Chapter 14 Foreign trade law

1. Chapter 14 Foreign trade law 1 Sources of law 2 Foreign trade operator 3 Foreign trade in goods, technology and service 4 Anti-dumping 5 Anti-subsidy 6 Safeguard measures

2. 1 Sources of law

3. Major sources of foreign trade law

4. By April 2002, former MOFTEC had abolished 381 ministerial rules and 178 internal rules. • In collaboration with other ministries to submit to the State Council 53 regulations marked for repeal. • SPC has announced that 1226 judicial interpretations inconsistent with WTO rules had been amended as of late 2001.

5. 2 Foreign trade operator

6. 2.1 Qualification • It must be the legal persons or other organizations • 5 conditions: (1) having its own name and organizational structure (2) having definite scope of business in foreign trade (3) having business place, financial resources and professional personnel essential to the foreign trade dealings which it intends to engage in (4) having a required record of import and export which were effected on its behalf or having necessary sources of goods for import or export (5) other requirements provided in relevant laws and administrative regulations • Acts outlawed: (1) forging, distorting or trading certificates of country of origin and import or export licenses (2) infringement on the IP protected by law (3) squeezing out competitors with undue competition (4) defrauding the State’s refund of export tax (5) other acts violating the laws and administrative regulations

7. 2.2 FTCs’ monopoly and agency system 2.2.1 FTCs’ monopoly 2.2.2 Agency system FTL expressly authorizes any organization or individual without foreign trading rights to entrust the FTCs as agent to conduct its foreign trade business within the authorized scope Agency contract: (1) name, scope, content, price range, payment method and currency used for the entrusted import or export goods or technology (2) scope of authorization (3) rights and obligations of the parties (4) commission fees and sharing of other economic benefits (5) dispute resolution (6) duration of the contract

8. 2.3 Widening the scope of foreign trading rights • Moving away from traditional approval system of granting • foreign trading rights to various enterprises to automatic • registration system  • Automatic system: manufacturing enterprises in SEZs, large • manufacturing enterprises, State-owned or collectively owned • manufacturing enterprises and the State-owned or collectively • owned research institutions and hi-tech enterprises. 2.3.1 FIEs

9. 2.3.2 Sino-Foreign trading JVs 2.3.3 Domestic enterprises Foreign investors’ equity shares: 25-49% 3 conditions: (1) annual turnover prior to the application must be over USD 5 billion (2) average annual trade volume with China in previous three years must be over USD 30 million (3) foreign investors must have established rep. office in China and it has been maintained for 3 years prior to the application, or have invested over USD 30 million in China 2.3.3.1 Manufacturing enterprises • Enterprise exporting machinery and electronic products with annual • export value of RMB 500000 for technology intensive products and • RMB 1 million for normal products are qualified to engage in foreign • trade. • Scope of business: import of technology, equipment, component and • raw materials related to their production and export of their own • products and related technology

10. 2.3.3.2 Commercial enterprises 2.3.3.3 Research institutions 2.3.3.4 Enterprises within SEZs State-owned large and medium-sized commercial enterprises with sales value of more than RMB 300 million are qualified to obtain licenses form the former MOFTEC to engage in foreign trade. 2 restrictions: (1) import and export must be compatible with their respective registered scope of business (2) annual import shall not be more than their annual export value. Manufacturing enterprises in the SEZs with a registered capital of RMB 2 million or more are qualified to engage in foreign trade

11. 3 Foreign trade in goods, technology and service

12. Control of import and export of goods and technology

13. 3.1 Import and export of goods 3.1.1.1 Prohibited goods 3.1.1 Import • (1) goods endanger the State security or public interest • (2) import or export of such goods must be prohibited in order to • protect human life or health • (3) goods disrupt the ecological environment • (4) import or export of such goods is prohibited in accordance • with the provisions of international treaties or agreements to • which the China is a contracting party or a participating party • Other laws and administrative regulations may also impose • prohibition on certain goods

14. 3.1.1.2 Restricted goods (1) import shall be restricted in order to safeguard the State security or public interest (2) import shall be restricted in order to establish or accelerate the establishment of a particular domestic industry (3) restriction on import of agricultural, animal husbandry or fishery products in any form is necessary (5) import shall be restricted in order to maintain the State's international financial status and the balance of international payments (6) as per international treaties or agreements to which the China is a contracting party or a participating party require, the import shall be restricted • Other laws and administrative regulations may also impose restriction on certain goods

15. 3.1.1.3 Goods restricted by customs duty quota Goods within customs duty quota only pay the normal duty, while those exceeding the customs duty quota shall pay extra duty • Unrestricted goods enjoy entire freedom of import • In order to inspect situation of goods competent government departments may impose automatic license on certain unrestricted goods 3.1.1.4 Unrestricted goods

16. 3.1.2 Export Any goods falling into ambit of Art.17 of the FTL mentioned earlier belong to prohibited goods 3.1.2.1 Prohibited goods 3.1.2.2 Restricted goods • export shall be restricted in order to safeguard the State • security or public interest • (2) export shall be restricted on account of domestic shortage in supply or effective protection of exhaustible domestic resources • (3) the export shall be restricted due to the limited market capacity of the importing country or region • (4) as per international treaties or agreements to which the China is a contracting party or a participating party require, the export shall be restricted • Other laws and administrative regulations may also impose restriction on certain goods.

