The Information Office of Shanghai Municipality held a press conference today (October 9). Wu Qing, Shanghai’s vice mayor, briefed the media about Shanghai’s newly formulated measures for the implementation measures and negative list for China (Shanghai) Free Trade Zone cross-border service trade (hereinafter referred to as implementation measures and negative list). Shen Weihua, deputy director of the Shanghai Commission of Commerce, Zhang Lin, deputy director of Shanghai transport commission, Jin Lei, deputy director of Shanghai Municipal Administration of Culture, Radio, Film & TV, Li Jun, deputy director of Shanghai Finance and Wang Hua, deputy head of Pudong New Area and deputy director of China (Shanghai) Pilot Free Trade Zone management committee were present at the conference and took questions together from the reporters.

This year marks the 40th anniversary of reform and opening up and is also the fifth anniversary of the establishment of China (Shanghai) Pilot Free Trade Zone. The China (Shanghai) Pilot Free Trade Zone is the first free trade pilot zone in China. In the past five years, there have been 127 innovation matters and innovation results of licenses separation in the city and across the country. Shanghai has achieved remarkable results in terms of the development of the free trade zone. In 2013, Shanghai took the lead in introducing a negative list for foreign investment approvals. Shanghai also implement supporting measures in terms of supervision and government management system, which promote the opening up of foreign investment in the China (Shanghai) Pilot Free Trade Zone and gradually become a new highland for further reform and opening up.

According to the Comprehensive Deepening of China (Shanghai) Pilot Free Trade Zone Reform and Opening Up Plan and newly-released 100 measures, the city is the first to carry out institutional innovation in the service trade sector and explore the implementation of the cross-border service trade negative list management mode. Shanghai issued the China (Shanghai) Pilot Free Trade Zone Cross-border Service Trade Negative List Management Mode Implementation Measures, China (Shanghai) Pilot Free Trade Zone Cross-border Service Trade Special Management Measures Negative List (2018).

I The Significance of Service Trade

At present, service orientation of manufacturing industry, as well as the outsourcing, digitization, high-end and integration of services is developing rapidly. Service trade has become a new engine which leads the growth of global trade. In 2017, China’s total service trade reached US$695.68 billion, ranks the second in the world after the United States. Service trade is playing an increasingly important role in promoting economic development and quality improvement, efficiency and power enhancement. It is also an important starting point for further opening up and achieving high-quality development of foreign trade. As a pilot city for innovation and development of the country’s service trade, Shanghai's service trade development has always been in a leading position across the country in recent years. According to the statistics of the Shanghai Branch of the State Administration of Foreign Exchange, Shanghai's total service trade reached US$195.5 billion in 2017, ranking the first in the country. The proportion of foreign trade in the city has increased to 29.1 percent, which is 14.6 percentage points higher than the national average level. It has a number of characteristics such as continuous structure optimization, expansion of main body and continuous innovation of models, which formulated a batch of new experiences and new practices.

Based on this, to further explore the management mode of international service trade, which takes root in Shanghai, serves the whole nation and has high standards, is significant. First of all, it helps China tackle with changes in international trade and further integrate into global value chain. Now the world economy is faltering and trade protectionism is growing. To take the lead in exploring and implementing the management mode of international service trade can further remove service trade barriers, form an opener and freer service trade market, improve the liberalization and convenience of service trade, broaden cooperation field, promote China to participate in formulating international rules, further integrate into the division system of global value chain as well as improve China’s status in global economic trade system. Secondly, it can help Shanghai implement measures to expand opening-up called on by the central government and provide experience for the nation in innovative development of service trade. Now China’s economy enters into the phase of high quality development and a series of major measures relating to expanding opening-up have been taken up. To take the lead in exploring and implementing the management mode of international service trade, and to sort out, restructure and reform the whole set of management rules including management system, promotion system, policy system and regulation mode in regard to international service trade, can help implement the country’s relevant opening-up measures, create a law-ruled, globalized and convenient business environment as well as promote the service trade market to expand opening-up. Based on the negative list, to make Shanghai Pilot Free Trade Zone more open and more convenient, can help accumulate useful experience, which will in the end promote the innovation of management system as for China’s service trade. Thirdly, it can help Shanghai Pilot Free Trade Zone deepen the reform, expand the opening-up and enhance the competitiveness of international service trade. To take the lead in exploring and implementing the management mode of international service trade, conducting stress testing and thus forming a two-way opening system that reconciles risks and opening-up, can help Shanghai Pilot Free Trade Zone be a good leader and model, accelerate the supply side reform in service trade, the construction of an open economic system as well as the transformation and upgrading of foreign trade, foster new economic growth momentum, build the brand of “Shanghai Service”, improve service quality, international competitiveness as well as optimize service environment.

