This content is from: Local Insights

China

The China International Economic and Trade Arbitration Commission (CIETAC) has recently become one of the busiest arbitration bodies in the world, having decided about 800 cases in 1997. Effective as of May 10 1998, the CIETAC Arbitration Rules were revised in response to political and legal developments as well as criticism concerning uncertainties under the previous CIETAC Arbitration Rules.

In the past, it was unclear whether CIETAC's jurisdiction included disputes between foreign investment enterprises (Chinese-foreign joint venture companies and wholly foreign-owned enterprises) and domestic entities. The uncertainty arose because the old rules provided in general language that CIETAC had jurisdiction over 'foreign-related' disputes. This was partly interpreted to mean that due to the foreign equity participation in foreign investment enterprises, disputes with domestic persons were foreign-related.

However, the Beijing Intermediate People's Court, when asked to enforce a CIETAC award, rendered in favour of a joint venture company against a Chinese domestic enterprise, held that such cases are disputes between two Chinese legal persons, not foreign-related nor falling into CIETAC's jurisdiction. It therefore rejected the enforcement of the award.

The new rules now explicitly provide that CIETAC will have jurisdiction over disputes among foreign investment enterprises and between foreign investment enterprises and Chinese entities. Foreign investors will welcome this development because otherwise they would continue to be limited to dispute resolution by often inexperienced Chinese local arbitration commissions or courts.

The new rules further clarify that CIETAC's jurisdiction includes disputes arising from project finance, invitation for tender, bidding, construction and other activities conducted by Chinese legal subjects using foreign capital, technology or services. Disputes related to the Hong Kong Special Administrative Region, Macao and Taiwan will fall under the jurisdiction of CIETAC.

In addition, it will be possible to agree that arbitration cases handled by CIETAC are conducted not under CIETAC Arbitration Rules but under different rules of procedure as agreed by the parties. It would, for example, be possible to agree that a dispute is to be decided by CIETAC according to the Rules of Arbitration of the International Chamber of Commerce. However, uncertainty remains because CIETAC still needs to agree to conduct arbitration proceedings under alternative rules.

Further signs of flexibility include the new possibility for the parties to agree where the hearing of the case will be held.

The new rules introduce different fee standards for the different types of disputes handled by CIETAC. For certain disputes (for example those arising from international purchase contracts) fees will be charged according to a schedule attached to the new rules. Other disputes (for example those between foreign investment enterprises and domestic Chinese companies) will be handled according to the Methods of Charging Fees by Arbitration Commissions issued by the General Office of the State Council on September 1 1995. The reason for this may be that fees for domestic disputes will be charged in a uniform way irrespective of whether they are handled by CIETAC or other arbitration commissions established in China.

The new CIETAC Arbitration Rules represent a further step in bringing CIETAC in line with internationally accepted arbitration practice, in particular by a clarification on CIETAC's jurisdiction and by granting parties more autonomy to structure the arbitration proceedings.

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