BEIJING OFFICE UPDATE services from both groups. Johnson Tan, - - PDF document

APRIL 2004

BEIJING OFFICE UPDATE

CONTENTS

Jones Day Update – People and Events 1 A Glass Still Filling Up – China’s WTO Compliance 3 The Complete Opening of the Infrastructure Construction Investment Market in Beijing 5 New Provisions in Respect

• f the People’s Court

Dealing with Foreign Related Arbitrations and Foreign Arbitrations, Issued by the Supreme People’s Court (Consultation Paper) December 31 2003 6

JONES DAY UPDATE – PEOPLE AND EVENTS

• On December 4, 2003 we held our formal Beijing Office Opening Ceremony

in the Great Hall of the People in Beijing. This event was attended by more than 150 guests including clients and friends of the Firm as well as partners from Jones Day’s offices in Shanghai, Hong Kong, Taipei, Singapore, Tokyo, London and Washington DC. Jones Day’s worldwide Managing Partner, Stephen J. Brogan, who came to Beijing to preside over the Opening Ceremony, remarked that “The rapid growth of China’s economy has captured the attention of the whole world, and the improved investment and financial environment has led many foreign companies to expand their businesses in China. At the same time, more and more Chinese companies are entering international markets, leading to an increased demand for legal services from both groups.”

• Johnson Tan, formerly head of the Jones Day litigation group in Hong Kong,

is the Partner-in-Charge of Jones Day’s new Beijing office. Johnson focuses

• n dispute resolution, particularly China-related matters. An increasing part
• f his practice relates to advising on joint venture and investment disputes,

fraud, and risk avoidance in China. Johnson is a CIETAC Arbitrator and is a Fellow of the Chartered Institute of Arbitrators. He is co-author of the China section of The International Comparative Legal Guide to International Arbitration 2004.

2 a PRC-qualified lawyer. Her practice covers general corporate, commercial, and M&A transactions, includ- ing foreign direct investment into China. Jeanne has been involved in many multimillion dollar, domestic, and international transactions and has been the lead lawyer for many foreign-related projects in China.

• Judy Dong joined the Beijing office in November
• 2003. Judy was formerly a PRC-qualified lawyer focus-

ing on construction contract, project management and dispute resolution services. Judy was involved in real estate and construction projects such as Beijing Oriental Plaza, Beijing Finance Street B7 Project, Tianjin Winson Plaza, Beijing TianZhao JiaYuan and Beijing Go-Tech Building. Judy has practical project management experience and is accustomed to advis- ing foreign contractors and consultants on projects in

• China. She was a member of the 11th Beijing Municipal

People’s Congress for five years.

• Betty Chen joined the Beijing office as Business

Development Manager and Government Liaison in July

• 2003. Betty was formerly Director of Communications

for the State Council’s Hong Kong and Macau Affairs Office leading up to and after the hand-over of Hong Kong and Macau. Betty is a graduate of the Fletcher School of Law and Diplomacy at Tufts University and the Kennedy School of Government at Harvard.

• On February 28, Johnson Tan and Ashley Howlett

spoke at a conference organized by CIETAC in

• Wuhan. The conference focused on construction

arbitration.

• Jones Day organised a construction seminar in

Beijing on March 17. The seminar was designed to inform foreign companies of the regulatory envi- ronment in China as it relates to the construction

• industry. Topics discussed included China’s laws and

regulations, the entry requirements for foreign companies, practical experiences of foreign contrac- tors in China and common legal issues arising on construction projects.

• Ashley Howlett, a partner from the Hong Kong office,

has relocated to the Beijing office. Ashley’s move will help us to develop the construction and engineering practice in Greater China. In particular, the infrastruc- ture development that is taking place in anticipation

• f the Beijing Olympics in 2008 makes a very large

market for construction and infrastructure-related work beyond the rapid pace of development that has already been occurring in recent years with the CBD and other real estate projects in Beijing.

