CYIL vol. 9 (2018)

CYIL 9 ȍ2018Ȏ CHALLENGES OF BILATERAL INVESTMENT BETWEEN THE CZECH REPUBLIC AND CHINA discussed whether a Chinese SOE was able to bring its claim under investor-state arbitration. In this case, the Ceskoslovenska Obchodni Banka, a.s. (CSOB) v. The Slovak Republic case was referred to. The Claimant, Beijing Urban Construction Group Co. Ltd (BUCG) is a publicly funded and wholly SOE established in accordance with Chinese law. BUCG signed an investment contract regarding airport construction with the Respondent, Yemen. The Claimant alleged that the Respondent had deprived its investment unlawfully and submitted the claims to the ICSID on the basis of the China-Yemen BIT. The Respondent argued that the Claimant did not qualify as “a national of another Contracting State” under the terms of the ICSID Convention because the Claimant, being an SOE, was an agent of the Chinese Government. The Claimant addressed itself as an ordinary commercial entity that could bring its claims. The Tribunal made its analyses on the basis of the Broches test and the CSOB case. The Broches test was proposed by the first Secretary- General of the ICSID, Aron Broches. The test stated that a government-owned corporation can be qualified as “a national of another Contracting States” as long as the corporation does not act as an agent of the government or is not discharging an essentially governmental function. In the present case, the Tribunal examined the facts and did not find circumstances to establish that BUCG either acts as a state agency, or discharges an essentially governmental function. Therefore, the Tribunal held that BUCG qualified as a foreign investor under the China-Yemen BIT. The BUCG Tribunal also examined the CSOB case. CSOB is a partially State-owned commercial bank, and alleged its loss suffered during the privatization of the bank undertaken by the Respondent, the Slovak Republic. One of the objections to jurisdiction which the Respondent brought was that CSOB, being state-owned, is not an investor under the ICSID Convention. The CSOB Tribunal also applied the Broches test and examined the facts. The Tribunal found that although CSOB facilitated and executed international banking transactions and foreign commercial operations per the state’s wishes, the nature of CSOB’s activities is essentially commercial. 47 Therefore, CSOB was still qualified as an investor. In both cases, the arbitral tribunals applied the Broches test and examined the substantial activities of the SOEs in order to determine whether the SOEs invest in their commercial characteristics. The CSOB case played an important role in the subsequent BUCG case. This mutual relation also reminds both the Czech Republic and China about the legal status of their respective SOEs in international investment. In the BFI, both countries and their SOEs shall be aware that the legal standing issue might become the common dispute from both sides. Generally, there is a fundamental legal basis for both countries to move ahead with their BFI promotion and protection. Although, neither the Czech Republic nor China has sufficient experience with regard to the settlement of investment disputes, both sides shall keep in mind the legal challenges they might meet in international investment. Both sides shall keep eyes on the legal concerns, in particular in relation to the successive BITs and the legal standing of SOEs.

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47 CSOB case, para 20.