Chinese Views of the Modern Marco Polos: New Foreign Trade Amendments after WTO Accession

1. Chinese Views of the Modern Marco Polos: New Foreign Trade Amendments after WTO Accession WANG Heng Lecturer, Economic and Trade Law School Deputy Director, Centre of Law for International Investment and Finance Research Fellow & Foreign Language Editor, Institute of EU Law Southwest University of Political Science and Law, China

2. OUTLINE 1. Introduction 2. China’s Foreign Trade Regime 3. China’s Foreign Trade Law 2004 (FTL 2004) (1) Description (2) Procedural Reform (3) Access for Individuals (4) Free Trade and Exceptions (5) Emergency Safeguard Measures for Services (6) Improved Provisions of Legal Liability 4. Comments 5. Tasks Ahead 6. Concluding Marks

3. China’s Foreign Trade Regime I • History of China’s Trade Administration 1949-1952 Central Ministry of Trade responsible for domestic and foreign trade 1952-2002 Separate regulatory systems for domestic trade and foreign trade 2003- Ministry of Commerce established to regulate domestic and foreign trade

4. China’s Foreign Trade Regime II Structure of China’s Foreign Trade Laws Part One: Fundamental Trade Legislation Foreign Trade Law (FTL) 2004 Part Two: Relevant Trade Regulations • Regulation on the Administration of the Import and Export of Goods • Measures for Registration for the Record of Foreign Trade Operators • Regulations on Import and Export Duties • Countervailing Regulation • Anti-dumping Regulation • Regulations on Safeguard Measures • Regulations on Rules of Origin of Import and Export Commodities, • Regulations on Qualification of International Labor Service Enterprises, etc.

5. China’s Foreign Trade Regime III Part Three: Other Related Laws • Customs Law • Contract Law • Law on Sino-foreign Cooperative Joint Ventures • Law on Sino-foreign Equity Joint Ventures • Law on Wholly Foreign-Owned Enterprises • General Principles of Civil Law (Section 2 of Chapter IV deals with the issue of agency), etc.

6. Foreign Trade Law 2004 (FTL 04) I: Description • The legislature made great efforts to amend FTA 2004 in view of WTO obligations, international trade practice, and other considerations. • Services Trade is specifically dealt with in “Chapter 4 International Trade in Services” (Art. 24-28), and other provisions of FTL 2004. • There are similarities and certain substantial differences between the FTL provisions for goods and technology, and those for services. • The analysis of such similarities and differences in the context of FTL amendments would help to understand China’s developing service trade laws and policy.

7. FTL 04 II: Procedural Reform (Goods & Technologies) Goods and Technologies 94: Foreign trade operations were required to (i) obtain special permits or (ii) entrust a foreign trade dealer as its agent to conduct foreign trade on its behalf. • 04: Foreign trade dealers shall register with competent authority unless laws, regulations and the authority do not so require.

8. FTL 04 II: Procedural Reform (Goods & Technologies, cont.) Background • China’s WTO Accession Protocol (Protocol) § 5(1),” “China shall progressively liberalize the availability and scope of the right to trade, … within three years after accession, all enterprises in China shall have the right to trade in all goods” throughout China’s customs territory. • Section 5(1) of the China Protocol provides that “China shall progressively liberalize the availability and scope of the right to trade, so that, within three years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China”. • Paragraph 84(a) of the Working Party Report specifies that “China would eliminate its system of examination and approval of trading rights within three years after accession. At that time, China would permit all enterprises in China and foreign enterprises and individuals, including sole proprietorships of other WTO Members, to export and import all goods.”

9. FTL 04 II: Procedural Reform (Services) Services • 94: Establishment and operation of entities engaged in international services trade shall comply with the FLA and other relevant laws and administrative regulations. (Art. 10) • 04: International service trade shall be conducted consistently with FTL and other relevant laws and administrative regulations. The units engaged in foreign contract of construction project or foreign labor cooperation shall be equipped with corresponding eligibility or qualification. Specific measures is to be set by State Council.

10. FTL 2004 III: Access for Individuals • FTL 1994: “Foreign trade dealers” referred to “legal persons or other organizations” conducting foreign trade dealings. • FTL 2004: Natural person is incorporated into the definition of “foreign trade dealers”, (art. 8) and hence entitled to conduct international trade. It applies to all kinds of trade.

