smiling on services

Trade in goods was sluggish in 2023, yet PRC services trade grew ten percent y-o-y. Now accounting for some 58 percent of GDP, services still fall some ten percent short of their share in advanced economies. 

Given the weakness in goods trade, and the need for more advanced know-how to leverage new productive forces, the formerly protected services sector is on notice to shoulder a greater portion of PRC trade and consumption growth.

With lacklustre domestic sevices supply and a relatively closed sector (not least vis-à-vis OECD economies), Beijing is less hesitant about further opening the services trade. Post-WTO, its services sectors were a no-go zone. Beijing now sees luring more global players as helping firms learn the ropes, reap greater trade dividends in production, and upgrade to higher rungs of the value chain in advanced tech.

Policymakers are hence smiling on services. The 2024 Government Work Report (delivered 7 March) urged welcoming foreign investment and innovative measures to bolster services trade.

negative list for cross-border services

New national and FTZ (free trade zones) negative lists for cross-border services trade were recently announced. MofCOM pledges ‘national treatment’ to all sectors not listed. The two lists result from pilots in the Hainan FTP (free trade port) that began in July 2021. 

This is the first time a negative list approach has been applied nationally for services market access, consolidating different measures across industries and regulatory regimes. MofCOM (Ministry of Commerce) claims the lists should enhance industry transparency and predictability.

The national negative list contains 71 items covering 11 industries. The FTZ list declares greater access in

• professional qualifications of natural persons
  • allowing foreign professionals to sit six types of exams catering to
    • real estate appraisers
    • auctioneers
    • registered survey, supervision and design engineers
• professional services
  • allow non-PRC businesses to process customs declarations
    • overseas businesses can provide this service to entities in the pilot FTZs 
• finance
  • allow certified foreigners to 
    • open securities and futures accounts
    • engage in securities investment and futures trading advisory business
• entertainment
  • ease restriction on the proportion of key PRC personnel in PRC-foreign co-produced TV dramas 
    •  from at least 33 to 25 percent

Launching these measures, the PRC negative list approach is taking shape, declares Zhang Wei 张威 MofCOM Research Institute, given 

• services trade falls into four modes following WTO legal disciplines: cross-border trade, consumption abroad, commercial presence, and presence of natural persons
  • services delivered via commercial agencies are a form of foreign investment, already under the foreign investment negative list
  • the two new negative lists now regulate the other three modes

Motion pictures and finance, the more restricted sectors in the PRC, according to the OECD, are to be further opened up in pilot FTZs. The finance sector is already opening. In 2020, wholly foreign-owned banks were allowed in. Having more foreign players in the domestic market offers consumers more choice, driving competition and innovation for PRC firms, adds Zhang Wei. The lists can help integrate global services resources, notes Sang Baichuan 桑百川 University of International Business and Economics Institute of International Economy. PRC and international firms' cooperation would strengthen, growing the service trade market by generating more business opportunities.

syncing with advanced trade rules

The lists are a further step in aligning with high-standard global trade agreements, increasingly focused on opening the services trade via a negative list approach, says Sang. This goes beyond provisions of the WTO GATS (General Agreement on Trade in Services), which retains a ‘positive list’ approach, entailing re-negotiation of any further opening actions, and with much less scope for liberalising markets.

Negative lists regulate services in more advanced trade agreements like USMCA (US–Mexico–Canada Agreement) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). RCEP (the Regional Comprehensive Economic Partnership) demands that certain members, including the PRC, adopt a negative list for their services trade commitments within six years of the agreement’s taking effect in 2022.

While these agreements offer concessions only to other contracting parties, Zhang adds, 'the PRC provides them to the whole world, demonstrating its commitment to further opening'. Echoing this, Peng Delei 彭德雷 East China University of Science and Technology Law School claims such ‘voluntary unilateral opening’ will help the PRC build experience and proactivity, helping negotiations elsewhere. Negative lists, adds Peng, are now included in negotiations currently in the pipeline to upgrade FTAs with Singapore, New Zealand, South Korea et al.

uphill battles

Getting negative lists on par with advanced economy standards is hard going. For Peng, challenges include

• market access barriers scattered among laws and regulations
• ambiguity and imprecision in the scope of the negative lists
• domestic legislation lagging for
  • digital trade 
  • cross-border data flows
• inadequate policies for
  • professionals to move jobs
  • recognising professional qualifications
• business environment needs an overhaul
  • monopoly in some service industries

While PRC services have long been over-protected, hurdles from further opening will require other action. Much of this would come from setting rules to manage new flows of data, tech, professional staff, and capital. Initiatives are already underway, e.g., for cross-border data flows and foreign investment. Expect to hear more on this front.

trade commentators

Peng Delei 彭德雷 | East China University of Science and Technology Law School dean

PRC services trade negative lists need more detail, contends Peng. Citing international best practices, he argues they should include provisions on relevant legal grounds, potential future amendments, applicable business scope and corresponding obligations, etc.

A vast country with significant regional differences, argues Peng, the PRC should set carve-outs in negative lists for service sectors in specific provinces based on local needs. He notes US efforts in this regard in the CPTPP.

Some sectors may be afforded greater protection, says Peng, above all when national security or major social welfare and tech are impacted. The key here is to stipulate them clearly.

A PhD in law from a joint-degree program between Jiaotong University (Shanghai) and Australia’s La Trobe University, Peng has been researching and teaching at East China University of Science and Technology Law School since 2012. 

He works on international trade and investment law, FTZs, international disputes, digital trade, and cross-border data flows. Author of three books, Peng has led projects for the National Social Science Foundation and a series of provincial and ministerial projects.

Li Jun 李俊 | MofCOM Research Institute International Trade in Services department director

High-quality opening in services trade is needed, notes Li, to develop PRC foreign trade. He finds piloting efforts in the Hainan FTP praiseworthy, laying a foundation for the nationwide enactment of negative lists.

Their results in Hainan have been productive, adds Li: services trade growth there has been solid since the launch of the lists in 2017, rising by 29.6 percent y-o-y in 2023.

Trade strategy and theory veteran Li has contributed to projects on services export strengthening strategy, IP royalty indicators, a country report on trade in TCM services, and a guiding catalogue on key services export areas. He teaches international commerce part-time at Renmin University.

timeline

19 Mar 2024: State Council releases an action plan to further efforts in attracting and utilising foreign investment

22 Mar 2024: MofCOM issues National and FTZ (free trade zone) cross-border services trade special management measures (negative list) 

02 Mar 2024: PRC-sponsored WTO Joint Initiative on Services Domestic Regulation

1 Jan 2024: PRC-Nicaragua FTA, first agreement in which PRC uses a negative list for cross-border services trade commitment

13 Aug 2023: State Council releases 24 measures to improve the foreign investment environment

17 Jun 2023: PRC submits official documents to join CPTPP

10 Jan 2023: services sector pilot program expands to Nanjing, Hangzhou, Shenyang, Wuhan, Guangzhou and Chengdu

01 Jan 2022: RCEP enters into force

23 Jul 2021: first cross-border services trade negative released for Hainan Free Trade Port

16 Sep 2021: PRC announces its application to CPTPP

28 Jun 2017: first nationwide negative list for foreign investment released