Regulating economic local protectionism in China

Abstract

Local protectionism is a widely documented problem in China. It is manifested in many ways, one of which is provincial and local government regulation of economic activities that disfavors non-local entities. Examples include vehicle licensing requirements and highway usage regulations that discriminate against vehicles produced outside of the locality. Such discriminatory regulation, at the most fundamental level, concerns allocation of power between central and local governments, and is handled as a constitutional law matter in some jurisdictions. In the U.S., state and local government interferences with interstate economic activities are regulated, inter alia, by the interstate commerce clause in the U.S. Constitution. In the EU, such matters fall within the ambit of areas such as free movement of goods under the Treaty of Rome. While there is a widely held consensus that such local protectionism, also known as abuse of administrative monopoly, is detrimental to the Chinese economy and society, little attention has been paid so far to how to determine whether an administrative measure amounts to abuse. Canvassing experiences from other jurisdictions, this paper proposes a theoretical framework for determining the legality of an administrative measure that takes into account both a local governments legitimate prerogative to regulate matters of public importance, and the overriding need to bring local protectionism under control.