NZLII Home | Databases | WorldLII | Search | Feedback

New Zealand Yearbook of International Law

University of Canterbury
You are here:  NZLII >> Databases >> New Zealand Yearbook of International Law >> 2008 >> [2008] NZYbkIntLaw 4

Database Search | Name Search | Recent Articles | Noteup | LawCite | Help

Angelo, Tony & Xiong, Ping --- "Free Trade Agreement between the Government of the Peoples Republic of China and the Government of New Zealand" [2008] NZYbkIntLaw 4; (2008) 5 New Zealand Yearbook of International Law 65

Free Trade Agreement between the Government of the People’s Republic of China and the Government of New Zealand

A H Angelo[∗]

Ping Xiong[∗]

I. Introduction

The Free Trade Agreement between the Government of the People’s Republic of China and the Government of New Zealand was signed in Beijing on 7 April 2008 in the presence of the Chinese Premier, Wen Jiabao, and the Prime Minister of New Zealand, Helen Clark.[1] This was a significant event for both countries and in particular for the government of New Zealand. Both countries are parties to a number of other trade agreements but for both, this treaty represents something new.[2] For a small country like New Zealand to have a free trade agreement with the largest country in the world, which is also one of its major trading partners,[3] is a considerable achievement. For the People’s Republic of China too,[4] this document has particular significance because it is its first free trade agreement with a developed country. The Agreement is marked by a remarkable mutuality and lack of conditionality.

It is the purpose of this paper to provide a structural overview of the Agreement and comment on aspects of general legal interest, the management structures put in place, and the dispute resolution mechanism. Part II will highlight topics on a chapter by chapter basis and make some comparisons with trade agreements that China and New Zealand have with other countries.

Against the background of this Agreement it may be expected that Chinese and New Zealand trade will become more extensive and that there will therefore be a greater interest in and need for knowledge of Chinese law by New Zealand traders and their advisors. For that purpose, Part III will also provide a brief introduction to the law of China, its court structure, key features of the court procedure, the organisation of the profession, and the sources of law. Specifically a brief overview will be given of the main features of contract and commercial law in China, intellectual property law, private international legal matters and the enforcement of foreign judgments.

II. The Agreement

A. Overview

1. Background

Since the establishment of diplomatic relations between China and New Zealand on 21 December 1972 and the adoption of the ‘one China policy’ by the government of New Zealand, the relationship between the two countries has developed substantially and positively.

Over the years many agreements have been signed including a trade agreement in 1973,[5] a number of arrangements relating to scientific and technological cooperation, and agreements on the avoidance of double taxation and the prevention of fiscal evasion. In May 2004 following the commitment by the New Zealand Prime Minister (Helen Clark) and the President of the People’s Republic of China (President Hu Jingtao) the Trade and Economic Cooperation Framework between New Zealand and China was signed with the specific purpose of seeking ‘comprehensive trade and investment facilitation and liberalisation through all-round economic and trade cooperation’.[6]

Areas of significant mutual economic interests were identified and they included agriculture and forestry, bio-security, science and technology, technical barriers to trade, information and communication technology, cooperation and expansion of trade in services generally (specifically mentioned were education, tourism, air services, labour and professional services), investment, environmental protection, intellectual property rights and customs cooperation. This was a major agenda and a Joint Ministerial Commission was established to facilitate progress on these matters. A bilateral free trade agreement was clearly in view and the parties undertook, in paragraph 10, to jointly undertake a feasibility study and to ‘enter into … negotiations as soon as possible’. The Joint Trade and Economic Commission, a successor to the joint trade committee established in 1973, had its mandate confirmed as the then existing consultation mechanism. The Agreement of 2008 shows the achievement of the 2004 goals within the initial five year timeframe set by paragraph 12. The signing of the 2008 Agreement marks the completion of that part of that journey towards a free trade area. The Agreement is a sophisticated document of 241 articles and 14 annexes presented in 944 pages of text.

2. Purpose

The preamble of the Agreement is unremarkable but, with articles 2 and 3, provides a policy statement on the intentions of the two parties.

B. Structure and Main Elements

1. Chapter 1 – Initial Provisions (Articles 1 to 3)

Article 1 of the Agreement establishes a free trade area consistent with the ‘enabling clauses’ of article XXIV of GATT and article V of GATS. This, together with articles 2 and 3 of the Agreement, indicates WTO compliance and sets the tone for this Agreement with the general framework of WTO law and the liberalisation processes of APEC.

Article 2 reflects the objectives of the Agreement in two ways: first, in a general statement on expanding and diversifying trade, facilitating movement of goods and services, promoting competition in the free trade area, increasing investment, protecting intellectual property rights, and providing for effective dispute settlement; second, in that it reflects support for the APEC regional arrangement.

Article 3 uses express language to deal with the relationship of this Agreement to other agreements. This constitutes a distinctive feature of the Agreement. It is stated that this Agreement is subject to the WTO Agreement[7] and does not affect a party’s right and duties under any other agreements. The use of the customary rules of treaty interpretation for resolution of inconsistency between various treaty obligations has been expressly included. This invokes articles 31 and 32 of the Vienna Convention on Law of Treaties which together constitute a codification of customary rules of interpretation of public international law. This means that a flexible approach to treaty interpretation will be adopted.

2. Chapter 2 – General Definitions (Article 4)

It is interesting to note that in formal trade agreements with other parties both China and New Zealand have defined themselves; that is to say they have defined the territory to which the trade agreement relates. The 2008 Agreement has no such definition. The reason for this difference of approach is not immediately clear. It may be that the answer is obvious because the respective territory do not need defining. On the other hand, the definition of China in the free trade agreement that it has with Chile it does not seem inappropriate. That definition reads:[8]

the entire customs territory of People’s Republic China, including land, maritime and air space, and the exclusive economic zone and the continental shelf within which it exercises sovereign rights and jurisdiction in accordance with international law and its domestic law.

And in the same year New Zealand with its agreement with Thailand defines territory as:[9]

the territory of a Party, as well as the exclusive economic zone, seabed and subsoil over which the Party exercises sovereign rights or jurisdiction in accordance with international law, but with respect to New Zealand does not include Tokelau.

Because Tokelau is part of New Zealand, it could be easily assumed that the Agreement applies also to Tokelau. However, given the particular non-self governing status of Tokelau and the peculiarly metropolitan concerns of the Agreement, it may be implicit that this Agreement does not apply to Tokelau.

