2.1 Guinea Country Profile

The target project, the alumina refinery and proposed coal-fired power plant, is located in the Boké prefecture of the Republic of Guinea. Guinea is a West African country located on the Atlantic Ocean and bordered by Sierra Leone, Senegal, Guinea-Bissau, Liberia, Côte d’Ivoire, and Mali. Boké prefecture is located in the northeastern part of the country and is home to more than 480,000 people in ten subprefectures that are composed of twenty-four distinct village communities.Footnote ⁴

The major exploitable mineral resources in Guinea include bauxite, iron, diamonds, gold, and uranium.Footnote ⁵ Guinea contains a third of all known bauxite reserves in the world and SMB is the largest producer of bauxite in the country.Footnote ⁶ Bauxite is needed to produce aluminum, and China is the world’s largest producer of aluminum, thus its access to Guinea’s mines is an economic imperative. However, the main economic activities in the region include subsistence agriculture, fishing, salt farming, livestock, and handicrafts – all of which are threatened by bauxite mining activities.Footnote ⁷ Despite Guinea’s copious natural resources and bauxite reserves, it is one of the poorest countries in the world.Footnote ⁸

The country’s current predicament reflects a complicated history. Guinea achieved its independence from French West Africa in 1958.Footnote ⁹ After gaining independence, Guinea was ruled by authoritarian leaders, Sékou Touré, Lansana Conté, and Captain Moussa Dadis Camara, for more than fifty years.Footnote ¹⁰ In 2010, for the first time since gaining its independence from France, Guinea conducted elections to choose its next ruler, President Alpha Condé.Footnote ¹¹ A new constitution was passed in 2010 and then again in 2020.Footnote ¹² These legal reforms had limited effect on the mining industry, which has been central to the country’s economy.

Condé expanded the mining sector, particularly the bauxite mining sector, during his time as president and promulgated a new mining code meant to improve mining regulations and increase profits for the government from mining.Footnote ¹³ However, the bauxite mining sector faced some initial setbacks during Condé’s first term, including resistance from companies that, as a result of the new regulations, had to pay higher taxes (the 2011 Mining Code was amended in 2013 because of this issue), the Ebola epidemic, and low global prices for bauxite.Footnote ¹⁴ The bauxite sector boomed after Condé’s first term in office after other bauxite-producing countries banned exports and Chinese demand for bauxite increased.Footnote ¹⁵

Condé ran for and won a contentious third term in 2020 and remained in power until he was overthrown by a military coup in late 2021.Footnote ¹⁶ The ruling military junta suspended the 2020 Constitution and instituted a Transitional Charter with Col. Mamady Doumbouya serving as the transitional president.Footnote ¹⁷ As of 2023, Guinea’s ruling military junta has yet to conduct elections to determine the country’s next leader. It is also worth noting that the Natural Resource Governance Institute has consistently given Guinea low scores in the category of rule of law; in 2021, Guinea received a ranking of just 15 out of 100.Footnote ¹⁸

2.2 Guinea–China Relations

In the past decade, Guinea and China have deepened their relations. In November 2016, President Condé paid a state visit to China to meet with President Xi Jinping. The two heads of state decided to establish a comprehensive strategic partnership and to take the implementation of the outcomes of the 2015 Johannesburg Summit of the Forum on China-Africa Cooperation (FOCAC) as an opportunity to deepen and expand friendly and mutually beneficial cooperation between the two countries in various fields and create a broader future for China–Guinea relations.

In September 2017, China and Guinea signed the “China-Guinea Resource and Loan Cooperation Framework Agreement” in Xiamen, China.Footnote ¹⁹ In the agreement, Guinea granted Chinese corporations exploration rights for bauxite, iron, and other mineral resources, while China agreed that Chinese financial institutions would provide the necessary loans for the extraction projects.Footnote ²⁰ The agreement notes that over the next twenty years (2017–2036) the amount of money invested in mining projects in Guinea by China would reach US$20 billion.Footnote ²¹ A list of priority projects added as an addendum to the agreement includes bauxite mining projects in Boffa and Boké.Footnote ²² Overall, this resource for infrastructure agreement seeks to accelerate China-financed extraction of mineral resources in Guinea.

In September 2021, after the military coup overthrew President Condé from office, Chinese companies remained active in Guinea. However, the Chinese government condemned the coup and urged for the immediate release of President Condé.Footnote ²³ A spokesperson for the Chinese Foreign Ministry, Mr. Wang Wenbin, stated in a press conference concerning the coup that “[w]e hope relevant parties can exercise calm and restraint, bear in mind the fundamental interests of the nation and people, resolve the relevant issue through dialogue and consultation and safeguard peace and stability in Guinea.”Footnote ²⁴

2.3 China’s Climate and Biodiversity Commitments in the Context of Chinese Laws and Policies on Outbound Direct Investments

China’s outbound direct investments regime is designed with the objective of safeguarding state-owned assets and their financial security. The environmental and social impact of offshore projects has not been a core concern of the Chinese government, and as such, there is no legislation with enforcement effect to screen the environmental and social impact of overseas investment projects. In addition, institutionally, the Ministry of Ecology and Environment, the main administrative agency in charge of environmental affairs in China, does not have the mandate to regulate overseas projects.Footnote ²⁵

Recognizing the threat that climate change poses, China has made significant commitments to reduce emissions in its international investments, particularly in developing nations. In 2021, FOCAC published the “Declaration on China-Africa Cooperation on Combating Climate Change.”Footnote ²⁶ The Declaration states that both China and African countries will advocate for and advance sustainable development and will “promote ‘green recovery’” in a post-COVID economy. Further, China commits to promoting low-emission technologies in Africa, including solar and wind-powered energy production. The Declaration also states that China “will not build new coal-fired BRI power projects abroad.” China’s National Development and Reform Commission (NDRC) has made similar commitments to sustainable development in the Belt and Road Initiative (BRI).Footnote ²⁷ Specifically, the NDRC commits China to promoting green energy in its operations abroad linked to the BRI,Footnote ²⁸ stating that “[e]nterprises shall be encouraged to promote green and environmental protection standards and best practices for infrastructure.” Additionally, the NDRC notes in their opinion that “the full implementation” of China’s and participating African countries’ commitments under international climate agreements including the Paris Agreement shall be promoted.Footnote ²⁹ The NDRC further states that “[t]he construction of overseas coal-fired power projects shall be completely stopped.”

China made similar goals for green international development in the notice by the Ministry of Commerce and the Ministry of Ecology and Environment on issuing the “Green Development Guidelines for Overseas Investment and Cooperation.”Footnote ³⁰ An enumerated goal for Chinese outbound investment stated in the guidelines is to “support outbound investment in clean energy such as solar, wind, nuclear and biomass energy, facilitate the global revolution of energy production and consumption, and build a clean, low-carbon, secure and efficient energy mix.” In September 2021, at the 76th UN General Assembly, President Xi Jinping stated, “China will vigorously support the green and low-carbon development of energy in developing countries and will no longer build new overseas coal power projects.”Footnote ³¹ Further, China reiterated the goal to not build any new coal power plants abroad in the communication to the UN Framework Convention on Climate Change (UNFCCC) on China’s Nationally Determined Contributions.Footnote ³²

2.4 Guinean Governmental Structure on Mining, Natural Resource Management, and Environmental Matters

While conducting mining operations in Guinea, SMB not only should abide by the laws and policies of China but is legally bound by the laws of the Republic of Guinea in relation to the environment and human rights. Institutionally, both the Ministère de l’Environnement et du Développement Durable/Ministry of the Environment and Sustainable Development (MEDD) through the Guinean Environmental Assessment Agency (AGEE) and the Ministry of Mines and Geology have oversight of mining projects and the Environmental and Social Impact Assessment (ESIA) process in Guinea.