• Jessica Fei joined the Beijing office on September 12,
• 2003. Jessica graduated from the School of Law of

the University of Business and Economics in Beijing and holds an LL.M degree from Columbia University School of Law. She was admitted to the New York Bar in 2003. Prior to joining Jones Day, Jessica worked for seven years as a Case Administrator and Research Fellow at CIETAC where she supervised and coordinated about 200 international arbitration cases and drafted more than 100 arbitral awards. She also worked as International Case Manager for the International Center for Dispute Resolution of the American Arbitration Association.

• Isabelle Lin joined the Beijing office on January 12,

2004 from a well-respected PRC law firm and brings with her many years of experience working in China. She has an LL.M. from the University Of California Davis School of Law. Isabelle’s practice encompasses non-performing loans, securities and mergers and

• acquisitions. She has been involved in represent-

ing issuers or underwriters in significant public listings, such as BOC (Hong Kong) and China Unicom as well as well as working on the restructuring of China Construction Bank.

• Jeanne Kang joined the Beijing office on April 1,
• 2004. Jeanne previously worked as a senior corpo-

rate counsel for the legal department of a well-known multinational corporation, where she worked both in China and at the head office in the UK. Jeanne has a LL.M. degree from the School of Law at the University

• f Business and Economics in Beijing and was formerly

3

A GLASS STILL FILLING UP – CHINA’S WTO COMPLIANCE

Based on the analogies being offered once again, China seems condemned to be compared to a glass that, depending

• n who is doing the viewing, is either half-empty or half-full.

One diplomat thinks the momentum gained by WTO access has been lost — half-empty. Another thinks notable successes have been made in thorny areas such as transparency — half-full. In assessing China on its second anniversary under the WTO,

• ne needs to remember the purpose of the WTO. It is to

manage the interests of multilateral trade by establishing guidelines that are as open as reasonably possible to com- pete with and balance local and bilateral interests. In this light, increased trade is the ultimate basis for measuring the success or failure of the WTO. For newcomers like China, the world’s largest country with proportionate administrative demands, evaluating success under these guidelines needs to include a discerning look at the circumstances the country faces today. International trade with China this year is as good as it has ever been. Statistics on global trade with China spill beyond familiar figures on export-fuelled growth. China’s global imports were up 45 per cent in the first half of this year, keeping the exporting powerhouse’s trade surplus at a healthy US$4.5

• billion. China’s top two imports were in information technology:

integrated circuits and microelectronics. According to China’s General Administration of Customs, imports from the US for optical and medical equipment jumped 82 per cent in the first half of this year. China’s agri- cultural imports from the US are thriving. Exports of US

• ilseeds or soybeans to China ballooned 180 per cent in the

first half, while a postponed agricultural buying mission from China to the US — based mostly on a fracas over textiles — is on again.

• Ashley Howlett and Mason Cargill, from Jones Day’s

Shanghai office, spoke at the ExpoReal Convention in Shanghai on April 21. This convention, the first held in China by the Munich-based trade fair orga- nizer Messe München GmbH, focused on real estate and construction opportunities connected with infrastructure investment in China.

• On April 27, Jones Day hosted a construction

seminar in conjunction with the China Association

• f International Engineering Consultants. This forum

discussed international construction projects in the United States, the Middle East, India and South East Asia with a view to helping Chinese design and construction companies better understand the financing and development of international construction and engineering projects. Jones Day speakers included Ashley Howlett and Mason Cargill as well as Emad Khalil and Bruce Schulberg from Jones Day’s Singapore office. Pat Powers, the Director

• f China operations for the US China Business Council

also spoke, as did Herb Wolfson, a partner in Ferris &

• Co. from Dubai.
• A feature article on Jones Day’s China construction

practice appeared in the April edition of the China International Contractors Association’s monthly

• magazine. CICA represents China’s construction

industry internationally and has over 1,000 member

• companies. The April magazine was handed out to

all delegates at the McGraw Hill Global Construction Summit in Beijing on April 15 and 16.

• On May 18, Ashley Howlett is speaking at the Global

Projects Superconference in London. He will discuss arbitration of disputes in China and will be joined by Chen Jian, a director of CIETAC, as well as other Jones Day partners.

