WORLD TRADE
ORGANIZATIONG/TRIMS/W/27
22 October 2002
(02-5769)
Committee on Trade-Related Investment Measures Original:  English
COMMUNICATION FROM CHINA
The following communication, dated 15 October 2002, has been received from the Permanent
Mission of the People's Republic of China with the request that it be circulated to Members of the
Committee.
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TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE
PROTOCOL ON THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA ("CHINA")
Statement by the Representative of China at the meeting
of the Committee on Trade-Related Investment Measures of 14 October
1. Thank you for giving me this chance to address the committee on the China’s implementation
of TRIMS agreement and related commitments in China’s protocol of accession.
2. First of all, I would like to begin my presentation with a brief account of the preparations by
our country prior to this review:
3. Pursuant to Article 6.2 of the TRIMS Agreement, on May 28, 2002, China notified the
TRIMS Committee the publication where investment m easures related to trade can be found, which is
the Gazette of Foreign Trade and Economic Cooperation of the People’s Republic of China. By doing
so, we have completed our normal notification exercise as laid out by the TRIMS agreement.
4. Annex 1A of China’s accession protocol lays dow n the information to be provided by China
in the context of the Transitional Review Mechanis m. China has submitted its responses to the annex
with regard to the TRIMs before this meeting.
5. During this very first year after accession, the Chinese government has been fulfilling its
commitments, in a systematic and faithful manner,  according to the timetable for implementation as
set forth in China’s accession protocol and working party report.
6. Firstly, China has revised the Law of the People's Republic of China on Chinese-Foreign
Equity Joint Venture; Law on Chinese-Forei gn Contractual Joint Venture; and Law on Wholly
Foreign Owned Enterprises  and their respective implementing re gulations, including the elimination
and cessation of enforcement of requirements on trade and foreign exchange balancing, local content,
export performance, compulsory technology transfer, and etc.
7. Law on Chinese-Foreign Equity Joint Venture; Law on Chinese-Foreign Contractual Joint
Venture; and Law on Wholly Foreign Owned Enterprises  are the three laws of fundamental
importance concerning foreign investment administration.G/TRIMS/W/27
Page 2
8. Upon approval by the National People's Congress and its Standing Committee, modifications
have been made on the following laws and regulations at the time given: in October 2000, Law of the
People's Republic of China on Chinese-Foreign Contractual Joint Venture ; in October 2000, Law of
the People's Republic of China on Wholly Foreign Owned Enterprises;  in March 2001, Law of the
People's Republic of China on Chinese-Foreign Equity Joint Venture ; and in July 2001,
Implementation Rules on Law of the People's Republic of China on Chinese-Foreign Equity Joint
Venture . Modifications relating to implementation of commitments made in the WTO are as follows:
1. deletion of the following provisions on foreign exchange balancing requirements
(1) Provisions in Article 20 of the Law of the People's Republic of China on Chinese-
Foreign Contractual Joint Venture,  i.e., "a contractual joint venture shall maintain
foreign exchange balance by its own; if not, it may, in light of the State regulations,request for assistance from the authorities concerned ";
(2) Provisions in Article 18.3 of Law of the People's Republic of China on Foreign-
Invested Enterprises,  i.e., "a wholly foreign owned enterprise shall maintain foreign
exchange balance; in case a foreign-invested enterprise, upon approval by theauthorities concerned, engages in sales in the Chinese domestic market, which causes
imbalance of its foreign exchange, the authorities granting the approval of its sales in
the domestic market shall be responsible";
2. modification or deletion of the following provisions on local content requirements
(1) Article 9 of Law of the People's Republic of China on Chinese-Foreign Equity
Joint Venture  has been modified as "within its business scope approved, an equity
joint venture can purchase raw materials, fuel and others that it needs in the domestic
market as well as in the international market".
