Carnegie Associate Veron Hung presented her new working paper, "China's WTO Commitment on Independent Judicial Review: An Opportunity for Political Reform," at a special luncheon hosted by Carnegie's China program. Minxin Pei, Senior Associate and co-Director of Carnegie's China program, moderated the event.

In introducing the discussion, Pei emphasized the significance of Dr. Hung's analysis. Most observers examine the extent to which the Chinese government fulfills its WTO obligations. Dr. Hung offers a different perspective. She examines a key aspect of China's legal system essential to China's implementation of its WTO obligations-independent judicial review. Pei noted Dr. Hung's exceptional qualifications for providing this analysis. In addition to her expertise on China's administrative litigation system, by which all WTO-related judicial review cases are handled, Dr. Hung's research also draws on her experience as a lawyer in Hong Kong, Beijing and the U.S.

Dr. Hung opened her presentation by asking a series of questions, particularly timely given the approaching first anniversary of China's WTO accession. What is the impact of China's WTO membership on the reform of the relationships among China's courts, local governments and the Chinese Communist Party (CCP)? Have any signs of such reform emerged? If so, would these signs disappear under the new Chinese leadership? How should the international community, including the U.S., respond? According to Dr. Hung, these questions turn on one crucial issue: China's ability to fulfill its promise of establishing an independent judicial review system. That is, China promised to allow its judges to independently decide foreign investors' lawsuits against Chinese administrative agencies for acting inconsistently with China's WTO obligations. But can China achieve this?

Dr. Hung then explained the nature of judicial review in China. The Administrative Litigation Law (ALL) regulates judicial review of administrative actions. In most cases, local courts act as the court of first instance, while "complicated" cases may be tried in intermediate courts, high courts or even the Supreme People's Court as the court of first instance. In August 2002, the Supreme People's Court promulgated a piece of judicial interpretation requiring all WTO-related judicial review cases to be based on ALL and further requiring all such cases to be tried by at least intermediate courts as the court of first instance.

With its WTO membership not yet a year old and the promulgation of the judicial interpretation so recent, patterns regarding judicial review of WTO related cases have yet to emerge. Nevertheless, the extensive overall record of China's administrative litigation system demonstrates that the system is not independent. Three problems account for this: interference, inter-court and intra-court influence and bribery.

Dr. Hung noted two phenomena that best illustrate the impact of interference on judicial review cases. First, although 75 percent of China's laws are administrative laws and regulations, administrative cases accepted by the Chinese courts during 1990-2000 accounted for slightly over one percent of the caseload only. Second, of those cases accepted, 47 percent were subsequently withdrawn. On balance, the interference of administrative organs and CCP explain these phenomena. Other explanations, though exist, are of subsidiary importance.

Interference takes various forms, but rarely occurs as a blatant violation of the law. Instead, three forms of interference are most common. Local administrative organs and party groups hinder a case from being transferred away from the jurisdiction where they have more control. Administrative officials "inquire" and "exchange" views about a case, which may include discussing the interpretation of the law in question. This often results in the court ruling in the administrative organ's favor, or the court simply rejecting the case filed by the aggrieved party. A case study of Guangdong province reveals the third common form of interference: plaintiffs being pressured to withdraw their cases.

Dr. Hung outlined four primary causes of interference. First, administrative and party officials lack adequate legal knowledge and respect for the law. Second, guanxi (connections) persists. Solutions to legal disputes result less from applying the rules and more from knowing people who are influential enough to bend the rules. Third, officials practice local protectionism-they influence judges to rule in favor of the party of a case who contributes significantly to the local economy. Fourth, administrative organs practice departmental protectionism. As local government departments' annual budgets are dependent on the amount of fines and fees they collect and contribute to the central government, these departments commonly interfere to prevent plaintiffs from recouping large losses from them.

Chinese judges are susceptible to interference because local governments control the financial and personnel arrangements of courts. Moreover, when conflicts arise between party policies and laws, judges are expected to decide cases in accordance with party policies.

Inter-court and intra-court influence
Dr. Hung next detailed the causes of inter-court and intra-court influence. In Chinese courts, junior judges frequently report to, and seek advice from, senior judges. Ostensibly, this ensures the proper handling of cases. However, Dr. Hung questioned the likelihood of such an outcome and pointed out a consequence that has emerged: many court cases are decided collectively, at the expense of the development of individual judicial independence.

Dr. Hung offered three reasons for this mode of influence. First, inadequate judicial training results in inadequate levels of judicial competence. Second, the deficiency of Chinese legislation is a contributing factor. Numerous laws and regulations are both ambiguous and conflicting. With interpretative power granted only to the Supreme People's Court, junior judges seek out and readily accept the legal interpretations of their superiors. Third, judges are fearful of making incorrect decisions. Under China's so-called "accountability for erroneous cases" system, judges are held responsible for cases they wrongly decide. In 1999 alone, approximately 1000 judges at all levels were punished under this system.

Dr. Hung acknowledged the seriousness of judicial corruption in China, but her field research seemed to indicate that bribery does not occur as frequently in administrative litigation as in other types of cases. A reasonable explanation exists: plaintiffs dare not bribe judges to rule against administrative organs and administrative organs need not bribe judges for favorable outcomes-interference is sufficient. This noted, Dr. Hung emphasized that bribery committed by third parties should not be overlooked. In fact, in the course of her research, Dr. Hung witnessed an attempt to bribe the judges presiding over a case by the third party formally named in that case.

