WORLD TRADE
ORGANIZATIONG/C/W/473
17 November 2003
(03-6153)
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
Questions from the United States to China concerning Trade in Goods
The following communication, dated 17 November 2003, has been received from the
delegation of the United States.
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The Government of the United States wishes to  pose the following questions to China at the
26 November 2003 meeting of the Council for Trade in Goods for the purposes of the transitional
review mandated by China’s Protocol of Accession.
Trading Rights
1. The United States seeks clarifications regard ing certain questions that it raised relating to
China’s commitments on trading rights in connec tion with the transitional review before the
Committee on Market Access on October 20, 2003.  As the United States explained before the
Committee on Market Access, China committed in its accession agreement to expand the availability
of trading rights pursuant to an agreed schedule covering the first three years of its WTO membership,
after which trading rights would be automatically  available.  With regard to foreign-invested
enterprises in particular, China committed that it would make full rights to trade available to joint
ventures with minority foreign ownership beginning  not later than one year after China’s accession
(i.e., by 11 December 2002) without any conditions.  China also committed that, within two years
after its accession (i.e., by 11 December 2003), it would make full trading rights available to joint
ventures with majority foreign ownership without  any conditions.  (See China’s Working Party
Report, para. 83.)  In reviewing China’s compliance efforts, the United States observed that China had
continued to limit the availability of trading righ ts for foreign-invested enterprises by imposing
conditions on the eligibility of those enterprises, including requirements related to minimum
registered capital, import levels, export levels and prior experience.  With regard to foreign-invested
manufacturing enterprises, the United States refe renced the treatment provided by China in the
Foreign Trade Law , the January 2001 Supplementary Provisions (II) to the Provisional Regulations
Governing the Establishment of Investment-type Companies by Foreign Business Investment , and the
July 2001 Circular Concerning the Extension of Import and Export Rights for Foreign-Funded
Enterprises .  With regard to foreign-invested trading en terprises, the United States referenced the
treatment provided by China in the January 2003 Provisional Rules for the Establishment of
Chinese-Foreign Equity Joint Venture Foreign Trade Companies , which apparently had superseded
two earlier measures, the September 1996 Provisional Rules for the Establishment of Chinese-Foreign
Equity Joint Venture Foreign Trade Companies on a Pilot Basis  and the August 1997 Regulations on
Policies for Pilot Chinese-Foreign Equity Joint Venture Foreign Trade Companies .
(a) Please explain whether any measures other than those referenced above govern the
trading rights of foreign-invested enterprises.G/C/W/473
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(b) Please explain how conditions relating to minimum registered capital, past import and
export levels and prior experience in the measures referenced above are consistent
with China’s commitments to provide full  rights to trade to foreign-invested
enterprises.
(c) We understand that China’s Ministry of Commerce is in the process of drafting
revisions to the Foreign Trade Law  and/or its implementing regulations in order to
implement China’s commitment to make tradin g rights automatically available to all
enterprises in China and foreign enterprises and individuals no later than
11 December 2004.  Do the draft revisions exclude conditions relating to minimum
registered capital, past import and export levels and prior experience?
Value-Added Tax Policies
2. During the transitional review before the Committee on Market Access, China attempted to
justify its value-added tax (VAT) policies on integrated circuits by citing to Article III:8(b) ofGATT 1994.  Specifically, China argued that China’s VAT rebates on integrated circuits were a kind
of subsidy paid to domestic producers and therefore allowed by Article III:8(b).  In the United States’
view, several prior interpretations of Article III:8(b) contradict this argument, including, for example,
the GATT panel report in United States – Measures Affecting Alcoholic and Malt Beverages , DS23/R
(adopted 19 June 1992), and the WTO panel report in Indonesia – Certain Measures Affecting the
Automobile Industry , WT/DS54/R (adopted 23 July 1998).  Please explain how China supports its
interpretation of Article III:8(b).
3. In response to questions about its VAT policies on copper scrap during the transitional review
before the Committee on Market Access on 20 October 2003 and the transitional review before theCommittee on Subsidies and Countervailing Measures on 28 October 2003, China explained that it
rebated 30 percent of the VAT on imported copper.  The United States seeks the following
clarifications:
(a) Please identify the measure that implements this policy.(b) Please explain how this VAT rebate program works in its entirety.  What is the
amount of VAT originally paid?  Which entity pays this VAT?  To which entity or
entities is a VAT rebate paid?  How much of a rebate do these entities receive?  Is the
rebate only available upon the exportation of finished or semi-finished products
copper products?  Is the VAT rebate applied only to imported scrap, or is it also
applied to domestically sourced copper scrap?  If the VAT rebate is applied to both,do the rebates differ depending on whether imported cooper scrap or domestically
sourced copper scrap is involved?
(c) Does China maintain any similar VAT rebate programs on imported products other
than copper scrap?  If so, please identify the relevant measures.
(d) Does China maintain any other preferential policies benefiting copper scrap, copper
or semi-fabricated products such as flat-rolled products, long products and pipe and
tube, whether those policies involve the VAT, other taxes, duty drawback or tariffs?
