Telecommunication Services in China:Implications from WTO Membership（1）


Dr. Shi Jingxia


I. Introduction

On December 11, 2001, China legally became the 144 Member of the World Trade Organization (WTO) after 15 years of lengthy negotiation.[1] It was well documented that accession to the WTO is a major landmark not only in China’s economic development, but also for its integration into the world trade.[2] Meanwhile, on account of its full recognition of the benefits from WTO membership for economic growth and poverty reduction, China will spare no efforts to implement the continuous reforms required by its WTO obligation.[3]

Apart from the trade in goods, one of major influences of the WTO entrance on Chinese economy can be observed from the telecommunication services, the driving force behind globalization and emergence of a borderless economy.[4] The telecommunication service sector in China has been experiencing a rapid growth of more than double-digit in recent years.[5] By the end of 2003, China had the largest amount of subscribers of fixed phone and mobile in the world and second-largest subscribers of Internet only to USA.[6] The expeditious expansion of telecommunication services creates a strong incentive for foreign operators to enter this market.[7] In fact, in exchange for its WTO entrance, China has made unprecedented commitments on the market opening of telecommunication service.[8] To carry out these commitments, China has recently been overhauling domestic regulation of telecommunication service.[9] At the same time, it is inevitably for China to cope with numerous challenges which come not only out of the inburst of foreign capital, but also from the establishment of modern regulatory framework to enhance fair competition in telecommunication market.

This paper intends to conduct several theoretical discussions and empirical analysis with a focus on market opening and regulatory reform required by the China’s WTO obligation. The remainder of this paper is divided into six parts: #p#分页标题#e#

It starts by outlining, in Part II, the WTO rules on telecommunication service. After a brief retrospection of negotiating history, this part tries to unfold a global regulatory framework of telecommunication services. Part III, in an effort to display a background on China’s telecommunication service market, will examine the recent developments and reforms in this respect. This part is composed of two sections, separately addressing the government-driven restructurings of telecommunication operators and concomitant progress of telecommunication legislation. In particular, this section gives some information on the current Draft Telecommunication Law.

The following two parts, serving as the cores of this paper, delve into the crucial impacts of WTO membership on China’s telecommunication service market. These impacts can be exhibited as two categories: market opening and regulatory reform. Part IV deals with the market opening of China’s telecommunication service. In addition to outlining the China’s WTO commitments, this part explores a series of issues concerning foreign investment in telecommunication service, including the changes of policy, the emergence of Sino-foreign telecommunication service company and the relevant limitations. The question here is whether the disciplines implied by the WTO commitments are desirable, and more importantly, how the process of implementing these commitments is best managed.

Part V sets forth the reform of telecommunication regulatory framework in China. The establishment of a pro-competitive regulatory system may be the most significant implications on China’s telecommunication sector brought by the WTO membership. In this part, according to six principles emphasized in the Reference Paper on Regulatory Principles,[10] the author inquires to what extent these principles presents substantial difficulties for China whose development imperatives manifest some conflicts with this ideal. Especially, such issues as interconnection, universal service and independent regulator actually constitute main priorities in China’s reshaping its telecommunication regulatory framework.[11] Finally, the paper ends with further concluding remarks and objective observations in Part VI. #p#分页标题#e#

II. Overview of WTO Rules on Telecommunication Services

A. Background of Telecommunication Negotiation

Revolutionary technological advances, together with greater complexity in modern economies and specialization in production over the last decades, have supported a paradigm shift that put trade in services firmly on the agenda of Uruguay Round.[12] Telecommunication service, as the second largest service sector only to financial service, cannot evade from the coercive forces of liberalization. There are two backdrops for a better understanding of telecommunication negotiation and consequent WTO telecommunication rules:

First, telecommunication services are generally bifurcated into basic telecommunication and value-added (or enhanced) services.[13] Basic telecommunications contains any telecommunication transport services, such as voice telephone, telex, and telegraph.[14] Value-added services refer to those services through which suppliers ,add value, to the user,s information by enhancing its form or content or by providing for its storage and retrieval, such as electronic and voice mail, online and database information retrieval, and data and transaction processing.[15] According to the statistics, basic telecommunications account for about 85% of the total value of telecommunication services altogether and value-added services account for the remainder.[16]

Second, telecommunication service is specially bestowed with a dual function of both as a distinct sector of economic activity and as the underlying transport means for other economic activities.[17] This central role of telecommunication service to national economy, intertwined with other sensitive issues, made the telecommunication negotiation complicated and lengthy. The Uruguay Round ended up with the conclusion of General Agreement on Trade in Service[18] (GATS) and Annex on Telecommunication mainly focusing on value-added services, without substantial progress on basic telecommunication. Therefore, at the close of the Uruguay Round in April 1994, Ministers decided to extend negotiations on basic telecommunications. [19] #p#分页标题#e#

After evolving over several years, the consensus on the framework for trade in telecommunication service has been reflected in a set of interrelated Agreements and Annexes: GATS, the Annex on Telecommunication, the GATS Fourth Protocol on Basic Telecommunication [20] and Reference Paper on Regulatory Principles. The latter three documents provide further interpretation of the GATS objectives in relation to its bearing on the telecommunications service. The immediately following pages give in turn a glance at these documents. The General Agreement on Tariffs and Trade was originally promulgated in 1947.

B. Outline of WTO Telecommunication Rules

1. GATS
GATS contains general principles on trade in services and provides a basic tune for telecommunication negotiation. Modeled on the General Agreement on Trade and Tariff (GATT),[21] GATS is similarly imbued with tenets of non-discrimination through the principles of ‘most-favored nation’ (MFN) and National Treatment.[22] Nonetheless, although GATS Members have committed to a common vision on liberalization, it is evident that divergent country are always inclined to pursue some non-economic policy objectives, often appearing disagreeable with the GATS ideals.[23] To this end, GATS recognizes Members’ different development levels and individual rights to regulate services in the way of dividing the obligations of Members into general disciplines and specific obligations. The former include MFN, transparency and other requirements listed in Part II of the GATS.[24] The latter mainly comprise of market access and national treatment, reflected in the Specific Schedule of Commitments. These schedules constitute an integral and legally binding component of the GATS.[25] When this dichotomy applies to telecommunication service, it means that members undertake commitments that they will not restrict foreign service and service providers beyond conditions and restrictions laid down in their schedules concerning telecommunication service.[26] #p#分页标题#e#

