This year’s milestone activation of the Regional Comprehensive Economic Partnership (RCEP), creating the world’s largest free trade agreement between 15 Asia-Pacific nations from January 1, 2022, gives full play to enhancing economic growth and integration of the region.
For perspective, China’s imports and exports to the other 14 member countries amounted to RMB2.86 trillion (USD423.7 billion) in the first quarter of 2022, a year-on-year increase of 6.9%, accounting for 30.4% of China’s total foreign trade.
But heightened economic and trade co-operation between RCEP signatories will inevitably lead to a growing number of international commercial disputes among member states, with a great diversity of legal systems and wide disparity in levels of rule of law.
In this context, the question of how to create a commercial dispute resolution mechanism that accords with the different characteristics of member states, while efficiently resolving commercial disputes between them, has become a vital issue that cannot be ignored.
International commercial disputes are mainly tackled through litigation, arbitration and mediation.
RCEP signatories involve common law countries, civil law countries, and countries with a combination of civil law and common law. Among them, Malaysia, Brunei and Indonesia also have Islamic law.
This coexistence and intertwining of civil and common law, secular and religious law, and the huge disparity of the level of rule of law among member states, make it difficult for judgments to circulate and get enforced effectively. Besides, serious corruption issues in some Southeast Asian countries naturally compromise the credibility of their judicial systems.
Therefore, litigation is clearly not the best way to handle commercial disputes between RCEP signatories.
Historically influenced by Confucian culture, Asian countries tended to settle disputes through non-litigation methods such as mediation. On the other hand, mediation is stereotyped as “non-professional” and “informal” by Asian societies due to their traditions, which have played a negative role on the modernisation of mediation in Asia.
Although many Asian countries have joined the Singapore Convention on Mediation, only Singapore has ratified it, ensuring enforceability of international settlement agreements. New Zealand has not signed, while Australia has acceded to the convention, but not ratified it.
On the other hand, although Western countries have no mediation tradition, they have evolved a modern commercial mediation system. Since the 1960s, the rapid development of alternative dispute resolution (ADR) has made the values of “non-zero-sum” games strike at “confrontational” Western legal ideology, and has gradually become mainstream.
Yet although mediation has the potential to become an important approach to resolving cross-border commercial disputes, further efforts are needed for it to serve as a standalone method of resolving disputes.
All RCEP member states are parties to the New York Convention, which means the free circulation of arbitral awards among member states. Except for China, Vietnam and Indonesia, all RCEP member states are also UN Commission on International Trade Law (UNCITRAL) Model Law jurisdictions.
China referred to the Model Law as a vital example when instituting its own arbitration law, and a newly issued draft amendment brings the arbitration law even more closely consistent with the Model Law.
Vietnam and Indonesia also made reference to the Model Law when formulating their arbitration laws. So the convergence of commercial arbitration laws lays a solid foundation for the progress of arbitration in member states.
Nevertheless, arbitration proceedings are inevitably far less convenient and flexible, resulting in delays and high costs. This is not friendly to underdeveloped nations and medium, small and micro enterprises, which account for a considerable proportion of RCEP commercial entities.
In conclusion, it is expected that a mechanism of combining arbitration and mediation will become the primary method of dealing with commercial disputes for RCEP member states.
The mechanism of combining arbitration and mediation originated from practice conducted by the China International Economic and Trade Arbitration Commission (CIETAC) in the 1950s.
Under this mechanism, parties can reach a settlement agreement on their own before commencement of arbitration, and then request the CIETAC to constitute an arbitral tribunal to render an award based on the settlement agreement. Alternatively, during arbitral proceedings the tribunal may mediate the case as a neutral while parties reach a settlement agreement by themselves, and then render an award or conciliation statement in accordance with the settlement agreement.
For cases handled by this mechanism, the arbitration fee may be reduced proportionately, providing parties with more cost-effective service, while also being conducive to maintaining long-term relationships, cherishing the value of harmony.
As the founder and leader of this mechanism, the CIETAC continues offering standardised and developed ADR services, endeavouring to become the preferred dispute resolution institution for commercial entities from RCEP member states.
In the meantime, Hainan, on China’s southernmost seaboard, is poised to become a key and close juncture of economic and trade exchange between China and RCEP countries, and it is noteworthy that the CIETAC Hainan Arbitration Centre was especially founded in 2020 to serve the development of Hainan Free Trade Port.
The port’s zero-tariff policy, 15% corporate income tax rate and other preferential policies represent China’s highest level of openness to attract and encourage more industries and entrepreneurs from RCEP signatories to invest and set up factories in Hainan.
CIETAC Hainan is supporting this development as a dispute resolution centre, making efficient, cost effective arbitration accessible for RCEP enterprises.
Zhang Zhenyao is a case manager at CIETAC Hainan Arbitration Centre