“Economic Law”

James V. FeinermanJames M. Morita Professor of Asian Legal Studies

Georgetown University Law CenterFebruary 2010

Non-tariff Barriers to Free Trade

• Shortcomings of China’s multi-layered, opaque regulatory approval systems;

• China’s State-owned enterprises drive market behavior;

• failure adequately to protect intellectual property rights; and

• “rule of law” issues, eg. contracting

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

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

State-owned Enterprises

State Assets Supervision and Administration Commission (“SASAC”)

– Supervises the Government’s interest in 189 largest enterprises

– Its task – modernization– Creates 14 million unemployed workers p.a.

State-owned Enterprises (“SOEs”)

– Most significant Sino-foreign transactions involve SOEs

– SOEs drive market behavior– Reform process outcomes are critical to trade

liberalization

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 China’s technological capacity

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

Rule of LawContracting – 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

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

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 China’s markets