4 Although the Bush administration has moved to limit some textile imports from the mainland, China’s emergence in this sector meant an astounding 700 per cent jump in cotton imports from the US in the first half of this year. Overall, in the top five categories of imports from countries such as the US, trade with China has leaped by double digits. With a reduction in tariffs, the formation of multi-model joint ventures and better distribution, the major foreign auto man- ufacturers in China are happier this year. In general, non-tariff trade barriers are clearly a lower priority for many companies, thanks to many measures China has taken in compliance with WTO guidelines. A glass that is both half-empty and half-full is distribution rights, a critically important issue in China. The new draft law

• n distribution rights submitted by the Ministry of Commerce

allows foreign-invested enterprises to establish companies to distribute imported or China-made products. Despite its belated delivery, it grants companies unprec- edented latitude in distributing foreign or domestic goods inside China. Ambiguities remain on what actually constitutes regulatory violations. Further, comparatively high registered capital requirements for branch distribution centres could act as entry barriers to the establishment of additional centres. Still, the bill addresses and definitively answers long-standing questions in a crucial area, and there is clear momentum for its ratification. Once promulgated by the State Council, the law should help muffle the alarms from those in the EU and US who point out that China’s economy is helping to build an export juggernaut that only serves to hurt the west. Complaints on China’s WTO progress are consistent across the board: diplomats, China watchers and business leaders agree that problems in implementation and protectionism have affected areas such as transparency, trading, distribution and intellectual property rights (“IPR”). Even the perennial debate over IPR violations is largely defined by grievances

• ver implementation. The reversion to nei bu, or local prac-

tices, in processes of disclosure and standardisation across regions remains a headache for officials on all sides of the policy-making argument. China’s move to open up implementation and WTO centres, in Guangzhou and Shanghai respectively, will not reach far enough into the Chinese interior, and thus will not redress consistent complaints on execution and the stubborn root of

• protectionism. But while it is right to analyse and report on

these failures, it would be wrong to infer that they represent a failure of political will and momentum on China’s part. In the final analysis, China will be influenced by a host of geopolitical, regional and local influences when it formulates trade policy. With its chasms between regional economies and demographic groups, China’s inconsistencies in execution will remain an issue for the foreseeable future. China feels the acute need to standardise and open up its country to the multilateral system, as well as the need to protect jobs and local industries — preventing widespread unemployment from morphing into unrest. The risks inherent in this balancing act should not be underestimated. One need only review the past year in US trade policy to find comparative realpoliticking. The Bush administration has finally decided to lift tariffs imposed on steel. Europe contin- ues to challenge agricultural agreements under WTO rules by protecting its farmers with some of the highest subsidies in the world. Even the so-called freest of the free trade nations are sometimes wedded to contradictory political forces. The mainland’s occasionally alarming improvisation on implementation, a lack of transparency, disclosure and stan- dardisation are issues that deserve to be analysed and

• reported. But it is just as important to remember that China,

as a fledgling member, will need time to find its legs, and evidence suggests that its top leaders have lost neither the momentum nor the political will for change. In the end, it is still about trade, and trade to and from China is a glass that is filling up. Foreign companies continue to gain more ground and CEOs continue to say, behind closed doors and in public, that if there is no plan for China, then there is no credible international strategy. The coming year promises to be a rough one for trade policy, as judgments

• n China become more politicised through the prism of US

election politics.

5 If policy-makers can prevent excessive self-interest from clouding the trade debate next year, they will prevent fear from inspiring more protectionism in both China and abroad, and we should see commercial enterprises continue to do more in, and reap more from, a booming China market. The above article, written by Johnson Tan (jtan@jonesday,com), is reproduced with kind permission from the South China Morning Post, where it was published on December 22, 2003.

