From October 20, 2015 to February 24, 2016, the Hong Kong International Arbitration Center (hereinafter the “HKIAC”), the Singapore International Arbitration Centre (hereinafter the “SIAC”) and the International Chamber of Commerce (hereinafter the “ICC”) successively registered and established their Shanghai representative offices in the China (Shanghai) Pilot Free Trade Zone (hereinafter the “Shanghai Free Trade Zone”), to expand arbitration services and to seek a wider range of exchange and cooperation in mainland China.
On April 28, 2016, the Law of the People's Republic of China on the Administration of Activities of Overseas Non-Governmental Organizations within the Territory of China (hereinafter the “Overseas NGOs Law”) was adopted at the 20th Session of the Standing Committee of the 12th National People's Congress of the People's Republic of China, and promulgated on the same day for implementation on January 1, 2017.
Unlike Regulations on Foundation Administration and Interim Provisions on the Administration of Foreign Chambers of Commerce, the Overseas NGOs Law is the first law aimed at the activities of overseas Non-governmental Organizations of all forms (hereinafter the “Overseas NGOs”) in mainland China. It filled a void and might have far-reaching impacts on the activities of foreign arbitration institutions in mainland China as well.
I. Main Content of the Overseas NGOs Law
1. The Scope of Application
Article 2 of the Overseas NGOs Law defines the scope for application of this law as applying to the “activities of … foundations, social groups, think-tanks and other non-profit, non-governmental social organizations legally formed abroad” “within the territory of China”.
2. The Scope of Activities by Overseas NGOs
As for the scope of activities by Overseas NGOs, the relevant provisions in the Overseas NGOs Law are listed in the following chart:
Activities Allowed by Overseas NGOs in Mainland China Activities Prohibited by Overseas NGOs in Mainland China
Overall Scope of Activities Overseas NGOs may carry out activities conducive to the development of public-welfare in the areas such as economy, education, science and technology, culture, public health, sports and environmental protection, as well as poverty alleviation and disaster reliefs. In carrying out activities within China, Overseas NGOs shall neither jeopardize the national unity, security and ethnic harmony of China nor harm the national interests, social public interests and the lawful rights and interests of citizens, legal persons and other organizations of China.
Overseas NGOs shall neither engage in or sponsor for-profit activities, nor illegally engage in or sponsor religious activities within China.
Developing Members The representative offices of Overseas NGOs or Overseas NGOs carrying out temporary activities shall not recruit members within China, unless otherwise provided for by the State Council.
Record-Filing An Overseas NGO may apply to establish a representative office upon registration within China. The representative offices of Overseas NGOs shall carry out activities in the registered name and within the registered scope of business and areas of activities.
An Overseas NGO that has not established a representative office may cooperate with a Chinese partner and carry out the record-filed temporary activities. Overseas NGOs that have not established representative offices upon registration or completed the record-filing process for their temporary activities shall neither carry out, nor carry out in disguised manner, activities within China nor commission or sponsor, nor commission or sponsor in disguised manner, any entities or individuals in China to carry out activities on their behalf within China.
Overseas NGOs are not allowed to establish branches within China, unless otherwise provided for by the State Council.
Fund Supervision The funds for the activities of Overseas NGOs within China shall include: (1) Overseas funds with lawful sources; (2) interests on the bank deposits within China; and (3) other funds lawfully obtained within China. Overseas NGOs shall not obtain or use funds other than the funds prescribed for in the provisions on activities within China.
Neither Overseas NGOs nor the representative offices may engage in fundraising within China.
An Overseas NGO that has established a representative office shall manage funds used within China through the representative office's bank accounts as declared to the registration authority.
An Overseas NGO carrying out temporary activities shall manage funds used within China through the bank accounts of the Chinese partner and keep separate the account books with the designated funds used for designated purposes. No Overseas NGOs, Chinese partners or individuals may receive or distribute project activity funds within China in any other form.
Other Provisions In carrying out activities within China, no Overseas NGOs may impose additional conditions violating the Chinese laws or regulations on the Chinese partners or beneficiaries.