(2)Article 15 of Law of the People's Republic of China on Wholly Foreign Owned
Enterprises  has been modified as follows: "within its business scope approved, a
wholly foreign owned enterprise can, in light of fair and reasonable principle,
purchase raw materials, fuel and others that it needs in the domestic market or in the
international market "; previous provision, i.e., "in the same conditions, priority shall
be given to purchase in the domestic market", has been deleted.
3. modification or deletion of the following provisions on export performance
requirements
Article 3.1 of Law of the People's Republic of China on Wholly Foreign Owned
Enterprises  has been modified as follows: "the establishment of a wholly foreign
owned enterprise shall be conducive to the development of Chinese national
economy.  The State encourages the establishment of wholly foreign-owned
enterprises with export orientation and adoption of advanced technology".  Previous
provision, i.e., the establishment of a foreign-invested enterprise "must adoptadvanced technology, or export all or the most of its products", has been deleted.
In addition, the authorities concerned have repealed a number of regulatory measures
including Notice concerning Export for Balancing Foreign Exchange of Chinese-
Foreign Joint Ventures , which are incompatible with the commitments made by
China for accession to the WTO.G/TRIMS/W/27
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9. Secondly, China has comprehensively revised the guiding catalog of investment to ensure
WTO consistency.
10. To implement its commitments made for the accession to the WTO, China modified its policy
on foreign investment in 2002 by promulgating the revised Provisions on Guiding Foreign Investment
Direction and Industrial Catalogue for Foreign Investment , which came into force as from 1 April
2002.  To fully embody the commitments made for the accession to the WTO, China has liberalized
further the restrictions imposed on the proportion of foreign equity in investment projects and opened
new sectors to foreign investment.  The newly-opened sectors include telecommunications, urban
water supply and drainage, construction and operati on of gas and heat distribution network, which all
were previously prohibited from any foreign investment.  In light of commitments made in the WTO
with respect to geographic restrictions, quantitative restrictions, business scope, proportion of equity
and timeframe, China has opened further such service sectors as banking, insurance, distribution,trading right, tourism, telecommunications, transportation, accounting, auditing and legal services.
The timeframe and pace of opening of these markets, as committed in China's accession to the WTO,
has been contained in annexes to the Industrial Catalogue for Foreign Investment.
11. Thirdly, China has revised the industrial polic y for automotive sector as required by the
accession commitments.
12. China has revised the Law on Chinese-Foreign Equity Joint Venture; Law on Chinese-
Foreign Contractual Joint Venture; and Law on Wholly Foreign Owned Enterprises and their
respective implementing regulations, including the elimination and cessation of enforcement of
requirements on trade and foreign exchange balancing, local content, export performance and etc.
Provisional Regulations on Improving Domestic Production of Cars Using Tax Breaks has beenabolished. With these measures taken, corresponding provisions contained in 1994 Automobile
Industrial Policy have ceased to be valid and have not been enforced since China’s WTO accession.
The new Guidelines for Current Development Of Automobile Industry is in a process of review and
drafting.
13. China will strictly abide by its accession co mmitments to completely lift the restrictive
measures applicable to motor vehicle producers on categories, types or models permitted for
production in two years time since accession.
14. As for the right of approval for provincial auth orities with regard to investment in automotive
sector, relevant regulations are in the process of consideration and formulation which will be released
according to legislative procedures.
15. The laws and regulations of China’s foreign investment administration are characterized by
their broad coverage and great quantity. The amendment of the legislation and administrativemeasures entails huge tasks and requires enormous input of manpower and financial recourses. The
fulfilment of this task by Chinese government despite of tremendous difficulty is a further testimony
to the sincerity and resolve of China to honour its obligations and implement its commitments.
16. Several members have presented questions related to the investment measures of China in
advance of the meeting. Though China is not bound legally to provide written answers to thosequestions, we consider the comments and questions are beneficiary for the preparation of our
notification to the Committee. With many of these que stions overlapping with each other or reflecting
common interests, I would like to provide respon ses and answers to those areas of concern for
members.G/TRIMS/W/27
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1, on the information requested by the committee.
All the requested information in the context of  the TRM has been provided to the committee in
advance of the meeting.
