Delegation of the European Union to China

EU expectations for the 2nd China International Import Expo (CIIE), Shanghai Hongqiao International Trade Forum, 5 November 2019

Brussels, 01/11/2019 - 10:03, UNIQUE ID: 191101_6
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One year ago, China held its first China International Import Expo (CIIE) in Shanghai. At that time, the CIIE was heralded as showing China's continued path towards reform and opening up. The European Union welcomes every new business opportunity that results for EU Member States and EU business from a trade fair like the CIIE. The EU Commission was present in the fair last year, supporting EU businesses. Feedback from participating EU companies shows that a number of companies had increased sales or met new potential buyers – the European Union is hopeful that this will continue at the 2019 CIIE.

The European Union also welcomes China's continued commitment to reform and opening-up as stated last by President XI Jinping at the Osaka G20 meeting in June this year. The importance of structural change has been highlighted by the latest annual position paper 2019/2020 of the European Union Chamber of Commerce in China, the EUCCC. The importance of structural change for China is also highlighted in the joint report of the World Bank and the Development Research Center of the State Council, the People's Republic of China. The European Union remains convinced that even greater opportunities lie ahead for European and Chinese companies if China delivers on that commitment in practice.

The outcomes of the 21st EU-China Summit of 9 April 2019 show the way, where the leaders of the European Union and China have taken ambitious commitments. They agreed to cooperate on WTO reform with the aim to strengthen the international trade rules. They committed to achieve in the course of 2019 a decisive progress, notably with regard to the liberalisation commitments, that would be required to maintain the course towards conclusion of an ambitious EU-China Comprehensive Investment Agreement in 2020. In addition, they agreed to intensify work towards finding mutually agreeable solutions to a number of key market access barriers, as identified by both China and the EU, with a stocktaking that will take place at the next summit.

As part of their cooperation, in May 2019 the EU and China have delivered on one of the Summit commitments, by signing two bilateral air transport agreements: the Civil Aviation Safety Agreement and the Agreement on Certain Aspects of Air Services. The European Union hopes to be able to conclude soon the agreement on Geographical Indications in line with the commitment taken at the China-EU Summit; to this end, negotiations have intensified.

However, more needs to be done, and in particular with regard to EU-China Comprehensive Investment Agreement which the parties aim to conclude already in 2020, the EU urges China to show more ambition and genuine effort towards rebalancing and level playing field. The European Union remains fully ready to engage so that we can jointly deliver on the outstanding commitments taken by our Leaders.

In parallel to the CIIE, the Chinese Ministry of Commerce will organise a WTO mini-ministerial meeting to discuss possible outcomes for the 12th WTO Ministerial Conference and for the ongoing WTO reform. Given China’s size in global trade, it should play a leading role in solving current international trade tensions. A reform of the WTO, including of its rulebook, is essential to maintain a viable rules-based multilateral trading system. This is why the EU expects from China an engagement conducive to results in the ongoing discussions on industrial subsidies and forced technology transfers (starting with the EU-China WTO Working Group); support for the EU`s proposal on transparency and notification obligations at the WTO; and a commitment to start a broader conversation on the reform of the WTO.

The CIIE is also an excellent opportunity to address barriers that limit business opportunities in China, and the solution of which would mean a predictable and lasting improvement for business conduct, which is so important in an uncertain world. The EU stresses the importance of achieving rapid, effective and substantial improvements of the business environment in China. Much work still lies ahead and there is real danger of promise fatigue.

In the Annex, a number of key market access barriers are therefore updated, many of which the EU had presented on the occasion of the 1st CIIE in 2018. If we deliver on addressing these issues, we would send a signal that cooperation and dialogue can lead to concrete results.

These practical proposals, like the recommendations of the EUCCC in its latest position paper 2019/2020, can be addressed as part of China's ongoing legislative programme or in preparation for China's 14th Five-Year-Plan. And once they become a reality on the ground, they will make a genuine difference. A clear-cut statement by the Chinese government which lays out details and timelines for concrete measures would be a clear signal of what steps China will take towards continued reform and openness.

