Waigaoqiao is Back!

By Angela Li and Carson Block, Jones Day, Shanghai

While the Waigaoqiao Free Trade Zone (WFTZ) remains vibrant, its unique appeal to companies looking to set up trading and distribution centers in the Shanghai area was potentially at risk with the promulgation in mid-2004 of the PRC Foreign Trade Law (中华人民共和国对外贸易法)and the Procedures for the Registration for the Record of Foreign Trade Operators. In-line with China's WTO commitments, these regulations granted foreign-invested enterprises (FIEs) the right to trade in most goods throughout China as foreign-invested commercial enterprises (FICEs), thereby eating into the WFTZ's traditional competitive advantage. In expectation of this, before the WFTZ began to feel many of the ill-effects of the new regulations, it successfully lobbied the central government for free trade zone (FTZ) liberalization initiatives that level the playing field. In fact, some may argue that the latest initiatives may even tilt the playing field in the WFTZ's favour.

In order to better understand the emerging competitive pressures facing the WFTZ, this article first provides a brief history of the FTZ, including its pre-WTO role. Following this, the article discusses the regulatory changes that have threatened the WFTZ's vitality and, conversely, those regulations and practices that have revitalized its competitiveness. This includes, principally, an analysis of the Circular on Issues Relevant to the Administration of Trade in Bonded Zones and Bonded Logistics Parks(关于保税区及保税物流园区贸易管理有关问题的通知). Finally, the article addresses some of the important and lingering issues with respect to these new regulations and the role of the WFTZ.