Dispute Resolution in China Part 2: Mediation
Author: bmpc
Part two in a three part series on trade dispute from China Business Review.

Q & A: A new business mediation center offers US and Chinese companies a dispute resolution alternative

F. Peter Phillips, senior vice president for Committees and International Programs, the International Institute for Conflict Prevention and Resolution recently discussed the US-China Business Mediation Center with Paula M. Miller, assistant editor of the China Business Review (CBR).

CBR: Who founded the US-China Business Mediation Center, and what is its mission?

Phillips: The Conciliation Center of the China Council for Promotion of International Trade (CCPIT) approached the International Institute for Conflict Prevention and Resolution (CPR) about two years ago to develop a new mediation center that would make American businesses feel more comfortable resolving business conflicts in China. The goal was to provide US and Chinese trade partners that come from different backgrounds and different legal systems with an alternative to arbitration and litigation that would still allow effective resolution of disputes. Mediation and arbitration are both dispute resolution processes that use a neutral third party to help settle the dispute. In arbitration, a private judge decides the issue. Mediation tends to be more flexible, is nonbinding, and seeks a consensual agreement that engages the parties more fully.

CBR: How does the Center work?

Phillips: CPR is based in New York and CCPIT is headquartered in Beijing. The US-China Business Mediation Center does not have one office in a specific city but co-administers projects by sending mediators wherever commercial disputes arise. Applicants can submit dispute forms by mail, by fax, or though our websites. [See www.cpradr.org or adr.ccpit.org; applications must be accompanied by a $2,000-$4,000 registration fee and a $8,000-$16,000 deposit, depending on the monetary value of the disputed claim.]

The Center asks the parties to choose a mediator. But when the Center created its rules, it knew PRC companies might want assistance from Chinese mediators and US companies might prefer assistance from American mediators. We therefore devised a method that would permit the use of two neutral mediators: one Chinese and one American. And we developed a training system and trained the neutrals together.

CBR: Does the Center specialize in certain industries or investment forms?

Phillips: The Center does not specialize in specific industries—nor is there a limit on the range of matters the Center will mediate. But the cases should involve "substantial" amounts of money—for example, an argument about a minimum of $100,000. The mediation panel is made up of heads of major US and PRC law firms, corporations, government agencies—including former members of the PRC Supreme Court—and law schools. They are well-respected people who know business, understand how to act as a neutral, are trustworthy, and will maintain privacy.

CBR: How developed is mediation in China?

Phillips: The practice of conciliation, as China refers to it, is deeply ingrained in Chinese culture and the maintenance of productive relationships is far more sophisticated there. By comparison, Americans are more individualistic and tend to rely on the compulsion of law, such as contracts, to settle disputes. That said, modern business mediation is rarely practiced in China. For example, in the West, companies are accustomed to directly seeking mediation of a problem, independently of any adjudicative process.

By contrast, Chinese conciliation frequently occurs in the course of litigation or arbitration—when an arbitrator or judge acts as a conciliator—and independent mediation is much less common.

CBR: When does mediation work best? When do you recommend companies try mediation instead of arbitration or litigation in China?

Phillips: Some people in the Center's coalition of members will mediate any case—after all, mediation costs little and may succeed. Other members are more selective about what they will mediate or take to court. But some cases, for example those that involve criminal fraud, embezzlement, or "bad acts," should rarely be mediated. And some industries may require a judicial outcome, for example, if there is a challenge to the validity of a patent. Also, some insurance companies will go to court to get a legal interpretation of what certain language means if they think the language is unclear.

These exceptions aside, mediation is appealing because it focuses on the immediate problem and how to resolve it instead of strictly focusing on legal issues. Often, in business, the quicker the solution is reached, the better the outcome. Mediation saves time, and the partners themselves decide the outcome and can keep working with each other. People increasingly recognize that lawsuits are not a way to make money.

CBR: What are some of the main problems with China's mediation sector?

Phillips: Well, mediation is clearly for "big players"—when lots of money is involved. For those familiar with mediation, the process is very user friendly. But one of the main challenges is that many participants are still unfamiliar with mediation. A lot of people think mediation means "compromise" or that something will be paid over a party's objections. But after mediation occurs, the business environment usually improves. The process adds value—it does not "split the baby."

CBR: What laws and standards does the Center follow?

Phillips: There are many international standards for arbitration, but because mediation is not a legal process, not many laws cover it. The United Nations Commission on International Trade Law has released international standards, and the United States has promulgated uniform mediation acts. The European Union has issued ethical codes and draft directives for EU states to encourage mediation. Also, CPR has promulgated standards for practitioners.

The practice of commercial mediation is growing internationally, and farsighted multinational corporations that practice mediation are well ahead of the game.

Source: This is an excerpt from an article originally published in the Jul-Aug, 2005 issue of the China Business Review.

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