WORLD TRADE
ORGANIZATIONG/LIC/Q/CHN/4
16 May 2003
(03-2617)
Committee on Import Licensing Original:  English
QUESTIONS AND COMMENTS FROM THE UNITED STATES TO CHINA1
The following communication, dated 8 May 2003, has been received from the Permanent
Mission of the United States.
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Background on Tariff Rate Quotas (TRQs)
Licensing:   Paragraph 138 of the Working Party Report2 provides that China “would not require a
separate import licence approval for goods subject to a TRQ allocation requirement but would provide
any necessary import licence in the procedure that granted a quota allocation.”  This was the
concession China made in December 2000 that allowed China’s overall accession negotiations to
resume after they had stalled.  Paragraph 6.A of the TRQ headnote (found in Part I, section I-B ofChina's Schedule of Concessions and Commitments on Goods) states that:  "[a]ny additional
requirement for importation will be automatic under the terms of the Agreement on Import Licensing
Procedures."  Despite these commitments, endusers must apply twice for approval in order to obtainand utilize TRQ.  After receiving an allocation from the SDRC (formerly SDPC) in the form of a
“notice,” quota holders are required under Article 17 of China’s Interim Measures on the
Administration of Tariff-Rate Quota for Agricultural Imports , to then apply for an Agricultural Tariff
Quota Certificate by bringing the notice and a signed contract to SDRC.
Article 2 of the WTO Agreement on Import Licensing Procedures confirms that no
government discretion is permitted in granting automatic import licences and it further prohibits
administration of automatic import licences in a manner that has trade-restrictive or distortive effects
on imports. It also requires approval “immediately upon receipt, to the extent administrativelyfeasible, but within a maximum of ten working days.”  In addition to being required to go through two
separate approval processes at SDRC for the same TRQ allocation as described above, quota holders
must obtain an import licence from AQSIQ pursuant to AQSIQ Ordinance 7 (effective
20 March 2002).  This licence also requires a minimum of two applications, does not appear to be
justified on SPS grounds, and is being implemented in such a manner as to act as an additionalquantitative restriction. According to industry, approval for this licence can take up to 30 days at each
level of government.
Finally, endusers holding “processing trade” quota are subject to additional licensing
requirements which add additional steps to the process:  In order to utilise their allocated quota,entities holding processing trade TRQ must apply for and obtain a “Processing Trade Certificate”
from MOC (formerly MOFTEC) before they can utilise their quota.  They must also obtain a separate
processing trade business licence as a precondition for obtaining a TRQ allocation.  In the US view,
these additional steps are trade restrictive and are not in accordance with China’s obligation to provide
                                                     
1 See Understanding on Procedures for the Review of Notifications (G/LIC/4).
2 WT/ACC/CHN/49.G/LIC/Q/CHN/4
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any required licence in the procedure to grant the quota, and to make “automatic” any additional
requirement for importation.
Commercially Viable Quantities:  Paragraph 6.E obligates China to allocate TRQs in commercially
viable shipping quantities.  Article 3.5 (i) of the Agreement on Import Licensing Procedures
emphasizes the importance of issuing licences for products in economic quantities.  However, reports
from traders indicate that allocations of some co mmodities are too small to be commercially viable,
and as a result, endusers are either not applying for TRQ or are not utilising their allocations because
it is not economic for them or their agent.   Industry reports that some of the cotton TRQ allocations in
2002, for example, were as small as 200 metric tons, which is well below what is considered a
commercially viable shipping quantity for cotton.  During bilateral consultations, China agreed that it
had allocated some TRQ in less than commercially viable quantities.  We asked China to modify thesystem to avoid this problem in the future and China agreed to consider.
Transparency:   The United States remains concerned with the lack of transparency in China’s
administration of TRQs.  The US Government and US exporters have experienced difficulty
discovering which entities have been allocated  TRQ, despite China’s commitment in the TRQ
headnote to administer the TRQ system in a transp arent manner and to provide this information within
ten days upon request to SDRC (headnote, paragraph 6.F).  Our inability to obtain this information
makes it difficult to assess China’s implementation of its TRQ obligations and appears to undermine
China’s commitment to “provide effective import opportunities.”  During our bilateral consultations,
China informed us that it did not intend to provid e additional information on the entities receiving
allocations.  Industry requests to SDRC for information on 2003 allocations have gone unanswered.
MOC Automatic Registration Process:    The Unites States is increasingly concerned that MOC is
limiting issuance of its automatic registration form (ARF) in an effort to restrict imports of chicken
meat and offal. Industry and traders recently reported that in March, MOC ceased issuance of ARF toimporters in Guangdong Province and in Shanghai, restricted issuance to select importers. Although
these reports are anecdotal, they are supported by trade statistics (US chicken exports to China are off
by nearly $100 million from levels two years ago) and by the fact that Chinese domestic prices for
major imported chicken cuts remain well above landed costs plus tariff and VAT for imports.
Administration of Agricultural TRQs
The United States remains very concerned with China’s licensing regime for goods subject to
a TRQ allocation requirement.
We continue to believe that these licensing requirements are not in accordance with China’s
WTO commitments.
In an effort to seek accommodation, the United States engaged in bilateral consultations with
China on this issue in September 2002 and again in February 2003.
To date we have seen little progress, and no indication that China’s TRQ licensing
requirements will be brought into compliance with WTO obligations.
