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Changes to the CIETAC Arbitration Rules - effective 1st May 2012The China International Economic and Trade Arbitration Commission (CIETAC) has revised its Arbitration Rules with effect of 1st May 2012. This is relevant for all German firms doing business with their Chinese counterparts when it comes to determining the preferred method of dispute resolution during contract negotiation.
Put quite simply, the problem that faces German companies when negotiating contracts with the Chinese business community is that the submission of disputes to the local German courts for resolution, as would typically be agreed with domestic counterparts or counterparts located within the European Union, cannot be recommended for business transactions with China. In view of the many potential obstacles when it comes to recognizing and enforcing foreign judgments in China, there seems little point in investing considerable time and fees in obtaining a domestic judgment, if the prospects of actually recouping your losses are slim.
It is for this reason that the majority of firms incorporate an arbitration clause into their contracts. Arbitral awards, by reason of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) are recognized and enforceable in all 140 countries which are signatories to the Convention. These include Germany and the People's Republic of China.
Alongside the major international arbitration institutions such as the ICC International Court of Arbitration and the German Institute of Arbitration (DIS) CIETAC is a modern and internationally recognized Institute of Arbitration which maintains a dominant position in China.
Some of the major amendments to the CIETAC Arbitration Rules include:
The new rules reflect CIETAC's desire to compete with other major international arbitration institutions. Time will tell how the new provisions will be applied in practice.
- Arbitral Tribunals being empowered to grant interim measures in certain circumstances - a power previously reserved to the competent Chinese court
- Broader provisions on the language of the arbitration. The new rules allow the language of arbitration to be "any other language ... having regard to the circumstances of the case". The previous position was, in the absence of a choice the arbitration was to be conducted in Chinese.
- Increased threshold for CIETAC's summary procedure (fast track arbitration). The threshold has been increased from RMB 500,000 to RMB 2 million. The advantages of the summary procedure are that cases are handled by a sole arbitrator and the time limit for rendering an award is 3 months from the constitution of the tribunal, as opposed to 6 months under the standard procedure.