I Introduction
Over the past few decades, corporate governance in Asia has undergone dramatic changes. On the surface, many Asian jurisdictions appear to have converged toward Anglo-American corporate governance laws and practices. Independent directors, a corporate governance mechanism invented in the United States (US) in the 1970s, are now ubiquitous in boardrooms across the region.Footnote 1 Stewardship codes, a United Kingdom (UK) corporate governance solution to the 2008 Global Financial Crisis, exhort institutional investors to be active owners in most of Asia’s important economies.Footnote 2 Derivative actions, a historical hallmark of US and UK company law, are now enshrined in company laws across Asia – ironically being more consequential in Japan than almost anywhere else in the world, despite Japan’s civil law roots and ostensible culture of non-litigiousness.Footnote 3 To a casual observer, it may seem that corporate law and governance in Asia has converged on the Anglo-American-cum-global corporate law and governance model. From this perspective, as predicted by two of the most prominent corporate law scholars in the US, maybe we have reached, or at least are very close to, “The End of History for Corporate Law.”Footnote 4
However, this superficial convergence masks a far more complex reality. As this chapter will demonstrate, the adoption of Anglo-American corporate governance laws and mechanisms in Asia often amounts to “faux convergence” – a phenomenon where jurisdictions implement foreign laws and corporate law and governance mechanisms in name and form, but not in substance or function.Footnote 5 By closely examining three key areas – independent directors, derivative actions, and stewardship – we can see how Asian jurisdictions have selectively borrowed and adapted Anglo-American corporate law and governance concepts to fit their own unique jurisdiction-specific contexts, producing outcomes that often diverge significantly from Anglo-American corporate governance practices.
Crucially, this chapter goes beyond merely highlighting the divergence between Asian and Anglo-American practices. It emphasizes the rich diversity within Asia itself, advocating for the power of inter-Asian comparisons in advancing our understanding of comparative corporate law.Footnote 6 By examining how different Asian jurisdictions have adapted and implemented similar governance mechanisms, we can uncover nuanced insights into the dynamics of formal legal transplants and functional jurisdiction-specific practices in comparative corporate law and governance that are often overlooked in broader East–West comparisons. Using Erie and Lin’s taxonomy of analytical frameworks for Inter-Asian Law (IAL) the theory of faux convergence could be seen as an attempt to carve out an overlooked form of “types and methods of interactions” among Asian jurisdictions and between them and Western jurisdictions by analyzing the superficial nature of convergence achieved as “effects, consequences, and conflicts” caused by such interactions.Footnote 7
The theory of faux convergence, coupled with a focus on inter-Asian comparisons, provides a powerful lens for understanding the true nature of corporate governance reforms and practices in Asia. It reveals how policymakers and companies in the region have responded to global pressures for governance reform while maintaining systems that reflect deep-seated local norms, power structures, and institutional logics. Faux convergence allows Asian jurisdictions to signal compliance with international standards while preserving space for locally appropriate governance models. Meanwhile, inter-Asian comparisons illuminate the diverse strategies employed by different jurisdictions in this process of adaptation and localization.
This chapter develops the theory of faux convergence and demonstrates its explanatory power through an in-depth examination of independent directors, derivative actions, and stewardship codes across major Asian jurisdictions.Footnote 8 It builds on our previous work analyzing the complex reality of these mechanisms in Asia,Footnote 9 which challenged oversimplified notions of legal transplants and convergence. By synthesizing insights across these areas and emphasizing inter-Asian variations, we can construct a more nuanced understanding of how corporate governance actually functions in Asian contexts.
The faux convergence framework, combined with inter-Asian comparative analysis, makes several important contributions. First, it provides a more accurate picture of the state of corporate law and governance in Asia, moving beyond surface-level observations to uncover the underlying dynamics and diversity within the region. Second, it offers a new theoretical perspective that transcends the traditional convergence–divergence debate in comparative corporate law and governance. Third, it yields practical insights for policymakers, investors, and companies seeking to navigate Asia’s complex and varied corporate law and governance landscape.
Ultimately, embracing the reality of faux convergence and the value of inter-Asian comparisons pushes us to rethink fundamental assumptions about the evolution of corporate law and governance around the world. It highlights the persistent diversity and path-dependence of national systems, even as globalization drives superficial harmonization. And it underscores the need for nuanced, contextual analysis rather than universalist theories in the field of comparative corporate law and governance.
The rest of this chapter proceeds as follows. Section II elaborates on the theory of faux convergence, explaining its core elements and how it differs from existing frameworks. Section III examines independent directors, derivative actions, and stewardship codes in Asia through the lens of faux convergence, with a particular emphasis on inter-Asian variations. Section IV concludes by synthesizing key insights from these case studies, highlighting the power of inter-Asian comparisons, and discussing broader implications for comparative corporate law and governance scholarship.
II The Theory of Faux Convergence
Faux convergence refers to the phenomenon where jurisdictions adopt the outward form of foreign corporate governance practices, without implementing their substance or intended function.Footnote 10 It involves the selective borrowing and adaptation of governance mechanisms to fit local jurisdiction-specific contexts, often producing outcomes that diverge significantly from the source model.Footnote 11 Faux convergence allows jurisdictions to signal compliance with global norms while maintaining governance systems that reflect deep-seated local power structures, norms, and institutional logics.Footnote 12
Several key elements characterize faux convergence. To begin, there is superficial adoption, where jurisdictions implement the basic form or structure of a foreign governance mechanism, but not its underlying substance. For instance, independent directors may be mandated, but lack true independence.Footnote 13 This is often accompanied by functional divergence, where the adopted mechanism serves different purposes or functions than in its jurisdiction of origin. For example, stewardship codes may aim to entrench rather than challenge corporate insiders.Footnote 14
Contextual adaptation is another hallmark of faux convergence.Footnote 15 Foreign practices are modified to fit local jurisdiction-specific contexts, power structures, and cultural norms. This reshaping fundamentally alters how the mechanism operates in practice. A key driver of adoption is often the motivation to signal adherence to global governance standards, rather than a genuine desire for reform. This signaling function allows jurisdictions to gain legitimacy in international markets.Footnote 16
Importantly, faux convergence involves the preservation of local practices. Core features of the local governance system are often maintained beneath a veneer of foreign practices. This allows jurisdictions to balance external pressures for reform with internal resistance to fundamental change.Footnote 17
Faux convergence differs from several existing theoretical perspectives on comparative corporate governance. Unlike traditional convergence theory, which posits movement toward a single optimal model (usually Anglo-American shareholder primacy),Footnote 18 faux convergence recognizes persistent functional diversity in governance outcomes. It goes beyond the notion of “divergence within convergence”Footnote 19 by highlighting how adopted practices may serve entirely different functions than in their source jurisdictions.Footnote 20
The concept of faux convergence also moves past simplistic cultural or legal origins explanations for governance differences. Instead, it emphasizes how local actors strategically adapt foreign practices to serve their interests within jurisdiction-specific contexts.Footnote 21 This produces complex hybrid models rather than wholesale transplantation or rejection of foreign approaches. The faux convergence framework builds on institutional approaches to comparative corporate law and governance, which emphasize how governance practices are shaped by their broader institutional environment.Footnote 22 However, it particularly highlights the agency and strategic behavior of local actors in selectively implementing and reshaping governance mechanisms to work within their local jurisdiction-specific contexts.
Crucially, the theory of faux convergence builds upon, but importantly differs from, Ronald Gilson’s influential distinction between formal and functional convergence in corporate law and governance.Footnote 23 Gilson posited that while formal convergence of corporate law rules might be impeded by path dependence, jurisdictions could achieve functional convergence by developing substitutes that fulfill similar economic functions.Footnote 24 However, the concept of faux convergence turns Gilson’s theory on its head in several crucial ways.
First, faux convergence suggests that even when there is apparent formal convergence in corporate governance laws or mechanisms, this may mask significant functional divergence. Unlike in Gilson’s framework, where functional convergence could occur without formal similarity,Footnote 25 faux convergence highlights cases where there is surface-level formal adoption without true functional alignment.Footnote 26
Second, while Gilson’s theory assumes that functional convergence is driven by efficiency imperatives and will ultimately lead jurisdictions to similar economic outcomes,Footnote 27 faux convergence recognizes that adopted mechanisms may be repurposed to serve entirely different economic or political functions than in their jurisdictions of origin. The motivations behind faux convergence often have more to do with signaling conformity to the global norm than with achieving functionally similar governance outcomes.Footnote 28
Third, faux convergence goes beyond Gilson’s binary of formal versus functional convergence, coined in the subtitle of his seminal article,Footnote 29 by illuminating the complex ways in which governance mechanisms are strategically adapted and reconfigured as they move across borders. It emphasizes how local actors may deliberately subvert the intended functions of adopted practices to serve their own interests, rather than simply finding alternate means to achieve similar functional ends.Footnote 30
Finally, whereas Gilson’s theory suggests that functional convergence might be a pathway toward more fundamental formal convergence over time,Footnote 31 the concept of faux convergence highlights how superficial formal adoption may actually serve to prevent deeper functional changes.Footnote 32 By creating the illusion of convergence, faux convergence can relieve pressure for more substantive reforms while allowing core features of local governance systems to persist.Footnote 33
Ultimately, faux convergence provides a more nuanced and realistic account of how corporate law and governance evolves in the face of global and local pressures. It moves beyond simplistic narratives of convergence or resistance to foreign models. Instead, it illuminates the complex processes through which governance practices are negotiated, contested, and reconfigured as they move across borders.
The concept of faux convergence is particularly valuable for understanding corporate law and governance developments in Asia. As we will see in Section III, the adoption of independent directors, derivative actions, and stewardship codes across Asian jurisdictions exemplifies the dynamics of faux convergence. While these mechanisms may superficially resemble their Anglo-American counterparts, their actual implementation and impact often diverge dramatically from Anglo-American models. The faux convergence lens reveals how Asian jurisdictions have strategically responded to global governance pressures while maintaining systems that reflect local jurisdiction-specific realities. Moreover, the faux convergence framework helps explain why decades of governance reforms modeled on Anglo-American practices have often failed to fundamentally reshape corporate behavior in many Asian markets.Footnote 34 By recognizing how adopted mechanisms are reconfigured to serve local purposes, we can better anticipate their actual impact and limitations.
In the next section, we will examine how faux convergence dynamics have played out in the implementation of independent directors, derivative actions, and stewardship codes across major Asian jurisdictions. This analysis will demonstrate the explanatory power of the faux convergence concept and yield insights into the true nature of corporate governance in Asia.
III The Complex Reality of Corporate Governance in Asia: Independent Directors, Derivative Actions, and Stewardship Codes
As briefly highlighted in Section I, corporate law and governance mechanisms that originated in Anglo-America have been widely adopted across Asia, often with the encouragement of international organizations and experts advocating for “global best practices.”Footnote 35 At first glance, this trend appears to provide evidence of formal convergence in corporate law and governance. However, a closer examination reveals a much more complex reality.
This section will explore three key corporate governance mechanisms that have been widely adopted across Asia – independent directors, derivative actions, and stewardship codes – to demonstrate how their implementation and function often diverge significantly from their Anglo-American origins. This analysis reveals that while there may be superficial convergence in the formal adoption of these mechanisms, there is substantial divergence in how they actually operate within Asia’s unique jurisdiction-specific contexts. Understanding this “faux convergence” is critical for developing a more nuanced view of comparative corporate law and governance.
A. Independent Directors
The independent director, a corporate governance mechanism with roots in the US,Footnote 36 has become ubiquitous across Asia’s leading economies over the past few decades.Footnote 37 On the surface, this appears to be a clear example of corporate law and governance convergence, with Asian jurisdictions adopting a key feature of the Anglo-American model. Indeed, most Asian jurisdictions now mandate that public companies have a certain number or percentage of independent directors on their boards.Footnote 38 However, a closer examination reveals that the form and function of independent directors in Asia often diverge significantly from the US model.
While the original US concept of the independent director focuses primarily on independence from management, most Asian jurisdictions have adopted definitions that require independence from both management and significant shareholders.Footnote 39 This reflects the prevalence of concentrated ownership structures in Asia, where controlling shareholders rather than management often dominate corporate governance.Footnote 40 The position of independent directors within corporate law and governance structures also varies widely. While some jurisdictions like Hong Kong and Singapore have adopted one-tier board structures similar to the US, others like Japan and China have unique board structures that create different roles for independent directors.Footnote 41
In many Asian jurisdictions, controlling shareholders retain significant influence over the selection and removal of ostensibly “independent” directors, potentially compromising their true independence in their intended role as monitors of controlling shareholders on behalf of minority shareholders.Footnote 42 In addition to the powerful role played by controlling shareholders in most of Asia’s leading economies, independent directors in Asia are driven by unique local factors, which often have resulted in them serving significantly different purposes than their US counterparts. For example, in China, many independent directors are academics who may lack business expertise to be effective independent directors, but provide legitimacy and government connections.Footnote 43 In Singapore’s family-controlled firms, independent directors often act as mediators in family disputes rather than as monitors of management.Footnote 44 In Japan, which is one of the latest among Asian jurisdictions to promote or require independent directors, independent directors are now expected to champion investors’ interests in the boardroom, which has been traditionally dominated by managerial directors.Footnote 45 This might sound similar to the role of independent directors in the US, but the difference is that independent directors are promoted by the Japanese government as a part of its policy to overcome Japan’s long-time economic malaise.Footnote 46
Equally important as illuminating the distinction between independent directors in Asia from the original US concept of the independent director, is the insight that the “faux convergence” lens provides into the functional diversity of independent directors within Asia. As one of us observes in a summary chapter in a book on independent directors in Asia:
Although there are important similarities in the form and function of “independent directors” within Asia, there are also significant intra-Asia jurisdictional differences. While intra-Asia comparisons of ‘independent directors’ may have more utility than Asia–US comparisons, jurisdictional differences in the form and function of “independent directors” within Asia must also be recognised and accounted for in comparative analyses.Footnote 47
This diversity in the actual implementation and function of independent directors across Asia demonstrates how a corporate law and governance mechanism can be formally adopted while being adapted to serve very different purposes across jurisdictions and cautions against assuming that the mere presence of independent directors indicates convergence toward an Anglo-American model of corporate law and governance.Footnote 48
B. Derivative Actions
The derivative action, which allows shareholders to pursue a lawsuit for and on behalf of the company, is another corporate law and governance mechanism that has been widely adopted across Asia. Again, this appears on the surface to demonstrate convergence toward Anglo-American corporate governance norms. However, a closer examination reveals significant divergences in both the legal frameworks and practical utilization of derivative actions across Asian jurisdictions.
While common law jurisdictions in Asia inherited the restrictive English rule in Foss v. Harbottle, many have since adopted statutory derivative actions to facilitate minority shareholders’ utilization of the derivative action.Footnote 49 Meanwhile, civil law jurisdictions have often created derivative action mechanisms without this historical baggage. Jurisdictions vary widely in who can bring derivative actions.Footnote 50 Some impose minimum shareholding requirements, while others allow any shareholder to sue.Footnote 51 This significantly impacts the practical availability of the mechanism. The specific procedures for initiating and maintaining derivative actions differ substantially across jurisdictions, affecting their accessibility and effectiveness.Footnote 52
The allocation of legal costs and the availability of contingency fees greatly influence the economic incentives for shareholders to pursue derivative litigation. These factors vary significantly across Asia.Footnote 53 The types of corporate wrongdoing that can be addressed through derivative actions and the available remedies differ across jurisdictions.Footnote 54
Despite similar formal rules in some cases, the actual use of derivative actions varies dramatically. Japan and Korea saw a significant spike in derivative actions after they lay moribund for decades,Footnote 55 while the derivative action has remained rare in listed companies in many other Asian jurisdictions throughout its history.Footnote 56 As one of us notes in an article on the derivative action in Asia:
The point is simple. There are a myriad of complex factors which result in varying levels of derivative litigation in Asia’s leading economies. Ironically, the one factor that is conspicuously absent as a defining force of derivative litigation in all of Asia’s leading economies is Asia’s ostensibly non-litigious culture.Footnote 57
This diversity in the implementation and use of derivative actions across Asia demonstrates how transplanted legal mechanisms can evolve in unexpected ways when introduced into different jurisdiction-specific contexts.Footnote 58 It also highlights the danger of making broad generalizations about “Asian” approaches to corporate law and governance or litigation.