2.5 Guinean Environmental Laws and Decrees

The Guinean legal system is highly influenced by its history of French colonization and prescribes a civil law system. The relevant sources of Guinean law that provide the framework for regulating the mining industry include the Guinean Constitution of 2010 and 2020, as well as the Transitional Charter, the Environmental Code of Guinea 2019 and implementing regulations, and the Mining Code and implementing regulations.

The Constitution of Guinea guarantees the right to a healthy environment along with other environmental protections.Footnote ³⁴ Article 16 of the 2010 Constitution states, “[e]very person has the right to a healthy and lasting environment and the duty to defend it.”Footnote ³⁵ As mentioned, in 2020, a reformed constitution was passed by referendum.Footnote ³⁶ The 2020 Constitution contains a similar right to a clean and healthy environment in Article 22, which states in part that “[t]he right to a healthy environment is recognized throughout the territory.”Footnote ³⁷ After the 2021 coup, the ruling military junta suspended the 2020 Constitution and instituted a Transitional Charter. Because the SMB project began in 2014, all three texts (2010 Constitution, 2020 reformed Constitution, and the Transitional Charter) apply. The Transitional Charter does not contain any explicit protections for the environment.Footnote ³⁸

The Environmental Code of Guinea 2019 sets out a few basic overarching policies when it comes to environmental protection and energy generation. Generally, it promotes environmental sustainability, the consideration of climate issues, and the use of renewable energy. The Code places explicit duties on private companies operating in the extractives sector in Guinea, noting in Article 16 that “[p]rivate enterprises and public and mixed companies carrying out industrial and/or commercial activities shall be required to integrate environmental concerns into their operating, production and responsible management systems, meeting the requirements of sustainable development.”Footnote ³⁹ Article 9 of the Code notes that development projects in Guinea must take into account the importance of environmental protection and must adhere to several principles of environmental stewardship including, among others, the precautionary principle and the principle of sustainable development.Footnote ⁴⁰

Procedurally, the Environmental Code specifically requires that projects having an impact on the environment perform an ESIA.Footnote ⁴¹ Article 142 of the Mining Code also requires that mining companies complete an ESIA as a part of the application for an Authorization or Operation Permit and that the ESIAs prepared by companies abide by the Environmental Code and meet “internationally accepted standards.”Footnote ⁴²

According to Article 31 of the Environmental Code, “[w]hen the environmental and social impact study is deemed to be satisfactory, the minister in charge of the environment shall issue to the developer a certificate of environmental compliance.”Footnote ⁴³ Guinean regulations concerning ESIAs require that after the completion of the study period for the ESIA, a report (an environmental and social impact study report, known as REIES) must be submitted to the Ministry in charge of the environment for review by the CTAE.Footnote ⁴⁴ If the REIES is approved by the CTAE, the minister in charge of the environment must issue the environmental authorization or the environmental compliance certificate (certificat de conformité environnementale).Footnote ⁴⁵ Article 22 of Order A/2022/MEDD/CAB/SGG of 25 July 2022 on the administrative procedure for environmental assessment states that the environmental compliance certificate, which is granted by the minister of the environment on the recommendation of the CTAE, is valid for one year and is renewable each year.Footnote ⁴⁶

Additionally, as part of the ESIA process, companies operating in Guinea must produce an ESMP.Footnote ⁴⁷ The ESMP is a document that lays out the procedure for managing, implementing corrective or mitigation measures, monitoring, and following up on the environmental and social risks and impacts in preparation for and during the project that operating companies must adhere to.Footnote ⁴⁸ Each year, the company must submit an ESMP implementation report to the AGEE. This yearly report is a requirement for the renewal of the environmental compliance certificate.

2.6 International Treaties and Standards

Both China and Guinea are signatories of the UNFCCC. Article 3 of the UNFCCC states in part that “[t]he Parties should take precautionary measures to anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects.”Footnote ⁴⁹ Additionally, the Guinean ESIA regulations note that companies should adhere to national standards when conducting ESIAs, but when national standards are absent, companies should follow international best practices, specifically mentioning the International Finance Corporation (IFC) standards.Footnote ⁵⁰ The IFC standards aim to guide corporations on best practices to ensure that environmental and social rights of affected communities are respected and preserved.

IFC Performance Standard 3 concerns “Resource Efficiency and Pollution Prevention.”Footnote ⁵¹ A key objective of IFC Performance Standard 3 is “[t]o reduce project-related GHG [greenhouse gas] emissions.”Footnote ⁵² In relation to GHG emissions, IFC Performance Standard 3 instructs companies to consider less polluting alternatives to energy generation stating, “the client will consider alternatives and implement technically and financially feasible and cost-effective options to reduce project-related GHG emissions during the design and operation of the project.”Footnote ⁵³ The standard goes on to note that a reasonable project alternative may include “adoption of renewable or low carbon energy sources.”

Further, the IFC Performance Standards make reference to the World Bank Group Environmental, Health and Safety Guidelines (EHS Guidelines) and note that the EHS Guidelines are “technical reference documents with general and industry-specific examples of good international industry practice.”Footnote ⁵⁴ The IFC Performance Standards note that when the standards of a host country differ from standards presented in the EHS Guidelines, the company should abide by whichever standards are more stringent.Footnote ⁵⁵

3.1 SMB’s Environmental and Social Record in Boké, Guinea

In 2022, a Pan-African environmental NGO, Natural Justice, completed a Community Audit of the Boké area to determine the on-the-ground effects of SMB’s mining activities on local communities and their livelihoods. The Community Audit Report notes that the local economic activities impacted by SMB’s bauxite mining include agriculture (rice and mahogany), fishing, salt farming, livestock, trade, and handicrafts, and that these forms of subsistence are under threat due to the bauxite mining activities.Footnote ⁵⁸ Generally, the report notes the extreme degradation of the natural environment in Boké.Footnote ⁵⁹ Additionally, according to a report by Human Rights Watch, the required ESIA was not finished and approved before SMB began constructing mining infrastructure such as mining roads and ports.Footnote ⁶⁰ The same pattern of starting the operation before the ESIA was approved can be found at SMB’s investors’ Simandou iron mine-related infrastructure project, a violation of the Guinean Environmental Code.Footnote ⁶¹

One of the main concerns of local communities noted during the community audit is access to safe drinking water. SMB discharges wastewater directly into fields and local waterways, thereby polluting local water sources and making them unsuitable for human domestic use.Footnote ⁶² Uncontrolled and untreated runoff after periods of rain also contributes to pollution of local waterways, turning streams and rivers the deep red color of bauxite.Footnote ⁶³ Additionally, local communities complain that many of the boreholes and wells drilled by SMB to compensate for the pollution of streams and rivers are not functional. Of the thirty-one boreholes surveyed for the community audit report, only seven were found to be operational at the time of the audit.Footnote ⁶⁴

Another key environmental complaint of local communities is the copious amounts of dust generated from heavy machinery used for mining operations, including large trucks that travel through communities and on mining roads (Figure 6.1.1). Individuals from Katougouma complain that passing trucks kick up dust that deteriorates the air quality.Footnote ⁶⁵ Communities also complain that the dust coats their farms and food and has caused respiratory disease among locals.Footnote ⁶⁶ The Community Audit Report also notes that dust kicked up by trucks coats roadside fruit trees and discusses the need for a dust mitigation program.Footnote ⁶⁷ Additionally, community members have complained that their land rights have been violated by SMB. Specifically, in Boké, individuals complain that their customary land rights have been ignored and they have not been provided with adequate compensation.Footnote ⁶⁸

3.2 Civil Society Actions

Despite Xi Jinping’s pledge that China will no longer build coal plants overseas, many Chinese companies have continued with their plans to construct coal-fired power plants.Footnote ⁶⁹ Thus, bottom-up work led by civil society is necessary to ensure companies comply with both the Chinese government’s and the host country’s laws. A group of Guinean, regional, and international NGOs have been working together to design advocacy strategies to halt the construction of the coal plant in Boké. These NGOs include the Guinean human rights legal nonprofit Les Mêmes Droits pour Tous (MDT), the Association pour le Développement Rural et l’Entraide Mutuelle de Guinée, the US-based environmental legal nonprofit Center for Transnational Environmental Accountability (CTEA, Figure 6.1.2), Natural Justice, and the Ghana-based Advocates for Community Alternatives.

