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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by ZHANG Yuejiao, Henry GAO and Daniel Arthur LAPRES
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Over the course of the first thirty years following the foundation of the People’s Republic in 1949, China applied a system of planning in the management of its foreign trade. Reflecting the influence of the previous Soviet model, all imports and exports were handled by some ten State-owned import and export corporations acting in accordance with the State Plan. There were, at this stage, comparatively few foreign trade laws and regulations.
Once China adopted, in 1979, the policies of reform and opening to the outside world, its foreign trade and economic relations progressed considerably, as has the construction of its legal system. The improvement of China’s legal system has greatly comforted the development of its foreign trade.
In the following two decades leading to its accession to the World Trade Organization (WTO), China eliminated mandatory planning of its foreign trade. The Government continued to separate itself from business activities, and foreign trade operators increasingly were able to make independent decisions regarding their activities, while bearing responsibility for their profits and losses. Gradually, most commodities were priced according to market supply and demand.
Around the Foreign Trade Law adopted in 1994, China has built a system of foreign trade regulation composed of laws and regulations on customs, import and export licence, tariffs, inspection of import and export goods, foreign exchange, anti-dumping and anti-subsidy safeguards. The emergence of the new system of foreign trade regulation prompted further growth in China’s foreign trade. The next ten years witnessed several major shifts in China’s foreign trade environment.
In 2007 China’s exports will exceed $ 1 trillion and through September its trade surplus with the rest of the world had already reached $187 billion. While ten years ago, products exported from China were predominantly natural resource-intensive products, now the majority of China’s exports are labour intensive-products, and a growing proportion have advanced technological contents.
China’s emergence as a “world factory” has brought on the second change: many countries, fearing the threat of cheaper and better products “made in China” have begun to curb the inflow of Chinese goods using various trade barriers. These include not only the industrialized nations such as the United States and countries in Europe, but also many developing countries such as Mexico, Brazil, Argentina, Korea, India and the Philippines. However, with China’s growing importance as an exporter and importer for the world, i.e., as the supplier and buyer of many products of crucial importance for many countries, few countries possess sufficient leverage to effectively deal with China through unilateral measures.
China acceded to the WTO in November 2001. Of course, China was not forced to join the WTO but it had been seeking to resume its membership in the General Agreement on Tariffs and Trade (GATT), and later on the WTO, ever since 1986. For more than 30 years since the People’s Republic was established, China had not felt much inconvenience due to its absence from the GATT. Considering that China’s only foreign trade had been with its communist peers and developing countries, it really did not matter whether or not China was a contracting party of the GATT, which, for a long time since its provisional application in 1947, had been a “rich countries’ club” controlled by capitalist countries. However, with the increasing participation of the developing countries in the GATT in the 60s and 70s, and after China’s adoption of the reform and opening up policy in the late 70s and the gradual shift of its trading relationships towards the developed countries, China felt the need to join the WTO. Moreover, for China, membership also meant deeper integration into the global economy and recognition of its status as a major world power.
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In conjunction with its accession to the World Trade Organization (WTO), China has further fundamentally reformed its foreign trade regime as well as substantial parts of its internal commercial law and economic regulatory framework. According to the Ministry of Commerce (MOFCOM) more than 2,300 laws and regulations were amended to comply with WTO norms and, in the year following accession, 850 laws were abolished.
Since accession, China has begun to assume an important role in the regulation of international trade, including through recourses to WTO dispute resolution mechanisms. As China was subject to more anti-dumping investigations between 1995 and 2003 than any other nation (some 15% of the worldwide total), its accession to the WTO has given it a forum to pursue its own claims against other members, such as against the United States, over its measures to protect the local steel industry.
After joining the WTO, China cut its average tariff for industrial goods from 14.8% to 9.1% in 2005, and the tariff for agricultural goods from 23.2% to 15.4%. According to a WTO Secretariat report in 2006 on China’s trade policies and practices, “economic reform has produced impressive results but important challenges remain”. The Chinese authorities seem to consider their country’s WTO commitments to have been fulfilled.
After some 15 years of negotiation, China’s accession to the WTO was approved by consensus of the Ministerial Conference held at Doha on November 10, 2001 and China formally entered the Organization on December 11, 2001. China has adopted all the principles of the GATT and of the other agreements within the scope of the WTO.1
Even prior to its accession, China had already considerably reduced average rates of duties. Accession entailed gradual rate reductions on agricultural products to 15% and to an average of 8.9% on all other products, with a commitment to reach an overall average rate of duties of 9.4% on January 1, 2005 while those on information technology (computers, semi-conductors and telecommunications equipment) were to be eliminated altogether.
On trade in services, China’s commitments are adapted by sector and were largely met as of January 2005. For instance, the Foreign Trade Law reform of 2004 extended trading rights and distribution rights to foreign enterprises. In implementation of its commitments on this account, the MOFCOM has adopted:
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Among the reforms accepted to ensure its accession to the WTO, China agreed to implement a uniform customs regime over its entire territory, including in Special Economic Zones, in open coastal cities, in economic and technical development zones.3 The regime governing trade in goods, services, trade-related aspects of intellectual property rights (TRIPs) and the control of foreign exchange must be administered in a uniform, impartial and reasonable manner including at the sub-national level.
Indeed, given the vast size of China and the differences in geographical conditions, levels of economic development, histories and cultures of each of the different regions, some members of the Working Party raised concerns as to whether China could ensure the uniform application of the trade regime. As a result, China made the following commitments in its accession protocol:
In addition, China undertook to publish and make readily available all laws, regulations and other measures relating to trade in goods and services, to TRIPs and to foreign exchange controls.
China agreed to provide impartial and independent tribunals for prompt review of administrative actions relating to the implementation of its international trade regime.
Within three years after accession, all enterprises in China were to have the right to trade in all goods, except for those listed in Annex 2A, which continue to be subject to State trading. The activities of State trading enterprises are expected to be transparent, including the provision of full information on their pricing mechanisms for exported goods.
All trade and foreign exchange balancing requirements, local content and export or performance requirements are to be abolished and China is committed not to enforce provisions of contracts imposing such requirements.
In principle, prices for traded goods and services in every sector are henceforward to be determined by market forces.4
Upon accession, all subsidies on goods falling within the scope of article 3 of the Agreement on Subsidies and Countervailing Measures (SCM) were to be eliminated. Subsidies on exports of agricultural products were to be eliminated. Subsidies maintained within the meaning of article 1 of the SCM must be notified to the WTO.
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Under specific provisions of the Accession Agreement, reference prices for determining the existence of dumping by Chinese exporters are to be Chinese prices or costs where it is “clear” that “market economy conditions prevail in the industry”. The importing WTO member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot “clearly” show market economy conditions in the industry. If and when China has established, under the national law of the importing WTO member, that it is a “market economy”, such provisions would be terminated. All such provisions are to expire 15 years after the date of accession. As of 2007, neither the United States nor the European Union had recognized China as a “market economy”. The former considers that the State’s control of critical sectors of the economy, such as raw materials, remains excessive and that transparency is inadequate, while the latter also considers that corporate governance is deficient, that the legal environment is discriminatory and that market principles do not apply in the financial sector.
Article 16 of the Accession Protocol creates a Transitional Product-Specific Safeguard Mechanism, which is to remain in effect for 12 years. Where products of Chinese origin are being imported into any WTO member under such conditions as to cause or threaten to cause “market disruption” to the domestic producers of like or directly competitive products, the WTO member so affected may request consultations with China to seek a “mutually satisfactory solution”. If, in the course of these bilateral consultations, it is agreed that action is necessary, China will adopt measures to prevent or to remedy the market disruption.
If consultations do not lead to an agreement between China and the WTO member concerned within 60 days of the receipt of a request for consultations, the WTO member affected may, in respect of such products, withdraw concessions or limit imports, but only to the extent necessary to prevent or remedy such market disruption.
In determining if market disruption exists, the affected WTO member must consider objective factors, including the volume of imports, the effect of imports on prices for “like or directly competitive articles” and the effect of such imports on the affected domestic industry.
The WTO member taking such action must provide reasonable public notice to all interested parties as well as provide adequate opportunity for importers, exporters and other interested parties to comment.
