“Economic Law”

1. “Economic Law” James V. Feinerman James M. Morita Professor of Asian Legal Studies Georgetown University Law Center February 2014

2. Non-tariff Barriers to Free Trade • Shortcomings of China’s multi-layered, opaque regulatory approval systems; • China’s State-owned enterprises (SOEs) drive market behavior; • failure adequately to protect intellectual property rights; and • “rule of law” issues, eg. contracting

3. Regulatory Framework • History • Command economy • Strong control by State Planning Commission (now the National Development and Reform Commission) • Government owned and operated enterprises (SOEs) • Top-down regulation (but local protectionism)

4. Regulatory Framework • Characterized by • Administrative misunderstanding of policy issues underpinning regulations – e.g. competition laws • Embryonic rule of law creates inconsistent interpretation, e.g. “priority” • Inconsistency of implementation between authorities/levels of government (central/local) • Lack of transparency – no judicial review

5. Private Law • Re-emergence of the principle of private autonomy • Codification of civil law (contracts, property and tort) • Corporate Law • General issues about company and enterprise law • The responsibility of directors and managers • Shareholders’ right to bring derivative actions • Strengthening corporate social responsibility • Corporatization of state enterprises • Protection of private enterprises • Legislation on investment funds • The securities law of 1998-99, revised 2005-06 • Macro-economic control legislation • Competition law • Consumer protection laws

6. Labor law and the protection of labor rights • The right to work • The right to wage payment • The right to “take rest,” have holidays and leave • The right to obtain protection of occupational safety and health • The right to develop job skills and to attend job training • Labor contract and the right to bargain collectively • The right to organize trade unions (under CCP-controlled ACFTU) • The academic exploration of the possibility of legalizing the right to strike • Supervision and inspection of labor rights violations • Employee participation schemes

7. Other Commercial Law • Intellectual Property Law • Financial Law • Guarantee Law • Suretyship • Mortgage • Pledge • The relatively independent nature of guarantee contracts • Globalization of the Chinese economy and the country’s wish to join the WTO • Special Industry Law

8. Social Law • Social security law • Legal position of the right to social security in the Chinese legal framework • History of social security reform • The level and structure of social insurance • The types of social insurance - legal reforms in China • Pension insurance • Social medical insurance • Supplementary pension system • The management and administration of social insurance funds • The right to social relief and the safety net for urban poor • The right to social welfare for the “floating” population • Poverty alleviation program in China • Direction for further reform • Environmental law and natural resources law

9. Supervises the Government’s interest in ~120 largest enterprises Its task – modernization with CCP and gov’t control Creates 14 million unemployed workers p.a. State-owned EnterprisesState Assets Supervision and Administration Commission (“SASAC”)

10. Most significant Sino-foreign transactions involve SOEs SOEs drive market behavior Reform process outcomes are critical to trade liberalization Recent reduction of number of SOEs mostly the result of consolidation and merger of SOEs State-owned Enterprises (“SOEs”)

11. Intellectual Property • Is China serious about enforcement of IP rights post-WTO? TRIPs agreement • China produces 350,000 technologically trained engineers every year, who in turn are generating world class technology • We may under-estimate China’s technological capacity

12. Intellectual Property • “Indigenous Innovation” – IP Piracy with Chinese Socialist Characteristics” • Recent Cases of Chinese Economic Espionage Being Prosecuted by DoJ • Protection of technological advantages is vital for foreign manufacturers • 43,000 infringement claims over the past 12 months • Most processed by the State Administration for Industry and Commerce (“SAIC”) , not the Courts • Reliance on administrative functionaries • Lack of judicial review

13. Contracting – Impediments to Free Trade Is my contract binding? Western approach Expectation of failure Focus on written documents “rules for the engagement of war” Litigation Termination of business relationship Choice of law, forum and mode of dispute settlement Rule of Law

14. Contracting (cont’d) Chinese approach – why relationships are important Agreements in principle, MOUs, LOIs, HoA Contracts – statement of intentions at the time Commercial, financial, legal matrix Negotiate difficulties – with someone they trust Government role is crucial Rule of Law

15. Summary • An FTA with China? • To negotiate an FTA without regard to these non-tariff impediments to “free” trade would be to delude ourselves that an FTA will deliver broad-ranging access to China’s markets