The Dilemma of Applying Bilateral Investment Treaties of China to Hong Kong and Macao: Challenge Raised by Sanum Investments to China 

The Dilemma of Applying Bilateral Investment Treaties of China to Hong Kong and Macao: Challenge... Abstract China believes that treaty application to Hong Kong and Macao, which are defined as the Special Administrative Regions (SARs) of China by the Chinese Constitution and the two Basic Laws, is an issue settled a long time ago in the context of both domestic law and international law. In general, China claims that treaties ratified by China may apply to Hong Kong and Macao only when China has expressly so stated. The legal implication of China's position remained unclear until recently when two cases (the Tza Yap Shum case and the Sanum Investments Ltd case) raised different challenges to the position of China in the context of bilateral investment treaties. The article examines in detail the reasoning of the Singaporean court in the Sanum Investments Ltd case and conflicts between the judgment of the court and the official position of China. The article further observes that China’s unilateral declaration or position cannot automatically displace the operation of the ‘moving treaty frontier’ (MTF) doctrine. At the end, the author proposes some feasible ways for China to resolve the dilemma. I. INTRODUCTION China has always believed that treaty application to Hong Kong and Macao, which are defined as special administrative regions (SARs) of China by the Chinese Constitution and the two Basic Laws, was an issue settled a long time ago in the context of both domestic law and international law. Article 31 of the Chinese Constitution allows for the establishment of an SAR in the territory of China, and the Basic Law of the Hong Kong SAR (Hong Kong Basic Law) and the Basic Law of the Macao SAR (Macao Basic Law) establish the Hong Kong SAR and the Macao SAR respectively.2 In terms of the political system, China is a country with a centralized government. Alternatively, it can be said that unlike the United States, Canada or Australia, China is not a federal State. Consequently, local governments in China enjoy limited autonomy, even though before the establishment of the Hong Kong SAR in 1997 and the establishment of the Macao SAR in 1999, China had already established several autonomous regions, such as Tibet, Inner Mongolia and the Xinjiang autonomous regions. Different from those autonomous regions in China, Hong Kong and Macao are SARs, which have been given a wide autonomous power in maintaining their political, legal and economic systems that were practised prior to the 1997 and 1999 handovers. This is the so-called ‘One Country, Two Systems’. Under such constitutional structure, the Hong Kong SAR and Macao SAR enjoy a status similar to some extent to a member of a federal country. The key difference between a federal country structure and the ‘One Country, Two Systems’ is that the autonomous status and power of the two SARs are given by the Central Government of China rather than by the surrender of sovereignty and power by the two SARs to the Central Government. Such constitutional structure is one of the key points to understand in the ‘One Country, Two Systems’. This is also why the Chinese government emphasizes that ‘One Country’ is ahead of ‘Two Systems’ in the present relationship between the Central Government and the two SAR governments. It is clear in the context of Chinese domestic law that treaties, whether multilateral or bilateral, ratified by China will not automatically extend to Hong Kong and Macao unless the treaty extension procedures, as stated in the relevant Basic Law, have been followed. For this purpose, Article 153 of the Hong Kong Basic Law and Article 138 of the Macao Basic Law3 are identical, stating that the application to the Hong Kong or Macao of international agreements to which China is a member, or will become, a party shall be decided by the Central People's Government of China in accordance with the circumstances and needs of the relevant SAR and after seeking the views of the relevant SAR government. Under these provisions, if the Central Government decides to extend any treaties or agreements to Hong Kong or Macao, it has to formally inform the relevant SAR government, which should give effect to the treaties or agreements concerned in pursuance of its own local procedures. This rule is clear in most cases. However, at times, people may disagree on whether a treaty or customary international law that China has adopted should be applied to Hong Kong and Macao automatically without any procedural requirement. This was the case in Democratic Republic of the Congo v FG Hemisphere Associates LLC.4 In this case, the Democratic Republic of Congo (DRC) was the Respondent of an arbitration case in which the DRC lost. FG Hemisphere Associates subrogated the right of the applicant of the arbitration case and sought to enforce the arbitral Award in Hong Kong against a sum of payment to be made by the China Railway Group to the DRC. The connection between the case and Hong Kong court was the place of the money, which was allegedly to be payable to the DRC. The DRC claimed absolute immunity in the Hong Kong courts and lost the two proceedings conducted in the first instance of the High Court and the Court of Appeal of the Hong Kong High Court. However, it succeeded in the Court of Final Appeal, which held by a three-to-two majority that Hong Kong must follow the same position as China and adopt the doctrine of absolute immunity. Consequently, the Award in question was not enforceable in Hong Kong. It is interesting to note that in this case China’s position to adopt absolute immunity was not based on any treaty but, instead, can at most be regarded as an adoption of customary international law. However, due to the fact that China has sovereignty over Hong Kong and that foreign affairs and defence matters are to be decided by the Central Government of China under Article 19 of the Hong Kong Basic Law, the Court of Final Appeal of Hong Kong decided to follow the position of the Central Government on absolute immunity, even though nothing had been said in advance to extend such a position to Hong Kong. The position of the Court of Final Appeal was confirmed by the Standing Committee of the National People’s Congress (SC of the NPC) in August 2011,5 when the SC of the NPC issued its official interpretation of Articles 13 and 19 of the Hong Kong Basic Law. Under the constitutional structure of China, the SC of the NPC is the highest authority to interpret Chinese law, including, of course, the Basic Laws. In light of the relevant provisions of the Hong Kong and Macao Basic Laws, and the relevant interpretations issued by the SC of the NPC, it can be observed that, in the context of Chinese law, it is well established that the procedures for extending all treaties and agreements ratified by China to Hong Kong and Macao should be followed before any of them are applicable to Hong Kong and Macao. However, in special cases where foreign affairs and defence matters are priorities to be considered, the treaties or customary international laws adopted by the Central Government of China may automatically extend to Hong Kong and Macao without going through the said extension procedures. Such an exception is justified under the proposition that the autonomy in the political, legal and economic systems enjoyed by Hong Kong and Macao is granted by the Central Government of China, which reserves all residual powers and authorities that are not expressly spelled out in the Basic Law concerned. In the context of international law, China also believes that the treaty application issue has been settled by its practices. Such belief is clearly indicated in a newspaper article written by Hong Xu, who is presently the Bureau Chief of the Treaty Division of the Chinese Ministry of Foreign Affairs (MFA). In criticizing the Singaporean Court's decision in Sanum Investments,6 Xu observes that the Chinese delegation in the United Nations (UN) notified the United Nations Secretary-General (UNSG) in June 1997 and in December 1999, respectively, of its positions on extending international treaties to Hong Kong and Macao after their respective return, listing 214 and 158 treaties, respectively, which were extended to Hong Kong and Macao after the handovers.7 Such practices are in line with the relevant joint declarations signed respectively with the United Kingdom (UK) and Portugal for returning Hong Kong and Macao to China. Xu states that both the UK and Portugal also notified the UNSG to express their support for China’s notifications.8 Xu emphasizes that the treaties referred to in China’s notifications include not only multilateral treaties but also bilateral treaties.9 In conclusion, Xu states that the Chinese practice of applying treaties to Hong Kong and Macao has established a unique model of treaty application, which has received general support and understanding from the international community.10 This short newspaper article indicates clearly China’s belief that, in terms of international law, the special treaty application rule concerning Hong Kong and Macao has been established by China and accepted by the international community, implying the existence of some customary international law. Interesting enough, most of Xu’s arguments have been examined to different degrees by the Singaporean Court of Appeal, which holds that the China–Laos Bilateral Investment Treaty (BIT) applies to Macao against the official position of the Chinese government, as evidenced in the diplomatic letters [Notes Verbales (NVs)] submitted by the Laotian government.11 Whether China’s belief is solid or reasonable is the issue to be examined further in the present article. Indeed, the Court of Appeal's decision in the Sanum Investments case has put this Chinese belief very much in doubt, particularly in the context of international law.12 This article examines the key points of the court decision in Sanum Investments, analysing conflicts between the Chinese position and the judgment in question, exploring jurisprudential issues that have led to the present conflicts and challenges to the Chinese position and proposing some possible solutions to the present dilemma where China considers itself to be an innocent victim in cases like Sanum Investments. II. KEY POINTS OF THE SANUM INVESTMENTS CASE A. An Overview Sanum Investments Limited was incorporated in 2005 in Macao.13 It made certain investments in the gaming and hospitality industry in Laos in the form of a joint venture with a Laotian company.14 Sanum claimed that the Laotian government had deprived it of the benefit to be derived from its capital investment through the imposition of unfair and discriminatory taxes, and it initiated an arbitration proceeding against the Laotian government in August 2012 in pursuance of the China–Laos BIT.15 The Tribunal decided in May 2013 that Singapore was the place of arbitration, that the Permanent Court of Arbitration was the Registry and that the 2010 UNCITRAL Arbitration Rules were the applicable procedural rules.16 The Singaporean High Court accordingly had jurisdiction to review the arbitral Award. In December 2013, the Tribunal delivered its Award on jurisdiction, holding that the China–Laos BIT applied to Macao and that it had the jurisdiction to arbitrate Sanum’s expropriation claims under Article 8(3) of the BIT.17 The Laotian government applied to the Singaporean High Court to review the Award. The High Court and the Court of Appeal of Singapore took a totally different view on the applicability of the China–Laos BIT to Macao. The High Court held in 2015 that the language of the China–Laos BIT did not indicate clearly whether the BIT should apply to Macao or whether Macao was excluded from its application. However, by relying for the most part on the 2014 NVs exchanged between the Laotian government and the Chinese Embassy in Laos after the commencement of the arbitration proceeding concerned, the High Court held that the NVs confirmed the intention of the two governments to exclude Macao from the scope of operation of the BIT in question.18 The High Court also referred to a number of other factors supporting the conclusion that the BIT concerned did not apply to Macao. In addition, the High Court held that the Tribunal did not have jurisdiction under the BIT in question because Article 8(3) of the China–Laos BIT relates only to claims over the amount of compensation for expropriation.19Sanum Investment went to appeal, and the Court of Appeal reached a different decision and allowed the appeal. The Court of Appeal adopted an opposite position to the High Court, holding that the China–Laos BIT applies to Macao and that the Tribunal had jurisdiction over the claim under Article 8(3) of the China–Laos BIT. In summary, the Court of Appeal examined largely the same evidence and arguments examined by the High Court but reached a different conclusion. For example, the Court of Appeal examined the language of the BIT, the NVs, the relevant provisions of the Vienna Convention on the Law of Treaties (VCLT) and of the Vienna Convention on Succession of States in Respect of Treaties (VCST) as well as other relevant factors discussed by the High Court.20 However, the Court of Appeal placed more emphasis on the doctrine of ‘moving treaty frontier’ (MTF) and the timing when the Laotian government produced the NVs (including the NVs exchanged in 2015) concerned. The key points underlying the decision of the Court of Appeal will be examined in details in the following sections of the article. III. ADMISSIBILITY OF NVS AND THEIR EFFECT A. Issues of Admissibility The issue of admissibility is technical. For the purpose of examining the decision of the High Court, the Court of Appeal had to consider whether the High Court was correct in accepting any evidence, including new evidence, presented in the trial process. At the same time, the Court of Appeal also examined the effect of the evidence and the application of law by the High Court concerning the admission of evidence. NVs are official communications between the Laotian government and the Chinese government. In the present case, two types of NVs were involved, namely the NVs issued by the Chinese Embassy in 2014 and the NVs issued by the Chinese government in 2015. The set of NVs was issued for the purpose of verifying the authenticity of the first set of NVs. The High Court refused to consider the 2015 NVs. The Court of Appeal took the view that the admissibility of the NVs as evidence was subject to three conditions set out in Ladd v Marshall, namely ‘(a) the evidence could not have been obtained with reasonable diligence for use in the lower court; (b) the evidence would probably have an important influence on the result of the case; and (c) the evidence must be apparently credible’.21 As we have seen, the 2014 NVs were considered by the High Court, but the 2015 NVs were not. Thus, the issue of admissibility in the appeal process only concerned the 2015 NVs. After examining the arguments and facts involved, the Court of Appeal concluded that all of the NVs were admissible in the appeal process.22 However, as we will see, admissibility is one thing, and the weight and effect to be given to such evidence is another. B. Effect of the NVs in the Light of the Critical Date In determining whether the NVs should be relied on or what the effect of the NVs is in the present case, the Court of Appeal heavily emphasized the critical date doctrine, which, in the view of the Court of Appeal, refers to a point in time in the factual chronology of the dispute beyond which the conduct of the parties and other events can no longer affect the decision of the case because the conduct of one party or events after the critical date may unfairly improve the party’s position in the arbitration after the dispute has arisen.23 In other words, the critical date doctrine either excludes the use of the evidence that is produced, created or generated after the commencement of the arbitration proceeding or denies its effect on the ground that such evidence unfairly disadvantages or improves one party’s position in the proceeding. Following the critical date doctrine, the Court of Appeal held that, leaving the issues on whether the NVs of 2014 and 2015 represent the true intention of the Chinese government and the Laotian government in the China–Laos BIT or whether the NVs confirm the existence of the said intention aside, they should not be given any effect at all.24 Technically, the Court of Appeal excluded the NVs of 2014 on the ground that the High Court was wrong to place any evidential weight on the 2014 NVs.25 This could mean either that the 2014 NVs should not have been admitted at all or that they should not have been relied upon by the High Court at all. With respect to the 2015 NVs, the Court of Appeal took the view that they were irrelevant because the purpose of these NVs was to verify the authenticity of the 2014 NVs and the Court of Appeal was not examining the issue of authenticity.26 By holding such positions, the Court of Appeal27 ensured consistent with its early admission of the 2015 NVs as evidence. But the exclusion of the 2015 NVs, or refusing to give effect to the 2015 NVs, appears to be on a very technical and trivial point. By the end, in light of the critical date doctrine, the 2015 NVs, however classified for their use and nature, should not be given more weight than their predecessors – that is, the 2014 NVs. The exclusion of the NVs was one of the crucial grounds on which the Court of Appeal decided in favour of Sanum Investments. Similarly, it can be observed that the applicability of the China–Laos BIT to Sanum Investments is logical because of the exclusion or denial of the only evidence, which as claimed by the Laotian government, represented or confirmed the intention of the parties to exclude Macao from the scope of the BIT in question. Different attitudes to NVs appear to be one of the essential reasons why different conclusions have been reached by the High Court and the Court of Appeal. IV. APPLICATION OF THE BIT AND THE RELEVANT RULES A. Rules and Factors for Treaty Interpretation Both the High Court and the Court of Appeal appear to have adopted similar rules of treaty interpretation, such as Article 31 of the VCLT on treaty interpretation, Article 29 of the VCLT and Article 15 of the VCST on the moving treaty frontier (MTF)28 doctrine,29 but they have arrived at different conclusions. The High Court took the view that the language of the BIT itself does not give any clear answer on whether the BIT should apply to Macao. The Court of Appeal found otherwise, holding that there was no reason for not applying the BIT to Macao. In reaching its decision, the Court of Appeal placed a strong emphasis on the MTF doctrine, which will be examined separately in another subsection of this article. The Court of Appeal relied on Article 31 of the VCLT on the applicable principles for treaty interpretation.30 There was no real disagreement on the general principles, such as good faith, and the interpretation of words in the context and in light of the object and purpose of the BIT. However, the rules concerning the use of subsequent agreements and practices to assist treaty application have drawn more attention than the general rules because of the 2014 NVs and 2015 NVs produced by the Laotian government for the Court of Appeal. The Court of Appeal took the view that the NVs were not to be regarded as subsequent agreements because they were, indeed, not of such nature.31 Whether the NVs consist of subsequent practices is another issue. This article will examine these rules separately. The Court of Appeal reached the same conclusion as the High Court that ‘no definite conclusion can be drawn from the absence of any express provisions on’ whether the BIT applies to Macao.32 However, the Court of Appeal found two relevant factors in the context of the case to support the applicability of the BIT to Macao: First, the CA [Court of Appeal] notes that China and Portugal published their joint declaration to announce the return of Macao to China’s sovereignty in 1987, and the China-Laos BIT was signed in 1993. Based on such sequence of the events, the CA observes that applicability of the BIT to Macao was not an unforeseeable possibility when the BIT was signed. In the absence of a clear intention to exclude the application of the BIT to Macao, with the assistance of the MTF doctrine, the CA concludes that the China–Laos BIT does not appear to have been excluded.33 Second, even if accepting the argument that China and Laos had neglected the need to clarify the applicability of the BIT to Macao in 1993 when the BIT was made, the two parties failed to express a different intention in the years following the actual handover of Macao to China in 1999.34 The Court of Appeal noted that both China and Laos did not express a different intention in 2002 when renewing the BIT for another term.35 The Court of Appeal appears to be saying that it is not possible for China to claim that it was not aware of the significance and importance of making it clear whether the BIT applies to Macao in the past 20 years or so.36 The Court of Appeal appears to be saying that if China wishes to exclude the application of the China–Laos BIT to Macao (or Hong Kong), it must comply with the relevant international law, whether treaty or customary law, to give effect to that intention. Based on its observation, the Court of Appeal reluctantly concluded that the China–Laos BIT prima facie applies to Macao. The Court combined the lack of action on the part of China and Laos in relation to the BIT in question with the operation of the MTF doctrine and emphasized that China’s and Laos’ omission in the said period of time had established a fact that the MTF doctrine was not displaced in the present case.37 In addition to the MTF doctrine, the Court of Appeal also reinterpreted the meaning of the critical date, which was also noted by the High Court. In fact, the critical date doctrine played a crucial role for the Court of Appeal in excluding the effect of a number of key factors or evidence, whether or not they added support to the position of the Laotian government. The critical date doctrine38 is a doctrine in arbitration law that establishes that, after a point of time in arbitration, acts of the parties and events relating to a dispute cannot affect the decision of the tribunal. This is so because such acts and events may be used by one party to improve its position to the disadvantage of the other.39 The Court of Appeal observed that the critical date in the present case, as claimed by Sanum Investments, was the date on which the dispute had crystalized, namely the date on which the arbitration proceeding was initiated.40 The Court of Appeal took the view that ‘any evidence after the Critical Date is automatically inadmissible but special care would have to be taken in assessing the weight or relevance of such evidence’.41 It is important to note that the NVs in the present case were produced or generated after the critical date. B. Effect of the Joint Declaration The Court of Appeal held that the Joint Declaration did not prove that the China–Laos BIT did not apply to Macao for several reasons. First, the Court of Appeal disagreed with the High Court that the Joint Declaration reflected the intention of the Chinese government on the applicability of treaties to Macao and that the China–Laos BIT did not apply to Macao because the Chinese government had not taken steps as stated in the Joint Declaration.42 The Court of Appeal observed that the Joint Declaration could not change the international customary law, as seen in the MTF doctrine.43 Second, the Joint Declaration was of a bilateral nature between China and Portugal and could not override the operation of the MTF doctrine in the China–Laos BIT.44 Third, the Laotian government had not established by relying on the Joint Declaration that it was the common understanding of the Chinese and Laotian governments that the MTF doctrine did not operate in the BIT in question.45 Fourth, the constitutional arrangements for the application of Chinese treaties to Macao, as claimed by China under its Basic Law, could not constitute a bilateral agreement to displace the MTF doctrine as far as the China–Laos BIT was concerned.46 Lastly, the Court of Appeal noted the view of Wenhua Shan, who was an expert witness for Sanum Investments, that unless a decision is made in the manner that is provided for by Article 8 of the Joint Declaration,47 the matter remains undecided as a matter of Chinese domestic law.48 In the understanding of the Court of Appeal, this means ‘that the internal arrangements spell out a procedure to be followed before the PRC may conclude that it wishes to take steps to contract out of a result arrived at by the application of the default rules of international law’.49 The Court of Appeal did not expressly confirm its view on whether to agree with Shan, but it observed that ‘this view would harmonize these provisions in the Joint Declaration with the MTF Rule and it seems to us to be plausible view’.50 The Court of Appeal did not find it necessary to decide on the admissibility of Shan’s evidence because, in its view, the Joint Declaration did not otherwise establish the proposition that the China–Laos BIT was not intended to apply to Macao.51 In summary, the Court of Appeal appears to be saying that, even in the context of the Joint Declaration or the Chinese domestic law, China had not taken the necessary steps, as provided in Article 8 of the Joint Declaration, to give effect