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Mitchell, Arthur "Implementing WTO rules: The Importance of Law Reform"  ADBLPRes 2 (25 February 2004)
Implementing WTO rules: The Importance of Law Reform
Arthur M. Mitchell
Asian Development Bank
APEC Workshop on Best Practices in WTO Capacity Building
February 25-26, 2004
Mr. Chairman, Ladies and Gentlemen,
Thank you for the opportunity to share with you some of our ideas concerning how to effectively implement WTO rules in the context
of a new member state or a developing country. As you will see from my remarks, law reform is of paramount importance. However,
before I turn to the substantive issues, let me give you a little background on the experience of ADB.
- ADB has 38 developing member countries (DMCs) among its membership
- 18 are currently members of the WTO.
- 20 DMCs are not members.
- One of the mandates of the ADB Charter is to support the development of trade in our region.
- ADB has traditionally done this by providing technical assistance to various countries in connection with SME Development, measures
to encourage the development of the private sector and, of course, the provision of financing of the physical infrastructure that
- Over the last few years, we have assisted the Government of the People’s Republic of China in its effort to accede to the WTO and
to comply with its requirements.
- This experience will form the basis of the development of a “tool kit” which will help our lawyers and other professionals transfer
the knowledge we have obtained in China to other DMCs in our region.
- I would like to now turn to the process that we implemented with the Government of the People’s Republic of China.
- Some of our experience has been unique to China because it is in transition from a centrally-planned economy to a market-driven economy.
Nevertheless, some broadly applicable generalizations can be made.
- Help the Government make its foreign-trade laws and regulations compatible with WTO principles, rules, and obligations.
- Help the Government determine the institutional framework for regulating foreign trade and investment.
- Support the Government’s efforts
- to increase transparency by making legal information public and
- to clarify laws and regulations on foreign-trade and investment.
- Assist the Government in deepening its understanding of the issues in Doha Agenda and regional trade arrangements.
- Support enforcement of WTO rules by the judicial system.
A new member of WTO faces three tasks in incorporating WTO commitments and rules into its administrative and legal systems:
- meeting the market liberalization commitments;
- incorporating the WTO rules into domestic law; and
- making changes to the existing administrative and judicial system or establishing organs, function or procedure in the administrative
and judicial system to comply with WTO requirements.
Item (i) involves commitments that have resulted from intense negotiations. Items (ii) and (iii) are the areas more suitable
for ADB’s assistance.
Substantive Law Reform
- Prior to the PRC’s accession to WTO, a tremendous amount of work was required to amend existing laws, regulations, and trade administrative
practices and adopt new laws and regulations to comply with WTO rules and obligations.
- The requirements for complying with WTO rules and obligations are derived from two major sources:
- WTO rules governing international trade, which are applicable to all WTO members; and
- PRC’s commitments to its major trading partners to open markets in 3-5 years to foreign companies in various sectors, including telecommunications,
distribution and wholesaling, financial services, and banking and insurance.
- The Government was committed to change PRC’s laws and regulations to comply with WTO rules upon PRC’s formal accession to WTO. This
includes codifying existing administrative practices into written laws and regulations to increase predictability and transparency.
This demanding task covered around 200 laws and regulations that need to be reviewed, revised, annulled; and/or incorporated into
new laws and regulations.
- Specifically, international experts were engaged to advise on the following
- Modifying the Foreign Trade Law;
- Drafting regulations on (a) import and export of goods, and (b) rules of origin;
- Developing regulations on transnational mergers and acquisitions, and transnational franchising;
- Preparing regulations on anti-dumping, subsidy and countervailing, and safeguard measures and drafting implementing rules or guidelines;
- Increasing the transparency of laws and regulations on foreign trade and investment by strengthening the Government’s capacity to
provide legal information to the public.
- The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) (since renamed as the Ministry of Commerce (MOC)) is in charge of
regulation and supervision of foreign trade and direct investment. It is empowered to promulgate ministerial regulations regarding
foreign trade and investment. It is also responsible for preparing the initial drafts of legislation governing foreign trade and
investment, which will be submitted to the National People’s Congress for adoption in the case of national laws and to the State
Council in the case of the administrative regulations. As the local agency involved in PRC’s negotiations to enter WTO and as the
foreign-trade administrator, MOC is primarily responsible for ensuring that the draft foreign trade legislation is consistent with
- WTO’s objectives are to use tariffs as the only means to control imports and exports, and to negotiate between nations on tariff reductions.
To ensure the effectiveness of tariff concessions, nontariff barriers have to be eliminated. WTO rules do, however, allow interventions
to stop unfair competition practices such as dumping and subsidies, and permit the adoption of temporary protection measures for
domestic markets and industries.
- Under the PRC’s central planning system, foreign trade was administered with both tariff and nontariff controls, including quantitative
controls. WTO rules require the PRC to eliminate nontariff barriers and ensure compliance with tariff reduction obligations. In
the PRC, foreign trade and administration has been carried out according to a large number of ministerial rules and administrative
practices. Some rules are neither transparent nor predictable – a problem that will be solved by codifying them into the revised
Foreign Trade Law and new administrative regulations as consistent with WTO rules.
Enforcement by the Courts
- WTO requires its members to establish independent judicial or administrative tribunals and procedures to review the actions of other
governmental bodies related to trade.
