WORLD TRADE
ORGANIZATIONG/L/596
3 December 2002
(02-6663)
Council for Trade in Goods
REPORT OF THE COUNCIL FOR TRADE IN GOODS
ON CHINA'S TRANSITIONAL REVIEW
1. The Council for Trade in Goods, at its meeting on 22 November 2002, carried out the first
Transitional Review of China pursuant to paragraph 18 of the Protocol on the Accession of the
People's Republic of China (WT/L/ 432).  Preparations in connection with the review had been
discussed at several meetings of the Council in 2002.  At its meetings on 24 May, 13 June, 23 July
and 2 October, the Council took note of the statements made with respect to China's Transitional
Review which was due to take place in the CTG on 22 November 2002.
2. Pending information required for the Transitional Review, the European Communities,
United States and Japan submitted questions and comments in writing to China on the CTG-specific
information requirements contained in Annex 1A of the Protocol.  These questions and comments
were circulated in documents G/C/W/437, G/C/W/ 435 and G/C/W/430 respectively.  The information
provided by China to the Council for the review  was circulated in document G/C/W/438.  The
statement made at the review by the head of th e Chinese delegation was subsequently circulated in
document G/C/W/441.
3. The review proceeded in two stages.  First, the Council for Trade in Goods took note of the
reviews that had been carried out in the 11 CTG su bsidiary bodies.  Second, the Council reviewed the
information provided by China concerning speci fic parts of Annex 1A of the Protocol.  The
statements made at the meeting of 22 November 2002, where discussions under the Transitional
Review took place, are reflected in the minutes of the meeting in document G/C/M/66.  The relevantparagraphs which reflect the discussion under item III are annexed.G/L/596
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ANNEX
III. TRANSITIONAL REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF
ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA
3.1 The Chairman said that as had been agreed in the Council for Trade in Goods, China's
Transitional Review was to take place at this meeting.  In accordance with paragraph 18 of the
Protocol of the Accession of th e People's Republic of China in document WT/L/432, the Council was
to report to the General Council on the Review.  He suggested proceeding in two stages.  First, the
CTG subsidiary bodies were required to transmit their reports to the Council for Trade in Goods.  This
they had done and he proposed that the Council take  note of the reviews that had been carried out in
the CTG subsidiary bodies.  Second, the Council was required to review the information to beprovided by China in designated parts of Annex 1A of the Protocol.
Reports of the CTG subsidiary bodies
3.2 The Council took note of the following reports by the CTG subsidiary bodies which had
carried out the review:
Market Access (report contained in document G/MA/117 and in the minutes of the meeting as
contained in document G/MA/M/33);  Agriculture (G/AG/15);  Customs Valuation (G/VAL/48);  SPS
(G/SPS/22);  TBT (G/TBT/W/192);  Import Licensing (G/LIC/10);  Rules of Origin (G/RO/54);Anti-Dumping (G/ADP/8);  Subsidies and Counte rvailing Measures (G/SCM/49);  Safeguards
(G/SG/58);  TRIMs (G/L/586).
3.3 The representative of Japan said that Japan welcomed China's efforts to faithfully implement
its commitments under the Protocol on the Accession into the WTO and WTO Agreements.  They
recognised that thanks to the leadership of th e Chinese Government, tariff reductions, issuance of
permissions for foreign capital participation, as well as the instalment of appropriate legal instruments
over a wide range of issues were taking place, generally in a smooth manner.  These efforts of China
contributed significantly to the economic growth of China through an increase of direct foreign
investment into China and through an increase in exports by foreign corporations based in China.
