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Implementation of International Trade Law in China Essay Example

  • Category:
    Law
  • Document type:
    Research Paper
  • Level:
    Undergraduate
  • Page:
    5
  • Words:
    3389

Abstract

Free trade zones in China are part of efforts made to introduce special economic zones to attract foreign investors. These free trade zones provide special benefits to the investors in these zones. Such benefits include the reduction of the cost to set up a business, the reduction of the timeline necessary to register a business or to acquire necessary permits and exemption from income tax or its reduction where the investors invest their profits in the free trade zones. Such establishments have benefited the areas that have been approved as free trade zones as a result of the investment that has occurred in such areas. Further, the creation of opportunities for the people in these areas has also improved the lives of the people leading to the need to create more free trade zones.

The effect of the creation of the free trade zones has been that laws have been enacted to provide for the special trade rules that relate to the free trade zones. The Regulations of Special Economic Zones in Guangdong Province, for example, were created to regulate the trade in Guangdong Province as a free trade zone. The purpose was to provide a legal framework to guide the investors in the free trade zones and also to assure them of the protection of their property and interests.

Due to the success of Shenzhen free trade zone, the government of China approved the establishment of the new Pilot Shanghai free trade zone. The New Shanghai Zone Legislation was enacted to govern investments and trade related activities in these areas. There was also the enactment of the Negative List for the free trade zone that provided for certain activities and sectors that foreign investors could not engage in while in the free trade zones.

Other than the enactment of domestic law, there has also been the establishment of a dispute settlement system especially in the new Pilot Shanghai free trade zone where the arbitration rules have been passed. These rules allow parties to agree to resolve their disputes through arbitration. This complies with international trade law that emphasizes the importance of a dispute settlement system to help in the resolution of disputes between investors. This shows compliance with international trade law. China has worked hard to ensure its compliance with international trade law even in the establishment of free trade zones. This is through applyingnational treatment to all investors willing to invest in free trade zones.

Table of Contents

Abstract 2

Introduction 5

China’s increasing role in World Trade 6

Chinese laws regulating free trade zones 7

Shenzhen, Shantou, Zhuhai and Xiamen free trade zones 7

The new Pilot Shanghai free trade zone 8

The development of dispute settlement system 9

Implementation of international trade law 12

Conclusion 13

Bibliography 14

Introduction

China has become more involved in international trade and has also become an important player in the Asian regional economy through WTO’s accession. Before 1980, China showed little or no interest in international trade. This was as a result of the rise of Communism and the fact that the leadership at the time did not favor international relations in terms of trade. However, in the early 1980s, the concept of free trade zones was adopted by the Chinese Government through the introduction of the economic open-door policy. Through the introduction and adoption of free trade zones in China, there was the need to enact laws and policies to regulate trade and other related activities within these zones. Since these free trade zones also involved foreign companies and other players, there was also the need to have dispute settlement mechanisms stipulated in the law to ensure that disputes that arose in these free trade zones could be easily resolved.1

This research paper will focus on the domestic laws that have been developed and also the dispute settlement system that has been put in place to regulate free trade zones. The paper will address the issue whether these laws are effective for the regulation of the free trade zones and how they have been changed to reflect the changes in the trade environment. Finally, the paper will look at China’s compliance and implementation of international trade through the domestic laws that have been passed to regulate trade and the provisions for dispute settlement.

China’s increasing role in World Trade

The expansion of China’s international trade is attributed to the opening of the economy in 1979. Previously, the Communist regime had no interest in having China engaging in international trade. As a result, China’s exports and imports were lower as compared to the current level of trade. China’s exports and imports have grown faster than trade in the world since the opening of the economy. Its penetration into advanced countries has increased and has also enabled China to become an important export destination especially for the countries in the Asian region.2China’s trade with its trading partners has increased by double-digit rates due to its increasing involvement in international trade due to China’s continued commitment to fulfilling its obligations under the World Trade Organization (WTO).