If the countervailing measures adopted by a WTO member remain in effect for more than two years, China has the right to suspend the application of substantially equivalent concessions or obligations under the 1994 GATT.
In “critical circumstances”, where delay would cause damage which it would be difficult to repair, and pursuant to a preliminary determination that imports have caused or threatened to cause market disruption, provisional safeguard measures may be adopted for up to 200 days.
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When a third WTO member considers that countervailing measures cause or threaten to cause significant diversions of trade onto its market, it may request consultations with China and/or the WTO member concerned. If such consultations fail to lead to an agreement between China and the WTO member or members concerned within 60 days, the requesting WTO member may withdraw concessions granted to China, but only to the extent necessary to prevent or remedy the diversions.
All prohibitions, quantitative restrictions and other measures maintained by WTO members against imports from China listed in Annex 7 must be phased out.
The Multi-Fiber Agreement, which regulated international trade in textile products for some 30 years, expired on December 31, 2004. This Agreement had served to protect the markets of developed countries from the imports of developing country producers while distributing market share among exporting countries, though China had nevertheless accumulated the world’s leading market share of some 25% by 2006, which share has since then more than doubled. China has accepted that until 2008 WTO members experiencing “market disruption” may request consultations with a view to capping the annual growth in imports of textile products from China at 7.5%.
The Accession Protocol institutes a transitional review mechanism that does not preclude or constitute a precondition to recourse to consultation or other provisions of the WTO Agreement or this Protocol. The General Council of the WTO must review the implementation of China’s commitments and China may raise issues relating to any specific commitments made by other members. The General Council may make recommendations to China and to other members in these respects.
As the price for accession, China was forced to accept many discriminatory provisions. Overall, we can divide those provisions into two different categories.
One includes the provisions requiring China to assume “WTO-plus obligations”. For example, China is required to translate into one of the official languages of the WTO (English, French and Spanish) all laws, regulations and other measures pertaining to or affecting trade in goods, services, TRIPS or the control of foreign exchange “ while no other member of the WTO has assumed such an obligation. China is obligated to provide national treatment to investments in China by foreign enterprises and individuals, while the WTO national treatment rule usually only applies to foreign products. China is subject to annual review by the subsidiary bodies of the WTO for eight years after its accession, while under normally applicable trade policy review mechanisms, China should only be reviewed every four years.
The other category of provisions diminishes China’s rights as a member of the WTO. For example, paragraph 15 of China’s Accession Protocol allows WTO members to treat China as a non-market economy in their antidumping investigations. Thus, in determining the existence of dumping, they can use prices of third countries surrogated for domestic prices, rather than use the actual price in China as required by the antidumping rules of the WTO. As surrogate prices are usually higher than the actual prices in China, this provision means that Chinese products are more vulnerable to dumping charges.
Paragraph 242 of the Working Party Report and 16 of the Accession Protocol allow other WTO members to apply the so-called “Special Textile Safeguard Mechanism” and “Transitional Product-Specific Safeguard Mechanism” solely against Chinese textiles and certain other products, while under the safeguard rules of the WTO, measures have to be applied on a non-discriminatory basis, which excludes that any one country be targeted.
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China has established trade relations with more than 170 countries and signed trade agreements or treaties with more than 90 countries and the European Union (EU)5 stipulating reciprocal grants of trade arrangements including the most favoured nation status. China has also signed or acceded to a series of international trade conventions and treaties, in particular:
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China also participates in the activities of the Asian Pacific Economic Co-operation forum (APEC).11
Before its accession to the WTO, China manifested little interest in regional trade agreements. But since its accession, China has concluded two Closer Economic Partnership Arrangements in 2003 with Hong Kong and Macau, followed by its signature of the Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation with the Association of Southeast Asian Nations (ASEAN) in 2004, and a free trade agreement with Chile in 2005. The Early Harvest Program of the China-Pakistan free trade agreement (2005) also provides for tariff elimination or reductions in several categories of products. In addition, China is in free-trade negotiations with Australia, New Zealand, Iceland, Japan and Korea.
The Constitution grants the central government the power to regulate foreign trade.12
At the summit, the NPC and its Standing Committee adopt national laws on foreign trade, which must be uniformly applied throughout China.
Second, the administrative regulations and policies of foreign trade are adopted by the central government, that is, the State Council or the MOFCOM, with a view to their uniform application throughout the territory.
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Third, local governments at all levels ensure that the national laws and administrative regulations and policies are uniformly applied all across China.
The reform of the foreign trade system after 1979 resulted in the promulgation of several important regulations, such as the trial measures of March 26, 1979 with respect to the promotion of imports and exports, the circular of December 28, 1981 with respect to export licence procedures for certain goods not included in the State Plan, and the interim regulations of January 10, 1984 with respect to the licensing system for imported commodities, all of which were promulgated by the State Council.
On May 12, 1994, the National People’s Congress (NPC) adopted China’s first general law with respect to foreign trade (the Foreign Trade Law).13 In addition, the NPC and its Standing Committee promulgated a series of laws and regulations with respect to foreign trade administration.14
Amendments to the Foreign Trade Law were adopted as of July 1, 200415 to comply with the WTO commitments, and as a result the country’s international trade regime was radically reformed.
The MOFCOM is a functional department under the State Council. It is in charge of the overall administration of China’s foreign trade and economic co-operation.
Established in November 1949 as the Ministry of Trade of the Central People’s Government, it was replaced in August 1952 by the Ministry of Foreign Trade. In March 1982, the Standing Committee of the NPC passed a resolution to merge the Ministry of Foreign Trade, the Ministry of Foreign Trade Relations, the State Import and Export Management Commission, and the State Foreign Investment Management Commission into the Ministry of Foreign Economic Relations and Trade. In March 1993, it was further renamed as the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) at the first session of the eighth NPC. Ten years later, the first session of the Tenth NPC sanctioned another round of restructuring of the State Council, during which parts of the State Economic and Trade Commission and the State Planning and Development Commission were merged into the MOFTEC to form the new MOFCOM. Its major responsibilities are the following:16
The newly formed MOFCOM is composed of 25 departments.17 Also, the National Office of Rectification and Standardization of Market Economic Order and the Office of the Representative for Trade Negotiations operate under the MOFCOM.
After 1983, the Ministry established special representative offices in sixteen cities including Guangzhou, Shanghai, Tianjin, Dalian.
As an important component in China’s foreign trade and economic systems, local foreign trade authorities are responsible for implementation of the uniform foreign trade policy and law, and for the administration of foreign trade in the regions within their jurisdiction. After the establishment of the MOFCOM in 2003, many provincial foreign trade authorities have followed suit and changed their names. Some provincial foreign trade authorities, however, not only refused to adopt the new name, but also kept the old dual-layer structure of both the Department of Foreign Trade and Economic Cooperation and Commission of Foreign Trade and Economic Cooperation. Interestingly, almost all of the latter were economically more advanced provinces, such as Guangdong, Jiangsu, Zhejiang and Shandong. This reflected to some extent the power struggle between the provincial departments and commissions.
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The Foreign Trade Law of 1994 provided the legal basis not only for deepening China’s foreign trade reform and strengthening the socialist market mechanism, but also for maintaining fair and free foreign trade.18
To implement the country’s WTO accession commitments, the Standing Committee of the tenth NPC revised for the first time the Foreign Trade Law, and the changes that entered into effect on July 1, 2004 were substantial. Of the 44 articles of the original law, only six articles (articles 7, 15, 23, 33, 37 and 43) were unchanged. Three new chapters were added, with the result that the law now has 70 articles in eleven chapters.
Few of the revisions are only rephrasing of the original terms.19 The amendments can be grouped into three categories: provisions to adapt to the new trading environment, provisions to enable China to combat foreign trade barriers, and provisions to meet WTO commitments.
The Foreign Trade Law as amended remains one of the cornerstones of China’s legislation on foreign trade administration. It articulates the general principles governing foreign trade in goods, technologies and services, provides for protection of intellectual property rights, identifies foreign trade operators, defines standards for import and export contracts and for the maintenance of market order in foreign trade, stipulates a framework for investigations involving foreign trade, defines remedies for violations of foreign trade rules, sets down conditions applicable to foreign trade promotion, and defines legal liabilities in international trade.
