RECONCILING NATIONAL SECURITY REVIEW OVER CROSS-BORDER INVESTMENT BILATERALLY Текст научной статьи по специальности «Политологические науки»

ПРАВО В КИТАЕ

WANG YUNPENG

Henan University Law School

85 Minglun Street, Kaifeng, Henan Province, China, 475001

E-mail: yunpeng1983@126.com

DOI: 10.35427/2073-4522-2024-19-1-wang_yunpeng

RECONCILING NATIONAL SECURITY REVIEW OVER CROSS-BORDER INVESTMENT BILATERALLY

Abstract. This article explores a feasible solution to mitigate the risk caused by unilateral measure to protect state essential interest it considers necessary, which is a noticeable investment policy trend with the United States and European Union adopted new rules against foreign direct investment (FDI) from 2018.The World Bank reported that global FDI shrank because investment protectionism under the name of security interests initiated by the traditional states vowing to the liberal order, such as the United States and European. Russia and China are strategic partners in curbing the United States' hegemony power and pivotal players in reshaping the international economic order. It is possible to push the international investment law towards a more transparent and predictable direction by upgrading their current 2006 Bilateral Investment Treaty. The critical step is writing into an essential exception clause suggested by the UNCTAD and making it clear in their respective domestic foreign investment law that the national security review is subject to the pre-establishment national treatment principle and the non-conforming measure in the ungraded the 2006 Treaty. The suggest is feasible because of the following reasons. First, though the member States, such as Russia and China, to a treaty with an essential security clause have obligations to exercise their right under exception rules in good faith, the WTO Panel report on Russia-Measures Concerning Traffic case in Transit indicated that balancing a national security interest and the state's obligation under international law is challenging. Second, both Russia and China have developed sophisticated policy design concerning the national security review, which provides a solid normative framework underpinning such bilateral arrangement.

Keywords: Foreign Direct Investment, Bilateral Investment Treaty, National Security Review, Eurasian Economic Union, Belt and Road Initiative

ВАНГ ЮНЬПЕНЬ

Юридический факультет Университета Хэнань

Провинция Хэнань, Китай, 475001, ул. Минглунь 85, Кайфень

E-mail: yunpeng1983@126.com

СОГЛАСОВАНИЕ ОБЗОРА ПОЛИТИКИ НАЦИОНАЛЬНОЙ БЕЗОПАСНОСТИ В ОТНОШЕНИИ ТРАНСГРАНИЧНЫХ ИНВЕСТИЦИЙ В ДВУСТОРОННЕМ ПОРЯДКЕ

Аннотация. В настоящей статье изучаются возможные варианты решений для снижения риска, вызванного односторонней мерой по защите государственно важного интереса, который оно сочтет необходимым, коим является заметная тенденция в инвестицинной политике наряду с вновь принятыми правилами США и Европейским союзом в отношении прямых иностранных инвестиций (ПИИ) от 2018 г. Всемирный банк сообщил, что глобальные потоки ПИИ сократились, поскольку инвестиционный протекционизм под названием «интересы безопасности» был инициирован традиционными государствами, придерживающимися либерального порядка, такими, как США и Европейский союз. Россия и Китай являются стратегическими партнерами в сдерживании гегемонии США и ключевыми игроками в преобразовании международного экономического порядка. Существуют все возможности для того, чтобы придать новый импульс международному инвестиционному праву и сделать его более прозрачным и предсказуемым путем модернизации текущего двустороннего инвестиционного договора 2006 г. Критически важным шагом является прописывание основной оговорки об исключениях, предложенной ЮНКТАД (Конференция ООН по торговле и развитию), и прояснение в соответствующем национальном законодательстве об иностранных инвестициях относительно того, что обзор политики национальной безопасности подчиняется заранее установленному принципу национального режима и мерам, не отвечающим требованиям, в модернизированном договоре 2006 г. Данное предложение имеет место по следующим основаниям. Во-первых, несмотря на то что Россия и Китай государства — участники договора с основной ограничительной оговоркой, обязаны добросовестно исполнять свои права в рамках правил исключения, тем не менее отчет Комиссии экспертов ВТО о мерах России в отношении транзитных грузопотоков свидетельствовал о том, что габлюдение баланса между интересами национальной безопасности и обязательствами государства в рамках международного права является трудной задачей. Во-вторых, Россия и Китай разработали сложный стратегический план в отношении обзора политики национальной безопасности, который обеспечивает прочную нормативную базу, подкрепляющую подобное двустороннее соглашение.

Ключевые слова: прямые иностранные инвестиции, двусторонний инвестиционный договор, обзор политики национальной безопасности, Евразийский экономический союз, программа «Один пояс, один путь»

1. Introduction

We are witnessing a noticeable transformation from deregulation to enhanced state surveillance over foreign investment. The principle of liberalization of capital movement has been challenged by strengthened review mechanisms againstforeign direct investment (FDI) in recent years, especially the National Security Review (NSR)1. Many states have promulgated rules to regulate M&A deals concerning criticalinfrastructure, core technologies, thedefense sector, sensitive business assets, or residentialproperty.The United States revised its strict NSR by validating the Foreign Investment Risk Review Modernization Act 2018 («FIRRMA»)2. European Union adopted a new regulation to establish a framework for screening inward FDI3. The NSR is necessary to provide an institution to protect the State's essential security.

To ensure the flexibility of the international economic order («IEO») and maintain a balance between State security and contracting parties' adherence to international law, GATT in 1947 provided an essential security exception clause followed by most of the global economic treaties4, including those international investment agreements («IIAs»)5. A fundamental element of these clauses is that a State can adopt measures «it considers» necessary to protect its national security. However, unilaterally and arbitrarily applying this discretion provided by the self-judging security exception will undermine the IEO's multilateralism. E.g., the USTR's 232 investigations and its following tariffs. For

1 UNCTAD. World Investment Report 2019. P. 83-86.

2 United States Foreign Investment Risk Review Modernization Act 2018(50 U.S.C. § 1703).

3 Regulation of European Parliament and of the Council of 19 March 2019 Establishing a Framework for the Screening of Foreign Direct Investments into the Union (PE/72/2018/REV/1).

4 General Agreement on Tariffs and Trade (5 U.N.T.S. 194). Art. 21.

5 According to statics by UNCTAD, 395 International Investment Agreements, including (IIAs) contain an "essential security exception" clause, 148 of which adopt "self-judging"terms such as "it considers" as in the GATT 21. Among those IIAs with no specific security exception clause, it is withouta doubt that the member state can adopt restrictions measures towards FDI based on national security. UNCTAD International Investment Agreements Navigator. at https://investmentpolicy.unctad.org/international-in-vestment-agreements/iia-mapping, last visit on May 18th, 2023. And in fact, these IIAs without security exception clauses are mostly out of date, as UNDTAD indicated. The security exception clause with a self-judging feature and without well-defined exceptional circumstances is undermining the transparency and predictability of the international investment regime. That is why UNCTAD present its reform advice on security exception. UNCTAD, UNCTAD's Reform Package for the International Investment Regime (New York and Geneva: United Nations 2017). P. 36-37.

international investments, the blocking effect is more pronounced. UNCTAD concluded that the amount of FDI blocked by those restrictions or regulations has accumulated to approximately $153 billion in 20196.

Proposals to re-balance capital liberalization and the regulating right for national security concerns had been initiated by some international organizations, however, with few outcomes. G20 agreed that national investment policies should establish open, non-discriminatory, transparent, and predictable investment conditions. It ensures that the host States should develop their regulating investment measures, such as NSR, transparently and embedded in an institutional framework based on the rule of law7. UNCTAD proposed a reform package for IIA provisions, suggesting that the national security exception clause could improve its predictability and coherence by defining national security more specifically or referring to the UN charter8. However, in practice, states still hold that national security is a self-judging issue, and theinternationaltribu-nals, e.g., the Dispute Settlement Body (DSB) of WTO, lack jurisdiction to adjudicate its application9. Self-judging security exception clauses could be found easily in recently formulated IIAs, such as China-Colombia BIT (2008) 10, Argentina-QatarBIT 11, ASEAN-India Investment Agreement

(2014)12, Australia-China FTA (2015)13, China - Korea, Republic of FTA

(2015)14, Eurasian Economic Union — Viet Nam FTA (2015)15, Canada

6 UNCTAD/WIR/2019. P. 84.

7 G20 Guiding Principles for Global Investment Policy-Making (adopted in G20 Hangzhou Summit 2016).

8 UNCTAD. UNCTAD's Reform Package for the International Investment Regime.

P. 25.

9 WTO. Panel Report on Russia — Measures Concerning Traffic in Transit (WT/ DS512). Para 7.102-7.104.

10 China — Colombia BIT (2008). Art 12.

11 Argentina — Qatar BIT (2016). Art 13.

12 Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India. Art.22.

13 Free Trade Agreement between the Government of Australia and the Government of the People's Republic of China. Art. 16.3.

14 Free Trade Agreement between the Government of the People's Republic of China and the Government of the Republic of Korea. Art. 12.14.

15 Free Trade Agreement between the Eurasian Economic Union and its Member States of the One Part, and the Socialist Republic of Viet Nam of the Other Part ("Eurasia-Vietnam 2015-FTA"). Art.1.9. It provide that Article XXI of GATT 1994 and Article XIV bis of GATS are incorporated into and form part of this Agreement, mutatis mutandis.

-EU CETA (2016)16, ASEAN-Hong Kong, China SAR Investment Agreement (2017)17 and RCEP (2020)18.

To the measures taken under this clause, states tend to exclude the application of any balance-checking institution provided by national law, such as the judicial review19. This will induce states to apply NSR arbitrarily and biased. There have been rising concerns and application of NSR discrimination against China's outbound FDI across the Western countries, e.g., the United States, European Union, Canada, and Australia. Geopolitics and ideological confrontation precede business judgment considerations. The IEL makers, who insisted that states shall follow the principle of Washington Consensus in regulating international trade and investment, are trying to block the level playing field they created by treating the emerging markets with double and discriminate standards when these competitors wined a relatively advantageous position over them by following the rules they made. The broad national security concept and final award not subject to judicial review make the NSR a freeway that allows these states to treat FDIs unfairly in contradiction with the most-favored treatment and national treatment principles required by the IIAs.

Developing a balanced and inclusive investment regime is necessary to ensure the host state's right to regulate, and the investor's legally expected interests are protected subject to fair and predictable conditions. As UNCTAD indicated, there needs to be more certainty in developing international policy frameworks for trade and investment to support investor confidence20. The case adjudicated by DSB involving Russia and Ukraine allows the international community to reconsider the national security issue in reshaping a new open and inclusive IEO. China and Russia, as emerging market economies, could make contributions to clarify the uncertainties over the changing international policy frameworks concerning NSR after WTO historically exerted jurisdiction over essential security exception issues and adjudicated whether the State applies the clause in good faith21.

