On December 11, 2001 China's accession to the World Trade Organisation became effective. Under Article 142 of the General Principles of Civil Law, treaty provisions are automatically enforceable in China, even if the terms conflict with provisions of other Chinese laws or regulations. Therefore, the WTO convention is immediately in effect and rights and entitlements granted under the accession document are enforceable in accordance with the terms of those rights or entitlements.
Tariffs and non-tariff charges on a variety of commodities have been reduced with immediate effect. Foreign exchange balancing is no longer required of companies set up in China by foreign investors. Foreign investment will be permitted in more of the service sector.
In a number of industry areas, changes or promises of either pending change, or of no change unfavorable to foreigners, have been made to investors from WTO member countries. For example, foreign investment in telecommunications will be permitted to gradually expand, wholly foreign owned construction companies for certain types of construction activities are to be permitted within three years of WTO accession, franchising is to be unrestricted some time within three years of China's accession, etc. Another example occurs in banking and in insurance. As of WTO accession, foreign non-life insurers are permitted to provide "master policy" insurance/insurance of large scale commercial risks. In addition, foreign insurance brokers will eventually be permitted to provide "Master policy" coverage of other risks as of such time as Chinese brokers are permitted to provide the same, and under conditions no less favourable. Other insurance provisions are discussed in our note on insurance. Please also see our note on banking for comments on the expansion of foreign banks' rights to engage in Renminbi banking.
Within three years of accession, all enterprises established in China are to have the right to trade all goods throughout China except for goods listed in Annex 2A of the accession agreement. The goods in Annex 2A are reserved for State trading and include a number of agricultural staples, tobacco products, gasoline and other fuel, certain stipulated chemicals, fertilizers, cotton and silk with certain specifications, tea, and some minerals.
In a number of other industries, gradual liberation of foreign investment has been agreed. For example, within four years after accession, wholly foreign owned hoteliers are to be permitted. Within six years after accession, wholly foreign owned travel agents are to be permitted. Within three years majority foreign ownership of rail transport services is to be permitted, with wholly foreign owned rail transport services to be permitted within six years of accession. Wholly foreign owned enterprises are to be permitted in road transport within three years of accession. Majority ownership of warehouses is to be permitted for foreign investors within one year of accession, with wholly foreign ownership permitted within three years.
It is not clear whether the investment regime in place prior to WTO accession will be applied to investors from non-WTO member countries, or whether the entire environment for foreign investment will be subject to the same gradual opening up process. Hong Kong and Macau are already WTO members and therefore investors from these two territories will have access to all of the benefits which other WTO members have following China's WTO accession.
Compliance with the promises made in the accession agreement is a matter of concern to WTO members who are in the process of establishing systems to monitor compliance. Foreign investors who find they are harmed by a failure to abide by WTO promises may report the matter to their embassy for further action. The WTO itself provides a mechanism for sorting out differences or disputes among member states, and this mechanism may also be used by members aggrieved by any failure to comply with the terms of accession.
For further information and guidance please contact Luke Filei on luke.filei@cms-cmck.com or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.