- To satisfy this WTO requirement, the Government decided that such a review function should be performed through a mechanism to be
set up in the PRC court system. The process of review by the courts of the actions and decisions made by the executive or administrative
agency is known as judicial review. In the PRC context, decisions or actions of the PRC administrative authorities in connection
with WTO rules and their implementation, and investigations in connection with, or decisions made on antidumping, subsidy, and safeguard
cases by the State Economics and Trade Commission (SETC) and/or Ministry of Commerce, would be subject to review by the courts. Establishing
this process will substantially expand the role of the judicial system and strengthen the rule of law.
- The PRC judicial system comprises a Supreme People’s Court (SPC); 31 High People’s Courts with one in each province, autonomous region,
or municipality directly under the central Government; 346 intermediate People’s Courts in provinces and municipalities at the level
above the prefectures and municipal level cities; 3,135 Primary People’s Courts in counties and county-level cities; and several
special people’s courts such as military, maritime, and railway transportation courts.
- The PRC has made many adjustments in its legislative, administrative, and judicial system to satisfy WTO requirements. To ensure
that the WTO’s nondiscrimination principle is met in the judicial process, the SPC issued an order that took effect on 1 March 2002
to elevate the jurisdiction over commercial cases from the primary courts to the higher level of courts. The order specifies that
only the high courts, intermediate courts in municipalities at the provincial level, intermediate courts in provincial and autonomous
regions’ capital cities and special economic zones, and certain courts in economically more developed cities would have the jurisdiction
to hear and decide commercial cases involving foreigners. This step was taken to help ensure the impartiality of the courts and
maintain higher professional standards of the judicial system in foreign-related commercial cases.
- In response to the WTO requirement of setting up an independent adjudication body to hear and decide administrative decisions or actions,
in August 2002, the SPC issued the Regulation on Trial of Administrative Cases Involving International Trade. Also, in accordance
with the Administrative Litigation Procedure Law, the courts are accorded jurisdiction over administrative cases involving
- international trade of goods,
- international trade of services,
- international trade related intellectual property protection, and
- other international trade.
The regulation also provides, in accordance with normal judicial review principles, that trial by the courts will focus on
- the authenticity and accuracy of evidence,
- correct application of laws and regulations,
- violation of legal procedure,
- issues related to exceeding the delegated authority,
- abuse of authority or power,
- fairness of administrative penalties, and
- nonperformance or delay of performance of legally designated functions.
While the regulation provides that the applicable law should be domestic Chinese law, it also emphasizes that in the event of
a conflict between two interpretations of a provision in domestic law, the interpretation consistent with the international treaties
- Introducing judicial review into the PRC court system raises a series of issues relating to jurisdiction, procedural law, applicable
law, and relationship between judicial and administrative branches. For example,
- Should an international trade court be established for WTO-rule-related cases or should these cases be handled by the existing courts?
- Should there be one or a limited number of courts at an appropriate level to hear and decide these cases or will all of the courts
at this level be given the jurisdiction for such cases?
- Should the first instance decision in the judicial review process be the final decision or should there be a chance of submission
to an appellate court and which would be this appellate court?
- What would be the applicable procedural law?
- To what extent should the court limit its role to deciding on the application of law or may it make determination about the facts?
- Should the substantive law applied by the courts be the domestic law only or should it include international treaties in respect to
- How should decisions be implemented?
- Who should make judgments on cases involving foreign policy matters, and the relationship between the judicial and administrative
branches on these matters?
- The second big challenge for the PRC court system is the fact that the judges are not fully equipped with professional knowledge about
WTO and its rules. The judges have been trained mainly in domestic laws and the laws applied by them in most cases are domestic laws.
Upon entry into WTO, the PRC has amended a larger number of existing legislation and adopted a number of new laws to comply with
WTO requirements. The issue of application of domestic law or international treaties when they are in conflict would further complicate
the trial process. There is an urgent need to train the senior judges (i.e., the presidents and vice presidents of the intermediate
courts or above) who will sit in the courts with jurisdiction to carry out judicial review of the WTO-rule-related cases.
Conclusions: Lessons Learned
Based on the experience in assisting China in complying with WTO rules and our observation, in the following areas ADB’s DMCs need
- WTO accession involves complex work, starting from understanding WTO as an organization and international trade law under WTO. Many
DMCs need external assistance in this area. For example, some of ADB’s DMCs are applying for joining WTO, such as Viet Nam.
- Compliance with WTO rules is a tremendous task. Unless the new WTO members can timely incorporate the WTO obligations into its domestic
law and system, the effectiveness of its membership will be delayed or even expire, such as the case of Cambodia and Nepal.
- WTO rules are not a set of rigid market opening rules. It recognizes the need to accord protection to the domestic industries. But
such protection must be based on the principle of maintaining fair competition (such as those measures under anti-dumping and anti-subsidy
rules) and temporary adjustments (such as those measures under the safeguard rules). It emphasizes that such measures should be
rules-based. Finally WTO provides its dispute settlement mechanism for maintaining the rules-based system. Strengthening the capacity
of the DMCs in these areas does not mean to support the protectionism.
- MCs need to increase their capacity to analyze the impacts of the WTO negotiations and agreements. The correct starting point for
such impact analysis is accurate understanding the legal obligations in the WTO agreements. The current examples for such analysis
are about the impact analysis of the negotiations on agricultural products and on termination of MFA. The longer-term analysis will
involve all major issues in Doha Agenda.
- DMCs needs to gear the WTO market opening requirements to inspiring the domestic entrepreneurship and attracting the shifting of the
manufacturing and processing capacities from the developed countries to the developing countries.
- In summary, implementation will only be effective if great attention is paid to substantive law reform, institutional reform and judicial