WORLD TRADE
ORGANIZATIONG/SCM/W/522
11 November 2002
(02-6201)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
STATEMENT BY HEAD OF THE CHINESE DELEGATION
ON THE TRANSITIONAL REVIEW OF CHINA TO THE
COMMITTEE ON SUBSIDIES AND COUNTERVAILING MEASURES
The following communication, dated 1 November 2002, has been received from the
Permanent Mission of the People's Republic of China.
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Statement by Head of Chinese Delegation on the Transition Review of China by the
Committee on Subsidies and Countervailing Measures – 2002-11-1:
China welcomes this opportunity to present to this Committee the following information
within the framework of the transitional review  under paragraph 18 of the Protocol of China’s
Accession to the WTO.  My statement will begin with some updated information regarding subsidies
and pricing policy in China.  The second part is relating to China’s Countervailing Regulations which
has been notified to this Committee with full text in English.  I believe that the information is
sufficient to address concerns and respond to questions that members raised to China prior to this
meeting.  And my statement may be circulated af ter this meeting with literal double checking by my
colleagues.
Part I
Mr. Chairman, regarding subsidy programmes and the notification obligations under the
Subsidies Agreement, China, in common with many  other members, has experienced difficulty in
obtaining accurate data and details of all types of subsidies.  Some members of my delegation
participated in the subsidies notification seminar for capital-based officials prior to this meeting of the
Committee.  They are impressed by the delay of notifications of many other members.
Soon after WTO accession, China begun to collect the information of subsidies, although the
preoccupation was placed on regulation and policy streamlining and formulation to honour the
commitments and undertakings made.  Due to the time constraints and also the complexity of this job
known to all of us, this information collection process is far from finishing, and it seems very difficult
at this moment to tell a clear cut deadline.  However, the work that we have done did turn up with
some new information which I would like to share with other members at today’s meeting, although
in our view these incomplete information are not su fficient for us to update the subsidy notification
we made during the accession negotiations, I think it is sufficient for a meaningful review at today’s
meeting.  We will certainly continue our efforts to collect more information and further improve their
quality, so as to notify to the Committee at an earlier date.  The information that I am going to
disclose here will be reflected in our future notification.G/SCM/W/522
Page 2
First and foremost, on the subsidy programme related to the Strategy of the Chinese
Government to develop the western regions.  The Strategy initiated in year 2000 aims at accelerating
the social and economic development of the western regions of China.  The subsidy programme takes
the form of preferential taxation treatment for enterp rises in the West.  To be more specific, for the
industries and sectors encouraged by the State, all the enterprises in the regions, both domestic andforeign-invested, are all entitled to a preferential income tax rate of 15% from year 2001 to 2010.  The
Ministry of Finance, the General Administration of Taxation and the taxation authorities at the local
levels are responsible for the implementation.
Secondly, regional subsidy programmes in China as notified in Annex 5A to the Accession
Protocol, including those for special economic zones, are still valid.  The purpose of the programmes
is to promote regional social and economic development and absorbing foreign investment, and is byno means contingent upon export performance or on use of domestic products.  China believes that
these programmes are extremely important and necessary to achieve the development goal of the
nation, and they are not in any way prohibited by the Subsidies Agreement.  Therefore China has no
plan to cancel these programmes.
During the accession negotiations, China committed to eliminating the subsidy programmes
contained in Annex 5B to the Accession Protocol .  Till now the two programmes relating to the
Industrial Policy on Automobiles were ceased from implementation as of 1 January 2002, according
to a Decree of the Ministry of Finance dated 11 December 2001.  China now maintains no longer
subsidy programmes that are contingent upon export performance or use of domestic products.  Thesubsidies provided to certain state-owned enterprises running at a loss by the central budget, as listed
also in Annex 5B, were eliminated in 2001.  Since 2001 such an item no longer existed in the central
budget.  The subsidies provided to certain state-ow ned enterprises running at a loss by the local
budget, which appeared in Annex 5A have also been eliminated since 2001.
One member mentioned the incentive programme for export of new and hi-tech products.
China takes it as a general policy to encourage export of new and hi-tech products with a view to
upgrading the export products structure and to adapting enterprises to the competition in the
international market.  However, up to now no specific trade policy or concrete incentive measure has
been applied and we will fulfill our notification obligation once we have such specific incentive
programmes.
One member is asking about new policies of China to support export.  I want to reiterate that
now and in the future, all the promotion policies and measures taken by China to support the export
will not go out of the scope permitted by the Subsidies Agreement.