11. FTL 2004 VI: Free Trade and Exceptions (Goods and Technologies) Goods and Technologies • Both FTL 04 and FTL 94 allows for free imports and exports of goods and technologies except the laws or administrative regulations provide otherwise. • Exceptions. FTL 2004 adds “public morals ”(art. 16(1)), “protection of …the animals and plants life or health or the environment ”(art. 16(2)), “implement the measures relating to the importations and exportations of gold or silver” (art. 16 (3)), “occurrence of serious confusion in the export operation order,” (art. 16 (6)), “import or export needs to be restricted or prohibited as laws and administrative regulations so provide” (art. 16 (10))

12. Free Trade and Exceptions (Goods and Technologies, cont.) The State may restrict or prohibit the import or export of relevant goods and technologies for the following reasons that: (1) the import or export needs to be restricted or prohibited in order to safeguard the state security, public interests or public morals, (2) the import or export needs to be restricted or prohibited in order to protect the human health or security, the animals and plants life or health or the environment, (3) the import or export needs to be restricted or prohibited in order to implement the measures relating to the importations and exportations of gold or silver, (4) the export needs to be restricted or prohibited in the case of domestic shortage in supply or the effective protection of exhaustible natural resources, (5) the export needs to be restricted in the case of the limited market capacity of the importing country or region,

13. Free Trade and Exceptions (Goods and Technologies, cont.) (6) the export needs to be restricted in the case of the occurrence of serious confusion in the export operation order, (7) the import needs to be restricted in order to establish or accelerate the establishment of a particular domestic industry, (8) the restriction on the import of agricultural, animal husbandry or fishery products in any form is necessary, (9) the import needs to be restricted in order to maintain the State's international financial status and the balance of international payment, (10) the import or export needs to be restricted or prohibited as laws and administrative regulations so provide, or (11) the import or export needs to be restricted or prohibited as the international treaties or agreements to which the state is a contracting party or a participating party so require.

14. FTL 2004 V: Free Trade and Exceptions (Services) Services Exceptions. FTL 2004 adds “public morals ”(art. 26(1)), and “protect the human health or security, the animals and plants life or health” (art. 26 (2)) .

15. FTL 2004 V: Free Trade and Exceptions (Service, cont.) In six situations, the trade in services may be restricted or/and prohibited (1) restrictions or prohibitions are needed to safeguard the state security, public interests or public morals, (2) restrictions or prohibitions are needed to protect the human health or security, the animals and plants life or health or the environment, (3) restrictions are needed to establish or accelerate the establishment of a particular domestic service industry, (4) restrictions are needed to maintain the balance of international payment of the state, (5) restrictions or prohibitions are needed as laws and administrative regulations so provide, or (6) restrictions or prohibitions are needed as the international treaties or agreements to which the state is a contracting party or a participating party so require.

16. FTL 2004 VII: Emergency Safeguard Measures for Services • Art. 45, FTL 2004. • Where the increase of services provided to China by outside service suppliers “causes or threatens to cause injury to the domestic industries that provide like or directly competitive services,” China may take necessary remedies to eliminate or mitigate such injury or threat of injury and provide such industry with necessary support. Background • Art. 10 ofGATS involves emergency safeguard measures, which calls for multilateral negotiations on the question of emergency measures.

17. FTL 2004 VIII: Improved Provisions of Legal Liability Article 62 of FLA 2004: • Scope of Application: Anyone who engages in the international trade in services subject to prohibition/restriction without authorization • Legal Liability: The breaker shall be disposed of and punished in accordance relevant laws and administrative regulations; Where no laws or regulations are available to apply to such activities, the competent authority shall order the lawbreaker to (i) requirement of a rectification, (ii) confiscation the illegal gains, (iii) impose a fine from one to five times the amount of the illegal proceeds. If there are no illegal proceeds or the illegal proceeds are less than RMB 10,000 Yuan, a fine from RMB 10,000 Yuan to RMB 50,000 Yuan shall be imposed; (iv) Possibility of prosecution for criminal liabilities. (v) Suspension of business operation. The competent authority may, … prohibit the law-breaker from engaging in relevant international services trade within a period from one to three years.

18. Comments Economic Perspective • China’s service sector--Advantages (e.g., large market volume, scale economy) and disadvantages (e.g. different development among various regions, Post service) coexist. Legal Perspective • Provisions on service regulation remain general and vague • Differing from those for goods and technology, development of China’s service trade regulation is relatively limited. • The main reasons are probably the insufficient regulatory capacity and lack of experience in service trade. • In sharp contrast with deep service commitments, China lags behind in its service trade regulation, which could constitute a vital problem in the long run. • The unsatisfactory service regulatory performance would impede the further liberalization of China’s service market.

19. Tasks Ahead—Improvement of Capacity to Regulate and Handle WTO Dislocations Case study of financial services sector. Problems include • Incorrect prediction of opening-up effect. • Failure to adopt proper negotiation strategy. (E.g., opening up areas.) • Provision of universal services. • Insufficiency of liberalization approach and effect analysis.( e.g., consumer interest consideration) Problems in other sector E.g. discriminatory profit tax rates which is not against national treatment, but is against fairness.

20. Concluding Marks • The WTO brings great impacts on China both legal and non-legal. Such challenges are more obvious in services sector than those for goods. • Therefore, China shall improve its regulatory rules and policies so as to contribute more to the world economy. Perhaps it is not just the story for China, but also for other developing countries.

21. Thank You. • Your invaluable comments are most appreciated. Please kindly email to stonewh6@gmail.com. Thank you. WANG Heng Lecturer, Economic and Trade Law School Deputy Director, Centre of Law for International Investment and Finance Research Fellow & Foreign Language Editor, Institute of EU Law Southwest University of Political Science and Law, Chongqing 400031, China