Definitions included in the Agreement and which are of potential interest to New Zealand lawyers are those relating to ‘person’. The use of ‘juridical’ in the context of this definition warrants explanation. The terms ‘natural person’, ‘juridical person’, ‘entity’, ‘enterprise’, ‘legal entity’ are used in different ways in the Agreement.[10] These differences relate, among other things, to the detailed operation of private international law rules both as they relate to jurisdiction and to choice of law.[11]

3. Chapter 3 - Trade in Goods (Articles 5 to16)

Features of this Chapter are the emphasis on national treatment, the elimination of customs duties and export subsidies, and the duty of each Party to provide legal means to protect consumers against false or misleading trade practices.

4. Chapter 4 - Rules of Origin (Articles 7 to 43)

One of the more detailed Chapters, it deals with the topics of the nature of ‘originating goods’ and declarations of origin and their verification.

5. Chapter 5 - Customs Procedures (Articles 44 to 59)

The major goal of this Chapter is the simplification and harmonisation of customs procedures.

6. Chapter 6 - Trade Remedies (Articles 60 to 77)

These articles deal with the relationship between the Parties in respect to dumping, subsidies and countervailing measures, and safeguard measures.

7. Chapter 7- Sanitary and Phytosanitary Measures (Articles 73 to 88)

8. Chapter 8 - Technical Barriers to Trade (Articles 89 to 102)

This Chapter addresses in particular standards, technical regulations and international standards as they relate to the trade in goods.

9. Chapter 9 - Trade in services (Articles 103 to 124) [12]

Trade in services is one of the three pillars of the WTO, and it is also very important for free trade agreements.[13] Article 103, with the definition of ‘juridical person of a Party’ as any legal entity organised under applicable law, provides for flexible recognition of foreign laws governing the establishment of legal entities.

An important aspect of trade in services is the recognition of qualifications. This can be enhanced under the auspices of the China-New Zealand Education Joint Working Group (JWG), and will be strengthened through cooperation between the Ministry of Labour and Social Security of China and the New Zealand Qualifications Authority (NZQA).[14] There is express encouragement for NZQA and the Chinese authorities to recognise the qualifications of service suppliers from each Party through harmonisation, agreement or arrangement between the competent bodies.[15] There remains autonomy for each Party to recognise the qualifications of the other Party without reciprocal recognition.[16]

Monopoly service suppliers are dealt with in article 123 with a view to having more transparency in the availability of information concerning the relevant operations and competition.

10. Chapter 10 - Movement of Natural Persons (Articles 125 to 134)

Chapter 10 provides for temporary entry without labour certification test, labour market testing, economic needs testing or numbers limitation.[17] The Agreement specifically provides a timeframe for the grant of temporary entry to expedite the application procedures and facilitate the free movement of natural persons.[18] This will promote the movement of natural persons between the two countries. The free temporary entry, for instance, may help New Zealand solve seasonal labour shortage problems; but on the other hand, it may mean more disputes about the free movement of natural persons and the applicable national laws will become a crucial element in the settlement in disputes. Therefore, the transparency and Agreement-compliance of domestic laws and regulations are important for the settlement of such disputes. Article 134 offers two levels of dispute settlement for the resolution of specific or general problems arising from implementation of this Chapter, which first subject any dispute to domestic laws, and as a second choice, subject it to the general dispute settlement provisions of chapter 16 of the Agreement.

11. Chapter 11 – Investment (Articles 135 to 158)

This chapter is a continuation and expansion of the Agreement between New Zealand and China on the Promotion and Protection of Investment signed in 1988.[19] The 2008 Agreement specifically applies to both direct and indirect investment,[20] while the 1988 agreement applies only to assets within the traditional concept of property.[21] The 2008 Agreement applies national treatment and most favoured nation treatment, while the 1988 agreement provided only most favoured nation treatment. This means that both sides will treat investors the same as their nationals, and a Party which offers more favourable treatment to a third member in future free trade agreements will offer the same treatment to investors of the other party. The right to give most-favoured-nation treatment in fisheries and maritime matters, however, is reserved.[22]

An investor can be either a natural person or an enterprise. A natural person needs to be a national or meet permanent residence requirements. Until China creates laws for the permanent residence of foreigners, the national treatment, most favoured nation treatment and similar requirements contained in articles 137-141, 146, 147, 152-158 do not place obligations on one Party with respect to the permanent residents (natural persons) of the other Party.[23]

The investor-state dispute settlement provisions[24] are a continuation of the agreement signed in 1988. The noticeable feature of this settlement mechanism is that it either uses the ICSID institutional system to settle disputes, or at the investor’s choice, subjects the dispute to the UNCITRAL arbitration rules. A time line is set for dispute settlement and this will expedite the process to protect investors.

12. Chapter 12 – Intellectual Property (Articles 159 to 166)

The intellectual property protection in this Chapter offers no TRIPS-plus or TRIPS super-plus,[25] and it requires both parties to be TRIPS compliant. This is not new; the crucial point is the enforcement of intellectual property rights by each Party. In addition, the protection of genetic resources, traditional knowledge and folklore has been highlighted in article 165;[26] each Party can take its own measures in this regard. Both Parties have concerns about the protection of traditional knowledge, and this article gives flexibility to each Party in its protection of traditional knowledge. The concerns are also reflected in the protective measures permitted under article 200 for national cultural properties and for New Zealand in article 205, which deals specifically with the Treaty of Waitangi.[27]

13. Chapter 13 - Transparency (Articles 167 to 172)

This sets the scene for the good administration of the Agreement by providing in article 168 that all relevant rules, regulations, procedures and administrative rulings of a general kind shall be promptly published or otherwise made available to the other Party and interested persons. Further, each Party guarantees that its administrative systems comply with general ideas of natural justice and due process, and in respect of the matters of the Agreement, are in accordance with domestic law. Final administrative decisions must be able to be appealed to an impartial and independent body.

14. Chapter 14 - Cooperation (Articles 173 to 178)

Cooperation and consultation are abiding features of the Agreement as Table 1 shows. This Chapter emphasises the ‘importance of all forms of cooperation’.[28] It also deals specifically with economic cooperation in article 175, small and medium-sized enterprises in article 176, and labour and environmental cooperation in article 177.