16 Comprehensive Trade and Economic Agreement between Canada and the European Union. Art. 29.6.

17 Agreement on Investment among the Governments of the Hong Kong Special Administrative Region of the People's Republic of China and the Member States of the Association of Southeast Asian Nations. Art. 8.

18 Regional Comprehensive Economic Partnership (2020). Art.10.15.

19 It generally provides that the decision made by the president suspend or prohibit any covered transaction is not subject to judicial review. See e.g., United States Foreign Investment and National Security Act of 2007 ("FINSA"). Sec.6(e).

20 UNCTAD/WIR/2019. P. 14.

21 WT/DS512. Para 7.148.

This article initiates a bilateral regime proposal to improve existing NSR based on Sino-Russia's economic relationships around the FDIs. It could provide a new perspective to reconstruct the balance between state interests and multilateralism in the global governance of FDIs, with a special meaning for China and Russia as the emerging markets to make justified and reasonable reforms to the existing IIO manipulated by the developed states. To explore the normative ground of such a proposal, Part II explains the national security exception clause in the investment regimes between China and Russia established by bilateral investment treaty ("BITs") based on the treaty interpretation and case review, and Part III explores the NSR system established by national investment law and the necessity to regulate the NSR internationally. Part IV, as the conclusion, discuss briefly the strategic trust between China and Russia, which underlies the feasibility of the initiative reconciling the NSR or security law bilaterally and the two alternative pathways to formulating such a regime through a modernizing Sino-Russia BIT or a newly entered free trade agreement (FTA).

2. National Security Exception in Sino-Russia Bit

FDIs across the Sino-Russia boundary were relatively small compared to the expanding trade. According to Static in 2018, concluded by the National Bureau of Statistics of China, China was the top 1 in Russia's exporting and importing countries. Goods exporting to China amounted to $56 billion, and importing data was $52.2 billion. However, FDI in China from Russia amounted to only $23.8 million in 2017 and $56.7 million in 2018. ODI from China to Russia, up to $1548.4 million in 2017, still needed to match the transnational trade scale and the current strategic cooperation relationship after establishing the Shanghai Cooperation Organization (SCO)22.This situation indicates that there is an excellent opportunity for investors. However, more than the outdated BIT and strengthened NSRs are needed to provide an open and predictable investment regime to protect the expectation of the investors. New investment restrictions for foreign investors were mainly based on national security concerns; the discussion below will focus on the national security issue to illustrate that an inclusive and balanced investment regime shall be initiated if deepen economic cooperation is still needed for

22 Blakkisrud H., Wilson Rowe E. Gateway or Garrison? Border Regions in Times of Geopolitical Crisis // In Russia's Turn to the East: Domestic Policymaking and Regional Cooperation / Ed. by H. Blakkisrud and E. Wilson Rowe. Cham, 2018. P. 1-9. Li, Ming-jiang, Poh A. The Indispensable Partner: Russia in China's Grand Strategy // Sino-Rus-sian Relations in the 21st Century / Ed. by J.I. Bekkevold, L. Bobo. Cham, 2019. P. 21-39.

both states, whether grounded on China's Belt and Road Initiative («BRI») or Russia dominated Eurasian Economic Union («EAEU»).

2.1. Security Exception in Sino-Russia BIT

TheSino-Russia BIT, signed in 2006, was drafted with no independent security exception clause. The main articles include clauses of definitions, the objective of promotion and protection of investment, treatment of investment, expropriation, compensation for losses, transfer of payments, subrogation, settlement of disputes, application, duration, and termination. This does not mean that China or Russia lacked the authority to enact restrictions against FDIs from the opposite party based on national security concerns. Treatyinterpretation and customary law on the security issue certainly, provide legitimate ways to allow contracting parties to regulate FDI on the ground of protecting national security.

Article 3.5 of the Sino-Russia BIT provides that,

«without prejudice to the provision of the articles 4, 5, and 9 of this Agreement, the Contracting Parties may accord the treatment no more favorable than the treatment granted by theContracting Parties following the multilateral arrangements concerning the treatment ofinvestments in which both Contracting Parties participate.»

Following this article, both parties agreed on a protocol for this agreement:

«With a reference to Paragraph 5in Article 3 of theAgreement, the Russian Federation considers the WTO General Agreement on Trade in Services (GATS) falling within the scope of multilateral arrangements concerning the treatment of investments.»

With the general interpretation rule expressed by the Vienna Convention on the Law of Treaties (VCLT), the terms of a treaty shall be interpreted in good faith by the ordinary meaning 23. The parties express clearly that the protocol aforesaid is an integral part of the agreement. Thus, the quoted text indicates that those multilateral arrangements, such as GATS, could be considered formal legal sources in deciding what kind of treatment should be granted to FDIs governed by the Sino-Russia BIT. The phrase «falling with-in» implies that GATS is not the only one with this validity. Those multilateral arrangements shall, at least, include the Agreement on Trade-Related Investment Measures («TRIMs»), the Convention Establishing the Multilateral Investment Guarantee Agency («MIGA Convention»), and the Convention on the Settlement of Investment Disputes between States and Na-

23 Vienna Convention on the Law of Treaties (VCLT). Art. 39. Труды Института государства и права РАН. 2024. Том 19. № 1

tionals of Other States (ICSID Convention), provided both the states were contracting parties to them. Therefore, the security exception incorporated in GATS and TRIMs could apply to the covered investment or investors under Sino-Russia BIT.

The text of security exception in TRIMs and GATS mirrors Article XXI of GATT 1947. Applying Article XXI of GATT 1947 could be an essential reference for TRIMs and GATS's counterparts. It provides that:

Nothing in this Agreement shall be construed

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests

(i) relating to fissionable materials or the materials from which they are derived;

(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

(iii) taken in time of war or other emergency in international relations; or

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

However, ambiguities and uncertainty are inherent in this security exception provision. The GATT did not define further those critical terms, such as «consider necessary,»»essential security interests,»»time of war,» and «emergency in international relations»24. So does the GATS. Unlike those similar terms in GATT Article XX, e.g., «necessary,»»relating to, «or «exhaustible natural resources» that had been interpreted in some famous cases25, those terms in the security exception clause had no opportunity to be adjudicated before a Panel or the Appellate Body to make a constructive explanation. The usage of «it considers» in Article XXI (b) provoked debate among parties on whether the measures taken under security exception could be subject to review by a WTO panel or any other international tribunal established26. States

24 Lindsay P. The Ambiguity of GATT Article XXI: Subtle Success or Rampant Failure // Duke Law Journal. 2003. Vol. 52. P. 1277.

25 WTO. Appellate Body Reports on China-Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum (" WT/DS394/AB/R"). WTO. Appellate Body Report on United States-Import Prohibition of Certain Shrimp and Shrimp Products (" WT/DS58/AB/R").

26 Alford R.P. The Self-Judging WTO Security Exception // Utah Law Review 2011. Vol. 3. P. 697.

have tended to refrain from invoking this article to submit the dispute to the DSB. E.g., after the US adopted 232 investigations grounded on national security to levy tariffs against steel and aluminum products imported, the EU chose to complain that the measures taken by the US were in contradiction with the safeguard measures, ignoring to refer Article XXI, even though the US claimed in its communication that his measure was taken under the justification provided by the national security exception27.

Avoiding a third-party adjudicator gives States appropriate flexibility to deal with sensitive national security issues. Maintaining this flexibility helps explain why the GATT drafters intentionally left the security exception clause as an ambiguous instrument. Lindsay claimed this intentionally constructive ambiguity might lead to a workable balance between national sovereignty and multilateral commitment28.

2.2. Application of the Essential Security Exception in DS 512

This constructive ambiguity became an issue in DS-512, in which the Panel historically established jurisdiction over a dispute involving the application of GATT Article XXI 29.Ukraine filed this dispute, complaining that Russia's restriction and bans on the transit of goods were inconsistent with Russia's obligation under Article V of the GATT 1994 and related commitments in Russia's Accession Protocol30. In response, Russiaprincipally grounded its arguments on Article XXI (b)(iii) to assert that the Panel lacks jurisdiction because these measures were necessary, it considers, to protect its essential security interests 31. Russia argued that the explicit wording of Article XXI conferred sole discretion on a Member State invoking article to determine what constituted his essential security interests and whether any action was necessary for protecting these interests32, and a Member State-owned absolute right to make decisions on necessity, design, form and structure of the measure taken under Article XXI33. In Russia's view, WTO, as an

27 European Union. Request For Consultations by The European Union (WT/ DS548/1). European Union. Request For The Establishment Of A Panel By The European Union (WT/DS548/14). United States.Communication From The United States (WT/DS548/13).

28 Lindsay P. The Ambiguity of GATT Article XXI: Subtle Success or Rampant Failure // Duke Law Journal. 2003. Vol. 52. P. 1300.

29 WT/DS512. Para 7.20.

30 WT/DS512. Para 7.1.

31 WT/DS512. Para 7.2.

32 WT/DS512. Para 7.27

33 WT/DS512. Para 7.28

international economic organization to enhance trade-related cooperation among states, «is not in aposition to» determine those related issues of this self-judging provision34. In a word, the right to interpret Article XXI is withheld by these sovereign Member States35.

To the opinion expressed by Russia that the Panel lacks jurisdiction to evaluate measures taken under Article XXI36, Ukraine argued that Article XXI was an affirmative defense subject to review by a panel to determine whether the invoking State applied it in good faith following customary rules of interpretation of public international law37. In Ukraine's view, the Panel shall adopt a two-step review to assess objectively: (i) whether the interests relating to the measure at issue can be considered as «its essential security interests» and (ii) whether there is a rational connection between the action taken and the protection of the essential security interests at issue38. Ukraine's view is an echo of the long existed concerns over the abuse of Article XXI.

However, most of the third parties in the case expressed limited support forUkraine's position. Only Brazil used the term "affirmative defense" to define Article XXI39. Other parties, including Australia, Canada, China, the European Union, Japan, Moldova, Singapore, and Turkey, gave the same arguments that a Member State preserves, at least, a comprehensive discretion to regard his security interest and to decide subjectively the necessity of taking actions to protect it, as they, compromisingly, admitted that the Panel had jurisdiction to review Russia's invocation of Article XXI40. The review shall objectively assess whether the invoking State was in good faith when he took the necessary measures to protect the security interests41. The United States, usually opposite Russia in international affairs, surprisingly but understandably, argued in supporting Russia's view that the essential security interests at issue are "non-justiciable" because of its"self-judging" nature. However, the Panel could have jurisdiction overthe dispute hereof42.