Furthermore, according to the Overseas NGOs Law, for the detailed areas of activities that the Overseas NGOs may carry out, the public security department of the State Council and the public security organs of the provincial people's governments shall, in conjunction with relevant departments, formulate the directory of areas and projects for the activities of Overseas NGOs so that the scope of activities of Overseas NGOs will be further detailed.
3. Regulatory Authorities
The Overseas NGOs Law set up a multiple administrative system consisting of the primary dual administration by relevant government departments as the competent business authorities and public security organs as the registration authorities, and the collaborative administration by other government departments:
(1) Relevant departments and organizations of the State Council and relevant departments and organizations of provincial people's governments are the competent business authorities supervising the activities carried out by the Overseas NGOs in mainland China. The public security department of the State Council and the public security organs of the provincial people's governments shall, in conjunction with relevant departments, formulate and publish the directory of competent business authorities.
The competent business authorities are mainly responsible for approving applications for Overseas NGOs seeking to establish representative offices in mainland China and for changes in registration, supervising and guiding the Overseas NGOs and their representative offices, and assisting public security departments in investigating any suspected illegal activities of the Overseas NGOs and their representative offices.
(2) The public security department of the State Council and the public security organs of the provincial people's governments are the registration authorities for the activities carried out by overseas NGOs in mainland China.
The registration authorities are mainly responsible for registration and annual review of the representative offices of Overseas NGOs, record-filing of temporary activities, and investigation and punishment of any illegal activities.
(3) Besides the aforementioned public security department of the State Council and the public security organs of the provincial people's governments as registration authorities, public security organs at all levels are also responsible for supervision and administration of Overseas NGOs, and investigation and punishment of any illegal activities.
(4) The departments for national security, foreign affairs, finance, financial supervision and administration, customs, taxation, foreign experts, etc., shall, based on their respective duties, carry out the supervision and administration of Overseas NGOs and their representative offices in accordance with the law.
(5) The anti-money laundering administrative department of the State Council shall, in accordance with the law, carry out the supervision and administration of compliance with the anti-money laundering and anti-terrorism financing laws by the representative offices of Overseas NGOs, their Chinese partners and the entities and individuals in mainland China that accept the funds from Overseas NGOs in opening and using bank accounts.
(6) Relevant departments of the people's governments at all levels shall provide necessary facilitation and services to Overseas NGOs in carrying out activities in mainland China.
In addition, the Overseas NGOs Law also stipulates that the State shall provide guidance on the activities of Overseas NGOs, the State shall establish the coordination system for the supervision and administration, so as to study, coordinate and solve major issues, and commend Overseas NGOs for outstanding contributions.
II. The Impacts of the Overseas NGOs Law on the Arbitration Activities of Foreign Arbitration Institutions in Mainland China
1. Whether the Overseas NGOs Law Applies to Foreign Arbitration Institutions
As mentioned above, the Overseas NGOs Law shall apply to the non-profit, non-governmental social organizations legally formed abroad. Foreign arbitration institutions including HKIAC, SIAC and ICC are undoubtedly non-governmental social organizations. However, can they be considered non-profit social organizations?
HKIAC affirms, in an introduction to its organization, that it is a company limited by guarantee and a non-profit organization established under Hong Kong law.
SIAC also declares on its official website that it is an independent, not-for-profit organization.
ICC does not claim to be a non-profit on its official website, however, ICC is a non-governmental organization in consultative status with the Economic and Social Council of the United Nations , given the definition of non-governmental organization as defined by the United Nations, namely “non-profit voluntary civil organizations organized at regional, national or international levels” and it is clearly considered a non-profit by the United Nations.
But, under Chinese law, should these foreign arbitration institutions also be identified as “non-profit” social organizations and subject to the Overseas NGOs Law? The Overseas NGOs Law does not provide a specific definition of “non-profit”.
Article 10 of the Donations for Public Welfare Law of the People's Republic of China stipulates that “the term ‘non-profit public welfare institutions’ refers to institutions of education, scientific research, medicine and public health, public culture, public sports and public welfare services, etc., which are formed in accordance with law and engaged in public welfare services with no profit-making purposes.” It can be seen that in this law the term “non-profit” is interpreted as its literal meaning, namely “with no profit-making purposes.”
