Monday, April 15, 2019

Joel Slawotsky: "The Longer-Term Ramifications of China’s BRI Jurisprudence"


Joel Slawotsky, of the Radzyner School of Law, Interdisciplinary Center, Herzliya, Israel, and the Law and Business Schools of the College of Management, Rishon LeZion, Israel has guest blogged for "Law at the End of the Day"  on issues relating to globalization, international law and relations, and corporate liability under international law. He has served as Guest Editor of the Sovereign Wealth Fund special issue of Qatar University International Review of Law (IRL) (2015).

He has very kindly produced a marvelously insightful essay: The Longer-Term Ramifications of China’s BRI Jurisprudence, which follows below. In this essay he argues that the United States vision of governance and American legal principles have been incorporated globally but that this driving influence may be challenged by a China which is undertaking various steps to similarly advance its vision of governance. The BRI courts may serve as a powerful transmitter of China’s alternative vision. And by training foreign lawyers and offering legal assistance to other nations, China is masterfully engaging in the same conduct that proved successful to the United States.

While China’s impact on global governance is at an incipient stage, the ability to shape law norms and values will only increase over time.




 

The Longer-Term Ramifications of China’s BRI Jurisprudence

Joel Slawotsky

 

 


Thank you Larry for allowing me to post my thoughts generated by your excellent and insightful essay New Guiding Cases From China Relating to Belt and Road Initiative--Emerging Jurisprudence for a New Global Trade Regime? regarding China’s guiding cases with respect to the BRI project. Specifically, as you astutely noted, these court rulings will “begin to outline the principles and approaches to trade and trade dispute “under the Chinese alternative vision of global trade." (emphasis added). This is a vastly under-explored topic but one potentially equally (or more) significant than the BRI infrastructure itself and an integral component of China’s BRI stratagem towards China’s great rejuvenation and eventual hegemonic leadership. While China has an alternative vision for trade; China also has an alternative vision of numerous aspects of global and domestic governance including legal norms, values and contexts. From national sovereignty, intervention, privacy rights and state-driven economics, China’s vision is an alternative. (China Ministry of Foreign Affairs, China's Policies on Asia-Pacific Security Cooperation (January 2017).
“China favors ‘an alternative political and economic system.’ Echoing these sentiments, an eminent Chinese jurist has urged judges to ‘absolutely’ not embrace ‘false’ Western concepts such as judicial independence, separation of powers and constitutionalism.”(Slawotsky, The Clash of Architects: Impending Developments and Transformations in International Law).
By no means is this a critique of China since it simply is a realistic understanding of China’s alternative vision. China’s promotion of this alternative understanding is no different than the United States pushing Western notions of rights and values onto allies and developing nations. Indeed, China has criticized the existing U.S.-led governance institutions as being proxies for advancing the U.S. agenda.

While BRI courts may seem like a secondary or non-significant development, should BRI litigation become a successful dispute resolution model, the Chinese vision at least with respect to commercial disputes, will likely be seen as an alternative or competing legal model in numerous jurisdictions. And that is crucial - once recognized as an acceptable alternative model in one context, gaining respectability and acceptability in other non-commercial contexts is much easier. At a minimum, nations intertwined with the BRI will be impacted and will have a self-interest to align values with China’s vision. Accordingly, if successful, the BRI courts will play an important role promoting China’s alternative vision and China’s global ascendancy.

Interestingly, China’s model is already in competition with the Western model and has impacted Western development offers. The Chinese view of the relationship between law and development does not correlate with Western notions of the “rule-of-law” and is proffered as a model to “countries and nations who want to speed up their development” (Seppänen, Chinese Legal Development Assistance: Which Rule fo Law? Whose Pragmatism?). But Western donor states are already embracing some aspects of Chinese development policies. Ibid.

