Chapter 10 The Development of Trade Association

and Intermediary Organizations

The establishment and the development of trade associations and intermediary organizations and the exploration of management mode suitable for the socialist market economy is an objective requirement to our nation for her reforming, opening and integration into the world economy. China’s entry into the WTO not only urgently requires trade associations to develop but also provides good chances for them to grow. With the WTO entry, the establishment of modern corporate system and the quickened steps of enterprises to “go abroad”, all these factors have presented vast space for trade associations to play their roles. With our nation’s overall power growing stronger, undoubtedly, trade associations will become a key player, active, energetic and indispensable on the world stage.

Three years since the WTO entry, the development of trade associations and intermediary organizations, regarded as an important element among the WTO affairs, has always been attached great importance in Shanghai, thus enabling trade associations and intermediary organizations to function as bridges between government and enterprises and among enterprises as well, and thereby their global competitiveness could be enhanced and the changeover of governmental function promoted.

Box 10.1 The Role of Trade Associations in International Trade

Three years since the WTO entry, the reform and the development of trade associations have always been a great concern to the government, enterprises and all walks of life. Besides four cardinal functions that should be firmly executed by trade associations, i.e. “representing, coordinating, servicing and self-disciplining”, a more important role is being expected for trade associations and intermediary organizations to play in protecting domestic industries and supporting domestic enterprises to enhance their global competitiveness. As generally considered, the following nine positive roles for trade associations can be at least played in international trade.

1. Pricing coordination: In order to avoid low-price strategy by enterprises for entering into global markets, such as offering price one after another so low that induces anti-dumping and countervailing sues from importing nations, trade associations should normalize pricing in their trade line and set limit of lowest salaries in order to ensure reasonable prices for domestic goods in global markets and reduce frictions in international trade.

2. Utilizing the WTO’s safeguard clause to protect China’s economic interests and trade: As set out in the safeguard clauses, if imports of a product cause serious injury or threaten to cause serious injury to the relevant domestic industry, the importing country could apply a specific transitional safeguard measure to protect its domestic industry, such as increasing tariff and restricting the quantity of imports. To apply the safeguard clause, detailed and reliable evidences should be presented; therefore trade associations can present the evidences on behalf of their trade lines.

3. Acting as plaintiffs in anti-dumping and countervailing cases: In world practices, it is very common for trade associations to act as plaintiffs whereas it is rare for governmental anti-dumping institutions or individual enterprise to do so.

4. Helping enterprises respond to suits: As trade associations are rather familiar with enterprises’ both production and sale home and abroad, if trade association appears in court, the high expenses for legal action can be shared by relevant enterprises. In this sense trade associations ’ combined efforts can remarkably strengthen the capability to deal with anti-dumping actions.

5. Helping enterprises explore global markets and strengthen contacts with trade associations in other countries.

6. Representing enterprises’ interests and exerting influence on governmental policy-making.

7. Setting up industrial standards and protecting infant and weak domestic industries through non-tariff barriers.

8. Issuing Certificate of Origin.

9. Providing trade information and trade-related services.

I. The Development of Trade Associations and Intermediary Organizations in Shanghai

Since China’s entry into the WTO in 2001, trade associations and intermediary organizations in Shanghai have entered into a new phase of development by keeping pace with the trend of modern market economy. Through the extensive survey for developing and reforming trade associations and intermediary organizations, on October 29, 2002, the executive meeting of the Shanghai Municipal Government made decisions to quicken the development of trade associations. It proposed to “promote the adjustment and the reform through development”, and to separate administrative functions from trade associations, and to give a full play to the functions of trade association in “representing, coordinating, servicing and self-disciplining”. It was agreed that strengthened efforts were needed to adjust current trade associations, to strengthen supervision on intermediary organizations involved in economic certification, and to improve management of intermediary organizations. The Commission for the Development of Trade Associations and the Commission for the Development of Intermediary Organizations were established. Documents regulating the reform and the development of trade associations and intermediary organizations were drafted. Working conferences to promote the reform and the development of trade associations were held in Shanghai.

