WORLD TRADE
ORGANIZATIONG/SCM/111
18 November 2003
(03-6162)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
CHAIR'S REPORT TO THE COUNCIL FOR TRADE IN GOODS
ON TRANSITIONAL REVIEW OF CHINA
1. The Committee on Subsidies and Countervailing Measures undertook the second transitional
review of China pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic
of China (WT/L/432) at its regular meeting on 28 October 2003.
2. Annex 1A to the Protocol requires China to  submit information on the following to this
Committee:  "Pricing Policies": (a) "application of existing or any other price controls and the reason
for their use"; and (b) "pricing mechanisms of Chin a's state trading enterprises for exported products".
China submitted a notification in this respect on 24 October 2003.  It can be found in document
G/SCM/N/104.
3. Members had submitted questions in the context of the transitional review.  These can be found
in documents G/SCM/Q2/4-6 (questions submitted by Mexico, the European Communities and the
United States, respectively).
4. The statements made at the meeting of 28 October 2003, at which the transitional review was
Item M of the agenda, are reflected in the minutes of the meeting, which will be circulated asdocument G/SCM/M/48.  The relevant paragraphs, which reflect the statements made and the
discussion at the meeting, are annexed.G/SCM/111
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Excerpt from the minutes of the regular meeting of the Committee on Subsidies and Countervailing
Measures held 28 October 2003, to be circulated as document G/SCM/M/48.
M. TRANSITION REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF
ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE WORLD TRADEORGANIZATION
1. The Chair recalled that paragraph 18 of the Pr otocol of Accession of the People's Republic of
China to the World Trade Organization provided that all subsidiary bodies, including this Committee,
"which have a mandate covering China's commitments under the WTO Agreement or [the] Protocol
shall, within one year after accession ... review, as appropriate to their mandate, the implementation
by China of the WTO Agreement and of the related provisions of [the] Protocol."  China was to
provide relevant information in advance of the re view, including information specified in Annex 1A
to the Protocol.  China could also raise issues rela ting to any reservations under Section 17 or to any
other specific commitments made by other Members in the Protocol, in subsidiary bodies which had a
relevant mandate.  The Chair said that this Committ ee had to report the results of the review promptly
to the Council for Trade in Goods.  Review was to take place after accession in each year for eight
years, with a final review in year 10 or at an earlier date decided by the General Council.
2. The Chair said that there were no procedures set out for the conduct of the transition review in
the Protocol, except that China was to provide releva nt information in advance of the review.  In this
regard, the Chair noted that Annex 1A specified China was requested to provide information on the
following to this Committee in accordance with Article 18.1 of its Accession Protocol:  "PricingPolicies":  (a) "application of existing or any other price controls and the reason for their use";  and
(b) "pricing mechanisms of China's state trading en terprises for exported products".  She said that
China had submitted a notification in this respect on 24 October 2003, which had been circulated as
document G/SCM/N/104.
3. The Chair noted that the delegations of the European Communities, Mexico and the United
States had submitted questions and comments in the context of the transition review, which had been
circulated in documents G/SCM/Q2/CHN/4-6.  Befo re proceeding to these questions, the Chair
opened the floor for any general comments from Members.
4. The delegate of the United States recognized China’s efforts over the past year as it worked to
fashion a countervailing duty and subsidies regime that was transparent, subject to the rule of law and
in compliance with WTO rules.  He stated that th is process was, however, not complete and that, in
the spirit of the Transitional Review Mechanism ("TRM"), they were taking the opportunity to
highlight areas where further improvements could be made.  To assist in making this review as
productive as possible, the United States had also submitted written questions.  The United States
noted that written questions and answers were the most practical and appropriate form of accuratelytransmitting technical information.  It further not ed that it was in the interests of all Members,
including China, to promote a free exchange of in formation through the mechanisms provided by the
WTO, including the TRM.
5. The United States applauded China’s ongoing efforts to establish and complete the legal
framework of its countervailing duty regime prior to imposing measures.  China had issued
Ministerial rules on industry injury investigations, as well as judicial rules on hearing countervailing
duty appeals.  Nonetheless, gaps remained in this le gal structure, including in the areas of interim and
expiration reviews, rules and procedures on access to non-confidential information, and undertakings.