Is the impact on Western development offers a harbinger of the future? The foundational theme of this essay is whether China could – over the longer-term – serve as an “attractive alternative model” with respect to domestic and/or global governance. The United States has served as the role model and many nations have emulated American notions of legal norms. The reason allied countries (and some non-allies as well) have looked up to the United States stems from the fact the U.S. has been the Chief Architect (i.e., hegemon) of global governance post WW2. In the aftermath of WW2, the United States emerged as the hegemon and for example, the United States Constitution has served as a source for other sovereigns’ constitutional development (Influence of U.S. Constitution Abroad). Another exemplar, Delaware corporate law (“the global business law court”) has been a source of law to numerous nations (United States Influence on the Australian Legal System).

The infusion of U.S. tenets of law into domestic legal systems has also naturally enforced globally the U.S. vision of rights, sovereignty and due process. The conceptualization of legal terms has also been promoted through various mechanisms – and to varying extents – by U.S. led institutions such as the WTO, IMF and World Bank. Wisely, China has established alternative institutions and established initiatives such as the AIIB and the BRI which could serve to advance China’s model (Slawotsky, The National Security Exception in US-China FDI and Trade).

And of course the existing Western understandings of rights, sovereignty and due process are not fixed. Developing and exporting Chinese law norms, if successfully developed, is one of the most potent soft power weapons China can develop that will help it cross the Rubicon to hegemonic leadership. If Chinese legal understandings were infused in other domestic systems as well as global governance institutions, this would help enforce the Chinese vision.

As BRIs architect and leader, a successful BRI will greatly benefit China who will reap significant economic gains, dominate crucial trade links, and will positively impact the internationalization of the Yuan (SCMP, Xi Jinping’s ‘One Belt, One Road’ strategy is showing the way to a new world order) and may provide military advantages as well (China’s Special Forces To Station In Zimbabwe, Build Secret Underground Military Base).

However, despite these superlative benefits, the BRI is not an end to itself but a means towards a greater goal. The BRI is one of multiple brilliant Chinese stratagems to achieve an important end – the rejuvenation of the Chinese nation. “The Chinese nation…has achieved the historic leap of rising to our feet, getting rich and getting powerful.” (China has reached a turning point in its history, Xi says).

China’s immense BRI project is inextricably linked with China’s foreign policy (Our Bulldozers, Our Rules) and is the lynchpin of “the great rejuvenation of the Chinese nation” (Xi Jinping's Chinese Dream) constituting an important component of China’s long-term strategic plan to regain dominance in Asia and prestige in the world. 

One aspect that can greatly assist China in this endeavor is incorporation of Chinese understandings of law. With the potential of resolving disputes among dozens of sovereigns arising from thousands of commercial disputes in the coming years, China stands to develop a substantial case law on dispute resolution (here). The successful implementation of BRI resolved litigation under the auspices of Chinese courts could serve not only to challenge the U.S.-led Western dominance in dispute resolution but as an conduit of legal norms and values. By astutely establishing special courts to mediate, arbitrate and litigate BRI-related commercial disputes (International commercial courts eye expanded role). Chinese courts may develop a critical mass of BRI jurisprudence that is viewed as fair and incorporates (at least initially) basic Western notions of procedural and substantive due process. Crucially, by linking the economies of dozens of nations, and having BRI commercial disputes resolved within the rubric of the BRI courts, Chinese legal norms will inherently become incorporated into the BRI decisions and possibly migrate to an extent into other systems as well. Taken to its logical conclusion, Chinese law, over the long-term, could ultimately be viewed as a real alternative (or even superior) to the U.S.-led paradigm with respect to property, process, rights and other basic legal norms and procedures. At a minimum, even if not completely successful, developing case-law on disputes and having these decisions rendered by Chinese courts will proximately cause China’s imprint on global governance to significantly strengthen.

