On July 23, Ministry of Commerce issued the "Special Administrative Measures for Cross-border Trade in Services in Hainan Free Trade Port(Negative List)" (hereinafter referred to as Negative List), which defines 70 special management measures in 11 categories for overseas service providers and will come into effect from August 26, 2021. The negative list reflects the highest level of opening up in the cross-border service trade field in mainland China, and the level of openness in some areas even exceeds China's original WTO commitments. To help you better understand the background and the practical significance of the specific measures, a series of policy interpretations shall be provided, based on contents from the press conference on the Hainan Free Trade Port's Cross-border Trade in Services Negative List held by the State Council Information Office.
1.What are the background and main considerations for formulating the Negative List?
With the approval of the Party Central Committee and the State Council, MOFCOM issued Order No.3 on July 23 which announced the Negative List. This is a key decision made by the Party Central Committee and the State Council. In his keynote speech at the opening ceremony of the Third China International Import Expo, General Secretary Xi Jinping emphasized that China would effectively play the leading role of the Pilot Free Trade Zone and Free Trade Port, and introduce a negative list for cross-border trade in services. In his government work report, Premier Li Keqiang proposed to issue a negative list for cross-border trade in services.
In order to prepare the Negative List, MOFCOM,together with the People’s Government of Hainan Provincial and 45 relevant departments, spent more than one year comprehensively examining the openness level of international and domestic cross-border trade in services, referring to high-standard international economic and trade rules, and conducting in-depth field investigations before formulating and issuing the Negative List.
At present, in face of the severe and complex domestic and international situations, China adheres to the direction and determined of deepening reforms and opening wider to the outside world, and continuously improves the liberalization level of trade and investment. For example, in the area of trade in goods, China has lowered the overall level of tariffs several times, and cancelled or simplified non-tariff measures, resulting in continuously increasing the liberalization of trade in goods. In addition, in the area of investment, the negative list for foreign investment has been introduced and continuously reduced. The areas outside the list are managed in accordance with the principle of consistency between domestic and foreign investment, and the level of liberalization is increasing. However, in terms of cross-border trade in services, the opening-up arrangements as defined in the signed free trade agreements(FTAs)are still limited in some areas. Compared with the level of China’s commitments when joining the WTO, the overall opening-up level of cross-border trade in services has not made much progress.
Except for the year of 2020, the average annual growth rate of global cross-border trade in services has been twice that of trade in goods in the past decade. With technological progress, the development potential of trade in services, especially cross-border trade in services, will be further realized. We believe that cross-border trade in services in the future will be a key driver of global trade. The Negative List is the first such list unveiled at the national level in the field of cross-border trade in services. Different from the previous fragmented opening-up arrangements for certain service industries, the Negative List clearly lists 70 special management measures in 11 categories for overseas services providers, which are listed as negative management measures. For those industries not put on the list, domestic and overseas services providers shall have a level playing field and enjoy equal market access in Hainan, which will ensure greater openness, transparency and predictability. This list which can be said to be a major breakthrough in the management model of trade in services is an institutional arrangement for opening-up. It will help promote the liberalization of trade in services, enhance the country’s overall opening-up levels,and contribute to the building of a new development pattern.
During more than one year of preparing the Negative List, the following four points have been considered:
1.Benchmarking with high-standard international economic and trade rules. Negative lists are a major pattern for cross-border trade in services in high-standard international FTAs. Previously, in FTAs on trade in services, including WTO provisions on trade in services, were all positive lists. But the main way adopted by today’s high-standard FTAs are negative lists. At present, in China’s schedules of concessions for entry into the WTO and the FTAs China has signed, positive lists are used in the field of cross-border trade in services. In the Regional Comprehensive Economic Partnership Agreement(RCEP)signed last year, we also adopt positive lists. But members to the agreement have promised to change the positive lists to negative ones within six years after the RCEP took effect.
The Negative List is in line with high-level international economic and trade rules and makes opening-up arrangements for cross-border trade in services in the form of a negative list. It can be said to be a key reform for the management model of the existing trade in services and also a specific practice of the Chinese government to promote the reform of “streamline the government, delegate power, and improve government services”.
2.Making proactive opening-up arrangements during the preparation process. The Negative List lowers market entry in services and makes higher-level opening-up arrangements in sectors including professional services, transportation services, and financial services. Such a higher-level opening-up is not required by any bilateral agreements; instead, we take the initiative to do so. This goes beyond China’s commitments for WTO accession and its main free trade agreements(FTAs)that have entered into force in corresponding areas.