17. 3.2 Import and export of technology 3.2.1.1 Approval/registration procedures • TIEAR substantially streamlines the regulatory procedures • for technology import. • 3 general categories: unrestricted, restricted, and prohibited • Import of unrestricted technologies: no longer subject to prior • government approval, but only a subsequent registration 3.2.1 Import 3.2.1.2 Contractual terms • No longer subject to a maximum contract term of 10 years • Transferor’s warranty obligations: • (1) he is lawful owner of technology provided, or has right to assign or • license such technology • (2) supplied technology is complete, accurate and effective, capable of • reaching the technical goals agreed upon between the parties

18. Unreasonable restrictive clauses outlawed: (1) requiring transferee to accept tying conditions unrelated to technology import including purchase of any unnecessary technology, raw materials, products, equipment or services (2) requiring the transferee to pay compensation for, or bear obligations with respect to expired or nullified patents (3) restricting the transferee's improvement of the imported technology or restricting the use of the improvement by the transferee (4) restricting the transferee's acquisition from other sources of technology similar to, or competitive with the transferor’s technology (5) unreasonably restricting the transferee's channels or sources for purchase of raw materials, parts and components, products or equipment (6) unreasonably restricting the quantity, variety or sale price of the products produced by the transferee (7) unreasonably restricting the export channels for products produced by transferee's using the technology imported

19. 3.2.2 Export • State encourages export of mature industrialized technology • 3 general categories: unrestricted, restricted, and prohibited • Export of restricted technology: licensing control • Export of unrestricted technology: registration

20. 3.3 International service trade • China promotes progressive development of international trade in services • Prohibit certain international service trade: (1) endangering China’s State security or public interests (2) violating international obligations undertaken by China (3) other prohibitions imposed by relevant laws and administrative regulations. • Restrict certain international service trade: (1) safeguard China’s State security or public interest (2) protect ecological environment (3) establish or accelerate the establishment of a particular domestic service industry (4) maintain the State’s balance of international payments (5) other restrictions provided in relevant laws and administrative regulations

21. 4 Anti-dumping

22. 4.1 Overview • hinese exporters: involved in at least 340 foreign anti-dumping investigations, and 73% happened in 1990’s • In 1996, 30 reported anti-dumping investigations • By 1 January 2002 China had initiated 12 investigations: final determinations had been rendered in 6 cases, preliminary determination had been rendered in seventh case, and the remaining 5 cases were at preliminary stages 8 investigations involved chemical imports, 2 involved steel imports, 1 newsprint and 1 polyester • Each investigation was typically addressed to imports from more than one country • 9 of 12 involved imports from Korea, 4 imports from Japan or US • Anti-dumping duties: on foreign importers in 5 of 6 decide cases

23. 4.2 Dumping and injury • Export price below the normal value • Gap between export price and normal value is dumping margin 4.2.1 Dumping

24. Normal value: (1) if products identical with or similar to the imported product have comparable prices in the exporting countries' marketplace, such comparable prices are the normal value (2) if products identical with or similar to the imported product do not have comparable prices in the exporting country's marketplace, or their price and sales volume do not permit a proper comparison, the normal value is either the comparable price of identical or similar products exported to the third country, or the production cost of identical or similar products plus reasonable expenses and profit (3) if they are not imported directly from the country of origin the comparable prices at which the products are sold from the country of export are the normal value • Export price: (1) price actually paid or should have been paid for the imported product is the export price (2) if no price is actually paid for the imported product, or its price is unreliable, the export price is either the price for which the imported product is resold for the first time to an independent buyer, or the price reconstructed according to a reasonable basis by former MOFTEC.

