Chinese Law Prof Blog

Editor: Donald C. Clarke
George Washington University Law School

Saturday, July 16, 2005

Does CNOOC’s bid for Unocal implicate WTO issues?

On July 11, the Washington Post carried a Reuters report of a letter sent to the Secretary of Commerce and to the United States Trade Representative by Senators Kent Conrad and Jim Bunning. According to the report, the letter asked the SOC and the USTR to review whether China's financial backing for CNOOC Ltd.'s bid for Unocal violated China's commitments to the World Trade Organization:

Since a chunk of the funding for CNOOC's bid will come from Chinese government entities and in the form of no-interest or low-interest loans, China has violated a promise that its banks would lend to state-owned enterprises only on market terms, the senators wrote.

Assuming for the sake of argument that the Chinese government is indeed backing CNOOC’s bid with below-market financing, does such backing implicate or violate any of China’s WTO obligations or promises in its Protocol of Accession? I think it is a hard case to make.

[Note: Major credit for the following analysis should go to Prof. Julia Qin of Wayne State University Law School, who has kindly given permission for me to quote her directly and indirectly from postings she made to another listserv on this issue.]

First of all, what exactly is the case? According to a report in the BNA’s WTO Reporter ("Senators Charge That CNOOC's Bid for UNOCAL Could Constitute WTO Violation"), the senators’ letter and unidentified sources speaking for Chevron have identified two paragraphs in the Working Party Report as the basis for the argument that WTO obligations have been violated:

China said in its WTO accession agreement that "its state-owned banks had been commercialized and would only lend to state-owned enterprises on market terms," the senators' letter said. "The CNOOC transaction illustrates that China has failed to abide by this commitment."

A source close to Chevron said China made several commitments in the WTO's Working Party Report on China's Accession that are contravened by CNOOC's bid.

For example, the source cited language from paragraph 43 of the report, which says: "The representative of China stated that the state-owned enterprises of China basically operated in accordance with rules of market economy .... The state-owned banks had been commercialized and lending to state-owned enterprises took place exclusively under market conditions."

In addition, paragraph 173 states that China would "reduce the availability of certain types of subsidies, in particular by ... making government-owned banks operate on a commercial basis."

These commitments are violated by the loans at below-market interest rates CNOOC has received, the source said.

Para. 43 recounts that the representative of China stated that "The state-owned banks had been commercialized and lending to state-owned enterprises took place exclusively under market conditions." But this is just a statement, not a promise. One can find promises that SOEs will procure goods and services on a commercial basis (for example, "The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability"). But one cannot find such a promise respecting investments by SOEs or lending by banks. And this is not surprising, since the WTO is not an investment agreement.

Prof. Qin agrees that "paragraph 43 is a statement, not a commitment. Paragraph 43 is not incorporated into the Protocol (see paragraph 342) since it does not contain any commitment." This is not some lawyers' word game. China's trading partners knew how to turn a statement in the Working Party Report into a commitment in the Protocol of Accession, and they did not do so in this case.

She adds:

a) Under Section 9 of the Protocol, China did promise to "allow prices for traded goods and services in every sector to be determined by market forces" except for a few specified categories. (This is, in my view, one of the most important commitments China made in its WTO deal, although it has attracted little attention.) The exempted sectors include six categories of services that may be subject to "government guidance pricing", among which are banking services, health services, professional services, and transport services. To the extent that prices for banking services cover interest rates on loans, such loans would be exempted from Section 9.

b) Government subsidies, including loans with below-market rates, are subject to WTO subsidy disciplines when they affect trade in goods. In general, export subsidies are prohibited; domestic subsidies are countervailable if they cause injuries to trade interests of others. And China did take on additional obligations regarding SOE subsidies -- essentially allowing other WTO members sue China more easily at the WTO or to launch countervailing actions unilaterally against Chinese subsidies. (I believe we will see WTO disputes involving Chinese SOE subsidies in the not-too-distant future.) But the existing subsidy rules apply to trade in goods only. How subsidies should be regulated in service sectors remains to be negotiated by WTO members. Since the Unocal deal is about capital investment, not trade in goods, it is beyond the coverage of the existing WTO rules.

With respect to para. 173 in particular, Prof. Qin writes:

Paragraph 173 contains one commitment which is incorporated into the Protocol. The [Chevron-affiliated] source, however, cited only a portion of one sentence that is not even part of that commitment. Here is the relevant part of the paragraph:

"The representative of China explained that, in common with many other Members, China had experienced difficulty in obtaining accurate data about all types of subsidies. He also indicated that China was attempting to reduce the availability of certain types of subsidies, in particular by reforming its tax system and making government-owned banks operate on a commercial basis. The representative of China stated that China would progressively work towards a full notification of subsidies, as contemplated by Article 25 of the SCM Agreement. The Working Party took note of this commitment." (The portion cited by the source is in italics.)

It is clear that the commitment in this paragraph is to work towards a full notification of subsidies, and that the preceding sentence from which the source quoted a "commitment" is a statement on what China was attempting to do.

I am making this post open to comments. Since this issue is creating a lot of heat in Washington, let me ask commenters to be temperate in their language and to stick to the intellectual issue of whether WTO commitments are implicated.

