CHINA MARITIME LAW NEWSLETTER
Vol. 2, No.2 - February 1, 2002
Special Edition: Impact of the New International Marine Shipping Regulations of the People's Republic of China (to see the full text of the regulations in English, please click HERE) |
On 11 December, 2001, the new International Marine Shipping Regulations (the Regulations) were issued by the State Council of China. They took effect on 2 January 2002. The enactment of the Regulations has a significant effect on the Chinese marine shipping market, which ranks as the 5th largest in the world with a total capacity of 37 million DWTs.
The Regulations recognize and honor China's WTO commitments with regard to national treatment, market access, and government administration and regulations. The Regulations, the Maritime Law of China and certain other related laws and rules are consistent with WTO rules and Chinese national interests. Together, they form the basic legal framework of the marine shipping market.
The Regulations have seven chapters as follows:
- The General Principles;
- Operators of International Marine Shipping and Auxiliary Services -qualifications of operators, application procedures and documents to be submitted, approval deadlines and disclosure issues;
- Operation and Market Behavior of International Marine Shipping and Auxiliary Services - application and approval of routes and tariffs (schedule of charges) of container shipping, filing of tariffs and routes, regulations on unfair competition, business scope of shipping agencies and vessel management;
- Special Stipulations on Foreign Investment in International Marine Shipping and Auxiliary Services - principles of setting up a commercial presence, majority restriction, and representative offices;
- Investigations and Counter-measures - investigations against unfair competition, behavior of operators and the causes, procedures, duration and counter-measures thereof;
- Legal Liabilities - a detailed description of possible violations of the Regulations and penalties; and
- Supplementary Articles - investments by HK SAR, Macao SAR and Taiwan and the principle of reciprocal retaliation.
The major points of the new Regulations are set out as follows:
Clarified Market Access Policies for Foreign Investments
Comparatively, marine shipping has been one of the less restricted markets since China's liberalization. This is witnessed by the fact that 65% of the international shipping market in China is taken by more than 60 foreign shipping companies and over 20 foreign shipping companies have established businesses in China. However, the domestic distribution system, which includes shipping agencies, warehousing facilities and container stations and depots, has been closed to foreign (overseas) businesses. The Regulations open the door for foreign companies to be involved in all such services.
Market Access for International Marine Shipping
No limitation on Cross-border supply Article 28 of the Regulations provides that foreign international shipping transport operators shall abide by the Regulations when such operators provide marine shipping services as stipulated in the Regulations. This means that foreign shipping businesses must follow the same procedures to carry out shipping services to and from Chinese ports as Chinese shipping companies, and be subject to the same rights and obligations as Chinese shipping companies. In this sense, the cross-border supply of marine shipping services is allowed in the Regulations. However, it should be noted that the Regulations do not allow for foreign shipping companies to supply shipping services between Chinese ports.
Corporate limitations Subject to the condition that restricts foreign ownership to 49% of shares, foreign shipping businesses may establish equity (contractual) joint ventures with Chinese companies. However, the Chinese party in the joint venture shall designate the chairperson of the board and the general manager.
Market Access for Auxiliary Services
No conditions regarding cross-border supply and consumption abroad of auxiliary services, except shipping agencies Due to the technical difficulties in providing cross border services to marine shipping businesses to and from Chinese ports, China is not bound by WTO commitments. Accordingly, there are no conditions in the Regulations in this regard. The Regulations do deal with consumption abroad of auxiliary services by Chinese international shipping companies, but discussion of this topic is beyond the scope of this article.
No limitations on cross-border supply and consumption abroad of Shipping Agency Services This is what is embodied in China's WTO commitments. No express provision in the Regulations works to the contrary. It could be argued that in the latter part of Article 33, the requirement that foreign shipping businesses shall entrust a local Chinese shipping agent to provide such usual business services for ships owned or operated by them, if the businesses do not set up joint ventures or wholly-owned subsidiaries to do the same, is a violation of the commitment of no limitations on cross-border supplies. However, it is impractical to provide such services across border on a usual business basis; therefore one can see that such services were not within the scope of the commitment. Such services can only be provided by a local business presence.