to its intention not to apply the China–Laos BIT to Macao. It must be pointed out that this observation of the Court was strongly criticized by the Chinese government, as seen in a newspaper article written by the Director of the Treaty Division of the MFA.52 At the same time, in the view of the present author, the way in which Shan’s view is presented by the Court of Appeal or by Shan himself appears to be somehow ambiguous or incorrect. China’s position in the Joint Declaration is that an action will be taken if a treaty is to be extended or applied to Macao or Hong Kong.53 This should not be interpreted as meaning that an action will be taken if Macao or Hong Kong is excluded from the scope of a treaty ratified by China, which is what is required by the MTF doctrine. Alternatively, it can be argued that either Shan is not accurate in alleging that a treaty of China does not apply to Macao only when an action to exclude it has been taken by the Chinese government or the Court of Appeal has misinterpreted Shan’s view. The key point is that both Article 8 of Annex I of the Joint Declaration and Article 138 of the Macao Basic Law state that the Chinese government should make a decision on whether a treaty ratified by China would be applied or extended to Macao by taking into account the circumstances and needs of Macao after a consultation process. Literally and logically, this means that if no action is taken, the treaty is not applicable. Based on these observations, it is clear that the Court of Appeal evaluated the legal effect of the Joint Declaration against the MTF doctrine, the relationship between the Joint Declaration and the BIT and the relationship between the Chinese constitutional arrangements and international law, including, in particular, the customary international law. C. Relevance of Hong Kong Experience The so-called Hong Kong experience appears to consist of three types of evidence. The first includes statements made by persons who held the relevant offices in Hong Kong in the past 20 years. The second type is the existence of certain BITs concluded by Hong Kong with a number of foreign countries. The third type is the official discussions between China and the UK on the future of Hong Kong. The Court of Appeal rejected the relevance of all of these document. It appears that the High Court gave some weight to the statements of former officials of the Hong Kong government concerning what was agreed between the Chinese government and UK government. However, the Court of Appeal found that none of the statements or measures in themselves addresses ‘the question of whether BITs concluded by the PRC would apply to HK after the handover’.54 With respect to whether Hong Kong had signed a number of BITs with several countries, such as Japan, the UK and Thailand, the Court of Appeal found that the existence of these separate arrangements on BITs did not show that an international common understanding had been established to the effect that Chinese treaties do not automatically apply to Hong Kong.55 With respect to the third type of evidence concerning the discussions between China and the UK on treaty application to Hong Kong, the Court held that discussions of such nature are generally relevant. However, the Court stated that the actual evidence submitted by the Laotian government was not relevant in the present case because ‘such evidence was lacking’.56 D. Relevance of the UNSG Notes The Chinese government deposited with the UNSG two notes57 in which it indicated the names of the international treaties ratified by China to be applicable to Hong Kong and Macao after 1997 and 1999 respectively. In the present case, the Laotian government presented the diplomatic note entitled Multilateral Treaties Deposited with the Secretary-General as evidence proving that the China–Laos BIT did not apply to Macao. This note states that for any treaties that are not listed here, the Chinese government will go through a separate formality to apply them to Macao if necessary.58 The High Court refused this evidence on the ground that the note applied only to multilateral treaties for which the UNSG was acting as depository. The Court of Appeal agreed with the High Court and pointed out that the note itself stated expressly that it covers only multilateral treaties.59 E. The 2001 World Trade Organization Report The 2001 World Trade Organization (WTO) report states that except for one double taxation treaty and one BIT signed with Portugal, Macao has no other BIT and bilateral taxation treaty.60 The High Court observed that to a limited extent this report suggests the non-applicability of the China–Laos BIT to Macao.61 The Court of Appeal held that the High Court should not have placed any reliance on this report at all,62 and it observed that treaty application to Macao is a complicated issue that was not the concern of the WTO when preparing the report.63 V. EFFECT OF THE MTF DOCTRINE AND ITS IMPACT UPON THE PRESENT CASE The emphasis placed on the MTF appears to be one of the key factors underlying the Court of Appeal’s finding on the applicability of the China–Laos BIT to Macao. The MTF doctrine is seen in Article 15 of the VCST and in Article 29 of the VCLT. Article 15 of the VCST provides that when a territory is transferred from one State to another, a treaty of the successor State extends to the new territory ‘unless it appears from the treaty or is otherwise established that the application of the treaty to that territory would be incompatible with the object and purpose of the treaty or would radically change the conditions for its operation’. Article 29 of the VCLT provides a presumption that unless ‘a different intention appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory’. The two provisions together establish the MTF doctrine, which presumes that a treaty ratified by a country applies to its entire territory, including newly acquired territories, unless such application is restricted by the language of the treaty or is inconsistent with the purpose or intended aim of the treaty. The MTF doctrine has been established as customary international law on the scope of treaty application.64 The Court was not concerned with the question whether China and Laos were members of the VCST or not because customary international law binds on all countries. In addition, the Court was satisfied that the Laotian government, as a party to the present dispute, had accepted the MTF as customary international law65 and, accordingly, had applied the MTF doctrine in the present case. The Chinese position on the VCST was not a particular concern for the Court since China was not a party to the present judicial proceeding. The MTF doctrine did add some considerable or even decisive weight when assessing the relevant evidence and arguments by the Court of Appeal. In fact, the Court of Appeal presumed that the China–Laos BIT applied to Macao under the MTF doctrine unless the exceptions for the operation of the MTF doctrine had been established otherwise. To this effect, the Court of Appeal observed that, from the date of handover in 1999, ‘the treaties of the predecessor sovereign, Portugal, will cease to apply in respect of Macao, while those of the PRC would apply instead unless the MTF Rule has been displaced. The experts who furnished opinions in this case agreed that this is the approach to be taken when assessing the relevance and effect of the MTF Rule’.66 This observation suggests the importance of the MTF doctrine in the present case. Under this presumption, the China–Laos BIT was presumed to be applicable unless exceptions under the MTF doctrine could be established. Further, the Court of Appeal made it clear that it would mainly apply the exceptions under Article 29 of the VCLT when examining the exceptions under the MTF doctrine.67 In a way, this may indirectly address the issue that both China and Laos are not members of the VCST. The Court of Appeal adopted two specific tests for determining whether the exceptions to the MTF doctrine had been established, namely: ‘(a) that an intention “appears” from the BIT that it is not meant to apply to Macao; or (b) the evidence must “otherwise establish” that the BIT is not meant to apply to Macao.’68 The line of logic adopted by the Court of Appeal in examining the operation of the MTF doctrine is now quite clear. The court actually focused on the BIT itself to determine whether the MTF doctrine has been displaced in the present case. As we have seen, since the language of the BIT is unclear, it is foreseeable that the MTF doctrine was not displaced in the present case. Subsequently, with respect to the intention of the BIT, the Court of Appeal observed that there was no intention in the text, object and purpose of the China–Laos BIT ‘to displace the MTF Rule such that it would lead to the conclusion that the BIT does not apply to Macao’.69 In regard to the test that the evidence not to apply the BIT to Macao had been otherwise established, the Court stated that, in their judgment, ‘the Contracting States’ decision to remain silent on the applicability of the China–Laos BIT to Macao in this context would appear to favor the conclusion that the presumptive effect of the MTF Rule had not been displaced’.70 The Court thus reached the conclusion that the MTF doctrine had not been displaced and, therefore, that the China–Laos BIT applied to Macao. The Court of Appeal adopted the line of reasoning that the MTF doctrine was customary international law, which bound China automatically. Because of the obligation to comply with the MTF doctrine, if China wished to exclude Macao from the application of any of its treaties, it had to exclude Macao in a way that was recognized by the MTF doctrine. Accordingly, the Court of Appeal took the view that whatever view was expressed by China and Portugal in their declaration could not displace the operation of the MTF doctrine in the China–Laos BIT.71 In other words, the Court of Appeal held that if China or Laos wished to displace the MTF doctrine in the China–Laos BIT, it had to state such intention in the China–Laos BIT or prove that the BIT in question was not meant to apply to Macao, or, alternatively, the extension of the China–Laos BIT to Macao would defeat the purpose of the BIT in question. Evidently, as we have seen before, the language of the BIT in question does not support such arguments. VI. CONFLICTS BETWEEN THE CHINESE GOVERNMENT AND THE DECISION IN SANUM INVESTMENTS A. Interests of China (including Macao) as a Non-Party China was not a party to the legal proceeding. Nor was Macao. However, the potential effect of the finding that the China–Laos BIT applies to Macao has a far-reaching impact upon China’s position in international law. China has ratified and signed many multilateral and bilateral agreements. Even if we restrict the implication of the Sanum Investments case to the BITs signed by China, China would face a huge uncertainty in the application of more than 110 BITs.72 So far, only the China–Russian BIT has expressly stated that the BIT does not apply to Hong Kong and Macao.73 The rest are silent to different extents on their potential application to Macao and Hong Kong. The reasoning process and logic adopted by the Singaporean Court may be easily followed by many foreign courts—in particular, those with the common law tradition. Even though it may be arguable to what extent Sanum Investments may affect BIT application to Hong Kong, it is less arguable that the further application of China’s BITs to Macao will be seriously affected by the present decision. This is why China’s interest has been seriously affected by the present case even if it was not a party to the dispute. To some degree, the interest of Macao is also affected by the decision. Since Macao investors may be able to take advantage of China’s BITs to protect themselves in other countries, investors from the relevant BIT countries may also take advantage of protecting themselves in Macao. This is so at least theoretically. In theory, the Macao government may face the risk of being sued separately or collectively with the Mainland government under a BIT if a provision for the BIT can be triggered. However, in reality, there is little risk that the Macao government will be forced into arbitration that it does not like. There are several reasons for this observation. First, Macao’s economy is relatively small and undiversified, with the gaming industry being its dominant sector of economy. This means that with the limited licenses issued, the chance for foreign investors to challenge the Macao government’s policy in the gaming industry under any BIT is very small. Second, the rules of private international law in Macao allows the Macao court to refuse recognition and enforcement of any foreign arbitral awards on the ground of its inconsistency with local law or public policy. Therefore, even if an investor was to rely on a BIT that was not extended to Macao, according to the Macao Basic Law, it is virtually impossible for the investor to enforce the award made outside Macao in pursuance of the BIT against the Macao government in Macao. Third, at present, the Macao government is not active in pursuing economic activities outside Macao. This means that even if someone has successfully resorted to arbitration under a BIT against the Macao government in an arbitration proceeding conducted outside Macao, the chances of enforcing the award outside Macao is also very small. For all of these reasons, the risk of being sued by a foreign investor under a BIT signed by China is not realistically high for the time being. However, this may change if the Macao government becomes more active in overseas investment and commercial activities. This is likely because both private companies and entities of the Macao government may wish to take advantage of the so-called Belt and Road Initiative to participate in more commercial and business activities outside Macao. This means that, along with the increase of overseas commercial activities of the Macao government, the risk of being sued overseas under Chinese BITs will also increase accordingly. Due to the nature of the present issue, China’s interest in the controversy that may arise from Sanum Investments is rather superficial. In other words, this is for the time being largely an issue of ‘face’. The real problem is that China’s unilateral intention—however evident—to exclude Macao and Hong Kong from the scope of its BITs may not be accepted or respected by foreign courts. Of course, this may also complicate the bilateral relationship between China and its BIT partners because such application of the BIT may or may not place its partners in a position that may not have been expected before. The issue may be further complicated if China ever assures any of its partners that such a scenario would never happen. Therefore, the Sanum Investments case has placed some pressure on the Chinese government to find a feasible and delicate way to avoid further complication on the application of BITs to Macao and Hong Kong. B. Key Points of Conflicts between China and the Court As we know, Xu from the Chinese MFA responded to the decision quickly on 22 October 2016 in a newspaper article to state unofficially the Chinese practices of treaty application to Hong Kong and Macao.74 In his article, he summarizes the following key points of Chinese practice as a criticism of the decision of the Singaporean Court of Appeal: China has made special arrangements on treaty application to Hong Kong and Macao, under which the Central Government may extend any treaty to Hong Kong and Macao when necessary after a consultation process. This arrangement is stated in the relevant declaration with the UK and Portugal respectively and also in the relevant basic law. In 1997 and 1999 respectively, China sent official notifications to the UNSG, announcing China’s official position on treaty application to Hong Kong and Macao. The notifications listed 214 and 158 treaties respectively, which would be extended or applied to Hong Kong and Macao since their respective handover. The notifications state specifically that for any unlisted treaties to which China is a party, China would go through the relevant procedures before applying them to Hong Kong and Macao. The UK and Portugal also notified the UNSG to express their appreciation and support to China’s notifications. Dr Xu emphasizes that treaties referred to in the notifications include both multilateral and bilateral treaties. In principle, bilateral treaties of China do not apply to Hong Kong and Macao, unless a special decision is made after consultation. The transitional arrangements concerning treaty application to Hong Kong and Macao are not related to state succession. China has repeated many times to the UK and Portugal in the relevant negotiations that the sovereignty of Hong Kong and Macao had historically belonged to China, and China merely restores its sovereignty over Hong Kong and Macao. This is different from change of Chinese territories, and cannot result in succession of state. Nor does this lead to the succession of treaty issue. Dr Xu emphasizes that the said notifications to the UNSG are diplomatic declarations, indicating China’s official position on treaty application to Hong Kong and Macao. Thus they cannot be simply regarded as being a depository act made to the UNSG. In China’s bilateral treaty practice, the issue on whether a treaty applies to Hong Kong and Macao is not clearly stated because of the existence of a common understanding of both parties. In the negotiation process, if any country does not know SAR of China, China would always explain the relevant arrangements of the basic laws and the relevant Chinese practices, and the other partner always indicates its understanding and agreement on non-application of the treaty to Hong Kong and Macao. In very special cases, at the request of the other party, China may agree in writing that the treaty does not apply to Hong Kong and Macao. Such practice confirms with the general practice of China. The Chinese practice does not exclude the possibility of extending any bilateral treaty to Hong Kong and Macao when necessary, but this can be done only after consultation with the relevant SAR government and with agreement of the other party. If so decided, the contracting parties must expressly state so in the treaty. There has been no such case so far. In other words, Dr Xu suggests the existence of an implied understanding between China and its BIT partners that the BITs do not apply to Hong Kong and Macao, unless a different intention is expressed.75 In conclusion, Xu observes that the decision of the Singaporean Court was wrong, suggesting that the public and legal professionals did not have sufficient or accurate knowledge of China’s treaty practices and relevant laws.76 Accordingly, he thinks it is necessary to adopt measures to clarify China’s position to avoid further misjudgment by foreign courts and tribunals.77 In addition, he concludes that if necessary, the Central Government, after consulting the relevant SAR government, may extend any bilateral treaty to Hong Kong or Macao.78 If we look at the seven major points summarized by Xu above, we can see that most of these points—that is, points 1–4—are discussed to different extents by the Singaporean Court in Sanum Investments. Obviously, the Singapore Court and Xu have taken different positions on these issues, and the reasons and justifications raised in Xu’s article, in the author’s view, do not directly rebut the reasoning of the Court. Besides these four points, points 5–7 have also raised some new perspectives that deserve some special attention. These points will be examined in the following paragraphs. What is State succession? What is the difference between State succession and the return of Macao and Hong Kong to China? These are all legitimate questions for determining the operation of the MTF doctrine in the present case. What Xu argues is that the Court of Appeal has wrongly applied the MTF doctrine to a situation where there is no State succession at all. Generally speaking, State succession refers to a situation where the territory of a State has changed as the result of either a merger of two or more States or the separation of one State into two or more States. State succession is different from the succession of government, where a new government has replaced the previous government of the land. However, in reality, State succession and the succession of government are often mixed, and the issue is often further complicated by the political position of other States on whether to recognize the new State or the new government. Therefore, the VCST has taken a different approach to the definition of State succession. Article 2 of the VCST defines State succession as ‘the replacement of one State by another in the responsibility for the international relations of territory’.79 This definition emphasizes that State succession has taken place when the responsibility for international relations of a territory has been transferred from one State to another, no matter how we classify or describe such a transfer. If we accept that the MTF doctrine has become customary international law, and that the doctrine is based on the definition of State succession as defined in Article 2 of the VCST, whether Macao or Hong Kong are returned back to their original sovereign or whether China is their new sovereign is irrelevant because the key point is that the responsibility for their international relations has been transferred from the UK and Portugal, respectively, back to China. In this sense, the Singaporean Court may not be wrong in applying the MTF doctrine to the present case. However, at the same time, the author argues that the special status of Macao prior to the 1999 handover must also be examined in a different light. It must be noted that the 1976 Portuguese Constitution states expressly that Macao is a Chinese territory under Portuguese administration.80 If so, we have to face the issue whether Macao’s special status is really intended by the VCST. It can be argued that under the 1976 Portuguese Constitution, the Portuguese government considers itself to be a caretaker or a guardian of convenience because, at that stage, China was not willing to take Macao back. Does the definition of State succession in the VCST also cover the situation of Macao between 1976 and 1999? Is the intention of the State when taking responsibility for international relations of a territory relevant for determining the existence of State succession? The author does not wish to pursue this difficult issue further. At this moment, the author wishes simply to argue that if we take a broad interpretation of the definition of State succession of the VCST by looking prima facie at who is responsible for international relations of a territory, the return of Macao to China in 1999 is a case of State succession under the VCST. However, if it can be established that the state succession in the VCST may occur only when the state which takes responsibility for international relations of a territory also exercise its full sovereignty over the territory concerned, the view expressed by Xu has some weight. Again, without any further study on the background of the VCST and the definition of State succession, the author feels that the broad interpretation of State succession in the VCST is probably more reasonable in avoiding the complexity in State relations that followed the end of the Second World War, which left a certain number of unsettled disputes on the sovereignty of certain territories, such as the Diaoyu Islands and the Kuril Islands. Whether China’s notification to the UNSG constitutes a diplomatic declaration is another interesting issue to be examined. This issue is related to points 1–4 presented by Xu. Each of these points relate to the argument that China has taken an effective measure in international law to displace or exclude the operation of the MTF doctrine. In general, the Singaporean Court held that China’s notifications, if valid and effective, were concerned with multilateral treaties only. The Court of Appeal also believed (assuming that the notifications were relevant to bilateral treaties) that even if the notifications were endorsed by the UK and Portugal respectively, the endorsements were of a bilateral nature, which does not affect the operation of the China–Laos BIT, to which neither the UK nor Portugal was a party. However, it must be noted that Xu raises an important point by describing the nature of the notices to the UNSG as ‘diplomatic declarations’, which are presumed to justify the position of China on the issue of treaty application to Macao and Hong Kong. Presently, a ‘diplomatic declaration’ is not a formal term in international law, even though ‘declaration’ or ‘unilateral declaration’ is a special term in international law. According to the International Law Commission, which produced a report entitled Guiding Principles Applicable to Unilateral Declarations of States Capable of Creating Legal Obligations, with Commentaries Thereto (Guiding Principles) in 2006,81 ‘[d]eclarations publicly made and manifesting the will to be bound may have the effect of creating legal obligations’.82 This description of a declaration or unilateral declaration and other provisions in the Guiding Principles suggest that a unilateral declaration in this context refers only to declarations that create unilateral obligations for the State making such declarations. Accordingly, the Guiding Principles also state that ‘States concerned may then take them into consideration and rely on them; such States are entitled to require