China to Accelerate the Development of the Unified National Market: Implications for Commercial Dispute Resolution in China

The Opinions of the CPC Central Committee and the State Council on Accelerating the Development of a Unified National Market (“the Opinion”) were promulgated and came into effect on 25 March 2022. Upon its publication, the Opinion became the hottest topic in all industries and its implications has been discussed and attracted a lot of attention in the past months up to now.

The Opinion stated 6 key tasks in order to establish a unified national market:
(i) unifying basic market institutions and rules; (ii) promoting fair and unified market supervision; (iii) promoting the high-standard connectivity of market infrastructure; (iv) unified markets of factors of production and resources, (v) promoting the unification of goods and services markets, and (vi) dealing with inappropriate market competition and distortion.

In this article we will discuss some of the key implications relevant to commercial dispute resolution in China.  

Protection over Intellectual Property Rights
In the first section of “Unifying basic market systems and rules”, the Opinion especially emphasized the importance of intellectual property protection. It demands that judicial authorities improve the cross-regional jurisdiction system of intellectual property courts and smooth the connection between intellectual property litigation with arbitration and mediation.

In response to the Opinion, in a recent dispute over infringement of trademark rights, although the court in the first instance rejected the plaintiff’s claim of infringement against its supermarket trademark as the court opined that the geological distance between the trademark owner and the infringer’s operating locations diminishes the impact of potential infringement of trademark rights, the Supreme People’s Court(“SPC”) refuted such opinion in the appeal proceedings, noting that in such a modern society with developed social media, the influence of infringement cannot be arbitrarily deemed as limited simply due to geological disparity. Instead, the Chinese courts will take more consideration of the whole country as a unified and integral market in future judgments.

Protection over fair competition
The SPC also mentioned that people’s courts at all levels shall equally protect the legitimate rights of Chinese and foreign parties. Specifically, the courts will facilitate fully implementing the system of pre-establishment national treatment and negative list for foreign investment, and legally maintain the effectiveness of foreign investment contracts in legal practice. An SPC case regarding OEM infringement of foreign trademarks serves as a good example here.

Previously, the mainstream judicial opinion has always been that OEM is not infringing foreign trademark rights. But in a recent SPC case, the court reverted such opinion and underscored that “a certain trade method (such as the OEM disputed in this case) cannot be rigidly taken as an exception of trademark right infringement. Such practice will violate the basic rules of trademark infringement judgment in the Trademark Law. ” The SPC further considered trade globalization, stating that even when the OEM goods were sold overseas, they still might be subject to the purchase of Chinese customers. The judgement in the end was in favor of the foreign trademark owner’s rights, promoting all domestic processors to obtain proper authorization of trademark usage, and check potential conflicts with domestic registered trademarks with due diligence.

Promotion of fair regulation
Limiting administrative authorities’ discretion is also one of the key features of the Opinion. The Opinion expressly stated that market administrators shall unify law enforcement standards and procedures, reduce discretion and promote fair and impartial law enforcement. In response to the Opinion, the State Administration for Market Regulation issued Notice of the State Administration for Market Regulation on Promulgation of the Guiding Opinions on Regulating the Discretion over Administrative Penalty for Market Regulation (the “Notice”) on 8 October 2022, providing a more detailed specification. The Notice allowed market administration at the province level and the level of cities divided into districts to formulate the discretion benchmark for the administrative penalty, which shall in principle be directly applied by the lower level authorities; if the lower level authority cannot directly apply such benchmark, it may, in light of the status of local economic and social development, reasonably refine and quantify the benchmark within the scope stipulated by laws, and within the range of the higher level benchmark. In addition, the Notice stresses that the principle of fairness should constantly dominate the application of discretion benchmark, preventing unreasonably severe or minimal penalties, or different penalties for similar cases.

The limitation on administrative authorities’ potential abuse of power is also reflected in the latest Anti-Monopoly Law of the PRC. For example, administrative authorities shall not impose administrative licensing specifically for non-local commodities, setting barriers or taking other measures so as to hinder the entry of non-local commodities or the exit of local commodities or force any undertaking to engage in any monopolistic practices prescribed in the present Law.

Connection with the International Market
The ultimate goal of a unified national market is for China to gain more advantage in the international market. Therefore, a smooth connection with the international market is crucial. The Opinion encourages opening up on the institutional and systematic level and calls for all market players to leverage the support from the domestic circulation, and strengthen their positions in the global industrial, supply and innovation chains.

In this regard, the SPC instructed Chinese courts to study guides on the trial of major foreign-related civil and commercial cases, explore the issuance of foreign-related civil and commercial guiding cases in multiple languages and broaden the influence of Chinese judicial rulings. Especially in the field of maritime laws, efforts should be made to construct an international maritime justice center, as an optimal place for international maritime dispute resolution, opening of shipping business, international ship registration, coastal shipping and ship financial leasing.

In other fields such as fighting cross-border crimes, smuggling, money laundering, online fraud and cross-border corruption, Chinese judiciary will work in the formulation of international rules therein and enhance China's voice in international economic governance.

In order to better illustrate this point, the SPC referred to a foreign-related property preservation case as a typical judicial example. A Liberian company, Skyline International Corp., applied to Qingdao Maritime Court to preserve the vessel “M/VNerissa” registered in the Republic of Marshall Islands, and planned to initiate an arbitration in London afterwards. The court supported and enforced the preservation in Qingdao city. As the preserved vessel was obliged to deliver cargo at another Chinese city, Qinhuangdao, the court took all practical circumstances into consideration, and allowed it to be preserved at Qinhuangdao city upon agreement of Skyline International Corp. and reasonable guarantee. Subsequently, Qingdao Maritime Court successfully facilitated settlement between the parties, and prevented a series of potential legal disputes among various stakeholders from Asia to Europe along the sales chain. Now the case serves as a model for all Chinese courts to build a market-oriented, international and legal business environment while dealing with foreign-related cases.