2. The Annex on Telecommunication
Recognizing the duality of telecommunication service, the Annex was negotiated to ensure that in its role as the means of delivery, access to telecommunication networks does not turn into a non-tariff barrier to trade.[27] The Annex is composed of seven sections, with the access to and use of “public telecommunications transport networks and services” as core obligation.[28] Any service provider of any other member shall be provided with reasonable and nondiscriminatory access to, and use of, telecommunications services within the borders of WTO members that have made commitments for value-added services.[29] The specific access and use rights are accordingly detailed in the Annex.[30] In addition, much to the relief of developing countries, the Annex also embraces several limitations on the rights of service suppliers’ free access of Member States’ telecommunications networks.[31] Section 5(g) adds special protection for developing countries.[32] These limitations shall not frustrate the competitive nature of the Annex due to their limited application. As a whole, the Annex illustrates WTO’s “freer access” policy favoring the opening of telecommunications services. [33]

3. The GATS Fourth Protocol on Basic Telecommunications
The end-product of post-Uruguay round negotiation for basic telecommunications is the Fourth Protocol (adopted on April 30, 1996 and entered into force on February 5, 1998) and the annexation of new basic telecommunications schedules. The parties commit themselves to exposing their basic telecommunication market to competition by establishing a viable regulatory environment, and to allow foreign ownership and control of entities providing telecommunication services.[34] As the first multilateral agreement geared toward global liberalization of the basic telecommunication, the Fourth Protocol and its annexed documents have unparalleled bearing in opening markets to worldwide competition and encouraging deregulation of the telecommunication industry globally. [35] #p#分页标题#e#

4. The Reference Paper on Regulatory Principles
In order to introduce substantial changes to basic telecommunication,[36] the Negotiating Group on Basic Telecommunications contained pro-competitive regulatory principles in Reference Paper attached to the Fourth Protocol. Although ostensibly a guideline,[37] the Reference Paper is in fact a substantive foundation on which to design a template for domestic regulation of basic telecommunication.[38] In general, it sets forth the types of anti-competitive behavior that warrants regulation and what a WTO Member should adopt to quell such practices, with which try to prevent national telecommunication monopolies from exploiting their dominant position to distort market forces.[39] To achieve this goal, Reference Paper heeds attention to the issues of competitive safeguards,[40] interconnection provisions,[41] universal service policies,[42] transparency of licensing criteria,[43] independence of regulatory body [44] and allocation of scarce resource.[45]

The widespread adoption of afore-mentioned telecommunication rules by the WTO member states successfully opened 95% of the world telecommunication market to competition, arguably the most significant lubricant to the telecommunications liberalization.[46] But at the same time, there is apparent consensus amongst critics of these rules as to their weakness. As commonly pointed out, the telecommunication obligations undertaken by the Members States through these rules merely reflect a minimum consensus on the liberalization goals to be pursued.[47] Moreover, these rules per se are still embryonic and inchoate in a number of respects, such as the voluntary nature of the specific commitments; the ability to file extended exemptions; the failure to specify regulatory independence from government, all of which may likely frustrate these rules in achieving the intended goals.[48] Thus far, these rules are largely untested and there is no informative body of precedent as well. It is apparent that several more rounds of negotiations will be required to realize higher telecommunication liberalization. #p#分页标题#e#

III. Telecommunication Development and Reform in China

China’s telecommunication sector has experienced its several development stages since 1980s, from the highly planned and monopolized stage, loosening controls on price and the beginning of rapid development, preliminary break up of the monopoly and introduction of competition, institutional restructuring and to the “north-south splitting” happened in 2002.[49] Leaving the regulatory reform to Part V for further discussion, this part will mainly focus on the recent developments in the market structure and reforms of legal framework.

A. Government-driven market competition

Prior to 1994, China Telecom (CT), the first state monopoly of telecommunication industry, established directly under Ministry of Posts and Telecommunications (MPT), was the sole basic telecommunication operator, while the new market entry was absolutely prohibited. During early-mid 1990s, the sweeping complaints about the low efficiency of telecommunication service and poor service quality appealed to market competition. The first tentative step in response to this voice took place in 1994 when the Ministry of Electronics Industry (MEI) created the second state-owned telecommunication operator—China Unicom. Another operator, Jitong Telecom was also set up by over ten large state-owned enterprises in 1994. These two competitors, however, faced an uphill battle in their early years. The most delicate problems included the accession to the backbone infrastructure held by CT and the difficulties in seeking capital.[50] As a result, Unicom and Jitong were hardly true competitors to CT, although they signified the forthcoming market competition. [51]

As WTO accession nears, in order to increase the strength of domestic operators in preparation for foreign competition, China tried to transform its telecommunication sector from a monopoly-based scheme into a market-driven orientation.[52] During this stage, there were several notable changes. First, CT was separated from MPT and became a market-oriented group company in 1998. Second, Ministry of Information Industry (MII) was established in charge of the supervision of communication sector in the same year. Third, several rounds of consolidation and restructuring of operators, particularly the restructure of CT, the largest operator which dominates and owns most of backbone infrastructure, were launched by MII.[53] In 1999, CT was divided into four operators that specialize in different types of services, which resulted in the situation that there existed seven major operators competing with each other in telecommunication market.[54] In spite of the intention of MII to accelerate the development of individual service sectors, this division was widely criticized as meaningless but creating several sub-sector monopolies.[55] #p#分页标题#e#

On December 11, 2001, the date when China entered into the WTO, the Sate Council approved the scheme of second splitting of CT along the Yangtze River into two parts. Officially, as an indicator of crucial shift in China’s telecommunication policy, this splitting was targeted at increasing the competition power of domestic operators in response to foreign entry as well as the chances for Chinese operators to sally into the foreign capital market.[56] Some observers, however, argue that the split does not necessarily herald an era of enough competition. Like the 1999 split, this split may create several smaller regional monopolies.[57]

Following the reform and restructuring, the pattern of market competition seems to have basically taken shape. After the second CT split, there are currently six dominant basic telecommunication operators in China.[58] Can this government-driven market structure invite full competition in the foreseeable future? Given the ownership of state still dominates in these operators, it may be fair to say that the genuine aftermath of these reforms remain to be observed.

