Can Foreign Arbitration Institutions Conduct Arbitration in Mainland China?

Sun, 13 Oct 2019 Insights
Contributors: Jian Zhang 张建

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Here comes the new policy! After establishing a business organization in mainland China, a foreign arbitration institution may conduct arbitration here.

Whether a foreign arbitration institution can conduct arbitration in mainland China depends on the form of organization it establishes in China: a representative office or a business organization. The former has no right to carry out arbitration activities, while the latter is entitled to do so. Two months ago, foreign arbitration institutions were allowed to set up business organizations in China for the first time.

I. Argument: Has the wolf come?

On 11 July 2017, the State Council of the People’s Republic of China responded to the Beijing Municipal People’s Government and the Ministry of Commerce as to the Reply of the Comprehensive Pilot Work Program on Deepening Reform and Promoting the Expansion and Opening of Beijing’s Service Industry (关于深化改革推进北京市服务业扩大开放综合试点工作方案的批复) (Guo Han [2017] No. 86, hereinafter referred to as the Reply), agreeing and affirming the basic framework of the pilot work program proposed by Beijing for speeding up the construction of a service industry that is in line with international rules to expand its opening up. In particular, Article 22 of the pilot work program clearly states that in order to improve the diversified commercial dispute settlement system, international well-known commercial dispute settlement agencies should be supported to establish representative offices in Beijing on the premise of meeting the overall requirements of the Beijing-Tianjin-Hebei collaborative development strategy.

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After the issuance of the Reply, there was a heated debate within the Chinese arbitration circle. Some of the views were negative, expressing concern about foreign arbitration institutions entering Beijing to compete with Chinese arbitration institutions for arbitration cases resource. While some views were more optimistic, believing that Chinese arbitration institutions still enjoy unique advantages at least for local Chinese enterprises. If foreign institutions cannot adapt to China’s legal system and the cultural background of dispute settlement, they may not be able to shake China’s arbitration industry. Therefore, there is no need for us to worry about the “paper tiger”. In fact, opening up China’s arbitration service market to foreign institutions is only a means, while the end is to revitalize the core competitiveness of China’s commercial arbitration industry and to optimize the business environment.

Two years later, in July 2019, the State Council issued the General Plan for Lin’gang New Area of China (Shanghai) Pilot Free Trade Zone (中国(上海)自由贸易试验区临港新片区总体方案) (hereinafter referred to as the General Plan for Lin’gang New Area), Article 4 of which put forward that after registering with the judicial administrative department of the Shanghai Municipal People’s Government and reporting to the judicial administrative department of the State Council for the record, foreign well-known arbitration and dispute settlement institutions shall be allowed to establish business organizations in the new area to conduct arbitration business in respect of civil and commercial disputes arising in the fields of international commerce, maritime affairs and investment; the application and enforcement of interim measures such as property preservation, evidence preservation and act preservation prior to and during the arbitration by both Chinese and foreign parties shall be supported and guaranteed.

The General Plan for Lin’gang New Area is regarded as a groundbreaking “New Deal” in China’s arbitration industry, which makes it clear that the business organizations established by foreign arbitration institutions in the new area of Shanghai Free Trade Zone are allowed to conduct arbitration business, take arbitration cases and settle commercial disputes. Undoubtedly, this will provide strong policy support for Shanghai to speed up the construction of a global-oriented Asia-Pacific arbitration center. So, is it necessary for China’s arbitration community to worry about the presence of foreign arbitration institutions? Can foreign arbitration institutions conduct arbitration activities after their stationing in mainland China? In this regard, we should start from the access of foreign arbitration institutions.

II. Evolution: from representative offices to business organizations

With the opening up of China’s legal service market, the competition among international arbitration institutions is becoming more and more fierce. Can foreign arbitration institutions set up branches or offices in mainland China? Can foreign arbitration institutions’ Chinese offices carry out arbitration activities in China? All sectors of a society attach great importance to these questions.

In fact, for quite a long time, China did not allow foreign arbitration institutions to carry out any activities in mainland China, but only allowed the parties involved in foreign-related cases to seek arbitration abroad. Since then, China had gradually allowed foreign institutions to set up representative offices in mainland China, but the functions of which were mainly limited to publicity, promotion, communication and liaison activities, with arbitration business excluded. It was not until July 2019 that China formally allowed foreign arbitration institutions to set up business organizations in mainland China to carry out arbitration activities. This evolution is mainly reflected in a series of normative documents on foreign institutions’ access to China.

(1) In 2011, Article 53 of the Regulations of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (深圳前海深港现代服务业合作区条例) explicitly encouraged the introduction of international commercial arbitration into the Qianhai Cooperation Zone and encouraged Hong Kong arbitration institutions to provide commercial arbitration services to enterprises in the Qianhai Cooperation Zone. 

(2) On 8 April 2015, the State Council approved the Plan for Further Deepening the Reform and Opening-up of China (Shanghai) Pilot Free Trade Zone (进一步深化中国(上海)自由贸易试验区改革开放方案), which clearly directed that: “Support the stationing of internationally renowned commercial dispute settlement institutions.” This is the first time that the central government of China has explicitly allowed foreign arbitration institutions to be stationed in China through policy documents. On 19 Nov. 2015, the Hong Kong International Arbitration Center (HKIAC) officially established its representative office in Shanghai Free Trade Zone, becoming the first foreign arbitration institution to settle there, which marked the realization of such idea. Thereafter, the International Court of Arbitration of the International Chamber of Commerce (ICC), Singapore International Arbitration Center (SIAC), Korean Commercial Arbitration Board (KCAB), and Court of Arbitration for Sport (CAS) have established representative offices in Shanghai successively. However, these representative offices are not allowed to conduct the arbitration business.

(3) The promulgation of the General Plan for Lin’gang New Area in 2019 upgraded the carrier of foreign arbitration institutions’ activities in mainland China from representative offices to business organizations, formally lifting the ban on foreign arbitration institutions, which marked a significant expansion of the scope of their activities in mainland China.

 

Contributors: Jian Zhang 张建

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