The Foreign Trade Law does not apply to China’s “separate customs territories”, which as of this writing correspond to the SARs of Hong Kong and of Macao, which are members of the WTO in their own rights.
According to article 1, the Foreign Trade Law serves five objectives: expanding the opening to the outside world, developing foreign trade, maintaining foreign trade order, protecting the legitimate rights and interests of foreign trade dealers, and promoting the sound development of the socialist market economy. Of the five objectives, the first and fourth deserve special attention, as they were added as part of the 2004 amendment.
“Opening to the outside world” was initially made a fundamental State policy for economic development at the Third Central Committee Meeting of the 11th Session of the National Assembly of the Communist Party of China. In 2003, the Third Central Committee Meeting of the 16th Session of the National Assembly of the Communist Party of China passed the “Decision on Several Issues on Improving the Socialist Market Economy System”, which mandates that “the level of opening to the outside world shall be raised at all levels”.20 Thus, “opening to the outside world” was added as the first objective of the Foreign Trade Law in order to emphasise the importance of this policy in the development of China’s foreign trade and to confirm China’s commitment to market opening after its accession to the WTO.21
The fourth objective arises in part from the second paragraph of article 4 of the 1994 Foreign Trade Law, which states that “[t]he State shall. . . safeguard the autonomy of trade operators in their operations.”
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The evolution of the scope of foreign trade law has followed the trends in the development of China’s international trade. For instance, technology trade has corresponded to an increasing share of China’s total international trade. In parallel, China’s lawmakers have encouraged the introduction of advanced technology. In this manner, technology import-export trade and international services trade were incorporated into the scope of the Foreign Trade Law even before China’s accession to the WTO.
In connection with its accession to the WTO, China amended the Foreign Trade Law to include in its scope the protection of TRIPs, a framework for trade investigations, and a set of remedies for violations of trade commitments.
According to article 4 of the Foreign Trade Law, China must also apply a uniform foreign trade regime. Article 4 also includes other guiding principles, such as the encouragement of the development of foreign trade, and the maintenance of fair and free foreign trade.
Articles 5 to 7 stipulate how China is to manage its trade relationship with other countries.
Article 5 consecrates the principles of “equality and mutual benefit”. These are among the Five Principles of Peaceful Co-existence, which have been the cornerstone of China’s foreign policy since the Premier, Zhou En Lai, first announced them in 1954. The 2004 amendment adds a sentence that explicitly recognizes that China may “enter into or participate in such regional economic trade agreements such as customs union agreements, free trade agreements and it may participate in regional economic organizations.”
Article 6 states that China may, pursuant to international agreements or according to the principle of mutual benefit and equality, grant other trade partners mostfavoured nation (MFN) treatment, national treatment or “other treatments”.22
Article 7 of the Foreign Trade Law states that, in the event that any country or region applies prohibitive, restrictive or other similar trade measures on a discriminatory basis, China may take measures appropriate in the actual circumstances.23 First, when the other party is a WTO member, China will take counter-measures only after receiving authorization from the WTO (presumably after going through the dispute settlement process); secondly, when the other party is not a WTO member, China may take any appropriate measure.24
Even after the Foreign Trade Law of 1994, China operated a permit system under which it reviewed the qualifications of candidates to deal in foreign trade. Only those with adequate capital, professionalism, facilities and organization for the conduct of foreign trade were approved by the competent authorities.
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According to the 1994 Law, foreign trade operators made independent decisions with respect to their business activities and were responsible for their profits and losses. Organizations and individuals not holding permits to deal in foreign trade could call upon foreign trade operators to carry out, through an agency contract, foreign trade operations on their behalf within the limits of their objects. Such agency contracts set out the rights and obligations of the parties. The General Principles of Civil Law, which were adopted on April 12, 1986 by the Fourth Session of the Sixth NPC, have already provided rules covering agency. Further, the Foreign Trade Law has provided a legal basis for agency relations between foreign trade operators and organizations which did not have the qualifications for directly engaging in foreign trade.
The amendments of 2004 specifically addressed the issues arising in connection with foreign trade operators. Individuals can now qualify to engage in foreign trade and the international trade of services is included in the scope of the amended Law. Of course, this does not necessarily mean that all private individuals can automatically obtain foreign trading rights.
Even though the old requirement of approval has been abolished, it is still obligatory to go through registrations with the State Administration of Industry and Commerce (SAIC) and with the MOFCOM before foreign trading rights are constituted. Of course, such registrations are supposed to be mere formalities not entailing examination as to the applicant’s capacity to be a foreign trader.
It should also be kept in mind, as per article 8, that special procedures might be required for foreign trade in specific sectors. Furthermore, under paragraph 84(a) of China’s WTO Working Party Report, foreign trading rights do not include distribution rights, which means that some foreign traders, especially non-Chinese firms, might have to rely on other firms for distributing their goods imported from outside of China.
Distribution rights are regulated separately under China’s schedule of specific commitments for services, which provides that most restrictions were to be abolished within three years after accession. State trading monopolies are authorized under the amended Law subject to publication of their existence.
As of 2004, the capital requirement for undertaking foreign trade activity had been lowered to RMB 1.000.000 from its previous level five times higher. From a handful of licensed trading companies prior to the reform movement 1978, to some 8,000 in the early 90s, the number of foreign trading operators exceeded 100,000 as of 2004. Among the 1,852 private enterprises with annual operating revenues in excess of RMB 100.000.000, some two thirds have obtained the right to engage in foreign trade.
Except where stipulated otherwise by laws or administrative regulations, the government permits the free importation and exportation of goods and technology. The 2004 amendment added a new provision, article 15, allowing China to impose a licensing system for some goods. Even though in practice, China has long applied a licensing system to imports of many goods and to imports of technology,25 its application to exports is new.26 This might be driven by China’s need to monitor exports in order to comply with some restrictions other WTO members might impose on Chinese exports pursuant to several provisions of China’s Accession Protocol.27
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Goods that are subject to import or export restrictions or prohibitions account for only a small part of total trade. From April 1, 1996, quotas, licences and other controls on nearly 200 items, or over 30% of the commodities subject to such restrictions, were eliminated.28 As part of the WTO accession deal, China agreed not to introduce, re-introduce or apply non-tariff measures other than those specifically identified and subject to phased elimination in Annex 3 to the Accession Protocol.29 Furthermore, China agreed to expand or phase out many of the existing quotas.30
Even though the GATT explicitly prohibits quantitative restrictions such as quotas, it does recognize the practical needs of countries to deviate temporarily from this obligation for reasons such as to protect national security, to manage a shortage of domestic resources, or to redress disequilibrium in the balance of international payments. Along the same line, article 16 of the Foreign Trade Law provides that imports and exports of goods and technologies may be restricted or prohibited, subject to public notice, for any of the following reasons:
Under the 1994 Foreign Trade Law, the competent foreign trade authority allocated import and export quotas according to the trade performance and capability of the applicants. Apparently, the trade performance requirement would effectively make it impossible for trading enterprises that obtain their trading rights under the new system to get any quota allocations. Thus, this provision was deleted in the 2004 reform. The allocation decisions are now to be made according to the principles of openness, fairness, equality and efficiency.31 A system of attribution of licences by auction was instituted for allocating some parts of the available quotas on certain products.32
An origin management system covering imported as well as exported goods is added in the 2004 amendments. This is driven by the need to comply with the Agreement on the Rules of Origin, as well as the requirements under China’s foreign trade agreements.
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Already, under the Foreign Trade Law of 1994, market access and national treatment were granted to foreign providers of services in accordance with China’s international commitments.
Article 26 of the 2004 Law provides that restrictions and prohibitions on international trade in services are permissible when they are necessary:
Intellectual property rights protection has long been an issue of controversy in China’s trade relationship with other countries, with China accused of being too soft on infringers of intellectual property rights, especially those of foreign countries. At first, this newly added chapter on intellectual rights protection seem to be an affirmation of China’s willingness to fight intellectual property rights violations. A closer look indicates, however, this is far from the case.
This chapter includes three articles, all of which were added in the 2004 amendment. The first, article 29, applies only to “imported goods which infringe upon intellectual property rights and harm foreign trade order”. But most pirated goods sold in China are manufactured locally rather than imported. Also the Foreign Trade Law omits to specify whether intellectual property rights of foreigners are covered.
