This paper is an effort to examine the legal and commercial norms in their sociopolitical contexts with due regard to the relevant intellectual history.

By Benedict Sheehy


In a sense, it is a part of Western culture, and in particular Western commercial culture. In its essence, the Western notion is that while power and influence certainly operate in all relationships, all of these relationships in turn are governed by or based upon the law. Law is seen to be independent of the power and influence of the members of society, including the government, and something that has the ability to control government action. By way of contrast, in China, although having experimented with the notion at different times in its history, currently the Chinese Communist Party (CCP) has been the basis of power and influence as well as the basis of all law. In essence, therefore, the law has been a tool of the CCP. While the CCP has been seeking to change this status, change is still at an inchoate stage, and as a result, for foreign commercial interests, access to predictable legal outcomes and enforcement has been very limited.

The China-Australia Free Trade Agreement (FTA) presumably, the first of many such bilateral trade agreements with Western nations, will require China to address this legal certainty problem much more directly than it has to date under the WTO. The reason for this is that while the WTO dispute resolution mechanism is long, drawn out and requires high level government involvement, the FTA in all likelihood will permit individual corporations and corporate interests to litigate on their own behalf. Such being the case, both China and Australia will find their laws and assumptions tested relatively soon. This fact places an imperative on the Chinese government and its negotiators to consider the status of the Chinese legal system in their negotiations, and to negotiate wisely with respect to jurisdiction and remedies to be provided in the FTA. Further, it places certain imperatives on the Australian and other Western negotiators who will need to review the same matters from their own perspective.

This paper is an effort to examine the legal and commercial norms in their sociopolitical contexts with due regard to the relevant intellectual history. After a brief discussion of methodology, the first part turns to examine the different situation, connection and relationship between government and governed in the West and China. It then examines the notion of law in both Western and Chinese traditions. It next turns to consider the two traditions approach to the notion of Rule of Law, after which a review of traditions of commerce and commercial dispute resolution are analysed. Finally, it offers some suggestions for commercial dispute resolution provisions in trade agreements between China and Western nations.

1. Theoretical Underpinnings & Context

a. A Note on Theories and Method

Law, whether viewed as an instrument of government control, or a responsibility of government in terms of its administration, imports its own set of assumptions and imperatives. It is a Pandora’s Box of brilliant promise but carrying with it a multiplicity of thorny problems. The promise and the problems sit equally on the laps of governments, scholars and citizens alike. Each of the Chinese and Western governments approach and deal with their responsibilities differently and these

1 Each scholar comes to a problem with her or his own mindset, point of view, assumptions and understanding of the law. Not only is this plethora of views evident within legal traditions,

The method I have adopted is to attempt to develop an understanding of and to situate each of the parties in their historico-legal contexts and then draw out the fault lines as to where they may meet. In doing so, every effort will be made to avoid the more common pitfalls of such comparative work

4 Certainly, the concepts of “China” and “West” are cultural myths and social constructs, but these myths, when handled carefully can assist in critiquing rather than supporting misunderstanding. It is with this in mind that the terms “China” (meaning primarily mainland China but also its traditions as carried elsewhere), “West” (meaning Europe, North America and Australia and New Zealand) and “Anglo” (meaning the UK, USA and countries relying on the English common-law tradition) are used. It is to be understood that these are but constructs that hide as much as they reveal of the multifaceted people, cultures and institutions that make up each grouping and not descriptors actual uni-dimensionsal monoliths.

Accordingly, before moving to a direct discussion of law, it is necessary to put law into its larger socio-political context, namely the role of law in society, prior to discussing the much more particularized, political and culturally informed notion of the Rule of Law. Both the West and China have different social and political organization that have direct, complex, and broad influence determining the role of law in their respective societies. The West is based on a notion of individualism and separation whereas China has a tradition of unity and collective. It is to a further investigation and discussion of these differences that we now turn.

b. Context

i. West: Separation of powers-legislative, judicial & executive branch

ed., (2004) is a particularly refreshing approach to addressing this problem. Glenn’s view of law is as forming a the normative element in a society and so permits comparative work to be undertaken not as comparing rule with rule and code with code, but with systems of social ordering, institutions and people’s response over time.

edition of Lloyd’s Introduction to Jurisprudence, of some 1500 pages of text, excerpts and commentary attempting to provide a rough sampling of most theories with the hope that the text will whet the appetite for “whole libraries of jurisprudence are there to be sampled and enjoyed.” M.D.A. Freeman, Lloyd’s Introduction to Jurisprudence, (2001), p. vi.

3 See the challenge to and enlightening discussion of such work in T. Ruskola, “Legal Orientalism” 101 Mich. L. Rev. (2002) 179, hereinafter “Ruskola Legal Orientalism”.

4 Zhang Longxi, Mighty Opposites: From Dichotomies to Differences in the Comparative Study of China, (1998).

The Australian governmental system is a constitutional federalism. 8 That is, the Australian government’s power rests on the basis of a constitution. The constitution itself was created by the states which banded together form the federation. The Australian constitution follows the traditional Anglo attempt to limit the power of the political party in control of the government by separating the powers and making them to varying degrees, independent of the party in control of government.

11 These outcomes were seen as undesirable as from the perspective of the English social contract philosophers who held that governments had their legitimacy, at least in part, from the people. After the overthrow of the monarchies in France and England, this legitimacy was granted to a government by the people via elections.

Accordingly, the legislative function was granted to the elected officials who were presumed to act on behalf of the citizens. They were expected create legislation which advanced the interests of the people whom they represented. The legislators were not permitted to enact any legislation that seemed right to them or pleased the people. Their legislative powers were limited by the constitution and supervised by the judiciary.

