China Amends its Foreign Trade Law

On April 6, 2004, the People’s Republic of China successfully passed The Draft Amendment of the Foreign Trade Law, which became effective on July 1, 2004. The passing of this amended law that has been in deliberation since December 2003 signifies China’s commitment to the WTO and its progress toward a more developed economy with the appropriate foreign trade safeguards. The new law contains six major amendments. They include:

• Under the 1994 Foreign Trade Law, only foreigners and companies who complied with WTO standards were allowed to participate in foreign trade. The newly revised Foreign Trade Law permits all individuals, including Chinese natural persons, to legally conduct foreign trade. Zhang Yuqing, former director-general of the Ministry of Commerce’s (MOFCOM) law and treaty department, succinctly addressed fears of chaos with this new amendment by stating, “Will the 1.3 billion Chinese all start to engage in foreign trade? I do not think so.” ¹
• In accordance with China’s commitment to eliminate its system of examination and approval within 3 years of accession, the revised law only requires foreign trade dealers to register in order to trade in goods and technology.
• China has opened up state trading monopolies even though their WTO commitments do not apply to goods subject to state trading. The previous law reserved state trading monopolies over particular goods, but the new law authorizes both state-owned and non-state-owned import and export companies to participate in the foreign trade of commodities such as petroleum, fertilizer, sugar and cotton. MOFCOM is required to publish a catalogue detailing the commodities that are still subject to state trading.
• China’s automatic licensing system has also been streamlined to conform to the WTO Agreement on Import Licensing Procedures. The newly revised law allows automatic licensing for freely traded goods. However, trade in technologies will still be subject to registration requirements. The aim of automatic licensing is to monitor the import and export of certain goods that coincide with the state’s needs, but not to monitor in such a way that would revert back to earlier non-tariff trade barriers that would constrain trade. This law does not provide for procedural transparency which forthcoming implementing regulations will address.
• The revised law addresses China’s Intellectual Property Rights (IPRs) and prevents the import and export of goods that infringe on IPR in China, prevents IPR holders’ abuse of rights, and protects Chinese IPRs with additional trade measures. China’s protection of IP exports, however, only applies to its own products and contains no transparent measures in case of infringement. Article 42 of this Agreement on Trade-Related Aspects of Intellectual Property Rights requires international protection and enforcement of China’s IPRs.
• This new law also contains provisions that maintain the Foreign Trade Order by assisting small and medium-sized companies engaged in foreign trade, setting up a public information system, and providing punishments for companies engaged in monopolistic activities and unfair competition. Vague and imprecise terms, however, shadow this new section and make it open to the MOFCOM’s subjective interpretation. Such phrases include market collusion, unfair or discriminatory trade terms, trade prohibitions, unfair low pricing, and misleading advertising.

In addition to the Foreign Trade Order chapter are new provisions for multiple means of criminal and administrative investigations and punishments that scrutinize and prohibit illegal behavior. This section examines evasion of trade, anti-dumping, the effect of importation on domestic competitiveness, IPR infringement, trade barriers, evasion of trade remedies, and so forth. Soon after the revision of this law in April, MOFCOM began its first investigation of foreign trade barriers on the Japanese management of laver, an edible seaweed import. By taking an aggressive stance on unfair trade, China will better protect its industries at home.²

The new Foreign Trade Law complies with WTO regulations and offers equality to all engaged, thus gaining wide approval in the international business community. It seems that China has succeeded in its effort to promote trade and safeguard its economy through the framework of this new law, but its actual test will be MOFCOM’s implementation of the law’s terms and the transparency of its measures.

For more information, please contact Michael Chen (mchen@kmclaw.com) or Richard Johnson (rjohnson@kmclaw.com). Thanks to Sunny Chen of BYU’s J. Reuben Clark School of Law for her assistance in writing this article.

Content cited from the following resources unless specified:

http://english.mofcom.gov.cn/article/200404/20040400208300_1.xml

¹ Xu Binglan, “New Trade Law to Fit WTO Rules”, China Daily, March 9, 2004, http://www.chinadaily.com.cn/english/doc/2004-03/09/content_313110.htm

² Squire, Sanders & Dempsey LLP, “Revised PRC Foreign Trade Law,” China Update, April 2004.