RESTRICTEDWORLD TRADE
ORGANIZATIONG/TRIMS/W/28
24 October 2002
(02-5846)
Committee on Trade-Related Investment Measures
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE
PROTOCOL OF ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE
WORLD TRADE ORGANIZATION
REPORT OF THE CHAIRMAN
DRAFT
1. At its meeting on 14 October 2002, the Committee on Trade-Related Investment Measures
agreed that, following a similar practice to that adopted by other WTO bodies, the Chairman of the
Committee would submit a report to the Council for Trade in Goods, on his own responsibility, and
that this report would be deemed to constitute the report referred to in Paragraph 18 of China's
Protocol of Accession to the WTO.
2. Pursuant to Paragraph 18 of China's Protocol of Accession, the Committee held the first
annual review under China's Transitional Review Mechanism (TRM) at its meeting on 14 October
2002.
3. Written comments and questions in connection with China's TRM were submitted in advance
of the review by Japan, the European Communities, the United States and the Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu. These submissions were distributed in documents
G/TRIMS/W/20, G/TRIMS/W/21, G/TRIMS/ W/22 and G/TRIMS/W/24, respectively.
4. In a communication dated 10 October 2002, Chin a submitted information on Annex 1A of its
Protocol of Accession in the context of the TRM.  This submission is contained in G/TRIMS/W/26.
The statement made by the Chinese delegation at the meeting in which the review took place wasdistributed shortly thereafter as document G/TRIMS/W/27.
5. Attached to this document are the relevant sections of the minutes of the TRIMs Committee
meeting held on 14 October in which the substantive discussions on China's TRM are reflected.
_______________G/TRIMS/W/28
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EXCERPT FROM THE MINUTES OF THE TRIMS COMMITTEE
MEETING HELD ON 14 OCTOBER 2002 (G/TRIMS/M/15)
C. T RANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE PROTOCOL OF
ACCESSION OF THE PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION
51. The Chairman recalled that under Paragraph 18 of China's Protocol of Accession, the TRIMs
Committee was required to review, as appropriate to its mandate, the implementation by China of the
WTO Agreement and the related provisions of the Protocol.  The first review was to take place within
one year of China's accession on the basis of the relevant information to be provided by China, as
specified in Sections 3 and 8 of Annex 1A of the Protocol.  The TRIMs Committee was required toreport the results of its review to the Council for Trade in Goods, which should in turn report to the
General Council by the end of the year.  In order to fulfill its task in a timely manner, it would be
necessary for the TRIMs Committee to undertake and finalize the review at the present meeting.  He
said that the information submitted by China had been circulated in document G/TRIMS/W/26, dated
11 October 2002, and that some Members had submitted comments and questions in connection withChina's Transitional Review Mechanism.  These were Japan, the European Communities, the United
States and Chinese Taipei, whose submissions were contained in documents G/TRIMS/W/20,
G/TRIMS/W/21, G/TRIMS/W/22 a nd G/TRIMS/W/24, respectively.  He then invited the
representative of China to introduce his submission.
52. In introducing his submission in G/TRIMS/W/26, the representative of China provided
information on steps China had taken in preparation of the review, and also replied to written
questions that had been previously submitted by Members (statement reproduced in Annex 1).
53. The representative of Japan commended the Chinese delegation for its efforts in preparing for
the review.  From the Chinese presentation, it was evident that there was a wide variety of investment-
related laws and regulations that had been modified by China in order to implement its obligationssince it became a Member of the WTO.  He appreciated that China had gone through this enormous
effort.  He also thanked China for providing answers to the questions Japan had submitted and took
the opportunity to ask for further clarifications.  On the first question posed by his delegation
concerning the status of the repeal of the 1994 Policies on the Automotive Industry, he understood
that the actual contents of the policies were no longer in effect, but the abolishment of the policies was
still pending.  In addition, from China's oral statement, he had understood that the Chinese
government was conducting in-depth research taking into account the concerns of both domesticindustry and foreign capital.  If the contents of the 1994 Auto Policies were in fact maintained, he
wondered whether the measures contained therein w ould be inconsistent with China's commitments.
He asked what kind of concerns the Chinese government was considering in its in-depth research in
relation to China's commitments under the TRIMs Agreement and its Protocol of Accession.  He also
asked clarification from China on the time-schedule for the revision of the current policies and theintroduction of the new guidelines.
