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The Impact of China's Regulatory Regime on Foreign Franchisors' Entry and Expansion Strategies

Published online by Cambridge University Press:  16 April 2015

Zhiqiong June Wang  and
Andrew L. Terry
Zhiqiong June Wang
Affiliation:
University of Western Sydney
Andrew L. Terry
Affiliation:
University of Sydney
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Abstract

Since the “open doof” policies adopted by China in 1978 ended 30 years of isolation, introduced massive economic and legal reforms, encouraged foreign investment and resurrected private enterprise, China has become the world's second largest and fastest growing economy. In these circumstances, the development of franchising was inevitable. However, in addition to the normal commercial and cultural issues which challenge any franchise system in its international expansion, foreign franchisors proposing to enter China have faced additional regulatory obstacles. Market entry, participation in particular business sectors, and even the use of franchising as a method of business operation and expansion have all raised complex regulatory issues.

This paper addresses the liberalisation of market access for foreign franchise systems under China's World Trade Organisation accession commitments, and the new regulatory regime for franchising in China under the 2007 Commercial Franchise Regulation.

Keywords

franchise regulationChinaforeign investmentWTO
Type
Research Article
Information
Asian Journal of Comparative Law , Volume 7 , 2012 , pp. 1 - 30
Copyright
Copyright © Faculty of Law, National University of Singapore 2012

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References

1 At the Third Plenary Session of the Eleventh China Communist Party Central Committee convened in December 1978, under the new leadership of Deng Xiaoping, the Chinese central government made a strategic decision to focus on socialist modernisation and revitalisation of the domestic economy and opening up to the outside world.

2 Ministry of Commerce data, online: <http://sytxjy.smfws.mofcom.gov.cn/?801570308=371270105> (accessed 30 August 2011).

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6 On 11 July 1986, China formally applied to resume its membership of the General Agreement on Tariffs and Trade (GATT). In November 2001, China was finally admitted to the World Trade Organisation (WTO) (the successor to GATT), 51 years after withdrawing from the then international trade system. The Director General of the WTO at that time, Mike Moore, described China's WTO accession as “one of the most significant events of the 21st century”, The Australian, 24 September 2001 Google ScholarPubMed.

7 The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organisation, signed in Marrakesh, Morocco on 15 April 1994 Google Scholar.

8 Quanjude Peking Duck (a state-owned enterprise) and Li-Ning (a private enterprise) were early adopters of franchising. See generally, Wang, Zhiqiong June, Zhu, Mingxia & Terry, Andrew, “The Development of Franchising in China”, Journal of Marketing Channels 15 (2008) at 167–185 CrossRefGoogle Scholar.

9 KFC China website, online: <http://www.kfc.com.cn> (accessed 10 May 2011).

10 CEO of Yum! China, Sam Su, confirmed that only “a small percentage” of KFC stores are franchised but would not disclose outlet numbers and other information (email communication November 2009). Although the Franchise Recording Measures (article 14, see Part III below) provide that the number and address of franchised stores shall be publicly available via the Ministry of Commerce website, this information has never been published.

11 McDonald's China website, online: <http://www.mcdonalds.com.cn> (accessed 10 May 2011); Hu, Xiaohong, “McDonald's re-engage in franchise”, Jinghua News, 6 May 2010, online: <http://epaper.jinghua.cn/html/2010-05/06/content 545513.htm> (accessed 10 May 2011)Google Scholar. McDonald's recently (August 2011) granted area development rights in Yunnan Province which perhaps signals the development of a franchise strategy. China is now the first country in which McDonald's has three modes of business operation: company owned, franchised and area development. See China Chain Store and Franchise Association (CCFA) website, online: <http://www.ccfa.org.cn/viewArticle.do?method=viewArticle&id=ff8080812ffb71a30131f6254af10aa2&publishcid=402881e91c59dbcb011c59e030db0005> (accessed 23 October 2011).

12 China's WTO negotiation and accession commitments, have influenced and stimulated further reform. Many new laws have been introduced and many existing laws have been amended. It was observed by Brett Williams that the “Chinese government is using the WTO accession to achieve internal reform”, Williams, Brett “Global Trade Issues in the New Millennium: the Influence and Lack of Influence of Principles in the Negotiation for China's Accession to the World Trade Organization” (2001) 791 George Washington University International Law Review, 844 Google Scholar.

13 The Law of People's Republic of China on Chinese-Foreign Equity Joint Ventures (Equity JV Law) passed at the Fifth National People's Congress (NPC) on 1 July 1979 Google Scholar.