On January 11, April 25, and October 19 respectively in 2002, the Shanghai Municipal Government called several working conferences. Thereafter the Commission for the Development of Trade Associations and the Commission for the Development of Intermediary Organizations were established. The documents entitled “Provisional Rules Governing Trade Associations in Shanghai”, “Guidelines for Promoting the Development of Trade Associations in Shanghai” and “Advices For Regulating the Management of Intermediary Organizations Involved in Economic Certification in Shanghai” were also issued in the name of the Shanghai Municipal Government or the General Office of the municipal government. These actions gave a strong boost to the development and the reform of trade associations and the standardization and the development of intermediary organizations in Shanghai. Meanwhile the development and the reform of trade associations also drew close attention from the Shanghai Municipal People’s Congress and the Shanghai Municipal People’s Political Consultative Conference. “The Regulations for Promoting the Development Of Trade Associations in Shanghai” was approved by the Standing Committee Of the Shanghai Municipal People’s Congress on October 31, 2002 and took effect as of February 1, 2003.

Trade associations in Shanghai, as nonprofit and self-disciplining social groups serving enterprises, are made up of enterprises in the same trade line or other economic organizations on a voluntary base. Till the end of December 2003, in Shanghai there were 184 trade associations with 1,100 employees and covering more than 41,000 enterprises. To be specific, 73 trade associations are from industrial manufacturing, accounting for 40% of the total, 31 or 17% from commerce and distribution, 37 or 20% from modern service industries, 22 or12% from construction and transportation, 11 or 6% from science, education, culture and public health, and 10 or 5% from agricultural production.

Figure 10.1 Distribution of trade Associations in Shanghai

上海市行业协会分布图Distribution of trade Associations in Shanghai

工业制造类- Industrial manufacturing

商业流通类- Commerce & Distribution

现代服务类Modern Service Industry

- 建设交通类Construction and Transportation

- 教科文卫类Science, Education, Culture and Public Health

- 农业产品类Agricultural Production

Intermediary organizations in the market are institutions providing services to market entrants, including legal person and natural person, and fulfilling functions in communicating, coordinating, notarizing, assessing, acting as an agent, supervising and consulting. Economic certification agency is one kind of it, being composed of professionals with special expertise, specialized in representing clients and undertaking corresponding legal responsibilities. Intermediary organizations in the market are widely spread in Shanghai and up to now there has been no unified criterion to classify them. According to incomplete statistics, they roughly fall into seven categories, namely, certification agency, assessor, broker, agent, consultant, notary and arbitrator, and trader, made up of nearly 15,000 institutions, covering 50 industries, and employing more than 300,000 people. In the certification category there are 921 agencies covering accounting, legal affairs, taxation, assets assessing, real estate assessing, project budget making and patent agent with staff of near 27,000 persons, among which more than 13,000 with certified qualification.

II. Measures for Promoting the Development and Reform Of Trade Associations in Shanghai

The Publication of Relevant Regulations and Policies

“The Regulations for Promoting the Development Of Trade Associations in Shanghai”, approved by the Standing Committee Of the Shanghai Municipal People’s Congress and publicized as a local regulation, has clarified many issues such as trade association’s nature, function, organization system and prohibited behaviors, thus confirming the fundamental role of trade association as representing the common interests of its trade line. It has improved the legal environment for the development of trade association in Shanghai. The “Provisional Rules Governing Trade Associations in Shanghai”, and “Guidelines for Promoting the Development Of Trade Associations in Shanghai”, as governmental documents, have prescribed many stipulations concerning the management system, function, and operation principle for trade association, separation of administrative function from trade association and the adjustment and the reform of existing trade associations. The documents call for a quickened development of some trade associations that are badly needed, a structural optimization, an expanded coverage, a standardization of the setting up of new trade association and the condition for appointing representatives. The General Office of the Municipal Government also issued Document No.38/2002 entitled “ Advices On the Division of Line of Authority between Competent Authorities in Charge of Trade Associations in Shanghai and the Coordination Of Their Relevant Work ” and Document No.47/2002 entitled “Advices On Supporting the Development and the Reform Of Trade Associations In Shanghai”. The System Reform Office of the Shanghai Municipal Government, the Municipal Administration of Social Groups and the Commission for the Development of Trade Association jointly issued a document entitled “Advices On Setting Up New Trade Associations in Shanghai”. All these documents have specified policies with regard to the work coordination among governmental offices, a smooth transition of trade association staff by “new way for new staff and old way for old staff”, the training of professional staff for trade association and the priorities on the agenda of trade associations.

