Chapter 14 Foreign trade law

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Chapter 14 Foreign trade law

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

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

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2 Foreign trade operator
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2.1 Qualification

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

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

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

2.3.1 FIEs
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2.3.3 Domestic enterprises
2.3.2 Sino-Foreign trading JVs
Foreign investors equity shares 25-49 3
conditions (1) annual turnover prior to the
application must be over USD 5 billion (2)
average annual trade volume with China in
previous three years must be over USD 30
million (3) foreign investors must have
established rep. office in China and it has
been maintained for 3 years prior to the
application, or have invested over USD 30
million in China

• 2.3.3.1 Manufacturing enterprises

• Enterprise exporting machinery and electronic
  products with annual
• export value of RMB 500000 for technology
  intensive products and
• RMB 1 million for normal products are
  qualified to engage in foreign
• trade.
• Scope of business import of technology,
  equipment, component and
• raw materials related to their production and
  export of their own
• products and related technology

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

• 3.1.1 Import

3.1.1.1 Prohibited goods

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

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3.1.1.2 Restricted goods

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

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3.1.1.3 Goods restricted by customs duty quota
Goods within customs duty quota only pay the
normal duty, while those exceeding the customs
duty quota shall pay extra duty
3.1.1.4 Unrestricted goods

• Unrestricted goods enjoy entire freedom of import
  
• In order to inspect situation of goods competent
  government departments may impose automatic
  license on certain unrestricted goods

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3.1.2 Export

• 3.1.2.1 Prohibited goods

Any goods falling into ambit of Art.17 of the FTL
mentioned earlier belong to prohibited goods
3.1.2.2 Restricted goods

• export shall be restricted in order to safeguard
  the State
• security or public interest
• (2) export shall be restricted on account of
  domestic shortage in supply or effective
  protection of exhaustible domestic resources
• (3) the export shall be restricted due to the
  limited market capacity of the importing country
  or region
• (4) as per international treaties or agreements
  to which the China is a contracting party or a
  participating party require, the export shall be
  restricted
• Other laws and administrative regulations may
  also impose restriction on certain goods.

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3.2 Import and export of technology

• 3.2.1 Import

3.2.1.1 Approval/registration procedures

• TIEAR substantially streamlines the regulatory
  procedures
• for technology import.
• 3 general categories unrestricted, restricted,
  and prohibited
• Import of unrestricted technologies no longer
  subject to prior
• government approval, but only a subsequent
  registration

3.2.1.2 Contractual terms

• No longer subject to a maximum contract term of
  10 years
• Transferors warranty obligations
• (1) he is lawful owner of technology provided, or
  has right to assign or
• license such technology
• (2) supplied technology is complete, accurate and
  effective, capable of
• reaching the technical goals agreed upon
  between the parties

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Unreasonable restrictive clauses outlawed

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

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3.2.2 Export

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

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3.3 International service trade

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

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4 Anti-dumping
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4.1 Overview

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

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4.2 Dumping and injury
4.2.1 Dumping

• Export price below the normal value
• Gap between export price and normal value is
  dumping margin

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

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4.2.2 Injury

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

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4.3 Investigation

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

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4.4 Anti-dumping measures
4.4.1 Provisional measures

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

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4.4.2 Price undertakings

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

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4.4.3 Anti-dumping duties

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

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

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

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It must possess specificity whether it is
specific to an enterprise or industry or group of
enterprises or industries
(1) government explicitly limits access to a
subsidy to certain industries or
enterprises (2) law or regulations clearly
specify a subsidy to certain industries or
enterprises (3) subsidy limited to certain
industries or enterprises located within a
designated geographical region (4) subsidies
contingent upon export performance including
those illustrated in Annex (5) subsidies
contingent upon the use of domestic over imported
goods
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5.1.2 Injury
The material injury causing or threatening to
cause on corresponding established domestic
industries or creating material obstacles to the
establishment of corresponding domestic
industries. (1) effect of the subsidized imports
on trade (2) quantity of the subsidized product
including the total quantity of product or
the incremental increase in its total quantity
relative to identical or similar domestic
products and the possibility of large
increases (3) prices of the subsidized product
including reductions in the prices of the
subsidized product or the price depression or
prevention of price increases upon
identical or similar domestic products (4) effect
of the subsidized product on all relevant
economic factors and indices of domestic
industries (5) production capacity, export
capacity and inventory of the subsidized
product in the exporting country or country of
origin (6) other factors causing injures to
domestic industry
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5.2 Investigation and anti-subsidy measures

• Anti-dumping and anti-subsidy investigation

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5.2.1 Investigation

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

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5.2.2 Anti-subsidy measures

• Anti-dumping and anti-subsidy measures

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5.2.2.1 Provisional measures

• Applicable when initial ruling establishes the
  existence of subsidy and resultant injuries to
  correspondent domestic industries
• Form provisional countervailing duties
  guaranteed by cash deposits or bonds
• Cannot be applied sooner than 60 days from the
  date of initiation of the investigation
• Length 4 months time limit

5.2.2.2 Undertakings
In the course of anti-subsidy investigation
exporting government may voluntarily undertake
to eliminate or limit the subsidy or take other
measures on its effects, or the exporter
undertakes to revise its prices, and MOFTEC
should fully consider such undertakings
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• MOFTEC may also suggest such undertakings to the
  exporting government or exporters, but cannot
  force the exporters to accept such undertakings
•  
• If satisfactory, MOFTEC may decide to suspend or
  terminate without the imposing provisional
  measures or countervailing duties
•  
• Even after acceptance, investigation of subsidy
  and injury may be completed if the exporting
  government so desires or investigatory
  authorities so decide
• In case of negative determination of subsidy or
  injury, undertakings automatically lapse
• In case of affirmative determination of subsidy
  and injury, undertakings continue
• Length 5 years time limit, which may be extended
  depending on the decision of undertaking review

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5.2.2.3 Countervailing duties

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

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6 Safeguard measures
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6.1 Investigation

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

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

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

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6.2 Safeguard measures
6.2.1 Types of safeguard measures

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

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

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6.2.2 Review

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