14 The Law of the People's Republic of China on Wholly Foreign-Owned Enterprises (WFOE Law) passed by the NPC on 12 April 1986 Google Scholar.

15 The Law of the People's Republic of China on Sino-Foreign Co-operative Joint Venture (Cooperative JV Law) passed by the NPC on 13 April 1988 Google Scholar.

16 Oake, Robert, “How Open is the Door? Franchising in Mainland China” (1992), online: <http//www.oake.com/franchisors.htm> (accessed 20 July 2008)Google Scholar.

17 The Interim Provisions on Guiding Foreign Investment Direction, promulgated by the State Planning Commission, State Economic and Trade Commission (SETC) and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) on 20 June 1995 Google Scholar. The Interim Provisions have been replaced by the Provisions on Guiding Foreign Investment Direction (PGFID) which came into force on 1 April 2002 Google Scholar.

18 Article 6, Part 2, of the 2007 Catalogue of Restricted Foreign Investment Industries. It was issued by the National Development and Reform Commission and the Ministry of Commerce on 31 October 2007 and took effect on 1 December 2007. The Catalogue of Restricted Foreign Investment Industries in the Catalogue for the Guidance of Foreign Investment Industries was first issued in 1995 and revised in 2002, 2004 and 2007.

19 China's commitments on opening the distribution sector included, in relation to franchise operations, the removal of restrictions on geographical location, number, equity ratio and form of establishment for foreign investment by no later than 11 December 2004: see Part II - Schedule of Specific Commitment on Services, the Report of the Working Party on the Accession of China (WT/ACC/CHN/49/Add.2), WTO, 1 October 2001 Google Scholar included in the Appendix of the Report of the Working Party on the Accession of China WT/MIN (01) 3 WTO, 10 November 2001 Google Scholar.

20 The Commercial Foreign Invested Enterprises Measures were promulgated by the Ministry of Commerce on 16 April 2004 with effect on 1 June 2004.

21 Article 21, Commercial FIE Measures.

22 See discussion below in Part IV.

23 The Measures for the Administration of Commercial Franchises (Trial Implementation) issued by the then Ministry of Internal Trade (Xing-Zi 1997 No. 124) on 14 November 1997 with effect on the same dateGoogle Scholar.

24 The Franchise Investment Law in California Corporations Code, Div. 5, Parts 1-6, Section 31000 et seq.

25 Fourteen states adopted the California model (Maryland, Virginia, Wisconsin, Illinois, Minnesota, Indiana, New York, North Dakota, South Dakota, Michigan, Hawaii, Oregon, Washington and Rhode Island) and developed the “Uniform Franchise Offering Circular” (UFOC) format for disclosure documents.

26 Code of Federal Regulations, Title 16, Chapter I, Subchapter D, Part 436 (16 CFR 436), promulgated 21 December 1978, effective 21 October 1979 (effective date extended from 21 July 1979, 44 Federal Register 31170, 31 May 1979). It was adopted pursuant to the Federal Trade Commission Act.

27 Terry, Andrew, “A Census of International Franchise Regulation” (Paper presented at the 21st International Society of Franchising Conference, Las Vegas, February 2007 Google Scholar; published in Proceedings of the 21st ISoF Conference, online <http://www.huizenga.nova.edu/ExecEd/ISOF/ISoFPapers.cfm>, accessed 23 October 2011).

28 Ibid.

29 Securities law, which provided the model for prior disclosure in Californian franchise law and the federal disclosure rule, was not introduced in China until 1998.

30 See general discussion Chen, Jiafu, Chinese Law: Towards an Understanding of Chinese Law, Its Nature and Development, (The Hague/Boston/London: Kluwer Law International, 1999) at 52–55 Google Scholar.

31 In 2002, the International Institute for the Unification of Private Law (UNIDROIT) developed a Model Franchise Disclosure Law which is discussed below at Part III.

32 The 1997 Interim Franchise Measures were issued by the then Ministry of Internal Trade (MOIT) which governed only domestic invested enterprises. Foreign invested enterprises were governed by Ministry of Foreign Trade and Economic Cooperation (MOFTEC). In March 2003, MOIT and MOFTEC were merged to form the Ministry of Commerce, which has responsibility for both domestic and foreign-invested enterprises. For ambiguous status of law in China generally, see Jiafu Chen, supra note 30 at 115-123.