In the common law tradition, the judiciary has been an independent governmental body for centuries, although its independence is a curious type. Judges are selected in the common law tradition and appointed by parties in power

5 In the West, this notion was most forcefully advanced by Montesquie in his The Spirit of the Laws, in 1748.

M. Vile, Constitutionalism and the Separation of Powers, (1967) p. 1.

The USA and the former UK colonies developed differently with the colonies adopting a much softer form of Separation of Powers. In Australia and the former colonies it is argued the executive and legislative branches have not been separated sufficiently to claim a separation of powers doctrine. See discussion in A. Mason, “A New Perspective on Separation of Powers” 82 Canberra Bulletin of Public Administration, (1996), 1, p. 5-6.

accountability and control.

One may consider the case of Australia as an example.

9 Vile, above n. 6, p. 2-3.

ed. See summary in R. Cosgrove, The Rule of Law: Albert Venn Dicey, Victorian Jurist, (1980) 78-87. Other twentieth century proponents are of course, Frederick von Hayek & Lon Fuller.

11 Mason, above n. 7, p. 2.

these societies have come to accept and expect, and that defines the legal system in their jurisdictions. The judges themselves then are constrained by a curious mix of constitutional limits on their powers, the socialization of many years in the legal profession leading them to prestigious positions within the profession, and the broad parameters of the common-law tradition they must follow.

The executive branch of the government, which administers the legislation, is separated from the party in power by having no power to legislate and by having all of its actions potentially subject to judicial review. In other words, no government agency is free to act as it chooses without having potentially to defend its actions. Where it is challenged, it must be able to prove that it has acted within the law and has not exceeded its legally granted power. On this neat schema, the separation of powers works, permitting each branch of government to be controlled and limited in its actions by the powers granted and limited by law, and the other branches of government.

Of course, this theory, like all theories has its short-comings and critiques, no the least of which that it is a Western concept which has by no means been received by consensus.

ii. Further separation in Anglo jurisdictions: citizens and government

The separation among powers and parties in Anglo jurisdictions is not limited to separation among the powers and bodies of the government. This separation extends broadly throughout society. At least in part because of the rebellion against the monarchy and aristocracy in England, known as the Glorious Revolution, those not in control of the government have had a suspicion of the government and as a result therefore made clear and sharp distinctions between the citizens and the government. This distinction has served to limit the government’s power and forced the government to act with the concerns of citizens in mind, for a failure to take judicious account of citizens’ wishes was to provide the basis for either a loss in democratic elections, or worse, a violent overthrow of the government through yet another revolution. As a result, Anglo governments have been forced to focus more on economic development which benefits not just the monarch and the aristo

b 1

12 Each branch limiting the other, however, makes it clear that each branch is doing more than its singular function. Vile, above n. 6, p. 18.

Vile, above, n. 6., p. 1.

A view of the broader involvement in economic concerns is evidenced by a review of the types and classes of people who lost money in the South Sea Bubble of 1721. The Earl of Dartmouth, for example, noted “the loss would fall chiefly on the persons of quality” indicating a range of investors beyond the monarchy and aristocracy who were involved in the venture. For discussion, see J. Hoppit, “The Myths of the South Sea Bubble,” 12 Transactions of the RHS (2002), 141, 149-150.

15 The exception may be when Keynesian economics dominated governmental policy from approximately 1940-1970 in the USA and the UK.

Corporations have been the main beneficiaries of freedom of speech laws in the USA

Thus, the purported separation of citizen and government, while espoused as the actual situation is in fact somewhat different. The average Anglo citizen is not particularly involved if one takes voter turn out for elections as indicative of citizen interest and participation in the political system

iii. China: Unity of powers-CCP, government and democratic dictatorship

25 In China, the Communist Party, the government, and the people’s will are one-at least according to official diktat. Therefore, they exist simply as a unified whole, not merely a collection of three independent parties or interests forced together.

28 The Chinese government as established under the “Organic Law” has as the supreme governmental body, the Central People’s Government Council. This Council has executive, legislative and judicial powers.

23 For a very recent example, consider the “Center for Consumer Freedom” a “consumer” organization sponsored by Coca-Cola, Wendy’s and Tyson Foods dedicated to undermining government efforts to encourage healthy eating in the USA. See discussion in P. Krugman, “Girth of a Nation” NY Times, July 4, 2005.

24 For example, consider the insightful and detailed analysis in Michael Scherer, “The Making of the Corporate Judiciary: How big business is quietly funding a legal revolution,” Mother Jones Nov.-Dec. 2003, p. 72, 74-5, 100.

R. Keith, China’s Struggle for the Rule of Law, (1994) 83.

Kui Hua Wang, Chinese Commercial Law, (2000), pp. 16-17. Hereinafter “Wang Chinese”

This is not to say that China did not follow Soviet styled law. Indeed, it did. Wang Chinese, p. 10-11.

ed. (2000), 645-7. Of course, the whole story of the development of the CCP is hotly contested. Most recently, authors Jung Chang and Jon Halliday in a meticulously researched biography of Mao Tse-Tung, Mao: The Unknown Story, (2005) have set out a strong case for the CCP to have been little more than a tool for Mao’s successful exploitation and manipulation of people and power to satisfy his megalomania.

29 Hsu, above n. 28, p. 648. 30 Id, 652-57.

48 of the CCP and the “crumbling” of the “social and economic foundations of communism” that yet leaves the political facet intact.