that such obligations be respected’.83 The Guiding Principles represent the general view of the international community on the meaning of ‘declaration’ or ‘unilateral declaration’, which is endorsed by many academic sources.84 If we accept the understanding of the ‘unilateral declaration’ in the Guiding Principles as the legal meaning of this concept, we have to conclude that the Chinese notifications to the UNSG are not of such a nature. Literally, the notifications state the Chinese position on what treaties (whether multilateral or bilateral) China had applied to Hong Kong and Macao as well as the Chinese position on how any other Chinese treaties should be extended to Hong Kong and Macao. These are position statements, which do not create unilateral obligations on China alone. As we all know, treaties must have other treaty partners, and China’s position on not applying some of the treaties to Hong Kong and Macao may arguably bind China itself, but it may not create the same obligation on the part of the other treaty partners, unless the other treaty partners have expressly accepted China’s position. Therefore, the Guiding Principles state that ‘[n]o obligation may result for other States from the unilateral declaration of a State. However, the other State or States concerned may incur obligations in relation to such a unilateral declaration to the extent that they clearly accepted such a declaration’.85 This means that even if the international community accepts that the Chinese notifications are unilateral declarations or diplomatic declarations, the notifications will not create obligations for the other treaty partners of China unless they have clearly accepted these notifications as unilateral declarations. It is up to China to prove that these notifications have been clearly accepted by the other treaty partners of any multilateral or bilateral treaty to establish the binding effect of these notifications/declarations. If so, there is no direct conflict between the position of the Singaporean Court of Appeal and the expected international practice in displacing the MTF doctrine in the case of treaty application to Macao and Hong Kong. As we can recall, the Singaporean Court of Appeal has repeatedly emphasized the demonstration of the common intention of China and Laos or other treaty partners to displace the MTF doctrine in case of Macao (or Hong Kong). The last point on China’s treaty practice as explained by Xu can be seen as a claim of the existence of some kind of common or implied understanding between China and other BIT partners on the position of China. But the existence of such common or implied understanding is yet to be established for the following reasons. First, even though China and its other BIT partners might have been aware of the special arrangements between China and Macao or Hong Kong, this common understanding must be proven in law to make any sense or to have the effect of displacing the MTF doctrine. The Court of Appeal emphasized many times in its judgment the express intention of the BIT parties to displace the MTF doctrine, and the author agrees with the analysis of the Court of Appeal on the rule to displace the MTF doctrine in the context of a bilateral treaty. Second, the example of the China–Russia BIT, which is the only BIT made by China to exclude Macao and Hong Kong from its application, is a good example of the appropriate way to displace the MTF doctrine. The author believes that if the Singaporean Court had been given this example of China’s BIT practice, the Court would have probably drawn a conclusion that this evidence further proves that China and Laos did not intend to exclude Macao from the application of the BIT concerned or, otherwise, they would have excluded expressly Macao from its application, as the China–Russia BIT had done. Third, the author believes that what Xu claims is hard to prove. It would be virtually impossible to claim that China and all of its BIT partners were aware, or ought to have been aware, of the special arrangements with Macao (and Hong Kong) when the relevant BIT was made. Without seeing any actual evidence from Xu, the author believes that the NVs that were produced by the Laotian government in the present case, which were also acknowledged by China to represent its true intention, were probably the best documents China and its BIT partners may produce in the future when any disputes arises. However, as we have seen in the present case, leaving the issue on whether they were the true intention of the parties when the BIT was made or why the contracting parties have not taken any action to make their intention clear even though they have had plenty of time since the 1999 handover (or the 1997 handover, in the case of Hong Kong), the rule of critical date, as applied by the Court of Appeal in the present case, would prevent the use of any NVs if a dispute had been submitted to arbitration or adjudication. Fourth, the Tza Yap Shum case does not support the existence of a common understanding between China and its BIT partners.86 In this case, the Peruvian government never formally argued that the BIT in question did not apply to Tza Yap Shum who was a Hong Kong investor because the China–Peru BIT did not apply to Hong Kong.87 Whatever the reason for this omission, one thing that is certain is that the Peruvian government either did not believe that the BIT in question applied to Hong Kong or it did not consider this argument worthwhile to pursue. The attitude of the Peruvian government towards China’s position of treaty application to Hong Kong indirectly supports the view of the Singaporean Court that the MTF doctrine may be displaced in any BIT only when both contracting parties have reached such an agreement. Based on this discussion, it can be said that the mere claim of common intention is not sufficient to enforce the intention of China not to extend any of its treaties to Macao or Hong Kong unless a domestic procedure has been complied with in an arbitration or court proceeding. If so, it seems that the most effective way for China to avoid the application of any of its BITs to Macao and Hong Kong is to make this intention clear bilaterally with the treaty partner concerned in advance. In summary, even though there are several arguments in Xu’s article strongly criticizing the judgment of the Singaporean Court, most of these arguments have been addressed or denied to various extents in the judgment of the Court. Xu’s essential argument is that China has made its intention clear in its own way on how to extend treaties that it has ratified to Macao and Hong Kong, and, therefore, the world should respect this intention. This argument actually has been addressed by the judgment of the Singaporean Court, which holds firmly the view that the MTF doctrine as a form of customary international law can only be displaced mutually or jointly by the contracting States to any BIT before any dispute arises from the BIT concerned. Obviously, the battle of forms is one of the key conflicts between the position of the Chinese government and the judgment of the Singaporean Court. VII. BATTLE OF FORMS: UNILATERAL INTENTION VERSUS COMMON INTENTION A. Intention of China to Decide the Application of Treaties to Hong Kong and Macao Unilaterally Besides the bilateral treaties concluded between China, the UK and Portugal, respectively, there is no doubt that China wishes to decide which treaty, whether multilateral or bilateral, applies to Hong Kong and Macao unilaterally. As we have seen, the joint declarations between China and the UK, as well as between China and Portugal, all state the same principle on the application of treaties (which appears to include both multilateral and bilateral treaties) to Hong Kong and Macao respectively. The general principle is that all treaties that have been applied to Hong Kong or Macao may continue to apply unless any of them have been expressly excluded and that any treaty concluded, or to be concluded, by China should apply to Hong Kong and Macao as deemed appropriate by China after consultation with Hong Kong and Macao respectively.88 As we have seen, the relevant declaration has been discussed in Sanum Investments,89 and the author agrees with the reasoning of the Singaporean Court90 that such a declaration may displace the operation of the MTF doctrine among the contracting parties, namely between China and the UK or between China and Portugal, as the case may be. This means that the bilateral treaties concluded between China and the UK, which have not been extended to Hong Kong prior to 1997, should not apply to Hong Kong unless the Central Government of China has followed the relevant procedure set out in Article 153 of the Hong Kong Basic Law and that the bilateral treaties concluded between China and Portugal, which had not been extended to Macao prior to 1999, should not apply to Macao unless the Central Government of China has followed the procedures set out in Article 138 of the Macao Basic Law. However, it must be emphasized that the bilateral nature of the declarations means that the agreed arrangement between China, the UK and Portugal cannot affect the operation of any of the BITs between China and another country. This means that even though the intention of China is clear in setting out the rules for the application of all treaties, both multilateral and bilateral, to Hong Kong and Macao, such an intention is not effective in displacing the operation of the MTF doctrine when the other contracting party is neither the UK nor Portugal or when more contracting parties are involved. Even though China’s intention is clear, the reality is that such an intention might not have been fully noted or confirmed by some or most of China’s BIT partners. In Tza Yap Shum, a resident of Hong Kong submitted an investment dispute with the Peruvian government in pursuance of the China–Peru BIT to an ICSID Tribunal, which operated according to the ICSID Arbitration Rules and applied the China–Peru BIT to settle the dispute.91 This dispute actually raised some indirect challenges to China’s position on treaty application to Hong Kong. The question is: can the China–Peru BIT be applied to a Hong Kong investor, given that China has not expressly extended the BIT to Hong Kong? In this case, it appears that whether the China–Peru BIT should apply is not really the question. In fact, both the Tribunal and the ad hoc Committee of the International Centre for the Settlement of Investment Disputes (ICSID), which examined the annulment application of the Peruvian government, applied the China–Peru BIT to make decisions in favour of the Hong Kong investor.92 It appears that the Peruvian government had not challenged the applicability of the China–Peru BIT at all. The Tza Yap Shum case suggests that, in the absence of express confirmation or endorsement from other countries to the position of China on treaty application to Hong Kong and Macao, the national court or international tribunal may apply a BIT ratified by China to Hong Kong or Macao against the intention of the Chinese government, which does not have any direct means to prohibit a foreign court or a tribunal conducted outside China from disregarding China’s unilateral intention on treaty application. China’s intention to set out special rules for the application of Chinese treaties to Hong Kong and Macao is also seen clearly in its notifications deposited with the UNSG after the respective handover in 1997 and 1999. The notifications state that only the treaties listed in the notifications would be applied to Hong Kong or Macao respectively.93 They also state that China should decide which Chinese treaties will be extended to Hong Kong or Macao according to certain formalities of domestic law. The notifications appear to cover all types of treaties, whether multilateral or bilateral. Thus, China’s intention of making the notifications applicable to all treaties, whether multilateral or bilateral, was demonstrated. However, it must be acknowledged that whether the UNSG is a proper place to state any official position on the application of bilateral treaties is questionable. The website of the UN Treaty Collection, where both the treaties deposited with the UNSG and China’s notifications are found, states the following: This database contains: All multilateral treaties deposited with the Secretary-General (presently over 560 treaties); The Charter of the United Nations, in respect of which certain depositary functions have been conferred upon the Secretary-General (although the Charter itself is deposited with the Government of the United States of America); Multilateral treaties formerly deposited with the Secretary-General of the League of Nations, to the extent that formalities or decisions affecting them have been taken within the framework of the United Nations; and Certain pre-United Nations treaties, other than those formerly deposited with the Secretary-General of the League of Nations, which were amended by protocols adopted by the General Assembly of the United Nations.94 Based on this information, it is clear that the depository function of the UNSG is probably related to the deposit of multilateral treaties, or, at least, this is the practice followed by all United Nations (UN) countries. If so, the observation of the Singaporean Court that the depository function of the UNSG relates to only multilateral treaties is reasonable. The author thus concludes that even though the intention of China is reasonably clear in the notifications to set out rules for the application of both multilateral and bilateral treaties to Hong Kong and Macao after their respective handover (even assuming at the same time that the unilateral declarations of China were accepted by the international community), the intention of restricting the operation of BITs may not be noted by the international community because there is no evidence that the international community is expecting to deal with the issue of BITs in the UN Treaty Collection. It can therefore be argued that even if we recognize the legal effect of the notifications as an express intention of China to displace the operation of the MTF doctrine in the case of multilateral treaties, it is not convincing to argue that the intention of displacing the operation of the MTF doctrine in the case of BITs is also noted by other UN countries. In addition, whether or not the notifications can effectively displace the MTF doctrine in the case of multilateral treaties must also be determined by referring to the position of other countries that are China’s treaty partners. The general legal effect of unilateral declarations/notifications have been examined in the previous section of this article. In the present international practice, except for the UK and Portugal, most countries have not expressed their confirmation on accepting China’s position to deny the application of any multilateral treaties to Hong Kong and Macao by way of the notifications to the UNSG. Nor has any country challenged such practice either. However, this does not mean there is no controversy on the treaty application issue either. One of the typical examples of uncertainty in the operation of the MTF doctrine in the case of multilateral treaties is the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG), which stipulates its own procedures for excluding any territory of a contracting State from the scope of operation.95 China has not followed the procedures of Article 93 of the CISG in excluding Hong Kong and Macao from the scope of application of the CISG, but it has not included the CISG in the lists of the aforesaid notifications to the UNSG. This means that China intends to exclude Hong Kong and Macao from the scope of operations of the CISG to which China is a party. No country has ever publically announced its position on whether to accept China’s exclusion in such a manner. However, both the courts and tribunals and academics are divided on whether the CISG, as it exists now, should apply to Hong Kong and Macao.96 China’s intention to only extend those treaties that are considered by it to be appropriate to Hong Kong and Macao is seen clearly in Chinese domestic law. Article 153 of the Hong Kong Basic Law and Article 138 of the Macao Basic Law both state the same principle that treaties ratified by China may be extended to Hong Kong or Macao at the option of the Central Government of China after consultation with the relevant SAR government. Clearly, the position of China is that any treaty, whether multilateral or bilateral, that has not been extended to Hong Kong or Macao, according to the relevant procedures stated in the relevant Basic Law, is not applicable in Hong Kong or Macao. Even though China’s intention is clear, it is not clear whether the other contracting parties have accepted the arrangement; it is an issue that has not been formally settled. In most cases, whether multilateral or bilateral, most of the other contracting parties are silent on this arrangement. According to the general principle of international law, the silence or inactivity on the side of the other contracting parties may not necessarily constitute an agreement with China’s position. However, in the absence of any express objection, China’s unilateral position may in practice be accepted by the courts or tribunals operating outside of China, which may or may not be aware of the common intention of all of the contracting parties to any treaty in question. As we have seen, China’s intention to set out its own rules on the application of treaties to Hong Kong and Macao is clear. However, the real question is whether the international community, and, in particular, China’s treaty partners, have acknowledged and accepted this intention. In his article, Xu makes a broad statement that the treaty practice of China on Hong Kong and Macao has been understood and accepted by the international community and especially by foreign governments.97 There is no evidence of this given in the article. As we have seen in our discussions, the intention of the UK and Portugal to accept China’s position on treaty application to Hong Kong and Macao, respectively, was seen in the relevant joint declaration. As we have also seen, the NVs exchanged between the Chinese government and the Laotian government may be regarded in the judgment of the Singaporean Court of Appeal as evidence of their common intention on the application of the China–Laos BIT to Macao if the NVs were exchanged before the dispute was submitted to arbitration. As we have also seen, the China–Russia BIT expressly excludes Hong Kong and Macao from its operation. All of this evidence serves as examples of agreement and acceptance of China’s position on treaty application to Hong Kong and Macao. Accordingly, in the absence of such evidence or any other evidence carrying the same or similar message, it is difficult to confirm whether the international community and foreign governments have all agreed and accepted China’s position, which displaces the operation of the MTF doctrine in the case of Hong Kong and Macao. For example, the Peruvian government did not challenge the applicability of the China–Peru BIT in the Tza Yap Shum case. It appears that the Peruvian government might have raised the issue of eligibility of a Hong Kong resident to resort to protection under the China–Peru BIT, but this argument was different from arguing that the China–Peru BIT does not apply to Hong Kong. In the view of the Tribunal in this case, the Claimant was a Chinese national, as defined by the China–Peru BIT, who was then eligible for protection under the China–Peru BIT for his investment in Peru, and, thus, it is not necessary to decide whether this BIT applies to Hong Kong territorially.98 The particular argument pursued by the Peruvian government and the Tribunal is interesting in the sense that the Tribunal separated the eligibility issue and the applicability issue. Technically, the Claimant, as a Hong Kong resident, is indeed a Chinese national whether Hong Kong is a SAR of China or not. However, China’s position is that a BIT does not apply or extend to Hong Kong and Macao unless the Central Government has expressly stated that this is so and domestic process for such an extension has been complied with. In any case, leaving the technical aspect of the Tza Yap Shum case aside, it can be observed that according to State practice and the general principles of international law, silence may not constitute the kind of consent that may effectively displace the MTF doctrine in cases of State succession or a situation similar to State succession. VIII. COMMON INTENTION OR AGREEMENT AS THE KEY TO DISPLACE THE MTF DOCTRINE The intention or common intention of the contracting parties is one of the key factors to make treaty law workable. Since both multilateral and bilateral treaties represent the common understandings and agreements of the contracting parties, international law imposes an obligation upon all contracting parties to be bound by the treaty so concluded. Voluntary submission of a country’s sovereignty to the binding effect of a treaty is the rationale for enforcing a treaty obligation against contracting parties. Only when all countries follow the same rationale may the treaty law take the effect of establishing order and harmony between the contracting parties. Therefore, it must be emphasized that, as a general principle of treaty law, an intention to be bound by the terms of a treaty and good faith in performing the treaty obligations are essential for maintaining a certain order in the international community and for ensuring the conduct of States in the international community. For this purpose, the preamble of the VCLT declares99 that the contracting parties note ‘that the principles of free consent and of good faith and the pacta sunt servanda rule are universally recognized’ as part of the underlying principles of the VCLT. There is no universal formality for establishing the common intention or agreement of the contracting parties to displace the MTF doctrine in cases where State succession occurs. In order to avoid confusion, the author wishes to emphasize that the concept of State succession is defined clearly in Article 2 of the VCST,100 which ‘means the replacement of one State by another in the responsibility for the international relations of territory’. This definition does not refer to the sovereignty of the territory or State in question. Instead, the reference is made to the responsibility for the international relations of a territory. This means that the sovereignty of a State over a territory is not the key factor for determining whether a succession of State has taken place and that State succession occurs as long as a State, whether through the act of a sovereign, trustee, guardian or caretaker, as the case may be, has taken over the responsibility for international relations of the territory in question. Thus, the broad meaning of State succession may cover both the case of Hong Kong and Macao because, since the relevant date, China has taken over the responsibility for international relations of Hong Kong and Macao from the UK and Portugal, respectively, regardless of whether we describe these handovers as reassuming, returning or recovering China’s sovereignty over the two territories. Even though China is not a party of the VCST, the author agrees with the Singaporean Court in Sanum Investments that the MTF doctrine has become customary international law,101 which binds China according to the general principles of international law as well as the underlying principles stated in the preamble to the VCLT, to which China is a party. It can be argued that the MTF doctrine, as recognized in the VCST, operates in the context of State succession, as defined in the VCST. Accordingly, whether China’s unilateral intention to restrict or displace the use of the MTF doctrine to Hong Kong and Macao is effective must be assessed in the context of the VCST. The key issue then is whether China’s unilateral intention has been accepted by the other contracting parties as the common intention of the parties. Since this article focuses on BITs only, the author only examines the common intention in the context of BITs. We all agree that BITs are bilateral. Thus, whether or not a particular BIT applies to Hong Kong or Macao must be decided by China and the other contracting party in the BIT in question. Therefore, China must establish that both China and the other country concerned have agreed that the BIT in question does not apply to Hong Kong and Macao, unless China has specifically announced its application to Hong Kong and Macao. In light of the Judgment of the Singaporean Court of Appeal, where the court examined what China and Laos had done specifically with respect to the exclusion of the China–Laos BIT to Macao prior to the submission of the dispute to arbitration, the author argues that it was up to China to prove that its intention to exclude Hong Kong and Macao generally from the application of its BITs has been accepted by the other contracting party. China also needs to prove that such an arrangement, which may effectively displace the operation of the MTF doctrine, has been either expressly, or probably, accepted by the other contracting party of the BIT in question. In practice, any supplementary arrangement or exchange of diplomatic notes would be sufficient to constitute such a common intention or understanding. In addition to the express agreement with China on treaty application to Hong Kong and Macao, the author argues that it is also possible to establish this by relying on certain unilateral acts of a foreign State (note that omission