15. Chapter 15 – Administration (Articles 179 to 182)

Chapters 13, 14 and 15 in particular provide guidelines as to the administration of the Agreement.

Most chapters have provision for the identification within each country of contact points or officers who will ease communication between the two States on the subject matter of the particular chapter. Further, there are numerous provisions for consultation and cooperation.

The management systems set up under the Agreement are extensive. Frequent contact is envisaged by the Agreement and there are at least nine specialised committees which have been given specific duties in subject areas covered by the agreement.[29]

The most important body is the Free Trade Area Joint Commission which is composed of senior government officials or senior political figures. Apart from a role in respect of the broad implementation of the Agreement, the Joint Commission has a role in dealing with matters referred to it by the various committees and working groups set up under the Agreement. Therefore it has an oversight role, a policy development and implementation role, and also acts in a sense as an advisory or reference body for other agencies under the Agreement.

16. Chapter 16 - Dispute Resolution (Articles 183 to 199)

The agreement generally, through its individual chapters, emphasises dispute avoidance as much as settlement. Avoidance or settlement of disputes between the Parties is the goal of chapter 16. This chapter emphasises the need to obtain the resolution of disputes through ‘cooperation and consultation’.[30] The consultation process is the subject of a formal process of communication and timelines. The parties can also agree at any time, in accordance with article 187, on the use of good offices, mediation or conciliation. In respect of those possibilities the parties may seek the assistance of the China New Zealand Free Trade Area Joint Commission established under chapter 15. In the event that cooperation and consultation is not effective, the parties may, in accordance with article 188, establish an Arbitral Tribunal for the purposes of resolving the matter.

The Arbitral Tribunal that may be set up to resolve disputes between the parties under the Agreement will have three members: one appointed by each Party and a chairperson who is appointed by the Parties together. In the event of the Parties failing to agree on the third arbitrator, that person will be designated by the Director-General of the WTO. Arbitrators are required to comply with the WTO Rules of Conduct for the Understanding on Rules and Procedures Governing the Settlement of Disputes.[31] The Chairperson of the Arbitral Tribunal is expressly required ‘not to be a national of either Party’; ‘not to have his or her usual place of residence in the territory of either party; and not have dealt with the matter in any capacity’.[32]

In considering a dispute the Arbitral Tribunal is to interpret the Agreement in accordance with the customary rules of treaty interpretation.[33] The role of the Tribunal is ‘to make an objective assessment of the dispute before it… and make such factual findings [as are] necessary for the resolution of the dispute’.[34] A finding of inconsistency with the Agreement in the behaviour of one of the Parties is binding on the Parties and the Party against whom the finding is made must remove the non-conformity with the agreement.[35]

Article 191 sets the rules of the procedure for the Arbitral Tribunal: the Tribunal will operate in an inquisitorial matter; the decisions of the Tribunal should be by consensus, but failing that by majority vote; all opinions expressed in a Tribunal report are to be anonymous. Expenses of hearings of the Arbitral Tribunal will be borne equally by the Parties.[36]

Before issuing the final version of its report the Arbitral Tribunal is required to provide a draft of the report to the Parties and give them the opportunity to comment on it before the report is finalised and made available as a public document.[37] Following the issue of a report of the Arbitral Tribunal, articles 195 and 196 provide the Parties reasonable time within which to comply with the report.

17. Chapter 17 – Exceptions (Articles 200 to 206)

This chapter provides for the main national interest protections: essential security interests, cultural treasures, financial stability, taxation, prudential measures, and information security. The Treaty of Waitangi is dealt with specifically in article 205.

18. Chapter 18 - Final Provisions (Articles 207 to 214)

The Agreement will come into force 60 days after the exchange of notes by the Parties confirming that the necessary domestic procedures for entry into force have been completed.

The final provisions provide among other things for amendment of the Agreement which predictably, is by agreement in writing of the Parties.

Termination is unilateral by written notice.

The English and Chinese texts of the Agreement are ‘equally authentic’.[38] This leaves any dispute settlement body or administering agency the interesting task of having to choose the true meaning of the Agreement where there is a difference of meaning in the wording in each of the official texts. The treaty in general has well developed provisions and deals with areas where there is already considerable international experience. The English text, at least, reads easily and appears to be clear.[39] The agreement has been developed over time and all the indications, public and otherwise, are that particular care was taken to ensure consistency of meaning between the texts.[40]

B. Comparison

Among the trade agreements that the Parties have with other States, a number stand out as being particularly suitable for comparison with this latest endeavour of the Parties.

For New Zealand, there is the Thailand and New Zealand Closer Economic Partnership Agreement,[41] and the Transpacific Strategic Economic Partnership Agreement of 2005.[42] For China, a comparable treaty is the China and Chile Free Trade Agreement of 2005.[43] There is much that is similar in these three treaties. From the New Zealand point of view and in legal structural terms, the recent treaties are all significant advances on earlier arrangements such as the Australia New Zealand Closer Economic Relations of 1983[44] and PACER of 2002.[45]

Several of those treaties are in English and in other languages. It is interesting that in all, in the case of ambiguity, the reference language of default is English. In some cases this dominance of English goes so far as to include the requirement that in the arbitration of differences the proceedings be conducted in English.[46]

In terms of purpose, trade is a priority in all of them. The elimination of duties, cooperation on custom matters and investment protection also loom large and are given varying degrees of emphasis. The New Zealand/Thai Agreement and the SEP speak also of trade in services. China’s agreement with Chile is restricted to goods.

In the context of goods, the rules relating to the rules of origin receive particular attention as does dumping and countervailing measures. For the management of the treaty arrangements and the implementation of the agreements, all have particular mechanisms: for instance, a Committee on Sanitary and Phytosanitary Matters, an Economic Partnership Committee or a Free Trade Commission, a Technical Barriers Committee or a Committee on Trade in Goods. Further facilitation is promoted by provision for advance rulings on customs matters and for the transparency of procedures. Some of the treaties also deal with government procurement, competition rules and intellectual property protection. The China/Chile Agreement additionally provides for interstate cooperation in a broad range of social matters such as education, labour and culture.

In all three treaties the dispute resolution mechanisms are well developed. The parties are encouraged to settle their disputes by consultation, are not precluded from using means otherwise available to them and, when good offices fail, the treaties provide for an arbitral panel or tribunal to settle the dispute. The rules for arbitration are comprehensive in providing for such things as the appointment of arbitrators, the language of proceedings and nature of the process.

