The Cross-Strait Investment ­Protection Agreement Arrives

The creation of an investment protection agreement was first discussed in 2010 at the fifth of the Chen-Chiang Summits, which are talks between Chiang Pin-kung of the ROC’s Straits Exchange Foundation (SEF) and Chen Yunlin of the mainland’s Association for Relations Across the Taiwan Straits (ARATS). It took many rounds of negotiations to finalize. Because the pact touches on sensitive issues connected to sovereignty and judicial procedures, it was not easy to reach.

Scholars say that for mainland China the bottom line was that the language of the agreement could nowhere imply an “international” status. The basic approach from the ROC was “better good than quick.” The goal was to garner the best guarantees for Taiwanese businesses.

The Cross-Strait Investment Protection Agreement was based on international investment protection agreements, which were tweaked to suit the peculiarities of the cross-strait relationship and to ensure enforceability. Its content includes definitions of investors and investments, scopes of application and exceptions, treatment of investments, transparency, compensation for losses, dispute settlement, contact mechanisms, and other important matters. It’s quite a comprehensive agreement.

What have attracted the most attention are the five methods of resolution that can be employed to resolve a dispute between investors and local governments on the mainland, including voluntary negotiations between the two, appeals to higher-level officials on the side where the investment is made, negotiations between government agencies across the strait, and appeals to arbitration institutions on either side of the strait, as well as administrative remedies and judicial procedures.

Unusual among investment pacts, the agreement also covers disputes among investors. It used to be that Taiwanese businesspeople on the mainland could only pursue arbitration with mainland arbitrators. In the future they will also be able to choose Taiwan and Hong Kong arbitration institutions. What’s more, they will also be able to change the venue to another location altogether, so long as both sides agree.

The Ministry of Economic Affairs has stated that the agreement differs significantly from most investment agreements because it reflects in many ways the special nature of the cross-strait relationship. Most investment agreements, such as the Taiwan-Japan Investment Agreement that was signed last year, are only applicable to direct investment. But because many Taiwanese invest on the mainland through another territory, the agreement took an especially broad approach in whom it was targeting, allowing Taiwanese investing via a third location (say Singapore) to enjoy the benefits of the agreement.

Even more importantly, the impact of the agreement is retroactive. With regard to issues such as the intellectual property disputes involving Foxconn and BYD, or the equity share dispute involving Shin Kong Mitsukoshi Department Store, so long as the disputes haven’t been resolved, the parties can employ the mechanisms facilitated by the agreement to resolve their differences.

“The investment agreement isn’t a magic pill for resolving all business disputes,” says Chiang Pin-kung, SEF chairman, who urges Taiwanese investors to take adequate precautionary measures rather than waiting for problems to crop up and relying on these new procedures. Before investing on the mainland, many foreign investors employ accountants and lawyers to thoroughly research regulations on the mainland. Taiwanese businesses should likewise still become familiar with regulations there, gain an understanding of the political and economic environment, and choose partners prudently.

With regard to issues of personal safety, which are of particular concern to Taiwanese business owners on the mainland, the agreement only states basic principles: Via a “document of consensus” the SEF and ARATS agree that when police detain investors or members of their families, they will notify their businesses or families within 24 hours. What’s more, via a mechanism of cross-strait judicial notification, they will promptly notify the appropriate government agency across the strait. Both sides will also meet basic human rights by allowing the detained person to meet with lawyers and have visits from family.

Chang Pen-tsao, chairman of the General Chamber of Commerce of the Republic of China, believes that the clearest benefit of the pact is that the scope of protection has increased to include both families and employees of Taiwanese businesspeople, as well as their property. If the decisions of mainland government agencies impose property losses on Taiwanese investors there, such as by repossessing land before the expiration of a lease, then they have to negotiate with the Taiwanese businesspeople involved and provide compensation. These measures offer more security to Taiwanese businesses.

The ultimate impact of the agreement will depend upon its implementation. Observers have pointed out that many of the 16 agreements reached at the previous seven Chen-Chiang Summits have never been seriously implemented, leaving society with a bitter taste of expectations left unfulfilled.

Taiwanese businesspeople are expecting the government to have their backs. If the new Investment Protection Agreement is to be regarded as a model of cross-strait cooperation, then it must be properly executed.