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COUDERT BROTHERS LLP 333 South Hope Street, 23 rd Floor Los Angeles, CA 90071

North America:. Los Angeles, New York, Palo Alto, San Francisco, Washington. Associated Offices:. Budapest, Jakarta, Mexico City, Prague, Rome. Europe:. Antwerp, Berlin, Brussels, Frankfurt, Ghent, London, Milan, Moscow, Paris,. St. Petersburg, Stockholm. Asia/Pacific:.

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COUDERT BROTHERS LLP 333 South Hope Street, 23 rd Floor Los Angeles, CA 90071

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  1. North America: Los Angeles, New York, Palo Alto, San Francisco, Washington Associated Offices: Budapest, Jakarta, Mexico City, Prague, Rome Europe: Antwerp, Berlin, Brussels, Frankfurt, Ghent, London, Milan, Moscow, Paris, St. Petersburg, Stockholm Asia/Pacific: Almaty, Bangkok, Beijing, Hong Kong, Shanghai, Singapore, Sydney, Tokyo Trading and Distribution in China The New Regulatory Regime By Adam W. Schorr COUDERT BROTHERS LLP 333 South Hope Street, 23rd Floor Los Angeles, CA 90071 TEL : +1 213 229 2900 FAX : +1 213 229 2999 E-MAIL: ASCHORR@COUDERT.COM

  2. China’s Trade Commitments under the WTO By December 11, 2004: • China shall grant all enterprises the right to trade in all goods throughout China. • FIEs shall have rights to engage in trade no less favorable than Non-FIEs.

  3. Current FIE Import/Export RightsGeneral FIEs • FIEs may import machinery, equipment, raw materials for manufacturing or operational needs. • FIEs may export products they manufacture.

  4. Current FIE Import/Export RightsSpecial FIEs • Only Sino-Foreign Joint Venture Foreign Trade Companies have substantial trading rights: • Foreign majority ownership allowed • $6M minimum capital requirement • May only engage in trade of approved list of goods • May engage in wholesale activity • No geographical restrictions • Some Trading Rights for FIE holding companies and R&D centers

  5. New FIE Import/Export Rights • New regulations effective as of July 1, 2004: all FIEs will be allowed to engage in the import and export of a wide range of goods.

  6. Current FIE Rights for Distribution of Goods • Currently retail/wholesale business only open to JVs • U.S. party minimum annual turnover of $2B /$2.5 B • U.S. party minimum assets $200M/$300M • Minimum registered capital $3.6M/$9.6M • Chinese majority interest required in many instances • Maximum business term of 30 years

  7. New FIE Rights for Distribution of Goods • New Regulations, effective December 11, 2004: • All FIEs may engage in commercial distribution at the retail and wholesale levels. • Minimum registered capital of RMB300,000/RMB 500,000. • No minimum asset or turnover requirements.

  8. Opportunities • Increase in number of customers of U.S. export goods. • Exporters may establish an FIE to import U.S. goods. • FIE may distribute imported goods in China, and sell imported goods directly to end-users.

  9. Continuing Trade Restrictions • Import Restrictions 4 categories of import goods remain in effect: • Prohibited • Restricted (subject to quota or license) • Subject to tariff • Automatic Import License • State Trading • The Chinese government may continue to trade in certain goods (i.e. vegetable oils) and restrict trade in such goods by non-state enterprises through 2006.

  10. Uncertainties • Trade • The right to foreign trade will be available upon “registration.” The registration process, processing period, etc. have not yet been clarified. • Distribution • Books, newspapers, periodicals, pharmaceuticals • Compliance documents • Treatment of existing FIEs (expansion of business scope)

  11. North America: Los Angeles, New York, Palo Alto, San Francisco, Washington Associated Offices: Budapest, Jakarta, Mexico City, Prague, Rome Europe: Antwerp, Berlin, Brussels, Frankfurt, Ghent, London, Milan, Moscow, Paris, St. Petersburg, Stockholm Asia/Pacific: Almaty, Bangkok, Beijing, Hong Kong, Shanghai, Singapore, Sydney, Tokyo Coudert Brothers llp COUDERT BROTHERS LLP 333 South Hope Street, 23rd Floor Los Angeles, CA 90071 TEL : +1 213 229 2900 FAX : +1 213 229 2999 E-MAIL: ASCHORR@COUDERT.COM

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