33 See Oake, supra note 16.

34 See Wang, Zhu & Terry, supra note 8 at 181.

35 Throughout 2002 the Chinese media suggested, presumably with official approval, that a law, tentatively titled the Commercial Franchising Regulation, to replace the 1997 Interim Franchise Measures had been on the State Council's agenda since 2001. A report in the China Daily of 8 July 2002 quotes Men Xiaomei, vice-director of Market Bureau under the State Economic and Trade Comission which was responsible for drafting the regulation, stating that “China will unveil a new regulation on commercial franchises to boost the development of the country's new business model. The new regulation is aimed at ensuring franchise store runners carry out their commitment to franchise brand owners and should ensure the quality of the stores … ”. The draft has been completed and will soon be submitted for review by the State Council. It is expected to be implemented before the end of this year after winning approval from the State Council.

A consultation draft of the proposed new regulation was unofficially released to the CCFA and relevant committees for discussion as early as July 2001. One of the authors, Wang, participated in a meeting hosted by the CCFA to provide feedback in 2003. For a discussion of the proposed law see Robert Zarkos, P., “Journey to the West, A Comparative Analysis of China's 2003 Proposed, WTO Compliant, Franchise Rules”, (2004) 12 Willamette Journal of International Law & Dispute Resolution 315 Google Scholar.

36 The Ministry of Commerce released the draft Provisional Measures on the Administration of Foreign-Invested Enterprises Engaged in Commercial Franchising (2004 Provisional FIE Franchise Measures) on its website for public opinion.

37 See WTO Working Party Report on the Accession of China, supra note 19.

38 The Measures for the Administration of Commercial Franchises (the 2005 Franchise Measures) were issued by the Ministry of Commerce on 31 December 2004 with effect on 1 February 2005.

39 The Regulation on the Administration of Commercial Franchises was promulgated by the State Council by Decree No 485 on 6 February 2007, and took effect on 1 May 2007. The Regulation was approved in principle by the State Council on 31 January 2007 and signed by the Premier and released on 6 February 2007. A number of English translations of the Regulation have been prepared including one by the Ministry of Commerce. In this paper, the translation of Paul Jones & Jennifer Bu (to which one of the authors, Wang, contributed) is used. It can be accessed online: <http://www.jonesco-law.ca> (accessed 23 October 2011).

40 “Questions and Answers Regarding China's New Franchise Regulation”, online: <http://www.gov.cn/zwhd/2007-02/15/content 528054.htm> (accessed 16 February 2007). Translation by Paul Jones, can be accessed online: <http://www.jonesco-law.ca> (accessed 23 October 2011).

41 Ibid.

42 Ibid.

43 Terry, Andrew, “A Census of International Franchise Regulation” (Paper presented at the 21st International Society of Franchising Conference, Las Vegas, February 2007 Google Scholar; published in Proceedings).

44 The UNIDROIT Model Franchise Disclosure Law is available online: <www.unidroit.org/english/franchising/modellaw> (accessed 23 October 2011)+(accessed+23+October+2011)>Google Scholar.

45 See generally, Tan, Lay-Hong, “Unravelling the Complexities of the Chinese Legal System: A Primer for Foreign Investors” 79 Australian Law Journal 97 (2005)Google Scholar.

46 See generally, Giles, Steven, Redfern, Michael & Terry, Andrew, Franchise Law and Practice, looseleaf (Sydney: LexisNexis, 1998)Google Scholar.

47 See generally Terry, Andrew, “Asia's Next Franchising Frontier: Good Morning Vietnam!” (Paper presented at the 22nd Annual International Society of Franchising Conference, Saint-Malo, France, 20 June 2008 Google Scholar; published in Proceedings).

48 The Measures for the Administration of Recording Commercial Franchises were adopted by the Ministry of Commerce on 6 April 2007 in Decree of the Ministry of Commerce 2007 No. 15, with effect from 1 May 2007.

49 The Measures for the Administration of Information Disclosure of Commercial Franchises were adopted by the Ministry of Commerce on 6 April 2007 in Decree of the Ministry of Commerce 2007 No. 16, with effect from 1 May 2007.

50 Zeidman, Philip, “New Franchising Regulations Go into Effect in China”, Franchising World, March 2005 at 40 Google Scholar. These comments were made in relation to the 2005 Franchise Measures.

51 Peter Tan, President of McDonald's China Development Co, cited in Yan, Dai, “International Chain of Firms to Expand: McDonald's Mulls over Franchise System after KFC”, China Daily, 8 July 2002 Google ScholarPubMed.

