This paper is directed to
globalising trends in build own operate transfer (“BOT”) projects which may
take place in East Asia[1]
over the next decade.
There are a number of
infrastructure projects lining up for East Asia over the next ten years[2].
In fact, to date, we have seen relatively few successful BOT projects across
East Asia[3].
It seems certain that the number of BOT projects in the region will increase
dramatically over the next decade for reasons including the current, depressed
economic conditions in the respective host countries, yet a huge, immediate need
for infrastructure projects across the region, the desire of major
international consortia (predominantly, Japanese, US, European, Australian…..)
to promote projects for their own commercial/investment reasons, and the
likelihood (as has been observed in Australia since 1989) that the successful
completion of BOT projects in the region will progressively lower the
transaction costs/hurdles for such projects.
BOT projects, by their nature,
require multiple, complex inter-dependent agreements, between multiple private
sector and public sector parties. On BOT projects across East Asia, in addition
to the usual issues which arise in providing for long term projects, the
project agreements are likely to be affected by several further factors:
·
the trend towards
globalisation of law[4]
·
a move/desire towards trade
law harmonisation across the region[5]
·
the depressed economic
conditions across East Asia[6]
·
varying quality of host
country legal systems, including BOT legislation and procedures, across the
region[7]
The thesis of this paper is that
BOT project agreements will evolve, across the region, with substantive common
features, including dispute regimes, because of parties common to the
transactions, and the experience derived from completed projects, but with
idiosyncratic changes on a country by country basis to reflect matters such as
culture, economy, variation in legal systems, politics….
The fundamental basis for build
own operate transfer projects is the introduction of private sector investment
into public sector projects. A
government agency with a desire to deliver infrastructure services contracts
with a private sector sponsor to obtain the concession, build the infrastructure
facility, own the infrastructure facility for an agreed period (potentially up
to 30-40 years), operate and maintain the infrastructure facility during the
concession period, and, at the end of the period, transfer the infrastructure
facility to the government agency.[8]
There are several features
special to BOT projects over and above other major construction projects,
supply projects, pipeline projects, or other major contracted works, which
arise because of the nature of a BOT project.
Those features include[9]:
·
there are multiple project
agreements, all required to be inter-dependent;
·
there are multiple parties,
each requiring contractual rights and remedies in relation to every other
party;
·
the projects deal with
publicly-owned infrastructure;
·
the contracts are required
to operate over very long periods (possibly up to 30-40 years or, conceivably,
longer);
·
the financing of the
projects is, usually, critically related to the tax regime of the host country;
·
enforceability of the
contractual rights is required against, potentially, government agencies of the
host countries;
·
typically, large sums are
usually involved.
The dispute provisions,
historically, on Australian projects, have tended to be silent. The contracts involving multiple parties, and
each of the contracts being interdependent on other contracts, an arbitration
clause, in a country where there is perceived to be an adequate court system,
is usually not the preferred option.[10]
In BOT projects where international parties are involved, and rights may need
to be enforced against host countries where the local legal system may not be
so well accepted by the international parties, arbitration clauses have been
universally adopted.[11]
The types of disputes which
might need to be resolved, potentially, in international BOT projects could
include any or all of the following:
·
tariff adjustment
provisions (relating, for example, to legislative changes, delays by the
government agency,…);
·
late delivery;
·
under performance;
·
long term actions
potentially affecting demand;
·
maintenance failure;
·
financial default;
·
environmental damage;
·
property issues.
These disputes could potentially
occur over periods, up to 30 to 40 years, from the time the project documents
were executed. Typical possibilities for dispute mechanisms in project
agreements comprising such projects might include any or all of litigation,
arbitration, mediation, structured meetings between high ranking executives
from particular organisations, and other ADR possibilities. Certain of the
project agreements might also include specific dispute resolution mechanisms
(for example, the construction contract might include a dispute panel[12],
a dispute prevention panel[13],
a proof checker[14], etc.).
These dispute regime questions
are likely to be affected, project by project, by factors such as culture,
economy, variable legal systems, politics….
1.2 The
Backdrop to BOT Projects in East Asia
Infrastructure has been delivered through BOT projects in Australia since
1989-90.[15] Since that time there have been of the order
of 100 major BOT projects in Australia. Interestingly, the rise of BOT projects
in Australia coincided with the dramatic fall of the property market, and the
economic down turn generally. It seems
that the BOT style of project became popular when major contractors had little
work in their order books, and governments had little capital funds available
for needed infrastructure projects.[16]
In contrast to Australia, the
USA started performing infrastructure projects in the late 1970’s following US
Federal legislation[17]
introduced by the Carter Administration compelling private sector investment in
certain utility projects, with the aim of introducing private sector
efficiencies into public sector projects.