B. Mapping the Legal Framework for Telecommunication Regulation

As commonly stated, an efficient and functional legal framework is very crucial for fostering a stable business environment for telecommunication service.[59] Regretfully in China, although reforms have taken place for some time and they are continuously deepened, the relevant legislature process has lagged far behind compared to the explosive growth of this sector. Facing this challenge, China shall, apart from the effort to reshape its market restructure, focus on creating legal framework in favor of effective and orderly competition.

Actually the work on a comprehensive telecommunication law has been ongoing for two decades, commenced by the former MPT. Although the last decade has witnessed more policy and legislative changes in telecommunication services than any other time in history, bureaucratic reforms that have gone on in tandem with industry reforms, which continuously produced new players, rapid changes in technology, have forced frequent revisions of the drafts before they could be passed.[60] As a consequence, the supervision of telecommunication sector in China to date mainly bases on a set of regulations issued by the State Council, MII and related agencies. While the telecommunication law appears to be still several more years in the making, a long-awaited provisional Regulation on Telecommunications was issued in September 2000 as a preview of the anticipated telecommunication law.[61] This is the first comprehensive administrative rules governing the telecommunication sector in Chinese history, applying to all basic and value-added services in China.[62] It contains 81 articles divided into seven Chapters and incorporates many elements required by the Reference Paper.[63] In addition, there exist many other regulatory and administrative rules covering almost every aspect of the telecommunication service, such as administrative supervision,[64] foreign participation,[65] interconnection,[66] service pricing,[67] use of equipment in networks [68] and Internet service[69] , etc. #p#分页标题#e#

The Regulation on Telecommunication and these relevant regulations constitute an important step towards fostering a pro-competitive telecommunication market, but there are still many areas of uncertainty and issues of implementation. Moreover, they could not have the full effectiveness that a true Telecommunication Law would have in virtue of their nature of regulations.[70] Taking China’s WTO commitments into account, there is much room for China’s telecommunication legal framework to improve. Currently, the most compelling task is to speed up the legislative process of Telecommunication Law.

As a matter of fact, in parallel with telecommunication reform and restructuring, China recently gave high priority to the drafting of Telecommunication Law. the National People’s Congress (NPC) has received dozens of proposals calling for accelerating the Telecommunication Law’s enactment. At the request of NPC, the Drafting Committee of Telecommunication Law was established de novo in 2002, with MII as the main sponsor, to speed up efforts to flesh out a draft based on the experience derived from the implementation of existing regulations and advanced precepts of western countries in telecommunication supervision. In 2003, the State Council again urged to accelerate the drafting work in order to strengthen the supervision over the telecommunication markets. [71]

The latest news is that the Draft Telecommunication Law, which is comprised of 14 chapters, was completed in March 2004.[72] Article 5 of the Draft stipulates that the supervision over telecommunication industry shall protect efficient competition, optimize resources allocation and regulate in a legitimate, open, fair and equitable way. This Draft also contains important provisions on interconnection, regulatory system, universal service, tariff and pricing, etc.[73] Prior to submitting it to the NPC for review and adoption, this Draft is presently soliciting for opinions from over 40 Ministries, Commissions or Departments of the State Council. The dominant operators are also required to comment on the Draft.[74] Then the Drafting Committee will modify the Draft again on the ground of various comments and opinions. Hopefully, the final Draft can be submitted to the NPC in next year as the 2004 legislative plan of NPC does not include the Telecommunication Law.[75] If everything goes smoothly, the widely anticipated first Telecommunication Law of China could come in the near future. #p#分页标题#e#

IV. Market Openings of China’s Telecommunication Service

Like other service sectors, the momentum and competitive pressures brought about by the WTO accession will trigger a new wave of development in China’s telecommunication service.[76] The government-driven market restructuring and splitting of CT is only one side of the story. In the long run, China needs to introduce new market participants with diversified ownership in order to boost competition.[77] To this end, market opening and foreign entry required by the WTO obligations seems to coincide with the potential objective of China’s telecommunication reform. This section will present an analysis of China’s commitments regarding market opening and the treatment of foreign investment in telecommunication service.

A. China’s Telecommunication Commitments

As mentioned earlier, market access and national treatment under GATS are not overarching principles of general application and Member States are allowed to specify limitations in their schedules. China’s GATS commitments represent the most radical services reform program negotiated in the WTO. China’s schedule of commitments, as detailed in the China’s Protocol of Accession [78] and its Schedule of Specific Commitments,[79] lists the expansion of market access to telecommunication service subject to certain transitional limitations.[80] In principle, China is refrained from imposing specified limitations on market access unless they are candidly expressed in the Schedule.[81] At the same time, China shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, the treatment no less favorable than that China accords to its own like services and service suppliers.[82] In order to conform to the policy of progressive liberalization, China’s schedule of commitments specifies not only the terminal situation, but also how many of the modifications of policy will be phased in over the forthcoming years.[83] It is worth noting that GATS commitments represent only a ceiling on protection rather than a floor. Therefore, China has given up the freedom to liberalize slowly than specified in its commitments, but it may move faster. [84] #p#分页标题#e#

1. Value-added Service[85]
Under telecommunication commitments, upon China’s accession of WTO, foreign providers can provide value-added services by the form of joint venture in the cities of Shanghai, Guangzhou, and Beijing, without quantitative restriction, but foreign investment should be less than 30%. Within one year after China,s accession, the permitted areas will be expanded to 17 cities including Chengdu, Chongqing, Dalian, etc. Foreign equity share may increase up to 49%. China will phase out all geographic restrictions and foreign investment shall be capped at 50% in two years after accession. [86]

2. Basic Telecommunication
The market access of paging service is the same as the value-added service.[87] As for mobile service and data services, upon accession, foreign service suppliers will be permitted to establish joint venture enterprises, without quantitative restrictions, and provide services in and between the cities of Shanghai, Guangzhou and Beijing. Foreign equity in the joint venture is limited up to 25%. Within one year after accession, the areas will be expanded to 17 cities including Chengdu, Chongqing, Dalian, etc. Foreign investment shall be less than 35% and within three years after accession, foreign investment shall be no more than 49%. Within five years after accession, there will be no geographic restriction.[88]

