Originally from Dispute Resolution Journal

A new awareness of the benefits of foreign investment is moving China to accept broader international arbitration provisions with investors of its principal trading partners and to reform CIETAC rules to respond to foreign criticism.

In the mid-1980s, a cargo ship carrying fertilizer from the Soviet Union to China foundered off the coast of Greece despoiling its cargo. When we examined the bill of lading for the New York shipping company, we discovered it called for arbitration in China. As a novice to the forum, we expressed skepticism about our client’s chances, but our client, a sophisticated international shipper, was not concerned. Chinese arbitration, the client told us, had a reputation for impartiality. We retained local counsel, participated in choosing arbitrators, and agreed to a schedule. After we submitted our pre-hearing memorial, the case settled on favorable terms. The client left satisfied.

Political events in China in the late 1980s undermined the credibility of Chinese arbitration fora. In 1996, the Chinese Great Wall Industry Corporation contracted to launch a series of satellites for the International Telecommunications Satellite Corporation (INTELSAT). The first launch spun horizontally out of control and tragically crashed into a village adjacent to the launch site. When we reviewed the arbitration clause for INTELSAT, we found that China had agreed to arbitrate in Washington, D.C., under the rules of the London Court of International Arbitration (LCIA). That clause was unusual, undoubtedly influenced by China’s efforts to attract investors.