Chiese Foreign Trade Law Updated

By LIN QI & LI WUZHOU

Shen Sibao has recently been giving many lectures on the revised China Foreign Trade Law.

On July 1, 2004 revisions to China's Foreign Trade Law, made in view of its burgeoning trade and booming economy, came into force.

China's foreign trade volume reached US $366.6 billion in 1994, more than ten years after implementation of the reform and opening policy. Its Foreign Trade Law promoting opening and regulating trade development was promulgated the same year. Upon entering the WTO, China's foreign trade volume continued to increase and reached US $850 billion in 2003, making it world number four. At this point, it became plain that the Foreign Trade Law formulated ten years previously was out of synch with the rapid changes that were occurring, and revisions were planned.

Professor Shen Sibao, School of Law of the University of International Business and Economics President and well-known Chinese trade law expert, has recently been giving media interviews and lectures to Chinese government officials on the revised Foreign Trade Law. China Today interviewed Professor Shen and raised questions concerning the impact of the revised law on foreign investors and businesspeople.

Revisions Benefit Foreign Investors

"China's expanded foreign trade volume has altered its overall foreign trade situation, " said Professor Shen. "Revisions to its Foreign Trade Law will bring China's trading practices into line with international norms and WTO regulations. The amendments are specific to China's guarantee on entering the WTO that it would open the Chinese market wider and improve its legislation. They also strengthen China's foreign trade power. This is good news for Sino-foreign joint ventures, cooperative businesses and foreign-owned enterprises in China, as well as to foreign investors."

China is now the world's most attractive investment venue. Its direct foreign investment stands at US $450 billion, and its 430,000 government approved foreign-owned enterprises, Sino-foreign joint ventures and cooperative enterprises generate more than half of its imports and exports. The revisions prohibit monopoly and unfair competition, putting into place a more unified, justified and free foreign trade order. According to WTO regulations, there are three types of foreign-invested enterprises or ventures that qualify for the same rights as Chinese domestic enterprises. They are detailed in the law amendments.

"The solely foreign-owned enterprises, Sino-foreign joint ventures and cooperative enterprises are a part of Chinese domestic industries," said Shen, "The same level of protection of and service to domestic industries also applies to them." The revisions endorse China's promise upon entering the WTO to accord foreign enterprises and their operatives the same treatment as those in China, in terms of trading rights.

The three kinds of foreign-invested enterprises or ventures in question used to be victims of foreign unilateral trade protectionism. The revised Foreign Trade Law incorporates new articles on intellectual property rights protection, foreign trade investigations and foreign trade relief. It states that the state may carry out trade investigations and negotiations on behalf of any industry that meets unfair treatment in world terms, and that it may formulate measures to protect the industry and its enterprises. This also applies to the three kinds of foreign-invested enterprises and ventures in China.

The law amendments also expand the business scope of foreign-invested enterprises and ventures in China. For example, cell phone producing enterprises were previously disallowed from exporting any other products, but the revisions now permit this.

More in Common with International Practice

"Revisions to the law will also bring benefits to overseas operators dealing exclusively in trade, and having no business entities in China," said Shen. "They seek a stable, unified and justified market in China, principles that are clearly stated in the revisions."

The emphasis within the old trade law was on trade administration, foreign trade operation rights approval, trade quota allocation and trading license administration. Penalties for violations were not serious enough to inhibit illegal activities. The new trade law has greater emphasis on supervision and service that will establish a more unified, open and ordered Chinese trade market. Penalties for illegal activities perpetrated by foreign trade dealers and administrators are now more clearly stated. Professor Shen is confident that these amendments will effectively control the conduct of foreign trade administrators, and inhibit bribery and corruption.

Chapter 10 of the revised Foreign Trade Law contains regulations regarding containment of local protectionism - an anathema to both domestic and foreign business operators. The Chinese central government requires all Chinese provinces, municipalities and autonomous regions to conduct their foreign trade on unified and justified principles in accordance with China's commitments to the WTO. Any violations will incur legal repercussions on enterprises and local officials concerned.

The amendments incorporate the experience of developed Western countries and are guided by WTO principles and rules. Western entrepreneurs and traders will therefore recognize China's newly amended Foreign Trade Law.

The most outstanding revision is that of China allowing a natural person in the country to engage in foreign trade. "This amendment accords with those to the Chinese Constitution regarding human rights protection. It ends discrimination against domestic individual traders and medium-sized and small enterprises within foreign trade activities," sadi Shen. "It breaks the monopoly of large enterprises in foreign trade. SOHOs (Small Office/Home Office) in big cities like Beijing and Shanghai can now operate from residential bases. Moreover, small foreign companies and individual merchants may explore their trade opportunities in China through individuals. The amendments provide more foreign trade channels and choices for people seeking to engage in foreign trade activities."

Problems Still Exist

"Although the revised law made lots of improvements on the basis of the old one, it is still not perfect. It is substantially lacking in some aspects, especially as regards operability," said Shen. The American Foreign Trade Law comprises more than 1,000 pages with clear stipulations on problems that could be encountered in trade operations. This provides valuable and easy reference for business organizations and enterprises. The revised Chinese Foreign Trade Law has just 11 chapters and 70 articles. Further rules and regulations that will make the law more complete are under discussion with a view to formulation.

The Chinese market economy has been in operation for only a short period, so experience is lacking in foreign trade legislation and enforcement, and Western laws do not suit the Chinese situation. These amendments represent a big step towards improving the operability of the law.

Since 1979, China has been sued for some 500 anti-dumping cases in the international market and more than 4,000 of its products have been investigated. This has caused huge economic losses. On the one hand, it is the result of unilateral trade protectionism on the part of certain countries and enterprises, and on the other, it can be attributed to incomplete Chinese trade laws. "As China's legislative system continues to improve, its enterprises will gain more experience in handling unfair treatment. Meanwhile, China is enhancing its investigations on trade barriers in other countries," said Shen.