Limited business scope Subject to the approval of authorities and in accordance with Chinese law, regulations and rules, foreign business entities may only establish equity or contractual joint ventures engaged in the services of shipping agencies, vessel management, loading and unloading of cargo, storage and warehousing and container stations and depots. In addition, wholly foreign owned enterprises are allowed to engage in storage and warehousing of marine cargo.
No majority share restriction is imposed on such joint ventures except those engaged in the area of shipping agency in which case the foreign party's share shall not exceed 49%.
Article 33 of the Regulations honors Article II Exemptions of China's WTO commitments, where foreign carriers are allowed to set up either joint ventures or wholly-owned subsidiaries to engage in businesses such as cargo solicitation, issuing B/L, freight collection or entering into service contracts by delegations, for ships owned or operated by foreign carriers.
The above-described services are considered "shipping agency services" as defined in Article 29 of the Regulations. In this instance, there is an exception for shipping agency services provided to their parent carriers.
Clarified Administration and Regulatory Framework
The Regulations clarify the powers of the State Communication Authority under the State Council and provincial and county-level Communication Authorities in respect to the review and approval of applications for the establishment of international shipping and other services entities. Applicant qualifications are itemized in the Regulations and maximum review and approval time periods are set at 15 and 30 days respectively. If an application is denied, reasons must be provided to the applicant in writing.
Only international shipping services remain regulated and controlled by means of licenses or approvals. Business entities engaged in auxiliary services only need to register or file with the authorities (foreign-funded business entities are all subject to approval by the State Communication Authorities).
Seldom found in administrative laws in China, the Regulations establish an administrative responsibility system, whereby officials are held responsible for their actions. Article 55 of the Regulations lists violations and related penalties facing officials who do not act in accordance with their job duties.
Most noticeably, Chapter 6 covering legal liabilities is much lengthier and detailed than previous regulations. The detailed articles relating to issuance of penalties and other administrative measures lay the basis for effective administrative enforcement. They are a reflection of the transparency rule of the WTO.
Regulatory Emphasis on Fair Competition
One can notice an obvious attempt in the Regulations to establish a level playing field for all involved players. There is an obvious shift from a regulatory emphasis on transactional control to an emphasis on uniform treatment. Chapter 5 deals specifically with this issue. The Chapter stipulates among other things, the principles of how an investigation can be initiated, investigation procedures and evidentiary hearings. Liner union treaties, operation treaties and tariff unions may be subject to such investigations if they violate the fair competition rule.
Prohibitive and/or restrictive measures may be imposed on such unfair market practices. Article 24 subjects mergers & acquisitions to the review and approval by authorities, which is seen as another fair competition measure. There are additional provisions aimed at preventing unfair competition.
Regulations on Special Types of Carriers
Article 7 of the Regulations deals with non-vessel carrier business. Such businesses are required to register their B/L with authorities and deposit monetary guarantees for their business operations and expansions. In order to engage in non-vessel carrier business in China, it is necessary to establish a business entity with a legal person status in China. The deposit requirement is for both market access and security for possible damages claims that may arise in the course of business. Shipping liners need to file their tariffs with the State Authority and follow the relevant procedural rules if they desire to change their routes and/or schedules and/or vessels. It should be especially noted that shipping liner qualification are granted on a registration and review basis, rather than application and approval basis.
The Regulations are the first marine shipping related administrative law in China. They embody China's WTO commitments regarding market access and national treatment. They also indicate a fundamental change of regulatory practices that are more transparent and predicable. Still, further regulations, ministerial rules and circulars may be needed to clarify the procedural elements.
Lehman Lee & Xu
China Lawyers, Notaries, Patent, Copyright and Trademark Agents
http://www.chinalaw.cc/
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