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c. BITs and FTAs
As its direct investment in Latin America undergoes a dramatic increase, China has been actively pursuing Free Trade Agreements (hereinafter referred to as the “FTAs”) and BITs with Latin American countries.
China concluded a BIT with Chile in 1994 (hereinafter referred to as the “Chile-China BIT”), which went into effect in 1995.Article 3(1) of the Chile-China BIT states that Chinese investments “shall be accorded fair and equitable treatment” in Chile. Article 3(2) provides that Chinese investments should be afforded the most favored nation treatment, meaning that Chinese investments shall receive protection no less favorable than that accorded to investments and investors of another country. The Chile-China BIT does not provide investments with a national treatment standard. Similar to other Chinese BITs concluded in the earlier years, the Chile-China BIT sets out a very limited investor-state dispute mechanism. Article 9 of the BIT states that the parties in dispute are required to settle the dispute through negations first; if the parties do not settle the dispute within six months, they are allowed to submit the dispute to the court of the host state. China also concluded a BIT with Peru in 1994 (hereinafter referred to as the “Peru-China BIT”), which became effective in 1995. The contents of the Peru-China BIT are nearly identical to those of the Chile-China BIT.
Subsequently, China signed a BIT with Mexico in 2008 (hereinafter referred to as the “Mexico-China BIT”), which went into effect in 2009. The Mexico-China BIT is considered to have adopted investment provisions that bear significant resemblance to those in the North American Free Trade Agreement (hereinafter referred to as the “NAFTA”). Article 13 of the Mexico-China BIT allows a foreign investor to submit an investment claim to the ICSID.
China and Peru signed a FTA in 2010. China and Costa Rica signed an FTA 2011. These two FTAs provide a similar dispute resolution mechanism, which resembles the dispute resolution system provided under the WTO system.
At present, Chinahas not entered into any BITs or FTAs with Brazil or Argentina, two larger industrial economics in Latin America.
4. Laws of Commercial Application
a. CISG
At present, Lenovo has established 13 locations across Latin America and a major manfacturing center in Monterrey, Mexico. As a multinational business, Lenovo would not be able to operate without entering into commercial contracts with different entities from different areas of the world.
The United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the “CISG”) is the principal international convenant governing cross-border sales of goods between private parties.China as well as a majority of Latin American countries is signatory states of the Convention. The CISG covers a limited range of issues in relation to contracts for the international sale of goods, including the formation and interpretation of international sales contract. The CISG will automatically govern an international sales contract between a Chinese party and an entity from another contracting state in lieu of the domestic laws of either party.However, the principle of freedom of contract allows the contractual parties to opt out the CISG and adopt any legal system as the applicable law of the contract.
b. MERCOSUR
The Common Market of the South, also known as the Mercosur, is a regional bloc within Latin American. It currently consists of four full member countries: Argentina, Brazil, Paraguay and Uruguay. As of now, the Mercosur has become a full customs union and a trading bloc. Under its auspices, the Inter-American Convention on the Law Applicable to International Contracts (hereinafter referred to as the “ICLAIC”) is another puzzle added to rules governing cross-border contracts. Its primarily objective is to introduce uniform choice-of-law rules in the Latin American religion. It also attempts to codify the principles of private international law.
c. Enforcement of Foreign Arbitral Awards
Arbitration is frequently used has a dispute resolution mechanism in international commercial context because the mechanism is cost effective and expedient in comparison to domestic judicial proceedings. More importantly, commercial parties prefer to arbitrate in an international institution, which is generally perceived to be more impartial than a domestic forum. If Lenovo resorts to arbitration as a dispute resolution mechanism, often times the Group needs to enforce a favorable arbitral award in a domestic court in Latin America. By virtue of theConvention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the “New York Convention”), foreign judgments are readily enforceable in many Latin America countries, at least in theory. Under the New York Convention, signatory states are requiredto give effect to private arbitration agreements and to recognize and enforce arbitration awards made in other signatory states. For an arbitration agreement to be valid under the New York Convention, it must be in writingand concern “a subject matter capable of settlement by arbitration”.
d. Enforcement of Judicial Decisions by Chinese Courts
Imagine a case in which Lenovo sells its personal computers to a distributor in Honduras. Given Lenovo’s relative greater bargaining power in the transaction, the parties agree to resolve any dispute arising from the sales contract in a Chinese court. Having obtained a favorablejudgment in China, Lenovo would need to enforce the judgment in a Latin American country.
China and Brazil entered into a Treaty on Judicial Assistance in Civil and Commercial Matters between the People’s Republic of China and the Federative Republic of Brazilin 2009.Article 20 of the Treaty provides that either country should recognize and enforce judicial decisions in civil and commercial matters made by the courts of the other, including mediation agreements approved by the courts. Article 23 provides that Brazil can refuse to recognize or enforce a judicial decision made by a Chinese court on various grounds, including situations in which the decision is not final or lacks of enforceability in accordance with Brazilian laws; the Chinese lacks of jurisdiction over the matter according to Brazilian laws;or there is a competing proceeding ongoing in a Brazilian court in respect with the same subject matter and the proceeding in Brazil was initiated in the first place. Article 26 of the Treaty affirms that arbitral awards made in China can be enforced in Brazil through the New York Convention and vice versa.
Similar rules are set out in the Treaty between China and Argentina on Mutual Judicial Assistance in Civil and Commercial Matters as well as theTreaty between China and Peru on Mutual Judicial Assistance in Civil and Commercial Matters .
5. Laws of Public Policy Application
a. Intellectual Property Rights
As a technology company, intellectual property rights are the key assets of Lenovo and represent the Group’s competitive strengths in the Latin American market. The intellectual property policy in Latin America differs significantly from that in Asia, the United States and Europe. Give the nature of its businesses, central to Lenovo’s protection mechanism are patents, trademarks and trade secrets.
The principal multilateral trade agreement in the IP field is the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (hereinafter referred to as the “TRIPS Agreement”). As of now, TRIPS Agreement obligations are generally applicable to developing countries, while separate transition rules apply to “least developed countries”. In Latin America, Haiti is currently the only least developed country.
In the field of patent protection, the TRIPS Agreement introduced a broad extension of the scope of patent subject matter coverage and established a 20-year term of protection. Further, the TRIPS Agreement set minimum standards in relation to geographical indications, industrial designs,protection of integrated circuits and trade secrets. In addition, the Agreement imposed enforcement obligations in relation to both procedural and substantive enforcement matters on WTO member states.
b. Financial Regulation
States in general have the powers to restrict currency exchange. As a multinational company, the shareholders of Lenovo may not be able to realize their gains from the business activities in Latin America unless they can transfer the money out of the region. In Brazil, the issue is not of much concern. The country used to control foreign transactions through its Central Bank. However, in 2015, considerable flexibilities were introduced into the currency exchange mechanism.
Further, businesses can counter such risks by obtaining insurance. Political risks are defined as risks that are related to government conducts that deny or restrict the right of an investor or owner to use or benefit from his or her assets, or related to government conducts which reduce the value of their business. Under this definition, political risks include, among others, actions that restrict the movement of profits or other revenues from within a country. A primary measure for investors like Lenovo to handle political risks is to pass the risks on to public and private insurers. On the international level, the main policy risks insurer is the Multilateral Investment Guarantee Agency (hereinafter referred to as the “MIGA”) under the auspices of the World Bank Group. By availing of the MIGA, Lenovo may also insure itself from political risks in addition to exchange controls, especially considering that some regions in Latin America are characterized as politically instable areas. |
