Cross-Border Trade in Services(Policy Interpretation

Cross-Border Trade in Services(Policy Interpretation - Part II)

en.hainan.gov.cn

Updated: 2023-07-18

On July 23, 2021, the Ministry of Commerce issued the "Special Administrative Measures for Cross-border Trade in Services in the Hainan Free Trade Port (Negative List)," which defines 70 special management measures in 11 categories for overseas service providers, in effect from Aug 26, 2021. The negative list reflects the highest level of opening-up in the cross-border service trade field in China, and the level of openness in some areas even exceeds China's original WTO commitments.

Q3. Are there further considerations and arrangements for risk supervision after the opening-up?

The more open China is, the more attention must be paid to security. By coordinating development and security, China can better strengthen competitiveness, supervision of opening, and risk prevention and control. In order to implement opening-up measures in a secure manner and steadily advance FTP construction, supervision and risk prevention and control should be prioritized.

On the regulatory side, the Negative List determines the inconsistency measures for cross-border trade in services in the Hainan FTP, that is, the threshold of access and operation. Items in the Negative List can be managed in accordance with current management methods. Items outside the Negative List are managed in accordance with the principle of consistent treatment between domestic and overseas organizations. Sensitive sectors such as culture, finance, telecommunications and education need to be strictly managed. For newly formulated opening-up measures not included in the Negative List, provincial-level competent industrial authorities will formulate management measures.

On risk prevention and control, Hainan province has set up 15 special working groups for risk prevention and control, including a dedicated working group for trade in services. These groups have formulated work plans, established a consultation mechanism, identified risk points in human resources, capital and information in the service trade, and formulated prevention and control measures accordingly. The Hainan Social Management Information Platform monitors the flow of people, logistics and capital 24 hours a day, creating a three-layer prevention and control circle consisting of offshore waters, coastlines and islands. So far, no systemic major risks have occurred in Hainan province.

Q4. What is the specific situation regarding the higher-level opening-up provided by the Negative List?

The Negative List provides greater transparency and openness. It is an important reform of the management model for the existing trade in services and will help increase the openness of the service sector. Comparing with China's WTO commitments, the WTO classified the service sector into 160 sub-sectors. Of these, the level of openness of about 120 sub-sectors in the Negative List exceeds China's WTO commitments. Out of the 100 sub-sectors in which China committed to opening up at WTO accession, the Negative List provides a higher level of openness in more than 70. Of the 60 sub-sectors in which China made no WTO commitment, the Negative List opens up more than 40.

For example, in legal services, China did not commit to opening this sub-sector when joining the WTO. But the Negative List states that the representative offices of foreign law firms in Hainan can engage in some commercial non-litigation legal affairs involving Hainan. In education services, China's WTO commitment required overseas individual educational service providers to have a bachelor's degree or above, corresponding professional titles or certificates, and at least two years of professional experience. The Negative List removes the two-year professional experience restriction.

Compared with free trade agreements, the Negative List exceeds the level of openness in trade in services of most of the 19 FTAs China has signed. Taking the Regional Comprehensive Economic Partnership (RCEP) as an example, among 160 sub-sectors, the Negative List provides a higher level of openness in more than 110 sub-sectors than China's RCEP commitments. For example, the Negative List allows overseas service providers to engage in aviation meteorological services, a sub-sector in which China made no commitment under either RCEP or the WTO.

Q5. What role will the Negative List play in the construction of the Hainan FTP, and what benefits will it bring to enterprises and industries?

Since the release of the Overall Plan for the Construction of the Hainan Free Trade Port, more than 140 policies have been issued. The release of the Negative List, which is the first in China in the field of cross-border trade in services, is another important measure for the innovation in the policies systems and mechanisms of the Hainan FTP, and will accelerate the process of trade liberalization and facilitation. Together with other existing FTP policies, it can achieve a superposition effect to promote the Hainan FTP to build new advantages in the development of trade in services.

For example, in customs declaration, it was originally stipulated that only legal persons established in China could engage in customs declaration. Now in the Hainan FTP, the requirement for a legal person has been cancelled, meaning overseas customs declaration entities can directly engage in customs declaration without legal entity registration in Hainan. This improves the freedom of overseas customs declaration entities to enter Hainan, effectively reduces operating costs, and helps local foreign trade firms in Hainan make more convenient use of quality overseas services.

In ship inspection, it was originally stipulated that foreign ship inspection institutions could not employ or send personnel for ship inspection activities in China if they did not set up ship inspection firms in China. This restriction has now been cancelled in the Hainan FTP. This improves the freedom and convenience of transportation, facilitates shipping enterprises in the Hainan FTP to obtain better international services, and reduces operating costs.

The restrictions on overseas individuals taking qualification examinations for certified metrology engineers, certified engineers in survey and design, and asset appraisers have also been removed. Foreign natural persons can now engage in industries in the Hainan FTP that were previously not open to them in China, which will help attract more foreign professionals to work in Hainan. If these talents are introduced under the relevant programs, they can also enjoy the superposition effect of a series of FTP policies, such as preferential treatment of personal income tax.

Q6. Why was the 'first' negative list on cross-border trade in services implemented in Hainan?

There are several major considerations. First, from the practical demands for the construction of a free trade port in Hainan, President Xi Jinping instructed that Hainan should align with the high-level economic and trade rules of the world and build a free trade port with high quality and high standards. Liberalization and facilitation of trade in services are basic characteristics of high-level international free trade ports. Implementing the negative list on cross-border trade in services in Hainan will promote the free and convenient flow of technology, capital, data and other production factors.

Second, from the perspective of pilot conditions, Hainan is the largest special economic zone of China, and it has unique geographical and regional advantages in implementing comprehensive and in-depth reform and testing high-level opening-up. As a relatively independent geographical unit, Hainan is convenient for strengthening supervision, statistical work and overall planning for development and security. Experience and risk control accumulated in Hainan can lay a foundation for implementing negative lists in a wider area in the next step.

Third, preparing a negative list on cross-border trade in services in Hainan is a clear requirement put forward in the Overall Plan for the Construction of the Hainan Free Trade Port. The plan clearly states that it is necessary to implement the negative list system for cross-border trade in services, and give overseas service providers more market access and national treatment outside the negative list by breaking down various barriers in trade in services modes such as cross-border delivery, consumption abroad and movement of natural persons.