All have express provision for amendments to the treaty and two of the three deal with termination or withdrawal.

The 2008 Agreement is perfectly consistent with and a clear development on these earlier precedents. It provides for administration and enforcement mechanisms, it has extensive provisions for dispute resolution between the parties, and it acknowledges consistency with GATT and GATS and also with the policy goals of APEC.

III. Law of China

China has developed its modern legal system with the adoption of its reform policy in 1978. There has been a broad range of legislation enacted from the 1980s, and much of this legislation shows Civil – Romanist approach rather than Common Law thinking. The laws operate within the context of the Chinese socialist ideology.[47]

A. Contract

1. Choice of Law

China has ratified the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG).[48] The civil law generally applies party autonomy in the selection of applicable law in contract.[49] Exceptions of relevance include Sino-foreign Equity Joint Venture Enterprise Contracts, Sino-foreign Cooperative Joint Venture Contracts, or a Contract for Sino-foreign Joint Exploration and Development of Natural Resources which is performed within China.[50]

2. Formation of Contract

(a) Capacity

A contract must be entered into between parties having appropriate capacities.[51] A citizen aged at least 18 has full capacity and a minor aged 10 or over can have limited capacity. A contract concluded by a person with limited capacity is valid upon ratification within one month provided the contract benefits the person with limited capacity or such contract is appropriate for that person’s age, intelligence or mental health.[52] An artificial legal person has full capacity.

(b) Writing

In general the law of China is form free but some situations do require writing.[53] This gives lots of flexibility in the formation of contracts. Usually, a contract for transfer of real rights requires writing.

(c) Offer and acceptance

The formation of a contract is based on offer and acceptance. It is pure consensualism. There is no requirement of elements such as consideration.

Once an offer reaches an offeree, it becomes effective. In case of electronic messages, an offer takes effect when the electronic message enters into such specific system as has been designated by the recipient or any of the recipients’ systems when no specific system was designated.[54]

An acceptance becomes effective when the acceptance reaches the offerer, or becomes effective once an act of acceptance is performed in accordance with the relevant usage or as required by the offer when no notification is required.[55]

Article 30 of China Contract Law provides for the situation of material change in an acceptance to constitute a new offer. These material changes include changes in the subject-matter, quantity, quality, price or remuneration, time, place and method of performance, liabilities for breach of contract or method of dispute resolution.[56]

A contract is formed once the acceptance becomes effective.

(d) Place of formation

The place of formation of contract is the place where the acceptance becomes effective. In the case of electronic messages, the recipient’s main place of business or the recipient’s habitual residence (when no place of business is identified) is regarded as the place of formation.[57] Where a contract is formed by memorandum, the place of formation is where it is signed or sealed.[58]

(e) Validity of Contract

A contract lawfully formed is valid except when the contract requires other procedures such as approval or registration.

3. Limitation of Action

The limitation of action for any contract dealing with international sale of goods or technology is four years, but a suspension is allowed during the last six months of the limitation if the plaintiff cannot exercise the right to claim because of force majeure or other obstacles. The limitation of action only applies to procedures and does not apply substantively.[59]

4. Dispute Resolution

Any dispute arising from a contract can be settled through negotiation, mediation or arbitration or court proceedings.[60] In Chinese law, if a contract is invalidated, cancellation or discharge of the contract does not impair the validity of the contract provision concerning the method of dispute resolution.[61]

B. Investment

Foreign direct investment in China is subject to government approval and to the Chinese Company Law and the related laws and regulations.

1. Foreign Direct Investment[62]

(a) Industries for foreign investment

A foreign business, which intends to invest in China, firstly needs to get the approval from the Chinese Competent Authority. The Ministry of Commerce or the local authority for commerce are in charge of the approval based on the scale of investment.[63] The Ministry of Commerce has made a regulation on the Catalogue of Foreign Investment Industries, and such catalogue has classified the investment area into three categories: those that are encouraged, those that are restricted and those that are prohibited. Most of the interests of New Zealand investors will fall into the encouraged industries, such as farming, forestry, animal husbandry and fishery. From 1999, the Chinese government has a policy of developing the Central and West Regions of China, and a special Catalogue of Preferential Foreign Investment Industries for Central and West Regions of China has been promulgated to encourage more investment in the Central and West Regions of China.[64]

(b) Establishment of entity

A foreign direct investment can take various forms, including the equity joint venture, contractual joint venture, exclusively foreign owned, or other forms such as joint shares limited company for foreign investment, investment company, cooperative development or Build-Operate-Transfer. After approval, foreign investment is subject to the registration process. The foreign investment need not be made by a legal person. Every equity joint venture is a Chinese legal person, and a contractual joint venture can in some cases be registered as a legal person, an exclusively foreign owned company is a legal person.

(c) Investment

According to company law, the establishment of a limited liability company requires the registered capital to be no less than 30,000 RMB, but special capital requirements apply in certain industries for foreign investment.[65] The capital contribution relates to the actual contribution and not the formal contribution and is subject to certification by a lawfully established capital verification institution.[66] The investment of capital contribution can be in any form, for example, currency, intellectual property rights and land-use rights.[67] If the capital contribution is non-monetary, the contribution should be valued and the currency contribution should be no less than 30% of all registered capital. For an equity joint venture, the capital contribution of the foreign investor should be no less than 25% of the total investment.[68] An equity joint venture is a Chinese legal person after its registration and it should be registered as a limited liability company. A Sino-foreign contractual enterprise can, in some circumstances, be registered as a Chinese legal person.[69]

2. Foreign Indirect Investment

Foreign indirect investment is under the control of the Chinese government. In 2006, the Administrative Measures on the Investment in Security in China by Qualified Foreign Institutional Investors was promulgated to regulate foreign investment in the Chinese security market. This measure provides regulations for foreign indirect investment in terms of the qualification of foreign investors, approval procedures, the custodian and registration and settlement of foreign investment, the investment operation and fund management.

