Legal Countermeasures Related With Financial Risks In International Engineering Contracting

These years have witnessed the rapid development of international engineering contracting with the progress of economic globalization. At present a large number of Chinese enterprises have participated in this business. In2010,54Chinese enterprises ranked among top225, and5of them ranked top10international engineering contractors those listed in US Engineering News Record. More and more recent industry practices however have demonstrated that the situation the participants are involved in is getting more and more complicated. They have to face the increasingly intensive competition and are exposed to the business risks, especially financial risks those are getting much higher. Therefore, it is time and necessary to do a thorough study on the financial risks and related legal countermeasures in the international engineering contracting.This paper firstly, from the legal perspective, discusses the concept of the financial risk in international engineering contracting with reference to numerous literatures..From the view of contractors, this paper then examines the causes of the financial risks in some detail, which can broadly be classified as (a) political risk, including state expropriation risk, currency exchange risk, risk of war and government default risk;(b) legal risk, including contract risk, double taxation risk, risk in the labor relations and in the environment protection;(c) commercial risk, including inflation risk, foreign exchange risk, management risk and risk in using the letter of guarantee. In-depth analysis of their serious affection on financial issues in international engineering contracting is also made.After a rigor consideration of current international treaties, international practice and relevant domestic laws in this area, this paper has as the underlying focus the development of legal rules regulating the financial risks in international engineering contracting by advocating some innovatory practices. For reducing political risks, the role of some established protection mechanisms, for example, the Multilateral Investment Guarantee Agency, the dispute settlement mechanism established by the Washington Convention, and the bilateral investment protection agreement, should be considerably improved. Legal risks are surely to be avoided to a large degree by enacting the Model Law on contracts for the international project, strengthening the position of international tax treaties, and setting clear limitations on the legal regulation regarding labor relations and environment protection in the host country. With respect to commercial risks, the approaches to enhance the effect of the hedge contract and currency hedge clause, to prevent the risk in the utility of the letter of guarantee, and to establish the sound risk management mechanism, are thought satisfactory for the purpose.In adopting a systematical approach in its research, this paper, mainly from the legal perspective, sets out to answer the question of how to regulate effectively the financial risks in international engineering contracting. These efforts can be predicted to contribute to the scholarship and practices in this area and accordingly to stimulate greatly the development of international engineering contracting in China.