Chapter 8 National Treatment
National treatment is a core principle binding all WTO members, which calls for services and service suppliers of any member nation to be accorded treatment no less favorable than that of domestic suppliers. Thus, national treatment forbids members from discriminating against foreign companies or imported products by levying taxes or charges to which domestic goods are not also subject. It also requires equal treatment with respect to the procurement of goods and services, requirements related to product manufacturing and marketing, and the prices and availability of goods and services supplied by state authorities.
To build Shanghai into a modern international metropolis and the economic, financial, trade and shipping center of China, the City needs to extensively promote the national treatment principle in greater depth. This has a significant implication in improving the economic environment, promoting compliance with international practice, and upgrading the international competitiveness of Shanghai. Therefore, in 2004, Shanghai has maintained the promotion and realization of national treatment as the basic working principle of the government, and has achieved positive results.
I. Measures Taken by the Chinese Government in Implementing National Treatment Commitment.
After its accession to WTO, China passed and issued the new “Foreign Trade Law” in 2004 and implemented its national treatment commitments concerning trade in goods. Meanwhile, China also substantially enhanced the level of national treatment enjoyed by foreign-invested service enterprises in our country through implementing relevant market access commitments concerning trade in services.
1. Measures taken by the Chinese government in implementing its national treatment commitments in trade in goods.
China issued the new “Foreign Trade Law” in April 2004. The new law stipulates that foreign-invested companies in China are entitled to exercise the rights to conduct foreign trade granted by WTO from Dec. 11th, 2004, and that foreign individuals and enterprises shall be accorded treatment no less favorable than that of domestic enterprises with respect to rights to conduct foreign trade. Later, China accordingly issued specific implementation rules governing the complete liberalization of right to foreign trade. For instance, the Ministry of Commerce promulgated “Measures on Record Registration of Foreign Trade Dealers” and “Notification on List of Organizations entrusted with Record Registration of Foreign Trade Dealers by Ministry of Commerce” in June 2004. The State Administration of Foreign Exchange promulgated “Notification on Issues of Foreign Exchange Administration in Individual Foreign Trade Operations” in August 2004.
2. Implementation of national treatment commitments in trade in Services
(1) Distribution sector. In December 2003, China duly lifted the geographic and quantitative restrictions on foreign-invested wholesale enterprises and allowed foreign companies to trade in books, newspapers and magazines. In April 2004, the Ministry of Commerce promulgated “Administrative Measures on the Investment in the Commercial Field by the Foreign Investors”. This decree explained about problems existing in the course of implementing commitments in the distribution sector in the second year after China’s WTO accession and explicitly stated that China would further extend distribution rights to foreign-invested companies from Dec. 11th, 2004，lift geographic, quantitative and share-holding restrictions on foreign-invested retail enterprises, and open up business operations in finished oil, medicine and other important goods. To promote business operations of foreign-invested enterprises by way of franchise, the Ministry of Commerce promulgated on Nov. 23rd, 2004 “Provisional Rules on the Administrations of Franchising Business by Foreign-invested Enterprises (draft for opinion solicitation)” and widely solicited opinions from the public. The Provisional Rules clarified the qualifications, rights and obligations as well as supervision and management procedures for foreign-invested enterprises engaged in franchising, and is expected to be officially promulgated in early 2005.
（2）Banking. China liberalized the geographic restrictions on branches of foreign-invested banks and domestic currency services. The “Regulations of the People’s Republic of China on Administration of Foreign-Funded Financial Institutions” promulgated in July 2004 reduced the minimum registration capital requirement and lifted the restriction that a foreign-invested financial institution shall only establish one new branch in every 12 months.
（3）Securities sector. Foreign investors are allowed to hold up to 33% of the shares in listed companies issuing A share, B share and H share, and are also allowed to trade in H share, B share as well as government and corporate bonds. On Dec. 11th, 2004, China raised the proportion of foreign investment in joint venture securities companies to 49%.
(4) Insurance sector. In accordance with its WTO commitments, China gradually liberalized the geographic restrictions on foreign-invested insurance companies. The Insurance Regulatory Commission of China promulgated “Regulations of the People’s Republic of China on Administration of Foreign insurance companies” in May 2004, which simplified the application procedures, shortened the examination and approval time, and reduced the requirements of registered capital needed for establishing a branch company.
(5) Automobile financing sector. China promulgated a rule governing the automobile financing market at the end of 2003; and the Banking Regulatory Commission of China issued licenses to non-bank financial institutions in August 2004, allowing them to enter the automobile financing market. Some major international automobile manufacturers have embarked on automobile financing services.