THE COMPLETE OPENING OF THE INFRASTRUCTURE CONSTRUCTION INVESTMENT MARKET IN BEIJING

The Director of the Development Planning Committee of The People’s Government of Beijing Municipality (“the DPC”),

• Mr. Ding Xiangyang, announced at a press conference
• n November 25, 2003 that following a special meeting by

the People’s Government of Beijing Municipality, a scheme entitled “The Application Scheme of Deepening the Reform of the Funding System of the Municipal Infrastructure Facilities Construction” (“the scheme”) had been passed in principle. The purpose of the scheme is to:

• accelerate the construction of Beijing,
• ensure the construction and development targets

contained in the “Olympics Plan” are achieved,

• absorb social capital into infrastructure construction,
• mitigate the financial problems emerging out of the

large-scale construction,

• eliminate the low efficiency and resource waste

brought about by the administrative bureaucracy and state monopoly,

• reduce the infrastructure construction and operation

costs, and

• alleviate the financial burdens on the state.
• Mr. Ding emphasized that Beijing will open the infrastructure

facilities construction and operation markets step by step, according to the nature of the projects. The reform will be undertaken with the operation of the market, under the guid- ance of the government. Regarding commercial infrastructure projects relating to water, gas, power, sewage treatment, garbage disposal, toll-roads etc., the DPC announced that the Beijing gov- ernment will reduce its investment and invite investors to bid for these projects through Build Operate Transfer ("BOT")

• r other concession-based methods. The government will

also invite investors to bid for certain existing infrastructure assets by way of Transfer Operate Transfer ("TOT") in order to transfer the share interests or operation rights in these assets or facilities. As far as infrastructure facilities such as rail transportation, whose operational income is not enough to recoup the investment and construction costs, the Beijing government may provide financial assistance to attract investors to coop- erate in the construction of such facilities by way of Public Private Partnership ("PPP") or alternatively it may consider compensating investors by way of subsidiaries. Accordingly, in order to promote the scheme, the Beijing government announced 23 infrastructure projects at the Scientific Exhibition in September 2003. This included the Jingcheng Freeway II (from Beijing to Chengde), the Beiyuan and four other sewage treatment plants, the first phase of Beijing’s Tenth Subway Line (including Olympic Branch), Beijing’s Fourth Subway Line and transferring the operation right

• f the Waste Disposal Plant in the Shunyi District. In respect
• f Beiyuan and the four other sewage treatment plants, the

government has already issued bidding documents. This year the Beijing government plans to introduce another series of infrastructure projects to the market. These include the construction of some newly planned projects such as Jingping Freeway (from Beijing to Pinggu), the Airport Freeway, Jingjin Freeway (from Beijing to Tianjin), Electricity Power Plant, and Gas Network, which will all be procured by public bidding in the form of BOT. The government will also invite investors to bid for certain existing water, gas, power, sewage treatment and waste disposal infrastructure as well as certain freeways, with such investment to be by way of sale, transfer of the share interests or operation rights etc.

6 The projects mentioned above comprise only a small portion

• f the infrastructure projects planned in Beijing. The DPC

estimates that the investment on fixed assets in Beijing will amount to RMB 1,500 billion through until 2008, with infra- structure projects estimated to consume RMB 230 billion

• f this total. The DPC is committed to selecting infrastructure

projects suitable for market participation, but the DPC recognise that the opening of the infrastructure projects market needs to be accompanied by the transformation and improvement

• f governmental functions.

To this end, the Beijing government is committed to:

• strengthening its administrative functions in respect
• f the overall planning for infrastructure projects,
• establishing a special construction scheme for

infrastructure projects,

• making its planning schemes more transparent,

predictable and scientific. The government also proposes to promulgate rules on supervising the infrastructure facilities operation market, determining and mediating on the prices for infrastructure facilities products and servies. The government will also heighten its supervision of market access for infrastructure projects as well as the price and quality of the products and services provided. Finally, the government will take action to transform administrative approval rules for infrastructure projects, and to simplify and open procedures, and advance efficiency generally. Following on from the scheme, on April 12, 2004, the Beijing Government published a list of 107 investment projects for

• 2004. About 67 per cent of these projects are transporta-

tion projects, environmental and resource projects and social

• projects. All 107 projects will invite public bidding.