54. With respect to the second question concerning  the tariff rates for finished automobiles
applied to automobile imported parts, he had heard from China's explanation that this issue had
nothing to do with the TRIMs Agreement.  He woul d need to look at China's written answers to be
circulated afterwards and send them to his capital to see what the specific thresholds were in terms oftariff classification, so that his capital could further reflect on this issue.  On the third question
concerning the status of repeal of restrictions for the licensing of auto production, he appreciated that
China had submitted in writing that the Chinese government would completely lift the measure in line
with its commitments as regards the time-frame. He asked the Chinese delegation if it was correct to
understand that these restrictions would be abolished by 11 December 2003, i.e., two years after theG/TRIMS/W/28
Page 3
accession of China to the WTO.  Noting that paragraph 205 of the report of the Working Party on
China's Accession stated that the restrictions would be gradually lifted, he asked China whether there
was any time-schedule for lifting the restrictions between the present time and the end of 2003.  With
respect to the fourth question regarding the status of independent approval by provincial governments
for investment in motor vehicle manufacturing, he  appreciated China's answer that the commitments
would be met by the end of 2002 and that the Chinese authorities would publish a circular increasing
the limits.  He asked if what would be done by the end of 2002 was not only the publication of the
circular but also the effective increase of the limits.  Finally, regarding the procedures for making
these changes to Chinese legislation, he asked whether there would be an appropriate procedure for
gathering public comments.  He was looking forward to the opportunity to look at a written version of
China's answers and to reflect on them.
55. With respect to Japan's question concerning the revision of the 1994 Policies on the
Automotive Industry, the representative of China confirmed that China had no difficulty to abolish the
articles regarding local content, export performance and mandatory transfer of technology. However,these articles were only a small part of this policy.  All in all,  there were more than forty articles
regarding the development of the automobile industry.  He explained that the Chinese domestic
automobile enterprises, the foreign automobile industries and the joint-venture enterprises had alldifferent interests on how to develop the automobile sector in China.  Those other articles had no
direct linkage with the TRIMs Agreement, but in order to take into consideration the different
interests of different kinds of enterprises, including  joint-ventures and foreign automobile enterprises,
the competent agency in China was conducting a revi ew and a research-study on how to promulgate a
new policy. With regard to the tariffs rates for car parts, he did not want to repeat what he had said.China's policy was consistent with the custom classification rules.  He suggested that if Japan had
further questions on this issue, it should raise them in the Custom Valuation Committee.  On the
question concerning the time-schedule for China to repeal the restrictions for licensing of auto
production, he said that the dead-line China had committed to under the Working Party Report was 11
December 2003.  He confirmed that China would abide by its commitment and would eliminate therestrictions before the deadline.  Until then, if possible, China might make some improvement in this
regard, because there were different kinds of restrictions on the categories and types of production.
However, he was not in a position to provide a fixed schedule.  With regard to the approval by
provincial governments, China's commitment was that  by the end of  2002 it would promulgate a new
regulation to increase the limits of the approval by  provincial governments for investment in motor
vehicle manufactures.  The new circular would satisfy the commitment made in the Working Party
Report, i.e., upon promulgation of the regulation, the provincial governments would have theauthority to approve investments in motor vehicle manufacturing in line with China's commitment in
the Working Party Report.
56. The representative of the European Communities appreciated the constructive spirit and detail
in which China had provided answers to the questions submitted to it.  He found it was very
significant that such an important country as China had chosen to join the WTO with a clear
commitment not to apply any TRIMs.  This should be borne in mind when discussing another
proposal that had been submitted to the Committee for that meeting, and it would also be useful for
Members to enquire what were the motives for such a commitment to phase out TRIMs.  His
delegation looked forward to receiving a written version of China's statement in order to identify
whether the questions it had posed had been fully answered.  This would be extremely important for
his delegation's assessment.  The intervention and the document China had previously submitted
clearly showed that China had gone through a major pr ocess in order to come into compliance with its
TRIMs obligations.  Since several of the questions submitted by the EC and its Member States in
document G/TRIMS/W/21 had already been answered either wholly or in part, he would focus only
on questions 3 and 4.  He pointed out that his delegation would need more time to be able to both takeinto account what had been stated by the Chinese delegate at the meeting and also to read in detail
what was contained in China's written statement.G/TRIMS/W/28
Page 4
57. With respect to question 3, he said that the question his delegation had raised implicitly and
explicitly was that of contractual obligations of any sort entered into by foreign enterprises or
enterprises operating within China. He had taken note of China's reference to freedom of contract,
allowing companies to enter into various contractual obligations, but the issue that needed to be
addressed and for which he sought clarification was: what happened in the event that laws, regulationsand other measures were abolished but these contractual obligations of a private law nature remained
nevertheless in force?  Were these considered null  and void?  If that was not the case, how would
foreign investors ensure that they would not be faced with a law suit or administrative action taken
against them in order to ensure their enforcement and application?  If, in fact, steps had been taken
and implemented by China towards ensuring that this was not the case, was that on the basis of some
discretionary measure or was it a legally binding undertaking on which foreign investors and
producers could actually rest?   Regarding question 4, he noted that China had already replied to someof the questions made by Japan regarding export performance and technology transfer requirements.
He sought further clarification as to the extent that these requirements had actually been abolished.
He recalled that there was a very clear statement by the Chinese delegate in paragraph 203 of the
Working Party Report on China's accession, which explicitly set out that China would abolish these
measures.