is not an act). China may also establish that its intention to displace the use of the MTF doctrine has been probably accepted by another State. For example, the USA passed its Hong Kong Policy Act in 1992.102 Section 5701(E)(2) of the Act states that the ‘Congress declares its wish to see full implementation of the provisions of the Joint Declaration’. In a similar manner, section 5701(E)(3) of the Act states that the ‘President has announced his support for the policies and decisions reflected in the Joint Declaration’. Based on these statements, China may argue that its position (which is also the common intention of China and the UK) to displace the MTF doctrine as reflected in the Joint Declaration has been noted and accepted by the USA because the agreed arrangements for the application of Chinese treaties to Hong Kong fall into the categories of ‘provision of the Joint Declaration’ and of ‘the policies and decisions reflected in the Joint Declaration’. Even though it appears that there are some strong grounds for China to argue that its position to displace the MTF doctrine has been accepted by the USA, it also has to be acknowledged that this Act does not make any direct reference to the application of the Chinese treaty to Hong Kong after 1997. The contrast is seen in Section 5721(b), which establishes a presumption that all treaties between the USA and the UK that applied to Hong Kong prior to 1997, and between the USA and Hong Kong that were made before 1997, would continue to apply unless or until they were terminated in accordance with law. It must be emphasized that this presumption does not refer to the application of Chinese treaties to Hong Kong after 1997. What does this mean? On the one hand, it can be argued that the application of Chinese treaties to Hong Kong is not covered by section 5721. On the other hand, based on the policy statements made in section 5701, China may argue that the presumption is that Chinese treaties would not apply to Hong Kong unless or until they are declared to be applicable in accordance with the law. Can a US court accept such an interpretation? The author observes that by referring to the relevant provisions of the Hong Kong Policy Act, the position of the US government on the displacement of the MTF doctrine in the case of treaty application to Hong Kong is not certain. By referring to both the position statements as seen in section 5701 of the Hong Kong Policy Act and the silence of the US government on treaty application to Hong Kong after 1997, it is possible for China to prove that its position or intention on treaty application to Hong Kong has been established. There is still a possibility that a US court or tribunal may not agree with the Chinese government on whether the MTF doctrine has been displaced as far as the bilateral treaties between China and the USA are concerned. In conclusion, it can be observed, in theory, that China can establish the common intention between it and another contracting party to displace the MTF doctrine either by way of mutual agreement, communication or by proving the existence of certain positive acts of a unilateral nature, which suggests that China’s position on treaty application to Hong Kong and Macao has been accepted by a particular country. IX. CONCLUSION China has created ‘One Country, Two Systems’, which is unique in terms of both its constitutional arrangement and international law. Constitutionally, China is still a country with a centralized government, but Hong Kong and Macao are allowed to maintain their legal traditions and to adopt political systems that are different from the political system of China. Internationally, China is a unitary State, but Hong Kong and Macao are allowed to conduct certain international activities that do not require sovereignty as a precondition. This is unique in the world. Most federal countries in the world do not give their member States any external power. Therefore, the present constitutional arrangement of ‘One Country, Two Systems’ in China is unprecedented. When such a political system is trying to establish its status in the present international order, some conflict, uncertainty and adjustment on both the side of China and the international community can be expected. The Chinese position on treaty application to Hong Kong and Macao has raised some challenges for the present international rules of State succession and, in particular, on the operation of the MTF doctrine. Frankly speaking, the potential scope of conflict that may be caused by the Chinese position on treaty application to Hong Kong and Macao has never been seriously considered until recently when the Tza Yap Shum case and the Sanum Investments case were decided. The two cases raise certain unprecedented questions on treaty application, which had never before been seriously considered by the international community. In summary, the Tza Yap Shum case and Sanum Investments case raise challenges to both China and the international community in the following ways. First, both cases involve the applicability of Chinese BITs to Hong Kong or Macao. However, it is interesting to note that in the Tza Yap Shum case, the Peruvian government does not argue that the China–Peru BIT in question applies to Tza Yap Shum who is an investor from Hong Kong. In comparison, in Sanum Investments, the Laotian government argues strongly that the China–Laos BIT does not apply to Macao and, thus, that the Claimant is not entitled to rely on the China–Laos BIT to establish his claim. By the end, both the Tribunal and the Committee in the Tza Yap Shum case and the Tribunal and the Singaporean Court of Appeal in Sanum Investments hold that the relevant BIT applies in the relevant case. Clearly, the findings of the relevant tribunals or the court in these cases are not what the Chinese government wishes to see because such consequence is not consistent with its stated position on the applicability of Chinese treaties to Hong Kong and Macao. Second, in the Tza Yap Shum case, the Peruvian government appears to have assumed that the China–Peru BIT should apply to Hong Kong. This observation is based on a lack of any contrary evidence in the awards delivered by the Tribunal and the ICSID ad hoc Committee. This case indicates that some of Chinese BIT partners do not have a clear understanding that China does not want any BIT to apply to Hong Kong and Macao unless certain domestic procedures for such application have been followed. Third, the judgment of the Singaporean Court of Appeal indicates that the MTF doctrine is crucial for determining whether any of China’s BITs applies to Hong Kong and Macao. Under this doctrine, the only way for China to exclude Hong Kong and Macao from the scope of application of any of its BITs is the establishment of the common intention of China and its relevant treaty partners before any dispute has arisen. The doctrine of critical date operates against any agreement or common understanding established or demonstrated after a dispute has been submitted to either arbitration or a court of law. Fourth, whether the Chinese practice to exclude Hong Kong and Macao from the application of multilateral treaties that it has ratified is effective in displacing the MTF doctrine is also arguable, although it is less controversial than the application of the bilateral treaties. The key issue is the evaluation of China’s notifications deposited with the UNSG in 1997 and 1999 respectively. The notifications indicate clearly the Chinese intention to extend only those treaties on the relevant list to Hong Kong or Macao accordingly. However, the validity of such ‘declarations’ or ‘diplomatic declarations’ may be challenged on the ground that some of the multilateral treaties have stipulated their own ways of restricting their own application. The question is whether a State’s unilateral intention on the application of a particular treaty can override the specific procedure or formality for restricting the application of the treaty? There could be different answers to this question. However, the author would argue that a different ‘critical date’ principle is relevant for making a reasonable decision. The critical date is whether a treaty that has its own procedure or formality for restricting its application was ratified by China before or after 1997 (as opposed to Hong Kong) and 1999 (as opposed to Macao). The author argues that since China has adopted the unique ‘One Country, Two Systems’ political structure only after 1997, it is not possible for China to comply with the relevant procedure for treaty operation prior to this critical date, unless the relevant treaty still allows China to make a declaration or reservation on the treaty application after 1997 or 1999 respectively.103 At the same time, it is reasonable to expect China to comply with the specific procedure or formality for treaty operation after 1997 or 1999 when it ought to have known the legal effect, requirement and formality for restricting the operation of any treaty it chose to ratify after these dates. A typical example of the multilateral treaty ratified after 1999 is the Convention on International Interests in Mobile Equipment (Cape Town Convention). China ratified this Convention in 2009.104 Article 52 of the Convention stipulates procedure and formality for any member to exclude any of its territory from the application of the Convention. China has not made any declaration in pursuance of Article 52.105 In the author’s view, the Cape Town Convention will apply to Hong Kong and Macao according to the rules of interpretation set out in the VCLT, even though China has not added this Convention to the lists deposited with the UNSG. The rationale is simple; when China ratified the Cape Town Convention in 2009, it already was in the ‘One Country, Two Systems’ structure, yet it chose not to make any declaration under Article 52. Therefore, it is not reasonable for China to rely on its notifications (or declarations) made in 1997 and 1999, respectively, to the UNSG to restrict the operation of the Convention it ratified in 2009, particularly when China failed to act according to the procedure and formality stipulated in the Cape Town Convention. Of course, China is free to make a declaration anytime under Article 52 of the Convention, but, before it does so, the Convention should be presumed to apply to Hong Kong and Macao. This is what the rule of law expects. In conclusion, the author argues that China must face the challenges raised by the two cases referred to in the present article, particularly Sanum Investments.106 game rule is crucial for maintaining order and harmonious relations between countries and in the present international community. All of these procedural and formality issues have nothing to do with the so-called core interests of China. Procedural and formality requirements, generally speaking, are not politically oriented, at least at this time. There is no reason why China cannot comply with these procedural and formality rules for treaty application. Enforcement and compliance with fair rules that are equal and non-discriminatory are in China’s best interests as well as in the interest of the international community as a whole. Of course, if China finds any of the existing multilateral treaties that contain any unfair and discriminatory rules against the present political structure of ‘One Country, Two Systems’, it is always free to protect its own interests by making its position and interest clear and public. Many treaties were made a long time ago. It is inevitable that some of the treaties will no longer meet the needs of the present international community. Some solutions can always be found for the common interests of all members of the international community. It is up to China to prove why it cannot comply with the relevant requirements of treaties and customary international law in determining which treaties apply to Hong Kong and Macao. Before its position can be accepted or agreed by most of the international community, China has no option but to comply with the existing international rules. As the author has noted earlier in this article, Xu’s article indicates that the Chinese government has realized the need to comply with the relevant international law on treaty application and State succession,107 particularly the MTF doctrine. As suggested by the judgment of the Singaporean Court of Appeal, the common intention of China and its BIT partners can be established using an exchange of diplomatic notes or other official communications, subject only to the critical date rule. Therefore, one of the possible ways for China to avoid further confusion on the treaty application, particularly with respect to bilateral treaties, is to reach a common understanding and intention by communicating officially with the relevant countries. For this purpose, a feasible way is to list all bilateral treaties with other countries and make it clear which of them apply to Hong Kong and Macao and which of them do not in the hope that the other countries would confirm their agreement with this intention or arrangement. China has signed investment treaties and other treaties of commercial and civil nature with more than 100 countries.108 Such a country-based arrangement may be easier than signing supplementary treaties or adding supplementary provisions to all bilateral treaties of various degrees on a case-by-case basis. Of course, another possible way is for China to make a general statement on its position of treaty application to Hong Kong and Macao, which is the same as the rules stipulated in the relevant Basic Law, and send the statement to all countries that have concluded treaties with China, seeking their recognition of China’s general position. Since such a statement has wide implications for all existing treaties ratified by China, it would be hard for other countries to assess the existing and potential implications of such a statement. Therefore, it is hard to foresee the possible responses of most countries. In general, the author feels that China can either make some package arrangement with a particular country to state that the bilateral treaties between them does not apply to Hong Kong and Macao, or make a general statement concerning a particular multilateral treaty to exclude Hong Kong and Macao from the scope of the treaty would be feasible ways to deal with the dilemma raised in the paper. However, either way, China has to obtain consent from other country or comply with particular formality under any multilateral treaty for exclusion of its operation. China thus has to take the issue seriously to avoid future complications. Footnotes 2 The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China 1990 (Hong Kong Basic Law); The Basic Law of the Macao Special Administrative Region of the People's Republic of China 1993 (Macao Basic Law). 3 Basic Law of Hong Kong (n 2) art 153 and Basic Law of Macao (n 2) art 138. 4 Congo and Others v FG Hemisphere Associates LLC, FACV No 5-7 of 2010, (8 June 2011) (2011) 14 HKCFAR 95; CFA (8 September 2011) (2011) 14 HKCFAR 395. 5 Standing Committee of the National Interpretation of Paragraph 1, Article 13 and Article 19 of the Basic Law of Hong Kong Special Administrative Region of the People's Republic of China (26 August 2011) <http://www.basiclaw.gov.hk/tc/materials/index.html> accessed 5 January 2018. 6 Sanum Investments Ltd v Government of the Lao People's Democratic Republic [2016] SGCA 57 (Sanum Investments, Appeal Decision). 7 Hong Xu, ‘The Practices of Applying International Treaties to Hong Kong and Macao SARs’ Legal Daily (22 October 2016) (in Chinese) <http://news.xinhuanet.com/legal/2016-10/22/c_129333036.htm> accessed 5 January 2018. Government of Laos People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15 (Sanum Investments, Trial Decision). 8 Xu (n 7). 9 ibid. 10 ibid. 11 Agreement between the Government of the People’s Republic of China and the Lao People’s Democratic Republic Concerning the Encouragement and Recprical Protection of Investments (signed 31 January 1993, entered into force 1 June 1993) (China-Laos BIT). 12 Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57 (Sanum Investments, Appeal Decision). 13 Sanum Investments, Trial Decision (n 7) para 10. 14 Sanum Investments, Appeal Decision (n 12) para 6. 15 ibid. 16 Michael Hwang and Aloysius Chang, ‘Government of the Lao People’s Democratic Republic v Sanum Investments Ltd-A Tale of Two Letters’, (2015) 30(3) ICSID Rev-FILJ 506, 507. Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules) (2010). 17 Hwang and Chang (n 16) 507. 18 Sanum Investments, Trial Decision (n 7) paras 63, 70, 77, 78. 19 ibid para 128. 20 Vienna Convention on the Law of Treaties (opened for signature 23 May 1969, entered into force 27 January 1980) (VCLT); Vienna Convention on Succession of States in Respect of Treaties (opened for signature 23 August 1978, entered into force 6 November 1996) (VCST). 21 Sanum Investments, Appeal Decision (n 12) para 27. Ladd v Marshall [1954] 1 WLR 1489. 22 Sanum Investments, Appeal Decision (n 12) para 35. 23 ibid para 65. 24 ibid paras 104, 121. 25 ibid para 121. 26 ibid. 27 ibid, para 35. 28 For discussion of MTF, please see section V of this article. 29 VLCT (n 20) art 29 and 31; VCST (n 20) art 15. 30 VCLT (n 20) art 31. 31 ibid para 54. 32 ibid para 56. 33 ibid paras 57, 58. 34 ibid para 59. 35 ibid. 36 ibid. 37 ibid para 60. 38 For the meaning of critical date doctrine, see the ICJ judgment in Sovereignty over Pulau Ligitan and Pulau Sipadan [Indonesia/Malaysia], ICJ Reports 2002, p 682, para 135. In this case, the ICJ observes that “[I]t cannot take into consideration acts having taken place after the date on which the dispute between the Parties crystallized unless such acts are a normal continuation of prior acts and are not undertaken for the purpose of improving the legal position of the Party which relies on them. 39 ibid para 65. 40 ibid para 67. 41 ibid para 69. 42 ibid para 74. 43 ibid para 75. 44 ibid para 76. 45 ibid para 77. 46 ibid paras 78, 79. 47 There is no art 8 in the Joint Declaration. There may be a typo in paragraph 81 of the judgment, which refers to article 8 of the Joint Declaration. 48 Sanum Investments, Appeal Decision (n 12) para 81. 49 ibid. 50 ibid para 82. 51 ibid para 82. 52 Xu (n 7). 53 The author has found both the Chinese version and English version of the Joint Declaration on the official website of the Macao government. Article 8 of the annex I of the Joint Declaration states clearly that if a treaty is to be applied or extended to Macao, certain procedures should be followed. Such intention is clearly seen in the Chinese version, which is the authentic version of the Declaration. The other authentic version is the Portuguese one. The English version is only a translation of the Chinese version. In any case, if any difference arises from different versions, only the Chinese and Portuguese ones are official and authentic. 54 Sanum Investments, Appeal Decision (n 12) para 87. 55 ibid paras 88 and 89. 56 ibid para 90. 57 For details of the two notifications, please see the UNTC website at: https://treaties.un.org/pages/historicalinfo.aspx#China. 58 ibid para 93. 59 ibid para 94. 60 WTO Trade Policy Review, Macao China 2001, para 95. 61 ibid para 95. 62 ibid para 98. 63 ibid. 64 ibid paras 47, 58, 75–8. 65 ibid para 47. 66 ibid para 49. 67 ibid para 52. 68 ibid para 53. 69 ibid para 55. 70 ibid para 60. 71 ibid para 76. 72 Ministry of Commerce People's Republic of China, ‘Bilateral Investment Treaty List’ <http://english.mofcom.gov.cn/article/bilateralchanges/201603/20160301286029.shtml> accessed 5 January 2018. 73 Agreement between the Government of the Russian Federation and the Government of the People’s Republic of China on the Promotion and Reciprocal Protection of Investments (signed 9 November 2006, entered into force 1 May 2009) (China-Russia BIT). 74 Xu (n 7). 75 The following summary is based on Xu’s article (n 7). 76 ibid. 77 ibid. 78 ibid. 79 VCST (n 20) art 2. 80 Wang Yu, ‘Legal Status of Macao SAR’ (2009) 2 Academic Journal of One Country Two Systems 65 (in Chinese). 81 Guiding Principles Applicable to Unilateral Declarations of States Capable of Creating Legal Obligations, with Commentaries, ILC YB 2006, vol II/2, 26 <legal.un.org/ilc/texts/instruments/english/commentaries/9_9_2006.pdf> accessed 5 January 2018 (Guiding Principles). 82 ibid art 1. 83 ibid art 1. 84 Eg, see Matthew Liles, ‘Did Kim Jong-Il Break the Law? A Case Study On How North Korea Highlights the Flaws of the Non-Proliferation Regime’ (2007) 33 NC J Intl L & Com Reg 103; Marco A Martins, ‘An Alternative Approach to the International Law of State Succession: Lex Naturae and the Dissolution of Yugoslavia’ (1993) 44 Syracuse L Rev 1019; Carlos Iván Fuentes, ‘Chapter 3 The Imperfect Paradigm: Article 38 of the Statute of the International Court of Justice’ (2016) 57 Ius Gentium 51. 85 Guiding Principles (n 82) art 9. 86 Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Award (7 July 2011). 87 Agreement between the Government of the Republic of Peru and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments (signed 9 June 1994, entered into force 1 February 1995) (China-Peru BIT). 88 Joint Declaration of the Government of the Portuguese Republic and the Government of the People's Republic of China on the Question of Macao, 13 April 1987, 1498 U.N.T.S. 195 (entered into force 15 January 1988), annex I, art VIII; Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong, 19 December 1984, annex I, art XI. 89 Sanum Investments, Appeal Decision (n 12) paras 72–91. 90 Sanum Investments, Appeal Decision (n 12) paras 57, 63, 72–91. 91 Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009); Tza Yap Shum v Republic of Peru, Award (n 84) Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Decision on Annulment (12 February 2015). ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules) (April 2006). 92 ibid. 93 See United Nations Treaty Collection, Multilateral Treaties Deposited with the Secretary-General, ‘Notes on China’ <https://treaties.un.org/pages/historicalinfo.aspx#China> accessed 5 January 2018. 94 ibid. 95 United Nations Convention on Contracts for the International Sale of Goods (opened for signature 10 April 1980, entered into force 1 January 1988) (CISG). 96 For the view claiming that the CISG should be applied to Hong Kong and Macao because China has not excluded its application in pursuance of art 93 of the CISG, see Ulrich G Schroeter, ‘The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods’ (2004) 16 Pace Intl L Rev 307. For the view claiming that China’s intention to exclude Hong Kong and Macao from the scope of the CISG is based on China's notification to the UNSG, see John Mo, ‘Transfer of Sovereignty and Application of an International Convention: CISG in China in the Context of “One Country, Two Systems”’ (2015) 2(1) J Intl & Comp L 61. Both articles review some of the inconsistent international practices on whether the CISG should be applied to Hong Kong and Macao. 97 Xu (n 7). 98 Tza Yap Shum, Decision on Jurisdiction and Competence (n 92) para 68. 99 VCLT (n 20) preamble. 100 VCST (n 20) art 2. 101 Sanum Investments, Appeal Decision (n 12) para 47. 102 P.L. no. 102-383m 106 Stat. 1448. 22 USC Ch. 66. 103 The author wishes to point out that some of the multilateral treaties ratified by China prior to 1997 and 1999 may not contain adequate procedure or formality for China to make a declaration or reservation on the application of the treaties after the adoption of the ‘One Country, Two Systems’ state structure. Eg, art 93(1) of the CISG states as follows: ‘(1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.’ This provision allows a State to declare that the Convention does not apply to some of its territory ‘at the time of signature, ratification, acceptance, approval or accession’. It also allows the State to amend its ‘declaration’ at any time. Virtually, this provision does not allow China to make a declaration to exclude Hong Kong and Macao from the scope of the CISG application at a time after its ‘signature, ratification, acceptance, approval or accession’. This is why the author believes that China should not be blamed for not complying with art 93 of the CISG to exclude Hong Kong and Macao from the scope of the CISG and that China’s notifications to the UNSG should be regarded as an intention of China to exclude Hong Kong and Macao from the scope of the CISG. Of course, whether other CISG members accept this intention is another issue. For the details of the author’s view, see Mo (n 97). 104 Convention on International Interests in Mobile Equipment (opened for signature 16 November 2001, entered into force 1 March 2006. It entered into force for China on 1 June 2009). 105 Convention on International Interests in Mobil Equipment art 52 available at <http://www.unidroit.org/status-2001capetown> accessed 5 January 2018. 106 Sanum Investments, Appeal Decision (n 12). 107 In Dr Xu's article, he indicates that in order to avoid further misunderstandings or misjudgments of foreign courts and arbitral tribunals, it is necessary to adopt measures to clarify China's position on treaty application to Hong Kong and Macao. See Xu (n 7). 108 For information on China's BITs, see Investment Policy Hub, at http://investmentpolicyhub.unctad.org/IIA/CountryBits/42. © The Author(s) 2018. Published by Oxford University Press on behalf of ICSID. All rights reserved. For Permissions, please email: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png ICSID Review: Foreign Investment Law Journal Oxford University Press

The Dilemma of Applying Bilateral Investment Treaties of China to Hong Kong and Macao: Challenge Raised by Sanum Investments to China 