6. The United States noted that China had notified many of its countervailing duty laws and
regulations to the WTO.  Other such laws and regulations, including those concerning judicial review
of countervailing duty measures, had not been notified.  The delegate of the United States recalledG/SCM/111
Page 3
that notification of such laws and regulations was required by the WTO, specifically, Article 32.6 of
the Subsidies Agreement, to increase the transparency of Members’ countervailing duty regimes,
including the judicial review process.  The United States therefore expected China to notify, to the
SCM Committee, all laws and regulations that had a bearing on countervailing duty investigations and
reviews.
7. China had informed the SCM Committee that the roles played by the Ministry of Foreign
Trade and Economic Cooperation and the State Economic and Trade Commission were now
subsumed under the Ministry of Commerce.  The role of the State Council Tariff Commission was
still not completely clear, however.  Nor did it app ear that China had issued regulations governing the
actions of the Tariff Commission in countervailing duty investigations or reviews.  The United States
urged China to clarify the oversight role of the State Council Tariff Commission, including when itmay exercise discretion in the course of an investigation.  The United States further encouraged China
to establish procedures for publicising the Tariff Commission’s decisions in countervailing duty
actions.
8. In the area of subsidies, the delegate of the United States stated that the United States was
disappointed with China’s failure to submit its annual subsidy notification, required under Article 25.1
of the Subsidies Agreement.  In fact, China had not made an Article 25.1 notification since joining the
WTO nearly two years ago.  The United States urged China to submit a new and full notification of its
subsidies as soon as possible and, in any event, China should immediately notify what it could, even if
such a notification was not comprehensive.  By not participating in the notification process, Chinaundermined the transparency that Members had worked hard to develop and hampered the ability of
Members to confirm that China was complying with  its obligations under the Subsidies Agreement
and its Protocol of Accession.
9. In the view of the United States, an example of the uncertainty that China’s lack of
notification fostered concerned subsidies provided to certain state-owned enterprises which were
running at a loss.  According to China’s Protocol of Accession, this subsidy was to end in 2000.  The
representative of China had told the SCM Committee the previous year that the programme had been
eliminated in 2001.  However, the delegate of the United States stated that, according to recent
Chinese press reports, the Government was currently working to eliminate this programme.  He
explained that by providing more detailed information on the programme, such as the decrees that
ended or would end the programme at the central and local levels, China would help dispel confusionamong other Members concerning the status of these subsidies.
10. The United States welcomed China’s efforts to increase the transparency of its countervailing
duty regime and to bring it into conformity with WTO rules and urged China to do the same with
regard to its subsidies.  The United States stated that it wished to foster mutual cooperation andunderstanding on this front through multilateral mechanisms, such as a TRM process, and through
bilateral technical exchanges.
11. Finally, the United States asked that the Committee’s TRM report to the Council for Trade in
Goods reflect not only the discussion under the TRM agenda item but also the earlier discussion withregard to China’s CVD laws and regulations and China’s subsidy practices that had not yet been
notified.  It further requested that all the relevant minutes, Members’ questions and China’s responses
be appended to, or referenced in, the report.
1
                                                     
1 As indicated in the minutes of agenda item B, the Committee reviewed, through the exchange of
questions and answers referred to there, Ch ina's new legislative notification (document
G/SCM/N/1/CHN/1/Suppl. 2).  As indicated in the minutes of agenda item H, the Committee reviewed, throughthe exchange of questions and answers referred to there, China's previously reviewed legislative notification
(document G/SCM/N/1/CHN/Suppl.1).G/SCM/111
Page 4
12. The Chair thanked the United States for its statement and invited other delegations to make
comments.  She reminded the Committee that the questions raised by Mexico, the European
Communities and the United States in the transition review context could be found in documents
G/SCM/Q2/CHN/4, 5 and 6, respectively.  The delegate of China was invited to take the floor torespond to the questions and comments that they had received.
13. The delegate of China thanked the Chair for giving them the floor to address the Committee
on the implementation of China’s commitments and to respond to the questions raised by Members in
that meeting with regard to subsidies and counter vailing measures in the past year within the
framework of paragraph 18 of China’s Protocol of Accession.