Similarly, as for fix-lined services,[89] within three years after China,s accession, foreign service suppliers will be permitted to establish joint venture enterprises, without quantitative restrictions, and provide services in and between the cities of Shanghai, Guangzhou and Beijing. Foreign companies may hold a 25% equity share in the joint venture. Within five years after accession, the areas will be expanded to include 17 cities including Chengdu, Chongqing, Dalian, etc. And foreign investment shall be no more than 35%. Within six years after accession, all geographical restrictions will be eliminated and foreign investment shall be capped at 49%.[90] #p#分页标题#e#

These commitments undertaken by China, one the one hand, reflect that the treatment for foreign entry is more liberal in value added services than for basic telecommunication, as has been the case in many jurisdictions to date.[91] On the other hand, they mirror the framework for the gradual reform process in the sense that the market opening is subject to the restrictions on the form of establishment (joint venture), foreign ownership and geographic territory. The market for telecommunication services in Beijing, Shanghai and Guangzhou, accounting for approximately 75% of all domestic traffic in China, was first opened to foreign competition. Then the foreign participation will be permitted in 17 rich cities until the total ease of geographic restrictions under different timescales. The foreign investment, however, does not intended to have majority in the telecommunication service sector and the limits on foreign ownership will remain even after six years of accession.

Interestingly, China’s MFN exemptions are relatively narrow and do not embrace telecommunication service.[92] The commitments on national treatment are also deeper and wider than those of all other country group as there are surprisingly few limitations in this respect. Except the mode 4 (presence of natural persons), there are no limitations on national treatment in three other modes (cross-border supply, consumption abroad and commercial presence).[93] In fact, one of the striking aspects of China’s schedules is the willing to commit across modes and sectors to full national treatment for foreign providers. [94] So China has for the most part given up the right to offer preferential treatment to domestic operators through any measure affecting the supply of telecommunication services.

B. Foreign Investment in Telecommunication Service

The huge market potential and rapid growth in China’s telecommunication industry greatly contributes to increasing foreign investment. Nonetheless, telecommunication service is thought to be not only closely related to the national sovereignty and security but also among the most sensitive and vulnerable service sectors in China. As a consequence, despite the enormous demand for capital to build telecommunication infrastructure, China had been very cautious about market opening, keeping this sector dominated by state ownership and operation. Over a long period of time, there were various alliances and cooperation with foreign partners to supply equipment and set up infrastructure while no foreign entry was allowed to enter the telecommunication services market.[95] One distinct example is China Unicom once devised some “grey-area” measures to circumvent the ban on foreign investment in this sector, the most well known of which was the Chinese-Chinese-Foreign joint venture structure (Zhong-Zhong-Wai or CCF). But CCF arrangements were deemed as illegal measures and were cracked down in 1998. [96] #p#分页标题#e#

Accession to the WTO, however, made the landscape a thing of last. As part of its WTO commitment, China agreed to a six-year schedule of phasing in direct foreign investment in telecommunication services and made substantial commitments to remove part of limitations on market access and national treatment, especially with regard to the right of establishment.[97] It can be expected that foreign investment will gradually flow into this emerging market. Actually some legal and practical changes have already taken place.

1. Legal Alternations
On the same date of China’s entrance into the WTO, MII immediately made an announcement that as of December 11, 2001, “Provisional Approval of Management Requirements for Open Telecommunication Service Markets”[98] and “Provisional Market Management Requirements for Open Telecommunication Service Markets” were rescinded.[99] These two regulations once enabled MII and its forerunner MPT to keep foreign investment out of the sector since by prohibiting all types of overseas organizations, enterprises, individuals and foreign investment enterprises established in China to operate or participate in the telecommunication service. Under this context, the contribution of foreign capital to a Chinese telecommunication enterprise in any type was forbidden as well.[100]

Also on the same date, the State Council issued the Regulations on the Administration of Foreign-funded Telecommunications Enterprises (FTE Regulations), allowing foreign companies to provide basic or value-added services in China.[101] As the first specific set of rules governing foreign investment in telecommunication service, FTE Regulations have been formulated in accordance with the requirements of opening up and relevant laws and administrative regulations on foreign investment and the Regulation on telecommunications. [102] Accordingly, FTE Regulations reflects the basic policy of WTO commitments and marked a crucial shift in China’s telecommunication policy of ban on foreign investment that has existed in China for well over several decades. Another change is, under the new Catalogue for Guiding the Direction of Foreign Investment,[103] telecommunication service has notably moved from the prohibited to the restricted category, subject to the restrictions listed in the China’s WTO commitments.[104] #p#分页标题#e#

2. Emerging of Sino-Foreign Joint Ventures Engaging in Telecommunication Service
At the practical side, even before China’s accession, Shanghai Symphony Telecommunication Co. Ltd, a telecommunication operating company that AT&T from the US controls 25% of its share, was founded in December 2000, unveiling the first step for foreign investment to set foot in the China’s telecommunication service.[105] The first Sino-foreign telecommunication company after China’s WTO accession, Beijing Wuzhou Zongheng Gymnastic Business Development Co. Ltd. was set up in April 2003 with the approval of MII.[106] Another recent joint venture of telecommunication service—Unicom SK Beijing Information Technology Co. Ltd., jointly established by China Unicom and Korea SK Telecommunication, attracted wide attention from home and abroad. [107] These moves signal that China’s telecommunication service has accelerated the pace of opening up in order to carry out its WTO promises.