II Main Content

To explore the management mode of international service trade in pilot free trade zone, Shanghai issued documents including ‘Implementation Measures about the Management Mode of Negative List in International Service Trade for Shanghai Pilot Free Trade Zone’ and ‘Management Measures about International Service Trade in Shanghai Pilot Free Trade Zone’. ‘Implementation Measures’ aims to make the management of negative list in international service trade law-ruled, institutionalized, standardized and routinized, and build a regulation system for international service trade that has clear rights and responsibilities, fairness and the safeguard of law. It is the first local government’s document to manage service trade in the form of negative list. ‘Management Measures’, following the requirement of deepening reform and opening-up in pilot free trade zone, aiming at constructing an opener pilot free trade zone, adhering to the principle of following international prevailing rules, taking the standard of being internationalized, transparent and open, makes a complete search of effective laws, regulations, rules in force and is China’s first negative list in service trade.

1. The main content of the “Implementation measures for the negative-list management model for service trade at the China (Shanghai) Pilot Free Trade Zone”

Main content of the 15-article“Implementation Measures”:

First, the definition of cross-border service trade has been specified. According to the implementation measures, cross-border service trade refers to “business activities launched from overseas and occurring within the FTZ”which as exemplified, include three models: cross-border delivery, overseas expenditure and movement of natural persons.

Second, basic principles guiding the management and opening up of cross-border service trade have been established. According to the implementation measures, bold experiments and trials, coupled with self-initiated reforms should be encouraged whilst legal ideology, systematic innovation and a combination of power delegation and tightened supervision should be maintained in order to provide support for the city’s “Five Centers” construction, the country’s “Belt and Road Initiative”and the Yangtze River Economic Belt development as they help offer legal support and ensure controllable risk for the management and opening up of cross-border service trade within the FTZ.

Third, the negative list management model has been established. The negative list is drafted in accordance with the current laws, regulations, policies and related provisions and classified by different industries with special administrative measures on overseas services and services providers in the field of cross-border service trade. For those included in the negative list, relevant laws and regulations should be applied in the management of related departments while for those not covered in the negative list, overseas services and services providers should be treated the same as domestic counterparts.

Fourth, various government departments have been held responsible for management. According to the implementation measures, the leadership office for the FTZ will coordinate opening-up of cross-border services trade and be responsible for interim and post-supervision while various industrial authorities will also be held accountable for overseeing as well as optimizing management involving cross-border services trade in their own industries. The administrative committee of the FTZ, through coordination with other related departments, will be responsible for the implementation of the negative list. Watchdogs of the foreign exchange, taxation, entry-exit, telecommunications, customs and some other departments will also coordinate to ensure interim and post-supervision. The implementation measures are also proposing to make better use of the city’s joint-conference system for services trade through the establishment of a cross-department interaction mechanism to further improve coordinated supervision.

Fifth, the establishment of a risk prevention system that matches the opening-up of certain sectors has been validated. The implementation measures have specified that the city is making active approach in opening-up of cross-border services trade in the FTZ and the amendment of the negative list at appropriate time. Meanwhile, on further opening-up in certain sectors, the administrative committee of the FTZ will join forces with other related departments to explore the establishment of interim and post-supervision mechanism and to set up risk prevention and control system so as to prevent security risks involving industries, data, capital, human resources, etc.

2. The main content of the Special Administration Rules for the Cross-border Services Trade (the Negative List) at the China (Shanghai) Pilot Free Trade Zone

Based on the content framework in the International Free Trade Agreement that is acknowledged globally, the negative list has two parts: compilation introduction and list of special administration rules.

Compilation introduction is to define cross-border services trade; to define the rules not suitable for all companies; to define the coverage, legal basis and industry classification in the negative list; to stress that contents related to national security, public order, culture, finance and government procurement that are not included in the list should be executed in accordance with related rules; Services and services providers related to Hong Kong, Macau and Taiwan should be treated as overseas services or overseas services providers, and if there are more favorable policies in other signed agreements like CEPA or ECFA, it should be carried out based on those policies.

The list of special administration rules, with the principle of being in line with the negative list for foreign investors and based on the classification of Chinese industries (GB/T 4754-2017), are compiled in the form of charts. It has 159 rules, involving 31 industries of 13 classifications.

The release of the rules and the negative list signals the establishment of the negative list approach for cross-border services trade at the free trade zone. Next, Shanghai will continue to accelerate reforms and further opening up to the outside world through strengthening two parts of work for improvement.

On one hand, the city will increase the transparency of policies and rules. With this opportunity of launching new rules, it will continue to review the content of the negative list, and conduct large-scaled promotion and training to expand the influence of the management model, in a bid to raise transparency. On the other hand, the city will further expand the opening sectors of services trade. Based on reality in Shanghai, local government officials will enhance communication with the central government and try to become a pioneer in trailing more opening-up measures in the free trade zone to become a highland for services trade.