58. The representative of the United States, reacting in an overall manner to China's statement,
said that it was clear that China had taken the matter very seriously and produced a substantial amount
of documentation.  He thanked the Chinese delegation for all the work they put into their presentation
to the Committee.  It was also clear that it was very difficult to deal with the information in the form it
had been presented at the meeting.  Noting that there was an obligation in China's Protocol to providein advance answers to the questions that had been asked, he found it very difficult to go through the
questions that the United States had put forward a nd determine whether they had been answered in the
material that was either provided in writing at the st art of the meeting or in the oral statement that was
made.  There was the additional problem that what mattered was not so much what his reaction at the
present meeting was, but what his authorities in the capital would have had to say if they had had theinformation in advance.  They might have felt that their questions were fully answered or they might
have wanted to ask follow-up questions.  Thus, it was very difficult for him at that moment to come
up with an overall evaluation.  If necessary, his delegation would like to have the opportunity to
submit additional questions to China as part of the review process, as it considered it had the right to
do so under the Transitional Review Mechanism.
59. He then referred to the specific questions the United States had posed in document
G/TRIMS/W/22, and asked the Chinese delegation whether in fact these questions had been answeredin the material that Members had received at the meeting.  He also sought clarification from the
Chinese delegation on a couple of general points.  One referred to U.S. concerns about continuing
pressure from various Chinese officials for transfer of technology by foreign investors despite the
obligations undertaken by China to eliminate mandato ry technology transfer.  In some instances, this
pressure could amount to de facto transfer requirements which could effectively nullify the rights ofother Members.  Secondly, some officials had acknowledged that they continued to consider factors
such as local content when deciding whether to ap prove an investment or recommend long approvals.
His delegation was interested in knowing what steps China had taken to eliminate this practice.
Finally, he enquired about the reporting and notification requirements which foreign investors in the
petroleum sector had to comply with.
60. The representative of Chinese Taipei expressed his appreciation for the Chinese delegation's
oral presentation and replies to the written questions made by several delegations, including his own.
His delegation was awaiting for the circulation of China's written report for further in-depth
assessment and evaluation.  As one of China's major trade and investment partners, Chinese Taipei
had felt the need to identify a number of legitimate questions and concerns in areas where ChinaG/TRIMS/W/28
Page 5
might have lapsed in its implementation of the accession protocol.  His delegation considered that the
smooth implementation of the protocol was in the best interest of all Members, including China.
61. The representative of Pakistan thanked the Chinese delegation for its very detailed and
comprehensive replies to the questions submitted to it.  He said that, despite this onerous and
unprecedented obligation, not only in the TRIMs Committee but also in all other WTO bodies, Chinahad responded very satisfactorily to the questions posed to it in pursuance of the TRM.  His
delegation also wished to place on record its appreciation for the measures China had undertaken to
implement its WTO commitments in letter and spirit, especially its TRIMs commitments.  He thanked
again the Chinese delegation for both its initial and supplementary responses and wished it a
successful conclusion of the review.
62. The representative of Canada joined others  in thanking the Chinese delegation for the
clarifications given at the meeting and for the report on its efforts to date to comply with its
commitments.  He also thanked the Chinese delegation for circulating its oral statement, which would
help his delegation fully appreciate China's efforts.
63. The representative of Cuba congratulated China for the comprehensive responses it had
provided in the context of this complex exercise, which was proceeding simultaneously in a wide
range of WTO bodies.  This exercise was taking place within one year of China's accession to theWTO, upon which China had undertaken onerous commitments.  Therefore, her delegation
considered that China was moving along in the right direction and at the right pace, overcoming the
difficulties and costs of the commitments it had undertaken.  In the context of the Committee,
Members should not forget that China was one of the main destinations of interest for foreign
investors from developed countries.   Such investors had found confidence and security in the Chinesemarket. This was an important element to be taken into account.
64. The representative of Switzerland thanked the Chinese delegation for the documentation it
had made available and for the answers it had provided during the meeting, the written version of
which his delegation also awaited with great interest.  His delegation had a key interest in addressing
the issue of the TRIMs included in contracts concluded before China's WTO accession.  He explainedthat some companies faced serious difficulties because not all relevant laws and regulations were
consistent with China's WTO commitments.  It was therefore quite difficult to have provisions such as
local content requirements removed from contracts concluded before China's accession.  He would
appreciate if the Chinese delegation could provide further insight on this issue in order to deal with
this substantial problem.
65. The representative of China expressed appreciation for the objective and fair assessments of
Members concerning China's implementation of its TRIMs obligations.  Before responding to
Members comments and questions, he wanted to clarify that China was not bound legally to provide
written answers to the questions raised by Members.   He recalled that in the TRM undertaken in the
Committees on Agriculture, Import Licensing and Market Access, there had been an intensive debate
on this issue, which he did not wished to repeat.  China's position that it had no legal obligation to
provide written replies was still valid and he had no room for manoeuvre in this regard.  He hadagreed to circulate his statement to the Members, but that did not mean that China had changed its
position.  His delegation's intention was to cooperate with the Committee in order to allow Members
to have a better understanding of China's efforts to implement the TRIMs Agreement.  He hoped to
avoid any misunderstanding on this point.
