Arbitration and China’s manufacturing system have one thing in common – each is bad for American consumers. Western companies doing business in China are increasingly being asked to agree to what they consider a risky proposition — to resolve disputes through arbitration in China in the event a deal goes sour. Private arbitrations have proliferated internationally as the method of choice for resolving cross-border disputes. They claim to be cheaper and more efficient than court litigation and I wonder where they found that line? Since arbitration is private, bad companies can keep their dust-ups out of the public eye.
These arbitrations typically take place in neutral territory, a country foreign to both companies. But some Chinese companies, especially the state-owned, are pushing for their business contracts with Western companies to stipulate that conflicts go to arbitration in mainland China. Some believe the Chinese companies have such strong bargaining power that they can insist on China-based arbitrations. Investors wanting to get their facilities into China may be willing to give on that subject just to get in. The Wall Street Journal had an excellent article on May 9th. It relates in great detail how arbitration works in China.
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