Sino-DRC mining contract 'of the century' and the global 'constitution'

Introduction

The contract, called "the Contract of the century", signed on 28 April 2008 between the Democratic Republic of Congo (DRC) and a consortium of private Chinese investors is to operate one of the largest mines in the world. This contract is a great example of the legal swing of the world, ie the development of new "normative spaces" built by private actors (TNCs) and the governments of "secondary" countries according to a new "global constitution " theorized by UN bodies. This contract of the century makes it possible to "materialize" and read the main clauses of this new "global constitution".

Download the PDF file of the contract (in French and Chinese)

Thierry Michel, producer of “Mobutu, king of Zaire”and of “Congo River”,
released “Katenga business” in 2009.
The movie follows the negociation of the mining contract of the century
in a story which is used as a parable for globalisation.
While it shows the global involved parties for this contract, it also shows the extraction sites
and the local populations, allowing us to better understand the human dimension
of the articles of the Contract of the century and of the“global constitution”.

1. The new global "social contract"

The following text - Article 1 of the standard contract - shows both the economy of the mining contract of the century and the fundamental principle of the new global "constitution", called tripartite governance.

This contract is a mining contract for copper, this red ore which gave its name to the North-East region of the DRC, the "Kivu", and various rare earths such as Koltan, necessaryfor all electronic equipment and armament. With this contract, the DRC government created with Chinese companies a joint venture that will commercially exploit the mine, the profits being directly funding public infrastructure for the people of the DRC (roads, railways, hospitals, etc.) carried out by Chinese enterprises.

Map of the Democratic Republic of Congo.
The Kivu region is highlighted in red.
(© 2011 / Uwe Dedering & Profoss, under aCreative Commonslicense)

It is the Chinese who invented these contracts that now are called the "Angola-model", also known as R4I for "Resource-for-Infrastructure", by arranging the oil industry's Productions Sharing Agreement (PSA) imposed since 1960 by developing countries to the international oil companies. Yet these PSA themselves have been created by the Indonesian government on the basis of local agricultural sharecropping contracts, agricultural sharecropping by which a poor farmer loands his land to operate to a landless farmer against a share of the production.

In these oil contracts, the international oil company indeed brings most of the funding, while the State brings the subsoil, and the profits are used to pay the costs necessary to the production then are shared between the two parties. Another investment - building infrastructure, etc. - was simply added to the investment represented the initiation of an oil well. Reimbursement of two investments is carried out by the same means: selling the products of the activity (oil or mining) on the world market. The contract for an initial amount of $12 billion was reached to provide the DRC with infrastructures. The DRC, the first "Internationalised state" in the world, has found a way out of its dependence on the European Union, donor States, and international financial institutions.

These "Public-Private Partnerships" (PPPs) are thus contracts between states and transnational corporations which are merging investment, cooperation and commercial contracts, not following anymore the practices of development aid but the "win-win" business principle.

Now these PPP contracts have been elevated to a central political concept of Global Governance by the Secretary General of the United Nations, Kofi Annan. In his famous "speech in Davos" in 1999, Kofi Annan suggested indeed the leaders of the world's leading companies to enter "a 'global contract' based on common values and principles that give a human face to the global market." In short, a world where global governance achieves a "social contract" built according to the UN doctrine explicitly to the image of a mining or oil PPP, ie a tripartite governance between UN, Transnational Corporations and the Civil Society (tripartite governance structure).

It is these new forms of global law that a branch of public international law tries to flesh out: "global social constitutionalism".

The big mining contracts operated by the transnational enterprise consortiums
such as the contract“of the century” make it possible to limit the number of“illegal” mines,
controlled by guerillas which force local populations to extract ore
in conditions akin to slavery.
The mine in the photo, the Luwowo coltan mine, has been validated according
to the CIRGL-RDC normswhich make sure it is not controlled by the guerilla.
Yet, the extraction technique is still that of the illegal mines,
highly dangerous for the miners
(© 2014 / MONUSCO Photos, under aCreative Commonslicense)

2. The power to create transnational political spaces

International law is indeed undergoing a transformation: technically, these large contracts are contract nodes including a state contract (between a State or an authorized institution and a group of foreign private companies), a compensation contract (which organizes investments), framework agreements (between private partners who implement the state contract and provide for future agreements), joint venture agreements (between private enterprises from both countries making the contract), joint venture companies (that create corporate groups) and many private implementing contracts (contracts for services, sales, etc.).