Article 30 deals with abusive conduct of intellectual property rights holders, including “such practices as preventing the licensee form challenging the validity of licensed intellectual property rights, conducting coercive package licensing or imposing exclusive grant-back conditions in licensing contracts”. Even though not explicitly mentioned, this provision mostly likely covers abuses in China by foreign intellectual property rights holders.
Article 31 is modeled after the notorious “special 301 clause” in the US Trade Act. According to this article, the Chinese Government may adopt such measures as are “necessary” where other countries do not grant Chinese parties national treatment or cannot provide “adequate and effective protection” for their intellectual property rights.
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Under the Foreign Trade Law of 1994, the emphasis was on the punishment of criminal or quasi-criminal behaviors. The reforms of 2004 shift the focus onto anticompetitive behavior.
The revised chapter on foreign trade order includes five articles, three of which were added as part of the 2004 amendment while the original two articles were also revised.
The first article, article 32, prohibits monopolistic behavior. Article 33 prohibits such unfair competition as selling products at unreasonably low prices, collusion in tenders, producing or releasing false advertisements and commercial bribery. Article 34 proscribes:
Under article 35, foreign traders are also required to comply with the applicable foreign exchange control regulations. Article 36 also authorizes the MOFCOM to publicize any acts harmful to foreign trade order.
The 2004 amendments to the Foreign Trade Law introduce a new chapter setting down a framework for China’s investigation into improper trade practices.
Under the new law, the MOFCOM, alone or in conjunction with other concerned government authorities, may investigate the following:
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Such investigations are generally initiated by a public notice of the MOFCOM. Investigations may include written questionnaires, oral hearings, field investigations or specific investigations. After an investigation, the MOFCOM issues a report and adopts appropriate decisions, of which it gives public notice.
The first foreign trade investigation took place in April 2004 when the MOFCOM, upon the petition of the Jiangsu Laver Association, launched an investigation into Japan’s quantitative restrictions on imports of laver. During the investigation, the MOFCOM held several consultations with the Japanese authorities. In the end, the Japanese government agreed to open its laver market to Chinese producers and the investigation terminated in February 2005.
Depending on the results of any foreign trade investigation, the Chinese government might implement several measures.
The first are anti-dumping measures. These might be adopted where a product from other countries is imported below its normal value thus causing or threatening to cause material harm to an established industry, or materially retarding the establishment of a domestic industry. The 2004 Law also includes a new provision on dumping in third countries. The rationale is that the dumping activities in third countries might affect the sales of Chinese firms in that country. In such circumstances, the Chinese government may consult with the third country and request it to take appropriate action.
The second are subsidy-countervailing measures. Where imports are directly or indirectly subsidized by the exporting country thus causing or threatening to cause material harm to an industry in China, or materially retarding the establishment of a domestic industry, countervailing measures may be applied to eliminate or mitigate such harm or threat of harm or retardation.
Article 3 of the Anti-Subsidy Regulations33 defines “subsidy” as “financial aid, income by any means and price supports provided by governments or public organizations in exporters’ countries (regions)”. Financial aid includes:
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The 2004 revision clarifies that, in accordance with the WTO Subsidy and Countervailing Measures Agreement, only specific subsidies are prohibited. These include those obtained:
The third are safeguard measures. Where imports of a product or service are substantially increased thus causing or threatening to cause serious harm to an industry that produces like or directly competitive products, safeguard measures such as are necessary to eliminate or mitigate such harm or threat of harm may be adopted.
The 2004 Foreign Trade Law also includes two new provisions. Under article 45, where an increase of services from other countries or regions causes or threatens to cause injury to domestic providers of like or directly competitive services, the authorities may implement the remedies necessary to eliminate or mitigate the injury or threat of injury and may provide such industry with necessary support. Article 46 allows safeguard measures when restrictions are imposed by a third country on the import of a certain product causing increases in quantities of such product imported into China thus harming or threatening to harm an established domestic industry, or materially to retard the establishment of related domestic industries.
Article 47 of the Law authorizes the government to suspend or terminate its treaty obligations if other parties to such treaties harm China’s interests.
To deal with unexpected and unusual situations that may arise in foreign trade, article 49 of the Law authorizes the competent authorities to establish emergency pre-warning and emergency systems with respect to imports and exports of goods, services or technology.
Under articles 52 and 53 of the new Law, the government is empowered to adopt trade promotion techniques that are universally prevalent. For example, the government has set up the Import and Export Bank and the Foreign Trade Development Fund and Risk Fund. Also, the government may institute an import and export credit system and tax refunds on exports.
Foreign trade dealers may organize associations or chambers of commerce to promote their interests.
The Chinese Chamber for the Promotion of International Trade (CCPIT) organizes, co-ordinates and guides the activities of foreign trade operators.
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The State supports and encourages ethnic minority groups as well as economically underdeveloped regions to develop their foreign trade as a means to strengthen ties with other regions and to extend prosperity throughout the entire country.
Under the 2004 Foreign Trade Law, the government must support and promote small and medium sized enterprises’ participation foreign trade.
The 2004 Foreign Trade Law includes a chapter that sets down punishments that violations of the foreign trade law might be subject to.
Under article 60, violations of State trading monopolies in the conduct of international trade may give rise to fines of not more than RMB 50,000 and, if the circumstances are serious, its licenses to trade may be suspended.
Article 61 of the Law renders smuggling subject to administrative and, in serious cases, to criminal sanctions. Illegal international trade in technologies is «punished in accordance with relevant laws and regulations» and, in the absence thereof, the MOFCOM orders remedial measures, confiscates the illegal proceeds and imposes fines that can reach from one to five times the amount of the illegal gains. Violators’ subsequent applications for import and export quotas or licenses submitted may be refused, and they may be ordered to suspend activities for one to three years. Article 62 provides similar sanctions for violators of restrictions on international trade in services.
Under article 63, forgery and distortion of marks of origin, certificates of origin, import or export licenses, certificates of import or export quota, defrauding the State of tax refunds on exports, smuggling and evading certification, inspection and quarantine inspection are subject to administrative sanctions, including suspensions of activities for one to three years and, in serious cases, to criminal pursuits.
Article 65 renders staff of the foreign trade administration guilty of neglecting their duties, engaging in malpractice for personal gain or abuses of power subject to administrative sanctions as well as criminal pursuits in serious cases. Those found guilty of extorting property or of illegally accepting others’ property for advantages in their activities are subject to administrative sanctions and, in serious cases, to criminal pursuits.
Parties dissatisfied with a specific administrative act of a foreign trade administration authority may apply under article 66 of the Law for administrative reconsideration or they may bring administrative lawsuits before the people’s courts.
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The first Customs Law was adopted on January 22, 1987 replacing the Provisional Customs Law of April 18, 1951 but it was radically amended in anticipation of China’s accession to the WTO, by the “Decision regarding Revision of the Customs Law” adopted at the 16th Session of the Standing Committee of the Ninth NPC on July 8, 2000.
The Customs Law’s purposes are: to safeguard national sovereignty and interests, to strengthen Customs control, and to promote trade and exchanges in science, technology and culture with foreign countries.
The Customs Offices of China are State organs responsible for controlling inward and outward trade activities. The State Council has established the General Administration of Customs to provide nation-wide uniform Customs administration. The government sets up Customs offices at the ports opened to foreigners and other places where Customs affairs are concentrated. A broad delegation of powers has been given to the Customs Offices, mainly in checking inward and outward goods and preventing smuggling. The Customs offices are themselves subject to State audits.
The General Administration of Customs includes a police department that is in charge of the investigation of smuggling and that can arrest and detain suspects pending their transfer to the procuratorate. Under the Customs Law’s article 6 (4), the Customs police officers may, within their zones, search persons, means of transport and “places” suspected of smuggling. They may seize means of transport. Persons suspected of smuggling may be detained for 24 hours or up to 48 hours in “special circumstances” before being freed or remitted to the procuratorate. The Customs police can seize bank accounts in the course of investigations.
All goods and means of transport must enter and leave the country through a Customs office. The owners of all articles are responsible for the payment of any Customs duties. Brokers specifically mandated by importers and exporters may accomplish formalities in their names, and where they act without such authorization they incur their own liability.