The Panel, defining those contentious claims as interpretive issues, insists it has the authority to review Russia's measure. At the same time, Arti-

34 WT/DS512. Para 7.28.

35 WT/DS512. Para 7.29.

36 WT/DS512. Para 7.30.

37 WT/DS512. Para. 7.31, 7.33, 7.34.

38 WT/DS512. Para. 7.34.

39 WT/DS512. Para. 7.37.

40 WT/DS512. Para. 7.35-7.36, 7.39-7.50.

41 WT/DS512. Para. 7.41 and 7.43.

42 WT/DS512. Para. 7.51.

cle XXI was invoked by applying the customary rules of interpretation of public international law, specifically, those stipulated in VCLT Article 31(1). The Panel's reasoning developed into three steps.

Firstly, the Panel concluded that it could exert jurisdiction over Russia's invocation of security exception under WTO by the application of provisions of concerned provisions in DSU or customary rules concerning the international tribunal's jurisdiction if only Article XXI is not self-judging or no-justifiable to vest the invoking Member an exclusive power to decide the requirements for the application of this provision at issue43.

Secondly, the Panel found that invocation of Article XXI (b) must fall within the "objective" fact in its three sub-paragraphs, which mandates a non-subjective review. After giving three alternative interpretations about the text of the chapeau of Article XXI (b)44, the Panel rejected the maximal one by exploiting the ordinary meaning to be given to the term in light of the object and purpose of the GATT 1994 and the Marrakesh Agreement of Establishing the World Trade Organization ("WTO Agreement"), with the complementary material provided in negotiating history of Article XXI45. The logical structure of the provision resulted in an interpretation that the circumstances in subparagraphs (i) to (iii) are restrictive qualifying clauses, stated the Panel46. The subject matters therein, i.e., the "fissionable materi-als,""traffic in arm," or "war or other emergency in an international relationship," stipulate an alternative requiring condition that the invoking Member shall satisfy to take actions in contradiction with the obligations subject to WTO rules47. The phrase"taken in time of" in sub-paragraph (iii) severs the same function as the term "relating to" in its counterparts, denoting a "close and genuine relationship of ends and means"48 subject to objective assessment. The Panel explained, word by word49, that the existence of "war" or "other emergency in an international relationship" was an objective state of objective affairs, which could not be altered by subjective "it consid-ers."These objective factual requirements were drafted to ensure the multilateral trade's security and predictability, the WTO law's objective and purpose, allowing for only departures from obligations in "legitimate" specific

43 WT/DS512. Para 7.58.

44 WT/DS512. Para 7.63.

45 VCLT. Art. 32

46 WT/DS512. Para 7.65-7.66.

47 WT/DS512. Para. 7.68.

48 WT/DS58/AB/R. Para 136. WT/DS394/AB/R. Para. 5.90.

49 WT/DS512. Para 7.70-7.77

circumstances50. Negotiating history implied that one crucial consideration to draft such an essential security exception clause with those qualifying objective requirements, with dominating legislators were delegations from the United States, was to limit the application of this exception to real security interests, not a disguised restriction on international trade with a hidden-commercial purpose51.

After denying the theory of "self-judging," thirdly, the Panel proceeded to discuss to what extent the invoking State could exert its discretion under security concerns52 after admitting that the action taken by Russia at issue-was a measure "taken in time of war or other emergencies in international relations"53. The question to be answered was whether the conditions of the chapeau of the article at issue were satisfied. The chapeau's wording allows interpretations of whether the invoking State could subjectively decide, respectively, the existence of essential security interests or the necessity to adopt measures to protect such interests. The Panel, by defining the security interests as "interests relating to the quintessential functions of the state to protect its territory and its population from external threats and to maintain the law and public order internally"54, concluded that Article XXI leaves the member states a right to define "what it considers to be its essential security interests" in particular situations55. However, the Member states must apply this discretion in good faith, a general principle of law underpinning every treaty, including WTO Agreements56. Accordingly, the Panel could review to decide whether the measure at issue meets a minimum requirement of plausibility concerning the essential security interest articulated by the in-vokingState. However, the Member can decide the "necessity" of the measures taken to protect the interests during the war or other emergencies of international relations. That is, whether the measures were too remote from the objective fact in XXI (b).

In words, the Panel adopted a two-step analysis to maintain the workable balance allowed by the constructive ambiguity of the security exception clause in GATT and GATS. This reasoning pattern used to be followed by panels and the Appellate Body in some cases involving the application of a

50 WT/DS512. Para 7.78-7.8.

51 WT/DS512. Para 7.83-7.100.

52 WT/DS512. Para 7.127-7.147.

53 WT/DS512. Para 7.111-7.125.

54 WT/DS512. Para 7.130.

55 WT/DS512. Para 7.131.

56 WT/DS512. Para 7.132-7.133

general exception clause.The inherent logic is that the Member state could deviate from the obligations except the requirements provided in the sub-paragraphs and the chapeau are satisfied. The Panel in DS-512 tried to limit the abuse of security exceptions by an objective review to decide whether the subject matters in the sub-paragraphs (i) to (iii)were met. If the answer is not negative, the requirements in the chapeau are to be considered. The admittance of the Member States'autonomous right to decide there is essential security interest and the necessity to take unilateral actions, which comes from the term "it considers," does not mean that the Panel had no conditional right to review their subjective decision-making power. The Panel sought the general principle of good faith to find its legitimate basis to exert a minimum limitation to the extent allowed by the plausible connection between the essential security interests and the claimed necessary measures at issue taken by invoking Member. The flexibility of the good faith principle confers the Panel with a perfect institutional harbor to mitigate the constructive ambiguity inherent in the security exception provisions.

This indicated that the Panel in this historical case was rather conservative in negating thoroughly the self-judging theory raised by Russia and the United States. However, it was an intentional"two steps forward and one step back" to accept that the Member states still withhold discretion to decide the security interests and the necessity to adopt unilateral measures. The Panel, by doing so, was to claim its jurisdictional right to decide whether the situation at issue constituted a preliminary factual condition to apply the security exception and, then, to decide if the measures taken by the invoking Member met the minimum standard of proximity between the measures and the protected interests.The boundary of the power to unilaterally adopt measures was defined by an objective review grounded on universally accepted public law beyond the WTO law system and a quasi-subjective review based on the principle of good faith implied by the objective and purpose of WTO law.

Though the panel's decision has no precedent effect, the interpretation made by the Panel in DS-512 sheds some light on applyingthe security exception clause in IEL. On the one hand, it restates that theState, in principle, has a "self-judging" right to decide what constitutes security interests for him and take necessary measures. This, under Kelsen's monistic view over international law and national law57, grants the state a solid legitimate basis to enact national law like NSR to regulate FDIs in conformity with its obligations under treaties and customary international law. On the other hand, the inter-

57 Kelsen H. General Theory of Law and State. Transaction Publisher, 2006. P. 363-364.

pretation makes it clear that the security exception is justifiable, which indicates that the concerns over abuse of this exception may be handled through a multilateral international tribunal, technically, the most cumbersome way of coordinating state members' standpoints internationally. So does a bilateral or regional arrangement.

The justifiable space that is permissible by the principle of good faith and the objective requirements stipulated in the security clause, e.g., sub-paragraph (iii) of GATT XXI (b), is a negotiable room allowing states to attain a balancebetween free movement of capital and regulating the right of those states, and more generally, free trade and national security58 or multilateralism and sovereignty59. This negotiable room is subject to the NSR in State's foreign investment law, which is generallyformulated with constructiveambi-guity like a "self-judging" security exception clause in IIAs.

3. NSR in National Investment Law

China and Russia both have NSR systems to make preliminary approval for foreign investors' M&As of enterprises of strategic importance based on security concerns.

3.1. NSR in China's Foreign Investment Law

The NSR was first introduced in China by the Anti-trust law in 2007 in response to concerns over increasing FDI's acquisitions in China, such as Car-lyle's bidding for Xuzhou Construction Machinery Group Co. in 200660. To be specific, the Ministry of Commerce (MOC) and General Office of the State Council of the People's Republic of China, respectively, promulgated an implementation document in 200961 and 2011, the latter of which mandated Na-

58 Roger P.A. The Self-Judging WTO Security Exception // Utah Law Review 2011.

Vol. 3. P. 702.

59 Cann W.A. Creating Standards and Accountability for the Use of the WTO Security Exception: Reducing the Role of Power-Based Relations and Establishing a New Balance between Sovereignty and Multilateralism // Yale Journal of International Law 2001. Vol. 26. P. 413.

60 The Anti-monopoly Law of the People's Republic of China. Art. 31. It Stipulates that, where a foreign investor participates in the concentration of business operators by merging or acquiring a domestic enterprise or by any other means and the national security is involved, besides the examination on the concentration of business operators according to this Law, the examination on the national security shall also be conducted according to the relevant provisions of the State.

61 China Minister of Commerce. The Rules on Merger and Acquisition of Domestic Enterprises by Foreign Investors (in

tional Development and Reform Commission (NDRC) and MOC to be responsible for the operation of the NSR against covered transactions62. Then, the MOC issued an implementation provision to specify the procedures of how to apply for an NSR63. Besides, the State Council issued a special regulation for NSR in Pilot Free Trade Zones, which enriched the practice of NSR concerning the covered transaction and factors to be considered in deciding whether national security interests were involved64. During the modification process of China's Foreign Investment Law motivated by the Pilot Free Trade Zone strategy, a draft containing detailed provisions on NSR was initiated by MOC, which was made public for comments in 201565. The adopted Foreign Investment Law of the People's Republic of China(CFIL) abandons most of those provisions; however, it formally stipulates an article66 to establish the NSR. Together with the definition and provisions concerning national security in China's National Security Law (CNSL) enacted in 201567, the NSR provision in CFIL and those related normative documents aforementioned had established relatively well-developed rules to regulate inward FDI based on national security interests that China "considers."Generally, China's NSR shares two key characteristics with its counterparts in the United States. One is a broad definition of national security ensuring flexible discretion; the other is the final decision not subject to judicial review.

ЯЙ). Art. 12. It grant Minister of Commerce broad right to review merges or acquires by FDI if it may have the influence on the state economic security, e.g., to stop the deal or transfer corresponding stock ownership, assets or take other effective measures to eliminate the influence.

62 General Office of China State Council. The Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investor zs (in Chinese:

"2011NSRS Notice").

63 China Minister of Commerce. The Provisions on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (in Chinese: issued on August 25, 2011.