Paragraph 2 of Article 2 of the Accounting System for Non-governmental Non-profit Organizations summarizes the characteristics of a non-governmental non-profit organization as: (1) an organization that is not for marking profit; (2) no sponsor of the organization shall have economic returns for his contribution; (3) no sponsor of the organization shall claim ownership of the organization.
We have noted that the Chinese tax laws have stricter definitions of non-profit organizations especially when it comes to the tax exempt qualifications. Specifically, the Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China and the Notice of the Ministry of Finance and the State Administration of Taxation on Issues concerning the Administration of Tax Exempt Qualification of Non-profit Organizations provides that the “non-profit” shall meet the following conditions: (1) the organization engages in public welfare or non-profit activities; (2) the incomes obtained are all used for public welfare or non-profit undertakings as approved in registration or stipulated in the bylaws except for the reasonable expenses relating to the organization; (3) the properties and any fruits are not to be distributed, excluding reasonable wages and salaries; (4) the residual properties of the organization after deregistration should be used for public welfare or non-profit purposes or be donated to another organization in the same nature and with the same tenets; (5) the sponsor should not reserve or enjoy any property rights to the properties contributed to the organization; (6) the expenses for the wages and fringe benefits of the employees are strictly controlled, none of the organization's properties should be distributed in any disguised form.
Although the concept of “non-profit” organization under the Overseas NGOs Law is to be further defined in relevant detailed rules, we understand the primary elements should be essentially consistent with the definitions of “non-profit” organizations under Accounting System for Non-governmental Non-profit Organizations, Donations for Public Welfare Law and tax laws aforementioned, namely, it shall meet the following requirements: (1) the organization is legally formed; (2) the organization is not for profit making; (3) the incomes of the organization should not be distributed or distributed in any disguised form, to any sponsor. In this sense, foreign arbitration institutions should be recognized as non-profit organizations under Chinese law, and the Overseas NGOs Law shall apply to their activities in mainland China.
2. Determination of the Competent Business Authorities for Foreign Arbitration Institutions after the Implementation of the Overseas NGOs Law
According to the Notice of the State Council on Authorizing the Department of Civil Affairs under the State Council to be Responsible for the Registration and Administration of Activities of Overseas Non-Governmental Organizations within China, which took effect on September 5, 2014, for the activities of Overseas NGOs within China, the department of civil affairs under the State Council is authorized to be responsible for the registration of organizations, approving activities, supervision and administration.
But since this notice is relative simple, and does not provide any detailed conditions of registrations, thus currently, for overseas organizations, the scope of work of the Ministry of Civil Affairs is still limited to the registration of representative offices of overseas foundations and the registration of foreign chambers of commerce in accordance with the Regulation on Foundation Administration and Interim Provisions on the Administration of Foreign Chambers of Commerce.
Shanghai representative offices of HKIAC, SIAC and ICC were registered with the Shanghai Administration for Industry & Commerce (hereinafter the “Shanghai AIC”) as resident representative offices of foreign enterprises. However, according to the Regulation on the Administration of Registration of Resident Representative Offices of Foreign Enterprises (hereinafter the “Resident Representative Offices Regulation”), foreign enterprises shall refer to profit-making organizations established abroad in accordance with foreign laws, and foreign arbitration institutions do not qualify. We understand they were registered this way partly because the Overseas NGOs Law had not been issued when these foreign arbitration institutions established their representative offices, and partly as a flexible solution provided by Shanghai Free Trade Zone according to the instruction of State Council that “supporting the entering of international reputed commercial dispute resolution institutions.” Thus, the Shanghai AIC is the current registration authority and administration authority over these Shanghai representative offices of HKIAC, SIAC and ICC, and pursuant to the Overseas NGOs Law, HKIAC，SIAC and ICC shall register their representative offices with the relevant government departments as the competent business authorities and public security organs as the registration authorities.