Moreover, BRI’s law-making potential must also be viewed in the context of China’s other globally influential initiatives such as China’s program of training lawyers from numerous jurisdictions. “Publicly available information indicates that hundreds of foreign lawyers, judges, and government officials have attended legal training courses in China” (Seppänen, Chinese Legal Development Assistance: Which Rule fo Law? Whose Pragmatism?).
“Legal forums, seminars, and training courses offer an opportunity for the Chinese government to try and convince elites in developing countries of the legitimacy of the Chinese approach to the rule of law and human rights—that is, to seek to increase the government’s “soft power,” thereby advancing Chinese economic and political interests. Even if the participants in these forums and courses will not find the Chinese government’s ambivalent approach to the rule of law and human rights ideologically appealing, they may accept it is as a legitimate alternative among many—at least the trains run on time in China.” (Ibid.).
Therefore, much as the United States offered programs to promote its notions of rights and democracy post WW2, (as Secretary of State George C. Marshall remarked in 1947), “Our policy [] purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.” (emphasis added)

Indeed, China’s alternative vision is already competing for influence among the elites in various nations and some Chinese visions are in fact perceived as “competitive ideas”. “China’s influence abroad is not merely of an economic nature but that it increasingly shapes law and policy elsewhere.” (The Chinese social credit system: A Model for other countries?).

Western thoughts are also being shaped by practical considerations of competition. United States and other Western policymakers must evaluate the attractiveness of their programs with the Chinese offers. In this fashion, China influences policymaking in Western donor states who compete with china over economic and legal development.
“In certain ways, Western donor states also are adopting some aspects of Chinese development policies. Western donor states and international organizations are relaxing political and economic conditions, and they have begun to emphasize the ability of developing countries to choose their own development models, even with regard to their legal institutions.” (Seppänen, Chinese Legal Development Assistance: Which Rule fo Law? Whose Pragmatism?).
This is a startling development when one considers that the narrative until recently had been that China would move towards Western concepts and embrace Western notions. (See, Joel Slawotsky: "Principled Realism: Thoughts on the New National Security Strategy").

There are manifestations of the “Chinese model” in other contexts as well. The Chinese model values economic stability as a supreme value. Rather than risking the radical fluctuations inherent in a free-market economy, China’s state-centric capitalism relies on a vigorous state-owned and controlled sector. Ostensibly this serves to smooth out the wild swings inherent with the free market. While even Chinese scholars concede that reform of Chinese SOEs is needed, and serious questions exist regarding transparency of government statistics, the Chinese economy has proven extremely robust with a vast amount of real growth over the last 20 years. Moreover, this performance has been achieved without sharp recessions or large scale downturns. Proving Chinese economic resilience is the fact that China is apparently slowing (China Trade Numbers Raise Red Flags on Embryonic Economic Recovery) but not reeling from the ongoing trade disputes with the United States (China’s March trade surplus soars past expectations, Beijing data show). Despite predictions that a trade war would speak a Chinese economic downturn, Chinese state planners have so far managed apparently to engineer a soft landing with the most recent statistics in fact indicate renewed economic growth (IMF raises its 2019 growth forecast for China).

The Chinese state-centric economic model may be viewed as an attractive alternative. Western populations are somewhat disillusioned from completely private markets and a lack of state involvement in economic affairs. The most visible sign is the populism and discontent against perceived economic inequality and excessive corporate power. Even in the home of shareholder-value capitalism there is a strong push by the “socialist wing” of the Democratic Party looking for more government planning. 2020 Presidential hopeful Bernie Sanders, a self-proclaimed socialist, and others such as freshmen House Members Ocasio-Cortez and Rashida Tlaibas, are members of “Democratic Socialists of America” and espouse a model that militates substantially in favor of governmental involvement and governmental control/intervention. Whether this movement gains traction or withers remains to be seen. Yet the fact that the platform garners support reflects disenchantment and a search for an alternative economic model.