Figure 6.1.2

CTEA Executive Director, Jingjing Zhang, meeting with the Wawayiré village in the Boké prefecture

Even though both the validation of the ESIA of the refinery with the coal plant and the environmental compliance certificate were issued to SMB for the planned refinery and coal plant before Chinese President Xi Jinping announced in September 2021 that China would no longer build coal-fired power plants abroad, nonetheless, SMB failed to change its plan of building a captive coal plant to power the alumina refinery to align the project with China’s policy direction. The consortium of NGOs decided to take action to stop its plan. The main strategies identified include the following: first, applying pressure to SMB to comply with Chinese and Guinean climate policies and commitments, including by writing letters to the Guinean government and the Chinese Embassy in Conakry, media exposure, and participation in UN human rights mechanisms; and second, taking legal action, including access to information requests, Compulsoire,Footnote ⁷⁰ and administrative litigation,Footnote ⁷¹ in Guinea to challenge the approval process for the coal plant.

According to the news on China’s Ministry of Commerce website, other Chinese companies in the Boké and Boffa region, including the State Power Investment Corporation (SPIC), plan to build refineries with captive coal or heavy fuel oil burning plants despite Xi Jinping’s policy prohibiting coal plants.Footnote ⁷² The NGO consortium is currently working to expand its advocacy efforts to include all planned coal and heavy fuel oil burning plants.

On 13 June 2022, MDT submitted letters to the Ministry of Environment and Ministry of Geology and Mines urging them to cancel the plan to build a coal-fired power plant and replace it with a cleaner source of energy. Additionally, on 14 June 2022, one of the authors brought the MDT letters, two ESIAs (SMB and SPIC), and a letter calling for stopping the coal plants to the Chinese Embassy in Conakry (the capital of Guinea). These letters were meant to capitalize on China’s recent pledge not to build new coal-fired power plants abroad while simultaneously setting up potential administrative litigation if the Guinean government refuses to compel SMB to find a cleaner source of energy for the refinery project. In July 2022, both ministries responded favorably to the letters submitted by MDT with the Ministry of Environment stating that the department “will take all necessary steps to examine the concerns of the communities in the SMB mining area.”

In early 2023, MDT and CTEA submitted follow-up letters to both ministries and the Chinese Embassy in Conakry calling for the Guinean government to revoke the environmental compliance certificate and cancel the coal-fired power plant. Additionally, in April 2023, MDT submitted a request to the AGEE asking for a copy of the most recent environmental compliance certificate for SMB’s refinery and coal plant project. MDT met with officials from the AGEE and was told that no environmental compliance certificate had been issued to SMB, which was an excuse to avoid disclosing it. If informal processes to obtain the certificate continue to prove unsuccessful, MDT will submit a Compulsoire or formal information request seeking the certificate.

Crucially, the Compulsoire can be addressed to both the Ministry and the company. The environmental compliance certificate (as discussed in Article 31 of the Guinean Environmental Code) must be renewed each year. The environmental compliance certificate for the SMB’s refinery and coal plant ESIA are set to be renewed in May each year. If the certificate is renewed despite obvious deficiencies with the ESIA, as pointed out in MDT’s letters to the ministries, then the NGO consortium would bring administrative litigation to challenge the decision to renew in the Guinean courts.

On the international stage, CTEA and Natural Justice coauthored and submitted a shadow report to the UN Committee for Economic, Social, and Cultural Rights during its periodic review of China and highlighted Chinese companies’ plans to construct captive coal-fired power plants and made recommendations to the Committee that China has the obligation to oversee Chinese companies operating abroad regarding their human rights impact. As a result of this engagement, the Committee made the following recommendation to China in their concluding observations: “Suspend permissions to construct coal-fired power plants as well as pause ongoing financing construction hereof, including in the State party and abroad,” and “[e]nsure that business entities operating in the State party or those domiciled under the State party’s jurisdiction and those acting abroad, including their sub-suppliers, as well as institutions that provide financing, are held accountable for economic, social and cultural rights violations, paying particular attention to indigenous and peasants’ land rights, environmental impact.”Footnote ⁷³

Because of pressures built by the actions above, in July 2023, an SMB manager had orally promised to abandon its plans to build a coal-fired power plant. It was a victory for communities and civil society organizations. However, SMB is now looking to build a heavy fuel oil plant, which comes with more serious health impacts for the local community, and the legal battle and campaign to stop the fossil fuels power plants will be carried on to a new stage.

5.1 For Law School Audiences

Guinea is a country that has had a tumultuous political history and recently experienced a military coup in 2021. The military junta has yet to hold democratic elections to institute a new leader. Additionally, Guinea has suffered from a weak “rule of law.” The rule of law is defined by the UN as “a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards.”

While Guinea has several environmental statutes by which international corporations are required to adhere, Guinean institutions have failed to enforce these laws and the Guinean judiciary has proven difficult to access by impacted community members and the organizations representing community concerns. What actions do you propose such organizations take to ensure accountability in a country with a weak rule of law? Do you think mobilizing litigation, including administrative litigation or tort litigation, would be more successful in Guinea? Why or why not? What other legal tools are available? And who are the potential defendants? If formal institutions prove inadequate, what extralegal means may be more effective?

The SMB case may shed light on the disconnect, found elsewhere in China’s Belt and Road Initiative, between political rhetoric and the actual conduct of Chinese corporations. What legal avenues are available for affected parties to challenge environmental and human rights violations perpetuated by foreign companies or multinationals? What are SMB’s Chinese investors’ or its parent company’s legal liabilities? Can lawsuits similar to the US’s Alien Tort Claims Act be filed in China? What differentiates the legal liabilities of the parent company and its subsidiaries? Will using the corporation’s or financiers’ grievance mechanisms in China be possible? Are there any climate and biodiversity commitments strong enough to hold Chinese parties accountable to the host country’s laws and international law sources? Are current international environmental laws or international human rights laws adequate to provide legal bases and avenues to redress multinationals’ wrongdoings on the environment and communities?

5.2 For Policy School Audiences

As discussed in the case study above, SMB began construction of major mining infrastructure before completing the ESIA. The ESIA process is a crucial first step in any development project. Rushed or incomplete ESIA processes can undermine the entire purpose of evaluating the environmental and social impacts of a project. Additionally, SMB’s ESIA contained several deficiencies, including lacking a climate assessment, reasonable alternatives, and baseline air quality studies. An Environmental Impact Assessment (EIA) is a planning tool meant to assess environmental risks of a given project so that decision makers can make fully informed decisions regarding the project.Footnote ⁷⁴ If project developers begin construction before completing the ESIA, then decisions are made without critical environmental and social information that is crucial to ensuring responsible and sustainable development.

Based on the facts in this case study, what policy tools do you think would be the most effective in ensuring that Chinese companies adhere to their ESIA requirements? Additionally, what are some of the dangers to communities when companies begin construction of large development projects without properly conducting environmental assessments?

