China (Shanghai) Pilot Free Trade Zone Embarks on A New Journey of...

Title:China (Shanghai) Pilot Free Trade Zone Embarks on A New Journey of High-Standard Institutional Opening-Up

On December 7, 2023, the State Council officially released the General Plan for Advancing High-Standard Institutional Opening-Up of China (Shanghai) Pilot Free Trade Zone in Alignment with High-Standard International Economic and Trade Rules (hereinafter referred to as the “General Plan”). This is the fifth reform plan for the China (Shanghai) Pilot Free Trade Zone (SHFTZ) issued by the State Council since the establishment of the SHFTZ in 2013. Since the SHFTZ has made significant progress over the past decade, it is now set to fully implement a strategy that aligns with the overall requirements and tasks under the General Plan to build a national demonstration zone for institutional opening-up.

Significance of the General Plan

Promoting high-standard opening-up and establishing a new system for higher-level open economy are crucial to accelerating the improvement of the socialist market economic system in the new era and they are urgently needed to proactively build a new development pattern and properly respond to momentous changes of a scale unseen in a century. Pilot free trade zones (FTZs) are a comprehensive experimental platform for China’s reform and opening-up. At the 20th National Congress of the Communist Party of China, it was proposed to upgrade pilot free trade zones. This means that FTZs are required to go beyond their experience of the past 10 years and make broader and deeper explorations for their higher-standard developments.

At the core of the proposal, FTZs need to promote the shift from the opening-up driven by the flow of goods and production factors to the alignment with high-standard international economic and trade rules, further advance the transformation of institutional opening-up in rules, regulations, management, and standards, and promote all-round opening-up to the outside world. In this way, they are expected to contribute to the establishment of a new system for higher-level open economy and play a better role in building a new development pattern. On November 30, 2023, in a speech delivered at a symposium on advancing the integrated development of the Yangtze River Delta, Chinese president Xi Jinping emphasized again that vigorous efforts should be made to implement the strategy of upgrading FTZs and promote the Lin-gang Special Area of SHFTZ for high-standard opening-up. To implement the decision made by the Central Committee of the Communist Party of China (CPC) and the State Council on promoting higher-standard opening-up of the SHFTZ (including the Lin-gang Special Area), the General Plan aims at proactive and comprehensive alignment with rules and provisions of high-standard international free trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA) to promote high-standard institutional opening-up. The significance of the General Plan for high-standard opening-up has something in common with the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued in September 2013. The reform plan issued in 2013 launched a brave new pioneering journey to explore new paths and accumulate experience for comprehensively deepening reform and expanding opening-up. It also led the development of FTZs throughout China and the nation-wide reform and opening-up powered by institutional innovation. The General Plan issued in 2023, as a milestone on the tenth anniversary of the SHFTZ, moves forward towards a larger national strategic objective and vision for higher standards of opening-up, a more comprehensive integration of systems for institutional innovation, and a stronger leading role of the SHFTZ. The General Plan is designed to upgrade the SHFTZ, build it into a national demonstration zone for institutional opening-up, and give full play to its exemplary and leading role in facilitating Chinese modernization.

The General Plan is A “To-Do List” for Institutional Opening-Up

A key feature of high-standard international free trade agreements is that the terms extend from border measures to behind-the-border measures, and from basic liberalization of trade in goods to institutional and legal foundations. Institutional opening-up related economic and trade rules encompass the implementation of pre- and post-establishment national treatment for foreign investment, which provides high-standard investment protection and operates under the negative list model. Furthermore, the rules include fair competition and competitive neutrality (both ensuring environmental and regulatory requirements without discrimination based on national origin or ownership). The protection of intellectual property rights is another crucial aspect, covering non-mandatory technology transfer. Open trade in services, including financial services and digital trade, as well as the free flow of capital (free cross-border transfer of capital and investment profits) are additional critical elements. The principles of non-discrimination and transparency in government procurement, encapsulated in the Government Procurement Agreement under Agreement Establishing the World Trade Organization, are also encompassed. In addition, mechanisms such as investor-state dispute settlement (ISDS) are in place, along with labour rights protections and comprehensive and enforceable environmental obligations. The General Plan's content and measures essentially encompass all these aspects.

First, the General Plan calls for an accelerated opening up of trade in services. Under this requirement, the SHFTZ will promote high-level opening-up in key areas such as finance and telecommunications, further facilitate cross-border investment and financing, support multinationals in setting up capital management centers, improve the quality of telecommunications services, and thus lead the institutional opening-up of service industries.

Secondly, the General Plan proposes to promote the liberalization and facilitation of trade in goods. In order to build an efficient management model, the S