WORLD TRADE  
ORGANIZATION  G/C/W/502 
23 November 2004 
 (04-5090) 
Council for Trade in Goods Original:   English 
  
 
TRANSITIONAL REVIEW MECHANISM IN CONNECTION WITH PARAGRAPH 18 OF 
THE PROTOCOL ON THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA
1 
 
Communication from the European Communities  
 
 
 The following communication, dated 22 November 2004, is being circulated at the request of 
the delegation of the European Communities.  
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  The EC welcomes progress made by China in the implementation of many of its commitments under its Accession Protocol.  It has not ed a positive trend in informing foreign parties 
and the industry ahead of introducing  legislation and encourages China to continue this practice.  It 
also notes with satisfaction the setting up of bilateral dialogues on various topics that allow for 
increased sharing of views and experience early in th e process of reform and legislative drafting, and 
should help avoid the creation of obstacles to trade.   At the same time, the EC attaches a great impor tance to the TRM exercise, and considers that 
it is of utmost importance to ensure a proper and meaningful functioning of this mechanism.  The 
objective of the EC was to have in each subsid iary body under the Council for Trade in Goods a 
meaningful discussion and detailed replies from the Chinese side to this limited number of questions. 
  To ensure an efficient functioning of the m echanism, the EC has tr ansmitted the questions 
well in advance of each meeting (typically six weeks), focusing on a limited number of issues that 
have already been discussed a number of times in th e WTO committees or in bilateral meetings and as 
a result well-known to the Chinese side. 
  However, the EC regrets to note that th e assessment this year's TRM exercise in the 
subsidiary bodies under the Council for Trade in Good s is rather disappointing.  The EC impression is 
that China provided replies of a very general nature that lacked specificity in order usefully address a 
number of questions raised notably in the Import Licensing, Market Access, TBT and SPS 
committees.  The EC regrets that China provided  written replies only in very few instances.  
Regrettably, experience of previous exercises shows that follow up replies rarely come.  
  In this meeting, the EC would like to con centrate only on those issues that are of extreme 
concern to us, notwithstanding the fact that for a ll items pending we would seek answers from China.  
The issues of extreme concern and for which the answers provided by the Chinese side were not 
sufficient can be listed as follows:  
                                                     
 
1 WT/L/432. G/C/W/502 
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 1. Export restrictions on Raw materials 
 
 The EC attaches particular importance to tw o products, namely coke and rare earths. 
  In the context of its accession to the WT O, China committed itself to eliminate, upon 
accession, export restrictions unless they could be justified under WTO rules (§ 165 of the Working 
Party Report).  In the Protocol of accession (Par t I-Sections 8 (b) and 18 a nd Part IV-Section 5 of 
Annex 1A related to "export restri ctions"), China undertook to notify any possible export restrictions 
to the WTO.  
 Since the TRM exercise of 2002 the EC has re quested justification for such measures from 
the Chinese authorities.  To the EC's knowledge, the only document transmitted so far by China to the 
WTO on this issue is the list of products subject to export restrictions notified to the WTO Committee 
on Market Access on 18 September 2002 and 17 Octobe r 2003. The Chinese authorities indicated in a 
letter of 17 October 2003 that th ey were "still verifying the WTO justification which will be provided 
to the Secretariat later".  To the knowledge of the EC, this justification has never been transmitted to 
the WTO.   The reply provided by China to the Committee on Market Access concerns only coke and has 
not addressed the other product of EC concern, namely  rare earths.  In its reply, China appears to 
believe that the export quota on coke falls under the exception regarding the exhaustion of natural 
resources, set forth in Article XX of GATT 1994.  However, article XX only allows measures that 
were made effective in conjunction with restri ctions on domestic production or consumption.  
 
(i)  The EC would like to urge China to notify in line with Part I-Section 8 (b) of the  Protocol of accession the quantities associate d with the export restrictions imposed on 
 the products listed in the Chinese documen t of 17 October 2003 (and on any other 
 product that may not be included in this list);  (ii)  The EC would be grateful if China c ould identify all such restrictions imposed on 
 domestic coke and rare earth pr oduction and consumption to date; 
 
(iii)  Does China have any plan to impose any new domestic restrictions?  
 (iv)  Does China have any timetable for elim inating the export quota system on coke and 
 rare earths? 
 2. Automobiles 
 
 The EC has taken note of the publication of th e New Automobile Policy (hereafter "NAP") on 
1
 June 2004.  Given the framework nature of this  new policy and the opaque manner in which it was 
developed, the EC has indicated in the Market ac cess committee that it would appreciate if China, in 
line with the transparency requirements under WTO, c ould notify any definitive text of the soon to be 
published implementation regulations  that will supplement the new policy sufficiently in advance so 
as to allow all WTO Members to comment on it.   In addition to questions on the distribution and JV requirements aspects of the NAP, the EC 
has raised the questions in the Committee on Ma rket Access on the customs classification of 
automobile spare parts.  In its reply, China has me rely indicated that the classification mechanism has 
not changed.   G/C/W/502 
 Page 3 
 
 
  In this context, the EC would be grateful if China could: 
 
• indicate the precise point in time when the iden tification of complete vehicles and assemblies 
occurs after importation; 
• explain the meaning of the reference to a "regulated amount" in respect of classification of 
assemblies and complete vehicles, and its consistency with WTO rules; 
• explain how it intends to implement the pr ovisions of the NAP relating to customs 
classifications in a way which will comply with classification principles enshrined in the Harmonized System Convention under the World Customs Organization. 
 
