WORLD TRADE  
ORGANIZATION  G/MA/W/58 
31 August 2004 
 (04-3613) 
Committee on Market Access Original:   English 
  
 
 
CHINA'S TRANSITIONAL REVIEW MECHANISM 
 
Communication from the United States
 
 
 The following communication, dated 30 August 2004 , is being circulated at the request of the 
Delegation of the United States. 
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 Questions From the UNITED STATES to CHINA concerning Market Access  
 
Export Restrictions 
 
1. The United States is concerned about China’s ex port restrictions on coke, a key steel input.  
China is the world’s largest producer of coke, with total production of 177.7 million MT in 2003.  In 
2004, China initially imposed an export quota of 8. 3 million MT, down from the 2003 level of 14.3 
million MT.   In the first six months of 2004, Chin a’s export quota, combined with the illegal selling 
of export quota certificates by provincial  Mini stry of Commerce (MOFCOM) authorities and State 
trading enterprises affiliated with MOFCOM, caused the export price for Chinese coke to rise above 
$500 per MT, more than three times the price in 2003.   This price rise had a similar effect on world 
coke prices, while Chinese domestic prices ranged between $150 and $200 per MT.  Following 
repeated complaints from various  WTO members, China raised the 2004 quota to 12.3 million MT  in 
late July.   a. WTO rules establish a general prohibition against export restrictions, with only 
limited exceptions.  The United States unders tands China’s position to be that the 
export quota on coke falls under the ex ception regarding the conservation of 
exhaustible natural resources, set forth in Article XX of the General Agreement on 
Tariffs and Trade 1994 (GATT 1994).  However, that exception only allows measures that were made effective in c onjunction with restrictions on domestic 
production or consumption, and provided that  they are not applied in a manner that 
would constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prevail or a disguised restriction on trade.  Please identify the relevant domestic restric tions imposed by China.  In addition, 
please explain how China’s export restrictions on coke satisfy the Article XX exception.  The United States notes that, in 2003, China’s policies resulted in China 
reserving approximately 163 million MT for the domestic market, while only 
allowing less than 15 million MT to be exported. 
 
b. In late May of 2004, China and the European Union (EU) announced a bilateral 
agreement guaranteeing 4.5 million MT of the 2004 coke quota for EU purchasers.  
Following that agreement, China entered into discussions with the United States and 
other WTO Members with a view toward establishing country-specific quota 
allocations for 2004.  In late July of 2004, however, China indicated that it would not G/MA/W/58 
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 be using country-specific quota allocations and instead simply raised the 2004 quota 
from 8.3 million MT to 12.3 million MT.  Please explain the current status of the China-EU bilateral agreement. 
 
c. According to Chinese coke industry sour ces earlier this year, several new coke 
production facilities were under constructi on in China that would result in 
substantially increased production capac ity, and China’s coke production was 
forecast to continue to grow through at least 2006, even with planned elimination of polluting bee-hive oven production.  In c ontrast, according to an August 16, 2004 
news report citing MOFCOM sources, China will be cutting its coke production by 
20 percent in 2005.  Please clarify this situation. 
  d. The United States appreciates the effort s undertaken by MOFCOM to stamp out the 
practice of selling export quota certificates.  MOFCOM has indicated that this practice is illegal under Chinese law, and the United States notes that Article VIII of 
GATT 1994 provides that fees and charges (other than import and export duties) must 
be limited to the approximate cost of ser vices rendered and not represent an indirect 
protection to domestic products or a taxation of exports for fiscal purposes.  On July 
23, 2004, MOFCOM issued an urgent notice reiterating that the selling of export licenses was illegal, calling for investigati ons into this practice and demanding 
reports by August 15.  Please explain the results of these investigations. 
 
2. The United States has previously raised its c oncerns, both bilaterally and before the Council 
for Trade in Goods and the Committee on Market  Access, about China’s export quotas and license 
fees on other raw materials, such as fluorspar.  Wh at are China’s plans for bringing these measures 
into compliance with WTO rules? 
 