64 China Minister of Commerce. The Measures for the Pilot Program of National Security Review of Foreign Investment in Pilot Free Trade Zones(in Chinese: дам^йй^я^^фёшт^й, "2015 NSRS Notice"), issued on April 8, 2015.

65 The Draft of Foreign Investment Law. Art. 48—74. A Chinese version could still be found at MOC's website: http://tfs.mofcom.gov.cn/article/as/201501/20150100871010. shtml.

66 Foreign Investment Law of the People's Republic of China. Art. 35. It provides simply that the state establishes a foreign investment security review system to conduct a security review of foreign investment that impacts or may impact the national security.

67 National Security Law of the People's Republic of China ("CNSL").

3.1.1. Broad-Defined National Security

A flexible discretion exerted by theresponsible authority in NDR's operation is granted by the broadly defined national security in related laws and regulations. The NSR provision in CFIL does not provide a definition clause to clarify what constitutes a security interest concern to initiate the review. Those related provisions in CNSL serve as the guiding principle. And the specific guiding directives are provided by those listed circumstances defining the scope and content of the NSR review in regulations promulgated by MOC and the General Office of State Council.

CNSL, following the trend of New National Security in international relations68, defines national security broadly. It states that,

"National security" means a status in which the regime, sovereignty, unity, territorial integrity, welfare of the people, sustainable economic and social development, and other significant interests of the State are relatively not faced with any danger and not threatened internally or externally and the capability to maintain a sustained security status69.

The following articles set the fundamental principle for all security work in China. It is read as "Overall National Security View" [in Chinese: ^^M]70. This principle interprets national security as an integrated part of people's security, political security, economic security, military, cultural, and social security. Subject to this principle, the authority has to consider factors beyond economic influences in reviewing a transaction initiated by a foreign investor. What may constituteconcerns that could block FDI is hard to predict since the national security in CNSL is dynamic and continually evolving to cover more fields, such as global pandemics, natural disasters, energy security, cyber security, and even the people's way of life, inequality, and poverty. Comparing with the traditional national security concept focusing mainly on the military and defense field, this broadly defined national security significantly reduces legal certainty and predictability71.

To makethe rules of NSR more instructional, State tends to issue directive clauses to define the scope and content of the review by listing industries and factors they consider to be related to national security interests72. In the

68 CaiC. Enforcing a New National Security China's National Security Law and International Law // Journal of East Asia and International Law. 2017. Vol. 10. P. 67-70.

69 CNSL. Art. 2.

70 CNSL. Art. 3.

71 CaiC. Enforcing a New National Security China's National Security Law and International Law. P. 65.

72 50 U. S. C. APP 2170(f). Australia Foreign Acquisitions and Takeovers Act 1975. Section 56-60. Australia Foreign Acquisitions and Takeovers Legislation Amendment Act 2015. Section 56-60.

Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors ("2011NSRSNotice"), the scope covers those mergers and acquisition (M&A), by FDI aiming to acquire actual controlling power, of military industrial enterprises and supportive military-industrial enterprises, enterprises surrounding major and sensitive military facilities, and other entities relating to the national defense security, enterprises relating to critical agricultural products, essential energies and resources, important infrastructural facilities, critical transportation services, key technologies, manufacturing of significant equipment, etc73. The M&A includes any forms of purchasing equity or assets of those enterprises aforementioned by an existing foreign company or a newly established foreign-funded company in China. It would amount to actual control if the M&A makes the foreign investors hold more than 50% of the shares, or the foreign investors could exert a material impact on the decision-making in those enterprises' general assembly of shareholdersor the board of directors. However, the shares held less than 50%. And the notice also stipulates a catch-all clause applying to any other circumstance which leads to the transfer of the actual controlling power of a domestic enterprise on business decisions, financial affairs, personnel, and technologies to a foreign investor to avoid losing control by contractual arrangements other than share or assets purchasing.

This broad scope was further broadened by another notice issued by the General Office of the State Council (GOSC) in 2015. The 2015 NSRS Notice enlarged the application of NSR to any form of foreign investments, not limited to M&As, in most of the same industries and fields74. Accordingly, even Greenfieldinvestments, e.g., new projects or the formation of enterprises by foreign investors in Pilot Free Trade Zones (FTZs), may have to apply for an NSR if they fall within the scope. As to the content of NSR, the 2015 NSRS Notice incorporates most of the same considerations, such as those influences brought by FDIs, on national defense security, the stable operation of the national economy, the order of basic social life, national cultural security and public morality, national cyber security and the capacity of research and development of key technologies involving national security. This notice enhanced the authority's review power by introducing two new factors. One was cyber security; the other was cultural security and public morality.

The enhancement of the review scope and content of NSR in FTZs aims to mitigate the negative influence brought by the more unrestricted in-

73 2011 NSRS Notice. Art. 1.

74 2015 NSRS Notice. Art. 1. Note that only adding a new field relating to national security, the important information technology products and services.

vestment regime adopted in FTZs, especially the fundamental institutional change of the market accession system involving FDI, which was caused by pilot policies to suspend the three law on foreign investment effective in that time75, and to adopt the pre-establishment national treatment plus negative list approach76. These decisions made by the Standing Committee of the National People's Congress and the State Council put the approval system on the regulation and management of the FDIs to end, providing them with the right of free accession and establishment within those areas not stipulated in the Negative List issued and revised periodically by the State Council77. This regime in FTZ has been seen as a symbol of China's new open economy system. However, under the Overall National Security View aforesaid, the government has to ensure a balance between de-regulating rules and enhancing national security concerns over FDI. The broadened scope and content of the NSR in FTZ are intentionally designed to reconstruct the balance.

This development has increased the NSR's uncertainties after the enactment of CFIL. After its taking into effect, the foreign investment regime outside of FTZs became technically identical with those laws and regulations explicitly promulgated for these zones. The CFIL had absorbed institutional experiences applied in FTZs, e.g., pre-establishment national treatment plus negative list approach. It is still being determined whether the specially designed NAR in FTZ will be applied universally beyond special pilot zones.The regulation to implement CFIL provides any further rules about the NSR78.

Presumed that, albeit less likely, a regulation concerning NSR in the future maintains the framework of the 2011 NSRS Notice to limit the NSR to those M&As, the predictability still needs to be more vital for the following reasons. Firstly, the scope of the review is not limited to those industries list-

75 China Standing Committee of the National People's Congress. Authorizing the State Council to Temporarily Adjust the Relevant Administrative Approval Items Prescribed in Laws in China (Shanghai) Pilot Free Trade Zone (in Chinese: ^HAA^^

76 General Office of the China State Council.The Special Management Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (in Chinese: H

"2015 NSRS Notice on Negative List").

77 In practice, the Negative List issued by the State Council shall be read with another document promulgated by MOC, the Catalogue for the Guidance of Foreign Investment Industries (In Chinese:^föl^^g:t).

78 Regulations for the Implementation of the Foreign Investment Law of the People's Republic of China(in Chinese: Art 40.

ed. These listed industries are directive, without binding effect, to restrict the authority not to review the M&As beyond them. The Negative List could not apply as a preemptive condition to determine whether the investors need to apply for or have the authority to initiate a review even if the transaction falls outside the provisions therein. An M&A fall in the catalogencouraging foreign investment may still be required to apply for an NSR. The measures stipulated in Negative List and NSR are exceptions to the national treatment granted to international investors according to IIAs and CFIL 79. However, we need help finding a provision on dealing with the co-relation between them. It may be indicated from the 2015 NSRS Negative List Notice that they are parallelsystems to be applied independently for different objectives80.

Secondly, the content of the review is not limited to those factors listed. As the notion of national security evolves, the factors to be considered as related to security will be enlarged. Compared with the circumstances listed in GATT XXI (b), the review contents of national security in municipal law has been enlarged from considerations concerning military and defense or measures taken during the war and other emergencies to a more flexible range covering securities of political regime, people, military and defense, economic, financial, energy, economic, grain safety, significant technologies, and projects, cyber and cultural81. This new concept of national security, referred to as the overall national security view in CNSL, is a driving force to bring more factors into review content of the responsible authority. The changing status and evolving international relations will undoubtedly change a state's perception of security and bring new considerations into NSR. E.g., in China, the 2015 NSRS notice, in response to the increasing securityconcerns over the internet and ideology, unsurprisingly enlarges the content of security to cyber security and cultural security.

Continued evolving and enlarging scope and content of security puts NSR at risk of being abused. The authority could utilize it in a political way rather than in a legal manner82. Videlicet, the vague scope and content of the national security is convenient to be used as a disguised restriction on those everyday transactions, not on a business judgment or market decision, but

79 CFIL. Art 4.

80 2015 NSRS Notice on Negative List. Art 3. Itprovides that the special management measures related to national security, public order, public culture, financial prudence, government procurement and subsidies, special formalities and taxation that are not set out in the Negative List in Pilot Free Trade Zones shall be governed by the provisions in force.

81 CNSL. Art. 3, 15-34.

82 CaiC. Enforcing a New National Security China's National Security Law and International Law. P. 72-73.

for some political reasons, e.g., geopolitics or undue discrimination against foreign investor from revisionist State defined according to the theory of realism. They were taking China National Offshore Oil Corp. (CNOOC) 's failed bid of $18.5 billion to Unocal as an example. This bid was a good deal for Unocal. CNOOC withdrew this transaction after the House of Representatives adopted a resolution claiming that American national security would be threatened83. CNOOC was not alone in that transaction abandoned for discriminated application NSR against Chinese investors84.

3.1.2. The Final Decision Subject Not to Review

Furthermore, this tendency to abuse NSR is strengthened by the decision's finality, not subject to any reconsideration procedure or judicial review. The authority responsiblefor deciding after an NSR is mostly the highest administrative organ in a state. In the United States, the president makes finding according to the advice given by CFIUS and takes any actions to suspend or prohibit any covered transactionthat the president believes might threatens to impair national security. And any action the president takes based on his subjective judgment shall not be subject to judicial review85. Regarding United States' FINSA, the 2011 NSRS Notice established a similar review mechanism operated by a joint ministerial meeting comprised of heads of ministers. The MOC will notify the finding of this joint meeting in writing. In this document, the finality of this decisionneeds to be clarified. According to the procedure, only those covered M&As may affect national security need to be particular reviewed by the joint meeting, and the joint meeting may adopt a decision to suspend or prohibit if they can reach a basicconsensus or may be determined by the State Council if there is any major dissent.

As to the findings made by the joint meeting, related laws leave a window to apply for administrative reconsideration and administrative proceeding remedies for the covered investors. But, in practice, they never have an opportunity to enforce this right because there is no case concerning suspending or prohibitingdecisions based only on national security concerns according to the information disclosed by the MOC.