Perfecting the New Management System

In view of the deficiency of former management system, the municipal government decided to separate the managing of routine affairs in trade association from the managing of trade line business. For this purpose, the Commission for the Development of Trade Associations was set up, as a competent authority entrusted by the municipal government to manage the trade association, such as making overall plans and coordinating among trade associations in Shanghai while competent authority in respective trade line is responsible for human resource management and external communication. The Commission, assisted by the related authority in the trade line, takes charge of the application for setting up trade association and its branches and representative units, the setting-up registration, registration amendment, and examination before the registration cancellation. The Commission also takes charge of financial management of trade association, donations from overseas; initial examination in the annual check-up of trade associations, inspection and punishment of law-offending practices by trade association in cooperation with registration authorities and other related authorities, as well as liquidation of trade association jointly with related authorities. The competent authority in the trade line, assisted by the Commission organizes symposium, supervises trade associations and instructs them to adhere to constitution, laws, regulations and policies in their business according to trade association rules. A new managing system has been initially formed through the cooperation among the competent authority in the trade line, the Commission for the Development of Trade Associations, and municipal agency managing social group registration. Thereby the managing structure by the government, the role and operation of trade associations has been further improved.

Promotion of the Building of New Trade Associations

To meet the need of industrial development, the Commission for the Development of Trade Association closely cooperates with the related governmental authorities to foster and develop a group of trade associations in three key areas, namely, “WTO-entry related areas, emerging industries, and leading industries”. In building these new trade associations, the Commission will encourage voluntary participation by enterprises and governmental support through coordination. The trade associations shall manage their own affair under governmental instruction. They will be self-funded, supported by governmental “service purchasing”. Trade associations will be independent in their operation while receiving governmental supervision. Through such measures as reporting by sponsors of trade association, policy publicity, information collection regarding concerned trade line, coordination among requests of different enterprises, consultation with competent authority of the trade line, and instruction on document preparation for application, strict check is conducted at the initial examination for approval to ensure that the newly built trade associations become a “ bellwether” in the all-round development of trade associations.

Promotion of the Reform and Adjustment of Trade Associations

The Shanghai Commission for the Development of Trade Association actively cooperates with competent authorities in different trade line to carry out the reform and the adjustment of trade associations, strictly according to the five cardinal principles proposed by the Shanghai Municipal Government, i.e. “to expand coverage, to increase representation, to separate administrative function from trade association, to standardize internal operational system, to independently fulfill function, and to adjust membership mix”. Based on the historical and realistic situation, the Commission explores new methods without violating principles to push forward an across-the-board restructuring without losing priorities. It has taken the approach of “easier issues first and harder issues next”. Through working conferences, it communicates the requirements for the reform and the adjustment. By making sample copies of regulatory standards, it advises trade association on specific working process. Through interviews and visits, it clarifies the priorities on the agenda for trade associations and help them with difficult problems. The trade associations are educated to realize the urgency in the reform and adjustment, and pushed to improve their work in line with the five cardinal principles proposed by the Shanghai Municipal Government. It assists trade associations in making plans for the reform and the adjustment and in fulfilling the specific procedures. It also helps trade associations with the recruiting of new members during change of office or at annual conference, the adjusting of leadership, the revising of trade association rules and the improving of working system.

Strengthening the Training Of Secretary General of Trade Associations

It is emphasized in Shanghai local laws, governmental documents and by the municipal government that “it is essential to establish a system of trade association professionals for the purpose of its development”. In collaboration with the Party School of the Shanghai Municipal Government, the commission organizes in 2003, 2004 respectively training sessions for secretaries general. Altogether 4 training courses were offered in two years to 220 trainees from more than 140 trade associations. As a result, current secretaries general in Shanghai have all completed training, making it a good start in the trial with the setting up of trade association professionals system. The Commission also worked with the special committee under the Municipal People’s Congress to hold training courses on “the Regulation For Promoting the Development of Trade Associations in Shanghai” and organized more than 100 secretaries general from trade associations to study the Regulation. It also worked with the Shanghai Municipal People’s Political Consultative Conference to hold symposiums on the topic of “Strengthening the Construction of Trade Associations and Intermediary Organizations”. It then supported the special symposium on “WTO and Trade Associations” during the Shanghai Industrial Fair, and organized members from some trade associations to listen to the lecture delivered by the CEO of British Trade Association and exchange views with some U.S.A trade associations through video conference. Therefore the secretaries general, through such training, study and communication, have changed their mindset and are now efficiently pushing forward the development and the reform of trade associations.