At the same time, it will remain important that new market access concerns do not step in place of those that are being removed. The EU is monitoring closely the roll-out of the Corporate Social Credit System and its potential impact on European companies as highlighted in a recent special report by the European Union Chamber of Commerce in China. Noting with concern the wide scope, vague nature and lack of clear criteria of many of the key provisions and concepts and the compliance risks this may entail for companies, the EU looks forward to quickly clarifying the open questions to ensure that the business environment for European investments in China does not become more unpredictable and less attractive.

On 27 September 2019, the European Union organised the first Europa Connectivity Forum, where the EU has laid down its vision for Europe-Asia Connectivity: sustainable in all respects, comprehensive and rules-based. The EU and China have already a bilateral platform in place, to explore synergies. We invite China to engage further in the work of the connectivity platform and to share the principles of market rules, transparency, open procurement and a level playing field for all investors.

In all these areas, significant progress is possible towards a more open and predictable trade and investment environment. The European Union is convinced that delivering especially on the work set out by the 21st EU-China Summit will make a significant and tangible contribution to establishing fair and equal competition between EU and Chinese business, creating a level playing field and supporting China's ambitions for reform and opening-up.

 

Annex: Selected China’s key market access barriers

  • Restrictions on Foreign Direct Investments (FDI).

Foreign companies' ability to invest in China is subject to different and more stringent conditions than Chinese companies. The negative list contains the sectors where foreign investments are prohibited or restricted. Joint venture requirements, foreign investment bans and other limitations still exist for instance in the financial (e.g. banking and insurance), telecommunication, information and communication technologies, health services, biotechnology, legal, postal and tourism services sectors. There are additional bans, limitations or requirements stemming from other mechanisms and laws, such as the national security review, the anti-monopoly law, local content and technology transfer requirements. And there are indirect barriers due to discretionary approval and license-issuing procedures, and targeted labour, environmental and tax laws enforcement. China has recently adopted a new Foreign Investment Law which is drafted in general terms – only the implementing measures will show improvements to the status quo if any.

  • Subsidies and role of state-owned enterprises.

In lieu of securing competitive neutrality between foreign and domestic companies and privately owned and state-owned enterprises, respectively, China continues to grant special privileges to its domestic companies, in particular its state-owned enterprises. Subsidies, preferential loans, selective tax cuts or favourable treatment in procurement procedure, to name just a few examples, distort competition to the detriment of European business not only in China, but also increasingly on third markets.

  • Intellectual Property Rights (IPR) protection and enforcement.

A number of different but related issues are of great concern for EU companies: from unnecessary disclosure and licensing requirements (via business registration procedures, joint ventures, standard setting, procurement processes) to counterfeiting and piracy, the forced transfer of technology, potential lack of level playing field vis-a-vis pharmaceutical companies based in China in the provision of Regulatory Data Protection, and difficulties in the enforcement of rights.

  • Public procurement and GPA.

The "buy China" policy is still active, requiring or strongly encouraging central and local governments at all level to procure equipment and services from Chinese companies. China committed to join the WTO Government Procurement Agreement (GPA). WTO GPA Parties have for long been requesting improvements in China's offer, including: full coverage of sub-central entities and SOEs that conduct government procurement; lower thresholds; a broader coverage 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 public procurement legislation. The submission of a 6th revised offer by China on 21 October was long awaited, five years after the submission of the last revised offer and twelve years after the beginning of the accession process.

  • Standards, conformity assessment and certification requirements.

Continue the reform of the Chinese standardisation system to comprehensively implement the WTO - Technical Barriers to Trade (TBT) Agreement. Ensure all standard setting bodies are fully open, in law and in practice, to meaningful foreign participation and move to increase the identical adoption of international standards to no less than 90% of all Chinese standards by 2020. Overall China’s use of standards has to become more transparent: reduce “mandatory” standards and prevent that “compulsory certification” renders initially voluntary standards “de facto mandatory”.  In the field of conformity assessment, China should pursue further simplification of the complex Chinese Compulsory Certification and base it on product risk considerations.

  • Align import conditions for plant, animal and food products with internationally agreed standards, remove burdensome approval procedures and ensure consistent customs facilitation.