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Abstract

Abstract China believes that treaty application to Hong Kong and Macao, which are defined as the Special Administrative Regions (SARs) of China by the Chinese Constitution and the two Basic Laws, is an issue settled a long time ago in the context of both domestic law and international law. In general, China claims that treaties ratified by China may apply to Hong Kong and Macao only when China has expressly so stated. The legal implication of China's position remained unclear until recently when two cases (the Tza Yap Shum case and the Sanum Investments Ltd case) raised different challenges to the position of China in the context of bilateral investment treaties. The article examines in detail the reasoning of the Singaporean court in the Sanum Investments Ltd case and conflicts between the judgment of the court and the official position of China. The article further observes that China’s unilateral declaration or position cannot automatically displace the operation of the ‘moving treaty frontier’ (MTF) doctrine. At the end, the author proposes some feasible ways for China to resolve the dilemma. I. INTRODUCTION China has always believed that treaty application to Hong Kong and Macao, which are defined as special administrative regions (SARs) of China by the Chinese Constitution and the two Basic Laws, was an issue settled a long time ago in the context of both domestic law and international law. Article 31 of the Chinese Constitution allows for the establishment of an SAR in the territory of China, and the Basic Law of the Hong Kong SAR (Hong Kong Basic Law) and the Basic Law of the Macao SAR (Macao Basic Law) establish the Hong Kong SAR and the Macao SAR respectively.2 In terms of the political system, China is a country with a centralized government. Alternatively, it can be said that unlike the United States, Canada or Australia, China is not a federal State. Consequently, local governments in China enjoy limited autonomy, even though before the establishment of the Hong Kong SAR in 1997 and the establishment of the Macao SAR in 1999, China had already established several autonomous regions, such as Tibet, Inner Mongolia and the Xinjiang autonomous regions. Different from those autonomous regions in China, Hong Kong and Macao are SARs, which have been given a wide autonomous power in maintaining their political, legal and economic systems that were practised prior to the 1997 and 1999 handovers. This is the so-called ‘One Country, Two Systems’. Under such constitutional structure, the Hong Kong SAR and Macao SAR enjoy a status similar to some extent to a member of a federal country. The key difference between a federal country structure and the ‘One Country, Two Systems’ is that the autonomous status and power of the two SARs are given by the Central Government of China rather than by the surrender of sovereignty and power by the two SARs to the Central Government. Such constitutional structure is one of the key points to understand in the ‘One Country, Two Systems’. This is also why the Chinese government emphasizes that ‘One Country’ is ahead of ‘Two Systems’ in the present relationship between the Central Government and the two SAR governments. It is clear in the context of Chinese domestic law that treaties, whether multilateral or bilateral, ratified by China will not automatically extend to Hong Kong and Macao unless the treaty extension procedures, as stated in the relevant Basic Law, have been followed. For this purpose, Article 153 of the Hong Kong Basic Law and Article 138 of the Macao Basic Law3 are identical, stating that the application to the Hong Kong or Macao of international agreements to which China is a member, or will become, a party shall be decided by the Central People's Government of China in accordance with the circumstances and needs of the relevant SAR and after seeking the views of the relevant SAR government. Under these provisions, if the Central Government decides to extend any treaties or agreements to Hong Kong or Macao, it has to formally inform the relevant SAR government, which should give effect to the treaties or agreements concerned in pursuance of its own local procedures. This rule is clear in most cases. However, at times, people may disagree on whether a treaty or customary international law that China has adopted should be applied to Hong Kong and Macao automatically without any procedural requirement. This was the case in Democratic Republic of the Congo v FG Hemisphere Associates LLC.4 In this case, the Democratic Republic of Congo (DRC) was the Respondent of an arbitration case in which the DRC lost. FG Hemisphere Associates subrogated the right of the applicant of the arbitration case and sought to enforce the arbitral Award in Hong Kong against a sum of payment to be made by the China Railway Group to the DRC. The connection between the case and Hong Kong court was the place of the money, which was allegedly to be payable to the DRC. The DRC claimed absolute immunity in the Hong Kong courts and lost the two proceedings conducted in the first instance of the High Court and the Court of Appeal of the Hong Kong High Court. However, it succeeded in the Court of Final Appeal, which held by a three-to-two majority that Hong Kong must follow the same position as China and adopt the doctrine of absolute immunity. Consequently, the Award in question was not enforceable in Hong Kong. It is interesting to note that in this case China’s position to adopt absolute immunity was not based on any treaty but, instead, can at most be regarded as an adoption of customary international law. However, due to the fact that China has sovereignty over Hong Kong and that foreign affairs and defence matters are to be decided by the Central Government of China under Article 19 of the Hong Kong Basic Law, the Court of Final Appeal of Hong Kong decided to follow the position of the Central Government on absolute immunity, even though nothing had been said in advance to extend such a position to Hong Kong. The position of the Court of Final Appeal was confirmed by the Standing Committee of the National People’s Congress (SC of the NPC) in August 2011,5 when the SC of the NPC issued its official interpretation of Articles 13 and 19 of the Hong Kong Basic Law. Under the constitutional structure of China, the SC of the NPC is the highest authority to interpret Chinese law, including, of course, the Basic Laws. In light of the relevant provisions of the Hong Kong and Macao Basic Laws, and the relevant interpretations issued by the SC of the NPC, it can be observed that, in the context of Chinese law, it is well established that the procedures for extending all treaties and agreements ratified by China to Hong Kong and Macao should be followed before any of them are applicable to Hong Kong and Macao. However, in special cases where foreign affairs and defence matters are priorities to be considered, the treaties or customary international laws adopted by the Central Government of China may automatically extend to Hong Kong and Macao without going through the said extension procedures. Such an exception is justified under the proposition that the autonomy in the political, legal and economic systems enjoyed by Hong Kong and Macao is granted by the Central Government of China, which reserves all residual powers and authorities that are not expressly spelled out in the Basic Law concerned. In the context of international law, China also believes that the treaty application issue has been settled by its practices. Such belief is clearly indicated in a newspaper article written by Hong Xu, who is presently the Bureau Chief of the Treaty Division of the Chinese Ministry of Foreign Affairs (MFA). In criticizing the Singaporean Court's decision in Sanum Investments,6 Xu observes that the Chinese delegation in the United Nations (UN) notified the United Nations Secretary-General (UNSG) in June 1997 and in December 1999, respectively, of its positions on extending international treaties to Hong Kong and Macao after their respective return, listing 214 and 158 treaties, respectively, which were extended to Hong Kong and Macao after the handovers.7 Such practices are in line with the relevant joint declarations signed respectively with the United Kingdom (UK) and Portugal for returning Hong Kong and Macao to China. Xu states that both the UK and Portugal also notified the UNSG to express their support for China’s notifications.8 Xu emphasizes that the treaties referred to in China’s notifications include not only multilateral treaties but also bilateral treaties.9 In conclusion, Xu states that the Chinese practice of applying treaties to Hong Kong and Macao has established a unique model of treaty application, which has received general support and understanding from the international community.10 This short newspaper article indicates clearly China’s belief that, in terms of international law, the special treaty application rule concerning Hong Kong and Macao has been established by China and accepted by the international community, implying the existence of some customary international law. Interesting enough, most of Xu’s arguments have been examined to different degrees by the Singaporean Court of Appeal, which holds that the China–Laos Bilateral Investment Treaty (BIT) applies to Macao against the official position of the Chinese government, as evidenced in the diplomatic letters [Notes Verbales (NVs)] submitted by the Laotian government.11 Whether China’s belief is solid or reasonable is the issue to be examined further in the present article. Indeed, the Court of Appeal's decision in the Sanum Investments case has put this Chinese belief very much in doubt, particularly in the context of international law.12 This article examines the key points of the court decision in Sanum Investments, analysing conflicts between the Chinese position and the judgment in question, exploring jurisprudential issues that have led to the present conflicts and challenges to the Chinese position and proposing some possible solutions to the present dilemma where China considers itself to be an innocent victim in cases like Sanum Investments. II. KEY POINTS OF THE SANUM INVESTMENTS CASE A. An Overview Sanum Investments Limited was incorporated in 2005 in Macao.13 It made certain investments in the gaming and hospitality industry in Laos in the form of a joint venture with a Laotian company.14 Sanum claimed that the Laotian government had deprived it of the benefit to be derived from its capital investment through the imposition of unfair and discriminatory taxes, and it initiated an arbitration proceeding against the Laotian government in August 2012 in pursuance of the China–Laos BIT.15 The Tribunal decided in May 2013 that Singapore was the place of arbitration, that the Permanent Court of Arbitration was the Registry and that the 2010 UNCITRAL Arbitration Rules were the applicable procedural rules.16 The Singaporean High Court accordingly had jurisdiction to review the arbitral Award. In December 2013, the Tribunal delivered its Award on jurisdiction, holding that the China–Laos BIT applied to Macao and that it had the jurisdiction to arbitrate Sanum’s expropriation claims under Article 8(3) of the BIT.17 The Laotian government applied to the Singaporean High Court to review the Award. The High Court and the Court of Appeal of Singapore took a totally different view on the applicability of the China–Laos BIT to Macao. The High Court held in 2015 that the language of the China–Laos BIT did not indicate clearly whether the BIT should apply to Macao or whether Macao was excluded from its application. However, by relying for the most part on the 2014 NVs exchanged between the Laotian government and the Chinese Embassy in Laos after the commencement of the arbitration proceeding concerned, the High Court held that the NVs confirmed the intention of the two governments to exclude Macao from the scope of operation of the BIT in question.18 The High Court also referred to a number of other factors supporting the conclusion that the BIT concerned did not apply to Macao. In addition, the High Court held that the Tribunal did not have jurisdiction under the BIT in question because Article 8(3) of the China–Laos BIT relates only to claims over the amount of compensation for expropriation.19Sanum Investment went to appeal, and the Court of Appeal reached a different decision and allowed the appeal. The Court of Appeal adopted an opposite position to the High Court, holding that the China–Laos BIT applies to Macao and that the Tribunal had jurisdiction over the claim under Article 8(3) of the China–Laos BIT. In summary, the Court of Appeal examined largely the same evidence and arguments examined by the High Court but reached a different conclusion. For example, the Court of Appeal examined the language of the BIT, the NVs, the relevant provisions of the Vienna Convention on the Law of Treaties (VCLT) and of the Vienna Convention on Succession of States in Respect of Treaties (VCST) as well as other relevant factors discussed by the High Court.20 However, the Court of Appeal placed more emphasis on the doctrine of ‘moving treaty frontier’ (MTF) and the timing when the Laotian government produced the NVs (including the NVs exchanged in 2015) concerned. The key points underlying the decision of the Court of Appeal will be examined in details in the following sections of the article. III. ADMISSIBILITY OF NVS AND THEIR EFFECT A. Issues of Admissibility The issue of admissibility is technical. For the purpose of examining the decision of the High Court, the Court of Appeal had to consider whether the High Court was correct in accepting any evidence, including new evidence, presented in the trial process. At the same time, the Court of Appeal also examined the effect of the evidence and the application of law by the High Court concerning the admission of evidence. NVs are official communications between the Laotian government and the Chinese government. In the present case, two types of NVs were involved, namely the NVs issued by the Chinese Embassy in 2014 and the NVs issued by the Chinese government in 2015. The set of NVs was issued for the purpose of verifying the authenticity of the first set of NVs. The High Court refused to consider the 2015 NVs. The Court of Appeal took the view that the admissibility of the NVs as evidence was subject to three conditions set out in Ladd v Marshall, namely ‘(a) the evidence could not have been obtained with reasonable diligence for use in the lower court; (b) the evidence would probably have an important influence on the result of the case; and (c) the evidence must be apparently credible’.21 As we have seen, the 2014 NVs were considered by the High Court, but the 2015 NVs were not. Thus, the issue of admissibility in the appeal process only concerned the 2015 NVs. After examining the arguments and facts involved, the Court of Appeal concluded that all of the NVs were admissible in the appeal process.22 However, as we will see, admissibility is one thing, and the weight and effect to be given to such evidence is another. B. Effect of the NVs in the Light of the Critical Date In determining whether the NVs should be relied on or what the effect of the NVs is in the present case, the Court of Appeal heavily emphasized the critical date doctrine, which, in the view of the Court of Appeal, refers to a point in time in the factual chronology of the dispute beyond which the conduct of the parties and other events can no longer affect the decision of the case because the conduct of one party or events after the critical date may unfairly improve the party’s position in the arbitration after the dispute has arisen.23 In other words, the critical date doctrine either excludes the use of the evidence that is produced, created or generated after the commencement of the arbitration proceeding or denies its effect on the ground that such evidence unfairly disadvantages or improves one party’s position in the proceeding. Following the critical date doctrine, the Court of Appeal held that, leaving the issues on whether the NVs of 2014 and 2015 represent the true intention of the Chinese government and the Laotian government in the China–Laos BIT or whether the NVs confirm the existence of the said intention aside, they should not be given any effect at all.24 Technically, the Court of Appeal excluded the NVs of 2014 on the ground that the High Court was wrong to place any evidential weight on the 2014 NVs.25 This could mean either that the 2014 NVs should not have been admitted at all or that they should not have been relied upon by the High Court at all. With respect to the 2015 NVs, the Court of Appeal took the view that they were irrelevant because the purpose of these NVs was to verify the authenticity of the 2014 NVs and the Court of Appeal was not examining the issue of authenticity.26 By holding such positions, the Court of Appeal27 ensured consistent with its early admission of the 2015 NVs as evidence. But the exclusion of the 2015 NVs, or refusing to give effect to the 2015 NVs, appears to be on a very technical and trivial point. By the end, in light of the critical date doctrine, the 2015 NVs, however classified for their use and nature, should not be given more weight than their predecessors – that is, the 2014 NVs. The exclusion of the NVs was one of the crucial grounds on which the Court of Appeal decided in favour of Sanum Investments. Similarly, it can be observed that the applicability of the China–Laos BIT to Sanum Investments is logical because of the exclusion or denial of the only evidence, which as claimed by the Laotian government, represented or confirmed the intention of the parties to exclude Macao from the scope of the BIT in question. Different attitudes to NVs appear to be one of the essential reasons why different conclusions have been reached by the High Court and the Court of Appeal. IV. APPLICATION OF THE BIT AND THE RELEVANT RULES A. Rules and Factors for Treaty Interpretation Both the High Court and the Court of Appeal appear to have adopted similar rules of treaty interpretation, such as Article 31 of the VCLT on treaty interpretation, Article 29 of the VCLT and Article 15 of the VCST on the moving treaty frontier (MTF)28 doctrine,29 but they have arrived at different conclusions. The High Court took the view that the language of the BIT itself does not give any clear answer on whether the BIT should apply to Macao. The Court of Appeal found otherwise, holding that there was no reason for not applying the BIT to Macao. In reaching its decision, the Court of Appeal placed a strong emphasis on the MTF doctrine, which will be examined separately in another subsection of this article. The Court of Appeal relied on Article 31 of the VCLT on the applicable principles for treaty interpretation.30 There was no real disagreement on the general principles, such as good faith, and the interpretation of words in the context and in light of the object and purpose of the BIT. However, the rules concerning the use of subsequent agreements and practices to assist treaty application have drawn more attention than the general rules because of the 2014 NVs and 2015 NVs produced by the Laotian government for the Court of Appeal. The Court of Appeal took the view that the NVs were not to be regarded as subsequent agreements because they were, indeed, not of such nature.31 Whether the NVs consist of subsequent practices is another issue. This article will examine these rules separately. The Court of Appeal reached the same conclusion as the High Court that ‘no definite conclusion can be drawn from the absence of any express provisions on’ whether the BIT applies to Macao.32 However, the Court of Appeal found two relevant factors in the context of the case to support the applicability of the BIT to Macao: First, the CA [Court of Appeal] notes that China and Portugal published their joint declaration to announce the return of Macao to China’s sovereignty in 1987, and the China-Laos BIT was signed in 1993. Based on such sequence of the events, the CA observes that applicability of the BIT to Macao was not an unforeseeable possibility when the BIT was signed. In the absence of a clear intention to exclude the application of the BIT to Macao, with the assistance of the MTF doctrine, the CA concludes that the China–Laos BIT does not appear to have been excluded.33 Second, even if accepting the argument that China and Laos had neglected the need to clarify the applicability of the BIT to Macao in 1993 when the BIT was made, the two parties failed to express a different intention in the years following the actual handover of Macao to China in 1999.34 The Court of Appeal noted that both China and Laos did not express a different intention in 2002 when renewing the BIT for another term.35 The Court of Appeal appears to be saying that it is not possible for China to claim that it was not aware of the significance and importance of making it clear whether the BIT applies to Macao in the past 20 years or so.36 The Court of Appeal appears to be saying that if China wishes to exclude the application of the China–Laos BIT to Macao (or Hong Kong), it must comply with the relevant international law, whether treaty or customary law, to give effect to that intention. Based on its observation, the Court of Appeal reluctantly concluded that the China–Laos BIT prima facie applies to Macao. The Court combined the lack of action on the part of China and Laos in relation to the BIT in question with the operation of the MTF doctrine and emphasized that China’s and Laos’ omission in the said period of time had established a fact that the MTF doctrine was not displaced in the present case.37 In addition to the MTF doctrine, the Court of Appeal also reinterpreted the meaning of the critical date, which was also noted by the High Court. In fact, the critical date doctrine played a crucial role for the Court of Appeal in excluding the effect of a number of key factors or evidence, whether or not they added support to the position of the Laotian government. The critical date doctrine38 is a doctrine in arbitration law that establishes that, after a point of time in arbitration, acts of the parties and events relating to a dispute cannot affect the decision of the tribunal. This is so because such acts and events may be used by one party to improve its position to the disadvantage of the other.39 The Court of Appeal observed that the critical date in the present case, as claimed by Sanum Investments, was the date on which the dispute had crystalized, namely the date on which the arbitration proceeding was initiated.40 The Court of Appeal took the view that ‘any evidence after the Critical Date is automatically inadmissible but special care would have to be taken in assessing the weight or relevance of such evidence’.41 It is important to note that the NVs in the present case were produced or generated after the critical date. B. Effect of the Joint Declaration The Court of Appeal held that the Joint Declaration did not prove that the China–Laos BIT did not apply to Macao for several reasons. First, the Court of Appeal disagreed with the High Court that the Joint Declaration reflected the intention of the Chinese government on the applicability of treaties to Macao and that the China–Laos BIT did not apply to Macao because the Chinese government had not taken steps as stated in the Joint Declaration.42 The Court of Appeal observed that the Joint Declaration could not change the international customary law, as seen in the MTF doctrine.43 Second, the Joint Declaration was of a bilateral nature between China and Portugal and could not override the operation of the MTF doctrine in the China–Laos BIT.44 Third, the Laotian government had not established by relying on the Joint Declaration that it was the common understanding of the Chinese and Laotian governments that the MTF doctrine did not operate in the BIT in question.45 Fourth, the constitutional arrangements for the application of Chinese treaties to Macao, as claimed by China under its Basic Law, could not constitute a bilateral agreement to displace the MTF doctrine as far as the China–Laos BIT was concerned.46 Lastly, the Court of Appeal noted the view of Wenhua Shan, who was an expert witness for Sanum Investments, that unless a decision is made in the manner that is provided for by Article 8 of the Joint Declaration,47 the matter remains undecided as a matter of Chinese domestic law.48 In the understanding of the Court of Appeal, this means ‘that the internal arrangements spell out a procedure to be followed before the PRC may conclude that it wishes to take steps to contract out of a result arrived at by the application of the default rules of international law’.49 The Court of Appeal did not expressly confirm its view on whether to agree with Shan, but it observed that ‘this view would harmonize these provisions in the Joint Declaration with the MTF Rule and it seems to us to be plausible view’.50 The Court of Appeal did not find it necessary to decide on the admissibility of Shan’s evidence because, in its view, the Joint Declaration did not otherwise establish the proposition that the China–Laos BIT was not intended to apply to Macao.51 In summary, the Court of Appeal appears to be saying that, even in the context of the Joint Declaration or the Chinese domestic law, China had not taken the necessary steps, as provided in Article 8 of the Joint Declaration, to give effect to its intention not to apply the China–Laos BIT to Macao. It must be pointed out that this observation of the Court