Don't rely on state immunity to protect China in commercial transactions

PUBLISHED : Friday, 05 August, 2011, 12:00am
UPDATED : Friday, 05 August, 2011, 12:00am


Xinhua expressed concerns about the US defaulting on its debt ('Obama tells parties to find a way out of mess', July 30).

This is fair enough. The mainland agency said America had been 'kidnapped' by 'dangerously irresponsible' politics. The 'tea party' et al were way out of line. Ironically, it's the right-wing Republicans who previously racked up the trillions in debt, fired their countrymen and transferred work, wealth and power to China. Luckily for China, the US doesn't adopt absolute state immunity. If it did, any complaints about defaulting on sovereign debt would simply be met with a stiff rebuttal, as in China.

It seems incongruous that China should be able to walk away from sovereign commercial liabilities. How can it remain in the World Trade Organisation, in view of the state's role in so much business? How could the renminbi ever be a safe global currency, if Beijing holds itself immune from guaranteeing it?

If absolute state immunity applied to Hong Kong, would confidence in commerce with the Hong Kong government be undermined? What about the SAR's role as an arbitration centre, if arbitration awards against foreign governments could not be enforced in the city?

A Hong Kong tobacco firm wants to sue the Australian government for compensation for loss in value of trademarks to be caused by the introduction of plain packaging for cigarettes. One of the grounds for the proposed action relies on a bilateral investment treaty between Hong Kong and Australia. The matter is to be arbitrated before the UN. However, if absolute state immunity applies in the SAR, an award against Canberra would presumably be unenforceable in Hong Kong.

Moreover, if absolute state immunity applied in the SAR, an Australian firm could be prevented from litigating or enforcing an award against the SAR government in Hong Kong, unless immunity was waived under contract. The lack of reciprocity seems contrary to bilateral and multilateral treaty obligations.

China should provide a level playing field by providing reciprocal rights to foreign traders and governments and exclude commercial matters from state immunity.

Hong Kong should retain its position of restricted state immunity in commercial matters in order to retain its status as a commercial hub. Commercial transactions entered into by a government should not be viewed as acts of state or of foreign relations.

Allan Woodley, Sydney, Australia