66. With regard to the issue raised by the European Communities concerning contract changes, he
explained that there were two different situations for different enterprises.  Before China's accession,
because the Chinese government maintained mandatory requirements on local content, export
performance and technology transfer, those requirements had to be incorporated in contracts.  AfterG/TRIMS/W/28
Page 6
accession, China had abolished those requirements, so it was subject to the enterprises to incorporate
any articles on which they reached agreement.  For example, if the enterprises, the producers and
investors reached agreement on any performance requirements, it would be their legitimate right to do
so.  For those enterprises established before China's accession, if they reached agreement to change
some articles of the contract, they were allowed to do so according to the legal procedures they hadapplied to change the original contract or the articles of association.
67. With respect to the application of WTO rules in China, he explained that, according to the
Chinese legal system, the WTO Agreement was not automatically applicable in China, so China
needed to promulgate and revise laws and regulations to make them consistent with WTO rules as
well as the  way in which it implemented those laws, regulations and administrative rules.  He recalled
paragraph 68 of the Working Party Report, which stated that "…China confirmed that administrative
regulations, departmental rules and other central government measures would be promulgated in atimely manner so that China's commitments would be fully implemented within the relevant time
frames.  If administrative regulations, departmental rules or other measures were not in place within
such time frames, authorities would still honour China's obligations under the WTO Agreement and
Draft Protocol".  He explained that this was the case of the 1994 Automobile Industry Policies.
Although China had not finished the revision of these policies, those articles regarding local content,export performance and mandatory technology transfer which were inconsistent with China's
obligations under the WTO were no longer valid in China.  However, because there were other
articles to be discussed with domestic and foreign enterprises, the formulation of the new regulation
was still in a drafting process.
68. Referring to the point raised by the United States that they hoped to present additional
questions, he said that his delegation had no difficulty to accept any follow-up questions on China's
regime, not only on the implementation of the TRIMs Agreement.  However, he made China's
position clear that this kind of questions-and-answers exercise was not part of the review process;
there were many other channels besides the TRM for that.  China would welcome any questions a
Member wanted to present, but it would respond to them through other channels.
69. With regard to the technology transfer requirements, he reiterated his previous statement that
China had changed its laws and abolished these mandatory requirements.  As Members were aware,
the previous provision was that the establishment of a foreign-invested enterprise "…must adopt
advance technology".  It was a mandatory requirement, but the revised law had only stipulated that:
"The State encourages the establishment of wholly foreign-owned enterprises with….adoption of
advance technology".  His delegation believed that it was legitimate for China or any other Member to
have this kind of policy to encourage technology transfer if it was not a mandatory requirement.
70. With respect to the regulations on oil resources  exploitation, he repeated that this kind of
regulations were available in MOFTEC's web site and in the Gazette of Foreign Trade and Economic
Cooperation.  He said he would be ready to answer any additional questions or comments Members
might have.
71. The representative of the United States recalled that, in its written communication to China,
his delegation had raised five very specific questions about particular articles of various laws and
regulations.  He admitted that it was entirely possible that China had answered those questions in the
material that it had already provided.  However, if China had not done so, he would appreciate getting
some reaction from the Chinese delegation.
72. The representative of China confirmed that in his statement he had covered all the questions
raised by the United States.G/TRIMS/W/28
Page 7
73. Referring to the point made by China that any additional questions were outside of this
review, the representative of the United States said that, although he agreed that there was nothing in
China's protocol that required answers to be in writing, the protocol did require that the answers be
provided in advance of the meeting.  The implicatio n of this was that capitals would have been in a
position to review the information and perhaps pose  further questions at the present meeting, which
would then have been part of the review.  His de legation thus believed that it had the right to pose
further questions and would not consider the review completed until it had the right to put those
questions forward.
74. The representative of the European Communities said that, given the late arrival of the
Chinese answers and the fact that Members would only be given the opportunity to see China's
written statement after the meeting, his delegation encouraged a practical solution be found to the
possibility of submitting further questions, which would be both in the interest of those parties posingthe questions and in the interest of China itself.
75. The representative of Japan supported the statements of the United States and the European
Communities.  His delegation appreciated the answers from China, but it had expected to have their
oral statement in advance of the meeting.  Japan had still some clarifications outstanding, so his
delegation would also support some kind of procedure allowing for the opportunity to make furtherclarifications that would then be reflected in the report to the CTG.
76. The representative of China reiterated that his delegation would welcome any additional
questions and comments besides the TRM.  However, if any Member insisted that this kind of
exercise was part of the TRM process, his delegation would refuse to accept any additional questions.
If during the present TRM any Member had additional questions, China would make additionalreplies and supplementary comments.  If Members still had questions after the meeting, they could
forward them through China's enquiry point and China would respond to them within 30 days
according to its commitment under the Protocol of Accession.  He added that, in the future, Members
would have sufficient opportunity to put forward th eir questions, since they would have at least nine
years under the TRM to continue this exercise.
77. Members engaged in an exchange of views on procedural aspects, namely whether an
additional meeting to complete the first review under China's TRM would be needed, and on the
specific nature and contents of the report to be submitted by the Chairman to the CTG on this issue.