was strongly criticized by the Chinese government, as seen in a newspaper article written by the Director of the Treaty Division of the MFA.52 At the same time, in the view of the present author, the way in which Shan’s view is presented by the Court of Appeal or by Shan himself appears to be somehow ambiguous or incorrect. China’s position in the Joint Declaration is that an action will be taken if a treaty is to be extended or applied to Macao or Hong Kong.53 This should not be interpreted as meaning that an action will be taken if Macao or Hong Kong is excluded from the scope of a treaty ratified by China, which is what is required by the MTF doctrine. Alternatively, it can be argued that either Shan is not accurate in alleging that a treaty of China does not apply to Macao only when an action to exclude it has been taken by the Chinese government or the Court of Appeal has misinterpreted Shan’s view. The key point is that both Article 8 of Annex I of the Joint Declaration and Article 138 of the Macao Basic Law state that the Chinese government should make a decision on whether a treaty ratified by China would be applied or extended to Macao by taking into account the circumstances and needs of Macao after a consultation process. Literally and logically, this means that if no action is taken, the treaty is not applicable. Based on these observations, it is clear that the Court of Appeal evaluated the legal effect of the Joint Declaration against the MTF doctrine, the relationship between the Joint Declaration and the BIT and the relationship between the Chinese constitutional arrangements and international law, including, in particular, the customary international law. C. Relevance of Hong Kong Experience The so-called Hong Kong experience appears to consist of three types of evidence. The first includes statements made by persons who held the relevant offices in Hong Kong in the past 20 years. The second type is the existence of certain BITs concluded by Hong Kong with a number of foreign countries. The third type is the official discussions between China and the UK on the future of Hong Kong. The Court of Appeal rejected the relevance of all of these document. It appears that the High Court gave some weight to the statements of former officials of the Hong Kong government concerning what was agreed between the Chinese government and UK government. However, the Court of Appeal found that none of the statements or measures in themselves addresses ‘the question of whether BITs concluded by the PRC would apply to HK after the handover’.54 With respect to whether Hong Kong had signed a number of BITs with several countries, such as Japan, the UK and Thailand, the Court of Appeal found that the existence of these separate arrangements on BITs did not show that an international common understanding had been established to the effect that Chinese treaties do not automatically apply to Hong Kong.55 With respect to the third type of evidence concerning the discussions between China and the UK on treaty application to Hong Kong, the Court held that discussions of such nature are generally relevant. However, the Court stated that the actual evidence submitted by the Laotian government was not relevant in the present case because ‘such evidence was lacking’.56 D. Relevance of the UNSG Notes The Chinese government deposited with the UNSG two notes57 in which it indicated the names of the international treaties ratified by China to be applicable to Hong Kong and Macao after 1997 and 1999 respectively. In the present case, the Laotian government presented the diplomatic note entitled Multilateral Treaties Deposited with the Secretary-General as evidence proving that the China–Laos BIT did not apply to Macao. This note states that for any treaties that are not listed here, the Chinese government will go through a separate formality to apply them to Macao if necessary.58 The High Court refused this evidence on the ground that the note applied only to multilateral treaties for which the UNSG was acting as depository. The Court of Appeal agreed with the High Court and pointed out that the note itself stated expressly that it covers only multilateral treaties.59 E. The 2001 World Trade Organization Report The 2001 World Trade Organization (WTO) report states that except for one double taxation treaty and one BIT signed with Portugal, Macao has no other BIT and bilateral taxation treaty.60 The High Court observed that to a limited extent this report suggests the non-applicability of the China–Laos BIT to Macao.61 The Court of Appeal held that the High Court should not have placed any reliance on this report at all,62 and it observed that treaty application to Macao is a complicated issue that was not the concern of the WTO when preparing the report.63 V. EFFECT OF THE MTF DOCTRINE AND ITS IMPACT UPON THE PRESENT CASE The emphasis placed on the MTF appears to be one of the key factors underlying the Court of Appeal’s finding on the applicability of the China–Laos BIT to Macao. The MTF doctrine is seen in Article 15 of the VCST and in Article 29 of the VCLT. Article 15 of the VCST provides that when a territory is transferred from one State to another, a treaty of the successor State extends to the new territory ‘unless it appears from the treaty or is otherwise established that the application of the treaty to that territory would be incompatible with the object and purpose of the treaty or would radically change the conditions for its operation’. Article 29 of the VCLT provides a presumption that unless ‘a different intention appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory’. The two provisions together establish the MTF doctrine, which presumes that a treaty ratified by a country applies to its entire territory, including newly acquired territories, unless such application is restricted by the language of the treaty or is inconsistent with the purpose or intended aim of the treaty. The MTF doctrine has been established as customary international law on the scope of treaty application.64 The Court was not concerned with the question whether China and Laos were members of the VCST or not because customary international law binds on all countries. In addition, the Court was satisfied that the Laotian government, as a party to the present dispute, had accepted the MTF as customary international law65 and, accordingly, had applied the MTF doctrine in the present case. The Chinese position on the VCST was not a particular concern for the Court since China was not a party to the present judicial proceeding. The MTF doctrine did add some considerable or even decisive weight when assessing the relevant evidence and arguments by the Court of Appeal. In fact, the Court of Appeal presumed that the China–Laos BIT applied to Macao under the MTF doctrine unless the exceptions for the operation of the MTF doctrine had been established otherwise. To this effect, the Court of Appeal observed that, from the date of handover in 1999, ‘the treaties of the predecessor sovereign, Portugal, will cease to apply in respect of Macao, while those of the PRC would apply instead unless the MTF Rule has been displaced. The experts who furnished opinions in this case agreed that this is the approach to be taken when assessing the relevance and effect of the MTF Rule’.66 This observation suggests the importance of the MTF doctrine in the present case. Under this presumption, the China–Laos BIT was presumed to be applicable unless exceptions under the MTF doctrine could be established. Further, the Court of Appeal made it clear that it would mainly apply the exceptions under Article 29 of the VCLT when examining the exceptions under the MTF doctrine.67 In a way, this may indirectly address the issue that both China and Laos are not members of the VCST. The Court of Appeal adopted two specific tests for determining whether the exceptions to the MTF doctrine had been established, namely: ‘(a) that an intention “appears” from the BIT that it is not meant to apply to Macao; or (b) the evidence must “otherwise establish” that the BIT is not meant to apply to Macao.’68 The line of logic adopted by the Court of Appeal in examining the operation of the MTF doctrine is now quite clear. The court actually focused on the BIT itself to determine whether the MTF doctrine has been displaced in the present case. As we have seen, since the language of the BIT is unclear, it is foreseeable that the MTF doctrine was not displaced in the present case. Subsequently, with respect to the intention of the BIT, the Court of Appeal observed that there was no intention in the text, object and purpose of the China–Laos BIT ‘to displace the MTF Rule such that it would lead to the conclusion that the BIT does not apply to Macao’.69 In regard to the test that the evidence not to apply the BIT to Macao had been otherwise established, the Court stated that, in their judgment, ‘the Contracting States’ decision to remain silent on the applicability of the China–Laos BIT to Macao in this context would appear to favor the conclusion that the presumptive effect of the MTF Rule had not been displaced’.70 The Court thus reached the conclusion that the MTF doctrine had not been displaced and, therefore, that the China–Laos BIT applied to Macao. The Court of Appeal adopted the line of reasoning that the MTF doctrine was customary international law, which bound China automatically. Because of the obligation to comply with the MTF doctrine, if China wished to exclude Macao from the application of any of its treaties, it had to exclude Macao in a way that was recognized by the MTF doctrine. Accordingly, the Court of Appeal took the view that whatever view was expressed by China and Portugal in their declaration could not displace the operation of the MTF doctrine in the China–Laos BIT.71 In other words, the Court of Appeal held that if China or Laos wished to displace the MTF doctrine in the China–Laos BIT, it had to state such intention in the China–Laos BIT or prove that the BIT in question was not meant to apply to Macao, or, alternatively, the extension of the China–Laos BIT to Macao would defeat the purpose of the BIT in question. Evidently, as we have seen before, the language of the BIT in question does not support such arguments. VI. CONFLICTS BETWEEN THE CHINESE GOVERNMENT AND THE DECISION IN SANUM INVESTMENTS A. Interests of China (including Macao) as a Non-Party China was not a party to the legal proceeding. Nor was Macao. However, the potential effect of the finding that the China–Laos BIT applies to Macao has a far-reaching impact upon China’s position in international law. China has ratified and signed many multilateral and bilateral agreements. Even if we restrict the implication of the Sanum Investments case to the BITs signed by China, China would face a huge uncertainty in the application of more than 110 BITs.72 So far, only the China–Russian BIT has expressly stated that the BIT does not apply to Hong Kong and Macao.73 The rest are silent to different extents on their potential application to Macao and Hong Kong. The reasoning process and logic adopted by the Singaporean Court may be easily followed by many foreign courts—in particular, those with the common law tradition. Even though it may be arguable to what extent Sanum Investments may affect BIT application to Hong Kong, it is less arguable that the further application of China’s BITs to Macao will be seriously affected by the present decision. This is why China’s interest has been seriously affected by the present case even if it was not a party to the dispute. To some degree, the interest of Macao is also affected by the decision. Since Macao investors may be able to take advantage of China’s BITs to protect themselves in other countries, investors from the relevant BIT countries may also take advantage of protecting themselves in Macao. This is so at least theoretically. In theory, the Macao government may face the risk of being sued separately or collectively with the Mainland government under a BIT if a provision for the BIT can be triggered. However, in reality, there is little risk that the Macao government will be forced into arbitration that it does not like. There are several reasons for this observation. First, Macao’s economy is relatively small and undiversified, with the gaming industry being its dominant sector of economy. This means that with the limited licenses issued, the chance for foreign investors to challenge the Macao government’s policy in the gaming industry under any BIT is very small. Second, the rules of private international law in Macao allows the Macao court to refuse recognition and enforcement of any foreign arbitral awards on the ground of its inconsistency with local law or public policy. Therefore, even if an investor was to rely on a BIT that was not extended to Macao, according to the Macao Basic Law, it is virtually impossible for the investor to enforce the award made outside Macao in pursuance of the BIT against the Macao government in Macao. Third, at present, the Macao government is not active in pursuing economic activities outside Macao. This means that even if someone has successfully resorted to arbitration under a BIT against the Macao government in an arbitration proceeding conducted outside Macao, the chances of enforcing the award outside Macao is also very small. For all of these reasons, the risk of being sued by a foreign investor under a BIT signed by China is not realistically high for the time being. However, this may change if the Macao government becomes more active in overseas investment and commercial activities. This is likely because both private companies and entities of the Macao government may wish to take advantage of the so-called Belt and Road Initiative to participate in more commercial and business activities outside Macao. This means that, along with the increase of overseas commercial activities of the Macao government, the risk of being sued overseas under Chinese BITs will also increase accordingly. Due to the nature of the present issue, China’s interest in the controversy that may arise from Sanum Investments is rather superficial. In other words, this is for the time being largely an issue of ‘face’. The real problem is that China’s unilateral intention—however evident—to exclude Macao and Hong Kong from the scope of its BITs may not be accepted or respected by foreign courts. Of course, this may also complicate the bilateral relationship between China and its BIT partners because such application of the BIT may or may not place its partners in a position that may not have been expected before. The issue may be further complicated if China ever assures any of its partners that such a scenario would never happen. Therefore, the Sanum Investments case has placed some pressure on the Chinese government to find a feasible and delicate way to avoid further complication on the application of BITs to Macao and Hong Kong. B. Key Points of Conflicts between China and the Court As we know, Xu from the Chinese MFA responded to the decision quickly on 22 October 2016 in a newspaper article to state unofficially the Chinese practices of treaty application to Hong Kong and Macao.74 In his article, he summarizes the following key points of Chinese practice as a criticism of the decision of the Singaporean Court of Appeal: China has made special arrangements on treaty application to Hong Kong and Macao, under which the Central Government may extend any treaty to Hong Kong and Macao when necessary after a consultation process. This arrangement is stated in the relevant declaration with the UK and Portugal respectively and also in the relevant basic law. In 1997 and 1999 respectively, China sent official notifications to the UNSG, announcing China’s official position on treaty application to Hong Kong and Macao. The notifications listed 214 and 158 treaties respectively, which would be extended or applied to Hong Kong and Macao since their respective handover. The notifications state specifically that for any unlisted treaties to which China is a party, China would go through the relevant procedures before applying them to Hong Kong and Macao. The UK and Portugal also notified the UNSG to express their appreciation and support to China’s notifications. Dr Xu emphasizes that treaties referred to in the notifications include both multilateral and bilateral treaties. In principle, bilateral treaties of China do not apply to Hong Kong and Macao, unless a special decision is made after consultation. The transitional arrangements concerning treaty application to Hong Kong and Macao are not related to state succession. China has repeated many times to the UK and Portugal in the relevant negotiations that the sovereignty of Hong Kong and Macao had historically belonged to China, and China merely restores its sovereignty over Hong Kong and Macao. This is different from change of Chinese territories, and cannot result in succession of state. Nor does this lead to the succession of treaty issue. Dr Xu emphasizes that the said notifications to the UNSG are diplomatic declarations, indicating China’s official position on treaty application to Hong Kong and Macao. Thus they cannot be simply regarded as being a depository act made to the UNSG. In China’s bilateral treaty practice, the issue on whether a treaty applies to Hong Kong and Macao is not clearly stated because of the existence of a common understanding of both parties. In the negotiation process, if any country does not know SAR of China, China would always explain the relevant arrangements of the basic laws and the relevant Chinese practices, and the other partner always indicates its understanding and agreement on non-application of the treaty to Hong Kong and Macao. In very special cases, at the request of the other party, China may agree in writing that the treaty does not apply to Hong Kong and Macao. Such practice confirms with the general practice of China. The Chinese practice does not exclude the possibility of extending any bilateral treaty to Hong Kong and Macao when necessary, but this can be done only after consultation with the relevant SAR government and with agreement of the other party. If so decided, the contracting parties must expressly state so in the treaty. There has been no such case so far. In other words, Dr Xu suggests the existence of an implied understanding between China and its BIT partners that the BITs do not apply to Hong Kong and Macao, unless a different intention is expressed.75 In conclusion, Xu observes that the decision of the Singaporean Court was wrong, suggesting that the public and legal professionals did not have sufficient or accurate knowledge of China’s treaty practices and relevant laws.76 Accordingly, he thinks it is necessary to adopt measures to clarify China’s position to avoid further misjudgment by foreign courts and tribunals.77 In addition, he concludes that if necessary, the Central Government, after consulting the relevant SAR government, may extend any bilateral treaty to Hong Kong or Macao.78 If we look at the seven major points summarized by Xu above, we can see that most of these points—that is, points 1–4—are discussed to different extents by the Singaporean Court in Sanum Investments. Obviously, the Singapore Court and Xu have taken different positions on these issues, and the reasons and justifications raised in Xu’s article, in the author’s view, do not directly rebut the reasoning of the Court. Besides these four points, points 5–7 have also raised some new perspectives that deserve some special attention. These points will be examined in the following paragraphs. What is State succession? What is the difference between State succession and the return of Macao and Hong Kong to China? These are all legitimate questions for determining the operation of the MTF doctrine in the present case. What Xu argues is that the Court of Appeal has wrongly applied the MTF doctrine to a situation where there is no State succession at all. Generally speaking, State succession refers to a situation where the territory of a State has changed as the result of either a merger of two or more States or the separation of one State into two or more States. State succession is different from the succession of government, where a new government has replaced the previous government of the land. However, in reality, State succession and the succession of government are often mixed, and the issue is often further complicated by the political position of other States on whether to recognize the new State or the new government. Therefore, the VCST has taken a different approach to the definition of State succession. Article 2 of the VCST defines State succession as ‘the replacement of one State by another in the responsibility for the international relations of territory’.79 This definition emphasizes that State succession has taken place when the responsibility for international relations of a territory has been transferred from one State to another, no matter how we classify or describe such a transfer. If we accept that the MTF doctrine has become customary international law, and that the doctrine is based on the definition of State succession as defined in Article 2 of the VCST, whether Macao or Hong Kong are returned back to their original sovereign or whether China is their new sovereign is irrelevant because the key point is that the responsibility for their international relations has been transferred from the UK and Portugal, respectively, back to China. In this sense, the Singaporean Court may not be wrong in applying the MTF doctrine to the present case. However, at the same time, the author argues that the special status of Macao prior to the 1999 handover must also be examined in a different light. It must be noted that the 1976 Portuguese Constitution states expressly that Macao is a Chinese territory under Portuguese administration.80 If so, we have to face the issue whether Macao’s special status is really intended by the VCST. It can be argued that under the 1976 Portuguese Constitution, the Portuguese government considers itself to be a caretaker or a guardian of convenience because, at that stage, China was not willing to take Macao back. Does the definition of State succession in the VCST also cover the situation of Macao between 1976 and 1999? Is the intention of the State when taking responsibility for international relations of a territory relevant for determining the existence of State succession? The author does not wish to pursue this difficult issue further. At this moment, the author wishes simply to argue that if we take a broad interpretation of the definition of State succession of the VCST by looking prima facie at who is responsible for international relations of a territory, the return of Macao to China in 1999 is a case of State succession under the VCST. However, if it can be established that the state succession in the VCST may occur only when the state which takes responsibility for international relations of a territory also exercise its full sovereignty over the territory concerned, the view expressed by Xu has some weight. Again, without any further study on the background of the VCST and the definition of State succession, the author feels that the broad interpretation of State succession in the VCST is probably more reasonable in avoiding the complexity in State relations that followed the end of the Second World War, which left a certain number of unsettled disputes on the sovereignty of certain territories, such as the Diaoyu Islands and the Kuril Islands. Whether China’s notification to the UNSG constitutes a diplomatic declaration is another interesting issue to be examined. This issue is related to points 1–4 presented by Xu. Each of these points relate to the argument that China has taken an effective measure in international law to displace or exclude the operation of the MTF doctrine. In general, the Singaporean Court held that China’s notifications, if valid and effective, were concerned with multilateral treaties only. The Court of Appeal also believed (assuming that the notifications were relevant to bilateral treaties) that even if the notifications were endorsed by the UK and Portugal respectively, the endorsements were of a bilateral nature, which does not affect the operation of the China–Laos BIT, to which neither the UK nor Portugal was a party. However, it must be noted that Xu raises an important point by describing the nature of the notices to the UNSG as ‘diplomatic declarations’, which are presumed to justify the position of China on the issue of treaty application to Macao and Hong Kong. Presently, a ‘diplomatic declaration’ is not a formal term in international law, even though ‘declaration’ or ‘unilateral declaration’ is a special term in international law. According to the International Law Commission, which produced a report entitled Guiding Principles Applicable to Unilateral Declarations of States Capable of Creating Legal Obligations, with Commentaries Thereto (Guiding Principles) in 2006,81 ‘[d]eclarations publicly made and manifesting the will to be bound may have the effect of creating legal obligations’.82 This description of a declaration or unilateral declaration and other provisions in the Guiding Principles suggest that a unilateral declaration in this context refers only to declarations that create unilateral obligations for the State making such declarations. Accordingly, the Guiding Principles also state that ‘States concerned may then take them into consideration and rely on them; such States are entitled to require that such obligations be respected’.83 The Guiding Principles represent the general view of the international