3. Current Issues: Investment Restrictions and Analysis
How to deal with foreign investment in this sector during its post-WTO era becomes increasingly important as China lacks the experience in this field. One of the prominent issue is concerns the restriction on the foreign investment, which is explicitly stated both in the WTO commitments and domestic regulations.[108] On the one hand, there are some restrictions on the form of establishment. FTE Regulations requires foreign investors shall enter telecommunications service as an equity joint venture rather than cooperative joint venture or wholly foreign-owned enterprise.[109] On the other hand, there are restrictions on the percentage ownership as well. In the telecommunication service joint ventures, the total capital contribution ratio of foreign investors in the enterprises providing basic services (except radio paging services) cannot exceed 49%. For value-added services (including radio paging services), foreign equity cannot exceed 50%.[110] #p#分页标题#e#

The rational behind these restrictions can be come down to three facets. The first consideration is given to national security. The major concern is that control in a country over the telecommunications infrastructure, a crucial part of the national information infrastructure, carries with in inherent national security threats.[111] Consequently, there is a justification for China to maintain necessary control over the essential infrastructure.[112] But to what extent this departure from general obligation is in conformity with the security exception listed in GATS is still questionable.[113] The second reason lies in the argument of ‘infant entrepreneur’.[114] Telecommunication service in China is categorized into infant industry due to the weak competitive power of Chinese domestic operators. But how long can this protection last is still subject to the future negotiation though in essence it conforms to the tenet of increased participation of developing countries.[115] The last, but not the least, restriction on the form of establishment intends to ensure that local telecommunication operators shall have opportunity to obtain advanced management experience by collaborating with foreign partners. [116]

From the policy standpoint, these considerations serve to emphasizes that China must strike a delicate balance between protection of domestic industry and its WTO commitments in the fast moving telecommunication field. However, the persistence of restrictions, particularly on foreign ownership, may dampen the incentives for foreign investors to improve firm performance, thus depriving China of full benefits of liberalization.[117] Currently, foreign investment has already begun to play a role in value added services while there is no foreign operator in a position to undertake huge investment in basic telecommunication services. It seems clear that the desire is still to have state-owned companies as the dominant players in China.[118] This status quo stems both from the recent depression of global telecommunication industry and from the ‘wait-to-see’ attitudes of foreign investor at this stage.[119] In the near future, it is predicted that the role of foreign investment will likely to be more in the high-end or some special segment of basic telecommunication and value added services and as strategic partners or in alliance with existing domestic operators.[120] However, it is unlikely that full competition will immediately flourish just because of the WTO membership. It still takes time for China to secure a place at the forefront of competitive telecommunication market. #p#分页标题#e#

