Arbitration in China: Benefits of an Arbitration Clause
With the rapid growth of the Chinese economy, international business between foreign companies and Chinese companies is commonplace. The presence of dispute is inevitable. Should a commercial dispute arise concerning international trade in China, there is enormous potential for complex legal problems to arise. For example, the party may suffer a large loss; and questions arise as to where in China the lawsuit should be brought and whether a judgment is binding. Parties need to know whether their rights will be protected. Arbitration presents itself as a practical alternative to the traditional mode of courts.
As a form of alternative dispute resolution, the number of cases submitted to arbitration committees such as CIETAC and the Beijing Arbitration Commission in Beijing are increasing dramatically.
According to Article 6 of the Arbitration law of the People's Republic of China:
"The members of the arbitration commission shall be chosen by the parties concerned. Arbitration shall not be subject to the jurisdiction of administrative departments at any level and region"
And Article 3 of the Arbitration Rules of the CIETAC states CIETAC accepts case involving:
1) international or foreign-related disputes;
2) disputes related to the Hong Kong Special Administrative Region or the Macao Special Administrative Region or the Taiwan region;
3) domestic disputes.
Considering the above, many forms of commercial disputes can be resolved in China through arbitration; regardless of the contract parties’ nationalities or the nature of the parties’ business.
Internationally, CIETAC is the most common arbitration institution in China. CIETAC, the China International Economic and Trade Arbitration Commission, was founded in 1956 and has administrated more than 10,000 international arbitration cases. Today CIETAC accepts both domestic and international cases, however, cases with an international element are most common.
The CIETAC arbitration rules were first formulated in 1956 and have been revised 6 times since, with the last revision effective from May 1st, 2005. The present arbitration rules and those of other major international arbitration institutions are similar and they offer the concerned parties the most autonomy possible under the current arbitration law. In addition, CIETAC maintains a Panel of Arbitrators composed of roughly 1,000 arbitrators, who are domestically or internationally distinguished experts in arbitration or in a particular trade. Among them, approximately 270 are nationals from over 30 countries.
Presently, CIETAC has established 3 sub-commissions in China: CIETAC South China Sub-Commission (located in Shenzhen), Shanghai Sub-Commission, CIETAC Tianjin International Economic and Financial Arbitration Center.
Arbitration is a viable alternative to Chinese Courts. CIETAC is also an extremely convenient institution for those parties who are able to bring their pleadings before it. That being said it is extremely important for Parties to an agreement to ensure an arbitration clause is present.