Over the last decade, in East
Asia, the number of infrastructure projects was not, perhaps, as high as might
have been predicted.[18]
This was probably due to the complexities in promoting such projects, and
successfully negotiating the substantial government processes involved.[19]
Since the Asian economic crash, it appears now even more likely that the need
for infrastructure services is only likely to be fulfilled by the
infrastructure of private sector investment to deliver those projects. In most instances, that private sector
investment would come from outside the host country.
The Department of Foreign
Affairs and Trade (DFAT)[20]
in a report dated 28 October 1998 comments that for private sector
infrastructure investors to become interested in Asian BOT projects,
governments will need “increased transparency and (more) certain legal
environments…and regulatory frameworks….”.[21]
The DFAT report comments that countries with Anglo-US law systems such as
Singapore, Hong Kong and Australia provide best practice examples of
transparent and predictable legal systems which provides certainty for private
infrastructure investors.
The DFAT report notes that, to
overcome gaps in those regulatory environments, several East Asian countries
have recently introduced specific legislation most notedly BOT laws to promote
and regulate private sector infrastructure.[22]
The extent of private sector infrastructure investment in East Asia is set out
on a country by country basis as Appendix 1.1 to the report. That table suggests, in brief:
·
little substantive
investment in Singapore, Korea and Taiwan through the period 1995-1998;
·
substantive private sector
investment in public infrastructure in Indonesia, Malaysia, Thailand, China,
Hong Kong and the Philippines during the period 1995-1998;
·
the substantive investment
in Indonesia, China and Philippines was in the energy sector;
·
the figures, even through
the South East Asia economic crisis, are substantial (of the order of $8
billion dollars in 1995, $36 billion dollars in 1996, $17 and $14 billion
dollars in 1997 and 1998 respectively.
·
In recent years, there have
been a number of major power projects in Vietnam[23].
·
Japan has a strong
involvement in BOT projects in East Asia, as a participant[24]
but not (yet) as a host country.
The report sets out the basic
information as to the risks to be addressed within BOT projects and briefly
addresses the need of adequate dispute resolution mechanism within the BOT
projects to give comfort to foreign investors.
There is substantial experience
on the negotiation and documentation of BOT projects in USA, Australia, Europe,
Hong Kong and other countries where, it may be fair to say, the traditional
legal systems are reasonably well developed and substantially reliable. In East Asia, by comparison, these projects
are to be performed in countries whose legal systems are, presently, highly
variable in quality.
The evolution of BOT projects in
South-East and North Asia is unlikely to be uniform. It is likely to be
affected by many factors, which will have a varying influence on a country by
country basis. Those factors will include:
2.1 Globalisation
of Legal Services/Harmonisation of Laws in BOT Projects?
The trend towards globalisation of
economies, globalisation of trade and, in particular, globalisation of law, is
likely to be observed in BOT projects across East Asia.
Shapiro[25]
describes globalisation of law as “some movement towards a relatively uniform global
contract and commercial law”[26]. He suggests, as do other commentators[27],
that Anglo-US law will have a substantive effect on law as it evolves in
less-developed countries. He comments:
“…this
globalisation of law through private corporate law making rather naturally
takes the form of the global Americanization of commercial law”[28]
This, it is submitted, is likely
to be true, more than ever, in the development of BOT projects. There is a
substantial body of experience on BOT projects in the USA dating back to the
late 1970’s[29]. Indeed, this is what we have seen in the
Australian context. The 100 or so BOT
projects which have been documented and executed in Australia since 1990 have
been substantially based on the American style of BOT project.
Shapiro notes, further, that
there has been a substantial increase in the sheer volume and penetration of
law across the world. He refers to this
as a “global acceleration of law and lawyers”[30]. He notes that some countries, in particular
Japan, have attempted, through draconian measures, shut their citizens off from
lawyers and courts[31]. He concludes, however, that the
globalisation of markets, even in those nations, has been such that many
countries will inevitably become parties to international transactions, and
will need and acquire legal services as necessary.[32]
Shapiro suggests that China may
be an exception to this rule. He notes
that China has traditionally had a legal system which was both complex and
theoretically all embracing, where the law was implemented almost wholly
without lawyers and certainly without a private professional bar.[33]
It seems fair to say, however, that, in major transactions, the non-involvement
of lawyers, both local and international in China, however, is unlikely to
occur[34],
and certainly not in the area of BOT projects[35].