Of the 107 projects earmarked for public investment this year, there are 21 rail transportation and urban road projects including four metro lines and 12 urban roads; 25 environmen- tal resources projects including recycled water re-use piping projects for the Olympic Green area and hydro-ecological environment remediation projects for Guan Ting Reservoir area; and 26 social projects, which are predominately medical hygiene and education projects. The focus of this proposed public investment reflects five key trends that the Beijing Government wants to encourage, namely, (a) development of suburban infrastructure, satellite cities and small townships; (b) development of rail transporta- tion and urban road systems; (c) social development such as rural public health and education; (d) the development and upgrading of new and high-technology, modern manufactur- ing and modern services industries; and finally (e) resource conservation and recycling, especially water conservation. For information on construction and infrastructure projects in Beijing, please contact Ashley Howlett (ahowlett@jonesday. com) or Judy Dong (jdong@jonesday.com).

NEW PROVISIONS IN RESPECT OF THE PEOPLE’S COURT DEALING WITH FOREIGN-RELATED ARBITRATIONS AND FOREIGN ARBITRATIONS, ISSUED BY THE SUPREME PEOPLE’S COURT (CONSULTATION PAPER) DECEMBER 31 2003

The Supreme People’s Court issued a consultation paper on December 31 2003 in respect of the New Provisions regard- ing the People’s Court dealing with arbitrations with a foreign element (“the Provisions”). The purpose of the Provisions is to ensure that foreign-related arbitrations and foreign arbitrations are properly dealt with in accordance with the law — the Law of Civil Procedures, the Arbitration Law, the Contract Law and the New York Convention. ■ APPLICABILITY AND JURISDICTION The Provisions apply to the following applications to the Intermediate People’s Court:

• Recognition of foreign-related arbitration agree-

ments, which should be within the jurisdiction of the Intermediate People’s Court where the applicant

• r respondent resides, or where the arbitration

agreement is made or where the agreed arbitration institution is located.

7

• Enforcement of foreign-related arbitration awards

and recognition and enforcement of foreign arbitral awards, which should be within the jurisdiction of the Intermediate People’s Court where the respondent resides or the respondent’s assets are located.

• Setting aside of foreign-related arbitration awards,

which should be within the jurisdiction of Intermediate People’s Court where the arbitration institution is located. Foreign-related awards refer to awards with foreign elements made by CIETAC and its branches, China Maritime Arbitration Commission and other arbitration commissions legally consti- tuted under PRC law. The Provisions can also be followed by the People’s Court when dealing with arbitrations related to Hong Kong SAR, Macau SAR and Taiwan. ■ PROCEDURAL CONSIDERATIONS Apart from setting out the documents required for these applications, the Provisions have the following stipulations as to time: Making of Applications. Applications for enforcement of foreign-related arbitral awards or for recognition and enforcement of foreign awards should be made within 12 months for individual applicants and within six months for corporate applicants. Dealing with Applications. The People’s Court should allow an application to be filed within seven days after the application is made and verified, and should notify the parties within five days after the application is allowed to be filed. In the event that the Court does not accept the applicant’s application, he may lodge an appeal with the Court of the immediate upper level within 30 days after the relevant deci- sion is delivered to him. The Court should render a decision within six months from the date when the relevant application for recognition of foreign-related arbitration agreement or enforcement of foreign-related arbitration award or recognition and enforce- ment of foreign arbitral award is filed. Further, enforcement of foreign-related arbitration awards

• r foreign arbitral awards should be completed within six

months in general. ■ ARBITRATION AGREEMENTS Choice of Law. The law chosen by the parties shall apply when determining the validity of an arbitration agreement. However, if the parties only agree on the place of arbitra- tion, but not the law to be applied, the law of the place of arbitration applies. If no agreement has been reached on both the choice of law and the place of arbitration, the law of where the court is located will apply. Separability of Arbitration Agreements. This principle has long been recognized in common law jurisdictions. The Provisions also try to recognize the application of the doctrine of separability of arbitration agreements, albeit slightly differently. Article 16 of the UNCITRAL Model Law enshrines the doctrine of separability. It provides that in relation to the issue

