RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/M/66
4 December 2002
(02-6689)
Council for Trade in Goods
MINUTES OF THE MEETING OF THE COUNCIL FOR TRADE IN GOODS
22 NOVEMBER 2002
Chairman:  H.E. Ambassador Supperamaniam
The meeting of the Council for Trade in Goods  was convened by airgram WTO/AIR/1967 and
the proposed agenda for the meeting was containe d in document G/C/W/439.  The agenda was adopted.
I. REVIEW OF THE OPERATION OF THE TRIMS AGREEMENT UNDER
ARTICLE 9 ...................................................................................................................... .........1
II. DISCUSSION OF IMPLEMENTATION ISSUES BY THE TRIMS
COMMITTEE – REPORT TO THE CO UNCIL FOR TRADE IN GOODS.....................7
III. TRANSITIONAL REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL
OF ACCESSION OF THE PEOPLE'S  REPUBLIC OF CHINA........................................8
IV. REQUEST BY THE EUROPEAN COMMUNITIES – PANAMA'S DECREE
ON IMPORT TARIFFS CHANGING THE TARIFFICATION FOR CERTAIN
MILK PRO DUCTS ................................................................................................................17
V. STATUS OF NOTIFICATIONS UNDER THE PROVISIONS OF THE
AGREEMENTS IN ANNEX 1A OF  THE WTO AG REEMENT......................................17
VI. WAIVER REQUEST FROM CANADA, JAPAN AND SIERRA LEONE –
KIMBERLEY PROCESS CERTIFICATION SCHEME FOR ROUGH
DIAMONDS ....................................................................................................................... .....18
VII. INTRODUCTION OF HARMONIZED  SYSTEM 2002 CHANGES INTO WTO
SCHEDULES OF TARIFF CO NCESSIONS – DRAF T WAIVER...................................20
VIII. CONSIDERATION OF ANNUAL REPORTS OF SUBSIDIARY BODIES OF
THE COUNCIL FOR T RADE IN GOODS .........................................................................21
IX. ADOPTION OF THE ANNUAL REPORT OF THE COUNCIL FOR TRADE
IN GOODS TO THE GENERAL CO UNCIL......................................................................21
X. OTHER BU SINESS............................................................................................................... .22
I. REVIEW OF THE OPERATION OF THE TRIMS AGREEMENT UNDER
ARTICLE 9
1.1 The Chairman recalled that the Council initiated the review under Article 9 of the TRIMs
Agreement in October 1999. Members had had as a basis for their discussion a background study
jointly produced by the  WTO and UNCTAD Secretariats on trade-related measures and other
performance requirements (G/C/W/307 and Add.1).  In additi on, the Council had received a newG/C/M/66
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communication from Brazil and India concerning the review of the TRIMs Agreement, which had
been circulated in document G/C/W/428.
1.2 The representative of Brazil said that Brazil and India had jointly circulated a proposal to
amend Article 4 of the TRIMs Agreement with reference both to the mandate set out in paragraph
12(b) of the Doha Ministerial Declaration and to the mandate contained in Article 9 of the TRIMs
Agreement for its own review.  It was on the basis of  this latter mandate that this proposal had been
presented at the Council for Trade in Goods.  Si nce the end of the Uruguay Round and the entry into
force of the WTO Agreements, the argument against the use of trade-related investment measures had
lost much of its theoretical strength.  Doubts had been raised about the a priori  prohibitions of TRIMs
based on the assumption that such measures would always have trade-distortive effects.  This had not
been supported by conclusive empirical evidence.  The recent joint study elaborated by the WTO andUNCTAD Secretariats (G/C/W/307) in the context of the review of the Agreement was enlightening
in this regard.  If it was true that this study did not add up to a decisive argument in favour of local
content, trade balancing and export performance requirements, it did, however, weigh against any
kind of general assumption that such measures necessarily distorted trade.
1.3 Examples abounded of successful recourse to investment measures to address developmental
objectives as well as to offset trade-distorting effects of certain forms of corporate behaviour.  In the
case of developing countries such effects might in practice affect the efficient allocation of resources
in a more decisive way than investment measures.  Other currently WTO-compatible measures had
revealed themselves to have a much more distorting effect on international trade than those related toinvestment.  This was so in sectors of interest to developing countries, like agriculture.  One of the
major problems in the implementation of the TRIMs Agreement was that it had actually established
equal obligations for all Members, irrespective of their stage of development.  In practice, the blatant
disparities among Members, ranging from technological capabilities to social, regional and
environmental conditions, made it difficult if not  impossible for the TRIMs Agreement to generate
balanced benefits for all.