Adopt transparent and science-based approval procedures for imports, in accordance with the WTO SPS and TBT Agreements and the standards of the World Organisation for Animal Health (OIE), International Plant Protection Convention (IPPC) and the Codex Alimentarius Commission. Taking full account of information available through the harmonised and seamless, farm-to-fork EU control system, should allow China to streamline approval procedures for food and feed producers as well as for animal and plant traders. This would boost the trade in high-quality products and would thus make them more accessible to Chinese consumers without compromising safety or protection.

Current examples for unjustified import bans in breach of internationally agreed standards are the general, country-wide import restrictions on poultry linked to local episodes of Highly Pathogen Avian Influenza (HPAI), African Swine Fever (ASF) and the continued trade restrictions on EU beef due to Bovine spongiform encephalopathy (BSE). For infant formula product registration China is introducing a requirement for two independent and uncoordinated inspections by China Customs and the by the State Administration for Market Regulation which come on top of the three layered inspection system of the EU which is applicable to all producers of infant formulae in the EU. For this important product category China appears to be creating new trade barriers rather than removing existing ones.

Besides these drawbacks, we also see recent moves in a positive direction that we acknowledge and appreciate. This includes the decision of China to discuss certification needs for low risk food products in a multilateral working group of Codex Alimentarius instead of taking unilateral measures. In a similar vein, the European Union hopes to be able to conclude soon the agreement with China on Geographical Indications, in line with the commitment taken at the China-EU Summit; to this end, negotiations have intensified. These are two examples of EU and China cooperation towards a rules-based, open trading system based on science and the need to protect the intellectual property rights for quality food and drinks.

  • Avoid additional administrative burdens, delays and costs that would be introduced through new unnecessary inspection requirements and that would represent new technical barriers to trade.

Authorise and simplify market access for EU goods such as products such as products of animal origin, fruit and vegetable, and cosmetics (including by removing unjustified animal testing), Avoid introducing new regulations like the ones proposed recently by the State Administration for Market Regulation (SAMR) for infant formula product registration, as this would introduce additional on-site inspection requirements. Such requirements are unnecessary as they would duplicate the already existing on site-inspection performed by the General Administration of Customs in China (GACC) and would create unjustified technical barriers to trade. Another example is the ban on importing ships for recycling. The ban has made inaccessible to EU ships some of the best recycling facilities in the world that match requirements of the Hong Kong Convention and the EU ship recycling regulation. This regulation obliges EU ships to be dismantled in yards matching EU requirements to avoid pollution. The ban is creating possible capacity issues that might push ship-owners to find ways around (e.g. reflagging their ships and dismantling them in low quality yards).

  • Reduce barriers resulting from China’s cyber security schemes; particularly with respect to cryptography, VPN usage, cross border data transfer and localisation requirements.

Ensure that Cybersecurity schemes do not create discriminatory market access barriers. Ensure that the final Cryptography Law is in line with the "Year 2000 Clarification", to limit its scope to products with the core function of cryptography. 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 transparency and proportionality, without leading to novel TBTs or discriminatory practices against Foreign Invested Enterprises (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.

  • Ensure level playing field for market access in fifth generation mobile communication networks.

The fifth generation of mobile communication networks (5G) is a key sector where a balanced relationship of reciprocal benefit is essential for the health of our overall relationship. In this vein, the EU is committed to the upholding of the EU-China Summit Joint Statement of last April and the 5G Declaration of 2015. As the 5G commercial tendering process is rolled out in China, the EU looks forward to the same opportunities for the EU companies regarding telecom networks in China (which includes the base stations and the radio and the core parts of the network) as the Chinese companies enjoy in the EU.

In the spirit of reciprocal openness and good cooperation in telecom networks, the EU expects that commitments of fair and open market access will be effectively implemented in all stages of the bidding processes, in a way that reflects the competitive strength of EU companies. Indications so far do not point in that direction: Chinese vendors have won the vast majority of the bids in the initial bidding processes (Phase 0). We look forward to close, timely and structured contacts between EU and Chinese administrations to follow this crucial process as China moves to the next steps of the tendering process.

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