The representatives the United States, the European Communities
 and Japan  felt that they should be
allowed more time to consider China's replies and to submit additional questions and comments, ifnecessary.  They also considered that the Chairman 's report to the CTG should reflect the substantive
discussions and comments made by Members.  The representatives of China, Cuba
, Pakistan  and
Brazil felt that the review under China's TRM should be concluded at the present meeting and
expressed support for a short, factual report.
78. Referring to the TRIMs Committee's reporting obligation to the CTG, the Chairman said that
it was his understanding that Members would wish the TRIMs Committee to proceed in the same
manner as other WTO Committees in discharging this obligation.
79. After some discussion, it was agreed that the Chairman would prepare a short, factual report
to which would be attached the relevant paragraphs of the minutes of the present meeting where the
substantive discussion on this issue would be reflected, as well as references to all written
submissions made on this topic.  The report would be distributed to Members prior to its submission
to the CTG.  Members would then have an opportu nity to verify whether the comments they had
made had been properly reflected in the report.  If there were any observations by Members on the
facts included in the report, these would be taken into consideration and the report would then beG/TRIMS/W/28
Page 8
submitted to the CTG.  There would be no need for a new meeting to discuss this agenda item nor to
approve the Chairman's report.G/TRIMS/W/28
Page 9
Annex
Statement by the Representative of China
1. Thank you for giving me this chance to address the committee on the China’s implementation
of TRIMS agreement and related commitments in China’s protocol of accession.
2. First of all, I would like to begin my presentation with a brief account of the preparations by
our country prior to this review:
3. Pursuant to Article 6.2 of the TRIMS Agreement, on May 28, 2002, China notified the
TRIMS Committee the publication where investment m easures related to trade can be found, which is
the Gazette of Foreign Trade and Economic Cooperation of the People’s Republic of China. By doingso, we have completed our normal notification exercise as laid out by the TRIMS agreement.
4. Annex 1A of China’s accession protocol lays dow n the information to be provided by China
in the context of the Transitional Review Mechanis m. China has submitted its responses to the annex
with regard to the TRIMs before this meeting.
5. During this very first year after accession, the Chinese government has been fulfilling its
commitments, in a systematic and faithful manner,  according to the timetable for implementation as
set forth in China’s accession protocol and working party report.
6. Firstly, China has revised the Law of the People's Republic of China on Chinese-Foreign
Equity Joint Venture; Law on Chinese-Foreign Contractual Joint Venture; and Law on Wholly
Foreign Owned Enterprises and their respective implementing regulations, including the eliminationand cessation of enforcement of requirements on trade and foreign exchange balancing, local content,
export performance, compulsory technology transfer, and etc.
7. Law on Chinese-Foreign Equity Joint Venture; Law on Chinese-Foreign Contractual Joint
Venture; and Law on Wholly Foreign Owned Enterprises are the three laws of fundamental
importance concerning foreign investment administration.
8. Upon approval by the National People's Congress and its Standing Committee, modifications
have been made on the following laws and regulations at the time given: in October 2000, Law of the
People's Republic of China on Chinese-Foreign Contractual Joint Venture ; in October 2000, Law of
the People's Republic of China on Wholly Foreign Owned Enterprises;  in March 2001, Law of the
People's Republic of China on Chinese-Foreign Equity Joint Venture ; and in July 2001,
Implementation Rules on Law of the People's Republic of China on Chinese-Foreign Equity Joint
Venture . Modifications relating to implementation of commitments made in the WTO are as follows:
1. deletion of the following provisions on foreign exchange balancing requirements
(1) Provisions in Article 20 of the Law of the People's Republic of China on Chinese-
Foreign Contractual Joint Venture,  i.e., "a contractual joint venture shall maintain
foreign exchange balance by its own; if not, it may, in light of the State regulations,request for assistance from the authorities concerned ";
(2) Provisions in Article 18.3 of Law of the People's Republic of China on Foreign-
Invested Enterprises,  i.e., "a wholly foreign owned enterprise shall maintain foreign
exchange balance; in case a foreign-invested enterprise, upon approval by theauthorities concerned, engages in sales in the Chinese domestic market, which causesG/TRIMS/W/28
Page 10
imbalance of its foreign exchange, the authorities granting the approval of its sales in
the domestic market shall be responsible";
2. modification or deletion of the following provisions on local content requirements
(1) Article 9 of Law of the People's Republic of China on Chinese-Foreign Equity
Joint Venture  has been modified as "within its business scope approved, an equity
joint venture can purchase raw materials, fuel and others that it needs in the domestic
market as well as in the international market".
(2)Article 15 of Law of the People's Republic of China on Wholly Foreign Owned
Enterprises  has been modified as follows: "within its business scope approved, a
wholly foreign owned enterprise can, in light of fair and reasonable principle,
purchase raw materials, fuel and others that it needs in the domestic market or in the
international market "; previous provision, i.e., "in the same conditions, priority shall
be given to purchase in the domestic market", has been deleted.
3. modification or deletion of the following provisions on export performance
requirements
Article 3.1 of Law of the People's Republic of China on Wholly Foreign Owned
Enterprises  has been modified as follows: "the establishment of a wholly foreign
owned enterprise shall be conducive to the development of Chinese national
economy.  The State encourages the establishment of wholly foreign-owned
enterprises with export orientation and adoption of advanced technology".  Previous
provision, i.e., the establishment of a foreign-invested enterprise "must adopt
advanced technology, or export all or the most of its products", has been deleted.