Under Guinean law, it is the company proposing the project that is required to conduct ESIAs for proposed projects. However, in other countries, such as the United States, it is the government that is required to conduct such studies.Footnote ⁷⁵ What are some of the benefits and/or risks of an EIA law that requires the company to conduct ESIAs? Do you think the purpose of environmental assessment laws would be better served if a company or the government conducted the studies?

3.1 Court Case: UMC and Jinhua

China’s ambition to lead in the semiconductor industry is intrinsically tied to its broader strategic objective of becoming a global powerhouse in AI. Both sectors are interdependent: Semiconductors serve as the foundational technology for AI-enabled applications. Take, for example, DRAMs. These chips are staples in everyday electronic devices like smartphones and computers, but their role has become increasingly important due to the data-intensive nature of modern AI applications. DRAM chips enable quick access to vast amounts of data, a necessity for the real-time processing performed by AI algorithms.

Despite the government’s generous funding for the semiconductor industry, Chinese firms have yet to break into the DRAM market. In terms of market share, Samsung and SK Hynix in South Korea continue to dominate the industry, followed by Micron in the United States. This monopolization is largely due to the highly competitive nature of the DRAM industry, which requires not just massive capital investment for manufacturing facilities but also specialized expertise. All these factors make it difficult for latecomers to challenge the dominance of the key players. Nonetheless, this has not stopped some key Chinese companies from trying and Micron was one such target.

Founded in 1978, Micron is a multinational corporation specializing in designing and manufacturing not just DRAM but also other types of memory chips such as NAND flash memory and solid-state drives. Headquartered in Boise, Idaho, in the United States, Micron also operates many production facilities in the Asia-Pacific region. Tsinghua Unigroup’s US$23 billion acquisition offer in 2015 was the first attempt to approach Micron.Footnote ⁷ Micron did not think this deal was realistic as it assumed that the US regulator would not approve the transaction due to national security concerns.Footnote ⁸ Hence, the deal did not go forward.

One year later, Micron was targeted by another Chinese company, Jinhua, a Fujian-based DRAM chipmaker. Unlike Tsinghua Unigroup’s straightforward takeover bid, Jinhua took a more circuitous route. Jinhua entered into a licensing agreement with UMC, a major Taiwanese semiconductor manufacturer. UMC had just recruited the president of Micron’s Taiwan branch, thereby gaining valuable insights into DRAM production. According to the Taichung District Court,Footnote ⁹ in January 2016 UMC struck a deal with Jinhua that provided UMC with US$700 million in exchange for developing and providing knowledge transfer about DRAM production processes. Up to this point, the deal appeared to be legally sound. However, two years later, in 2018, UMC and three individuals involved in the collaboration – Jianting Ho, Yongming Wang, and Letian Rong – were charged with criminal violations of Taiwan’s Trade Secret Law.

In 2020, the Taichung District Court found them guilty of infringing Micron’s trade secrets. UMC was ordered to pay a fine of NT$100 million.Footnote ¹⁰ Ho, Wang, and Rong were sentenced to five years and six months, four years and six months, and six years and six months, respectively.Footnote ¹¹ The decision was appealed to the Intellectual Property and Commercial Court (IPCC).Footnote ¹² In January 2022, the IPCC reversed the district court’s decision.Footnote ¹³ UMC’s fine was reduced to NT$20 million. Ho’s sentence was reduced to one year, whereas Wang’s was reduced to only six months. Rong was acquitted of all charges. The IPCC’s ruling against UMC is final. The charges against individuals were appealed by prosecutors to Taiwan’s Supreme Court. In August 2022, the Supreme Court reversed the decision and remanded the case back to the IPCC for further proceedings. As of September 2023, the criminal charges against Ho, Wang, and Rong are still pending in the IPCC.

According to the information presented in these decisions, the licensing collaboration between UMC and Jinhua raised some questions about potential irregularities, particularly given UMC’s area of expertise. UMC is a major semiconductor manufacturer focused primarily on the design and production of logic chips, not memory chips like DRAM. This specialization made the licensing arrangement with Jinhua, a DRAM chipmaker, somewhat unusual and prompted scrutiny.

To further contextualize, in 2015 UMC recruited Stephen Chen, who had previously served as the president of Micron Memory Taiwan Co., Ltd. (hereinafter, “MMT”). Chen was tasked with leading UMC’s New Business Development unit, established in January 2016 specifically to finalize a DRAM licensing deal with Jinhua. Chen also recruited two former employees from MMT, Ho and Wang, to join UMC’s new unit.

Both Ho and Wang had worked at MMT for several years, during which they had gained access to Micron’s confidential data and trade secrets related to memory chips. The fact that these individuals, who had access to sensitive Micron information, were now involved in a DRAM deal between UMC and Jinhua raises questions about the true intent behind the licensing arrangement.

Ho was accused of reproducing and using the trade secrets that he had acquired during his employment at MMT. Wang was introduced to UMC by Ho and was offered a salary that was equal to his position at MMT, plus an additional bonus upon signing another employment contract with Jinhua and working in Mainland China. Wang resigned from MMT on 26 April 2016 and started at UMC two days later. However, before leaving MMT, he downloaded and copied the company’s trade secrets onto a USB drive and uploaded them to his Google Drive. All these actions took place between 16 April and 23 April 2016 while Wang was still employed at MMT. He then used the data to help UMC develop DRAM products.Footnote ¹⁴ As the court shows, the licensing collaboration between UMC and Jinhua involved two stages: initially conducting research and development (R&D) in Taiwan and then transferring the technology to Jinhua.Footnote ¹⁵ In the scenario presented in the court decisions, talent acquisition and trade secret theft were the major measures adopted to achieve the licensing agreement’s objectives.

3.2 Regulatory Analysis

Currently, the key legislation that governs China’s investment in Taiwan is the Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area (hereinafter, the “Cross-Straits People Relations Act”).Footnote ¹⁶ Pursuant to Article 40-1 of the Act, Mainland Area profit-seeking enterprises, as well as their investments in other territories, are prohibited from conducting any business activities within the Taiwan Area without prior authorization from the competent authorities and the requisite establishment of a local branch or liaison office. Similarly, Article 73 mandates that individuals, juristic persons, organizations, or other institutions from the Mainland Area, along with any companies they invest in within other territories, may not partake in investment activities within the Taiwan Area without explicit permission from the competent authorities.

As the court decisions reveal, the licensing agreement between UMC and Jinhua received regulatory approval from the Investment Commission of the Ministry of Economic Affairs (MOEAIC) in Taiwan,Footnote ¹⁷ making it legitimate under current Taiwanese law. However, if Jinhua’s objective was merely to develop or acquire expertise related to DRAM production, this collaboration seems inefficient, especially considering that UMC does not specialize in memory chips. This raises the possibility that Jinhua’s strategy may have been designed to circumvent Taiwanese laws restricting the recruitment of talent from Taiwan, as prohibited in the Cross-Straits People Relations Act.

Article 34 of the Cross-Straits People Relations Act contains strict restrictions on job recruitment information for positions in Mainland China. According to this article, job positions in Mainland China cannot be advertised in Taiwan without permission. Advertisers or human resources agencies who violate this rule are subject to Article 89, Paragraph 1 of the Act. It stipulates that any person who entrusts to another, is entrusted, or acts on their own to engage in advertisement broadcast or publication, or any other promotion activity in the Taiwan Area for any goods, service, or other item of the Mainland Area other than those prescribed in Paragraph 1 of Article 34, or violates Paragraph 2 of Article 34 or the mandatory or prohibitive provisions of the rules governing the management prescribed in accordance with Paragraph 4 of Article 34, shall be punished with an administrative fine of not less than NT$100,000 and no more than NT$500,000.

