Foreign investments and domestic laws – the case of Chinese companies

In order to attract foreign investment and improve infrastructure, Serbian authorities are ready to change laws and turn a blind eye to the violations of existing regulations when it comes to foreign companies. Their attitude towards Chinese companies is just one example of this.

“I promise to respect all Serbian laws and regulations so that the company, the city and the workers can benefit from this deal and thrive in joint progress “, said Wang Feng, owner of Shandong Ling Long Tire Co. while signing an investment agreement worth more than 800m euros in 2019, in Serbia. 

Two years later, promises remained unfulfilled. Still, direct investments from China introduced new rules and helped create an industrial policy thanks to which foreign companies have the upper hand. Business climate has been made even more pleasant for the newly arrived companies by the Serbian government, which passed new laws and changed the existing ones in order for Serbia to become a desirable place for business.

Based on the established practices and cooperation of foreign companies with the state, pampering foreign investors in Serbia can be briefly illustrated by three particular activities: passing new laws or amending existing ones to meet the needs of foreign companies, ignoring law violations perpetrated by foreign investors and violations of laws by the state itself.

Adjustment of laws and regulations

A legal analysis done by the Renewables and Environmental Regulatory Institute (RERI) uncovered a loosening of legal obligations on Chinese investments in Serbia that can be traced back to 2014. In order to speed up implementation of large infrastructure projects, mainly financed by loans from the Chinese government or company investments, a number of new laws and procedures have been enacted.

Specifically, the Law on Public Procurement, passed in 2019, negatively affected regulations in the field of environmental protection, access to information of public importance and fair competition. The citizens were thus denied access to information of public importance, and the Government of the Republic of Serbia was released from the responsibility to answer the requests and questions of the interested public.

In addition, there are cases when the adoption of special laws (lex specialis) put provisions of the Law on Public Procurement out of force. For example, the Law on Special Procedures for the Implementation of Project of Construction and Reconstruction of Line Infrastructure Structures of Particular Importance to the Republic of Serbia, adopted in 2020, enabled the Government to initiate construction of the Belgrade-Zrenjanin highway without the obligation to announce tenders for designers or contractors. This enabled the Chinese Shandong Hi-Speed Financial Group to announce a tender for a designer without any interference from the Serbian government or the relevant state institutions. Such circumventing of the public procurement system has lead other actors to lose confidence in the importance of consistent application of existing regulations.

Another important piece of legislation, which has also been discussed on Mašina, regulates specifically the position of workers who come from China. The existing domestic Law on Employment of Foreigners does not apply to them; instead, the Law on Ratification of Social Security Agreement between the Government of Serbia and Government of People’s Republic of China is applied. According to the Article 7 of this law, the domestic Labour Law will not apply for workers from China who have been sent or will be sent to work in Serbia during the first five years of engagement (with the possibility of extension). The laws of the employer’s country, i.e. Chinese laws, will be applied instead. Thus, the competence of the domestic Labour Inspectorate will be drastically reduced, which will leave workers from China at the mercy of Chinese employers. Numerous examples of violations of labour and human rights in Chinese companies already indicate the workers’ disadvantage. 

The case of the Chinese Hesteel Serbia company, part of which is the Smederevo ironworks facility, shows that problems go beyond the violation of the labour rights of workers from China. Namely, company representatives demanded an amendment to the domestic Labour Law such as to enable the management to burden workers additionally, as well as to allow easier dismissal of employees who refuse to accept extended work norms. Based on this example one can assume what some employers will lobby for when the labour law gets to be changed.

Linglong company tire transport; Photo: Ian BC North / Flickr

Turning a blind eye 

Another method the executive authorities in Serbia employ is to refrain from reacting when Chinese companies break the law. It should be noted at once that this method is not exclusively related to Chinese companies, but rather represents a long-term passivity the state succumbs to when the violation of the law suits the government or entities close to the government. In the case of Chinese companies, besides not applying its own regulations, the state also doesn’t react when other actors (such as the ones from the civil sector) initiate proceedings and present concrete evidence of violations.

For example, the Serbia Zijin Copper company has again reached the centre of public attention due to failed negotiations with the unions around collective agreement. Six months of negotiations wasn’t enough to reach a result that could satisfy both parties. The main dispute concerns wages, where the employee’s aim is to calculate wages based on work performance, instead of determining the price of labour in accordance with the decision of the Social and Economic Council, as has been done before. Other cases of the state’s lack of reaction to the murky activities of Zijin include the pollution of the river Pek and issues concerning a ventilation plant in the Jama mine, which operates without a building permit.

When the projected environmental impact of factory construction is very large and harmful, companies often resort to a practice called salami slicing. Salami slicing is used when the results of the environmental impact analysis would be very unfavourable, which would make the construction illegal. To prevent this, the companies divide one factory construction project into several smaller phases of the project in order to reduce the effect of the biggest polluters on paper.

Linglong also resorted to this practice when it applied for a building permit for the first phase of construction of auxiliary facilities within the factory complex, without previously conducting a mandatory environmental impact assessment. However, there is an exception to the rule and it refers to the Zijin company. Zijin tried a similar move, but the Ministry of Environmental Protection reacted and ordered the company to conduct an environmental impact assessment study for the whole project, not just for its individual parts. This illustrates why it is necessary to encourage key actors to continue to respect and enforce regulations that are crucial for both the environment and citizens.

Chinese workers protest in Bor; Screenshot / Ist media

Since everyone is breaking the law…

In addition to legalizing law violations and playing dead when Chinese companies break the law, the executive authorities sometimes violate domestic laws in order to meet the needs of foreign investors. An example of this is the case of Linglong company, to which the City of Zrenjanin issued a building permit for the first phase of construction of auxiliary facilities within the factory complex. The procedure for issuing a construction permit was carried out with disregard to laws by circumventing the environmental impact assessment procedure, which is otherwise mandatory.

If there are recognised risks to the environment, environmental regulations take precedence over other laws and regulations. Auxiliary facilities are a part of the factory complex and must therefore be included in the environmental impact assessment procedure. In this case, the authority to issue the construction permit belonged to the Autonomous Province of Vojvodina, i.e. the Provincial Secretariat for Energy, Construction and Traffic, and not the City of Zrenjanin, which in fact issued it. This and similar examples of abuse of regulations are certainly not strange to Serbian citizens. However, a state of frequent violation of regulations perpetrated by foreign investors is something that should worry the general public.

Future steps

We mentioned certain cases of violations, going around or ignoring regulations the investors who come from China manifested while doing business in Serbia. It should be noted that such behaviours are not reserved to Chinese companies, but represent a common practice among most investors who decide to operate in Serbia. Part of the responsibility lies with the Government of the Republic of Serbia and other state bodies that, in an effort to attract as much foreign direct investment as possible, create a favourable environment for investors by selectively applying laws and regulations.

In a similar manner, companies do not hesitate to abuse a privileged position and violate labour rights or environmental regulations. In such an environment, the only losers are, unfortunately, the citizens. With declining confidence in official mechanisms for monitoring and reporting abuse of the law, what remains is for citizens to make additional efforts to control and alert the public, or to provide support to actors who do everything they can to prevent future abuse.

Translation: Iskra Krstić

This article was ORIGINALLY PUBLISHED in Serbian on Jul 20, 2021.


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