In the News: Trade War Breakthrough; FIL Implementing Rules Approved; and Cultural Industry Boost
December 16, 2019 | BY
Vincent ChowChina, U.S. agree terms of limited phase one trade deal; draft implementing regulations for foreign investment law approved; and draft law published on promoting China's cultural industry
China, U.S. Reach Limited Trade Deal
China and the U.S. have agreed the terms to a limited phase one deal in the ongoing trade war. Both countries have confirmed the deal, which marks a significant breakthrough in what has been over a year of tit-for-tat tariffs placed on each other's goods. China has pledged to purchase more U.S. agricultural goods, according to U.S. officials, while the U.S. will shelve further tariff hikes as well as reduce some existing ones.
As part of the deal, the U.S. did not go ahead with plans to impose additional tariffs on $156 billion of Chinese imports on Dec. 15. It will also halve the tariff rate on around $120 billion of goods to 7.5%, the Wall Street Journal reported. However, tariffs would remain on around $360 billion of Chinese goods including electronics and machinery. China meanwhile has agreed to purchase $32 billion more U.S. agricultural goods than previous years over the next two years, U.S. officials said. U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He are set to sign the deal in early January, which will come into effect 30 days later.
Both countries have said that there will be further negotiations to address remaining issues, such as intellectual property (IP) protection and market access for foreign companies in China. U.S. officials have said that China has made specific commitments on IP protection, including counterfeiting and trademark issues, as well as forced technology transfers for foreign companies entering the Chinese market. However, neither government has published an official document outlining the terms of the limited deal or what the future timetable for negotiations is. China has not confirmed how much more U.S. agricultural goods it will purchase as part of the deal nor how much more Chinese agricultural goods the U.S. will purchase, something which China says will happen.
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Foreign Investment Law implementing regulation approved
China has approved the draft regulation implementing its new Foreign Investment Law (FIL) on Dec. 12 at the State Council's executive meeting chaired by Premier Li Keqiang. The new regulation lays out specific measures to facilitate and protect foreign investment, and promote further opening up of China's economy. It is set to come into effect at the same time as the FIL itself on Jan. 1, 2020.
Among other stipulations, the regulation requires equal treatment of both domestic and foreign companies in the areas of government funding and land supply. Foreign companies are also placed on a level playing field in the formulation and revision of business standards across different industries. The government should not bar foreign companies from entering the market for government procurement, according to the regulation. Furthermore, the regulation provides for a punitive damages system against IP infringements.
The Ministry of Justice released the draft regulation for public consultation on Nov. 1. It was a long-awaited development since the promulgation of the FIL on Mar. 15 as the FIL was widely considered to be somewhat generic and lacking in detail. However, although the implementing regulation does provide some specifics, it does not address all of the issues that foreign investors have raised regarding the implementation of the FIL. For example, there is no mention of the legality of variable interest entities (VIE), a special ownership structure that allows foreign investors to gain de facto control over Chinese companies that otherwise would not be permitted. VIEs have in the past been permitted but the draft version of the FIL issued in 2015 signalled the regulators intent to restrict its use, although the final version of the law did not include the relevant provisions. As a result, foreign investors are still in the dark about the future of VIEs in China.
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China issues draft law on promoting cultural industry
China has published a draft law on promoting its cultural industry to solicit a second round of public opinions. The Ministry of Justice released the draft document on Dec. 13, which is designed to tackle the challenges facing China's emerging cultural industry in the areas of supply, structure, enterprise development, and more, according to state news outlet Xinhua.
The draft law stipulates that China will support the production of high-quality cultural works in line with Chinese culture and core socialist values. The government will also promote the innovation in the realm of cultural developments as well as the protection of the interests of artists in the cultural industry. A financial service system would be established under the new law, which would improve the financial support for the industry in conjunction with preferential tax policies.
The draft law was first issued for public comment in June. The new law is a key step in China' plan to develop its cultural industry into a pillar of the national economy by 2020. A five-year reform plan for the industry published in 2017 stated that China will upgrade the industry's structure, foster major brands and boost consumption. "Several of them should strive to be among the top in the industry globally by 2020," the plan said, referring to homegrown Chinese brands. One area the plan targeted was the media industry, which it said should see more mergers and reorganizing in order to eliminate long-term financial and operational issues in the industry.
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