Customs offices are entitled to provide rewards to those who denounce violations of the Customs Law.
Inward and outward means of transportation falling within the scope of the law mainly include a variety of vessels, vehicles, aircraft and beasts of burden which enter or leave the territory carrying persons or goods. When these means of transportation pass through a Customs Office, the carrier must make an accurate declaration and present documents for examination.
When inward- or outward-bound means of transportation are to move directly from one Customs checkpoint to another, they must meet the requirements of Customs control, and go through Customs formalities. Only with advance notice to Customs authorities may they deviate to foreign territory.
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When inward means of transportation enter the country without clearing customs and when outward means of transportation clear customs before leaving the territory, they must move along routes specified by the authorities.
Controlling goods is a basic function of Customs authorities. All imported goods from the time of their entry onto the territory until the completion of Customs formalities and all exported goods from the time of their declaration to Customs until they leave the territory are subject to Customs control. Upon application of the consignee or consignor and with the approval of the Customs General Administration goods may be exempted from examination.
Without Customs approval, goods under Customs control may not be opened, packed, delivered, conveyed, replaced, repackaged, mortgaged or transferred, and their labels and marks may not be changed.
Under the Customs Law, the consignors of exports and consignees of imports are responsible for making truthful declarations. Such obligations include acceptance of Customs control, making declarations, presenting necessary documents and clearing goods. Imports must be declared to Customs within 14 days of their arrival notice issued by the carrier. Exports must be declared at least 24 hours prior to loading, except where Customs specifically approves otherwise.
All trans-shipments and transit goods must be declared to the Customs authorities at the point where they are introduced into the territory. They must also be shipped out of the territory within the specified time limit.
Declarations may be made in writing or electronically.
The consignor or consignee submits its import or export licence and relevant documents to Customs. In the absence of the required import or export licence, goods subject to licences may not be released.
Once filed, documents may not be changed without the specific approval of the Customs authorities. Importers may inspect goods before filing their Customs declarations.
All imports and exports may be subjected to physical inspections, the expenses of which are assumed by the importers and exporters concerned.
Goods may not be withdrawn from Customs until all duties have been paid or guaranteed to the satisfaction of Customs.
Where the consignee of imports does not make a declaration within three months of the issue of the arrival notice (or sooner where the nature of the goods excludes such a wait), Customs may seize the goods and sell them.
Goods may be imported free of duty subject to their re-exportation within six months, unless extended by Customs.
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Enterprises engaged in the processing trade for the export market are required to register the relevant contracts with Customs, which determines the portion of domestic and foreign inputs. Where for any reason any of such products are sold on the domestic market, the appropriate duties and charges must be paid.
In principle, Customs formalities are accomplished at the Customs office where the goods enter or leave the territory, but Customs may approve other measures as requested by the consignee or the consignor as the case may be. Upon application of the consignor or consignee and subject to approval of Customs, clearance for imported goods may be accomplished at the place of destination, and that of exported goods at the place of departure, provided that these places have Customs offices.
Goods under Customs control may be stored outside Customs surveillance areas subject to approval by Customs.
The origin of goods is determined in accordance with applicable national rules and they are classed according to national classifications.
Customs will provide advance opinions upon presentation of written requests accompanied by all relevant information.
Customs offices have an obligation to enforce intellectual property rights.34
Not all imported and exported goods are subject to duties. Duty reductions or exemptions may be given with regard to the following items:
The consignee of imported goods, the consignor of exported goods and the owner of inward- and outward-bound goods are responsible for paying applicable duties. The payment of duties on inward- or outward-bound goods must be made by the duty-debtor prior to the release of the goods.
Duties levied must be paid within 15 days following the date of issuance of the duty memorandum. Beyond the expiration of this time limit, a fee for delayed payment is collected by Customs. Also, beyond three months, Customs may seize the amount of the debt in the accounts of any bondsman of the goods as well as sell off the dutiable goods.
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The values for Customs of imported and exported goods are based on their “transaction value”. For imported goods, this corresponds to the normal CIF price, as recognized by Customs. The basis for exported goods is the FOB price, as recognized by Customs, less any export duty. Where the CIF or FOB price can not be ascertained, the base value is determined by Customs.
Where the duty-debtor is involved in a dispute with Customs over payment of duties, they must be paid, and only then may an application in writing be made to Customs for reconsideration of the case. If the duty-debtor still objects to the decision, it is entitled to sue before the people’s courts.
Any legal person, other organization or citizen may become a bondsman.
Bondsmen may fulfil their commitments in renminbi as well as in free convertible currencies, by drafts, cashier’s cheques, debentures and certificates of deposit, letters of guarantee from banks and other financial institutions, or other property approved by Customs.
Customs officers are obligated under article 72 of the Customs Law “to enforce the law impartially, to be honest and self-disciplined, to devote themselves to their duties, to render their services with civility, and not to commit crimes such as smuggling, extortion, and bribery”. Officials are expected to have “good political and professional qualifications”. Recruitment is based on examinations.
Procedures in the event of violations of Customs laws are divided into two classes: administrative and criminal. Administrative investigations are conducted under the authority of Customs, whereas criminal investigations are overseen by the people’s procuratorates.
Administrative penalties are imposed by Customs officials where the violations do not constitute the crime of smuggling. Administrative penalties include confiscation of the goods concerned and/or of the illegal income obtained therefrom, as well as the imposition of fines and suspensions of licences.
Criminal sanctions are imposed by the people’s court on persons found guilty of smuggling. These sanctions include fines, confiscation of the smuggled goods, of the means of transportation used for carrying such goods and of the illegal incomes obtained therefrom, imprisonment and, in cases of narcotics trafficking, the death penalty.
Decisions of any level of Customs may be appealed to the next higher level for reconsideration.
Under article 80 of the Customs Law, any entity or individual has the right to accuse and report violations of the laws and regulations by Customs officials and the relevant authority is obligated to conduct an investigation without delay. The identity of whistleblowers must be kept secret.
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The General Administration of Customs has as of January 1, 2005 instituted expeditious recourses to the people’s courts in the event of disagreement with its rulings.
Under the definition in article 82 of the Customs Law, smuggling includes transporting and mailing into and out of the country prohibited goods or goods on which the duties have been evaded, as well selling in China goods under Customs control.
Article 91 of the Customs Law makes it a violation to import or export goods that infringe intellectual property rights protected in China. Such goods may be seized and the perpetrators may be subjected to administrative sanctions as well as criminal pursuits where appropriate.
Customs may be held liable to compensate harm caused when it detains means of transport, goods or persons in violation of the law.
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The Regulations on the Administration of Import and Export of Goods that came into effect on January 1, 2002, define a dual framework governing, on the one hand, restrictions on imports through allocations of quotas where quantitative restrictions apply and by licences otherwise and, on the other, restrictions on exports through a system of licences.
These regulations do not supersede other provisions dealing specifically with environmental protection, with intellectual property rights or trade in sensitive materiel such as dual use goods, or with anti-dumping measures applied in conformity with the Foreign Trade Law.
The MOFCOM is responsible for negotiations with respect to international trade and for the settlement of trade disputes.
The government must publish lists of all goods, the importation or exportation of which is to be prohibited or restricted at least 21 days before their implementation, provided that in exceptional circumstances it may be published as late as the date of implementation.
Import quotas for any year are to be published no later than July 31 of the previous year.
Applicants for import quota must file their claims between August 1 and August 3 of each year and the allocations are made by the following October 31.
Tariff rate quotas for imports are to be published between October 15 and October 30 of every year to apply in the year following and applications must be filed between October 15 and October 30. Decisions on whether to allocate the tariff rate quotas must be rendered by December 31.
If import quotas are adjusted, their amounts must be published 21 days in advance.
Export quotas for any year are published no later than October 31 of the previous year, applicants file their claims between November 1 and 15, and the allocations are announced no later than December 15 for the following year.
In allocating quotas, the administration takes into consideration:
Quota holders that do not use up their annual allocations must return the unused portion by September 1 of the year in question, lest their allocations for the following year be amputated to such extent. The equivalent dates for tariff rate quota holders and export quota holders are respectively September 15 and October 31.
Licence administration departments must respond to applications for import licences within 30 days from filing.