3.Reflecting the characteristics of Hainan during the preparation. Tourism, modern service, and high technology are the three leading sectors in Hainan. The Negative List is based on the new stage of development, designed to implement new development concept, and intended to focus on preferably playing the role of Hainan Free Trade Port(FTP)in building a new development pattern. It includes a series of opening-up measures, such as removing access restrictions on foreign yachts applying for pilotage in and out of Hainan Free Trade Port. This will help accelerate the development of new advantages in cooperation and competition with Hainan characteristics, and promote the high-quality development of Hainan Free Trade Port.
4.Coordinating development and security. To implement the holistic view of national security, adhere to the “bottom line” thinking, and strengthen risk awareness, the Negative List contains necessary special management measures while implementing a high-level opening-up. After the release of the Negative List, Hainan Province will earnestly assume the principal responsibility,accelerate the establishment of a sound supporting management system, strengthen the monitoring, early warning, and statistics of cross-border trade in services,and firmly hold the bottom line of no regional or systemic risks. All relevant competent industrial authorities and MOFCOM will provide stronger support and guidance and effectively supervise their respective fields according to their responsibilities.
In the next step, MOFCOM, Hainan Province, and relevant departments will actively promote the implementation of the Negative List, and timely summarize and evaluate experience and practices, in order to explore a path and accumulate experience for the implementation of the list management system of cross-border trade in services in free trade zones and subsequently across the country.
2.As another major institutional opening-up measure after the negative list for foreign investment, what is the significance of issuing the Negative List in the comprehensive expansion of opening-up under the new development pattern of China? What key roles will it play?
The Negative List is an important measure for our country to proactively promote high-level institutional opening-up under the new development pattern. It will have far-reaching implications for promoting the quality of the Hainan Free Trade Port, conducting stress tests for wider opening-up in the country as well as building an open economy at a higher level. The Negative List is key to the high-quality development of Hainan Free Trade Port.
The service sector plays a leading role in Hainan, and the service sector accounts for more than 60%of the province’s GDP. Recent statistics show that the service sector accounts for 95.8% to Hainan’s economic growth. Therefore, the implementation of the Negative List will promote the opening-up and development of Hainan’s service sector. For example, in terms of the modern service sector, these lists should play a very important role. The Negative List contains a number of opening-up arrangements in the modern service sector, such as shipping and finance. The Negative List will help Hainan introduce new service concepts and service models, diversify service supply, and enhance the development level and competitiveness of its modern service sector. At the same time, the Negative List also improves the level of opening-up in commercial services such as legal services and market research and in supporting areas such as education and culture. That is, the Negative List contains arrangements for further opening-up in the fields of modern services, commercial services, and some supporting services. This will help Hainan create a law-based, international, and convenient business environment,gather global innovative elements and resources, and improve the construction quality of the Free Trade Port.
The Negative List also helps to carry out stress tests for wider opening-up in the country. China has introduced this Negative List, which is the country’s first such negative list, for the Hainan Free Trade Port. The Port is a key platform for China to proactively open up. It is of China’s own choice and helps the country increase the intensity of opening-up and play the exemplary role of pioneering and testing while taking risk prevention and control as the bottom line. In the next step, we will explore new possibilities of the negative lists for cross-border trade in services in the pilot free trade zone and subsequently across the country. Hainan’s practice will help explore a path and accumulate experience for wider opening-up in the next step, and also lay a solid foundation for China to participate in or influence international economic and trade rules.
Additionally, the Negative List provides a key means for China to build a higher-level open economy. Globally, except for the year 2020, the average annual growth rate of cross-border trade in services has been twice that of trade in goods in the past decade. Now the global export of goods is about US$18 trillion while the export of trade in services is about US$5 trillion, and the growth rate of trade in services is twice that of trade in goods. In particular, the advancement of information technology and the development of the digital economy will have enabled some service sectors to be traded in the future, which we cannot do today. This will break some of today’s spatial limitations. In the future, it will no longer need the commercial presence in foreign countries to conduct cross-border service transactions. Despite the pandemic in 2020, China’s import and export volume of cross-border trade in services reached US$661.7 billion, ranking second in the world, but with a considerable gap with the world’s largest service trader.
Therefore, the implementation of Negative List FTP is conducive to improving the opening-up level of China’s overall service sectors. By introducing high-level service providers from abroad into domestic competition, we can improve the efficiency of the “domestic cycle”. On the other hand, we can take advantage of our strong domestic market, connect with and pull together high-quality production factor resources such as high-end talents, advanced technology, and data from around the world, promote the mutual promotion of domestic and international dual-cycle, and help achieve the grand goal of building a new development pattern. Therefore, the Negative List is both significant today and tomorrow.