Japan, however, did have some concerns over China's implementation of commitments for tariff
concessions (photographic films, beer and poultry meat) and over implementation of import quotacommitments (automobiles and their components).  There were also some policy management areas
where more transparency was called for (for example, concerning the alteration of industrial policy on
automobiles, and criteria to apply to safeguard measures).  Japan looked forward to China's further
effort in fully fulfilling China's commitments under the WTO Agreement.  He refrained from
repeating the questions that had already been tabled by Japan at the respective subsidiary Committeemeetings for the Transitional Review Mechanism, but nevertheless he registered his position that
Japan was not yet fully satisfied with the explanations so far given by China concerning the issues
thus raised.  Japan therefore requested that the discussions in this Council as well as those in the
subsidiary bodies be accurately reflected in the reports to be submitted to the Genera Council.  In
addition, for the issues of particular interest, Japan had submitted questions in writing to thesubsidiary Committees around one month in advance of the meetings.  It was regrettable that China
did not respond to these questions in writing.  While Japan understood the some of the difficulty
China faces in its first year of accession for meeting a number of requirements, it was also essential to
make sure that information be shared well in advance of the meetings, so that Members could
exchange views on technical questions in an efficient manner.  It was essential that all WTO Membersshare a common understanding on the procedures and the matter of substance in transparent manner.
For the Transitional Review Mechanism next year and onwards, he certainly looked forward to China
providing the necessary information further in ad vance of the meetings.  Japan reiterated its
government’s sincere support for China’s effort towards full implementation of the commitmentsG/L/596
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under the Protocol and relevant Agreements.  Japan trusted that Chinese government would meet their
expectations fully in the coming years for this undertaking.
3.4 Regarding the auto sector already addressed in G/C/W/430, Japan had some reports that the
State Development Planning Commission was planning to prohibit a retailer in China to deal in bothimported and domestically produced automobiles.  Japan had not yet received any response from
China on this matter, and would appreciate it if China could confirm whether the GOC was to actually
make such a regulation and, if affirmative, if the GOC could provide more information on the
regulation.  If the GOC was indeed to introduce such a regulation, Japan requested that the GOC pay
due attention to the issue of consistency with Article III of GATT 1994.  On the issue of tariffs on
photographic films raised in the Committee on Market Access, he was aware that a provisional tariff
reduction was in place for some tariff lines.  He hoped, however, that a resolution would be reached assoon as possible to the whole issue including the other tariff lines in question.
3.5 The representative of the European Communities made preliminary comments on the process
in the subsidiary bodies as a whole, fully reco gnizing that the comprehensive assessment of this
exercise would take place in the General Council and not in the CTG.  He underlined the huge effortsChina had made in this first year of Membership, and he singled out in particular the field of
legislative updates, for example in the field of trade defence, and in other areas.  This had been
appreciated by his delegation.  He also had to say that he regretted that the CTG was not able to have
a fixed timetable for the transmission of informati on in the TRM context.  This was something which
the EC had proposed to make everyone's lives easier before the start of the exercise.  As a result, theEC and other WTO Members had put forward questions in advance of each meeting, a procedure
which generally worked well.  He also noted that in many cases oral responses, perhaps also due to
time restraints and resource constraints within th e Chinese administration, to these questions came
forward only in the Committee meetings themselves.  The EC appreciated the efforts which had been
made to answer these questions, but it was not always possible to get full answers to the questions ofother WTO Members, including the EC, and that situation was not wholly satisfactory.  The TRM in
the subsidiary bodies for all practical purposes was over for this year, and his delegation would
continue to pursue a better understanding with China on the issues which the EC had raised.
Members should now also reflect on how to ensure that the TRM process functioned more efficiently
in the years ahead.
3.6 The representative of the United States said th at the US would like to thank China for all its
hard work in preparing for the many reviews that were conducted by the subsidiary bodies.  He
realised the time-consuming nature of the task facing  China, particularly during this first year of the
TRM, but he thought that this mechanism served a valuable purpose.  The transparency brought about
by the reviews helped other WTO Members to understand China's trade regime better, and it also
helped China to gauge other WTO Members' expectations.  The US also thanked China for thesubstantial efforts that it had put forth in impl ementing its WTO commitments.  The obligations that
China took on in joining the WTO were fundamental and far-reaching and they had required China to
make numerous changes to its trade regime.  His only comment on the reviews that had taken place in
the 11 subsidiary bodies was a procedural one.  The TRM would have worked much better if there
had been some orderly procedures in place, as Ja pan and the EC had already indicated.  He hoped that
for next year's TRM there would be orderly procedures in place to make this mechanism more
productive.