14. Part I – Implementation of the Agreement and China’s commitments.   The delegate of
China stated that China had submitted relevant information to the Committee prior to the meeting
pursuant to the requirement of Annex I(A)  of the Protocol on China’s Accession.2  Since last year,
China had notified five ministerial rules and regulations on countervailing measures, namely:
provisional rules on initiation of countervailing investigations3; provisional rules on public hearings of
countervailing investigations4; provisional rules on questionnaires of countervailing investigations5;
provisional rules on on-the-spot inspection in countervailing investigations6; and rules on
investigations and the determination of indust ry injury in countervailing investigations.7
15. China stated that on 11 September 2002, the Supreme People’s Court had adopted the
provisions on questions relating to the application of  law in adjudicating administrative countervailing
cases, which had come into force on 1 January 2003, in an effort to further explain acceptance and
hearing of the administrative countervailing cases by the People’s Court.  It added that these would be
notified to the WTO according to the notification procedures.
16. The delegate of China said that in the past year China had initiated no countervailing
investigations.
17. Part II – Responses to Members’ questions.   The delegate of China mentioned that some
questions had reached them just one day ahead of the meeting.  She said that this was not only
inconsistent with WTO practice, but also extrem ely unhelpful for making meaningful accurate and
appropriate responses, thus undermining the value and the necessity of the TRM exercise.  However,in the spirit of cooperation, China had tried to address these questions in the best possible manner.
18. First, with regard to the question of granting of subsidies at a national and a subnational level
to enterprises, she stated that China had terminat ed all export subsidies.  For example, at present,
China maintained no subsidies or subsidy schemes in the textile industry, which was in conformitywith China’s accession commitments.  The China Nati onal Textile Industry Council referred to in the
questions had not engaged in any work related to subsidy schemes.  The delegate of China stressed
that the reports were not true.  Since accession to the WTO, China had embarked upon extensive
efforts in the collection of subsidy information.  A number of difficulties had been encountered during
the process, including the partial understanding of the WTO notification requirements by localofficials, under-performance of the domestic information collection system and varied criteria on
statistics.  Measures were being taken to address these issues, both on the national and subnational
                                                     
2 Circulated in document G/SCM/N/104.
3 Circulated in document G/SCM/N/1/CHN/1/Suppl.1.
4 Circulated in document G/SCM/N/1/CHN/1/Suppl. 1.
5 Circulated in document G/SCM/N/1/CHN/1/Suppl. 1.
6 Circulated in document G/SCM/N/1/CHN/1/Suppl. 1.
7 Circulated in document G/SCM/N/1/CHN/1/Suppl. 2.G/SCM/111
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level, for example, the strengthening of the communications between ranks of officials, briefings by
WTO experts, and the translation of the technical cooperation handbook on WTO notification
requirements.  China was vigorously pushing forward work but that they were not in a position to give
a specific timeframe for the completion of it.
19. Second, on the question on the requirements for a company to be considered a foreign direct
investment enterprise devoted to exports and income tax exemptions or rebates granted to such
enterprises, the delegate of China stated that Article 3 of the Law of the PRC on Wholly Foreign-
owned Enterprises stipulated that the establishmen t of a wholly foreign-owned enterprise shall be
conducive to the development of China’s national economy.  The State encouraged the establishment
of wholly foreign-owned enterprises with export  orientation and adoption of advanced technology.
Article 17 stipulated that wholly foreign-owned enterprises shall pay taxes in accordance withrelevant state regulations and may enjoy preferential treatment of tax reduction or redemption.
Paragraphs 7 and 8 of Article 75 of the Rules of Implementation of the Income Tax Law of the PRC
for Enterprises with Foreign Investment and Foreign Enterprises stipulated that after expiration of the
period of income tax exemption and the reduction the foreign investment enterprises whose export
volume for a year exceeded 7 per cent of their production for the same year were entitled to a 50 percent rebate of the normal rate of income tax as provid ed by tax law.  The enterprises located in special
economic zones, or economic and technology development zones, or any other exporting enterprises
that already enjoyed an income tax rate of 15 per cent, would pay income tax at the rate of 10 per cent
if they also met the above requirements.  The consistency of this provision with the SCM Agreement
was currently being reviewed.
20. Third, on the question on the export performance requirement in the Wholly Foreign-Owned
Enterprises Law for wholly foreign-owned enterprises to be eligible for tax breaks, China noted that
there were three laws governing foreign investment  enterprises, namely the Law on Chinese Foreign
Equity Joint Ventures, the Law on Chinese Foreign Contractual Joint Ventures, and the Law onWholly Foreign-Owned Enterprises.  Among these three laws, only the Law on Wholly Foreign-
Owned Enterprises used to contain the requirem ent on export performance.  As part of the
preparations for joining the WTO in October 2000, Article 3.1 of the Law on Wholly Foreign-Owned
Enterprises was amended as follows: the establishm ent of a wholly foreign-owned enterprise shall be
conducive to the development of China’s national economy.  The State encouraged the establishment
of wholly foreign-owned enterprises with export  orientation and adoption of advanced technology.