community on the meaning of ‘declaration’ or ‘unilateral declaration’, which is endorsed by many academic sources.84 If we accept the understanding of the ‘unilateral declaration’ in the Guiding Principles as the legal meaning of this concept, we have to conclude that the Chinese notifications to the UNSG are not of such a nature. Literally, the notifications state the Chinese position on what treaties (whether multilateral or bilateral) China had applied to Hong Kong and Macao as well as the Chinese position on how any other Chinese treaties should be extended to Hong Kong and Macao. These are position statements, which do not create unilateral obligations on China alone. As we all know, treaties must have other treaty partners, and China’s position on not applying some of the treaties to Hong Kong and Macao may arguably bind China itself, but it may not create the same obligation on the part of the other treaty partners, unless the other treaty partners have expressly accepted China’s position. Therefore, the Guiding Principles state that ‘[n]o obligation may result for other States from the unilateral declaration of a State. However, the other State or States concerned may incur obligations in relation to such a unilateral declaration to the extent that they clearly accepted such a declaration’.85 This means that even if the international community accepts that the Chinese notifications are unilateral declarations or diplomatic declarations, the notifications will not create obligations for the other treaty partners of China unless they have clearly accepted these notifications as unilateral declarations. It is up to China to prove that these notifications have been clearly accepted by the other treaty partners of any multilateral or bilateral treaty to establish the binding effect of these notifications/declarations. If so, there is no direct conflict between the position of the Singaporean Court of Appeal and the expected international practice in displacing the MTF doctrine in the case of treaty application to Macao and Hong Kong. As we can recall, the Singaporean Court of Appeal has repeatedly emphasized the demonstration of the common intention of China and Laos or other treaty partners to displace the MTF doctrine in case of Macao (or Hong Kong). The last point on China’s treaty practice as explained by Xu can be seen as a claim of the existence of some kind of common or implied understanding between China and other BIT partners on the position of China. But the existence of such common or implied understanding is yet to be established for the following reasons. First, even though China and its other BIT partners might have been aware of the special arrangements between China and Macao or Hong Kong, this common understanding must be proven in law to make any sense or to have the effect of displacing the MTF doctrine. The Court of Appeal emphasized many times in its judgment the express intention of the BIT parties to displace the MTF doctrine, and the author agrees with the analysis of the Court of Appeal on the rule to displace the MTF doctrine in the context of a bilateral treaty. Second, the example of the China–Russia BIT, which is the only BIT made by China to exclude Macao and Hong Kong from its application, is a good example of the appropriate way to displace the MTF doctrine. The author believes that if the Singaporean Court had been given this example of China’s BIT practice, the Court would have probably drawn a conclusion that this evidence further proves that China and Laos did not intend to exclude Macao from the application of the BIT concerned or, otherwise, they would have excluded expressly Macao from its application, as the China–Russia BIT had done. Third, the author believes that what Xu claims is hard to prove. It would be virtually impossible to claim that China and all of its BIT partners were aware, or ought to have been aware, of the special arrangements with Macao (and Hong Kong) when the relevant BIT was made. Without seeing any actual evidence from Xu, the author believes that the NVs that were produced by the Laotian government in the present case, which were also acknowledged by China to represent its true intention, were probably the best documents China and its BIT partners may produce in the future when any disputes arises. However, as we have seen in the present case, leaving the issue on whether they were the true intention of the parties when the BIT was made or why the contracting parties have not taken any action to make their intention clear even though they have had plenty of time since the 1999 handover (or the 1997 handover, in the case of Hong Kong), the rule of critical date, as applied by the Court of Appeal in the present case, would prevent the use of any NVs if a dispute had been submitted to arbitration or adjudication. Fourth, the Tza Yap Shum case does not support the existence of a common understanding between China and its BIT partners.86 In this case, the Peruvian government never formally argued that the BIT in question did not apply to Tza Yap Shum who was a Hong Kong investor because the China–Peru BIT did not apply to Hong Kong.87 Whatever the reason for this omission, one thing that is certain is that the Peruvian government either did not believe that the BIT in question applied to Hong Kong or it did not consider this argument worthwhile to pursue. The attitude of the Peruvian government towards China’s position of treaty application to Hong Kong indirectly supports the view of the Singaporean Court that the MTF doctrine may be displaced in any BIT only when both contracting parties have reached such an agreement. Based on this discussion, it can be said that the mere claim of common intention is not sufficient to enforce the intention of China not to extend any of its treaties to Macao or Hong Kong unless a domestic procedure has been complied with in an arbitration or court proceeding. If so, it seems that the most effective way for China to avoid the application of any of its BITs to Macao and Hong Kong is to make this intention clear bilaterally with the treaty partner concerned in advance. In summary, even though there are several arguments in Xu’s article strongly criticizing the judgment of the Singaporean Court, most of these arguments have been addressed or denied to various extents in the judgment of the Court. Xu’s essential argument is that China has made its intention clear in its own way on how to extend treaties that it has ratified to Macao and Hong Kong, and, therefore, the world should respect this intention. This argument actually has been addressed by the judgment of the Singaporean Court, which holds firmly the view that the MTF doctrine as a form of customary international law can only be displaced mutually or jointly by the contracting States to any BIT before any dispute arises from the BIT concerned. Obviously, the battle of forms is one of the key conflicts between the position of the Chinese government and the judgment of the Singaporean Court. VII. BATTLE OF FORMS: UNILATERAL INTENTION VERSUS COMMON INTENTION A. Intention of China to Decide the Application of Treaties to Hong Kong and Macao Unilaterally Besides the bilateral treaties concluded between China, the UK and Portugal, respectively, there is no doubt that China wishes to decide which treaty, whether multilateral or bilateral, applies to Hong Kong and Macao unilaterally. As we have seen, the joint declarations between China and the UK, as well as between China and Portugal, all state the same principle on the application of treaties (which appears to include both multilateral and bilateral treaties) to Hong Kong and Macao respectively. The general principle is that all treaties that have been applied to Hong Kong or Macao may continue to apply unless any of them have been expressly excluded and that any treaty concluded, or to be concluded, by China should apply to Hong Kong and Macao as deemed appropriate by China after consultation with Hong Kong and Macao respectively.88 As we have seen, the relevant declaration has been discussed in Sanum Investments,89 and the author agrees with the reasoning of the Singaporean Court90 that such a declaration may displace the operation of the MTF doctrine among the contracting parties, namely between China and the UK or between China and Portugal, as the case may be. This means that the bilateral treaties concluded between China and the UK, which have not been extended to Hong Kong prior to 1997, should not apply to Hong Kong unless the Central Government of China has followed the relevant procedure set out in Article 153 of the Hong Kong Basic Law and that the bilateral treaties concluded between China and Portugal, which had not been extended to Macao prior to 1999, should not apply to Macao unless the Central Government of China has followed the procedures set out in Article 138 of the Macao Basic Law. However, it must be emphasized that the bilateral nature of the declarations means that the agreed arrangement between China, the UK and Portugal cannot affect the operation of any of the BITs between China and another country. This means that even though the intention of China is clear in setting out the rules for the application of all treaties, both multilateral and bilateral, to Hong Kong and Macao, such an intention is not effective in displacing the operation of the MTF doctrine when the other contracting party is neither the UK nor Portugal or when more contracting parties are involved. Even though China’s intention is clear, the reality is that such an intention might not have been fully noted or confirmed by some or most of China’s BIT partners. In Tza Yap Shum, a resident of Hong Kong submitted an investment dispute with the Peruvian government in pursuance of the China–Peru BIT to an ICSID Tribunal, which operated according to the ICSID Arbitration Rules and applied the China–Peru BIT to settle the dispute.91 This dispute actually raised some indirect challenges to China’s position on treaty application to Hong Kong. The question is: can the China–Peru BIT be applied to a Hong Kong investor, given that China has not expressly extended the BIT to Hong Kong? In this case, it appears that whether the China–Peru BIT should apply is not really the question. In fact, both the Tribunal and the ad hoc Committee of the International Centre for the Settlement of Investment Disputes (ICSID), which examined the annulment application of the Peruvian government, applied the China–Peru BIT to make decisions in favour of the Hong Kong investor.92 It appears that the Peruvian government had not challenged the applicability of the China–Peru BIT at all. The Tza Yap Shum case suggests that, in the absence of express confirmation or endorsement from other countries to the position of China on treaty application to Hong Kong and Macao, the national court or international tribunal may apply a BIT ratified by China to Hong Kong or Macao against the intention of the Chinese government, which does not have any direct means to prohibit a foreign court or a tribunal conducted outside China from disregarding China’s unilateral intention on treaty application. China’s intention to set out special rules for the application of Chinese treaties to Hong Kong and Macao is also seen clearly in its notifications deposited with the UNSG after the respective handover in 1997 and 1999. The notifications state that only the treaties listed in the notifications would be applied to Hong Kong or Macao respectively.93 They also state that China should decide which Chinese treaties will be extended to Hong Kong or Macao according to certain formalities of domestic law. The notifications appear to cover all types of treaties, whether multilateral or bilateral. Thus, China’s intention of making the notifications applicable to all treaties, whether multilateral or bilateral, was demonstrated. However, it must be acknowledged that whether the UNSG is a proper place to state any official position on the application of bilateral treaties is questionable. The website of the UN Treaty Collection, where both the treaties deposited with the UNSG and China’s notifications are found, states the following: This database contains: All multilateral treaties deposited with the Secretary-General (presently over 560 treaties); The Charter of the United Nations, in respect of which certain depositary functions have been conferred upon the Secretary-General (although the Charter itself is deposited with the Government of the United States of America); Multilateral treaties formerly deposited with the Secretary-General of the League of Nations, to the extent that formalities or decisions affecting them have been taken within the framework of the United Nations; and Certain pre-United Nations treaties, other than those formerly deposited with the Secretary-General of the League of Nations, which were amended by protocols adopted by the General Assembly of the United Nations.94 Based on this information, it is clear that the depository function of the UNSG is probably related to the deposit of multilateral treaties, or, at least, this is the practice followed by all United Nations (UN) countries. If so, the observation of the Singaporean Court that the depository function of the UNSG relates to only multilateral treaties is reasonable. The author thus concludes that even though the intention of China is reasonably clear in the notifications to set out rules for the application of both multilateral and bilateral treaties to Hong Kong and Macao after their respective handover (even assuming at the same time that the unilateral declarations of China were accepted by the international community), the intention of restricting the operation of BITs may not be noted by the international community because there is no evidence that the international community is expecting to deal with the issue of BITs in the UN Treaty Collection. It can therefore be argued that even if we recognize the legal effect of the notifications as an express intention of China to displace the operation of the MTF doctrine in the case of multilateral treaties, it is not convincing to argue that the intention of displacing the operation of the MTF doctrine in the case of BITs is also noted by other UN countries. In addition, whether or not the notifications can effectively displace the MTF doctrine in the case of multilateral treaties must also be determined by referring to the position of other countries that are China’s treaty partners. The general legal effect of unilateral declarations/notifications have been examined in the previous section of this article. In the present international practice, except for the UK and Portugal, most countries have not expressed their confirmation on accepting China’s position to deny the application of any multilateral treaties to Hong Kong and Macao by way of the notifications to the UNSG. Nor has any country challenged such practice either. However, this does not mean there is no controversy on the treaty application issue either. One of the typical examples of uncertainty in the operation of the MTF doctrine in the case of multilateral treaties is the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG), which stipulates its own procedures for excluding any territory of a contracting State from the scope of operation.95 China has not followed the procedures of Article 93 of the CISG in excluding Hong Kong and Macao from the scope of application of the CISG, but it has not included the CISG in the lists of the aforesaid notifications to the UNSG. This means that China intends to exclude Hong Kong and Macao from the scope of operations of the CISG to which China is a party. No country has ever publically announced its position on whether to accept China’s exclusion in such a manner. However, both the courts and tribunals and academics are divided on whether the CISG, as it exists now, should apply to Hong Kong and Macao.96 China’s intention to only extend those treaties that are considered by it to be appropriate to Hong Kong and Macao is seen clearly in Chinese domestic law. Article 153 of the Hong Kong Basic Law and Article 138 of the Macao Basic Law both state the same principle that treaties ratified by China may be extended to Hong Kong or Macao at the option of the Central Government of China after consultation with the relevant SAR government. Clearly, the position of China is that any treaty, whether multilateral or bilateral, that has not been extended to Hong Kong or Macao, according to the relevant procedures stated in the relevant Basic Law, is not applicable in Hong Kong or Macao. Even though China’s intention is clear, it is not clear whether the other contracting parties have accepted the arrangement; it is an issue that has not been formally settled. In most cases, whether multilateral or bilateral, most of the other contracting parties are silent on this arrangement. According to the general principle of international law, the silence or inactivity on the side of the other contracting parties may not necessarily constitute an agreement with China’s position. However, in the absence of any express objection, China’s unilateral position may in practice be accepted by the courts or tribunals operating outside of China, which may or may not be aware of the common intention of all of the contracting parties to any treaty in question. As we have seen, China’s intention to set out its own rules on the application of treaties to Hong Kong and Macao is clear. However, the real question is whether the international community, and, in particular, China’s treaty partners, have acknowledged and accepted this intention. In his article, Xu makes a broad statement that the treaty practice of China on Hong Kong and Macao has been understood and accepted by the international community and especially by foreign governments.97 There is no evidence of this given in the article. As we have seen in our discussions, the intention of the UK and Portugal to accept China’s position on treaty application to Hong Kong and Macao, respectively, was seen in the relevant joint declaration. As we have also seen, the NVs exchanged between the Chinese government and the Laotian government may be regarded in the judgment of the Singaporean Court of Appeal as evidence of their common intention on the application of the China–Laos BIT to Macao if the NVs were exchanged before the dispute was submitted to arbitration. As we have also seen, the China–Russia BIT expressly excludes Hong Kong and Macao from its operation. All of this evidence serves as examples of agreement and acceptance of China’s position on treaty application to Hong Kong and Macao. Accordingly, in the absence of such evidence or any other evidence carrying the same or similar message, it is difficult to confirm whether the international community and foreign governments have all agreed and accepted China’s position, which displaces the operation of the MTF doctrine in the case of Hong Kong and Macao. For example, the Peruvian government did not challenge the applicability of the China–Peru BIT in the Tza Yap Shum case. It appears that the Peruvian government might have raised the issue of eligibility of a Hong Kong resident to resort to protection under the China–Peru BIT, but this argument was different from arguing that the China–Peru BIT does not apply to Hong Kong. In the view of the Tribunal in this case, the Claimant was a Chinese national, as defined by the China–Peru BIT, who was then eligible for protection under the China–Peru BIT for his investment in Peru, and, thus, it is not necessary to decide whether this BIT applies to Hong Kong territorially.98 The particular argument pursued by the Peruvian government and the Tribunal is interesting in the sense that the Tribunal separated the eligibility issue and the applicability issue. Technically, the Claimant, as a Hong Kong resident, is indeed a Chinese national whether Hong Kong is a SAR of China or not. However, China’s position is that a BIT does not apply or extend to Hong Kong and Macao unless the Central Government has expressly stated that this is so and domestic process for such an extension has been complied with. In any case, leaving the technical aspect of the Tza Yap Shum case aside, it can be observed that according to State practice and the general principles of international law, silence may not constitute the kind of consent that may effectively displace the MTF doctrine in cases of State succession or a situation similar to State succession. VIII. COMMON INTENTION OR AGREEMENT AS THE KEY TO DISPLACE THE MTF DOCTRINE The intention or common intention of the contracting parties is one of the key factors to make treaty law workable. Since both multilateral and bilateral treaties represent the common understandings and agreements of the contracting parties, international law imposes an obligation upon all contracting parties to be bound by the treaty so concluded. Voluntary submission of a country’s sovereignty to the binding effect of a treaty is the rationale for enforcing a treaty obligation against contracting parties. Only when all countries follow the same rationale may the treaty law take the effect of establishing order and harmony between the contracting parties. Therefore, it must be emphasized that, as a general principle of treaty law, an intention to be bound by the terms of a treaty and good faith in performing the treaty obligations are essential for maintaining a certain order in the international community and for ensuring the conduct of States in the international community. For this purpose, the preamble of the VCLT declares99 that the contracting parties note ‘that the principles of free consent and of good faith and the pacta sunt servanda rule are universally recognized’ as part of the underlying principles of the VCLT. There is no universal formality for establishing the common intention or agreement of the contracting parties to displace the MTF doctrine in cases where State succession occurs. In order to avoid confusion, the author wishes to emphasize that the concept of State succession is defined clearly in Article 2 of the VCST,100 which ‘means the replacement of one State by another in the responsibility for the international relations of territory’. This definition does not refer to the sovereignty of the territory or State in question. Instead, the reference is made to the responsibility for the international relations of a territory. This means that the sovereignty of a State over a territory is not the key factor for determining whether a succession of State has taken place and that State succession occurs as long as a State, whether through the act of a sovereign, trustee, guardian or caretaker, as the case may be, has taken over the responsibility for international relations of the territory in question. Thus, the broad meaning of State succession may cover both the case of Hong Kong and Macao because, since the relevant date, China has taken over the responsibility for international relations of Hong Kong and Macao from the UK and Portugal, respectively, regardless of whether we describe these handovers as reassuming, returning or recovering China’s sovereignty over the two territories. Even though China is not a party of the VCST, the author agrees with the Singaporean Court in Sanum Investments that the MTF doctrine has become customary international law,101 which binds China according to the general principles of international law as well as the underlying principles stated in the preamble to the VCLT, to which China is a party. It can be argued that the MTF doctrine, as recognized in the VCST, operates in the context of State succession, as defined in the VCST. Accordingly, whether China’s unilateral intention to restrict or displace the use of the MTF doctrine to Hong Kong and Macao is effective must be assessed in the context of the VCST. The key issue then is whether China’s unilateral intention has been accepted by the other contracting parties as the common intention of the parties. Since this article focuses on BITs only, the author only examines the common intention in the context of BITs. We all agree that BITs are bilateral. Thus, whether or not a particular BIT applies to Hong Kong or Macao must be decided by China and the other contracting party in the BIT in question. Therefore, China must establish that both China and the other country concerned have agreed that the BIT in question does not apply to Hong Kong and Macao, unless China has specifically announced its application to Hong Kong and Macao. In light of the Judgment of the Singaporean Court of Appeal, where the court examined what China and Laos had done specifically with respect to the exclusion of the China–Laos BIT to Macao prior to the submission of the dispute to arbitration, the author argues that it was up to China to prove that its intention to exclude Hong Kong and Macao generally from the application of its BITs has been accepted by the other contracting party. China also needs to prove that such an arrangement, which may effectively displace the operation of the MTF doctrine, has been either expressly, or probably, accepted by the other contracting party of the BIT in question. In practice, any supplementary arrangement or exchange of diplomatic notes would be sufficient to constitute such a common intention or understanding. In addition to the express agreement with China on treaty application to Hong Kong and Macao, the author argues that it is also possible to establish this by relying on certain unilateral acts of a foreign State (note that omission is not an act). China may also establish that its intention to displace the use of the MTF doctrine has been probably