When the Dragon comes Home to Roost: Chinese Investments in the EU, National Security, and Investor–State Arbitration

Abstract

Abstract The gradual rise of China as an economic, normative, and lending power has resulted in more protectionist measures in areas of the world that traditionally championed economic liberalization. Currently, 21 out of 27 European Union (EU) Member States have national laws or measures in place for the screening or review of foreign investments. However, such restrictive national measures can result in investment treaty-based arbitration under the existing bilateral investment treaties concluded by 26 EU Member States with China, as evidenced by the recent arbitration initiated by Huawei against Sweden. Therefore, this article assesses whether EU Member States are likely to see a spike in investor–State arbitral claims initiated by Chinese investors as a result of the former’s investment screening measures. To achieve this aim, the article first looks at the bilateral investment treaties (BIT)-level variables that can influence the initiation of arbitration against EU Member States, such as the presence and type of investor–State arbitration (ISA) clauses, the types of investments being made, the coverage of the pre- and/or post-establishment phases, or the inclusion of ‘non-precluded measures’ clauses. This is then followed by a look at other variables, such as the decreasing number of Chinese foreign direct investment into EU countries, the treatment of Chinese investors in recent high-profile cases, and the importance of security alliances. The article concludes that those EU States are at a higher risk of being respondents in arbitrations initiated by Chinese investors whose BITs with China include modern ISA clauses, cover the pre-establishment phase, and lack non-precluded measures clauses. However, EU States should wait for the outcome of the Huawei v Sweden arbitration before deciding whether the amendment or termination of the existing BITs with China is needed.