In addition, the authorities concerned have repealed a number of regulatory measures
including Notice concerning Export for Balancing Foreign Exchange of Chinese-
Foreign Joint Ventures , which are incompatible with the commitments made by
China for accession to the WTO.
9. Secondly, China has comprehensively revised the guiding catalog of investment to ensure
WTO consistency.
10. To implement its commitments made for the accession to the WTO, China modified its policy
on foreign investment in 2002 by promulgating the revised Provisions on Guiding Foreign Investment
Direction and Industrial Catalogue for Foreign Investment , which came into force as from 1 April
2002.  To fully embody the commitments made for the accession to the WTO, China has liberalizedfurther the restrictions imposed on the proportion of foreign equity in investment projects and opened
new sectors to foreign investment.  The newly-opened sectors include telecommunications, urban
water supply and drainage, construction and operati on of gas and heat distribution network, which all
were previously prohibited from any foreign investment.  In light of commitments made in the WTO
with respect to geographic restrictions, quantitative restrictions, business scope, proportion of equityand timeframe, China has opened further such service sectors as banking, insurance, distribution,
trading right, tourism, telecommunications, transportation, accounting, auditing and legal services.
The timeframe and pace of opening of these markets, as committed in China's accession to the WTO,
has been contained in annexes to the Industrial Catalogue for Foreign Investment.
11. Thirdly, China has revised the industrial polic y for automotive sector as required by the
accession commitments.G/TRIMS/W/28
Page 11
12. China has revised the Law on Chinese-Foreign Equity Joint Venture; Law on Chinese-
Foreign Contractual Joint Venture; and Law on Wholly Foreign Owned Enterprises and their
respective implementing regulations, including the elimination and cessation of enforcement of
requirements on trade and foreign exchange balancing, local content, export performance and etc.
Provisional Regulations on Improving Domestic Production of Cars Using Tax Breaks has beenabolished. With these measures taken, corresponding provisions contained in 1994 Automobile
Industrial Policy have ceased to be valid and have not been enforced since China’s WTO accession.
The new Guidelines for Current Development Of Automobile Industry is in a process of review and
drafting.
13. China will strictly abide by its accession co mmitments to completely lift the restrictive
measures applicable to motor vehicle producers on categories, types or models permitted for
production in two years time since accession.
14. As for the right of approval for provincial auth orities with regard to investment in automotive
sector, relevant regulations are in the process of consideration and formulation which will be released
according to legislative procedures.
15. The laws and regulations of China’s foreign investment administration are characterized by
their broad coverage and great quantity. The amendment of the legislation and administrativemeasures entails huge tasks and requires enormous input of manpower and financial recourses. The
fulfilment of this task by Chinese government despite of tremendous difficulty is a further testimony
to the sincerity and resolve of China to honour its obligations and implement its commitments.
16. Several members have presented questions related to the investment measures of China in
advance of the meeting. Though China is not bound legally to provide written answers to thosequestions, we consider the comments and questions are beneficiary for the preparation of our
notification to the Committee. With many of these que stions overlapping with each other or reflecting
common interests, I would like to provide respon ses and answers to those areas of concern for
members.
1, on the information requested by the committee.
All the requested information in the context of  the TRM has been provided to the committee in
advance of the meeting.
2, the publication of the revision on the TRIM s-related laws and regulations, and uniform
implementation of the revised THREE LAWs, es pecially by the governments at local level.
The information of revision and implementation of the related laws and regulations has been
published in the Gazette of Foreign Trade and Economic Cooperation  and are available on the official
website of MOFTEC.
The current legal system of China effectively ensures the nation-wide uniform implementation of
China’s accession commitments and China’s laws, regulations and administrative rules. Any laws and
regulations at local level shall be in line with those at national level. The central government will
rectify any laws and regulations once the inconformity is identified. In view of strengthening the
uniform implementation, on April 21, 2001, the State Council published Regulations Prohibiting
Barriers between Regions in Market Economic Activities  to strictly prohibit the actions in conflict
with national laws by the local governments. The enterprises, which are set up according to the local
laws and regulations inconsistent with those at national level, and their operations will not be
protected by the law of China in the legal proceedings.G/TRIMS/W/28
Page 12
3, whether undertakings under non-TRIMs conform legislation continue to be enforceable
against producers, and procedures to amend the contracts.
The government of China respects contract freedom . According to Chinese laws on absorbing foreign
investment, the contracts and articles of association of a foreign invested enterprise shall go into effectonly after the approval of the competent authority.  Therefore, according to the Contract Law of
China, their revisions also need approval, so does the major changes to the articles of association of
the foreign invested enterprises.
If an enterprise changes its commitments made in  the contract, with the unanimous consent of the
investors of the enterprise and with the approval of  the original contract approval authority, it may
stop honouring the contract. Otherwise, the enterp rise shall continue to honour its commitment made
in the contract.  Such commitment cannot be deemed  invalid. The amendments to the contracts or the
articles of association can be made only after:
(1) the unanimous consent on the revision agreement or the draft of the contract or the articles
of association.