Cate[36],
in an article directed to intellectual property rather than globalisation of
law per se, comments that the economic significance and inherently global
nature of digital information poses extraordinary challenges to the power of
national governments to regulate (their) ownership and use[37]. He comments that, in fact, the globalisation
of information challenges are such that individual countries are restricted to
some extent in their ability to pursue other objectives with their intellectual
property laws[38]. He
concludes that we are presently witnessing a globalisation of intellectual
property regulation in a “near futile effort” to keep pace with the
globalisation of information, with significant ramifications for national
sovereignty.[39]
Verzola[40]
discusses globalisation in the context of colonialism in the South-East Asian
region. He describes the “first wave” of globalisation as the period of
colonization where countries of superior military might forcibly imposed rule
over the colonies, that military conquest being followed by the imposition of
new religions and cultures: “we bring you Christianity….we bring you
civilization…we will teach you democracy”[41]. He suggests that the “second wave” of
globalisation was the range of anti-colonial responses, including successful
armed revolutions (as in the Philippines), peaceful withdrawal of colonial
forces (as in Malaysia, India…), and independence movements (as in China).
During this phase, Verzola suggests, direct control was replaced by cultural
control: “we bring jobs” “we bring technology” “we will lend you money for
development” “we will protect you from communism”….[42]
Verzola suggest that the global information economy represents the “third wave
of globalisation”[43].
Barber[44]
relates the globalisation of law to the spread of democracy. He describes the forces of globalisation
“pressing nations into one commercially homogeneous global network, one McWorld
tied together by technology, ecology, communications and commerce”[45].
Delbruck[46]
comments that for more than a century an increasing number of domestic/national
matters have become “internationalized”.
He notes, for example, greenhouse effect issues, which are now of global
significance, international rather than national concern, since they affect
humankind everywhere.[47] Delbruch refers to the “globalizing forces
in the market”[48], in
particular GATT, the World Bank, the IMF, OECD…. but notes that such forces
apply only to “the sunny side of the globe..”.[49]
Perry[50]
refers to the Sri Lankan experience to examine whether, in fact, the
globalisation of law is a feasible possibility in countries with “developing
legal systems”. He notes the difficulty for globalisation of law where there is
inaccessibility to local laws, ambiguous, untested and conflicting law,
bureaucratic inconsistency, judicial impartiality, court delays, corruption,
and political interference. Perry concludes: “Current efforts to achieve legal
globalisation will not be successful while international legislators fail to
acknowledge the individual quirks of national legal systems.”[51]
Hirst[52]
comments that globalisation is not new. He downplays the views that
international capital does not seem to have flown, in the face of international
de-regulation, to markets of low wages, that multi-nationals seem, in reality,
to be substantially based in their own countries, and that globalisation has
not swept away national economies.
Weiss[53]
also concludes that the proponents of globalisation overstate the effect of the
changes in the world economy, and understate the variety and adaptability of
state capacities. She suggests that the hypothesis: weak globalisation (strong
internationalisation); state power reduced in scope.[54]
Ryland[55]
comments that the legal systems in the East Asian region are not as integrated
as in Europe or North America, and that significant differences are likely to
persist shaped by social factors which are likely to continue to be different
in each country. Ryland suggests that
one of the critical areas in which cross-border remedies are likely to be
critical will be major projects with multiple parties, for example
infrastructure projects. Ryland notes
the current harmonization initiatives in the region, including recognition and
enforcement of foreign judgements, foreign arbitral awards, service and
evidence, and regulatory co-operation, and calls for, consistent with Dr.
Mochtar’s[56] comments in
the same seminar, greater support for further harmonisation initiatives in the
region. He suggests that such initiatives might include, for example, a forum
established under the auspices of APEC.
Berger[57]
in a review of international arbitral practice and the UNIDROIT principles of international
commercial contracts, comments that over the last decade the unification law has become privatized through a
restatement-like set of rules and principles, drafted like black letter law,
but issued by a private working group of specialist practitioners and academics
rather than by convention or model law[58].
Berger
asks the question whether this approach is the correct way to achieve the
degree of harmonisation and unification of international contract law necessary
to tackle problems of international trade commerce. He concludes that the UINDROIT principles of international
commercial contracts have furnished international arbitrators with a practical
tool for comparative decision making[59]. He suggests that the increasing reference of
international arbitrators to the principles promotes the development of genuine
transnational case law of international tribunals.
Dezalay and Garth[60]
have been involved over several years in a long term project entitled,
“Constructing an International Legal Order and Transforming the State”. The authors have concluded 300 interviews
with international legal practitioners and other participants culminating in a
series of articles and a book entitled Dealing
In Virtue; International Commercial Arbitration and the Construction of a
Transnational Legal Order.
Dezalay
and Garth describe how an elite group of transnational lawyers constructed an
innovative legal field which has given them a central and powerful role in the
global market place. Their thesis is that developments in the transnational
sphere (the human rights movement, new trade regimes in NAFTA and GATT, the so
called third world debt crisis, the spread of business law firms and “global”
law schools…) are part of a process transformed by institutions and rules,
national and transnational, that govern at the national level.
