Corporate Law Standards & Protocols Along The Belt And Road Initiative: A Mix Of Civil, Common & Religious Legal Frameworks

Inhouse Lawyers and Law Firms Need To Engage With Regional Legal Partners For Belt & Road Assistance

Op/Ed by Chris Devonshire-Ellis 

China’s Belt & Road Initiative now includes more than 130 countries from around the world. This means there are opportunities from these nations to sell to China, a feature that is gaining in bilateral trade significance with China now importing more from Belt & Road countries than it exports.

While we have covered how international businesses can sell to China in numerous articles, both via ecommerce platforms and by establishing a legal presence the Belt & Road Initiative is also coming to maturity in its global infrastructure build and the completion of this. This is creating investment and trade opportunities for other foreign investors across the Belt & Road nations themselves.

New Investment Opportunities Emerging In Belt & Road Countries
These range from both exporting products from these nations to China, to taking advantage of the new opportunities the infrastructure build in the various Belt & Road countries will bring. I discussed an example of this in the article Colombo Port City Turns Into A Belt & Road Cash Cow For Foreign Investors in which I explain how this development in Sri Lanka, having had the basic infrastructure build completed is now offering significant returns on investment in property acquisition as well as opportunities in the service sector.  The CPC is being developed as a commercial business centre and is well placed to attract investors and businesses from around South-East Asia as it sits between the giant markets of India and China and can deal with both in the same time zone. That makes it prime for back office operations, and will spur investment from all the types of service industries that can service those employees. That means investors from general stores, to computer and IT retailers and service centres, restaurants, and all the types of products and services office employees require. This is happening now, and is fast developing in other Belt & Road infrastructure hubs around the world.

The Belt And Road Legal Knowledge Gap
However, there is a problem: countries such as Sri Lanka – and in fact many of the more than 130 countries of the Belt & Road Initiative do not have especially well established, reliable or familiar legal systems that are comprehensible to the average business lawyer. Local legal services and knowledge can be perfunctory or even misleading in emerging nations, where domestic laws might be well understood but the foreign investment legal structures far less so. A lack of familiarity of different legal systems in use, coupled with a local lack of foreign investment regulations can create problems for international legal counsel in advising clients. This applies to trade, contractual law, dispute resolution, corporate establishment, and tax and accounting protocols. As can be seen from the map below, the global spread of differing legal systems is a huge, yet often misunderstood issue, and it is no good trying to fit an American or British qualified lawyer into a differing legal protocol developed under different standards and with vastly different codes and implications.

In this article I explain why this is, the different types of business law standards and types that exist along the Belt & Road Initiative, and give some pointers as to where solutions may lie.

Comparative Law Along The Belt And Road Initiative
Today’s contemporary national legal systems are generally based on one of four basic legal systems: Civil Law, Common Law, Statutory Law and Religious Law. Some countries have evolved combinations of these. However, the legal system of each country is shaped by its unique history and so incorporates individual variations. The science that studies law at the level of legal systems is called comparative law.

Both Civil and Common law systems can be considered the most widespread in the world: Civil Law because it is the most widespread by landmass and by population overall, and Common Law because it is employed by the greatest number of people compared to any single civil law system.

Civil Law Influence On The Belt And Road Initiative
The key to civil law is understanding that the source of law recognized as authoritative are codifications written either in a constitution or statute passed by legislature in law or either as an amendment. Civil law systems date back to the Roman Empire and, specifically the Corpus Juris Civilis issued by the Emperor Justinian (where we obtain the word ‘justice’) in AD 529. This was an extensive reform of the law in the Byzantine Empire, bringing it together into codified documents. Civil law was also partly influenced by religious laws such as Canon and Islamic laws. Civil law today, in theory, is interpreted rather than developed or made by judges. Only legislative enactments (rather than legal precedents, as in common law) are considered legally binding.

