Taiwan businesses get arbitration pact

By Jens Kastner for www.atimes.com

TAIPEI – A long-stalled investment protection pact aiming mainly at safeguarding the well-being of Taiwanese businesspeople active in mainland China has been signed in Taipei along with a cross-strait customs cooperation agreement.

Negotiators elegantly circumvented the bones of contention to the investment pact, such as Taipei’s demand for international arbitration at the International Chamber of Commerce and the guarantee that Taiwanese citizens cannot quietly disappear in Chinese jails. On the Taiwanese side, there’s more jubilation than regret, nonetheless.

Around 800,000 Taiwanese businesspeople are believed to reside in China. Although they are estimated to have poured US$300 billion in investment into the mainland in the past 20 years, thesetaishang, as they are commonly called, have often made for easy prey to their mainland business partners and corrupt Chinese officials in the absence of institutionalized cross-strait relations and the resulting lack of a clear legal framework.

According to figures provided to Asia Times Online by Tung Chen-yuan, a professor at National Chengchi University and former deputy head of Taiwan’s Mainland Affairs Council’s (MAC), from 2008 to 2010 alone, 93 taishang met an untimely end while working in China; 52 were victims of looting, destruction of property or extortion; 35 were abducted and illegally detained; and 308 were detained by law enforcement agencies following some gone-bad dispute.

Numerous Taiwanese firms have had their shares in joint cross-strait enterprises or the properties of an invested operation seized by the mainland partner, according to the island’s media reports,

The new investment protection agreement is meant to change conditions for the better. That it hasn’t been signed in the previous rounds of talks between Taiwan’s Straits Exchange Foundation (SEF) and its mainland counterpart, the Association for Relations Across the Taiwan Strait (ARATS), had to do with the complex nature of cross-strait relations.

In Beijing’s eyes, allowing international arbitration would amount to a tactical recognition of Taiwanese statehood, and as China has just amended its own criminal law, which stipulates that authorities do not have to inform family members of the arrest of suspects in crimes against national security or terrorism, negotiators were put to the test by Taipei’s demand that if a Taiwanese businessperson was arrested in China, the authorities there would be required to notify the individual’s family of his or her whereabouts within 24 hours.

Obstacles to the pact on the Taiwanese side mainly relate to strategic fears: if investments from China are allowed in on a large scale and in sensitive sectors, the island’s economy could be hijacked, paving the way to backdoor unification.

After the new agreement comes into effect, international arbitration in disputes between private investors and private investors on each side (P2P) is in theory possible. The catch, however, is that it will need the consent of both parties. Private businesses-to-government (P2G) and government-to-government disputes can in future be handled also by Taiwanese arbitration associations to be established in China, as opposed to only Chinese ones, provided both sides agree. But the question whether Beijing at the end of the day will give its nod on a case-to-case basis to something it has quite vehemently opposed all along is not answered.

“If in P2P disputes both sides agree, meditation can be done in a third country; but the pact’s wording in terms of P2G is all blurry,” said Hu Sheng-Cheng, an economist at Academia Sinica, Taiwan’s most renowned research institution. “This leaves significant wiggle room. Also, the rule that both sides must consent gives the Chinese side a veto power, which if applied makes the provisions meaningless.”

William Kao, president of the Victims of Investment in China Association (VICA), who once lost a fortune in China due to an unholy alliance of business rivals and local officials, ridiculed what SEF and ARATS have thought up.

“Will Chinese authorities agree to have disputes moved to places it can’t control?” Kao asked rhetorically. “Such a pact is a joke, of course.”

Also in terms of personal protection, the agreement seems to leave a lot to be desired: although a rough consensus has been reached on ways to ensure the safety of Taiwanese businessmen in China, it was not put into the actual text of the investment protection pact.

But other observers in Taipei are cautiously upbeat, nonetheless.

“I think Taipei has tried its best to get what she wants in the investment agreement in terms of wording,” said Professor Tung. “While Taipei got some concessions from China in terms of P2G disputes settlement mechanism and 24-hour notice of any legal issues involving Taiwanese businesspeople, China got some ambiguous promises from Taipei to open and promote investment from China.”

Tung added that the critical issue is that to what degree the agreement will be effective and actualized.

Ronald A Edwards, an expert on China’s political economy at Tamkang University, also believes that both sides have essentially got what they wanted. He agrees that the real issue is how it is enforced in practice.

“We will have to wait and see how this plays out; many of these conflicts arise between different parties with conflicting interests, including local and Taiwan business interests as well as local and regional governments [in China],” he said. Edwards subsequently cautioned that the latter two “are not always under the complete control of the [Chinese] central authorities”.

While the protection of taishang in mainland China is from the Taiwanese perspective arguably the pact’s most prominent aspect, the Chinese side has originally also aimed at removing obstacles to Chinese investment in Taiwan, which currently amounts to only US$150 million.

Taiwanese Vice-Economics Minister Bill Cho has pointed out that Taipei would still firmly control the pace of Chinese investment. A large and sudden inflow of Chinese money is therefore not expected, meaning that the new pact will not help improve the island’s dismal standing in global foreign direct investment (FDI) statistics.

According to the UN Conference on Trade and Development’s 2012 World Investment Report (WIR), FDI inflows into Taiwan amounted to only US$1.96 billion last year, putting the island in the second-lowest place worldwide, only ranking above Angola.

But nonetheless, in a Taipei media briefing, Leong Wai Ho, a Barclays Bank Singapore-based senior regional economist, made clear that the pact, apart from providing some protection for thetaishang, will be good in another significant aspect:

“The agreement is not a big deal in itself,” Leong said. “But it will make more sense for foreign investors, especially from Japan, to use Taiwan as a base to expand in China, as Taiwanese firms will receive more legal protection than foreign firms there.”

Jens Kastner is a Taipei-based journalist.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)


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