(6) Advertising sector. Although foreign-invested enterprises will not be allowed to enter the advertising market of China until Dec. 11th, 2005, some companies, in fact, can enter the market earlier by taking advantage of the “Mainland and Hong Kong Closer Economic Partnership Arrangement” (CEPA).
The State Development Planning Commission and Ministry of Commerce issued “Catalogue for the Guidance of Foreign Investment Industries (2004 version)” (hereinafter shortened as the Catalogue) on Nov. 30th, 2004，which will come into effect from January 1st, 2005. The old version of “Catalogue for the Guidance of Foreign Investment Industries” issued by the former State Planning Commission, the former State Economic and Trade Commission and the former Ministry of Foreign Trade and Economic Cooperation on March 11th, 2002 shall cease to be effective on the same day.
The new Catalogue, while maintaining the continuity and stability of our foreign investment absorption policies, represents some revisions to the old Catalogue in the following three aspects:
1. To adapt to the need of further opening-up and bringing in advanced technology，some domestic industries and products whose developments are urgently needed are added to the encouraged items, and some existing encouraged items are revised to expand the scope of encouraged industries. For instance, the production of key components of in big-screen color projection display, the manufacturing of glycol, electronic appliances for automobiles and large–scale 300,000-kilowatt boiler for circulating fluid bed (CFB), and CD-ROM copying all fall into the category of encouraged foreign investment industries with the revision of the Catalogue.
2. Restrictions on admission of foreign investment are liberalized to accelerate the opening up of the service sector. For instance, for the first time in history, the production and distribution of radio and TV programs and film production are listed as areas to be opened up to the outside world.
3. To serve the need of macro regulation and control and to prevent industries from conducting blind and low-level investment, some popular industries or products in which irrational investment has occurred are removed from encouraged foreign investment items and re-classified as permitted foreign investment items; With respect to industries or products which show a tendency of over-heated investment but still need foreign investment and advanced imported technology, the standard shall be raised to prevent low-level overlapped construction. For instance, some previously encouraged foreign investment items are removed or revised, including the manufacturing of wide and thick plate and zinc-galvanized plate, steel scrap processing as well as production of urethane elastic fiber and polyester.
After the new Catalogue takes effect, foreign investment falls into the category of encouraged items and will be entitled to exemption of duties on imported equipment as well as import VAT.
The new Catalogue serves as an important policy that guides the direction of foreign investment. It will play a positive role in conducting macro regulation and control, effectively organizing and planning domestic development and opening up, promoting the optimization and upgrading of industrial structures, and improving the quality and level of tapping on foreign investment.
II. Active Implementation of National Treatment Commitment by Shanghai
While earnestly implementing our WTO commitments in accordance with the plan of the state government, Shanghai also sets eyes on further improving the opening-up level. To this end, Shanghai amended and optimized local laws and regulations related to national treatment, and promulgated a series of policies and measures that aim at attracting regional headquarter of multinationals, foreign investment companies and foreign research and development centers to come to Shanghai. It also offered these enterprises preferential policies more favorable than those in our WTO commitments, covering tax, staff training, export tax rebate, customs examination and clearance, entry and exit visa for foreigners.
1. Measures taken by Shanghai in implementing national treatment commitments in trade in goods
On the basis of relevant laws and regulations of our country, Shanghai promulgated “Measures of Operation Governing Record Registration of Foreign Trade Dealers” on July 12, 2004, which clarifies the specific implementation measures for record registration of foreign trade dealers.
2. Measures taken by Shanghai in implementing national treatment commitments in trade in services
Shanghai offers national treatment to foreign enterprises in such sectors as distribution, banking, securities, insurance, automobile finance and advertising in accordance with the state regulations. In the mean time, Shanghai’s trade in service has been progressively opened to the outside world in greater depths, particularly in commercial presence - a mode of service provision that is the most influential in trade in services and is under the greatest restrictions.
On July 20, 2002, the Shanghai Municipal government promulgated “Provisional Rules of Shanghai Municipality to Encourage Foreign Multinationals to Establish Regional Headquarters” to attract multinationals to locate their regional headquarters in Shanghai. Article 11 of the Provisional Rules specifies the preferential policies that Shanghai offers to the regional headquarters of multinationals: regional headquarters with R&D functions established in Shanghai are entitled to preferential policies available to new and high-tech enterprises; regional headquarters registered in Pu Dong New Area are entitled to preferential policies available to enterprises in the Pu Dong New Area. Regional headquarters providing key skill training to its staff are entitled to subsidies according to the relevant regulations. Article 12 specifies trading rights in import and export and tax rebate that are offered to the regional headquarters: Shanghai encourages and supports the regional headquarters to establish international sourcing center and logistics center in Shanghai. Such international sourcing center and logistics center can obtain trading rights in import and export with the approval of relevant authorities in accordance with the state regulations, and their goods for export can enjoy tax rebate.