III. The Measures to Speed Up the Development and Reform Of Intermediary Organizations in Shanghai

Improving Governmental Management System

The Commission for the Development of Intermediary Organizations set up by the Shanghai Municipal Government is responsible for a comprehensive coordinating and management of intermediary organization in the market (including certification agency), policy study and plan-making for the development of economic certification agency, and coordinating the relationship among government, trade associations and agencies. The routine management of organizational and personnel affaires of economic certification agency and other intermediary organizations is vested in the specialized department of the Commission. Among the Commission for the Development of Intermediary Organizations, competent authorities in the trade line and trade associations, gradually the management system has been improved through a working relationship that is mutually promoting, assisting and interactive.

Forming a “One-Plus-Seven” Document System for the Standardized Management

The document entitled “Advices on Standardizing Management of Economic Certification Agency in Shanghai” issued by the General Office of the municipal government calls for the establishment of a managing system for intermediary organizations to meet the requirements of market economy and the real situation. It is suggested that to further the reform and development of intermediary organizations, the internal operational system should be improved, the professional ethics be emphasized, the self-disciplining function be realized, and the natural membership system be gradually adopted. Based on the related document, authorities in seven sectors, specifically, Finance, Taxation, Judicial Administration, State Assets Control, Construction, Real Estate and Industrial Property, as requested by the Shanghai Municipal Government, have formulated their respective guidelines for the standardized management of certification agency in their sector.

Publication of the “Advices on Legal Training of Staff of Economic Certification Agency”

In order to implement the requirement of Shanghai Municipal Government to carry out legal education and fulfill the task of educating staff working in economic certification agencies, the Shanghai Commission for the Development of Trade Association together with related authorities has made and publicized the guidelines to promote the professional level of staff in economic certification agencies in Shanghai.

Publication of “Regulation on Standardizing Fee Charging by Certified Accounting Firms (For trial) ”

For the development of certified accounting service, it is essential to standardize fee charging by certified firms in order to safeguard the legal interests of accounting firms and their clients. According to the relevant laws, regulations and the reality of Shanghai, after studies and survey, the Shanghai Commission for the Development of Trade Association, together with the Shanghai Municipal Price Bureau and the Shanghai Municipal Finance Bureau, have drawn up the above-mentioned regulation.

Setting up of the Joint Working Conference System

As sponsored by the Shanghai Commission for the Development of Trade Association, the joint conference is convened every three months. Competent authorities managing the certification agencies and trade associations attend the conference to talk about issues of concern, after which minutes are prepared, thereby improving the working system among functional departments.

Composing Public Law Education Materials and Making Implementation Plans

According to the “Advices on Strengthening Law Education of Staff of Economic Certification Agency”, the Shanghai Commission for the Development of Trade Association worked with the Shanghai Municipal Law Publicity Office to organize experts to compile education materials and draw up test programs and test paper as well as specific procedures for implementation, thus creating conditions for the successful trainings in the next half of the year.

Conducting Research on the Environment in which Economic Certification Agencies and Non-Certification Agencies Practice

The Shanghai Commission for the Development of Trade Associations worked with other related authorities to conduct studies and research on the working environment for economic certification agencies and non-certification agencies in order to be familiar with the general situation and information. It was then proposed that among the goals and measures for reform, non-certificate agencies should be restructured, regular supervision system be set up, and self-disciplining system be improved. To address the problems occurred in insurance brokerage, a survey was conducted among insurance agents, brokers and public appraisal agents in Shanghai and the initial proposals for the reform have been presented thereafter.

IV. Main Achievements in the Development of Trade Associations and Intermediary Organizations

Three years since the entry into the WTO, trade associations in Shanghai have experienced remarkable development. Especially the system of setting up trade associations according to market need has taken shape. A group of trade associations, which were not existing in many important industries and sectors, have been established, particularly in the WTO-accession-related area, emerging industries, and competitive industries that Shanghai enjoys an advantage. The overall distribution of trade associations in Shanghai has been improved with the joining of people into trade associations who are specialized, professional, and younger. The new system which requires trade associations to be “set up legally, run independently, with routine administration separated, and self-funded” has taken shape. The new structure of “integrated organization, clear work division, joint administration, and multilateral participation” has been set up, and the atmosphere characteristic of “common understanding, sufficient support, clear priority, and unified efforts” for developing trade association has emerged. In order to safeguard the interests of member enterprises, promote regional economy, and keep market economy order, trade associations in Shanghai have played their roles of “servicing enterprises, standardizing trade line, and developing industries”. The specific work is shown as follows:

A group of trade associations were newly set up.