China was not only concerned about trading with other countries at the international level but also intended to increase the level of trade within its borders through attracting investment and trade both from local and foreign investors. This was achieved through the concept of free trade zones.The Chinese government approved the establishment of four Special Economic Zones that is, Shenzhen, Zhuhai, Shantou and Xiamen. Some of the benefits that came along with these special economic zones included tax concessions, access to raw materials and access to credit for companies that operated within these zones.3The effect of the creation of these four zones was the enactment of laws and policies that were supposed to regulate foreign investment and to attract foreign investors and their interests.

Chinese laws regulating free trade zones

Free trade zones are considered to be part of Special Economic Zones. The laws that were enacted to govern special economic zones were designed to encourage foreign investment in China. The free trade zones were, therefore, created as incentives for foreign investors to invest in China. The Regulations of Special Economic Zones in Guangdong Province enacted to regulate trade and other activities in the Guangdong province provide that the regulations were created to develop economic cooperation and exchange between China and other foreign countries.4 These regulations further provided that where the investor reinvests in the free trade zone for a period of five years or more, the investor had the right to apply for a reduction or exemption from income tax only on the reinvested portion.5The purpose of these laws was to ensure that the foreign investors felt protected under the law so that they could freely invest in China.6

These laws also provided for an entry and exit procedure for all foreign investors.7These procedures specified the process that was to be followed where a foreign investor wanted to invest in the free trade zones and when they wanted to exit. These procedures ensured that the foreign investors had a way to enter and exit the free trade zones and other special economic zones in a way that protected their interests.

Shenzhen, Shantou, Zhuhai and Xiamen free trade zones

Shenzhen free trade zone is the largest of the four free trade zones that were introduced in 1980. It is composed of five industrial processing zones that are all meant to offer investment opportunities to both foreign and local investors. Laws were enacted in Shenzhen so that the corporate tax in the free trade zone was set at a competitive rate internationally. The laws allowed foreign firms to pay corporate tax at half the rate that was paid by domestic enterprises. The purpose was to ensure that more foreign investors came to China to invest. As a result, there were tax laws that were specifically made to regulate the tax system in the free trade zone that was different from the rest of the country.8

There were laws that were enacted in Shenzhen to encourage multinational companies to relocate their headquarters from other countries and bring them to Shenzhen. The incentive was to offer government streamlining and also to provide industrial parks that were meant to house these companies. As time went by, laws are changed to provide for new developments in trade. Though not as established as Shenzhen is, the other free trade zones are following the strategies and methods used in Shenzhen free trade zones. The success of these free trade zones lies with the ability to enact laws and policies that are favorable to foreign investors.

The new Pilot Shanghai free trade zone

The success that has been experienced regarding the Shenzhen free trade zone has led to the establishment of the Shanghai zone. This new free trade zone is meant to support the economy in China to expand more rapidly due to investments made. The new Pilot Shanghai free trade zone was approved in 2013 and covers an area of 29 square kilometers. This new free trade zone comprises of four bonded zones.9

The establishment of the new Shanghai Pilot free trade zone was followed by the enactment of the New Shanghai Zone Legislation to govern the trade activities taking place within the zone. In 2013, there was also the issuing of the Negative list the five administrative measures governing the administration of the Shanghai Free Trade Zone. Some of the administrative approval items were suspended by the Standing Committee of the National People’s Congress. This was meant to streamline the process that would be followed in setting up enterprises consisting of foreign investors. The reforms that were intended by the government in the establishment of the Shanghai Free Trade Zone are stipulated in the Negative list as well as in the Overall Plan, which act as the regulations that govern the free trade zone in Shanghai.10

The Negative list comprises of 18 major sectors that are prohibited from being developed in the zone and also includes a list of special regulatory measures to guide investment in the free trade zone. The Special Regulatory Measures in the Negative List contain an outline of the sectors that foreign investors are not supposed to engage in while in the free trade zone. Some of the benefits that are provided for in the Negative List include the fact that the foreign investors do not require approval to invest in the free trade zone.11 All they require is to file a report with the authorities in the free trade zone. There is also the shortening of the period it takes to register foreign investors from 29 days to four days.