In a
1995 paper[61], Dezalay
and Garth concluded that there was a group of international lawyers who
regularly became involved in international commercial arbitrations, to the
point where they controlled that area of law and its development.
Dezalay
and Garth subsequently extended their enquiry, to examine other phenomena
leading to the movement of capital into Hong Kong and China[62].
Appelbaum[63]
rejects the notion that: “….western business and legal practices are becoming
universal as a consequence either of the globalisation of capital or the
diffusion of professional training and norms..”.[64]
He suggests that the rise of the East Asian economies, especially China, may
lead to the decline of North American and European global economic dominance
and its associated legal forms.
Appelbaum takes issue with
Dezalay and Garth[65]
in relation to their thesis that the spread of Anglo-US law firms into Hong
Kong and China, as had occurred in Europe before, will have the effect of
spreading western legal practices into those markets. Appelbaum disagrees with
the Dezalay and Garth reasoning that neither Confucianism (with its hostility
to lawyers and confrontation) nor communism (with its emphasis on party rule)
afford cultural barriers to the adoption of western legal practices in China
and Hong Kong[66].
Appelbaum expresses the view
that the Chinese culture of guanxi is
substantially embedded in those markets, and as such we are more likely to
observe, over time, legal practices dominated by regimes of “flexible
accommodation….(which) would seem to have an affinity for the informality and
personal networks long associated with Chinese businesses“.[67]
The
concept that linkages between trade and various areas of social concern are
able to be observed was discussed, in general terms in a conference reported in
the University of Pennsylvania Journal of international economic law[68].
Garcia[69]
comments that the fact of linkages between trade and other areas of social
concern is not new, referring to previous papers in relation to trade and
labour rights, trade and public health, trade and human rights, etc. He
suggests that the “the trade linkage phenomena is changing not only the way we
understand trade law and policy, but also the formulation and direction of
trade policy itself”.[70]
Garcia[71]
comments that the recognition of particular trade links (for example, linkages
between trade and human rights, linkages between trade and environment…) affect
the way we negotiate and design trade rules, the role and nature of
international economic law institutions’ response to linkage issues, the extent
to which the international trading system upholds or defeats basic democratic
values and calls into questions or affirms its own legitimacy, and the manner
in which international economic law is taught in the class room[72].
In the
same seminar, Charnovitz[73]
agrees that the use of trade agreements as a vehicle to agree upon non-trade
issues is an old phenomena. He suggests
that the practice was probably reflective of a view of trade as being one of
many issues of international concern[74]. He refers to the example of policy
intervention by the International Monetary Fund and the World Bank. The intervention, through trade means, in
the economies of particular countries is but one example of the trade linkage
phenomena. He notes the traditional reasons for trade linkages to be
enhancement of policy effectiveness, to rebalance policy spillovers induced by
new treaties, to build coalitions either domestically or internationally, to
gain economies of scale[75].
Before the recent Asian economic
crisis, the region was sometimes referred to as the “South East Asian miracle”.
Anderson[76] suggests
that there were four basic conditions for the South East Asian miracle which
preceded the current economic crisis:
1. The geographic arc of the Cold War in relation to the
region.
2. The region’s geographical propinquity to Japan (in the
early 1970’s, Japan had become the single most important external investor in
the region.)
3. The success of the communist movement in China, which had
the effect of keeping China from playing a significant economic role in or
competition with South East Asia until the middle 1980’s.
4. In the late 19th century millions of young,
mostly male, mostly illiterate people left the Chinese regions of Fukien and
Kwantang for the labour-hungry European colonies in South East Asia and Siam.
This resulted in minority Chinese communities in those countries, who tended to
be excluded from positions of government, university, etc. Those Chinese
minority communities tended to concentrate on the private commercial sector,
legal and otherwise.[77]
Katzenstein[78]
suggests that there is now the emerging region of East Asia, in addition to
America and Europe. He comments that the massive inflow of Japanese investments
in recent years has aggravated severe bottlenecks in the public sector
infrastructures of countries like Indonesia and Thailand. Those bottlenecks are, in fact, turning out
to be a serious impediment for a future growth of Japanese investment in those
countries.[79]
Katzentein suggests that
increased Asian region co-operation appears to be an idea whose time has come,
at least in terms of public debate, and that inter-regional corporation is
potentially a necessary response to the process of European integration as well
as to the US-Canada free trade agreement, soon to be joined by Mexico. He also
observes, however, the sharp growth in Japanese influence and power in Asia
(the total GNP of the East Asian region amounts to less than 10% of Japan’s
GNP). Accordingly, it may be that the
other Asian countries see the US as an indispensable counterweight to Japan’s
growing power.[80]
Bello[81]
notes that with the encouragement of the IMF and the World Bank, many Asian
countries followed a three point strategy for attracting foreign couple;
liberalization of the foreign financial sector, eliminating restrictions on
capital flows, maintenance of high domestic interest rates in order to attract
portfolio investment and bank capital, and pegging the national currency to the
dollar to reassure foreign investors against currency risk.[82] Bello notes the IMF even revised its
articles of association to expand its jurisdiction in relation to the
liberalization of capital sector within the affected countries.