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The government may place the trading of certain goods under the “administration of State trading”. Catalogues of goods in State trading must be published. The MOFCOM publishes directories of State Trading Enterprises as well as of Designated Trading Enterprises and no other entities or organizations may engage in the trade of goods in State trading.
Article 47 of the Regulations on the Administration of Import and Export of Goods provides that: “The State allows non-State trading enterprises to carry on the import and export of certain quantities of goods under the administration of State trading.”
State trading enterprises must communicate semi-annually to the MOFCOM information on their purchases and sales, including prices, of goods under administration of State trading.
According to article 52, State Trading Enterprises and Designated Trading Enterprises must conduct business operations under “normal commercial conditions” and they may not choose suppliers for non-commercial factors, nor may they reject mandates from other enterprises or organizations based on non-commercial factors.
The MOFCOM may, in exceptional circumstances, implement provisional measures that restrict trade:
Such provisional measures must be published before they are implemented.
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Where the circumstances are sufficiently serious, the following acts give rise to criminal pursuits:
Where the violations do not justify criminal pursuits, they still remain subject to administrative sanctions entailing the seizure of contraband goods and illegal profits, the loss of professional qualifications, fines and other measures provided by the law.
Under article 71 of the Regulations on the Administration of Import and Export of Goods, decisions of administrative organs with respect to quotas and licences may be subjected to administrative reviews and they may be appealed to the people’s courts. [Page182:]
The first import and export commodities inspection law was adopted at the Sixth Session of the Standing Committee of the Seventh NPC on February 21, 1989. It was amended in accordance with the Decision of Revising the Commodities Inspection Law adopted by the 27th Session of the Standing Committee of the Ninth NPC on April 28, 2002.
China has established a complete commodity inspection system. The State Administration for Commodities Inspection (SACI) has nation-wide responsibilities. Local inspection authorities for imported and exported commodities set up by the SACI are responsible for inspections of imported and exported commodities in regions under their administration. According to the Import and Export Commodity Inspection Law, inspections performed on imported and exported commodities must cover quality, specifications, weight, packing and requirements for safety and sanitation.
The SACI sets down, adjusts and publishes the list of import and export commodities (List of Commodities)35 subject to inspection by the commodity inspection authorities. Import and export commodities included in the List of Commodities as well as those subject to compulsory inspection must be inspected by the commodity inspection authorities or other inspection institutes designated by the SACI in accordance with the standards stipulated by law or regulations. In the absence of such stipulations, imported and exported commodities are inspected in accordance with the inspection standards agreed upon in the foreign trade contract.
Imported commodities that have not undergone inspection may not be allowed entry for sale or use, and such exported commodities that have not undergone inspection or that have been found to be sub-standard, may be not exported. Imported and exported commodities may be exempted from inspection upon prior application to the SACI by the receivers and consignees.
Imported goods included on the List of Commodities subject to inspection by the authorities must be registered with the inspection authorities located at the port of discharge or the station of arrival. The foreign trade contract, bill of lading, invoices and Notice of Arrival of Imported Goods and other relative documents must be produced by the recipient of the goods. Furthermore, recipients apply for inspection at the place and within the time limit specified by the commodity inspection authorities. Imported commodities that are included on the List of Commodities are checked by the Customs authorities upon presentation of the appropriate seals affixed on the Customs declaration.
There are special requirements for importing strategic commodities and complete sets of equipment. The recipients must, where the foreign trade contracts so stipulate, conduct initial inspection and supervision over manufacturing or loading in the exporting countries prior to shipment. The commodity inspection authorities may dispatch inspection personnel to take part in the initial inspection and supervision.
As to those commodities that are not subject to inspection by the commodity inspection authorities, if found not up to standard, damaged or short in weight or quantity, the recipient may apply to the inspection authorities to obtain inspection certificates for the purpose of making a claim.
Inspectors must carry out the inspection within the prescribed time limit and issue the relevant certificates.
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Not all exported goods need be inspected. But, the consignors of the items listed above must apply to the commodity inspection authorities for inspection at the place and within the time limit specified by the authorities:
When applying for inspection, the following documents must be submitted:
After the applicant has fulfilled its obligations, the inspection authorities must carry out the inspection procedures and, where appropriate, issue inspection certificates.
Exported commodities that are included on the List of Commodities are checked and, where appropriate, released by the Customs authorities upon presentation of the inspection certificates or notices of release issued by the commodity inspection authorities.
Where dangerous or perishable goods are involved, the export inspection procedure is much more constraining. Enterprises that produce dangerous goods for export must apply to the commodity inspection authorities for prior approval of their packing as well as of vessel holds or containers used for carrying the goods. Goods that fail the tests may not be exported.
Where a party to an inspection of import and export commodities disagrees with the inspection results obtained by the commodity inspection authorities, it may apply to the original commodity inspection authorities, to the commodity inspection authorities at the next higher level or to the SACI for re-inspection. Where a party disagrees with the conclusion of the re-inspection made by the commodity inspection authorities or with the sanctions imposed, it may apply for administrative reconsideration or it may file a lawsuit before the people’s courts.
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The SACI and other authorities must abide by the law and must protect the national interest, while being “rigorous in the implementation of their duties”. Staff in the commodities inspection sector must be faithful to their duties, they must provide services in a civilized manner, they must abide by professional ethics, and they must not abuse their powers, or seek personal gain.
Any unit and individual may report illegal and rule-breaking activities of SACI or of other authorities as well as of their working staff. Departments involved must investigate the matters while maintaining the accusers’ identities confidential.
Violations of the Import and Export Inspection Law include the following:36
Such violations give rise to administrative and, in serious cases, criminal sanctions, including confiscation of illegal gains, seizure of property, professional disqualifications, fines and, in serious cases, imprisonment. [Page185:]
During the reform and opening movement after 1978 and leading up the China’s accession to the WTO, the most important regulations governing transfers of technology were:
In connection with the country’s entry into the WTO, reforms were undertaken to integrate its required standards. New Regulations on Technology Import and Export Administration were adopted at the 46th Executive Meeting of the State Council on October 31, 2001, which entered into force on January 1, 2002. The amendments to the Foreign Trade Law came into effect on July 1, 2004, which, by virtue of its article 2, applies to the protection of trade-related aspects of intellectual property rights.
China seeks to encourage the importation of advanced and otherwise specifically desired technologies.38
By virtue of article 14 of the Foreign Trade Law, unless otherwise provided, imports and exports of technologies are free. But article 15 stipulates that the MOFCOM may subject international trade in certain technologies to licensing procedures.
International trade in technologies that are free must in any case be registered with the MOFCOM. Under articles 16 and 17, justifications for the instauration of licensing regimes include the safeguarding of State security, public interests and public morals and the promotion of the establishment of a particular domestic industry.39 Article 18 of the Law requires the publication of the list of technologies of which the international trade is subject to restrictions. According to article 19, technologies whose import or export is restricted are regulated by licensing regimes.
Those engaged in the international trade of technology must register with the MOFCOM’s competent bureau.40
Chapter 5 of the Foreign Trade Law specifically addresses issues relating to intellectual property. Under article 29 of the Foreign Trade Law, the MOFCOM may prohibit the import of infringing goods.
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The MOFCOM is also expressly authorized to take any measures necessary to eliminate from international technology contracts provisions that prevent the Chinese licensee form challenging the validity of the intellectual property rights in the licensing contract, which impose tying agreements or exclusive grant backs of intellectual property developments, or which impair fair competition in foreign trade.41 The Foreign Trade Law entitles the government to impose trade sanctions on countries that do not or cannot effectively guarantee Chinese parties’ national treatment in respect of their protection of intellectual property rights.42
Technology imports and exports cover all acts of transferring technology from outside into the territory of the PRC or vice versa whether by way of trade, investment or economic and technical cooperation, such as assignments of patent rights, patent licences, assignments of technical secrets, the provision of technical services.43
All aspects of a technology transfer not regulated by Chinese law are subject to ordinary rules of private international law and contract law. For instance, the capacity of an incorporated foreign transferor of technology to conclude or perform the contract is not regulated in Chinese regulations and thus, under private international law, would usually be decided under the law of the country of constitution of the company.