The system of setting up trade associations according to market need has taken shape. A group of trade associations have been established, particularly in the WTO-accession-related area, emerging industries, and competitive industries that Shanghai enjoys an advantage. Till the end of 2002, 28 trade associations were newly established, exceeding any year in terms of the number of newly set-up trade associations. These trade associations were not existing before, especially in key industries and sectors. Their formation thus has improved the spread structure of trade associations. In 2003 and 2004 trade associations kept growing. There were 158 trade associations at the end of 2003, and 184 till December 2004.

The reform and the adjustment has been basically accomplished.

By the end of 2003, the tasks for reforming and adjusting trade associations in the city had been basically accomplished. Government functionaries can no longer hold leading posts in trade associations and trade association secretariats started to find office sites of their own. The accomplishment of the reform and the adjustment has enabled trade associations to operate as per the new system, and work on own will to look for a role to play in market, such as sponsoring exhibitions, information exchanges, and products promotions at the request of member companies. Trade associations have also started to conduct self-disciplining, such as recommending renowned brands and quality products, punishing fake goods producers, coordinating and mediating conflicts among member enterprises, and representing member enterprises in social activities.

Conspicuous changes have taken place in trade association membership.

No longer restrained by the old system, enterprises with different ownership, business scales or forms of organization can join in trade associations. So the coverage of trade association has been expanded, increasing by 20 percent over that at the end of 2001. The composition of membership of councils and standing councils has become more compatible with the trade line, so the representation of trade association has been enhanced.

The internal governance of trade associations has been adjusted and improved.

Internal operating system in trade associations has been strengthened, with the operation more standardized and normalized. Most trade associations have in the secretariat regulations for holding conference or reception and making statements. For example, the elevator trade association even has its manual for secretariat management according to ISO9000 standards. The office equipment of each trade association also hasbeen modernized to meet informational requirements.

New relationship between government and trade associations has been set up.

During the reform and development of trade associations, a new type relationship between government and trade associations has come into shape. Governmental departments have changed their function and begun to support trade associations in their development, giving full play to trade associations in economic construction and social development.

Remarkable improvement has been made in policy and rule environment for trade associations.

In 2002, Shanghai Municipal Government adopted a series of measures to promote the reform and development of trade associations. After explorations and practices within one year and a half, the policy making and legal environment for trade associations has been greatly improved with relevant rules and policies continuously appearing and detailed plans for practice being drafted, such as professional system and public fund managing.

New system has been formed for the operation of intermediary organizations.

The principal position and market-oriented operation system for intermediary organizations has been confirmed. As per unified schedule by the State Council, the reform of the certification agencies listed within those to be checked up and reorganized has been basically finished. All trade lines have pushed the self-disciplining forward to perfect their trade association function, improve the management of their administration, and explore for a standardized personnel management. By means of developing and reforming, intermediary organizations gradually become independent professional entities, some of which are reorganized through merger and consolidation. External environment for intermediary organizations also has been improved.

Intermediary Organizations have started to enjoy a standardized development.

The intermediary organizations in Shanghai, generally speaking, are still at the growth stage. The majority of them are small in scale, with their operation to be further improved. A lot of new intermediary organizations are emerging, for instance, exhibition agency, weather broker, culture and sports broker, financing and leasing, agency for immigration and etc. Some traditional agencies such as auction are catching attention again and growing very fast.

In WTO-accession-related areas, trades associations in Shanghai are playing a bigger role, such as providing information, reflecting requirements of their trade lines, self-disciplining, making rules and regulations for their trade lines, responding to anti-dumping investigation on behalf of member companies. Trade associations have played the roles that government can’t play. For example, International Freight Forwarders and Fried Foodstuff Trade Association have represented their trade lines against giant enterprises and played a positive role in mediating market disputes in order to protect the interests of membership enterprises. Trade Association of Underwear was actively involved in working with the customs and the SCC/WTO to set up an early-warning system for anti-dumping against its trade line.

As the potentiality of trade associations is still to be tapped, the role for trade association to play could be further explored. Compared with advanced nations, the role for trade associations to play is very limited in China. The gap between individual trade associations is wide. Surely, the development and reform of trade association in Shanghai will be explored continuously as there is no ideal mode ready for copy. Compared with the ardent expectation and requirement from all walks of life, trade associations in Shanghai are at an infantile stage. From now to next 3 to 5 years, it is necessary to speed up the development and strive for a trade association system that is suitable to the position of Shanghai as a center city and with market-orientated operation and standardized management.