as a Market Stimulator in China, 12 DUKE J. OF COMP. & INTL L. 7 (2002). 54 Jean-Yves P. Steyt, Comparative Foreign Direct Investment Law: Determinants of the Legal Framework and the Level of Openness and Attractiveness of Host Economies (2006), available at http://lsr.nellco.org/cgi/ viewcontent.cgi?article=1031&context=cornell/lps (last accessed Sept. 26, 2007). 55 Law on Foreign Investment in Vietnam, supra note 31 at art. 15.

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C. BILATERAL TAX TREATY AGREEMENTS Tax treaties deal specically with tax issues related to the promotion of trade and investment between two states.56 The fundamental goal of most tax treaties is to avoid double taxation on citizens who earn foreign income. Under these treaties, businesses located in one state receive a reduction in taxes or an exemption from the income they receive from sources within the foreign state in which they operate. Treaty provisions generally are reciprocal, and the provisions apply to both treaty signatories.57 Tax treaties may protect and encourage Chinese investment in post conict regions in several ways: 1) tax treaties reduce or eliminate the economic disincentive of double taxation of foreign-earned prots; 2) tax treaties articulate clear rules for dealing with tax-related conicts; and 3) the international codication of a post-conict regions tax policy reduces the likelihood of a unilateral change in its tax policy. In these ways, tax treaties reduce the uncertainty of a Chinese investors tax liability in post-conict regions, thereby encouraging and subsequently protecting their investments. D. INCENTIVES Chinese investors in post-conict regions should consider locating in tax free or incentivized zones. Tax incentive zones are areas offering economic tax incentives for purposes of attracting investment. These incentives may either continue indenitely or terminate after a period. Incentive zones may also permit certain types of businesses or operations that otherwise may not be permitted inside the state, or which otherwise may require some sort of special licensing to operate. Such zones allow the host state to not only increase investment, but also manage it, by selecting geographical locations with the greatest need for investment. In the Dominican Republic, foreign investors enjoy 100 percent tax-free business income or a reduced rate of taxation when operating inside a free zone.58 This exemption is time limited, and determined by the geographic location of the free zone. For instance, investments in a free zone located near Santo Domingo or Santiago will obtain a 20 year income tax exemption, while investments in more rural or investmentneedy areas will obtain a 25 year exemption.59
56 UNITED NATIONS MODEL DOUBLE TAXATION CONVENTION BETWEEN DEVELOPED AND DEVELOPING COUNTRIES (2001), available at http://unpan1.un.org/intradoc/groups/public/documents/un/unpan002084.pdf (visited May 23, 2008). Bilateral agreements are the accepted international norm when creating tax agreements. States often fashion their tax treaties after two internationally accepted models: the OECD model, and the UN model. In addition, the United States uses the U.S. Model Income Tax Convention as a starting point in bilateral treaty negotiations between the United States and other states; See also U.S. MODEL INCOME TAX CONVENTION (2006), available at http://www.ustreas.gov/press/releases/reports/hp16801.pdf (last visited May 23, 2008). 57 UNITED STATES INTERNAL REVENUE SERVICE, TAX TREATIES (2008), available at http://www.irs.gov/ businesses/small/international/article/0,,id=96454,00.html (last visited May 24, 2008). 58 U.S. DEPARTMENT OF STATE, DOMINICAN REPUBLIC (Nov. 2007), available at http://www.state.gov/r/pa/ ei/bgn/35639.htm (last visited May 24, 2008). 59 DOMINICAN REPUBLIC, DOMINICAN REPUBLIC FREE ZONE (2005), available at http://www.dominican republicpage.com/Free_Zone_Information.html (last visited May 24, 2008).