The original provision, that the establishment of a foreign invested enterprise must adopt advancedtechnology or export all or most of its products, had been replaced.
21. Fourth, on the question about alleged information provided by the web site of the Shanghai
Foreign Investment Centre, the delegate of China stressed that the web site of the so-called Shanghai
Foreign Investment Centre was not a government web site and information it posted was notauthoritative and did not have binding power.  Sh e stated that Members could get access to the
relevant laws and regulations through the government designated journal:  the China Foreign Trade
and Economic Cooperation Gazette.
22. Fifth, on the question on alleged different prices for energy, transport, water and
telecommunications suggested in the information from  the above said web site, the delegate of China
said that she would like to make some clarifications in this regard, although the source of the
information remained unclear.  She stated that there was no such practice as different pricing for
energy, water, power, transportation and telecommunications between state-owned enterprises and
other types of enterprises.  The practice of multiple pricing for one commodity or service had beenentirely eliminated in China.  State pricing a nd government guidance pricing only applied to goods
and services, regardless of the ownership of the enterprises.  Enterprises of all types, including state-
owned enterprises, foreign investment enterprises and foreign enterprises in China were treated on an
equal footing in the process of determining government pricing and guidance pricing.G/SCM/111
Page 6
23. Sixth, on the question on the new scheme of the VAT redistribution system for copper
production, the delegate of China noted that questions in this regard had already been addressed in the
TRM of the Committee on Market Access on 20 October 2003.  China felt it preferable not to repeat
those responses in the SCM Committee meeting due to the limited time.
24. Seventh, on price control and government guidance pricing, the delegate of China stated that
China had reduced the scope of products and services and the government price control and that
vegetable oil had been lifted from the list of Annex 4 of China’s Accession Protocol in 2001.  She
further stated that China had not, and did not, plan to expand the scope of products in services subject
to state pricing or guidance pricing and that any changes to the scope of these products and services
would be published in the China Foreign Trade and Economic Cooperation Gazette.
25. Before giving the floor to another colleague in the Chinese delegation, the delegate of China
said that she hoped that the information provided prior to the meeting and the explanation she had just
made would help facilitate the review.  She invited her colleague to provide additional comments
concerning other comments or statements.
26. The delegate of China thanked the United States for the interest it had shown in the TRM
process and for its recognition of the progress that China had made in the field of subsidies and
countervailing measures.  Before responding to the points raised in the US statement, he noted that
although the points contained in the statement were presented as “general comments”, those pointswere actually like questions, so, in effect, they had a list of questions.  He encouraged the US to have
posed those questions in a list in advance of the meeting, so as to facilitate China’s preparations for
making appropriate responses.
27. The delegate of China stated that there were a number of points contained in the US
statement.  Concerning the request for making written replies to the questions raised by the relevant
Members, he noted that under paragraph 18 of China’s Accession Protocol, the only requirement was
for China to provide the information, including the information specified in Annex I(A) of the
Protocol, in advance of the review.  He stated that China had already provided such information in
writing to this Committee prior to the convocation of the meeting
8 and, in addition, the statement
which had just been made by the head of the Chinese delegation would also be made available in
written form after the meeting to interested Memb ers.  China believed that the information just
referred to in written form, plus the oral responses to the replies it had made during the meeting, were
already sufficient for warranting a meaningful and effective review, as well as an exchange of
information.  He stated that to request otherwise would not only be inconsistent with the mandate of
paragraph 18, but also place an unforeseen and undue burden on China.
28. The delegate of China noted that there was another procedural request contained in the last
paragraph of the statement by the US, namely to reflect China’s CVD laws and regulations on
Chinese subsidy practices which had not yet been notified in the TRM report of the Committee to the
Council for Trade in Goods, as well as that the relevant minutes, Members’ questions and China’s
responses be appended or referenced in that report.  The delegate of China stated that he wished toconsult his colleagues from the US as to the legal basis for such a request before China made
appropriate responses to this request.