25. 4.2.2 Injury Occurrence of material injury or the threat of material injury to already established corresponding domestic industry or the creation of obstacles to the establishment of corresponding domestic industry by dumping (1) quantity of product dumped, including the total quantity of product dumped or the incremental increase in its total quantity relative to identical or similar domestic products and the possibility of large increases (2) prices of goods dumped including reductions in the prices of goods dumped or the price depression or prevention of price increases upon identical or similar domestic products (3) effect of the dumped product on all relevant economic factors and indices of domestic industries (4) the production capacity, export capacity and inventory of the dumping products in the exporting country or country of origin (5) other factors causing injures to domestic industry

26. 4.3 Investigation (1) MOFTEC is empowered to investigate and ascertain the issue of dumping (2) SETC is empowered to investigate and ascertain the issue of injury on domestic industry • Initiation by (1) domestic industry, or (2) natural persons, legal persons or other relevant entities representing domestic industry • In special circumstances, MOFTEC may after consulting SETC decide to initiate such investigation at its own initiative when it has sufficient evidence of dumping, injury and causal link between them • Investigations shall be concluded within 1 year, and in no case more than 18 months • Any party disagreeing with such final ruling may apply for administrative reconsideration or file administrative litigation to court

27. 4.4 Anti-dumping measures 4.4.1 Provisional measures (1) provisional anti-dumping duty (2) provision of cash deposit, bond or other forms of security • It cannot be applied sooner than 60 days from the date of initiating investigation. • Length: not exceeding 4 months, with a cap of 9 months

28. 4.4.2 Price undertakings • In the course of anti-dumping investigation exporters may voluntarily undertake to revise its prices or to cease exports at dumped prices • MOFTEC may also suggest such price undertakings to the exporters • If satisfactory, MOFTEC may decide to suspend or terminate without the imposition of provisional measures or anti‑dumping duties • Even after acceptance the investigation of dumping and injury may be completed if the exporter so desires or investigatory authorities so decide. • In case negative determination of dumping or injury, undertakings automatically lapse • In case of affirmative determination of dumping and injury, undertakings continue • Length for price undertakings: 5 years time limit, may be extended depending on the decision of price undertaking review.

29. 4.4.3 Anti-dumping duties • It applies if final ruling establishes existence of dumping and of resultant injury to domestic industry. • Decision: by Customs Tariff Policy Commission of the State Council upon the suggestion by MOFTEC • Importer of the dumped product is antidumping taxpayer • Length: 5 years time limit which may be extended depending on the review decision

30. On 9 February 2003 the former MOFTEC took formal anti-dumping measures against imports of polyester stable fiber produced in the Republic of Korea (ROK) by imposing anti-dumping duties on the product. Upon application by the domestic industry, the former MOFTEC launched its anti-dumping investigation on 3 August 2001, and decided to take temporary measures on 22 October 2002. The investigation found that dumping did take place, and the former SETC held that the imports did cause substantial damage to China’s domestic industry. The former MOFTEC and SETC also held that there was direct causal relationship between the dumping and damage. The importers of ROK-made polyester stable fibers should start paying anti-dumping taxes to Chinese customs for a period of five years. The anti-dumping tax rate ranges from 2 percent to 48 percent, and those cash deposits provided by importers in response to the preliminary ruling may be transformed into the definitive taxes. Illustration: Anti-dumping duty on Korean fiber Illustration: Anti-dumping duty on esters of acrylic acid On 10 April 2003 the MOC announced the final ruling on anti-dumping investigation against imports of esters of acrylic acid from the ROK, Malaysia, Singapore and Indonesia. The MOC held that dumping existed in the investigated products and that such dumping had caused material injury to China’s domestic industry. Thus it decided to impose anti-dumping duties ranging from 2 percent to 49 percent on imports of esters of acrylic acid from the ROK, Malaysia, Singapore and Indonesia. The anti-dumping measure would be in place for 5 years from announcement.

31. 5 Anti-subsidy

32. 5.1 Subsidy and injury 5.1.1 Subsidy Financial support by government includes: (1) government practice involves a direct transfer of funds e.g. grants, loans, and equity infusion, or potential direct transfers of funds or liabilities e.g. loan guarantees (2) government revenue that is otherwise due is foregone or not collected (3) government provides goods or services other than general infrastructure, or purchases goods (4) government makes payments to a funding mechanism, or entrusts or directs a private body to carry out the foregoing functions  

33. It must possess specificity: whether it is specific to an enterprise or industry or group of enterprises or industries (1) government explicitly limits access to a subsidy to certain industries or enterprises (2) law or regulations clearly specify a subsidy to certain industries or enterprises (3) subsidy limited to certain industries or enterprises located within a designated geographical region (4) subsidies contingent upon export performance including those illustrated in Annex (5) subsidies contingent upon the use of domestic over imported goods

34. 5.1.2 Injury The material injury causing or threatening to cause on corresponding established domestic industries or creating material obstacles to the establishment of corresponding domestic industries. (1) effect of the subsidized imports on trade (2) quantity of the subsidized product including the total quantity of product or the incremental increase in its total quantity relative to identical or similar domestic products and the possibility of large increases (3) prices of the subsidized product including reductions in the prices of the subsidized product or the price depression or prevention of price increases upon identical or similar domestic products (4) effect of the subsidized product on all relevant economic factors and indices of domestic industries (5) production capacity, export capacity and inventory of the subsidized product in the exporting country or country of origin (6) other factors causing injures to domestic industry