83 United States Congree.H.Res. 344 (June 29, 2005). This document expresses the sense of the House of Representatives that a Chinese state-owned energy company exercising control of critical United States energy infrastructure and energy production capacity could take action that would threaten to impair the national security of the United States.

84 According to the annual report made by CFIUS, during 2015-2017, the covered transactions from China amounted to 143, account for more than 25%. See CFIUS. Annual Report To Congress (Report Period: CY2016 and CY2017).

85 US Foreign Investment and National Security Act of 2007 ("FINSA"). Sec. 6.

An administrative reconsideration procedure could not review the decisions made by the State Council, for the State Council is the highest authority to make the final findings for this reconsideration review according to the Administrative Reconsideration Law86. However, it needs to clarifywhether an administrative suit could review the finding, for there is no specific provision in the current Administrative Procedure Law. Article 12 of this Law enlists four matters where the court withholds no jurisdiction to review, including (1) acts made in national defenses and foreign affairs, (2) regulation and decisions with general binding force, (3) decisions of an administrative organ for itspersonnel, and, (4) specific administrative acts that shall, as provided for by law, befinally decided by an administrative organ87. Thedecision made after NSR is beyond the scope of acts concerning national defense, for the national security interests considered are not limited to the military and defense factors as mentioned before. Also, the decision cannot be regarded as matters related to foreign affairs, for this term mainly refers to matters arising from relationships between public affairs among states. The transnational M&As could amount to foreign affairs only if the home state exercise the subrogation right for the benefit of the failed foreign investors based on an ex-istinginvestment guaranteearrangement or the customary right of diplomatic protection88. Thus, the most permissible way is to apply the matter (4) to find legality for its decisions' finality. Interestingly, there is no particular provision in CNSL and Cybersecurity Law of the People's Republic of China. CFIL settled this dilemma. It provides that adecision legally made upon a security review shall be final89. Therefore, any result finding, whether made by a joint meeting or by the State Council, is legally final, subject not to any further review under China's legal system.

86 Administrative Reconsideration Law of the People's Republic of China (in Chinese: Ф^АЙ^даШтЙШЖ). Art. 14.

87 Administrative Procedure Law of The People's Republic of China. Art. 12.

88 CrawfordJ. Brownlie's Principles of Public International Law. 8th Edition.Oxford, 2019. P. 611-612. As James Crawford indicated, the diplomatic protection for aliens, especially the investors, were a usually practice from middle age. But exercise of this right became restricted after World War 2. After the concepts of economic independence and political and economic principles favoring nationalization in the period 1945-1980, exhaust any remedies available in the local courts was required. And, The ILC's Articles on Diplo-maticProtection reaffirm thatthe customary rule of exhaustion of local remedies 'as a prerequisite for the exercise of diplomatic protection'. It is more difficult where the alien is harmed by acts or omissions which are on their face a normal exercise of the competence of organs of the host state.

89 CFIL. Art. 35.

3.1.3. Where the Uncertainty and Unpredictability Arising

In brief, China has established a well-developed NSR system based on a broadly defined national security concept beyond the traditional perception of security concerns. The responsible authority, a joint meetingorganized by the National Development and Reform Commission and the MOC with other relevant departments, will review those covered transactions that negatively influence national security and decide to suspend or prohibit such transactions after a particular review. Thisdecision is final and subject not to any further administrative and judicial review under Chinese law. Uncertainties and unpredictability result mainly from the following sources.

Firstly, the broad scope of review concerning national security makes the foreign investor uncertain whether their M&As need to apply for an NSR or are going to be reviewed. Though the notices issued by the General Office of State Council try to provide an objective directive for investors by enlisting some industries or areas, this uncertainty still exists for the listing is not exhaustive, allowing a mandatory review conducted by members of the joint meeting if they do deem it necessary even if those enlisted circumstances do not cover the transaction. This subjective discretion to decide if "necessary" undermines the certainty produced by those enlisted "objective" matters. In addition, the standard of actual controlling introduced is more flexible than the shareholding ratio standard to decide the covered transactions.

Secondly, various entities have been granted to initiate an NSR, which weakens the capability of foreign investors to predict whether there will be a review, especially while the transaction is out of the enlisted review scope. The investor could apply for an NSR if the transaction falls within the scope. Besides, according to the 2011NSRS Notice, the members of the joint meeting could initiate a mandatory review. The relevant department of the State Council, a national industrial association, an enterprise of the same profession, or an upstream or downstream enterprise also, may suggest the security review of the merger or acquisition via the Ministry of Commerce, if necessary. The notice should have provided a further explanation about who is the relevant department and what the members are in the joint meeting. And em-poweringenterprises of thesame profession or upstream or downstreamwith a right to make suggestions on the security review may bring peer hostility into the review under cover of vaguely defined security concerns.

Thirdly, evolving and dynamic national security notionsare enlarging the content of the review, enhancing flexibility and discretion in deciding whether the covered transaction affects national security interests. According to the CNSL, at least eleven national security concerns are laid down: politics, ter-

ritory, military, economics, culture, society, technique, information, ecology, resource and energy, and nuclear. These concerns are tasks of all the public organs that shall undertake to maintain national security by the law, which is higher than the regulatory document issued by the State Council, such as the 2011NSRS Notice. That is why the 2015 NSRS Notice enlarged the review content after the enactment of the CNSL in 2015. Naturally, enacting the Cyber-security Law in 2017also brings new matters, e.g., cyber security and internet infrastructure. For the authority responsible for makingan NSR, it is his statutory duty to comprehensively assess the dynamic national security concerns according to the evolving security law. Furthermore, thetermi-nologies defining the review content are too vague, such as "influence,""the stable operation of the national economy,""the order of basic social life," or "key technologies." These ambiguous terms increase the possibility of misuse and misinterpretation by the authorities.

Fourthly, the finality of the decision grants implied legislative power to the administrative authority to the extent the flexibilitythe broadly defined national security allows, inducing arbitrarily applying the NSR to restrictin-ternational investment unjustifiably. CNSL provides that citizens and organizations shall have the right to criticize and suggest to authorities and file "complaints, accusations and reports" against state authorities and their staff for their wrongdoings concerning national security90. This public supervision system cannot be a formal checking power like a judicial review or administrative reconsideration procedure provided by law. The CFIL closes the window to seek a formal remedy in the host state's court or a higher authority. The related law and regulation provisions have built a visible cage for the administrative power in applying its review duty concerning national security. However, it left an invisible but accessible key by granting him an opportunity to leave the cage if he deems it necessary.

3.1.4. Balance between National Security Exception and Open Market

However, concluding that China will unilaterally abuse the NSR to restrict inward FDI is arbitrary. The NSR in China is an extraordinary mechanism to ensure that the authoritycan legally regulate the FDIs to protect essential security interests. Compared with frequently applied NSR in the United States91, China, rankedas the second biggest host state for FDIs, rare-

90 CNSL. Art. 82.

91 According to CFIUS annual reports to Congress, since the Department of the Treasury issued the Regulations Pertaining to Mergers, Acquisitions, and Takeovers by

ly applies NSR to block M&As, according to the information released by MOC. Unlike the Trump administration's "American First" policy to abuse NSR as a way to obstruct the expected investment activities of Chinese companies in the US92 and to abuse the concept of "national security" for trade protectionism by conducting 232 Investigation unilaterally93, China pledges to Firmly supports the multilateral trading system and to actively advancing Opening-Up policy to a higher level94.

This constitutes the essential background to legislate the new CFIL in 2019. Article 1 of this law provides clearly that the purpose of CFIL is further expanding the country's opening up, vigorously boosting foreign investment, protecting the lawful rights and interests of foreign investors, regulating the administration of foreign investment, propelling the formation of a new pattern of extensively opening up, and promoting the sound development of the socialist market economy95. The purpose defines the principle to apply the NSR. That is, maintaining the delicate balance between national security exception and open market for international investment. On the one hand, China deems that a state has a right to protect its essential security interests and has "sole discretion" to regard its security interests. On the other hand, China opposes the abuse of security exception, asserting that the invoking security exception shall be subject to a general principle of law to avoid State circumventing its legal obligation under national law and international treaties96.

Foreign Persons in 2008, among the 770 cases reviewed between 2009 and 2015, 310 cases passed on to the stage of investigation, which represents a noticeably sharp rise. The data released in 2015 shows this percentage climbing to a higher level of 46 percent. Information Office of the State Council of the People's Republic of China. The Facts and China's Position on China-US Trade Friction. URL: http://english.www.gov.cn/archive/white_ paper/2018/09/26/content_281476319220196.htm, (accessed: 31.05.2023).

92 Information Office of the State Council of the People's Republic of China. The Facts and China's Position on China-US Trade Friction. P. 43-46.

93 Information Office of the State Council of the People's Republic of China. The Facts and China's Position on China-US Trade Friction. P. 52

94 Information Office of the State Council of the People's Republic of China. China and the World Trade Organization. At: http://www.scio.gov.cn/ztk/dtzt/37868/38521/ 38532/Document/1632374/1632374.htm (accessed: 31.05.2023).

95 CFIL. Art. 1.

96 WT/DS512.Para 7.41. China refers to the principle of good faith embodied in Article 26 of VCLT to prevent abuse of Article XXI and evasion of WTO obligations. The good faith principle could infuse predictability and reasonableness into state behavior, serving as an interpretative tool for courts and tribunals and restraining legal formalism and arbitrariness. MitchellA., Sornarajah M., VoonT. Good Faith and International Economic Law. Oxford, 2015. P. 9.