July 16, 2005 in Commentary, News - Miscellaneous | Permalink | Comments (0) | TrackBack (2)

CECC hearing on "Law in Political Transitions"

Here's the text of an announcement I recently received from the Congressional-Executive Commission on China regarding an upcoming hearing in Washington, D.C.:

The Congressional-Executive Commission on China will hold a Commission hearing entitled "Law in Political Transitions: Lessons from East Asia and the Road Ahead for China," on Tuesday, July 26 from 2:30 to 4:00 in Room 419 of the Senate Dirksen Office Building. 

All CECC hearings are open to the public and the press. Members of the public who wish to attend do not need to respond to this message or otherwise register. News media representatives should see the final paragraph of this announcement.

China's legal system is developing, but meaningful reform of its authoritarian political system has not yet taken place.  What role are law and legal institutions likely to play in China's political reform process?  This hearing will assess the state of China's rule of law development and examine the role of legal institutions in political transitions in Taiwan and South Korea to see whether these experiences suggest a path ahead for China. 

The panelists are:

Panel 1
Ms. Gretchen Birkle, Deputy Assistant Secretary, Bureau of Democracy, Human Rights, and Labor, Department of State

Panel 2
Mr. Jerome A. Cohen, Professor of Law, New York University School of Law

Dr. John Fuh-sheng Hsieh, Professor of Political Science, University of South Carolina

Mr. John K. Ohnesorge, Professor of Law, University of Wisconsin School of Law

For news media representatives: If you have no special equipment needs, you do not need to register in advance.  If you need special equipment or services (e.g., malt box, audio feed), please contact Laura Mitchell at 202-226-3795 not later than close of business on Tuesday, July 19.

July 16, 2005 in Conferences, News - Miscellaneous | Permalink | TrackBack (0)

Friday, July 15, 2005

Law teaching positions available at the Hopkins-Nanjing Center

The Hopkins-Nanjing Center has two faculty openings in law for the 2006-07 academic year. Their website states:

Each year the Hopkins-Nanjing Center Washington Office in Washington D.C. recruits up to seven visiting faculty positions to teach social science courses relating to aspects of the contemporary United States and the international system.

For more information about the Center and these particular positions, click here.

July 15, 2005 in Fellowships/Research Opportunities, Internships/Employment Opportunities | Permalink | TrackBack (0)

Thursday, July 14, 2005

Research guides to Chinese law

I recently had occasion to make a list of research guides for Chinese law that are available on the web. This list is not a list of research resources -- that's what the research guides do. This is a meta-list of the research guides. But since there are now several, it's a good place to start (or to tell your RA to start). The list is posted here. I'll be putting it up on the left sidebar to this blog when I have the time to format it properly.

July 14, 2005 in Research Resources | Permalink | TrackBack (2)

Wednesday, July 13, 2005

Due process in traffic law enforcement in Beijing, Part 2

On July 1 I posted an item about due process in traffic law enforcement in Beijing. Popular opinion, or at least media pressure, appears to have had some effect. On July 7, the Beijing Traffic Bureau posted a rather defensive FAQ about "remote law enforcement" (非现场执法) explaining that this was all very normal and necessary, and done in other countries as well. The FAQ did not, however, address, much less justify, the practice that had attracted popular discontent, which was the failure of the police to notify violators.

On July 12, the head of the Beijing Traffic Bureau announced that the Bureau would adopt of number of new measures, including notification by mail when a violator had accumulated a total of 12 points in violations (to give you some idea of what that means, exceeding the speed limit by under 50% gets a 200-yuan fine and 3 points). However, it's still not clear how soon the letter goes out after the 12 points are accumulated, and it's still not the rule apparently adopted in Jiangsu, where fines simply stop accumulating after three identical violations until notice is given.

July 13, 2005 in News - Chinese Law | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 12, 2005

Is Chinese prison labor profitable?

I just read an interesting paper that attempts to study this question using rigorous economic methods. The conclusion the author reaches is yes. Here's the abstract:

Modern coerced labor is a significant global phenomenon, but has been seldom studied empirically. This paper estimates production functions for a set of Chinese prison-labor factories. It finds significant evidence that such factories are managed in a way consistent with the incentives of profit maximization and that, contrary to the findings of earlier work, they are profitable.

The paper is as follows:

Osborne, Evan, "Some Economics of Chinese Prison Labor" (September 2004).

July 12, 2005 in Commentary | Permalink | TrackBack (1)

Monday, July 11, 2005

Chinese Law Prof Blog no longer blocked from China

I am pleased to report that the blocking of this blog from China has disappeared as mysteriously as it appeared -- at least for the time being.

Unfortunately, the web site of my own university (George Washington) remains blocked for reasons unknown.

July 11, 2005 in News - Miscellaneous | Permalink | TrackBack (0)

Draft Property (物权) Law published

The latest draft of the Law on Property (物权, also translated as "Real Rights"), dated July 10, 2005, is now available here at the website of the National People's Congress. According to the accompanying notice, the deadline for what might be called institutional comments is August 20; the deadline for comments from individuals without any special affiliation and speaking only for themselves is not clear. Comments may be submitted directly to the Legislative Affairs Committee of the National People's Congress Standing Committee (全国人大常委会法制工作委员会).

July 11, 2005 in News - Chinese Law | Permalink | TrackBack (0)

Sunday, July 10, 2005

June 2005 issue of China Law Digest

The June 2005 issue of the China Law Digest, a bilingual, monthly web digest detailing the latest news and developments on contemporary Chinese law and legal scholarship, has just come out and is available here.

July 10, 2005 in Publications | Permalink | TrackBack (0)