Studies On Several Legal Issues Concerning Sovereign Wealth Funds

The origin form of Sovereign Wealth Funds (SWFs) appeared more than half acentury ago, while the rapid development of SWFs just happened in the last decade.Many newly developing market economies such as China have established their ownSWFs to mergers and acquisitions within developed countries. Especially after theU.S. subprime mortgage crisis, the main SWFs poured money into the financialmarkets of developed countries, and have greatly improved the liquidity of theinternational financial sector and help to boost market confidence as well as recoverythe countries’ economic. As the sources of capital of SWFs are different from privateinvestors, and there are potential conflicts between SWFs’ own sovereignty andmarket-oriented background mode of operation, the ambiguity of investment incentivecaused widespread panic in capital recipient countries, which have increasedregulation and supervision of the SWFs. Meanwhile, the transparency and thegovernance structures of SWFs have a lot of defects which lead to a number of legaldisputes to solve and may evolve into a new round of international investmentprotectionism. In order to solve the former legal issues, this paper uses comparativemethod, and seeks to analyze the concept of SWFs, characteristics, background, etc.After that, the paper reviews the regulatory rules of various countries andinternational organizations about SWFs, clarifies the legal relationship about SWFsand the nature and content of them, and provides the legal basis for the developmentof SWFs. This paper is divided into seven chapters, the specific contents of eachchapter are as follows:Chapter Ⅰ discusses the theory foundation of SWFs research. First, aftercomprehensive review of a variety of domestic and international perspectives, itcomes to the meaning characteristics, and classification type of SWFs. Then, followedby the analysis of the development of SWFs in recent years, this part of paper probesinto the reasons why the SWFs grow so rapidly, and points out that the rising prices ofnatural resources, imbalances in world economy development and deepening ofeconomic globalization constitutes the main reasons for the development of SWFs.Moreover, according to the status of the SWFs, the author states the various riskswhen SWFs actually operate, and regards these risks as the incentives which results inthe increasing of regulations and supervisions on SWFs. Finally, by analyzing the relevant subjects and content of legal relations about SWFs, this part brings out thelegal issues concerning SWFs.Chapter Ⅱ discusses the international regulatory modes of SWFs from theinternational hard law and soft law norms. It analyzes the possibility of theinternational community to create international hard rules to regulate the SWFs,mainly from the contents of WTO rules, IMF agreement, BIT and other internationaleconomic agreements to explore how to modify the hard rules to establish specialobligations specifically for SWFs and their home countries. Then, the paper discussesthe international soft-law development issues, through the analysis of the backgroundof soft law to stress the importance of the soft law. After the introduce of the"Santiago Principles","the OECD principle","EU common approach","Washingtonagreement","Kuwait Declaration" and other international soft law about the SWFs, itreveals the role and the cause of the international soft law of SWFs, and concludesthat the international soft law is the effective solution to the problems.Chapter Ⅲ discusses the transparency of SWFs which is the current hot issue.First, it states and comments the reasons why SWFs need the transparency, and it getsa conclusion that the SWFs should improve the transparency appropriately, and thehost countries’ regulatory measures also have to follow the principle of transparency,which means the transparency requirements should not be one-way. Secondly, itanalyzes the contents of the "Santiago Principles", the investment guide for therecipient countries and other transparency standards, which are the efforts of theinternational community to enhance the transparency of SWFs and also the hostcountries’ control measures. At last, it probes into how to improve the transparency ofChina Investment Corporation (CIC), the SWF of China.Chapter IV firstly discusses the governance issues of the SWFs themselves,mainly from the experience of Temasek which is the model of domestic governance ofSWFs and the contents of the "Santiago Principles", to explore a set of rules ofgovernance for SWFs. Secondly, it analyzes the governance issues of target companywhere the SWFs are as shareholders, focusing on the inadequacies of measures thatrestrict the SWFs’ shareholder rights, especially the voting rights, and pointing outthat the maintenance of the shareholders’ rights of the SWFs is the way to realize theeffective administration of target companies. Thirdly, taking the Norwegian sovereignwealth fund practices as an example, this part explains how to establish and adhere to ethical guidelines, and fulfil the social responsibilities and the interface of goodgovernance between the SWFs themselves and the external. At last, the author hasputs forward some suggestions for improving the governance of CIC.Chapter V discusses the investment access issues of the SWFs. First it exploresthe investment access of the SWFs in the host countries. According to the latestlegislative practice of the United States, Canada, Australia, Germany and otherWestern countries, the author deems that the American and European countries areusing the "national security" reviews to enhance the market access regulation ofSWFs. And after introducing the bilateral investment conventions,"the GeneralAgreement on Trade in Services" and the international documents on investment rulesprovided by OECD which are concerning the SWFs investment protection provisions,this part analyses how the existing international investment law influence the legalsystem of the host countries for SWFs investment access.Chapter VI discusses the issue of the immunity of SWFs. Sovereign immunity isa fundamental principle of general international law. As the SWFs are closely relatedto the countries’ sovereignty, whether the SWFs could enjoy the state immunity meansgreat to the legal status of SWFs which operate in other countries. This chapter beginswith "United Nations Convention on Jurisdictional Immunities of States and theirproperty",“the United States’ Foreign Sovereign Immunities Act "and other advancedlegislation, and discusses the issue of the judicial immunity of the SWFs, mainly fromthe aspects of the qualification and type of behaviors. In addition, it researches theconditions when the SWFs enjoy the executional immunity of the compulsorymeasures, and the similarities and differences compared with the jurisdictionalimmunity. Since the foreign investment of SWFs will face cross-border tax issues, thepaper analyzes the current U.S. income tax law as an example to know the possibilityto get income tax exemption in other countries, and explores the qualifications andconditions of that.The SWFs investment process in overseas would inevitably encounter manyeconomic disputes, and being faced with the issues of the dispute settlement and theconflict of laws. Chapter VII is about the issues concerning the investment disputeresolution and choice of law for SWFs. Taking into account the characteristics ofinternational law on dispute settlement mechanism, this part of the chapter discussesthe international solution to the disputes caused by the regulations from the hostcountries combined with the "Washington Convention" and the WTO "rules and procedures on dispute settlement understanding". And then it researches the choice oflaw for SWFs from the aspect of principles and rules.