2, the publication of the revision on the TRIM s-related laws and regulations, and uniform
implementation of the revised THREE LAWs, es pecially by the governments at local level.
The information of revision and implementation of the related laws and regulations has been
published in the Gazette of Foreign Trade and Economic Cooperation  and are available on the official
website of MOFTEC.
The current legal system of China effectively ensures the nation-wide uniform implementation of
China’s accession commitments and China’s laws, regulations and administrative rules. Any laws and
regulations at local level shall be in line with those at national level. The central government will
rectify any laws and regulations once the inconformity is identified. In view of strengthening the
uniform implementation, on April 21, 2001, the State Council published Regulations Prohibiting
Barriers between Regions in Market Economic Activities  to strictly prohibit the actions in conflict
with national laws by the local governments. The enterprises, which are set up according to the local
laws and regulations inconsistent with those at national level, and their operations will not be
protected by the law of China in the legal proceedings.
3, whether undertakings under non-TRIMs conform legislation continue to be enforceable
against producers, and procedures to amend the contracts.
The government of China respects contract freedom . According to Chinese laws on absorbing foreign
investment, the contracts and articles of association of a foreign invested enterprise shall go into effectonly after the approval of the competent authority.  Therefore, according to the Contract Law of
China, their revisions also need approval, so does the major changes to the articles of association of
the foreign invested enterprises.
If an enterprise changes its commitments made in  the contract, with the unanimous consent of the
investors of the enterprise and with the approval of  the original contract approval authority, it may
stop honouring the contract. Otherwise, the enterp rise shall continue to honour its commitment made
in the contract.  Such commitment cannot be deemed  invalid. The amendments to the contracts or the
articles of association can be made only after:
(1) the unanimous consent on the revision agreement or the draft of the contract or the articles
of association.
(2) enterprises submit the revision agreement or the draft of the contract, the articles of
association and related legal documents to the original approval authorities. If the authority is
MOFTEC, relevant papers shall be sent to local foreign trade administrative agencies
whereby to be presented onto MOFTEC.
(3) examination of the submitted documents by the original approval authorities. Renewed
certificate will be approved at the consent of the authority.
(4) in case where the registration items change, enterprises shall fulfill the registration
revision procedures at the industrial and commerce administration.
Enterprises may go to the original approval authorities or local foreign trade administrative
agencies for relevant information.G/TRIMS/W/27
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4, what TRIMs-related laws and regulations have been eliminated as published by the Gazette
of Foreign Trade and Economic Cooperation, and what are the other channels for the
publications of this kind.
Chinese government has abolished and revised laws, regulations and administrative rules with
contents against the commitments China made for the accession to the WTO. Apart from the
legislations listed in our responses to Annex 1A, on November 16, 2001, MOFTEC issued the catalog
for the first batch of 6 departmental rules to be abolished (MOFTEC Ordinance No. 13), which
includes the Circular on restricting the Establishment Of Projects Of Peanut Products  Using Foreign
Capital, Urgent Circular on the Reiteration of The Ban On Projects Of Salted Or Canned Mushrooms
Using Foreign Capital, Circular On Stop Setting Up Sino-Foreign Equity Joint Ventures For TheProduction Of Leather Gloves For Labor Insurance,  Circular On The Strict Control Of Using
Foreign Capital To Set Up Projects of Exporting Processed Metal Products Using Imported Waste
Metals, Circular On The Unified Operation Of The Pearl Business  and Circular On MOFTEC Being
The Authority To Issue Pearl Export Licenses .  On December 19, 2001, MOFTEC issued Ordinance
No. 30 declaring the abolition of 3 more rules, including Supplementary Circular On The Issue Of
Wholly Foreign-Own Enterprises Importing Materials For Self Use, Circular By MOFTEC On Issues
Related To Foreign-Invested Enterprises Importing Equipments and Supplementary Circular On The
Unified Operation Of The Pearl Business And Fastening Control Over The Pearl Market .  On March
21, 2002, MOFTEC issued Ordinance No.24 abolishing the Implementing Rules of the Regulations on
the Management of Technology Import Contracts .  On October 6, 2001, the State Council abolished,
among others, Administrative Measures For The Production Of Electronic and Machinery Products
Instead Of Import By Sino-Foreign Equity Joint Ventures Or Sino-Foreign Contractual Joint
Ventures, Measures For Sino-Foreign Equity Jo int Ventures Or Sino-Foreign Contractual Joint
Ventures To Produce Products Instead Of Import and Provisional Regulations On The Management
Of Technology Contracts.  The above-mentioned information can be found both in the Gazette of
Foreign Trade and Economic Cooperation and on the website of MOFTEC.