3. Subsidies Notifications 
 
 With the accession to the WTO China has also s ubscribed to the obligations of Article XVI:1 
of GATT 1994 and Article 25 ASCM to provide a New and Full Subsidy Notification.  Since China's 
accession to the WTO no Subsidy Notification has b een made.  The last notification covering the 
financial years 2001 and 2002 was due on 30 J une 2003. The EC would like to express its 
disappointment that China has so far not fulfilled this obligation resulting from her accession to the 
WTO and thus does not contribute to this important exercise of transparency.  In its reply to the 
Subsidies Committee, China has only referred to notification submitted at time of Accession. 
  Can China please finally indicate when  the notification can be expected? 
  In last year's Subsidies Committee of Octobe r the EC have asked China (G/SCM/Q2/CHN/5) 
to provide information according to the WTO s ubsidy notification format  on a VAT reimbursement 
scheme for the import of copper raw material (copper scrap and copper concentrate).  Considering the 
distortions which this scheme causes on international raw material markets, the EC have reiterated its 
request for information several times at various levels .  Only insufficient replies have been received. 
  Can China please explain this  lack of reac tion, indicate when this information can be 
expected and what are the intentions in regard to this scheme? 
 
4. SPS measures 
 
 China has taken on a number of occasions th e official position that as a "non-member of 
OIE", it is not involved in the creation of OIE standa rds, and therefore needs time to analyse whether 
these standards are appropriate for China and is ther efore not forced to respect and to follow such 
international standards.  This position is not consistent with th e obligations under Article 3.2 and 
Article 5 of the Agreement for WTO Members to u se relevant international standards as a basis for 
their sanitary and phytosanitary measures.   
 In that respect, the European Communities w ould like to recall that China has committed in 
Paragraph 2 of the EU-China record of unders tanding on SPS measures that "China shall recognise 
the OIE, the Codex Alimentarius and the IPPC as the reference organizations in the relevant fields, as 
provided for by the SPS Agreement" and this regardless of China's participation or not to the works of 
the OIE.  
 
 The European Communities would also like to point out that China participates to some 
extent in OIE and  has already in the past made no tifications to the OIE of certain animal diseases, in 
particular in the case of Avian Influenza.    In that context, the EC would like to emphasi se that the sanitary and phytosanitary measures 
not in accordance with international standards, guidelines and recommendations issued by the WHO, G/C/W/502 
Page 4  
 
 the IPPC and the OIE, and which may have a signifi cant impact on trade, shall be justified on the 
basis of a risk assessment.   The SPS Agreement is based on the respect of international standards except where a 
scientific evidence justifies a different approach.  The systematic failure of any Member Country to 
respect these standards simply becau se they do not attend the meetings of the relevant organisation is 
not compatible with the obligations of WTO Me mbership.  The EC note that even though positive 
steps have been made in order to  follow international standards, th e administrative procedure in place 
does not allow a chance to implement theses rules within a reasonable period of time.  
 With this regard: 
 
• Can China please clarify how on the one hand it claims  to comply with Articles 3.2 and Article 5 
of the SPS Agreement by respecting the relevant international standard but on the other hand 
adopts a position as a "non-member of the OIE" whereby it has to assess these on a case by case 
basis? 
• Has China based the sanitary and phytosanitary measures on risk assessment when these measures 
do not conform to international st andard guidelines or recommendations? 
  The European Communities would like to emphasise  the important detrimental effect to trade 
in relation to the above, firstly in relation to BSE, but also with rega rd to the excessive delays applied 
by China to recognise disease free status of Europe an Member States, sometimes several years after 
the recognition by the OIE and other WTO Members.  
 
5. Government Procurement 
 
 The EC would like to raise the question of China's accession to the Government Procurement 
Agreement  (GPA). 
 
 In the Working Party for WTO accession China stated that would initiate negotiations for 
membership in the GPA as soon as possible.   Now that three years have elapsed since Ch ina's accession to the WTO, the EC would be 
grateful if China could indicate when it intends to start negotiation in order to join the GPA. 
  We understand that a working group on the po ssibility of initiating GPA negotiations has 
recently completed a study on the subject.  The EC  would be grateful to have information on the 
recommendations provided by the Working Group.  Has China set a timetable for joining the GPA? 
 
 The EC would also like to stress that, until its accession to the GPA, China should, in line 
with its commitments ensure that all government entities  conduct their procurement in a transparent 
manner and that all foreign suppliers are provided with equal opportunity to participate in that 
procurement pursuant to the MFN principle.  
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