China's Reform Efforts
Dr. Hung then assessed the measures taken by China to reduce the magnitude of these problems in WTO-related judicial review cases. To begin, provision of more judicial training and reform of the judicial selection system have boosted the competence of judges. Furthermore, numerous legislation and judicial interpretations have been repealed, revised or enacted in accordance with WTO rules. These measures help establish a stronger basis for the accurate application of law by judges and thus reduce the occurrence of inter and intra-court influence. In an effort to combat judicial bribery, the government also created a nation-wide inspection mechanism and launched a plan to reduce the number of judges, thereby allowing for an increase in salaries for the remaining judges.

While these efforts are impressive, Dr. Hung argued that the fundamental problem of the lack of an independent judicial review system lies in the control wielded by the CCP and local governments over local courts. To resolve this problem, political reform is needed to alter the relationships among the courts, local governments and the CCP. Signs of such reform emerged in July when the Supreme People's Court issued exceptionally strong statements concerning the susceptibility of local judges to outside actors and the need to make judges immune to such pressures. These statements are far more ambitious than those in the groundbreaking court reform plan promulgated in 1999. While noting that optimism should be tempered by the fact that the Court referred only to protection from local and departmental protectionism and not from the central government, Dr. Hung observed that these statements do signal the emergence of some political reform initiatives aimed at redefining the relationships between courts and local governments. If pursued cautiously, these reforms may serve as an opening to bring about reform efforts that address the role of the CCP in the Chinese political structure.

Favorable conditions for further reform
Dr. Hung proceeded to discuss current domestic and international political circumstances conducive to the pursuit of reforms intended to recalibrate the balance among the courts, local governments and the CCP. Externally, China's WTO membership places the inner workings of its economic and legal system, and by extension the political system, under greater scrutiny. The WTO established a transitional review mechanism to monitor China's compliance over the next eight years. Moreover, the fact that aggrieved parties can always, through their national governments, resort to the WTO dispute settlement body for legal redress pressures China to implement meaningful reform, including the establishment of an independent judicial review system.

Domestic circumstances are likewise favorable. With the CCP facing a mounting governance crisis, leaders have displayed their pragmatic instincts by their interest in political reform, evidenced most recently by the inclusion of the outgoing president Jiang Zemin's "three represents" theory into the Communist charter. As the recent party Congress unveiled a new leadership over which Jiang will retain enormous political influence, the fourth generation leaders will not likely deviate radically from prior reform initiatives. What is more, the new party chief Hu Jintao's record at the Central Party School reveals his own interest in some degree of political reform.

The role of the International Community
According to Dr. Hung, the international community should respond to the unprecedented opportunity to reform the relationship among the courts, the CCP and local governments by directing more resources to support programs on this front. While the international community should be realistic about the limited extent of such reforms, international aid may help achieve three major reforms. First, Chinese leaders may be amenable to restructuring the court system to allow local courts to be more independent from local governments and party organs. Chinese legal scholars have proposed a model whereby the central government regulates the personnel and financial arrangements of the entire court system. But such actions depend upon the fiscal health of the central government. International aid can help China initiate and sustain fiscal responsibility. Second, the international community can offer advice on the redrawing of jurisdictions. For example, jurisdictions that transcend provinces would help insulate judges against local interference and protectionism. Third, the international community can also offer advice on the drafting of laws to curb the power of administrative organs. Dr. Hung concluded by noting that international assistance in the near future would likely be confined to financial support, sharing of other countries' relevant experience and advising on the applicability of these experiences to China. If the Chinese leaders do not find these small steps threatening, they could culminate in reform on a much larger scale.

Question and Answer
During the question and answer session, Dr. Hung was asked to elaborate on many points. One question asked whether judges, in handling judicial review cases, could strike down a regulation on the basis that it is inconsistent with a higher law. Dr. Hung responded by explaining the major shortcoming of the Administrative Litigation Law (ALL)-aggrieved parties can only challenge a "specific administrative act", not an abstract administrative act. However, a provision in ALL gives judges some leeway in deciding not to apply certain rules and regulations of local authorities.

Dr. Hung was also asked to clarify whether the cause of action for WTO-related administrative lawsuits is inconsistency with the WTO agreements or inconsistency with domestic law alone. Dr. Hung, referring to a new judicial interpretation promulgated by the Supreme People's Court, clarified that WTO-related judicial review cases must be based on ALL. The WTO agreements are not directly applicable in China.

The final question asked Dr. Hung for her advice to foreign firms which run into non-WTO compliant, administrative barriers in China. Dr. Hung distinguished between small to medium size firms and large firms. For the former, legal means may not be the most advantageous means of resolving conflicts with administrative organs. However, big companies should pursue their cases in courts, because their economic potential would likely render Chinese judges to consider their cases as "major and complicated." The adjudication committee of the respective court would then handle such cases. These committees often view parties who contribute significantly to the local economy in a favorable light. Aggrieved foreign parties can always, through their governments, bring their cases to the WTO dispute settlement body. Dr. Hung also reminded the audience that under the WTO regime, aggrieved foreign parties need not exhaust local remedies before they resort to the WTO dispute settlement mechanism.