C. Stewardship Codes
The rapid adoption of stewardship codes across Asia since 2014 appears, at first glance, to be a clear example of corporate law and governance convergence. These codes, inspired by the UK Stewardship Code of 2010, ostensibly aim to promote active ownership by institutional investors.Footnote 59 Their widespread adoption has been hailed by some as evidence that Asian jurisdictions are embracing a more shareholder-centric model of corporate law and governance with a focus on less managerial risk-taking and maximizing long-term shareholder value.Footnote 60 However, a closer examination reveals that the adoption of UK-style stewardship codes in Asia often represents a form of “faux convergence.” While the codes may be similar in form,Footnote 61 their intended and actual functions often diverge significantly from the UK model, the purpose of which is to motivate institutional investors to monitor corporate management to prevent them from engaging in the type of excessive risk-taking and short-termism that led to the Global Financial Crisis and, more recently, to promote an environmental, social, and governance (ESG) agenda.Footnote 62
Unlike the UK, most Asian jurisdictions do not have dispersed ownership structures dominated by institutional investors. Many listed companies have controlling shareholders, fundamentally altering the context in which stewardship operates.Footnote 63 The types of investors targeted by stewardship codes also vary among Asian jurisdictions. While most focus narrowly on traditional institutional investors, Singapore stands out for its code that focuses on controlling families – a unique attempt to make the UK’s idea of stewardship “fit” Singapore’s (and most of Asia’s) local context.Footnote 64
The goals driving the adoption of stewardship codes differ widely across Asian jurisdictions. In Japan, the stewardship code was part of a broader economic growth strategy aimed at making companies take more risk to use capital more efficiently.Footnote 65 In Korea, the code was seen as a tool to address governance issues in family-controlled conglomerates (chaebols).Footnote 66 In Singapore and Hong Kong, the adoption of stewardship codes appears driven more by a desire to signal compliance with global governance norms – a form of “halo signaling“ than to address specific domestic issues.Footnote 67
The concept of “halo signaling” as a driver for adopting stewardship codes has now received empirical support. Nguyen and Wang find evidence consistent with stewardship codes acting as a “halo” signal that attracts broader equity ownership by US institutional investors in adopting countries, particularly in firms that previously had less US investor presence.Footnote 68
While all Asian stewardship codes are technically voluntary, the level of regulatory pressure for adoption varies. Some jurisdictions have used soft governmental pressure to encourage compliance,Footnote 69 while others have left it entirely to market forces.Footnote 70 The actual impact of stewardship codes on investor behavior and corporate governance practices varies widely across jurisdictions, often differing significantly from their stated ambitions.Footnote 71 As we observe elsewhere:
It appears that a variety of jurisdiction-specific factors – including market signalling, politics, and ESG considerations – drove governments in Asia to adopt UK-style stewardship codes. As a result, the intended and actual functions of UK-style stewardship codes in Asia have significantly departed from – and in some cases run counter to – the intended and actual functions of the UK Code.Footnote 72
This divergence in the function of stewardship codes across Asia, despite their similar form, highlights the importance of understanding the specific jurisdiction-specific contexts in which corporate law and governance mechanisms operate. It also demonstrates how jurisdictions can use the adoption of “global standards” strategically to serve local purposes, a phenomenon that extends beyond stewardship codes to other areas of corporate law and governance.
The above examination of independent directors, derivative actions, and stewardship codes in Asia reveals a common pattern: formal adoption of corporate law and governance mechanisms originating in Anglo-America, followed by significant divergence in their implementation and function. This pattern of “faux convergence” – superficial similarity in form masking significant diversity in function – creates challenges for both academics and policymakers in accurately assessing corporate law and governance practices globally. As we argue elsewhere:
Faux convergence turns this assumption on its head. As the Asian jurisdiction case studies canvassed in this chapter have demonstrated, mechanisms originally intended as tools of “good” corporate governance can be subverted by elites for their own ends. A superficially adopted corporate governance tool can be simultaneously wielded to maintain or reinforce a jurisdiction’s existing corporate governance system, to further the jurisdictional elites’ own agendas and to signal to the world – notwithstanding little to no commitment to real change – that the jurisdiction’s elites have adopted “good corporate governance”.Footnote 73
For scholars of comparative corporate law and governance, these findings emphasize the need for nuanced, context-specific analysis that goes beyond surface-level comparisons. As Asian jurisdictions often adapt and repurpose corporate law and governance mechanisms to serve local needs and goals, including “halo signaling,” rather than simply emulating Anglo-American models, significant diversity in corporate law and governance practices persists both between Asia and Anglo-America, and within Asia itself. Local contexts, including ownership structures, legal systems, and domestic and international political economies, significantly shape how these mechanisms operate in practice. Surface-level comparisons based solely on the presence or absence of certain mechanisms without knowledge of such local jurisdiction-specific contexts can be misleading. For policymakers and international organizations promoting corporate law and governance reform, they highlight the limitations of one-size-fits-all approaches and the importance of understanding local dynamics.
Ultimately, the experience of corporate law and governance reform in Asia suggests that while globalization has led to some convergence in form, the substance of corporate law and governance remains deeply embedded in local contexts. Understanding this complex reality is crucial for developing more effective approaches to corporate law and governance both within Asia and globally.Footnote 74 This is especially the case as globalization appears to be moving toward a more regional approach to corporate law and governance around the world.Footnote 75
IV The Power of Inter-Asian Comparisons and Faux Convergence in Reshaping Comparative Corporate Law
Our examination of independent directors, derivative actions, and stewardship codes across Asia demonstrates the explanatory power of the faux convergence framework and the untapped potential of inter-Asian comparisons for enriching comparative corporate law scholarship more broadly.
The concept of faux convergence, as introduced earlier, provides a powerful lens through which to understand the complex reality of corporate law and governance in Asia. It explains how Asian jurisdictions have adopted the outward form of Anglo-American corporate law and governance mechanisms while strategically adapting their substance and function in various ways to serve local purposes. Notably, the adoption of globally recognized corporate law and governance mechanisms can serve important signaling functions, allowing jurisdictions to demonstrate compliance with international norms, which may sometimes be more important than the actual function of the mechanism. This phenomenon results in superficial similarity masking significant functional diversity, challenging simplistic narratives of global convergence.
The diverse implementation and functions of these corporate law and governance mechanisms within Asia provide a unique laboratory for understanding how similar legal transplants evolve in different yet related contexts, exemplifying faux convergence in action. For instance, while both Japan and Korea had derivative actions that lay dormant for decades and then suddenly saw a spike in activity, the driving forces behind this trend differed significantly,Footnote 76 illustrating how seemingly similar legal mechanisms can serve distinct purposes in different local contexts.
Inter-Asian comparisons also reveal the diverse strategies jurisdictions employ when adapting foreign corporate law and governance concepts, further highlighting the dynamics of faux convergence. The case of independent directors is particularly illustrative.Footnote 77 While most Asian jurisdictions have formally adopted independent director requirements, their roles vary significantly across the region. In Japan, independent directors are expected to champion investors’ interests in the boardroom as a part of the government’s policy to overcome the long-time economic malaise, while in Singapore’s family-controlled firms, they frequently act as mediators in family disputes. These functional variations within Asia demonstrate the creative ways in which jurisdictions can repurpose corporate law and governance mechanisms to serve local needs, often diverging significantly from their original intended functions.
Furthermore, the adoption of stewardship codes across Asia showcases how seemingly similar reforms can serve vastly different purposes in different jurisdictions, epitomizing faux convergence.Footnote 78 While Japan’s stewardship code aims to promote shareholder-centric governance to promote more risk-taking as part of a broader economic strategy, Korea’s code was seen as a tool to address governance issues in family-controlled conglomerates (chaebols). These inter-Asian differences provide rich insights into how global corporate law and governance norms are negotiated and reconfigured within diverse jurisdiction-specific contexts.
By focusing on these inter-Asian variations through the lens of faux convergence, scholars can move beyond simplistic East–West comparisons and develop a more sophisticated taxonomy of convergence for understanding legal transplants and governance evolution.Footnote 79 This approach, which aligns with broader trends in comparative law toward more contextual, pluralistic frameworks,Footnote 80 allows us to identify local factors that shape corporate law and governance outcomes, which might be overlooked in broader global comparisons.
Moreover, inter-Asian comparisons offer valuable lessons for other regions grappling with similar challenges. As many Asian jurisdictions navigate the tension between global pressures and local institutional logic, their experiences with faux convergence provide a roadmap for other emerging economies seeking to reform their corporate law and governance systems while maintaining local relevance. This may be especially relevant as globalization appears to be moving toward a more regional approach to corporate law and governance around the world – a trend that may accelerate with the election of Donald Trump in the US.
V Conclusion
Ultimately, embracing the complexity revealed through inter-Asian comparisons and the faux convergence framework can significantly advance the field of comparative corporate law and governance. It pushes us to develop more robust and nuanced taxonomies that capture the true state of convergence and diversity of global corporate law and governance practices. The time has come to recognize the reality of “faux convergence” as an important lens for understanding corporate law and governance within Asia and beyond.
I Introduction
The employer provided everything – wages, housing, post office, parks, canteens. Such a model of the “company town,” where a single corporation dominates in multiple capacities as employer, landlord, service provider, and quasi-regulator over a dwelling area, has endured across borders and time. The term can portray textile mills in eighteenth-century England or coal and steel towns in early twentieth-century America just as fittingly as it does today’s network of “supply chain cities” that span East and Southeast Asia and beyond. Unlike the old towns of the industrializing West, which largely served a single, vertically integrated conglomerate, today’s factory towns are transboundary, interconnected, and designed to take advantage of various legal regimes, most notably trade, tariff, investment, and labor laws. Built to settle workers around job sites such as mills, mines, or factories, these manufacturing industrial parks manifest an evolving, expansive exercise of corporate power – once confined to national boundaries, now at once local and transnational thanks to the demands of global supply chains.
This chapter conceptualizes Inter-Asia’s supply chain cities as modern company towns. In particular, it studies manufacturing sites in East and Southeast Asia and their business and legal links. More than just towering physical spaces, these sites represent a form of legal entrepôt – created by law and capable of shaping laws and norms through diverse pathways, including regulatory fragmentation and coordinated advocacy. In comparison with another gilded-age moment of industrial development – early twentieth-century United States (US) – these modern company towns exemplify the uniqueness of Inter-Asia’s corporate forms, exercise of power, and regional integration.
II A Brief History: From Classic Company Towns to Supply Chain Cities
A. The Classic Company Towns
If “seeing like a state” was about the statecraft of rendering societies’ complexity into “legible” patterns in the name of bureaucratic administration,Footnote 1 company towns are, arguably, the craft for seeing and planning like an industrialist. Two key features set them apart from other towns and enterprises. First and foremost, the raison d’être of company towns was, and is, economic activities – as one scholar puts it, they are “physical expressions of economic enterprise.”Footnote 2 Second, company towns facilitated an expansive corporate control order that spread through and blurred the lines between work and personal space, enabled by the corporation’s multifaceted role – most visibly as employers, but also as landlords, property owners, and quasi-regulators of the town’s life. Functionally, as explored elsewhere, this corporate control order manifested through at least three mechanisms: the physical link between workplace and housing; the financial link between workers’ wages and rent; and heavy monitoring of private activities. Each represents, in turn, physical control, resource constraint, and social and moral control.Footnote 3 As we shall see, these key features have translated well into the business model of modern factory towns, despite very different settings.
Classic company towns, such as those that emerged during the Industrial Revolutions in the West, are broadly defined as “communities dominated by a single company, typically focused on one industry.”Footnote 4 This domination started in the towns’ very names, often eponymous to the particular companies or entrepreneurs (most often men) that founded them.Footnote 5 Beyond a general definition, however, company towns were as diverse as their industries, designs, locations, and their founders’ ethos. Resource-extraction towns supporting coal mining and metal ores often sprang up from scratch in remote areas, necessitated by the need to stay close to natural resources.Footnote 6 Towns in lighter manufacturing industries such as textiles might have begun as small settlements that then expanded alongside a growing corporation that served as each town’s primary employer.Footnote 7 Either way, it was critical for housing to locate near the worksite, especially in remote locations, to attract and retain labor, reduce turnover, and maximize efficiency.Footnote 8
It was this peculiar arrangement – where work lives and private lives were deliberately, physically entwined – that defined the towns. Companies would build not only housing but also stores, parks, roads, churches, and medical clinics. Many strived to cultivate the image of “a working family’s paradise,” complete with public amenities and social programs.Footnote 9 Benevolent motives aside, business owners certainly had ample incentives to keep workers content.Footnote 10 Towns with on-site amenities and a sense of community created through social groups and religious services were better able to attract and retain workers to an otherwise unattractive hard-labor life.Footnote 11 Providing robust activities and entertainment to keep workers on-site also lowered the risk of off-site temptations, consistent with the paternalistic attitude that companies held over their workforce.Footnote 12 More broadly, social control was part of industrial capitalism’s ideals of the virtuous worker: “Early to bed, early to rise, makes a man healthy, wealthy, and wise.”Footnote 13 In this vision of corporate paternalism, running a business came with moral and economic responsibilities. By advocating for “industrious virtues” such as thrift, diligence, and obedience, corporate owners argued that the enterprises were safekeepers of not only industrialist productivity but also the larger social project of eradicating vice.Footnote 14 Corporate regulations, enforced through the physical insulation and architecture of company towns, were deemed critical to improve workers’ welfare, both for their own and for societal goods.Footnote 15
In their heydays, company towns’ physical architecture, so comprehensive in its fusion of capitalist efficiency with labor management, thus exemplified legal scholars’ conception of “infrastructure as regulation” – that is, spatial constructions that shaped behaviors and created social ordering.Footnote 16 As we will see below, this feature has remained constant even as the business model of company towns globalized and adapted.
B. Company Towns Go Global
By the 1950s, traditional industrial towns had slowly receded in the US due to a confluence of colliding forces.Footnote 17 The development of cars and railroads, changes in technology, and new, robust state and federal regulations in response to the Great Depression all contributed to what became known as the beginning of America’s great deindustrialization.Footnote 18 But as company towns started to phase out in the West, globalization enabled their reincarnation abroad as manufacturing outposts, first mainly catering to Western economies. An early example – and a spectacular failure – was Ford Motor Co.’s establishment of the Fordlandia rubber plantation in 1920s’ Brasilia.Footnote 19 Modeled after Ford’s flagship plant in Dearborn, Michigan, Fordlandia featured an extensive compound built amidst isolated nature and a similar system of control over local workers, including whistles, time-punch clocks, and routine investigations.Footnote 20 Fordlandia’s eventual abandonment stood in history as an expensive lesson on multiple fronts: a failed attempt to export Ford’s famed assembly line to a jungle ecology, the complexity of going multinational, and the politics of bringing “white man’s magic” to other parts of the world.Footnote 21 Relevant to this chapter, it also epitomizes the challenges of attempting to exercise corporate control over an increasingly intricate global production process. As detailed in the next section, critical for modern company towns in Inter-Asia, that task was soon outsourced to a new crop of companies, who took over not only the human management of supply chains, but also the legal and economic arbitrage of structuring global production itself.
III Inter-Asia’s Company Towns
This part conceptualizes today’s “supply chain cities,” prolifically built in Asia, but also popular elsewhere, as modern reincarnation of the old company town model. At first blush, this may seem an unintuitive comparison. The fundamental qualities – the time and space, the companies, the states, the products, and the production process – have all changed. Yet, from Pullman, Illinois, to Foxconn’s “iphone city” in Shenzhen, China, the “keywords” remain starkly similar: economic productivity, labor–capital tension, corporate control. Such similarity, as I have argued elsewhere, is not a coincidence but the result of a global economic integration process that prioritizes efficiency and large-scale productivity.Footnote 22 Put differently, the company town business model, then and now, facilitates a mode of capital accumulation and labor management that caters to industrial development.
To be sure, factory towns of the present operate in a very different world from the past. Instead of textile mills and coal mines, modern industrial towns, especially in Asia, specialize in distinct functions of their industries, ranging from labor-intensive tasks such as part assembly and packaging to high-value technology-related manufacturing. Unlike the old industrial towns of the West, which largely served single, vertically integrated corporations, modern factory towns, as demanded by global supply chains, are transboundary, interconnected, and designed to take advantage of various legal regimes, most notably trade, tariff, investment, and labor laws. This part explores some of the critical features that pave the way for Inter-Asia’s company towns: the rise to prominence of transnational suppliers, the proliferation of special zones, the creation of modern industrial towns, and the horizontal networks across Inter-Asia’s supply base.
A. Rise of Transnational Suppliers
The gravitation toward a “made in the world” manufacturing modelFootnote 23 paved the way to the rise of a largely hidden new crop of multinational enterprises – which I call “Big Suppliers.”Footnote 24 By Big Suppliers, I refer to large-contract manufacturing corporations, public and private, with presence in multiple jurisdictions, whether through subsidiaries or contracting networks.Footnote 25 Though not always, they tend to be headquartered outside of Global North economies, most dominantly in Asia, as a product of outsourcing trends, trade regulations, and individual nations’ industrial policies.Footnote 26 As brands and retailers in the US, Europe, and elsewhere divested, their foreign-based contracting partners increasingly scaled up and consolidated to meet the complex demands of global production.Footnote 27 When each part of a product might come from different countries and even different continents, control, coordination, task management, and compliance were critical to ensure a smoothly run supply chain.Footnote 28 This, in turn, spurred demands for a professional logistics industry capable of the herculean tasks of optimizing complex cross-border processes.
Transnational suppliers thus emerged as a new, quiet crop of corporate powers, whose presence transformed the economic and legal organization of global trade.Footnote 29 By virtues of size and scale, they sit atop a robust global supply base spanning Asia, Latin America, and beyond.Footnote 30 As laid bare by the COVID-19 pandemic, this global supply base, while transboundary and expansive, is also concentrated, both geographically to a small number of key countries and economically to a small group of key firms.Footnote 31 Well-known examples include Foxconn, the world’s largest electronics contract manufacturer; the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest semiconductor manufacturing foundry, known for its ability to make the most advanced nanochip; TAL Apparel, which produces one out of every eight dress shirts bought worldwide; Luen Thai, a textile conglomerate; Yue Yuen, the world’s largest manufacturer of athletic shoes; and Li & Fung, the world’s biggest apparel trading house, once called “the most important company that most American shoppers never heard of.”Footnote 32
Transnational suppliers’ quiet rise to prominence in a highly interdependent system has resulted in a relative shift in the locus of power in global supply chains, long assumed to be dominated by Western brands.Footnote 33 Relevant to this chapter, they are also the employers of modern company towns, having taken over the tasks of manufacturing and labor management. Like the corporate giants of the past, they act at once as employers, landlords, and quasi-regulators to manage the employment, housing, mobility, and social lives of millions of workers whose labor sustains global consumption. As argued elsewhere, the emergence of these companies has implications for a suite of public and private law issues, including cross-border contracts, corporate social responsibility designs, trade regulations, private regulatory functions, and more.Footnote 34 Before turning to transnational suppliers’ management of modern industrial towns, it is first helpful to understand the type of law-made soil on which these towns stand – the special economic zones (SEZs).
B. SEZs
Special economic zones, at a fundamental level, are a form of regulatory laboratories – aptly defined as “demarcated geographic areas contained within a country’s national boundaries where the rules of business are different from those that prevail in the national territory.”Footnote 35 Their history dates back to the Roman Empire, whose authorities bestowed free trade–like conditions on ports and islands to encourage trade.Footnote 36 Early SEZs included European colonial outposts such as Macau and Hong Kong, as well as China’s numerous “treaty ports,” through which it ceded territories and granted broad concessions to Western powers in the aftermath of the Opium Wars.Footnote 37 In the 1970s and 1980s, SEZs were catapulted to holy grail status thanks to several highly successful utilizations, first by the “Asian Tigers” economies, then by the People’s Republic of China as part of Deng Xiaoping’s “Open Door” policy.Footnote 38 Urged on by a coalition of national governments, private sectors, and international organizations hoping to replicate such successes, other developing countries quickly seized on the model, resulting in a rapid spread of SEZs around the globe.Footnote 39 Though widespread, zone distributions are highly concentrated, both in geography and in economic activities. Nearly 90 percent of the world’s SEZs are located in developing nations, with China hosting nearly half and a substantial number spreading across East and Southeast Asia.Footnote 40
Functionally, SEZs allow states to move beyond the old economic wisdom of national competitive advantage to create modern one-stop-shop “location-specific advantages.”Footnote 41 The goal, as made clear by policymakers, is to create more liberal, effective business environments, insulated from the larger national context, in order to attract foreign investments and boost economic development.Footnote 42 Common regulatory incentives include preferential customs duties and taxes; streamlined administrative procedures; and one-stop integrated offices to ease compliance.Footnote 43 Benefiting from SEZs’ well-defined spatial boundaries, states may also test controversial policies such as land auctions, wholly foreign-owned companies, or labor market liberalization, without having to commit to large-scale changes.Footnote 44 Legal and regulatory learning was well documented among states, for example, Vietnam and Ethiopia in emulating mainland Chinese and Taiwanese experience.Footnote 45
C. Special Towns
Modern company towns retain key vestiges of the old model – large-scale economic activities, comprehensive infrastructure planning, and tight control over workers’ lives – but operate in a vastly different context. Thanks in part to transnational suppliers’ rapid expansion, modern factory towns no longer resemble the old model’s discrete islands of economic activities. Instead, they belong to transnational networks operating at different nodes of global production, strategically located to take advantage of trade, tariff, and other favorable laws. Much has been written about the meticulous infrastructure planning, extensive control, and labor plights in modern factory cities, most infamously Foxconn’s “forbidden iPhone city” in Longhua.Footnote 46 This part focuses instead on a different facet, that is, the roles of supply chain cities as innovation hubs in advancing both business norms and certain quasi-public functions.
On advancing innovative business norms, consider, for example, the Luen Thai Liz Claiborne facility in Dongguan, China. Luen Thai, a Hong Kong–based apparel manufacturer, first experimented with supply chain cities in 2007, on the heels of the expiration of the Multi Fiber Agreement (MFA) – a multilateral regime that carved out special quotas for trade in textiles from 1973 to 2005.Footnote 47 By imposing country-specific quotas on textile exports by developing countries, the MFA contributed to a proliferation of supply bases around the world, and its end brought about a consolidation of the apparel supply chains.Footnote 48 With Liz Claiborne’s backing, Luen Thai relocated the raw material suppliers and product manufacturers into one mega-factory located in Dongguan, in the province of Guangdong – known for its convenient transportation access.Footnote 49 From there the company built a campus comprised of product development centers, factories totaling 2 million square feet, a 4,000-person dormitory, a movie theater, gyms, hotels, and showrooms for visiting clients.Footnote 50 All parties follow a highly standardized scan-and-track inventory system to allow goods to move seamlessly across production stages and from the factory floors into Liz Claiborne stores in the US and elsewhere.Footnote 51 “A buyer, a marketer, a brander from the [United States] can go to Supply Chain City and never have to leave the complex,” explains Luen Thai’s US president. “They can make their samples, they can buy their fabrics, they can do everything they want under one roof.”Footnote 52 Luen Thai’s restructuring resulted in a corresponding change at Liz Claiborne, which at the time sourced from over 250 suppliers in thirty-five countries.Footnote 53 The retailer started to consolidate its supplier base and relocate its designers from Hong Kong, New York City, and elsewhere to the Dongguan complex so that they could closely collaborate with Luen Thai’s technicians from the factory and fabric mills.Footnote 54 The one-stop-shop, comprehensive nature of Luen Thai’s industrial site thus fosters collaboration, information sharing, and innovation – an arrangement that mirrors the “technology cluster” concept of high-tech locales like Silicon Valley.Footnote 55
Equally significant, corporate functions in modern factory towns can extend well beyond commercial activities – a phenomenon amplified by the COVID-19 pandemic. In the 2019–2021 period, as the pandemic traveled around the globe, transnational suppliers, as operators of supply chain cities, took on surprising and dramatic roles as providers of public health and pandemic response, even as diplomats to secure scarce vaccines. In Vietnam, for example, after waves of COVID-19 outbreaks, electronic factories turned to a model of “sleepover manufacturing” to insulate workers from infections, greenlit by a national leadership anxious to keep the country’s reputation as a supply chain rising star.Footnote 56 Pou Chen – Yue Yuen’s Vietnamese subsidiary – advanced its own contact tracing, testing, and medical reporting system,Footnote 57 while Samsung Vietnam provided free dormitories and food to encourage workers to stay within its industrial park.Footnote 58 When COVID-19 inevitably reached the factory floors, these suppliers, sanctioned by regulators, turned their plants into quarantine space, where thousands of workers spent time away from their families isolating in clusters.Footnote 59 This was an exception to Vietnam’s highly rigid regulation that COVID exposures were subject to mandatory quarantine in military-operated camps.Footnote 60 Suppliers also mounted fierce lobbying efforts to prioritize factory workers for vaccine eligibility.Footnote 61 In Taiwan, in an extraordinary development, Foxconn and TSMC took on diplomatic and political roles as they represented the Taiwanese government in its negotiation to purchase COVID vaccines directly from BioNTech.Footnote 62 By outsourcing the negotiation to its two most powerful companies, Taiwan was able to sideline a conflict with the People’s Republic of China, which insisted that Taiwan needed to wait for vaccine distribution from the central government, just like other Chinese provinces.Footnote 63 In Vietnam, suppliers also played critical roles in securing vaccine supplies for their workforce early in the pandemic, spurring a heated public debate on vaccine equity.Footnote 64 In their defense, these enterprises argued that the infrastructure of their industrial sites acted as built-in regulation for vaccine compliance and should be prioritized both for public health and economic reasons.Footnote 65 To be sure, the desire to maintain production, at a time when global supply chains became heavily scrutinized, factored into these governments’ delegation of critical foreign policy and public health functions to transnational suppliers.Footnote 66
D. Horizontal Networks
Distinct from past company towns, a key feature of today’s manufacturing sites in East and Southeast Asia is their deep links as part of a global supply base. This phenomenon arose well before the COVID-19 pandemic and subsequent geopolitical changes, thanks in part to transnational suppliers’ history of expansion. In labor-intensive textile and footwear industries, for example, as the cost of living rose in China, major suppliers such as TAL Apparel and Yue Yuen sought out manufacturing bases in labor-rich Southeast Asia and South Asia, with a high concentration in Vietnam, Indonesia, and Cambodia.Footnote 67
Changing geopolitics and post-pandemic reordering have accelerated at least two trends: efforts to reindustrialize Global North economies and pressure to divert manufacturing out of China into other manufacturing bases. The latter has spurred a new wave of factories and industrial clusters in Southeast Asia and South Asia as suppliers attempted to hedge unstable geopolitics and legal uncertainties. Apple, for example, has announced plans to move some of its core production operations to India and Vietnam, triggering its “Big Three” suppliers – Foxconn, Luxshare, and Goertek – to set up subsidiaries, secure land leases, and announce construction plans in these destinations.Footnote 68 In the textile and apparel industries, the passage of the Uyghur Forced Labor Prevention Act and other sanctions has driven brands to seek out alternative cotton resources, effectively creating new demand for labor and cotton plants in Pakistan, Bangladesh, and India.Footnote 69
Inter-Asia’s supply base is not catering to Western brands alone. Homegrown brands from China and Southeast Asia are increasingly a driver of the region’s growth and economic integration. Chinese EV manufacturer BYD, for example, recently announced a $1.3 billion investment in new manufacturing facilities in Thailand and Indonesia, to be completed by 2026.Footnote 70 Vietnam’s EV brand VinFast has announced a $1.2 billion investment in Indonesia for an assembly plant, further underlining the attractiveness of Indonesia as a manufacturing base for the EV industry.Footnote 71
As a result, new factories and industrial clusters are being created across Inter-Asia. Efforts to divest from China have, in essence, strengthened the region’s interdependence as Chinese suppliers seek nearby offshore locations to restructure their own supply chains. This flexibility in supply chain architecture underscores the key difference between today’s global supply base and past company towns. Instead of the old model’s discrete islands of economic activities, today’s factory towns are part of a transnational, cross-boundary network that can coordinate, share legal and business practices, and learn from one another in the face of uncertainties. The next part explains some of these dynamics by turning to the concept of infrastructure sites as “legal entrepôts.”
IV Inter-Asia’s Company Towns as Legal Entrepôts
Entrepôt is derived from the French words entre (among, between) and poser (to place).Footnote 72 Historically, the term referred to warehouses and shipment centers, where goods were deposited as part of trade flows.Footnote 73 More broadly, like a gateway or a port, an entrepôt is a physical place in-between, connecting local commerce with the wider world, providing a space for processing, documenting, and organizing the migration of goods and people.Footnote 74 Borrowing from this concept, a legal entrepôt is legal in two ways. First, its nature is legal in that it is law-made, designated as a cross-border entrance by the relevant authorities from which it derives legitimacy. In this sense, any official port, SEZ, or factory town is necessarily a law-made space, sanctioned by law and created with specific policy goals, often to encourage regulatory and economic experiments without having to commit to large-scale change.Footnote 75 Indeed, scholars have argued that these specially designated spaces represent a regime of capitalist “micro-ordering” – that is, “political arrangements at a small scale,” separate from the structure of the nation-states.Footnote 76
Second, equally noteworthy, the concept of a legal entrepôt underscores how laws and norms, like other commodities, flow through and are shaped within the physical space. When transnational suppliers operate supply chain cities that resemble past company towns, how they organize their buildings, factory floors, and work shifts becomes the de facto regulation of significant aspects of individual lives. As transnational suppliers often operate in “regulatory laboratory” spaces such as SEZs with more leeway given to local authorities and private actors, their roles in private governance are especially pronounced. The first example below, on regulatory fragmentation through production lines, illustrates the power of suppliers in taming regulations by “splitting” production lines. Yet, the transboundary, porous nature of global supply chains, while facilitating the extraterritorial reach of corporate private governance, can also present new opportunities for transnational solidarity among workers across disparate supply bases. The second example, on efforts to coordinate labor actions, exemplifies transnational advocacy that leverages the very nature of business-friendly global supply chains (admittedly in a limited way) for labor causes.
A. Regulatory Fragmentation
Regulatory fragmentation refers to a phenomenon in which a transnational supplier, by virtue of its control over dispersed industrial sites, can choose to “fracture” its production lines to comply with stringent standards only where required. Take, for example, Yue Yuen’s operation model of customer-specific production lines. A major athletic footwear manufacturer, Yue Yuen is the main supplier for Nike, Adidas, Reebok, and other brands.Footnote 77 As one of Nike’s major suppliers, Yue Yuen became embroiled in the anti-sweatshop campaign against Nike during the late 1990s, including major exposés on its factories in Vietnam.Footnote 78 In the aftermath, Nike became an early adopter of corporate social responsibility, with some of the most stringent standards on workers’ rights in the industry.Footnote 79 As a supplier to multiple brands, Yue Yuen increasingly needs to comply with not only varying manufacturing specifications but also a variety of codes of conduct and labor and safety standards. Yue Yuen organizes its production lines according to specific merchandisers, producing specific items in batches.Footnote 80 As a result, Nike’s more stringent labor standards are effectively “quarantined” within its own production line. Meeting the more stringent requirements for a customer like Nike does not necessarily result in positive spillover effects on Yue Yuen’s other processes.Footnote 81
Solar suppliers utilize the same tactic when faced with US import sanctions regarding polysilicon – a critical component for photovoltaic cells that make up solar panels. The Xinjiang Autonomous Region in Northwestern China is home to four of the five largest polysilicon factories in the world.Footnote 82 In 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act, which creates a rebuttable presumption that imports from Xinjiang – polysilicon included – are made with forced labor unless importers can produce “clear and convincing” evidence demonstrating otherwise.Footnote 83 In a concerted move, US Customs and Border Protection, which, in addition to immigration, is also in charge of the admission of goods into the US, issued a series of “withhold release orders” to detain solar components suspected of being “tainted” with Xinjiang labor.Footnote 84 In response, solar component manufacturers have started “splitting” their production lines, with dedicated “clean” lines – that is, clearly free of Xinjiang inputs – slated for export to the US.Footnote 85 By an example, Jinko Solar, a solar module manufacturer headquartered in Shanghai, is reportedly ramping up its Xinjiang-free production in Vietnam to serve the US market, noting that it is only using German and US polysilicon for these production lines.Footnote 86
B. Supply Chain Solidarity
The transboundary, porous nature of global supply chains, while facilitating the extraterritorial reach of corporate private governance, also presents new opportunities for transnational solidarity. As the examples below demonstrate, thanks to the interconnectedness of global production, strategic coordination is possible among workers who might be in different countries or industries but are linked through the global supply base.
The prime example so far has been in Europe rather than Asia: the coordinated strike against Tesla by Scandinavian workers, first started in October 2023 by four Swedish technicians.Footnote 87 Since then, thousands of workers across countries and industries have joined in, including Norwegian and Finnish port workers, Danish truck drivers, as well as Swedish postal workers, cleaners, and garbage collectors who declined to service Tesla offices.Footnote 88 While Northern Europe is a relatively small market, these labor actions have garnered attention across the globe as a renewed form of transnational solidarity that capitalizes on the very business-friendly nature of global production and strikes at key nodes of supply chains.Footnote 89
The coordinated strikes against Tesla are reminiscent of earlier efforts by Asian supply chain workers in China and Vietnam against shoe giant Yue Yuen. In 2014, in what turned out to be one of the largest industrial strikes in Chinese history, 40,000 workers from multiple Yue Yuen factories in Dongguan, China, took to the street to protest the company’s failure to pay worker benefits.Footnote 90 It started with a single worker at a Yue Yuen factory in Dongguan, who, in seeking compensation for a workplace injury, learned that the shoe giant had failed to contribute to workers’ social insurance funds.Footnote 91 Within a week, the strike had spread to 1,000 workers; within two weeks, an estimated 40,000 workers from all seven of Yue Yuen factories in the region had joined in – marking a rare regional effort.Footnote 92 The unusual size, length, and reach of the unrest triggered a violent response from local authority.Footnote 93 By the end of the month, most workers accepted a settlement and returned to work.Footnote 94 Without the counterweight of an independent union, the massive strike, like a wave, surged but then dissipated without long-lasting gains for Chinese workers.Footnote 95 Even then, the legacy of the Yue Yuen strikes prompted the central government to announce an investigation into Yue Yuen’s books and records, eventually resulting in a $90 million settlement to replenish its social insurance and workers’ housing funds.Footnote 96
In Vietnam, strike coordination can happen not through workers but, perhaps somewhat ironically, through business and political networks. To avoid competition, employers in the same industrial clusters – especially East Asian companies from Taiwan, Japan, and Korea – often coordinate on wage rates and workers’ benefits.Footnote 97 A successful strike that raised wage rates would thus impact the equilibrium of the entire industrial zone and even region. To maintain stability and discourage further strikes, provincial union officials often inform their counterparts in neighboring zones and provinces about the successful strike and the resulting new wage rates.Footnote 98 They may even advise employers to engage in preemptive negotiations, rather than waiting for workers’ reactions, which may halt production and cause missed deadlines.Footnote 99 In effect, through business and political networks, local officials in Vietnam have informational advantages regarding strike activities, allowing them to act as a kind of broker to set the bargaining terms and preempt potential conflicts. This practice is certainly not labor-led negotiation. But it still represents a way in which the interconnected nature of industrial zones and supply chains can be leveraged for higher wages, albeit tamed through political and business interests.
V Conclusion
Inter-Asia’s company towns are both starkly similar and different to the old model. Now and then, these manufacturing clusters are the physical manifestation of the capital accumulation and labor management that cater to and facilitate industrial development. Then and now, they reflect the expansiveness of private governance. But unlike past models, today’s modern factory towns are transboundary and interconnected as demanded by global supply chains, as part of their designs to capitalize on legal and economic advantages across borders. The horizontal links among Inter-Asia’s industrial clusters facilitate their roles as legal entrepôts – made by law and capable of shaping laws. While suppliers’ locational advantages enable regulatory fragmentation through practices such as supply chain splitting, modern factory towns’ interconnectedness can also open up opportunities for learning and coordination among workers who are linked through regional supply chains. As changing geopolitics create new, rapid demands for industrial sites in Asia and beyond, this volume chapter thus offers a timely, if limited, study on the pathologies of and perhaps even hopes for Inter-Asia’s modern company towns.
I Introduction
Alternative dispute resolution (ADR), which is a process of offering alternatives to traditional court litigation in which an impartial third party, such as an arbitrator and mediator, helps disputing parties reach a settlement, is not a new phenomenon. However, the development of modern-day ADR only dates back to the twentieth century in Western countries,Footnote 1 with London and Paris traditionally being the most active players, followed by Geneva, New York, and Stockholm.Footnote 2 The adaptation of international commercial ADR in Asia was even more recent, a trend that has its beginnings in colonial ties.Footnote 3 Despite the late start, Asia has witnessed explosive growth in the ADR field, leveling the international playing field. For example, in terms of international commercial arbitration institutions, the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) are consistently ranked among the leading institutions in the world.Footnote 4 With Singapore and Hong Kong as the current leaders, several other centers in Asia (Seoul, Tokyo, Kuala Lumpur, Abu Dhabi, Dubai, Beijing, and Shanghai, among others) are actively trying to draw more attention from contracting parties.Footnote 5 The success of the first-tier Asian cities (e.g., Singapore and Hong Kong) and the growth of the second-tier cities (e.g., Seoul, Tokyo, etc.) and the relationship between and among them suggest a new era of Inter-Asian ADR.
This chapter approaches Inter-Asian ADR from two categories: arbitration and mediation. Arbitration is currently Asia’s most popular type of ADR and therefore deserves a thorough exploration. Mediation, however, is noteworthy given the strong cultural aspects of the practice, particularly as such aspects are most pronounced in Asia. These cultural practices include a greater emphasis on consensus than in Western countries, as evidenced by, for instance, the preference for mediation and conciliation or the incorporation of amicability into arbitration procedures.Footnote 6 Although mediation has yet to receive as much activity as arbitration, its presence has undoubtedly caused significant reforms across Asia. Other types of ADR include adjudication, dispute review boards, and domain name dispute resolution (DNDR). While Asian jurisdictions have also grown these ADR fields, there has, to date, been less written about them. Nonetheless, the prevalence of these other types of ADR gives further credence to the idea of Inter-Asian ADR. Starting from the first two dragons Singapore and Hong Kong, the fever for ADR now spreads wide and deep in Asia. Today, Asia is causing the center of the world’s ADR market to shift eastward, and, despite some challenges on the horizon, this trend will only likely continue.
II The Race Between Singapore and Hong Kong
A. Singapore’s Status
Background
Singapore’s history as a hub for international commerce is closely linked to its colonial past. When British governor Stamford Raffles secured the port that would become modern-day Singapore in 1810 and later established it as a colony in 1824, he laid the foundations for a thriving trading post.Footnote 7 Unlike Hong Kong, which serves as a gateway to China, Singapore’s strategic position as a crossroads of busy sea lanes has uniquely positioned it to become a premier arbitration hub in Asia.Footnote 8 Despite its small area, less than a third of the size of Hong Kong, Singapore boasts three-quarters of Hong Kong’s population, resulting in a higher population density.Footnote 9
Building on its colonial roots, Singapore’s evolution into a major trading hub has continually fueled the demand for ADR. The flow of trade through Singapore, initiated during its colonial era, has only intensified over the years. This historical trend set the stage for the development of sophisticated ADR mechanisms to address the commercial disputes arising from the bustling trade activity. The culmination of this growth was marked by Singapore’s independence in 1965, which further solidified its status as a leading center for international commercial arbitration in the region.
Singapore’s attempt to promote ADR started in the 1980s when it began internationalizing its commercial dispute resolution system.Footnote 10 Singapore acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in 1986, set up SIAC in 1991 and the Singapore Mediation Centre in 1997, and consolidated the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in its International Arbitration Act in 2002. Many policy reforms have been implemented over the years, such as the 2004 amendment of the Legal Profession Act to allow anyone to represent a party in an arbitration seated in Singapore and perform work that was previously reserved for advocates and solicitors.Footnote 11 Singapore aimed to be the number one forum for international commercial arbitration in Asia and, achieving that, has subsequently sought to be a leading center in the world.Footnote 12 Pursuant to the Queen Mary Survey on international commercial arbitration in 2021, Singapore has now proven successful in making it to the top.Footnote 13
Singapore’s Establishment
ADR Promotion Strategy – Specializing and Networking: Instead of promoting all models of international commercial ADR, Singapore tends to focus on two models: arbitration and mediation. Singapore is known for its wide variety of service offerings within those models. With the availability of the trio of SIAC (est. 1991), Singapore International Mediation Centre (SIMC, est. 2014), and Singapore International Commercial Court (SICC, est. 2015), Singapore has proven it has the institutional capacity to meet international parties’ dispute resolution needs. Firstly, in collaboration with SIMC, SIAC offers an Arbitration–Mediation–Arbitration (AMA) procedure, which allows parties to utilize the strengths of each method. The parties can attempt mediation after initiating arbitration proceedings and return to arbitration if the mediation does not result in a settlement. In other cases, a mediated settlement agreement can be turned into an award through arbitration. The mediated settlement is then referred to the arbitrator for approval, and the arbitrator then assesses the consent terms and makes an award, thereby converting the mediated agreement into an arbitration award. The arbitration award is, therefore, enforceable under the New York Convention to enhance its recognition and enforcement in member jurisdictions.
Another collaborative service is the SICC–SIMC Litigation–Mediation–Litigation, whereby parties can refer to SIMC for mediation after the disputes commence SICC. In recent years, the commercial attitude toward mediation has been getting more positive; for example, the inclusion of SIMC into SICC has earned positive feedback from the business community. Secondly, SIAC collaborated with SICC to publish a model clause, allowing parties to select the SICC as the supervisory court rather than the default General Division of the Singapore High Court.Footnote 14 With this model, parties can make a more compelling decision by benefiting from SIAC’s renowned arbitration mechanismFootnote 15 and SICC’s extensive expertise.Footnote 16 Thirdly, Singapore also connects ADR services providers, professional standards bodies, and research institutions to exchange information and offer well-rounded regulations, as evidenced by the different rules for different entities participating in third-party funding (TPF).Footnote 17 The multiple connections among institutions in Singapore can further reinforce the impression of an ecosystem made from dispute resolution networks rather than individual institutions. These linkages make it possible for one to combine many of the ADR services that may be available in order to improve the capability of dispute resolution. They can also contribute to creating trust and credibility among international actors in the event such an ecosystem is provided, which demonstrates that all actors are committed to high standards and best practices. Moreover, the consolidation of sources within this network may encourage practices for resource sharing and collaboration, which might enhance the methods used and boost dependability and forecasting. This interconnectedness could promote Singapore as taking a more expansive role in the international dispute resolution system.
State-of-the-art Institutions and Infrastructure: The SMU SIDRA Report 2022 pointed out six major factors influencing the choice of venue: efficiency, administrative support, in-person hearing facilities, virtual hearing facilities, additional facilities, and convenience of location.Footnote 18 Singapore knew this early onFootnote 19 and has worked to not only meet but also excel in each criterion through the development of the Maxwell Chambers arbitration complex since 2010.Footnote 20 The Maxwell Chambers hosts most major Singapore institutions and several international ones while featuring a corresponding number of rooms of various sizes, allowing both on-site conferences and virtual hearings. Thus, despite Singapore’s small area, it manages to “enable a certain degree of cross-institutional coordination.”Footnote 21 Furthermore, as the leader in international commercial ADR infrastructure, Singapore continuously renovates the Maxwell Chambers in terms of advanced technology and infrastructure, as shown by the 2018 “SMART Maxwell” program. This program established an app that allows parties to do a variety of functions, from gaining access to hearing rooms to tracking expenditures for a more efficient finance and administrative process.Footnote 22 The program’s effectiveness can be evidenced by the sharp increase in the caseload of SIAC in 2020,Footnote 23 as well as the preference of parties to resolve disputes at Maxwell Chambers.Footnote 24
Recent Development – TPF: Singapore has taken one step after another to liberalize the legal industry and promote the city as a preferred arbitration venue. A recent example is passing new legislation such as the Civil Law (Third-Party Funding) Regulations 2017, to allow parties to seek TPF.Footnote 25 This legislation also marked Singapore’s abandonment of the common law doctrines of maintenance and champerty. These doctrines are legal rules of decision originating from English common law, which has forbidden third parties from funding legal actions. Maintenance is concerned with preventing a third party from assisting in a litigation case in which they have no professional or personal interest, while champerty is supporting a case for a share of the litigants’ gains.