1.4 Trade-related investment measures could be appropriately used to correct the present
disparities rather than aggravate them.  They could be an important element to enable developing
countries to extract the benefits from trade and investment liberalization while preventing the negative
effects of investment cycles, including with regard to restrictive business practices and to ensure the
stability of trade flows in situations of external  financial weaknesses.  This had been shown by a
number of studies, including the WTO/UNCTAD joint paper, which pointed out that TRIMs had been
important policy tools for developed countries in their early stages of economic development.  These
studies also showed that, in many cases, the use of TRIMs by developing countries in the context of
their industrial polices had been successful, taking into account the particular macroeconomic and
other characteristics of individual countries.  This was the case of Brazil as regards, for example, themechanism used in the 1970s and 19802 (BEFIEX)  to induce national and foreign companies to
export part of their production relative to their imports.  The disciplines of the TRIMs Agreement had
disregarded all these factors.  Apart from transitional periods, which had already expired, they
incorporated no specific meaningful clauses for special and differential treatment.
1.5 Hence the need, as stated in the proposal, for flexibility in the TRIMs Agreement in order to
allow developing countries to resort to trade-related investment measures in order to achieve specific
technological, regional and economic and environmental development objectives.  To that effect, he
called for an amendment to Article 4 of the Agreement as specified in paragraphs 11 and 12 of their
paper, allowing developing countries to use trade-related investment measures in order to:  (a)promote domestic manufacturing capabilities in hi gh value-added sectors or technology-intensive
sectors;  (b) stimulate the transfer or indigenous development of technology;  (c) promote domestic
competition and/or correct restrictive business practices;  (d) promote purchases from disadvantaged
regions in order to reduce regional disparities within their territories;  (e) stimulateG/C/M/66
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environment-friendly methods or products and contribute to sustainable development;  (f) increase
export capacity in cases where structural current account deficits would cause or threaten to cause a
major reduction in imports;  and (g) promote small and medium-sized enterprises as they contribute to
employment generation.  This was an issue of extreme importance for the Governments of Brazil and
India, as well as for a large number of developing countries that were known to share similarconcerns.  In the context of the mandated review of the TRIMs Agreement, he hoped that this Council
would be in a position to debate the proposal in a straightforward and objective manner.
1.6 The representative of India supported the last statement by Brazil and highlighted certain
points from the joint paper.  The negotiating mandate for TRIMs under the Uruguay Round required
that "following an examination of the operation of GATT Article related to the trade-restrictive and
distorting effects of investment measures, negotiations should elaborate, as appropriate, furtherprovisions that may be necessary to avoid such adverse effects on trade".  In other words there was to
be an examination of the operation of GATT Articles relating to the trade restrictive and distorting
effects and thereafter provisions were to be elaborated.  However, in effect no objective criteria to
identify and evaluate the trade-restrictive and distorting effects of investment measures were
identified during the negotiations.  The development dimension was effectively confined to anadditional three years of transition period in the case of developing countries, and five years for least-
developed countries.  It was therefore important to keep this perspective in mind in the review of the
Agreement, which included the possibility of amendment to its text.  Second was the strong
development dimension underlying both the Marrakesh Agreements as well as the Doha Ministerial
Declaration.  Ultimately, Members had entered this ex ercise in order to use trade as an instrument for
overall development in all parts of the world to ensure that the less privileged regions also were able
to maintain and sustain a high rate of growth.  It was therefore important that there was sufficient
policy autonomy and flexibility available to developing countries to ensure that growth took place in
such a manner that it contributed to a higher stan dard of living, more incomes, higher effective
demand, overall growth.  This in fact was an essential aspect of the multilateral trading system itself,because it was only through balanced growth all over the world that one achieved substantial and
growing markets which meant prosperity for all, both in the developed and the developing countries.
1.7 With regard to the impact of performance requirements on development, the experience of
many developing countries would suggest that TRIMs in the case of developing countries, if
implemented properly, might be trade-stabilizing and development-enhancing.  What his delegation
was looking for was not a binding commitment that everyone should use these measures, but thatthere was sufficient policy flexibility and autonomy to use these measures where it would contribute
to development.  Empirical studies had shown that  affiliates of certain transnational corporations
bought the bulk of their imports from parent companies and other affiliated companies, leaving only a
small proportion for unaffiliated suppliers within the host countries or in third countries.  UNCTAD's
Trade and Development Report 2002 had highlighted the poor record of generation of value-addedand linkages by transnational corporations.  It was also an undeniable fact that performance
requirements were an integral part of the growth strategy of all developed countries until recently.
This fact had been brought out in the WTO and UNCTAD Secretariat joint study as well as various
other studies.  It was important, therefore, that fl exibility to maintain TRIMs remained available to
developing countries in the conditions cited in paragraph 12 of the joint proposal to ensure thatinvestment contributed to the achievement of development policy goals.  The transition period of five
years had not been helpful because of the inherent assumption behind such a provision that
developing countries would not only have entered a sustainable growth path during this period but
also would have caught up with the developed countries.  The Uruguay Round negotiations had failed
to build in the developmental dimension in an ef fective manner into the TRIMs Agreement.  The fact
that only one least-developed country notified a TRIM clearly reflected that trade-related investment
measures were suitable for use by countries when they reached a particular stage of development.