C. Intellectual Property

Since the 1980s, a basic intellectual property system has been established in China. It includes Trademark Law (1982, revised in 1993, 2001), Patent Law (1984, revised in 1992, 2000), Copyright Law (1990, revised 2001), Software Protection Regulation (1991, revised in 2001), New Plant Varieties Protection Regulation (1997), IC Layout-Designs Protection Regulation (2001) and Anti-Unfair Competition Law (1993). All these laws are basically in line with the obligations of TRIPS. In addition, China has developed special ways to deal with the protection of traditional Chinese medicine in its patent law.

D. The Courts

There are four levels of Chinese court.

Supreme Court (national level)

Jurisdiction at first instance

1. cases of great significance for the whole nation

2. other cases over which the court deems to exercise jurisdiction

High Court (provincial or autonomous region level)

Jurisdiction at first instance

1. cases of great significance in the provincial or autonomous region

Intermediate Court (prefecture level)

Jurisdiction at first instance

1. important cases involving foreign parties

2. cases of great significance in the prefecture region

Local District Court (district or county level)


The civil and commercial chambers of the court follow a two instance court procedure system. This means that the decision made on appeal from the first instance court is final.[70]

Most cases are heard at first instance at the Local District Court level, but the Intermediate Court, the High Court and the Supreme Court can have jurisdiction in certain cases at first instance. The appellate court mainly rules on issues of law, and it can remand the case to the first instance court if the appeallate court finds mistakes made by the first instance court in terms of issues of fact.[71]

Maritime matters are subject to the Special Procedure Law for Maritime Lawsuit and are heard by competent maritime courts of first instance.[72]

E. Special Rules for Foreign Interests

A civil lawsuit involving foreign interests will involve some special procedures. The jurisdiction over contractual disputes, where the defendant has no domicile in China,[73] can be exercised by the court in the place where the contract is signed or performed, or where breach takes place, or where the representative agency, branch or business agent is located, if any of the above factors exist in China.[74] The Chinese court has exclusive jurisdiction over lawsuits arising from the performance of contracts for Chinese-foreign equity joint ventures, or Chinese-foreign contractual joint ventures, or Chinese-foreign cooperative exploration and development of the natural resources in the People’s Republic of China.[75] In addition, Chinese law grants a party autonomy to choose the competent court to exercise jurisdiction for contractual or property disputes.[76] If the defendant in such cases raises no objection to the jurisdiction, responds to the claim and offers a defence, the defendant is deemed to have submitted to the jurisdiction of the court.[77]

The service of process by a Chinese court will follow its international obligations first under any international treaty that has been entered into by both countries. Then, it can serve process through diplomatic channels, entrust the Chinese Embassy or Consulate in the country of the recipient’s residence to serve when the recipient has Chinese nationality, serve through an authorised agent of the recipient, serve through the party’s representative or authorised branch or business agent within China, serve by post if the law of the recipient’s residence country permits this, or serve by public notice.[78]

F. Lawyers and Fees

China is a civil law country, and the court proceedings are inquisitorial rather than adversarial.

China adopts a registration system for law firms and qualified lawyers,[79] and the Bureau of Justice at the provincial level (or in the autonomous region or municipality under direct administration of the State Council) is responsible for the registration and administration of law firms and lawyers.[80] If necessary, registration of lawyers can also be administered by the Bureau of Justice at the prefecture (city or county) level with authorisation from the higher Bureau of Justice. A registered lawyer can offer legal opinion to clients as well as litigate in court,[81] and can practice in the whole of China. Foreign international law firms also have offices in some Chinese cities to deal with international business but they have no right to practice Chinese law. The fees for civil and commercial litigation are based on the value of the subject-matter of litigation, and the Measures on Payment of Fees for Lawsuit (2007) deal with this matter.

G. Applicable Law

The Chinese courts apply conflict of law rules when foreigners are involved in a case. Ownership of immovable property is governed by the lex situs.[82] Contractual disputes involving foreign interests follow the party autonomy rules, and the most real connection rule applies if there is no choice by parties.[83]

Torts are governed by the law of the place where a tortious act occurred or by law of the country of citizenship or domicile if both parties have the same citizenship or are domiciled in the same country.[84]

Chinese courts will recognise and enforce legally effective foreign judgments in accordance with the international treaties concluded or acceded to by China or on the principle of reciprocity.[85] A foreign court decision should not contradict the basic principles of the law of China or violate Chinese public policy.[86] The party who wishes to enforce the judgment may apply to the Intermediate Court of China which has jurisdiction, for the recognition or enforcement by the Chinese court.[87] On the basis of an international treaty concluded between the two countries or on the principle of reciprocity, a foreign court can request recognition or enforcement by the Chinese court.[88]

In addition, Chinese courts recognise the binding effect of arbitral awards made by recognised Chinese arbitration agencies.[89] China is a party to the New York Convention,[90] and its courts will recognise and enforce arbitral awards made by competent arbitral tribunals in member countries.

IV. Conclusion

The two governments have done their work. The goals of the 2004 Framework Agreement have been fulfilled. It is now for the people of both countries to draw the benefits from the Agreement. Within New Zealand, government and private websites are already active and the government has conducted workshops on the Agreement. The New Zealand parliament will have its say and the Agreement will in due course come into effect.

The Agreement is a comprehensive and businesslike arrangement for continuing and future trade in goods, services and investment. It is clearly intended by the Parties to be a functional instrument that works. Much attention has been paid to management and implementation mechanisms through contact points, specialist committees and dispute resolution systems to ensure that the momentum of the Agreement is maintained over time. The Agreement speaks not only to the Parties, but also to consumer protection and to interests of the individual traders, service providers and investors of each county.

There are few obvious printing or language errors in this large document; as rare are provisions of a political or non-substantive nature.

This preliminary legal overview of the Agreement indicates the scope for future detailed analysis of the Agreement. The Agreement has a strong foundation in the experience of the Parties in their trading relationship with each other, and in its incorporation of international trade norms and general integration of existing multilateral trade arrangements on specialised matters. This use of the international regimes warrants study. In depth comparative analysis of the Agreement with other similar agreements of the Parties or others, elaboration of the dispute resolution mechanisms, a comparative linguistic analysis of the two official texts, and special topic commentaries; all remain to be done.

For the New Zealand trader who is intends to become a user of the law of China, it will be noted that much is familiar. But China is not New Zealand, nor New Zealand China. The familiar should not distract attention from the fact that the two systems differ markedly in several ways. Every country has its own view of law, the proper role of legal advisors, the role of government in the administration of law, and the relative role for courts in dispute settlement. New Zealand traders should therefore take stock of the fact that the legal system of China is differently based than the New Zealand one. As is suggested in respect of Rome, when in China it is important to know and understand what the Chinese do.