For the industry of integrated circuits in China, some preferential taxation policies have been
adopted to promote the development since year 2001.  More specifically, (1) for integrated circuit
manufacturing enterprises established in China with total investment of RMB 8 billion and above or
for manufacturing of circuit minor than 250 millimicron, import of certain specialized construction
materials for purification rooms, manufacturing equipment and spare parts etc are exempted from
tariff and value-added tax from 1 January 2001;  (2) for the same kind of enterprises, import of certainmanufacturing raw materials and consumption goods for self-use is exempted from tariff and value-
added tax from 1 July 2001;  (3) From 1 January 2001 to the end of 2010, for the value-added tax
applied to integrated circuit products at the rate of 17%, collection exceeding 3% of actual tax shall be
refunded upon collection.
These three taxation policies were adopted for a product or an industry, regardless of the
ownership of the enterprise or the source of the investments.  They are not based upon export
performance. Therefore these policies are consistent with the Subsidies Agreement.  We have no plan
to eliminate or change them.G/SCM/W/522
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Mr. Chairman, China eliminated its export subsidies for agriculture products as early as in the
beginning of 1990s.  During the course of the WTO accession negotiations, China committed itself
not to resume agricultural export subsidies.  This commitment has been honoured by China since
accession.
After accession, to alleviate burdens of farmers and to increase competitiveness of the
agricultural products, one thing China did is to increase transportation and distribution efficiency for
the agricultural products.  The railway construction fund imposed on transportation of agricultural
products including grain and cotton, and unreasonable fees and charges imposed by some local
railway enterprise were also ruled out.  This has led to a drastic decrease of cost of transportation and
distribution, facilitating domestic circulation and export of agricultural products.  Furthermore, takingthe international prevailing practice, agriculture products are now also exported with zero value-added
tax. All these measures have contributed to the decline of export cost of agriculture products and are
all WTO consistent and in line with international common practices.
Mr. Chairman, following subsidies, I would like  to turn to pricing policy in China.  In
advance of this meeting, the Chinese delegation provided this Committee with some information as
required by Annex 1A to the China’s Accession Protocol.
Currently, prices of most products and services in China are completely determined by the
market.  Price control by the government takes only two forms of state pricing and governmentguidance pricing, and is limited to very few products and services as listed in Annex 4 of the Protocol
of China’s Accession to the WTO.
The State Development and Planning Commission is the government authority now
responsible for implementation of price control.  The Catalogue of Pricing by the State DevelopmentPlanning Commission and Relevant Administrative Bodies of the State Council, which was
promulgated by the State Development Planning Commission on 4 July 2001, is now still in force.
This catalogue was fully discussed by the members of the Working Party on China during the
accession negotiations, and its conformity to China’s commitment has been recognized by all WTO
members.
Reasons behind use of price control in China are specifically provided in Article 18 of the
Pricing Law of the People’s Republic of China, which states that price control is restricted only to:
(1) a limited number of products that are of great importance to national economy and people’s
livelihood, (2) a small number of products of scarce resources, (3) products under natural monopoly,
(4) important public utilities, and (5) important services of public interest.
In China, the practice of one product or service under multiple pricing has been terminated.
Transparency of pricing policy is well observed, with list of products and services subject to state
pricing and government guidance pricing as well as their price-setting mechanism published with the
Price Gazette of the People’s Republic of China.
Regarding the pricing mechanism of state trading enterprises, about which some members are
concerned, I want to emphasize here that according to the Pricing Law of the People’s Republic of
China, state pricing and government guidance pricing only apply to products and services as
published, regardless of the ownership of the enterprises.  Prices of products and services that are not
subject to state pricing and government guidance pr icing shall all be determined by the market, and
eventually by the enterprises themselves.  Therefor e pricing mechanism of state trading enterprises is
also determined by themselves according to the ma rket situation.  On this particular issue, more
information will be provided in our notification to the Council for Trade in Goods concerning state
trading enterprises.G/SCM/W/522
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Part II
Mr. Chairman, now I would like to respond to the questions posed to us prior to this meeting
by several members regarding China’s Countervailing Regulations.  Since China has not initiated anycountervailing investigation and no questions in this regard were raised, my instruction will be limited
to the regulatory aspect.
1. The function of various government authorities in countervailing investigations in China
Mr. Chairman, in this regard the situation is  quite similar to what we explained in the
previous safeguard and anti-dumping exercises.  Pr esently, three government agencies in China are
legislatively involved in countervailing investigati on matters, namely the Ministry of Foreign Trade
and Economic Cooperation (MOFTEC), the State Economic and Trade Commission (SETC) and the
Tariff Commission under the State Council (TCSC).