Many low-income countries and LDCs had been denied the use of this policy instrument even before
certain sectors in their development process had reached the threshold of benefiting from TRIMs.G/C/M/66
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Local content requirements contribute to a number of economic gains for the national economy such
as value-addition in the economy through greater utilisation of domestic resources, increased
employment opportunities, upgrading of technological levels and diversification of the economy as a
whole.  Developing countries needed to have policy space to pursue their technological, social and
industrial development.  It was in this context that Brazil and India had proposed that Article 4 of theTRIMs Agreement be amended to provide necessary flexibility to implement development policies
and also redress the imbalance in the TRIMs Agreement.
1.8 The representative of Colombia stated that  Colombia shared the ideas as regards the
co-existence of the mandated Article 9 review and paragraph 12 of the Doha Declaration.  The CTG
was the appropriate forum or framework for readjusting trade-related investment measures.  As
already stated in the TRIMs Committee, the theoretical weakness which led to prohibition of TRIMsnow called for an adjustment in multilateral rules.   The proposal called for a transformation of the
present framework, which might be called an objective prohibition, into a more flexible framework,
which would take into account the development goals for which TRIMs measures had been instituted.
On the one hand, this recognised the positive effect of TRIMs, whilst at the same time upholding the
principles of the Agreement such as transparency and standstill.  She believed that the inclusion ofdevelopment objectives as suggested in the paper could be combined with a certain limitation in scope
following the standstill model and including a monitoring mechanism.
1.9 The representative of Cuba said that Cuba shared the different ideas set out in the paper.  His
delegation also believed that TRIMs might have a positive impact in favour of development and were
not always trade-distorting.  Developing countries should be able to resort to such measures with the
objective of contributing to economic growth.
1.10 The representative of Pakistan supported the points made by India, Brazil and others.
Restricting trade investment measures was aimed at those which had a negative impact on trade.
Experience in Pakistan, borne out in studies, had shown that given a few years of, say, a local content
requirement being in existence, prices of loca lly produced goods had substantially come down and
stabilized and they had become more competitive.  For example, in the automotive industry, Pakistan
had made a commitment that local industry must have 60% local content requirement, or 50% in some
cases, and originally when producing those auto parts they were more expensive than the imported
ones.  But in five years' time the prices of those parts had substantially come down, with positive
effect for local industry.  Pakistan had also started exporting those parts because they had becomecompetitive.  Compared to TRIMs, other WTO Agreements like agriculture and textiles had been
given much more adjustment time.  The study had shown that even in the case of developed countries,
such as the UK, governments had made use of TRIMs for a long time.  Developing countries should
also be able to continue to use them.
1.11 The representative of the European Communities said that the EC believed that trade and the
TRIMs Agreement should be conducive to development.  The proposed review and the amendments
proposed should lead to more development and should therefore be taken into serious consideration
by Members.  Extensive reference had been made to the joint WTO/UNCTAD study which allegedly
had the proof that there was no case that TRIMs were trade-distorting.  For the time being he was notyet convinced that one could draw such conclusions from the study.  He asked that Pakistan give
another example.  The argument that some time ago others might have successfully used TRIMs
would also have to be seen in the light of ongoing globalization and a highly increased mobility of
production factors, so what worked 20 or 30 years ago would not necessarily work again.  He would
not say that the chance that it might work in bi gger markets like Brazil and India was bigger than the
smaller markets, where investment was attracted by the market size.  Lastly, one should also look at
those cases of countries which had abolished their TRIMs and what the effect was there.  There were
some cases of very successful economies which had abolished their TRIMs in the last couple of years,
and that had to be taken into account for a full picture.  Some countries have made enormous effortsG/C/M/66
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to abolish their TRIMs because they believed they had to adhere to the TRIMs Agreement and he
would question whether rolling back these commitmen ts would be what they had expected and would
be fair in the context of the overall efforts of WTO Members.  Regarding the point that other forms of
corporate behaviour or government measures were more trade-distortive, meaning that one needed to
have more flexibility for TRIMs, actually meant th at the intention was to balance downward the state
of play in the WTO, which was questionable.  India and Brazil had put forward a number of points in
their paper where they wanted to see amendments.  Was it the case that the sort of measures laid out
in the proposal in that paragraph were not possible at this stage under the TRIMs Agreement?  He
doubted whether they were TRIMs-incompatible.  Was the TRIMs Agreement in its scope not
actually rather limited as it stood today?  The example from Brazil about export production
requirements which had worked very well in recent times might not be TRIMs-incompatible.  He
would like to know more about the individual proposals and individual cases because he did notbelieve that the scope of the TRIMs Agreement was very large and, second, there was flexibility.  The
Agreement could deal with very specific cases in the WTO where countries had had strong views on
maintaining TRIMs or extending their periods of application for TRIMs.  Other WTO Members had
looked at these issues in a balanced manner and were able to find solutions in a balanced manner.
1.12 The representative of the United States said that during the October TRIMs Committee
meeting, Brazil had asked why the TRIMs Agreement had been negotiated if it simply reiterated
obligations that were already in Articles III and XI of the GATT.  This was an important question.
