United States-based beverage giant PepsiCo has recently had an indemnity claim lodged against it by its partner Sichuan Yunlu in Southwest China for the alleged breach of co-operation contracts.

The China International Economic and Trade Arbitration Commission (CIETAC) started hearing a case submitted by Sichuan Yunlu on August 11, according to CIETAC sources.

The long-running dispute came to a head a year ago when PepsiCo formally filed for corporate divorce in a bid to scrap the joint venture company Sichuan Pepsi, and to terminate its union with Sichuan Yunlu, whose predecessor was the Sichuan Broadcasting and TV Industrial Development Corporation.

Though Sichuan Yunlu once expressed its intention of negotiating a "friendly solution," PepsiCo went to an international arbitration panel in Stockholm, trying to end the partnership set up in 1994. The panel, however, decided early this month to dismiss for procedural reasons PepsiCo's applications that directly targeted Sichuan Yunlu.

Entering China in 1981, PepsiCo has invested in about 40 ventures in the country, with nearly 10,000 employees.

Sichuan Yunlu started its co-operation with PepsiCo in 1993 and the co-funded Sichuan Pepsi reported an annual sales of 20 million boxes, ranking second in profits among PepsiCo's 14 canning factories in China.

However, disputes arose and affected their co-operation. PepsiCo had charged, for years, that its partner committed a series of contract violations. In turn, Sichuan Pepsi dismissed the allegations and accused PepsiCo of commercial hegemonism as well as bullying the joint venture into doing what it wanted.

The case has aroused the interest of many Chinese legal experts, who believe that it will become a common practice in China to apply ways of global standards, including arbitration, to settle economic disputes after China entered the World Trade Organization (WTO).

Though the majority of domestic companies have not yet become familiar with international arbitration practices, they have to learn WTO regulations and get adept at applying them in order to better protect their legal interests, said a local legal expert.

Xinhua

(China Daily 08/25/2003 page3)