The arbitration system in China needs improvement to create a more credible and practical environment to solve foreign investment disputes, experts attending the ongoing ICCA conference agreed Monday.

Zhang Yuqing, a panel member of the dispute settlement body under the World Trade Organization (WTO), said foreign investors are accustomed to and basically satisfied with the Chinese dispute settlement mechanism, though many problems happen.

Many concerns in the Chinese arbitration law, procedures and court practice should be addressed, said Zhang, who is also the former director of the treaty and law department of the Ministry of Commerce.

He said the Law of Arbitration, which was promulgated in 1994, should be evaluated first.

For example, there is no ad hoc arbitration provision in the law, which only provides arbitration at permanent arbitration institutions, Zhang said.

Ad hoc arbitration is frequently used in other countries, which have many advantages, such as lower cost, more flexible procedure rules and giving parties more autonomy.

"I think China should adopt this worldwide practice in arbitration," Zhang said.

The arbitration law also needs special provisions added for the court to respect arbitration awards and to enforce them in time, he stressed.

The present situation of enforcement for arbitrary awards still enables breathing space to the foreign parties who advocate arbitration in dispute settlement, Zhang said.

Some awards were not enforced by the courts simply because the judges do not understand arbitration laws or are too critical of these awards, he said. It is quite common that courts delay issuing orders to enforce the awards.

"Support for arbitration by the courts in China is crucial," he said.

Zhang also suggested the dual arbitration legal system existing in judicial supervision should be changed for foreign investment disputes.

Courts in China apply different standards in reviewing arbitration of disputes involving foreign and domestic elements.

"The different treatment should be repealed since China is in the process of seeking a unified development of a market economy, and dual-track legislation for one single subject has been abolished in other areas already," Zhang said.

Cairo Regional Center for International Commercial Arbitration spokesman Aboul Enein agreed that challenges are rising for arbitration of foreign investment disputes with the changing circumstances.

The old picture of arbitration of investment disputes between Western investors and underdeveloped countries is no longer the whole picture today, Enein said.

He said the disputes are now between parities of all nationalities.

A big concern is that many foreign investment awards were not well enforced in international circles, he said.

To address the problem, Enein proposed to establish a permanent body to review the dispute awards.

"The experience of the Appellate Body of the WTO might help," Enein said.

The permanent body would include legal experts from all different parts of the world to guarantee the right application of the law, he said.

The number of disputes related to foreign investment increases as China is becoming a popular destination for foreign direct investment (FDI), he said.

Many foreign-funded enterprises in China include arbitration clauses in their standard contracts. Model contracts, as stipulated by the Chinese Government, for equity joint ventures and for sales of goods and technology transfer also suggest that disputes be settled by arbitration.

Zhang believed a competitive and ruled-based arbitration mechanism for foreign investment disputes has been established in China. There are 174 arbitration institutions in China, including the prominent three including the China International Economic and Trade Arbitration Commission (CIETAC), the China Maritime Arbitration Commission (CMAC) and the Beijing Arbitration Commission (BAC).

(China Daily May 18, 2004)