PepsiCo Claimed Compensation by Chinese Partner for Contract Violation

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Last updated at: (Beijing Time) Sunday, August 24, 2003

PepsiCo Claimed Compensation by Chinese Partner for Contract Violation

PepsiCo, U.S.-based beverage giant, has recently been claimed indemnity by its partner Sichuan Yunlu in southwest China for breach of cooperation contracts.

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PepsiCo, U.S.-based beverage giant, has recently been claimed indemnity by its partner Sichuan Yunlu in southwest China for breach of cooperation contracts.

The China International Economic and Trade Arbitration Commission (CIETAC) has started hearing the case submitted by Sichuan Yunlu as of Aug. 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 Sichuan Broadcasting and TV Industrial Development Corporation.

Though Sichuan Yunlu once expressed intention of negotiating a "friendly solution", PepsiCo had taken the battle trek 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 cooperation 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 came sometimes and ravaged their cooperation. 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 interests from many Chinese jurists, 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, a local jurist say.

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