Table 1

Contact Points
- Cooperation
1 Initial Provisions

Art 3.2

2 General Definitions

3 Trade in Goods
art 15
Committee on Trade in Goods (art 16)
art 16

4 Rules of Origin

5 Customs Procedures

arts 51, 52
art 50
-Appeal (art 51); -Advance Rulings (art 52)

6 Trade Remedies
art 65

art 65

7 Sanitary and Phytosanitary
art 78
Joint Management Committee (art 88)

art 85

8 Technical Barriers to Trade
art 100.6-9
Joint Technical Barriers to Trade Committee (art 100.1-5)
art 94
art 101

9 Trade in Services
art 118
-China/New Zealand Education Joint Working Group (JWC) (art 113.1)
-Joint Working Group (art 113.2)
-Committee on Service (art 117)

art 111
art 124

10 Movement of Natural Persons
art 132
Committee on Movement of Natural Persons (art 133)

art 134
art 134
11 Investment
art 147
Committee on Investments

art 151
art 152
arts 153-158
12 Intellectual Property
art 162

art 164
art 166
art 166
13 Transparency
art 171

art 169

art 170

14 Cooperation
art 178

arts 175, 176, 177

15 Administration

- Joint Ministerial Commission (JMC) (art 182)
-Joint Trade and Economic Commission (JTEC) (art 182)
-China-New Zealand Free Trade Area Joint Commission (FTAJC) (art 179)

art 180

16 Disputes Resolution

-art 180.2(e)
-Good offices (art 187)
-FTA Joint Commission (FTAJC) (art 187)
-Mediation (art 187)
art 186
arts 188-192
17 Exceptions

18 Final Provisions

[∗] A H Angelo, Professor of Law, Victoria University of Wellington.

[∗] Ping Xiong, LLM (China University of Political Science and Law), PhD candidate, law tutor at the School of Accounting and Commercial Law, Victoria University of Wellington.

[1] In this paper referred to as ‘the Agreement’. A copy of the text of the Agreement is available at New Zealand China Free Trade Agreement, <> at 12 June 2008.

[2] For example, both countries are WTO members, and are members of the covered multilateral agreements of GATT, GATS and TRIPS; and New Zealand has entered into the Australia New Zealand Closer Economic Relations Trade Agreement (1983), the Thailand-New Zealand Closer Economic Partnership Agreement (New Zealand/Thai Agreement), the Trans-Pacific Strategic Economic Partnership Agreement (SEP), and the Pacific Agreement on Closer Economic Relations (PACER) (2001). China has the Free Trade Agreement between the Government of the People’s Republic of China and the Government Republic of Chile (2005) (China/Chile Agreement).

[3] For a general overview, see Our Future with Asia (Ministry of Foreign Affairs & Trade of New Zealand, Wellington, 2007).

[4] In this paper referred to as ‘China’.

[5] Trade and Economic Cooperation Framework between New Zealand and China [1973] NZTS 12.

[6] Para 1 of Trade and Economic Cooperation Framework between New Zealand and China [1973] NZTS 12.

[7] There is specific incorporation of aspects of GATT and GATS in article 200.

[8] The Agreement, above n 1, art 5.

[9] Ibid art 1.2(q).

[10] See, for instance, chapter 9 on Movement of Natural Persons.

[11] See article 103 and article 115 of the Agreement, above n 1.

[12] Chapter 9 does not govern the laws relating to most government procurement or to air traffic rights: article 105.

[13] The GATT, GATS and TRIPS are the three pillars of WTO.

[14] The Agreement, above n 1, art 113.

[15] On 8 April 2008, Chinese Education Minister Zhou Ji and New Zealand Education Minister Chris Carter signed New Zealand-China Bilateral Agreement on Recognition of Qualifications, this means that the education qualification in each country can be recognised: Beehive, Chris Carter, ‘Signing of FTA a great opportunity for education’, online: <> (last accessed on 16 April 2008).

[16] The Agreement, above n 1, art 112.

[17] Ibid art 129.

[18] Ibid art 128.

[19] See UNTS, ‘No 31058 New Zealand and China: Agreement on the Promotion and Protection of Investments’, online: <

00057263.pdf> at 16 April 2008.

[20] The Agreement, above n 1, art 135.

[21] Article 1 of the 1988 Agreement provides: ‘(1) The term ‘investment’ means all kinds of assets which have been invested in accordance with the laws of the Contracting Party receiving them including through not exclusively any (a) movable and immovable property and other property rights such as mortgage, usufruct, lien or pledge; share, stock, debenture and similar interests in companies; (c) title or claim to money or to any contract having a financial value; (d) copyright, industrial property rights (such as patents for invention, trade marks, industrial design), know-how, technical processes, trade names and goodwill; and (e) business concessions conferred by law or under contract including any concession to search for, cultivate, extract or exploit natural resources.’

[22] The Agreement, above n 1, art 139.

[23] Ibid art 135.

[24] Ibid arts 152-158.

[25] Generally speaking, there can be no fixed definition for the term ‘TRIPS-Plus’ or ‘TRIPS super-plus’. In fact, such a term is still in the process of evolution and has proven to be case- and country- specific. It generally refers to the higher level of IP protection beyond the minimum level IP protection of TRIPS or broader area of IP protection beyond TRIPS in bilateral or regional agreements or international fora outside WTO: see World Trade Organization, TRIPS issues papers No 1, ‘Regional and bilateral agreements and a TRIPS-plus world: the Free Trade Area of the Americas (FTAA)’, online: <> at 16 April 2008.

[26] It is to be noted that the UN Declaration on the Rights of Indigenous Peoples (2007) has been approved by China, but New Zealand voted to be against the approval, and this Declaration contains specific provisions to protect traditional knowledge and traditional culture in articles 11 and 31.

[27] This provision is almost word for word article 19.5 of SEP and article 15.8 of the New Zealand/Thai Agreement. It appears that article 205 has been copied (incorrectly as para 2 shows) from SEP. Whether therefore the absence of “investment” from para 1 was intended or accidental is therefore unclear. “Investment” is absent from SEP but included in the wording of article 15.8 of the New Zealand/Thai Agreement.