[1] WTO: Accession of the People’s Republic of China—Decision of 10 November 2001, WT/L/432 (Nov. 23, 2001), at http://docsonline.wto.org/DDFDocuments/t/WT/L/432.doc. See also WTO News: WTO Ministerial Conference Approves China’s Accession, Press 252, (Nov. 10 2001), at http://www.wto.org/english/news_e/pres01_e/pr252_e.htm (last visited on Mar. 23, 2004)
[2] Actually the accession is predicted as the “Second Reform” in the over 50-year history of the People’s Republic of China (PRC), the first of which took place in 1978, when China commenced the policy of economic reform and opening up to the outside world, greatly building on the sweeping economic changes in recent decades. See e.g., Yang Guohua and Chengjin, The Process of China’s Accession to the WTO, Journal of International Economic Law (2001) 297, 327.
[3] See Elena Ianchovichina & Will Martin, Trade Liberalization in China’s Accession to the World Trade Organization, paper provided by World Bank in its series Working Papers–International Economics. Trade, Capital Flows, at http://ideas.repec.org/p/wop/wobaie/2623.html. (last visited on Apr. 10, 2004)
[4] See Thomas Friedman, The Lexus and the Olive Tree, Farrar, Straus & Giroux 1999, 8.
[5] For specific statistics of subscribers of various telecommunication services in China, visit the website of Ministry of Information Industry (MII) at http://www.mii.gov.cn/mii/hyzw/tjxx.html.
[6] Zhu Jinzhou et al., 2003 Development Report on the International Competitive Power of Chinese Telecommunication Sector, Communication Information Newspaper (Tongxin Xinxi Bao), Feb. 4, 2004.
[7] See Mari Pangestu & Debbie Mrongowius, Telecommunication Services in China: Facing the Challenges of WTO Accession, World Bank Report, at http://siteresources.worldbank.org/INTRANETTRADE/Resources/panmron_telecom.pdf, (last visited on Mar. 26, 2004), 1.
[8] WTO: The Report of the Working Party on the Accession of China, WT/ACC/CHN/49/Add.2, part II—Schedule of Specific Commitments on Services List of Article II MFN Exemptions: Telecommunication Services, at http://docsonline.wto.org/DDFDocuments/t/WT/ACC/CHN49A2.doc. #p#分页标题#e#
[9] See Aaditya Mattoo, China’s Accession to the WTO: The Services Dimension, Journal of International Economic Law 6(2), 300, Oxford University Press 2003.
[10] See Reference Paper to the Fourth Protocol to the General Agreement on Trade in Service s, Apr. 30, 1996, 36 I.L.M. 367, also available at: http://www.wto.org/english/tratop_e/serv_e/telecom_e/tel23_e.htm.
[11] Id.
[12] See Matthew Kennedy, Service Join GATT: An Analysis of General Agreement of Trade in Services, 1 International Trade Law & Regulation, 11 (1995). See also Taunya L. McLarty, Liberalized Telecommunication Trade in the WTO: Implications for Universal Service Policy, 51 Fed. Comm. L.J. 1, 12 (1998).
[13] John H. Harwood II et al., Competition in International Telecommunications Services, 97 Colum. L. Rev. 874, 884 (1997).
[14] Id.
[15] For the classification of telecommunication services and their concrete scopes, see also WTO, The Coverage of Basic Telecommunications and Value-added Services, at: http://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_coverage_e.htm#basic.
[16] See Kevin C. Kennedy, Market Openings in the Telecommunications Goods and Service Sectors, 33 Int’l Law. 27, 36 (1999).
[17] See GATS Annex on Telecommunication, Apr. 15, 1994, WTO Agreement, the Results of the Uruguay Round of Multilateral Trade: the Legal Texts 352, (GATT Secretariat 1994), 33 ILM. 44, 68 (1994), Part 1: Objective, available at http://www.wto.org/english/tratop_e/serv_e/12-tel_e.htm.
[18] General Agreement on Trade in Services(GATS), contained as Annex 1(b) to General Agreement on Tariffs and Trade – Multilateral Trade Negotiations (The Uruguay Round): Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, 15 December 1994, 33 ILM 1167, 1195.
[19] Decision on Negotiations on Basic Telecommunications, Ministerial Decisions and Declarations, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 439, 461 (GATT Secretariat 1994), 33 I.L.M. 136, 144 (1994). #p#分页标题#e#
For a more detailed negotiation history of telecommunication service, see ‘History of Telecommunication Negotiation’, at http://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_history_e.htm
[20] Agreement on Telecommunications Services, Attachment of the Fourth Protocol to the General Agreement on Trade in Services, 36 I.L.M. 354, 373-74 (1997), available at: http://www.wto.org/english/tratop_e/serv_e/4prote_e.htm.
[21] General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A11, 55 U.N.T.S.194. The Uruguay Round of negotiations subsequently modified the GATT 1947. General Agreement on Tariffs and Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, The Results of the Uruguay Round of Multilateral Trade Negotiations--The Legal Texts 20 (1994), 33 I.L.M. 1154 (1994).
[22] GATS, supra note 18, Article II: Most-Favored Nation Treatment; Article XVII: National Treatment. Compared with GATT, MFN applies horizontally while National Treatment is undertaken as a specific commitment by Member States in GATS.
[23] See Tracy Cohen, Domestic Policy and South Africa’s Commitments Under the WTO’s Basic Telecommunications Agreement: Explaining the Apparent Inertia, J. Int’l Econ. L., 725, 743 (2001).
[24] GATS, supra note 18, Part II: General Obligation and Disciplines, Article II – Article XV.
[25] Id., Part III: Specific Commitments, Article XVI – Article XVIII.
[26] Id., Article XVI:1; Article XVII:1.
[27] See Kennedy, supra note 15, at 33-34.
[28] GATS Annex on Telecommunication, supra note 17, Section 5.
[29] Statement of Administrative Action, Apr. 15, 1994, WTO Agreement, reprint in, Uruguay Round Agreements Act, H.R. 5110, 103 d Cong., 2d Sess., H. Doc. 103-316, at 656 (1994).
[30] GATS Annex on Telecommunication, supra note 17, Section 5(b), (c) & (d).
[31] Id, Section 5 (d), (e), (f) & (g).
[32] Id, Section 5(g). (allowing a developing country to place reasonable conditions on access to and use of public telecommunications transport networks and services necessary to strengthen its domestic telecommunications infrastructure and service capacity and to increase its participation in international trade in telecommunications services.) #p#分页标题#e#
[33] See Jennifer Laura Feltham, Polish Communications Law: Telecommunications Takes Off in Transition Countries But at What Price Are They Becoming Wired? Vand. J. Transnat’l L., 147, 152 (2000). See also Patrick Low & Aaditya Mattoo, Reform in Basic Telecommunications and the WTO Negotiations: The Asian Experience, (World Trade Organization Staff Working Paper No. ERAD9801.WPF, Feb. 1998), at 7.
[34] See Luz Estella & Ortiz Nagle, Antitrust in the International Telecommunication Sector: The United States Challenges Mexico’s Telemex Monopoly, 33 UMIAIALR 183, 221.
[35] See Laura B. Sherman, World Trade Organization: Agreement of Telecommunication Services (Fourth Protocol to the General Agreement on Trade in Services), 36 I. L.M. 354, 366-69(1997). See also Peter Cowhey and Mikhail M. Klimenko, The WTO Agreement and Telecommunication Policy Reforms, UC San Diego, 2001, 5, at http://www1.worldbank.org/wbiep/trade/Russian/cowhey_klimenko1.htm (visited on March 30, 2004).
[36] Laura B. Sherman, Wildly Enthusiastic’ about the First Multilateral Agreement on Trade in Telecommunications Services, 51 Fed. Comm. L. J 51, 54.
[37] The Reference Paper was never formally issued as a WTO document even though fifty-seven countries adopted its principles in their entirety as additional commitments their schedules of commitments on basic telecommunications.
[38] See Laura B. Sherman, Introductory Note to the Fourth Protocol to the General Agreement on Trade in Services, 36 I.L.M. 354, 355 (1997).
[39] See Sherman, supra note 36, 71.
[40] Reference Paper, supra note 10, Section 1.
[41] Id, Section 2.
[42] Id, Section 3.
[43] Id, Section 4.
[44] Id, Section 5.
[45] Id, Section 6.