Khor[83]
comments that the East Asia economic crisis is probably the most important
economic event in the region in the past few decades and for the next few
decades. He notes that most commentators, though differing in their analysis of
the reasons, causes, and solutions, all agree that the economic crisis is
likely to last substantially longer than first thought. He suggests that the events leading to the
crisis included financial liberalization, currency depreciation and debt
crisis, local asset boon and bust and liquidity squeeze, and easing of fiscal
and monetary policy.
Khor
notes that the three countries under IMF direction have gone into deep
recession (Indonesia, Thailand, South Korea).
He suggests that the East Asian crisis has shown that there is a need to
regulate the global financial system, that we need to know the major
institutions and players who own financial assets and their behaviour and
operational methods and the markets that they operate in, and that the one
great lesson from the crisis is the critical importance for developing
countries to properly manage interface between global developments and national
policies, especially in planning a nations financial system and policy.[84]
Lim[85]
comments that within Asia the economic crisis had not only serious domestic,
social, political and economic impact, but it had affected international
relations as well as intellectual and policy discourse[86]. Lim notes that, as a general proposition,
besides the revaluation and austerity reforms, “structural reforms” are usually part of IMF policy
conditions[87]. Such structural reforms usually include
trade liberalization, investment liberalization, financial sector reforms to
reduce debt burdens and attract capital.
Financial sector reforms, privatization of state enterprises and
dismantling of private as well as public sector monopolies to reduce government
expenditure, increase efficiency and attract new capital.
Lim
suggests that, once Asia recovers from the current crisis, its longer term
economic prospects remain the brightest in the world[88]. He refers to the region’s natural resources,
big population (labour and market), low current levels of income and
consumption, small governments, flexible wages, high savings and favourable
demographics. Lim suggests that the
policies adopted through the economic crisis will, in fact, encourage better
channeling of foreign investment into Asian investments[89].
He
notes, however, that Asian governments may, as a consequence of such
restructure, “fear losing national sovereignty not only in terms of ownership
and control their own economies, financial systems and enterprises, but also in
terms of political and social autonomy and cultural integrity”.[90]
Lim
also notes the efforts to strengthen region economic linkages, for example the
ASEAN countries advancing their proposed inaugural date of their regional free
trade area by one year to 2002. This,
Lim says, is in an effort to enhance their attractiveness as a region to
foreign investors.
Wade[91]
suggests that we may be on the verge of a world slump. He suggests that the intensification of
insecurity and poverty that confronts hundreds of millions of people in Asia
makes this one of the worse economic calamities of the 20th
century. He also suggests that abrupt
shift to negative growth in what had been the world’s faster growing region has
sent a contractionary wave coursing through the world economy setting off a
cycle of events elsewhere.[92]
Wade
suggests that the crisis was one of global crisis management. He comments that in Asia the IMF not only
lead but in effect monopolized the international rescue effort, with little
regional co-ordination with the World Bank and Asian Development Bank in a
subordinate role[93].
Wade
concludes that Asia is moving strongly towards capital controls and that there
are good theoretical reasons why it should.[94]
Effectively US funds are to be withheld from the IMF until all seven countries
have agreed to require the fund to withhold loans from current countries that
fail to meet certain conditions (to eliminate government-subsidized credit to
“favoured” businesses or institutions…, to liberalize restrictions on both
trade and investment….)
It is
interesting to note a recent comment from Noah Chomsky recalling that when the
US took over Cuba 100 years ago, it cancelled Cuba’s debt to Spain on the
grounds that the burden was “imposed upon the people of Cuba without their
consent and by force of arm”. Such
debts were later called “odious debt” by legal scholarship. The same doctrine
was invoked 25 years later when Costa Rica cancelled the debt of its former
dictator to the Royal Bank of Canada, the US Supreme Court Chief Justice
William Taft, in arbitration, ultimately concluded that the bank had lent the
money for “no legitimate use” so its claim for payment must fail. Chomsky
suggests that the logic extends to much current international debt as “odious
debt….with no legal or moral standing, imposed upon people without their
consent, often serving to repress and enrich their masters.”[95]
The
effect of the crisis, therefore, has been to introduce, into the region,
substantial structural reform, to encourage international investment, to
enhance local enforcement regimes for the benefit of foreign investors, and to
remove much of the locally corrupted practices involving private and government
monopolies. Clearly, the reforms will have critical relevance to future BOT
projects.