The legal relationship between the GATT and the TRIMs Agreement was enunciated in Article 2 of
the TRIMs Agreement.  The TRIMs Agreement did more than just restate existing GATT obligations:it provided an illustrative list of the kinds of trade-related investment measures inconsistent with
GATT Articles III and XI;  it required Members to notify non-complying measures;  it provided
developing countries with special and differential treatment in the form of transition periods, giving
Members additional time in which to fully comply  with an obligation all had accepted upon signing
the GATT;  and it established a monitoring body of experts to ensure that Members abided by theircommitment to remove prohibited TRIMs.
1.13 Brazil had also asked during the last TRIMs Committee meeting why the United States
believed further discussions on implementation proposals could undermine the extensions granted the
year before under TRIMs Article 5.3.  He felt that the proposal made by India and Brazil in their
9 October paper would, indeed, undermine the spirit of the extensions.  A number of developing
countries had been granted additional time to bring their domestic regimes into compliance withTRIMs obligations.  Every country that had properly requested additional time had received it.  If
other countries had problems meeting these fundamental obligations, he expected those Members to
similarly request extensions.  He was concerned that some of the implementation proposals that had
been made would undermine TRIMs obligations by  providing sufficient exceptions to their
application so as to render them useless.  If that was the intent of some of these proposals, he wouldcontinue to object to such an approach as inconsistent with both the Article 9 mandate and any Doha
mandate.
1.14 The US continued to believe that the intent of the Article 9 review was not to decide
whether measures disciplined by the TRIMs Agreement did or did not have harmful effects.  Norshould this review be seen as an opportunity to lower the standards established in the TRIMs
Agreement.  Current commitments on TRIMs, incl uding the required elimination and termination of
notified TRIMs (absent an agreement to extend the transition period) must be maintained.  Brazil and
India had presented a proposal under tiret 40.  However, he firmly believed that blanket exceptions to
the TRIMs Agreement were inappropriate, and agreed with the EU that proposals of this nature would
undermine the foundations of the GATT system.  He believed that there existed suitable flexibility
under both the TRIMs Agreement itself and the GATT waiver provision to address individual
development needs on a case-by-case basis.  The US had shown willingness to address specific
problems as needed, and had met the demand to come up with a package approach to extensions thatG/C/M/66
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would not put one country in a better situation than another.  He remained unconvinced that any of the
current proposals, including the new one from India and Brazil, would not undermine the decisions on
TRIMs extensions taken the previous year.  Furthermore, he joined Canada in their scepticism that
there was any need to modify the balance of rights and obligations contained in the TRIMs
Agreement.
1.15 The representative of the Philippines had a sympathetic attitude towards the proposal of
India and Brazil, especially with the intervention of India that the clarification of Article 4 need not be
binding on all Members but would provide policy space for developing countries to pursue
development objectives.  Indeed the TRIMs experience world wide was varied.  For example, under
prevailing circumstances certain measures were more effective in certain countries.  There was no
"one-size-fits-all" experience.  Studies, depending on who commissioned them, would either praisestrengths or condemn them as trade-distorting and efficiency-lowering tools of economic policy.
Many decisions and so-called givens in the WTO did not need to be backed up by studies and some of
them, like the ATC, even defied sound economic rationale.  The TRIMs issue could only be resolved
at the political level and the Philippines believed that the challenge India and Brazil presented in their
paper was very timely.  In response to the US, the Philippines were bound by the conditions agreed toin the extension of TRIMs achieved last year.
1.16 The representative of Switzerland noted that this paper proposed amending Article 4 of
TRIMs by allowing specific measures for developing countries which cover a very wide field and
does not limit itself to economic policy measures.  Reference was made to different aspects ofregional policy, industrial and environmental policy, transfer of technology and implementation.  This
was a wide spectrum and the dialogue which had been launched by Brazil and India with their paper
should continue.  However, TRIMs could not be used as a substitute for regional, industrial, transfer
of technology, environmental or employment policies.  On the basis of economic analysis and
specialized literature, in many cases TRIMs could be costly especially with regard to the allocation ofresources.  The benefits obtained in the short term could in the long term bring about improper
allocation of resources and could even involve a regression with regard to a situation which would
have been obtained in the absence of TRIMs.  In  keeping with what the EC had said, he said that
disciplines on TRIMs were not different from Articles III and XI of GATT 1994.  The TRIMs
Agreement was a transitory derogation which allowed countries to place their economic policies in
non-conformity with Articles III and XI.  There was flexibility in the TRIMs Agreement which should
respond to the important needs of developing countries through provisions provided for in the TRIMsAgreement.
1.17 The representative of Canada believed that the modification to the TRIMs Agreement
proposed by India and Brazil under Tiret 40 was no t warranted for a number of reasons.  There was
already great flexibility in the TRIMs Agreement (Article 4 and Article 5) which was complementedby the flexibility contained in exceptions under GATT 1994 and in Art. IX of the WTO Agreement
(i.e. waiver).  This flexibility had recently been demonstrated through, for example, the extension of a
number of transition periods.  His delegation believed that investment was important for development.