According to the Regulations on Counterva iling Measures, MOFTEC and SETC are the
investigating authorities.  MOFTEC is in charge of investigation and determination of subsidy.  If aprovisional countervailing measure takes the form of undertakings, a decision shall be made and
published by MOFTEC as the foreign trade admini strative authority. SETC is responsible for
investigation and determination of injury.  TCSC is to decide whether to levy provisional
countervailing duty or definitive countervailing duty, upon proposal made by MOFTEC on the basis
of the investigation findings.  The specific provision governing the decision-making of TCSC can befound in Article 43 of the notified regulation.  According to that Article, no countervailing duties shall
be levied in excess to the amount of subsidy as determined in the final determination made by
MOFTEC.  Here I would like to make it clear that  while TCSC has power to decide whether to adopt
recommendations for application of countervailing measures, it is not in a position to overrule or
modify the determination made by MOFTEC on the amount of subsidy.
Other than the above functions carried out by SETC and TCSC, MOFTEC is also responsible
for the other issues relating to countervailing investigations, including consultations, notifications,
dispute settlement and etc.
2. Implementation of Article 55 of the Regulations on Countervailing Measures
Mr. Chairman, some members are concerned that China may take the “corresponding
measures” under Article 55 of our Regulations on Countervailing Measures.  I would like to clarify
here that so far China has not yet applied Article 55 of the Regulations on Countervailing Measures
and therefore has not yet taken any “corresponding measures”.  Furthermore, being a WTO member,
China will first resort to the dispute settlement provisions provided in the Agreement on Subsidies and
Countervailing Measures and the dispute settlement provisions under Annex II of the WTOAgreement before taking the “corresponding measures”, if the other party is also a WTO member.
3. Administrative reconsider ation and judicial review
Mr. Chairman, if the parties concerned in a specific case disagree with the relevant
countervailing decisions, Article 52 of our regulation prescribes the mechanism of administrativereconsideration and judicial review.
Where any interested party is not satisfied with a final determination, a decision on imposition
of countervailing duties, a decision on retroactive imposition of a countervailing duty and review
findings, it can apply for administrative reconsideration.  In accordance with Article 14 of Law of theG/SCM/W/522
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People’s Republic of China on Administrative Reconsideration, the reconsideration authority shall be
the department under the State Council that carried out the administrative action.
For judicial review, we have Law of the People’s Republic of China on Administrative
Litigation Procedure, according to which, the People ’s Court at the intermediary level within whose
jurisdiction the government authority making the administrative decision in question is located, will
deal with the litigation against this government body.  Furthermore, the Supreme People’s Court of
China is in the process of formulating rules on hearing administrative litigations on countervailing
investigations.  The Rules will be notified to the Committee once promulgated.
As to the standard of review, the reconsideration authority or the court shall focus on whether
there are procedural irregularity, abuse of power, improper interpretation and application of law, etc.Nevertheless, they are not entitled to reinvestigate the case.
4. Anti-circumvention
Some Members raised concerns over Article 54 of our Regulations on Countervailing
Measures, which stipulates that MOFTEC and SETC may take appropriate measures to preventcircumvention of countervailing measures.
Although this Article provides the possibility of taking remedy measures when circumvention
takes place, up to date, China has not yet invoked this Article and has not taken any anti-
circumvention measures.  Meanwhile, we note that quite a number of other members also have
relevant rules and practices on anti-circumvention.  This issue has been long discussed in the WTO
and it is also a subject in the Negotiation Group on Rules as well as in this Committee.  In this regard,
China will implement future new multilateral disciplines.
Mr. Chairman, paragraph 18 provides China with equal legitimate right to review this
fulfilment of obligation of other members vis-a-vis China.  I would like to take the opportunity to
express our great concerns of the enterprises on the unjustifiable application of rules on subsidy and
countervailing measures in some US anti-dumping cases against Chinese products. In the anti-
dumping investigation against imports of windshields from China and several other cases on steel
products, the prices actually paid by the Chinese companies concerned on raw materials imported
from market economy countries were rejected by the US authority to be the basis in the calculation of
the normal value.  The reason the US gave us was that those source countries maintain generallyavailable export subsidies.  Such a decision was made without any investigations, and without any
determinations on subsidies despite the fact that  the Chinese companies, as importers of the raw
materials, had demonstrated and proved themselves to the US authorities that imported raw materials
had benefited nothing from those generally available subsidies in the source countries.  The US
practice in the above-mentioned cases directly goes counter to the due legal process.  The anti-dumping case on windshields is now still pending in the Court of International Trade of the US, and
we urge the US government to repeal immediately such unjustifiable practice and respect the
principles of rule of law and due process.
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