3.7 The representative of China, in response to the comments made, said that since the first
Review by the TRIPS Council on 17 September, many WTO bodies had conducted their respective
TRM on China, among them 11 subordinate bodies of the CTG.  It was fair to say that China had
faithfully implemented its commitment in the Accession Protocol.  In preparation for the TRM it was
worth noting that China had provided the releva nt information as required by Annex 1A to the
Protocol in a timely manner, apart from that the statement by China's head of delegation whichG/L/596
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covered a wide range of information and delivered in such a way to give information.  For the purpose
of transparency and mutual understanding, the statement had also addressed the questions and
comments from Members in a most comprehensive manner, which served as a clear demonstration of
the cooperation and flexibility on the part of China for the smooth proceeding of the TRM.  He noted
that the TRM had been successful in providing a useful and effective channel for information
exchange and mutual understanding between China and other Members.  He hoped the efforts of
China and the result of the Review could be looked at with an objective and just attitude.  He
reiterated that any request and practice beyond the provisions in the Protocol was not acceptable and
would be flatly rejected by China, such as the Japanese request for written replies to their questions.
3.8 The representative of Chinese Taipei said that his delegation praised China for its efforts
throughout the process in preparing general responses to the questions and comments tabled by his
delegation and several others.  His delegation had been proactively participating in China's first TRM
exercise and, as one of the major trading partners of China, felt obliged to address a number of
legitimate concerns in areas where China might have lapsed in its implementation of the Accession
Protocol, and further his delegation strongly believ ed that the smooth implementation of the Protocol
was in the best interest of all Members, including China itself.  Although some of the responses werenot by all means satisfactory, his delegation welcomed and appreciated the opportunity to exchange
views with China, and looked forward to a successful exercise of China's first TRM.
CTG-specific Review
3.9 The Chairman said that China had submitted information as required under Annex 1A of the
Protocol of Accession in document  G/C/W/438.  He also noted that the following documents had been
received from Japan (G/C/W/430), the United States (G/C/W/435) and the European Community
(G/C/W/437), which contained questions and comments with respect to the Transitional Review.  He
further stated that China was required to provide information to the CTG in accordance withparagraph 18.1 of the Protocol of Accession. The re levant information requirements were listed in
Annex 1A of the Protocol, which he summarized as follows:
SECTION II. ECONOMIC POLICIES
1. Non-Discrimination
(a) the repeal and cessation of all WTO inconsistent laws, regulations and other measures on
national treatment;  (b) the repeal or modification to provide full GATT national treatmentwith respect to a number of products
SECTION IV. POLICIES AFFECTING TRADE IN GOODS
5. Export Restrictions
(a) any restrictions on exports through non-automatic licensing or other means justified by
specific product under the WTO Agreement or the Protocol
9. State Trading Entities
(a) progressive abolishment of state trading in re spect of silk measures;  (b) access to supplies of
raw materials in the textiles sector;  (c) progressive increases in access by non state trading
entities to trade in fertilizer and oil and the filling of quantities available for import by non
state trading entities
10. Government Procurement
(a) laws, regulations and procedures;  (b) procurement in a transparent manner and application
of the MFN principle
3.10 The representative of China thanked the Chairman for the opportunity to address the Council
on the implementation of China’s commitments with re gard to trade in goods within the framework of
paragraph 18 of China’s Protocol of Accession.   A strong delegation, composed of the senior officials
from relevant administrative authorities including the State Development Planning
Commission(SDPC), the State Economic and Trade Co mmission(SETC), Ministry of Finance and theG/L/596
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Ministry of Foreign Trade and Economic Cooperation(MOFTEC), had been assembled to address the
comments and concerns of other Members in this review.   He hoped that candid exchange of ideas
and effective clarification could be achieved through this annual mechanism.  Following the
“Information to be provided by China in the context of the Transitional Review Mechanism” as
specified in the Annex 1A to the Accession Protocol of China, he expected that his introduction would
help Members better understand the efforts and achievements China had made in this respect after its
accession to the WTO.