The productive capacity of an economy was enhanced through investment.  In this regard, he noted
that the joint WTO/UNCTAD study demonstrated the significant and positive relationship between,inter alia , FDI and domestic manufacturing efficiency (G/C/W/307/Add.1, para. 104).  The type of
measures advocated by the Indian/Brazilian proposal were trade distortive as recognized in the
Preamble of the TRIMs Agreement.  Furthermore, they negatively affected both host countries and
investors in that they could cause private investors to abandon plans for a projected investment
because the cost of the requirements outweighed or negated the returns, profits or operatingefficiencies for the investor.  He also drew Members' attention to the fact that India's and Brazil's
proposal promoted measures which resulted in a misallocation of resources.  The joint
WTO/UNCTAD Study demonstrated that TRIMs and performance requirements resulted in a
misallocation of resources, and that they were costly and inefficient (G/C/W/307/Add.1, paras. 94-G/C/M/66
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99).  Costly and inefficient measures such as those proposed by Brazil and India were contrary to the
developmental objectives they sought to promote in the first place.  In Canada's view, the proposal
failed to demonstrate that the TRIMs Agreement was not sufficiently flexible, and that it was
necessary to modify Article 4 of the TRIMs Agreement as proposed by India and Brazil.
1.18 The representative of Pakistan welcomed the EC statement that if there was a good case for
extension it would be looked into sympathetically.  But Pakistan really had to fight very hard to get
the extension, and they were given an understanding that it could not come back for a next time.  In
the case of Pakistan, his Government had done away with 75 per cent of TRIMs.  In the case of
electronic industries they were no more required.  But there was a certain crucial time for which one
needed TRIMs and that was what developing countries were asking for.
1.19 The Council took note of the statements made and agreed to revert to this item at the next
meeting.
II. DISCUSSION OF IMPLEMENTATION ISSUES BY THE TRIMS COMMITTEE –
REPORT TO THE COUNCIL FOR TRADE IN GOODS
2.1 The Chairman recalled that, at its meeting of 7 May 2002, the  CTG decided to assign to the
TRIMs Committee the responsibility for conducting work on the outstanding implementation issues
contained in tirets 37 to 40 of document JOB(01)/152/ev.1. The TRIMs Committee was alsorequested to report regularly to the CTG on progress on this matter.  The Council had received the
final report of the TRIMs Committee on work on outstanding implementation issues, contained in
document G/L/588.  He also recalled that, in accordance with paragraph 12(b) of the Doha Ministerial
Declaration, the CTG was required to report to the Trade Negotiations Committee on the relevant
outstanding implementation issues before the end of the year for appropriate action.
2.2 As the Chairman of the TRIMs Committee was not present in Geneva the CTG Chairman had
been asked to introduce the report on his behalf as follows:
Pursuant to the Council for Trade in Goods' decision of 7 May 2002, the TRIMs Committee
conducted discussions of outstanding implementation issues related to the TRIMs Agreement,
as contained in tirets 37 to 40 of document JOB(01)/152/Rev.1, at its meetings of 21 May,10 July and 14 October 2002.  The TRIMs Committee was also requested to report  regularly
to the CTG on its work on this matter.  Accordingly, the Chairman of the Committee
submitted oral reports to the Council after each meeting of the TRIMs Committee at which
the issue was discussed.  In discussions throughout this year, the Committee had a useful
exchange of views on the substance of the relevant tirets as well as on a joint proposal, whichwas recently submitted to the Committee under tiret 40.  However, differences remained on
how best to address the outstanding implementation issues.  This is reflected in paragraph 4 of
the report, which states that one view was that the discussion on the relevant tirets had been
exhaustive, while another view was that further discussions were warranted.  The report went
on to reflect in a factual manner Members' positions on each of the relevant tirets.  Finally, hedrew the Council's attention to the relevant sections of the minutes of the TRIMs Committee's
meetings, contained in documents G/TRIMS/ M/13, 14, 15 and 15.Add.1, which provide a full
account of the discussions under this topic.
2.3 The Council agreed to the Chairman's proposal that the Council take note of the report and
transmit it as its own report to the Trade Negotiations Committee in accordance with paragraph 12(b)
of the Doha Declaration.G/C/M/66
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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 be
provided 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 instrumentsover 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 quota
commitments (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 onautomobiles, 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 Committee
meetings 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 issuesthus 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 the
subsidiary 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 difficultyChina 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 Members
share 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 Chinaproviding 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/C/M/66
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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/C/M/66
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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 informationexchange 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 believed 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/C/M/66
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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/C/M/66
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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/C/M/66
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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/C/M/66
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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/C/M/66
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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/C/M/66
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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/C/M/66
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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.
IV. REQUEST BY THE EUROPEAN COMMUNITIES – PANAMA'S DECREE ON
IMPORT TARIFFS CHANGING THE TARIFFICATION FOR CERTAIN MILK
PRODUCTS
4.1 The Chairman recalled that at the last meeting in October, the European Communities raised
this issue under other business.  It had subsequently requested that this item be formally put on the
agenda of this meeting.