29. The delegate of China wished to address other questions, such as the request for not only
legislative notifications, but also subsidy notifications.  He emphasized that China also attached greatimportance to making such notifications because it was their view, and they believed that it was also
the view shared by many, that making such notifications was conducive to the sharing of information
                                                     
8 Annex 1A information circulated in document G/SCM/N/104.G/SCM/111
Page 7
and also for improving the transparency of the domestic processes of different countries.  China
wished to reaffirm its commitment to fulfilling its notification obligation.
30. The delegate of China said that there had been a question concerning the gaps that remain in
China’s legal structure, for example, in the areas of interim and expiration reviews in the field ofcountervailing measures.  He pointed out that, so far, China had not initiated any countervailing
investigations but that China was, however, in the pr ocess of making such legislation just in case such
an investigation might be initiated in the future.  He stressed that delegates could be reassured that
China would honour its commitments in the WTO and continue to bring its legislation in line with
WTO rules, including in the field of countervailing investigations.
31. Regarding the role of the Tariff Commission of the State Council of China, the delegate of
China noted that this question had been repeated a number of times both in the Committee on
Safeguards and in the Committee on Anti-Dumping Prac tices.  He stated that the role of the Tariff
Commission was quite clear, as referred to, or provided for, in the three regulations that China had so
far promulgated, namely the regulations on anti-dumping investigations, the regulations on
countervailing investigations and the regulation on safeguards.  The role, to put it simply, was for theTariff Commission to make determinations on the rates of the anti-dumping, countervailing or
safeguards duty on the proposal of the former  MOFTEC, now MOFCOM.  He added that the duty
rates that it decided would not exceed the proposed  rate of MOFCOM.  He believed that this had
already been made quite clear by China.
32. The delegate of China noted the question concerning subsidies provided to certain state-
owned enterprises running at a loss.  He confirmed that it was established policy to eliminate such
subsidies provided to state-owned enterprises running at a loss.  He noted that allegations had been
made in the US statement that, according to some  recent Chinese press reports, the Government was
still in the process of eliminating this programme instead of terminating the whole programme by the
year 2002.  He requested the US delegation to provide China with more detailed information with
regard to these press reports, such as the source of the reports, the time when the reports had been
published and the sectors, industries or enterprises which were involved in such reports, so as to
facilitate China’s efforts in making appropriate responses to the question.
33. The delegate of China concluded that he could not see any further questions in the US
statement and hoped that his responses would be satisfactory to the US.
34. The representative of the European Communities stated that, at the last TRM exercise, his
delegation had raised four distinct issues:  complian ce of subsidy notifications; export subsidies; price
controls, in particular vis-à-vis  state-owned enterprises; and, finally, countervailing duty laws and
regulations.  He stated that, since last year, a lot of  progress had been made concerning one of those four
items – the countervailing duty law and regulations – and he thanked China for providing legislation,
implementing regulations and replying extensively to Members’ questions.
35. He noted, however, that with regard to the other three items, there were even more concerns
regarding the compliance of China with WTO rules th an one year ago.  This was a rather disappointing
situation.  Many of these concerns had been create d by a lack of transparency.  He had taken careful
note of China’s reaffirmation of its commitments to abide by its transparency obligations.  However, he
stressed that words would have to be followed by d eeds.  He further noted that two years after China’s
accession to the WTO, delegations were still waiting for a subsidy notification, despite the fact that a
decent subsidy notification had already been produced  by China in the context of the accession process.
36. The representative of the European Communitie s stated that whether or not WTO Members
complied with notification obligations was not just an academic question.  As an example, he referred to
the issue of possible subsidies to the copper industry.  He noted that replies to EC questions concerningG/SCM/111
Page 8
this particular issue had not been given at the meeting.  These were very specific questions, asking for
information in the subsidy notifica tion format, information that had cer tainly not been requested in this
format in other Committees.
