Fracture in Chinese Arbitration Tribunal Leads to Uncertainty for Foreign Investors

On August 1, 2012, the Beijing headquarters of the China International Economic and Trade Arbitration Commission (CIETAC) issued a statement suspending the authority of its Shanghai and Shenzhen sub-commissions to accept and administer disputes. All disputes must now be submitted to the CIETAC Beijing office for administration. 

The declaration stems from a political and economic tug-of-war between CIETAC Beijing and CIETAC Shanghai. In May, CIETAC Beijing issued amended arbitration rules applicable to all CIETAC sub-commissions. After promulgation of the new rules, CIETAC Shanghai announced that it would not follow the amended rules and would administer disputes according to its own rules.

According to the August 2012 statement, no institution will have the right to accept and administer arbitration cases without CIETAC Beijing's authorization. As a result, for cases agreed to be arbitrated by the CIETAC Shanghai Sub-Commission, the arbitration and oral hearings will be held in Shanghai and administered by the Shanghai office of CIETAC Beijing (not the CIETAC Shanghai Sub-Commission). For cases agreed to be arbitrated by the CIETAC South China Sub-Commission, the arbitration and oral hearings will be held in Shenzhen and administered by the Shenzhen office of CIETAC Beijing (not the CIETAC South China Sub-Commission).

In response to CIETAC Beijing's announcement, the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission issued a joint statement on August 4, 2012, stating that the two sub-commissions are independent arbitration institutions. They reiterated this view again by publishing their joint statement on the front page of the Legal Daily. The joint statement emphasized that when disputes are referred to "CIETAC Shanghai" or "CIETAC South China," this means they should be submitted to the CIETAC Shanghai Sub-Commission or the CIETAC South China Sub-Commission, respectively, not the Shanghai or Shenzhen offices of CIETAC Beijing. The joint statement stressed that no other arbitral institution is legally entitled to accept and administer arbitration cases in Shanghai or Shenzhen if the parties have chosen the CIETAC Shanghai Sub-Commission or the CIETAC South China Sub-Commission.

Understandably, this political and economic tug-of-war has led to confusion among the business community and questions about which arbitration tribunal has authority to resolve disputes. Pending final resolution of this ongoing power struggle, to be safe, if parties wish to use CIETAC arbitration, they are advised to designate CIETAC Beijing as the competent arbitration institution and stipulate that the place of hearing will be in Shanghai or Shenzhen as the case may be. If parties have already designated the CIETAC Shanghai Sub-Commission or the CIETAC South China Sub-Commission as the competent arbitration institution, they are advised to seek legal counsel before proceeding with any arbitration.