Law firms work on ways to mitigate stakeholders’ risk in belt-road cross-border deals
Legal advisers need to take into account several factors when helping investors overcome challenges resulting from multijurisdictional dealings
China continues with its ambitious drive to cement its position as a global economic leader, and the one belt, one road initiative is testament to that aim.
The business potential of the initiative appears to be huge and global law firms are preparing to handle the legal aspects of large infrastructure projects over the next decade.
Cledan Mandri-Perrot, a public-private partnership specialist and lead finance officer at the World Bank, said in a World Bank report that policies related to the initiative should prioritise improving regional and cross-regional trade, which is one of the initiative’s main goals.
Carolyn Dong, foreign legal consultant at global law firm DLA Piper, says investors would have to collaborate with the private legal sector in order to enforce due diligence and reduce risk for stakeholders involved in future belt-road projects.
It has been three years since President Xi Jinping first introduced China’s bold new development strategy to boost the country’s economic might. The ambitious infrastructure and economic project involves more than 60 countries – and creates many complex challenges.
As far as policy is concerned, Chinese regulators have brought forth an additional set of guidelines following China’s March 2015 Visions and Actions Plan, which relays the initiative’s strategy in support of present and prospective stakeholders. These guidelines included the development and improvement of tax services in relation to the one belt, one road initiative, and further supporting measures are planned by the Ministry of Transport.
These measures were implemented in anticipation of foreign investment and trade operations involving inbound and outbound deals between belt-road countries.
Law firms would need to take into account several factors in order to reduce risk for investors and overcome challenges that would inevitably come up as a result of multijurisdictional dealings. As Dong explains, cross-border deals can be complex and involve more nuanced issues.
“Differences in legal systems and concepts; business cultures and customs; and languages, values and behaviours can all lead to greater complexity in delivering successful projects for clients when dealing with counterparts from different background and countries.
“Cross-border transactions are more complex than local transactions, largely because of the need to co-ordinate legal, regulatory, cultural and sometimes language difficulties. For cross-border transactions there is an even greater need for effective project management given that the team working on the transaction will be larger and there will be cultural, time and possibly language differences between its members,” Dong says.
To mitigate risk, she stresses the importance of due diligence, a robust partnership, and of having the joint venture agreements in place. She adds it is important to “find the right partners and have the right support networks to provide a thorough understanding of local conditions”.
Paul Starr, Hong Kong team leader for dispute resolution and infrastructure at global law firm King & Wood Mallesons, says legal service providers would have a tangible presence in the one belt, one road countries. “There are three main mechanisms to protect investors. There are the contractual rights which exist in the [one belt, one road] investment vehicle, the treaty rights under bilateral investment treaties, multilateral investment treaties and free trade agreements between China and the [belt-road] countries, and lastly, any specific rights investors can pursue in the countries’ domestic legal systems.”