(2) enterprises submit the revision agreement or the draft of the contract, the articles of
association and related legal documents to the original approval authorities. If the authority is
MOFTEC, relevant papers shall be sent to local foreign trade administrative agencies
whereby to be presented onto MOFTEC.
(3) examination of the submitted documents by the original approval authorities. Renewed
certificate will be approved at the consent of the authority.
(4) in case where the registration items chan ge, enterprises shall fulfill the registration
revision procedures at the industrial and commerce administration.
Enterprises may go to the original approval authorities or local foreign trade administrative
agencies for relevant information.
4, what TRIMs-related laws and regulations have been eliminated as published by the Gazette
of Foreign Trade and Economic Cooperation, and what are the other channels for thepublications of this kind.
Chinese government has abolished and revised laws, regulations and administrative rules with
contents against the commitments China made for the accession to the WTO. Apart from the
legislations listed in our responses to Annex 1A, on November 16, 2001, MOFTEC issued the catalog
for the first batch of 6 departmental rules to be abolished (MOFTEC Ordinance No. 13), which
includes the Circular on restricting the Establishment Of Projects Of Peanut Products  Using Foreign
Capital, Urgent Circular on the Reiteration of The Ban On Projects Of Salted Or Canned Mushrooms
Using Foreign Capital, Circular On Stop Setting Up Sino-Foreign Equity Joint Ventures For The
Production Of Leather Gloves For Labor Insurance,  Circular On The Strict Control Of Using
Foreign Capital To Set Up Projects of Exporting Processed Metal Products Using Imported Waste
Metals, Circular On The Unified Operation Of The Pearl Business  and Circular On MOFTEC Being
The Authority To Issue Pearl Export Licenses .  On December 19, 2001, MOFTEC issued Ordinance
No. 30 declaring the abolition of 3 more rules, including Supplementary Circular On The Issue Of
Wholly Foreign-Own Enterprises Importing Materials For Self Use, Circular By MOFTEC On IssuesRelated To Foreign-Invested Enterprises Importing Equipments and Supplementary Circular On The
Unified Operation Of The Pearl Business And Fastening Control Over The Pearl Market .  On March
21, 2002, MOFTEC issued Ordinance No.24 abolishing the Implementing Rules of the Regulations on
the Management of Technology Import Contracts .  On October 6, 2001, the State Council abolished,G/TRIMS/W/28
Page 13
among others, Administrative Measures For The Production Of Electronic and Machinery Products
Instead Of Import By Sino-Foreign Equity Joint Ventures Or Sino-Foreign Contractual Joint
Ventures, Measures For Sino-Foreign Equity Jo int Ventures Or Sino-Foreign Contractual Joint
Ventures To Produce Products Instead Of Import and Provisional Regulations On The Management
Of Technology Contracts.  The above-mentioned information can be found both in the Gazette of
Foreign Trade and Economic Cooperation and on the website of MOFTEC.
5, on the alleged inconsistency by some members between two specific investment regulations
and China’s commitment in Para. 203 in the Working Party Report.
(1) Article 6.3 of the Regulation on the administration of Foreign Investment in the Road
Transportation Industry  requires 50% of an enterprise’s registered capital to be used for particular
purposes, i.e., the construction and renovation of the passenger transportation infrastructure.
We consider the requirement provides for a fundamen tal basis for normal operation of an enterprise in
passenger transportation business. Moreover, this is a requirement equally applicable to both domestic
and foreign enterprises and thus not constituting a restriction for investment. This article is notconflicting with China’s WTO commitments and China does not plan to revise or abolish this article.
(2) In  Regulations On The Joint Exploration Of Offshore Oil Resources With Foreign Parties and
Regulations On The Joint Exploration Of Onshore Oil Resources With Foreign Parties, foreign
partner is required to provide relevant data and admit Chinese participation into the operationaldesign.
The petroleum resources referred to in the regulations are the resources owned by the nation of China.
The ownership of any numerical data, records, samples, evidence, and other original data based on
these resources is indisputably lies with the Chinese oil company. As one party of the contract, it’s inthe right of the Chinese oil company to obtain information on the prospecting and development
activities covered by the contract. In light of the uniqueness of the oil exploitation business, the
Regulations lay out necessary provisions on the rights and obligations of the foreign partner. The
obligations contained in the Regulations are fair and appropriate, and they are in proportion to the
rights enjoyed by the foreign partners. The content at issue in the regulations has no linkage to the
commitment in Para. 203 of the Working Party Report.
6, the relationship between the contribution of technology by a foreign enterprises addressed by
Article 6 of the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures  and
the China’s commitment to eliminate mandatory technology transfer.
The laws and regulations on foreign investment make no mandatory provisions on technology transfer
and do not condition the approval of foreign invested enterprises on the transfer. Like most
developing economies, China hope to benefit from the advanced technology and management skills of
other countries apart from the foreign investment. China has not made technology contribution a
compulsory requirement. But if a foreign investor is willing to make contribution of technology based
on the business merits which is also in line with China’s development needs, China welcomes andencourages the transfer. We see no contradiction between this article and our commitments and we
have no plan to revise or abolish this article.