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Ghanas tax incentive zones are known as the BF Tema Export Processing Zone. Tema is an industrial center as well as the largest major port in Ghana. Ghanas law provides a 100 percent exemption to investors from income tax on prots for ten years.60 After the ten-year period, the income tax rate cannot exceed eight percent. The law also provides for a total exemption from payment of withholding taxes from dividends arising out of free zone investments. Further, the government provides relief from double taxation for foreign investors and their employees.61 The Jebel Ali Free Zone (JAFZA), located in the Jebel Ali area of Dubai, United Arab Emirates, is a complex economic zone servicing the Dubai port. The government does not tax the income or prots of foreign investors within the zone and does not place restrictions on foreign exchange or transfer of capital. The government also allows foreign investors to own 100 percent of the equity in a local enterprise and provides operational support and business continuity facilities.62 Within the free zones, investors may enter into multi-year leases. They also have easy access to sea and airports, buildings for lease, energy connections (often at subsidized prices), and assistance in labour recruitment.63 Chinese investors should also consider other nancial incentives offered to foreign investors. In Korea, domestic laws provide for cash grants and reduced or eliminated rental fees of government land for specic categories of foreign investors.64 Additionally, taxes on foreign investments in Korea may be reduced or exempted in accordance with domestic law.65 In Jordan, domestic law provides for complementary facilities and tax exemptions for several sectors, including agriculture, hotels, hospitals, and the development of maritime and rail transport systems.66 Syrian law exempts taxes on the import of vehicles, equipment, and machines necessary to set up, expand, and develop a project.67 Chinese investors clearly have a great interest in identifying various incentives offered for investments in post-conict regions. Given the economic instability, awareness of risk, and general need for infrastructure and economic development, post-conict governments are often eager to provide investors with signicant incentives to secure their investments. Opportunities therefore exist to signicantly reduce the transactional and sunk costs of the investment, limit the overhead of
60 GHANA FREE ZONES BOARD, TEMA EXPORT PROCESSING ZONE (2006), available at http://www.gfzb.com/corp_div_details_gfzb.cfm?EmpID=168&BrandsID=45 (last visited May 24, 2008). 61 GHANA EMBASSY, FREE TRADE ZONE EXPORT PROCESSING ZONE (2008), available at http://www.ghanaembassy.or.jp/business/free-trade-zone.html (last visited May 24, 2008). 62 JAFZA, INCENTIVES (2008), available at http://www.jafza.ae/en/jafza-offerings/incentives.html (last visited May 24, 2008). 63 US DEPARTMENT OF STATE, 2005 INVESTMENT CLIMATE STATEMENT UNITED ARAB EMIRATES (2005), available at http://www.state.gov/e/eeb/ifd/2005/42194.htm (last visited May 24, 2008). 64 Jongseok An, FDI and Corporate Taxation in Korea, KOREAN INSTITUTE OF PUBLIC FINANCE (2006), available at http://www.econ.hit-u.ac.jp/~ap3/apppfdi6/paper/KOREA.pdf (last visited May 24, 2008). 65 South Korea Foreign Investment Promotion Act, art. 9 (1998), available at http://unpan1.un.org/intradoc/ groups/public/documents/APCITY/UNPAN011487.pdf (last visited May 24, 2008). 66 Jordan Investment Promotion Law of 1995, supra note 38 at art. 3. 67 Syria Investment Law No. 10 of April 25, 1991, supra note 34 at art. 11, sec. .a; art., 12, sec. .a.

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managing the investment, and mitigate against the economic and political volatility of the region. E. FOREIGN DIRECT INVESTMENT ORGANIZATIONS Many organizations promote and/or nance foreign direct investment. These organizations include: (1) multilateral organizations; (2) bilateral organizations; and (3) governmental organizations. Chinese investors should consider developing relationships with these organizations when investing in post-conict regions as they may provide Chinese investors with substantial security for their investments, as well as access to infrastructure and markets not otherwise accessible. Multilateral FDI organizations are institutions with a membership base consisting of multiple states. Each of these organizations operates as an independent entity.68 The main purpose of multilateral FDI organizations is to provide sound economic advice and capital for FDI in developing states.69 The World Bank, International Monetary Fund, Islamic Development Bank, United Nations Development Program, and the Nordic Investment Bank are examples of multilateral FDI organizations. Bilateral foreign direct investment organizations are FDI institutions sponsored by individual states. Bilateral FDI organizations promote a states international development policy by providing capital for FDI. The Agence Franaise de Dveloppement, Finnish Fund for Industrial Cooperation, Industrialization Fund for Developing Countries, and the Japan Bank for International Cooperation are examples of bilateral FDI organizations.70 In addition to multilateral and bilateral investment organizations, states also establish governmental agencies to promote FDI. Some of these agencies promote both international investment in the domestic economy71 and outward investment from domestic companies into foreign economies.72 The government of Jordan created the Jordan Investment Board in 2003 to promote FDI.73 The Jordanian Investment Board works with private sector investors in expediting registration and licensing requirements for investment projects and simplifying the overall investment process. The agencys
68 THE WORLD BANK, HOME, ABOUT US, MULTILATERAL AND BILATERAL DEVELOPMENT AGENCIES (Mar. 2006), available at http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK: 20040612~menuPK:41694~pagePK:43912~piPK:44037~theSitePK:29708,00.html (last visited May 24, 2008). 69 Id. 70 HARVARD BUSINESS SCHOOL, PROJECT FINANCE PORTAL (Apr. 17, 2007), available at http://www.people.hbs.edu/besty/projnportal/mdasbdas.htm (last visited May 24, 2008). 71 WORLD ASSOCIATION OF INVESTMENT PROMOTION AGENCIES, MEMBERS LIST (2008), available at http://www.waipa.org/members.htm (last visited May 24, 2008). 72 WORLD ASSOCIATION OF INVESTMENT PROMOTION AGENCIES, INVESTMENT ORGANIZATIONS, OUTWARD INVESTMENT AGENCIES (2008), available at http://www.waipa.org/inv_organizations.htm (last visited May 24, 2008). 73 JORDAN INVESTMENT BOARD, ABOUT JIB (2008), available at http://www.jordaninvestment.com/ pages.php?menu_id=l&local_type=0&local_id=&local_details=&local_details1=&localsite_branchname=JIB (last visited May 24, 2008).

