Trading WFOEs in Waigaoqiao: End of the Road or New Opportunities?

By John Li, Allens Arthur Robinson, Shanghai

According to China's WTO commitments, foreign-invested enterprises (FIEs) were to be granted the right to trade in most goods throughout the customs territory of China at the end of 2004. Although FIEs in Waigaoqiao Free Trade Zone (hereafter, the WFTZ), including existing trading wholly foreign-owned enterprises (WFOEs), may include import and export of goods and technology excluding distribution) in their business scope after approval has been received, they still are not permitted to carry out an import business with all domestic entities in their own right unless they are granted such a right by the Ministry of Commerce.

As the oldest and largest free trade zone in China, the WFTZ continues to play the pre-eminent role among all of China's 15 free trade zones. Foreign investment amounts, trade volumes and tax turnovers in the WFTZ are considerably greater than those in other free trade zones. According to the Waigaoqiao Statistics Bureau, most FIEs incorporated in the WFTZ are trading companies. They are entitled to carry out international trade, entrepot trade, trade within free trade zones and trade with domestic enterprises by agencies other enterprises with import and export rights unless these domestic enterprises have import and export right themselves. Few domestic enterprises could be granted complete import and export rights in the past, because administration of foreign trade rights was relatively strict. Therefore in most cases, WFOEs had to rely on other agencies in order to sell commodities domestically from the WFTZ.