In more practical terms, any company registered in Taiwan, foreign company, or foreign company branch office or representative office that is registered or approved to operate in Taiwan, is not allowed to post job advertisements that list Mainland China as the workplace. This means that advertisements for positions in Mainland China cannot be published on job search websites or any other platform, including the company’s official website or social media platforms in Taiwan. According to the Regulations for Advertising Goods, Labor and General Services of the Mainland Area in the Taiwan Area, a specific exception exists for posting job advertisements. If a domestic company has received approval from MOEAIC to invest in Mainland China and establish a Taiwan-funded enterprise, it is permitted to list Mainland China as the workplace in job advertisements (Article 6, Paragraph 5).

By entering into a technology transfer agreement with a Taiwan-based chip company like UMC, neither Jinhua nor UMC needed to establish their own R&D capacity in Mainland China. Such a licensing collaboration is not unusual assuming no criminal activities related to trade secret theft are involved. However, as illustrated in a number of court decisions, talent poaching frequently leads to misappropriation of trade secrets and intellectual property in order to facilitate R&D outputs. As Wang himself revealed during the investigation, this behavior is largely motivated by financial gain: “I only have my eyes set on the output, making money, and then retiring.”Footnote ¹⁸

Under Taiwan’s Trade Secret Act, trade secret theft is a serious offense. Promulgated in 1996, the Act initially did not have a criminal clause to regulate misappropriation of trade secrets. It was not until 2013 that it criminalized such wrongdoing by adopting a dual-track model. Article 13-1 specifies the penalties for committing acts related to trade secret theft, embezzlement, fraud, and unauthorized reproduction, usage, or disclosure, and outlines the fines that may be imposed in addition to imprisonment. Under Article 13-1, the maximum penalty for trade secret misappropriation is five years’ imprisonment in addition to a fine of between NT$1 million and NT$10 million.

Article 13-2 adds additional penalties for committing these crimes with the intention of using the trade secret in foreign jurisdictions, including Mainland China, Hong Kong, or Macau, and increases the potential fines that may be imposed for such offenses. Under Article 13-2, the penalty for committing such an offense with the intention of using the trade secret in foreign jurisdictions is imprisonment of between one and ten years, in addition to a fine of between NT$3 million and NT$50 million. The penalties outlined in Article 13-2 are generally considered to be harsher than those in Article 13-1, which may serve as a stronger deterrent against trade secret misappropriation with the intention of using the information in foreign jurisdictions.

The issue at the heart of the UMC-Jinhua case pertains to the potential violation of Article 13-2 of Taiwan’s Trade Secret Act by the three individuals in question, namely Ho, Wang, and Rong. The Taichung District Court concluded that they had indeed violated this provision, while the IPCC reversed this decision on appeal, finding that the defendants did not meet the legal standard required for a conviction under Article 13-2. However, the decision was later remanded by Taiwan’s Supreme Court, which required the IPCC to consider the following evidence and issues: Wang’s confession regarding his knowledge of the UMC-Jinhua licensing collaboration; Ho’s statement regarding his employment contract signed with Jinhua during October and November 2016; a witness’s statement that UMC planned to arrange for employees involved in the collaboration to open bank accounts in Mainland China with incentive bonuses being wired to their accounts once product development was complete; Wang’s communication with his friends where he stated “Conducting R&D in Taiwan and transferring the technology to Mainland”; and UMC’s application to MOEAIC for the approval of the UMC-Jinhua licensing collaboration.Footnote ¹⁹ The Supreme Court indicated that the evidence listed above seemed to suggest that the three individuals had the intention of using Micron’s trade secrets in Mainland China.

3.3 International Responses

The UMC-Jinhua licensing collaboration has faced legal challenges not only in Taiwan but also in the United States. In September 2018, the US government indicted UMC and Jinhua for conspiracy to commit economic espionage and to steal trade secrets from Micron.Footnote ²⁰ The following month, the US Department of Commerce added Jinhua to its export restriction list, prohibiting the company from purchasing components, software, and technology goods from US firms.Footnote ²¹ In 2020, UMC pleaded guilty to a single count of criminal trade secret theft and offered to pay a US$60 million fine. In November 2021, the US Department of Justice dismissed other allegations against UMC, including conspiracy to commit economic espionage, and UMC and Micron agreed to a global settlement.Footnote ²² Jinhua, on the other hand, denied any wrongdoing related to the allegations. However, the consequences for Jinhua were severe. In the wake of the US export restrictions, Jinhua was forced to cease production of memory chips within a few months, and it did not resume operations until 2022 when it received assistance from Huawei and shifted its focus to manufacturing logic chips.Footnote ²³

It is worth noting that the US Department of Justice indicted Jinhua as a major defendant largely due to its technology cooperation agreement with UMC that took place in or around January 2016. The US government’s indictment against Jinhua reflects its discourse that China engages in unfair and illegal practices to acquire technology, and as a Chinese state-owned enterprise, Jinhua is particularly vulnerable to such a perception. The statement released by the US Department of Justice implied just that:

Compared to the legal and political backlash in the United States against the UMC-Jinhua licensing collaboration, Taiwan’s justice system has taken a more restrained approach. Jinhua has never been considered a defendant in the case and the collaboration was not seen as Jinhua’s involvement in a conspiracy to commit economic espionage or steal trade secrets. The court decisions in Taiwan have only implicated UMC and its three employees, Ho, Wang, and Rong, in the theft of trade secrets. Jinhua’s role in facilitating the theft of Micron’s trade secrets was not confirmed in the court decisions.

In February 2024, Jinhua was cleared of charges related to economic espionage and other criminal allegations in the United States.Footnote ²⁵ Judge Chesney ruled that the evidence presented by US prosecutors did not sufficiently demonstrate that Jinhua, with state support, had unlawfully acquired confidential information from Micron.Footnote ²⁶ Nonetheless, this case, initiated in 2018, has garnered considerable attention, spotlighting concerns over China’s pursuit of semiconductor self-sufficiency, which includes acquiring technologies from abroad.Footnote ²⁷ Key stakeholders in the global IC supply chain have closely monitored the UMC-Jinhua conflict.

5.1 For Law School Audiences

5.2 For Policy School Audiences

5.3 For Business School Audiences

3.1 The Relationship between the Parties

The subject of this dispute is the Zone. The Zone was governed by a JVA signed on 28 June 2007 (the “2007 JVA”) by the Ogun State government, China-Africa Investment Limited, Guangdong Xinguang International Group, and CCNC Group Limited. Under the provisions of the 2007 JVA, the development of the Zone was to be carried out through the Ogun Guangdong Free Trade Zone Company (“OGFTZ Company”), a subsidiary of the Ogun State government, which was to be jointly owned for ninety-nine years by a consortium of three entities: the Ogun State government, China-Africa Investment Limited, and CCNC Group Limited.Footnote ²⁰

Early in the course of the project, China-Africa Investment Limited (a Chinese business enterprise) experienced financial problems and the development of the Zone was abysmally slow. The financial situation of China-Africa Investment Limited led to another Chinese company, Zhuhai (the parent company of Zhongshan), taking over the development and management of the Zone.Footnote ²¹ On 24 January 2011, the Claimant incorporated its local Nigerian entity, Zhongfu International Investment FZE (“Zhongfu”), to manage its investments in Nigeria on its behalf. Zhongfu was consequently registered as a Free Trade Zone Enterprise in the Zone.Footnote ²² On 10 April 2012, the Ogun State government confirmed the appointment of Zhongfu as the manager and operator of the Zone, after terminating the involvement of China-Africa Investment Limited.Footnote ²³ Consequently, the Ogun State government, Zhongfu, and Zenith Global Merchant Limited (“Zenith”) entered into a JVA for the development, management, and operation of the Zone on 28 September 2013 (the “2013 JVA”).Footnote ²⁴ Under Clause 3 of the 2013 JVA, OGFTZ Company was appointed as the joint venture company, and ownership of OGFTZ Company was divided as follows: 60% to Zhongfu and 20% each to Ogun State and Zenith.Footnote ²⁵ Clause 27 of the 2013 JVA also provides that any dispute arising from the 2013 JVA would first be settled by amicable discussions between the parties, failing which either party could refer the dispute to the Singapore International Arbitration Centre for arbitration under the UNCITRAL Arbitration Rules.Footnote ²⁶