5, on the alleged inconsistency by some members between two specific investment regulations
and China’s commitment in Para. 203 in the Working Party Report.
(1) Article 6.3 of the Regulation on the administration of Foreign Investment in the Road
Transportation Industry  requires 50% of an enterprise’s registered capital to be used for particular
purposes, i.e., the construction and renovation of the passenger transportation infrastructure.
We consider the requirement provides for a fundamen tal basis for normal operation of an enterprise in
passenger transportation business. Moreover, this is a requirement equally applicable to both domestic
and foreign enterprises and thus not constituting a restriction for investment. This article is notconflicting with China’s WTO commitments and China does not plan to revise or abolish this article.
(2) In  Regulations On The Joint Exploration Of Offshore Oil Resources With Foreign Parties and
Regulations On The Joint Exploration Of Onshore Oil Resources With Foreign Parties, foreign
partner is required to provide relevant data and admit Chinese participation into the operationaldesign.
The petroleum resources referred to in the regulations are the resources owned by the nation of China.
The ownership of any numerical data, records, samples, evidence, and other original data based on
these resources is indisputably lies with the Chinese oil company. As one party of the contract, it’s inthe right of the Chinese oil company to obtain information on the prospecting and development
activities covered by the contract. In light of the uniqueness of the oil exploitation business, the
Regulations lay out necessary provisions on the rights and obligations of the foreign partner. The
obligations contained in the Regulations are fair and appropriate, and they are in proportion to theG/TRIMS/W/27
Page 6
rights enjoyed by the foreign partners. The content at issue in the regulations has no linkage to the
commitment in Para. 203 of the Working Party Report.
6, the relationship between the contribution of technology by a foreign enterprises addressed by
Article 6 of the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures  and
the China’s commitment to eliminate mandatory technology transfer.
The laws and regulations on foreign investment make no mandatory provisions on technology transfer
and do not condition the approval of foreign invested enterprises on the transfer. Like most
developing economies, China hope to benefit from the advanced technology and management skills of
other countries apart from the foreign investment. China has not made technology contribution a
compulsory requirement. But if a foreign investor is willing to make contribution of technology basedon the business merits which is also in line with China’s development needs, China welcomes and
encourages the transfer. We see no contradiction between this article and our commitments and we
have no plan to revise or abolish this article.
7, On the preferential approval treatment to th e joint ventures who do not need export quota
and license as contained in the Article 6 of Implementing Regulations for Sino-Foreign
Cooperative Enterprises.
There are no differential treatments in granting approval to the establishment of contractual joint
ventures as to whether their exports are regulated by quota and  license or not. Currently, the exportquota and license for foreign invested enterprises are issued solely by MO FTEC. According to the
regulation, the joint ventures that do not need export quota and license can be approved by local
governments or departments authorized by State council, while those enterprises subject to quota and
license have to be proved by MOFTEC. This prov ision can let the enterprises operating with export
quota and license know, even before the establishm ent, whether they can get the export quota and
license so as to reduce the possible difficulties for the business of these enterprises. We see no
contradiction between this article and our commitments and we have no plan to revise or abolish this
article.
8, two issues regarding  Guiding Industrial Catalog for Foreign Investment.