7, On the preferential approval treatment to th e joint ventures who do not need export quota
and license as contained in the Article 6 of Implementing Regulations for Sino-Foreign
Cooperative Enterprises.
There are no differential treatments in granting approval to the establishment of contractual joint
ventures as to whether their exports are regulated by quota and  license or not. Currently, the exportG/TRIMS/W/28
Page 14
quota and license for foreign invested enterprises are issued solely by MO FTEC. According to the
regulation, the joint ventures that do not need export quota and license can be approved by local
governments or departments authorized by State council, while those enterprises subject to quota and
license have to be proved by MOFTEC. This prov ision can let the enterprises operating with export
quota and license know, even before the establishment, whether they can get the export quota andlicense so as to reduce the possible difficulties for the business of these enterprises. We see no
contradiction between this article and our commitments and we have no plan to revise or abolish this
article.
8, two issues regarding  Guiding Industrial Catalog for Foreign Investment.
(1) the justification of Circular Regarding Furthe r Strengthening the Management of Duplicating CD
of 1996 under the WTO framework.
For the purpose of Intellectual Property protection, China encourages the production of CD instead of
the recording of it. The Circular on Issues Regarding Setting-up and Equipment import of the Sino-
Foreign Equity or Contractual CD Recording and Production Enterprises  issued in November of
2000 jointly by Press and Publication Administration and MOFTEC explicitly provides against, in
principle, the establishment of Sino-Foreign equ ity or contractual enterprises CDROM reproduction.
The 1996 circular refer the CD reproduction as the copy and production of CDROM and recordable
CD, and the writing of the mother CD. The Guiding Industrial Catalog for Foreign Investment  came
into force on April of 2002 only listed production of recordable CD(CD-RCD-RWDVD-RDVD-ARM) as encouraged without including the reproduction of recordable CD. Both the 1996
and 2000 circular did not set any restrictive measures against the production of recordable CD. The
approval procedures for foreign invested CD production enterprises enlisted in the 1996 circular were
set out in light of the administrative demand for the CDROM production and had no conflict with the
Guiding Industrial Catalog for Foreign Investment.
(2) the consistency between the restrictions on production and domestic sales percentage and the
Working Party Report.
The regulation on cellular phones production and sales in 1998 has no direct linkage with the China’s
WTO commitments. However, to improve the development of mobile phone industry and foreign
investment inflow, relevant departments are con ducting review on the 1998 regulation and requesting
the comments from domestic and foreign enterprises al ike. We will make efforts to publish the result
of the review in a shortest possible time.
9, four issue regarding the automobile industry.
(1) the validity of 1994 policy.
China has amended the provisions on foreign exchange balancing requirements, local content and
export performance and technology transfer requirements contained in the Three Laws. As those
Three Laws are of fundamental status for foreign investment administration, all the other relevantlaws and regulations shall submit to them and be accordingly revised along the line. Provisional
Regulations on Improving Domestic Production of Cars Using Tax Breaks has been abolished.
Automobile Industry Policies are in the process of modification with provisions like domestic
production, export requirement and mandatory technology transfer already annulled. As for the
revision 1994 industrial policy, it is not difficult for China to abolish the provisions like domesticproduction as such. Given the great interests and various comments from both domestic and foreign
enterprises, however, we are conducting an in-depth re search and study with a view to fully reflecting
the concerns of all interested parties in the new policy. Once the review concludes, we will issue the
new Guidelines for Current Development Of Automobile Industry replacing the original policies.G/TRIMS/W/28
Page 15
(2) the application of tariff rates for finished automobiles on the imported parts.
This is a issue having nothing to do with the requirement of domestic production. The imposition of
finished automobile tariff on excessive imported parts over a certain percentage is based on thecustom commodity classification. It’s in consistency with the principle of world custom classification
to regard the imported car parts over a certain threshold as finished automobile. So, the existing
practice has no contradiction to the WTO agreement.
(3) status of the repeal of restrictions for the licensing of auto production.Please refer to the information provide by China according to the Annex 1A of China’s accession
protocol. The Chinese government shall completely lift the said measure in line with the commitment
made with respect to the timeframe, so as to ensure  that motor vehicle producers have right to choose
categories, types or models of vehicles they will produce in 2 years.
(4) status of independent approval by provinci al governments for investments in motor cycle
manufacturing.
Please refer information provided under Annex 1A. It is expected that in compliance with its
commitments made with respect to the timeframe, by the end of 2002 the Chinese government will
endeavour to publish a circular increasing limits of investment to be approved by provincialauthorities.
17. I hope the information provided to the committ ee prior to the meeting and the explanation I
made just now will help members understand the efforts and achievements made by China toimplement the TRIMs agreement and its commitments. The written form of my statement will be
submitted to the Committee and circulated after the meeting.  Please check against delivery.  I would
like to take this opportunity to thank you and the secretariat for the painstaking preparation and
effective work for this meeting.
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