ASIA-PACIFIC RESEARCH AND TRAINING 4... Jiang Qing-Yun Shanghai University of International Business

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  • ARTNeT CONFERENCE ASIA-PACIFIC RESEARCH AND TRAINING NETWORK ON TRADE

    ARTNeT Trade Economists’ Conference Trade in the Asian century - delivering on the promise of economic prosperity

    22-23rd September 2014

    Organized Session 4: Building a new open economic system and

    China (Shanghai) Pilot Free Trade Zone

    www.artnetontrade.org

  • Investment liberalization and the Management of Negative List Shanghai Pilot FTZ and Asia

    opportunity

    Jiang Qing-Yun Shanghai University of International Business and Economics

    Shanghai Center for Global Trade & Economic Governance

    Asia-Pacific Trade Economists' Conference

    2

  • Why Investment Liberalization Reform as a reaction to the change of Global Governance in

    trade & investment, such as new rules as dominated in TPP, TTIP, which include “pre-establishment treatment” rules and “negative list” models for managing market access for foreign investors. New rules also include environment, labor and competitive neutrality of SOEs, which are not addressed in traditional trade & investment treaties.

    China is now the second largest capital importing country and the third largest capital exporting country (see chart)

    The 3rd Plenary Session of 18th CPC Central Committee decided to comprehensively deepen the reform, and “accelerate negotiation and signing investment treaties with relevant countries and regions”.

    3

  • 2005-2013 China FDI & OFDI

    603.25 630.21

    747.68

    923.95 900.33

    1057.35

    1160.11 1117.16

    1175.86

    122.6 161.3

    187.2

    406.5

    478

    601.8

    685.8

    772.2

    901.7

    0

    200

    400

    600

    800

    1000

    1200

    1400

    2005 2006 2007 2008 2009 2010 2011 2012 2013

    2005-2013 China Non-financial FDI 和OFDI

    (100 million USD)

    实际利用外资 对外直接投资

    Source: MOFCOM, 2014

    (FDI) (OFDI)

    4

  • I. Overview of China’s foreign investment policy: Three Phases of China’s Opening Policy

    • 1979 – 1988 Equity JV, Cooperative JV, wholly FIE laws and its implementing rules; laws related to foreign taxation, foreign exchange administration (SAFE) and labor law etc. (in taxation super-national-treatment) BIT networking initiated

    • 2001 - 2006 Transitioning WTO law into domestic laws: ratification, transition according to relevant rules in TRIMs、GATS; “Balance of Foreign Exchange,” “Export Performance” and “Domestication Requirement,” which are inconsistent with WTO law, are abolished. Contract Law, individual/company income tax law, tax law and market admission regulation for FIEs are enacted, the foreign investment laws are systematically established.

    • 2008 – new rule oriented In recent years, China rises both as capital receiving country but also as capital exporting country, China needs to ratify or amend its BITs with other countries; the on-going negation of TPP/TTIP also pushes China to reform its domestic legal framework for investment. FTA with ASEAN since 2002 , now 18 FTAs/RTAs, 12 effective; 6 on negotiation Incl. RCEP (10 + 6), China- Australia, China-Korea FTA.

    5

  • II. Investment Liberalization: pre-establishment & negative list model

    1. Not specified in International Treaties • no relevant clause related to pre-establishment and

    national treatment in intl’ treaties so far signed by China (no GATT like rules)

    • In GATS, only national treatment in those permitted sectors (post – establishment treatment), however not for admission

    • no relevant Clause in TRIMS

    2. Not specified in 131个BITs, FTAs/RTAs, and CEPA

    3. Fragmented international investment rules, difficult to have consent for multilateral mechanism

    6

  • Will be adopted in China-US BIT, EU- China BIT

    • China-US BIT

    14 rounds (since 2011, 2014-1-15 text reading and negotiation),

    Shanghai Pilot FTZ, adopted the BIT Content: pre-establishment and “negative list” model to manage foreign investment, aiming to establish a safe, efficient, open and transparent foreign investment management system in line with international standards

    • EU-China BIT

    3 rounds in 2014, (since 2012, EC was authorized by its member states to launch BIT negotiation with China on 2014-01-21-23 first round took place)

    2014-3-31 Art. 11, Joint Statement: Deepening the EU-China Comprehensive Strategic Partnership for mutual benefit

    7

  • Key Clauses in BIT Negotiations • Market Access:the scope and to what extent? How to

    ensure a fair competition among state-owned firms, private firms and FIEs.