50 It would appear that the phrase “a long time to come” refers to the system, not the Party which one assumes would be indefinite in its term. The term, “the system” seems to mean the CCP in the lead with the other parties straggling alone. In his discussion of legal reforms in China, Professor Albert Chen observes:

the extent to which the organization, structure, functions, powers, responsibilities and operations of the Party should come under the purview of the law, given that it is financed by the state budget, its personnel are paid by the state, and … the constitutional mandate to exercise “leadership” (the manner and procedure of which are not yet legally defined)

His comment offers an insight into a connection between party and state that is nearly incomprehensible to citizens of multi-party Anglo democracies. Such a unity between party and state is an important difference between nation states, particularly when it comes to matters of adjudication.

Interestingly, China’s traditions of power have been focused on the Emperor who seized power on the basis of force, and has held power on the basis of Heaven’s Mandate. Religion has been a matter of family devotion to one’s ancestors and not controlled by the state. In the Western sense of religion, Chinese traditional religion is syncretism of Buddhism, Taoism, animism and ancestor worship none of which makes exclusive absolutist truth claims,

3. Historical Perspectives on Law:

The idea of “Law” is a highly contested notion with such diverse meanings as individual preferences, political power structures, and eternal ontological entities. The Western and Chinese perspectives are radically different. A warning of this diversity in views and its importance was made plain by Yan Fu, a leading Chinese intellectual at the start of the last century. Yan observed:

In the Chinese language, objects exist or do not exist, and this is called li [order in nature, things as they are, or the law of nature.] The prohibitions and decrees that a country has are called fa [human-made laws]. However, Western people call both of these ‘law.’ Westerners accordingly see order in

Liew above n. 28, p. 340-348.

Hsu, above n. 28, p. 950.

Constitution, Preamble.

Chen Toward above n. 46, p. 160. See also Hao Tiechuan, “Ten Suggestions regarding Ruling the Country according to Law,” 5 Faxue [Jurisprudence] (1996) 2.

52 Zhang Qizhi, Traditional Chinese Culture, 102-132.

nature and human made laws as if they were the same…. The word ‘law’ in Western languages has four different interpretations in Chinese as in li [order], li [rites, rules of propriety], fa [human made laws] and zhi [control].

54 This conflation of ideas in Western language is indicative of Western ideology, just as its discrete meanings in China reflect a different perspective. We will turn briefly to consider these differences as they continue to inform, at least to some degree, the on-going debate and understanding of the issues surrounding the Rule of Law and its role in commercial disputes.

a. West: A Metaphysical first principle

Traditionally, law in Western society, is part of the eternal nature of the universe as organized by the divine. This view is succinctly expressed by Roman statesman, Cicero circa 50 B.C.E.:

“it [law] is of universal application, unchanging and everlasting… it is a sin to try to alter this law, nor is it allowable to attempt to repeal any part of it, and it is impossible to abolish it entirely…. There will not be different law as at Rome and at Athens, or different laws now and in the future, but one eternal and unchanging law will be valid for all nations and all times,”

56 God, who for the West is an anthropomorphic being, caused the heavens and earth to exist, also caused all laws and order to exist as well. The Christian religion therefore, was intrinsically linked to the law. This connection between law and institutional religion caused law and religion to be fused, mixing both the hierarchical tendencies of religion as well as its charitable dimensions to inform law.

59 it still carries at least a kernel of truth. It has a special appeal to Westerners because it offers some relief to the indeterminacies of social existence, and because of laws universal,

53 Yan Fu’s translation of Montesquieu, De l’esprit de loi, quoted in D. Cao, Chinese Law: A Language Perspective, (2004), 20, hereinafter, Cao Chinese Law.

54 Consider Liang Zhiping, “Explicating ‘law’: A comparative Perspective of Chinese and Western Legal Culture,” 3 J. Chinese L. (1989) 55.

Cicero De Re Publica, III, 22.

Wang claims that there is also a tradition of connecting religion and law in the “Five Penalties” of the Shang Dynasty of ancient China. Wang Chinese above n.18, p. 5.

57 L. Arnhary, “Thomistic Natural Law as Darwinian Natural Right” and J. Boyle “Fairness in Holdings: A Natural Law Account of Property and Welfare Rights” both in, Natural Law and Modern Moral Philosophy, E. Frankel Paul. et. al, eds. (2001).

58 See for example, H.L.A. Hart, “Are there Any Natural Rights”, (1955) 44 The Philosophical Review, 175, reprinted in D. Lyons, ed., Rights, (1973), p. 14.

59 L. Fuller, The Morality of Law, rev ed. (1969) p. 186.

The Duke of She informed Confucius, saying ‘Among us here there are those who may be styled upright in their conduct. If their father has stolen a sheep, they will bear witness to the fact.’ Confucius said, ‘Among us, in our part of the country…. The father conceals the misconduct of the son, and the son conceals the misconduct of the father. Uprightness is to be found in this.’

This connection of rightness with relationships rather than compliance with imposed rules, of harmony of social relations over conformity to abstractions and codes sits at the heart of the Chinese tradition’s approach to law. Glenn writes: “We have to think of law as li, a learned,… informal tradition of normativity, whose persuasiveness was so great that it could effectively control all those areas of life which were not given over to the formal world of fa-edicted sanction.”

85 Li denies the normative value of formal law and formal sanction over informal, relationally based ordering,

Western view of China, in which the latter is seen as “lawless.” One can see the notion of guidance and control in society, which the West ascribes to law from a rather different perspective in China in the following story from The Analects.