Part one: The fulfilment of transparency obligations
3.11 He further said that in light of the requirem ents by Annex 1A, the in formation needed for this
review had been submitted to CTG in advance of this meeting, which covered:- the repeal or modification to provide full national treatment in respect of laws, regulations and
other measures applying to internal sale, offering for salepurchase, transportation,
distribution, or use of: after sale service, pharmaceutical products, cigarettes, spirits,
chemicals and boiler and pressure vessels;
- non-automatic licensing requirements for export under WTO agreement and accession
commitments;
- increasing and extending trading rights and the conditions on the access to supplies of raw
materials in the textiles sector;
- progressive increases in access by non state trading entities to the imports of crude and
processed oil;
- the laws, regulations and procedures on government procurement and application of MFN
principles.
3.12 Pursuant to Article XVII:4(a) of the GATT 1994 and paragraph 1 of the Understanding on the
Interpretation of Article XVII of GATT1994, China had submitted its responses to the Questionnaireon State Trading.  Apart from that, the list of  products under export licensing requirements was
provided to the Committee on Market Access.  The texts of regulations and rules related to the import
licensing were submitted under articles 1.4(a) and 8.2(b) of the Agreement on Import Licensing
Procedures and were circulated in document  G/LIC/N/1/ CHN/1/Add.1.  According to China's
accession commitments, the enquiry point was set up by China and the establishment of it was
notified to WTO.  The trade related laws, regulations and measures could be accessed and retrieved
from this point.  The enquiry point, operating outside the framework of TRM and at the same timeproviding a useful supplement to it, serv ed the common goal with this mechanism.
Part Two: Implementation of WTO obligations and commitments
1.  Adherence to the principle of non-discrimination
3.13 In line with its commitments, to provide full national treatment to the imported products, the
Chinese Government had repealed or modified the laws, regulations and other measures applying to
internal sale, offering for sale, purchase, transportation, distribution, or use of: after sale service,
pharmaceutical products, cigarettes, spirits, chemicals and boiler and pressure vessels.
- Regarding the after sales service, on 11 March 2002, the Ministry of Foreign Trade and
Economic Cooperation annulled its Decree No. 3 of 1993 in its Public Notice No. 12 of 2002,
and thereby fulfilled the commitment in this regard.  The annulled Decree was on after sales
service and was considered to be inconsistent with the principle of national treatment by anumber of WTO members during China’s WTO accession negotiations.
- Regarding cigarettes, administrative measures taken by the State Tobacco Monopoly
Administration had already led to a substantial increase of the number of retail outlets for
imported cigarettes in China.  The commitment of unification of the licensing requirementsG/L/596
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for both the domestic and imported cigarettes will be fulfilled by way of amending the Decree
No. 2 of the State Tobacco Monopoly Administration, which was now under way. In the
renewal of licenses in year 2003, a unified license would be issued for retail sale of both
domestic and imported cigarettes, and the former special licence for retail sale of imported
cigarettes as well as the requirement that only those outlets with the special licence werepermitted to sell imported cigarettes would be abolished.  Therefore, China would be able to
fulfill the commitment of applying national tr eatment in this regard after the two-year
transitional period.
- Regarding boilers and pressure vessels, the newly formulated Regulations on the Management
and Supervision of Manufacturing of Boilers and Pressure Vessels would enter into force on
1 January 2003.  Draft of the Regulations was notified to the TBT Committee of the WTO in
May this year (G/TBT/N/CHN/1).  Article 18 of the new Regulation specified a 4 yearvalidity for the Certificate of Production, which applief equally to both domestic and imported
products.  The relevant standards on the charges are in the process of drafting and would be
enforced after the endorsement by the Sate Development Planning Commission and Ministry
of Finance.  A uniform charging standard would be ensured for products both domestically
made and imported.