• f jurisdiction, including the existence or validity of the arbi-

tration agreement, an arbitration clause which forms part of a contract “shall be treated as an agreement independent of

• ther terms of the contract” and that “A decision by the arbitral

tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause”. Unlike Article 16, the Provisions try to distinguish between contracts that are made but not yet effective or confirmed according to the law, and contracts that are void ab initio. In the latter case, the Court will investigate whether the parties have agreed (presumably as a matter of fact) on the arbitra- tion clause and declare the arbitration clause invalid if no agreement has in fact been reached. Circumstances where Arbitration Agreements Invalid. The People’s Court can declare an arbitration agreement invalid upon the application of a party in the following circumstances: 1. The arbitration agreement is made by persons without the necessary civil capacity.

• 2. The arbitration agreement is made under duress or is

induced by fraud.

8

• 3. The matter to be arbitrated is outside the scope of

arbitral matters allowed by the law.

• 4. Where it is agreed that the disputes can be resolved

by arbitration as well as litigation.

• 5. Where only one party can apply to arbitrate the

dispute.

• 6. The agreed arbitration institution does not exist, or in

cases of ad hoc arbitration, no arbitral tribunal can be formed pursuant to the relevant arbitration agree- ment, and the parties cannot reach any agreement

• n the formation of the arbitral tribunal.

7. The parties agree to foreign arbitration in cases not involving a foreign element.

• 8. Other circumstances as prescribed by law.

Grounds 6 and 7 are further discussed below. Nonexistence of Arbitration Institution or Failure to Form an Arbitral Tribunal. The courts in a common law jurisdiction, like Hong Kong, tend to uphold parties’ agreement to arbitrate. It is established that as long as the parties’ intention to arbitrate is clear, the courts should allow the parties to opt

• ut of the courts.

For instance, Hong Kong courts will not strike out an arbitration agreement even where the parties have agreed

• n a nonexisting appointing authority. Indeed, the Arbitration

Ordinance provides a default mechanism for the appoint- ment of arbitrators. It therefore seems that the approach taken by the Provisions is more restrictive. The only relief is in cases where the name

• f the Arbitration Institution is not accurate but can still be

deduced from the circumstances and when the parties have agreed to apply the rules of a particular arbitration institution, but have not agreed on the institution itself. Foreign Arbitration for Cases not Involving Foreign Element. In general, arbitration is a consensual judicial process and the parties are free to agree on the manner in which the arbitration should proceed, the law to apply, etc. Under Hong Kong law, there are two regimes for arbitration, namely, domestic arbitration and international arbitration. Whether an arbitration is domestic or international depends

• n the nature of the contract, subject to the parties right to

agree otherwise. In other words, parties to what should be a domestic arbitration because of the nature of the contract, can agree to treat the arbitration as an international arbitration. The Provisions limit the parties’ choices and make it clear that cases not involving any foreign element cannot be deter- mined by foreign arbitration. This of course is consistent with the interpretation issued by the Supreme People’s Court on December 31, 2003. ■ Recognition and Enforcement of Awards The Provisions also specify certain circumstances under which foreign-related arbitration awards and foreign awards will not be enforced or will be set aside. The People’s Court will not enforce awards where the arbitrator should withdraw but has failed to do so. However, it is not clear whether this particular provision applies to foreign-related awards or foreign awards or both. The People’s Court can set aside foreign-related awards (or any part thereof) in cases where the awards concern matters outside the arbitration agreement or not arbitrable under the law. Insofar as foreign awards are concerned, the People’s Court will refuse to recognize and enforce awards not yet effective

• r those having been set aside or where enforcement has

been stopped. Further, application for recognition can be made independent of application for enforcement. Finally, the People’s Court’s decision of not enforcing or set- ting aside foreign-related awards and foreign awards are legally binding and subject to no further application for retrial. However, the parties can apply for arbitration again pursuant to a new arbitration agreement or litigate in the People’s Court. For information on arbitration and dispute resolution in Beijing, please contact Johnson Tan (jtan@jonesday.com) and Jessica Fei (jfei@jonesday.com).