The Legal Aspects of Central-Local Relations in China’s WTO Accession and Afterward

1. The Legal Aspects of Central-Local Relations in China’s WTO Accession and Afterward Dr. James V. Feinerman Associate Dean Georgetown University Law Center E-mail: feinerma@law.georgetown.edu

2. INTRODUCTION • International Commitments at WTO Level • Made by Central Government on National Basis • Implementation and Compliance at Local Level

3. History of Central-Local Relations • Lack of Stable Rules to Define Relations • 1950s Abolition of Six Administrative Regions • 1970s Transfer of 2400 SOEs to Local Control • Post-1978 Grants of Local Power: FDI, Trade, Tax, Personnel, Infrastructure • 1994 Central-Local Tax Agreement

4. China’s WTO Commitments (1 0f 2) • Para. 69 Working Party Report: Administrative regulations, departmental rules and other…measures to be promulgated in timely manner. * * * Central government will in timely manner revise or annul regulations and rules inconsistent with China’s obligations

5. China’s WTO Commitments (2 of 2) • Para. 73 of Working Party Report: Confirmed that the provisions of the WTO Agreement would be applied uniformly throughout its customs territory, including the SEZs and other areas with special regimes for tariffs, taxes and regulations were established and at all levels of government.

6. PROCEDURAL ISSUES (1 of 4) • Standardization of Legislative Procedures Two sets of State Council regulations for new administrative rules: • Pre-promulgation publication with notice and comment period • Effective date of newly promulgated laws must allow 30-day period before enforcement

7. PROCEDURAL ISSUES (2 of 4) Judicial Consistency Xinhua Internal Report: • Uniform Enforcement a “grave challenge” • Judicial fragmentation • Localization of adjudication • “rule of Man” • Local protectionism • Local governments control appointments of judges and allocation of budgets for local courts

8. PROCEDURAL ISSUES (3 of 4) • MOFTEC (now MOC) and Other Departments • Leading Group to Coordinate WTO issues • SETC Bureau for Investigating Injuries to Domestic Enterprises (anti-dumping, countervailing duty and safeguards measures) • SAIC Special Bureau, under Enterprise Registration Bureau, to facilitate registration of foreign-invested enterprises

9. PROCEDURAL ISSUES (4 of 4) • Provincial Compliance Problems • In late 2001, Hunan Province identified 1,800 government policies and rules at both provincial and county levels that had to be scrapped • Edicts Delivered to Lower-level Governments • Mayor of Changsha: “We have been issued with the clean-up regulation” • Mayor of Shanghai: “Revised more than 60 local laws and regulations incompatible with WTO rules” • People’s Bank of China: “Abolish a number of financial rules and regulations issued between 1999 and 2001”!

10. CONSTITUTIONAL LAW • “Federalism” with Chinese Characteristics • Central Governments Powers • Provincial and Local Government Powers • Central-Local Relations • Due Process • Procedural Due Process – Judicial Review • Substantive Due Process - Fairness

11. New Institutions • Courts • Newly established courts at Intermediate Level to Handle WTO-Related Matters • Beijing No. 2 People’s Intermediate Court “to stick to principles of market accession, transparency and national treatment” • Governmental Entities • Beijing Municipal Complaint Center for FIEs • Shanghai Municipal Economic and Trade Commission • State Council drafted list of 20 “Don’ts” for local governments

12. Legislation of New Rules

13. China’s Own Reasons for Reform • Regional protectionism has been growing rapidly, even as import barriers are falling • Breaking down local protectionism and setting up a unified, fair and orderly national market are urgent and important tasks facing the government

14. Harms of Local Protectionism • Local protectionism is apt to trigger retaliatory actions from counterparts; China’s auto market is one of the best examples. • Besides trade wars, local protectionism will definitely hurt the future development of local enterprises. In a market economy, the survival of an enterprise depends on its competitive edge. • Without being able to benefit from economies of scale or standardization, production costs are higher than normal. • The result is that China is not really one market but rather a collection of markets, each with its own unique trade and investment barriers.

15. Necessary Next Steps • 1. Anti-trust laws, laws against unfair competition and new bank law needed; in addition to legislation, the judicial system should be improved. • 2. Strengthen law enforcement to cut down on local protectionism; improve the regional tax collection system (division of State and local tax collection often results in local governments protecting local enterprises). • 3. Restructure monopolistic industries such as power, the railways, civil aviation, telecom and public services to form a unified, open and transparent market

16. Why It Won’t Be Easy • Local authorities are obsessed with economic growth • Local GDP growth rates continue to be the leading criteria for evaluating cadre performance • Local authorities are accustomed to make made full use of their administrative rights to assist and protect local enterprises • “Heaven is high, and the Emperor is far away”