35. 5.2 Investigation and anti-subsidy measures Anti-dumping and anti-subsidy investigation

36. 5.2.1 Investigation • Anti-subsidy investigation procedures are identical that of the anti-dumping • MOFTEC investigates and ascertains the issue of subsidy, and the SETC investigates and ascertains the issue of injury on domestic industry • Initiation by (1) domestic industry, or (2) natural persons, legal persons or other relevant entities representing domestic industry • MOFTEC may after consulting the former SETC decide to initiate such investigation at its own initiative when it has sufficient evidence of subsidy, injury and causal link between them • Length: 1 year time limit with a cap of 18 months • Any party disagreeing with such final ruling may apply for administrative reconsideration or file administrative litigation to the court

37. 5.2.2 Anti-subsidy measures Anti-dumping and anti-subsidy measures

38. 5.2.2.1 Provisional measures • Applicable when initial ruling establishes the existence of subsidy and resultant injuries to correspondent domestic industries • Form: provisional countervailing duties guaranteed by cash deposits or bonds • Cannot be applied sooner than 60 days from the date of initiation of the investigation • Length: 4 months time limit 5.2.2.2 Undertakings In the course of anti-subsidy investigation exporting government may voluntarily undertake to eliminate or limit the subsidy or take other measures on its effects, or the exporter undertakes to revise its prices, and MOFTEC should fully consider such undertakings

39. MOFTEC may also suggest such undertakings to the exporting government or exporters, but cannot force the exporters to accept such undertakings • If satisfactory, MOFTEC may decide to suspend or terminate without the imposing provisional measures or countervailing duties • Even after acceptance, investigation of subsidy and injury may be completed if the exporting government so desires or investigatory authorities so decide • In case of negative determination of subsidy or injury, undertakings automatically lapse • In case of affirmative determination of subsidy and injury, undertakings continue • Length: 5 years time limit, which may be extended depending on the decision of undertaking review

40. 5.2.2.3 Countervailing duties • It applies if the final ruling establishes the existence of subsidy and of the resultant injury to domestic industry, after the failure of consultations though reasonable efforts have been made. • Decision: Customs Tariff Policy Commission of the State Council upon the suggestion by MOFTEC. • Importer of the subsidized product is the countervailing taxpayer • Length: 5 years time limit which may be extended depending on decision of review

41. 6 Safeguard measures

42. 6.1 Investigation • MOFTEC investigates and ascertains the issue of increased import, and the SETC investigates and ascertains the issue of injury on domestic industry • Agricultural products: SETC shall do so along with the MOA • Initiation by relevant natural persons, legal persons or other entities in domestic industry • MOFTEC may initiate such investigation at its own initiative when it has sufficient evidence of increased import, injury and causal link between them

43. Effect of increase of import on the domestic industry: (1) rate and amount of the increase in imports of the product concerned in absolute and relative terms (2) share of the domestic market taken by increased imports (3) effects on domestic industry including changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment (4) other factors causing injury on domestic industry  

44. In the course of investigation MOFTEC shall promptly publish a detailed analysis of the case under investigation as well as a demonstration of the relevance of the factors examined. • They shall offer opportunities for importers, exporters and other interested parties to present evidence and their views, including the opportunity to respond to the presentations of other parties and to submit their views. • They shall separately make their final rulings based upon the results of their investigations, which shall also be publicly announced by MOFTEC.

45. 6.2 Safeguard measures 6.2.1 Types of safeguard measures • 2 types of safeguard measures: provisional safeguard measure and safeguard measures • Provisional safeguard measure: only applicable in critical circumstances where delay would cause damage difficult to repair and there is clear evidence that increased imports have caused or are threatening to cause serious injury. • Form: tariff increases • Length: 200 days from its effective date

46. Safeguard measures: apply when final ruling establishes that the increased imports causes injury on correspondent domestic industry. • Form: tariff increases and quantitative restriction • No safeguard measure can be applied again to import of a product subject to such measure, unless a period of time equal to that during which such measure had been previously applied has elapsed and the period of non‑application is at least 2 years

47. 6.2.2 Review • Length of safeguard measures: 4 years time limit, may be extended when specified conditions and procedures are met, but the total period of its application including the period of application of any provisional measure, the period of initial application and any extension cannot exceed 8 years • Measure so extended cannot be more restrictive than it was at the end of the initial period. • If its application is over 3 years, MOFTEC and SETC must review the situation not later than the mid‑term of the measure • Based on the findings of the review MOFTEC may submit proposal on maintaining, eliminating or accelerating the liberalization of the tariff increase measure to the Customs Tariff Policy Commission of the State Council for approval, or directly make decisions on maintaining, eliminating or accelerating the liberalization of the quantitative restriction measures