Scholars of comparative law and economists usually subdivide civil law into four distinct groups:

French Civil Law: in France, the Benelux countries, Italy, Romania, Spain and former colonies of those countries;

German Civil Law: in Germany, Austria, Russia, Switzerland, Estonia, Latvia, Bosnia and Herzegovina, Croatia, Kosovo, North Macedonia, Montenegro, Slovenia, Serbia, Greece, Portugal and its former colonies, Turkey, and East Asian countries including Japan, South Korea and Taiwan.

Scandinavian Civil Law: in Denmark, Norway and Sweden. As historically integrated in the Scandinavian cultural sphere, Finland and Iceland also inherited the system.

Chinese Law: a mixture of civil law and socialist law in use in the People’s Republic of China.

However, some of these legal systems have become hybridized, and resulted in mixtures, such as the Italian Civil Law, which in 1942 replaced the original one of 1865, and introduced German Civil Law elements due to the geopolitical alliances of the time. The Italian approach has been imitated by other countries including Portugal, The Netherlands, Lithuania, Brazil and Argentina. Most of them have innovations introduced by the Italian legislation, including the unification of the civil and commercial codes. Swiss Civil Law is mainly influenced by the German civil code and partly influenced by the French civil code. Turkeys Civil Law is a slightly modified version of the Swiss code.

Belt & Road Countries Following Civil Law Codes
Albania, Angola, Armenia, Austria, Azerbaijan, Belarus, Benin, Bolivia, Bosnia & Herzegovina, Cambodia, Cape Verde, Chad, Chile, D.R. Congo, Costa Rica, Cote d’Ivorie, Croatia, Cuba, Czech Republic, Ecuador, El Salvador, Equatorial Guinea, Estonia, Ethiopia, Gabon, Georgia, Greece, Hungary, Italy, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macau, Mongolia, Morocco, Mozambique, Nepal, Panama, Peru, Poland, Portugal, Romania, Russia, Rwanda, Serbia, Slovakia, Slovenia, Timor-Leste, Turkey, Ukraine, Uruguay, Venezuela, Vietnam.

Common Law Influence On The Belt & Road Initiative 
Common Law and Equity are systems of law whose sources are the decisions in cases by judges. In addition, every system will have a legislature that passes new laws and statutes. The relationships between statutes and judicial decisions can be complex. In some jurisdictions, such statutes may overrule judicial decisions or codify the topic covered by several contradictory or ambiguous decisions. In some jurisdictions, judicial decisions may decide whether the jurisdiction’s constitution allowed a particular statute or statutory provision to be made or what meaning is contained within the statutory provisions. Statutes were allowed to be made by the government. Common law developed in England, is commonly referred to as the ‘British Based Legal System’. It is in turn based on ancient Anglo-Saxon laws, and to a much lesser extent by the Norman conquest of England, which introduced legal concepts from Norman and Salic law. Common law was later inherited by the Commonwealth of Nations, and almost every former colony of the British Empire excepting Malta. The doctrine of stare decisis, also known as case law or precedent by courts, is the major difference to codified civil law systems.

Common Law is currently in practice in Australia, Canada, India (except Goa, which is based on Portuguese civil law) Ireland, New Zealand, the United Kingdom (except Scotland) and the United States (except Louisiana, based on French civil law). For this reason Common Law tends to be the preferred method of law practiced by British, Australian and American lawyers as their legal system educates the profession within these concepts. However there are limitations of practical application when it comes to the numerous Belt & Road countries practicing different legal systems, in which case additional counsel should be sought.

In addition to these countries, several others have adapted the common law system into a mixed system. For example, Nigeria operates a common law system in the southern states and at the federal level, but also incorporates religious law in the northern states. In the European Union, the Court of Justice takes an approach mixing civil law (based on its treaties with member states) with an attachment to the importance of case law.

Belt & Road Countries Following Common Law Systems
Antigua & Barbuda, Bangladesh, Barbados, Belize, Dominica, Fiji, Ghana, Grenada, Hong Kong, Jamaica, Liberia, Myanmar, Nepal, Pakistan, Singapore, Tonga, Trinidad & Tobago, Uganda.