3.14 He further stated that for pharmaceutical products, chemicals and spirits, a transitional period
of one year was reserved as provided by China’s accession protocol.  During the course of this year,
constructive measures had been taken to amend or abolish the related laws and regulations.  Thanks to
these efforts, the conformity with the national treatment requirements had been practically attainedwell ahead of the committed date.
- Regarding pharmaceutical products, the former Provisional Measures on Administration of
Prices of Pharmaceutical Products had been replaced by Measures on Administration of
Government Pricing for Pharmaceutical Products, with which the principle of nationaltreatment was observed in procedures and formulas for pricing and classification of
pharmaceutical products.
- Regarding spirits, new administrative measures  were at the stage of formulation.  The new
measures on spirits would regulate the products and markets of spirits on the basis of safety
and quality requirements, regardless the origin of the spirits.
- Regarding chemicals, specifically the registration procedures applicable to imported chemical
products, the State Administration of Environmental Protection was now amending theProvisions on the Environmental Administration of Initial Imports of Chemical Products and
Imports and Exports of Toxic Chemical Produ cts in collaboration with MOFTEC and the
General Administration of Customs, and the amended rules would be in conformity with the
principle of national treatment and internationally accepted practices.  The draft of the
amended rules had been publicized by the State Environmental Protection Administration forpublic comments, with a view of its enforcem ent before the end of the transitional period.
Moreover, the legislation on new chemical subs tances was also under way to align China's
governing procedures with international principles.
2.  Non-automatic export licensing requir ements under WTO agreement and accession
commitments
3.15 China maintained export administration of a small number of products for the purposes of
protecting public interest, avoiding shortage in domestic supply, conserving the exhaustible natural
resources, or undertaking obligations under international treaties or intergovernmental agreements,which were in conformity to GATT 1994.  From 1 January 2002, China gave up export administration
of Chinese chestnut, reed mat,  red bean, honey, colophony, tung wood and the board (to Japan),
vitamin C etc.  There were now still 54 products subject to export administration, including live
bovine and beef (to Hong Kong, China and Maca o, China), live swine and swine meat (to HongG/L/596
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Kong, China and Macao, China), fowls and meat (to Hong Kong, China and Macao, China), garlic,
tea, wheat, corn, rice, liquorices roots and their products, rushes and their products, sugar, bauxite,
light (dead)-burned magnesia, talc, fluorspar, rare earth, tungsten ores and products, antimony ores
and products, tin, zinc, coal, coke, crude oil, processed oil, paraffin wax, artificial corundum, heavy
water, ozonosphere depleting materials, chemicals under supervision and control, chemicals used toproduce narcotics, sawn wood, silk, greige, cotton, woven fabrics, silver, platinum, certain steel
products (to the U.S.), and etc.  These export administrative measures had been notified to the WTO.
3.  State Trading Entities
3.16 In accordance with the commitment made at China’s accession to the WTO, the trading right
for silk had been progressively liberalized since the beginning of 2002.  The number of enterprisesengaged in export trade of silk had increased from 43 of 2001 to 99 up till now.  China would abolish
the restriction on the trading right for silk at the latest on 1 January 2005 as committed.  Under the
current circumstances, China had not yet relaxed the trading right as well as the domestic distribution
right of fertilizers and oil products.  In order to fulfill the commitment and to progressively expand the
non-state trading enterprises, China carried out a registration system for non-state trading enterprisesto be engaged in the trade of fertilizers and oil products.  The registration procedure was automatic
and transparent, and the lists of registered enterprises were published and updated on a regular basis.
The State Economic and Trade Commission had fully allocated the non-state trading import quota for
fertilizers and oil products for the year 2002.  However, it was hard to tell the real import performance
of non-state trading entities because relevant statistics would not be available until early 2003.  Therelated information could be found in the Foreign Trade and Economic Cooperation Gazette  or via
the website of MOFTEC.