Berger[96]
notes the debate as to whether APEC is “an important vehicle for regional
integration and economic prosperity” in the South East Asia region or, alternatively
is “an important vehicle for maintaining and extending US influence in the
region”[97] He suggests that the latter interpretation
highlights the way in which Anglo-US liberalism has been increasingly
challenged by influential East Asia narratives. He suggests this challenge to Anglo-US liberalism, and to US
predominance in the region more generally, is due to the resurgence of Japan
and growing integration of countries in North East and South East Asia into a
complex network presided over by Japanese based multi-national corporations.[98]
Berger suggests that significant
recent changes have included the rise of Japan and China as powers in the
region, and a move away from US centered cold war hegemony towards
significantly reconfigured relationships between the major powers in the
context of wider global shifts. He
suggests that these global changes include an increased role for international
financial institutions and trans-national corporations, and the dramatic
internationalization of production, trade and finance, with important changes,
and a changing role for, territorial states.[99]
Berger traces the emergence of
APEC out of previous moves including the creation of the Asian Development Bank
in 1966 (primarily under the auspices of the Japanese government), the creation
of SEATO in 1954 and the Asian and Pacific Council, neither of which
organisation lasted beyond the 1970’s, and the Association of South East Asian
Nations (ASEAN). He notes the Japanese
government proposal for a Pacific Free Trade area in 1967 which did not gain
general acceptance but did lead to the foundation of the Pacific Basin Economic
Council (PBEC) in 1967. He also notes
the rise of Pacific Economic Co-operation Conference (PECC), producing reports
and recognitions, but not binding.
Subsequently APEC had its founding meeting in 1989 and subsequent meetings in
Seattle in 1993 and Bogor, Indonesia in November 1994. Further meetings lead to the action agenda,
at Osaka in November 1995, leading to verbal assurances by the representatives
of all member governments that they would make every effort to meet the
economic liberalization goals of APEC.
In a
recent report, the Asia Development Bank (ADB) announced that it intends to
take on a higher profile to assert its premier position in the region by taking
a more aggressive stance by financing to crisis-borrowers.[100] In particular, the ADB intends to promote
financial guarantee programs to Asian companies and projects that might
otherwise be difficult and expensive to finance. At its recent annual meeting, the ADB underlined the importance
of credit enhancement to Asian borrowers.
The ADB intends to provide instruments to provide political risk
coverage in project finance deals. The
bank received an additional of US$3 billion from the Japanese government this
year to support loans on an untied basis to borrowers in countries worst hit by
the economic crisis.
Chirathivat[101]
reviews the history of ASEAN and APEC and suggests that East Asia as a regional
grouping is being regarded as one of the most successful exercises in the
developing countries. He suggests that
APEC is very much the future economic forum for the region. He notes the Bogor declaration which set the
vision of APEC on trade liberalization of the year 2010 for developed economies
and 2020 for developing economies, followed by investment liberalization, trade
and investment facilitation, with a view to increased business, and
strengthening economic and technical co-operation.[102].
Nottage[103]
reviews the 1992 PECC Harmonisation Proposal, discussed in Canberra (1992) and
Singapore (1993) and suggests that the benefits of adopting such trade law
instruments were perceived as greater certainty for traders and thus reduced
cross-border transaction costs, greater enforceability of an arbitral award,
and attraction of keeping arbitrations in the region.
The World Bank[104]
has noted (though the comments were not directed to the East Asian sector) that
“low quality and high costs of infrastructure services” were the principal
problems to development and equitable income growth[105].
Arrow-Smith[106]
in a new book entitled Public
Procurement; Global Revolution notes public procurement reform in
developing and transitional countries (in particular with reference to the UNCITRAL
model law on procurement of goods, construction and services), and notes the
significant procurement legislation in states where no procurement legislation
previously existed.
Bolmin[107]
reviews the increasing private sector involvement in the financing of
previously public infrastructure work in the areas of electricity, telephone,
water, transport… He notes the PPI
initiative (private participation in infrastructure) of the World Bank, largely
inspired by the American and British experience of de-regulation and
privatization. Bolmin suggests that the purpose of co-development is to define
the operational terms of the partnership needed between the public and private
sectors to ensure the success of major infrastructure projects. He suggests that the PPI principles proposed
by the World Bank are vague and have resulted in lesser projects being built
then might otherwise have occurred.