Statutory Law 
Statutory law or statute law is written law passed by a body of legislature. This is as opposed to oral,  customary, or regulatory law, or regulatory law promulgated by the executive or common law of the judiciary. Statues may originate with national, state legislatures or local municipalities as is the case in mainland China and numerous other Communist or ex-Communist states.

Legislation is law which has been promulgated (or “enacted”) by a legislature or other governing body, or the process of making it. Before an item of legislation becomes law it may be known as a bill, or a decree and may be broadly referred to as “legislation”, while it remains under consideration to distinguish it from other business. Legislation can have many purposes: to regulate, to authorize, to outlaw, to provide (funds), to sanction, to grant, to declare or to restrict. It may be contrasted with a non-legislative act which is adopted by an executive or administrative body under the authority of a legislative act or for implementing a legislative act.

Statutory law is often mixed with other types of legal systems, most notably Common Law. The ultimate authority over Statutory Law in Communist and more Autocratic systems tends to lie with the Government and its Legislative Body rather than a fully independent judiciary.

Belt And Road Countries With Statutory Law Protocols 
Bangladesh, China, Chile, Greece, Hong Kong, Iraq, Lithuania, Malaysia, Pakistan, Peru, Philippines, Russia, Singapore, South Africa, Sri Lanka, Thailand, Tunisia, Vanuatu, Zimbabwe

Religious Law 
Religious law refers to the notion of a religious system or document being used as a legal source, though the methodology used varies. For example, the use of Jewish and Halakha for public law has a static and unalterable quality, precluding amendment through legislative acts of government or development through judicial precedent; Christian Canon Law is more similar to Civil Law in its use of Codes, and Islamic Sharia Law and Fiqh jurisprudence is based on legal precedent and reasoning by analogy, (Qiyas), and is considered similar to Common Law.

The main kinds of religious law are Sharia in Islam, Halakha in Judaism, and Canon Law in some Christian groups. In some cases these are intended purely as individual moral guidance, whereas in other cases they are intended and may be used as the basis for a country’s legal system. The latter was particularly common during the Middle Ages.

The Halakha is followed by orthodox and conservative Jews in both ecclesiastical and civil relations. No country is fully governed by Halakha, but two Jewish people may decide, because of personal belief, to have a dispute heard by a Jewish court, and be bound by its rulings.

The Islamic legal system of Sharia (Islamic law) and Fiqh (Islamic jurisprudence) is the most widely used Religious Law, and one of the three most common legal systems in the world alongside common law and civil law. It is based on both Divine Law, derived from the Qu’ran and Sunnah, together with the rulings of Ulema (jurists), who use Consensus (Ijma), Analogical Deduction (Qiyas), Research (Jtihad) and Common Practice (Url) to derive Legal Opinions (Fatwa). An Ulema is required to qualify for a Legal Doctorate (Ljazah) at a Madrasa (Law School) before they may issue a Fatwā.

Classical Islamic law has had an influence on the development of common law and other civil law institutions. Sharia law governs a number of Islamic countries, including Saudi Arabia and Iran, though most countries use Sharia law only as a supplement to national law. It can relate to all aspects of civil law, including property rights, contracts and public law.

Belt & Road Countries Following Religious Law Codes 
Gambia, Iran, Libya, Mauritania, Nigeria, Saudi Arabia, Sudan, Yemen.

As has been discussed, some countries have evolved hybrid legal systems taking aspects from Civil, Common, Religious and other legal sources. These are known as Pluralistic Legal Systems. The most common of these combine either Civil & Common Laws, Civil Law & Sharia Law, or Common Law & Sharia Law. We can examine these as follows:

Belt & Road Countries Following Civil & Common Pluralistic Laws  
Cameroon, Cyprus, Guyana, Kenya, Lesotho, Malta, Mongolia, Namibia, Philippines, Seychelles, South Africa, Sri Lanka, Thailand, Vanuatu, Zimbabwe

Belt & Road Countries Following Civil & Sharia Pluralistic Laws  
Afghanistan, Algeria, Bahrain, Comoros, Egypt, Kazakhstan, Kyrgyzstan, Morocco, Oman, Qatar, Syria, Tajikistan, Turkmenistan, United Arab Emirates, Uzbekistan

Belt & Road Countries Following Common & Sharia Pluralistic Laws  
Brunei, Malaysia, United Arab Emirates (financial laws only).