[46] See Cohen, supra note 23, 729.
[47] Id, 754.
[48] For more comments on the WTO rules on telecommunication services, See generally, Cohen, id., 750; See also Marcus Fredebeul-Krein & Andreas Freytag, The Case for a More Binding WTO Agreement on Regulatory Principles in Telecommunication Markets, 23 Telecomm. Pol’y 134 (1999), 628; Chantal Blouin, The WTO Agreement on Basic Telecommunications: A Reevaluation, 24 Telecommunication Policy 135 (2000), 139-40. #p#分页标题#e#
[49] For a detailed review of the development stages of China’s telecommunication industry, See Kang Rui & Feng Xiaoju, A Challenge to Emerging Economies: New Competition Patterns Required in the Telecommunications Industry—The Case of China After Its Entry Into the WTO, 36 INTLLAW 1173, 1173-76.
[50] For example, when the State Council first granted Unicom fixed line service developments in Tianjin, Chongqing and Chengdu, the local CT operators refused to allocate phone numbers to Unicom, which held up interconnection for over a year. Moreover, the threat of national competition clearly galvanized the MPT into a typically protectionist and obstructionist activity towards Unicom and other operators. As the CT’s largest shareholder, MPT and CT basically colluded to deny Unicom access to MPT’s network.
[51] See Abramson, supra note 51, 21.
[52] Chinese Telecommunication Reform Ended Up, AsiaPort Daily News, May 22, 2002, available at 2002 WL 5773581.
[53] See Pangestu & Mrongowius, supra note 7, 38.
[54] They are CT, China Mobile, China Unicom, China Netcom, China Railcom, China Satellite and Jitong. See e.g., China: Summary of the Tenth Five-Year Plan (2001-2005)—Information Industry, at ‘http://www.trp.hku.hk/infofile/china/2002/10-5-yr-plan.pdf’, para. 2.1.7 (Breakthrough in the reform of management systems, operation mechanisms and the construction of better legal systems).
[55] See Pangestu & Mrongowius, supra note 7, 5.
[56] See Abramson, supra note 51, 19-22; See also Liu Baijia, Telecom Monopoly Set to Split, China Daily, December 12, 2001. In fact, following the overseas listing of China Mobile in 1997 and China Unicom in 2000, CT also successfully listed itself on New York and Hong Kong in late 2002.
[57] There are numerous debates on the CT split and the telecommunication reforms in recent years. See e.g.,Kang & Feng, supra note 49, 1176.
[58] They are China Mobile, CT, China Netcom, China Unicom, China Railcom and China Satellite. #p#分页标题#e#
[59] See Pangestu & Mrongowius, supra note 7, 47.
[60] See Zhou He, A History of Telecommunication in China: Development and Policy Implications, in Telecommunication and Development in China, Paul S.N. Lee ed., 87 (1997).
[61] Regulation on Telecommunication of the People’s Republic of China (hereinafter Regulation on Telecommunication), issued by the State Council on September 25, 2000, effective as of the same date.
[62] Id., article 2. (providing any engaged in telecommunication activities or activities in connection with telecommunications within the territory of the People’s Republic of China shall abide by this Regulation.) In addition, Appendix of ‘Catalogue of Telecommunication Business’ lists the coverage of basic telecommunication and value-added services. The coverage of value-added service has since been adjusted under article 8 several times to add new classification and new services in the wake of technological advances. The latest classification is available at http://www.trp.hku.hk/infofile/china/class-cat.pdf.
[63] See generally, Regulation on Telecommunication, supra 61, article 3 (regulatory body), article 10-14 (licensing standards), article 17-22 (interconnection), article 27-30 (allocation of scarce resources), article 42 (competitive safeguard), article 44 (universal service).
[64] See e.g., Circular of the General of Information Industry and Other Departments on Further Strengthening the Supervision Over the Telecommunication Market, issued by the State Council on August 14, 2003, effective on the sate date.
[65] See e.g., Provisions on the Administration of Foreign-funded Telecommunication Enterprises, issued by the State Council on, December 11, 2001, effective as of January 1, 2002; Notice of the State Administration of Taxation on Dealing with Tax Issues in Respect of Bad Debt Losses Incurred by Foreign-funded Enterprises Engaging in Telecommunication Services, issued by the State Administration of Taxation on January 17, 2004, effective as of January 1, 2004. #p#分页标题#e#
[66] See e.g., Measures on the Settlement of Disputes over Interconnection Between Telecommunication Networks, jointly issued by the State Development and Planning Commission and Ministry of Information Industry on November 19, 2001, effective as of January 1, 2002; Provisions on the Management of Interconnection Between Public Telecommunication, jointly issued by the State Development and Planning Commission and Ministry of Information Industry on May 10, 2001, effective as of the sate date; Measures on the Settlement of Call Charges Between Telecommunication Networks, jointly issued by the State Development and Planning Commission and Ministry of Information Industry on March 14, 2001, effective as of March 21, 2001.
[67] See e.g., Provisions on Marking Clearly the Prices of Telecommunication Services, jointly issued by the State Development and Planning Commission and Ministry of Information Industry on July 25, 2001, effective as of August 1, 2002.
[68] See e.g., Measures for the Administration of Telecommunication Equipments Entering into the Public Telecommunication Networks, jointly issued by the State Development and Planning Commission and Ministry of Information Industry on June 1, 2001, effective as of the same date.
[69] See e.g., Regulation on Internet Information Service, issued by the State Council on September 25, 2000, effective as of the same date.
[70] See Pangestu & Mrongowius, supra note 7, 26.
[71] Circular of the General Office of the State Council on Distributing the Opinions of the Ministry of Information Industry and Other Departments on Further Strengthening the Supervision over the Telecommunication Market (No. 75 [2003] of the General Office of the State Council), issued by the General Office of the State Council on August 14, 2003, effective as of the same date, para. 1 (strengthening construction of the legal system, and intensifying law enforcement, as well as severely punishing acts in violation of laws and regulations).
[72] See e.g., Fu Jihong, The Draft Telecommunication Law Accelerated to Shape, China Economics Times (Zhongguo Jingji Shibao), Mar. 3, 2004, A1. #p#分页标题#e#
[73] Cheng Tao, The Framework of Telecommunication Legislation has completed in Spite of the Conflicts of Interests Among Various Ministries, South Weekend (Nanfang Zhoumo), November 5, 2003.
[74] See e.g., Xu Chao, The Draft Telecommunication Law is Being Looked Over, Communication Industry Newspaper, Nov. 27, 2003.
[75] See e.g, Song Fangcan, The Legislative Plan Has Been Determined, Legal System Daily (Fazhi Ribao), Mar. 1, 2004. See also Feng Xiaofang, Hopefully China Will Pass Its Telecommunication Law in 2005, International Finance Newspaper, Mar.22, 2004. For more information on the drafting of the first Telecommunication Law of China, go to the website http://tech.sina.com.cn/focus/Telecom_Rog/index.shtml’ (listing many discussions on the history of work on the draft, hot-debated issues, etc., visited on April 4, 2004)
[76] See Kang & Feng, supra note 48, 1182.
[77] See e.g., Luo Bin, What does the CT’s North-South Splitting Signify? People’s Court Newspaper (Renmin Fayuan Bao), November 14, 2001.
[78] See generally WTO: Protocol on the Accession of the People’s Republic of China, supra note 1.
[79] See WTO: Report of Working Party, supra note 8.
[80] Id, 2.C. (Telecommunication Service).
