Increasing trade and economic frictions resulting from accelerating globalization and the impact of China's World Trade Organization (WTO) membership mean that Chinese enterprises should learn to hedge operation risks and minimize losses by using arbitration tools, says a senior arbitrator.

Wang Shengchang, vice-director of the China International Economic and Trade Arbitration Commission (CIETAC), also wants the central government to reform the current pricing policy and lift some restrictions in the arbitration sector in order to better suit the WTO era.

"Disputes are the by-products of global trade and economic interaction," Wang said.

As China speeds up the pace of its integration with the global market after its WTO entry in late 2001 and more overseas investors penetrate the Chinese market, economic disputes also grew in both number and scale, Wang said.

China witnessed a trade volume of US$851.2 billion last year, a year-on-year increase of 37.1 per cent, the biggest jump in the past two decades.

In addition, more Chinese firms are also expected to enter the international trade businesses after China lowered its foreign trade rights threshold.

This policy loosening is also likely to lead to a rising number of trade and commercial disputes, Wang says.

But the legal expert says the general awareness of arbitration among Chinese business people has not kept pace with economic development.

"Generally speaking, Chinese enterprises have a very poor awareness of protecting their legitimate rights through arbitration," Wang told China Daily in an exclusive interview, "Some of them even have no idea what arbitration is."

Arbitration, which features procedural flexibility, respect for parties' autonomy, efficient enforcement of final awards and confidentiality, is a good way of solving commercial disputes, he says.

"It is very important to help businesses familiarize with arbitration and solve disputes in this way," Wang says.

"A sound and modern arbitration system will also increase overseas investors' confidence in China."

And the veteran arbitrator calls for appropriate reforms to help the sector further embrace international standards and WTO rules, in a bid to better facilitate multilateral trade.

"Some of the flaws in the arbitration system could harm the sector," Wang says.

"An open China needs a more flexible and opened arbitration system," he stresses.

"We wish we could pay our arbitrators in a more flexible way and have more autonomy," Wang says, "The current salary system is quite planned economy-oriented."

Internationally, arbitrators are often paid on the basis of their working hours and have a much higher salary than their Chinese counterparts.

"Some of our foreign arbitrators complain about the payment system."

And Wang hopes the central government could allow overseas lawyers to act as arbitration agents.

He also says China's eight-year-old Arbitration Law is in urgent need of revision to better handle disputes.

The current Arbitration Law was approved by the Standing Committee of the National People's Congress (NPC), the nation's top legislature, in 1994 and took effect in 1995.

While the law has played an important role in promoting China's arbitration system, Wang says some of its provisions are now outdated.

For example, the law says disputes should be heard through "institutional" arbitration, organized by authorized bodies such as CIETAC.

It does not allow for "ad hoc" arbitration, in which the parties have more direct contact with arbitrators.

"We should introduce ad hoc arbitration, which is a very popular tool elsewhere in the world, to offer more choice to the parties involved," says Wang.

The legal expert also condemns excessive administrative interference and local protectionism.

Governments in some parts of China force enterprises to resort to local arbitration institutions when disputes occur.

"It's terrible," he says.

Wang calls for concerted efforts to eliminate these malpractices.

Meanwhile, Wang says he and his commission will do their bit to help resolve disputes.

CIETAC, China's biggest and most influential arbitration institution, accepted a total of 709 cases last year, remaining the world's No 3 in terms of the number of cases.

It dealt with 684 cases in 2002.

"The increasing number of cases revealed that international investors are all the more trusting in our commission," says Wang.

"In the bigger picture, it also indicates that China's investment environment is comprehensively improving," he points out.

Established in 1956, and the sole arbitration institution in China before 1995, CIETAC is gearing up to a more "professional and international" mode to better meet the challenges posed by the country's WTO entry.

Wang wants the commission to pursue greater "openness and internationalism." The commission currently has a total of 174 overseas arbitrators from more than 30 countries and regions, around one-third of the panel.

"And we will invite more foreign experts to join us," Wang says, "We are working on the basis of internationalism."

CIETAC will host the 17th International Council for Commercial Arbitration Conference. The biennial event, to be held in Beijing this May, is a gathering for world-renowned arbitrators.