Cultural issues in international
BOT projects remain a critical factor (in fact, they are of primary
significance….in competition with the factors of globalisation, harmonisation
…..).
Shibasasaki[108]
suggests that Japanese society is “very different” from Western countries. He
expresses concern that this may result in a “decrease in efforts to achieve
mutual understanding”. He comments that western individualism does not exist in
Japan. He notes that contracts are not widely used in Japanese society, and
notes that the Japanese government emphasizes the traditional “harmony” or “peace”
(“wa”).
Rahn[109]
comments on the plurality of human cultures showing the potential inherent in
every human being. He notes the Roman law concept of individualistic legal
relationships, and Japanese notion of giri,
a “moral obligation to loyalty incurred by special favour which is borne by the
beneficiary until he has satisfied it by a definite but unspecified act of
gratitude”.[110]
Gibson[111]
suggests that resolution of cross cultural issues are intimately connected with
communication issues. Gibson suggests that
communication will depend on the source, the content and the style, the
cultural differences between the communication of the message and the channels
through which messages are communicated.
Gibson refers to members of
cultures such as those found in Indonesia, China, Japan, South America, India
and Pakistan who tend to exhibit high power distance and in relation to
research suggests that communicators would be more likely to use formal
channels of communication rather than informal channels of communication. In
contrast, members of society in the USA, Canada, Germany and Australia tend to
view unequal power distribution as unacceptable and, accordingly,
communications within these low power distance cultures are expected to depend
more often on informal channels of communications than on formal channels of
communication.
Gibson suggests[112]
that some research suggests that sharing of culture beliefs is not always
essential to successful communication.
Gibson refers to five phases of communication: encouraging,
transmitting, receiving, decoding and feedback.
Chatman[113] defines
negotiation as “the deliberate interaction of two or more social units which
are attempting to define or redefine the terms of their interdependence”.[114] Chatman concludes that communication
scholarship sets out a perspective for understanding the negotiation process,
for examining bargaining interaction as a system, and for exploring the micro
elements and subtleties that frequently alter the course of negotiations.[115]
Chen[116]
suggests that our understanding of the connection between culture and
co-operation, and its implications for organisation of behaviour, is just
beginning to develop. Chen concludes
that comparative knowledge yielded from new research will provide a more valid
base for initiating inter cultural co-operation. Further, various degrees of mutual adaptation and signage may
occur especially in multi-cultural groups, that it is possible that new types
of co-operation mechanisms may emerge to coincide with the mergers of a “third
culture” (for example, a multi-national team of individualists and
collectivists may develop a third culture of communalism in which there is a
dual emphasis and balance on both the individual and collective rationality and
on both individuality and sociality).
Greenwood[117]
analyzes the relationship between cultural identities and the global political
economy in terms of anthropology and concludes that the United States society is
likely to experience increased international economic restructuring in which
the US is an important but not dominant player. He suggests that the US will enter an area in which international
organisations are involved increasingly in administering and adjudicating a
wide variety of cultural claims for rights, goods and safety.
Salacuse[118]
discusses the notion of working with foreign partners and notes the
international construction industry has developed an important form of
deal-managing mediation that employs a designated third person, often a
consulting engineer to resolve disputes which may arise in the course of a
major construction project. The
construction contract will designate a person to act as a review board, a
permanent referee or dispute adviser, and to handle disputes as they arise in a
way that will allow the construction work to continue.[119]
Bailey[120]
reviews the possible role for APEC in international commercial arbitrations
leading to APEC’s dispute mediation experts’ group and adoption of a series of
principles in its meetings, most recently in Singapore in April 1997. Bailey suggests that some of this work may
have been repetitious of work previously done by UNCITRAL, the International
Chamber of Commerce (ICC), and various arbitral and other dispute resolution
bodies.
Bailey reinforces the need for
investors to have adequate enforcement regimes: “…Businessmen have always been
ready to accept a commercial risk inherent in a foreign transaction. On the other hand the businessman, weighing
his decision to put money to work in foreign parts of the world, at least seeks
a climate of fair play. It is the
political climate which concerns him.
Therefore, if the investor believes he can secure impartial resolution
of any dispute arising with the host state, this may be enough to warrant his
risk”.[121]
Bailey suggests the factors to
provide the test for appropriateness of a country as a forum for holding an
arbitration including quality of the law of the jurisdiction as regards to
arbitration, whether or not the municipal court system or the jurisdiction is
supportive of arbitration, whether the jurisdiction allows enforcement of
relevant arbitral awards, whether there is a supportive arbitration culture,
transparency, and whether the doctrine of sovereign immunity still applies to
regular commercial transactions.
Bailey notes that the 18 member
countries of APEC present a mixed picture.