[28] The Agreement, above n1, article 174.1.

[29] See Table 1, page 90 below.

[30] The Agreement, above n1, art 183.1.a.

[31] The Agreement, above n 1, art 189.5.

[32] Ibid art 189.6.

[33] Ibid art 190.3.

[34] Ibid art 190.1.

[35] Ibid art 192.

[36] Ibid art 192.

[37] Ibid art 194.

[38] Ibid art 124.

[39] But see above Part II B 2.

[40] In the event of a difference of meaning, practice on treaty interpretation such as that found in English cases (for example, those referred to in Dicey and Morris, The Conflict of Laws (Sweet & Maxwell, 13th ed, 2000) para 1-022 will provide assistance as to the approach to be taken.

[41] See above n 2.

[42] See above n 2.

[43] See above n 2.

[44] See above n 2.

[45] See above n 2.

[46] See China-Chile Agreement, Annex 7 rule 33.

[47] For a general introduction to the Chinese legal system, see Daniel C K Chow, The Legal System of the People’s Republic of China (2003); Albert HY Chen, An Introduction to the Legal System of the People’s Republic of China (1992), and Henry R Zheng, China’s Civil and Commercial Law (1988). For general Chinese law information, refer to: Asian Legal Information Institute, online: <> at 30 May 2008; China Law Info, online: <> at 30 May 2008.

[48] China ratified it in 1986, and New Zealand ratified it in 1994. For New Zealand, see Sale of Goods (United Nations Convention) Act 1994 (NZ). Also see United Nations Commission on International Trade Law, ‘Status 1980 - United Nations Convention on Contracts for the International Sale of Goods’, online: <

en/uncitral_texts/sale_goods/1980CISG_status.html> at 16 April 2008.

[49] Article 145 of General Principles of the Civil Law of the People’s Republic of China (adopted on 12 April 1986) (Civil Law): ‘The parties to a contract involving foreign interests may choose the law applicable to settlement of their contractual disputes, except as otherwise stipulated by law. If the parties to a contract involving foreign interests have not made a choice, the law of the country to which the contract is most closely connected shall be applied.’

[50] Article 126 of Contract Law of the People’s Republic of China (adopted and promulgated by the Second Session of the Ninth National People's Congress 15 March 1999) (Contract Law): ‘Parties to a foreign related contract may select the applicable law for resolution of a contractual dispute, except otherwise provided by law. Where parties to the foreign related contract failed to select the applicable law, the contract shall be governed by the law of the country with the closest connection thereto. For a Sino-foreign Equity Joint Venture Enterprise Contract, Sino-foreign Cooperative Joint Venture Contract, or a Contract for Sino-foreign Joint Exploration and Development of Natural Resources which is performed within the territory of the People's Republic of China, the law of the People's Republic of China applies.’

[51] Article 9 of Contract Law (adopted and promulgated by the Second Session of the Ninth National People's Congress 15 March 1999): ‘In entering into a contract, the parties shall have the appropriate capacities for civil rights and civil acts. A party may appoint an agent to enter into a contract on its behalf under the law.’ Article 11 of the Civil Law: ‘A citizen aged 18 or over shall be an adult. He shall have full capacity for civil conduct, may independently engage in civil activities and shall be called a person with full capacity for civil conduct. A citizen who has reached the age of 16 but not the age of 18 and whose main source of income is his own labour shall be regarded as a person with full capacity for civil conduct.’

[52] Article 11 of the Civil Law: ‘A minor aged 10 or over shall be a person with limited capacity for civil conduct and may engage in civil activities appropriate to his age and intellect; in other civil activities, he shall be represented by his agent ad litem or participate with the consent of his agent ad litem. A minor under the age of 10 shall be a person having no capacity for civil conduct and shall be represented in civil activities by his agent ad litem.’ Article 47 of Contract Law: ‘A contract concluded by a person with limited capacity for civil acts is valid upon ratification by the legal agent thereof, provided that it is a contract from which such person accrues benefits only or the conclusion of which is appropriate for his age, intelligence or mental health does not require ratification by his legal agent. The other party may demand that the legal agent ratify the contract within one month. If the legal agent fails to manifest his intention, he is deemed to have declined to ratify the contract. Prior to ratification of the contract, the other party in good faith is entitled to cancel the contract. Cancellation shall be effected by notification.’

[53] Article 10 of the Contract Law: ‘A contract may be made in a writing, in an oral conversation, as well as in any other form. A contract shall be in writing if a relevant law or administrative regulation so requires. A contract shall be in writing if the parties have so agreed’; article 11: ‘A writing means a memorandum of contract, letter or electronic message (including telegram, telex, facsimile, electronic data exchange and electronic mail), etc. which is capable of expressing its contents in a tangible form.’

[54] Article 16 of the Contract Law: ‘An offer becomes effective when it reaches the offeree. When a contract is concluded by the exchange of electronic messages, if the recipient of an electronic message has designated a specific system to receive it, the time when the electronic message enters into such specific system is deemed its time of arrival; if no specific system has been designated, the time when the electronic message first enters into any of the recipient's systems is deemed its time of arrival.’

[55] Article 26 of Contract Law: ‘A notice of acceptance becomes effective once it reaches the offeror. Where the acceptance does not require notification, it becomes effective once an act of acceptance is performed in accordance with the relevant usage or as required by the offer. Where a contract is concluded by the exchange of electronic messages, the time of arrival of the acceptance shall be governed by Paragraph 2 of Article 16 hereof.’

[56] Article 30 of the Contract Law: ‘The terms of the acceptance shall be identical to those of the offer. A purported acceptance dispatched by the offeree which materially alters the terms of the offer constitutes a new offer. A change in the subject matter, quantity, quality, price or remuneration, time, place and method of performance, liabilities for breach of contract or method of dispute resolution is a material change to the terms of the offer.’

[57] Article 35 of the Contract Law: ‘Where a contract is concluded by a memorandum of contract, its place of formation is the place where the parties sign or seal the contract.’

[58] Article 36 of the Contract Law: ‘Where a contract is to be concluded in writing as required by the relevant law or administrative regulation or as agreed by the parties, if the parties failed to conclude the contract in writing but one party has performed its main obligation and the other party has accepted the performance, the contract is formed.’