These doctrines sought to reduce the chances of filing baseless cases and manipulation of the court process. At first, Singapore initially applied TPF only to international arbitration and related court procedures, but TPF has been subsequently officially embraced for domestic arbitration and other procedures. Notably, Singapore also gives parties freedom by not limiting the amount funded and paid. Non-binding regulations on TPF are present as well, specifically (i) SIAC Practice Note 31/3/2017; (ii) The Law Society of Singapore Guidance Note 10.1.1 on Third-party Funding; and (iii) the Singapore Institute of Arbitrators (SIArb) Guidelines for Third Party Funders. These regulations act as guidelines for the best practices of lawyers and funders, respectively. In short, what has distinguished Singapore’s TPF regulations from other competitors are: (i) the underlying supportive and detailed legislation, (ii) the funded parties’ protection from malpractice, using guidelines regulating lawyers and funders, and (iii) the absence of limitations on the amount funded and paid, which has greatly increased the use of TPF.Footnote 26
National Endeavor – Neutral, Incorruptible, and Binding System: Singapore is often considered a neutral arbitration seat. But what makes a seat “neutral” and why is Singapore considered one? A forum is considered neutral when none of the parties is at an actual or perceived disadvantageous jurisdiction.Footnote 27 Singapore satisfied this requirement when it established a reputation for having accessible and impartial justice.Footnote 28 Singapore is also known for its fight against corruption, which is supported by the country’s consistently high ranking in anti-corruption indices.Footnote 29 Recently, pursuant to its anti-corruption efforts, Singapore ranked fifth globally and first among Asian countries in the Corruption Perceptions Index 2022.Footnote 30
Furthermore, the enforceability of foreign and domestic awards in Singapore is almost guaranteed. Since Singapore is a party to both the New York Convention and the United Nations Convention on International Settlement Agreements resulting from Mediation (Singapore Convention),Footnote 31 its arbitration awards and mediation agreements are widely enforceable in other member states. Likewise, the national courts of Singapore have shown their support for the arbitration procedure, stating that their function is to support the procedure, not to replace it.Footnote 32
Thus, Singapore’s strength comes primarily from its achievements – both the government’s success in establishing Singapore’s status as a neutral seat and the private sector’s achievements in creating new facilities and services.
B. Hong Kong’s Status
Background
Hong Kong’s story started in 1842 when Britain established it as a colony.Footnote 33 Because of its connection to two jurisdictions China and Britain, Hong Kong is often regarded as an important “gateway” to mainland China.Footnote 34 As a gateway, Hong Kong’s strength lies in having access to an enormous market – China.Footnote 35 Moreover, Hong Kong has both a common law legal system and friendliness toward the English language, which attracts an enormous source of investors including from the United States (US) and United Kingdom (UK).Footnote 36 Hong Kong’s status as a colony terminated in 1997, when it was handed over to the People’s Republic of China (PRC) and established its status as a “special administrative region” (SAR). This did not remove Hong Kong’s status as the gateway connecting China and the rest of the world since the common law legal system of Hong Kong would be expected to last at least fifty years after the handover.Footnote 37 Furthermore, the handover allowed trade to flow both ways, as Hong Kong now also serves Chinese outbound investment, including that related to the recent Belt and Road Initiative (BRI), providing international banking and financial services.Footnote 38
As a legal hub, Hong Kong is considered “organic” thanks to existing trade activities, rather than needing to build its hub reputation from the ground up – or “artificial” like Shanghai or Dubai.Footnote 39 In terms of regulations, Hong Kong offers its own signature common law, which has the advantage of being the “middleman” since it has both Chinese and Western influence.Footnote 40 Hong Kong is also unique for being the only venue outside China that allows parties to seek interim measures from mainland courts and is thus more favorable than other jurisdictions when seeking mainland enforcement.Footnote 41 Thanks to its strong background, talented legal community, and modern arbitration institutions, Hong Kong is a solid contestant for Asia Pacific-based international arbitration.Footnote 42
Hong Kong’s Establishments
ADR Promotion Strategy – Centralizing, Diversifying, and Pioneering: Unlike Singapore, Hong Kong incorporates different types of international commercial ADR into one institution – HKIAC, which was established in 1985.Footnote 43 The Hong Kong International Arbitration Centre offers several ADRs, including arbitration, mediation, DNDR, and adjudication.Footnote 44 Mediation at HKIAC is administered by the Hong Kong Mediation Centre (HKMC) division, which was set up in 1999.Footnote 45 Domain name dispute resolution is administered by the Asian Domain Name Dispute Resolution Centre (ADNDRC), which HKIAC jointly established with the China International Economic and Trade Arbitration Commission (CIETAC) in 2002. This remained the only institution in Asia to resolve disputes under the Uniform Domain Name Dispute Resolution Policy (UDRP) until 2013.Footnote 46
While adopting a centralist approach, Hong Kong has sought inspiration from other jurisdictions in terms of innovating its ADR offerings. These adaptations are emblematic of Hong Kong’s role as a centripetal force for borrowing ADR innovations from other systems. For example, the expedited procedure was first the product of the Geneva Chamber of Commerce and Industry (CCIG) in 1992Footnote 47 before being adopted by HKIAC in 2008. Other leading Asian institutions, such as SIAC or the Asian International Arbitration Centre (AIAC), have only adopted the expedited procedure since 2010. Similarly, consolidation of arbitration upon the party’s request, introduced by the International Criminal Court (ICC) in 2012, has been adopted by HKIAC and AIAC since 2013, and SIAC since 2016. Thus, Hong Kong can be seen as not only a geographical gateway to China but also a gateway for ADR services and regulations – connecting Asia with Western countries.
Transparency and Technological Innovation: As a gateway, Hong Kong consistently introduces new innovations to Asia. Most recently, in 2021, HKIAC introduced two new services: HKIAC Case Digest and HKIAC Case Connect. The first service, HKIAC Case Digest, is a database for redacted and summarized past arbitration awards, which only subscribers can access. This follows the movement of arbitration centers around the world to improve the consistency and predictability of the arbitral process by using precedents.Footnote 48 However, compared to other institutions’ corresponding services, the awards published by HKIAC Case Digest are more limited, shown only partially and to subscribers only. Nonetheless, HKIAC earned the Best Innovation award at the 12th annual Global Arbitration Review (GAR) Awards ceremony in 2022 for this service, thus, proving its effectiveness.Footnote 49
The second innovation – HKIAC Case Connect – is a secure and convenient platform allowing parties to manage all their documents and communicate more efficiently.Footnote 50 This is another huge success for HKIAC since it inspired not only Asian but also international institutions (i.e., ICC, with 2022 ICC Case Connect) to build an online case management platform).Footnote 51 With these innovations, Hong Kong proved itself to be an innovator in the field of international commercial ADR.
Recent Development – TPF: Similar to Singapore, TPF was traditionally prohibited in Hong Kong due to the common law doctrine of maintenance and champerty. However, in 2017, Hong Kong legalized TPF in international arbitration, making Hong Kong a TPF-friendly jurisdiction.Footnote 52 In 2021, the Hong Kong Law Reform Commission published a report on Outcome Related Fee Structures for Arbitration (ORFS) recommending further legalizing lawyer fee structures. In December 2022, the regime became effective, allowing lawyers to arrange conditional fee agreements, damages-based agreements, and hybrid damages-based agreements.Footnote 53 Therefore, Hong Kong’s legal framework on TPF provides a broader variety of services than Singapore’s despite being more limited in terms of the amount funded.Footnote 54
National Endeavor – Perseverance through Crisis: Despite all the above, Hong Kong is not without problems. Hong Kong’s proximity to China has been both a blessing and a curse since Western-based parties can be nervous about getting too close to China.Footnote 55 In 2020, this fear turned into a crisis when China enacted the new National Security LawFootnote 56 to safeguard China’s security and protect the “one party, two systems” policy of Hong Kong by enforcing sanctions on offenders.Footnote 57 Reacting to this situation, the US announced that it would terminate Hong Kong’s special trading status, effectively treating Hong Kong similarly to mainland China.Footnote 58 These events have caused international companies to avoid choosing Hong Kong as the seat of arbitration and resort to rival hubs like Singapore, fearing China’s increasing influence in Hong Kong would erode trust in its legal system.Footnote 59 Amidst the chaos, Hong Kong authorities have sought to offer assurances that these developments have had only minor effects on trade and ADR.Footnote 60 The main argument is that the Chief Executive’s ability to select judges in litigation does not affect arbitration or other ADR systems since parties or the institution makes appointments or nominations.Footnote 61 While Hong Kong has held onto its status as a dominant seat of arbitrationFootnote 62, its position remains less certain than earlier.
To summarize, Hong Kong’s strength originates mainly from its status as a geographical and jurisdictional gateway to mainland China and as a gateway for international commercial ADR services in Asia. Hong Kong’s strong, established legal culture also continues to attract ADR activities. Despite facing a crisis in terms of its reputation in the business community for impartial dispute resolution services, Hong Kong will likely continue to contribute to the ADR ecosystem of Asia.
C. Inter-Asian Comparisons
Starting Point Revisited
In comparing Singapore and Hong Kong, while, broadly, the two city-states have similarities, Hong Kong historically came out on top due to its market access to China. In terms of their core similarities, both are former British colonies and with legal systems based on English common law.Footnote 63 There was a separate legal regime for international and national arbitration under both systems, which is paradoxical considering English law does not make such a distinction.Footnote 64 Since both are city economies with limited internal markets and with finance as the main sector,Footnote 65 they also share the tendency to formulate international centers rather than national ones.Footnote 66 Despite being Asian institutions, SIAC and HKIAC pay great attention to the Western principle of party autonomy,Footnote 67 where parties can agree on the appointment of arbitrators and how the proceedings are carried out (i.e., using rules from other institutions) if so requested by the parties. However, because mainland China’s court provided Hong Kong with a better chance of award recognition and enforcement for matters related to China, it was Hong Kong where parties who do business in China chose to arbitrate in the beginning.Footnote 68 In what follows, I trace the inter-Asian rivalry between Hong Kong and Singapore.
The Road Traveled
Beginning in the early 2000s, while Hong Kong was the first Asian jurisdiction to obtain international renown as a center for international commercial ADR, Singapore has been catching up. By 2000, Singapore had already established all the necessary requirements for an attractive seat of arbitration, including signing the New York Convention (1986), consolidating the Model Law (2002), setting up institutions, increasing the court’s familiarity with the arbitration procedure, holding arbitration events, and publishing modern legislations on arbitration.Footnote 69 Singapore also drew its strength externally, thanks to the rise of up-and-coming economies like India and other Southeast Asian neighbors. Meanwhile, Hong Kong has obtained an advantage in terms of other types of international commercial ADRs (even if under a centralized model). With HKMC and ADNDRC, Hong Kong made ADR in Asia much livelier. Nonetheless, by 2010, Singapore had become a formidable challenger to Hong Kong for the crown, as shown by the Queen Mary International Arbitration Survey.Footnote 70
It appears that Singapore’s efforts have given Hong Kong an incentive to hold onto the crown. Since 2008, Hong Kong redoubled its efforts, starting with adopting new arbitration rules on expedited procedures or consolidation of arbitration. Hong Kong also unified legal regimes for domestic and international arbitration with the Arbitration Ordinance 2011.Footnote 71 In 2014, Hong Kong introduced the Advisory Committee on the Promotion of Arbitration to advise the Department of Justice in promoting arbitration. For its part, Singapore has improved its institutions apace. The institution of the Maxwell Chambers in 2010 quickly boosted Singapore’s reputation not only as a reliable seat but also as a modern venue of arbitration. Mediation in Singapore also received more attention with the establishment of SIMC in 2014. The result of the rivalry between the two jurisdictions during this time favored Hong Kong, as evidenced by another Queen Mary International Arbitration Survey: HKIAC took the lead as the third-best institution worldwide and the most improved seat, while SIAC followed as the fourth-best institution and second-most improved.Footnote 72
Since 2015, the battle has intensified as each jurisdiction has put maximum effort into improving its respective international commercial ADR. Notably, both Singapore and Hong Kong adopted monumental regulations on TPF at approximately the same time to attract more activities in ADR. On Singapore’s part, collaborative hybrid procedures and other networks have been created during this period. Online dispute resolution infrastructure was also developed by Maxwell Chambers, resulting in SIAC’s symbolic achievement of the 1,000-cases milestone in 2020. In Hong Kong, the 2020 National Security Law had serious implications for the city-state’s reputation and allowed Singapore to leap ahead. Hong Kong authorities have downplayed investor concerns, and Hong Kong’s institutions have continued to innovate, including the HKIAC Case Digest and HKIAC Case Connect. Still, these efforts may not be enough to counter the widespread perception that Hong Kong’s judicial integrity has been compromised by Chinese national security. Meanwhile, Singapore continues to create new paradigms for international commercial ADR, including, for example, the 2018 Singapore Convention. Singapore, as one of the first parties to this Convention, is taking the lead with SIMC and does so through the networks that it has established across the world.Footnote 73 A surging Singapore’s status is reflected in the Queen Mary International Arbitration Survey 2018 and 2022, wherein Singapore unsurprisingly holds the crown.
After reviewing the race between Singapore and Hong Kong, one may ask what exactly “the crown” is. In terms of which jurisdiction is the preferred seat of arbitration or has more attractive institutions, “Singapore” may be the immediate answer. However, there is more to the role of a state and its institutions than just satisfying customers. From the perspective of practitioners and academics, Hong Kong comes out on top as it plays a vital role in implementing innovations, which lay the ground for the rest of Asia to follow, including Singapore. For example, in 2009, Singapore followed Hong Kong’s example in adopting Option 1 of the 2006 UNCITRAL Model Law.Footnote 74 Singapore and Hong Kong should be viewed as complementaryFootnote 75 because they offer different alternatives to suit parties’ needs. The constant competitiveness between Hong Kong and Singapore thus only results in a net positive for Asia,Footnote 76 making a more exciting battle of ADR Asia versus the rest of the world.Footnote 77
III The Implications of Singapore’s and Hong Kong’s Movements for Asia
A. Across Asia
In theory, to enhance international commercial ADR attractiveness, six aspects should be covered: (i) accession to the international treaties (i.e., the New York Convention, Singapore Convention); (ii) adoption of UNCITRAL Model Law (on Arbitration or Mediation); (iii) establishment of institutions with up-to-date practices; (iv) courts’ support of arbitration and familiarity with recognition and enforcement process; (v) activities (e.g., training and seminars); and (vi) competent and attractive legislation.Footnote 78 In practice, I find that the presence of leading international commercial ADR hubs in Singapore and Hong Kong has inspired changes in Asia mostly on the third, fifth, and sixth counts. In particular, in this section, I first examine general patterns of convergence across Asia in regard to international commercial ADR and the Singapore–Hong Kong competition in particular, then examine Singapore’s influence in Vietnam, and lastly, conjecture some possible future outcomes of the mixture of competition and convergence in inter-Asian international commercial ADR.
Rules
In the past few decades, changes have been made to international commercial ADR across Asia in terms of rules. The UAE, or more specifically, Dubai, is the most potent example. In 2021, Dubai abolished the Dubai International Financial Centre (DIFC)–London Court of International Arbitration Centre and breathed new life into the Dubai International Arbitration Centre (DIAC). Following the event, DIAC also established the new Arbitration Rules of 2022, allowing procedures to be done electronically and adopting provisions on joinder and consolidation, emergency arbitration, expedited procedure, and TPF.Footnote 79 DIAC’s supervisory court is the DIFC Courts, which operate independently from its domestic judiciary system.Footnote 80 This is similar to the SIAC–SICC relationship since DIFC is also an international commercial court with arbitration expertise; however, the difference is that the DIAC–DIFC Courts relationship does not require parties’ agreement. This movement has shown Dubai’s determination to become the leading legal hub in the Middle East.