Though most jurisdictions are parties to the New York convention and the
ICSID convention, there are problems as to the quality of the domestic
arbitration law as regards international commercial arbitration.[122] Bailey notes that the number of investment
disputes is increasing in particular that references under ICSID are
growing. Bailey concludes that
efficiency and cost are highly relevant considerations to business interests in
dispute resolution. He suggests that
this is the basis for increased focus of case management, mediation and cost reduction.
China has an established
arbitration centre with established rules based in most respects on arbitration
rules commonly in place in Anglo-US legal systems.[123]
Vietnam has recently introduced its Statute of the Vietnam International
Arbitration Centre.[124] The statute provides for the creation of the
Vietnam International Arbitration Centre, having jurisdiction over disputes
arising from international economic relations, such as foreign trade contracts
where investment, tourism, international transport, etc.[125]
The Japan Commercial Arbitration Association has published rules and recently
amended its laws to permit foreign laws to represent parties in the
international arbitration conducted in Japan.[126]
A 1995 report by PECC suggests
that many APEC economies have worked hard at streamlining their investment
procedures[127]. The
report comments that at the heart of any international investment agreement is
an effective dispute mechanism.[128]
The report suggests that APEC’s dispute settlement procedures require disputes
to be resolved by negotiation and consultation between members and, failing
this, through arbitration in accordance with members’ international
commitments, or through some agreed arbitration procedures acceptable to both
parties[129].
The report refers to the World
Bank guidelines on the treatment of foreign direct investment, adopted in 1992,
and notes, in particular that disputes are to be settled by negotiation between
the parties concerned, failing this dispute mechanisms, including consolidation
and binding independent arbitrators, and that governments are encouraged to
accept settlement through ICSID.
Schneider[130]
reviews individual rights in arbitration, where private parties bring actions
against states in respect of foreign investment. He notes the creation of the
International Centre for the Settlement of Investment Disputes (ICSID) under
the auspices of the World Bank. Schneider comments on the necessity for
transparency in dispute resolution systems suggesting that, when rules and
procedures are clear, parties are more likely to use the system, that published
decisions of dispute resolution tribunals provide lessons and possible
persuasive authority for other dispute resolution tribunals, and that
transparent rules and decisions increase predictability of the system.[131]
Schneider comments that the
small number of cases referred to ICSID over the years, and the
unpredictability in terms of appeals, have lead many government and corporate
lawyers to advise their clients against this dispute resolution method.[132]
Mochtar[133]
comments that the rapid expansion of trade and commerce accompanied by large
investments has led the developing world to accept arbitration as the norm. He
notes the cultural differences between the western concept of arbitration (legalistic
and adversarial in nature) and the eastern concept (more flexible). He suggests
that countries in the Southeast Asian region are “straddling” both eastern and
western views about arbitration.
Waelde[134]
comments that the historical intention of international investment law was the
protection a sovereign tried to obtain for the property of its citizens abroad,
in exchange for a reciprocal prominence.
In the global economy, however, the main protection is no longer the
strong arm or the smart legal adviser of the home state, but rather the massive
power of the markets to sanction misconduct by deviant host states[135].
Waelde
suggests that the main concern is reputation, a bad reputation will lead to
investor strikes, capital outflow, effective blacklisting by investors.
Compliance with international economic law would, on the other hand, lead to a
“quality seal” of a country expressed in the political risk and credit rating[136]. Waelde suggests that the key concept of the
international investors is “political risk”[137],
and the closely related concept, “transaction cost”[138].
Waelde
suggests that one of the main innovations in recent enviro-lateral treaties and
multilateral investment treaties has been the introduction of private rights
for investors to bring claims before international arbitral tribunals against
host states for breach of specified rules of behavior by states towards
investors[139]. He suggests that there is little argument
that investors will perceive this as much superior to the insistence on local
courts[140].
Frankel[141]
discusses cross-border securitisation as a concept in international investment
projects. He comments that the
government’s regulatory role, in securitisation, is reduced because
sophisticated buyers have power to demand loans made prudentially. Frankel
notes that this idea was voiced in a 1997 conference in Beijing at which it was
suggested that even if China does not need foreign currency it needs foreign
investors to exercise market discipline on state enterprises that are privatized
by issuing securities to investors (for example, foreign investors could insist
that these issuers could adopt internationally acceptable accounting systems).[142]
Frankel
concludes that uniformity in international norms will probably emerge through
mechanisms such as the IMF, the World Bank, co-operating governments and
regulators, bodies developing principles and models of law, and private
agreements feeding customary laws that, like precedents, gain cohesive momentum
as they are replicated over time.
China has a track record in BOT
projects. The DFAT[143]
figures for private infrastructure investment since 1995 are as follows:
1995
$1.5 billion
1996
$9.0 billion