[81] These limitations include quotas, other restrictions or local incorporation requirements. Specifically, six types of limitations are prohibited: (a) limitations on the number of suppliers, (b) limitations on the total value of service transactions or assets, (c) limitations on the total number of service operations or on the total quantity of service output, (d) limitations on the total number of natural persons that may be employed, (e) measures which restrict or require specific types of legal entity or joint venture, and (f) limitations on the participation of foreign capital. See GATS, supra note 18, art. XVI.
[82] Id., art.XVII.
[83] See Mattoo, supra note 9, 324.
[84] Id.,321.
[85] Value-added service include: e-mail, voice mail, on-line information and database retrieval, electronic data interchange, enhanced facsimile services, code and protocol conversion and online information and/or data processing (including transaction processing). See Schedule of Specific Commitments on Service, supra note 8. #p#分页标题#e#
[86] Id.
[87] Id.
[88] Id.
[89] The fix-lined services are divided into domestic and international services. The former include voice service, packet-switched data transmission services, circuit-switched data transmission service, facsimile services and domestic private leased circuit services. The latter includes voice services packet-switched data transmission services, circuit-switched data transmission service, facsimile services and international closed user group voice and data services (use of private leased circuit service is permitted). Id.
[90] Id.
[91] See Pangestu & Mrongowius, supra note 7, 23.
[92] See generally, Schedule of Specific Commitments on Service—The list of exemptions for China, supra note 8. Arguably though, China can restrict the threshold requirements for qualified foreign firms before the market access commitments apply. There is no MFN violation when all foreign firms are treated under the same screening process. However, it is open to interpretation whether the market access commitment must apply to all foreign firms or only to qualified foreign firms. For more discussion, see Abramson, supra note 51, 31.
[93] See generally, Schedule of Specific Commitments on Service, supra note 8.
[94] See Mattoo, supra note 9, 304.
[95] In this respect, Unicom signed a long term strategic with GTE in 1995; MPT entered into a venture with AT&T to lay a fiber optic cable trunk from Beijing to Kowloon. The joint ventures in switch manufacturing and land lines sectors were agreed on with foreign suppliers like AT&T, Alcatel, and Northern Telecom. In the mobile communications equipment sector joint ventures have been set up with all the major names such as Ericsson, Motorola, Nokia and NEC.
[96] In 1998, the government initiated an investigation into the legality of CCF ventures on the account of some regulations. This resulted in restrictions on CCF arrangements, with a mandatory limit on agreement of 15 years, a 5 year limit on profit sharing, and 90% of all network assets being transferred to the Chinese party. See Pangestu & Mrongowius, supra note 7, 4. #p#分页标题#e#
[97] See generally, Schedule of Specific Commitments on Service, supra note 8.
[98] Issued by MPT on September 11, 1993, effective as of the same date.
[99] Issued by MPT on November 10, 1995, effective as of the same date.
[100] See Bai Yongzhong, Hot Issues in Chinese Telecommunication Industry, Law Press (Beijing), 2003, 61-62.
[101] Regulation on the Administration of Foreign-funded Telecommunication Enterprises, supra note 65.
[102] Id, Article 1.
[103] Jointly issued by State Development and Planning Commission, State Economic and Trade Commission and Ministry of Foreign Trade and Economic Cooperation (the latter ministries were merger into the new Ministry of Commerce in 2003) on May 11, 2002, effective as of April 1, 2002.
[104] Catalogue for Guiding the Foreign Investment, id, attachment, Part II, Restrictive Industries—(4), Telecommunication Companies.
[105] See e.g., China’s First Foreign-Invested Telecom Firm Launched in Shanghai, BBC Monitoring, May 28, 2002, available at 2002 WL 21784460. This is an exception to the general policy of China’s ban on foreign investment in telecommunication service prior to the WTO’s accession thanks to the preferential policy in Pudong New Area, Shanghai. The shareholders of Symphony are Shanghai Telecom, AT&T and Shanghai Investment Company sponsored by Shanghai Municipal Government. For more information on Symphony, the first Sino-foreign telecommunication service joint venture, go to its website at: ‘http://www.unisiti.com/about/index.html’.
[106] This company has a registered capital of only 390,000 US$. Two Chinese investors hold 70% shares while two US investors hold the remaining 30% shares of this company. See Sissy, MII Approved the First Post-WTO Sino-Foreign Telecommunication Service Provider, Communication World (Tongxun Shijie), April 30, 2003.
[107] This company has a registered capital of 6 million US$ and China Unicom holds 51% shares while SK Telecom holds the remaining 49% shares. See Li Jialing, Unicom SK Launches Its Business Today, New Beijing Newspaper (Xin Jingbao Xun), Apr. 8, 2008. #p#分页标题#e#
[108] See generally, Schedule of Specific Commitments on Service, supra note 8; Regulation on the Administration of Foreign-funded Telecommunication Enterprise, supra note 65; Catalogue for Guiding the Foreign Investment, supra note 104.
[109] Regulation on the Administration of Foreign-funded Telecommunication Enterprise, supra note 65, article 2.
[110] The capital contribution ratio of the Chinese and foreign investors during different stages shall be determined by the administrative department of the information industry under the State Council according to WTO commitments. Id, article 6.
[111] See Kathleen A. Lacey, Barbara Crutchfield George & Rajan George, ‘International Telecommunications Mergers: U.S. National Security Threats Inherent in Foreign Government Ownership of Controlling Interests’, Tulane Journal of Technology and Intellectual Property, Spring 2002, 4 TLNJTIP 29, p.56.
[112] Even in the US, the examination of proposed mergers and acquisitions in telecommunication sector operators much more than the usual antitrust considerations. US regulators and Congress gave an increased level of scrutiny to recently approved international mergers involving a U.S. telecommunication firms merging with a company in which a foreign government owns a controlling interests. See Kathleen A. Lacey, et.al, id, pp.30-31.
[113] See General Agreement of Trade in Service (GATS), supra note 17, article XIV bis, security exceptions.
[114] With respect to further discussion on these reasons, see, e.g., Mattoo, supra note 9, 325; see also Abramson, supra note 51, 31.
[115] See General Agreement of Trade in Service (GATS), supra note 17, article IV (increased participation of developing countries).
[116] For this purpose, the major foreign investor of a foreign-funded telecommunication enterprise shall have good performances and operation experiences in the telecommunication businesses. Regulation on the Administration of Foreign-funded Telecommunication Enterprises, supra note 65, article 9(3) and article 10. #p#分页标题#e#
[117] It is common sense that the incentive to undertake costly transfers of technology and improvements in management is related to the expected gains, which in turn are related to the share in profits of an entity. Moreover, changes in the permissible share of ownership in the vicinity of 50% (for example from 49% to 51%) may have a particular impact on performance as this percentage may decide whether to obtain the control right over a firm’s operations or not. See Mattoo, supra note 9, 299, 324.
[118] See Pangestu & Mrongowius, supra note 7, 31.
[119] As stated before, a comprehensive telecommunication law is still in progress. Moreover, MII is trying to formulate detailed implementation rules for the Regulation on the Administration of Foreign-funded Telecommunication Enterprises.
[120] See Pangestu & Mrongowius, supra note 7,32.