EU expectations from the CIIE
Next week, China will hold the China International Import Expo in Shanghai. China is promoting this initiative as not just another exposition in the ordinary sense, but in President Xi’s words “a major policy initiative and commitment taken on [its] own accord to open up the Chinese market”. We welcome China’s continued prosperity. Driven by opening and reform, China’s growth has benefited the Chinese people and made a significant contribution to the global economy.
In this context, we recall President Xi’s recent speeches at Davos in 2017 and at the 2018 Boao Forum for Asia that outlined an ambitious agenda for China’s continued reform and opening up. We welcome and encourage China to follow through on these important measures, to demonstrate to the world, through actions, that it is creating a genuinely open and level playing field for the international trading community.
The CIIE will provide opportunities for a range of commercial announcements between Chinese and International businesses. We welcome such initiatives and recent efforts to ease some investment restrictions, tariffs and red-tape. For us, as one of China’s most important trading partners, success will be measured by the timely, concrete and systemic measures that China implements. These measures should go beyond tariff adjustments and aim to address the many long-standing trade and investment concerns. Our expectation is a clear-cut statement by the Chinese government which lays out details and timelines for such measures. As it is a country-specific initiative that focuses on imports into/opening-up the Chinese market, we would not endorse any joint political CIIE statement.
Beyond CIIE, we encourage China to accelerate its reform and opening up policies to create a genuinely open and level playing field for international businesses engaged in trade and investment in China. Examples of such concrete measures are laid out in the attached Annex. Crucially, these policies outlined in the Annex are interlinked and should be tackled comprehensively in order to lead to meaningful structural reform and business opportunities.
China's opening-up and reform measures ought to be embedded in the rule-based open trading system, at a multilateral, plurilateral, and bilateral level
We are staunch supporters of the multilateral trading system and firmly believe that the WTO is indispensable in ensuring the stability of the global trading system and sustainable economic growth. We therefore welcome China's commitment to fostering an open world economy, improving trade and investment liberalisation and facilitation, resisting protectionism and unilateralism, and making globalisation more open, balanced, inclusive, and beneficial to all.
Connectivity should further support multilateralism. It must be fiscally, environmentally, socially and economically sustainable; comprehensive across sectors and financial frameworks; and rules-based. Connectivity must thus abide by the shared principles of market rules, transparency, open procurement and a level playing field for all investors, and comply with established international norms and standards, respective international obligations, as well as the laws of the countries benefiting from projects, whilst taking into account their national policies and specific circumstances.
We note the importance of bilateral, regional and plurilateral agreements being WTO-consistent. We call on China to also use its bilateral and plurilateral negotiations to bind in specific ambitious regulatory and systemic opening, for example our ongoing negotiations on a comprehensive agreement on investment (CAI).
China’s International Import Expo (CIIE): Possible Opening Measures: 2018-2020
Not just another Expo… but a major policy initiative and commitment… to open the Chinese market (President Xi, Bo’ao Forum April 2018)
The following is a non-exhaustive list of possible opening measures, not presented in order of priorities
Measures should be taken as soon as possible, by finalising the legislative process or the ongoing negotiations where appropriate, and in any event by the next five-year plan in 2020.
China plans to phase out JV requirements in a number of sectors (financial services, automotive, aerospace). But the approach is incremental and sector-specific. Abolishing all JV requirements is ambitious, comprehensive and clear. Some foreign firms would still enter into JVs, but they would make a commercial choice and many would want to be majority shareholders. Deliver this change through a new Investment Law. Improve practice and increase FDI inflows in to China. These market opening reforms need to be linked with secondary-level reforms including greater access to operational licenses, open standard setting bodies and improved competition policy.
Issue a State Council notice confirming that participants in collaborative research projects or cross-border technology commercialisation have flexibility to negotiate appropriate IP agreements on market-based contractual terms, including within JVs, by amending the relevant articles of the Chinese TIER and JV Regulations. State that third-party infringement liability can be capped in cross-border contracts. Take firmer action against bad faith registration of trade marks. Enhance the quality of granted invention patents. Strengthen the protection and enforcement of IP on-line. Promote the use of preliminary injunctions - also in relation to violations of copyright and trades secrets. Promote the application of preliminary measures also in relation to intermediaries whose services are used by others. Supports President Xi comments that the costs of intellectual property infringement will be raised.