In addition to development in Dubai, several new ADR institutions have been set up across Asia to follow the rise of SIAC and HKIAC. India recently established the International Arbitration and Mediation Centre in 2021. It includes Med-Arb, emergency arbitration, and online dispute resolution among its services to compete with leading institutions. Some other institutions chose to update existing rules, drawing inspiration from HKIAC and SIAC. The Korean Commercial Arbitration Board (KCAB) has been influenced by SIAC and HKIAC in developing the 2016 International Arbitration Rules. Aside from the popular provisions, KCAB now also allows the nomination of arbitrators (as opposed to appointment), which is a method used by SIAC,Footnote 81 and mandates arbitrators who accept an appointment or nomination to sign and submit a Statement of Acceptance and a Statement of Impartiality and Independence, which is a requirement provided by HKIAC.Footnote 82
Notably, Singapore’s institutions also make an impact by offering collaborative services with foreign institutions. For example, in 2021, SIMC collaborated with India’s Centre for Advanced Mediation Practice (CAMP) and the Japan International Mediation Centre (JIMC)Footnote 83 to offer more economical, efficient, and effective mediation during COVID-19. The JIMC–SIMC Joint COVID-19 Protocol also allows each institution to appoint a co-mediator, which is well-received by both customers and mediators.Footnote 84 Furthermore, in 2022, SIMC and the Shenzhen Court of International Arbitration (SCIA) established the Mediation–Arbitration Protocol, which allows parties to utilize SIMC mediation while increasing the enforceability of SIMC mediation outcomes in China.Footnote 85 Last but not least, in 2024, Singapore and Bahrain signed a bilateral treaty to establish the Bahrain International Commercial Court (BICC) and allow appeals from this new institution to be heard by SICC. This collaboration builds on the previous Memorandum of Understanding on Cooperation and Memorandum of Guidance as to the Enforcement of Money Judgments by the Singapore and Bahrain judiciaries in May 2023. The BICC aims to leverage Bahrain’s regional growth, while the SICC’s involvement offers a transnational dispute resolution mechanism.Footnote 86 Not only do these protocols offer better quality services to customers, but they also bring Asian institutions closer together and share any expertise along the way.
The eastward shift of international commercial ADR also prompts Asian institutions to take bold steps in an attempt to break through in a field historically dominated by European centers. For example, the Japan Commercial Arbitration Association (JCAA) established the new Interactive Arbitration Rules 2019, where the tribunal and parties took a more active role in swiftly resolving disputes.Footnote 87 This new procedure is based on dialogues among all participants rather than traditional one-way communication. Parties share their views on each of the matters and comment on each other’s views, while arbitrators can elaborate their own opinions.Footnote 88 Due to how parties communicate, they are more likely to gain mutual information, resulting in a higher chance of negotiation, saving time and costs, and, most importantly, fulfilling certain Japanese disputants’ expectations of amicability. While this idea is unique to Japan, it shows that the playground for new ideas is no longer exclusive to Singapore and Hong Kong. With the rise of mediation after the Singapore Convention, consensual procedures like interactive arbitration can inspire other countries to adopt the same approach.
Supplementary Activities
Since 2016, SIAC has been actively signing memoranda of understanding (MoUs) with institutions around the world to collaborate on organizing conferences, seminars, and workshops; providing marketing support for each other’s international arbitration events; and granting complimentary admission to each other’s paid or members-only events, training courses, and workshops.Footnote 89 Currently, there are at least twenty-seven MoUs between SIAC and Asian institutions from ten jurisdictions, including Cambodia, China, India, Japan, Korea, Malaysia, Russia, Thailand, Timor-Leste, and the UAE. For comparison, HKIAC has only signed a handful of cooperation agreements with Asian centers. The overwhelming number of SIAC’s MoUs secure its place as the leading hub in Asia.
Outside SIAC’s influence, Asian institutions have been more active than ever in conferences, workshops, and seminars, especially during the COVID-19 pandemic. Furthermore, Asian institutions are now publishing their own journals. A few years back, SIAC’s Asian International Arbitration Journal (est. 2005) and HKIAC’s Asian Dispute Review (est. 1999) were the two journals in Asia that major arbitration institutions published. However, the picture has evolved recently, with the introduction of KCAB’s Korean Arbitration Review in 2010, JCAA’s Japan Commercial Arbitration Journal in 2020, and AIAC’s Alternative Dispute Resolution Journal in 2022. The new journals bring more extensive research to both ADR in individual countries and the view on Asian ADR practice from different perspectives. This undeniably enriches the conversations on arbitration, makes knowledge more accessible, and encourages Asian institutions to collaborate and innovate further.
National Legislations
To ensure a vibrant ecosystem for international commercial ADR, countries must have a solid legal framework. In recent years, Asia has witnessed constantly changing laws on ADR in an attempt to keep regulations up to date. India stands out as an example of amending laws, as India has passed three Amendments to the Arbitration and Conciliation Act in 2015, 2019, and 2021.Footnote 90 By tackling the lengthy procedures and fixing several issues, such as time extensions and substitution of arbitrators, India has shown its endeavor to establish an arbitration hub.Footnote 91 However, the 2021 amendment is unlikely to be the last,Footnote 92 as academics are anticipating further revision because some issues have yet to be resolved.Footnote 93
Aside from “typical” ADR regulations (Arbitration Act, Mediation Act, etc.), Japan and Korea also have unconventional legislation promoting ADR. Specifically, Japan passed the Act on Promotion of the Use of Alternative Dispute Resolution, which came into effect in 2007, while Korea enacted the new Arbitration Industry Promotion Act in 2017.Footnote 94 Japan’s Act focuses on establishing general provisions applicable to all ADRs, such as requirements for ADR services or obligations of ADR institutions. This is comparable to Hong Kong’s approach to ADR since Hong Kong also tries to incorporate all forms of ADR. On the contrary, the Korea Arbitration Industry Promotion Act took a more Singaporean approach, focusing on only one form of ADR – arbitration. Furthermore, the Arbitration Industry Promotion Act established how Korea deals with matters contributing to the growth of arbitration, such as funding for the arbitration industry and training arbitrators.
Regarding substantive law, one of Singapore and Hong Kong’s most significant impacts on Asian regulations is TPF. This trend has sparked a lot of conversation among academics. However, depending on each country’s legal system (or rather, the presence of the common law doctrine of maintenance and champerty), the impact of TPF can be different. For common law and mixed legal system countries like India and Malaysia, respectively, they first have had to draw a line between illegal acts of champerty and legal TPF, similar to how Singapore and Hong Kong dealt with the problem. For civil law countries like Korea and Japan, the legislators instead only have to consider clarifying the status of TPF, whether such conducts are legal or prohibited. Japan, for example, also intends to clarify the status of TPF, following the trend set by Singapore and Hong Kong.Footnote 95
B. Case Study: Vietnam
Background
Vietnam presents one case study of how a second-tier Asian jurisdiction’s international commercial ADR has been influenced by a first-tier jurisdiction, in this instance, that of Singapore. Vietnam’s modern arbitration history began in 1994, with the Government’s release of Decree No. 116-CP on the organization and activities of economic arbitration. This laid the ground for Vietnam’s accession to the New York Convention in 1995. In 2003, Vietnam established the Ordinance on Commercial Arbitration to fulfill Vietnam’s obligations as a member state – marking the first time Vietnam regulated commercial arbitration by law. This was soon replaced by the Law on Commercial Arbitration of 2010, which has not been amended since. Despite certain compatibility with the Model Law, Vietnam is not considered a Model Law jurisdiction.Footnote 96
Vietnam’s Development
Among jurisdictions, Vietnam most turns to trends in, firstly, Singapore and, secondarily, Hong Kong, in terms of studying the cutting edge of international commercial ADR. This applies to several aspects, such as (i) whether or not Vietnam should base its legislation on the UNCITRAL Arbitration Model Law,Footnote 97 (ii) recognizing emergency arbitration in Vietnam,Footnote 98 or (iii) whether Vietnam should focus on arbitration and mediation instead of ADR all-around. On these points, Vietnam frequently looks to Singapore. For example, on the issue of the scope of international commercial ADR, Vietnam has followed Singapore in focusing on arbitration and mediation. Dispute boards (DBs) and DNDRs are mostly not used in Vietnam. In fact, it was not until 2017 that the first legislation on commercial ADR besides arbitration was established, Decree No.22/2017/ND-CP on Commercial Mediation (“Decree 22”), which is based mainly on the UNCITRAL Model Law on Mediation.Footnote 99 Although Vietnam has had a history of importing regulations from China,Footnote 100 this is not the case here since the PRC has yet to enact any legislation on commercial mediation.Footnote 101
From the institutional point of view, the traces from Singapore are visible. First, the Vietnam International Arbitration Centre (VIAC) Rules tend to internalize the norms set by SIAC to make arbitration at VIAC more attractive. Most recently, the 2017 version of the VIAC Rules made the following changes: (i) allowing parties to bring claims relating to more than one contract in a single request; (ii) allowing the consolidation of arbitrations; (iii) enabling the new expedited procedure.Footnote 102 Correspondingly, these are also the significant changes the SIAC made in 2016 to Rules 6, 8, and 5 of its Arbitration Rules, respectively.Footnote 103 However, these transplantations are partial since the VIAC only sets out general rules, contrasting with the comprehensive SIAC rules. Despite that, the VIAC still managed to administer cases according to these new rules (e.g., in 2018, the VIAC administered twenty-three multiple contract cases).Footnote 104 This transplant method can benefit the VIAC since the Vietnamese courts are more likely to interfere with the recognition and enforcement procedure.Footnote 105 By regulating lightly, the VIAC keeps its procedural rules simple and can better maintain the enforceability of its award, avoiding any denial based on due process.
Secondly, the VIAC offers hybrid dispute resolutions in a manner similar to SIAC. Following the publication of Decree 22 in 2018, the Vietnam Mediation Centre (VMC) was established. In 2020, the VIAC and VMC collaborated and introduced the first hybrid procedures in Vietnam, Med-Arb/Arb-Med and the Arb-Med-Arb Protocol. These procedures mirror Singapore’s establishment of SIMC in 2014 and the introduction of collaborative SIAC-SIMC Arb-Med-Arb the following year. The difference between Vietnam and Singapore lies in the independence of SIMC from the SIAC since VMC remains a division of the VIAC. Thus, institutions in Vietnam have been learning from Singapore’s experience to enhance the efficiency of dispute resolution and attract more parties.
Concerning the structure of institutions, Vietnam shows some degree of similarity with the Hong Kong-style approach. Similar to how HKIAC established several divisions to deal with specific matters (HKMC for mediation, ADNDRC for domain name disputes), the VIAC also established VMC for mediation and the Vietnam Institute for Arbitration Research and Training for researching and training in ADR fields.
These observations raise the question as to why Singapore has mostly been the jurisdiction of choice for Vietnam to study in the field of international commercial ADR. In other areas of law, China is generally the best fit due to being adjacent to Vietnam, sharing similar cultural values, and having a frequent trade relationship.Footnote 106 To answer that question, it should be noted that transplantation from a jurisdiction can take two (or more) forms: direct exportation from one institution or (city-)state to another or socialization of practices among the users (in this case, of international commercial ADR centers).Footnote 107 Both of these conditions are present to a higher degree in the Singapore–Vietnam ADR relationship. Singapore has been known as one of the leaders in arbitration and, recently, mediation, and thus, the implications could, as noted above, go beyond its borders, affecting Asian countries and even beyond.
However, what truly creates the trend of studying Singapore in Vietnam is the reciprocal socialization of users of international commercial ADR into both systems. Singapore ranked second among foreign users at VIAC in 2020 and 2021,Footnote 108 while Vietnam ranked 6th and 8th among SIAC foreign users in 2021 and 2022, respectively.Footnote 109 In contrast, Vietnam is not among the top ten users of ICC, HKIAC, or CIETAC.Footnote 110 Singapore attracts Vietnamese parties more than Hong Kong, likely due to Singapore being a fellow Association of Southeast Asian Nations state and a more neutral seat.
C. The Future of ADR Centers
The Emerging Asian Landscape: Over-Concentration or Decentralization?
As Singapore and Hong Kong charge forward, it begs the question: Will other Asian jurisdictions have any chance of making their name? Currently, other than Singapore and Hong Kong, the attention paid to other Asian seats of arbitration is relatively insignificant.Footnote 111 Over-concentration of capacity and cases in one or two centers may become a serious issue if the gap between the first-tier cities of Singapore and Hong Kong and the rest of Asia continues to grow. Asia is known for its cultural diversity. The region of Southeast Asia alone contributed significantly to this diversity due to the vast differences in religions, languages, and histories. Thus, if over-concentration happens, ADR in Asia may become a one-size-fits-all model, which can damage both the businesses in the region and Asia’s competitive edge.
So, is over-concentration real in this case? The good news is that it is unlikely to come to pass. In the recent Queen Mary Survey, several interviewees suggested they might be willing to use the new or emerging lesser-known institutions instead of the well-established ones, SIAC and HKIAC.Footnote 112 Interestingly, the reasoning behind such a choice is that they acknowledged the risk of over-concentration. They are willing to discount the established names of the leading institutions and seek underlying quality to help institutions receive the reputation they deserve.Footnote 113 The numbers also partially support this idea, as the Singapore International Dispute Resolution Academy International Dispute Resolution Survey: 2022 Final Report (SMU SIDRA Report 2022) introduced several new competitors to the favored arbitration institutions, including the Philippines Dispute Resolution Centre, JCAA, SCIA, Beijing Arbitration Commission, and VIAC.Footnote 114 This signals a slight decentralization in the ADR market, which, from a normative view, is desirable. Furthermore, as the history of Singapore and Hong Kong has proven, the crown is not permanent. Therefore, although there remains a gap between Singapore and Hong Kong, on the one hand, and the rest of Asia, on the other, it is too soon to predict which will bear the crown ten years from now.
Singapore and Hong Kong: What Can Be Expected?
Since Singapore and Hong Kong are currently the two leaders in international commercial ADR in Asia, the question is, what should we expect from them? First, since they attract ADR activities at the international level, the initial answer would be that they should maintain their flexible procedure so that both Asian and Western parties can find common ground.Footnote 115 Furthermore, it has long been predicted that Singapore and Hong Kong would soon witness new challengers coming onto the stage (e.g., Korea, Japan, Malaysia, and mainland China). Now that these second-tier jurisdictions are waiting for their chance to break through, Singapore and Hong Kong must establish their competitive advantage – consolidating their ability to bridge East–West divides, markets, and politics.
Secondly, on Hong Kong’s part, the short-term answer would be dealing with the crisis caused by the National Security Law and, more broadly, the increasing presence of mainland PRC governance in Hong Kong. To date, there is no concrete evidence that parties are opting out of Hong Kong and using Singapore because of the former’s political situation, even if there are general concerns about such a shift happening. With the BRI, HKIAC can still grow in terms of its number of cases, even if there may be cases of a certain threshold amount. Hong Kong will, in the foreseeable future, remain more attractive to China-related disputes than mainland PRC.Footnote 116 In the long run, on the other hand, Hong Kong should establish modern dedicated hearing venues as, according to the SMU SIDRA 2022 report, the quality of hearing facilities is one of the top factors affecting the choice of venue of arbitration to satisfy the needs of businesses. Currently, the HKIAC office doubles as the hearing venue for arbitration, but that leaves plenty of room for improvement.Footnote 117 Other ADR systems in the region, like Singapore, Korea, Japan, or Dubai, have specialized state-of-the-art hearing centers. By establishing a dedicated, high-quality arbitration venue, Hong Kong can also increase its appeal as a seat of arbitration.