3.17 The export price of state trading enterprises was decided by the enterprises themselves.  It
was usually constructed based on such costs as domestic procurement prices plus circulation costs(including warehousing, transportation, bank interests, inspection fees etc.), with prices of the
international markets taken account of as reference. According to the Law on Pricing of People’s
Republic of China and Annex 4 of the accession protocol, only a small number of commodities and
services were subject to the government pricing or  the government guidance pricing, and the pricing
policies were applied regardless of the ownership of the enterprises.  Apart from those stipulated few,
the prices of the rest commodities and services were determined by the market forces.  To sum up, the
policies and measures governing the state trading enterprises were promulgated in a transparentmanner and administered in consistency with the WTO Agreement.
4.  Government procurement
3.18 The Standing Committee of the 9
th National People’s Congress adopted the Law of the
People’s Republic of China on Government Procurement on 29 June 2002 at its 28th Session, and the
Law would enter into force on 1 January 2003.  The Law of the People’s Republic of China on
Government Procurement embraced the principles of being open, equal, fair, and effective, and
therefore guaranteed that all the procurements of government entities as defined in the Law (military
procurement excluded) were conducted in conformity with the MFN principle.G/L/596
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Part Three: Some clarifications on our policy related to trade in goods
3.19 He then drew Members' attention to some areas in China's trade policies where some
additional explanation might be needed.
1.  On the export restrictions on fluorspar
3.20 The export arrangement maintained by China on the fluorspar export was in consistency with
the GATT 1994.  Dating back to the end of 1970s, the fluorspar exploitation and processing had been
put under rigid control.  According to the Law on Mineral Resources of People’s Republic of China ,
exploitation of the fluorspar was subject to a 15 per cent resource tax and compensatory charges for
mineral resource.
2.  On preferential treatment to the imports through border trade
3.21 Products imported to China in the form of border trade enjoyed a 50 per cent reduction of
import tariff and VAT.  The scope of the imports covered the commodities produced and consumedby the habitants living along the border area.  According to his understanding, the WTO did not
provide for a clear definition for “border area”.  In the case of China, it could be loosely defined as the
area no further than 25 kilometres away from the national boundary.  But exceptions existed. In the
western part of China, i.e. some border areas in Xinjiang Autonomous Region, even the nearest
collective habitats lie hundreds kilometres away from the boundary.  A rational trade policy could notexclude the people in these areas from the legitimate benefits of border trade.  China’s policy on
border trade played an important role in the development of these areas and promotion of trade and
economic exchanges with neighbouring countries.  The trade authorities had always been closely
monitoring the effects to the normal trade by the border trading.  In light of related regulations on
border trade, the scope of products under border trade would be adapted in case of the excessiveimpact it had on normal trade, and part of products would then be removed from tariff and tax
reductions.  His delegation had taken note of the concern of some Members on the import of boric
acid.  A comprehensive analysis and review would be conducted on this issue and China was going to
make amendments to the related policy if it proved to be necessary.
3.  On the Provisional Rules on Investigation of Foreign Trade Barriers
3.22 These rules were not concerned with the import administration, nor did they affect Members’
exports to China.  The rules were about the investigation made by the government of China when its
products suffered unfair treatment in a foreign market so as to take necessary legal remedies in line
with the principles of WTO.  In that spirit, he thought the promulgation of regulations in this nature
did not fall within the coverage of the relevant provisions in China’s accession protocol, and this wasnot the right subject to be discussed in this Council.  Having said that, he welcomed the comments
from Members on this issue anyway, and would like to suggest a better channel, which was the
enquiry point of China, to address their concerns of this kind.