3.2 The Dispute between the Parties

Zhongfu maintained that it has, since 2010, developed and managed the Zone while marketing it to potential occupiers. Specifically, it has improved communication systems, upgraded the roads, erected a perimeter fence, and opened a bank, a supermarket, a hospital, and a hotel to assist potential occupiers in the Zone.Footnote ²⁷

Between April and August 2016 (the “2016 Actions”), Ogun State purported to terminate Zhongfu’s appointment as manager of the Zone and attempted to install a new manager immediately. This was, however, preceded by some key events. First, 51% of the shares of China-Africa Investment Limited were acquired by a Chinese company, New South Group (NSG), the notice of which the Chinese Consulate in Nigeria gave to the Ogun State government.Footnote ²⁸ Ogun State interpreted this as meaning that Zhongfu’s management rights of the Zone would be transferred to NSG.Footnote ²⁹ Second, Ogun State reacted by writing to Zhongfu, accusing it of fraud and misrepresentation of facts, demanding that the Zone be handed to Zenith within thirty days.Footnote ³⁰ Zhongfu rebuffed Ogun State’s claims as erroneous,Footnote ³¹ and Ogun State started taking actions aimed at driving Zhongfu out of Nigeria.

Under direction of the Ogun State government, the police harassed Zhongfu’s workers, who were threatened with prosecution and prison sentences in order to get them to vacate the Zone.Footnote ³² The chief financial officer (CFO) of the Zone, Mr. Wenxiao Zhao, was arrested, beaten, detained, and starved of food and water for ten days by the police.Footnote ³³ The CFO’s travel document was also seized by the Nigerian Immigration Service (NIS) to prevent him from leaving Nigeria. The CFO was later released on bail and his travel document was returned to him, enabling him to leave Nigeria, albeit hurriedly. Furthermore, the NIS seized the immigration papers of Zhongfu’s other expatriate staff so that none of them would be able to work in Nigeria.Footnote ³⁴

Ultimately, Zhongfu’s principal officers left Nigeria in October 2016.Footnote ³⁵ The departure’s proximate cause was the police harassment but there were underlying and aggravating issues as well. Chinese staff struggled with the Nigerian business environment, cultural differences, and the English language. That Zhongshan’s investment was located in a community that is somewhat remote from the center of commerce and in a non-cosmopolitan location may be a plausible explanation for the language and cultural barriers.

What did Zhongfu do to warrant these treatments from Nigeria? As we will show in the following sections, Nigeria accused Zhongfu of misrepresentation and concealment of material facts that, if the Ogun State government had been aware, would have meant it would not have entered into the 2013 JVA. We will discuss how Zhongfu set out to mitigate this challenge.

3.3 Nigeria-Related Court Proceedings Commenced by Zhongfu

Further to the foregoing dispute, Zhongfu commenced an action on 18 August 2016 at the Nigerian Federal High Court in Abuja (the “Zhongfu FHC Action”) against the Nigeria Export Processing Zones Authority (NEPZA), the Attorney-General of Ogun State, and Zenith, seeking declaratory and injunctive reliefs that Zhongfu is the manager of the Zone. The Zhongfu FHC Action alleged breaches of Zhongfu’s contractual rights as a manager of the Zone and Zhongfu’s tenancy rights under the 2010 Framework Agreement.Footnote ³⁶ On 9 September 2016, Zhongfu brought another suit at the Ogun State High Court against OGFTZ Company, the Ogun State government, and the Attorney-General of Ogun State, seeking possession of the Zone, injunctive reliefs, damages of US$1,000,797,000, and interest (the “Zhongfu SHC Action”). Zhongfu’s claim in the Zhongfu SHC Action was primarily based on its right of possession under the 2010 Framework Agreement.Footnote ³⁷

On the same day, the CFO instituted proceedings at the Nigerian Federal High Court in Abuja against the Nigerian Police Force, the Inspector-General of Police, the Commissioner of Police for the Federal Capital Territory, and others for damages for his mistreatment (“Mr. Zhao Action”).Footnote ³⁸ All three court actions were discontinued in early 2018 as a result of the refusal of the defendants to comply with the timelines for filing court documents, among other procedures.Footnote ³⁹

In the meantime, and in a bid to enforce its contractual rights, Zhongfu commenced commercial arbitration proceedings against the Ogun State government and Zenith at the Singapore International Arbitration Centre, pursuant to Clause 27 of the 2013 JVA.Footnote ⁴⁰ However, Zenith sought and obtained an anti-arbitration injunction against Zhongfu on 29 March 2017 on the basis that Nigeria, not Singapore, was supposed to be the seat of arbitration and the Zhongfu FHC Action constituted a waiver of Zhongfu’s right to arbitrate (or rendered the arbitration abusive or oppressive).Footnote ⁴¹ Zhongfu appealed this order, but the appeal, as noted, was discontinued before the instant investment treaty arbitration was formally commenced by the Claimant (Zhongshan, the parent company of Zhongfu) against Nigeria under the China-Nigeria BIT.Footnote ⁴²

3.4 Zhongshan’s Strategies for Mitigation

In terms of their projects in Africa, Chinese investors may be open to negotiation and amicable settlement, as well as the exhaustion of local remedies available in a host state (i.e., including litigation proceedings in domestic courts).Footnote ⁴³ Zhongshan employed four strategies for mitigating the investment risk and local challenges it was experiencing in Nigeria. First, and as described in the previous section and in Table 6.3.2, Zhongfu instituted legal actions in the Nigerian courts against (i) the Attorney-General of Ogun State and Zenith for breach of contractual and tenancy rights and (ii) the Ogun State government and the Attorney-General of Ogun State, seeking an order of possession, injunctive reliefs, damages, and interest. In addition, Mr. Zhao, the CFO of the Zone, instituted a legal action in the Nigerian courts against the Nigerian Police Force, the Inspector-General of Police, and the Commissioner of Police for the Federal Capital Territory, Abuja, seeking to protect his fundamental rights.Footnote ⁴⁴ Separate from the legal actions instituted in the Nigerian courts, Zhongfu also commenced commercial arbitration proceedings against the Ogun State government and Zenith under the 2013 JVA.

When it appeared that the Nigerian litigation proceedings and the commercial arbitration proceedings could not move forward, on 21 September 2017 Zhongshan sent a notice of dispute and request for negotiations to Nigeria (the “2017 Notice”), in which it expressed its willingness to discuss the dispute that had arisen as a result of the Ogun State government’s purported termination of Zhongfu rights in the Zone and the allegations and counter-allegations by the parties between April and August 2016.Footnote ⁴⁵ This request was made further to Article 9(3) of the China-Nigeria BIT, which provides that if “a dispute cannot be settled within six months after resort to negotiations … it may be submitted at the request of either Party to an ad hoc tribunal.” However, no response was received from Nigeria. Consequently, Zhongshan served a request for arbitration pursuant to Article 9 of the China-Nigeria BIT, which marked the commencement of the investment treaty arbitration that resulted in the Award. The next section sets out the arguments of the parties to the investment treaty arbitration.