52 See above at Part 11 A and see generally, Wang, Zhiqiong June & Terry, Andrew, “The Impact of the Regulatory Regime on Foreign Franchisors' Entry and Expansion Strategies in China: The KFC And McDonald's Experience” (Paper presented at the Presented at the 24th Annual International Society of Franchising Conference, University of New South Wales, Australia, 7-9 June 2010 Google Scholar; published in Proceedings).

53 It has been suggested by a representative of the Ministry of Commerce, Yin Hong, that whether a contract is a franchise contract should be determined by the substance of the contract, rather than by the title, but no guideline has been laid down (commenting at a meeting on issues in relation to litigation on franchising hosted by Beijing Chaoyang District Court, published on the China Court Online, online: <http://www.chinacourt.org/zhibo/member/index.php?member—id=1000&zhibo—id=1097&domain=bjgy.chinacourt.org> (accessed 10 August 2010)+(accessed+10+August+2010)>Google Scholar).

54 Franchisors operating in China prior to 1 May 2007 are not required to comply (article 33). Any franchising activities involving trademark licences or patent licences shall be in compliance with the related trademark or patent laws and administrative rules and regulations (article 31).

55 The proposal was released on the Ministry of Commerce's website on 28 April 2011 but has yet to be implemented. See online: <http://tfs.mofcom.gov.cn/aarticle/as/201104/20110407522383.html> (accessed 23 October 2011).

56 王静 (Wang Jing) v. 北京阳光瑞丽美容有限公司 (Beijing Sunlight Ruili Beauty Co. Ltd.) (2008) Chaominchuzi No 17784, Beijing Chaoyang District Court, 10 October 2008, online: <http://www.bj148.org/sfgk/jpal/msajfl/dwqjf/200810/t20081010_23533.html> (accessed 23 October 2011).

57 刘永兴 (Liu Yongxing) v. 天才猫（北京）国际品牌管理顾问有限公司 (Talent Cat (Beijing) International Brand Management Consultants Co., Ltd.) (2008) Haiminchuzi No 21073, Haidian District Court, 26 December 2008, cited in 刘永兴 (Liu Yongxing) v. 天才猫（北京）国际品牌管理顾问有限公司 (Talent Cat (Beijing) International Brand Management Consultants Co., Ltd.) (2009) Yizhongminzhongzi No 4701, Beijing No. 1 Intermediate Court, 10 April 2009. The appellate court, Beijing No. 1 Intermediate Court, upheld the decision of the Haidian District Court. See online: <http://bjgy.chinacourt.org/public/paperview.php?id=67127> (accessed 20 July 2009).

58 张林霞 (Zhang Linxia) v.北京久凌昌盛投资顾问有限责任公司 (Beijing Jiuling Chang Sheng Investment Advisory Co. Ltd) Yizhongminzhongzi No 10112, Beijing No. 1 Intermediate People's Court, 25 August 2010, online: <http://bjgy.chinacourt.org/public/paperview.php?id=379215> (accessed 23 October 2011).

59 Suggested by Liu Jixiang of the Beijing Higher People's Court at the joint meeting held by Chaoyang District Court on 24 April 2009 in Beijing, which was attended by, inter alia, judges of several Beijing courts, a Ministry of Commerce representative and the Secretary General of the CCFA. It is available on live blog on China Court Online, online: <http://www.chinacourt.org/zhibo/member/index.php?member id=1000&zhiboid=1097&domain=bj.gy.chinacourt.org> (accessed 10 August 2009). Although this meeting did not resolve the issue, the fact that the discussion was uploaded on a live blog is a welcome example of openness and transparency which will facilitate the government's decision making.

60 Existing franchisors as at 1 May 2007 had one year from that date to register (article 33).

61 Whether the word “bei an” in Chinese in the 2007 Franchise Regulation should be translated as “registration” or “filing” has caused confusion and different translations have been made. However, “bei an” in the Implementation Measures has most commonly been translated as “filing” or “recording”.

62 If the products or services of the franchise system are required by law to have other authorisations before they can be sold or provided, the franchisor shall also submit such authorisations or certificates (article 8).

63 Documentation to be submitted includes: a copy of the business licence or a copy of the enterprise registration certificate; the standard form of franchise agreement; the franchise operating manual; the marketing plan; a written undertaking that the franchisor complies with the requirements for franchisors as set out in article 7 and other relevant evidence of compliance; and other documents and materials prescribed by the commercial administrative department of the State Council.

