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China, Taiwan Sign Investment Protection Agreement

by Mary Swire,, Hong Kong

13 August 2012

As part of the Taiwanese government’s policy of closer economic cooperation with China, the two sides signed a long-awaited bilateral investment protection and promotion agreement on August 9, 2012.

As had the conclusion of its sister treaty, Taiwan’s economic cooperation framework agreement (ECFA) with China which came into effect on January 1 last year, the investment protection agreement took some time to negotiate. It was signed by Chen Yunlin, president of the Chinese mainland-based Association for Relations Across the Taiwan Straits and Chiang Pin-kung, chairman of the Taiwan-based Straits Exchange Foundation (SEF), at their eighth round of talks that began in 2008.

Both Taiwan and China have agreed to protect the cross-strait interests and treatment of investors to create a fair investment environment. China and Taiwan will provide at least equal treatment for investors from the other country, and will treat investors from the other side at least the same way it treats those from other countries or regions.

Both sides will also gradually reduce investment restrictions to promote two-way investment between the two sides, and to remove existing foreign direct investment policies that are not in line with the agreement.

In addition, they have agreed on a dispute settlement clause that had appeared to one of the last sticking-points in their talks. It appeared that the SEF was intent on trying to get the maximum protection for Taiwanese businesses and their employees in China, given changes arising out of recent reforms to Chinese criminal law and the powers of Chinese state authorities.

It has been impossible to introduce an international arbitration clause into the new agreement, apparently due to China’s fear that it could acknowledge Taiwanese sovereignty, and, in the end, the agreement includes several other formal dispute settlement options, including negotiations between disputing parties, local dispute settlement authorities, and the investment division of the Cross-Strait Economic Cooperation Committee (ECC), before the resort to local court litigation. The ECC has also been given the responsibility of informing both sides of eventual dispute resolutions and the offer of investment-related consulting services.

China and Taiwan also signed, at the same time as the investment protection agreement, a treaty to promote cross-strait customs cooperation. Customs procedures will be simplified (including the use of information technology and paperless customs clearance), and cargo supervision made more efficient, to help the implementation of the ECFA.

TAGS: court | investment | business | foreign direct investment (FDI) | law | employees | investment treaty | China | Taiwan | offshore | agreements

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