New policies needed to allow greater growth
By Yue Zhang (China Daily)
Updated: 2004-05-12 23:42

China should give a higher priority to its developing arbitration sector and map out a set of arbitration-friendly policies to guide its growth, according to a senior arbitrator.

Wang Shengchang, vice-chairman of the China International Economic and Trade Arbitration Commission (CIETAC), says the authorities should give more flexibility and autonomy to the sector in a bid to shape the current commerce development.

"The current laws and regulations concerning arbitration are somewhat rigid and need to be amended," he says.

"They have not caught up with economic development.

"We hope China can create an amiable legal and administrative environment for the development of the sector, which is expected to prosper thanks to the booming Chinese economy."

Increasing trade and economic friction resulting from accelerating globalization and the impact of China's World Trade Organization (WTO) membership mean that local enterprises should learn to hedge operational risks and minimize losses by using arbitration tools.

"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 and more overseas investors penetrate the local market, economic disputes will continue to grow 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 local firms are also expected to encounter competitions from the international counterparts 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, according to Wang.

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," he told ICCA Express during 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.

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

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

And the veteran arbitrator has called 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.

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

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

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

He hopes the central government will allow overseas lawyers to act as arbitration agents.

The restriction has dragged down the growth of the number of cases CIETAC is receiving. "Foreign companies tend to choose overseas arbitration institutions due to this restriction."

Wang believes China's arbitration sector will be hard to catch up to international players if the restriction is not lifted.

He also says the nation's Arbitration Law is in urgent need of revision to better handle disputes.

The current law was approved by the Standing Committee of the National People's Congress, the nation's top legislature, in 1994 and took effect the following year.

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.

But 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.

Such arbitration institutions mushroomed in China after the authorities loosened the market access threshold in 1995.

"Many of them are operated under the wing of local governments, and only receive very few case annually," Wang said. "It is a waste of resources and hampers fair play."

Wang is calling for concerted efforts to eliminate such malpractices.

He believes it is appropriate to merge the regional groups, to reduce their number.

Role of CIETAC

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

CIETAC, China's biggest and most influential arbitration institution, is rolling out an ambitious plan to establish a batch of disputes resolution centres designed for different sectors.

The commission is in negotiations with a number of industry associations to set up such centres.

By 2008, centres will be established covering main industries such as construction, finance, real estate, textiles and e-business, according to Wang's timetable.

"A dispute resolution centre has already been erected to cover the grain sector," he says "Affiliated to CIETAC, it makes full use of the resources of CIETAC and the China National Grain Sector Association."

And the commission is talking with the China Futures Association over the establishment of a similar centre.

CIETAC is expected to promote the Med-arb mode, which combines arbitration and conciliation in solving commercial disputes.

"This mode, which is time-saving and cost-effective, is acceptable and welcomed in China," Wang says. "We are going to make it known throughout the world."

CIETAC accepted a total of 709 cases last year, keeping it third globally in terms of the number of international cases it handled. It dealt with 684 cases in 2002.

"The increasing number of cases shows 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."

Wang wants the commission to pursue greater "openness and internationalism" as it gears up to become a more "professional and international" body.

The commission currently has a total of 174 overseas arbitrators from more than 30 countries and regions, which is around one-third of the panel.

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

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