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What are the Implications of Greater Bay Area Plan for Trade and Investment Governance?

China has recently initiated a new development plan, the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”) plan. Notably, the GBA plan was first formally stated in China’s 13th Five Year Plan for Economic and Social Development in 2016 and later written in the Report on the Work of the Government in 2017. To implement the GBA plan, a Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area (“Agreement”) was signed by the National Development and Reform Commission, the government of Guangdong province, and the two SARs in July 2017. Geographically, the GBA covers the Hong Kong and Macao Special Administrative Regions (SARs) and nine Mainland cities in Pearl River Delta, the manufacturing and business hub in Southern China. China hopes to build the GBA into a world-class commercial and urban hub that could parallel world class bay areas of New York, San Francisco and Tokyo.

According to the Agreement, the GBA is based on and linked with several major national policies and strategies, with a focus on enhancing trade and investment connectivity. First, it should facilitate and further the implementation of the Belt and Road Initiative. Second, it should implement the One Country, Two Systems (OCTS) policy completely and accurately. Third, it is an implementing measure of the Closer Economic Partnership Arrangement (CEPA) between the Mainland and the SARs, which is in nature a regional trade agreement. Finally, it should encourage collaboration within the GBA area for the implementation of the “Going Global” strategy, i.e. to facilitate Chinese investors to invest abroad.

The implementation of the GBA plan may have multilevel implications for trade and investment governance.

At intra-GBA level (among GBA cities), the GBA covers several cities of the Guangdong Pilot Free Trade Zone (FTZ), and shares with the FTZ the vision of cultivating a market-oriented and internationalized business environment to facilitate trade and investment. Given the similarities of the GBA cities in economic and social development, these cities should manage with care the relationship between the GBA plan, the FTZ policy, and local policies. They should also rationally handle intra-GBA competition, especially among the hub cities of Hong Kong, Guangzhou and Shenzhen.

At Mainland-GBA level (between the Mainland and the GBA, especially the SARs), although all GBA cities fall in Chinese territory, trade and investment governance in the GBA is “internationalized”, since the Mainland and the SARs are different legal jurisdictions, independent customs territories and separate WTO members. Under the OCTY policy, the SARs may enter in international economic relations independently, and are treated as “foreign” in each other’s legal practices. At Mainland-GBA level, trade and investment governance in the region relies partly on the CEPA. As to matters not covered by the CEPA, WTO rules or other Mainland-SAR arrangements and policies should apply, if available. Yet, it seems doubtful if the CEPA is sufficient. For instance, although the Agreement aims to develop the GBA into a regional legal service and dispute settlement center, insufficient rules are available in the CEPA. Clearly, the Mainland and the SARs need to develop policies in addition to the CEPA, and such policies should conform to the international rules China and the SARs are respectively or jointly subject to.  

At GBA-foreign level (between the GBA and foreign States), though the SARs and the Mainland are subject to certain uniform trade and investment rules that are also applied to foreign States, such as WTO rules, they can enter in economic relations with foreign States separately. For instance, under the OCTY policy, the Mainland and the SARs may separately conclude investment treaties with foreign States. Not only are the rules of their treaties different, but as shown by Tza Yap Shum v. Peru and Sanum v. Laos, also the application of Chinese treaties to the SARs seems an unsettled issue. This situation opens a door for “treaty shopping”. Although the Investment Agreement of the CEPA requires the SAR investors to have substantive business operations in the Mainland to be protected by the CEPA, it remains uncertain whether this requirement could effectively address the above situation, as the connectivity within the GBA keeps growing. 

To conclude, the GBA is unique as it involves three WTO members, which are all subject to Chinese sovereignty. The GBA is different from not only the existing regional trade agreements under the WTO but also China’s national FTZ plans. Up to the present, the GBA is in an early stage, but it is worthy of further study as to what policies China will implement to substantiate the GBA plan, and how the GBA implementation will impact trade and investment governance at GBA, national and global levels.

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