New Automobile Industrial Policy 
 
3. In paragraph 204 of the Working Party Repor t, China committed to amend its 1994 Industrial 
Policy for the Automotive Sector upon accession to  make it compatible with WTO rules and 
principles.  On June 1, 2004, China published its  new policy, entitled "Development Policy of the 
Automobile Industry."     
  a. With regard to Article 34 of the new po licy, please clarify what restrictions, if any, 
apply to the distribution of automobiles in Ch ina.  In particular, please clarify whether 
an enterprise may distribute, through the sa me network, (1) automobiles produced by 
different joint ventures, (2) imported and domestically produced automobiles and (3) 
different brands. 
  b. With regard to Article 55-57 of the ne w policy, and in light of China’s commitment 
in paragraph 93 of the Working Party Re port accompanying China’s Protocol of 
Accession, please clarify how China defines completely knocked-down kits for motor 
vehicles and semi-knocked down kits for mo tor vehicles and identify the tariff rates 
that are applicable to them. 
   Tariff-Rate Quotas on Fertilizers  
4. In the Goods Schedule accompanying its Protoc ol of Accession, China committed to allocate 
specified portions of the fertilizer tariff-rate quot a (TRQ) for importation through entities other than 
state trading enterprises.  For 2004, please provide information on the total quantity of each fertilizer  G/MA/W/58 
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 TRQ (i.e., diammonium phosphate (DAP), urea and NPK) that was allocated for importation through 
state trading enterprises, and the total quantity of each fertilizer TRQ  allocated for importation 
through entities other than state trading enterprises.  5.  In the TRQ headnotes on fertilizer and wool tops (found in Part III, Section A, of China’s 
Goods Schedule), paragraph 6B, China committed that  applications for reallocation of uncontracted-
for TRQ quantities shall be accepted from 1-15 Sept ember, that specific conditions for applying for 
reallocated TRQ quantities will be published in the official journal one month in advance of the 
application period, and that new allocations will be assigned by 1 October.  Please describe in detail 
(a) how China implemented its commitments rega rding reallocation of the 2003 TRQ quantities and 
(b) how China is implementing its commitments re garding reallocation of the 2004 TRQ quantities. 
 
Value-Added Tax Applied to Diammonium Phosphate 
 
6. The United States continues to have national tr eatment concerns regarding the Circular about 
VAT Exemption Policy for Certain Farming Materials (No. 113/2001), jointly issued by the Ministry 
of Finance and the State Administration of Taxa tion on July 20, 2001, which exempts all phosphate 
fertilizers except DAP from China’s value-added tax.   DAP, which is produced in the United States, 
competes with similar phosphate fertilizers produced in China, such as monoammonium phosphate (MAP).  This measure discourages use of DAP, fo r which China committed to permit access under its 
TRQ commitments, in favor of products that are not imported.  The United States has raised this issue 
with China on several occasions, both at the WTO and bilaterally.  
  a. Please provide data showing China’ s annual consumption of DAP since 2001, 
including the amounts sourced domestically versus imports. 
 
 b. Please provide data showing China’ s annual consumption of MAP since 2001, 
including the amounts sourced domestically versus imports. 
  c. Does China have any plans for revising Circular 113/2001 to eliminate the 
discriminatory treatment of DAP? 
 Scrap Recycling Regulations  
7.  Near the end of 2003, China’s General Admi nistration of Quality Supervision, Inspection and 
Quarantine (AQSIQ) issued Notice No. 115-20 03, which announced the creation of a new 
requirement that exporters of recycled scrap to Ch ina must register with AQSIQ.  Although this notice 
established a deadline of July 1, 2004, it was not  until May 8, 2004, that AQSIQ issued Notice No. 
48-2004, which establishes the procedures and substan tive requirements that recycled scrap exporters 
must satisfy to register with AQSIQ.  AQSIQ sub sequently showed flexibility by agreeing to extend 
the deadline for filing an application to August 1, 2004.  At the same time, however, it is the United 
States’ understanding that exporters that missed th e August 1, 2004 application deadline are precluded 
from applying for registration until some indefin ite time in the future. Is the United States’ 
understanding correct that AQSIQ will refuse to accept applications filed after August 1, whether 
from existing shippers or new shippers?  If so, please explain AQSIQ’s reasoning for precluding these 
exporters from applying for registration.  While the United States believes that AQSIQ may have a 
legitimate basis for insisting that these exporters  complete the registration process and obtain a 
registration number before exporti ng to China, it does not understand what legitimate basis there 
would be for barring their registration by not allowing them to apply. 
 
 
  G/MA/W/58 
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 Foreign Trade Law 
 
8. Article 16 of the Foreign Trade Law  appears to grant broad authority to impose restrictions 
on the import and export of goods in a variety of situations, but the ability of a WTO member to 
impose many of these restrictions is disciplined by  WTO rules, particularly Articles XI, XII and XX 
of GATT 1994, and by the terms of China’s accession agreement.  Can China confirm that it will only 
apply the restrictions set forth in Article 16 of the Foreign Trade Law  to the extent consistent with its 
WTO obligations?  9.  China, as a WTO member, has undertaken va rious transparency obligations under the WTO 
Agreement and China’s WTO accession agreement.  Ch ina has also specifically agreed to provide for 
fair and transparent judicial review of all administrative actions relating to the implementation of laws, regulations, judicial decisions and administrati ve rulings of general app lication referred to in 
Article X:1 of GATT 1994, Article VI of the Ge neral Agreement on Trade in Services and the 
relevant provisions of the Agreement on Trade-Rela ted Aspects of Intellectual Property Rights.  Can 
China confirm that all of the various administrative investigations and determ inations authorized in 
the Foreign Trade Law  are subject to judicial review? 
 
Trading Rights 
 
10. Please provide data showing the number of enterp rises and individuals that have registered for 
trading rights, i.e., the right to import and the right to export, since July 1, 2004 pursuant to the 
Measures on the Record Registration of Foreign Trade Operators , issued by MOFCOM on June 25, 
2004.  Have any enterprises or individuals been  refused registration?  If so, please explain. 
 
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