The Master said, “T’ai-po may be said to have reached the highest point of virtuous action. Thrice he declined the kingdom, and the people in ignorance of his motives could not express their approbation of his conduct.” The Master said, “Respectfulness, without the rules of propriety, becomes laborious bustle

This story indicates the value of wisdom and propriety over some perceived control by law. The rejection of the kingdom is an indication of the value of wisdom above material wealth and value of disengagement from the entanglements of politics. The Confucian adage of virtue above all, as the guiding force is abundantly clear in the story of the rejection of the kingdom and the explication which follows it.

valued as a means to accomplish some one or other particular end not as a value in itself contributing to the social order. It has no exalted existential status and is merely

83 Confucian Analects trans by James Legge, The Chinese Classics, Vol. 1: Confucian Analects, the Great Learning and the Doctrine of the Mean, (1893) reprinted UHK (1970) p. 270

Glenn, above n. 1, p. 310.

Cao Chinese Law above n. 53, p. 63.

Glenn, above n. 1, p. 304-5.

Noted, explained and critiqued in Ruskola, Legal Orientalism, above n. 3, p. 183 ff.

Analects, Section 2, Part 8.

Wang Chinese, above n. 26, p. 39, Keith, above n. 25, p. 1. P. Torbert, “China’s Struggle for the Rule of Law, by Ronald C. Keith”, 28 J. Marshall L. Rev, (1995) 639, p. 642.

source of discord in a society that values harmony. As such, traditional China discouraged self-interested litigation and promoted compromise and concession. Certainly, there have been dramatic changes in China and Chinese traditional views toward law in the last century. At one point in his reign, Mao advanced that people who wish to appeal to the law courts were asking for more punishment.

93 This dramatic reorientation with respect to law can be illustrated by comparing the ancient Taoist saying: “the more laws are promulgated, the greater the number of thieves,” with Deng Xiapong’s comment: “law is better than no law, faster [law making] is better than slower [law making.]”

ideologies such as Mao’s own ideology and Cultural Revolution aimed at the

99 Despite on-going scepticism about the efficacy of law in China, there has been a concerted effort by the CCP to encourage reliance on it as can be seen in its promotion of litigation.

c. Summary: the traditional Role of Law in societies East and West

101 and their answers, perhaps not surprisingly are remarkably similar to those of the leading theorists we have today. Furthermore, kernels of their ancient answers survive in the often unspoken

90 This lesser regard for law may be a result of the Xia, Shang, and Zhou Dynasties of the Slave Period, Wang, p. 2 & is a central theme in Western critiques of Chinese law. See Ruskola, Legal Orientalism, above n. 3.

Chen, Toward, above n. 46, p. 129-130.

Chang and Halliday, above n. 28.

Wang Chinese, above n. 26, p. 1.

Quoted in Keith, above n. 25, p. 20, and noted as an example of the CCP’s pragmatic view of law in Wang Chinese above n. 26, p. 39.

Wang Chinese id, pp. 37 ff.

Glenn, above n. 1, p. 332.

Killion “China and Neo-liberal Constitutionalism” 3 (2) Global Jurist Frontiers, above n. 36.

As early as 1917, a Mao friend and contemporary wrote of Mao’s desire for a “burning all the collections of prose and poetry after the Tang and Sung dynasties in one go.” Quoted in Chang and Halliday, above n. 28, p. 12.

99 de Bary, The Trouble with Confucianism, (1991) 45, Chen, Introduction above n. 78, p. 48, Gregg, “Law in China: The Tug of Tradition, the Push of Capitalism,” 21 Rev. of Central and East European Law, (1995), 65, p. 76, Glenn, p. 333,

100 Wang Chinese, above n. 26, p. 38 citing J. Berkman, “Intellectual Property Rights in the PRC: impediments to protection and the need for rule of awls” 15 UCLA Pacific Basin L.J. (1996) 1, 40.

101 Gray, above n. 42, p. 458.

Culture as a form of thinking about the world is not something merely manufactured and imposed on a people. As leading cultural theorist Edward Hall observed: “The purpose of the model [i.e. culture] is to enable the user to do a better job in handling the enormous complexity of life. By using models, we see and test how things work and can even predict how things will go in the future…”

To the extent that generalizations about the different views can be made, perhaps Cao’s observation is as insightful as may be made. She observes:

Westerners may be more willing to accept a narrowly circumscribed Rule of Law that sacrifices equity and particularised justice for the virtues of generality, equality, impartiality and certainty that result from limiting the discretion of the decisionmaker. In contrast, Chinese ethical traditions whether Confucian, Daoist or Maoist,

have rejected rule ethics and universal principles in favour of a context-specific, pragmatic and situational ethics. 104

Regardless of the dramatic changes in technology the recent centuries have brought, human nature, human culture and human law have strong elements of continuity that continue to inform humans about how we should live, what is right and what is wrong. In summary, the West has come to see the law as the divinely granted method of ordering society, part of the natural order of the universe, integral to the universal order. In China, there is no such role for law:

106 Westerners have accepted a model of humanity based on economic and legal rights, and a societal ordering on the basis of persons with economic power enforcing those rights. Chinese have determined their society on the basis of their relationships and networks, reflecting family loyalties and political influence.

With this background setting out the distinct versions and views of social control and the role of law in Chinese and Western societies, it is appropriate to turn to consider specifically legal notions in both contexts.

4. The Rule of Law

102 Yu Xingzhong, in his article, “Legal Pragmatism in the People’s Republic of China,” 3 J. of Chinese L. (1989) 29, observes, “Traditional notions at the heart of ancient Chinese law… remain influential today.” 32

Edward T. Hall, “Beyond Culture,” (1976).

