Problems: Rules of dispute resolution under CEPA

2. Problems: Rules of dispute resolution under CEPA

22 See id. See WANG Wei, supra note 3, at 652. 23 CEPA Legal Text, retrieved Apr. 16, 2008 from http://www.tid.gov.hk/english/cepa/legaltext/cepa_legaltext.html. 24 see supra note 13. 25 Id.

27 See supra note 13 See supra note 3, at 655. 28 See supra note 3, at 658-659. See also General Agreement on Tariffs and Trade Article XXIV, a free trade agreement can be

established between “ two or more customs territories”. 29 Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, Apr. 4, 1990, (entered into force

July 1, 1997), available at http://www.info.gov.hk/basic_law/fulltext/ [hereinafter Basic Law]. 30 See supra note 3, at 658. 31 General Agreement on Tariffs and Trade, Oct. 30, 1947, 55 U.N.T.S. 194, at art. I and art. III [hereinafter GATT].

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

Under CEPA, the procedures and institutions of dispute resolution are stipulated in article 19, the Institution Arrangement, which includes five clauses. These five clauses are simple but ambiguous. Article 19-5 is the only clause directly regulating dispute resolution. It states that “the two sides shall resolve any problems arising from the interpretation or implementation of the ‘CEPA’ through consultation in the spirit of

friendship and cooperation. The Steering Committee shall make its decisions by consensus.” 32 By understanding Article 19-5, consultation is the method to resolve dispute and it is the only method. The

Steering Committee is the main institution. And the disputes include some problems that arise from the interpretation or implementation of CEPA.

Article 19-1 makes an introduction to the Steering Committee. “The two sides shall set up a Joint Steering Committee, which will comprise senior representatives or officials designated by the two sides.” 33 Article 19-2

states the function of steering Committee is: …supervising the implementation of the “CEPA”; interpreting the provisions of the “CEPA”; resolving disputes that may arise during the implementation of the “CEPA”; drafting additions and amendments to the content of the “CEPA”; providing steer on the work of the working groups; dealing with any other business

relating to the implementation of the “CEPA”. 34 The function is Similar to the Free Trade Commission (FTC) under NAFTA. 35 FTC is the main institution of

dispute resolution under NAFTA. FTC is “vested with authority to resolve disputes, oversee the implementation and further elaboration of the Agreement, supervise the work of all NAFTA committees and working groups and

consider any other matter relevant to the operation of the agreement.” 36 Compared to the FTC, the Steering Committee has the right to interpret the provisions of CEPA and draft additions and amendments to the content of

CEPA. This right is criticized by some scholars. 37 They stated the right to draft additions and amendment should

be awarded to the legislature. 38 Combining legislation and judicature may cause difficulty in oversight and operations under the Arrangement. 39 The process to amend the provisions is different from CEPA and NAFTA.

Under NAFTA one party shall draft the amendment, and then negotiate with the other party. If both parties agree with “the modification of or addition to this Agreement”, 40 and be “approved in accordance with the applicable

legal procedures of each party”, it “shall constitute an integral part of this Agreement.” Under CEPA the amendment happens in the meeting of the Steering Committee. One party raises a problem, such as some defects under a provision. If both parties agree to negotiate about that, the Steering Committee shall draft an amendment. Both parties shall participate into this process to draft the amendment. After the draft “has been signed by the duly

authorized representatives of the two sides” 41 , it can come into effect. The basic difference between these two processes under NAFTA and CEPA is who can draft the amendment. In my opinion, to be drafted by the Steering

Committee is not a better choice than to draft by the complaining party. It will take longer time to negotiate when they draft it and the Steering Committee shall be always held.

CEPA, supra note 2, art. 19, main text available at http://www.tid.gov.hk/english/cepa/files/main_e.doc. 33 Id.

35 Id. See, supra note 1, art. 2001. 36 Id. art. 2001. See also, http://www.nafta-sec-alena.org/DefaultSite/index_e.aspx?DetailID=175#A2007. 37 WANG Xiao-ping. (2007). A discussion of economic dispute resolution. GD-HK- MO Market and Price, 24. 38 Id.

40 Id. Id. 41 CEPA, supra note 2, art. 22.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

Article 19-3 sets up Liaison Offices under the Steering Committee. It also states that working groups may be set up as the need arises. 42 Liaison Offices are set up respectively in the Ministry of Commerce of the Central

People’s Government and the Commerce, Industry and Technology Bureau of the Hong Kong Special Administrative Region Government. 43 However, the functions of working groups and Liaison Offices are not

stated in the provisions of CEPA. From the name and usage in practice, the Liaison Offices are set up as parallels to the Secretariat under NAFTA. Under NAFTA, the Secretariat provides administrative assistance to FTC. 44 It is

“comprised of National Sections in Canada, Mexico and the United States, established, staffed and supported by each NAFTA party” 45 .

CEPA chose consultation as the only method for resolving disputes. The weak points in this approach can be easily found: what is the remedy if consultation fails? “The negotiating history of the CEPA totaled less than two

years, evidencing a new characteristic of current FTAs —speed.” 46 During this period, the SARS outbreak was so serious in Hong Kong and on the Mainland that some citizens of Hong Kong worried the CEPA negotiation

process would be delayed. 48 However, Chinese leaders decided to speed up the progress of the negotiations. Unfortunately, the dispute resolution mechanism is always the most important and complicated part of an FTA,

and this was a new attempt to establish an FTA between a country and its region. To avoid misunderstandings CEPA decided to us e consultation to solve the disputes temporary but until not they still not find out how to “fill the gap” .

Why the government of Mainland China and Hong Kong hesitated to make further procedures to complete the dispute resolution mechanism. There are two reasons. First, the special relationship between Mainland China and Hong Kong leads people to believe that disputes can be solved without any litigation or arbitration, because

this dispute can be seen as an “internal problem” 49 , which is different from a dispute between two different countries. The “internal problem” can be solved through negotiation. The second reason is that, in the traditional

view of the Chinese, especially in Mainland China, litigation should not be raised between friends, family members or leaders and employees; litigation will damage the relationship.

However, consultation under CEPA is different from NAFTA. The last sentence of article 19-5 states that “the Steering Committee shall make its decisions by consensus” 50 . Therefore, the dispute must be solved under the

Steering Committee, it must convene once the dispute is complaint by one party. But under NAFTA the FTC meeting will not convene in the consultation. 51 Under CEPA, the Steering Committee is not run as a mediator, but

the representatives. Therefore the Steering Committee meeting will frequently convene to represent both parties to solve the dispute between them.

The only clause that can be considered as regulating the procedures of dispute resolution is article 19-4. This article states that “the Steering Committee shall meet at least once a year, and may convene special meetings

CEPA, supra note 2, art 22. 43 See id.

45 See NAFTA, supra note 1, art. 2002. Id. 46 See, supra note 3, at 651. 47 See id. 48 See id.

50 CEPA, supra note 2, art 19. See, supra note 36, at 27. 51 See NAFTA, supra note 1, art 2007.

A study of NAFTA: Establishing a better dispute resolution mechanism under CEPA

within 30 days upon request by either side” 52 . It can be understood to mean that if one party complains, the Steering Committee may convene special meetings within 30 days.

The current provisions of CEPA reveal some problems. Compared to NAFTA or other FTAs, this dispute resolution mechanism is simply not enough to solve disputes arising from a regional trade area. For comparison, the following research will focus on dispute resolution under NAFTA.