The concept of technology introduction under Chinese law is defined in a broad sense as all introductions or transfers of technology by means of trade or economic and technical co-operation, involving:
The most common ways of transferring technology into China are the following:
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Imports of technologies covered by articles 16 or 17 of the Foreign Trade Law as mentioned above are prohibited or restricted. The MOFCOM sets down and publishes lists of such classifications.44
Prohibited technologies may not be imported at all and restricted technologies may only be imported subject to grant by the MOFCOM of licences.45 The MOFCOM grants such licences upon application by the importers, including any specific authorizations that may be required in connection with particular activities.46
With respect to restricted technologies, two alternative procedures are provided by the Technology Import and Export Regulations.
First, under articles 12–14, an application may be filed with the MOFCOM to obtain a letter of intent to approve the importation. The MOFCOM must reply within 30 days of receipt of an application. Upon receipt of a letter from the MOFCOM confirming its intent to approve the licence, the importer may proceed to sign the relevant contract, and then re-apply to the MOFCOM to obtain the actual licence to import. The MOFCOM at that point verifies the “authenticity” of the contract and must issue its ultimate decision to approve or disapprove the importation within ten days.47
Or, under article 15, the technology importer may include in the original application to the MOFCOM a copy of the concluded contract, in which case the MOFCOM must reply within 40 days either granting or refusing the licence.
Article 16 requires that the MOFCOM issue the licence once the importation has been approved. Only after the licence has been issued can the relevant contract enter into effect.
Even technologies that may be freely imported must be registered with the MOFCOM, though the accomplishment of the procedure is not a pre-condition of entry into effect of the agreement.48 The declaration of importation includes a copy of the contract and proof of the legal statuses of the parties.49 The MOFCOM must then issue a certificate of registration within three days, which entitles its holder to make the relevant foreign exchange movements.50 When the “main contents” of a technology import contract are amended, the licensing or registration procedures, as the case may be, must be renewed.51
The MOFCOM officials are bound to respect the confidentiality of information they receive in the performance of their duties.52
The foreign technology exporter warrants that it either owns the technology or has the right to assign or licence it. In the event of a challenge by a third party with respect to the foreign transferor’s rights, the importer must inform the exporter, which must cooperate in “removing the impediment”.53 Where an infringement of a third party’s rights has occurred, the exporter bears the liability.
Under article 25 of the Regulations, the foreign technology supplier warrants that the technology is “complete, accurate, effective and capable of achieving the agreed technical object”.
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Each of the parties is required to keep confidential the undisclosed part of the contracted technology, unless it becomes disclosed due to no fault of the importer.
Article 27 of the Regulations imposes that developments of the imported technology during the term of the import contract belong to the party at their origin.
When technology contracts expire, the parties “may negotiate the continued use of the technology according to the principles of justice and equity”.54
Article 29 prohibits technology import contracts that
According to article 47 of the Technology Import and Export Regulations, imports of prohibited or restricted technologies without respecting the above procedures, or doing so outside the scope of one’s business, may be treated as the criminal offences of smuggling, carrying on business without a licence or, in the case of exports, as violations of national secrecy laws. In less serious cases, the MOFCOM may issue warnings, confiscate illegal income and impose fines up to five times the illicit gains or revoke the foreign trade licence.
Import and export licences may not be falsified,55 nor may they be obtained by fraudulent means.56 Civil servants of the MOFCOM may be subject to criminal sanctions for violating their duties of confidentiality.57 Under article 52 of the Regulations, civil servants of the MOFCOM may not “abuse their official power, ignore their duties, or take advantage of their official positions to seek or seize financial and property gains”. [Page189:]
According to the Provisional Rules on Foreign Trade Agency,58 agency agreements should be concluded in accordance with the principles of equality and to the mutual benefit of the parties.
They must be in written form and must define the scope of the agent’s powers, its rights and obligations, the amount of its fees, the period of validity of the agency agreement and the provisions governing the settlement of disputes. It must further include basic information and requirements on the goods to be imported or exported.
The agent is limited by the scope of its powers. If it acts without authorization or after termination thereof, it alone is bound by the agreement unless the principal ratifies it.
With the agent’s consent, the principal may take part in negotiations with third parties. However, the principal is not allowed to inquire about foreign commodities or conduct commercial negotiations with the third party by itself, nor can it accept by itself the terms and conditions of the offer presented by the third party.
The principal has the obligation to go through the relevant application and approval procedures for importing and exporting goods, to timely make a detailed specification of the goods to be imported or exported and to provide if necessary the means of payment for the imported goods or alternatively the goods to be exported, and paying the agent’s agreed fees, as well as expenditures, taxes and interest advanced by the agent on its behalf.
If the principal suffers a loss due to a defect in the provisions of the import/export contract, it has no right to compensation from the agent. The principal is not entitled to modify or amend the import/export contract on its own initiative and any such modification or amendment would not be valid.
In case of force majeure, the principal may by fully or partly exempt from performing its obligations to the agent, but it must inform the agent in a timely manner and provide it with a certificate issued by the relevant agency. If the agent cannot be relieved of its responsibility toward the foreign party, the principal must assume it.
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The agent’s main duties are the following:
Where the foreign merchant claims compensation for damages, the agent must in a timely manner send the documents presented by the foreign party to the principal and the latter must deal with the claim in accordance with the agency agreement. In the event the claims are not settled with the foreign party, the agent, if it is at fault, is liable towards the foreign party. When the principal is to blame, it indemnifies the agent.
Where claims are brought against the foreign party, the principal must, within the claim period, provide the agent with the certificates necessary to enable the agent to file the claim in a timely manner. The agent must keep the principal informed about the progress of the claim and transfer to the principal any payments received in settlement of the dispute. Where a claim cannot be pursued successfully, the principal bears the loss, unless the agent is to blame.
The parties may agree in the agency contract that the agent has the duty to ask for arbitration or to initiate an action before the courts according to the import/export contract, provided that the principal covers the costs and provides assistance. Any consequent loss or gain is for the account of the principal. If the agent refuses to commence, or delays the commencement of, the arbitration or court action, the principal is entitled to compensation.
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China’s accession to the WTO has entailed a radical transformation of the country’s international trade regime.
Though less than perfect, the country’s record of implementation of its accession commitments has been quite satisfactory.
1 These include the General Agreement on Trade in Services (GATS), the Trade Related Intellectual Property Rights (TRIPs) Agreement, the Trade Related Investment Measures (TRIMs) Agreement, without recourse to the provisions of its article 5.
2 At http://en.ce.cn/subject/RetailinginChina/Regulation&Policy/200410/18/t20041018_2018070.shtml
3 Imported products, including physically incorporated components, introduced into the other parts of China’s customs territory from the special economic areas are to be subjected to all taxes, charges and measures affecting imports, including import restrictions and customs and tariff charges, that are normally applicable. Henceforth, China will inform the WTO of all relevant laws, regulations and other measures relating to its special economic areas, listing these areas by name and indicating the geographic boundaries that define them.
4 In particular, those listed in Annex 4 may be subject to price controls, consistent with the WTO Agreement, in particular article III of the 1994 GATT and Annex 2, paragraphs 3 and 4 of the Agreement on Agriculture.
5 Shen Da Ming and Feng Da Tong, Gouji Mouyifa Xinglun (The New International Trade Law), Falu Chubanshe Publishing House, Beijing, 1989, p. 462-465. These trade agreements and treaties are divided into three categories: (i) bilateral trade agreements signed with OECD member states and some developing countries, typically stipulating reciprocal grants of MFN treatment; (ii) bilateral treaties stipulating MFN grants and a list of exchange products; (iii) trade agreement stipulating MFN grants, a list of exchange products and an agreement for payment arrangements. This category of agreements has been used mostly in trade relations with the former Soviet Union and its successor States and East European countries.
6 Subject to reservations with respect to articles 1.1(b) and 11, China was an original signatory to the Vienna Convention, which became applicable to China and ten other countries on January 1, 1988. For detailed background information and insightful commentary on China’s participation and signing of the Vienna Convention, see Xu Guojian, The People’s Republic of China and the International Unification of Private Law - with particular reference to the application of the 1980 Vienna Sales Convention in China, in Reports presented to the Colloquium at the occasion of the Tenth anniversary of the Swiss Institute of Comparative Law, Publication of the Swiss Institute of Comparative Law, Zurich, 1992, pp. 295-300.