Thirdly, for Singapore, the problem lies in the very crown it is holding. Now that Singapore is widely known as a reliable seat of arbitration, it has to live up to its name. Singapore cannot stop innovating or risk being overthrown by emerging competitors. The answer for Singapore in this situation would be to continue growing its network with other providers in Asia. Only by continuing to grow a larger and deeper network can SIAC maintain its relevance and irreplaceability.Footnote 118 Even when other competitors rise to the challenge, Singapore still has an advantage in knowledge and experience.
IV Conclusion
If the significance of international commercial ADR is measured as the outcome of a race between Asian jurisdictions, the lead is currently in favor of Singapore. Thanks to its constant development in infrastructure, services, and regulations, Singapore has secured its place as the most preferred seat of arbitration not only in Asia but also in the world. If, however, one measures a jurisdiction’s significance by its contribution to Asian ADR culture, both Singapore and Hong Kong can be considered to be influential. While Singapore functions as a blueprint for the future development of other countries, exemplified by Vietnam adopting Singaporean ADR practices, Hong Kong functions like a test drive to see if a service is compatible with the Asian culture. Singapore and Hong Kong’s success with international commercial ADR has encouraged new contestants such as Korea, Japan, Malaysia, UAE, and Vietnam to break through. By diversifying ADR providers, businesses will benefit more from the competition, getting to choose whichever suits them most. Furthermore, with the rise of mediation, parties worldwide will turn to Asia – where consensual culture resonates. Thus, Asia would likely continue to develop a healthy ecosystem of international commercial ADR.
I Introduction
Global crises are rapidly transforming the international regime. The neoliberal international order that underpins the normative foundation of postwar economic institutions is facing unprecedented threats. The collapse of the World Trade Organization (WTO) appeals mechanism, the COVID-19 pandemic, intensifying United States (US)–China conflicts, and Ukraine and Taiwan Strait confrontations have aggravated diverse forms of trade protectionism.Footnote 1 New trade and investment roadmaps prompted the Indo-Pacific strategies of the US, the European Union (EU), the Association of Southeast Asian Nations (ASEAN), as well as China’s Belt and Road Initiative.Footnote 2 Regional and global supply chains for commodities ranging from raw materials to semiconductor chips are imperative to these stakeholders.
Amid geopolitical challenges, international law has evolved to reflect the reality of the multipolar world. A new dynamic is evolving: Inter-Asian Law (IAL), which reinforces the cross-fertilization of legal developments between different regional agreements in Asia and between these agreements and domestic legal reforms. Pursuant to the conceptual framework of the volume this chapter explores how IAL has developed procedurally through multilayered investment agreements. It argues that the legalization of the so-called ASEAN way has propelled the normative evolution of IAL, which departs from the Western approach premised on the Washington Consensus.Footnote 3 In other words, the ASEAN way has served as a formula, resulting in IAL as the product.
The chapter sheds light on core questions under the book’s analytical framework. It illustrates the types and methods of interactions among Asian jurisdictions and beyond, as well as actors and intermediaries that enable Asian governments to align interests via non-Western-dominated plurilateral platforms. This development demonstrates Asian countries’ pursuit of their own legal models, which will decrease their past dependency on transplanting EU and US rules and fortify Asia’s collective power in shaping international law. Markedly, the Asian model for constructing IAL in the context of investment law has been more prominent in the unique procedure of making multilateral law rather than in creating new substantive legal requirements.
The rise of Asia provides the contextual background for IAL. Undoubtedly, Asian economies have become the locomotives of global trade. Asia will contribute to over half of global gross domestic product (GDP) by 2050, restoring the region to the dominant economic status that it once possessed before the Industrial Revolution.Footnote 4 Moreover, in the next decade, China will overtake the US to be the world’s largest economy.Footnote 5 As a ten-country bloc, ASEAN will ascend to the equivalent of the fourth largest economy and is expected to admit Timor-Leste as the eleventh member.Footnote 6 Complementary to the ASEAN Economic Community (AEC), the six “ASEAN Plus One” free trade agreements (FTAs) have built the legal architecture of new Asian regionalism.Footnote 7
The ASEAN-centered framework culminated in the fifteen-party Regional Comprehensive Economic Partnership (RCEP), which entered into force in January 2022 and became the world’s largest FTA by economic scale.Footnote 8 This mega-FTA constitutes 30 percent of global GDP and 26.2 percent of foreign direct investment (FDI) inflows.Footnote 9 In contrast to Brussels’ focus on bilateral pacts with Asian countries and Washington’s Indo-Pacific Economic Framework for Prosperity without market access, ASEAN and the RCEP manifest Asian approaches to global governance.
Investment law provides a unique case study for IAL. The absence of consensus among WTO members removed investment from the WTO Doha agenda. The ambit of present WTO negotiations on “investment facilitation for development” is limited and excludes investment liberalization and protection.Footnote 10 A core issue concerning investment is investor–state dispute settlement (ISDS) that has encountered massive backlash from the Global South. The United Nations Commission on International Trade Law (UNCITRAL) entrusted Working Group III to discuss procedural reforms for ISDS under investment treaties.Footnote 11 Asian governments seem to lack common positions on these reforms at the multilateral level.Footnote 12 Hence, it is vital to examine their agendas on investment law at the regional and national levels to comprehend the evolution of IAL. These experiences exhibit ASEAN’s and the RCEP’s legal approach of pragmatic incrementalism and provide valuable lessons for developing countries to consider alternatives to the Washington Consensus.
After this introduction, Section II unveils the development of investment issues during three waves of global regionalism. It also explores salient features of investment rules in modern FTAs, bilateral investment agreements (BITs), key domestic laws, and ISDS cases. Section III explores the evolution of ASEAN law with a focus on the AEC’s new investment rules and services commitments on foreign equity restrictions, as well as the ISDS mechanism. Section IV examines the RCEP’s investment and services rules and its omission of ISDS that reflect the new consensus forged under the ASEAN Plus One structure. Section V concludes by highlighting the legal and political implications of investment reforms on IAL.
II Inter-Asian Law in Global Regionalism
After World War II, three waves of global regionalism shaped international law and trade. IAL is paramount in the latest wave of regionalism, which I called the “Third Regionalism,” that has yielded a significant impact on investment rules.Footnote 13 During the previous periods, Asian countries predominantly followed the normative requirements that the US created. The Bretton Woods system and the Washington Consensus underscored the neoliberal international order that enabled Asian countries to recover from the devastating war.
Asian nations had neither the intention nor the power to challenge the rules to sustain “embedded liberalism.”Footnote 14 However, the Asian financial crisis and the overriding disappointment with West-dominated monetary institutions invigorated paradigm shifts. The subsequent formation of “ASEAN Plus Three” and “ASEAN Plus Six” frameworks and rising populist protectionism in the US prompted Asia to embark on a divergent path, expediting the growth of IAL. To verify this analysis, I explain below the investment law developments in the three waves of global regionalism.
In particular, the evolution to the Third Regionalism demonstrates the emphasis on legal cooperation and harmonization, which feature the major type and method of interaction among Asian states. The ASEAN-centered architecture, including ASEAN agreements and the RCEP, has become institutional, plurilateral platforms for Asian governments to develop IAL. Divergent from the first two waves of regionalism, these platforms reflect the Asian or ASEAN way, at least procedurally, in shaping the regional order. The notable procedural dimension is pragmatic incrementalism, distinct from the legalization concept commonly understood in the West.
Coined by Jagdish Bhagwati, the term “First Regionalism,” refers to trade pacts in the 1950s and 1960s.Footnote 15 Although Washington was preoccupied with multilateralism in the Kennedy Round, it supported the European Economic Community for countering Soviet influences.Footnote 16 ASEAN’s founding signified the inception of Asian regionalism, but the bloc was built predominantly for security purposes of resisting Communist expansions rather than for economic integration.Footnote 17 As Bhagwati noted, most trade initiatives merely achieved a marginal trade-creation effect owing to political interventions.Footnote 18 ASEAN was not an exception.
In this era, investment pacts began to surface. Asian countries often succumbed to the normative demands of the Global North.Footnote 19 To illustrate, US Friendship, Commerce and Navigation (FCN) Treaties incorporated investment issues.Footnote 20 A key objective of FCN Treaties was to ensure the protection and security of foreign investment and to guarantee prompt, adequate, and effective compensation in the case of expropriation. Compared with modern investment treaties, a major enforcement weakness of FCN Treaties is the absence of detailed procedural rules for dispute settlement.
The 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) was a breakthrough in international law, as the ISDS mechanism became available at the multilateral level. While the first BIT was concluded between West Germany and Pakistan in 1959, the 1968 Netherlands–Indonesia BIT marked the first investment pact with ISDS provisions, allowing an investor to bring claims against the host state to the Center created under the ICSID Convention.Footnote 21 Many Asian countries joined the Group of 77 in passing UN resolutions to establish “a New International Economic Order (NIEO)” in the 1970s.Footnote 22 Premised on absolute sovereignty over natural resources, NIEO principles departed from the West-preferred compensation standards and mandated that local courts rather than international tribunals settle investment disputes.Footnote 23 Nevertheless, the NIEO movement quickly failed due to objections from the powerful trans-Atlantic alliance. The Bretton Woods institutions and modern, neoliberal BITs reinforced the Washington Consensus.
During the Uruguay Round, the “Second Regionalism” occurred in the 1980s and 1990s. The EU and the North American Free Trade Agreement (NAFTA) provoked a domino effect in Asia.Footnote 24 ASEAN expedited its internal integration by establishing the ASEAN Free Trade Area in 1992.Footnote 25 The Asia-Pacific Economic Cooperation (APEC) was also founded as a soft-law institution that facilitates dialogues among countries across the Pacific. The 1994 APEC Non-Binding Investment Principles indicated the consensus of twenty-one members to construct international investment standards.Footnote 26
Although initial ASEAN and APEC initiatives could arguably be interpreted as IAL, they were largely rule-takers instead of rule-makers. These initiatives simply reflect the universalization of “Western” law and lack unique “Asian” legal features. The watershed event in the Second Regionalism was the Asian financial crisis. Frustrations with the responses of US-led monetary institutions prompted Asian states to ink the Chiang Mai Initiative, which covers ten ASEAN countries plus China, Japan, and Korea.Footnote 27 This ASEAN Plus Three framework later extended to trade and investment and evolved to be the ASEAN Plus Six structure. The addition of Australia, India, and New Zealand buttressed the concept of “ASEAN centrality” in regional security and economic architectures. It has also energized the IAL development in investment rulemaking.
Following the two waves of global regionalism that Bhagwati observed, the Third Regionalism has emerged in tandem with the Doha Round since the 2000s. Structural geopolitical and economic changes galvanized new Asian regionalism that expedited IAL. There are noteworthy characteristics of economic agreements and national legislation in the arena of investment law. First, beyond tariff and services liberalization, the inclusion of WTO-extra and WTO-plus commitments in trade pacts became the norm. Modern agreements seldom focus only on tariff and services liberalization. The scopes of FTAs and BITs often overlap because the former encompass investment chapters. The number of these international investment agreements, including FTAs and BITs that govern investment liberalization and protection, has exceeded 2,600.Footnote 28
Other than the AEC and the six ASEAN Plus One FTAs that include investment provisions, new mega-regional trade agreements provide an unparalleled impetus to IAL. Comprising a significant number of Asia-Pacific countries with massive economies of scale, the global influence of the ACIA (Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)) and the RCEP should not be underestimated. The Trump administration’s decision to withdraw from the Trans-Pacific Partnership (TPP) crippled the dominance of the Washington Consensus. The leadership of Japan enabled the conclusion of the technically “new” agreement, the CPTPP that is largely based on TPP provisions.Footnote 29
Undeniably, US law significantly shaped the TPP. Yet, its suspended provisions under the CPTPP reflect the preferred model for IAL. In particular, those provisions that narrow ISDS and the scope of intellectual property rights highlight Asian states’ concerns about neoliberal trade pacts. Furthermore, the RCEP strengthens ASEAN centrality and exhibits developing countries’ activism in norm-shaping in response to the COVID-19 pandemic and trade protectionism.Footnote 30 Compared with the CPTPP, the RCEP focuses more on development and preserving countries’ regulatory power and is therefore more acceptable to developing countries in Asia. As neither the US nor the EU is a party to, or intends to join, these two mega-FTAs, their normative impact on IAL is perceived to be diminishing.
Second, conventional understanding suggests that international agreements shaped by developed nations often “compel” developing countries to accede to the former’s demands. This one-way, top-down approach no longer holds true in inter-Asian investment law-making. As some ASEAN and RCEP countries have demonstrated, their domestic investment rules achieved higher levels of investment liberalization than what they committed under FTAs and BITs. In fact, these unilateral, investor-friendly schemes have influenced regional pacts that later energized the investment reforms of other developing countries. This paradigm shift signifies legal cooperation and harmonization between the Global South.
For example, China experienced the “pre-establishment national treatment” model and deregulated market access procedures in the Shanghai Pilot Free Trade Zone and the Hainan Free Trade Port.Footnote 31 China’s recent investment agreements and the 2019 Foreign Investment Law also incorporated these reforms.Footnote 32 As the US–China trade war led to the extra tariffs on “made in China” products, it is a trend for multinational enterprises to relocate their manufacturing bases to Vietnam, resulting in a substantial increase in the country’s foreign investment.
Akin to China, Vietnam has separate rules for domestic and foreign investments. For the first time, Vietnam’s 2020 Law of Foreign Investment transformed from the positive list to the negative list approach to market access.Footnote 33 Foreign investments are granted national treatment if they fall outside the Prohibited List and the Market Entry List, where investments are subject to conditions determined by ministries.Footnote 34 Vietnam’s investment reforms have developed in line with its commitments under the CPTPP and the EU–Vietnam FTA. The present gaps between FTA provisions and domestic laws exist in areas such as non-tariff barriers to investment in the renewable energy sector, and in financial and telecommunications services.Footnote 35 Vietnam’s rapid improvement in investment regimes also provides a model for ASEAN’s least developed economies (Cambodia, Laos, and Myanmar) for their domestic reforms and investment agreement negotiations.
Lastly, ISDS reforms at regional and national levels illustrate an important feature of IAL in the Third Regionalism. Indonesia is a key ASEAN and RCEP country. The ISDS claims that Indonesia has encountered have accelerated its ISDS reform agenda. The intertwined cases of Churchill Mining and Planet Mining fundamentally altered Jakarta’s position on ISDS. After Indonesia’s provincial government revoked their mining licenses for a coal project, Churchill Mining, a British-listed company, and its Australian subsidiary, Planet Mining, sought damages for more than US$1 billion.Footnote 36 The ICSID arbitration that the two companies initiated was based on Indonesia’s BITs with the United Kingdom (UK) and Australia. The Tribunal rejected Indonesia’s jurisdictional challenges on the ground that the government had consented to ICSID arbitration under the respective BITs.Footnote 37 In response, Indonesia announced its intention to terminate all of its sixty-seven BITs and has terminated more than thirty of them.Footnote 38 Indonesia’s termination of these BITs will make ASEAN’s internal and external pacts the primary avenues by which foreign investors bring ISDS claims against the country.
