CHAPTER 2: OVERVIEW OF THE CHINESE ARBITRATION SYSTEM
2.1. Brief history and development of arbitration in China
24
25
however, “commercial arbitral bodies”, which were then created, were restricted by the Ministry of Justice, and arbitral awards rendered by them were not final and were binding upon the parties only if the parties accepted the result of arbitration.
The founding of the People’s Republic of China (“PRC”) in 1949 ushered in a period of a limited development of arbitration. The newly established PRC with its socialist influences in politics, economy, and law totally distanced itself from the Western models of resolving disputes. The need for commercial arbitration was rather limited. Yet, although the interaction of China with the outside world around that time was sporadic, it is important to stress that the so called, “dual track” regime, which means separate regimes for domestic and foreign-related arbitration, had already developed at that time.89 Accordingly, two types of arbitration were handled by different arbitration bodies and different sets of rules were applied.
As to the domestic regime, in the period between 1955 and 1966, all domestic disputes were exclusively handled by local economic institutions, which were administrative bodies subordinated to the state. A party dissatisfied with an award could appeal to higher instance within a particular institution. Subsequently, in the period around the Cultural Revolution, between 1966 and 1976, arbitration was practically non-existent. In the times following the Cultural Revolution, arbitration co-existed with litigation and this co-existence resulted in multiple proceedings involving both arbitration institutions and courts for resolution of commercial disputes. This was then followed by the period after 1982, in which the parties were able to choose between arbitration and litigation, but in case of dissatisfaction with an award, a dissatisfied party still had recourse to state courts. Eventually, since 1993, the parties’ choice for arbitration excluded the possibility to argue before the court, and arbitral awards became final and binding upon the parties.
Summarizing, although generally referred to as “arbitration”, arbitration available during that period of time can be described as “administrative arbitration” or “governmental arbitration”, because the state actually performed the role of an arbitrator, failed to respect the party autonomy, and the administrative color was involved in the whole arbitration proceeding.90
89 As presented below in this Chapter (p. 36-38), the elements of this dichotomy and the “dual track” are also present in the Chinese arbitration system today.
90 See Wei Sun and Melanie Willems, Arbitration in China (Kluwer Law International, 2015), 3.; Yuen, McDonald, and Dong, 22, 28, 32.
26
For the purposes of foreign trade, a special institution, the Foreign Trade Arbitration Commission (“FTAC”),91 was created in 1956 within the China Council for the Promotion of International Trade (“CCPIT”). The FTAC was initially designated to handle only foreign-related cases and its caseload was rather limited until 1979.92 In general, this foreign-related arbitration regime adhered much more to the basic principles of international commercial arbitration. The FTAC operated as a non-governmental organization, arbitration proceedings to some extent observed the principle of party autonomy and arbitral awards were final and binding upon the parties. With the Open-Up policy set in place by Deng Xiaoping after the death of Mao Zedong, in the face of the transition from a centrally-planned economy to a more market-oriented system and an increased integration with the outside world, further development of arbitration was needed in order to offer dispute resolution mechanisms that would be more willingly accepted, especially by foreign parties.
In 1987, China became a signatory state to the New York Convention, which meaningfully improved the situation of the recognition and enforcement of foreign arbitral awards in China. China decided to sign the New York Convention, because it was important for China to show its willingness to obey international standards in the area recognition and enforcement of awards, as well as to enhance its reputation as a jurisdiction favorable for international arbitration.93
Another landmark development in China’s arbitration dates back to 1994, when the Chinese Arbitration Law (“CAL”), the pillar of the current system, was enacted.94 In the face of the challenge to offer a private dispute resolution mechanism that would be acceptable to foreign parties, on the one hand, and not permitting the system to evade the state’s control on the other hand – the CAL was passed. The CAL brought the Chinese practice significantly closer to internationally accepted standards.
Among the most important changes introduced by the CAL were: the endorsement of the principle of party autonomy, increased independence of arbitration, as well as the finality of the arbitral award.
The further, post-1994 developments include these on the side of arbitration institutions, as well as on the side of the Supreme People’s Court (“SPC”) playing a leading role in explaining the application of arbitration law in China.95
91 The FTAC was subsequently renamed to the Foreign Economic and Trade Arbitration Commission in 1980, and to CIETAC in 1988.
92 Yuen, McDonald, and Dong, 25-26.
93 See Fung and Wang, 19.; Moser, Managing Business Disputes in Today's China: Duelling with Dragons, 49.
94 Arbitration Law of the People's Republic of China, issued on 31 August 1994, effective from 1 September 1995; [中华人民共和国仲裁法, 颁布时间: 1994年8月31日，实施时间: 1995年9月1 日].
95 See more on the history and development of arbitration in China in Yuen, McDonald, and Dong, 11-53.; Tao, Arbitration Law and Practice in China, 1-45.; Sun and Willems, 1-8.
27