7 The New York Convention of 1958 became applicable to China on April 22, 1987 with its two reservations: (i) the “reciprocity” reservation; and (ii) the “non-commercial disputes” reservation. To implement the Convention, the Supreme People’s Court has defined the legal concept “non-commercial” in its Circular of April 10, 1987 with respect to implementing the participation of China in the Convention on the recognition and enforcement of foreign arbitral awards. See Stanley B. Lubman and Gregory C. Wajnowski, International Commercial Dispute Resolution in China: A Practical Assessment, in The American Review of International Arbitration, vol.4, No.2, 1993, p. 125.
8 OECD, China in the World Economy, Paris 2002, p. 697.
9 OECD, China in the World Economy, Paris 2002, p. 697.
10 OECD, China in the World Economy, Paris 2002, p. 697.
11 During the first APEC meeting held in November 1993, in Seattle, the President of China Jiang Zemin met with the President of the United States, Bill Clinton. This meeting signaled, according to The Economist Intelligence Unit’s country profile 1995-96, a shift in US-Chinese policy from sanctions to “engagement”.
12 See e.g., articles 3.4, 89.4 and 14, and 59.2 of the Constitution.
13 The Law was adopted at the Seventh Session of the Standing Committee of the Eighth NPC on May 12, 1994.
14 These included:– the law with respect to economic contracts involving foreign interests, which was adopted at the 10th Session of the 6th NPC on March 21, 1985, which came into effect on July 1, 1985, and which was repealed upon adoption of the Contract Law, adopted at the Second Session of the NPC on March 15, 1999, article 428;– the law with respect to inspection of imports and exports of commodities which was adopted at the Sixth Session of the Standing Committee of the Seventh NPC and promulgated on February 21, 1989 and which came into effect on August 1, 1989;– the law with respect to Customs which was adopted on January 22, 1987 at the 19th Session of the Standing Committee of the Sixth NPC and which came into effect on July 1, 1994;– the law with respect to arbitration which was adopted by the Eighth Session of the Eighth NPC and promulgated on August 31, 1994 and which came into effect on September 1, 1995; and– the Maritime Law which was adopted by the 28th Session of the Standing Committee of the 7th NPC and promulgated on November 7, 1992 and which came into effect on July 1, 1993.
15 The revisions were passed on April 6, 2004 at the 8th Session of the Tenth NPC.
16 Site of the MOFCOM: http://english1.mofcom.gov.cn/mission/mission.html.
17 They are: the General Office, the Department for Human Resources, Education and Labour, the Policy Research Department, the Department of Treaties and Laws, the Department of Planning and Finance, the Department of Asian Affairs, the Department of Western Asian and African Affairs, the Department of European Affairs, the Department of American and Oceania Affairs, the Department of Taiwan, Hong Kong and Macao Affairs, the Department of International Trade and Economic Affairs, the Department of WTO Affairs (Bureau for WTO Notifications and Inquiries), the Department of Foreign Trade, the Department of Import and Export of Electromechanical Products (State Office for Import and Export of Electromechanical Products), the Department of Scientific and Technological Development and Trade in Technology, the Department of Market System Development, Department of Commercial Reform and Development, the Department of Market Operation Regulation (National Cocoon and Silk Coordination Office), the Department of Foreign Investment Administration, the Department of Foreign Aid, the Department of Foreign Economic Cooperation, the Bureau of Fair Trade for Imports and Exports, the Bureau for Industrial Injury Investigation, the Department of Information Technology and the Protocol Department.
18 The Foreign Trade Law of 1994 included a total of 44 articles divided into eight chapters:– general provisions, including provisions on legislative purpose, scope of application, basic principles and regulating authorities;– foreign traders definition, procedures and requirements to qualify as a foreign trader and the rights and obligations of foreign traders;– import and export of goods and technology adoption of the basic principle of free import and export of goods and technology and covering the circumstances in which the State may restrict or prohibit imports and exports, and the allocation of import and export quotas;– international trade in services: definition of the principles on regulating the services trade, as well as circumstances in which the State may restrict or prohibit trade in services;– orderly foreign trade: definition of prohibited foreign trade activities, regulations on foreign currency controls, safeguard measures, anti-dumping and anti-subsidy measures;– promotion of foreign trade by financial assistance, through help to international trade associations and the China International Trade Promotion Organization, and assistance to underdeveloped regions;– trade liabilities: the sanctions for violations of foreign trade regulations;– additional provisions including special rules for border trade and China’s separate customs territories.
19 For example, the original article 13 provided that “An organization or an individual that does not acquire a license for carrying out foreign trade activities may appoint a foreign trade operator as agent on an ad hoc basis”. The new article 12 states that “Foreign trade dealers may accept the authorization of others and conduct foreign trade as agents within their scopes of business”.
20 Part VIII of the Decision.
21 Treaties and Laws Division of the Ministry of Commerce ed., Interpretations on the Foreign Trade Law of the People’s Republic of China (the Foreign Trade Law Interpretations), China Commerce and Trade Press, 2004, p. 3.
22 In the view of the authors, such “other treatments” include two situations. One is treatment that is more favourable than that granted to the MFN. Free trade agreements would fall into this category. The other possibility concerns treatments less favourable than that granted under MFN or national treatments. Thus, national treatment, even though it is a general obligation under the GATT, is only a specific commitment under the GATS, which means that China is free to deny national treatment in sectors that are not included in China’s services schedule.
23 The wording of the provision is similar to that of Section 301 of the Trade Act of 1974 of the United States, which is widely perceived as an example of unilateralism inconsistent with WTO obligations.
24 Foreign Trade Law Interpretations, at 19.
25 The State Council promulgated a first set of regulations on January 10, 1984.
26 This might be driven by China’s need to monitor exports in order to comply with some restrictions other WTO members might impose on Chinese exports pursuant to several provisions of China’s Accession Protocol, e.g., the Transitional Product-specific Safeguard Mechanism or the Special Textile Safeguard Mechanism.
27 Examples include the Transitional Product-specific Safeguard Mechanism or the Special Textile Safeguard Mechanism.
28 See note 3, supra.
29 Paragraph 122.
30 Paragraphs 124-126
31 Article 20 of the Foreign Trade Law.
32 The methods and conditions applicable to quota attribution were defined in the implementing rules of April 13, 1994 with respect to administration of import quotas on general commodities, which were promulgated jointly by the State Planning Commission, the MOFCOM, the People’s Bank of China, the General Administration of Customs and the State Administration of Exchange Control, since renamed the State Administration for Foreign Exchange.
33 The Measures were promulgated by the State Council on November 26, 2001 and were revised in accordance with the Decision of the State Council on Revising the Anti-Subsidy Regulations that were promulgated on March 31, 2004 and came into effect as of June 1, 2004.
34 Article 44 of the Customs Law.
35 Article 4 of the Import and Export Inspection Law.
36 Articles 26, 27, 28 and 29.
37 These Rules cancelled and replaced the Measures for examination and approval of technology-introduction contracts promulgated by the MOFCOM on September 18, 1985.
38 Article 7 of the Technology Import and Export Regulations.
39 Article 16 of the Foreign Trade Law.
40 Article 9 of the Foreign Trade Law.
41 Article 30 of the Foreign Trade Law.
42 Article 31 of the Foreign Trade Law.
43 Article 2 of the Technology Import and Export Regulations.
44 Article 8 of the Technology Import and Export Regulations.
45 Articles 9 and 10 of the Technology Import and Export Regulations.
46 Article 11 of the Technology Import and Export Regulations.
47 Article 14 of the Technology Import and Export Regulations.
48 Article 17 of the Technology Import and Export Regulations.
49 Article 18 of the Technology Import and Export Regulations.
50 Articles 19 and 20 of the Technology Import and Export Regulations.
51 Article 21 of the Technology Import and Export Regulations.
52 Article 23 of the Technology Import and Export Regulations.
53 Article 24 of the Technology Import and Export Regulations.
54 Article 28 of the Technology Import and Export Regulations.
55 Article 49 of the Technology Import and Export Regulations.
56 Article 50 of the Technology Import and Export Regulations.
57 Article 51 of the Technology Import and Export Regulations.
58 Promulgated by the MOFCOM on August 29, 1991.