1
Economic Law

• James V. Feinerman
• James M. Morita Professor of Asian Legal Studies
• Georgetown University Law Center
• February 2010

2
Non-tariff Barriers to Free Trade

• Shortcomings of Chinas multi-layered, opaque
  regulatory approval systems
• Chinas State-owned enterprises drive market
  behavior
• failure adequately to protect intellectual
  property rights and
• rule of law issues, eg. contracting

3
Regulatory Framework

• History
• Command economy
• Strong control by State Planning Commission (now
  the National Development and Reform Commission)
• Government owned and operated enterprises
• Top-down regulation

4
Regulatory Framework

• Characterized by
• Administrative misunderstanding of policy issues
  underpinning regulations eg. competition laws
• Embryonic rule of law creates inconsistent
  interpretation, e.g. priority
• Inconsistency of implementation between
  authorities/levels of government
• Lack of transparency no judicial review

5
State-owned EnterprisesState Assets Supervision
and Administration Commission (SASAC)

• Supervises the Governments interest in 189
  largest enterprises
• Its task modernization
• Creates 14 million unemployed workers p.a.

6
State-owned Enterprises (SOEs)

• Most significant Sino-foreign transactions
  involve SOEs
• SOEs drive market behavior
• Reform process outcomes are critical to trade
  liberalization

7
Intellectual Property

• Is China serious about enforcement of IP rights
  post-WTO?
• China produces 350,000 technologically trained
  engineers every year, who in turn are generating
  world class technology
• We under-estimate Chinas technological capacity

8
Intellectual Property

• Protection of technological advantages is vital
  for foreign manufacturers
• 43,000 infringement claims over the past 12
  months
• Most processed by the State Administration for
  Industry and Commerce (SAIC) , not the Courts
• Reliance on administrative functionaries
• Lack of judicial review

9
Rule of Law

• Contracting Impediments to Free Trade
• Is my contract binding?
• Western approach
• Expectation of failure
• Focus on written documents
• rules for the engagement of war
• Litigation
• Termination of business relationship

10
Rule of Law

• Contracting (cont)
• Chinese approach why relationships are
  important
• Agreements in principle, MOUs, LOIs, HoA
• Contracts statement of intentions at the time
• Commercial, financial, legal matrix
• Negotiate difficulties with someone they trust
• Government role is crucial e.g. LNG

11
Summary

• An FTA with China?
• To negotiate an FTA without regard to these
  non-tariff impediments to free trade would be
  to delude ourselves that an FTA will deliver
  broad-ranging access to Chinas markets