Wei Jianguo: Policy Recommendations for the Zhejiang Pilot Free-Trade Zone

Wei Jianguo, Member of the CCIEE Academic Committee

At present, the highest standard for global trade and investment liberalization and facilitation is “zero tariffs, zero barriers, and zero subsidies”, the so-called “three-zeros”. China has implemented a high-level and all-round opening-up to the outside world, and the business environment is getting better and better. In the next step of China’s free trade zone (port) construction, can we take the lead in implementing the world’s attention-grabbing policy of “zero tariffs, zero barriers and zero subsidies”? My answer is absolute yes.

“Three-Zeros” is the main trend to build a new pattern of global trade.

After the 2008 global financial crisis, the recovery of the world economy was sluggish and the pattern of international interests has undergone major changes. The world has entered an era full of uncertainties. Trade rules formed over the past few decades cannot effectively adapt to the development needs of the new era. In order to realize “fair trade” and build a “new pattern of global trade”, the United States proposed the “three-zeros”.

A number of low-tariff trading systems have been gradually formed. In July 2018, Japan and the European Union signed the Japan-Europe EPA. The two major economies account for 30% of the global economy and 40% of the total trade volume. The United States-Mexico-Canada Agreement (USMCA) was reached in September 2018, mainly concerning the realization of zero tariffs on agricultural products trade between the three countries, zero tariffs on auto parts, and a series of provisions such as not using export subsidies or WTO special agricultural safeguard measures for products exported to each other’s markets. If the agreement can be reached between United States and Europe, and the United States and Japan, the three-zeros policy could be realized.

The integration of free trade in China has formed an “encirclement” for China’s economic and trade development.

After 8 years of negotiations, the Regional Comprehensive Economic Partnership Agreement (RCEP)promoted by China, was concluded in November 2020. The free trade zone has the world’s largest population and the greatest development potential. The members promised to have a zero-tariff policy. Among them, the zero-tariff products in goods trade will exceed 90%. In addition, China and Japan reached a bilateral tariff concession arrangement for the first time, which can be seen as a historic breakthrough.

Of course, the “Three-Zeros” is a gradual process that eliminates tariffs, various non-tariff barriers, and industrial subsidies. This is also one of the goals of major economies in promoting trade agreements.

Zhejiang Pilot Free Trade Zone can take the lead in implementing the “Three-Zeros” Policy.

Although the promotion of the “Three-Zeros” is beneficial to China, we must aware of the existing risks. We have to consider how to minimize the losses caused by such kind of opening-up. In my opinion, among the 21 free trade zones/harbors in China, the Zhejiang Pilot Free Trade Zone has great comparative advantages in implementing the “Three-Zeros” policy and the reasons can be described as follows.

First, there are three free trade zones in Zhejiang, namely Zhoushan, Ningbo and Hangzhou. If we conduct the “Three Zeros” policy in the Zhoushan zone first, we can later promote and replicate this in other free trade zones. One of the advantages Zhoushan has is that it can be closed for customs operations and will bring many opportunities for the development of other free trade zones in Zhejiang.

Second, Zhejiang Province has the greatest advantage in terms of general trade. The manufacturing industries are spread across towns, counties and regions in Zhejiang. The implementation of the “Three-Zeros” policy will help us to gather extensive experience in the development of the manufacturing industry, especially modern and high-end manufacturing.

Third, Zhejiang is close to Shanghai, where the International Import Expo is held every year. The International Import Expo is a great opportunity to accelerate the formation of the ultra-large and modern consumer market in China. As General Secretary Xi Jinping said, the effect of China’s ultra-large market can be quickly demonstrated. Compare with other Free Trade Zones, Zhejiang has a unique advantage: it can be connected to the consumer groups in the Yangtze River Delta easily via all means of transportation. The great import potential will attract more foreign investment. The implementation of the “Three-Zeros” policy in Zhejiang Free Trade Zone will form a very good investment free trade zone. In the future, this free trade zone will play a major role in China’s reform and opening-up.

The fourth advantage of Zhejiang is the innovation spirit. When implementing the “Three-Zeros” policy, private enterprises are placed on a parallel line with foreign companies and state-owned enterprises, which will make foreign companies feel that they enjoy the same treatment in China as Chinese companies. Therefore, they will increase their investment in China, especially in Zhejiang. We should try to build a market-oriented, legalized and international market system. If this system can be formed in Zhejiang, it will have a great impact on the whole country.

Finally, the people in Zhejiang are very hard-working and diligent. During the fight against the pandemic, they have adopted a variety of methods to restore the economy, such as the earliest acceptance of migrant workers’ return, the earliest adoption of health codes, and the earliest resumption of work, production, business and market.

Policy Suggestions for the Implementation of the “Three-Zeros” in Zhejiang Free Trade Zone.

Many people believe that when implementing the “Three-Zeros” policy, different conflicts may appear, such as the conflict between the central and local governments, financial and legal conflicts. I believe that all these problems will be solved gradually and below is my suggestion.

First, a simplified tariff list should be formulated to ensure the implementation of the “Three-Zeros” policy. Hong Kong’s tariff list only includes four categories of items. Zhejiang should also create a tax list based on the “Three-Zeros” policy, everything will be tax-free except the products on the list.

The second is to eliminate non-tariff barriers. There are many non-tariff barriers defined by the WTO. We can also set a list and all goods can enter the Free Trade Zone freely except the goods on the list.

Third, zero subsidies require all enterprises to have no industrial, governmental, or other subsidies in import and export so that Chinese enterprises, especially private enterprises, are on an equal footing in international competition. This will make foreign businessmen to increase investment, which is very beneficial to China’s industrial development. If the three lists mentioned above are completed, we can further reform the free trade zone.

In general, the high level of opening-up is reflected in institutional and structural changes. The implementation of the “Three-Zeros” policy will be of great significance to the future reform and opening-up because it will allow Zhejiang to maximize its advantages in manufacturing, cross-border e-commerce and transportation.