The Arbitration Law of the People's Republic of China (hereinafter the “Arbitration Law”) and the Interim Measures for Registration of Arbitration Commissions provided that, the judicial administrative departments of provinces, autonomous regions or municipalities directly under the Central Government are the departments responsible for the registration of arbitration commissions. It is possible that the judicial administrative departments may become the competent business authorities for foreign arbitration institutions in the subsequent directory published by the public security organs. Meanwhile, the Overseas NGOs Law is a law to be implemented nationwide, and “supporting the entering of international reputed commercial dispute resolution institutions” is only an internal policy within the Shanghai Free Trade Zone, thus it is also possible that the competent authority in charge of the business of foreign arbitration institutions may not be addressed in the subsequent directory of areas, projects and competent business authorities to be drafted by the public security organs. Then, under such circumstances, how can the competent business authorities for the activities of foreign arbitration institutions in mainland China be determined? In fact, when the Overseas NGOs Law was under review, many concerns were raised about how to determine the competent business authorities for those NGOs involving multiple fields, and whether to appoint a single department as the catch-all business authority , etc. Eventually, future rules will need to further specify whether or how to appoint a catch-all competent business authority.
3. Impacts of the Overseas NGOs Law on the Registration Process of Foreign Arbitration Institutions
Compared to the registration of representative offices of HKIAC, SIAC and ICC with Shanghai AIC, after the Overseas NGOs Law goes into effect, the registration process would have following changes and additional requirements: (1) Establishing representative offices of foreign arbitration institutions will only need to register with the relevant AIC according to the Resident Representative Offices Regulation. However, pursuant to the Overseas NGOs Law, approval from the competent business authorities and examination by the registration authorities are required, thus the registration may be more difficult. (2) The goals and activities of the Overseas NGOs shall benefit the development of public-welfare. (3) Overseas NGOs shall provide the certificate or declaration of non-criminal record of the chief representative of its representative office to be established. (4) Overseas NGOs shall provide proof of funding sources.
Moreover, should Overseas NGOs which have already registered their representative offices with AIC re-register with the public security departments? Hao Yunhong, the official of the Overseas NGOs Administration Office of Ministry of Public Security, explained at a press conference that, the activities of Overseas NGOs with registered representative offices shall not be affected before the Overseas NGOs Law goes into effect. After the Overseas NGOs Law goes into effect, the public security organs will continue to provide registration services as long as the Overseas NGOs submit the supplementary materials in accordance with the law. Although the explanation was not quite straightforward, we understand the official was of the opinion that Overseas NGOs shall re-register their representative offices with public security organs.
4. Impacts of the Overseas NGOs Law on the Arbitration Activities of Foreign Arbitration Institutions in Mainland China
Generally, the activities of arbitration institutions include: (1) publicity and promotion of arbitration institutions; (2) training programs for arbitration practitioners; and (3) acceptance and procedural management of arbitration cases.
How would the Overseas NGOs Law affect the activities of foreign arbitration institutions in mainland China? Although the specific permissible areas for the activities of Overseas NGOs and detailed implementation rules of the Overseas NGOs Law are yet to be published, we hereby offer some observations and analysis in relation to the arbitration activities of foreign arbitration institutions in the previous paragraph:
(1) The Resident Representative Offices Regulation listed the following activities that the resident representative offices of foreign enterprises may carry out in mainland China, namely, “1. Market research, presentation and publicity activities related to the products or services of foreign enterprises; 2. Liaison activities related to the product sales, service delivery, domestic purchase and domestic investment of foreign enterprises.” Although the scope of activities listed above is relatively limited, there is no doubt that the representative offices of foreign arbitration institutions are allowed to carry out publicity and promotion activities, since such activities are regarded as the publicity activities related to their services. Based on the scope of activities of Overseas NGOs summarized above, there shall be no obstacle for the representative offices of foreign arbitration institutions to carry out publicity and promotion activities under the administration of the Overseas NGOs Law, because such activities are regarded as activities which benefit the development of public-welfare in economic fields.
