Investment protection between Serbia and major Economies: China

Investment Flows

Following our initial post on the United States, we continue our series on investment protection between Serbia and major economies with the focus on China – one of the most important and publicized sources of foreign investments in Serbia.

The Development Agency of Serbia reports that China ranks seventh country of origin of foreign investments in Serbia, with a 3.5% market share, in terms of the number of projects, and sixth, with a 8.9% market share, in terms of the value of projects. As with the US, China is not among the top 5 investment partners of Serbia according to the Coordinated Direct Investment Survey of the International Monetary Fund. However, Chinese investments in Serbia have been heavily publicized for enjoying a strong support of the Serbian government. Notable investments include, among others, those made by Zijin in mining, Linglong in tyre manufacturing, Hesteel in steel production, and the Bank of China in banking.

Investment Protection Regime

China and Serbia have an old-generation bilateral investment treaty, which was signed in 1995 and entered into force in 1996 (“BIT“). The BIT was concluded by the former Federal Republic of Yugoslavia and continues to bind Serbia as the former federation’s continuator state.

The BIT contains a broad definition of “investment”, limited only with the requirement of the investment’s compliance with the laws of the host state. It provides the usual set of investment protections, including fair and equitable treatment, full protection and security, national and most-favoured nation treatment, protection against expropriation (including an explicit reference to indirect expropriation), compensation for losses suffered in the event of emergency, and free transfer of funds. The umbrella clause is drafted poorly to the extent that one may question its operability.

Notably, however, the BIT does not offer a straightforward investor access to international arbitration. First, the BIT sets a six-month negotiation requirement. Second, it does not provide for access to arbitration for disputes that do not concern expropriation. In fact, the access to international arbitration is limited to disputes “involving the amount of compensation for expropriation”, in which case a dispute can be submitted to either ICSID or ad hoc tribunal. This type of arbitration clauses is typical for older BITs concluded by socialist countries and today survives here and there as a relict. This type of clauses has also raised a controversy among arbitral tribunals regarding the scope of the consent to arbitration. Specifically, some tribunals maintained that such limitations are strict and refer to disputes on quantum exclusively. Others took a broader view and considered that the clauses limited to disputes “involving the amount of compensation for expropriation” allowed arbitrating disputes on the occurrence and legality of expropriation as well, which an ICSID annulment committee considered not to constitute a manifest excess of powers.

The clause also sets a fork in the road, to the effect that an investor forfeits access to international arbitration if it has already submitted the claim to domestic courts. In Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen, an arbitration under the China-Yemen BIT, a fork-in-the-road clause was used in the interpretation of a similar narrowly formulated arbitration clause referring to disputes on the amount of compensation to cover arbitration of the entire expropriation dispute.

The Serbian Investment Act, which applies to investments in general, does not allow for internationalizing the resolution of disputes arising under that act.

Recognition and Enforcement of Judicial and Arbitral Decisions

There is no treaty between Serbia and China on the recognition and enforcement of judicial decisions, and therefore parties who wish to recognize and enforce Chinese judgments in Serbia must follow the general procedure for recognition and enforcement of foreign judgments. As we noted in our previous post, recognition can be denied if basic due process rights of the defendant were not respected, if Serbian courts/organs have exclusive jurisdiction over the matter, if there is a final judgment in Serbia on the matter, if the judgment violates Serbian public order, and if there is no reciprocity in commercial judgment recognition matters with China.

As we already reported, the requirement of reciprocity is particularly problematic given that Serbian courts lightly rebut the presumption of reciprocity set in the statute. To our knowledge, there has been no precedent yet where the issue of existence of reciprocity with China, Hong Kong or Macau was tested.

Both China (including Hong Kong and Macau) and Serbia are parties to the New York Convention and therefore recognition and enforcement of arbitral decisions should be easier. Both countries reserve the application of the convention to commercial disputes.


Chinese investors in Serbia benefit from the usual set of international investment protections, which are broad and do not contain limitations present in newer treaties in this field. However, an important constraint is that investment disputes are generally not arbitrable, unless they relate to the amount of compensation for expropriation, which can be arguably extended to other issues concerning expropriation.

In our next post we will cover Russia.


Photo by Shubham Dhage on Unsplash