The purpose of these provisions in the regulations contained in the negative list is to ensure that the law has incentives to foreign investors. It is worth noting that the free trade zones have special laws and legislations that apply to the zones but not to the rest of the country. Foreign investors will also receive national treatment in the free trade zone in line with the requirements of the World Trade Organization (WTO).

The development of dispute settlement system

To attract investors in a country, there is the need to provide a suitable legal framework for the resolution of disputes. Investors should feel protected even in the foreign country and also have an assurance that their property and interests are protected. This gives rise to the need to have a clear and concise dispute resolution system that can be used by both the local and foreign investors regarding matters or issues that happen within a free trade area. The purpose is to ensure that any disputes that may arise from the trade in these zones is addressed by special courts or tribunals that come up with awards that are binding on the parties to the dispute. China has implemented this system in its free trade zones that provides for a clear way for the resolution of disputes that are connected to the free trade zones.12

The establishment of free trade zones in China has led to the establishment of new domestic laws meant to provide for the legal framework to ensure that foreign investors are protected and that their interests are safeguarded. The establishment of the free trade zones has also led to the establishment of a dispute settlement system to deal with any investment of trade related disputes that may arise in these zones. This means that in the event that there is a dispute between enterprises in the free trade zone, there are established procedures and systems that provide for how to resolve such disputes.

There has been the development of commercial dispute settlement which is meant to handle commercial disputes between enterprises or any other players in the free trade zone. In 2014, there was the enactment of the China (Shanghai) Pilot Free Trade Zone Arbitration Rules. These rules were established by the Shanghai International Arbitration Center to deal with any disputes that arise between the enterprises in the free trade zone. These rules are mainly enacted to deal with disputes that are related to Shanghai free trade zone. This means that matters that are not connected or related to the free trade zone may not be handled under the established arbitration rules.13

For these arbitration rules to apply, the parties must have agreed to refer the dispute to Shanghai International Arbitration Center(SHIAC) and have also agreed that the arbitration rules will apply.14These procedures ensure that the parties can freely and voluntarily subject themselves to the rules and the arbitration process. This is meant to ensure that the parties will obey the arbitration award that is issued at the end of the arbitration process. The parties may specify the institution that will be responsible for dealing with the matter that is the subject-matter for the dispute.

The parties may, therefore, indicate that they would want the dispute to be handled by the Court of Arbitration.15 However, the fact that the parties have agreed to refer the dispute for arbitration under the established arbitration rules without any specifications as to the institution that is to deal with the matter is enough to give jurisdiction to SHIAC to handle the dispute. The dispute settlement procedure has several objectives. The purpose of the establishment of the free trade zones is to create incentives to foreign investors to invest in China by providing certain benefits that are unavailable in other areas. The purpose of the enactment of special law to govern these free trade zones is to ensure that the investors are protected. The establishment of the arbitration rules is also supposed to ensure that the property belonging to the investors is protected. Disputes that arise in the course of trade and investment can be handled in China without resorting to WTO’s dispute settlement system under international trade.

The fact that the disputes in the free trade zone are handled by the SHIAC and not the normal courts means that the resolution of the dispute is faster to allow the investors or the parties to the dispute to continue trading. The parties also have the right to choose their arbitrator of choice or a panel of arbitrators as long as they meet the specifications stipulated by SHIAC. This includes the level of education and the experience in dispute settlement that the individual has in relation to the issue that is the subject matter of the dispute. The Arbitration Rules also provide for interim measures that allow the parties to the dispute to prevent any further damage to the property that is the subject matter of the dispute. These interim measures are supposed to ensure that the status quo is maintained until the panel of arbitrators is constituted and the dispute is resolved.16

Implementation of international trade law

China’s World Trade Accession was followed by a requirement that the Transitional Review Mechanism had to be established. The purpose of the TRM was to ensure that China complies with its obligations under the WTO. The compliance review was to be conducted annually for eight years after China’s accession. The introduction of free trade zones in China has ensured compliance with the country’s obligations under international trade. This is because the free trade zones act as incentives for all investors from all countries. There are no restrictions or preferential treatment that is accorded to certain investors.17

Once the investors have established enterprises in the free trade zones, they are assured of national treatment. This means that there are no benefits accorded to local investors that the foreign investors do not enjoy. The purpose of these free trade zones is to create incentives for foreign investors. This means that even the benefits that come with the establishment of these zones are meant to benefit the foreign investors.18 The establishment of a dispute settlement system in the free trade zones is also considered as part of the implementation of the international law in China. This is because dispute settlement plays an important part of international trade.