The CNSL and related administrative law stipulate some fundamental principles infusing predictability and reasonablenessinto state behavior, restraining arbitrarily applying NSR. They include at least the rule of law, harmonization, international cooperation, and proportionality. The rule of law is the most basic requirement for public authorities. It requires the authorities to conduct security reviews, "abide by the Constitutional and law," "respect and protect human rights," and "protect the rights and liberty of citizens"97. The principle of harmonization requires that the protection of national security shall be coordinated with economic and social development98. Conducting an overall arrangement of conventional and unconventional security99, required by the harmonization principle, implies that the steady economic growth promoted by FDIs should be considered since it forms a necessary component of economic security interests. The principle of international cooperationemphasizes that China shall actively participate in security exchange and cooperation with foreign governments and international organizations, which is a restatement of the win-win with-benefits philosophy advocated by China in dealing with global economic governance affairs100. This philosophy encourages multilaterally handling foreign affairs, such as managing international investment issues, to enhance economic interdependen-cy rather than unilaterally circumvent obligation by invoking security exceptions. The proportionality principle requires measures taken by the relevant authorities, e.g., the restriction or prohibition after NSR, shall be proportional to the nature, extent, and scope of potential harm to national security101. If multiple measures are available, the one that minimallyundermines-the rights and interests of individuals shall be conducted. Proportionality is a general legal principle restraining public power in national and international law. The Law on Administrative Penalty provides that imposition of administrative penalty shall be "in correspondence with the facts, nature, and seriousness of the violations of law and damage done to society"102. In international law, the proportionality principle has been developed to deter-

97 CNSL. Art. 7.

98 CNSL. Art. 8.

99 CNSL. Art. 8.

100 XI Jinping. Selected Speeches in to the United Nations: September 26-28, 2015. Foreign Language Press, 2015.

101 Cai C. Enforcing a New national Security China's National Security Law and International Law. 81.

102 The People's Republic of China on Administrative Penalty Law. 2017 Amendment (in Chinese:

ФФЛЙЙ^Э'Ш&Ш). Art. 4.

mine whether a proscribed abuse has occurred, particularly on the part of a State103. Generally, applying this principle typically involves a three step-inquiry: whetherthere is a rational and appropriate relationship between the means chosen and the ends being pursued (suitability); a test of the means chosen to determine if it curtails the right at stake more than necessary (least restrictive means); and a final weighing of all circumstances104.

Thus, the NSR in China, similar to the essential security exception in GATT as interpreted in Part II, also maintain a constructive ambiguity in provisions, leaving negotiable room to strike a balance between the free movement of capital and national security. The promise of supporting multilateralism and the pledge to build an open-up policy ata higher level expressed in CFIL implies that China is welcome to make an international arrangement to curb unilateralism and protectionism by restraining the abuse of security exception. This attitude was expressed in an official document submitted to WTO, within which China proclaimed that the reform should prohibit discrimination against enterprises of certain members in an investment security review105. Before proposing andinitiating a bilateral arrangement to enhancecoordination of the security review, it is necessary to make a brief comparative study about NSR in Russia to find whether there is negotiable room.

3.2. NSR in Russia's Federal Law on Foreign Investments

NSR in Russia grounds mainly on two federal laws. One is the Federal Law on Foreign Investments (1999), which provides that federal laws could stipulate restrictive exemptions for foreign investorsto protectthe constitutional system, morals, health, rights and lawful interests of others, national defense, and state security106. Subject to this provision, Russia established its NSR by federal law in 2008 to formulate the procedure for foreign investment in business entities of strategic importance for Russiannational defense and state security107.

103 Kotuby JrCh.T., SobotaL.A. General Principles of Law and International Due Process: Principles and Norms Applicable in Transnational Disputes. Oxford, 2017. P. 108.

104 Ibid. P. 114.

105 MOC. China's Position Paper on WTO Reform.URL: http://sms.mofcom.gov. cn/article/cbw/201812/20181202817611.shtml (accessed: 31.05.2023).

106 RussianFederal Law on Foreign Investments (1999). Unofficial translation provided by UNCTAD. Art. 4(2).

107 Russian Federation.Proceduresfor Foreign Investments in Business Entities of Strategic Importance for Russia National Defence and State Security ("Proceduresfor Foreign Investments in Business Entities of Strategic Importance").Enacted by the State Duma on 2nd April 2008.

Compared with provisions of NSR in China, Russia adopts a more specific way to define its securityconcern over foreign investors to acquire its strategicimportance business entities. However, it also broadly defines national security108. In defining the scope of transactions to require preliminary approval from state security concerns, Russiaadopted the same way as China by listing involved industries and explaining what kind of foreign M&As amount to covered transactions.

Under Russia's extensive approval system applied for foreign investments, any foreign investors must petition for a decision on preliminary consent for his acquisition that establishes effective control over the business entities of strategic importance ("strategic entities"). The threshold amount to control is established by a combination standard of direct or indirect influential power exerted by foreign investors in target corporations'decision-mak-ing, the same as in China. The criteria amount to direct control is lower. E.g., transactions by foreign states, international organizations, or organizations under theircontrol acquire regularstrategic entities, directly and indirectly taking over 25% of the total voting shares (stock) satisfies the criteria. Strategic entities that exploit subsurface areas with federal status take over 10% of the total voting shares (stock). For indirect control, the standards are more complicated. Any of the following situations may attribute to the covered transactions: having a right to appoint a sole executive body and (or) 10% or more members of a collegian executive body, absolute ability to elect 10% or more members of the boards of directors (the trustee council) or other collegian executive body, ability to block the decisions of the management bodies109.

Russia's federal law provides a long list determining what entity may be deemed strategic110. It contained 42 activities of strategic importance for national defense and state security. The list currently comprises 46 activities111.

los Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 3.1. Note that the threat to the national defence and state security is considered by combination of factors and conditions endangering vitally important interests of individuals, society and (or) the state.

109 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 3, 5.

110 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 3.1. It provides a business entity formed in the Russian Federation and involved in at least one type of activity which is of strategic importance for national defence and state security.

111 Russian Federation. Amendments to Foreign Investment Laws for Investing in Business Entities of Strategic Importance for National Defence (30 Jul 2017).

They encompass areas related to natural resources, defense, space and aviation activity, media and natural monopolies specified in federal law and other areas related to ideology management, such as TV, radio broadcasting over certain territories, and publishing activity112. Compared with provisions in FINSA and the 2015 NSRS Notice, this enumeration seems more transparent by listing nearly exhaustively all the industries that the Russian government deems necessary to protect. It is more feasible to be done for Russia's comparatively smaller economic scale.

Based on the standard of establishing control and listed activities determining those entities of strategic importance, the NSR in Russia applies to any form of transaction initiated by foreign investors that could materially change the status quo concerning those entities conducting listed activities, especially those enterprises that exploit subsurface areas with federal sta-tus113. This indicates that one of the most important aims of NSR in Russia is to maintain its energy security, e.g., the governmental control over the exploitation and benefits of oil and gas, which is vital to balance its government budget. Russia welcomes foreign investment to the extent that these investments could help maintain stable supply and formulate a diversified demand pattern for its energy products.

The procedure of NSR in Russia follows strictly a timetable and an established administrative process centered by an authorized body and the Government Commission for Control over Foreign Investments in the Russian Federation ("the Commission") in collaboration with federal state security agencies and the Inter-agency Commission for Protecting State Secrets. According to the provisions, in theory, the review shall take up to three months from the authorized body registering the petition from the foreign investors. This period could only be extended to six months in certain exceptional circumstances114. The federal law does not list these circumstances. The authorized body, currently the Federal Anti-Monopoly Service, shall administer the implementation of the NSR by registering the petition, verify-ingthe integration of the documents, and deciding whether the covered transaction can establish control over a business entity of strategic importance. Then, the authorized body must return the petition, provided that the transaction will not establish control, or proceed with a further review by consult-

112 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 6.

113 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 7.

114 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 11.

ing the federal state security agencies to ascertain if the transaction would endanger national defense and state security115. Even if the conclusion from federal security agencies is yes, the authorized body still needs to request the Inter-Agency Commission for Protecting State Secrets to find whether the petitioner's accession to the state secrets is justifiable under an international treaty. After that, the authorized body has to transfer all the petition documents, conclusions, and other materials available to him during the process to the Commission, as well as suggestions regarding preliminary approval or decision to refuse.

The Commission, headed by the Prime Minister, functioning as the authority to make the final decision of NSR, shall adopt decisions within 30 days after receiving the petition from the authorized body. It may adopt a decision to approve or refuse the transaction or specify obligations to be fulfilled by the petitioner as a condition to approve 116. Unlike the ministerial Joint Meeting in China, the Commission in Russia shares more similarities with its counterpart in the United States, the CFIUS. They both are permanent administrative bodies established by national law enacted by the legislative organ of the State to formulate a collaboration of ministries deemed in close relation with national security issues. They are both under the charge of the head of the government. The Commission is led by the Prime Minister of the Russian Federation117, and the CFIUS needs to inform the President of its suggestions and wait for him to reach a final decision to take any action against a covered transaction118.

Compared with China and the United States, the NSR in Russia has two key differences. First is the nearly exhaustive listing of the covered transactions to be reviewed. Those activities of strategic importance are constructing legislative interpretations of the ambiguous concept of national security. Compared with reading national security into national interest119 or homeland security, critical infrastructure, and critical technology120, this listing of covered activities, subject to regular amendment, seems more transparent

115 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 10.1-10.3.

116 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art 11-12.

117 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art. 8.6.

118 FINSA. Sec. 6.

119 Australia Foreign Acquisitions and Takeovers Legislation Amendment Act 2015. Section 67.

120 FINSA. Sec. 2.

and predictable, for the foreign investor could make a more rational decision under a well-informed ground. Second, federal law allows the petitioner or the foreign investor initiating a cover transaction to challenge the decision made by the authorized body and the Commission, undermining the finality of the NSR decision121. This provides the foreign investors a judicial remedy and NSR a check and balance mechanism against the executive power in review. The allowance of the Supreme Court of the Russian Federation to review the decision made by the Commission indicates that Russia's position in DS512, holding that an international tribunal cannot adjudicate the national security, is not an absolute state practice without any compromise.

4. Bilateral Regime to Collaborate NSR for FDIs

It may conclude that regulating the State's unilateral application of security exceptions by international law is permissible. Since Russia agreed to join the WTO, it shall predict that the DSB may exert mandatory jurisdiction over the disputes about applying those provisions, including the security exception clause. After adopting the Panel Report, Russia has yet to make any official object to the decision while the Appellate Body was still in operation. It could claim to be acquiescence by Russia and Ukraine to accept the conclusion made by the DSB. The centric principle is that the agreed international tribunal, e.g., the DSB, could exert jurisdiction over the disputes over security clauses and review the legitimacy of those unilateral acts justified by it. However, the constructive ambiguity of the security clause in international treaties, e.g., WTO, Sino-Russia BIT, or other IIAs, allows the state parties to take necessary actions, under high discretion and unilaterally, to protect their essential security interests. This does not mean that they could arbitrarily abuse this right. Compliance with municipal law cannot be an excuse to circumvent State's obligation under international law, e.g., implementing the treaty in good faith or PactaSuntSenvanda. That is why the Panel in DS512 held that the DSB could exert jurisdiction over the application of the GATT XXI. Luckily, the factual ground of DS512 is relatively clear to fulfill those objective requirements provided in GATT Article XXI. At the same time, Russia and Ukraine fell into long-lasting tension after Russia annexed Crimea.