If so, please identify the relevant measures.
(e) Are any of China’s preferential policies benefiting copper scrap, copper or
semi-fabricated products conditioned on domestic production or ownership, or on
domestic or foreign content?  Please explain.G/C/W/473
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Export Restrictions
4. The United States has previously inquired about China’s export quota on fluorspar. China has
not eliminated this export restriction since acceding to the WTO, despite the fact that WTO rulesestablish a general prohibition against export restrictions, with only limited exceptions.  The United
States understands China’s position to be that the export quota on fluorspar, a raw material used in the
production of hydrofluoric acid and fluorocarbons, falls under the exception 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 such as export
quotas if they were made effective in conjunction with restrictions on domestic production or
consumption, and provided that they are not app lied 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.  China has asserted that it maintains the necessary domestic restrictions
by imposing a 15 percent resource tax and certain compensatory charges.  But, these measures are
applied to all fluorspar, whether sold domestically or exported, and, based on the U.S. understanding,
therefore do not act as comparable restrictions on domestic consumption or production.  Does Chinahave any other WTO justification for the export quota on fluorspar?  If not, please explain when it
will eliminate this quota.
5. China also continues to require fluorspar exporters to pay export license fees, which
reportedly range from 85 percent to more than 150 per cent of the cost of fluorspar.  However, GATTArticle VIII provides that fees and charges imposed in connection with importation or exportation
(other than import or export duties and taxes within the purview of GATT Article III) must be limited
to the cost of services rendered and not represent an indirect protection to domestic products or a
taxation of exports for fiscal purposes.  China’s export license fee does not appear to fit within this
standard, as it is assessed on a per unit basis and more than doubles the cost of fluorspar.  Pleaseexplain how China justifies the export license fee on fluorspar under WTO rules.  If China cannot,
please explain when it will eliminate or modify this fee.
Border Trade
6. In June 2003, China reportedly took boric acid and approximately 20 other products off the
list of imports from border areas that can benefit from preferential treatment in the form of reducedimport duties and/or VAT.  Please provide a list of these products, and identify the measure(s) that put
an end to their preferential treatment.
7. It is our understanding that China nevertheless continues to provide preferential treatment to
imports of other products from border areas.
(a) Please provide a list of the products that continue to receive preferential border area
treatment.  For each listed product, please explain whether it benefits from reduced
import duties, reduced VAT or both.
(b) Please describe China’s plans for eliminating the preferential treatment for these
products.   If China does not intend to eliminate this preferential treatment
immediately, please explain how this preferential treatment is consistent with China’s
WTO commitments, as set forth in Article I of GATT 1994 (most-favoured nation
treatment), Part XIV of Annex 5A to Chin a’s Protocol of Accession (where China
stated that it would eliminate preferential import duties for border trade) and
Section 2(A) of China’s Protocol of Accession (uniform administration of trade
regime).G/C/W/473
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Transparency
8. According to statements made by Chinese Government officials and reports from other
sources, China is in the process of drafting several trade-related laws, regulations and other measures
that will likely have a major impact on the operations of foreign companies doing business in China,including amendments to the foreign trade law, amendments to the commercial banking law,
regulations on rules of origin for imports and exports, import and export tariff regulations,
construction engineering design regulations and intellectual property rights customs protection
regulations.  The reports also suggest that China will be finalizing these draft measures by the end of
2003.  We understand, however, that, to date, none of these draft measures has been circulated for
public comment.  When will China circulate these draft measures for public comment?
Government Procurement
9. In June 2002, China adopted its Government Procurement Law , which became effective on
1 January 2003. China then began the process of drafting regulations implementing this law.  In
December 2002, the Ministry of Finance (MOF) circulated a draft of the Measures on the
Administration of Bidding of Gover nment-Procured Goods and Services  for public comment,
although it has not yet issued them in final form.  MOF is also reportedly in the process of drafting
several sets of implementing rules, including meas ures relating to the administration of government
software procurement, the administration of bidding for goods and services in government
procurement, the administration of government procurement information, the examination of
centralized government procurement institutions, the administration of complaints by suppliers and
the administration of government procurement experts.  MOF has also indicated that it is planning to
set up a working group to study China’s accession to the WTO’s Government ProcurementAgreement (GPA).
(a) What is MOF’s timetable for issuing the Measures on the Administration of Bidding
of Government-Procured Goods and Services  in final form?
(b) When will MOF circulate for public comment the various sets of implementing rules
currently being drafted?  What is MOF’s timetable for issuing these rules in final
form?
(c) What is MOF’s timetable for the establishment of the GPA working group? When is
the working group’s work expected to be finished?
Customs Valuation
10. In connection with the transitional review before the Committee on Customs Valuation on
6 October 2003, the United States submitted a series of questions for China related to its
implementation of the WTO Agreement on Implementation of Article VII of the General Agreementon Tariffs and Trade 1994 (G/VAL/W/127).  At that meeting, China indicated that it would respond
more fully to those questions in the future.  When can the United States expect China’s responses?
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