Most global trade companies face potential risks of trade conflicts among themselves amid the deepening dependence on trade in this global economic era. Moreover, as more cases of global trade conflicts are emerging through the damage caused by the global spread of COVID-19, finding solutions for such trade conflicts seem to be an urgent challenge. In line with this global situation, I conducted an interview with Lee Ho-won, the president of the Korean Commercial Arbitration Board (KCAB), to discuss possible solutions to overcome this current situation, an especially about the importance of arbitration.
Firstly, could you briefly introduce KCAB?
KCAB, as a permanent court arbitration organization, was established in 1966 and has since been consistently committed to preventing conflicts occurring in the process of business transactions in advance both domestically and overseas, and to assist in settling the conflicts speedily and fair-mindedly through the arbitration procedures. KCAB has thus contributed to the creation of better conditions for the business deals, and thereby to the development of Korea’s national economy.
Why do you think arbitration is so important for global trading enterprises?
Arbitration is now recognized as the most efficient tool among global trading enterprises in order to resolve trading conflicts. Trading companies have significant potential and practical risks of conflicts while being engaged in trading. Frankly speaking, there is no exception to such risks for global trading companies.
If a Korean exporter is facing a situation in which it cannot receive an export bill in exchange for its delivered export goods to a purchasing company, because the two companies failed to insert arbitration clauses in the sales contract due to each company’s individual choices — then, normally, the most efficient way for the Korean company to retrieve the trading bill is to take the matter to court in the United States. However, this involves many risks in terms of time, cost and process.
In this regard, arbitration deserves to be called the most efficient option for the Korean company. Unlike the results of each country’s judicial trials, arbitration has its guarantee in execution in 159 nations through the New York Convention, an abbreviation of The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). If the Korean company failed to use arbitration at a suitable time, the company may face danger in terms of its business management caused by such risks.
It is therefore recommended that trading companies engaged in frequent international transactions utilize the arbitration procedures in order to protect their own interests. The utilization of the arbitration with KCAB would help Korean exporters avoid any damages caused by irrational judgements, and the expenses amounting to more than the transaction amount.
Which type of businesses are currently making the most use of arbitration in Korea?
In Korea, companies engaged in the construction industry are currently using arbitration services more than other enterprises. I believe this is related to the issue of business volume. It is very important for companies under business dispute to decrease business risks by settling the problem as soon as possible through the arbitration procedure.
Now nearly thirty percent of domestic clients for arbitration services are from the construction industry. It’s a recognized fact that the use of arbitration has become common sense in the overseas construction field. For construction enterprises, the reducing of financing risk is a crucial step they must take as soon as they can.
Is there any new noticeable movement among international commercial arbitration boards amid the global widespread of Corona Virus 19?
It is true that there is no lack of competition in the area of webinars among international commercial arbitration boards, caused by the global widespread of CV-19, in order to innovatively meet the needs of international arbitration services.
For example, the Hong Kong International Arbitration Centre (HKIAC) uses webinars most frequently among international commercial arbitration boards. Currently the main flow in the demand for webinar is shifting from China to Korea, indicating that KCAB offers more security than commercial arbitration boards in China.
There were cases where many Korean companies could not keep promises with Chinese partners in the time when Korea ranked No. 1 in the number of CV-19 infectees worldwide. In such an environment, the question of which partner should take responsibility for potential force majeure was a hot issue. I think this kind of dispute will certainly be a debated issue in the global business dealings from now on.
KCAB is now discussing how to provide online arbitration services to clients in a secure way, more than the level of webinars. In a similar vein, I think it is very important for us to issue a Seoul Protocol in advance. In consideration of the current times when only webinars must be used for a considerable time, I think finding ways to secure the veracity and impartiality of arbitration services is a most important issue for us all.
Fortunately, I think Korea’s current showing of crisis management ability is assisting in the perception and reputation of our services of arbitration to be consistently elevated in the global arbitration markets.
Do you have any special plans to boost people’s perception of arbitration and thus to help companies secure their profits?
KCAB has developed standard contracts and we have begun to distribute these contracts to some companies. From now on, KCAB plans to develop and distribute standard contracts to various types of companies.
KCAB will persistently encourage companies to insert arbitration clauses in their standard contracts, and in this regard, we will carry out arbitration education on a regular basis.
I think the consistent expansion of infrastructure is necessary for enhancing the perception of KCAB and arbitration, through the expansion of human resources. KCAB currently has many professional and experienced arbitrators, and we will seek to recruit professional and experienced arbitrators in order to meet clients’ various arbitration demands.
I believe that the creation of a virtuous circle in which companies actively recognize KCAB and its arbitration services can be made after they develop the habit of utilizing KCAB’s high level of arbitration services naturally.
KCAB will consistently build cooperative systems with related global organizations. We already concluded a Memorandum of Understanding (MOU) with HKIAC. In a time when the disturbances in Hong Kong are occurring again, the demand for our arbitration services is expected to rise naturally. I think the elevation of the perception of KCAB and its services is important, in line with the increased “Korea Premium” amidst the CV-19 crisis.
KCAB will continue to distribute promotional videos in order to consistently publicize our performance of arbitration services. It is an encouraging phenomenon that our popularity is steadily increasing in international arbitration markets, backed by Korea’s crisis management ability.
Lastly, do you have any advice for our domestic companies?
KCAB carried out 444 cases of arbitration last year, showing that a growing number of companies are seeking to use our arbitration services. However, I think there are Korean companies still reluctant to utilize arbitration, thus missing the opportunity for keeping their business profits. In this context, I think KCAB needs to carry out at least 1,000 arbitration cases on a yearly basis in line with Korean companies’ growing perceptions of the importance of arbitration services offered by KCAB.
Most Korean companies are still too neglectful about the importance of the conflict settlement clauses in drawing up their business contracts. I hope that companies under the situations where arbitration becomes necessary will recognize the vital necessity of the use of arbitration. Korean companies need to perceive the importance of such arbitration procedures now more than ever in order not to suffer damage their businesses. I therefore strongly recommend that Korean companies bring the arbitration cases to KCAB as much as possible, even if they need to give up other clauses in exchange.
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