China’s accession to the WTO has also increased trade with regional partners by reducing tariffs. This is meant to ensure that it is easy for the other countries to carry out business and to trade with China. The reduction of tariffs is meant to ease trade between China and other trading partners. Through the free trade zones, China is able to accord the most-favored-nation treatment to all the investors. This is because all the investors are treated the same regarding the free trade zones. The same is reciprocated by China’s trading partners regarding goods and services flowing from China.19

Conclusion

China has enacted domestic laws to provide a legal framework for the establishment of free trade zones. These laws have ensured that investors are protected. There has also been the establishment of a dispute settlement system especially under the new Pilot Shanghai free trade zone where the parties to a dispute that is connected to the free trade zone can resolve the dispute. This has all been done through ensuring compliance with international trade law as part of China’s responsibility after the accession to the WTO.

Bibliography

Zhu, S 2014, Introduction to China (Shanghai) Pilot Free Trade Zone, Coalition for Peace and Ethics.

Rumbaugh, T & Blancher, N 2004, China: International Trade and WTO Accession, International Monetary Fund.

Tiefenbrun, S 2015, US foreign trade zones and Chinese free trade zones: A comparative analysis, Thomas Jefferson School of Law.

Hu, J 2014, Shanghai free trade pilot zone, the model for future China? Asian Law Institute.

Shanghai International Arbitration Center 2014, The China (Shanghai) Pilot Free Trade Zone Arbitration Rules, Shanghai International Economic and Trade Arbitratiion Commission.

Clarke, D C 2003, China’s Legal System and the WTO: Prospects for Compliance,Global Studies Law Review, 2(97).

Bhala, R 1996,International Trade Law,Charlottesville: Michie Law Publishers.

The China (Shanghai) Pilot Free Trade Zone Arbitration Rules, 2014

1Tiefenbrun, S 2015, US foreign trade zones and Chinese free trade zones: A comparative analysis, (Thomas Jefferson School of Law) 31.

2Rumbaugh, T & Blancher, N 2004, China: International Trade and WTO Accession, (International Monetary Fund) 3.

4 Article 1 of the Regulations on Special Economic Zones in Guangdong Province

5 Article 16

6Rumbaugh, T & Blancher, N 2004, China: International Trade and WTO Accession, (International Monetary Fund) 5.

7 Article 18 of the Regulations on Special Economic Zones in Guangdong Province

8Tiefenbrun, S 2015, US foreign trade zones and Chinese free trade zones: A comparative analysis, (Thomas Jefferson School of Law) 34.

9Hu, J 2014, Shanghai free trade pilot zone, the model for future China? (Asian Law Institute) 15.

10Zhu, S 2014, Introduction to China (Shanghai) Pilot Free Trade Zone, (Coalition for Peace and Ethics) 12.

12Clarke, D C 2003, China’s Legal System and the WTO: Prospects for Compliance,(Global Studies Law Review), 2(97).

13Shanghai International Arbitration Center 2014, The China (Shanghai) Pilot Free Trade Zone Arbitration Rules, (Shanghai International Economic and Trade Arbitration Commission) 1.

14The China (Shanghai) Pilot Free Trade Zone Arbitration Rules, Model Clause 1.

15 Article 2(3) of The China (Shanghai) Pilot Free Trade Zone Arbitration Rules

16 Article 18 of The China (Shanghai) Pilot Free Trade Zone Arbitration Rules

17Bhala, R 1996, International Trade Law, (Charlottesville: Michie Law Publishers) 55.

19Clarke, D C 2003, China’s Legal System and the WTO: Prospects for Compliance, (Global Studies Law Review), 2(97).