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Commercial Arbitration in China Gets a Twist

Friday, August, 17, 2012

Big things are happening in China when it comes to commercial arbitration—and it's not all good. The China International Economic and Trade Arbitration Commission (CIETAC) just pulled the plug on its Shanghai and South China branches.


Why could this be bad for international entities doing business in China? There are several on to find out.

Where CIETAC Fits In to Commercial Arbitration


While it's not the only organization in China that handles international business disputes, it is favored by many. It's especially popular with foreign businesses that contract with Chinese businesses, who would prefer to settle their differences in international arbitration instead of a Chinese courtroom.


While the central CIETAC office in Beijing hasn't shut down its branches entirely, it has taken away their administrative authority. What does this mean for the agency—and for the businesses that use it?

The Consequences of CIETAC's Decision on Financial Arbitration


While the agency's offices are still open and operational, they now have to go through the central office in Beijing in order to do anything of consequence. This includes accepting and even administering arbitration in the region.


This can make things difficult for businesses who expect to settle differences thought the office around Shanghai or Shenzhen (the branch in southern China)--especially when it is in their contracts to do so.

Further Contract Arbitration Consequences for Mainland China


At the very least, arbitration will now take longer for companies that use these offices. It may also be seen as being less effective, since all decisions must now be authorized hundreds of miles from where the proceedings take place.


The decision of the central office may also make the agency look less trustworthy to some. The history of CIETAC's offices makes this look more like a power-move than a well-reasoned decision made in everyone's best interests—which the agency is supposed to provide!


Businesses that have a Shanghai or Shenzhen contract arbitration clause in their contracts may choose instead to go to Hong Kong or the increasingly popular Singapore for disputes, instead.