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goal is to use FDI in Jordan as a tool that will benet the local job market, increase national exports, and advance the international transfer of technology.74 The Egyptian General Authority for Investment and Free Zones is the government agency in Egypt concerned with both the oversight and promotion of FDI.75 The Egyptian General Authority provides numerous services to investors looking to invest in the Egyptian economy. Some of these services include business partner identication, expediting licensing and registration requirements, and project site assistance. The agencys goal is to expand the economic opportunities of Egypt to international investors by promoting foreign investment, provide investor services, and support investor friendly government regulations.76 The Montenegrin Investment Promotion Agency works with both foreign and domestic investors to promote and increase investment within Montenegro. The goals of the Agency include increased investment in Montenegro and increased economic development of the Montenegrin economy.77 The Agency promotes investment by providing services such as investment climate information, business permit assistance, and aide in the location and identication of project sites. Currently China has no bilateral foreign direct investment organization. Chinese investors should therefore look for the benets and assistance of the multilateral investment organizations, as well as domestic investment promoting agencies and institutions in the post-conict regions. IV. CONCLUSION As Chinese investors exponentially increase their investments in post-conict regions, they should take into account the above-mentioned mechanisms when determining the size and location of their investment. These mechanisms serve to incentivize foreign direct investment by providing lower market entry and operating costs and protecting investments with transparent and robust controls. While none of these mechanisms on their own guarantees protection to Chinese investments in a politically and economically volatile area, together, they provide a substantial safety net should the investment environment deteriorate.

Id. EGYPT GENERAL AUTHORITY FOR INVESTMENT AND FREE TRADE ZONES (2008), available at http://www.ganet.org/index.htm (last visited May 24, 2008). 76 EGYPT GENERAL AUTHORITY FOR INVESTMENT AND FREE TRADE ZONES, ABOUT GAFI, OUR MISSION (2008), available at http://www.ganet.org/our-mission.htm (last visited May 24, 2008). 77 MONTENEGRO INVESTMENT PROTECTION AGENCY (2008), available at http://www.mipa.cg.yu/ (last visited May 24, 2008).
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Table of Contents I. INTRODUCTION ............................................................................................317

II. CHINESE INVESTMENT IN POST-CONFLICT REGIONS ......................................317 III. RECOMMENDATIONS FOR PROTECTING CHINESE INVESTMENTS IN POST-CONFLICT STATES ......................................................317 A. BILATERAL INVESTMENT TREATIES ......................................................320 1. Elements....................................................................................321 2. Dispute Resolution Mechanisms ......................................................321 3. Enforcement of Awards ................................................................322 B. DOMESTIC LAWS ............................................................................322 1. Freedom to Invest ........................................................................322 2. Transfers ...................................................................................323 3. Treatment. ................................................................................324 4. Dispute Settlement ......................................................................325 5. Ownership ................................................................................325 C. BILATERAL TAX TREATY AGREEMENTS ................................................327 D. INCENTIVES ....................................................................................327 E. FOREIGN DIRECT INVESTMENT ORGANIZATIONS ....................................329 IV. CONCLUSION ..................................................................................................333

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