Chinese economic reform is an ongoing process and the recent notable development is the China (Shanghai) Pilot Free Trade Zone (SPFTZ). SPFTZ was set up in 2013 for a trial period of three years. Given the SPFTZ is approaching its final trial period in 2016, this special issue entitled “China (Shanghai) Pilot Free Trade Zone—An Appraisal” provides a current review of the SPFTZ, with reference to particular areas including financial credit, employment, arbitration, and intellectual property. This special issue contains eight concise articles which are written by senior academics and practitioners who are located in Shanghai; thus, they have geographic advantage to receive first-hand information about the operation of the SPFTZ. Although the authors are legal experts, their articles are written with nonlawyers in mind and are readable for readers from various disciplines. While all articles have made equally important contributions to this special issue, they are organized in the following order for structural purpose only.
The first article, written by Jiaxiang Hu, is entitled “A Retrospective View on the First Three Years of China (Shanghai) Pilot Free Trade Zone”. Hu’s article sets the scene for this special issue by providing a very concise and informative overview of the SPFTZ. His article begins with an introduction tracing the developmental path of the special economic zone (SEZ) and examining the chronological incidents which led to the central government’s decision in setting up the SPFTZ. Hu also discusses the different features between a traditional SEZ and the SPFTZ; for example, SPFTZ offers no preferential treatment which used to be the attraction of SEZ. Hu then explains why Shanghai was hand-picked as the pilot zone site and the objectives behind the design of SPFTZ’s “Negative list”—which aim to streamline the central government’s administrative power and facilitate widening of market assess. In the last session, Hu discusses the domestic and international issues which prompt the development of a new FTZ model, that is, SPFTZ. The internal issues include curbing abuse of administrative power and maintaining a level playing field for all types of enterprise. The external issue is mainly due to the recent change of the regional trade cooperation landscape, primarily the development of the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership. China feels the need to embark on another wave of economic reform for its future integration into the global and regional trading clubs and SPFTZ is the vehicle for this mission.
The second article is entitled “China’s Free Trade Zones: Regulatory Innovation, Legal Assessment and Economic Implication,” presented by Delei Peng and Xiuyan Fei. In the introduction, Peng and Fei pinpoint the current regional trade negotiations as the impetus for the Chinese government setting up the FTZs. Then Peng and Fei discuss the legal mission that FTZs are expected to accomplish, that is, regulatory innovation. For regulatory innovation, Peng and Fei have identified two novel aspects: the “negative list,” which foreign investors are free to invest in any industries except those explicitly restricted, and the pre-establishment national treatment under which foreign investors would enjoy equal treatment as domestic investors during the stage of market entry. After that, Peng and Fei examine the legitimacy of FTZs and submit that FTZs have a strong legal base from both domestic laws and international agreements. Then Peng and Fei conduct a legal assessment of SPFTZ and comment on its shortcomings, such as lack of designated legislation, excessive administrative power, and uncertainty if arbitration could apply to disputes between a foreign investor and the Chinese government. To address those shortcomings, Peng and Fei suggest a legal assessment mechanism which is feasible to establish in view of China’s previous experimental experience in a regional case. Before summing up, Peng and Fei also comment on the FTZs contribution to economic advancement and the commercial legal system reform in China.
The third article, entitled “The Management of Foreign Private Equity Funds Involves Foreign Investment and Foreign Exchange in the China (Shanghai) Pilot Free Trade Zone” by Qinghua Wang, has provided an insightful discussion of how Foreign Private Equity Fund (FPEF) operates in the SPFTZ and issues that this sector has encountered. First, Wang introduces how the Central and Shanghai governments’ rules and policies paved the way for FPEF’s establishment in the SPFTZ. Second, Wang elaborates FPEF establishment procedures by i) highlighting the transformation of a “positive list,” which generally applies to foreign investments throughout China to a “negative list” which exclusively applies in SPFTZ; and ii) presenting a list of entity which could be established for FPEF business. Third, a detail account is provided about how the usual approval requirement for foreign investment is replaced by the innovative filing process. Furthermore, a brief comparison between the old and new procedures is use to illustrate the efficiency of the new system. Yet, Wang has pointed out that “approval” is still required from the national security authorities if the foreign investment is in sensitive sectors. Fourth, Wang gives a concise examination of the management requirements for FPEF involving foreign exchange which includes i) opening a RMB deposit account; ii) ensuring the investment has a legitimate and genuine base; and iii) filing procedures. In the last section, Wang identifies certain current issues in the SPFTZ which could hinder FPEF further development. She proposes that the present foreign investment legal regime is obsolete, the legal framework in SPFTZ is still at its stage of infancy, and the yearly modification of the “negative list” has not only confused foreign investors, but also burdened foreign investors, as they must keep abreast of the frequent changes.