(1) the justification of Circular Regarding Furthe r Strengthening the Management of Duplicating CD
of 1996 under the WTO framework.
For the purpose of Intellectual Property protection, China encourages the production of CD instead of
the recording of it. The Circular on Issues Regarding Setting-up and Equipment import of the Sino-
Foreign Equity or Contractual CD Recording and Production Enterprises  issued in November of
2000 jointly by Press and Publication Administratio n and MOFTEC explicitly provides against, in
principle, the establishment of Sino-Foreign equ ity or contractual enterprises CDROM reproduction.
The 1996 circular refer the CD reproduction as the copy and production of CDROM and recordable
CD, and the writing of the mother CD. The Guiding Industrial Catalog for Foreign Investment  came
into force on April of 2002 only listed production of recordable CD(CD-RCD-RWDVD-RDVD-ARM) as encouraged without including the reproduction of recordable CD. Both the 1996
and 2000 circular did not set any restrictive measures against the production of recordable CD. The
approval procedures for foreign invested CD production enterprises enlisted in the 1996 circular were
set out in light of the administrative demand for the CDROM production and had no conflict with the
Guiding Industrial Catalog for Foreign Investment.G/TRIMS/W/27
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(2) the consistency between the restrictions on production and domestic sales percentage and the
Working Party Report.
The regulation on cellular phones production and sales in 1998 has no direct linkage with the China’s
WTO commitments. However, to improve the development of mobile phone industry and foreigninvestment inflow, relevant departments are con ducting review on the 1998 regulation and requesting
the comments from domestic and foreign enterprises al ike. We will make efforts to publish the result
of the review in a shortest possible time.
9, four issue regarding the automobile industry.
(1) the validity of 1994 policy.
China has amended the provisions on foreign exchange balancing requirements, local content and
export performance and technology transfer requirements contained in the Three Laws. As those
Three Laws are of fundamental status for foreign investment administration, all the other relevant
laws and regulations shall submit to them and be accordingly revised along the line. Provisional
Regulations on Improving Domestic Production of Cars Using Tax Breaks has been abolished.
Automobile Industry Policies are in the process of modification with provisions like domestic
production, export requirement and mandatory technology transfer already annulled. As for the
revision 1994 industrial policy, it is not difficult for China to abolish the provisions like domestic
production as such. Given the great interests and various comments from both domestic and foreignenterprises, however, we are conducting an in-depth re search and study with a view to fully reflecting
the concerns of all interested parties in the new policy. Once the review concludes, we will issue the
new Guidelines for Current Development Of Automobile Industry replacing the original policies.
(2) the application of tariff rates for finished automobiles on the imported parts.This is a issue having nothing to do with the requirement of domestic production. The imposition of
finished automobile tariff on excessive imported parts over a certain percentage is based on the
custom commodity classification. It’s in consistency with the principle of world custom classification
to regard the imported car parts over a certain threshold as finished automobile. So, the existing
practice has no contradiction to the WTO agreement.
(3) status of the repeal of restrictions for the licensing of auto production.
Please refer to the information provide by China according to the Annex 1A of China’s accession
protocol. The Chinese government shall completely lift the said measure in line with the commitment
made with respect to the timeframe, so as to ensure  that motor vehicle producers have right to choose
categories, types or models of vehicles they will produce in 2 years.
(4) status of independent approval by provinci al governments for investments in motor cycle
manufacturing.
Please refer information provided under Annex 1A. It is expected that in compliance with its
commitments made with respect to the timeframe, by the end of 2002 the Chinese government will
endeavour to publish a circular increasing limits of investment to be approved by provincial
authorities.
17. I hope the information provided to the committ ee prior to the meeting and the explanation I
made just now will help members understand the efforts and achievements made by China to
implement the TRIMs agreement and its commitments. The written form of my statement will beG/TRIMS/W/27
Page 8
submitted to the Committee and circulated after the meeting.  Please check against delivery.  I would
like to take this opportunity to thank you and the secretariat for the painstaking preparation and
effective work for this meeting.
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