Another indicator that governmental involvement in the economy may be increasing is the willingness of Western nations to buy shares in private corporations. Most Western nations were moving towards privatizing state-owned sectors and corporations in the 1980s-2000s and the mantra was to separate the government from the economy. While this generally remains the theme, there are indications of push-back. To be sure, state-centric economic governance is not foreseeable short-term, but depending upon circumstances, this may become a potential alternative. Empowering governments to intervene in markets is the fact that states can be involved in capital markets globally.
“What distinguishes this sovereign activity from its mid-20th Century form is the willingness of states not only to limit their control of internal economies, but also to invest their financial wealth outside their national borders. In this respect, states assume the very role of the private economic actors that they once feared so much. The 21st Century is witnessing a dramatic rise in the willingness of states to project economic power both at home and in host states through the same economic vehicles that threatened the states’ power in the 20th Century…. Consequently, some states seem to have become, to some extent, pools of national economic wealth, the power of which matches or exceeds their traditional sovereign power.” LarryCata´ Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State-Owned Enterprises, and the Chinese Experience, 19 Transnatl. L. & Contemp. Probs. 3, 10-11 (2010)(emphasis added).
We are currently in an era of hegemonic rivalry between the United States and China. Strategic sectors and “pillar industries” such as weapons, energy, power generation and communications and particularly emerging technology businesses such as AI and robots are often led by private sector corporations whose shares are publicly-traded. Control and ownership of important corporations is a potential national security issue since emerging technology as well as other power levers can be used defensively as well as offensively.
“States and corporations are now capable of deploying forces in the field—sometimes states hire corporations that serve as mercenary armies that protect its own operations as well as those of the institutions of the state from sub-national and supra-state threats.” Larry Cata Backer, The Emerging Normative Structures of Transnational Law: Non-State Enterprises inPolycentric Asymmetric Global Orders, 31 BYU J. Pub. L. 1, 50 (2016).
Share ownership of critical corporations by foreign governments enables foreign governments to exercise influence and possible control over another state (election hacking or promotion of a favored candidate) - or at a minimum - become embedded in vital economic sectors. Therefore, corporate share ownership and national security are now inexorably linked. Governments are likely to increase investments in stock markets as the nascent hegemonic rivalry becomes increasingly linked to economic and technological supremacy. In one example, the Finish Government – through a sovereign investment fund - has bought a stake in Finnish national champion Nokia (here).

In another exemplar, Germany is planning to acquire stakes in national industrial champions.
Germany could take stakes in companies to prevent foreign takeovers in some key technology areas, Economy Minister Peter Altmaier said on Tuesday, presenting a new industrial strategy he said was necessary for the country's cohesion. The pivot to a more defensive industrial policy is driven by German concerns about foreign — particularly Chinese — companies acquiring German know-how and eroding the manufacturing base on which much of Germany's prosperity is built. (Germany ready to buy stakes in automakers, other companies to protect them)
Accordingly, we are possibly in the embryonic states of Western nations seeking to own or control business enterprises – a hallmark of the Chinese model. Thus China, even if inadvertently, has already “offered an attractive alternative.”

A leap towards a Chinese model – at least in certain respects – may not even be too much of a hurdle. For example, China’s developing Social Credit Scoring ratings system has similarities to Western-style reviews of various services. Indeed, “[i]t might be possible to integrate the SCS into the [Chinese] legal system.” (The Social Credit System and China's Rule of Law). Although numerous problems exist, and would need to be addressed such as defining trust and correcting mistakes and appealing determinations, id., China’s SCS may become an integral part of Chinese domestic governance and eventually influence or be incorporated at various levels by other nations.

To be sure, many of the current aspects of the SCS appear distinctly incompatible to the Western perspective. However:
“Some of the aspects of the Chinese system are not part of the Western rating systems; yet, they are not completely alien to the West.”(The Chinese social credit system: A Model for other countries?).
Some might compare China’s blacklists to Western background checks and ‘no-fly lists’ or the UKs football banning orders which includes temporary passport holding. Some EU nations also collect and circulate details of insolvent debtors. Part of criminal punishments mat also include driving suspensions and other social punishments. (The Chinese social credit system: A Model for other countries?).