D. Cao, “Fazhi Vs/And/Or Rule of Law?: A Semiotic Venture Into Chinese Law,” International Journal for the Semiotics of Law Revue Internationale de S´emiotique Juridique 14: 223-247, 2001, p. 240, (hereinafter “Cao Semiotics”) citing. P. Keller, “Sources of Order in Chinese Law”, 42 The American Journal of Comparative Law (1994), at 711-759

105 This smaller role accorded to law in China may be part of the reason for some Western commentators failure to accept Chinese law as law. See, for example, J. Fairbank, China: A New History (1992) 185-6. For a discussion of this view of China, see, T. Ruskola, “Legal Orientalism” above n. 3, p. 179.

106 Glenn, above n. 1, p. 309.

a. Western Liberal societies

As previously noted, law holds a particularly privileged place in Western society and thinking. This change was particularly significant as the Roman Catholic Church lost its power over increasingly significant parts of the population. Western society having been stripped of its guiding religion by the scientific discoveries following from the Enlightenment and by the Protestant Reformation, looked to other forms of social organization and authority. The traditional authority of monarchies was also soon rejected and new forms of social order were needed. Law was particularly well situated to fill the void and provide a means of social organization.

The Rule of Law is comprised of four main principles in common law jurisdictions. As put by Saunders and Le Roy, “the polity must be governed by general rules that are laid down in advance… these rules (and no other rules) must be applied and enforced. Disputes about rules must be resolved effectively and fairly. Government itself is bound by the same rules as citizens and that disputes involving governments are resolved in the same way as those involving private parties.”

125 Although the author of this statement goes on to question this equation of views, nevertheless, his statement of the popular view is helpful. In the West, it is undoubtedly the case that these notions are all put together in a mix, purportedly mutually justifying, and explaining one another.

As democratic states, the West has had Rule of Law institutionalized for decades, if not centuries. Democracy has three dimensions: an electoral dimension where universal sufferage is exercised to select policy

Still, perhaps in part because of this conflation, and perceived superiority, the Western perspective on the Rule of Law also often carries a missionizing element.

123 This functionalist view is obviously but one of many competing and at least partially satisfying answers to the problem of law in society.

124 Saunders, above n. 98, p. 5. Interestingly, it is claimed that Hong Kong is governed by the Rule of Law, K. Jayasuriya, “The Rule of Law and governance in the East Asian state” 1 Asian Law, (1999) 107.

Michel Troper, “The Limits of the Rule of Law” in Saunders, above n. 98, p. 81.

This argument is a summary of Peerenboom’s explanation in Peerenboom Asian, above n. 113, p. xix.

127 M. Stephenson, “A Trojan Horse Behind Chinese Walls? Problems and Prospects of U.S.-Sponsored ‘Rule of Law’ Reform Projects in the People’s Republic of China” 18 UCLA Pac. Basin L.J. (2000) 64. Peerenboom, Asian above n. 113, p. xvi.

140 What is meant by Rule of Law in the constitution is not clear. Indeed, there is argument that it is merely another way of stating rule by law-i.e. rule by the whim of the CCP through its law-making powers.

Perhaps the best concise explanation of the Rule of Law [fazhi] in China is Professor Cao’s. Professor Cao writes:

Fazhi consists of two Chinese characters, fa (law or laws) and zhi (to rule or govern, or rule or governing). Without going into a discussion of fa, essentially, fa denotes a meaning of “fair”, “straight” and “just”, derived from its water radical in the Chinese character. It also carries the sense of “standard, measurement, and model”.

The Rule of Law has been viewed as particularly important in China’s transition to a Socialist Market Economy President Jiang Zemin stated “Ruling the country according to law is an important mark of social progress and the civilization of a society

For China to make shift to a thin Rule of Law state, not only does there need to be considerable theorizing about what the Rule of Law will mean in a socialist state,

Some of these innovations have begun. For example, changes resulting from the 1996 Lawyers Law permitted lawyers to act in the interests of their clients rather than the interests of the state.

150 In his extensive review of the changes that need to be implemented pursuant to the Rule of Law required by the accession, it is interesting to note that at no point did he suggest that the CCP be checked in the exercise of its power. It may well be that as others have said,

Chen Toward, above n. 46, p. 165, Cao Semiotics, above n. 104, p. 244,

Wang Chinese, above n. 26, p. 17.

Cao Semiotics above n. 104, p. 234. Cao refers the reader “to discussion of the Chinese character fa in comparison to the English ‘law'”, see Liang, Ziping, “Explicating ‘Law’: A Comparative Perspective of Chinese and Western Legal Culture”, 3/1 J. Chinese L. (1989), 55-92.” p. 234 n. 49.

Quoted in Chen Towards, above n. 46, p. 127.

Wang Chinese, above n. 26, p. 41-2. A. Chen, The Developing Theory of Law and Market Economy in Contemporary Chin, in W. Guiguo & W. Zhenying, eds. Legal Developments in China: Market Economy and Law 3 (1996).

145 An interesting move in this direction is R. Peerenboom, “Competing conception of Rule of Law in China,” chap in Peerenboom, Asian above n. 113, p. 113-145.

For example, the term “liberal” implies “irresponsible” in Chinese. Gray, above n. 42, p. 458.

Wang Chinese, above n. 26, p. 40.

Id, p. 18.

Id, p. 18.

Cao Jainming, “WTO and the Rule of Law in China,” 16 Temp. Int’l & Comp. L.J. (2002) 379

Chen Towards above n. 46, notes this to be a forbidden topic p. 160.

to the Rule of Law will be the matter of the relationship of the CCP to the law and its officials. Will it and its officials be subject to the law?