37. Turning back to the example of copper, the representative of the European Communities noted
that a severe distortion of international trade with  regard to the supply of copper scrap, which was input
for refined copper, had taken place towards smelters and refiners in China.  Detailed research, in which
the EC had had to resort to web sites because there was no other information available, had revealed that
the reasons for this shift were schemes which appa rently constituted subsidies.  The very purpose of
notification obligations, however, was to ensure tran sparency from the start and an imbalance regarding
transparency as it currently existed was highly unsa tisfactory.  Furthermore, he noted that, while they
had listened carefully to statements that export subsid ies were a thing of the past and that a preferential
pricing for state-owned firms had ended, they still ha d difficulties with reconciling this with commercial
reality.  Commercial reality was also reflected in  the way certain information was being provided to
economic operators.  He stressed that, again, this wa s an issue of transparency.  He further noted that
they did not have any official information provided by China in the required format and that that was
why they had to resort to information from different  sources.  Again, he stressed, this was an issue of
transparency which had to be addressed.
38. The representative of the European Commun ities carefully noted the statement that under
certain provisions of Chinese laws, income tax advantages were contingent upon export volumes
exceeding certain thresholds.  The European Communitie s held the view that this was a clear indication
of export contingency within the meaning of Article  3 of the Subsidies Agreement and they encouraged
China quickly to finalize its analysis with re gard to WTO compliance of those provisions.
39. In conclusion, the delegate of the European Comm unities stated that the situation with regard to
the three items that he had mentioned was highly uns atisfactory and he strongly encouraged China to not
only continue, but to increase, its efforts in this area.
40. The delegate of Mexico thanked China for th e answers provided to their questions, which he
thought would be very usef ul.  He noted that many of the ques tions Mexico had posed, and which had
been replied to, referred to technical or sector-speci fic issues.  Therefore, he thought it appropriate for
China to provide Mexico with written answers, as re quested in their document, and if possible to attach
the relevant legislative instruments to enable a be tter understanding.  He noted that this would avoid
Mexico posing additional questions.
41. The delegate of the United States wished to continue the dialogue with respect to the US
statement and China’s response.  He thanked Chin a for its statement with respect to its subsidy
programmes and thought that it would be helpful for al l delegations to gain a greater appreciation for the
programmes involved.  He expressed an interest in obtaining a copy of the written statement that had
been read by the head of Chinese delegation.  The United States wished to echo the comments of the
European Communities with respect to benefits that are contingent upon export performance.  The
United States shared the view that these were export subsidies potentially in violation of Article 3 of the
Subsidies Agreement and took note of China’s agreemen t to eliminate such subsidies in the course of
their accession.
42. Secondly, the United States t ook note of China’s commitment to provide a subsidy notification.
The delegate of the United States said that he unders tood the difficulties of providing such a notification
and working with sub-federal governments and he em pathized with the difficulties that he felt sure
China was having.  However, he felt the need to echo the comments of the European Communities that
concrete actions would have to be taken in this respect.G/SCM/111
Page 9
43. The delegate from the United States said that  his delegation would appreciate further details
being provided in the meeting with  respect to the new VAT scheme.  He thought that some subsidy
issues had been raised and, as he had not been in the Market Access Committee meeting, he would
appreciate if further details could be provided in the SCM Committee meeting.
44. Finally, with respect to the subsidies to state-ow ned enterprises running at a loss, the delegate of
the United States said that, if he was not mistak en, this programme had been described in China’s
accession documents.  He questioned whether it was othe r Members’ responsibility to point out to China
a programme that China itself had previously describe d to the WTO.  The United States confirmed that
they had a press report from which they had gained the information used in their statement.  This press
report, entitled “Finance Ministry overhauls state en terprise subsidies to comply with WTO rules”, was
dated 20 September 2003.  The United States stated th at they would happily provide China with a copy
of the press article at the end of the meeting.  However, the delegate of the United States again
emphasized that, in the view of the United States, it was not their responsibility to hunt for programmes
and bring them to China’s attention.  He stated that the notification obligation was an exercise in
transparency that all delegations had undertaken.  He admitted that it was a difficult exercise and that all
delegations had suffered difficulties.  He therefore encouraged China to move forward as rapidly as itcould.
45. The Chair thanked the United States for its statem ent.  She recalled to the delegate of the United
States that China had asked for clarification on the legal basis for the requests made by the United States
with regard to general comments.
46. The delegate of the United States replied that it  was his understanding that this was a part of the
normal TRM process that had been followed the previous year.
47. The Chair thanked the United States for the clarification, and offered the floor to Japan.
48. Japan stated that it would like to share the concerns raised by the United States and the
European Communities because their industry, especi ally the smelting copper industry, had a very keen
concern about the issue of the VAT redistribution syst em scheme.  It had been very difficult for Japan to
get relevant information about this scheme and, for this reason, Japanese industry had grave concerns
about this issue.  This had meant that the Japa nese Government had been requested to provide
cooperative assistance to the copper industry.  In th is sense, Japan would appreciate any information
China could give on this issue.