64 If the submitted documents and materials are incomplete, the relevant commerce department may grant the franchisor an additional seven days to submit supplementary documents and materials (article 9). A proposed amendment to the Measures removes the 10 days requirement on the authority to complete the filing. Supra note 55.

65 Yao, Jun, “Regulate Regulation: A Study on Franchise Filing in China” (Paper presented at the 2nd China Global Franchise Summit, 9 November 2008, Zhuhai, Guangdong, China)Google Scholar.

66 See, for example, comments made by Tang, Janet Jie, a partner in the Beijing office of international law firm DLA Piper, “Beijing Makes Red Tape Less of a Burden for Foreign Franchisers”, Financial Times, 6 June 2007 Google Scholar.

67 A proposed amendment to the Disclosure Measures, released by the Ministry of Commerce on 28 April 2011 but which has not yet come into effect, extends disclosure requirements to cover a franchisor's “affiliates”, a concept which is widely defined. The proposed amendment also, inter alia, requires more detailed disclosure in relation to the services to be provided by the franchisor. See online: <http://tfs.mofcom.gov.cn/aarticle/as/201104/20110407522422.html?2341983954=521235937> (accessed 23 October 2011).

68 The “contract” to be submitted for filing under article 8 is a model contract. Article 21 in relation to provision of the contract to the franchisee uses a different Chinese word and has led to uncertainty as to whether the actual contract to be signed or a model contract must be submitted. The Information Disclosure Measures clarity that it is a “model contract” which must be provided to the franchisee.

69 Article 13 provides that the stipulated franchise term shall be not less than three years “unless it is otherwise agreed upon by the franchisee”. This provision is not applicable on a renewal.

70 If a franchisor requires a franchisee to pay any fees before the parties enter into the franchise agreement, the franchisor shall specify in writing the purpose of such fees, under what circumstances will the money be refunded, and how to obtain a refund (article 16).

71 The standard of the products and services supplied by the franchise system shall be in accordance with the law, the relevant administrative rules and regulations and other related governmental requirements (article 15).

72 See for example article 21 of Australia's Franchising Code of Conduct (the Trade Practices (Industry Codes - Franchising) Regulations 1998 prescribed under the Trade Practices Act 1974 (Cth)).

73 The franchisor may also be liable to penalties for misleading behaviour or misleading conduct under the Advertising Law (article 27). The Advertising Law of the People's Republic of China was passed at the 10th Meeting of the Standing Committee of the Eighth National People's Congress on 27 October 1994 with effect on 1 February 1995.

74 Lay-Hong Tan, supra note 45.

75 Similar ambiguity also exists in US law in relation to whether federal and state registration laws apply to international transactions. In Nieman v. Derlcean USA Franchise Co 178 F3d 1126 (Cir 1999), the court ruled that the FTC Act does not authorise the extraterritorial application of the Amended Franchise Rule to pure outbound transactions (from a domestic franchisor to foreign citizens operating in a non-US jurisdiction to open stores outside the US). The Amended Franchise Rule ¶436.2 clarifies that it applies only to sales of franchises that are to be located in the United States. For further discussion, see Spandorf, Rochelle B. & Forseth, Mark B., “Franchise Registration”, in Barkoff, Rupert M. & Selden, Andrew C. (eds.), Fundamentals of Franchising (American Bar Association, 3rd ed., 2009) 125 at 135 Google Scholar; California Corporations Code ¶31018 (b), Business Franchise Guide, CCH ¶3050.22; Spandorf, Rochelle B., “Circuit Checks FTC Disclosure rule at US Border” (Summer 1999) 3 Franchise Law 1 Google Scholar.

76 In some jurisdictions the issue of the application of the regulatory instrument has been clarified. In Australia, for example, the Franchising Code of Conduct as originally prescribed expressly provided that the Code did not apply to a franchise agreement if the franchisor was: (i) resident, domiciled or incorporated outside Australia and (ii) grants only one franchise or master franchise to be operated in Australia. The 2006 Review of the Disclosure Provisions of the Franchising Code of Conduct 76 (the Matthews Report) nevertheless noted sector concerns to the effect that an Australian master franchisee acquiring franchising rights in Australia from a foreign franchisor was in a similarly vulnerable position to a domestic unit franchisee acquiring a franchise from an Australian franchisor and should be protected by, inter alia, prior disclosure laws. This recommendation was accepted by the government and an amendment to the Franchising Code of Conduct, effective March 2008, removed the previous exemption. A foreign franchisor entering Australia by master franchising is today subject to the Franchising Code of Conduct.