Of course, there will be problems with many aspects of this shift and it is important to note that this discussion is not the first discussion of the Rule of Law in the CCP. Indeed, Mao had considered writing a Constitution and apparently produced some drafts

155 These ideas flourished under the One Hundred Flowers movement, which Mao subsequently violently suppressed purging members of the CCP and others leading to about 550,000 being labelled “rightists” with its bitter consequences.

Whatever else one may say about the Rule of Law in China, there is currently a growing push for Rule of Law in China, and it appears that there is a consensus developing in which China’s development toward the Rule of Law will be a Rule of Law within the thin or formal model discussed above.

c. Summary of the Rule of Law in societies East and West

The Rule of Law is a difficult concept which imports for many a considerable number of additional political ideas. At its most stripped down, the Rule of Law is a thin or formal standard for measuring government behaviour. Both East and West have traditions of the Rule of Law, although they are markedly different. In the West, the tradition is viewed as a harmonious, linear progress leading to a form of control on government action and a means of protecting citizens from unwarranted intrusion and in fact, determining what is warranted and unwarranted.

The Eastern tradition is more complex. In China, the notion of the Rule of Law has moved unpredictably depending on the particular views of the ruling classes. Even in the last century, the Chinese view has veered wildly from one extreme to the other. From Mao’s repudiation essentially of all law to the recent revival and active engagement in discussion of all facets of the dialogue concerning Rule of Law.

5. Resolution of Commercial Disputes

Wang Chinese above n. 26, p. 40.

Li Linda, Qingman Xihu, p. 9, cited in Chang & Halliday, p. 407.

Jianguo yilai zhongyao wenxian xuabian (Important Documents of the People’s Republic), CCP Archive Study Office, vol. 9 pp. 92-4, 268-9, Quoted in Chang & Halliday, above n. 28, p. 420.

155 Chang & Halliday, above n. 28, p. 436.

156 Id, p. 437

157 Drawn generally from Chen’s broad discussion in Chen Toward above n. 46, and his comment of a consensus of the desirability of the Rule of Law among Chinese legal scholars, p. 138. See also Cao, Semiotics, above n. 104, p. 246-7.

friends and none at all to strangers. There is no sense of loyalty to society-only to filial (hsiao) and to emperor (chung), leading to what has been referred to as “negative expectations about cooperation in Chinese society.”

167 Without such networks it would be impossible to conduct business. Consider the following explanation from a study of a Chinese business community:

In a community almost totally oriented toward business transactions, sun yung was the most important aspect of a person’s character and not merely a quality to be considered in economic affairs. Sun yung referred not only to credit, in the sense of goods or services lent without immediate return against the promise of future payment … it further carried the connotation of a person’s total reputation for trustworthiness and in this sense was as statement of a person’s social and psychological characteristics as well as strictly economic reliability.

Again, it is such relationships and deep evaluations of business partners that set Asian business practices apart from Western practice.

Overlaying these difficulties of ambiguity of language, general disdain for and distrust of law, lack of commercial law tradition, is a tradition of strategic thinking and wily behaviour. As Glenn puts it: “think of all the Chinese stratagems, all the wiles for getting where you need to be, for circumventing the bureaucracy, for achieving personal goals against all odds.” He adds for illustrative purposes the old Chinese adage: “Always kill with a borrowed knife.”

c. Experience & expectations in the West: commitment to courts

Those of Western colonial tradition have come to rely extensively on law. The laws of England were considered the laws of most colonies from their inception. For example, the laws of England were part of Australian law until recently when the right to appeal to the English Privy Council was terminated. Anglo countries are deemed to be Rule of Law states because of their separation of powers (thin version) and liberal democracy (thick version). For that reason, certain expectations or norms will be expected with respect to how the law will both assist and limit the ways in which business will be conducted.

As evident in the traditional saying “possession is nine-tenths of the law”, the English common law in addition to criminal law, has traditionally focused on matters of contract and private property. Likewise, former British colonies have well developed contract and private property laws. Where matters of property and contract are in dispute, there is no hesitation among Anglo businesses to retain lawyers and commence legal proceedings. It is expected that courts will function relatively

S. G. Redding The Spirit of Chinese Capitalism, (1993), p. 66.

Id, p. 66-8.

Id, p. 54-7.

Id, p. 67-8.

Glenn, above n. 1, p. 321.

d. Experience & expectations in China: Guanxi, corruption, and cash

Unlike Australia, Chinese law, as previously mentioned, has tended to focus on criminal law. Accordingly, its private law has not been as well developed prior to 1949 and indeed outlawed at times since 1949. In addition, there was a near complete abandonment of law making in the Cultural Revolution leaving large gaps in the legal fabric of the Chinese socialist experiment.

Despite these legal reforms and efforts to raise the esteem of law, Chinese society has not kept up either in quantity, quality, interpretation by the courts, or in terms of enforcement. Chinese society has not come to view law as a highly respected or credible institution. Indeed, the lack of respect of law is noted in such events as attacks on judges, and an on-going if not contempt, at least low esteem of the law among CCP officials.

178 Thus, although the law has been elevated in society and promoted by the CCP, this change does not make the law the primary organ for dispute resolution or even guidance in society. Rather, business in China continues with “Party policies, governmental powers, the network of all kinds of social relations and the rampant protectionism”

It is offered that Chinese view commercial relationships and hence their contracts in a way that is different from Western business professionals. This difference has been characterized as follows: “they [Chinese] conceptualise contractual promises in a less formal fashion than do foreigners. The Chinese tend to view a contract as an expression of a long-term cooperative and friendly relationship [rather than as a legal document with legal ramifications].”

The contract should be viewed as a tool by which both party can be assured that the other party understands what they understand, and everybody knows what they have to put into the deal to make it work, and what everyone will get out at the end of the day if it does work…[and every]one rests assured that everyone understands everyone else so that no disputes will arise at all and the deal can work and everyone will work together to achieve that goal.