Given China’s immense and growing international influence, the SCS may become an attractive regulatory mechanism in Western states (particularly should China modify its SCS to remedy the existing lapses.)
“The Social Credit System may show that China now ‘appears to have ascended to the position of principal global driving force in political theory and action’, with ‘the potential to change law and government as we know them in China and beyond’.”(Ibid).
The ability of Chinese model to become an attractive model should not be under-estimated. China has already scored several impressive victories such as the push-back by U.S. allies against US pressure with respect to 5G as well as Italy’s embrace of the BRI despite U.S. attempts to convince Italy otherwise (reminiscent of the U.S. failure to convince allies not to join China’s AIIB).
“In a move certain to cause consternation among American officials and leaders of the European Union, Italy appears poised to help China extend its vast global infrastructure push deeper into Western Europe, part of Beijing’s sweeping plan to advance its economic interests and influence around the world.” (Italy May Split With Allies and Open Its Ports to China’s Building Push).
Demonstrating this emerging factor vividly is the Huawei 5G controversy. The United States has argued that Huawei should be banned from deployment of 5G because of security risks. Allies such as Britain, Germany and Poland are all being lobbied with varying degrees of pressure to choose the United States over China with respect to 5G. The U.S. position is that nations must select either the U.S. or China and openly stating that allies selecting China will find their U.S. partnerships at risk.

While some U.S. allies have banned Huawei (here) and others are considering such bans, push-back is evident. For example, UK national security officials have stated that concerns over Huawei’s 5G are overblown and security threats can be contained (Huawei risk can be managed, say UK cyber-security chiefs).  Other U.S. allies are similarly raising doubts about banning Huawei as nations seek to hedge their bets and balance relationships with both China and the United States.
“The German government looks likely to avoid an outright ban of Huawei Technologies' equipment and allow the Chinese company to participate in its high-speed communications infrastructure in some form, as the country seeks to balance its relationships with the U.S. and China.” (Germany follows UK in casting doubt on US Huawei ban)

The prospect of substantial investment opportunity in China (Canada’s vast pension fund is sticking with China even as political tensions mount)  and of economic partnership with China is a powerful elixir.
“If forced to take sides in the high-stakes geopolitical rivalry and trade war between the United States and China, Malaysian Prime Minister Mahathir Mohamad would prefer the economic largesse of Beijing.” (I’d side with rich China over fickle US: Malaysia’s Mahathir Mohamad)


Therefore, the risks over the longer-term of U.S. allies aligning with China cannot be discounted. The factor is directly linked to China’s economic ascendancy. U.S. allies’ self-interested embrace of China, should it gain critical mass, would constitute a transformative geo-strategic shift imperiling the hegemonic status of the United States. The BRI courts (as well as other developments noted above) is an important step in this trajectory.


Conclusion

The United States vision of governance and American legal principles have been incorporated globally (and this has well-served the interests of the United States). China is wisely undertaking various steps to similarly advance its vision of governance. The BRI courts may serve as a powerful transmitter of China’s alternative vision. And by training foreign lawyers and offering legal assistance to other nations, China is masterfully engaging in the same conduct that proved successful to the United States.


While China’s impact on global governance is at an incipient stage, the ability to shape law norms and values will only increase over time. China has very different notions and a vision of law that is dramatically at odds with the present U.S.-led Western vision.
The more free-wheeling Silicon Valley model once seemed unquestionably the best approach, with stars from Google to Facebook to vouch for its superiority. Now, a re-molding of the internet into a tightly controlled and scrubbed sphere in China’s image is taking place from Russia to India. . . . .Moreover, crucially, the non-mention let alone de-emphasis on human rights and promotion of democratic notions of governmental legitimacy also demonstrates the irreconcilable vision of international law.” (In ideological battle with U.S., China wins over allies with its censored vision of the internet)



While different, an alternative offered by China may be palatable and over the longer-term even embraced. After all in certain respects, Chinese vision is about a means to an end – and the end is the same goal as in Western nations. Such ends include public security, criminal deterrence, protection of important industries and domestic champions through state ownership and state-centric economic intervention. Whether based upon self-interest and strategic alignment or endeavoring to imitate a successful model or being required to as part of participating in global economic governance, China’s alternative vision may become a viable option. Developing case-law under the rubric of the BRI is an important milestone in this endeavor.



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