77 Some franchisors, such as Century 21 and many hotel franchisors, do not traditionally have company-owned stores.

78 Supra note 55.

79 In China, the “business scope” has to be specified in an application for approval of the business licence. Without a law and policy expressly legitimising franchising, it would be difficult for approval to be granted.

80 Franchising remained in the “Restricted Catalogue” under the heading “Wholesaling and Retailing Trade Industries” in the 2004 and 2007 Catalogue for the Guidance of Foreign Investment Industries.

81 Article 6, 1999 Measures for the Trial Establishment of Foreign Invested Commercial Enterprises.

82 韩美艳 (Han Mei Yan) v. 北京印气巴谊印气健美有限公司 (Beijing Yinqi Bayi Yinqi Jianmei Limited), Beijing Chaoyang District Court (2005) Chaominchuzi No 5967. This decision has been upheld by the Beijing Second Intermediate Court, Beijing Yinqi Bayi Yinqi Jianmei Limited v. Han Meiyan, Beijing Second Intermediate Court (2005), Erzhongminzhongzi No. 14880; online: <http://law.chinalawinfo.com/newlaw2002/slc/SLC.asp?Db=fnl&Gid=117458327> (accessed 11 July 2009)+(accessed+11+July+2009)>Google Scholar.

83 China's WTO commitments to franchise operations included the removal of restrictions on geographical location, number, equity ratio and form of establishment for foreign investment by no later than 11 December 2004. See WTO Working Party Report on the Accession of China, supra note 19.

84 The current Catalogue of Restricted Foreign Investment Industries which took effect on 31 October 2007 does not change the “restricted” category of franchising in relation to wholesale and retail trade industries.

85 The Commercial FIE Measures also liberalise, in the same manner, commission agency services and wholesale operations.

86 The restriction on a foreign company engaging in franchising activity before the time indicated was the key to the decision in Han Mei Yan v. Beijing Yinqi Bayi Yinqi Jianmei Limited, as discussed supra note 82.

87 “Franchising” is defined as the “grant of authority pursuant to contract for the use of a trademark, trade name, or business method etc in exchange for remuneration or franchising fees” (article 3).

88 Lavender, Susan, “Sweeping the Chess Board Clean: The PRC Commercial Franchising Measures and the Foreign Franchisor”, Hong Kong Lawyer (June 2005) at 54 Google Scholar.

89 Duvall, Gary R. & Zheng, Guanxi, “China's New Measures for the Regulation of Commercial Franchises”, Section D of Duvall, Gary R., Jones, Paul, Sommers, Amy & Zheng, Guangxi, “Rising Affluence and Post-WTO Reforms: Converging Trends Boost Franchising in China” (Paper presented at the ABA Forum on Franchising, 7 August 2005, Chicago Illinois)Google Scholar.

90 Susan Lavender, supra note 88.

91 Wulff, Erik B. & Xu, Tao commented that the 1997 Interim Franchise Measures were “rudimentary” in “Franchise Regulation in China”, 25 Franchise Law Journal 19 (Summer 2005)Google Scholar.

92 Lavender, supra note 88, also opines on how the offshore foreign franchisor could be penalised for non-compliance with the Measures: “Being offshore it is outside the jurisdiction of the PRC. It is a foreign ghost rather than a domestic legal entity that can be called to answer for non-conformity with legal requirements. The penalties imposed by the Measures are only applicable to PRC-based entities, being fines (and only a maximum of RMB 30,000) or revocation of business licence. Royalty payments flowing from the PRC franchisee to the offshore franchisor would appear to be the only tangible aspect of the franchising arrangements that could be controlled”.

93 See Lavender, supra note 88.

94 Ibid.

95 See WTO Working Party Report on the Accession of China, supra note 19.

96 The liberalisation of restrictions involving geographical location, number, equity ratio and form of establishments for foreign investment has given effect to the 2004 Commercial FIE Measures.

97 Martin, George, Li, Yiqiang & Qi, George, “China's New Franchise Regulations Clarified”, Franchising World, January 2006 Google Scholar.

98 United States House of Representatives Committee on Small Business, Franchising in the US Economy: Prospects and Problems (Washington DC: US Government Printing Office, 1990) at 1 Google Scholar.

99 Ibid.

100 Organisation for Economic Cooperation and Development, Business Views on Red Tape: Administrative and Regulatory Burdens on Small and Medium-Sized Enterprises (Paris: OECD Publication Service, 2001) at 3 Google Scholar.