175 Wang Chinese, above n. 26, p. 11. 176 Id, pp. 12-13.

177 Id, p. 37. 178 Id, p. 38.

179 Kui Wang, has a subheading entitled “Corruption and bribery in the judicial system” in her overview of Chinese commercial law, id. p. 38.

180 D. Flint, R. Pritchard and R. Chiu, “Constitutional Safeguards for FDI: a comparative review utilizing Australia and China’ in Economic Development, Foreign Investment and the Law, (1996) at 110, bracketed material by Kui Wang, quoted in Wang Chinese above n. 26, p. 37.

181 Brahm, above n. 173, p. 46.

This description is sure to send shivers down the spine of any Western trained lawyer. The Chinese view is quite pragmatic-the issue is not my rights and obligations versus your rights and obligations. Rather, the issue is can we agree to commit to each other to see this project through? If so, we will all do whatever is necessary to get the project finished and we can all gain.

Their relationships with family and friends develop into strong bonds, and these special relationships or “guanxi” appear to be an integral part of commercial relations in China.

a society of social relations, of guanxi, may easily slide towards cronyism, the ongoing cultivation of reciprocal, unjustified advantage, to the exclusion of considerations of the outside world…. It becomes difficult to distinguish the loyalties which are rooted and justifiable, even though the less responsive to outside need, from those which are transient or parasitic, designed simply to leach away the resources.

is prevalent throughout the new economy despite the changes to law. In fact, a parish priest’s relationship with the Church in Rome is said to be “guanxi” at least at it pertained to Rome providing economic support for the church.

Guanxi is part of the larger social order. Gray describes it thus:

Most Chinese continue to feel (rather than to think) that conflict is deplorable

Certainly, guanxi is unlikely to stop on the steps of the courthouse. A judge is expected to provide a judgment in favour of a friend or relative. Although changes to the law have prevented judges from sitting on cases involving family, associates, or friends, it is deemed normal for a judge to mention to a fellow judge that in a case she

182 Redding above n. 165, pp. 40-78. See discussion in S. Li, “Why Is Property Right Protection Lacking In China? An Institutional Explanation” 46 (3) California Management Review, (2004), p. 109.

Glenn, above n. 1, p. 324.

It is not that these relationships do not exist in the West or that they may not be more important than even the law. Indeed, empirical evidence indicates that at times they may well be. C Stone, Where the Law Ends: The Social Control of Corporate Behavior, (1975)

See discussion in Redding, above n. 165, pp. 40-78.

P. Lawton, “Berle and Means, Corporate Governance and the Chinese Family firm,” 6 Aust. J. of Corp. L. 23.

P. Hessler, River Town, (2002) p. 224.

Gray, above n. 42, p. 460.

189 Id, p. 460.

guidelines rather than rules, and less than directly enforceable legal instruments. Further, Chinese expectations would not include a bar to access to what Western business officials would see as inviolable property rights. Finally, the matter of corruption of government officials and their connivance with private parties in the expropriation of private property would be an expected, predictable norm.

6. A Special Problem of Bi-lateral trade and the Promise of a Rule of Law Solution

These contradictory views of the role of law in business is likely to cause substantial difficulty for both private parties and governments alike as trade increases under a Free Trade Agreement as predicted by the governments of both China and Australia. Unlike the WTO to which China joined itself recently, bi-lateral trade agreements usually grant rights to private parties. Accordingly, rather than dealing with acrimony between states on an international stage, bi-lateral trade agreements (and multi-lateral trade agreements) grant rights to private parties vis-à-vis other states. Such being the case, it puts states in a peculiar position of having to answer to private citizens of foreign nations for their policies and decisions. In China in particular, where the state on the one hand has not been forced to answer to its own citizens both through the CCP’s refusal to subject itself to the law and by its control of the press, and on the other has been free of scrutiny in its dealings with matters pertaining to the economy, it will be a struggle to address itself to such matters.

202 for problem resolution. Where different cultures come into contact there is a need to find a means to communicate, a common system of signs accessible to both in order to address both differences and commonalities, and the needs and wants of the parties. Australia, a country whose culture is predominantly Western, lacks the traditions that facilitate dispute resolution in the more closely related cultures of east Asia. Accordingly, Australia looks to law to resolve the dispute. The dispute is resolved by appealing to someone outside the relationship to resolve the differences in a way that is impartial to the parties.

The obvious corollary holds true too: China lacks the traditions of the West. The Chinese way involves drawing in more people involved with the dispute to resolve the difference. It does not appeal to parties, “outsiders,” or non-Chinese to resolve what is essentially seen as a relationship problem. The difference between the approaches

202 The term “Asian norms” here is loosely used to refer to a preference for extra-legal methods of conflict resolution (or at least extra-legal from the Western point of view) including relying on business networks, political alliances and other social relationships, which exist in part because of the problems of the legal system in China discussed above and elsewhere in Asia, and in part because of the traditions also referred to above. It is not meant to imply that there is a harmonious “Asian value” system spreading from Arabia to Japan. For discussion see R. Peerenboom, , “Social Networks, Civil Society, Democracy and Rule of Law: A New Conceptual Framework” in The Politics Of Relationality: Civil Society, Economics, And Law In East Asia, Chaibong Hahm and Daniel Bell, eds., (2003), R. Peerenboom, , “Beyond Universalism and Relativism: The Evolving Debates about ‘Values in Asia'” (September 20, 2002). UCLA, School of Law Research Paper No. 02-23 see also, B. Sheehy “Singapore, “Shared Values” And Law: Non East Versus West Constitutional Hermeneutic,” 34(1) Hong Kong Law Journal (2004) 67-82

and lack of shared tradition creates a dilemma-is one to follow the other, or is there a solution independent to both yet accessible to both?