Customary Law 
A legal custom is the established pattern of behavior that can be objectively verified within a particular social setting. A claim can be carried out in defense of “what has always been done and accepted by law”. Related is the idea of prescription; a right enjoyed through long custom rather than positive law.

Customary law (also, consuetudinary or unofficial law) exists where:

1. a certain legal practice is observed and
2. the relevant actors consider it to be law (opinio juris)

Most customary laws deal with standards of community that have been long-established in a given locale. In many, though not all instances, customary laws will have supportive court rulings and case law that has evolved over time to give additional weight to their rule as law and also to demonstrate the trajectory of evolution (if any) in the interpretation of such law by relevant courts.

Consideration to Customary Law must be given to certain sections of the Belt & Road Initiative, where it can be immensely influential. This includes tribal and aborginal areas within several Southern African and Latin American countries, Central Asia, India, Indonesia and Malaysia.

Professional Difficulties In Handling Cross-Jurisdictional Legal Structures 
As can be seen, the impact of differing global legal systems is far wider spread and can create business regulatory and compliance issues to a greater extent in global investment than is commonly acknowledged. Many American, Australian, British and certain European lawyers may well be experts in and familiar with the Civil and Common law regimes in their respective jurisdictions, however planned corporate investments and even initial negotiations overseas can deteriorate quickly if this is not sufficiently balanced with sound local legal knowledge. In-house counsel and certain ‘international’ lawyers (there is actually no such thing) can also develop strong egos based on domestic successes that may not always translate well when attempting to fit their legal protocols and standards into alternative systems. This can impact upon the legal and compliance integrity of overseas investments.

Combining Regionally Specific Lawyers With Domestic Counsel When Investing Overseas 
In-house counsel and lawyers familiar with your home territory should play a prominent part in handling any overseas investment and especially when it comes to those being made in countries that operate a differing legal system. This is because domestic laws must be upheld and any investment made overseas checked to be compliant with those standards. However, underneath that must be a layer of legal advise from the target market country, whose own way of doing things, and especially administrative procedures, may be rather different. Other areas that can widely differ between legal systems are as follows:

• Concept and Proof of Ownership
• Finance & Banking
• Access to IT and Communications
• Corporate Authorization & Responsibility
• Culpability & Criminal Definitions
• Trademarks and Patents
• Tax & Accounting
• Dispute Resolution, Litigation & Court Procedures
• Ultimate Legal Authority

The development of the Belt & Road Initiative as an international, interconnected series of trade corridors, and its subsequent maturing into a huge selection of countries now offers additional investment opportunities as a result of completed infrastructure builds. However, this presents a major business and administrative challenge in the 2020’s. Well organized and well known international business and legal administration protocols do not cover the sheer scale of the BRI, meaning that business owners, lawyers and tax advisors need to spread their wings rather further than has until now been the norm in global engagement.

Belt, Road And Global Legal Advisory
Dezan Shira & Associates are members of several international business advisory, legal and accounting networks, and although we as a practice do not have a global presence, have professional relationships with other firms in 136 countries and territories. For businesses requiring assistance with legal and related issues across the Belt & Road Initiative, we will be happy to introduce our Partner firms for assistance. These include firms across the African continent, the Middle East, Central Asia, and Central and South America. Please contact us at silkroad@dezshira.com.

Dezan Shira & Associates does however provide services itself throughout Asia, including China, Hong Kong, Bangladesh, India, Russia, and the ASEAN region, including Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. We have legal professionals on hand in each who can assist with local legal, tax and related trade and investment matters.

Related Reading

• Submitting Trademark Registrations Along The Belt & Road Initiative
• China’s Belt And Road Initiative: All Participating Countries By Income Group