On March 1st, 2003，Shanghai promulgated “Detailed Implementation Rules for (Provisional Rules of Shanghai Municipality to Encourage Foreign Multinationals to Establish Regional Headquarters)”，which further clarifies that regional headquarter with certifications are entitled to obtain subsidies in accordance with the relevant regulations if they provide their staff with key skill training. Foreign employees in such headquarters may apply for visitor visa allowing multiple entries within one year; and senior foreign executives and high-tech talents traveling frequently in and out of China may apply for visitor visa allowing multiple entries in two to five years with each visit no longer than one year. Foreigners who need to work in the regional headquarters for a long time can apply for Residence Permit for Foreign Nationals valid for one to two years, and are also entitled to obtain multiple-entry work visa with the same validity as the Residence Permit; senior foreign executives and high-tech talents who need to work for a long time in the regional headquarters may apply for Residence Permit for Foreign Nationals valid for three to five years, and are also entitled to obtain multiple-entry work visa with the same validity as the Residence Permit.
With a view to further improving the quality and level of foreign investment and attracting foreign investors to establish R&D institutions in Shanghai, the Shanghai Municipal government promulgated “Suggestions of Shanghai Municipality to Encourage Foreign Multinationals to Establish Research and Development Institutions” on Sept. 15th, 2003. The “Suggestions” consists of 17 parts, covering conditions of establishment, import duties, income tax and business tax, land cost and stipulated fees, foreign exchange administration, customs examination and clearance, entry and exit visa, employment of talents from other provinces and cities, and intellectual property right protection. Headways have been made in addressing the following problems: imported consumable material, separately imported R&D equipment, spare parts and software are not exempted from duties and import VAT; foreign employees have to pay high income tax; personnel employment and entry and exit procedures are very complicated; customs examination and clearance are not fast enough; foreign exchange administration cannot meet the needs of business development. For instance, with regard to the problem that imported consumable material, separately imported R&D equipment, spare parts and software are not exempted from duties and import VAT, Shanghai adopted the method of applying to the State authorities for approval on a case by case basis. Foreign staff of foreign-invested R&D institutions may apply for the following in accordance with the relevant regulations: (a) multiple entry visitor visa valid for more than three years with each visit no longer than one year, (b) Residence Permit for Foreign Nationals valid for no shorter than three years, (c) multiple-entry work visa with the same validity as the Residence Permit, and (d) Shanghai Residence Permit (type B). Foreign-invested R&D institutions with legal person status can itemize their actual R&D expenditure into expenses before tax. New and high-tech transfer projects of foreign-invested R&D institutions, once certified by Shanghai New and High-tech Transfer Service Center, are entitled to enjoy the relevant support policies in accordance with “Notification of Shanghai Municipal Government on Issuing the Revised (Regulations of Shanghai Municipality on New and High-tech Transfer)”. Shanghai also facilitates the non-trade foreign exchange settlement of foreign-invested R&D institutions, and gives priority to imported equipment, spare parts and samples of foreign-invested R&D institutions in customs examination and clearance.
On Sept. 15, 2003, Shanghai Municipal government promulgated “Notification on Issuing Guidance of Foreign Investment Industries” and two annexes – Catalogue of Key Encouraged Foreign Investment Industries and Guidance on Location of Foreign Investment Industries. Catalogue of Key Encouraged Foreign Investment Industries in Shanghai covers four major areas, namely, manufacturing, service, city infrastructure and public utilities, and agriculture. In this catalogue, there are some industries that fall into the category of state-restricted industries, such as the financial service sector (including banks, insurance companies, securities companies, securities investment and fund management companies, financial lease companies, and insurance agencies), distribution sector (such as foreign trade enterprises), social work（such as medical care services）and city infrastructure and public utilities（such as gas, heating, water supply and discharge network, telecommunication）. These industries are still subject to the state regulations in market access, share-holding restriction, exemption of duties on imported equipment, and project examination and approval. With regard to foreign-invested projects involving quota and license, such quota and license shall be applied for with the relevant government authorities.