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 Enterprises State 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