While the United States remains open to additional bilateral dialogue, we are nearing the
point where lack of resolution will force escalation of this issue.G/LIC/Q/CHN/4
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TRQ Licensing
• Paragraph 138 of the Working Party Report states that China will not require a separate
import licence approval for goods subject to a TRQ allocation requirement, but will provide
any necessary import licence in the procedure that granted a quota allocation.
• Paragraph 6.A of China’s headnote on Tariff Quotas states that “Any additional requirement
for importation will be automatic under the terms of the Agreement on Import Licensing
Procedures.”
• This Agreement states that “automatic licensing procedures shall not be administered in such
a manner as to have restricting effects on imports”, and that applications should be “approvedimmediately on receipt, to the extent administratively feasible, but within a maximum of ten
working days.”
-  Contrary to this commitment China main tains multiple licensing requirements that
occur outside of the procedure granting quota allocation and that do not appear to beautomatic.
-  End-users must apply twice to SDRC for a single allocation – once for the initial
allocation and a second time for SDRC’s approval to use that allocation once the
importer has a signed contract.
-  Quota-holders must apply for and obtain, at both the local and national level, an
additional import licence from AQSIQ be fore the product can be imported.  We
understand that approval can take up to 30 days at each level of government.
-  Entities importing under TRQs reserved for processing, must obtain a separate
processing trade business licence and a “Processing Trade Certificate” in order to
obtain a TRQ allocation.
• These separate and multiple licensing requirements and the additional time and effort
expended by importers to fulfill them, are an undue burden on trade and appear to be in
conflict with China’s commitments.
-  China continues to require quota-holders to provide detailed, time-sensitive
commercial information, such as price and origin, prior to obtaining an import
licence, and it restricts the commercial terms that can be changed thereafter.
Paragraph 6.A of the TRQ headnote requires China to “establish a tariff-quota systemthat is open, transparent, fair, responsive to market conditions, timely, minimally
burdensome to trade, and reflects end-user preferences.”
• This requirement unduly restricts an end-user’s ability to adjust to market conditions and
operate based on commercial considerations.
-  Please comment on the foregoing descripti on, explaining how in China’s view these
measures meet WTO requirements.
-  Please explain the steps China will take to eliminate the additional, non-automatic licensing
requirements for TRQ commodities or how it will bring these requirements into accordance
with its WTO commitments.G/LIC/Q/CHN/4
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 -  Please explain how China’s TRQ licensing regime will be affected by the recent
government restructuring involving MOFTEC, and the SDRC.
• China prohibits the sale of products imported under “processing” TRQ from being sold on the
domestic market.  End-users who do sell these commodities or their products in the domesticmarket are subject to penalties and to out-of-quota tariffs.
• This restriction on utilisation would appear to not accord with Article 3.2 and 3.5(h) of the
Agreement on Import Licensing Procedures (Article 3.2 provides that “non-automatic
licensing shall not have trade-restrictive or -distortive effects on imports additional to those
caused by the imposition of the restriction.”  Article 3.5(h) provides that “when administering
quotas, Members shall not prevent importation from being effected in accordance with theissued licences, and shall not discourage the full utilisation of quotas.”)
 -  Can China please explain how this restriction is consistent with its obligations under the
Agreement on Import Licensing Procedures, or explain what steps it will take to remove this
restriction?
Commercially Viable Quantities
• Paragraph 6.E obligates China to allocate TRQs in commercially viable shipping quantities.
Article 3.5 (i) of the Agreement on Import Li censing Procedures emphasizes the importance
of issuing licences for products in economic quantities.
• In 2002, there were many complaints from traders that some TRQs had been allocated in
quantities that were not commercially viable to ship.  Chinese officials acknowledged this
problem and indicated interest in addressing it for the future.
-  What steps has China taken to ensure that it issues licences for products in commercially
viable quantities?
Transparency in TRQ administration
• The US remains concerned with the lack of tr ansparency in China’s administration of TRQs.
• With respects to licensing, the US Government and US exporters continue to experience
difficulty in obtaining information on which entities have been allocated TRQs and TRQ
import licences.
• China committed, in the TRQ headnote (paragraph 6.F) to provide this information within ten
days upon request to SDRC and to administer the TRQ system in a transparent manner.
-  Why does China refuse to provide this information?
-  What steps is China taking to provide this information within the agreed time frame?
MOC Automatic Registration Process
• MOC’s automatic registration for imports of chicken meat and offal does not appear
consistent with the provisions for automatic licensing in the Agreement on Import Licensing
Procedures.G/LIC/Q/CHN/4
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• We have received reports from our industry that MOC is restricting issuance of its automatic
registration form, a required document for importation, and that some major ports have
experienced prolonged periods, sometimes exceeding 30 days, during which no forms were
issued.
• We are concerned that this registration requirement is being used to quantitatively restrict
chicken meat and offal imports.  China’s WTO accession did not establish a quota for any of
these products.
-  Can China explain what objective it is trying to achieve with this registration form
and how this requirement is in accordance with China’s WTO commitments?
-  Can China address the reports that forms are not being issued in a prompt and
automatic fashion?
-  Could China please describe the steps it will take to eliminate or bring this
requirement into accordance with China’s obligations?
Administration of Auto Quotas
• China administers quotas for imports of automobiles and other goods listed in Annex 3 to its
Protocol of Accession3.
-  In accordance with Article 3.5(a) of the Agreement on Import Licensing
Procedures, please provide information on the administration of the restrictions, the
import licences granted for 2002 and the first four months of 2003, and import
statistics for those same periods.
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3 WT/L/432.