4.  On the non-discrimination issue with regard to automobile retailing
3.23 This was a question with bearings on a series of issues like the automobile quotas, import and
export rights, and relaxation of distribution rights.  At this stage, not all the enterprises were the
holders of import and distribution rights of automobiles.  China would formulate its distribution
policies on cars in line with its WTO commitments and, at the same time, with the developmentaldemand of its auto industry.  In this process, the opinions and comments from all circles would be
taken on board and national treatment would be strictly adhered to.G/L/596
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5.  On the allocation of the quota and TRQ
3.24 In response to a few specific concerns from some Members, he clarified that the circulars
concerning the quotas for Machinery & Electrical products, fertilizers and TRQ allocation had been
published respectively by the Notice No. (2002) 36 of MOFTEC, Notice No. (2002) 73 of SETC and
Notice No. (2002) 4 of SDPC, which could be accessed through their official websites.  The
redistribution of the unused quotas was based upon the return of them by the original quota holders.
For the year 2002, there were no quota returns for automobile, fertilizer and crude oil at this stage.
The reallocation of unused quota for processed oil had been completed by 15 September, and the
reallocation methods were set out in the Notice No. (2002) 51/52 of SETC.  The reallocation of
unused quota for agricultural products like wheat, soybean oil and rapeseed oil had been completed by
October 15, under the SDPC Notice. (2002) 3.
Part Four:  Comments on the implementatio n of WTO obligations by other Members
3.25 With reference to the Article 18 of the Accession Protocol, “China can also raise issues
relating to any reservations under Section 17 or to any other specific commitments made by otherMembers in this protocol, which have a relevant mandate.”  Under paragraph 241 of the Working
Party Report of China’s Accession to the WTO which specified the commitments undertaken by the
textile and clothing import restraining Members of the WTO, the United States was obliged to
increase the growth rates of quotas in force on the day prior to the date of China’s accession to the
WTO by the respective growth factors provided for in the Agreement on Textile and Clothing (ATC),including the 25 per cent growth factor applicable to Stage 2 of the ATC implementation.  However
the United States had failed to fully implement its obligations by not applying the full 25 per cent
growth factor to China.  Since the issue remained unresolved after several rounds of bilateral
consultations between China and the United States, China requested the Textile Monitoring Body to
review this matter.  The TMB concluded after its review (see G/TMB/R/90) in July that the UnitedStates should apply the 25 per cent growth factor in full to China and asked the United States to make
the necessary adjustments to its methodology accordingly.  So far the United States had not yet made
such adjustments.  Such a failure on the US side had adversely affected the market access available to
China and upset the balance of rights and obligations between China and the United States under the
ATC.  The textile and clothing sector had played and would continue to play a significant role in
China’s economic and social development in terms of both job creation and poverty alleviation.
China hoped that the United States would immediately take actions to remedy the above-mentionedproblem and fully implement its commitments under the WTO.  China also wished that the United
States, as a key and long-standing Member of the multilateral trading system, could set a good
example for new WTO Members and other Members as well by fully and faithfully implementing its
commitments and obligations under the WTO Agreements.
3.26 The representative of Japan thanked the Chinese delegation for its statement and regarding the
paper that Japan had submitted in G/C/W/430, Japan would hope that the Chinese Government would
pay due attention to the issue of consistency with Article 3 of GATT when formulating the guidelines
or laws regarding automobiles.  Also on the issue of films, his delegation was aware that there were
some provisional tariff reductions in place for photographic film products, but hoped that theresolution of this matter would be soon achieved and the issue settled as soon as possible.