4.2 The representative of the European Communities reiterated his delegation's concern that
recent adjustments to the Panamanian import tariffs for milk implied a breach of the tariff
commitments negotiated at the time of Panama's accession to the WTO and confirmed in its Schedule.
His delegation had communicated its concerns in writing to the Panamanian authorities and invited
them to enter into bilateral discussions to clarify the situation.  The EC was waiting for their response.
4.3 The representative of Panama confirmed that his delegation had met with the EC on this issue
and would continue to cooperate in the hope of arriving at a solution as soon as possible to the
satisfaction of all parties.
4.4 The representatives of the United States and Canada  expressed their interest in knowing the
outcome of the bilateral consultations at the appropriate time.4.5 The Council took note of the statements made.
V. STATUS OF NOTIFICATIONS UNDER THE PROVISIONS OF THE
AGREEMENTS IN ANNEX 1A OF THE WTO AGREEMENT
5.1 The Chairman said that as indicated on the cover page of document G/L/223/Rev.9, the Council
adopted, at its meeting in October 1996, a recomm endation by the Working Party on Notification
Obligations and Procedures to maintain on an ongoing basis a comprehensive listing of notification
obligations under the provisions of the Agreements  listed in Annex 1A of the WTO Agreement and
compliance with those obligations.  The update was contained in the doc ument G/L/223/Rev.9 and
included all notifications made up to 30 June 2002.
5.2 The representative of Hong Kong, China inform ed the CTG of an omission in the status of
notifications for the section on import licensing.  The document had yet to reflect that Hong Kong,
China had submitted in good time the annual questionnaire as required under Article 7.3 of the
Agreement on Import Licensing Procedures.  The Chai rman said that an appropriate corrigendum would
be issued.G/C/M/66
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5.3 The Council took note of the statement made  and the information contained in document
G/L/223/Rev.9.
VI. WAIVER REQUEST FROM CANADA, JAPAN AND SIERRA LEONE –
KIMBERLEY PROCESS CERTIFICATION SCHEME FOR ROUGH DIAMONDS
6.1 The Chairman drew Members' attention to  the communication in documents G/C/W/431 and
Corr.1, which was a request for a WTO waiver concer ning the Kimberley Process Certification Scheme
for rough diamonds from Canada, Japan and Sierra Leone, and the Philippines, Thailand and United
Arab Emirates.  Australia and Brazil had also joined  the list of requesting Members.  Those delegations
had also submitted a draft decision for the waiver in documents G/C/W/432 and Corr.1.
6.2 The representative of Canada was pleased to introduce this request for a WTO waiver, which it
had co-sponsored with Sierra Leone, Japan, Thailand, the United Arab Emirates, the Philippines,
Brazil and Australia.  It was a rather unique request to deal with a unique situation:  measures to
implement Kimberley Process restrictions on trade in conflict diamonds.  For Canada, this issue
touched on two pillars of foreign policy:  the ongoing concern with international issues of humansecurity, and the importance of the multilateral trading system and the WTO in particular.  The trade
in conflict diamonds had had deadly consequences for the security and well-being of innocent
civilians in affected countries in Africa. Under the UN Security Council, the Angola Sanctions
Committee, which Canada was proud to be a part of,  played a critical role in strengthening sanctions
against UNITA and, ultimately, in ending the long and bitter civil war in Angola.  The SecurityCouncil also imposed sanctions targeting the RUF rebels in Sierra Leone and the government of
Liberia and paid serious attention to the exploitation of natural resources in the Democratic Republic
of Congo.  The UN General Assembly had adopted two resolutions (December 2000;  March 2002)
calling for the development of an international certification scheme for rough diamonds.  Resolution
55/56 (2000) called on the international community to give urgent and careful consideration todevising effective and pragmatic measures to address this problem. Resolution 56/263 (2002)
welcomed the detailed proposals for an international certification scheme for rough diamonds
developed in the Kimberley Process and urged the scheme's finalisation and subsequent
implementation as soon as possible.
6.3 Since May 2000, South Africa had led the Kimb erley Process, which had brought together
governments of diamond producers, exporters, and importers, as well as representatives from thediamond industry and non-governmental organizations  to discuss additional practical measures to
combat the trade in conflict diamonds.  The result was a set of detailed proposals for an international
system of certification that aimed to strengthen control over the legitimate trade in rough diamonds,
thereby preventing conflict diamonds from entering into the trade.  Under the scheme, rough
diamonds could only be traded internationally among Kimberley Process Participants if they wereaccompanied by a Kimberley Process Certificate issued  by Participants that effectively attested that
the diamonds are conflict-free.  In Interlaken on 5November 2002, Kimberley Process Participants
called for the simultaneous launch of the Certification Scheme beginning on  1 January 2003.  The
diamond Certification Scheme that Kimberley Process Participants had agreed upon called for the
prohibition of trade in rough diamonds with non-participants.  This prohibition was essential toensuring the effectiveness of the Kimberley Process scheme.