(2) Providing training programs for arbitration practitioners goes beyond the scope of activities under the Resident Representative Offices Regulation. However, providing training programs for arbitration practitioners may also be regarded as activities which benefit the development of public-welfare in economic fields. Therefore foreign arbitration institutions are entitled to carry out such training activities under the Overseas NGOs Law.
(3) In addition to the activities mentioned above, one issue that has caused a lot of debates is whether foreign arbitration institutions can accept and manage arbitration cases in mainland China.
Neither the Civil Procedure Law nor the Arbitration Law addresses the circumstance of foreign arbitration institutions conducting arbitrations within mainland China. There are thoughts that the principle of “all things are permissible unless prohibited” shall apply, so there would be no practical obstacle for foreign arbitration institutions to conduct arbitrations within mainland China. For example, the Ningbo Intermediate Court of Zhejiang Province recognized and enforced the ICC award 14006/MS/JB/JEM rendered by ICC International Court of Arbitration in mainland China, according to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, there is also an alternate view that according to Article 10 of the Arbitration Law, the establishment of an arbitration commission should be registered with the administrative department of justice of the relevant province, autonomous region or municipality directly under the Central Government, which means arbitration would be considered a professional service requiring special permission of the administration, and since there is no explicit law allowing foreign arbitration institutions to enter into the Chinese arbitration market under the current Chinese law framework, foreign arbitration institutions would not be permitted to accept arbitration cases or provide procedural management of the arbitration cases within mainland China.
In 2013, in the Reply to the Request for Instructions in the Dispute on the Validity of an Arbitration Agreement between Anhui Longlide Packing and Printing Co., Ltd. and BP Agnati S.R.L. ((2013) Min Si Ta Zi No.13, hereinafter the “Reply of Longlide Case”) and the Reply to the Request for Instructions in the Sale and Purchase Contract Dispute Between Ningbo Beilun Licheng Lubricating Oil Co., Ltd. and Famowanchi Corporation regarding the Validity of an Arbitration Clause ((2013) Min Si Ta Zi No. 74), the Supreme People's Court (hereinafter the “SPC”) officially confirmed the validity of arbitration clauses where parties agreed to have ICC International Court of Arbitration conduct arbitrations in mainland China. Some people consider these Replies to indicate that the SPC is likely to support foreign arbitration institutions in conducting arbitration within mainland China. However, in our view, these SPC Replies only confirm the validity of arbitration clauses and do not explicitly confirm whether foreign arbitration institutions are permitted to conduct arbitration in mainland China. Specifically, in the Reply of Longlide Case, the SPC did not provide an answer to the question in relation to Article 10 of the Arbitration Law raised in the minority opinions of Hefei Intermediate Court and the Higher Court of Anhui Province. Thus it is still unclear whether foreign arbitration institutions are permitted to conduct arbitration through their China branches in mainland China.
In fact, even if foreign arbitration institutions are permitted to conduct arbitration within mainland China, the exertion of their functions might still be constrained due to the absence of relevant legislation. First, the Civil Procedure Law and the Arbitration Law have no provisions with regard to whether or how foreign arbitration institutions can conduct arbitration within mainland China. Second, even if foreign arbitration institutions are permitted to conduct arbitration in mainland China, it is unclear under Chinese law whether the interim measures such as the preservation of property and/or evidence can be taken by the parties or the Chinese courts. In practice, the procedural orders of interim measures rendered by arbitral tribunals of foreign arbitration institutions have had few opportunities to be supported and enforced by Chinese courts. So far, the representative offices of HKIAC, SIAC and ICC established in the Shanghai Free Trade Zone have expressed that they are still a marketing tool in mainland China at this stage and are not accepting arbitration cases, and arbitration cases shall still be accepted and managed by HKIAC in Hong Kong, SIAC in Singapore and the Hong Kong branch of ICC.
In brief, for the Overseas NGOs Law, the question of whether foreign arbitration institutions can conduct arbitration in mainland China might not be a key issue to be addressed under this law. However, foreign arbitration institutions are still seeking to expand their activities in mainland China. It is worth our continued attention whether or how foreign arbitration institutions may conduct arbitration in mainland China under the current Chinese legal framework.