3.5 Arbitration

The arbitration tribunal was formally constituted on 5 January 2018 following the appointment of the arbitrators in accordance with Article 9(4) of the China-Nigeria BIT. Zhongshan filed its statement of claim, witnesses’ statements, and expert evidence from an accountant on the quantum of compensation.Footnote ⁴⁶ Nigeria responded with its Statement of Defense and witness statements. Through a preliminary application, Nigeria also requested the tribunal to bifurcate (divide) the proceedings and determine the law that should govern the dispute. After Zhongshan’s response to the bifurcation of the proceedings and the question of the applicable law, the tribunal declined to bifurcate the proceedings. The tribunal ruled that the applicable law to the dispute was an amalgam of Nigerian law, the provisions of the China-Nigeria BIT, and the generally recognized principles of international law. Notably, Nigeria was uncooperative in the production of any documents requested by Zhongshan and ordered by the tribunal.Footnote ⁴⁷

3.6 Result of Arbitration

Drawing on customary international law, the tribunal rejected Nigeria’s argument that Zhongshan has no valid claim against Nigeria. The tribunal relied on Articles 1, 4.1, 9.2, and 5, respectively, of the Responsibility of States for Internationally Wrongful Acts (2001), adopted by the International Law Commission,Footnote ⁵⁸ to hold that all organs of the Federal Republic of Nigeria, including those that have independent existence under Nigerian law such as the Ogun State government, are to be treated as part of the Federal Republic of Nigeria. The tribunal found that the parties to the 2013 JVA intended that the Ogun State government would strictly observe the terms of the China-Nigeria BIT, which is a strong indication that Ogun State would be subject to the conditions of the BIT. According to the tribunal, investment treaties would be almost meaningless if they did not apply to actions of local, as opposed to national, government. Therefore, it did not matter that Zhongshan’s case was primarily based on the actions of the Ogun State government.Footnote ⁵⁹

On Nigeria’s second argument against Zhongshan’s claim, the tribunal was not persuaded by Nigeria’s argument that Zhongshan had no investment in Nigeria. The tribunal reasoned that Zhongshan invested in Nigeria through a corporate vehicle (subsidiary), Zhongfu, by paying money to acquire the investment and incorporating Zhongfu to undertake the day-to-day responsibilities arising from the investment.Footnote ⁶⁰ The tribunal dismissed Nigeria’s third argument that it did not have jurisdiction over the case as Zhongshan did not wait for the expiration of the six-month period required by the China-Nigeria BIT before filing its arbitration claim. As we noted in Section 3.1, Zhongshan notified Nigeria of its intention to negotiate and settle the dispute through a letter in September 2017, but Nigeria did not respond to the offer. The tribunal, therefore, dismissed Nigeria’s argument on the basis that the facts contradicted Nigeria’s position as it neither acknowledged the receipt of the 2017 letter nor negotiated with Zhongshan.Footnote ⁶¹

Furthermore, the tribunal rejected Nigeria’s fork-in-the-road argument because neither Zhongshan nor Nigeria, as a sovereign state, was a party at any of the domestic court proceedings (the parties were, at all times, Zhongfu, NEPZA, the Attorney-General of Ogun State, and Zenith). Nigeria’s fork-in-the-road argument also failed because the tribunal distinguished the characters and particularities of the Nigerian proceedings from those of the arbitration. Zhongfu’s SHC Action was based on alleged breaches of its contractual and possessory rights under the 2010 Framework Agreement and the 2013 JVA, and Zhongfu’s FHC action, on alleged breaches of Nigerian domestic public law, whereas Zhongshan’s case in this arbitration is based entirely on the China-Nigeria BIT.

In both the state and federal court actions, Zhongfu, as Table 6.3.2 shows, sought declaratory and injunctive reliefs, whereas in this arbitration Zhongshan sought compensation. The Nigerian court cases are similar to the arbitration only to the extent that Zhongfu also sought damages.Footnote ⁶² Concerning Nigeria’s argument that the PRC has to be present before the tribunal to explain the rationale behind Note 1601, the tribunal held that the official representation through Note 1601 from the PRC is irrelevant to Zhongshan’s claim as it does not need to rely on the Note to prove the existence of Zhongfu’s rights in Nigerian law as a result of entering into the 2010 Framework Agreement and the 2013 JVA, the deprivation of those rights by the statements and actions of various organs of the Nigerian state, and that the deprivation was a breach of Nigeria’s obligations under the BIT.Footnote ⁶³ The tribunal reasoned that, if Nigeria wanted, it could have called one of the senior employees of the PRC to testify in the arbitration, but it failed to do so. The tribunal also held that the Nigerian court proceedings and anti-suit injunction did not amount to a breach of the China-Nigeria BIT.Footnote ⁶⁴

In rendering its Award, the tribunal found that the 2016 Actions of Ogun State, NEPZA, and Nigerian Police breached Zhongshan’s rights under Articles 2(3), 3(1), and 4 of the China-Nigeria BIT.Footnote ⁶⁵ The reason for this finding is that Zhongfu’s interest in the Zone was entitled to continuous protection.Footnote ⁶⁶ The tribunal determined that the 2016 Actions by Nigerian state actors deprived Zhongfu of its rights under the 2010 Framework Agreement and the 2013 JVA. The tribunal held that the failure of Nigeria’s court to restrain the agencies of the host government or to declare their use of state power illegitimate complicated and exacerbated the illegitimacy of the 2016 Actions. The tribunal noted that Zhongfu was doing a good job that had been recognized publicly by the Nigerian Customs Service and in a video by the Economist Intelligence Unit,Footnote ⁶⁷ and what is more, the Zone had begun to generate considerable tax revenue for the Nigerian government.Footnote ⁶⁸ The tribunal ordered Nigeria to pay Zhongshan the amounts as follows:

1. 1. compensation for the expropriation in the sum of US$55.6 million;

2. 2. moral damages in the sum of US$75,000, representing around US$5,000 for each day of Mr. Zhao’s mistreatment plus a further sum to reflect the other inappropriate behavior of representatives of Nigeria toward employees and a director of Zhongfu;

3. 3. interest on the aforesaid two sums from 22 July 2016 at the one-month USD LIBOR rate plus 2% for each year, or proportion thereof, such interest to be compounded monthly, until and including the date of the award, in the sum of US$9.4 million;

4. 4. in respect of the Claimant’s legal and related costs of the arbitration, the sum of £2,509,789.57;

5. 5. £354,655.17 in respect of the other costs of the arbitration;

6. 6. post-Award interest on the sums specified on all the amounts specified in sub-paragraphs 52(a)–(c) above from the day after the Award until payment. The Award stipulated that this post-Award interest should be calculated at the one month USD LIBOR rate plus 2% for each year, or proportion thereof, such interest to be compounded monthly, until and including the date of payment (and should, for any reason, USD LIBOR cease to be operative while any amount remains outstanding, the interest due shall from that date onward be calculated on the basis of whatever rate is generally considered equivalent to USD LIBOR plus 2%, compounded monthly, until and including the date of payment);Footnote ⁶⁹ and

7. 7. post-Award interest on the sums specified on all the amounts specified in sub-paragraphs 52(d)–(e) above from the day after the Award until payment. The compensation, moral damages, and interests are to be paid in US dollars while the legal fees and costs related to the arbitration are in British pounds.

Investment treaties have a force of law that can affect the economy of a sovereign nation.Footnote ⁷⁰ International investment arbitration students and lawyers need to be pragmatic because of the quantum of award as in this case study.Footnote ⁷¹ As of the time of writing, Nigeria has not paid the amounts of money awarded against it by the tribunal. A party that received a favorable award in an investment arbitration needs to take procedural steps to enforce the award and reap its benefits. In this connection, on 8 December 2021, Zhongshan filed an enforcement action in an English High Court.