49. The delegate of China thanked the delegates from the European Communities, Japan, Mexico
and the United States for the follow-up questions a nd offered to respond to some of the questions that
had been raised.  Concerning the notification obliga tion of China, China stated that it was very serious
about fulfilling its notification obligations and that it was in the process of improving its notification
system so as to be up to the standard set by the WTO.
50. On other specific issues, the delegate of Chin a noted that the question regarding the so-called
VAT redistribution scheme for scrap copper had been raised by both the European Communities andJapan.  He wished to make some small clarifica tions.  On this scheme, starting from 2000, China had
started to introduce the policy of refining part of the income of value added tax for the imported copper
for some of the state-owned copper smelters and refineries.  After China’s accession to the WTO in
December 2001, it had modified this policy to make it consistent with the principle of national
treatment.  Starting from 2002, the scope of this pol icy had been extended to cover all enterprises
regardless of their ownership types.  He therefore c onsidered that China had already brought this policy
in line with the WTO requirement.  Regarding other follow-up questions, both China's policy and
practice was to eliminate export subsidies, and, thanks  to the efforts that it had made in recent years,
China believed that it had already brought its system in line with WTO requirements.G/SCM/111
Page 10
51. The delegate of China noted that Mexico had made a request for provision of written replies to
questions under the TRM agenda item.  He stated that the reasons for not accepting this request had
already been given at the meeting.  To make such  written replies, in China’s view, would be going
beyond the mandate of paragraph 18 of the Accession Prot ocol of China.  He stated, however, that it was
China’s intention and practice to provide all the information necessary for a very meaningful and
effective review under this agenda item.  He said that China had kept open the channels of bilateral
consultations with Members concerned and assu red the Committee that China would provide very
ample and adequate opportunities for the exchange of  relevant information requested by the Members.
52. The delegate of the European Communities than ked the delegation of China for its replies to
some of their follow-up questions, in particular on the VAT scheme.  He thanked the delegation of
China for its statement that this scheme had been modified in order to comply with national treatment
obligations.  However, he noted that the question put by his delegation had been somewhat different.
The European Communities was interested in understanding how this programme worked, what the
subsidy actually was, and to whom the subsidy was provided.  The delegate of the European
Communities stated that his delegation was still lackin g any information with regard to this type of
information.  He strongly encouraged China to prov ide information on that scheme in the format which
was set out for Article 25 subsidy notifications.  He  noted that an almost brand new version of the
notification format was contained in a room document at the meeting.9  He asserted that his delegation
would be flexible and not insist that every piece of information be put under the correct heading.  They
were principally interested in -- and again this was not merely an academic question, but rather a
question of high economic importance for EC industr y  -- receiving information about how this subsidy
programme worked.  He added that the European Communities would appreciate such information as
soon as possible.
53. The delegate of Mexico thanked China on ce again.  He noted China’s explanations on
information that they would be able to give Mexico  as well as China’s offer of a bilateral meeting with
different delegations.  The delegate of Mexico wished  to make it clear to China that it was ready to meet
with them on a bilateral basis, if that could help solve the problem.  The Mexican delegate believed that
this would be a very useful way of moving forward.
54. The delegate of China thanked all delegations th at had spoken for their interventions and for the
positive observations made during the meeting.  He st ated that China's experts were sensitive to the
questions raised during the discussion in which China was beginning to make constructive new
exchanges and discussions with Members, both in a nd out of the context of the TRM.  However, he
thought that the questions had to be exhausted at so me point and that the bilateral context -- the technical
context -- could also be used.  China suggested that  the inquiry point set up in MOFCOM would also be
an important source of information to address the concerns of Members.
55. The Committee took note of the statements made.
56. Turning to the Committee's report on the transiti onal review, the Chair noted that there were no
guidelines for the report contained in the Protocol.  Following the review at last October's regular
meeting, the Chair, acting on her own responsibility, had prepared a brief, factual report, with references
to the documents concerned, and attaching the portion of  the minutes of the meeting which related to the
transitional review.  The Chair asked Members wh ether this procedures should be followed again.
57. The Committee so agreed.
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9 Subsequently circulated in document G/SCM/6/Rev.1.