3.27 The representative of the United States said that the information provided was precisely the
type of information warranted under the TRM.  It would have been helpful to have had information
further in advance of the meeting.  The US did not have all its experts present to review the Annex 1A
submission from China which it had just received and it was difficult to respond to the points made in
China's statement at this meeting, not having had th e information in advance.  With regard to border
trade, the US appreciated China's statements a nd their commitment to look into the boric acid
question and to review the consistency of that with WTO rules.  On a point of clarification, he was notG/L/596
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sure from the statement whether or not the Chinese delegate was saying that all imports within a
border area were subject to preferential treatment or whether there was just a list of specific products
that would benefit.  Turning to another issue, the export restrictions on fluorspar, Article XX of the
GATT allowed an exception for export restrictions when made in conjunction with restrictions on
domestic consumption or production.  The export restrictions on fluorspar had been in place since1994 and during that time China had produced two thirds of the world's fluorspar.  The effect of the
restrictions had been to increase the cost of fluo rspar for foreign companies, and the other effect was
to make China's domestic consumers of fluorspar (those who took the fluorspar and made it into
hydrofluorocarbons and other products) much more competitive.  They did not have to pay the
increased cost that foreign companies did.  He also noted that there were two types of export
restrictions on fluorspar:  a quota and a substantial export licence fee which had increased rapidly in
the last couple of years.  If the intent of these measures was to protect an exhaustive natural resource,the quota alone might be enough, but adding the licence fees which more than doubled the cost of the
fluorspar did not seem to be consistent with the Article XX exception.  He asked if the Chinese
delegate's statement could be made a part of the record of this review.
3.28 The representative of the European Communities also wanted the statement in the minutes
because to the information that came forward in China's submission (G/C/W/438) some points had
been added in order to respond to the EC's questions.  Having thanked the Chinese delegation, he
referred to the automotive sector, where China had said that it would fully apply WTO rules.  Did that
mean at this stage that there was no intention to introduce a dual system of distribution different for
domestically produced vehicles and imported vehicles?
3.29 The representative of China wanted to respond to the comments and follow-up questions
raised by Japan, US and EU.  With regard to the ta riff on photographic films, as he had said in the
Market Access and Import Licensing Committees, the parties could have bilateral discussions on
these tariffs to see if the specific tariff was equivalent to the tariff rate China committed to in itsSchedule.  According to his information Japan had some difficulties in discussing this with his
colleagues in other agencies, because they were not very happy with the Japanese attitude in the
previous TRMs.  But he could make efforts to arrange a meeting between Japan and officials from
other agencies of China to conduct these bilateral discussions to see if one could find a solution that
both sides could accept.  With regard to the issues raised by the US, in terms of border trade he had
given a clear indication that China could look at the situation to see if the border trade had a negative
impact on normal trade, and could make adjustments according to the investigation.  There was no listsubject to border trade preferential treatment, but there was a negative list, for example for cigarettes,
pharmaceuticals, automobiles, processed oil, steel. These kinds of products are not subject to
preferential treatment.  Those interested in a negative list could access it from China's enquiry point or
from the MOFTEC website.
3.30 With regard to the export restrictions on fluorspar, China had very strict, rigid controls on
production and processing domestically.  China not only collected the resources tax but also
compensatory fees for exportation and processing domestically.  China had this quota administration
also and collected the export licensing fees because the exportation of fluorspar was subject to
tendering.  China used this tendering system to control the exportation of fluorspar, but believed thisdomestic regulation which controlled the exploitation and processing was effectively equal to its
administration on export control for fluorspar.  In  terms of the issue raised by the EU on the
distribution system for cars, there was no dual distribution system in China.  As explained in his
statement, now some retailers had no right to impor t cars from abroad and distribute them in the
Chinese market.  Taking into account a number of elements including the phase-out of quotaadministration, the liberalization of trading rights and the liberalization of the domestic distribution
system, China intended to have a new distribution system in China which would abide by national
treatment and allow retailers to enjoy their legitima te rights.  When there was new information on this
process China would inform the EC and other Members.G/L/596
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3.31 The Chairman thanked the delegation of China for the answers that it had provided and also
those delegations that had raised questions.  Regarding the form of the report of the Review he
recalled there were no guidelines for the report in the Protocol of Accession of the People's Republic
of China to the World Trade Organization.  In several subsidiary bodies of the CTG that hadundertaken the Transitional Review, a brief factual report had been prepared with references to the
documents and attached to it the portion of the minutes of the meeting which related to the
Transitional Review.
3.32 The Council agreed to his proposal to proceed in a similar fashion.  The report, together with
the reports of the subsidiary bodies, would then be transmitted to the General Council.
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