6.4 Domestic measures were necessary to implement elements of the Kimberley Process.
Canada, Sierra Leone, Japan, Thailand, the United Arab Emirates, the Philippines, Brazil and
Australia were requesting a waiver for these domestic measures under Article IX:3 of the WTOAgreement.  This approach addressed the issue in an open and transparent manner, and provided legal
certainty in relation to international trade obligations.  Without a waiver the requesting Members
could not be certain that the Certification Scheme would not be challenged.  Canada took veryG/C/M/66
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seriously the international trade in conflict diamonds, which could be directly linked to the fuelling of
armed conflicts, the activities of rebel movements aimed at undermining or overthrowing legitimate
governments and the illicit traffic in, and proliferation of, armaments especially small arms and light
weapons.   It also took its international trade obligations seriously.   This waiver request reflected its
commitment to both sets of obligations.  Other Kimberley Process Participants continued to study theissue and he hoped that many would choose to associate themselves with this waiver request.  The
success of the Kimberley Process owed much to its inclusive nature, which had been characterized by
strong cooperation between governments, the diamond industry and civil society.  On behalf of the
Kimberley Process Participants co-sponsoring this waiver request, Canada asked that Council for
Trade in Goods add its support to the successful Kimberley Process and help to put an end to the
devastation caused by conflicts fuelled by the trade in conflict diamonds by giving the waiver request
expeditious and favourable consideration.
6.5 The representative of the United States said that the Kimberley Process Certification Scheme
was a crucial part of the international effort to  combat trade in diamonds that had fuelled bloody
conflicts in Africa, while at the same time protec ting the legitimate diamond trade.  The completion of
the Scheme was a major achievement.  As the particip ants recognized in the Ministerial Declaration that
launched the Scheme, it was necessary to ensure that the Scheme be implemented in a WTO-consistent
manner.  The US intended to take this direction seri ously and expected that other participants would do
the same.  To that end, the US welcomed the wa iver request introduced by Canada and the other
Members which would ensure that the Scheme could be implemented within the framework of
international trade rules.   While his delegation wa s still examining specific aspects of the request, it
supported the request in principle.  The goal of all who developed the UN-endorsed certification Scheme
had been to ensure that the Scheme be as compre hensive as possible and that all rough diamond trading
countries and economies participate.  The US had no desire to exclude any country or to unduly burden
the legitimate trade.  Therefore, his delegation woul d be interested to hear from any WTO Members that
traded in rough diamonds but had not yet d eclared an intent to implement Kimberley.
6.6 The representative of the European Communities said that the EC was fully committed to the
promotion of international peace and security, and equally committed to the proper functioning of the
multilateral trading system.  The EC was interested in the Kimberley Process and we are interested in
putting the Kimberley Certification Scheme in operation as quickly as possible for 1 January 2003.
Nevertheless, the EC was still in the process of c onsidering not the Kimberley Process Scheme itself but
various important and sensitive issues as they transpired through the waiver request which had beenforwarded by Canada and others.  It was to that exte nt that the EC would like to have more consultations
with Canada and the other proponents of the waiver before it could deliver a specific and definitive
opinion on the waiver request.
6.7 The representative of Chinese Taipei referred to  the request for a waiver in order to allow
Kimberley Members to take measures necessary to regulate the import and export of rough diamonds in
conformity with the WTO legal framework.  His Go vernment also recognized the humanitarian nature
of this issue and appreciated the efforts of so me WTO Members intending to bring the Kimberley
Process Certification Scheme into practice.  Consid ering that the request was made known to Members
only recently, his delegation was still in the process of consulting with domestic agencies and industries
on this matter.  Therefore he wished to have more ti me to consider this matter and discuss this issue in
the next meeting.
6.8 The representative of Switzerland said that Sw itzerland also gave its support to the Kimberley
Process and subscribed to its objectives.  Like the EC and Chinese Taipei, Switzerland was at present
examining some of the aspects of the request made by Canada.  He believed that more time was needed
before the CTG could take a final decision.  This time could be used to establish consultations with the
delegations having put forward this request for a waiver.G/C/M/66
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6.9 The representative of India stated that Indi a was fully committed to the Kimberley Process
Certification Scheme and would be launching th e Certification Scheme as of 1 January 2003.  In
principle India was also in agreement with the re quest for a waiver put forward by Canada but was
having the specifics examined in capital and would lik e more time before coming back to this issue.
6.10 The representative of Israel joined others in  stating that Israel was fully committed to the
Kimberley Process.  Israel also welcomed the propos al of the waiver brought forward by Canada and
other Members and would like to be part of  any consultations that would take place.
6.11 The representative of Costa Rica welcomed the request made for a waiver as presented by
Canada and other WTO Members.  Like the EC, Ch inese Taipei and others, Costa Rica was in the
process of considering this request in capital and hoped to see more consultations take place to have abetter understanding of the positions taken.
6.12 The representative of the Czech Republic also underlined that the Czech Republic was fully
committed to the implementation of the Kimberley Pr ocess.  His capital was still in the process of
studying and considering specific elements of the re quest for a waiver and supported the proposal of the
EC for more consultations among delegations.  His delegation would be in favour of a solution which
might be common for all participants in the Kimberley Process.