accepted by another State. For example, the USA passed its Hong Kong Policy Act in 1992.102 Section 5701(E)(2) of the Act states that the ‘Congress declares its wish to see full implementation of the provisions of the Joint Declaration’. In a similar manner, section 5701(E)(3) of the Act states that the ‘President has announced his support for the policies and decisions reflected in the Joint Declaration’. Based on these statements, China may argue that its position (which is also the common intention of China and the UK) to displace the MTF doctrine as reflected in the Joint Declaration has been noted and accepted by the USA because the agreed arrangements for the application of Chinese treaties to Hong Kong fall into the categories of ‘provision of the Joint Declaration’ and of ‘the policies and decisions reflected in the Joint Declaration’. Even though it appears that there are some strong grounds for China to argue that its position to displace the MTF doctrine has been accepted by the USA, it also has to be acknowledged that this Act does not make any direct reference to the application of the Chinese treaty to Hong Kong after 1997. The contrast is seen in Section 5721(b), which establishes a presumption that all treaties between the USA and the UK that applied to Hong Kong prior to 1997, and between the USA and Hong Kong that were made before 1997, would continue to apply unless or until they were terminated in accordance with law. It must be emphasized that this presumption does not refer to the application of Chinese treaties to Hong Kong after 1997. What does this mean? On the one hand, it can be argued that the application of Chinese treaties to Hong Kong is not covered by section 5721. On the other hand, based on the policy statements made in section 5701, China may argue that the presumption is that Chinese treaties would not apply to Hong Kong unless or until they are declared to be applicable in accordance with the law. Can a US court accept such an interpretation? The author observes that by referring to the relevant provisions of the Hong Kong Policy Act, the position of the US government on the displacement of the MTF doctrine in the case of treaty application to Hong Kong is not certain. By referring to both the position statements as seen in section 5701 of the Hong Kong Policy Act and the silence of the US government on treaty application to Hong Kong after 1997, it is possible for China to prove that its position or intention on treaty application to Hong Kong has been established. There is still a possibility that a US court or tribunal may not agree with the Chinese government on whether the MTF doctrine has been displaced as far as the bilateral treaties between China and the USA are concerned. In conclusion, it can be observed, in theory, that China can establish the common intention between it and another contracting party to displace the MTF doctrine either by way of mutual agreement, communication or by proving the existence of certain positive acts of a unilateral nature, which suggests that China’s position on treaty application to Hong Kong and Macao has been accepted by a particular country. IX. CONCLUSION China has created ‘One Country, Two Systems’, which is unique in terms of both its constitutional arrangement and international law. Constitutionally, China is still a country with a centralized government, but Hong Kong and Macao are allowed to maintain their legal traditions and to adopt political systems that are different from the political system of China. Internationally, China is a unitary State, but Hong Kong and Macao are allowed to conduct certain international activities that do not require sovereignty as a precondition. This is unique in the world. Most federal countries in the world do not give their member States any external power. Therefore, the present constitutional arrangement of ‘One Country, Two Systems’ in China is unprecedented. When such a political system is trying to establish its status in the present international order, some conflict, uncertainty and adjustment on both the side of China and the international community can be expected. The Chinese position on treaty application to Hong Kong and Macao has raised some challenges for the present international rules of State succession and, in particular, on the operation of the MTF doctrine. Frankly speaking, the potential scope of conflict that may be caused by the Chinese position on treaty application to Hong Kong and Macao has never been seriously considered until recently when the Tza Yap Shum case and the Sanum Investments case were decided. The two cases raise certain unprecedented questions on treaty application, which had never before been seriously considered by the international community. In summary, the Tza Yap Shum case and Sanum Investments case raise challenges to both China and the international community in the following ways. First, both cases involve the applicability of Chinese BITs to Hong Kong or Macao. However, it is interesting to note that in the Tza Yap Shum case, the Peruvian government does not argue that the China–Peru BIT in question applies to Tza Yap Shum who is an investor from Hong Kong. In comparison, in Sanum Investments, the Laotian government argues strongly that the China–Laos BIT does not apply to Macao and, thus, that the Claimant is not entitled to rely on the China–Laos BIT to establish his claim. By the end, both the Tribunal and the Committee in the Tza Yap Shum case and the Tribunal and the Singaporean Court of Appeal in Sanum Investments hold that the relevant BIT applies in the relevant case. Clearly, the findings of the relevant tribunals or the court in these cases are not what the Chinese government wishes to see because such consequence is not consistent with its stated position on the applicability of Chinese treaties to Hong Kong and Macao. Second, in the Tza Yap Shum case, the Peruvian government appears to have assumed that the China–Peru BIT should apply to Hong Kong. This observation is based on a lack of any contrary evidence in the awards delivered by the Tribunal and the ICSID ad hoc Committee. This case indicates that some of Chinese BIT partners do not have a clear understanding that China does not want any BIT to apply to Hong Kong and Macao unless certain domestic procedures for such application have been followed. Third, the judgment of the Singaporean Court of Appeal indicates that the MTF doctrine is crucial for determining whether any of China’s BITs applies to Hong Kong and Macao. Under this doctrine, the only way for China to exclude Hong Kong and Macao from the scope of application of any of its BITs is the establishment of the common intention of China and its relevant treaty partners before any dispute has arisen. The doctrine of critical date operates against any agreement or common understanding established or demonstrated after a dispute has been submitted to either arbitration or a court of law. Fourth, whether the Chinese practice to exclude Hong Kong and Macao from the application of multilateral treaties that it has ratified is effective in displacing the MTF doctrine is also arguable, although it is less controversial than the application of the bilateral treaties. The key issue is the evaluation of China’s notifications deposited with the UNSG in 1997 and 1999 respectively. The notifications indicate clearly the Chinese intention to extend only those treaties on the relevant list to Hong Kong or Macao accordingly. However, the validity of such ‘declarations’ or ‘diplomatic declarations’ may be challenged on the ground that some of the multilateral treaties have stipulated their own ways of restricting their own application. The question is whether a State’s unilateral intention on the application of a particular treaty can override the specific procedure or formality for restricting the application of the treaty? There could be different answers to this question. However, the author would argue that a different ‘critical date’ principle is relevant for making a reasonable decision. The critical date is whether a treaty that has its own procedure or formality for restricting its application was ratified by China before or after 1997 (as opposed to Hong Kong) and 1999 (as opposed to Macao). The author argues that since China has adopted the unique ‘One Country, Two Systems’ political structure only after 1997, it is not possible for China to comply with the relevant procedure for treaty operation prior to this critical date, unless the relevant treaty still allows China to make a declaration or reservation on the treaty application after 1997 or 1999 respectively.103 At the same time, it is reasonable to expect China to comply with the specific procedure or formality for treaty operation after 1997 or 1999 when it ought to have known the legal effect, requirement and formality for restricting the operation of any treaty it chose to ratify after these dates. A typical example of the multilateral treaty ratified after 1999 is the Convention on International Interests in Mobile Equipment (Cape Town Convention). China ratified this Convention in 2009.104 Article 52 of the Convention stipulates procedure and formality for any member to exclude any of its territory from the application of the Convention. China has not made any declaration in pursuance of Article 52.105 In the author’s view, the Cape Town Convention will apply to Hong Kong and Macao according to the rules of interpretation set out in the VCLT, even though China has not added this Convention to the lists deposited with the UNSG. The rationale is simple; when China ratified the Cape Town Convention in 2009, it already was in the ‘One Country, Two Systems’ structure, yet it chose not to make any declaration under Article 52. Therefore, it is not reasonable for China to rely on its notifications (or declarations) made in 1997 and 1999, respectively, to the UNSG to restrict the operation of the Convention it ratified in 2009, particularly when China failed to act according to the procedure and formality stipulated in the Cape Town Convention. Of course, China is free to make a declaration anytime under Article 52 of the Convention, but, before it does so, the Convention should be presumed to apply to Hong Kong and Macao. This is what the rule of law expects. In conclusion, the author argues that China must face the challenges raised by the two cases referred to in the present article, particularly Sanum Investments.106 game rule is crucial for maintaining order and harmonious relations between countries and in the present international community. All of these procedural and formality issues have nothing to do with the so-called core interests of China. Procedural and formality requirements, generally speaking, are not politically oriented, at least at this time. There is no reason why China cannot comply with these procedural and formality rules for treaty application. Enforcement and compliance with fair rules that are equal and non-discriminatory are in China’s best interests as well as in the interest of the international community as a whole. Of course, if China finds any of the existing multilateral treaties that contain any unfair and discriminatory rules against the present political structure of ‘One Country, Two Systems’, it is always free to protect its own interests by making its position and interest clear and public. Many treaties were made a long time ago. It is inevitable that some of the treaties will no longer meet the needs of the present international community. Some solutions can always be found for the common interests of all members of the international community. It is up to China to prove why it cannot comply with the relevant requirements of treaties and customary international law in determining which treaties apply to Hong Kong and Macao. Before its position can be accepted or agreed by most of the international community, China has no option but to comply with the existing international rules. As the author has noted earlier in this article, Xu’s article indicates that the Chinese government has realized the need to comply with the relevant international law on treaty application and State succession,107 particularly the MTF doctrine. As suggested by the judgment of the Singaporean Court of Appeal, the common intention of China and its BIT partners can be established using an exchange of diplomatic notes or other official communications, subject only to the critical date rule. Therefore, one of the possible ways for China to avoid further confusion on the treaty application, particularly with respect to bilateral treaties, is to reach a common understanding and intention by communicating officially with the relevant countries. For this purpose, a feasible way is to list all bilateral treaties with other countries and make it clear which of them apply to Hong Kong and Macao and which of them do not in the hope that the other countries would confirm their agreement with this intention or arrangement. China has signed investment treaties and other treaties of commercial and civil nature with more than 100 countries.108 Such a country-based arrangement may be easier than signing supplementary treaties or adding supplementary provisions to all bilateral treaties of various degrees on a case-by-case basis. Of course, another possible way is for China to make a general statement on its position of treaty application to Hong Kong and Macao, which is the same as the rules stipulated in the relevant Basic Law, and send the statement to all countries that have concluded treaties with China, seeking their recognition of China’s general position. Since such a statement has wide implications for all existing treaties ratified by China, it would be hard for other countries to assess the existing and potential implications of such a statement. Therefore, it is hard to foresee the possible responses of most countries. In general, the author feels that China can either make some package arrangement with a particular country to state that the bilateral treaties between them does not apply to Hong Kong and Macao, or make a general statement concerning a particular multilateral treaty to exclude Hong Kong and Macao from the scope of the treaty would be feasible ways to deal with the dilemma raised in the paper. However, either way, China has to obtain consent from other country or comply with particular formality under any multilateral treaty for exclusion of its operation. China thus has to take the issue seriously to avoid future complications. Footnotes 2 The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China 1990 (Hong Kong Basic Law); The Basic Law of the Macao Special Administrative Region of the People's Republic of China 1993 (Macao Basic Law). 3 Basic Law of Hong Kong (n 2) art 153 and Basic Law of Macao (n 2) art 138. 4 Congo and Others v FG Hemisphere Associates LLC, FACV No 5-7 of 2010, (8 June 2011) (2011) 14 HKCFAR 95; CFA (8 September 2011) (2011) 14 HKCFAR 395. 5 Standing Committee of the National Interpretation of Paragraph 1, Article 13 and Article 19 of the Basic Law of Hong Kong Special Administrative Region of the People's Republic of China (26 August 2011) <http://www.basiclaw.gov.hk/tc/materials/index.html> accessed 5 January 2018. 6 Sanum Investments Ltd v Government of the Lao People's Democratic Republic [2016] SGCA 57 (Sanum Investments, Appeal Decision). 7 Hong Xu, ‘The Practices of Applying International Treaties to Hong Kong and Macao SARs’ Legal Daily (22 October 2016) (in Chinese) <http://news.xinhuanet.com/legal/2016-10/22/c_129333036.htm> accessed 5 January 2018. Government of Laos People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15 (Sanum Investments, Trial Decision). 8 Xu (n 7). 9 ibid. 10 ibid. 11 Agreement between the Government of the People’s Republic of China and the Lao People’s Democratic Republic Concerning the Encouragement and Recprical Protection of Investments (signed 31 January 1993, entered into force 1 June 1993) (China-Laos BIT). 12 Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57 (Sanum Investments, Appeal Decision). 13 Sanum Investments, Trial Decision (n 7) para 10. 14 Sanum Investments, Appeal Decision (n 12) para 6. 15 ibid. 16 Michael Hwang and Aloysius Chang, ‘Government of the Lao People’s Democratic Republic v Sanum Investments Ltd-A Tale of Two Letters’, (2015) 30(3) ICSID Rev-FILJ 506, 507. Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules) (2010). 17 Hwang and Chang (n 16) 507. 18 Sanum Investments, Trial Decision (n 7) paras 63, 70, 77, 78. 19 ibid para 128. 20 Vienna Convention on the Law of Treaties (opened for signature 23 May 1969, entered into force 27 January 1980) (VCLT); Vienna Convention on Succession of States in Respect of Treaties (opened for signature 23 August 1978, entered into force 6 November 1996) (VCST). 21 Sanum Investments, Appeal Decision (n 12) para 27. Ladd v Marshall [1954] 1 WLR 1489. 22 Sanum Investments, Appeal Decision (n 12) para 35. 23 ibid para 65. 24 ibid paras 104, 121. 25 ibid para 121. 26 ibid. 27 ibid, para 35. 28 For discussion of MTF, please see section V of this article. 29 VLCT (n 20) art 29 and 31; VCST (n 20) art 15. 30 VCLT (n 20) art 31. 31 ibid para 54. 32 ibid para 56. 33 ibid paras 57, 58. 34 ibid para 59. 35 ibid. 36 ibid. 37 ibid para 60. 38 For the meaning of critical date doctrine, see the ICJ judgment in Sovereignty over Pulau Ligitan and Pulau Sipadan [Indonesia/Malaysia], ICJ Reports 2002, p 682, para 135. In this case, the ICJ observes that “[I]t cannot take into consideration acts having taken place after the date on which the dispute between the Parties crystallized unless such acts are a normal continuation of prior acts and are not undertaken for the purpose of improving the legal position of the Party which relies on them. 39 ibid para 65. 40 ibid para 67. 41 ibid para 69. 42 ibid para 74. 43 ibid para 75. 44 ibid para 76. 45 ibid para 77. 46 ibid paras 78, 79. 47 There is no art 8 in the Joint Declaration. There may be a typo in paragraph 81 of the judgment, which refers to article 8 of the Joint Declaration. 48 Sanum Investments, Appeal Decision (n 12) para 81. 49 ibid. 50 ibid para 82. 51 ibid para 82. 52 Xu (n 7). 53 The author has found both the Chinese version and English version of the Joint Declaration on the official website of the Macao government. Article 8 of the annex I of the Joint Declaration states clearly that if a treaty is to be applied or extended to Macao, certain procedures should be followed. Such intention is clearly seen in the Chinese version, which is the authentic version of the Declaration. The other authentic version is the Portuguese one. The English version is only a translation of the Chinese version. In any case, if any difference arises from different versions, only the Chinese and Portuguese ones are official and authentic. 54 Sanum Investments, Appeal Decision (n 12) para 87. 55 ibid paras 88 and 89. 56 ibid para 90. 57 For details of the two notifications, please see the UNTC website at: https://treaties.un.org/pages/historicalinfo.aspx#China. 58 ibid para 93. 59 ibid para 94. 60 WTO Trade Policy Review, Macao China 2001, para 95. 61 ibid para 95. 62 ibid para 98. 63 ibid. 64 ibid paras 47, 58, 75–8. 65 ibid para 47. 66 ibid para 49. 67 ibid para 52. 68 ibid para 53. 69 ibid para 55. 70 ibid para 60. 71 ibid para 76. 72 Ministry of Commerce People's Republic of China, ‘Bilateral Investment Treaty List’ <http://english.mofcom.gov.cn/article/bilateralchanges/201603/20160301286029.shtml> accessed 5 January 2018. 73 Agreement between the Government of the Russian Federation and the Government of the People’s Republic of China on the Promotion and Reciprocal Protection of Investments (signed 9 November 2006, entered into force 1 May 2009) (China-Russia BIT). 74 Xu (n 7). 75 The following summary is based on Xu’s article (n 7). 76 ibid. 77 ibid. 78 ibid. 79 VCST (n 20) art 2. 80 Wang Yu, ‘Legal Status of Macao SAR’ (2009) 2 Academic Journal of One Country Two Systems 65 (in Chinese). 81 Guiding Principles Applicable to Unilateral Declarations of States Capable of Creating Legal Obligations, with Commentaries, ILC YB 2006, vol II/2, 26 <legal.un.org/ilc/texts/instruments/english/commentaries/9_9_2006.pdf> accessed 5 January 2018 (Guiding Principles). 82 ibid art 1. 83 ibid art 1. 84 Eg, see Matthew Liles, ‘Did Kim Jong-Il Break the Law? A Case Study On How North Korea Highlights the Flaws of the Non-Proliferation Regime’ (2007) 33 NC J Intl L & Com Reg 103; Marco A Martins, ‘An Alternative Approach to the International Law of State Succession: Lex Naturae and the Dissolution of Yugoslavia’ (1993) 44 Syracuse L Rev 1019; Carlos Iván Fuentes, ‘Chapter 3 The Imperfect Paradigm: Article 38 of the Statute of the International Court of Justice’ (2016) 57 Ius Gentium 51. 85 Guiding Principles (n 82) art 9. 86 Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Award (7 July 2011). 87 Agreement between the Government of the Republic of Peru and the Government of the People’s Republic of China Concerning the Encouragement and Reciprocal Protection of Investments (signed 9 June 1994, entered into force 1 February 1995) (China-Peru BIT). 88 Joint Declaration of the Government of the Portuguese Republic and the Government of the People's Republic of China on the Question of Macao, 13 April 1987, 1498 U.N.T.S. 195 (entered into force 15 January 1988), annex I, art VIII; Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong, 19 December 1984, annex I, art XI. 89 Sanum Investments, Appeal Decision (n 12) paras 72–91. 90 Sanum Investments, Appeal Decision (n 12) paras 57, 63, 72–91. 91 Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009); Tza Yap Shum v Republic of Peru, Award (n 84) Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6, Decision on Annulment (12 February 2015). ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules) (April 2006). 92 ibid. 93 See United Nations Treaty Collection, Multilateral Treaties Deposited with the Secretary-General, ‘Notes on China’ <https://treaties.un.org/pages/historicalinfo.aspx#China> accessed 5 January 2018. 94 ibid. 95 United Nations Convention on Contracts for the International Sale of Goods (opened for signature 10 April 1980, entered into force 1 January 1988) (CISG). 96 For the view claiming that the CISG should be applied to Hong Kong and Macao because China has not excluded its application in pursuance of art 93 of the CISG, see Ulrich G Schroeter, ‘The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods’ (2004) 16 Pace Intl L Rev 307. For the view claiming that China’s intention to exclude Hong Kong and Macao from the scope of the CISG is based on China's notification to the UNSG, see John Mo, ‘Transfer of Sovereignty and Application of an International Convention: CISG in China in the Context of “One Country, Two Systems”’ (2015) 2(1) J Intl & Comp L 61. Both articles review some of the inconsistent international practices on whether the CISG should be applied to Hong Kong and Macao. 97 Xu (n 7). 98 Tza Yap Shum, Decision on Jurisdiction and Competence (n 92) para 68. 99 VCLT (n 20) preamble. 100 VCST (n 20) art 2. 101 Sanum Investments, Appeal Decision (n 12) para 47. 102 P.L. no. 102-383m 106 Stat. 1448. 22 USC Ch. 66. 103 The author wishes to point out that some of the multilateral treaties ratified by China prior to 1997 and 1999 may not contain adequate procedure or formality for China to make a declaration or reservation on the application of the treaties after the adoption of the ‘One Country, Two Systems’ state structure. Eg, art 93(1) of the CISG states as follows: ‘(1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.’ This provision allows a State to declare that the Convention does not apply to some of its territory ‘at the time of signature, ratification, acceptance, approval or accession’. It also allows the State to amend its ‘declaration’ at any time. Virtually, this provision does not allow China to make a declaration to exclude Hong Kong and Macao from the scope of the CISG application at a time after its ‘signature, ratification, acceptance, approval or accession’. This is why the author believes that China should not be blamed for not complying with art 93 of the CISG to exclude Hong Kong and Macao from the scope of the CISG and that China’s notifications to the UNSG should be regarded as an intention of China to exclude Hong Kong and Macao from the scope of the CISG. Of course, whether other CISG members accept this intention is another issue. For the details of the author’s view, see Mo (n 97). 104 Convention on International Interests in Mobile Equipment (opened for signature 16 November 2001, entered into force 1 March 2006. It entered into force for China on 1 June 2009). 105 Convention on International Interests in Mobil Equipment art 52 available at <http://www.unidroit.org/status-2001capetown> accessed 5 January 2018. 106 Sanum Investments, Appeal Decision (n 12). 107 In Dr Xu's article, he indicates that in order to avoid further misunderstandings or misjudgments of foreign courts and arbitral tribunals, it is necessary to adopt measures to clarify China's position on treaty application to Hong Kong and Macao. See Xu (n 7). 108 For information on China's BITs, see Investment Policy Hub, at http://investmentpolicyhub.unctad.org/IIA/CountryBits/42. © The Author(s) 2018. Published by Oxford University Press on behalf of ICSID. All rights reserved. For Permissions, please email: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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ICSID Review: Foreign Investment Law JournalOxford University Press

Published: Apr 19, 2018

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