President Xi has called for faster progress toward joining the GPA. China’s revised market access offer needs to be far more ambitious than the last tabled in 2014. The revised market access should account for Parties’ requests for improvements including: full coverage of sub-central entities and SOEs that conduct government procurement; lower thresholds and a broad range of services; expanding the definition of what constitutes government procurement and abolishing mandatory discriminatory measures between foreign and domestic goods and services as part of modernizing China’s Government Procurement Law (2003) would help facilitate its accession to the GPA.
Update China’s headline industrial policy for the period 2020-2025 to ensure foreign participation and eliminate overcapacity. Issue State Council notice or include within next five year plan. Add measures to: ensure greater transparency; eliminate unfair subsidy practice; guarantee equal access to finance and subsidies for foreign firms and research institutions; abolish semi-official domestic market share targets; include foreign owned and jointly developed technology; and introduce a best practice consultation mechanism. Supports China’s industrial upgrade but ensures it is open to and benefits all.
Services opening is slow and inconsistent. A new State Council strategy to complement the next five year plan could: include concrete targets (e.g. doubling service imports by 2025 (c. $1trillion); reassure on data handling, transfer and usage; ease conditions on capital transfers and cross-border M&A; allow Chinese firms to employ foreign service providers in all sectors; and abolish quota requirements targeting foreign companies. Supports China’s rebalancing efforts and development of competitive services companies.
Ensure that Cybersecurity schemes do not create discriminatory market access barriers. Include in the Regulation on Classified Cybersecurity Protection a more risk-based assessment system for products and services that have national security implications. Implement Cybersecurity and data localisation legislation following principles of proportionality without leading to novel TBTs or discriminatory practices against FIEs, particularly also with regard to the classification of networks etc. as falling under national security considerations. Ensure a flexible and easy process for operating Commercial Virtual Private Networks (VPNs) without state approval. Fully open up the Telecoms Catalogue and allow international companies in China to obtain VATS licenses.
China’s licensing system is opaque, slow and variable. New legislation could ensure National Treatment for applications through: a risk based approach instead of minimum criteria requirements (in country assets, operation years); increased automatic import licenses; transparent screening procedures to guard against conflict of interest; a standard time frame to reach decisions (3-6 months); ending “Window Guidance”; and longer, multi-year licensing. Supports Premier Li’s goal for a “world class, fair business environment”.
An annual system which locks in progress would help deliver President’s Xi’s commitment for China to become “more and more” open. Companies want predictable, transparent and responsive trade and investment guidelines. Target lists / catalogues include: the nationwide Foreign Investment Negative List (FINL); Free-trade zones (FTZs) negative list; the National Drug Reimbursement List (NDRL); commodities catalogues; goods import and exports lists. Import quotas, restrictions and bans should be grounded in risk-based assessments; this includes, inter alia, tourism and cultural content. Further regulate e-commerce so foreign retailers and platforms are permitted to directly participate in cross-border online sales in China. Clearly specify the rules applied to determine the jurisdiction for internet-related transaction in cross-border case in compliance with international private law
To maximize the benefits of opening up, deeper structural reforms should be accelerated. Introduce improved competition regulation based on principles of national treatment as well as competitive neutrality for State owned enterprises, foreign owned and privately owned enterprises. Continue the reform of the Chinese standardisation system to comprehensively implement the Agreement on Technical Barriers to Trade of the World Trade Organization. Ensure all standards setting bodies are fully open to meaningful foreign participation and move to increase the percentage of international standards to no less than 90% of all standards by 2020. In the field of conformity assessment, China should pursue further simplification of the complex Chinese Compulsory Certification and base it on product risk considerations. To promote regulatory transparency, China should publish new regulatory measures and allow sufficient time for comment.
Take steps towards quicker and scientifically-based SPS procedures for imports, in accordance with WTO SPS Agreement and OIE standards, including: speeding up agreement procedures for food producers; introducing a transparent and reasonable timeline for future applications; abolishing certificates for low-risk food products; recognizing OIE zoning for disease-free areas principle; lifting blanket import bans (such as for HPAI and ASF and BSE); and removing unjustified animal testing for cosmetics. Enhances China’s reputation as an open and reliable destination for producers; and supports Chinese consumers demand for diversity and quality. Customs procedures should be consistently applied, time bound and managed on the basis of objective risk assessment.