However, most of the disputes arose from international economic relations. It could be clearer to ascertain whether they are concerned with national security or whether those actions taken by the states under security ex-

121 Proceduresfor Foreign Investments in Business Entities of Strategic Importance. Art.10.7, 11.7.

ceptions are disguised restrictions on trade or FDIs or necessary legitimate unilateral acts. The DS-512 decisions have not eliminated the ambiguity of the application of security exception, though it reduced the uncertainty over the material interpretation and application of that clause. To the extent of the broad permissible interpretation of the good faith principle and extensive discretion of the State to decide the content and standards of its national security, there is still flexibility and ambiguity that the international tribunals cannot ascertain.

Regarding the fragment of the international investment law122, reliance on international "judicial" remedy to put a check balance on the abuse of NSR seems unreliable, for there is no such an "International Investment Court" like DSB to exert de facto mandatory jurisdiction over cases concerning security exception clause in WTO law. Those international tribunals, e.g., the ICSID, UNCITRAL, or other ad hoc tribunals established to settle investment disputes arose from IIAs, could only have jurisdiction upon mutual consent expressed by an arbitration clause in the IIAs or a provisional arbitration agreement reached afterward. For those FDIs heavily influenced by NSR, most of them have no chance to petition for an international "judicial" review of the NSR decisions subject to the investor-state dispute settlement (ISDS) mechanism provided by the ICSID Convention. China, the United States, and the European Union are top in international investment volumes and have yet to entera bilateral investment treaty. Though they are all member states of the Agreement on Trade-Related Investment Measures (TRIMs), the DSB needs to be more competent to adjudicate some investment cases that arise from NSR since those prohibited under TRIMs are restricted to measures such as local content requirements and trade balancing requirements123. The TRIMs regulate those measures taken against an established enterprise rather than the FDIs seeking accession.

Thus, international lawmaking is a more efficient and feasible way to formulate the check balance for the security exception in the investment area rather than the international "judicial" review. Some scholars have discussed internal judicial reviews for NSR, especially after the Ralls Corporation v. Committee on Foreign Investmentin the United Statesm. They admitted that

122 SchillS W W (h) ither fragmentation? On the Literature and Sociology of International Investment Law // European Journal of International Law2011. Vol. 22. P. 875.

123 Agreement on Trade-Related Investment Measures (TRIMs). ANNEX: Illustrative List

124 See Chang Liu.Ralls v. CFIUS: The Long Time Coming Judicial Protection of Foreign Investors' Constitutional Rights against Government's National Security Review // Journal of International Business and Law. 2016. Vol. 15 (2). P. 361.

the political consideration in conducting the NSR undermined the possibility and willingness of the internal court to rule against the decision by the highest administrative organ.

4.1. Strategic Trust to Formulate a Bilateral Regime between Russia and China

As to China and Russia, a bilateral regime to collaborate NSR is feasible and appropriate in considering of well-developed Sino-Russian relationship and its importance and implication to formulate an international society of multi-polarization and multilateralization.

Firstly, the well-developed relationship between China and Russia is a solid political and economic ground for making a bilateral arrangement on the NSR. The expanded Sino-Russian Strategic Partnership ensures they can reach mutual political trust and may enter an accepted bilateral agreement on the security issue. However, it is highly political and sensitive. This mutual political trust has developed from the historical "brotherhood" between China and the Soviet Union after World War II, overcame the confrontations during the Cold War, and revived and thrived into a comprehensive strategic partnership of coordination. The stable partnership has been strengthened by many factors, such as the institutionalization of bilateral exchange at presidential and prime ministerial levels, complementary interests in energy and military area shared security views concerning the Asia-Pacific and central Asia, and convergent views on the international order125.

The bilateral engagement of leadership diplomacy between Russia and China could date back to 1997 when President Jiang Zemin visited Russia and jointly issued a statement supporting a multipolar world and a new international order. During Putin's visit to China in 2004, a supplementary agreement on border demarcation ended settling the 4300-kilometer-long common boundary between China and Russia, which provided a solid ground to deepen strategic trust for Sino-Russian relations. After XI Jinping became China's leader in 2012, the bilateral presidential talking drove Sino-Russian relations into a phase. Strategic trust has been upgraded, which engaged Russia and China in a more expanded and deepened cooperation in military, trade and energy, inter-regional development, and geopolitics126. The military cooperation extended from weapon contracts to collaborated peace mission programs and joint sea naval exercises under bilateral regimes or the aus-

125 Bekkevold J.I., Lo B. Sino-Russian Relations in the 21st Century.Palgrave Mac-millan, 2019. P. 21-40.

126 Ibid. P. 29-33.

pices of SCO127, reflecting Russia and China's shared security interests. Some scholars treated the Sino-Russian relationship as a "quasi alliance" due to this "military axis" and commented that this relation is "at its highest point since the mid-1950s"128.

Energy trade and investment also enhanced to a new level, despite the disagreement over price and the concerns about the "China threat" or "Chinese economic expansionism."The volume of energy trade between China and Russia surged to nearly 52.5 million tonnes of oil in 2016 and 38 billion cubic meters of natural gas in 2014, which made Russia the most significant oil supplier for China. Both states are benefited from this enhanced energy cooperation for avoiding solely dependence on one market129. Cooperation in energy exploitation implies the grand potential for FDIs acrossborders. Russia began to allow Chinese companies to hold more equity over Russian upstream ventures. E.g., the Yamal Liquefied Natural Gas Project, in which the Chinese interests amount to 29.9%with CNPC (20%) and Silk Road Fund (9.9%). Inter-regional cooperation in the far-east region is another pillar underpinning the Sion-Russian partnership concerning food and agriculture security130. The sub-national cooperation between China's Heilongjiang province and the Russian Far East region ("RFE") has thrived sincethe end of the Cold War. According to statistics from Rosstat, Chinese companies farmed over 350,000 hectares of soil in RFE. A jointly official plan provides a more detailed investment guideline for Chinese Companies in RFE131. It shows that grounded on the institutionalizing cooperation mechanism established by the regular meeting between the heads of governments 132, trade and investments between Russia and China still have a great potential to grow in the area of energy resources, agriculture, forestry, fishery, transportation, and air-crafts, and vessels manufacturing.

127 Bekkevold J.I., Lo B. Sino-Russian Relations in the 21st Century.Palgrave Mac-millan, 2019. P. 30, 87-111.

128 Lukin A. The Russia-China Entente and Its Future // International Politics 2020. Vol. 58. P. 363.

129 Bekkevold J.I., LoB. Sino-Russian Relations in the 21st Century. P. 69-86.

130 Larin V. Russia-China Economic Relations in the 21st Century: Unrealized Potential or Predetermined Outcome? // Chinese Journal of International Review. 2020. Vol. 2(1):2050001.

131 The Plan on China-Russia Cooperation and Development in the Russian Far East Region (2018-2024). URL: https://www.fao.org/faolex/results/details/en/c/LEX-FAOC189986/, (accessed: 15.08.2023).

132 Joint Communique of the Thirteenth Regular Meeting between the Heads of Government of the People's Republic of China and the Russian Federation. at http://www. lawinfochina.com. The latest one is 24th Joint Communique issued Sep.18, 2020.

Furthermore, these areas potentially to be new sources of international investment growth coincide with strategic importance activities subject to Russia's federal law on investment aforesaid. E.g. the energy sector, which is probably the most attractive for Chinese investments, undoubtedly falls within the provision ofan exploration of natural resources. Thus, wiping out unnecessary uncertainty about the application of NSR is necessary to facilitate the growing economic bond between China and Russia.

Secondly, the formulation of a regime to collaborate NSR between Russia and China, considering their status in international politics and relations, could play as an example to enhance the world's confidence in an open and transparent multilateral IEO against the unilateralism and protectionism under-covered by the inappropriate interpretation and application of security exceptions. The United States was the principal offender in breaking the constructive balance maintained by GATT XXI unilaterally. The Trump administration claimed national security when they conducted Section 232 investigations and restricted FDIs. The abuse of security exception also provided perfect camouflage for its unilateral and hegemonic actions worldwide, e.g., the arbitrary and groundless sanction against Huawei, a Chinese high-tech corporation.

To contain US hegemonic power needs a normative and legitimate narrative grounded on international law. Its legitimacy has been discussed by the panel in DS-512, which lies in the fundamental principle of International law, pactasuntservanda. As a member of a multilateral treaty, each State shall fulfill its obligation in good faith rather than abuse the interpretation right to circumventits obligations. In its submitted argument, China also seeks the good faith principle as a reasonableand legitimate justification to restrainthe State's subjective, or even arbitrary, interpretation of the security exception clause 133. It seems that Russia took a different position to claim that the trade measures taken to protect essential security interests during an international emergency are not subject to the jurisdiction of a tribunal under DSU, and the State has a high discretion to decide whether the measures are necessary or not134. However, it is unreasonable to conclude directly that Russia will take the same position asthe United States concerning the GATT XXI, or security exception in IEL, to claim a self-determining right.

China and Russia have more common interestsin containing the security exception clause to the extent allowed by the spirit of pactasuntservan-

133 WT/DS512. para 7.41.

134 WT/DS512. para 7.28-7.30.

da, which requiresthe State to respect international law in dealing with re-lationshipsin an anarchic society. China and Russia have jointly published a series of communiqués to show their willingness and firm support of respecting the international law grounded on the principle reflected in the UN Charter and the principles enshrined in the Five Principles of Peaceful Coexistence135. They have repeatedly vowed to promote just and equitable international relations grounded on the multi-polarity and multilat-eralismworld order rather than uni-polarity and hegemonism. China and Russia are both firmly in oppositiontothe practice of double standards and the imposition of unilateral coercive measures not based on international law. The security exception continuously provides a freeway for hegemony power to unilaterally and arbitrarilycircumvent its obligation under international law.For Russia and China, as two strong supporters of multilateral order grounded on predictable, transparent, and non-discriminate principles, the challenge is how to turn the strategic partnership into a normative arrangement with binding and predictable effect, striking a balance between multilateralism and state sovereignty, also a balance between obligation under international law and right to take necessary measures to protect essential security interests.

The normative arrangement means that China and Russia shall incorporate a well-designedsecurity exception clause in future international economic agreements. It is, in essence, a state practice to create a new rule in international law about security and international economic order. Since the UNCTAD had presented reform options concerning national security exceptions in IIAs136, the question is which pathway is more feasible under modern international relationships.

135 The Declaration of the Russian Federation and the People's Republic of China on the Promotion of International Law. URL: https://www.mid.ru/en/foreign_policy/ position_word_order/-/asset_publisher/6S4RuXfeYlKr/content/id/2331698 (accessed: 20.05.2023).