    ① Market Access / Negative List & pre-establishment ② Financing (credit, loan) ③ GPA ④ Government Subsidy

    • ISDR • Fair Competition, Transparency of State-Owned firms and

    the potential investor-state arbitration • Social and environment clause

    8

  • III. Negative List Management and Investment Liberalization

    • International Practice of “negative list”

     Well functioning in NAFTA、US-Australia FTA, US-Korea FTA etc. in the area of investment

     Around 77 countries adopted “negative list” model to manage admission of foreign investment

     The high standard require a transparent and efficient management of foreign investment policy

    9

  • International Obligations in “negative list”  Investment liberalization is not an international obligation

    Positive list model can be flexibly managed and content can

    be changed unilaterally if necessary (domestic law), such as Catalogue of Industries for Guiding Foreign Investment

    Negative List: once becoming part of the treaty, according to priority of international law, the host country shall bear international obligation (so far SH FTZ is unilateral)

    The adoption of “negative list” reflects the willingness of the State to expand market access for foreign investment and consequently to take the obligation.

     Negative List” model “signal” the political wish to conclude US-China BIT, EU-China BIT. Model for other countries as well.

    10

  • IV. China (Shanghai) Pilot FTZ

    Reform target: Building a new open economic system Trade Facilitation; investment and financing; administration 1. Negative List Version 2013 involved 18 sectors and its 190 sub-sectors;

    90% overlap with the investment catalogue’s “prohibited” or “permitted under certain conditions” (restricted) categories. / Catalogue of Industries for Guiding Foreign Investment

    2. Version 2014 has trimmed the sub-sectors to 139 and thus enlarge market access for foreign investment

    3. Commercial Registration: investments in sectors not on “negative list” are not subject to approval, they must merely be registered

    New: State Development and Reform Committee: new regulations ease approval procedure for investing abroad under US$1 Billion

    • Capital of the Company:paid in capital subscription • Further opening of 6 service sectors/EJV, CJV and WFIE laws not in use • Financial sector reform (capital account freedom)/FTA Account • Trade Facilitation/Taxation preferential treatment and reform

    11

  • Shanghai FTZ’s reform and policy implication

    • Reform as an reaction to the change of Global Governance in trade & investment

    • A unilateral opening of investment market so far • BIT/negative list as “signaling” in investment liberalization: it is a simple,

    safe and predictable legal framework for foreign investment  Market access is subject to the size of “negative list” and the industry

    policy is decisive  Keep the sensitive sectors as exception  Keep standards-depth flexible and does not need to be high as TPP, TTIP.  Industry policy: gradual enlargement of market access, keep sensitive

    sectors as exception  Considering the economic structure and regulations, China shall pay

    attention to the clause “fair and equitable treatment”, “national treatment” and reserve policy space related to social & environmental policy making, as well as reserve “post-treatment” in some of the infant or strategic industry (e.g. different understanding of environment, labor, competitive neutrality etc. )

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  • V. The Implication of China’s current reform to the Roadmap of RCEP

    Status 2013: trade and investment with ASEAN • 2013, China ranked No. 1 in the world trade: USD4.16

    trillion. • In 2013, China is the largest trade partner of ASEAN (USD

    443.6 Billion, 11% increase), while ASEAN is the third largest trade partner to China ( after the US521 Billion, the EU USD500 billion);

    • In 2013, Malaysia’s trade with China in 2013 exceeds USD 10 billion, after Japan and Korea

    • ASEAN invested in China – USD 80 billion, Singapore ranked as No. 1, amounting to USD 7.2 billion; while China invested in ASEAN USD 40 billion, in total USD 120 billion

    13 01/10/2014

  • China’s OF