The fourth article entitled “Intellectual Property Protection in China (Shanghai) Pilot Free Trade Zone-Judicial and Administrative Practice in Trademark Infringement of OEM” by Lina Shang focuses on Trademark Infringement of Original Equipment Manufacturer (OEM) in the China (Shanghai) Pilot Free Trade Zone. First, Shang brings out the main issue: what elements will be considered under the condition that the client has merely registered his trademark in a foreign country, but not registered his trademark in China, despite the fact that the OEM constitutes trademark infringement to the domestic trademark owner. Shang illustrates the evolvement of the statutory rules, annotated by the Judicial Practice and Theory and Administrative Practice within the China (Shanghai) Pilot Free Trade Zone, concluding that the judicial verdict mainly will be determined with the confusing and misleading consideration by the sales of goods, while the administrative authority will not justify the OEM infringement itself after the Trademark Law was amended. However, the compulsory measures taken by the administrative authority may substantially impair the interests of OEM parties. In the end, Shang suggests to further unify the judgments in the future and establish an information exchange mechanism between judicial and administrative authorities.
The fifth article is entitled “Employment in China (Shanghai) Pilot Free Trade Zone” by Bin Wang. In this article, Wang examines an important component for business in SPFTZ—human resources. Wang points out the demographics of the labor market in the pilot zone and the current legal framework governing foreign workers in the zone. Then, Wang examines the features of foreign employment in the SPFTZ by referring to the diversity in culture, nationality, and law. After that, Wang discusses issues stemmed from the diversities, which include loopholes in the labor legislation, restricted criteria for hiring foreign staff, such as age limitation and qualification recognition, and gaps between Chinese and international labor standards: in particular, labor rights of collective bargaining and freedom of association. To address these issues, Wang offers valuable recommendations. He suggests relaxing the above-said criteria and introducing an easy convertible visa system. He advocates unification of the relevant regulations nationwide although he acknowledges the complexity of the unification process. Wang also submits that the concept of corporate social responsibilities shall be promoted and supported given strong international characteristics of enterprises in the SPFTZ. Finally, Wang emphasizes that the labor standard is always one of the core issues in the negotiation of international trade agreement. Therefore, uplifting Chinese labor standards to the international level is an unavoidable task for the Chinese government. Yet, the uplifting should not only occur in paper but also in practice, so as to achieve the true meaning of standard improvement.
The sixth article, “Arbitration Within the China (Shanghai) Pilot Free Trade Zone” by Bin Wang is focused on an innovative form of arbitration in China, more precisely located in the SPFTZ. First, Wang introduces the legal framework of this special institution that is the legal base of its establishment, its arbitral rules, and implementation rules from the Supreme People’s Court (SPC). Second, Wang provides a brief account of a peculiar dispute between the China International Economic and Trade Arbitration Commission and its subcommissions. This dispute had imposed a significant impact on the validity of the commercial arbitration agreement. Upon the intervention of the SPC which issued two judicial notices in 2013 and 2015, the issue of arbitration jurisdiction in the parties’ agreement was finally resolved. Third is the core section of Wang’s article which covers four innovative aspects of the SPFTZ’s arbitration rules: i) Interim measures which permits appointment of provisional arbitrators to deal with urgent matters; ii) Broaden the scope of arbitrator appointment from a closed or open panel list; iii) Adopting the ex aequo et bona principle, which is relaxing the strict application of rules and laws for the purpose of achieving a more satisfactory outcome of arbitration; and iv) Embracing a simplified and speedy procedure for claim not over RMB100,000. Finally, Wang comments on the uncertainty in putting the said rules in full application. The uncertainty is due to potential inconsistency between the said rules with other procedural rules. In conclusion, Wang regards the SPFTZ arbitration system as the Chinese government’s timely response to the foreign investors’ needs of an effective dispute resolution mechanism. The innovative features of SPFTZ arbitration rules could contribute to the related legislative development in the future.
The seventh article is co-written by Tang Tang and Junjie Wang, entitled “A Study of the Anti-Monopoly Review Processes in the Shanghai Free Trade Pilot Zone.” This article highlights that, with the development and expansion of the free trade zone, there is no doubt that trade liberalization will promote the economic growth of China effectively. However, an influx of foreign trade would bring in new challenges of a competitive environment in the country. Thus, this article is a timely discussion of how the relationship between the anti-monopoly laws and the policies could maintain the right balance in free trade zones. In recent years, the Chinese government has paid more attention to anti-monopoly review and anti-monopoly regulations have been promulgated in the free trade zones. This article evaluates and analyzes the procedures of anti-monopoly review in the free trade zones. Comments are also given on how the procedure could impact the economic development in the zones.
Last but not least is an article is written by Wang Yang entitled “Environmental Protection Review in the Free Trade Zone.” Yang’s article submits that one of the significant aspects of official review in the Free Trade Zone is Environmental Protection Review, which includes Environmental Impact Assessment (EIA) reform and dangerous goods review during transportation, storage, and loading. Yang’s article begins with an introduction of the environmental effects on the economic development in the FTZ and the concrete content of environmental review in the FTZ including EIA reform on construction in the FTZ and environmental requirements on import and export trade in the FTZ. Finally, Yang explains the impact of environmental review and provides measures for enterprises facing environmental review in the FTZ, including building a conservation-minded and environmental friendly industry, and a cleaner production mechanism.