And in each of these contracts, the applicable law under the "principle of autonomy" is the result of negotiations between the parties and each contract may designate a national law - or even different laws- as applicable to the contract law. Each contract contains a clause of choice of law - which is usually a national law -, the scope of which can thus be "deterritorialized", and if the contract of the century contains a clause choosing the DRC law, each of the sub-contract or sub-contract determines its own law.

Sometimes the choice of law is made by "incorporation", a criterion originating from Anglo-Saxon law which is still in use in the United Kingdom, the Netherlands or in the State of Delaware, for example. According to this criterion, the applicable law of the company is the law of the place of incorporation, ie the place where incorporation formalities were completed. This criterion allows partners to choose the law applicable to the company by choosing the place of incorporation. Incorporated in England, it will be subject to English law. In the Netherlands, it will be Dutch law. And this regardless of the country where the company operates. The statutes will therefore refer to the country chosen as the place of the registered office of the company.

Thus, the Chinese signatories are indeed two companies incorporated in the People's Republic of China, and as such submitted to the Chinese corporate law, close to continental - french - company law, but also three subsidiary companies incorporated in Hong Kong, China Railway Group (Hong Kong) Limited (中國 中 鐵 (香港) 有 限 公司), China Railway Resources Development Limited (中國 中 鐵 資源 開 發 股份有限公司), and China Railway Sino-Congo Mining Limited (中國 中 鐵 華 剛 礦業 股份有限公司). These companies are thus subject to Hong Kong law, a law almost identical to the English corporate law, to take advantage of the global financial market of Hong Kong's stock exchange.

But it is not only the choice of law by the "merchants" that is organized in this new "global constitution", there is also the choice of the judge - state-appointed or private - which is at the discretion of the parties. In the contract of the century, the Chinese, according to tradition and the Chinese conception enshrined in the 1989 Act, wished that "negotiations" were opened before any other resolution of the dispute.

If the disagreement persists, the contract provides for recourse to private arbitration administered by the International Centre for Settlement of Investment Disputes (ICSID) created in 1965 to promote international investment by providing a neutral - not national - forum for dispute resolution. The company - here Chinese companies from PRC China and Hong Kong - has now been given a direct right of action against the foreign state - DRC - through independent action without its national State (China) having to act on its behalf by the traditional mechanism of diplomatic protection.

Three arbitrators (private persons - law professors, lawyers ...) will then make an arbitration decision whose strength is greater than a state court decision because there is no possible recourse from the States. All Contracting States to the Washington Treaty which established ICSID, whether or not parties to the dispute must indeed recognize and enforce ICSID arbitration decisions.
Conclusion

This new global constitution allows private individuals to create transnational "normative spaces" superimposed on state or inter-state legal spaces. All the traditional categories of legal sciences must therefore be redesigned in the context of globalization to define these new normative spaces at the intersection of politics and economics (the territoriality of the law, the rules of conflict concerning law and jurisdiction, location, public order, representation, etc.). And it is between China and Africa that the new normative spaces are the most exemplary of this ongoing globalization.

Gilles Lhuilier
Gilles Lhuilier is a senior law professor.
Professor atEcole Normale Supérieure - Rennes,
he is a Visiting professor at Essec Paris-Singapour,
Scientific manager of the FMSH programme on the globalisation of law,
expert for the European Union Commission,
director of the collective book «Le contentieux extractif»,
éditions de la Chambre de Commerce Internationale, published on 8/9 June 2015,
on the days of the internation colloquium on extractive rights co-organised by CCI and FMSH.

Homepage of the ICSID website, the organisation designated by the agreement to settle disputes