In response, Nigeria challenged Zhongshan’s legal action to enforce the Award under the English Arbitration Act,Footnote ⁷² on the basis that the tribunal lacked jurisdiction, but the English court issued an order that recognized the tribunal’s Award on 21 December 2021.Footnote ⁷³ Nigeria further relied on the UK State Immunity Act of 1978 to plead sovereign immunity from the enforcement of the Award before an English Court of Appeal.Footnote ⁷⁴ However, it was late in filing the application as it had seventy-four days from the date of the English High Court’s order to apply to the Court of Appeal to set aside the order. Nigeria, therefore, sought an extension of time to apply and leave (i.e., permission) from the English Court of Appeal to set aside the order of the High Court that ordered the enforcement of the Award.

On 20 July 2023, the Court of Appeal declined to grant the extension and leave primarily on the basis that there was no likelihood that the appeal would be successful. Similarly, Zhongshan has also filed a legal action before the US District Court for the District of Columbia on 26 January 2023 asking the court to recognize the Award and order for its enforcement against Nigeria.Footnote ⁷⁵ Here, Nigeria has unsuccessfully challenged the enforcement of the Award chiefly on the legal basis that the arbitral tribunal did not have jurisdiction to hear the arbitration and that the dispute was not governed by the New York Convention.Footnote ⁷⁶ It is important to explain that, traditionally, the New York Convention governs the enforcement of commercial arbitration awards and does not apply to investor–state arbitration, which is usually governed by the ICSID and other treaties. However, the US courts have regularly confirmed arbitral awards rendered under investor–state arbitration in which sovereign nations have been found to breach treaty, rather than contractual obligations, holding that investment treaty arbitration qualifies as commercial for the purpose of recognition and enforcement under the New York Convention.Footnote ⁷⁷ In furtherance of its efforts to enforce the Award, Zhongshan has begun to seize Nigeria’s assets. Zhongshan obtained an order from a Superior Court, sitting in Montreal, Quebec, Canada on 25 January 2023 to seize a Bombardier 6000 Jet belonging to Nigeria, all rights of Nigeria in the aircraft, any proceeds from the sale of the aircraft that is payable or belonging to Nigeria, and the aircraft’s logbook.Footnote ⁷⁸

5.1 For Law School Audiences

The Chinese government has increasingly demonstrated its commitment to the protection of the investments of its nationals in foreign countries as evident in the more than 100 BITs it has signed with other sovereign states. Before the commencement of the investment arbitration that we have discussed in this case study, there were a variety of domestic court cases that were mostly instituted by Zhongfu and Mr. Wenxiao Zhao against the agents of the Nigerian state and substate actors to protect Zhongfu’s investment and the company’s management from arbitrary expropriation and harassment by the local police. In a jurisdiction such as Nigeria, which is yet to attain judicial independence from the executive arm of government, the reality of obtaining justice through a fair and transparent process may be difficult for a foreign investor, particularly when its economic interests are in direct conflict with those of their host state.

The China-Nigeria BIT played a decisive role in the protection and realization of the investment rights of Zhongshan (from the stage of obtaining a favorable arbitral award to the enforcement stage – seizing the assets of Nigeria in Canada). International investment jurisprudence,Footnote ⁸⁴ customary international law, and the language or wording of the China-Nigeria BIT were crucial in interpreting the treaty both at the tribunal and in the British and American courts where Zhongshan applied for the enforcement of the Award. The interpretation of “investment” in the BIT, the “fork-in-the-road” clause, and the jurisdictional arguments by Nigeria underscore the complex substantive and procedural issues that the tribunal resolved. Crucially, the tribunal drew on customary international law to attribute the conduct of a constituent state (Ogun State government) to a sovereign state (Nigeria). One of the legal implications of the attribution for the China-Nigeria BIT is that the commitments of the state parties in the BIT are binding upon them, their nationals, constituent states, and state organs in their investment relations with one another. This is notwithstanding the separate legal existence of the constituent states. This case study underscores how Zhongshan (and any other Chinese company) can rely on the provisions of the China-Nigeria BIT to invoke the international investment arbitration regime to hold Nigeria accountable for the unfair and discriminatory treatment of their investment. Further, Zhongshan had to go to a domestic court of signatories to the New York Convention to obtain an order to enforce the arbitral Award against Nigeria. In this connection, Zhongshan has applied to enforce the award in the American, British, and Canadian courts, respectively. Although the process for recovering the other party’s assets may take some time, as in this case, Zhongshan has made some progress by seizing Nigeria’s aircraft on the orders of a Canadian court.

In light of the above, the following questions may inform a discussion of the legal issues:

1. 1. What are the core objectives of the China-Nigeria BIT and how does the Zhongshan case demonstrate their fulfillment (or not)?

2. 2. Are there any legal or practical difficulties in attributing, as the tribunal did, the conduct of a sub-state actor to a sovereign state with a thirty-six-state structure and a federal capital territory?Footnote ⁸⁵

3. 3. What types of arbitration are eligible to be recognized and enforced under the New York Convention? What are some of the legal procedures that Zhongshan followed to enforce the Award in the United Kingdom, the United States, and Canada?

5.2 For Policy School Audiences

This case study demonstrates that the arbitrary use of governmental power against a foreign investor is detrimental to national economic development. The two key national economic objectives of establishing the Zone are to promote manufacturing and diversify the Nigerian economy which has been a petro-economy since the 1980s. The Zone had economic prospects as could be seen in the generation of significant tax revenue for the host government and job creation for the local population, but the revenue stream for the government and job prospects appear to be lost due to the sudden departure of Zhongshan and the monetary value of the arbitral award. Further, the Ogun State government justified the harassment, torture, detention, and seizure of the travel documents of some of Zhongfu’s staff by Nigerian police on trumped-up fraud and misrepresentation charges. However, the arbitration proceeding shows that the allegations of fraud and misrepresentation were unfounded.Footnote ⁸⁶

In this context, consider the following:

1. 1. How can the Nigerian government prioritize its economic development and enable a conducive and transparent business climate? How should the Nigerian government put in place policy processes that would engage in sustainable trade and investment agenda-setting, policy formulation, implementation, and evaluation? What type of policy objectives and reforms can the Nigerian government pursue to improve the business landscape and drive and optimize sustainable development?

2. 2. How can the outcome of the investment arbitration discussed in this case study contribute to policy and legal springboards that may result in responsive and responsible regulation of inbound foreign investments by the Nigerian government?

3. 3. Is there any policy role for the Export-Import Bank of China in terms of financial-related policy support for a Chinese company like Zhongshan?

5.3 For Business School Audiences

Zhongshan’s investment in a country such as Nigeria with a weak regulatory system exposed the company and its officers to a variety of risks such as loss of investment without compensation, risk to life, and loss of liberty, among other things. These risks were beyond the company’s control and may be difficult to prevent. Zhongshan, however, employed various strategies to respond to and mitigate the risks. The strategies include a request to Nigeria for negotiation and settlement, Chinese diplomatic and consular interventions from Lagos, domestic lawsuits against the organs of the Nigerian federal government and Ogun State government, and investment arbitration in Singapore and the United Kingdom. Every investor’s experience in the Nigerian regulatory landscape will differ and may warrant Zhongshan’s and other mitigating approaches. The nature of the risks and investment landscape, among other considerations, will inform the company’s decision or mitigating strategies.

Based on the foregoing, discuss the following:

1. 1. What can be learned about investment protection from Zhongshan’s strategies in Nigeria?

2. 2. Assuming that you are an investment analyst or risk manager in a Chinese company that is planning to invest in Nigeria, what can you identify to your company officers as the types of risks that could arise in the context of their prospective investment?

3. 3. What are some of the mitigating strategies that you can draw from this case study to advise the company officers on how the company can navigate the risks and local challenges in its Nigerian operations?