While conducting business
in China, foreign companies
occasionally find themselves
embroiled in disputes with
Chinese individuals, com-
panies, or the Chinese
Government. The number of cases
involving the first two categories far
exceeds those of the third. The best
approach in dealing with individual
disputes varies from case to case.
Nevertheless, Department of Commerce
officials with extensive experience in
such disputes have prepared the follow-
ing guidelines to assist U.S. companies
doing business in China.
There are three primary ways to resolve
a commercial dispute in China:
negotiation, arbitration and litigation.
Simple negotiation with your partner is
usually the best method of dispute
resolution. It is the least expensive and
it can preserve the working relationship
of the parties involved. In fact, most
business contracts in China include a
clause stipulating that negotiation
should be employed before other dispute
settlement mechanisms are pursued.
When a foreign firm experiences diffi-
culty in directly negotiating a solution
to a dispute with its Chinese partner,
companies sometimes seek assistance
from Chinese government officials
who can encourage the Chinese party
to honor the terms of the contract.
Companies should specify a time limit
for this process. Unfortunately, negoti-
ations do not always lead to resolution.
Arbitration is the next preferred
method. Unless the parties can agree
on arbitration after the dispute has
arisen (which is often difficult), the
underlying contract or separate agree-
ment must indicate that disputes will
Agreements to arbitrate usually specify
a choice of arbitration body, which
may be located in China or abroad,
and a choice of law to govern the
dispute. There are two Chinese govern-
ment-sponsored arbitration bodies for
handling cases involving at least one
foreign party: China International
Economic and Trade Arbitration
Commission (CIETAC) and, for mar-
itime disputes, China Maritime
Arbitration Commission (CMAC).