Protecting China’s overseas mining investments | China

aTen years after the implementation of the Belt and Road Initiative, Chinese companies and their foreign direct investment in the metals and mining sector reached a record high in 2023. However, China’s gradually expanding footprint in overseas mining is under threat from illegal mining, local mafias, and corruption. And crime.

This article examines the legal remedies that may be available to Chinese companies in response to these challenges, based on the Full Protection and Security (FPS) principle of international investment law.

FPS overview

In investment arbitrations, arbitral tribunals often take a two-pronged approach to clarifying FPS protections. The first involves the host state’s responsibility to implement measures to prevent interference by third parties, the host state, its institutions or its associated bodies. The second concerns the host state’s obligation to prosecute those who wrongly harm investors or their investments.

The first issue, the duty to prevent, is discussed in more detail below. El Paso v Argentina, called on the host country to prevent interference by third parties. The same principle was decided in court. Eastern Sugar v Czech Republic. Interference can come from state institutions and representatives, as exemplified below. Wena Hotels v Arab Republic of Egypt.

The second position, the duty to prosecute, is exemplified in the following cases: Suez & Interagua v Argentina and Electrabel v Hungaryexplained that host countries have an obligation to provide appropriate mechanisms and legal remedies to prosecute wrongdoers and obtain redress.

Many courts have found that host states’ obligations to prevent and prosecute do not impose strict liability or guarantee a particular outcome. Instead, this is a proportionality test that depends on the special circumstances of the case.

in AMT v Zaire, the court interpreted this proportionality test as a “due diligence” obligation, deeming that the host state “shall take all necessary steps to enjoy the full protection and security of its investment.” It can also be seen in cases such as Saluca v Czech Republic, Pantechniki v AlbaniaTulip vs. Türkiye.

Investors and national arbitral tribunals disagree on whether FPS standards are limited to physical protection or extend to providing a predictable and secure commercial and legal environment. Most courts resist broad interpretations that include legal and commercial aspects, as evidenced by cases such as: Rumeli vs Kazakhstan, Salka vs Czech Republic, BG Group vs Argentina.

Nevertheless, some courts have accepted an expanded interpretation that goes beyond mere physical security to include the provision of a specific foreseeable and safe investment environment, as seen in the following cases: siemens v argentina, Biwater v Tanzania and National Grid v Argentina.

Chinese companies investing in the mining and metals sector overseas can argue that the foreign host country has obligations to: (1) Provide investors with protection from physical harm or damage. (2) ensure a secure, stable and safe business environment and legal framework;

Case Study

This case is particularly relevant as mining stands out as one of the fastest growing industries for Chinese investors expanding overseas. Copper Mesa Mining Corporation v Republic of Ecuador It highlights the potential for civil unrest and vandalism that foreign investors may encounter and how FPS principles can be leveraged to protect their investments.

Here, Canadian investors faced significant difficulties accessing the mine site, encountering barricades set up by local anti-mining demonstrators who were concerned that the project could harm the environment. . The situation escalated into violent confrontations involving tear gas, gunfire, and vandalism, ultimately violating Copper Mesa’s interests.

Subsequently, the Ecuadorian government passed a resolution requiring all investments to undergo an environmental impact study (EIS). If the EIS fails, your investment will be forfeited without compensation. The outbreak of intense violence and protests between Copper Mesa and the local anti-mining community made it impossible for Copper Mesa to meet the prerequisites of this his EIS.

Notably, another mining company had invested in the same area before the Canadian investor. The previous investors withdrew completely after encountering a similar takeover of the mining area by local anti-mining groups, including vandalism of property and personnel. This highlighted the historic and persistent incompetence of police in the region.

In view of this, the court reiterated that the FPS obligation is not a strict liability, but imposes a duty akin to the exercise of due diligence on the part of the government.

The court stated that the complete exit of the previous investors demonstrated a long-standing, well-known and genuine risk posed by anti-mining groups in the project area, a risk that existed prior to the involvement of the plaintiff investors. Ta.

It also takes into account that the presence of the respondent country, including police, has been consistently intermittent and ineffective, indicating that investor claimants cannot reasonably expect the same level of security as in more stable countries. It shows that there was no.

Separately, the court concluded that the FPS principle was indeed violated, but only because of the state’s regulatory changes in issuing EIS-related resolutions that expropriated investors’ investments without compensation. In this case, an expanded interpretation of FPS protection was accepted to include the state’s obligation to ensure certainty and stability of the legal environment.

This case highlights the importance of factors such as pre-existing investment risks and the presence and authority of government police at mining sites when courts assess a respondent’s liability under the FPS doctrine. This is a solemn reminder for prospective investors to thoroughly investigate these factors as part of their due diligence process.

suggestion

Arbitration Means. Before investing, it is essential that investors carefully analyze the treaty protections between the countries involved. If deemed necessary, investors can strategically structure their investments through third countries and take advantage of more favorable investment protection terms.

However, arbitral tribunals are divided on the legitimacy of such “snack shopping” strategies. To maximize your chances of profiting, it may be wise to consider using professional legal services early in the investment process.

Nonviolence. Resorting to violence in response to local riots or physical threats should be avoided as it may be viewed negatively by the arbitral tribunal and may be seen as contributing to the conflict.

Mariana Zhong is a partner and Zheng Xinming is an associate at Hui Zhong Law Firm