Third Party (China Daily)

Monday, August 8, 2005

By: Jiang Wei

Wang Lin smiled when he stepped out of the Beijing mediation room, satisfied with the results of negotiations with his US trade partner.

This was the Guangdong-based shoe exporter's first mediation experience, and it was a positive one.

"It took only four days, more efficient than I expected," he says.

"I will remember to add a mediation clause to my future contracts."

Usually, mediation is the first option for companies to solve commercial disputes, prior to arbitration and trial.

"Mediation is a less expensive dispute resolution method than going to court because agreements can often be reached within one or two days, sometimes even a few hours," says Yang Huazhong, secretary general of the US-China Business Mediation Centre.

Generally speaking, an arbitration case takes about a month to settle while a court trial usually takes over a year.

There is no such thing as a "perfect contract"; disagreements will always arise, even in the best-planned ventures.

Most people involved in business disputes hope to solve problems without hurting the relationship between the two parties, Yang says.

"A serious arbitration or lawsuit might rule out the possibility of further business exchanges between the two sides," he says.

Mediation is different: in most cases, the mediator is a third party or a witness rather than a judge.

The process aims to find a practical solution instead of simply sticking to legal outcomes.

In other words, mediation encourages the two parties to work out a mutually acceptable solution under the watchful eye of a third party.

"One or both parties may make compromises to reach an agreement they each regard as acceptable," Yang says.

Take Wang's case as an example. He sacrificed several crates of shoes that legally belonged to him in the resolution process, but gained ground in the midseason US market and struck an agreeable balance with his American counterparts.

Mediation can help business partners maintain their relationships and avoid costly, embarrassing and time-consuming situations in court, Yang says.

Overseas co-operation

The US-China Business Mediation Centre was established in January last year under the China Council for Promotion of International Trade's (CCPIT) mediation system, in co-operation with the US Institute for Dispute Resolution of the International Institute for Conflict Prevention and Resolution (CPR). The centre has offices in both Beijing and New York.

The CCPIT, or the China Chamber of International Commerce, is the largest trade association in the country. The CPR Institute is a nonprofit alliance that includes legal firms, public institutions and corporations.

The US-China centre accepted its first mediation application from a Chinese company on March 3, a few days after it officially started operations. The case was settled within a week.

There is a strong tradition of mediation in both countries, says Thomas J. Stipanowich, president and CEO of the CPR Centre for Dispute Resolution.

"In traditional Chinese culture, people involved in disputes chose a mutually respected third party, while in the United States there is a mature legal system," he says.

Although this has aided the establishment of a co-operation initiative, the centre knows that cultural differences can still be an obstacle.

"For example, Chinese and American people express emotions in different ways. Therefore, they have different expectations regarding the role of the mediator," Stipanowich says.

Keenly aware of these differences, the centre works to apply diversified strategies to mediation cases. Enterprises are able to choose single mediators or entire teams.

"We are still in the learning stages of formalizing mediation methods," Stipanowich says.

The US-China Business Mediation Centre is just one of several joint mediation centres under the CCPIT.

Established in the 1980s, the CCPIT's international mediation system has branch offices all over China.

The CCPIT has emphasized commercial mediation of overseas disputes and encourages co-operation between foreign countries.

In addition to the US-China Business Mediation Centre, several similar institutions were established between the centre and agencies from Canada, South Korea and Italy. Approximately 10 co-operation agreements have been signed with agencies overseas in a bid to promote mediation in the sphere of international business.

Problems persist

The CCPIT has dealt with over 4,000 mediation cases at home and in more than 50 countries and regions.

However, these figures are far lower than those from western countries, in particular the United States.

"First of all, mediation started late in China compared to arbitration," Yang says.

"Many Chinese business people are still unaware of this approach."

Unlike lawsuits and arbitration, mediation requires a developed social credit system because it doesn't fall under any legal jurisdiction. Agreements cannot be enforced.

In China, a common problem of the mediation approach is that some parties decline to follow an agreement just a few days after they sign it.

Yang says these problems are seldom seen in societies that value social balances.

In the United States, the implementation rate in mediation cases is close to 100 per cent because participants are usually unwilling to spoil their reputations by ignoring a mediation outcome.

Foreign business people have trouble understanding how a participant can later ignore agreed terms, Yang adds.

Chinese society needs to quickly develop an ethos of mutual trust in addition to strengthening the legal enforcement of mediation at the same time, says Yang. This will take time and might require legal reforms.

The US-China Business Mediation Centre is actively working on this issue.

"We have added an accessory procedure to a mediation case that two parties are able to sign a voluntary and simplified arbitration contract, which solidifies the enforcement of the original mediation settlement contract," Yang says, adding that this move was made through co-operation with the China International Economic and Trade Arbitration Commission.

Meanwhile, the legal veteran says the centre will spare no effort in promoting mediation laws. A training course for mediators held last summer was part of this push.

A Sino-American commercial mediation conference was recently held by the centre in Beijing in a bid to encourage mediation in bilateral business disputes.


But it will take time for the idea to gain widespread acceptance in China.

"We expect that it might take decades for mediation to be universally accepted by business people here," Yang says.

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