6.13 The representative of Norway said Norway was fully committed to the Kimberley Process
Certification Scheme for Rough Diamonds and in accordance with its national legislation, the necessary
domestic measures would be adopted in Norway pr ior to the launch of the Certification Scheme on
1 January 2003.  With regard to the request for a waiver, he supported the request for consultations as
proposed by the EC.
6.14 The representative of China said that China was fully committed to the Kimberley Process and
wanted the Certification Scheme to start as smoothl y as possible.  His capital was still considering the
proposal by Canada and would like to join the consultations at a later stage.
6.15 The representative of Korea associated hims elf with the comments and views of other
delegations.  He  understood the humanitarian and security goals of the Kimberley Process and
recognised the exceptional circumstances of trade in  conflict diamonds.  However, he needed more time
to get a consensus recommendation because of the comprehensive nature of this Kimberley Process.
6.16 The Chairman said there had been a useful a nd informative exchange of views but it was clear
that a number of delegations required time to reflect on this request.  He proposed that the Council take
note of the statements made and suggested that Canada carry out consultations and that the CTG revert
to this item at the appropriate time.
6.17 It was so agreed.
VII. INTRODUCTION OF HARMONIZED SYSTEM 2002 CHANGES INTO WTO
SCHEDULES OF TARIFF CONCESSIONS – DRAFT WAIVER
7.1 The Chairman drew Members' attention to the draft waiver circulated in document
G/C/W/436, which has been made in connection with the introduction of HS2002 changes into WTO
Schedules of tariff concessions.
7.2 The representative of the United States said that the US wanted to join in the consensus
approving this waiver.  There were a number of countries that had implemented the HS2002 changes
but had not yet notified those changes to the WTO.  It was necessary for that to happen in order forG/C/M/66
Page 21
these schedules to be approved and for countries to be consistent with their international obligations in
this area.
7.3 The representative of Mexico said that it had not been possible in this document to take into
consideration the particular situation of two Memb ers who should have benefited from three months'
more that were given to the other Members listed in Annex A.  In case in the future requests were
made for extensions relating to HS2002 changes, he urged that parity be given due consideration.
7.4 The representative of Argentina supported Mexico's statement.
7.5 The CTG recommended that the draft waiver decision contained in G/C/W/436 and Corr.1 be
forwarded to the General Council for adoption.
VIII.  CONSIDERATION OF ANNUAL REPORTS OF SUBSIDIARY BODIES OF THE
COUNCIL FOR TRADE IN GOODS
8.1 The Chairman said that pursuant to the "Pro cedures for an annual overview of WTO Activities
and for reporting under the WTO" (WT/L/105) which were adopted by the General Council on 15
November 1995, all bodies constituted under agreements in Annex 1A of the WTO Agreement were
required to submit annually a factual report to th e Council for Trade in G oods, and the Council was to
take note of these reports.  The Council took note of the following reports without discussion.
8.2 Committee on Market Access:  document G/ L/582;  Committee of Participants on the
Expansion of Trade in Information Technolo gy Products (G/L/577);  Committee on Agriculture
(G/L/594);  Committee on Customs Valuation (G/L/ 590);  Textiles Monitoring Body (G/L/574);
Committee on Sanitary and Phytosanitary Products (G/L/592);  Committee on Technical Barriers to
Trade (G/L/580);  Committee on Import Licensing (G/L/573);  Committee on Rules of Origin(G/L/593);  Committee on Anti-Dumping Practi ces (G/L/581);  Committee on Subsidies and
Countervailing Measures (G/L/585);  Committee on Safeguards (G/L/583);  Working Party on State
Trading Enterprises (G/C/W/591 and Corr.1);  Committee on Trade-Related Investment Measures
(G/L/588).
IX. ADOPTION OF THE ANNUAL REPORT OF THE COUNCIL FOR TRADE IN
GOODS TO THE GENERAL COUNCIL
9.1 The Chairman drew attention to the draft report of the Council circulated in document
G/C/W/433.  In accordance with the "Procedures fo r an annual overview of WTO Activities and for
Reporting under the WTO" (WT/L/105) which was adopted by the General Council on 15 November
1995, it was agreed that "The respective sectoral C ouncils should report in November each year to the
General Council on the activities in the Council as well  as in the subsidiary bodies" and that the reports
of the sectoral Councils should be "factual in natu re, containing an indicati on of actions and decisions
taken, with cross references to reports of subordi nate bodies and could follow the model of the GATT
1994 Council report to the CONTRACTING PARTIES".
9.2 The Council  agreed to adopt the draft report, subject to the updating required to take account of
the Council's work at this meeting.  (The report was subsequently circulated as document G/L/595).G/C/M/66
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X. OTHER BUSINESS
10.1 The Chairman announced that the next CTG meeting would take place on Friday, 6 December
and would be devoted to trade facilitation.  The agenda for the meeting would close on Monday,
25 November at noon.  The meeting was then closed.
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