136 The main suggestion of UNCTAD is to improve the predictability of the application of security exception in IIAs. It provide two options. First, States may clarify the coverage of the exception by defining national security more specifically. E.g., using an illustrating list including measures taken to address a serious economic crisis situation or to maintain international peace and security, or, referring to actions taken in pursuance of States' obligations under the UN Charter or specifying that the exception covers only certain types of measures such as those relating to trafficking in arms or nuclear non-proliferation, applied in times of war or armed conflict, etc. Second, States may clarify the the standard of review that ISDS tribunals should apply to measures invoked for national security reasons. UNCTAD, UNCTAD's Reform Package. International Investment Regime (2018 edition). P. 40-42.

4.2. BIT or FTA

In considering the normative arrangement between China and Russia in economic relationships, there are two alternative pathways to collaborate NSR. One is to revise the existing BIT, confining the issue in the international investment domain; the other is to enter a comprehensive FTA with a more transparent and accountable security exception clause137. Comparing the two options, the former seems more feasible because of the following reasons:

First, China and Russia have different roadmaps for FTA though they share a similar perception of geopolitics and multipolar international order. Russia proposed to enhance economic coordination under the framework of Eurasia or the Greater Eurasian Partnership ("GEP"), including the Eurasian Economic Union member states, the Commonwealth of Independent States ("CIS") countries, China, India, Pakistan, and Iran 138. GEP, as synonymous with Russia's east-orientation strategy, was proposed to replace its traditional strategy of Greater Europe and European integration. As a strategy with Russia as the leader, GEP has been invested with Russia's ambition, in the global, to recast the world order from one dominated by the United States to one in which Russia is a pivotal player, playing a fundamental role in decision-making to set the rule and shape the future139. And GEP, in the region, is to integrate rising and assertive China into Russia-axis relations and cooperation140, preventing it from becoming a potential hegemon in Asia141.

China adopted the Belt and Road Initiative ("BRI") stretching from China to Western Europe, including transit states and regions such as Russia, Central and Eastern Europe, the Balkans, the South Caucasus, and the Middle East. As a specific strategy for implementing the Community of Shared Destiny for Mankind ideology142, BRI reflects China's interpretation of international cooperation producing "win-win" outcomes, reshaping the global

137 Kong Q. Bilateral Investment Rule-Making: Bits or Ftas with Investment Rules? // The Journal of World Investment & Trade.2013. VOL. 14 (4). P. 638-645.

138 President of Russia.Executive Order approving the Foreign Policy Concept of the Russian Federation.

139 Lukin A. What the Kremlin Is Thinking: Putin's Vision for Eurasia // Foreign Affair. 2014. Vol. 93(4). P. 85.

140 Sheng E.L. Greater Eurasia Partnership and Belt and Road Initiative: The Cooperation or Containment of Atlanticism in the International System. Singapore, 2023. P. 1-42.

141 Karaganov S. The New Cold War and the Emerging Greater Eurasia // Journal of Eurasian Studies. 2018. Vol. 9(2). P. 85-93.

142 Zeng L. Contemporary International Law and China's Peaceful Development. Springer Nature, 2021. P. 305-331.

economic order via advancing cross-border trade and surging transbounda-ry transportation infrastructure investment in developing countries143. China's patient capital, which operates differently from the Western state funding and built hydroelectric power stations, highways, ports, railways, and telecom, fills the infrastructure gaps in the developing world and establishes closer economic ties with China. China's OFDI and RMB internationalization is accelerating while the number of BRI countries enlarges144; So does China's soft power to reshape the world economic order145. Though the official document reiterates that China's BRI relies on the established multilateral and bilateral mechanism and uses the established regional cooperation plat-form146, State adherence to the realistic view of international relations treats China's BRI as a challenge to maintain its leading or dominant role in the world or regional economy.

Overlapping geographic coverage of the GEP and BRI may visualize the competition between China and Russia in the Eurasia regional economic integration, causing a SINO-Russia FTA hard to reach147. One major obstacle is Russia's securitization of the economic interest. Moscow believes that economics is security and countries need to affiliate to one or dominate at least one macro-blos of the world order to have leverage over world affairs.Russia's concern about its dependence on China will make establishing a joint playground under the framework of GEP or BRI a long journey, making reform of the current Sino-Russia BIT more feasible.

Second, it is necessary to reform the current Sino-Russia BIT for its out-of-date pattern in investment protection standards. Sino-China BIT was signed in 2006 and entered into effect in 2009. Chinese BITs had abandoned the restrictive ISDS clauses, allowing disputes, not limited to the cases concerning the amount of compensation for expropriation or nationalization, to

143 Johnston L.A. The Belt and Road Initiative: What Is in It for China? // Asia & the Pacific Policy Studies. 2019. Vol 6 (1). P. 40-58.

144 Chang Le, Jing Li, Kee-Cheok Cheong and Lim-Thye Goh. Can Existing Theories Explain China's Outward Foreign Direct Investment in Belt and Road Countries // Sus-tainability. 2021. Vol 13 (3). P. 1389.

145 Voon J.P., Xu X. Impact of the Belt and Road Initiative on China's Soft Power: Preliminary Evidence // Asia-Pacific Journal of Accounting & Economics.2020. Vol. 27 (1). P. 120-131.

146 ClarkeM. The Belt and Road Initiative: China's New Grand Strategy? // Asia Policy. 2017. Iss. 24. P. 71-79.

147 Schubert J., Savkin D. Dubious Economic Partnership: Why a China-Russia Free Trade Agreement Is Hard to Reach // China Quarterly of International Strategic Studies. 2017. Vol. 2(4). P. 529-547.

be submitted to investor-state arbitration148. After the global financial crisis, China initiated BIT negotiations with US and EU, pushing the Chinese BITs into a new era characterized by more comprehensive investment protection provisions and sophisticated procedures for investment dispute settlement149. Comparing the Sino-Russia BIT with the 2012 China-Canada BIT or other Investment Chapters contained in the recent FTAs, such as the Australia-China FTA (2015), China-South Korea FTA (2015), and RCEP (2020), grand signs of progress could be found in the provisions of treatment clauses, exceptions rules, and ISDS provisions. These new IIAs, with China as a contracting party, established new protection standards for investment and investors consisting of the pre-establishment national treatment subject to transparent non-conforming measures. The 2012 China-Canada BIT provides a Minimum Standard of Treatment clause denoting relatively clear standards subject to the international customary law as a substitution of fair and equitable treatment in the Sino-China BIT. An essential security exception clause is also an integrated part of the 2012 BIT as a perfect sample of UNCTAD's reform suggestion150, ensuring a reasonable balance between transparency and predictability to protect investors' expectations and necessary flexibility to guarantee the host state's regulatory discretion concerning the national security interest. Considering Russia's dependence on importing goods be-

148 Tyler C., Schneiderman D. The Political Economy of Chinese Bilateral Investment Treaty Policy // The Chinese Journal of Comparative Law. 2017. Vol. 5(1). P. 110.

149 Cai C. China-Us Bit Negotiations and the Future of Investment Treaty Regime: A Grand Bilateral Bargain with Multilateral Implications // Journal of International Economic Law 2009. Vol. 12(2). P. 457-506; Wei S. Evolution of Non-Discriminatory Standards in China's BITs in the Context of EU-China Bit Negotiations // Chinese Journal of International Law. 2018. Vol. 17 (3). P. 799-840.

150 The Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments. Article 33.5. It provides as follows: "Nothing in this Agreement shall be construed:(a) to require a Contracting Party to furnish or allow access to any information if the Contracting Party determines that the disclosure of that information is contrary to its essential security interests; or (b) to prevent a Contracting Party from taking any actions that it considers necessary for the protection of its essential security interests: (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices; or (c) to prevent a Contracting Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security".

sides energy, a more transparent and predictable investment law will attract foreign investment pouring in to fill the capital and human resources gap necessary for a domestic self-sustained economy. From experience in China, the revised national foreign investment law and upgrading model of the BITs brought a rise against the trend in the FDI inflow. According to World Investment Report 2023 by UNCTAD, FDI in China increased by 5% while global FDI declined by 12%151.

5. Conclusion

In concluding, upgrading the current Sino-Russia BIT is a feasible way to reconcile the national security review bilaterally over FDI between China and Russia. The critical step is writing into an essential exception clause, as UNCTAD suggested or illustrated by the 2012 China-Canada BIT, and clarifying that NSR should operate subject to the pre-establishment national treatment and the non-conforming measures. That is, only if the investment falls into the coverage of the non-conforming measures is there to be an NSR proceeding for it. The transparent and ratcheting negative list for FDI can play as a signal that an NSR may be on its way after the FDI gets its market access permission. The investor could incorporate the potential compliance cost of the NSR review into his business, significantly increasing the predictability of regulating policy and investment decisions. Fleaxi-bitly and discretion loss caused by subjecting the NSR to the pre-establishment national treatment and the non-conforming measure in BIT, a formal source of international law, by no means will undermine a state's national security interest because it had taken such interest consideration when it made the non-conforming measure list. If an established investment expands too big, provoking the hose state's security concern, such as critical facilities and materials supply chain security, the anti-monopoly law and the NSR linked to the anti-trust scrutiny could mitigate such risk. Despite that, the respondent organ for NSR could initiate an NSR at his discretion when he finds security concerns from the information reported periodically from the foreign-invested enterprises. Combining the international law-making via two pivotal players in world politics and economy and a well-designed national FDI management institution, such as a negative list system for market access, anti-trust review, and a foreign investment information reporting system, is beneficial to maintain a balance between State security and its adherence to

151 UNCTAD. World Investment Report 2023: Investing in Sustainable Energy for All, P. 3-4, 8-9.

international law and a balance between capital liberalization and the regulating right for national security concerns.

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AUTHOR'S INFO:

Wang Yunpeng — Associate Professor of Henan University Law School.

СВЕДЕНИЯ ОБ АВТОРЕ:

Ванг Юньпень — доцент юридического факультета Университета Хэнань.

FOR CITATION:

Wang Yunpeng (2024). Reconciling National Security Review Over Cross-Border Investment Bilaterally. Trudy Institute gosudarstva i prava RAN — Proceedings of the Institute of State and Law of the RAS, 19(1), pp. 190-231. DOI: 10.35427/2073-4522-2024-19-1-wang_yunpeng

ДЛЯ ЦИТИРОВАНИЯ:

Ванг Юньпень. Согласование обзора политики национальной безопасности в отношении трансграничных инвестиций в двустороннем порядке // Труды Института государства и права РАН / Proceedings of the Institute of State and Law of the RAS. 2024. Т. 19. № 1. С. 190-231. DOI: 10.35427/2073-4522-2024-19-1-wang_yunpeng