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Presentation of Prof. Mochtar Kusuma-Atmadja : Arbitration in the 1990s: Developments in East Asia : Arbitration in the Southeast Asian Region

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People's Republic of China

On 1 June 1994, the People's Republic of China (PRC) enacted its newly revised Arbitration Rules for the China International Economic and Trade Arbitration Commission (CIETAC). These new CIETAC Rules, which replaced the 1989 CIETAC Rules, were promulgated by the PRC government to meet the growing needs of a market economy, to develop international and domestic trade, and to "internationalize the Chinese arbitration system". According to one legal commentator, the changes to the CIETAC Rules constitute a major step in meeting those goals. Following the enactment of the new CIETAC Rules, the PRC also passed its first Arbitration Law on 1 September 1995. On 8 November 1994, the PRC also took another significant step towards their goals by joining the International Chamber of Commerce (ICC). The PRC's participation in the ICC should both promote international arbitration and help address concern about foreign enterprises' treatment in business disputes with the PRC. Established in 1954, CIETAC is the PRC government organization which is responsible for arbitrating foreign commercial disputes in the PRC. Over the years, changes to its name and jurisdiction have been made. In addition, recent amendments to CIETAC's Rules, both in 1989 and more recently in 1994, have enhanced CIETAC's reputation in the international business community as a fair venue for international trade disputes.

The 1994 CIETAC amendments created additional similarities with the ICC Rules, as well as with rules of other international arbitral bodies. Now, under CIETAC Rules, parties may request arbitration for both contract and non-contract disputes. The arbitration agreement now exists separately from the contract. The validity of the agreement is no longer affected by the validity of the contract. CIETAC arbitrators must now disclose circumstances of personal interest in the case. The Tribunal must now render an award within a specific period of time. Nonetheless, the CIETAC Rules still differ from the ICC Rules in several key aspects.

The CIETAC Rules permit parties the choice of arbitrators from a fixed panel in the 1994 amendments. The PRC responded to the growing criticism of the panel system by increasing the number of available arbitrators from 89 to 296. In the process, the number of foreign nationals was increased from 5 to 80. While the expanded panel is clearly an improvement, however, party autonomy may still be compromised because the panel system cannot exhaustively provide expertise for every technical field, nor represent every nationality. In addition, international arbitral institutions are silent on the parties' freedom to so choose. The CIETAC Rules also do not contain a conflict-of-law provision, although they generally provide that the arbitrators must take the facts as a basis, abide by the law, refer to international usage, observe the principle of fairness and equity, and arbitrate in an independent and impartial manner. Under CIETAC Rules, when the parties cannot agree to another language, the default language remains Chinese. Since, as a practical matter, most PRC business partners are unlikely to consent to foreign language proceedings, CIETAC proceedings will be conducted in Chinese. The choice of location provision under the CIETAC Rules specifies that the proceedings will be held in Beijing, although other places may be permissible with the approval of the Arbitration Commission. The distinction between CIETAC and ICC location provisions is that, under the CIETAC Rules, the place of arbitration will be Beijing, if the parties cannot agree.

In the PRC, 80% of commercial disputes are mediated without resort to outside arbitration. Thus, the conciliation provisions between the CIETAC and ICC Rules represent noteworthy and important differences. In the 1989 CIETAC Rules, there were no detailed provisions governing the practice of conciliation. Accordingly, there were no safeguards provided to respect the desire for conciliation or to prevent subsequent use of information gained during conciliation in arbitral proceedings. Now, under new CIETAC Rules, conciliation may be conducted only if both parties consent. Additionally, new provisions restrict the use of information gained during the conciliation efforts. However, valid concerns remain regarding the efficacy of CIETAC conciliation provisions. First, the CIETAC arbitrator also serves as conciliator. This shifting back and forth of responsibility leads to the criticism that arbitrators lack objectivity, making them susceptible to prejudice and favoritism. Second, there is no clear delineation between the two processes, since conciliation can, and often does, occur in the midst of the arbitral proceedings. As a result, parties may be forced to make unwilling concessions to avoid harsh treatment by the arbitrator later. Finally, while CIETAC Rules expressly exclude from the arbitrators decision-making the information obtained during the conciliation, the nature of the merged proceedings makes such objectivity difficult at best.

In 1986, the PRC acceded to the New York Convention and pursuant to Article 63 of the CIETAC Rules, an arbitral award issued by a CIETAC panel may be enforced according to that Convention. Though on paper, the PRC's courts are bound to honour arbitral awards involving foreign concerns, actual enforcement of these awards is characterized as "virtually impossible". The procedures required to enforce an arbitral award in the PRC are often time-consuming and frustrating so much so that these onerous procedures are often followed by unsuccessful results. Given that the PRC's new Arbitration Law contains no mechanism for enforcing arbitral awards, it is likely that enforcement problems will continue to be a major problem for foreign businesses, irrespective of the arbitration institution they choose.

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