Certainly, given the previously outlined problems associated with the legal system in China, it would seem that neither party is likely to be confident or satisfied as to the impartiality of any decision handed down in that context. By default, holding the resolution of disputes in Australia hardly seems likely either to garner much support or provide an aura of justice either.

As the Chinese traditions appear to be more culture bound and hence implicit and informal, they are not particularly accessible to an outsider. In order to access these Chinese traditions, essentially, one must be Chinese (or at least perceived to be Chinese). Australians too are culture bound and their solution too is appealing to those of their culture. Australia, with its own customs and context, although perhaps more explicit than Chinese culture, is still a foreign culture to the Chinese.

It is perhaps here, in this gap between cultures created by a bi-lateral trade agreement that the ideal and the promise of the Rule of Law with its explicit, formal methods may be admirably well suited. As a concept understood by and accessible to both parties, it may well be the best of the alternatives. Law is understood by both cultures to be a restraint on behaviour. The applicability and role of law is different

To achieve Rule of Law, however, will take some particularly strategic thinking. Simply waiting for the progress expected to come about as a result of China’s commitments to global agreements and its planned internal developments is unlikely to satisfactory to foreign enterprises wishing to participate in the Chinese market. The issue of the Rule of Law in the context of international trade has been raised before. There was comment on the importance of Rule of Law for China when it acceded to the WTO.

204 China’s system of central governance and local control is poorly coordinated, and local laws can be made which contradict centrally developed legislation. Further, there is no overall legislation or means of determining

203 Cao above n. 141, p. 379. See various discussions in P. K. Yu, G. G. Chang, J. Cohen, E. C. Economy, S. K. Hom, and A. Q. Li, “China and The WTO: Progress, Perils, and Prospects,” 17 Colum. J. Asian L. (2003) 1 and in particular the comments of Yu, p. 3 and Hom p. 23. See also discussion in Lubman, The Study of Chinese Law in the United States, 2(1) Washington University Global Studies Law Review, (2003) 28.-31

204 G. Fennell, “The People’s Republic of China’s Ability to Comply with the Standards Mandated by the World Trade Organization,” 21 N.Y.L. Sch. J. Int’l & Comp. L. (2002) 613. Wang, Chinese above n. 26, pp. 146-7 and 173-4.

the resolution of such conflicts either in favour of the local or central government. This lack of direction and practice, particularly when combined with the above noted issue of corruption, creates more than a mild threat to those whose affairs may come under the jurisdiction of any one of the many levels of government.

Further, it seems unwise to rely on reforms promised under the conditions of accession to the WTO given that the WTO is a matter of national government and policy. Such being the case, these WTO commitments are not as likely to have bearing on individual private enterprise or address matters of credibility necessary in specific litigation or disputed matters. Accordingly, awaiting the broad based promised changes necessary to comply with WTO commitments seems to be a poor strategy without particularly promising results.

As the Rule of Law, at least in its formal or thin version, implies no specific set of institutions, the situation facing both countries permits a fresh look at what an institution which would embody the Rule of Law in this particular instance would look like and how it should be designed.

7. Recommendations for Trade Dispute Panel

As in most Free Trade Agreements, it will be necessary to establish some institutions, including usually a trade dispute panel. This panel will not only deal with matters of the interpretation of the obligations of the governments to the agreement, but often also provides judgements to particular parties in litigation. Given the radically different legal systems and traditions, it will be difficult for either party to accept wholeheartedly the other’s approach and hence, there may well be a high level of dissatisfaction with outcomes.

There are a number of common solutions which include, of course, panels of experts composed of members from both jurisdictions. The obvious problem in this situation is that in panels of uneven numbers, it ought to be anticipated that members of different traditions would be most inclined to see things the same way and hence most likely to issue judgements along lines of traditional affiliation than on points of law. Were this to occur, the credibility of the panels and ultimately the agreement would be seriously eroded. Accordingly, it may well be that a different approach needs to be taken in the peculiar case of Australia and China.

As previously discussed, members of each tradition have different expected processes and outcomes when they appeal to institutional dispute resolution. Given this fact, it may well be wise to have such expectations identified, distinguished and addressed within the Agreement. Expectations that would need to be addressed would include a time frame for hearings and decision making, in addition to basic procedural issues such as means of initiating procedures, notice periods and notifications of pending action.

It may well be that looking to other methods and another jurisdiction may be the best alternatives. In this context, Singapore offers an interesting alternative. It is a multicultural centre with strong roots in both common law and Chinese culture. Further,

No one party has a monopoly on the correct way to resolve disputes, nor on the correct version of the Rule of Law. Learning the other party’s approach to dispute resolution is a worthwhile endeavour teaching about the mundane matters of commerce as well as the loftier matters of the coordination of society and solutions to collective problems. Working through such disputes in different contexts is to develop a greater appreciation for the collective wisdom of humankind and the ingenuity of societies other than our own for resolving differences.

Finally, it is also humbling to recognize that the Rule of Law remains an ideal for all. Its interpretation, development and application are not determined. It, like all ideals will never be more than an effort at a continual process of improvement. The Rule of Law ideal will continue to have profound effects on both countries and their peoples as the governments alternatively approach and withdraw from the ideal. Still, it is an ideal worth pursuing and a remarkably hardy bridge in assisting parties to communicate across cultures for the greater good of humans everywhere and the day to day concerns of commerce.