The case of Philip Morris resulted in an even greater impact. In this case, US-based Philip Morris challenged Australia’s plain cigarette packaging legislation intended to reduce smoking.Footnote 39 Although the Australia–US FTA lacks an ISDS provision, corporate restructuring enabled the company’s Hong Kong subsidiary to resort to the Australia–Hong Kong BIT. The Tribunal held in favor of Australia by finding that “this arbitration constitutes an abuse of rights,” as the dispute was foreseeable to Phillip Morris at the time of the restructuring.Footnote 40
Investor–state dispute settlement became widely criticized for substantially increasing legal costs and creating a “regulatory chill,” making public policy measures vulnerable to legal challenges by foreign enterprises.Footnote 41 Philip Morris led to the tobacco carve-out clause of the TPP, and its ISDS application was further restricted under the CPTPP.Footnote 42 These disputes and subsequent legislative changes highlight ISDS reforms as an IAL development in the Third Regionalism.
III From the ASEAN Way to ASEAN Law
The ASEAN way is now an indispensable formula that has resulted in the key product, IAL, within the regional trade and investment architecture. The Indonesian concepts of musyawarah and mufakat (consultations and consensus) constructed the normative basis for the ASEAN way, which denotes the collective principles of sovereignty, noninterference, and consensus in decision-making.Footnote 43 In reality, the ASEAN way has functioned as the code of conduct in inter-state relations and the decision-making process for reaching consensus by consultations.Footnote 44 It contributed to the birth of ASEAN and transformed IAL in new Asian regionalism. Beyond what political scientists envisioned, the ASEAN way is no longer a purely political concept. The unique procedural approach of pragmatic incrementalism exemplifies the type and method of IAL. The evolving ASEAN way that led to modern ASEAN law should be understood as constructing hard-law obligations with structured flexibility. Furthermore, as the key actor and intermediary, the ASEAN-centered framework constructs a plurilateral platform for Asian states. The legalization of this framework applies not only to ASEAN agreements but also to institutional reforms involving the ASEAN Community and the ASEAN Secretariat.
A constitutional moment for ASEAN was the signing of the 2007 ASEAN Charter, which conferred legal personality on the association “as an inter-governmental” organization.Footnote 45 The establishment of the ASEAN Community in 2015 represents the next milestone. As one of the three pillars of the new Community, the AEC aspires to “establish a more unified market” by facilitating “the seamless movement of goods, services, investment, capital, and skilled labour.”Footnote 46 The AEC Blueprint 2025 also prioritizes the “Global ASEAN” agenda to buttress ASEAN Plus One FTAs and expedite RCEP negotiations.Footnote 47
Consolidating and rectifying past investment pacts, the ASEAN Comprehensive Investment Agreement (ACIA) is an indispensable instrument for the bloc’s investment liberalization and protection.Footnote 48 Pursuant to the AEC Blueprint 2025, the ACIA aims to progressively liberalize existing restrictions and fortify investment protection and transparency of investment rules.Footnote 49 EU law has developed primarily because of its direct effect on domestic law. The ACIA demonstrates the evolution of IAL through the harmonization of domestic investment laws and the provision of best practices for investment reforms.
The ACIA also illustrates the norm diffusion of IAL. Asian developing countries have started to move away from perceiving Western models as the sole blueprint for modernity. Instead, they are turning to regional structures for guidance. Notwithstanding the lack of direct effect, the ACIA’s normative value can be illustrated by the latest investment laws in Laos and Myanmar.Footnote 50 Laos’ 2009 Law on Investment Promotion and its 2016 amendments, which apply to both domestic and foreign investments, brought domestic rules much closer to the ACIA requirements.Footnote 51 To modernize the domestic investment regime, Myanmar enacted the 2016 Investment Law and the 2017 Investment Rules.Footnote 52 New provisions incorporated the ACIA’s key features such as the single reservation list, as well as national treatment and most-favored-nation (MFN) treatment clauses. Despite the coup in 2021, the military government has maintained the investment scheme.Footnote 53
IAL does not exist as an isolated system. US law has played a key role in shaping investment rules in the region. Nevertheless, akin to developments of the CPTPP, the RCEP, and modern Asian trade agreements, the ACIA aims to strike a better balance between rights of host states and the mandates of the Washington Consensus. Thus, the evolution of the investment frameworks of the ACIA has departed from the conventional US approach and constructed an incremental model for IAL. Initially influenced by the US Model BIT, the ACIA adopted a broad, non-exhaustive, and asset-based definition of investments that covers “every kind of asset.”Footnote 54 The ACIA also excludes assets that lack “the characteristics of an investment” to prevent proliferating claims.Footnote 55 As for investment liberalization, the ACIA governs five main sectors (agriculture, fishery, forestry, manufacturing, and mining and quarrying) and service sectors incidental to these sectors.Footnote 56
The original ACIA encompassed a single, negative-list annex, which covers ASEAN countries’ existing and future nonconforming measures in the liberalized sectors.Footnote 57 The subsequent Fourth Protocol broadened the liberalization scope by changing a single annex to two-annex negative lists.Footnote 58 Transparency has been enhanced because ASEAN states are required to indicate their current nonconforming measures in the first annex and schedule reservations for future measures in the second annex.Footnote 59
The ACIA closely links to the rules and commitments of the ASEAN Trade in Services Agreement (ATISA).Footnote 60 Mode 3 (commercial presence) commitments liberalize foreign equity restrictions in services sectors and are therefore critical to foreign investors. The ATISA consolidates successive packages of services commitments under the Framework Agreement on Services (AFAS). Schedules of services commitments finalized under various rounds of negotiations cumulatively “form an integral part of” the AFAS.Footnote 61 This evolutionary approach similarly exhibits the legal approach of pragmatic incrementalism.
The US approach also influenced ISDS provisions of the ACIA that goes beyond conventional BITs by incorporating more detailed arbitration procedures than those of the ICSID Convention.Footnote 62 The ACIA is of the essence to ASEAN-related investor–state disputes, as Laos, Myanmar, and Vietnam have yet to join the ICSID Convention. Moreover, the controversial interpretations of fair and equitable treatment (FET) in ISDS claims make it a core topic of investment reforms. Fair and equitable treatment “has turned into an all-encompassing provision,” which entitles investors to utilize any investment pacts to challenge host states’ “unfair” measures.Footnote 63 In response, the ACIA prevents the host country’s denial of justice and accords the investors due process “in legal and administrative proceedings.”Footnote 64 To ensure regulatory sovereignty and prevent forum shopping, the MFN clause of the ACIA excludes ISDS proceedings.Footnote 65 The incorporation of comparable provisions into ASEAN Plus One FTAs also shows the development of ASEAN law that enriches IAL.Footnote 66
IV Harmonizing Asian Laws under the RCEP
Being the world’s largest trade pact by economic scale, the RCEP will expedite the harmonization of Asia-Pacific legal systems. Domestic legal reforms according to the RCEP and the transplantation of core features of the ACIA and ASEAN Plus One FTAs into the RCEP will further crystalize IAL. The RCEP can be seen as the culmination of the ASEAN-centered framework and constitutes the critical actor and plurilateral platform by which Asian states align their interests. The normative development of the RCEP also illustrates the type and method of interactions among its members. These interactions are evidenced by the cooperation, harmonization, and norm diffusion under the RCEP. Based on the evolving ASEAN way premised on pragmatic incrementalism, the RCEP is pivotal in strengthening IAL.
At the inception of the Third Regionalism, Beijing and Tokyo proposed their own preferred models for Asian integration, but ASEAN “ended the debate by proposing” the RCEP as “an ASEAN-led process.”Footnote 67 The endorsement of ASEAN centrality by sixteen negotiating parties manifests Asia’s shift from the Washington Consensus to the ASEAN Consensus.Footnote 68 Despite India’s withdrawal from RCEP talks and the arguably lower-level liberalization of the RCEP as compared to that of the CPTPP, the normative impact of the RCEP as a pathway to the APEC-proposed Free Trade Area of the Asia Pacific should not be underestimated.Footnote 69
Given the US–China rivalry, Beijing’s application to join the CPTPP and its RCEP membership can be seen as countermeasures against US-led sanctions. In particular, the RCEP reflects China’s first attempt to accede to a mega-FTA that will advance the Belt and Road Initiative. The RCEP has harmonized investment laws of China with those of more developed Asian partners. China’s RCEP commitments are vital to its post-WTO economic reform. Under the agreement, thirty-seven areas of China’s investment liberalization exceed its WTO commitments.Footnote 70 Furthermore, the RCEP marks China’s first application of the ratchet mechanism that disallows parties to change back to more restrictive forms.Footnote 71 Other than MFN, Beijing agreed to extend national treatment to the pre-establishment stage of investment, which was primarily implemented in free trade zones or ports and was rarely included in recent bilateral investment pacts.Footnote 72
RCEP’s adoption of ACIA rules has similarly harmonized regional investment rules, thus reinforcing the ASEAN Consensus in IAL. Both the RCEP and the ACIA are based on the common core pillars of investment protection, liberalization, promotion, and facilitation. With more pro-development provisions, the RCEP follows the ACIA-like asset-based definition of investment but incorporates country-specific restrictions such as an approval in writing requirement.Footnote 73 Although an investor can be a juridical person, its branch is excluded from having “any right to make any claim against any” RCEP country.Footnote 74 To implement investment reforms, the RCEP requires FET and full protection and security to be interpreted pursuant to the “minimum standard of treatment of aliens” under customary international law.Footnote 75 Comparable to the ACIA, the RCEP and its annex stipulate detailed conditions and compensation for direct and indirect expropriation.Footnote 76
RCEP parties scheduled their services and investment commitments in Annexes II and III. Annex III incorporates parties’ negative-list market access commitments.Footnote 77 Akin to the ACIA Fourth Protocol, List A includes RCEP members’ nonconforming measures that exclude or restrict foreign investment, whereas List B details their reservations for potential discriminatory measures.Footnote 78 Notably, the ratchet clause applies to both services and investment so that RCEP members “commit to automatically extend the benefits of any future” pacts to all other parties.Footnote 79 This mechanism ensures the “living agreement” nature of the RCEP and the growth of IAL.
Services commitments are critical to Mode 3-related foreign equity restrictions on foreign investment. Departing from the models of the WTO and ASEAN agreements, the flexible hybrid model that the RCEP adopted demonstrates the procedural dimension of pragmatic incrementalism. This approach may be seen as different from the Western model, but it could achieve similarly substantive results. Eight members used positive list scheduling under Annex II and seven states followed the negative list approach by including their reservations and nonconforming measures in Annex III.Footnote 80 The eight parties are obliged to transition to negative-list scheduling six years after the RCEP takes effect, but a fifteen-year transition period is granted to Cambodia, Laos, and Myanmar.Footnote 81
Investor–state dispute settlement is one of the most important topics in investment reforms. At the multilateral level, Asian countries’ reform proposals for the UNCITRAL Working Group III will shape IAL. China, Indonesia, Korea, and Thailand preferred the prevention of disputes.Footnote 82 For example, Indonesia proposed to condition investors’ claims on the exhaustion of local remedies, the government’s separate written consent, and mandatory mediation.Footnote 83 This reflects Jakarta’s cautious stance following proliferating ISDS claims such as Churchill Mining and Planet Mining and certainly influenced the RCEP design.
The ACIA, the CPTPP, and ASEAN Plus One FTAs follow US-style ISDS. However, replacing ISDS with recourse to state courts and state-to-state proceedings became an emerging trend.Footnote 84 Several recent investment pacts involving Asian parties include no ISDS mechanism. Notable cases include the ASEAN–Hong Kong Investment Agreement, the UK–Japan FTA, and the EU–China Comprehensive Investment Agreement. These agreements stipulate that ISDS rules will be subject to subsequent negotiations.Footnote 85 The RCEP similarly mandates that parties commence negotiations for ISDS within two years after the RCEP enters into force and that they complete the negotiations within three years.Footnote 86 Consequently, the RCEP’s approach to ISDS illustrates pragmatic incrementalism.
The changing stance on ISDS illustrates Asia’s new consensus on investment rulemaking. In fact, based on the 2012 Guiding Principles and Objectives, RCEP parties agreed to incorporate ISDS rules in 2015.Footnote 87 Given some members’ objections, the CPTPP’s restrictions on the ISDS application of the TPP, and side letters of selected CPTPP parties that exclude ISDS entirely, RCEP members decided to leave the thorny issue for future negotiations.Footnote 88 The specific exclusion of pre-establishment rights from investment disputes also manifests RCEP parties’ intention to resolve these disputes through state-to-state procedures.Footnote 89 Moreover, based on the model of ASEAN Plus One FTAs, the RCEP affirms “existing rights and obligations” arising from other agreements.Footnote 90 Under this coexistence approach, RCEP parties are entitled to investor–state and state–state arbitration under investment rules of ASEAN Plus One FTAs.Footnote 91 These developments distinctly differentiate Asia’s new approach from the EU and US approaches to ISDS.
Furthermore, parties’ commitment to “the expeditious establishment of the RCEP Secretariat” will not only ensure the RCEP as a living agreement, but also reinforce IAL development.Footnote 92 Cambodia strongly urged parties to set up the RCEP Secretariat in Phnom Penh, whereas Indonesia may prefer to have the Secretariat in Jakarta where the ASEAN Secretariat sits.Footnote 93 Before the decision is made, a separate RCEP Support Unit was established within the ASEAN Secretariat as the temporary RCEP Secretariat to monitor the implementation of the agreement.Footnote 94 Proliferating new trade and investment issues involving technology such as 3D models and the application of artificial intelligence (AI) including ChatGPT and deepfake are outside the scope of the WTO and conventional FTAs. Therefore, the RCEP Secretariat will be expected to be a key institutional actor in propelling IAL with global implications.
Importantly, new-generation components of trade agreements also relate to investment. Rules on digital trade and sustainability will expedite the Fourth Industrial Revolution and Sustainable Development Goals. Although the RCEP focuses on harmonizing laws rather than creating innovative rules on digital and environmental issues, selected agreements led by RCEP members will impact this mega-FTA and IAL. Markedly, the Digital Economy Partnership Agreement (DEPA) and Singapore’s bilateral digital economy agreements with three countries extend areas of cooperation from data to AI.Footnote 95 In 2022, DEPA parties established the accession working group for China and held talks on Korea’s potential accession.Footnote 96
Owing to domestic political pressures, the US and the EU are preoccupied with the sanction model for FTAs’ sustainable development provisions. Nevertheless, Asia has shifted the focus to the liberalization model. As the first of its kind, the Singapore–Australia Green Economy Agreement has developed the lists of environmental goods and services that could serve as a basis for trade liberalization.Footnote 97 New Zealand is also currently negotiating the Agreement on Climate Change, Trade and Sustainability, which will reduce trade barriers for environmental goods and services.Footnote 98 I call this trend “green regionalism”; it will have a profound impact on domestic legislation and regional pacts.
V Conclusion
This chapter examines how IAL has operated and developed procedurally through multilayered investment agreements. It argues that legalizing the ASEAN way has invigorated Asia’s normative development, departing from the Western models premised on the Washington Consensus. To address the key questions within the analytical frameworks of this volume the chapter finds that legal cooperation, harmonization, and norm diffusion constitute the major types and methods of interactions between Asian jurisdictions under plurilateral platforms. The ASEAN-centered regimes, including ASEAN agreements and the prospective RCEP Secretariat, constitute indispensable actors and intermediaries for enabling Asian states to align their interests.
The changing ASEAN way has become a formula that has led to IAL as the key product. The notable procedural dimension of pragmatic incrementalism has shaped both ASEAN law and IAL. As investment rulemaking demonstrates, IAL can be understood as cross-fertilization between regional agreements with different scopes and between these agreements and domestic reforms. ASEAN Economic Community and RCEP provisions reinforce the value of IAL in new Asian regionalism. Consequently, the findings of this chapter contribute to the understanding of Asian legal models that reflect the geopolitical reality of the multipolar world.
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