[59] Article 129 of the Contract Law: ‘For a dispute arising from a contract for the international sale of goods or a technology import or export contract, the time limit for bringing a suit or applying for arbitration is four years, commencing on the date when the party knew or should have known that its rights were harmed. For a dispute arising from any other type of contract, the time limit for bringing a suit or applying for arbitration shall be governed by the relevant law;’ article 138 of the Civil Law: ‘If a party chooses to fulfil obligations voluntarily after the limitation of action has expired, he shall not be subject to the limitation;’ article 139 of the Civil Law: ‘A limitation of action shall be suspended during the last six months of the limitation if the plaintiff cannot exercise his right of claim because of force majeure or other obstacles. The limitation shall resume on the day when the grounds for the suspension are eliminated;’ article 140 of the Civil Law: ‘A limitation of action shall be discontinued if suit is brought or if one party makes a claim for or agrees to fulfilment of obligations. A new limitation shall be counted from the time of the discontinuance.’

[60] Article 128 of the Contract Law: ‘The parties may resolve a contractual dispute through settlement or mediation. Where the parties do not wish to, or are unable to, resolve such dispute through settlement or mediation, the dispute may be submitted to the relevant arbitration institution for arbitration in accordance with the arbitration agreement between the parties. Parties to a foreign related contract may apply to a Chinese arbitration institution or another arbitration institution for arbitration. Where the parties did not conclude an arbitration agreement, or the arbitration agreement is invalid, either party may bring a suit to the People's Court. The parties shall perform any judgment, arbitral award or mediation agreement which has taken legal effect; if a party refuses to perform, the other party may apply to the People's Court for enforcement.’

[61] Article 57 of the Contract Law: ‘The invalidation, cancellation or discharge of a contract does not impair the validity of the contract provision concerning the method of dispute resolution, which exists independently in the contract.’

[62] According to OECD, foreign direct investment (FDI) means: ‘Foreign direct investment reflects the objective of obtaining a lasting interest by resident entity in one economy (‘direct investor’) in an entity resident in an economy other than that of the investor (‘direct investment enterprise’). The lasting interest implies a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated’; Foreign Take-overs in the Nordic Countries, ‘OECD Benchmark Definition of Foreign Direct Investment (3rd ed), online: <> at 11 April 2008.

[63] The total amount of investment value of 30 million US dollars is the dividing line to subject the approval to the local provincial competent authority or the Ministry of Commerce and State Commission for Development and Reform (or State Council in special cases).

[64] See Ministry of Commerce of People’s Republic of China, online: <> at 16 April 2008. But the industries for breeding and seeds developing production of new train crop breed (Chinese party shall hold the majority of shares), processing of the logs of precious varieties of trees (limited to equity joint ventures or contractual joint ventures), and cotton (raw cotton) processing are restricted. The industries for cultivation of China's rare precious breeds (including tine genes in plants industry, husbandry and aquatic products industry), production and development of genetically modified plants' seeds, and Fishing in the sea area within the Government jurisdiction and in in-land water are prohibited.

[65] For example, the registered capital for a joint venture engaging in retail business should be no less than 50 million RMB, and that of a joint venture travel agency should be no less than 5 million RMB.

[66] Article 29 of the Company Law of China (revised in 2005).

[67] Article 27 of the Company Law: ‘A shareholder may make capital contributions in currency, in kind or intellectual property right, land use right or other non-monetary properties that may be assessed on the basis of currency and may be transferred according to law, excluding the properties that shall not be treated as capital contributions according to any law or administrative regulation. The value of the non-monetary properties as capital contributions shall be assessed and verified, which shall not be over-valued or under-valued. If any law or administrative regulation prescribes the value assessment, such law or administrative regulation shall be followed. The amount of the capital contributions in currency paid by all the shareholders shall be not less than 30% of the registered capital of the limited liability company.’

[68] Article 4 of the Sino-Foreign Equity Joint Venture Law (revised in 2001).

[69] Article 2 of the Sino-Foreign Cooperative Enterprise Law (revised in 2001).

[70] Article 158 of Civil Procedure Law of China (revised in 2007).

[71] Article 153 of Civil Procedure Law.

[72] According to Maritime Law (1992) and Special Procedure Law for Maritime Lawsuit (1999), Maritime matters are any matters relating to shipping vessel, including the ownership, charter, management, transportation, collision, and the labour contracts of seamen.

[73] Domicile in Chinese law means the place which a citizen’s permanent residence card indicates or, if that the person has been away from the place for long time, the habitual residence is regarded as the domicile of the person. The domicile of a legal person is the place of main business or the place of main management and offices.

[74] Article 241 of Civil Procedure Law.

[75] Article 244 of Civil Procedure Law.

[76] Article 242 of Civil Procedure Law.

[77] Article 243 of Civil Procedure Law.

[78] Article 245 of Civil Procedure Law.

[79] Article 6 of the Lawyers Law of China: ‘The state shall administer a national examination to determine lawyer qualification. Persons with a three-year college education in law and above or with equivalent qualifications, as well as persons with a bachelor's degree in other disciplines and above, can be awarded lawyer’s qualifications by the State Council judicial administration after passing the national examination.’

[80] According to the Ministry of Justice, there are more than 118,000 registered lawyers in China, including 103,389 full time lawyers, 6,841 part time lawyers, 733 company in-house lawyers, 1750 military lawyers, and 4,768 lawyers for legal aid - Ministry of Justice of PRC, ‘Department of Directing Lawyers and Notarization’, online: <

cn/lsgzgzzds/2005-06/14/content_154886.htm> at 16 April 2008. Major Chinese law firms have large international divisions and some include lawyers with New Zealand postgraduate experience.

[81] There is no distinction between solicitor and barrister in China.

[82] Article 144 of the Civil Law.

[83] Article 145 of the Civil Law.

[84] Article 146 of the Civil Law.

[85] The Chinese court adopts a formal examination of the foreign judgment but conducts no examination of the merits; if a foreign court would recognise a Chinese judgment on a similar basis, this will be treated as providing reciprocity.

[86] Article 266 of Civil Procedure Law of China (revised in 2007).

[87] Article 265 of Civil Procedure Law of China (revised in 2007).

[88] Article 265 of Civil Procedure Law of China (revised in 2007).

[89] Article 257 of Civil Procedure Law of China (revised in 2007).

[90] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958, 21 UST. 2517, TIAS No. 6997, 330 UNTS 38.

NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback