WT/GC/W/746  
 
16 July 2018  
(18-4425) Page: 1/139 
General Council  
26-27 July 2018  Original: English  
 
 
 
2017 REPORT TO CONGR ESS ON CHINA 'S WTO COMPLIANCE  
REPORT OF THE UNITED  STATES REPRESENTATIV E 
JANUARY 2018  
Communication from the United States 
The following communication, dated 11 July 2018, is being circulated at the request of the 
delegation of the United States.  
 
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  TABLE OF CONTENTS  
FOREWORD  ................................ ................................ ................................ ......................  7 
EXECUTIVE SUMMARY  ................................ ................................ ................................ ...... 7 
OVERVIEW  ................................ ................................ ................................ .........................  7 
CHINA'S APPROACH TO WTO MEMBERSHIP  ................................ ................................ ........... 11 
2017 DEVELOPMENTS ................................ ................................ ................................ ......... 12 
CHINA'S WTO COMPLIANCE  ................................ ................................ ................................ 13 
PRIORITY ISSUES  ................................ ................................ ................................ .............. 14 
Industrial Policies  ................................ ................................ ................................ ......14 
Intellectual Property Rights  ................................ ................................ ........................ 20 
Services  ................................ ................................ ................................ ................... 22 
Agriculture  ................................ ................................ ................................ ............... 25 
Transparency  ................................ ................................ ................................ ............ 26 
Legal Framework  ................................ ................................ ................................ .......27 
NEXT STEPS  ................................ ................................ ................................ ...................... 28 
1   INTRODUCTION  ................................ ................................ ................................ ........  28 
1.1   CHINA'S WTO ACCESSION NEGOTIATIONS  ................................ ................................ ....28 
1.2   CHINA'S WTO COMMITMENTS  ................................ ................................ ...................... 29 
2   OVERVIEW OF US ENGAG EMENT  ................................ ................................ ...............  29 
2.1   DIALOGUE  ................................ ................................ ................................ ................. 29 
2.1.1    Bilateral Engagement  ................................ ................................ ............................... 29 
2.1.2    Multilateral Meetings  ................................ ................................ ................................ 31 
2.2   ENFORCEMENT  ................................ ................................ ................................ ........... 31 
3   CHINA' S WTO COMPLIANCE  ................................ ................................ ......................  33 
3.1   TRADING RIGHTS  ................................ ................................ ................................ .......34 
3.2   IMPORT REGULATION  ................................ ................................ ................................ .35 
3.2.1    Tariffs  ................................ ................................ ................................ .................... 35 
3.2.2    Customs and Trade Administration  ................................ ................................ ............. 35 
3.2.2.1    Customs Valuation  ................................ ................................ ................................ 35 
3.2.2.2    Rules of Origin  ................................ ................................ ................................ ......37 
3.2.2.3    Import Licensing  ................................ ................................ ................................ ...37 
3.2.3    Non-tariff Measures  ................................ ................................ ................................ .38 
3.2.4    Tariff-rate Quotas on Industrial Products  ................................ ................................ ....38 
3.2.5    Other Import Regulation  ................................ ................................ ........................... 39 
3.2.5.1    Antidumping  ................................ ................................ ................................ ......... 39 
3.2.5.2    Countervailing Duties  ................................ ................................ ............................ 42 
3.2.5.3    Safeguards  ................................ ................................ ................................ ........... 43 
3.3   EXPORT REGULATION  ................................ ................................ ................................ .44 
3.4   INTERNAL P OLICIES AFFECTING TRADE  ................................ ................................ ........ 46 
3.4.1    Non-discrimination  ................................ ................................ ................................ ...46 WT/GC/W/746  
 
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  3.4.2    Taxation  ................................ ................................ ................................ ................. 49 
3.4.3    Subsidies  ................................ ................................ ................................ ................ 50 
3.4.4    Price Controls  ................................ ................................ ................................ .......... 54 
3.4.5    Standards, Technical Regulations and Conformity Assessment Procedures  ...................... 56 
3.4.5.1    Regulatory Reforms  ................................ ................................ ............................... 56 
3.4.5.2    Standards and Technical Regulations  ................................ ................................ .......57 
3.4.5.3    Conformity Assessment Procedures  ................................ ................................ ......... 66 
3.4.5.4    Transparency  ................................ ................................ ................................ .......70 
3.4.6    Other Internal Policies  ................................ ................................ .............................. 70 
3.4.6.1    State -Owned and State -Invested Enterprises  ................................ ........................... 70 
3.4.6.2    State Trading Enterprises  ................................ ................................ ....................... 73 
3.4.6.3    Government Procurement  ................................ ................................ ...................... 73 
3.5   INVESTMENT  ................................ ................................ ................................ ............. 78 
3.6   AGRICULTURE  ................................ ................................ ................................ ............ 88 
3.6.1    Tariffs  ................................ ................................ ................................ .................... 89 
3.6.2    Tariff-rate Quotas on Bulk Agricultural Commodities  ................................ .................... 90 
3.6.3    China's Biotechnology Regulations  ................................ ................................ ............. 91 
3.6.4    Sanitary and Phytosanitary Issues  ................................ ................................ ............. 93 
3.6.5    Inspection -related Requirement s ................................ ................................ ............... 97 
3.6.6    Domestic Support  ................................ ................................ ................................ ....97 
3.6.7    Export Subsidies  ................................ ................................ ................................ ......98 
3.7   INTELLECTUAL PROPERTY RIGHTS  ................................ ................................ ................ 99 
3.7.1    Legal Framework  ................................ ................................ ................................ .....99 
3.7.2    Enforcement  ................................ ................................ ................................ .........  104 
3.8   SERVICES  ................................ ................................ ................................ ................  107 
3.8.1    Distribution Services  ................................ ................................ ..............................  109 
3.8.1.1    Wholesaling Services  ................................ ................................ ...........................  109 
3.8.1.2    Retailing Services  ................................ ................................ ...............................  111 
3.8.1.3    Franchising Services  ................................ ................................ ............................  111 
3.8.1.4    Direct Selling Services  ................................ ................................ .........................  112 
3.8.2    Financial Services  ................................ ................................ ................................ .. 112 
3.8.2.1    Banking Services  ................................ ................................ ................................  112 
3.8.2.2    Motor Vehicle Financing Services  ................................ ................................ ..........  114 
3.8.2.3    Insurance Services  ................................ ................................ ..............................  115 
3.8.2.4    Financial Information Services  ................................ ................................ ..............  116 
3.8.2.5    Electronic Payment Services  ................................ ................................ .................  117 
3.8.3    Legal Services  ................................ ................................ ................................ ....... 118 
3.8.4    Telecommunications Services  ................................ ................................ ..................  118 
3.8.5    Audio -visual and  Related Services  ................................ ................................ ............  120 
3.8.6    Internet -related Services  ................................ ................................ ........................  120 WT/GC/W/746  
 
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  3.8.7    Construction and Related Engineering Services  ................................ ..........................  122 
3.8.8    Educational Services  ................................ ................................ ..............................  123 
3.8.9    Express Delivery Services  ................................ ................................ .......................  123 
3.8.10    Logistics Services  ................................ ................................ ................................ . 124 
3.8.11    Air Transport and Related Services  ................................ ................................ .........  124 
3.8.12    Maritime Services  ................................ ................................ ................................  124 
3.8.13    Tourism and Travel -related Services  ................................ ................................ ....... 125 
3.9   LEGAL FRAMEWORK  ................................ ................................ ................................ .. 125 
3.9.1    Transparency  ................................ ................................ ................................ ........  125 
3.9.1.1    Official Journal  ................................ ................................ ................................ .... 125 
3.9.1.2    Translations  ................................ ................................ ................................ ....... 126 
3.9.1.3    Public Comment  ................................ ................................ ................................ .. 127 
3.9.1.4    Enquiry Points  ................................ ................................ ................................ .... 128 
3.9.2    Uniform Application of Laws  ................................ ................................ ....................  128 
3.9.3    Judicial Review  ................................ ................................ ................................ ...... 129 
3.9.4    Other Legal Framework Issues  ................................ ................................ ................  129 
3.9.4.1    Administrative Licensing  ................................ ................................ ......................  129 
3.9.4.2    Competition Policy  ................................ ................................ ..............................  130 
3.9.4.3    Foreign NGO Management Law  ................................ ................................ .............  132 
3.9.4.4    Commercial Dispute Resolution  ................................ ................................ .............  132 
3.9.4.5    Labor Laws  ................................ ................................ ................................ .........  133 
3.9.4.6    Land Laws  ................................ ................................ ................................ ..........  134 
3.9.4.7    Corruption  ................................ ................................ ................................ .........  134 
APPENDIX 1 :  LIST OF WRITTEN SUBM ISSIONS COMMENTING O N CHINA'S WTO 
COMPLIANCE (20  SEPTEMBER  2017)  ................................ ................................ ...........  136  
APPENDIX 2 :  LIST OF WITNESSES TE STIFYING AT PUBLIC H EARING ON 
CHINA'S WTO COMPLIAN CE (4  OCTOBER  2017)  ................................ ..........................  137  
APPENDIX 3 :  FACT SHEET: INITIAL ACTIONS OF THE US -CHINA ECONOMIC 
COOPERATION 100 -DAY PLAN (11 MAY 201 7) ................................ .............................  138  
 
 
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  ABBREVIATIONS  
ACFTU  All China Federation of Trade Unions  
APEC Asia-Pacific Economic Cooperation  
AQSIQ  State Administration of Quality Supervision, Inspection and Quarantine  
BOFT  Bureau of Fair Trade for Imports and Exports  
CAC Cyberspace Administration of China  
CFDA  China Food and Drug Administration  
CIRC China Insurance Regulatory Commission  
CNCA  National Certification and Accreditation Administration  
CNIS China National Institute for Standards  
CUP China Union Pay 
GAPP  General Administration of Press and Publication  
IBII Bureau of Industry Injury Investigation  
ISO International Organization for Standardization  
JCCT US-China Joint Commission on Commerce and Trade  
MIIT Ministry of Industry and Information Technology  
MOA Ministry of Agriculture  
MOC Ministry of Construction  
MOF Ministry of Finance  
MOFCOM  Ministry of Commerce  
MOFTEC  Ministry of Foreign Trade and Economic Cooperation  
MOH Ministry of Health  
MOST  Ministry of Science and Technology  
NCA National Copyright Administration  
NDRC  National Development and Reform Commission  
NPC National People 's Congress  
OIE World Organization for Animal Health  
PBOC  People 's Bank of China  
SAC Standardization Administration of China  WT/GC/W/746  
 
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  SAIC State Administration for Industry and  Commerce  
SAPPRFT  State Administration of Press, Publication, Radio, Film and Television  
SARFT  State Administration of Radio, Film and Television  
SASAC  State -owned Assets Supervision and Administration Commission  
SAT State Administration of Taxation  
SCLAO  State Council 's Legislative Affairs Office  
SDPC  State Development and Planning Commission  
S&ED  US-China Strategic and Economic Dialogue  
SFDA  State Food and Drug Administration  
SIPO State Intellectual Property Office  
SPB State Postal Bureau  
SPC Supreme People 's Court  
WIPO  World Intellectual Property Organization  
WTO World Trade Organization  
 
 
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  FOREWORD  
This is the 16th report prepared pursuant to section 421 of the US-China Relations Act of 2000 
(P.L. 106 -286), 22 USC. § 6951 (the Act), which requires the United States Trade Representative 
(USTR) to report annually to Congress on compliance by the People 's Republic of China (China) 
with commitments made in connection with its accession to the World Trade Organization (WTO) , 
including both multilateral commitments and any bilateral commitments made to the United 
States.  The report covers calendar year 2016.  It also incorporates the findings of the Overseas 
Compliance Program, as required by section 413(b)(2) of the Act, 22 USC. § 6943(b)(2).  
 
Like the prior reports, this report is structured as an examination of the nine broad categories of 
WTO commitments undertaken by China.  Throughout the report, USTR has attempted to provide 
as complete a picture of  China 's WTO compliance as possible, subject to the inherent constraints 
presented by the sheer volume and complexity of the required changes to China 's trade regime 
and transparency obstacles.  The report identifies areas where progress has been achieved a nd 
underscores areas of concern, as appropriate, with regard to the commitments that became 
effective upon China 's accession to the WTO as well as those commitments scheduled to be phased 
in over time.  
 
The focus of the report 's analysis continues to be o n trade concerns raised by US stakeholders 
that, in the view of the US Government, merit attention within the WTO context.  The report does 
not attempt to provide an exhaustive analysis of those concerns or the individual commitments 
made in China 's WTO acc ession agreement that might be implicated by them.  
 
In preparing this report, USTR drew on its experience in overseeing the US Government 's 
monitoring of China 's WTO compliance efforts.  USTR chairs the Trade Policy Staff Committee 
(TPSC) Subcommittee on Ch ina, an inter -agency body whose mandate is, inter alia , to assess 
China 's efforts to comply with its WTO commitments.  This TPSC subcommittee is composed of 
experts from USTR, the Departments of Commerce, State, Agriculture and Treasury, and the US 
Patent a nd Trademark Office, among other agencies.  It works closely with State Department 
economic officers, Foreign Commercial Service officers, Enforcement and Compliance officers and 
Intellectual Property Attachés from the Commerce Department, Foreign Agricultu ral Service 
officers, Customs and Border Protection attachés and Immigration and Customs Enforcement 
attachés at the US Embassy and Consulates General in China, who are active in gathering and 
analyzing information, maintaining regular contacts with US industries operating in China and 
maintaining a regular dialogue with Chinese government officials at key ministries and agencies.  
The subcommittee meets in order to evaluate and coordinate US engagement of China in the trade 
context.  
 
To aid in its preparati on of this report, USTR published a notice in the Federal Register on 
2 August  2017, asking interested parties to submit written comments and testimony and 
scheduling a public hearing before the TPSC.  The public hearing took place on 4 October 2017.  A 
list of the written submissions received from interested parties is set forth in Appendix 1, and the 
persons who testified at the hearing before the TPSC are identified in Appendix 2.  
 
EXECUTIVE SUMMARY  
OVERVIEW  
After its accession to the World Trade Organizat ion (WTO) in 2001, China was supposed to revise 
hundreds of laws, regulations and other measures to bring them into conformity with its WTO 
obligations, as required by the terms set forth in its Protocol of Accession.  US policymakers hoped 
that the terms s et forth in China 's Protocol of Accession would dismantle existing state -led policies 
and practices that were incompatible with an international trading system expressly based on 
open, market -oriented policies and rooted in the principles of non -discrimina tion, market access, 
reciprocity, fairness and transparency.  But those hopes were disappointed.  China largely remains a 
state-led economy today, and the United States and other trading partners continue to encounter 
serious problems with China 's trade regi me. Meanwhile, China has used the imprimatur of WTO 
membership to become a dominant player in international trade.  Given these facts, it seems clear 
that the United States erred in supporting China 's entry into the WTO on terms that have proven 
to be ineff ective in securing China 's embrace of an open, market -oriented trade regime.  
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  Furthermore, it is now clear that the WTO rules are not sufficient to constrain China 's market -
distorting behavior.  While some problematic policies and practices being pursued by  the Chinese 
government have been found by WTO panels or the Appellate Body to run afoul of China 's WTO 
obligations, many of the most troubling ones are not directly disciplined by WTO rules or the 
additional commitments that China made in its Protocol of Accession.  The reality is that the WTO 
rules were not formulated with a state -led economy in mind, and while the extra commitments 
that China made in its Protocol of Accession disciplined certain state -led policies and practices 
existing in 2001, the Chine se government has since replaced them with more sophisticated – and 
still very troubling – policies and practices.   
 
Today, almost two decades after it pledged to support the multilateral trading system of the WTO, 
the Chinese government pursues a wide arr ay of continually evolving interventionist policies and 
practices aimed at limiting market access for imported goods and services and foreign 
manufacturers and services suppliers.  At the same time, China offers substantial government 
guidance, resources an d regulatory support to Chinese industries, including through initiatives 
designed to extract advanced technologies from foreign companies in sectors across the economy.  
The principal beneficiaries of China 's policies and practices are Chinese state -owned enterprises 
and other significant domestic companies attempting to move up the economic value chain.  As a 
result, markets all over the world are less efficient than they should be.  
 
Remarkably, this situation is worse today than it was five years ago.  While some of the legal 
changes and related economic reforms that China made in the years immediately following its 
WTO accession offered the potential for China 's fuller embrace of market principles, these efforts 
stalled and stagnated.  In fact, over the past  five years, despite Chinese pronouncements to the 
contrary, the state 's role in the economy has increased, as have the seriousness and breadth of 
concerns facing US and other foreign companies seeking to do business in China or attempting to 
compete with favored Chinese companies in their home markets.   
 
Since China 's accession to the WTO, the United States has repeatedly attempted to work with 
China in a cooperative and constructive manner.  Using intensive, high -level bilateral dialogues, the 
United State s has sought to resolve significant trade irritants and also to encourage China to 
pursue market -oriented policies and become a more responsible member of the WTO.  These 
bilateral efforts largely have been unsuccessful – not because of failures by US policymakers, but 
because Chinese policymakers were not interested in moving toward a true market economy.   
 
The United States established its first high -level trade dialogue with China in 2003, with the 
elevation of the existing US-China Joint Commission on Co mmerce and Trade (JCCT), as the US 
Trade Representative joined the Secretary of Commerce as a US chair and a Vice Premier began 
leading the Chinese side.  Another high -level dialogue, the US-China Strategic Economic Dialogue 
(SED), was added in 2006 with a broad focus on economic matters, including some trade and 
investment issues.  The SED was expanded and replaced by the US-China Strategic and Economic 
Dialogue (S&ED) in 2009.  Finally, in 2017, the United States and China created the US-China 
Comprehensive Economic Dialogue (CED), which supplanted the JCCT and the S&ED.  
Nevertheless, despite this constant high -level engagement over the years, these dialogues failed 
to generate anything more than incremental market access improvements or the repeal or 
modific ation of problematic Chinese measures that should never have been issued in the first 
place.  At times, the United States also secured broad commitments from China for fundamental 
shifts in the direction of Chinese policies and practices, but China repeated ly failed to follow 
through on those commitments.   
 
For example, at the 2010 S&ED meeting, the 2012 S&ED meeting, the 2012 Obama -Xi summit 
meeting and the 2014 JCCT meeting, China committed that foreign companies are free to base 
technology transfer decisi ons on business and market considerations and to independently 
negotiate and decide whether and under what circumstances to assign or license intellectual 
property rights to affiliated or unaffiliated enterprises.  It seems clear, however, that China 's 
regulatory authorities do not allow US companies to make their own decisions about technology 
transfer and the assignment or licensing of intellectual property rights, but instead continue to 
require or pressure foreign companies to transfer technology as a co ndition for securing 
investment or other approvals.  
 
China also has repeatedly committed not to link government procurement preferences to the 
ownership or development of intellectual property (IP) in China, including at the 2010 JCCT WT/GC/W/746  
 
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  meeting, the 2011 S&E D meeting and the 2011 JCCT meeting.  However, as recently as the 
November 2016 JCCT meeting, the United States brought to  China 's attention more than 
30 provincial and local measures linking government procurement preferences to the ownership or 
developmen t of IP in China.  Outside the government procurement context, China also has made 
broad commitments to treat IP owned or developed outside China the same as IP owned or 
developed in China, including at the 2012 S&ED meeting, the 2014 JCCT meeting and the 2 015 
JCCT meeting.  Still, China continues to pursue myriad policies outside the government 
procurement context that require or favor the ownership or development of IP in China.  
 
At the 2015 Obama -Xi summit meeting, the 2016 S&ED meeting and the 2016 JCCT  meeting, 
China committed that its "secure  and controllable " information and communications technology 
(ICT) policies applicable to the commercial sector will not  unnecessarily limit or prevent 
commercial sales opportunities for foreign suppliers of ICT pr oducts, services and technologies and 
will not impose nationality -based conditions and restrictions on the purchase, sale or use of ICT 
products, services and technologies by commercial enterprises unnecessarily.  Nevertheless, China 
continues to pursue myriad mercantilist policies under the guise of cybersecurity, as evidenced by, 
among other things, significant declines in commercial sales of foreign ICT products and services 
in China.  
 
China has repeatedly committed to review applications of agricultur al biotechnology products in a 
timely, ongoing and science -based manner and to implement specific changes to the review 
process, including at the 2015 Obama -Xi summit meeting, the 2015 JCCT meeting and the 2016 
S&ED meeting and during the run -up to the 201 7 CED meeting.  Undeniably, however, China 's 
approval process remains troubling, as the Chinese regulatory authorities continue to review 
applications slowly and without scientific rationale, while Chinese companies continue to try to 
build up their own cap abilities in the area of agricultural biotechnology.  China even issued a new 
measure after the 2016 S&ED meeting that added ambiguity and delay to the approval process, 
without making the previously promised changes.  
 
Other examples could be given, but the re can be no serious question about the underlying 
dynamic.  China has shown a willingness to take modest steps to address isolated issues, and it will 
sometimes make broader commitments when pressed at very high levels, but it is not prepared to 
follow thr ough on significant commitments or to make fundamental changes to its trade and 
investment regime.  China is determined to maintain the state 's leading role in the economy and to 
continue to pursue industrial policies that promote, guide and support domesti c industries while 
simultaneously and actively seeking to impede, disadvantage and harm their foreign counterparts, 
even though this approach is incompatible with the market -based approach expressly envisioned 
by WTO members and contrary to the fundamental  principles running throughout the many WTO 
agreements.  
 
Throughout the many years of high -level US-China engagement since China joined the WTO, the 
US-China trade imbalance has grown exponentially.  While various factors can contribute to a trade 
imbalance , the size and direction of the US-China trade imbalance evidences a trade relationship 
that is neither natural nor sustainable.   
 
In 2001, at the time of China 's WTO accession, the United States had a goods trade deficit with 
China of $83 billion.  In 2003 , when the JCCT was elevated, the bilateral trade deficit had increased 
to $124 billion.  By 2006, when the SED was established, the bilateral trade deficit had reached 
$234 billion.  When the SED was replaced by the S&ED in 2009, the bilateral trade deficit  had 
dropped slightly to $227 billion, largely because of the 2008 global financial crisis.  In subsequent 
years, however, the bilateral trade deficit resumed its steep climb, reaching $350 billion in 2016, 
the year before the establishment of the CED.  Finally, in 2017, when the United States sought to 
work with China in the newly formed CED, nothing changed.  The United States ' trade deficit with 
China stood at $274 billion in the first nine months of the year and was projected to re ach 
$365 billion by the e nd of the year.  
It is true that the United States maintains a bilateral surplus with China in the area of services.  
However, this surplus stood at only $38 billion in 2016, and most of this surplus was due to travel -
related services.  Moreover, a comparison  of total US services exports to China versus total US 
services exports to other countries in Asia as a percentage of each country 's services gross 
domestic product (GDP) shows that US services exports to China are significantly underperforming 
in key serv ices sectors such as banking, insurance, Internet -related, professional and retail WT/GC/W/746  
 
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  services.  The Chinese government, of course, continues to maintain numerous restrictions in these 
services sectors.  
 
Going forward, the United States will continue to hold C hina strictly accountable for adherence to 
its WTO obligations.  Like other WTO members, the United States will continue to use the WTO 
dispute settlement mechanism as an enforcement tool and also raise concerns during meetings of 
WTO committees and council s in order to highlight problematic Chinese policies and practices.  In 
addition, the United States will continue to participate in other multilateral fora, such as the Global 
Forum on Steel Excess Capacity.  At the same time, the United States will continue  to rigorously 
enforce US trade remedy laws, in accordance with WTO rules, when US interests are being harmed 
by unfairly traded or surging imports from China.  The United States also will take all other steps 
necessary to rein in harmful state -led, mercant ilist policies and practices pursued by China, even 
when they do not fall squarely within WTO disciplines, as evidenced by USTR 's ongoing 
investigation of Chinese technology transfer policies and practices pursuant to Section 301 of the 
Trade Act of 1974, as amended.   
 
It is unfortunate that the United States and other WTO members have had to resort to so many 
enforcement actions, enforcement -related initiatives and high -level dialogues over the years in an 
attempt to rein in China 's state -led trade regime and to encourage China to act as a more 
responsible WTO member.  It was never envisioned that enforcement would play such a large role 
for any WTO member, and it is especially unfortunate in the case of China, given that China is the 
largest trader among WT O members.  Indeed, it is simply unrealistic to believe that WTO 
enforcement actions alone can ever have a significant impact on an economy as large as China 's 
economy, unless the Chinese government is truly committed to market -based competition.  The 
notion  that our problems with China can be solved by bringing more cases at the WTO alone is 
naïve at best, and at worst it distracts policymakers from facing the gravity of the challenge 
presented by China 's non -market policies.  
 
It is important to recall that WTO members are supposed to be moving toward market -based 
outcomes voluntarily.  The expectations of WTO membership were clearly set forth in the 
Marrakesh Declaration on 15 April 1994, at the conclusion of the Uruguay Round negotiations.  
There, WTO members expressly affirmed their view that the establishment of the WTO ushers in a 
"new era of global economic cooperation " that "reflect [s] the widespread desire to operate in a 
fairer and more open multilateral trading system. " WTO members fu rther made clear their 
determination that their economies would participate in the international trading system based on 
both "open , market -oriented policies and the commitments set out in the Uruguay Round 
Agreements and Decisions. " (Emphasis added.)  It clearly was not contemplated that any member 
would adopt state -led economic and trade policies instead of market -oriented policies, nor was it 
contemplated that any member would pursue mercantilist trade policies instead of policies 
promoting a fairer and m ore open multilateral trading system.  
 
Rather, with the creation of the WTO, it was expected that each WTO member would pursue open, 
market -oriented policies designed to ensure that trade flows as smoothly, predictably and freely as 
possible.  Among other t hings, that means not only strictly adhering to the agreed rules but also 
observing in good faith the fundamental principles that run throughout the many WTO 
agreements.  First among these principles is non -discrimination.  A WTO member should treat 
foreign products, services and nationals the same as its own, not discriminate against them.  A 
second key principle is openness.  A WTO member should work to lower trade barriers, not raise 
them.  A third key principle that runs throughout the many WTO agreements is  reciprocity.  Through 
rules such as the most -favored nation rule, the WTO seeks to avoid free riders and to encourage 
reciprocal concessions between and among members.  A fourth key principle is fairness.  That is 
why the WTO agreements provide remedies for certain types of situations where trade is deemed 
unfair.  A fifth key principle is transparency.  Among other things, a WTO member is required to 
publish all of its trade measures, to respond to requests for information by other members and to 
notify change s in trade policies.   
 
While the WTO agreements do include a dispute settlement mechanism, this mechanism is not 
designed to address a situation in which a WTO member has opted for a state -led trade regime 
that prevails over market forces and pursues polic ies guided by mercantilism rather than global 
economic cooperation.  The WTO 's dispute settlement mechanism is narrowly targeted at good faith 
disputes where one member believes that another member has adopted a measure or taken an 
action that violates a WT O obligation.  It can address this type of discrete problem, but it is not WT/GC/W/746  
 
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  effective in addressing a trade regime that broadly conflicts with the fundamental underpinnings of 
the WTO system.  No amount of enforcement activities by other WTO members would be sufficient 
to remedy this type of behavior.   
 
In the case of China, the analysis in this report shows where China appears to have adopted 
measures or taken actions in conflict with its WTO obligations.  This analysis also shows that China 
has fallen far sho rt when it comes to embracing the "new  era" contemplated by WTO members, 
where "global  economic cooperation " reflects the widespread desire to operate in a fairer and more 
open multilateral trading system and where all WTO members pursue open, market -oriented 
policies.  Unfortunately, the "new  era" contemplated by China is one that is based on "socialism  
with Chinese characteristics, " as recently enshrined in the Constitution of the Chinese Communist 
Party.   
 
It is difficult to envision this troubling situat ion changing significantly as long as China continues to 
remain committed to an economy dominated by the state and built on mercantilist industrial 
policies designed to promote, guide and support domestic industries while simultaneously and 
actively seekin g to impede, disadvantage and harm their foreign counterparts.  If China does not 
truly embrace a market -oriented approach, rooted in the fundamental WTO principles of non -
discrimination, market access, reciprocity, fairness and transparency, the very serio us and harmful 
problems generated by China 's trade regime likely will persist.   
 
CHINA 'S APPROACH TO WTO MEMBERSHIP  
The commitments to which China 's leaders agreed when China joined the WTO in 2001 were 
sweeping in nature and required the Chinese government to make changes to hundreds of laws, 
regulations and other measures affecting trade and investment.  These changes largely coincided 
with the economic reform goals of China 's leaders at the time, which built on the economic reforms 
that China had  begun under Deng Xiaoping in 1978.  The Chinese leaders who negotiated the terms 
of China 's WTO accession believed that China 's economy needed to rely more on market signals 
and less on the role of the state in China 's economy.  Indeed, these leaders had in itiated a 
dramatic and rapid reform of state -owned enterprises in the mid -1990s.  
 
Following China 's accession to the WTO, the Chinese government began to implement China 's 
numerous commitments.  At the time, US policymakers were hopeful that these actions would 
deepen China 's integration into the WTO 's rules -based international trading system, while also 
strengthening China 's ongoing economic reforms.   
 
New leaders took over in China in 2003, two years after Chi na's WTO accession.  Under their 
leadership, the Chinese government increasingly emphasized the state 's role in the economy, 
diverging from the path of economic reform that had driven China 's accession to the WTO.  With 
the state leading China 's economic dev elopment, the Chinese government pursued new and more 
expansive industrial policies, often designed to limit market access for imported goods, foreign 
manufacturers and foreign service suppliers, while offering substantial government guidance, 
resources an d regulatory support to Chinese industries, particularly ones dominated by state -
owned enterprises.  This heavy state role in the economy, reinforced by unchecked discretionary 
actions of Chinese government regulators, generated serious trade frictions with  China 's many 
trade partners, including the United States.  
 
In particular, beginning with the creation of the State -owned Assets Supervision and 
Administration Commission (SASAC) in 2003, China 's new leaders de -emphasized their 
predecessors ' move toward a greater reliance on market forces and a lesser reliance on Chinese 
government economic planners and state -owned enterprises.  Instead, the new leaders set out to 
bolster the state sector by seeking to improve the operational efficiency of state -owned enterp rises 
and by orchestrating mergers and consolidations to make these enterprises stronger.  These 
actions soon led to institutionalized preferences for state -owned enterprises and the creation of 
national champions in many sectors.   
 
By 2006, when China had taken steps to implement the last of its key WTO commitments, China 's 
policy shift became more evident.  Chinese government policies and practices demonstrated a 
stronger embrace of state capitalism, a trend that continued into 2012, the last full year unde r the 
Chinese leaders who had taken over in 2003.  Many of these policies and practices suggested that 
China had decided not to fully embrace key WTO principles, such as market access, non -WT/GC/W/746  
 
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  discrimination and transparency.  Exacerbating this situation was Chi na's incomplete adoption of 
the rule of law, including through government officials ' abuse of administrative processes.   
 
For example, confidential accounts from non -Chinese enterprises indicated that Chinese 
government officials, acting without fear of le gal challenge, at times required these enterprises to 
transfer technology as a condition for securing investments approvals.  Similarly, in the trade 
remedies context, China 's regulatory authorities at times seemed to pursue antidumping (AD) and 
countervail ing duty (CVD) investigations and impose duties for the purpose of striking back at 
trading partners that legitimately exercised their rights under WTO trade remedy rules.  As three 
WTO cases won by the United States confirm, China 's regulatory authorities pursued these 
investigations even when necessary legal and factual support for the duties is absent.  In addition, 
US industry and industries from other WTO Members have asserted that China 's competition policy 
enforcement authorities not only  target foreig n companies, but also at times use Anti-monopoly 
Law investigations as a tool to protect and promote domestic national champions and domestic 
industries.   
 
By 2013, when China 's next leadership transition was complete, some signs of a renewed 
commitment to  economic reform in China began to emerge.  The new Chinese leaders ' apparent 
focus on economic reform soon led to a decision reached in November 2013 at the Third Plenum of 
the 18th Central Committee of the Chinese Communist Party.  The Third Plenum Decisio n endorsed 
a number of far -reaching economic reform pronouncements, calling for the market to play a 
"decisive " role in allocating resources, reducing Chinese government intervention in the economy, 
accelerating China 's opening up to foreign goods and serv ices, reforming China 's state -owned 
enterprises and improving transparency and the rule of law to allow fair competition in China 's 
market.  Once again, however, significant economic reform was neither pursued nor realized, 
despite these pronouncements.   
 
Instead, the state 's role in the economy has increased, as the Chinese government has continued 
to pursue and expand industrial policies that promote, guide and support domestic industries while 
simultaneously and actively seeking to impede, disadvantage an d harm their foreign counterparts.  
A plan issued in 2015, known as Made in China 2025 , is emblematic of China 's evolving industrial 
policies.  Using government intervention and substantial government financial and other support, 
the Made in China 2025  plan targets 10 advanced manufacturing industries in China.  In these 
industries, the plan seeks to replace foreign products with Chinese companies ' products in the 
China market through a variety of fair and unfair means, including through the extraction of 
foreign technologies.  Once dominant market shares are secured in the China market, the plan 
turns to its ultimate goal, which calls for Chinese companies dominating international markets.  
 
Thus, as of now, fundamental changes in China 's trade regime still have  not emerged.  Rather, the 
state's role in the economy remains strong, and a wide range of Chinese policies and practices 
continue to generate significant concerns among US stakeholders, as does the continuing abuse of 
administrative processes by Chinese go vernment officials, among other things.  Major areas of 
specific concern continue to include:  the Chinese government 's prolific use of industrial policies 
that promote, guide and support domestic industries while simultaneously and actively seeking to 
imped e, disadvantage and harm their foreign counterparts; massive subsidies; severe excess 
capacity; investment restrictions; "secure  and controllable " ICT policies; overly broad and 
discriminatory cybersecurity restrictions; data transfer restrictions; serious  problems with 
intellectual property rights enforcement in China; export restraints; unique national standards; 
troubling agricultural policies that block US market access; numerous continuing restrictions on 
services market access; and inadequate transpar ency.   
 
2017 DEVELOPMENTS  
On the bilateral front, the United States and China agreed to four new high -level dialogues at the 
summit meeting between President Trump and China 's President Xi held in April 2017 in Mar -a-
Lago, Florida.  The new dialogue coverin g trade and investment issues, known as the US-China 
Comprehensive Economic Dialogue (CED), was chaired on the US side by the Treasury Secretary 
and the Commerce Secretary and on the Chinese side by a Vice Premier, Wang Yang.  In addition 
to trade and inves tment issues, the CED 's mandate also extended to macroeconomic policy, 
financial stability, currency and energy issues.  
 WT/GC/W/746  
 
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  Discussions under the auspices of the CED began shortly after the Mar -a-Lago summit meeting, 
with the US side agreeing to China 's propo sed 100 -day action plan.  In May 2017, the two sides 
agreed to certain initial results for this action plan, with each side committing to five outcomes for 
the other side.   
 
The outcomes secured from China by the US side largely focused on overdue actions by Chinese 
regulatory authorities, rather than any fundamental changes to China 's trade and investment 
regime.  Specifically, these outcomes included a resumption in market access for US beef, a 
commitment to render decisions on certain pending US biotechnology product applications, the 
lifting of certain investment restrictions on foreign suppliers of credit rating and credit investigation 
services, further steps toward the licensing of foreign suppliers of electroni c payment services and 
the issuance of bond underwriting and settlement licenses to two US companies.  
 
The first plenary meeting of the CED took place in July 2017, at the conclusion of the 100 days 
allotted for the two sides ' action plan.  While the two s ides discussed a number of issues in the run -
up to that meeting, no outcomes were achieved.  At the conclusion of the meeting, Secretaries 
Mnuchin and Ross and Vice Premier Wang Yang discussed a possible one -year action plan, 
although they did not identify the specific issues to be discussed as part of it.  In the ensuing 
months, China sought agreement on the issues that would be discussed in a one -year action plan.  
After assessing the productiveness of the CED process, however, the Administration withheld 
agreement on a one -year action plan.   
 
In November 2017, further discussions took place when President Trump met with President Xi in 
Beijing.  The US side explained that it had no interest in engaging in the types of bilateral 
discussions pursued in the CED and in past dialogues like the JCCT and the S&ED 's Economic 
Track, which have only achieved isolated, incremental progress on problematic Chinese trade and 
investment barriers.  Instead, the United States made clear that it is seeking fundamental changes 
to China 's trade regime, including the overarching industrial policies that have continued to 
dominate China 's state -led economy.  As the US side noted, these unacceptable state -led industrial 
policies persist and continually evolve in myriad ways not only to  promote China 's domestic 
industries, but also to impose severe, unfair disadvantages on US and other foreign industries.  
 
Immediately after President Trump 's visit to Beijing, China made certain unilateral 
announcements.  Specifically, China stated that it  would be taking steps to ease certain foreign 
investment restrictions in the banking, securities, fund management, asset management, futures 
and life insurance services sectors.  China also announced that it would cease imposing a 
discriminatory value -added tax (VAT) on imports of dried distillers ' grains with solubles (DDGS) 
from the United States and that it would gradually reduce its import tariff on automobiles.  No time 
frame was given, and to date China has not yet implemented any of these changes, exc ept with 
regard to the VAT on DDGS.  
 
On the enforcement side, in August 2017, in response to a Presidential memorandum, USTR 
initiated an investigation under Section 301 of the Trade Act of 1974, as amended.  This 
investigation is focused on policies and practices of the Government of China related to technology 
transfer, intellectual property and innovation.  The investigation 's status is detailed below in the 
Enforcement section.   
The United States also continued to hold China accountable for adherence to  WTO rules in 2017.  
Pending cases involve (1) China 's administration of tariff -rate quotas (TRQs) for rice, wheat and 
corn, (2) excessive government support for the production of rice, wheat and corn by farmers in 
China,  (3) export quotas and export duties  maintained by China on various forms of 11 raw 
materials,  (4) antidumping and countervailing duties that China imposed on imports of US chicken 
broiler products, (5) restrictions that China put in place to create and maintain a domestic national 
champion as the exclusive electronic payment services supplier in China 's market and 
(6) importation and distribution restrictions applied to theatrical films.  The status of each of these 
cases is detailed below in the Enforcement section.   
 
CHINA 'S WTO COMPLIANCE  
Each conclusion set forth below is discussed in more detail in subsequent sections of this report.   
 WT/GC/W/746  
 
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  PRIORITY ISSUES  
At present, China 's trade policies and practices in several specific areas cause particular concern 
for the United States and US stakeholders.  The key concerns in each of these areas are 
summarized below.  
 
Industrial Policies  
Overview  
 
China continued to pursue a wide array of industrial policies in 2017 that seek to limit market 
access for imported goods, foreign manufacturers an d foreign services suppliers, while offering 
substantial government guidance, resources and regulatory support to Chinese industries.  The 
beneficiaries of these constantly evolving policies are not only state -owned enterprises but also 
other domestic compa nies attempting to move up the economic value chain.   
 
Technology Transfer  
 
At the beginning of 2017, longstanding and serious US concerns regarding technology transfer 
remained unaddressed, despite repeated, high -level bilateral commitments by China to re move or 
no longer pursue problematic policies and practices.  At the same time, new concerns have 
continued to emerge.  In August 2017, as discussed above, USTR initiated an investigation under 
Section 301 of the Trade Act of 1974, as amended, focused on pol icies and practices of the 
Government of China related to technology transfer, intellectual property and innovation.  
Specifically, in its initiation notice, USTR identified four categories of reported Chinese government 
conduct that would be the subject of  its inquiry, including but not limited to the use of a variety of 
tools to require or pressure the transfer of technologies and intellectual property to Chinese 
companies, depriving US companies of the ability to set market -based terms in licensing 
negoti ations with Chinese companies, intervention in markets by directing or unfairly facilitating 
the acquisition of US companies and assets by Chinese companies to obtain cutting -edge 
technologies and intellectual property, and conducting or supporting unautho rized intrusions into 
US commercial computer networks or cyber -enabled theft for commercial gains.  As of December 
2017, this investigation was ongoing.  
 
Made in China 2025 Industrial Plan  
 
In May 2015, China 's State Council released Made in China 2025 , a 10-year plan spearheaded by 
the Ministry of Industry and Information Technology (MIIT) and targeting 10 strategic industries, 
including  advanced information technology, automated machine tools and robotics, aviation and 
spaceflight equipment, maritime engin eering equipment and high -tech vessels, advanced rail 
transit equipment, new energy vehicles (NEVs), power equipment, farm machinery, new materials, 
biopharmaceuticals and advanced medical device products.  While ostensibly intended simply to 
raise industri al productivity through more advanced and flexible manufacturing techniques, Made 
in China 2025  is emblematic of China 's evolving and increasingly sophisticated approach to 
"indigenous  innovation, " which is evident in numerous supporting and related indust rial plans.  
Their common, overriding aim is to replace foreign technology with Chinese technology in the 
China market through any means possible so as to ready Chinese companies for dominating 
international markets.  
 
Made in China 2025  seeks to build up Ch inese companies in the 10 targeted, strategic industries at 
the expense of, and to the detriment of, foreign industries and their technologies through a multi -
step process over 10 years.  The initial goal of Made in China 2025  is to ensure, through various 
means, that Chinese companies develop, extract or acquire their own technology, IP and know -
how and their own brands.  The next goal of Made in China 2025  is to substitute domestic 
technologies, products and services for foreign technologies, products and s ervices in the China 
market.  The final goal of Made in China 2025  is to capture much larger worldwide market shares in 
the 10 targeted, strategic industries.   
 
Many of the policy tools being used by the Chinese government to achieve the goals of Made in 
China 2025 raise serious concerns.  These tools are largely unprecedented, as other WTO members 
do not use them, and include a wide array of state intervention and support designed to promote 
the development of Chinese industry in large part by restricting, t aking advantage of, WT/GC/W/746  
 
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  discriminating against or otherwise creating disadvantages for foreign enterprises and their 
technologies, products and services.  Indeed, even facially neutral measures can be applied in favor 
of domestic enterprises, as past experience  has shown, especially at sub -central levels of 
government.  
 
Made in China 2025  also differs from industry support pursued by other WTO members by its level 
of ambition and, perhaps more importantly, by the scale of resources the government is investing 
in the pursuit of its industrial policy goals.  In this regard, even if the Chines e government fails to 
achieve the industrial policy goals set forth in Made in China 2025 , it is still likely to create or 
exacerbate market distortions and create severe excess capacity in many of the targeted 
industries.  
 
Indigenous Innovation  
 
Policies aimed at promoting "indigenous  innovation " continue to represent an important 
component of China 's industrialization efforts.  Through intensive, high -level bilateral engagement 
with China since 2010, the United States has attempted to address these policies, which provide 
various preferences when IP is owned or developed in China, both broadly across sectors of 
China 's economy and specifically in the government procurement context.  
 
For example, at the May 2012 S&ED meeting, China committed to treat IP owned or developed in 
other countries the same as IP owned or developed in China.  The United States also used the 2012 
JCCT process to press China to revise or eliminate specific measures that appeared to be 
inconsistent with this commitment.  Throughout  2013 and 2014, the United States and China 
intensified their discussions.  At the December 2014 JCCT meeting, China clarified and underscored 
that it will treat IP owned or developed in other countries the same as domestically owned or 
developed IP.  Once a gain, however, these commitments were not fulfilled.  China continues to 
pursue myriad policies that require or favor the ownership or development of IP in China.  
 
The United States secured a series of similar commitments from China in the government 
procur ement context, where China agreed to de -link indigenous innovation policies at all levels of 
the Chinese government from government procurement preferences, including through the 
issuance of a State Council measure mandating that provincial and local gover nments eliminate 
any remaining linkages by December 2011.  Nearly five years later, however, this promise had not 
been fulfilled.  At the November 2016 JCCT meeting, in response to US concerns regarding the 
continued issuance of scores of inconsistent measur es, China announced that its State Council had 
issued a document requiring all agencies and  all sub -central governments to "further  clean up 
related measures linking indigenous innovation policy to the provision of government procurement 
preference. " Again , the United States should not have to seek the same promises over and over 
through multiple negotiations.   
 
Investment Restrictions  
 
China seeks to protect many domestic industries through a restrictive investment regime, which 
adversely affects foreign i nvestors in key services sectors, agriculture, extractive industries and 
certain manufacturing sectors.  Many aspects of China 's current investment regime, including lack 
of substantial liberalization, foreign equity caps, joint venture requirements, mainte nance of a 
case-by-case administrative approval system for certain investments, the potential for a new and 
overly broad national security review, and the impact of China 's Cybersecurity Law  and National 
Security Law  and related implementing measures, cont inue to cause foreign investors great 
concern.  
 
In addition, foreign enterprises report that Chinese government officials may condition investment 
approval on a requirement that a foreign enterprise transfer technology, conduct research and 
development in China, satisfy performance requirements relating to exportation or the use of local 
content or make valuable, deal -specific commercial concessions.  The United States has repeatedly 
raised concerns with China about its restrictive investment regime.  To date , this sustained bilateral 
engagement has not led to a significant relaxation of China 's investment restrictions, nor has it 
appeared to curtail ad hoc actions by Chinese government officials.  China did announce during 
President Trump 's visit to Beijing in  November 2017 that it would be relaxing certain restrictions 
on foreign investment in banking services, life insurance services and securities and asset 
management services in the future.  It remains to be seen if these promises will be fulfilled.  WT/GC/W/746  
 
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  Secure a nd Controllable ICT Policies  
 
In 2017, as China issued a series of draft and final measures to implement the Cybersecurity Law 
that it had adopted in November 2016, global concerns heightened over China 's approach to 
cybersecurity policy.  As demonstrated in the implementing measures, China 's approach is to 
impose severe restrictions on a wide range of US and other foreign ICT products and services with 
an apparent long -term goal of replacing foreign ICT products and services.  Stakeholders and 
governments a round the world expressed serious concerns about requirements that ICT equipment 
and other ICT products and services in critical sectors be "secure  and controllable, " as these 
requirements are used by the Chinese government to disadvantage non -Chinese firm s in multiple 
ways.  
 
For example, China references its "secure  and controllable " requirements to require Chinese IT 
users to purchase Chinese products, to favor Chinese service suppliers, to impose local content 
requirements, to impose domestic R&D require ments, to consider the location of R&D as a 
cybersecurity risk factor and to require the transfer or disclosure of source code or other IP.  China 
also invokes "secure  and controllable " requirements to restrict cross -border data transfers.  
 
More broadly, C hina's passage of several cybersecurity -related laws since 2015 provides an overall 
statutory framework for technology -related restrictions on foreign companies in the name of 
cybersecurity or national security.  However, the sweeping approach of this legis lation has raised 
concerns that the framework will be used as an industrial policy tool both to promote and favor 
national champions and other domestic companies and to block or impede foreign companies ' 
access to the China market.  For example, in July 2015, China passed a National Security Law  
whose stated purpose is to safeguard China 's security, but it also includes sweeping provisions 
addressing economic and industrial policy.  Additionally, in September 2015, the State Council 
published a big data development plan, which for the first time set a time table for adopting 
"secure  and controllable " products and services in critical departments by 2020.  China also 
adopted a Counterterrorism Law  in December 2015 and then a Cybersecurity  Law in November 
2016, which impose far -reaching and onerous trade restrictions on imported ICT products and 
services in China.  
 
Meanwhile, sector -specific policies under this broad framework continue to be deployed across 
China 's economy.  A high profile example from December 2014 was a measure drafted by the 
China Banking Regulatory Commission (CBRC) that called for 75 percent of ICT products used in 
the banking system to be "secure  and controllable " by 2019 and that imposed a series of criteria 
that woul d shut out foreign ICT providers from China 's banking sector.  Other specific sectors 
pursuing "secure  and controllable " policies included the insurance sector and the e -commerce 
sector.  
 
In 2015, the United States, in concert with other governments and st akeholders around the world, 
raised serious concerns at the highest levels of government within China.  During the state visit of 
President Xi in September 2015, the US and Chinese Presidents committed to a set of principles 
for trade in information technol ogies.  The issue was also raised in connection with the June 2015 
S&ED meeting and the November 2015 JCCT meeting, with China making a series of additional 
important commitments with regard to technology policy.  China reiterated many of these 
commitments a t the November 2016 JCCT meeting, where it affirmed that its "secure  and 
controllable " policies are not to unnecessarily limit or prevent commercial sales opportunities for 
foreign ICT suppliers or unnecessarily impose nationality -based conditions and rest rictions on 
commercial ICT purchases, sales or uses.  China also agreed that it would notify relevant technical 
regulations to the WTO Committee on Technical Barriers to Trade (TBT Committee).  
 
Yet again, however, it appears that China does not intend to co mply with its promises.  The 
numerous draft and final cybersecurity measures issued by China in 2017 raise serious questions 
about China 's approach to cybersecurity regulation.  China 's measures do not appear to be 
consistent with the non -discriminatory, non -trade restrictive approach to which China committed.  
Accordingly, throughout the past year, the United States conveyed its serious concerns about 
China 's approach to cybersecurity regulation through written comments on draft measures, 
bilateral engagement  under the auspices of the CED and multilateral engagement at WTO 
committee meetings in an effort to persuade China to revise its policies in this area to ensure that 
they are consistent with its WTO obligations and bilateral commitments.  These efforts are  ongoing.  
 WT/GC/W/746  
 
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  Subsidies  
 
China continues to provide substantial subsidies to its domestic industries, which have caused 
injury to US industries.  Some of these subsidies also appear to be prohibited under WTO rules.  To 
date, the United States has been able to address some of these subsidies through countervailing 
duty proceedings conducted by the Commerce Department and dispute settlement cases at the 
WTO.  The United States and other WTO members also have continued to press China to notify all 
of its subsidies to the WTO in accordance with its WTO obligations.  Since joining the WTO 16 years 
ago, China has not yet submitted to the WTO a complete notification of subsidies maintained by 
the central government, and it did not notify a single sub -centra l government s ubsidy until 
July 2016, when it provided information only on sub -central government subsidies that the United 
States had challenged as prohibited subsidies in a WTO case.  
 
Excess Capacity  
 
Because of its state -led approach to the economy, China is the wor ld's leader in creating excess 
capacity, as evidenced by unprecedentedly severe excess capacity situations in several industries.  
China also is well on its way to creating severe excess capacity in other industries through its 
pursuit of industrial plans such as Made in China 2025 , where China is pouring in hundreds of 
billions of dollars to support Chinese companies and requiring th em to achieve preset targets for 
domestic market share and global market share in each of 10 advanced manufacturing industries.  
 
In manufacturing industries like steel and aluminum in particular, China 's economic planners and 
their government actions and financial support have contributed to massive excess capacity in 
China, with the resulting over -production distorting global markets and hurting US producers and 
workers in both the United States and third country markets such as Canada and Mexico, where 
US exports compete with Chinese exports.  While China recognizes the severe excess capacity 
problem in these industries, among others, and has taken some steps to try to address this 
problem, there have been mixed results.   
 
From 2000 to 2014, China accounte d for more than 75 percent of global steelmaking capacity 
growth, even though China has no comparative advantage with regard to the energy and raw 
material inputs that make up the majority of costs for steelmaking.  Currently, China 's capacity 
represents ab out one -half of global capacity and twice the combined steelmaking capacity of the 
European Union (EU), Japan, the United States and Russia.  Meanwhile, China 's steel exports grew 
to be the largest in the world,  at 91 million MT in 2014, a 50 percent increa se over 2013 levels, 
despite sluggish steel demand abroad.  In 2015, Chinese exports  reached a historic high of 
110 million MT, causing increased concerns about the detrimental effects that these exports would 
have on the already saturated world market for steel.  China 's steel exports continued to grow in 
the first half of 2016, before beginning to decline in the second half of the year, a trend that 
continued into 2017.  
 
Similarly, production of primary aluminum in China increased by more than 50 percent b etween 
2011 and 2015, and it has continued to grow in subsequent years despite a severe drop in global 
aluminum prices beginning in 2015.  Large new facilities have been built with government support, 
including through energy subsidies, as China 's primary a luminum production accounts for more 
than one -half of global production.  As a consequence, China 's aluminum excess capacity has been 
contributing to a severe decline in global aluminum prices, harming US plants and workers.  
 
Not unlike the situations in th e steel and aluminum industries, China 's production of soda ash has 
increased as domestic demand has stagnated.  As a result, China 's soda ash exports increased 
23 percent in 2015 as compared to the previous year, and this trend continued in 2016.  Further, 
China 's soda ash production, which totaled 26 million MT in 2016, is projected to grow at nearly 
three percent annually through 2020, which is more than double China 's projected 1.2 percent 
annual increase in domestic demand over that same time period.  It also is estimated that China 's 
excess soda ash capacity will continue to grow in the coming years, reaching over 10.5 million MT 
by 2019.  
 
Excess capacity in China – whether in the steel industry or other industries like aluminum or soda 
ash – hurts US industries and workers not only because of direct exports from China to the United 
States, but because lower global prices and a glut of supply make it difficult for even the most 
competitive producers to remain viable.  Domestic industries in many of China 's trading partners WT/GC/W/746  
 
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  have continued to respond to the effects of the trade -distortive effects of China 's excess capacity 
by petitioning their governments to impose trade remedies such as antidumping and 
countervailing duties.  
 
Export Restraints  
 
China continu es to deploy a combination of export restraints, including export quotas, export 
licensing, minimum export prices, export duties and other restrictions, on a number of raw 
material inputs where it holds the leverage of being among the world 's leading produ cers. Through 
these export restraints, it appears that China is able to provide substantial economic advantages 
to a wide range of downstream producers in China at the expense of foreign downstream 
producers, while creating pressure on foreign downstream p roducers to move their operations, 
technologies and jobs to China.   
 
In 2013, China removed its export quotas and duties on several raw material inputs of key interest 
to the US steel, aluminum and chemicals industries after the United States won a dispute 
settlement case against China at the WTO.  In 2014, the United States won a second WTO case, 
focusing on China 's export restraints on rare earths, tungsten and molybdenum, which  are key 
inputs for a multitude of US-made products, including hybrid automobile batteries, wind turbines, 
energy -efficient lighting, steel, advanced electronics, automobiles, petroleum, and chemicals.  
China removed those export restraints in May 2015.  In July 2016, the United States launched a 
third WTO case challenging export restraints maintained by China.  The challenged export 
restraints include export quotas and export duties maintained by China on various forms of 11 raw 
materials, including antimony,  chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, 
tantalum and tin.  These raw materials are key inputs in important US manufacturing industries, 
including aerospace, automotive, construction and electronics.  It is deeply concerning that th e 
United States has been forced to bring multiple cases to address the same obvious WTO 
compliance issues.  
 
Value -added Tax Rebates and Related Policies  
 
As in prior years, in 2017, the Chinese government attempted to manage the export of many 
primary, int ermediate and downstream products by raising or lowering the VAT rebate available 
upon export.  China sometimes reinforces its objectives by imposing or retracting export duties.  
These practices have caused tremendous disruption, uncertainty and unfairness in the global 
markets for some products, particularly downstream products where China is a leading world 
producer or exporter, such as products made by the steel, aluminum and soda ash industries.  
These practices, together with other policies, such as exce ssive government subsidization, also 
have contributed to severe excess capacity in these same industries.  An apparently positive 
development took place at the July 2014 S&ED meeting, when China committed to improve its VAT 
rebate system, including by activ ely studying international best practices, and to deepen 
communication with the United States on this matter, including regarding its impact on trade.  
Once more, however, this promise remains unfulfilled.  To date, China has not made any 
movement toward the  adoption of international best practices.  
 
Import Ban on Remanufactured Products  
 
China prohibits the importation of remanufactured products, which it typically classifies as used 
goods. China also maintains restrictions that prevent remanufacturing proce ss inputs (known as 
cores) from being imported into China 's customs territory, except special economic zones.  These 
import prohibitions and restrictions undermine the development of industries in many sectors in 
China, including mining, agriculture, health care, transportation and communications, among 
others, because companies in these industries are unable to purchase high -quality, lower -cost 
remanufactured products produced outside of China.  Nevertheless, China is apparently prepared to 
pay this price in order to limit imports of remanufactured goods.  
 
Import Ban on Recoverable Materials   
 
In 2017, China issued two measures that would limit or ban imports of certain recoverable wastes 
and recovered materials, such as plastic waste and unsorted paper.  It ap pears that these 
measures are intended to promote a policy of import substitution, as similar restrictions do not 
appear to apply to domestically sourced recoverable wastes or recovered materials.   WT/GC/W/746  
 
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  Standards  
 
In the standards area, two principal types of Chinese policies harm US companies.  First, Chinese 
government officials in some cases reportedly have pressured foreign companies seeking to 
participate in the standards -setting process to license their technology or intellectual property on 
unfavorable te rms. Second, China has continued to pursue unique national standards in a number 
of high technology areas where international standards already exist, such as 3G and 4G 
telecommunications standards, Wi -Fi standards and information security standards.  The U nited 
States continues to press China to address these specific concerns, but to date this bilateral 
engagement has yielded minimal progress.  
 
Currently, China is undergoing a large -scale reform of its standards system.  As part of this reform, 
China is se eking to incorporate a "bottom  up" strategy in standards development in addition to the 
existing "top  down " system.  In 2016 and 2017, China published draft versions of a new 
Standardization Law  on which the United States submitted written comments.  At the same time, 
the existing technical committees continue to develop standards.  For example, while the United 
States ' substantive concerns have not been addressed, the technical committee for cybersecurity 
standards has begun allowing foreign companies to part icipate in standards development and 
setting, with several US and other foreign companies being allowed to vote and to participate at 
the working group level in standards development.  Nevertheless, we remain very concerned about 
China 's policies with regar d to standards.   
 
Notably, US concerns about China 's standards regime are not limited to the implications for US 
companies ' access to China 's market.  China 's ongoing efforts to develop unique national standards 
aims eventually to serve the interests of Chi nese companies seeking to compete globally, as the 
Chinese government 's vision is to use the power of the large China market to promote or compel 
the adoption of Chinese standards in global markets.  
 
Government Procurement  
 
China made a commitment to accede to the GPA and to open up its vast government procurement 
market to the United States and other GPA parties.  To date, however, the United States, the EU, 
and other GPA parties have viewed China 's offers as highly disappointing in scope and coverage.  
China submitted its fifth revised offer in December 2014.  This offer showed progress in a number 
of areas, including thresholds, entity coverage and services coverage.  Nonetheless, it fell short of 
US expectations and remains far from acceptable to the Un ited States and other GPA parties as 
significant deficiencies remain in a number of critical areas, including thresholds, entity coverage, 
services coverage and exclusions.  
 
China 's current government procurement regime is governed by two important laws.  The 
Government Procurement Law , administered by the Ministry of Finance, governs purchasing 
activities conducted with fiscal funds by state organs and other organizations at all levels of 
government in China.  The Tendering and Bidding Law  falls under the j urisdiction of the National 
Development and Reform Commission and imposes uniform tendering and bidding procedures for 
certain classes of procurement projects in China, notably construction and works projects, without 
regard for the type of entity that con ducts the procurement.  Both laws cover important 
procurements that GPA parties would consider to be government procurement eligible for coverage 
under the GPA.  
 
Trade Remedies  
 
China 's regulatory authorities in some instances seem to be pursuing antidumpi ng and 
countervailing duty investigations and imposing duties – even when necessary legal and factual 
support for the duties is absent – for the purpose of striking back at trading partners that have 
exercised their WTO rights against China.  The US respons e has been the filing and prosecution of 
three WTO disputes.  The decisions reached by the WTO in those three disputes confirm that China 
failed to abide by WTO disciplines when imposing the duties at issue.   
 WT/GC/W/746  
 
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  Intellectual Property Rights  
Overview  
 
After i ts accession to the WTO, China undertook a wide -ranging revision of its framework of laws 
and regulations aimed at protecting the intellectual property rights (IPR) of domestic and foreign 
rights holders, as required by the WTO Agreement on Trade -Related A spects of Intellectual 
Property Rights (the TRIPS Agreement).  Currently, China is in the midst of an extended round of 
revisions to these laws and regulations.  Despite various plans and directives issued by the State 
Council in 2017, inadequacies in China 's IPR protection and enforcement regime continue to 
present serious barriers to US exports and investment.  As a result, China was again placed on the 
Priority Watch List in USTR 's 2017 Special 301 report.  In addition, in January 2018, USTR 
announced the re sults of its 2017 Out -of-Cycle Review of Notorious Markets, which identifies 
online and physical markets that exemplify key challenges in the global struggle against piracy and 
counterfeiting.  Several Chinese markets were among those named as notorious mar kets.  
 
Trade Secrets  
 
Serious inadequacies in the protection and enforcement of trade secrets in China have been the 
subject of high -profile attention and engagement between the United States and China in recent 
years.  Thefts of trade secrets for the bene fit of Chinese companies have occurred both within 
China and outside of China.  Offenders in many cases continue to operate with impunity.  
Particularly troubling are reports that actors affiliated with the Chinese government and the 
Chinese military have in filtrated the computer systems of US companies, stealing terabytes of 
data, including the companies ' intellectual property (IP), for the purpose of providing commercial 
advantages to Chinese enterprises.   
 
In an effort to address these problems, the United  States secured commitments from China to 
issue judicial guidance to strengthen its trade secrets regime.  The United States also has secured 
commitments from China not to condone state -sponsored misappropriation of trade secrets for 
commercial use.  In addi tion, the United States has urged China to make certain key amendments 
to its trade secrets -related laws and regulations, particularly with regard to a draft revision of the 
Anti-unfair Competition Law . The United States also has urged China to take action s to address 
inadequacies across the range of state -sponsored actors and to promote public awareness of trade 
secrets disciplines.   
 
At the November 2016 JCCT meeting, China confirmed that it is strengthening its trade secrets 
regime and plans to bolster s everal areas of importance, including the availability of evidence 
preservation orders and damages based on market value as well as the issuance of a judicial 
interpretation on preliminary injunctions and other matters.  In addition, in 2016 and 2017, China  
circulated proposed revisions to the Anti-unfair Competition Law  for public comment.  China issued 
the final measure in November 2017, effective January 2018.  Despite improvements in the 
protection of trade secrets relative to prior law, the final measure reflects a number of missed 
opportunities for the promotion of effective trade secrets protection.   
 
Furthermore, as discussed above, the United States continues to have significant concerns about 
IP protection in China, including with regard to trade secrets.  Thus, the protection of trade secrets 
and IP more broadly represents yet another area where China has failed to comply with its 
promises for a more market -oriented system, particularly to the extent that the state itself 
sponsors the theft of trad e secrets or actively frustrates the effective protection of trade secrets.   
 
Bad Faith Trademark Registration  
 
Of particular concern is the continuing registration of trademarks in bad faith.  At the November 
2016 JCCT meeting, China publicly noted the har m that can be caused by bad faith trademarks 
and confirmed that it is taking further steps to combat bad faith trademark filings.  Nevertheless, 
US companies across industry sectors continue to face Chinese applicants registering their marks 
and "holding  them for ransom " or seeking to establish a business building off of US companies ' 
global reputations.  
 WT/GC/W/746  
 
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  Pharmaceuticals  
 
The United States continues to engage China on a range of patent and technology transfer 
concerns relating to pharmaceuticals.  At the December 2013 JCCT meeting, China committed to 
permit supplemental data supporting pharmaceutical patent applications.  However, to date, it 
appears that China has not consistently implemented this commitment.  
 
Meanwhile, many other concerns remain,  including the need to provide effective protection against 
unfair commercial use of undisclosed test or other data generated to obtain marketing approval for 
pharmaceutical products, and to provide effective enforcement against infringement of 
pharmaceuti cal patents.  Additionally, a backlogged drug regulatory approval system presents 
market access and patient access concerns.   
 
At the December 2014 JCCT meeting, China committed to significantly reduce time -to-market for 
innovative pharmaceutical products t hrough streamlined processes and additional funding and 
personnel.  In addition, in 2017, the State Council and China 's Food and Drug Administration 
(CFDA) issued several draft measures evidencing a positive trajectory for the protection of 
pharmaceutical p atents and regulatory data in China and for a more streamlined drug approval 
process.  However, these draft measures are general in nature, and it is not yet clear whether 
China finally intends to comply with its commitments in this area.  Accordingly, the U nited States 
will remain in close contact with US industry and will actively examine developments to ensure 
that appropriate and non -discriminatory changes are made to the anticipated implementing 
measures in the areas of patent linkage, regulatory data pr otection and clinical trials.  
 
Another serious concern stems from China 's proposals in the pharmaceuticals sector that seek to 
promote government -directed indigenous innovation and technology transfer through the provision 
of regulatory preferences.  For ex ample, in 2016, a State Council measure issued in final form 
without having been made available for public comment creates an expedited regulatory approval 
process for innovative new drugs where the applicant 's manufacturing capacity has been shifted to 
China. The United States is pressing China to reconsider this approach.  
 
With regard to the treatment of supplemental test data, amended patent examination guidelines 
that entered into force in April 2017 now require patent examiners to take into account 
supplemental test data submitted during the patent examination process.  However, there are 
reports that China 's patent examiners continue to deny applicants ' requests to supplement their 
test data.  
 
In April 2016, CFDA issued a draft measure that effectively  would require drug manufacturers to 
commit to price concessions as a pre -condition for marketing approval of new drugs.  Given its 
inconsistency with international science -based regulatory practices, which are based on safety, 
efficacy and quality, the dra ft measure elicited serious concerns from the United States and US 
industry.  Subsequently, at the November 2016 JCCT meeting, China promised not to link a pricing 
commitment to drug registration evaluation and approval.  In addition, China promised not to 
require any specific pricing information when implementing the final measure.  Given China 's lack 
of follow through in other areas, as discussed in this report, the United States remains concerned 
about whether these promises will be fulfilled.  Accordingly, the United States has remained in close 
contact with US industry and has been examining developments carefully in this area.  
 
Online Infringement  
 
Online piracy continues on a large scale in China, affecting a wide range of industries, including 
those invo lved in distributing legitimate music, motion pictures, books and journals, software and 
video games.  While increased enforcement activities have helped stem the flow of online sales of 
some pirated offerings, much more sustained action and attention is ne eded to make a more 
meaningful difference for content creators and rights holders, particularly small and medium -sized 
enterprises.   
 
The United States has urged China to consider ways to create a broader policy environment that 
helps foster the growth of healthy markets for licensed and legitimate content.  The United States 
also has urged China to revise existing rules that have proven to be counterproductive.  For 
example, new rules on the review of foreign television content present a serious concern for the 
continued viability of licensed streaming of foreign television content via online platforms.  These WT/GC/W/746  
 
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  rules are disrupting legitimate commerce while inadvertently creating conditions that allow for 
pirated content to displace legitimate content online.   
 
At the November 2016 JCCT meeting, China agreed to actively promote e -commerce -related 
legislation, strengthen supervision over online infringement and counterfeiting, and to work with 
the United States to explore the use of new approaches to enhance onli ne enforcement capacity.  
In addition, in December 2016 and November 2017, China published drafts of a new E-Commerce 
Law for public comment.  In written comments, the United States has stressed that the final 
version of this law should promote an effective notice -and-takedown regime that addresses online 
infringement while providing appropriate safeguards to Internet service providers.  
 
Counterfeit Goods  
 
Although rights holders report increased enforcement efforts by Chinese government authorities, 
counterf eiting in China, affecting a wide range of goods, remains widespread.  One of many areas 
of particular US concern involves medications.  Despite years of sustained engagement by the 
United States, China still needs to improve its regulation of the manufactur e of active 
pharmaceutical ingredients to prevent their use in counterfeit and substandard medications.  At the 
July 2014 S&ED meeting, China committed to develop and seriously consider amendments to the 
Drug Administration Law  that will require regulatory control of the manufacturers of bulk chemicals 
that can be used as active pharmaceutical ingredients.  At the June 2015 S&ED meeting, China 
further committed to publish revisions to the Drug Administration Law  in draft form for public 
comment and to take in to account the opinions of the United States and other relevant 
stakeholders.  In October 2017, China published limited draft revisions to the Drug Administration 
Law and stated that future proposed revisions to the remainder of this law would be forthcomin g. 
Although many elements of the October 2017 draft revisions appear to be positive, the United 
States remains in close contact with US industry and will continue to examine developments 
vigilantly in this area.  
 
Services  
Overview  
 
The prospects for US service suppliers in China should be promising, given the size of China 's 
market.  While the United States maintained a $38.0 billion surplus in trade in services with China, 
the US share of China 's services market remained well below the US share of the g lobal services 
market.   
 
In 2017, numerous challenges persisted in a range of services sectors.  As in past years, Chinese 
regulators continued to use case -by-case approvals, discriminatory regulatory processes, informal 
bans on entry and expansion, overly burdensome licensing and operating requirements, and other 
means to frustrate the efforts of US suppliers of services to achieve their full market potential in 
China, including US suppliers of banking services, securities and asset management services, 
insurance services, electronic payment services,  cloud computing services, telecommunications 
services, video and entertainment software services, film production and distribution services, 
express delivery services and legal services, among other services.  In addition, China 's 
Cybersecurity Law  and related draft and final implementing measures, including mandates to 
purchase domestic ICT products and services, restrictions on cross -border data flows and data 
localization requirements, are making it even more difficult for US services suppliers to take 
advantage of any market access provided.  Even though some sectors, including electronic 
payment services and theatrical film distribution, have been the subject of WTO dispute 
settlement, US concerns have still n ot been fully addressed.  
 
Electronic Payment Services  
 
In 2017, China continued to place unwarranted restrictions on foreign companies, including major 
US credit card processing companies, that have been seeking to supply electronic payment 
services to ba nks and other businesses that issue or accept credit and debit cards in China.  In a 
WTO case that it launched in 2010, the United States argued that China had committed in its WTO 
accession agreement to open up this sector in 2006, and a WTO panel agreed w ith the United 
States in a decision issued in 2012.  China subsequently agreed to comply with the WTO panel 's 
rulings in 2013, but China did not take needed steps even to allow foreign suppliers to apply for WT/GC/W/746  
 
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  needed licenses until June 2017.  Reportedly, seve ral US suppliers have since submitted their 
applications.  Throughout the time that China has actively delayed opening up its market to foreign 
suppliers, China 's national champion, China Union Pay, has used its exclusive access to the China 
market to suppo rt its efforts to build out its electronic payment services network abroad.  Recently, 
China Union Pay announced that it had reached 100 percent penetration at US automated teller 
machines and between 80 and 90 percent penetration at US stores that accept c redit cards.  This 
history shows how China has been able to maintain market -distorting practices that benefit its own 
companies, even in the face of adverse rulings at the WTO.  
 
Theatrical Films  
 
In February 2012, the United States and China reached an alte rnative solution with regard to 
certain rulings relating to the importation and distribution of theatrical films in a WTO case that the 
United States had won.  The two sides signed a memorandum of understanding (MOU) providing 
for substantial increases in the number of foreign films imported and distributed in China each 
year, along with substantial additional revenue for US film producers.  Significantly more US films 
have been imported and distributed in China since the signing of the MOU, and the revenue 
received by US film producers has increased significantly.  However, China has not yet fully 
implemented its MOU commitments, including with regard to critical c ommitments to open up film 
distribution opportunities for imported films.  As a result, the United States has been pressing 
China for full implementation of the MOU.  In 2017, in accordance with the terms of the MOU, the 
two sides began discussions regarding  the provision of further meaningful compensation to the 
United States.  
 
Banking Services  
 
China has largely refused to open its banking sector to significant non -Chinese competition.  The 
most recently available data shows that the foreign share of bankin g assets in China has fallen to 
1.2 percent.  China has imposed various requirements that have made it more difficult for foreign 
banks to establish and expand their market presence in China.  Many of these requirements, 
moreover, have not applied equally to  foreign and domestic banks.   
 
One problematic area involves the ability of US and other foreign banks to participate in the 
domestic currency business in China.  This is a market segment that foreign banks are most eager 
to pursue in China, particularly wi th regard to Chinese individuals.  Under existing governing 
regulations, only foreign -funded banks that have had a representative office in China for two years 
and that have total assets exceeding $10 billion can apply to incorporate in China.  After 
incorpo rating, moreover, these banks only become eligible to offer full domestic currency services 
to Chinese individuals if they can demonstrate that they have operated in China for three years 
and have had two consecutive years of profits.  In addition, China im poses substantial asset and 
capital requirements on foreign banks that it does not apply to domestic banks, and it is slow to 
act upon foreign banks ' applications to set up new internal branches.  Furthermore, China restricts 
the scope of activities that ca n be conducted by foreign banks seeking to operate in China through 
branches instead of through subsidiaries.  Discriminatory and non -transparent regulations also 
have limited foreign banks ' ability to participate in China 's capital markets.  
 
For years, Chi na has limited the sale of equity stakes in existing Chinese -owned banks for a single 
foreign investor to 20 percent, while the total equity share of all foreign investors is limited to 25 
percent.  In November 2017, China announced that it would be easing these foreign equity 
restrictions, but to date it has not done so.  
 
Insurance Services  
 
China 's regulation of the insurance sector has resulted in market access barriers for foreign 
insurers, whose share of China 's market remains very low.  In the life insu rance sector, China only 
permits foreign companies to establish as Chinese -foreign joint ventures, with foreign equity 
capped at 50 percent.  The market share of these joint ventures is about five percent.  For the 
health and pension insurance sectors, China  also caps foreign equity at 50 percent.  While China 
allows wholly foreign -owned subsidiaries in the non -life (i.e., property and casualty) insurance 
sector, the market share of foreign -invested companies in this sector is only about two percent.  
China 's market for political risk insurance remains closed to foreign participation.  Although China 's 
Foreign Investment Catalogue  indicates that China has liberalized insurance brokerage services, WT/GC/W/746  
 
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  China in practice seems to continue to restrict the scope of insura nce brokerage services that 
foreign companies can provide.  Meanwhile, some US insurance companies established in China 
sometimes encounter difficulties in getting the Chinese regulatory authorities to issue timely 
approvals of their requests to open up new  internal branches to expand their operations.  In 
November 2017, China announced that it would be easing certain of its foreign equity restrictions 
in the insurance services sector, but to date it has not done so.  
 
Securities and Asset Management Services  
 
In the securities and asset management services sectors, China only permits foreign companies to 
establish as Chinese -foreign joint ventures, with foreign equity capped at 49 percent.  Recently, 
however, China reportedly licensed one foreign company to est ablish as majority foreign -owned 
joint venture.  In addition, China has started to license a small number of wholly foreign -owned 
companies to provide certain private fund management services to high -wealth individuals, but 
these services represent only a s ubset of the services normally provided by securities and asset 
management companies.  In November 2017, China announced that it would be easing certain of 
its foreign equity restrictions in the securities and asset management services sectors, but to date 
it has not done so.  
 
Telecommunications Services  
 
Restrictions maintained by China on value -added telecommunications services have created 
serious barriers to market entry for foreign suppliers seeking to provide value -added services.  In 
addition, China 's restrictions on basic telecommunications services, such as informal bans on new 
entry, a requirement that foreign suppliers can only enter into joint ventures with state -owned 
enterprises, and exceedingly high capital requirements, have blocked foreign sup pliers from 
accessing China 's basic services market.   
 
Inter net-related Services  
 
China 's Internet regulatory regime is restrictive and non -transparent, affecting a broad range of 
commercial services activities conducted via the Internet.  Especially troubl ing is China 's treatment 
of foreign companies seeking to participate in the development of cloud computing services, 
including computer data and storage services provided over the Internet.  China prohibits foreign 
companies from directly providing cloud co mputing services.  Instead, a foreign company must 
establish a contractual partnership with a Chinese company, which is the holder of the necessary 
Internet data center license, and turn over its valuable technology, IP, know -how and branding as 
part of thi s arrangement.  This evolving treatment has generated serious concerns in the United 
States and among other WTO members as well as US and other foreign companies.   
  
Audio -visual and Related Services  
 
China 's restrictions in the area of theater services hav e entirely discouraged investment by foreign 
suppliers, and China 's restrictions on services associated with television and radio greatly limit 
participation by foreign suppliers.  China also prohibits foreign companies from providing film 
production and di stribution services in China.  In addition, the United States remains very 
concerned about the impact of new online publishing rules issued by State Administration of Press, 
Publication, Radio, Film and Television (SAPPRFT) and MIIT in February 2016, and re lated 
measures, on the ability of foreign companies to engage in the online distribution of videos and 
entertainment software.  
 
Express Delivery Services  
 
The United States continues to have concerns regarding China 's implementation of the 2009 Postal 
Law and related regulations.  China has blocked foreign companies ' access to the document 
segment of its domestic express delivery market, and China does not have a strong track record of 
providing non -discriminatory treatment in awarding foreign companies busi ness permits for access 
to the package segment of China 's domestic express delivery market, where it also applies overly 
burdensome and inconsistent regulatory approaches, including with regard to security inspections.  
 WT/GC/W/746  
 
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  Legal Services  
 
China has issued me asures intended to implement the legal services commitments that it made 
upon joining the WTO.  However, these measures restrict the types of legal services that can be 
provided by foreign law firms, including through a prohibition on foreign law firms hiri ng lawyers 
qualified to practice Chinese law, and impose lengthy delays for the establishment of new offices.  
 
Agriculture  
Overview  
 
China is the largest agricultural export market for the United States, with more than $21 billion in 
US agricultural exports in 2016, up from $20 billion in 2015.  Notwithstanding this data, China 
remains problematically opaque and unpredictable for US agricultural exporters, largely because of 
inconsistent enforcement of regulations and selective interventi on in the market by China 's 
regulatory authorities.   
 
Sanitary and phytosanitary (SPS) measures with questionable scientific bases or a generally 
opaque regulatory regime frequently have created difficulties and uncertainty for traders in 
agricultural comm odities, who require as much certainty and transparency as possible.  In addition, 
at times, Chinese customs and quarantine authorities delay or halt shipments of agricultural 
products into China without providing a risk basis for the decision.   
 
With China  moving forward with implementation of its 2015 Food Safety Law , new regulations – 
and new concerns – are on the increase.  One of China 's most troublesome implementation 
proposals is a  requirement that all foods entering China must be accompanied by an export 
certificate.  The United States and other WTO members pressed China to clarify this requirement 
and to delay its implementation.  In October 2017, China announced that it would delay 
implementation by two years.   
 
Meanwhile, market access promised thr ough the TRQ system set up pursuant to China 's WTO 
accession agreement still has yet to be fully realized.  At the same time, China has been steadily 
increasing domestic support for key commodities.  In September 2016, the United States launched 
a WTO case c hallenging China 's government support for the production of rice, wheat and corn as 
being in excess of China 's commitments.  Subsequently, in December 2016, the United States also 
launched a WTO case challenging China 's administration of TRQs for rice, whea t and corn.  The 
United States intends to aggressively pursue these cases.  
 
Beef, Poultry and Pork  
 
In 2017, beef, poultry and pork products were affected by questionable SPS measures 
implemented by China 's regulatory authorities.  For example, through May 2017, China continued 
to block the importation of US beef and beef products, more than nine years after these products 
had been declared safe to trade under international scientific guidelines established by the World 
Organization for Animal Health (known by its historical acronym OIE), and despite the further fact 
that in 2013 the United States received the lowest risk status from the OIE, i.e., negligible risk.   
 
One month after the April 2017 Mar -a-Lago summit meeting between President Trump and China 's 
President Xi, as part of the initial results of the CED 's 100 -day action plan, China agreed to allow 
the resumption of US beef shipments into its market, although it insisted on maintaining certain 
conditions that the United States considers unwarranted an d unscientific.  For example, contrary to 
internationally accepted guidelines and standards, China maintains a zero -tolerance ban on the 
use of beta -agonist hormones and other synthetic and natural chemicals widely used by the global 
beef industry.  China al so continued to impose an unwarranted and unscientific avian influenza -
related import suspension on US poultry due to an outbreak of high pathogenicity avian influenza 
(HPAI), which has now been eliminated in the United States. Specifically, China has been  unwilling 
to follow OIE guidelines and accept poultry from regions in the United States unaffected by this 
disease.  Additionally, China continued to maintain overly restrictive pathogen and residue 
requirements for raw meat and poultry.  Consequently, anti cipated growth in US exports of these 
products was again not realized.  
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  Biotechnology Approvals  
 
Overall delays in China 's approval process for agricultural products derived from biotechnology 
continued in 2017, and the process itself remained opaque and u npredictable, creating continued 
uncertainty among traders and resulting in adverse trade impact for US exporters.  In addition, the 
asynchrony between China 's product approvals and other countries ' product approvals remained 
wide.   
 
In May 2017, as part of  the initial results of the CED 's 100 -day action plan, China committed to 
conduct science -based evaluations of eight pending US biotechnology product applications.  By the 
time of the CED plenary meeting in July 2017, China had only approved four of the eig ht 
applications.  Since then, work on the remaining four applications appears to have stalled.  
 
Agricultural Support  
 
For several years, China has been significantly increasing domestic subsidies and other support 
measures for its agricultural sector.  China has established a direct payment program, instituted 
minimum support prices for basic commodities and sharply increased input subsidies.  China has 
implemented a cotton reserve system, based on minimum purchase prices, and cotton target price 
programs.  It also has begun several new support schemes for hogs and pork, along with a 
purchasing reserve system for pork.   
 
China submitted its most recent notification concerning domestic support measures to the WTO in 
May 2015, but it only provided information up to 2010.  The United States remains concerned that 
the methodologies used by China to calculate support levels, particularly with regard to its price 
support policies and direct payments, result in underestimates.  Certain US farm groups have 
commissioned re ports to calculate support levels for certain commodities, including corn, wheat 
and soybeans, and these reports have concluded that China may be substantially exceeding its 
WTO-agreed domestic support spending limits.  As discussed above, in September 2016 , the United 
States launched a WTO case challenging China 's government support for the production of rice, 
wheat and corn as being in excess of China 's commitments.  In December 2016, the United States 
challenged China 's administration of TRQs  for rice, wheat and corn.  The United States will 
aggressively litigate both of these cases.  
 
Transparency  
Overv iew 
 
One of the core principles reflected throughout China 's WTO accession agreement is transparency.  
Unfortunately, there remains a lot more wo rk for China to do in this area.  
 
Publication of Trade -related Laws, Regulations and Other Measures  
 
In its WTO accession agreement, China committed to adopt a single official journal for the 
publication of all trade -related laws, regulations and other m easures, and China adopted a single 
official journal, to be administered by MOFCOM, in 2006.  More than 10 years later, it appears that 
some but not all central -government entities publish trade -related measures in this journal, and 
these government entitie s tend to take a narrow view of the types of trade -related measures that 
need to be published in the official journal.  As a result, while trade -related administrative 
regulations and departmental rules are more commonly (but still not regularly) published in the 
journal, it is less common for other measures such as opinions, circulars, orders, directives and 
notices to be published, even though they are in fact all binding legal measures.  In addition, China 
does not normally publish in the journal certain t ypes of trade -related measures, such as subsidy 
measures, nor does it normally publish sub -central government trade -related measures in the 
journal.  
 
Notice -and-comment Procedures  
 
In its WTO accession agreement, China committed to provide a reasonable per iod for public 
comment before implementing new trade -related laws, regulations and other measures.  In 2008, 
the National People 's Congress (NPC) instituted notice -and-comment procedures for draft laws, 
and shortly thereafter China indicated that it would a lso publish proposed trade and economic WT/GC/W/746  
 
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  related administrative regulations and departmental rules for public comment.  Subsequently, the 
NPC began regularly publishing draft laws for public comment, and China 's State Council often (but 
not regularly) publis hed draft administrative regulations for public comment.  In addition, many of 
China 's ministries were not consistent in publishing draft departmental rules for public comment.  
At the May 2011 S&ED meeting, China committed to issue a measure implementing th e 
requirement to publish all proposed trade and economic related administrative regulations and 
departmental rules on the website of the State Council 's Legislative Affairs Office (SCLAO) for a 
public comment period of not less than 30 days.  In April 2012,  the SCLAO issued two measures 
that appear to address this requirement.  Since then, despite continuing US engagement, little 
noticeable improvement in the publication of departmental rules for public comment appears to 
have taken place, even though China c onfirmed that those two SCLAO measures are binding on 
central government ministries.  
 
Translations  
 
In its WTO accession agreement, China committed to make available translations of all of its trade -
related laws, regulations and other measures at all leve ls of government in one or more of the 
WTO languages, i.e., English, French and Spanish.  Prior to 2014, China had only compiled 
translations of trade -related laws and administrative regulations (into English), but not other types 
of measures, and China was  years behind in publishing these translations. At the  July 2014 S&ED 
meeting, China committed that it would extend its translation efforts to include not only trade -
related laws and administrative regulations but also trade -related departmental rules.  
Subsequently, in March 2015, China issued a measure requiring trade -related departmental rules 
to be translated into English.  This measure also provides that the translation of a departmental 
rule normally must be published before implementation.  This measure , even if fully implemented, 
is not sufficient to bring China into full compliance in this area.  The United States has pressed 
China to ensure that it also publishes translations of trade -related laws and administrative 
regulations before implementation, a s required by China 's WTO accession agreement.  
 
Legal Framework  
Overview  
 
In addition to the area of transparency, several other areas of China 's legal framework can 
adversely affect the ability of the United States and US exporters and investors to access  or invest 
in China 's market.  Key areas include administrative licensing, competition policy, the treatment of 
non-governmental organizations (NGOs), commercial dispute resolution, labor laws and laws 
governing land use.  Corruption among Chinese government  officials, enabled in part by China 's 
incomplete adoption of the rule of law, is also a key concern.  
 
Administrative Licensing  
 
US companies continue to encounter significant problems with a variety of administrative licensing 
processes in China, including processes to secure product approvals, investment approvals, 
business expansion approvals, business license renewals and even app rovals for routine business 
activities.  While there has been an overall reduction in license approval requirements and a focus 
on decentralizing licensing approval processes, US companies report that these efforts have only 
had a marginal impact on their l icensing experiences so far.   
 
Competition Policy  
 
Chinese regulatory authorities ' implementation of China 's Anti-monopoly Law  poses multiple 
challenges.  One key concern relates to how the Anti-monopoly Law will be applied to state -owned 
enterprises.  While  Chinese regulatory authorities have clarified that the Anti-monopoly Law  does 
apply to state -owned enterprises, to date they have only brought enforcement actions against 
provincial government -level state -owned enterprises, not any central government -level state -
owned enterprises under the supervision of SASAC.  In addition, provisions in the Anti-monopoly 
Law protect the lawful operations of state -owned enterprises and government monopolies in 
industries deemed nationally important.  Overall, many US compan ies cite selective enforcement of 
the Anti-monopoly Law  as a major concern to doing business in China, and they have highlighted 
the limited enforcement of this law against state -owned enterprises.   
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  Another concern relates to the procedural fairness of Anti-monopoly Law  investigations.  US 
industry has expressed concern about insufficient predictability, fairness and transparency in the 
investigative processes of the National Development and Reform Commission (NDRC), including 
NDRC pressure to "cooperate " in the face of unspecified or face steep fines and actions by NDRC to 
discourage or prevent foreign companies from bringing counsel to meetings.  
 
NEXT STEPS  
For more than 15 years, the United States has relied on cooperative high -level dialogues to effect 
meaningful and fundamental changes in China 's state -led, mercantilist trade regime.  These efforts 
have largely failed.  Accordingly, the United States intends to focus its efforts on enforcement going 
forward.  These efforts will include not only use of the W TO's dispute settlement mechanism to hold 
China strictly accountable for adherence to its WTO obligations, but also other needed 
mechanisms, including mechanisms available under US trade laws.   
 
The United States is determined to use every tool available t o address harmful Chinese policies 
and practices, regardless of whether they are directly disciplined by WTO rules or the additional 
commitments that China made in its Protocol of Accession to the WTO.  The United States will not 
accept any Chinese policies  or practices that are unfair, discriminatory or mercantilist and harm US 
manufacturers, farmers, services suppliers, innovators, workers or consumers.  Americans have 
waited long enough.  The time has come for China to stop its market -distorting policies an d 
practices and finally become a responsible member of the WTO.  
 
1  INTRODUCTION  
1.1  CHINA 'S WTO ACCESSION NEGOTIATIONS  
1.1.  In July of 1986, China applied for admission to the WTO 's predecessor, the General 
Agreement on Tariffs and Trade (GATT).  The GATT formed a Working Party in March of 1987, 
composed of all interested GATT contracting parties, to examine China 's application and negotiate 
terms for China 's accession.  For the next eight years, negotiations were conducted under the 
auspices of the GATT Working Part y. Following the formation of the WTO on 1 January 1995, 
pursuant to the Marrakesh Agreement Establishing the World Trade Organization (WTO 
Agreement), a successor WTO Working Party, composed of all interested WTO members, took over 
the negotiations.  
1.2.  Like all WTO accession negotiations, the negotiations with China had three basic aspects.  
First, China provided information to the Working Party regarding its trade regime.  China also 
updated this information periodically during the 15 years of negotiations to reflect changes in its 
trade regime.  Second, each interested WTO member negotiated bilaterally with China regarding 
market access concessions and commitments in the goods and services areas, including, for 
example, the tariffs that would apply on industria l and agricultural goods and the commitments 
that China would make to open up its market to foreign services suppliers.  The most trade 
liberalizing of the concessions and commitments obtained through these bilateral negotiations 
were consolidated into Chin a's Goods and Services Schedules and apply to all WTO members.  
Third, overlapping in time with these bilateral negotiations, China engaged in multilateral 
negotiations with Working Party members on the rules that would govern trade with China.  
Throughout t hese multilateral negotiations, US leadership in working with China was critical to 
removing obstacles to China 's WTO accession and achieving a consensus on appropriate rules 
commitments.  These commitments are set forth in China's  Protocol of Accession and  an 
accompanying Report of the Working Party.  
1.3.  WTO members formally approved an agreement on the terms of accession for China on 
10 November 2001, at the WTO 's Fourth Ministerial Conference, held in Doha, Qatar.  One day 
later, China signed the agreement an d deposited its instrument of ratification with the Director -
General of the WTO.  China became the 143rd member of the WTO on 11 December 2001.  
1.4.  China 's Protocol of Accession, accompanying Working Party Report and Goods and Services 
Schedules are available o n the WTO 's website (www.wto.org).  WT/GC/W/746  
 
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  1.2  CHINA 'S WTO COMMITMENTS  
1.5.  In order to accede to the WTO, China had to agree to take concrete steps to remove trade 
barriers and open its markets to foreign companies and their exports from the first day of 
accession in virt ually every product sector and for a wide range of services.  Supporting these 
steps, China also agreed to undertake important changes to its legal framework, designed to add 
transparency and predictability to business dealings.   
1.6.  Like all acceding WTO membe rs, China also agreed to assume the obligations of more than 
20 existing multilateral WTO agreements, covering all areas of trade.  Areas of principal concern to 
the United States and China 's other trading partners, as evidenced by the accession negotiation s, 
included the core principles of the WTO, including most -favored nation treatment, national 
treatment, transparency and the availability of independent review of administrative decisions.  
Other key concerns arose in the areas of agriculture, SPS measures , technical barriers to trade, 
trade -related investment measures, customs valuation, rules of origin, import licensing, 
antidumping, subsidies and countervailing measures, trade -related aspects of  intellectual property 
rights and services.  For some of its obligations in these areas, China was allowed minimal 
transition periods, where it was considered necessary.  
1.7.  Even though the terms of China 's accession agreement are directed at the opening of China 's 
market to WTO members, China 's accession agreement also  includes provisions designed to 
address issues related to any injury that US or other WTO members ' industries and workers might 
experience based on import surges or unfair trade practices.  These mechanisms include (1) a 
special textile safeguard mechanism  (which expired on December 11, 2008, seven years after 
China 's WTO accession), (2) a unique, China -specific safeguard mechanism allowing a WTO 
member to restrain increasing Chinese imports that disrupt its market (which expired on 
11 December 2013, 12 yea rs after China 's WTO accession), (3) an expression of the ability of WTO 
members to use an antidumping methodology that is not based on a strict comparison with 
domestic prices or costs in China if the producers under investigation cannot clearly show that  
market economy conditions prevail in the industry producing the like product with regard to 
manufacture, production and sale of that product (which expired on 11 December 2016, 15 years 
after the date of China 's accession), and (4) an expression of the ab ility to use methodologies for 
identifying and measuring subsidy benefits to Chinese enterprises that are not based on terms and 
conditions prevailing in China.  The Administration is committed to maintaining the effectiveness of 
these mechanisms, to the ex tent that they remain available, for the benefit of affected US 
businesses, workers and farmers.  
1.8.  With China 's consent, the WTO also created a special multilateral mechanism for reviewing 
China 's compliance on an annual basis.  Known as the Transitional Rev iew Mechanism, this 
mechanism operated annually for eight years after China 's accession.  A final review, looking back 
over the first 10 years of China 's WTO membership, took place in year 10, i.e., 2011.  
2  OVERVIEW OF US ENGAGEMENT  
2.1  DIALOGUE  
2.1.1   Bilateral Engagement  
2.1.  In April 2017, at a summit meeting in Mar -a-Lago, Florida, President Trump and China 's 
President Xi agreed to the establishment of a new high -level dialogue structure for the United 
States and China, which included the CED, the Diplomatic and S ecurity Dialogue, the Law 
Enforcement and Cybersecurity Dialogue and the Social and Cultural Dialogue.  It was agreed that 
trade and investment issues would be addressed through the CED, whose mandate also extended 
to macroeconomic policy, financial stabili ty, currency and energy.   
2.2.  The CED was chaired on the US side by the Treasury Secretary and the Commerce Secretary 
and on the Chinese side by a Vice Premier, Wang Yang.  It supplanted two other high -level 
dialogues, the JCCT and the S&ED.   
2.3.  The United States and China had founded the JCCT in 1983 as a government -to-government 
consultative mechanism between the US Department of Commerce and a MOFCOM predecessor, WT/GC/W/746  
 
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  the Ministry of Foreign Economic Relations and Trade.  It was designed to provide a forum for 
discuss ing trade concerns and pursuing bilateral commercial opportunities.  In 2003, 
President  Bush and Premier Wen agreed to elevate the JCCT, with the Commerce Secretary and 
the US Trade Representative chairing the US side and a Vice Premier chairing the Chinese  side. 
The JCCT held plenary meetings on an annual basis, while a number of JCCT working groups and 
dialogues met throughout the year in areas such as industrial policies, competitiveness, intellectual 
property rights, structural issues, steel, agriculture , pharmaceuticals and medical devices, 
information technology, insurance, tourism, environment, commercial law, trade remedies and 
statistics.   
2.4.  The S&ED had been established by President Obama and Chinese President Hu in April 2009 
and at the time represen ted the highest -level bilateral forum between the United States and 
China.  The S&ED included separate strategic and economic tracks and held plenary meetings 
annually.   
2.5.  Discussions under the auspices of the CED began shortly after the Mar -a-Lago summit 
meeting, with the US side agreeing to China 's proposed 100 -day action plan.  One month later, in 
May 2017, the two sides agreed to certain initial results for this action plan, with each side giving 
five outcomes to the other side (see Appendix 3).  The outcome s for the US side largely focused on 
overdue actions by Chinese regulatory authorities, rather than any fundamental changes to China 's 
trade regime.  Specifically, China (1) agreed to resume imports of US beef and beef products on 
conditions consistent with international food safety and animal health standards, (2) committed to 
conduct science -based evaluations of eight long -pending US biotechnology product applications, 
(3) committed to allow wholly forei gn-owned financial services firms in China to provide credit 
rating services and to begin the licensing process for credit investigation services, (4) committed 
to allow wholly US-owned suppliers of electronic payment services (EPS) to begin the licensing 
process and (5) announced that it would issue bond underwriting and settlement licenses to two 
qualified US financial institutions.   
2.6.  At the same time, the United States agreed to five outcomes sought by China.  These 
outcomes related to the United States ' importation of China -origin cooked poultry, US exports of 
liquefied natural gas (LNG), swaps clearing, banking institutions ' regulatory treatment and certain 
foreign investment initiatives.   
2.7.  While China began taking action on its  commitments during the run -up to the first plenary 
meeting of the CED, scheduled for July 2017, it has not yet fully implemented its commitments 
relating  to beef market access, the approval of biotechnology product applications and the 
licensing of foreign EPS suppliers.  The United States was able to negotiate a protocol with China 
allowing beef shipments to resume, but China insisted on retaining conditions relating to 
veterinary drugs and hormones that are not consistent with international food safety and animal 
health standards.  In addition, to date, China has only approved four of the eight long -pending 
biotechnology product applications on which it had promised to take action.  Meanwhile, US EPS 
suppliers have submitted applications to begin the preparatory work that is a prerequi site to being 
able to secure a license to operate in China 's market, but their applications have not yet been 
granted.  
2.8.  The first plenary meeting of the CED took place in July 201 7, at the conclusion of the 
100 days allotted for the two sides ' action plan.  While the two sides discussed a number of issues 
in the run -up to that meeting, no new outcomes were achieved.  At the conclusion of the meeting, 
Secretaries Mnuchin and Ross and Vice Premier Wang Yang discussed a possible one -year action 
plan, although the y did not proceed to discuss the specific issues to be included as part of it.  
2.9.  In the months following the July 2017 CED meeting, China sought agreement on the issues 
that would be discussed in a one -year action plan.  However, after assessing the producti veness of 
the CED process, the Administration withheld agreement on a one -year action plan.   
2.10.   In November 2017, further discussions took place when Pre sident Trump met with 
President  Xi in Beijing.  The US side explained that it had no interest in engaging i n the types of 
bilateral discussions pursued in the CED and in past dialogues like the JCCT, the SED and the 
S&ED, which have only achieved isolated, incremental progress on problematic Chinese trade and 
investment barriers.  Instead, the United States made  clear that it is seeking fundamental changes WT/GC/W/746  
 
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  to China 's trade regime, including to the problematic industrial policies that have continued to 
dominate China 's state -led economy.  As the US side noted, these unacceptable industrial policies 
persist and cont inually evolve, as China seems determined to maintain the state 's leading role in 
the economy and to continue to pursue policies and practices that promote, guide and support 
domestic industries while simultaneously and actively seeking to impede, disadvan tage and harm 
their foreign counterparts.  The United States emphasized that China 's approach is incompatible 
with the market -based approach expressly envisioned by WTO members and contrary to the 
fundamental principles running throughout the many WTO agree ments.  
2.11.   Immediately after President Trump 's visit to Beijing, China made certain unilateral 
announcements.  Specifically, China stated that it would be taking steps to ease certain foreign 
investment restrictions in the banking, life insurance and securities  and asset management 
services sectors.  China also announced that it would cease imposing a discriminatory VAT on 
imports of DDGS from the United States and that it would gradually reduce its import tariffs on 
automobiles.  It remains to be seen whether Chi na will actually follow through on all of these 
promises.  
2.1.2   Multilateral Meetings  
2.12.   In 2017, as in prior years, the United States supplemented its bilateral engagement of 
China with active participation in meetings at the WTO addressing China and its adherence  to its 
WTO obligations.  Throughout the year, the United States raised China -related issues at regular 
meetings of WTO committees and councils.  In 2018, the United States will continue to raise China -
related issues at WTO meetings.   
2.13.   The United States also continued to participate actively in the Global Forum on Steel Excess 
Capacity, along with other G -20 members and interested members of the Organization for 
Economic Cooperation and Development (OECD).  The Global Forum is a cooperative platform for 
dialogu e and information -sharing on global capacity developments and on policies and support 
measures taken by governments, facilitated by the OECD Secretariat.  In 2017, Global Forum 
members examined subsidies and other types of government support that can cause market 
distortions and can contribute to global excess capacity, with a heavy focus on China, whose steel 
industry accounts for about one -half of global capacity and production.  Global Forum members 
also worked on developing effective steps to address the challenges of excess capacity in the steel 
industry so as to enhance market function and encourage adjustment.  
2.2  ENFORCEMENT  
2.14.   In August 2017, in response to a Presidential memorandum, USTR initiated an investigation 
under Section 301 of the Trade Act of 1974,  as amended, focused on policies and practices of the 
Government of China related to technology transfer, intellectual property and innovation.  In its 
initiation notice, USTR identified four categories of conduct that would be the subject of its inquiry.  
USTR explained that:  (1) the Chinese government reportedly uses a variety of tools (including 
opaque approval processes, joint venture requirements, foreign equity limitations and other 
mechanisms) to require or pressure the transfer of technologies and int ellectual property to 
Chinese companies; (2) the Chinese government reportedly deprives US companies of the ability 
to set market -based terms in licensing negotiations with Chinese companies; (3) the Chinese 
government reportedly intervenes in markets by d irecting or unfairly facilitating the acquisition of 
US companies and assets by Chinese companies to obtain cutting -edge technologies and 
intellectual property; and (4) the Chinese government reportedly conducts or supports 
unauthorized intrusions into US commercial computer networks or cyber -enabled theft.  The notice 
also explained that information submitted by interested parties on other concerning policies and 
practices of the Chinese government related to technology transfer, intellectual property and 
innovation would be considered.  The notice invited written comments and information from 
interested parties and scheduled a public hearing, which was held in October 2017.   
2.15.   The United States also continued to hold China accountable for adherence to WTO rule s in 
2017.  Key WTO cases being pursued by the United States are discussed below.   
2.16.   In December 2016, the United States launched a WTO case challenging China 's 
administration of tariff -rate quotas for rice, wheat and corn.  Due to China 's poorly defined crite ria WT/GC/W/746  
 
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  for applicants, unclear procedures for distributing TRQ allocations, and failure to announce quota 
allocation and reallocation results, traders are unsure of available import opportunities and 
producers worldwide have reduced market access opportunitie s. Consultations took place in 
February 2017.  A WTO panel was established to hear the case at the United States ' request in 
September 2017, and 17 other WTO members joined as third parties.  
2.17.   In September 2016, the United States initiated another case agains t China, challenging 
excessive government support for the production of rice, wheat and corn by farmers in China.  Like 
other WTO members, China committed to limit its support for producers of agricultural 
commodities.  China 's market price support programs for these agricultural commodities appear to 
provide support far exceeding the agreed levels.  This excessive support creates price distortions 
and creates an un -level playing field for US farmers.  In October 2016, consultations took place.  In 
January 2017,  a WTO panel was established to hear the case at the United States ' request, and 27 
other WTO members joined as third parties.  In 2018, hearings before the panel are expected to 
take place, and the panel is expected to issue its decision.   
2.18.   In July 2016, th e United States, joined by the EU, initiated a WTO case challenging export 
quotas and export duties maintained by China on various forms of 11 raw materials, including 
antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum and  tin. 
These raw materials are key inputs in important US manufacturing industries, including aerospace, 
automotive, construction and electronics.  China 's export restraints can skew the playing field 
against the United States and other countries by creating  substantial competitive benefits for 
downstream Chinese producers that use these materials as inputs in the production and export of 
further processed and finished products.  The export restraints also can create substantial pressure 
on US and other non -Chinese downstream producers to move their operations, jobs and 
technologies to China.  The export restraints appear to be inconsistent with China 's obligations 
under various provisions of the GATT 1994 and China 's accession agreement.  Joint consultations 
took place in September 2016.  A WTO panel was established to hear the case at the complaining 
parties ' request in November 2016, and 14 other WTO members joined as third parties.  Since 
then, China has been taking steps to eliminate the challenged export quota s and export duties.  
2.19.   In a WTO case initiated in September 2011, the United States successfully challenged 
China 's imposition of antidumping and countervailing duties on imports of certain US chicken 
products known as "broiler  products. " In the course of its AD and CVD investigations, China 's 
regulatory authorities imposed the duties at issue without necessary legal and factual support and 
without observing certain transparency and procedural fairness requirements, in violation of 
various WTO obligations u nder the AD Agreement and the Subsidies Agreement.  Consultations 
were held in October 2011.  A WTO panel was established to hear this case at the United States ' 
request in January 2012, and seven other WTO members joined the case as third parties.  Hearings 
before the panel took place in September and December 2012, and the panel issued its decision in 
August 2013, finding in favor of the United States on all significant claims.  China decided not to 
appeal the panel 's decision and subsequently agreed to come into compliance with the WTO 's 
rulings by July 2014.  China issued a redetermination in July 2014 that left the duties in place, but 
it appeared to be inconsistent with the WTO 's rulings.  In May 2016, the United States launched a 
challenge to China 's redete rmination in a proceeding under Article 21.5 of the DSU.  A hearing 
before the panel took place in April 2017, and the panel is expected to issue its decision in early 
2018.    
2.20.   In a WTO case initiated in September 2010, the United States challenged China 's 
restrictions on foreign suppliers of electronic payment services.  Suppliers like the major US credit 
card companies provide these services in connection with the operation of electronic networks that 
process payment transactions involving credit, debit, pre paid and other payment cards.  They also 
enable, facilitate and manage the flow of information and the transfer of funds from cardholders ' 
banks to merchants ' banks.  China 's regulatory regime places severe restrictions on foreign 
suppliers of electronic pay ment services.  Among other things, China prohibits foreign suppliers 
from handling the typical payment card transaction in China, in which a Chinese consumer is billed 
and makes payment in China 's domestic currency, known as the renminbi, or RMB.  Instead, China 
has created a national champion, allowing only one domestic entity, China Union Pay (CUP), to 
provide these services.  Consultations were held in October 2010.  A WTO panel was established to 
hear this case at the United States ' request in March 2011, and six other WTO members joined the 
case as third parties.  Hearings before the panel took place in October and December 2011, and the 
panel issued its decision in July 2012. The panel ruled that China 's commitments under the WT/GC/W/746  
 
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  General Agreement on Trade in Services (GATS) required China to allow foreign suppliers to 
provide electronic payment services for payment card transactions denominated in RMB through 
commercial presence in China on non -discriminatory terms.  China decided not to appeal the 
panel 's deci sion and subsequently agreed to come into compliance with the WTO 's rulings by 
July 2013.   
2.21.   To date, however, China has failed to come into compliance.  In October 2014, China 's State 
Council announced that China would be opening its market to foreign suppliers of electronic 
payment services, but delayed the issuance of a formal decision.  In April 2015, the State Council 
finally issued the formal decision setting forth the terms on which China would be opening its 
market to foreign suppliers of electron ic payment services.  In August 2015, the regulator, the 
People 's Bank of China (PBOC), issued draft licensing regulations, but it did not issue those 
regulations in final form until June 2016, during the S&ED meeting.  PBOC followed up with the 
issuance of additional guidance for potential applicants in October 2016 and June 2017.  Since 
then, US suppliers reportedly have filed applications to begin preparatory work, the first of two 
required steps in the PBOC licensing process, but to date PBOC has not yet t aken action to grant 
those applications.  Consequently, as of December 2017, over four years after China had promised 
to comply, US suppliers remained blocked from entering China 's market.  
2.22.   The final WTO case active in 2017 involved US challenges to market access restrictions 
maintained by China that restricted the importation and distribution of copyright -intensive 
products such as books, newspapers, journals, theatrical films, DVDs and music.  In this case, 
hearings before a WTO panel took place in 2008, and the panel issued its decision in August 2009, 
ruling in favor of the United States on every significant claim in the case.  China appealed the 
panel 's decision in September 2009.  The WTO 's Appellate Body rejected China 's appeal on al l 
counts in December 2009.  China agreed to come into compliance with the WTO 's rulings by March 
2011.  China subsequently issued several revised measures, and repealed other measures, relating 
to the market access restrictions on books, newspapers, journals , DVDs and music.  As China 
acknowledged, however, it did not issue any measures addressing theatrical films.  Instead, China 
proposed bilateral discussions with the United States in order to seek an alternative solution.   
2.23.   After months of negotiations, which  included discussions between the two sides ' Vice 
Presidents, the United States and China reached agreement in February 2012 on an MOU providing 
for substantial increases in the number of foreign films imported and distributed in China each 
year, substanti al additional revenue for foreign film producers and the opening up of film 
distribution opportunities for imported films.  To date, however, China has not yet fully 
implemented its MOU commitments, including with regard to critical commitments to open up f ilm 
distribution opportunities for imported revenue -sharing films.  In addition, US industry reports that 
China has been imposing an informal quota on the total number of US revenue -sharing films and 
flat-fee films that can be imported each year, which, if true, would undermine the terms of the 
MOU.  As a result, the United States has pressed China for full implementation of the MOU.   
2.24.   The films MOU provides that it will be reviewed in calendar year 2017 in order for the two 
sides to discuss issues of concern,  including additional compensation for the US side. At the 
November 2016 JCCT meeting, China agreed to begin discussions promptly in 2017.  China further 
promised that those discussions will seek to increase the number of revenue -sharing films to be 
importe d each year and the share of gross box office receipts received by US enterprises as well as 
seek to address outstanding US concerns relating to other policies and practices that may impede 
the US film industry 's access to China 's market, such as importati on rights, the number of 
distributors of imported films and the independence of distributors, among other issues.  In 2017, 
in accordance with the terms of the MOU, the two sides began discussions regarding the provision 
of further meaningful compensation t o the United States.   
3  CHINA 'S WTO COMPLIANCE  
Set forth below is a detailed analysis of the commitments that China made upon acceding to the 
WTO on 11 December, 2001, the progress that China has made in complying with those 
commitments and the United States ' efforts to address compliance concerns that have arisen as of 
December 2017.  
 WT/GC/W/746  
 
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  3.1  TRADING RIGHTS  
3.1.  Within the context of China 's WTO commitments, the concept of "trading  rights " includes two 
elements, i.e., the right to import goods (into China) and the right  to export goods (from China).  It 
does not include the right to sell goods within China, as that right is governed by separate 
commitments principally relating to "distribution  services " set forth in China 's Services Schedule 
(see the Distribution Services  section below).  Nevertheless, together with China 's distribution 
services commitments, China 's trading rights commitments call for the elimination of significant 
barriers to a wide range of US and other foreign industries doing business, or seeking to do 
business, in China.   
3.2.  Until shortly before its WTO accession, China severely restricted the number and types of 
enterprises that could import or export goods, and it also restricted the goods that a particular 
enterprise could import or export.  For the most  part, China confined trading rights to certain state -
owned manufacturing and trading enterprises, which could import or export goods falling within 
their approved scopes of business.  China also granted trading rights to certain foreign -invested 
enterprise s, allowing them to import inputs for their production purposes and export their finished 
products.  
3.3.  In its accession agreement, China committed to substantial liberalization in the area of 
trading rights.  Most importantly, China agreed to eliminate its sy stem of examination and approval 
of trading rights and make full trading rights automatically available for all Chinese enterprises, 
Chinese -foreign joint ventures, wholly foreign -owned enterprises and foreign individuals, including 
sole proprietorships, w ithin three years of its accession, or by December 11, 2004, the same 
deadline for China to eliminate most restrictions in the area of distribution services.  The only 
exceptions applied to products listed in an annex to China 's accession agreement, such as  grains, 
cotton and tobacco, for which China reserved the right to engage in state trading.   
3.4.  As previously reported, the NPC issued a revised Foreign Trade Law , which provided for 
trading rights to be automatically available through a registration process for all domestic and 
foreign entities and individuals, effective July 2004, while MOFCOM issued implementing rules 
setting out the procedures for registering as a foreign trade operator.  
Books, Movies and Music  
 
3.5.  Under the terms of China 's accession agreeme nt, trading rights for copyright -intensive 
products such as books, newspapers, journals, theatrical films, DVDs and music should have been 
automatically available to all Chinese enterprises, Chinese -foreign joint ventures, wholly foreign -
owned enterprises and foreign individuals as of December 11, 2004.  These products are not 
included in the list of products for which China reserved the right to engage in state trading.  
Nevertheless, China did not liberalize trading rights for these products.  China continue d to reserve 
the right to import these products to state trading enterprises, as reflected in a complex web of 
measures issued by numerous agencies, including the State Council, the State Administration of 
Radio, Film and Television (SARFT), MOFCOM, the ND RC, the Ministry of Culture, the General 
Administration of Press and Publication (GAPP) and the General Administration of Customs.   
3.6.  As previously reported, the United States initiated a WTO dispute settlement case against 
China in April 2007, challenging C hina's restrictions on the importation and distribution of 
copyright -intensive products such as books, newspapers, journals, theatrical films, DVDs and 
music.  The WTO panel established to hear this case issued its decision in August 2009, ruling in 
favor o f the United States on all significant claims.  China appealed the panel 's decision in 
September 2009, and the WTO 's Appellate Body rejected China 's appeal on all counts in 
December  2009.  China agreed to comply with these rulings by March 2011.  China subseq uently 
issued several revised measures, and repealed other measures, relating to the importation 
restrictions on books, newspapers, journals, DVDs and music.  However, China did not issue any 
measures addressing theatrical films and instead proposed bilater al discussions with the United 
States in order to seek an alternative solution.   
3.7.  After months of negotiations, which included discussions between the two sides ' Vice 
Presidents, the United States and China reached agreement in February 2012 on an MOU provi ding 
for substantial increases in the number of foreign films imported and distributed in China each WT/GC/W/746  
 
- 35 - 
 
  year, substantial additional revenue for US film producers and the opening up of film distribution 
opportunities for imported films.  The MOU provides that it will be reviewed after five years in order 
for the two sides to discuss issues of concern, including additional compensation for the US side.  
3.8.  To date, China has not yet fully implemented its MOU commitments, including with regard to 
critical commitment s to open up film distribution opportunities for imported revenue -sharing films.  
In addition, US industry reports that China has been imposing an informal quota on the total 
number of US revenue -sharing films and flat -fee films that can be imported each ye ar, which, if 
true, would undermine the terms of the MOU.   
3.9.  The films MOU provides that it will be reviewed in calendar year 2017 in order for the two 
sides to discuss issues of concern, including additional meaningful compensation for the US side. 
At the November 2016 JCCT meeting, China pledged that those discussions will seek to increase 
the number of revenue -sharing films to be imported each year and the share of gross box office 
receipts received by US enterprises as well as seek to address outs tanding US concerns relating to 
other policies and practices that may impede the US film industry 's access to China 's market, such 
as importation rights, the number of distributors of imported films and the independence of 
distributors, among other issues.  In 2017, in accordance with the terms of the MOU, the two sides 
began discussions regarding the provision of further meaningful com pensation to the United 
States.  
3.2  IMPORT REGULATION  
3.2.1   Tariffs  
3.10.   During its bilateral negotiations with interested WTO members lead ing up to its accession, 
China agreed to increase market access for US and other foreign companies by reducing tariff 
rates on industrial goods over a period of years running from 2002 through 2010.  The agreed 
reductions are set forth as tariff  "bindings " in China 's Goods Schedule, meaning that while China 
cannot exceed the bound tariff rates, it can decide to apply them at a lower rate, as many 
members do when trying to attract particular imports.  As previously reported, each year, China 
implemented its sc heduled tariff reductions on 1 January as required.   
3.11.   The annual tariff changes that China made following its WTO accession reduced tariffs on 
goods of greatest importance to US industry from a base average of 25 percent (in 1997) to 
approximately seven per cent, while it made similar reductions throughout the agricultural sector 
(see the Agriculture section below).   
3.12.   Despite the significant reductions in China 's tariffs that WTO members were able to 
negotiate with China in connection with its accession to the  WTO, China retains the right to impose 
relatively high tariffs on some products that compete with sensitive domestic industries.  For 
example, the tariff on most automobiles is 25 percent, and most audio and video recorders still 
face 30 percent tariffs.   
3.2.2   Customs and Trade Administration  
3.13.   Like other acceding WTO members, China agreed to take on the WTO obligations set forth in 
three agreements that address the means by which customs and other trade administration 
officials check imports and establish and ap ply relevant trade regulations.  These agreements cover 
the areas of customs valuation, rules of origin and import licensing.  
3.2.2.1   Customs Valuation  
3.14.   The WTO Agreement on the Implementation of GATT Article VII (Agreement on Customs 
Valuation) is designed to ensur e that determinations of the customs value for the application of 
duty rates to imported goods are conducted in a neutral and uniform manner, precluding the use 
of arbitrary or fictitious customs values.  Adherence to the Agreement on Customs Valuation is 
important for US exporters, particularly to ensure that market access opportunities provided 
through tariff reductions are not negated by unwarranted and unreasonable  "uplifts " in the 
customs value of goods to which tariffs are applied.  China agreed to impl ement its obligations 
under the Agreement on Customs Valuation upon accession, without any transition period.  In WT/GC/W/746  
 
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  addition, China 's accession agreement reinforces China 's obligation not to use minimum or 
reference prices as a means for determining customs v alue. It also called on China to implement 
the Decision on Valuation of Carrier Media Bearing Software for Data Processing Equipment and 
the Decision on Treatment of Interest Charges in Customs Value of Imported Goods by 
11 December 2003.  
3.15.   In September 2015 , China accepted the WTO Trade Facilitation Agreement (TFA), which 
includes provisions for expediting the movement, release and clearance of goods, including goods 
in transit. It also sets out measures for effective cooperation between customs and other 
appropriate authorities on trade facilitation and customs compliance issue.  By its terms, the TFA 
enters into force after two -thirds of the WTO membership have accepted it, a level that was 
reached in February 2017.  
3.16.   Notwithstanding these various commitments,  the United States continues to have significant 
concerns, as discussed below.  
Customs Clearance Procedures  
 
3.17.   US exporters continue to be concerned about inefficient and inconsistent customs clearance 
procedures in China.  These procedures vary from port to port, lengthy delays are not uncommon, 
and the fees charged appear to be excessive, giving rise to concerns about China 's compliance 
with its obligations under Article VIII of GATT 1994.  
Tariff Classifications  
 
3.18.   US industry notes that Chinese customs office rs appear to have wide discretion in classifying 
goods for tariff purposes, and their classifications sometimes appear to be arbitrary.  This lack of 
uniformity and predictability creates unnecessary challenges for US and other foreign companies 
seeking to export their goods to China.  
Customs Valuation Determinations  
 
3.19.   China has still not uniformly implemented the various customs valuation measures issued 
following its accession to the WTO.  US exporters continue to report that they are encountering 
valuation problems at many ports.  
3.20.   According to US exporters, even though the Customs Administration 's measures provide 
that imported goods normally should be valued on the basis of their transaction price, meaning the 
price the importer actually paid, many Chinese c ustoms officials are still improperly using  
"reference pricing, " which usually results in a higher dutiable value.  Indeed, it appears that the 
practice of using reference prices is increasing.  Imports of information technology products 
reportedly are often  subjected to reference pricing, as are other imported products, such as wood 
products.  
3.21.   In addition, some of China 's customs officials are reportedly not applying the rules set forth 
in the Customs Administration 's measures as they relate to software royal ties and license fees.  
Rather, following their pre -WTO accession practice, these officials are still automatically adding 
royalties and license fees to the dutiable value (for example, when an imported personal computer 
includes pre -installed software), ev en though the rules expressly direct them to add those fees 
only if they are import -related and a condition of sale for the goods being valued.  
3.22.   US exporters also have continued to complain that some of China 's customs officials are 
assessing duties on digi tal products based on the imputed value of the content, such as the data 
recorded on a floppy disk or CD -ROM.  China 's own regulations require this assessment to be made 
on the basis of the value of the underlying carrier medium, meaning the floppy disk or CD-ROM 
itself.  
3.23.   US exporters also have complained about the Customs Administration 's use of outdated and 
arbitrary pricing methodologies that do not take account of modern, complex supply chain models.  
In particular, according to these exporters, China 's customs officials do not seem to understand WT/GC/W/746  
 
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  transfer pricing, inbound and outbound bonded zone valuation, and customer rebates and sales 
discounts associated with modern supply chains.  
3.24.   The United States first presented its concerns about the customs valuatio n problems being 
encountered by US companies several years ago.  At that time, China indicated that it was working 
to establish more uniformity in its adherence to WTO customs valuation rules.  Since then, the 
United States has sought to assist in this effor t in part by conducting technical assistance 
programs for Chinese government officials on WTO compliance in the customs area.  The United 
States has also raised its concerns about particular customs valuation problems before the WTO 's 
Committee on Customs V aluation and during the WTO 's biannual Trade Policy Reviews of China, 
the most recent of which was held in July 2016.  At present, China still needs to improve its 
adherence to applicable customs valuation measures.  
3.2.2.2   Rules of Origin  
3.25.   Upon its accession to the  WTO, China became subject to the WTO Agreement on Rules of 
Origin, which sets forth rules designed to increase transparency, predictability and consistency in 
both the establishment and application of rules of origin, which are necessary for import and 
export purposes, such as determining the applicability of import quotas, determining entitlement 
to preferential or duty -free treatment and imposing antidumping or countervailing duties or 
safeguard measures, and for the purpose of confirming that marking re quirements have been met.  
The Agreement on Rules of Origin also provides for a work program leading to the multilateral 
harmonization of rules of origin.  This work program is ongoing, and China specifically agreed to 
adopt the internationally harmonized ru les of origin once they were completed.  In addition, China 
confirmed that it would apply rules of origin equally for all purposes and that it would not use rules 
of origin as an instrument to pursue trade objectives either directly or indirectly.  
3.26.   As previously reported, it took China nearly three years after its accession to the WTO for 
China 's State Council to issue the regulations  intended to bring China 's rules of origin into 
conformity with WTO rules for import and export purposes.  Shortly thereaf ter, the Customs 
Administration issued implementing rules addressing the issue of substantial transformation.  US 
exporters have not raised concerns with China 's implementation of these measures.  
3.2.2.3   Import Licensing  
3.27.   The Agreement on Import Licensing Procedures  (Import Licensing Agreement) establishes 
rules for all WTO members, including China, that use import licensing systems to regulate their 
trade.  Its aim is to ensure that the procedures used by members in operating their import 
licensing systems do not, in  themselves, form barriers to trade.  The objective of the Import 
Licensing Agreement is to increase transparency and predictability and to establish disciplines to 
protect an importer against unreasonable requirements or delays associated with the licensin g 
regime.  The Import Licensing Agreement covers both  "automatic " licensing systems, which are 
intended only to monitor imports, not regulate them, and  "non-automatic " licensing systems, 
which are normally used to administer import restrictions, such as tar iff-rate quotas, or to 
administer safety or other requirements, such as for hazardous goods, armaments or antiquities.  
While the Import Licensing Agreement 's provisions do not directly address the WTO consistency of 
the underlying measures that licensing s ystems might implement, they do establish the baseline of 
what constitutes a fair and non -discriminatory application of import licensing procedures.  In 
addition, China specifically committed not to condition the issuance of import licenses on 
performance r equirements of any kind, such as local content, export performance, offsets, 
technology transfer or research and development, or on whether competing domestic suppliers 
exist.  
3.28.   Shortly after China acceded to the WTO, the Ministry of Foreign Trade and Econom ic 
Cooperation (MOFTEC), the predecessor to MOFCOM, issued regulations revising China 's automatic 
import licensing regime, and it later supplemented these regulations with implementing rules.  
MOFTEC also issued regulations revising China 's non -automatic li censing regime.   
3.29.   Nevertheless, a variety of specific compliance issues continue to arise.  In 2017, these 
included a new import ban on recoverable wastes (discussed below in the section on Standards, 
Technical Regulations and Conformity Assessment Procedure s), the administration of the tariff -rate WT/GC/W/746  
 
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  quota system for fertilizer (discussed below in the section on Tariff -rate Quotas on Industrial 
Goods), the administration of the tariff -rate quota system for certain agricultural commodities 
(discussed below in th e section on Tariff -rate Quotas on Bulk Agricultural Commodities), various 
SPS measures (discussed below in the section on Sanitary and Phytosanitary Issues) and 
inspection -related requirements for soybeans, meat, poultry, pork and dairy products (discusse d 
below in the section on Inspection -Related Requirements).  
3.2.3   Non-tariff Measures  
3.30.   In its WTO accession agreement, China agreed that it would eliminate numerous trade -
distortive non -tariff measures (NTMs), including import quotas, licenses and tendering 
requirements covering hundreds of products.  Most of these NTMs, including, for example, the 
NTMs covering chemicals, agricultural equipment, medical and scientific equipment and civil 
aircraft, had to be eliminated by the time that China acceded to the WTO.  China committed to 
phase out other NTMs, listed in an annex to the accession agreement, over a transition period 
ending on January 1, 2005.  These other NTMs included import quotas on industrial goods such as 
air conditioners, sound and video recording appar atuses, color TVs, cameras, watches, crane 
lorries and chassis, and motorcycles as well as licensing and tendering requirements applicable to 
a few types of industrial goods, such as machine tools and aerials.  
3.31.   As previously reported, China 's import quota s ystem was beset with problems, despite 
consistent bilateral engagement by the United States.  Some of the more difficult problems were 
encountered with the auto import quota system, resulting at times in significant disruption of 
wholesale and retail operat ions for imported autos.  However, China did fully adhere to the agreed 
schedule for the elimination of all of its import quotas as well as all of its other NTMs, the last of 
which China eliminated in January 2005.  
Import Ban on Remanufactured Products  
 
3.32.   China prohibits the importation of remanufactured products, which it typically classifies as 
used goods.  China also maintains restrictions that prevent remanufacturing process inputs (known 
as cores) from being imported into China 's customs territory, except special economic zones.  
These import prohibitions and restrictions undermine the development of industries in many 
sectors in China, including mining, agriculture, healthcare, transportation and communications, 
among others, because companies in these indu stries are unable to purchase high -quality, lower -
cost remanufactured products produced outside of China.  
3.33.   China 's import prohibitions and restrictions remain a serious problem and US companies ' 
activities remain severely restricted.  To help address this p roblem, the United States has convened 
annual US-China Remanufacturing Dialogues, which include relevant government and industry 
stakeholders from both countries as participants.  In addition, the United States has continued to 
press China to lift its impor t prohibitions and to expand the scope of remanufacturing activity 
allowed to be conducted in China through other bilateral engagement.  
3.2.4   Tariff -rate Quotas on Industrial Products  
3.34.   In its WTO accession agreement, China agreed to implement a system of TRQs de signed to 
provide significant market access for three industrial products, including fertilizer, a major US 
export.  Under this TRQ system, a set quantity of imports is allowed at a low tariff rate, while 
imports above that level are subject to a higher tar iff rate.  In addition, the quantity of imports 
allowed at the low tariff rate increases annually by an agreed amount.  China 's accession 
agreement specifies detailed rules, requiring China to operate its fertilizer TRQ system in a 
transparent manner and dic tating precisely how and when China is obligated to accept quota 
applications, allocate quotas and reallocate unused quotas.  
3.35.   As previously reported, since China began implementing its TRQ system for fertilizer in 
2002, it has not functioned smoothly.  Despi te repeated bilateral engagement and multilateral 
engagement at the WTO, including formal consultations with China in Geneva under the headnotes 
in China 's Goods Schedule, concerns about inadequate transparency and administrative guidance 
have persisted.  US fertilizer exports to China declined sharply after China acceded to the WTO, as 
separate Chinese government policies promoting domestic fertilizer – including export duties WT/GC/W/746  
 
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  (discussed below in the Export Regulation section) and discriminatory internal ta xes (discussed 
below in the Taxation section) – appear to have made it difficult for foreign producers to compete 
in China 's market.  
3.2.5   Other Import Regulation  
3.2.5.1   Antidumping  
3.36.   At the time of its accession to the WTO, China agreed to revise its regulations and 
procedures for AD proceedings to make them consistent with the AD Agreement.  That agreement 
sets forth detailed rules prescribing the manner and basis on which a WTO member may take 
action to offset the injurious dumping of products imported from another WTO member.  China also 
agreed to provide for judicial review of determinations made in its AD investigations and reviews.  
3.37.   Currently, China has in place 88 AD measures, affecting imports from 15 countries or 
regions.  China also has 19 AD investigations in progr ess. The greatest systemic shortcomings in 
China 's AD practice continue to be in the areas of transparency and procedural fairness.  In 
addition, as discussed below, in recent years, China has invoked AD and CVD remedies under 
troubling circumstances.  In response, the United States has pressed China both bilaterally and in 
WTO meetings to adhere strictly to WTO rules in the conduct of its AD investigations, and the 
United States has consistently pursued WTO litigation where necessary.  
Legal Regime  
 
3.38.   Under Chi na's AD regime, until 2014, MOFCOM 's Bureau of Fair Trade for Imports and 
Exports (BOFT) was charged with making dumping determinations, and MOFCOM 's Bureau of 
Industry Injury Investigation (IBII) was charged with making injury determinations.  In 2014, 
MOFCOM consolidated BOFT and IBII into a new entity, the Trade Remedy and Investigation 
Bureau (TRIB), which makes both dumping and injury determinations.  In cases where the subject 
merchandise is an agricultural product, the Ministry of Agriculture may be in volved in the injury 
investigation.  The State Council Tariff Commission continues to make the final decision on 
imposing, revoking or retaining AD duties, based on recommendations provided by the TRIB, 
although its authority relative to MOFCOM has not been  clearly defined in the regulations and rules 
since MOFCOM was established.  
3.39.   China continues to add new regulations and rules to its AD legal framework, although not all 
of these measures have been notified to the WTO in a timely manner.  In July 2009, MOFCO M 
solicited public comments on draft revisions of its rules on new shipper reviews, AD duty refunds 
and price undertakings.  In August 2015 and April 2017, MOFCOM solicited public comments on 
draft revisions of its rules regarding AD and CVD investigation h earings, interim reviews of AD 
margins and AD investigation questionnaires.  To date, however, China still has not finalized 
revisions to any of these rules.  Once finalized, China is obligated to notify these revised rules to 
the WTO so that all Members hav e an opportunity to review the rules for compliance with the AD 
Agreement and seek any needed clarifications.   
3.40.   Meanwhile, another area generating concern involves expiry reviews.  China has still not 
issued any regulations specifically establishing the rule s and procedures governing expiry reviews.  
In May 2013, MOFCOM solicited public comments on rules concerning the implementation of WTO 
rulings in trade remedy cases.  While purportedly final, these rules have not yet been notified to 
the WTO.   
Conduct of An tidumping Investigations  
 
3.41.   In practice, it appears that China 's conduct of AD investigations continues to fall short of full 
commitment to the fundamental tenets of transparency and procedural fairness embodied in the 
AD Agreement.  In 2017, respondents from  the United States and other WTO members continued 
to express concerns about key lapses in transparency and procedural fairness in China 's conduct of 
AD investigations.  The principal areas of concern include the inadequate disclosure of key 
documents place d on the record by domestic Chinese producers, insufficiently detailed disclosures 
of the essential facts underlying MOFCOM decisions, such as dumping margin calculations, 
evidence supporting injury and dumping conclusions, and MOFCOM not adequately addres sing WT/GC/W/746  
 
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  critical arguments or evidence put forward by interested parties.  These aspects of China 's AD 
practice have been challenged by the United States in the WTO cases involving grain -oriented 
electrical steel (GOES), chicken broiler products and automobile s. In each of the cases, the WTO 
has upheld US claims relating to transparency and procedural fairness.  
3.42.   The United States and other WTO members have also expressed serious concerns about 
China 's evolving practice of launching AD and CVD investigations tha t appear designed to 
discourage the United States or other trading partners from the legitimate exercise of their rights 
under WTO AD and CVD rules and the trade remedy provisions of China 's accession agreement.  
This type of retaliatory conduct is not typi cal of WTO members, and it may have its roots in 
China 's Foreign Trade Law and AD and CVD implementing regulations, which authorize  
"corresponding countermeasures " when China believes that a trading partner has discriminatorily 
imposed antidumping or count ervailing duties against imports from China. Further, when China 
has pursued investigations under these circumstances, it appears that its regulatory authorities 
have tended to move forward with the imposition of duties regardless of the strength of the 
underlying legal and factual support.  The United States ' successful WTO cases challenging the 
duties imposed by China on imports of US GOES, US chicken broiler products and US automobiles 
offer telling examples of this problem.  
3.43.   The United States initiated the GOES WTO case in September 2010, claiming that China 's 
regulatory authorities appeared to have imposed the duties at issue without necessary legal and 
factual support and without observing certain transparency and procedural fairness requirements, 
in violation of various WTO obligations under the AD Agreement and the Subsidies Agreement.  
Consultations were held in November 2010.  A WTO panel was established to hear this case at the 
United States ' request in March 2011, and eight other WTO members joined the case as third 
parties.  Hearings before the panel took place in September and December 2011.  The panel issued 
its decision in June 2012, finding in favor of the United States on all significant claims.  China 
appealed the panel 's decision in July 2012.  The WTO 's Appellate Body rejected China 's appeal in 
October 2012, and China subsequently agreed to come into compliance with the WTO 's rulings by 
July 2013.  China issued a redetermination in July 2013, but it appeared to be inconsistent with the 
WTO's rulin gs. In January 2014, the United States launched a challenge to China 's redetermination 
in a proceeding under Article 21.5 of the DSU.  This compliance challenge was the first one that any 
WTO member had initiated to challenge a claim by China that it had co mplied with adverse WTO 
findings.  A hearing before the panel took place in October 2014.  MOFCOM terminated the duties at 
issue in April 2015, and the panel issued its decision in July 2015, confirming, as the United States 
had argued, that MOFCOM 's redeter mination did not comply with the WTO 's rulings.  
3.44.   In September 2011, the United States initiated a WTO case challenging the antidumping 
and countervailing duties that China imposed on imports of certain US chicken products known as 
"broiler  products. " Once again, in the course of its AD and CVD investigations, China 's regulatory 
authorities appeared to have imposed the duties at issue without necessary legal and factual 
support and without observing certain transparency and procedural fairness requirements, in 
violation of various WTO obligations under the AD Agreement and the Subsidies Agreement.  
Consultations were held in October 2011.  A WTO panel was established to hear this case at the 
United States ' request in January 2012, and seven other WTO members jo ined the case as third 
parties.  Hearings before the panel took place in September and December 2012, and the panel 
issued its decision in August 2013, finding in favor of the United States on all significant claims.  
China decided not to appeal the panel 's decision and subsequently agreed to come into compliance 
with the WTO 's rulings by July 2014.  China issued a redetermination in July 2014 that left the 
duties in place, but it appeared to be inconsistent with the WTO 's rulings.  In May 2016, the United 
States launched a challenge to China 's redetermination in a proceeding under Article 21.5 of the 
DSU. A hearing before the panel took place in April 2017, and the panel is expected to issue its 
decision in early 2018.  
3.45.   In July 2012, the United States initiated  a WTO case challenging China 's imposition of 
antidumping and countervailing duties on imports of certain US automobiles.  Again, China 's 
regulatory authorities appeared to have imposed the duties at issue without necessary legal and 
factual support and wit hout observing certain transparency and procedural fairness requirements, 
in violation of various WTO obligations under the AD Agreement and the Subsidies Agreement.  
Consultations took place in August 2012.  A WTO panel was established to hear this case in 
October  2012, and eight other WTO members joined the case as third parties.  Hearings before the 
panel took place in June 2013 and then in October 2013.  Two months later, in December 2013, WT/GC/W/746  
 
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  China terminated the duties at issue.  In May 2014, the panel issued its decision, finding in favor of 
the United States on all significant claims.  
3.46.   The United States and the US polysilicon industry also have been concerned about the 
antidumping and countervailing duties that China imposed on imports of US polysilicon in 201 4, 
about 13 months after the United States imposed antidumping and countervailing duties on 
imports of Chinese solar modules and cells following investigations initiated at the request of US 
solar products industry.  In 2017, as the US and Chinese solar pro ducts and polysilicon industries 
continued to discuss possible resolutions of this matter, the United States continued to make clear 
that any resolution of this matter must address the Chinese duties on imports of US polysilicon.  In 
April 2017, the US solar products industry petitioned for global safeguard relief, apparently in 
response to the Chinese solar products industry establishing significant new production facilities in 
other countries in Asia in order to avoid the United States ' antidumping and cou ntervailing duties 
on imports from China.  The US International Trade Commission issued its determination in 
November 2017, in which it made an affirmative finding of serious injury and recommended 
various types of import relief.  Following the issuance of t hat dete rmination, the President has 
60 days to make his decision regarding appropriate import relief.  
3.47.   Throughout 2017, the United States also continued to work closely with US companies 
subject to Chinese AD investigations in an effort to help them bette r understand the Chinese 
system.  In addition, the United States advocated on their behalf in connection with ongoing AD 
investigations, with the goal of obtaining fair and objective treatment for them, consistent with the 
AD Agreement.   
3.48.   In addition, the Un ited States continued to engage China vigorously on the various concerns 
generated by China 's AD practices, including systemic concerns in the areas of transparency and 
procedural fairness.  The United States also raised concerns about China 's apparent deci sions to 
use AD and CVD remedies against US imports as a means to discourage the United States from 
the legitimate exercise of its rights under WTO AD and CVD rules and the trade remedy provisions 
of China 's accession agreement.  In addition to pursuing lit igation at the WTO to address these 
concerns, as discussed above, the United States has engaged China during meetings before the 
WTO's AD Committee.  
3.49.   Meanwhile, as China 's AD regime has matured, many of the AD orders put in place have 
reached the five -year mark, warranting expiry reviews.  MOFCOM is currently conducting five 
expiry reviews, two of which involve products from the United States.  Every expiry review 
involving US products to date has resulted in the measure at issue being extended.  Given the 
problems that respondents have encountered in China 's AD investigations, it is critical that China 
publish rules and procedures specifically governing the conduct of expiry reviews, as required by 
the AD Agreement.  The United States has repeatedly pressed Chi na to issue regulations governing 
expiry reviews and will continue to do so.   
Evasion of Duties  
 
3.50.   In past years, the United States has raised concerns before the WTO Antidumping 
Committee about the proliferation of so -called "evasion  services. " These servic es are offered to 
exporters and importers to assist them with evading the application of antidumping duties and 
countervailing duties imposed by WTO Members.  Many of the businesses providing these services 
are Chinese companies seeking to assist exporters and importers evade the application of 
antidumping duties and countervailing duties imposed by the United States.  Efforts to evade the 
application of antidumping duties and countervailing duties undermine the effectiveness of the 
WTO Antidumping Agreement and Subsidies Agreement and, more generally, erode confidence in 
the international trading system.   
3.51.   In February 2016, the United States enacted legislation establishing a new, enhanced 
mechanism in the United States for investigating claims of duty evasion . US Customs and Border 
Protection followed up with the issuance of implementing regulations in August 2016.  
3.52.   Going forward, the United States will continue to raise awareness of this problem at the 
WTO.  It also will continue to seek the cooperation of other WTO members, including China, to help 
counter and eliminate this problem.  WT/GC/W/746  
 
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  3.2.5.2   Countervailing Duties  
3.53.   In its WTO accession agreement, China committed to revising its regulations and procedures 
for conducting CVD investigations and reviews by the time of i ts accession to make them 
consistent with the Subsidies Agreement.  The Subsidies Agreement sets forth detailed rules 
prescribing the manner and basis on which a WTO member may take action to offset the injurious 
subsidization of products imported from anot her WTO member.  Although China did not separately 
commit to provide judicial review of determinations made in CVD investigations and reviews, 
Subsidies Agreement rules require independent review.  
3.54.   China initiated its first CVD investigations in 2009.  Each o f these investigations involved 
imports of products from the United States – GOES, chicken broiler products and automobiles – 
and were initiated concurrently with AD investigations of the same products.  As discussed above in 
the Antidumping section, China initiated these CVD investigations under troubling circumstances.  
China also appears to have committed significant methodological errors that raise concerns, in 
light of Subsidies Agreement rules.  In addition, many of the concerns generated by China 's AD 
practice with regard to transparency and procedural fairness also apply to these CVD 
investigations.  In response, the United States has pressed China both bilaterally and in WTO 
meetings to adhere strictly to WTO rules in the conduct of its CVD investigatio ns, and the United 
States has pursued WTO litigation to address the problems with China 's imposition of duties on 
imports of GOES, chicken broiler products and automobiles from the United States, as discussed 
below.  
Legal Regime  
 
3.55.   As previously reported, Ch ina has put in place much of the legal framework for its CVD 
regime.  Under this regime, like in the AD area, MOFCOM 's TRIB is charged with making both 
subsidy and injury determinations.  
3.56.   China 's regulations and procedural rules generally track those found i n the Subsidies 
Agreement, although there are certain areas where key provisions are omitted or are vaguely 
worded.  In addition, China has not yet issued regulations specifically establishing the rules and 
procedures governing expiry reviews.   
3.57.   Since China 's accession, the United States and other WTO members have sought 
clarifications on a variety of issues concerning China 's regulatory framework and have pressed 
China for greater transparency both during regular meetings and the annual transitional reviews 
before the WTO 's Subsidies Committee.  The United States will continue to seek clarifications as 
needed in 2017.  
Conduct of Countervailing Duty Investigations  
 
3.58.   MOFCOM  initiated China 's first CVD investigation in June 2009.  This investigation addressed 
alleged subsidies being provided to the US GOES industry, concurrently with MOFCOM 's AD 
investigation of imports of GOES from the United States.  Later that year, MOFCOM initiated 
additional CVD investigations involving imports of chicken broiler products and au tomobiles from 
the United States, along with concurrent AD investigations.  
3.59.   These three CVD investigations, along with two additional ones involving imports of US 
polysilicon initiated in July 2012 and imports of US dried distillers ' grains initiated in Jan uary 2016, 
make clear that, as in the AD area, China needs to improve its transparency and procedural 
fairness when conducting these investigations.  In addition, the United States has noted procedural 
concerns specific to China 's conduct of CVD investigati ons. For example, China initiated 
investigations of alleged subsidies that raised concerns, given the requirements regarding  
"sufficient evidence " in Article 11.2 of the Subsidies Agreement.  The United States is also 
concerned about China 's application of facts available under Article 12.7 of the Subsidies 
Agreement.  In addition, as in the AD area, the United States has expressed serious concerns about 
China 's pursuit of AD and CVD remedies that appear intended to discourage the United States and 
other trading partners from the legitimate exercise of their rights under WTO AD and CVD rules 
and the trade remedy provisions of China 's accession agreement.   WT/GC/W/746  
 
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  3.60.   As discussed above in the Antidumping section, in September 2010, the United States 
initiated – and later won – a WTO case challenging the final AD and CVD determinations in China 's 
GOES investigations because China 's regulatory authorities appeared to have imposed the duties 
at issue without necessary legal and factual support and without observing cert ain transparency 
and procedural fairness requirements, in violation of various WTO obligations under the AD 
Agreement and the Subsidies Agreement.  For similar reasons, the United States initiated a second 
WTO case in September 2011 challenging the final AD  and CVD determinations in China 's chicken 
broiler products investigations and won that case, too.  The United States initiated a third WTO 
case in July 2012 challenging the final AD and CVD determinations in China 's automobiles 
investigations.  Again, the U nited States won.  
3.61.   In addition to pursuing WTO dispute settlement, the United States has raised its concerns 
bilaterally with MOFCOM, principally though the JCCT Trade Remedies Working Group, as well as at 
the WTO in meetings before the Subsidies Committee.  The United States also has actively 
participated in MOFCOM 's CVD investigations and will continue to do so, as envisioned by WTO 
rules, in order to safeguard the interests of US industry.  Going forward, the United States will 
continue to impress upon Chin a the importance of strictly adhering to WTO rules when conducting 
CVD investigations and imposing countervailing duties.  
3.2.5.3   Safeguards  
3.62.   In its WTO accession agreement, China committed to revising its regulations and procedures 
for conducting safeguard investi gations by the time of its WTO accession in order to make them 
consistent with the WTO Agreement on Safeguards (Safeguards Agreement).  That agreement 
articulates rules and procedures governing WTO members ' use of safeguard measures.   
Legal Regime  
 
3.63.   While th e provisions of China 's regulations and procedural rules generally track those of the 
Safeguards Agreement, there are some potential inconsistencies, and certain omissions and 
ambiguities remain.  In addition, some provisions do not have any basis in the Sa feguards 
Agreement.  In earlier transitional reviews before the WTO 's Committee on Safeguards, the United 
States noted several areas of potential concern, including transparency, determination of 
developing country status, treatment of non -WTO members, prot ection of confidential data, access 
to non -confidential information, refunding of safeguard duties collected pursuant to provisional 
measures when definitive measures are not imposed, and the conditions governing the extension 
of a safeguard measure.  
Condu ct of Safeguards Investigations  
 
3.64.   To date, China has completed two safeguard proceedings.  Both of these proceedings 
resulted in the imposition of import relief.  
3.65.   Fifteen years ago, in November 2002, China imposed tariff -rate quotas on imports of nine 
categor ies of steel products from various countries, including the United States.  Although US 
companies exported little of this merchandise to China, there were complaints from interested 
parties that China 's process for allocating quotas under the safeguard meas ures was unclear, 
making it difficult for them to determine the quota available and obtain a fair share.  China 
terminated the safeguard measures in December 2003.  
3.66.   In September 2016, China launched a safeguard investigation of sugar imports.  According 
to some reports, the Chinese government set minimum prices at which it would purchase sugar 
from Chinese farmers under its market price support program too high in recent years, causing 
Chinese prices to climb above international price levels and leading to a s trong flow of imports.  
China appears to have timed its safeguard investigation so that it would be able to impose import 
relief before the government unloads the excessive sugar reserves that it has built up.  While US 
companies export relatively little sug ar to China, concern has been expressed that China 's 
safeguard investigation of sugar imports could set a precedent for more strategically important 
grains, where China is struggling to reduce large reserves accumulated over the past few years as 
the gover nment bought at above -market prices.  China imposed import relief in May 2017, as it 
adjusted its existing TRQ for sugar by nearly doubling the out -of-quota tariff rate.  WT/GC/W/746  
 
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  3.3  EXPORT REGULATION  
3.67.   Upon acceding to the WTO, China took on the obligations of Article XI  of the GATT 1994, 
which generally prohibits WTO members from maintaining export restraints (other than duties, 
taxes or other charges), although certain limited exceptions are allowed.  China also agreed to 
eliminate all taxes and charges on exports, inclu ding export duties, except as included in Annex 6 
to its WTO accession agreement or applied in conformity with Article VIII of GATT 1994.  
Article  VIII of GATT 1994 only permits fees and charges limited to the approximate cost of services 
rendered and makes  clear that any such fees and charges shall not represent an indirect 
protection to domestic products or a taxation of exports for fiscal purposes.  
3.68.   As in prior years, China maintains numerous export restraints despite the prohibitions set 
forth in the GATT  1994 and the specific commitments that China made in its WTO accession 
agreement.  These export restraints distort trade in raw materials as well as intermediate and 
downstream products.  
Export Restraints on Raw Materials  
 
3.69.   Following its accession to the WT O, China continued to impose restraints on exports of raw 
materials, including export quotas, related export licensing and bidding requirements, minimum 
export prices and export duties, as China 's economic planners continued to guide the development 
of dow nstream industries.  These export restraints were widespread.  For example, China 
maintained some or all of these types of export restraints on antimony, bauxite, coke, fluorspar, 
indium, lead, magnesium carbonate, manganese, molybdenum, phosphate rock, rare  earths, 
silicon, silicon carbide, talc, tin, tungsten, yellow phosphorus and zinc, all of which are of key 
interest to US downstream producers.  
3.70.   These types of export restraints can significantly distort trade, and for that reason WTO 
rules normally outla w them.  In the case of China, the trade -distortive impact can be exacerbated 
because of the size of China 's production capacity.  Indeed, for many of the raw materials at issue, 
China is the world 's leading producer.   
3.71.   China 's export restraints affect US and other foreign producers of a wide range of 
downstream products, such as steel, chemicals, hybrid and electric cars, energy efficient light 
bulbs, wind turbines, hard -disk drives, magnets, lasers, ceramics, semiconductor chips, 
refrigerants, medical im agery, aircraft, refined petroleum products, fiber optic cables and catalytic 
converters, among numerous others.  The export restraints can create serious disadvantages for 
these foreign producers by artificially increasing China 's export prices for their r aw material inputs, 
which also drives up world prices.  At the same time, the export restraints can artificially lower 
China 's domestic prices for the raw materials due to significant increases in domestic supply, 
enabling China 's domestic downstream produc ers to produce lower -priced products from the raw 
materials and thereby creating significant advantages for China 's domestic downstream producers 
when competing against foreign downstream producers both in the China market and in other 
countries ' markets.  The export restraints can also create pressure on foreign downstream 
producers to move their operations, technologies and jobs to China.  
3.72.   As previously reported, the United States began raising its concerns about China 's continued 
use of export restraints s hortly after China 's WTO accession, while also working with other WTO 
members with an interest in this issue, including the EU and Japan.  In response to these efforts, 
China refused to modify its policies in this area.  In fact, over time, China 's economic planners 
expanded their use of export restraints and made them increasingly restrictive, particularly on raw 
materials.  
3.73.   In June 2009, the United States and the EU initiated a WTO case challenging export quotas, 
export duties and other restraints maintained  by China on the export of several key raw material 
inputs for which China is a leading world producer.  The materials at issue include bauxite, coke, 
fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.  
Mexico became  a co-complainant in August 2009.  
3.74.   At the time of the initiation of this case, China 's treatment of coke, a key steel input, 
provided a clear example of the trade distortions engineered by China 's export restraints.  In 2008, WT/GC/W/746  
 
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  China produced 336 million MT o f coke, but it limited exports of coke to 12 million MT and 
additionally imposed 40 percent duties on coke exports.  The effects of the export restraints on 
pricing were dramatic.  In August 2008, the world price for coke reached $740 per MT at the same 
time that China 's domestic price was $472 per MT.  This $268 per MT price difference created a 
huge competitive advantage for China 's downstream steel producers over their foreign 
counterparts, as coke represents about one -third of the input costs for integrate d steel producers.   
3.75.   A WTO panel and the Appellate Body rejected China 's defenses, which had attempted to 
portray China 's export restraints as conservation or environmental protection measures or 
measures taken to manage critical shortages of supply, and fo und in favor of the United States 
and its co -complainants on all significant claims, ruling that the export restraints at issue were 
inconsistent with China 's WTO obligations.  China subsequently agreed to come into compliance 
with the WTO 's rulings by the end of December 2012.  China took timely steps to remove the 
export quotas and export duties on the raw materials at issue, while imposing export licensing 
requirements on a subset of those materials.  Since then, the United States has been closely 
examining  China 's export licensing regime to ensure that it operates automatically and does not 
distort trade.  
3.76.   While the United States was prosecuting this first WTO case on export restraints, China 's 
export restraints on rare earths – a collection of 17 different chemical elements used in a variety 
of green technology products, among other products – began to generate significant concern 
among China 's trading partners.  At the time, China controlled about 97 percent of the global rare 
earths market and had been impo sing increasingly restrictive export quotas and export duties on 
rare earth ores, oxides and metals.   
3.77.   In March 2012, when it had become clear that China would not abandon its use of export 
restraints on rare earths and certain other raw materials in the fa ce of further US engagement, the 
United States, joined by the EU and Japan, initiated a WTO case challenging export quotas, export 
duties and other restraints maintained by China on the export of rare earths, tungsten and 
molybdenum.  These materials are ke y inputs in a multitude of US-made products, including not 
only a variety of green technology products, such as hybrid car batteries, wind turbines and 
energy -efficient lighting, but also steel, advanced electronics, automobiles, petroleum and 
chemicals.  The export restraints appeared to be inconsistent with China 's obligations under various 
provisions of the GATT 1994 and China 's accession agreement.   
3.78.   As in the first WTO case on export restraints, a WTO panel and the Appellate Body rejected 
China 's defenses and found in favor of the United States and its co -complainants on all significant 
claims, ruling that the export restraints at issue were inconsistent with China 's WTO obligations.  
China subsequently agreed to come into compliance with the WTO 's rulings by May 2015, and it 
later announced that it had eliminated the export quotas and export duties at issue by that 
deadline.   
3.79.   In July 2016, the United States, joined by the EU, initiated a third WTO case challenging 
export quotas and export duties mai ntained by China.  This case addresses the export of various 
forms of 11 raw materials, including antimony, chromium, cobalt, copper, graphite, indium, lead, 
magnesia, talc, tantalum and tin.  These raw materials are key inputs in important US 
manufacturing industries, including aerospace, automotive, construction and electronics.  The 
export restraints at issue appear to be inconsistent with China 's obligations under various 
provisions of the GATT 1994 and China 's accession agreement.  Joint consultations took  place in 
September 2016.  A WTO panel was established to hear the case at the complaining parties ' 
request in November 2016, and 14 other WTO members joined the case as third parties.   
Border Tax Policies  
 
3.80.   China 's economic planners attempt to manage the e xport of many primary, intermediate 
and downstream products by raising or lowering the VAT rebate available upon export and 
sometimes by imposing or retracting export duties.  With VAT rebates ranging from zero to 
17 percent and export duties typically rang ing from zero to 40 percent, these border tax practices 
have caused tremendous disruption, uncertainty and unfairness in the global markets for the 
affected products – particularly when these practices operate to incentivize the export of 
downstream produc ts for which China is a leading world producer or exporter such as steel, 
aluminum and soda ash.  WT/GC/W/746  
 
- 46 - 
 
  3.81.   Typically, the objective of China 's border tax adjustments is to make larger quantities of 
primary and intermediate products in a particular sector available d omestically at lower prices than 
the rest of the world, giving China 's downstream producers of finished products using these inputs 
a competitive advantage over foreign downstream producers.  To accomplish this objective, China 
discourages the export of the  relevant primary and intermediate products by reducing or 
eliminating VAT rebates and perhaps also imposing export duties on them, resulting in increased 
domestic supply and lower domestic prices.  China 's downstream producers, in turn, benefit not 
only fr om these lower input prices but also from full VAT rebates when they export their finished 
products.  
3.82.   In some situations, China has also used its border taxes to encourage the export of certain 
finished products over other finished products within a particu lar sector.  For example, in the past, 
China has targeted value -added steel products, particularly wire products and steel pipe and tube 
products, causing a surge in exports of these products, many of which ended up in the US market.   
3.83.   For several years, the  United States and other WTO members have raised broad concerns 
about the trade -distortive effects of China 's VAT export rebate and export duty practices, including 
through each of the biannual Trade Policy Reviews of China at the WTO, including the most r ecent 
one held in July 2016, as well as through many of the annual transitional reviews before the 
Committee on Market Access and the Council for Trade in Goods.  Bilaterally, the United States also 
has raised broad concerns about the trade -distortive effec ts of China 's variable VAT export rebate 
practices in connection with multiple JCCT and S&ED meetings.  Through this engagement, the 
United States highlighted in particular the harm being caused to specific US industries, including 
steel, aluminum and soda ash.  
3.84.   To date, China has stated that its eventual goal is to provide full VAT rebates for all exports 
like other WTO members with VAT systems.  In addition, at the December 2012 JCCT meeting, 
China agreed to begin holding serious discussions with the United  States in order to work toward a 
mutual understanding of China 's VAT system and the concepts on which a trade -neutral VAT 
system is based.  Subsequently, at the July 2014 S&ED meeting, China pledged to improve its 
value -added tax rebate system, including b y actively studying international best practices, and to 
deepen communication with the United States on this matter, including regarding its impact on 
trade.  Despite these commitments, China has taken no steps to abandon its use of trade -distortive 
VAT exp ort rebates and to adopt a trade -neutral VAT system.  
3.4  INTERNAL POLICIES AFFECTING TRADE  
3.4.1   Non-discrimination  
3.85.   In its WTO accession agreement, China agreed to assume the obligations of GATT 1994, the 
WTO agreement that establishes the core principles that const rain and guide WTO members ' 
policies relating to trade in goods.  The two most fundamental of these core principles are the 
most-favored nation (MFN), or non -discrimination, rule – referred to in the United States as 
"normal  trade relations " – and the rule of national treatment.  
3.86.   The MFN rule (set forth in Article I of GATT 1994) attempts to put the goods of all of an 
importing WTO member 's trading partners on equal terms with one another by requiring the same 
treatment to be applied to goods of any origin.  It generally provides that if a WTO member grants 
another country 's goods a benefit or advantage, it must immediately and unconditionally grant the 
same treatment to imported goods from all WTO members.  This rule applies to customs duties and 
charges of an y kind connected with importing and exporting.  It also applies to internal taxes and 
charges, among other internal measures.  
3.87.   The national treatment rule (set forth in Article III of GATT 1994) complements the MFN 
rule. It is designed to put the goods of a n importing WTO member 's trading partners on equal 
terms with the importing member 's own goods by requiring, among other things, that a WTO 
member accord no less favorable treatment to imported goods than it does for like domestic 
goods.  Generally, once im ported goods have passed across the national border and import duties 
have been paid, the importing WTO member may not subject those goods to internal taxes or 
charges in excess of those applied to domestic goods.  Similarly, with regard to measures affecti ng WT/GC/W/746  
 
- 47 - 
 
  the internal sale, purchase, transportation, distribution or use of goods, the importing WTO 
member may not treat imported goods less favorably than domestic goods.  
3.88.   In its WTO accession agreement, China agreed to repeal or revise all laws, regulations a nd 
other measures that were inconsistent with the MFN rule upon accession.  China also confirmed 
that it would observe this rule with regard to all WTO members, including separate customs 
territories, such as Hong Kong, Macau and Taiwan.  In addition, China undertook to observe this 
rule when providing preferential arrangements to foreign -invested enterprises within special 
economic areas.  With regard to the national treatment rule, China similarly agreed to repeal or 
revise all inconsistent laws, regulations  and other measures.  China also specifically acknowledged 
that its national treatment obligation extended to the price and availability of goods or services 
supplied by government authorities or state -owned enterprises, as well as to the provision of 
inputs and services necessary for the production, marketing or sale of finished products.  Among 
other things, this latter commitment precludes dual pricing, i.e., the practice of charging foreign or 
foreign -invested enterprises more for inputs and related servi ces than Chinese enterprises.  China 
also agreed to ensure national treatment in respect of certain specified goods and services that 
had traditionally received discriminatory treatment in China, such as boilers and pressure vessels 
(upon accession), after sales service (upon accession), and pharmaceuticals, chemicals and spirits 
(one year after accession).  
3.89.   As previously reported, China reviewed its pre -WTO accession laws and regulations and 
revised many of those which conflicted with its WTO MFN and nationa l treatment obligations in 
2002 and 2003.  However, since then, concerns have arisen regarding China 's observation of MFN 
and national treatment requirements in some areas.  
Made in China 2025 Industrial Plan  
 
3.90.   In May 2015, China 's State Council released Made  in China 2025 , a 10 -year plan 
spearheaded by the MIIT and targeting 10 strategic industries, including  advanced information 
technology, automated machine tools and robotics, aviation and spaceflight equipment, maritime 
engineering equipment and high -tech vessels, advanced rail transit equipment, NEVs, power 
equipment, farm machinery, new materials, biopharmaceuticals and advanced medical products.  
While ostensibly intended simply to raise industrial productivity through more advanced and 
flexible manufactu ring techniques, Made in China 2025  is emblematic of China 's evolving and 
increasingly sophisticated approach to  "indigenous innovation, " which is evident in numerous 
supporting and related industrial plans.  Their common, overriding aim is to replace forei gn 
technology with Chinese technology in the China market through any means possible so as to 
ready Chinese companies for dominating international markets.  
3.91.   Made in China 2025  seeks to build up Chinese companies in the 10 targeted, strategic 
industries at t he expense of, and to the detriment of, foreign industries and their technologies 
through a multi -step process over 10 years.  The initial goal of Made in China 2025  is to ensure, 
through various fair and unfair means, that Chinese companies develop, extrac t or acquire their 
own technology, IP and know -how and their own brands.  The next goal of Made in China 2025  is 
to substitute domestic technologies, products and services for foreign technologies, products and 
services in the China market.  The final goal o f Made in China 2025  is to capture much larger 
worldwide market shares in the 10 targeted, strategic industries.   
3.92.   Many of the policy tools being used by the Chinese government to achieve the goals of 
Made in China 2025  raise serious concerns.  These tools a re largely unprecedented, as other WTO 
members do not use them, and include a wide array of state intervention and support designed to 
promote the development of Chinese industry in large part by restricting, taking advantage of, 
discriminating against or otherwise creating disadvantages for foreign enterprises and their 
technologies, products and services.  Indeed, even facially neutral measures are likely to be applied 
in favor of domestic enterprises, as past experience has shown, especially at sub -centra l levels of 
government.  
3.93.   There are many other similar industrial policies being pursued by the Chinese government.  
Examples include the Integrated Circuit Industry Plan  issued in 2014, the 13th Five -Year Plan  
issued in 2016, the National Informatization Dev elopment Plan  issued in 2016 and the Artificial 
Intelligence Plan issued in 2017, among others.   WT/GC/W/746  
 
- 48 - 
 
  3.94.   All of these plans have their roots in China 's National Medium - and Long -Term Plan for the 
Development of Science and Technology (2006 -2020)  (MLP),  issued in 2006, which is China 's state 
planners ' key blueprint for ensuring that China 's policies and practices inure mainly to China 's 
advantage, not to other countries.  It followed soon after the Communist Party Central Committee 's 
elevation of  "indigenous innovat ion" to a strategy level, equal to Deng Xiaoping 's "reform and 
opening up " policy.  The MLP set in motion a web of laws, policies and actions intended to create 
Chinese indigenous intellectual property and technology by introducing, digesting, absorbing and  
re-innovating foreign intellectual property and technology through measures like the Several 
Opinions on Encouraging Technology Introduction and Innovation and Promoting the 
Transformation of the Growth Mode in Foreign Trade . 
Strategic Emerging Industries  
 
3.95.   One of the key ongoing initiatives from which Made in China 2025 evolved was unveiled by 
China 's state planners in 2010.  In the Decision of the State Council on Accelerating the Cultivation 
and Development of Strategic Emerging Industries, China announce d a new high -level government 
plan to rapidly spur innovation in seven high -technology sectors dubbed the strategic emerging 
industries (SEIs).  This measure established an early, broad framework for  "developing and 
cultivating " innovation in energy efficie nt environmental technologies, next generation information 
technology, biotechnology, high -end equipment manufacturing, new energy, new materials and 
NEVs.  The subsequently issued National 12th Five -year Plan for the Development of Strategic 
Emerging Indus tries defined SEI sectors, set priorities, and recommended fiscal and taxation policy 
support.   
3.96.   By 2012, China had issued additional policy documents and catalogues explaining the 
development priorities for key technologies and products considered to be SEIs, identifying specific 
sub-sectors, technologies and products in each SEI sector, and setting forth a variety of specific 
policies and support measures designed to spur development in each sub -sector.  One of these 
documents, a catalogue issued by MIIT,  instructed sub -central government authorities to identify 
firms, technologies and measures supporting the central government 's SEI initiative, listed 
relevant companies and research and development units for each sub -sector and further indicated 
that the list should be used by other Chinese government ministries to "issue  targeted supporting 
fiscal and taxation policies. " Only a very small number of companies listed had any foreign 
investment, as the list was dominated by Chinese -invested companies, partic ularly state -owned 
enterprises and domestic national champions.   
3.97.   By January 2013, China had created a central government -level support fund for SEI 
development while encouraging local governments to establish their own local SEI support funds.  
Sub-central government transparency varies greatly, and in many provinces very limited 
information on the SEI initiative is publicly available.   
3.98.   Since the unveiling of China 's SEI plan in 2010, the United States has voiced strong 
concerns over the direction of some of  China 's SEI policy development, particularly with regard to 
policies that discriminate against US firms or their products, encourage excessive government 
involvement in determining market winners and losers, encourage technology transfer, are 
targeted at exports or tied to localization or the use of domestic intellectual property, or could lead 
to injurious subsidization.   
3.99.   In January 2015, China announced a new SEI development fund that raised concerns about 
procurement preferences for both Chinese governm ent agencies and state -owned enterprises, as 
well as strong support for national champions and the inclusion of Chinese IP or R&D localization 
requirements.  This new fund and other new policies direct billions of dollars of investment into key 
Chinese indu stries.  At the June 2015 S&ED meeting, China committed that its industry 
development plans and investment funds for SEIs are available on an equal basis for foreign -
invested enterprises, and that China will strengthen the transparency of these plans and fu nds. 
Since then, however, little has changed, and new problems have emerged.   
3.100.   In the meantime, the United States has continued to press China about its problematic 
policies.  For example, the United States has continued its efforts to address problems that had 
begun to arise after China 's economic planners decided that the Chinese auto industry should 
focus on developing expertise in manufacturing NEVs, which include alternative fuel vehicles such 
as electric, fuel cell and bio -diesel vehicles.  As discussed below in the Investment section, China WT/GC/W/746  
 
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  has pursued policies in support of both NEVs and NEV batteries that, among other things, appear 
to discriminate against imported NEVs and NEV batteries and have generated serious concerns in 
light of China 's WTO oblig ations.  
National Integrated Circuit Fund  
 
3.101.   In the past two years, in an area of growing concern, China has increased its efforts to 
develop and expand an indigenous semiconductor, or integrated circuit (IC), industry.  Through the 
Integrated Circuit Promotio n Guidelines  announced in June 2014, China began moving 
aggressively to implement a comprehensive plan, which calls for government -directed funding in 
the tens of billions of dollars.  This funding includes an initial $21 billion National Integrated Circuit  
Fund, significant amounts of additional funding in several dozen regional IC investment funds, and 
state-owned bank loan financing to domestic Chinese semiconductor firms. The funds appear 
largely directed at the subsidization of Chinese -owned companies a nd the acquisition of foreign 
semiconductor companies and assets throughout the supply chain in order to increase Chinese 
industry 's competitiveness and control over key technologies.  Even though these funds have 
become increasingly active in the past two years, China has publicly disclosed very few details 
regarding the funds ' investment policies, governance structures, funding sources, relationships 
with central and sub -central government authorities or the criteria for investing in or receiving 
investmen t from the funds.   
3.102.   The United States pressed China at the November 2015 JCCT meeting, the June 2016 
S&ED meeting and the November 2016 JCCT meeting to ensure that China 's various industry 
development funds for semiconductors operate in a transparent, nondi scriminatory and market -
based manner free from government intervention.  The United States also sought assurances from 
China that it would not impose compulsory technology or IPR transfer conditions on participation in 
the funds ' investment projects.  While China provided the United States with the requested 
commitments and assurances, little seems to have changed in the operation of the funds.  
Other Areas  
 
3.103.   US industries report that China continues to apply the value -added tax in a manner that 
unfairly disc riminates between imported and domestic goods, both through official measures and 
on an ad hoc basis, as discussed below in the Taxation section.  In addition, China 's industrial 
policies on automobiles, including NEVs, and steel call for discrimination aga inst foreign producers 
and imported goods, as discussed below in the Investment section.  It also appears that China has 
applied sanitary and phytosanitary measures in a discriminatory manner since it acceded to the 
WTO, as discussed below in the Agricultur e section, while concerns about discriminatory treatment 
also remain prevalent in a variety of services sectors, as discussed below in the Services section.  
Additionally, various aspects of China 's legal framework, such as China 's extensive use of 
administ rative licensing, create opportunities for Chinese government officials to treat foreign 
companies and foreign products less favorably  than domestic companies and domestic products, 
as discussed below in the Other Legal Framework Issues section.  The United  States has sought to 
address these and other MFN and national treatment issues with China, both bilaterally and in 
WTO meetings, and will continue to do so.  
3.4.2   Taxation  
3.104.   China committed to ensure that its laws and regulations relating to taxes and charges 
levied on imports and exports would be in full conformity with WTO rules upon accession, 
including, in particular, the MFN and national treatment provision s of Articles I and III of 
GATT  1994.  
3.105.   Since China 's WTO accession, certain aspects of China 's taxation s ystem have raised 
national treatment concerns under Article III of GATT 1994.  Some of these taxation issues have 
been resolved through WTO dispute settlement.  Other taxation issues remain, however.   
Fertilizer VAT  
 
3.106.   China has used VAT policies to benefit do mestic fertilizer production.  In July 2001, the 
Ministry of Finance (MOF) and the State Administration of Taxation (SAT) issued a circular WT/GC/W/746  
 
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  exempting all phosphate fertilizers except diammonium phosphate (DAP) from a 13 percent VAT.  
DAP, a product that the United States exports to China, competes with similar phosphate fertilizers 
produced in China, particularly monoammonium phosphate.   
3.107.   The United States raised this issue bilaterally with China soon after it acceded to the WTO 
and in many subsequent bilatera l meetings, including high -level meetings.  The United States has 
also raised this issue at the WTO in meetings before the Committee on Market Access.  To date, 
China has not eliminated its discriminatory treatment of DAP.   
3.108.   Meanwhile, a larger concern for US fertilizer exporters remains the rapid expansion of 
China 's domestic fertilizer production.  This expanded production, which appears to have been 
brought on in part by China 's export duties on phosphate rock, a key fertilizer input, has saturated 
China 's market with low -priced fertilizer and greatly reduced demand for imported fertilizer.  
VAT Irregularities  
 
3.109.   Several US industries have continued to express concerns more generally about the unfair 
operation of China 's VAT system.  They report that Chinese pro ducers are often able to avoid 
payment of the VAT on their products, either as a result of poor collection procedures, special 
deals or even fraud, while the full VAT still must be paid on competing imports.  In discussions with 
Chinese government officials  on this issue, the United States has raised its serious concerns about 
the de facto  discriminatory treatment accorded to foreign products, while also continuing to 
emphasize the value to China of a properly functioning VAT system as a revenue source.  
Bord er Trade  
 
3.110.   China 's border trade policy also continues to generate MFN and other concerns.  China 
provides preferential import duty and VAT treatment to certain products, often from Russia, 
apparently even when those products are not confined to frontier t raffic as envisioned by 
Article  XXIV of GATT 1994.  China began to address these concerns in 2003 shortly after acceding 
to the WTO when it eliminated preferential treatment for boric acid and 19 other products.  
However, several other products continue to bene fit from preferential treatment.  During past 
meetings before the WTO 's Council for Trade in Goods, the United States has urged China to 
eliminate the preferential treatment for these remaining products.  
3.4.3   Subsidies  
3.111.   Upon its accession to the WTO, China agreed  to assume the obligations of the WTO 
Subsidies Agreement, which addresses not only the use of CVD measures by individual WTO 
members (see the section above on Import Regulation, under the heading of Countervailing 
Duties), but also a government 's use of s ubsidies and the application of remedies through 
enforcement proceedings at the WTO.  As part of its accession agreement, China committed that it 
would eliminate, by the time of its accession, all subsidies prohibited under Article 3 of the 
Subsidies Agreem ent, which includes subsidies contingent on export performance (export 
subsidies) and subsidies contingent on the use of domestic over imported goods (import 
substitution subsidies).  
3.112.   China also agreed to various special rules that apply when other WTO memb ers pursue the 
disciplines of the Subsidies Agreement against Chinese subsidies, either in individual WTO 
members ' CVD proceedings or in WTO enforcement proceedings.  These rules address the 
identification and measurement of Chinese subsidies and also gover n the actionability of subsidies 
provided to state -owned enterprises in China.  
Subsidies Notification  
 
3.113.   As previously reported, following repeated pressure from the United States and other WTO 
members, China submitted its first subsidies notification to the  WTO's Subsidies Committee in 
April 2006, nearly five years late.  Although the notification reported on more than 70 subsidy 
programs, it was also notably incomplete, as it failed to notify any subsidies provided by provincial 
and local government authorit ies or any subsidies provided by state -owned banks, whether in the 
form of preferential loans, debt forgiveness or otherwise.  In addition, while China notified several WT/GC/W/746  
 
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  subsidies that appear to be prohibited, it did so without making any commitment to withd raw 
them, and it failed to notify other subsidies that appear to be prohibited.  
3.114.   Following the submission of China 's 2006 subsidies notification, the United States devoted 
additional time and resources to monitoring and analyzing China 's subsidy practices, and these 
efforts helped to identify significant omissions in China 's subsidies notification.  These efforts also 
made clear that provincial and local governments play an important role in implementing China 's 
industrial policies, including through subsidiz ation of enterprises, much of which is misdirected into 
sectors with excess capacity, such as steel and aluminum.  
3.115.   In the ensuing years, the United States repeatedly raised concerns about China 's 
incomplete subsidies notification and identified numerous un reported subsidies both in bilateral 
meetings and in meetings before the Subsidies Committee as well as during the WTO 's Trade 
Policy Reviews of China.  At the October 2009 meeting of the Subsidies Committee, China indicated 
that it would finalize a second subsidies notification in the coming months while noting that this 
notification would again not include any subsidies provided by provincial and local government 
authorities.  China reiterated this same pledge a year later at the October 2010 meeting of the  
Subsidies Committee.  
3.116.   In response to these unfulfilled promises from China, the United States pressed China on 
this issue through the filing of a "counter  notification " under Article 25.10 of the Subsidies 
Agreement in October 2011.  In this counter notifi cation, the United States identified more than 
200 unreported subsidy measures that China maintained, including many emanating from 
provincial and local government authorities.  Shortly after the United States filed its counter 
notification, China finally s ubmitted the new subsidies notification that it had been promising.  
Unfortunately, China 's new notification covered only the period from 2005 to 2008, and it again 
failed to notify a single subsidy administered by provincial or local governments.  In additi on, the 
central government subsidies included in the new notification were largely the same partial listing 
of subsidies as those notified in China 's 2006 notification.  The new notification also did not include 
any significant programs related to key industries, such as steel and aluminum, and only included 
a small number of the more than 200 subsidy measures identified in the US counter notification.  
As a result, China 's new notification was again far from complete.  
3.117.   In 2012, the United States continued to highlight China 's failure to abide by its important 
transparency obligations under the Subsidies Agreement.  For example, both bilaterally and before 
the Subsidies Commit tee, the United States regularly noted that China should have submitted its 
subsidies notification for the period 2009 -2010 in July 2011 and its subsidies notification for the 
period 2010 -2012 in July 2013.  In addition, in connection with the October 2012 meeting of the 
Subsidies Committee, the United States submitted a written request for information pursuant to 
Article 25.8 of the Subsidies Agreement in which it provided  evidence of 110 central government 
and sub -central government subsidy measures that C hina had not yet notified, including, for 
example, various stimulus programs for steel, non -ferrous metals, semiconductors, aircraft and 
fish implemented in response to the global financial crisis in 2008.   
3.118.   In April 2014, the United States submitted anothe r request for information pursuant to 
Article 25.8.  This request covered extensive subsidies provided by China in support of its so -called 
"strategic  emerging industries, " including over 60 subsidy measures at the central, provincial, 
county and city level s of government, covering industries such as electric vehicles, specialized 
steel, semiconductors, high -end equipment manufacturing and medical technology.   
3.119.   Despite the obligation of WTO members to answer ques tions posed pursuant to 
Article  25.8"as quickly  as possible and in a comprehensive manner, " China failed to provide 
substantive answers to the questions set forth in the United States ' 2012 and 2014 Article 25.8 
requests for information.  Accordingly, in October 2014, the United States submitted a count er 
notification under Article 25.10 of the Subsidies Agreement.  This counter notification addressed 
the same 110 Chinese subsidy measures that were the subject of the United States ' 2012 
Article  25.8 submission.  Similarly, after China failed to answer the United States ' 2014 Article 25.8 
questions on its strategic emerging industries programs, the United States submitted a counter 
notification in October 2015.  This counter notification addressed the same 60 subsidy measures 
that were the subject of the Unit ed States ' 2014 Article 25.8 submission.  WT/GC/W/746  
 
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  3.120.   In 2015, the United States also submitted another written request for information pursuant 
to Article 25.8 of the Subsidies Agreement.  This submission addressed fisheries subsidies provided 
by China at central and sub-central levels of government.  The subsidies at issue were set forth in 
nearly 40 measures and included a wide range of subsidies, including:  fishing vessel acquisition 
and renovation grants; a 100 -percent corporate income tax exemption; grants for new fishing 
equipment; subsidies for insurance; subsidized loans for processing facilities; fuel subsidies; and 
the preferential provision of water, electricity and land. Once again, when China did not respond to 
these questions, the United States was compelle d to submit a counter notification covering the 
same measures.   
3.121.   In October 2015, China did submit a new subsidies notification, covering the period from 
2009 to 2014.  As in its two previous subsidy notifications, this notification was far from complete, 
and it included numerous programs that should not have been notified as subsidies, such as 
programs for poverty alleviation, the disabled and HIV medication.  Consequently, China 's 
notification suffers from both significant under -reporting and over -reporting.  
3.122.   In July 2016, China submitted its first subsidy notification that included sub -central 
government subsidy programs since becoming a WTO member in 2001.  Unfortunately, the number 
and range of sub -central government subsidy programs covered represent a very  small sample of 
the programs administered at the sub -central levels of government.  Moreover, notifying a program 
several years after its implementation, or after a program has been terminated, as is the case with 
most of the reported sub -central governmen t subsidy programs, contributes little to the 
transparency of China 's subsidies regime.  
3.123.   In April 2017, the United States submitted another counter notification under Article 25.10 
of the Subsidies Agreement.  This counter notification addressed China 's Inte rnationally Well -
Known Brand program, pursuant to which China has provided subsidies that appear to be 
contingent upon exportation and therefore prohibited under Article 3.1(a) of the Subsidies 
Agreement.  
3.124.   In total, taking into account all of the US counte r notifications, the United States has now 
submitted counter notifications of approximately 500 Chinese subsidy measures.  To date, China 
has included in its subsidy notifications only a small number of the subsidy programs identified in 
those counter notif ications, and China has refused to engage in bilateral discussions to address the 
subsidy measures that it has failed to notify.  
3.125.   In 2018, the United States will continue to research and analyze the various forms of 
financial support that China at all level s of government provides to manufacturers and exporters in 
China, including in the steel, aluminum, green technology, semiconductor and fisheries sectors, 
among other sectors, and assess whether the support being provided is consistent with WTO rules.  
The United States will also continue to raise its concerns with China 's subsidies practices in 
bilateral meetings with China.  In addition, before the WTO 's Subsidies Committee, the United 
States will continue to press China to submit more complete and timely subsidies notifications.  
Prohibited Subsidies  
 
3.126.   Immediately after China submitted its first subsidies notification in April 2006, the United 
States began seeking changes to China 's subsidies practices.  As previously reported, after bilateral 
dialogue failed  to resolve the matter, the United States, together with Mexico, initiated WTO 
dispute settlement proceedings against China in February 2007, challenging tax -related subsidies 
that took the form of both export subsidies, which make it more difficult for US manufacturers to 
compete against Chinese manufacturers in the US market and third -country markets, and import 
substitution subsidies, which make it more difficult for US manufacturers to export their products 
to China.  China subsequently agreed to and did  eliminate all of th e subsidies at issue by 
January  2008.  
3.127.   After bringing the WTO case challenging China 's tax -related prohibited subsidies, the 
United States developed information that appeared to show that China may have been attempting 
to use prohibited subsidies outside its taxation system in an effort to increase the market share of 
numerous Chinese brands in markets around the world.  Many of these subsidies appeared to be 
provided by provincial and local governments seeking to implement central governm ent directives WT/GC/W/746  
 
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  found in umbrella programs, such as the  "Famous Export Brand " program and the  "World Top 
Brand " program.  These subsidies appeared to offer significant payments and other benefits tied to 
qualifying Chinese companies ' exports.  The United Stat es also developed information about several 
other export subsidies apparently provided by sub -central governments independent of the two 
brand programs.  As previously reported, after unsuccessfully pressing China to withdraw these 
subsidies, the United Sta tes, together with Mexico, initiated a WTO dispute settlement proceeding 
against China in December 2008.  Guatemala became a co -complainant in January 2009.  Joint 
consultations were held in February 2009, followed by intense discussions as China took steps to 
repeal or modify the numerous measures at issue.  In December 2009, the parties concluded a 
settlement agreement in which China confirmed that it had eliminated all of the export -contingent 
benefits in the challenged measures.   
3.128.   In December 2010, followin g an investigation in response to  a petition filed under 
section  301 of the Tariff Act of 1974, as amended, USTR announced the filing of a WTO case 
challenging what appeared to be prohibited import substitution subsidies being provided by the 
Chinese gover nment to support the production of wind turbine systems in China.  Specifically, the 
United States challenged subsidies being provided by the Chinese government to manufacturers of 
wind turbine systems that appeared to be contingent on the use of domestic o ver imported 
components and parts.  Consultations were held in February 2011. Following consultations, China 
issued a notice invalidating the measures that had created the subsidy program at issue.  
3.129.   In September 2012, the United States initiated a WTO case c hallenging numerous 
subsidies provided by the central government and various sub -central governments in China to 
automobile and automobile -parts enterprises located in regions in China known as  "export bases. " 
These subsidies appeared to be inconsistent wi th China 's obligation under Article 3 of the Subsidies 
Agreement not to provide subsidies contingent upon export performance.  In addition, the United 
States challenged the apparent failure of China to abide by WTO transparency obligations requiring 
it to p ublish the measures at issue in an official journal, to make translations of them available in 
one or more WTO languages and to notify them to the Subsidies Committee.  Consultations were 
held in November 2012.  The two sides subsequently engaged in further discussions, as China 
began to take steps to address US concerns.  
3.130.   In February 2015, the United States launched a further WTO case challenging numerous 
Chinese central government and sub -central government export subsidies provided to 
manufacturers and producers across seven industries located in designated clusters of enterprises 
called  "Demonstration Bases. " These subsidies operated in a similar way to the subsidies at issue 
in the export bases case and therefore appeared to be inconsistent with China 's obligation under 
Article 3 of the Subsidies Agreement not to provide subsidies contingent upon export performance.  
Consultations took place in March 2015.  In April 2015, a WTO panel was established to hear the 
case at the United States ' request, and the two sides subsequently engaged in further discussions 
exploring steps for China to take to address US concerns.  In April 2016, the United States 
announced that China had terminated the subsidies at issue pursuant to a memorandum of 
unders tanding.  
Serious Prejudice Subsidies  
 
3.131.   In a new case launched on January 12, 2017, the United States challenged certain 
subsidies provided by the Chinese government to producers of primary aluminum.  The case seeks 
to address US concerns that China 's subsidi es appear to have caused  "serious prejudice " to US 
interests within the meaning of WTO subsidy rules by artificially expanding Chinese capacity, 
production and market share and by causing a significant lowering in the global price for primary 
aluminum.  Consultations have not yet taken place in this case.  
US CVD Investigations  
 
3.132.   Concerns about China 's subsidies practices led the US paper industry to file a petition with 
the Commerce Department in October 2006 requesting the initiation of a CVD investigation based 
on allegations of subsidized imports of coated free sheet paper from China causing injury in the US 
market.  As previously reported, in the ensuing investigation, the Commerce Department changed 
its longstanding policy of not applying US CVD law to Ch ina or any other country considered a  
"non-market economy " for AD purposes.  The Commerce Department began applying US CVD law 
to China after finding that reforms to China 's economy in recent years had removed the obstacles WT/GC/W/746  
 
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  to applying the CVD law that were  present in the "Soviet -era economies " at issue when the 
Commerce Department first declined to apply the CVD law to non -market economies in the 1980s.  
3.133.   Since then, many other US industries, including the steel, textiles, chemicals, solar panels, 
tires and paper industries, among others, have expressed concern about the injurious effects of 
various Chinese subsidies in the US market as well as in China and third -country markets, leading 
to the filing of additional CVD petitions, together with companion AD pe titions.  In response, the 
Commerce Department has initiated CVD investigations of imports of Chinese passenger vehicle 
and light truck tires, dry 53 -foot containers, boltless shelving, chlorinated isocyanurates, calcium 
hypochlorite,  tetrafluoroethane, off -road tires, oil country tubular goods and various other types of 
steel pipe, laminated woven sacks, magnets, thermal paper, citric acid, kitchen racks and shelves, 
lawn groomers, pre -stressed concrete wire strand, steel grating, wire decking, narrow woven  
ribbons, carbon bricks, coated paper for high -quality print graphics, steel fasteners, phosphate 
salts, drill pipe, aluminum extrusions, multilayered wood flooring, steel wheels, galvanized steel 
wire, high pressure steel cylinders, photovoltaic cells and  modules, wind towers, drawn stainless 
steel sinks, plywood, frozen warm water shrimp, melamine, GOES, non -oriented electrical steel, 
hot-rolled steel, cold -rolled steel, corrosion -resistant steel, cut -to-length steel plate, integral 
geogrid products, ammo nium sulfate, 1 -hydroxyethylidene -1, 1-diphosphonic acid, amorphous 
silica fabric, stainless steel flanges, cold -drawn mechanical tubing, aluminum foil, fine denier 
polyester staple fiber, tool chests and cabinets, cast iron soil pipe fittings and forged s teel fittings.  
The subsidy allegations investigated have involved preferential loans, income tax and VAT 
exemptions and reductions, the provision of goods and services on non -commercial terms, among 
other subsidies provided by the central government, along  with a variety of provincial and local 
government subsidies.   
3.4.4   Price Controls  
3.134.   In its WTO accession agreement, China agreed that it would not use price controls to 
restrict the level of imports of goods or services.  In addition, in an annex to the agreement , China 
listed the limited number of products and services remaining subject to price control or 
government guidance pricing, and it provided detailed information on the procedures used for 
establishing prices.  China agreed that it would try to reduce the number of products and services 
on this list and that it would not add any products or services to the list, except in extraordinary 
circumstances.   
3.135.   In 2017, China continued to maintain price controls on several products and services 
provided by both state -owned enterprises and private enterprises.  Published through the China 
Economic Herald and NDRC 's website, these price controls may be in the form of either absolute 
mandated prices or specific pricing policy guidelines as directed by the government.  Products and 
services subject to government -set prices include pharmaceuticals, tobacco, natural gas and 
certain telecommunications services.  Products and services subject to government guidance prices 
include gasoline, kerosene, diesel fuel, fertilizer, cotto n, edible oils, various grains, wheat flour, 
various forms of transportation services, professional services such as engineering and 
architectural services, and certain telecommunications services.  
3.136.   The United States obtained additional information about C hina's use of price controls in 
connection with the Trade Policy Reviews of China at the WTO, he ld in April 2006, May 2008, 
May 2010, June 2012, July 2014 and July 2016.  The United States will continue to use that 
mechanism in 2018 to review China 's progress in eliminating price controls.   
Medical Devices  
 
3.137.   Beginning in 2006, NDRC released proposals for managing the prices of medical devices, 
with the stated objectives of avoiding excessive mark -ups by distributors and reducing health care 
costs.  Among  other things, the proposals would impose limits on the allowable mark -ups on 
medical devices.  The proposals also would require manufacturers to provide sensitive pricing 
information.  
3.138.   Since 2006, the United States and US industry have raised their concern s about NDRC 's 
proposals.  In particular, US industry has been able to engage in an informal dialogue with NDRC, 
and the United States has pressed China in this area using the JCCT process.  While acknowledging WT/GC/W/746  
 
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  China 's legitimate concerns regarding the need to provide effective and affordable medical devices 
to patients and the need to address inefficiency, excessive mark -ups and irregular business 
practices among wholesalers and distributors of medical devices, the United States and US 
industry have urged Ch ina to develop an approach that will not inhibit increased imports of the 
same innovative and effective health care products that China is seeking to encourage.   
3.139.   In 2012, NDRC released an updated draft of a pricing proposal, which would impose price 
mark-up controls on six major categories of implantable medical devices and potentially could 
significantly discriminate against foreign manufacturers.  To date, it appears that NDRC has not 
finalized this proposal.  Going forward, the United States will continue working to ensure that NDRC 
and provincial government authorities seek its input and input from US industry stakeholders in a 
transparent and meaningful way as China develops new policies and measures.  
3.140.   Separately, in 2008, China 's Ministry of Health (MOH) published procedures for the 
centralized tender of certain medical devices.  These tendering procedures built on a 2007 MOH 
measure establishing a centralized procurement system for medical devices for the stated 
purposes of reigning in escalating healthcar e costs and ensuring high -quality healthcare.  The 
United States and US industry immediately expressed concern to the Chinese government that 
MOH's tendering procedures could operate to unfairly disadvantage high -quality, advanced 
technology products, a lar ge proportion of which are made by US companies.  In response to these 
concerns, at the September 2008 JCCT meeting, China agreed to hold discussions with the United 
States and US industry to ensure that MOH 's tendering policies are fair and transparent and  that 
the quality and innovation of medical devices are given adequate consideration in purchasing 
decisions.  MOH subsequently entered into discussions directly with US industry.   
3.141.   During the run -up to the December 2010 JCCT meeting, US industry presented a  risk-
based approach to medical device classification based on Global Harmonization Task Force 
principles.  Since then, the United States has continued to work closely with US industry and to 
promote a cooperative resolution of US concerns.  
3.142.   At the December  2012 JCCT meeting, China committed that any measures affecting the 
pricing of medical devices will treat foreign and domestic manufacturers equally.  China further 
committed that it will take into account comments that it receives from the United States, 
including on the issue of how to improve transparency.  
3.143.   Since then, the United States has been engaging China on its proposals to centralize 
pricing and tendering procedures.  At the same time, provincial governments have begun pushing 
for consolidated tender ing of medical devices for purchase by public hospitals and clinics within 
their territories.  While provincial governments ' centralized purchasing plans vary widely, many of 
them contain requirements that unfairly disadvantage foreign manufacturers.  
3.144.   Accord ing to reports from US industry, some plans impose ceiling prices for tenders to be 
determined in a manner that is unfair and discriminates against imported medical technology 
products, and some plans require the manufacturers to disclose sensitive data.  Certain provincial 
government plans also impose controls on imported products or limit certain procurements to only 
domestically manufactured products, and some provincial governments directly subsidize the 
purchase of domestically manufactured products.  Furthermore, the Made in China 2025  industrial 
plan announced by the State Council in 2015 seeks to elevate the competitiveness of China 's 
domestic medical device manufacturing capacity through a series of support policies, including 
targeted funds and procu rement policies, in order to increase significantly the market share of 
domestically owned and produced medical devices by 2025.  
3.145.   The United States and US industry have expressed concerns to the Chinese government 
about developments in this area, and contin ue to press the relevant government regulatory 
authorities to develop sound payment systems that adequately reward research and development 
and not to require foreign companies to transfer manufacturing activities to China in order to 
receive preferential benefits.  At the November 2015 JCCT meeting, China committed that, in the 
area of market access, it will give imported medical devices the same treatment as those 
manufactured or developed domestically.  It remains to be seen if this promise will be fulfill ed. WT/GC/W/746  
 
- 56 - 
 
  3.146.   In August 2015, China 's State Council issued a normative document entitled Opinions of 
the State Council on Reforming the Review and Approval System for Drugs and Medical Devices , 
which outlined the State Council 's guidance for sweeping reforms relating to China 's drug and 
medical devices registration review and approval systems.  As discussed in the Pharmaceuticals 
section below, the State Council issued this measure without first soliciting public comment, and 
the United States has since raised both transparency concerns and concerns regarding certain of 
the proposed reforms.  In 2018, the United States will continue to closely examine China 's efforts 
to implement these reforms.  
3.4.5   Standards, Technical Regulations and Conformity Assessment Procedures  
3.147.   With its accession to the WTO, China assumed obligations under the Agreement on 
Technical Barriers to Trade (TBT Agreement), which establishes rules and procedures regarding 
the development, adoption and application of standards, technical regulations and  the conformity 
assessment procedures (such as testing or certification) used to determine whether a particular 
product meets such standards or regulations.  Its aim is to prevent the use of technical 
requirements as unnecessary barriers to trade.  The TBT A greement applies to all products, 
including industrial and agricultural products.  It establishes rules that help to distinguish legitimate 
standards and technical regulations from protectionist measures.  Among other things, standards, 
technical regulations  and conformity assessment procedures are to be developed and applied 
transparently and on a non -discriminatory basis by WTO members and should be based on 
relevant international standards and guidelines, when appropriate.  
3.148.   In its WTO accession agreement, C hina also specifically committed that it would ensure 
that its conformity assessment bodies operate in a transparent manner, apply the same technical 
regulations, standards and conformity assessment procedures to both imported and domestic 
goods and use th e same fees, processing periods and complaint procedures for both imported and 
domestic goods.  China agreed to ensure that all of its conformity assessment bodies are 
authorized to handle both imported and domestic goods within one year of accession.  China  also 
consented to accept the Code of Good Practice (set forth in Annex 3 to the TBT Agreement) within 
four months after accession, which it has done, and to speed up its process of reviewing existing 
technical regulations, standards and conformity assessm ent procedures and harmonizing them 
with international norms.  
3.149.   In addition, in the Services Schedule accompanying its WTO accession agreement, China 
committed to permit foreign service suppliers that have been engaged in inspection services in 
their home co untries for more than three years to establish minority foreign -owned joint venture 
technical testing, analysis and freight inspection companies upon China 's accession to the WTO, 
with majority foreign ownership no later than two years after accession and wholly foreign -owned 
subsidiaries four years after accession.  China further agreed that qualifying joint venture and 
wholly foreign -owned enterprises would be eligible for accreditation in China and accorded national 
treatment.  
3.4.5.1   Regulatory Reforms  
3.150.   In Octob er 2001, China announced the creation of the Standardization Administration of 
China (SAC) under the State Administration of Quality Supervision, Inspection and Quarantine 
(AQSIQ).  SAC is charged with unifying China 's administration of product standards an d aligning its 
standards and technical regulations with international practices and China 's commitments under 
the TBT Agreement.  SAC is the Chinese member of the International Organization for 
Standardization and the International Electrotechnical Commissi on. 
3.151.   AQSIQ was established as a new ministry -level agency in April 2001.  It is the result of a 
merger of the State Administration for Quality and Technical Supervision and the State 
Administration for Entry -Exit Inspection and Quarantine.  China 's officials explained that this 
merger was designed to eliminate discriminatory treatment of imports and requirements for 
multiple testing simply because a product was imported rather than domestically produced.  China 
also formed the quasi -independent National Certifi cation and Accreditation Administration (CNCA), 
which is attached to AQSIQ and is charged with the task of unifying the country 's conformity 
assessment regime.  WT/GC/W/746  
 
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  3.152.   Despite these changes, US industry still has concerns about significant conformity 
assessment a nd testing -related issues in China.  For example, US exporters representing several 
sectors continue to report that China 's regulatory requirements are not enforced as strictly or 
uniformly against domestic producers as compared to foreign producers.  In add ition, in some 
cases, China 's regulations provide only that products will be inspected or tested upon entry into 
China 's customs territory, without any indication as to whether or how the regulations will be 
applied to domestic producers.  The United States  will re -examine these issues in 2018 to 
determine if US industry is being adversely affected.  
3.153.   SAC released a standardization reform plan in March 2015 entitled the Reform Plan on 
Further Improving Standardization Work . This plan was supposed to streamlin e standards and 
reduce government involvement in standards -setting by reducing the number of government -set 
mandatory and voluntary standards, fostering the development of non -governmental standards -
setting organizations and encouraging companies to set th eir own standards.   
3.154.   Since then, the Chinese government has taken a series of steps at the central and 
provincial government levels to implement this plan.  For example, SAC issued draft Association 
Standardization – Part 1: Guidelines for Good Practice  and accepted public comments on these 
draft national standards.  The American National Standards Institute and other US stakeholders 
commented on these draft national standards.   
3.155.   In March 2016, the State Council Legislative Affairs Office circulated proposed 
amendments to China 's Standardization Law  for public comment.  China 's stated objectives for 
reforming its standardization system included the creation of a system in which the private sector 
would play a greater role in standards development.  In response to China 's solicitation of public 
comments, the United States expressed its view that China should carefully evaluate its obligations 
under the TBT and SPS Agreements as it revises the draft law and that China should ensure that 
the final version of the law c onforms to both the letter and the spirit of the TBT Agreement.  For 
example, the United States urged China to ensure that the final law sets an open policy for 
participating in the development of draft standards, including by persons of other countries.  
Additionally, the United States expressed concerns about provisions in the draft law that appear to 
create tension with laws designed to protect the intellectual property incorporated into standards.   
3.156.   In May and September 2017, China issued two subsequent dr afts of the Standardization 
Law, and the United States continued to engage China on its draft provisions.  China modified and 
clarified some provisions in these drafts in response to US and other stakeholders ' written 
comments.  However, the September 2017 d raft of the law introduced a serious new concern with 
regard to preference for Chinese technologies in standards development and failed to address 
other concerns detailed in prior written comments by the United States.   
3.157.   Through this and other avenues, the United States continued to urge China to allow foreign 
organizations and individuals to participate in the development of standards, technical regulations 
and conformity assessment procedures on a non -discriminatory basis in 2017.  The United States 
will co ntinue to do so in 2018, both in the context of legal regime revisions and the functioning of 
China 's current standardization system.   
3.4.5.2   Standards and Technical Regulations  
3.158.   Shortly after its accession to the WTO, China began the task of bringing its standard s 
regime more in line with international practice.  One of its first steps was AQSIQ 's issuance of rules 
designed to facilitate China 's adoption of international standards.  China subsequently embarked on 
the task of reviewing all of China 's existing 21,000 standards and technical regulations to 
determine their continuing relevance and consistency with international standards.  During 
transitional reviews before the TBT Committee, China has periodically reported on the status of 
this review process and the num ber of standards and technical regulations that have been 
nullified, but it remains unclear whether these actions have had a beneficial  impact on US market 
access.  
3.159.   The United States continues to make efforts to assist China through bilateral exchanges 
and training, as China works to improve its standards regime.  Nevertheless, concern has grown 
over the past few years that China seems to be actively pursuing the development of unique WT/GC/W/746  
 
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  requirements, despite the existence of well -established international stand ards, as a means for 
protecting domestic companies from competing foreign standards and technologies.  Indeed, China 
has already adopted unique standards for digital televisions, and it is trying to develop unique 
standards and technical regulations in a nu mber of other sectors, including, for example, autos, 
telecommunications equipment, Internet protocols, wireless local area networks, radio frequency 
identification tag technology, audio and video coding and fertilizer as well as software encryption 
and mo bile phone batteries.  This strategy has the potential to create significant barriers to entry 
into China 's market, as the cost of compliance will be high for foreign companies, while China will 
also be placing its own companies at a disadvantage in its exp ort markets, where international 
standards prevail.  
3.160.   In 2017, as in prior years, the United States raised concerns at the WTO TBT Committee 
regarding several Chinese measures.  These measures covered registration fees for drugs and 
medical devices products,  banking sector ICT rules, insurance sector ICT rules, cosmetics labeling, 
processed products certification, the supervision and administration of medical devices, and infant 
formula registration rules.  
Wi-Fi Standards  
 
3.161.   Since shortly after its accession to  the WTO, China has pursued unique standards for 
encryption over Wireless Local Area Networks (WLANs), applicable to domestic and imported 
equipment containing WLAN (also known as Wi -Fi) technologies, despite the existence of well -
established international  standards.  These efforts appear designed to protect Chinese companies 
from competing foreign standards and technologies.   
3.162.   As previously reported, China 's initial focus was on the WLAN Authentication and Privacy 
Infrastructure (WAPI) encryption technique f or secure communications.  China eventually moved 
forward with plans to mandate the use of the WAPI standard in mobile handsets, despite the 
growing commercial success of computer products in China complying with the internationally 
recognized ISO/IEC 8802 -11 WLAN standard, otherwise known as "WI -Fi," and despites serious 
concerns raised by the United States, both through the JCCT process and in meetings of the TBT 
Committee.   
3.163.   A new issue related to Wi -Fi standards arose in 2011, after China published a prop osed 
voluntary wireless LAN industry standard known as the  "UHT/EUHT standard. " China 's UHT/EUHT  
standard appears to be an alternative to the international standard IEEE 802.11n, which is the 
wireless LAN industry standard currently used throughout the world in Wi -Fi networks.  The 
Chinese UHT/EUHT standard was released for only a 15 -day public commen t period on 
20 September 2011.  US industry groups submitted comments, arguing, among other things, that 
there are technical compatibility concerns regarding the interoperability of the UHT/EUHT standard 
with the existing Chinese national standard (WAPI) an d with the most widely used and recognized 
WLAN industry standard (IEEE 802.11).  Separately, the United States expressed concerns to China 
that, if China integrates standards such as the UHT/EUHT standard into its certification or 
accreditation schemes, th ese standards would become de facto  mandatory and therefore would 
raise questions in light of China 's obligations under the WTO TBT Agreement.  In February 2012, 
MIIT approved the UHT/EUHT standard as a voluntary standard, but US industry has expressed 
concern that the unusual approval process for UHT/EUHT may reflect a desire within the Chinese 
government to promote this indigenous standard, despite technical concerns raised by industry 
participants in the technical committee relating to its compatibility a nd co -existence with 802.11 
products.  Since then, the United States has raised its concerns about the de facto  mandating of 
voluntary standards like UHT/EUHT via certification or accreditation schemes, and the United 
States will continue to do so.   
3G Tele communications Standards  
 
3.164.   The United States elevated another standards issue to the JCCT level beginning in 2004.  
The US telecommunications industry was very concerned about increasing interference from 
Chinese regulators, both with regard to the selection  of 3G telecommunications standards and in 
the negotiation of contracts between foreign telecommunications service providers and their 
Chinese counterparts.  The United States urged China to take a market -based and technology 
neutral approach to the develop ment of next generation wireless standards for computers and 
mobile telephones.  At the April 2004 JCCT meeting, China announced that it would support WT/GC/W/746  
 
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  technology neutrality with regard to the adoption of 3G telecommunications standards and that 
telecommunic ations service providers in China would be allowed to make their own choices about 
which standard to adopt, depending on their individual needs.  China also announced that Chinese 
regulators would not be involved in negotiating royalty payment terms with re levant intellectual 
property rights holders.   
3.165.   By the end of 2004, it had become evident that there was still pressure from within the 
Chinese government to ensure a place for China 's home -grown 3G telecommunications standard, 
known as TD -SCDMA.  In 2005, Ch ina continued to take steps to promote the TD -SCDMA standard.  
It also became evident that they had not ceased their attempts to influence negotiations on royalty 
payments.  Then, in February 2006, China declared TD -SCDMA to be a "national  standard " for 3G 
telecommunications, heightening concerns among US and other foreign telecommunications 
service providers that Chinese mobile telecommunications operators would face Chinese 
government pressure when deciding what technology to employ in their networks.   
3.166.   The United States again raised the issue of technology neutrality in connection with the 
April 2006 JCCT meeting.  At that meeting, China restated its April 2004 JCCT commitment to 
technology neutrality for 3G telecommunications standards, agreeing to ensur e that mobile 
telecommunications operators would be allowed to make their own choices as to which standard to 
adopt.  China also committed to issue licenses for all 3G telecommunications standards in a 
technologically neutral manner that does not advantage one standard over others.   
3.167.   Throughout 2008, China 's test market for its TD -SCDMA standard continued to grow, and 
widespread test networks were put in place in time for the August 2008 Summer Olympics in 
Beijing.  In January 2009, China 's MIIT issued 3G lice nses based on the three different 
technologies, with a TD -SCDMA license for China Mobile, a W -CDMA license for China Unicom and 
a CDMA2000 EV -DO license for China Telecom.  However, despite the issuance of licenses for all 
three standards, the Chinese gover nment continued to heavily promote, support and favor the TD -
SCDMA standard.  For example, China 's economic stimulus -related support plan for Information 
Technology and Electronics, approved by the State Council and published in April 2009, specifically 
identifies government support for TD -SCDMA as a priority.   
3.168.   In March 2010, US concerns over China 's preferential treatment of TD -SCDMA were 
exacerbated by the inclusion of products based on this technology in the Opinions on Advancing 
Third-Generation Communic ations Network Construction , issued by MIIT, NDRC, the Ministry of 
Science and Technology (MOST), MOF, the Ministry of Land and Resources, the Ministry of Housing 
and Urban -Rural Development (MOHURD) and SAT.  Specifically, the United States was concerned 
that this measure would lead to these products being entitled to government procurement 
preferences.   
3.169.   Meanwhile, China 's insistence on promoting TD -SCDMA discouraged further innovation.  For 
example, China was reluctant to permit operators to deploy alternative technologies, including 4G 
technologies.  
3.170.   Throughout 2010, the United States continued to press China to reaffirm the principle of 
technology neutrality for current and future services and technologies.  In an important 
development at the Decembe r 2010 JCCT meeting, China committed to technology neutrality for 
3G networks and future networks based on new technologies, allowing operators to choose freely 
among those technologies and without the Chinese government providing any preferential 
treatmen t based on the standard or technology used by an operator.  
3.171.   Since then, the United States has carefully reviewed developments in this area, stressing 
to China in bilateral meetings the importance of a continuing commitment to technology neutrality 
in line w ith China 's JCCT commitments, both for 3G standards and for emerging 4G standards 
issues.  In November 2013, however, China licensed 4G spectrum in a manner that is not 
technology neutral, as it licensed only the domestically favored Long -Term Evolution (LT E) 
standard known as LTE -TDD and not the other common standard known as LTE -FDD.  
3.172.   In July 2014, the US government, under the framework of the JCCT Information Industry 
Working Group (IIWG), organized a US-China Spectrum Roundtable to discuss spectrum alloc ation 
issues.  The Spectrum Roundtable included participants from US and Chinese industry as well as WT/GC/W/746  
 
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  government representatives.  China subsequently agreed to an additional roundtable discussion of 
this issue, which took place in an August 2016 meeting.  At that meeting, and in other subsequent 
bilateral engagements, the United States urged China to work to identify spectrum for auction and 
set eligibility rules that make clear that foreign -invested enterprises may participate in any future 
spectrum auctions w ith domestic competitors on an equal basis.  
ZUC Encryption Algorithm Standard  
 
3.173.   Beginning in late 2011, China moved ahead with the rollout of a Chinese government -
developed 4G LTE encryption algorithm known as the ZUC standard.  The European 
Telecommunicatio n Standards Institute (ETSI) 3rd Generation Partnership Project (3GPP) had 
approved ZUC as a voluntary standard in September 2011.  According to US industry reports, MIIT, 
in concert with the State Encryption Management Bureau, informally announced in early  2012 that 
only domestically developed encryption algorithms, such as ZUC, would be allowed for 4G TD -LTE 
networks in China, and it appeared that burdensome and invasive testing procedures threatening 
companies ' sensitive intellectual property could be req uired.   
3.174.   In response to US industry concerns, the United States urged China not to mandate any 
particular encryption standard for 4G LTE telecommunications equipment, in line with its bilateral 
commitments and the global practice of allowing commercial tele communications services 
providers to work with equipment vendors to determine which security standards to incorporate 
into their networks.  Any mandate of a particular encryption standard such as ZUC would 
contravene a commitment that China made to its trad ing partners in 2000, which clarified that 
foreign encryption standards were permitted in the broad commercial marketplace and that strict 
"Chinese -only" encryption requirements would only be imposed on specialized IT products whose 
"core function " is encr yption.  Additionally, a ZUC mandate would contravene China 's 2010 JCCT 
commitment on technology neutrality, in which China had agreed to take an open and transparent 
approach with regard to operators ' choices and not to provide preferential treatment based  on the 
standard or technology used in 3G or successor networks, so that operators could choose freely 
among whatever existing or new technologies might emerge to provide upgraded or advanced 
services.   
3.175.   The United States pressed China on this issue through out the run -up to the 
December  2012 JCCT meeting.  At that meeting, China committed that it will not mandate any 
particular encryption standard for commercial 4G LTE telecommunications equipment.  
3.176.   In 2013, the United States worked to ensure that MIIT 's volun tary testing and approval 
process for the ZUC 4G telecom equipment standard fully protects applicants ' intellectual property 
by not requiring source code or other sensitive business confidential information to be provided 
during the approval process.  At the December 2013 JCCT meeting, China committed that it will not 
require applicants to divulge source code or other sensitive business information in order to 
comply with the ZUC provisions in the MIIT application process for 4G devices.  Since then, the 
United States has closely reviewed developments in this area to ensure China followed through on 
this JCCT commitment, and will continue to do so.  
Mobile Smart Device Regulations   
 
3.177.   In 2012, MIIT began to develop a new draft regulatory framework for the mobile smart 
device market.  MIIT's stated objective is to help protect consumer interests relating to the privacy 
of users and the security of their personal information in connection with the operation of their 
mobile smart devices.   
3.178.   In April 2012, MIIT shared a  draft Notice Regarding Strengthening Management of the 
Network Access for Mobile Smart Devices  with select foreign companies for informal comments.  It 
appears that the draft measure would impose numerous new obligations and technical mandates 
on informati on technology and telecommunications hardware, operating systems, applications, 
application stores and other related services.  The draft measure also may impose, by reference, 
mandatory technical regulations and testing requirements on these same goods and  services, as 
well as on the mobile smart devices themselves.  In addition, the China Communications 
Standardization Association is in the process developing numerous "industry  standards " relating to 
smart terminal requirements, which appear to be linked to  the development of the draft measure.   WT/GC/W/746  
 
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  3.179.   The United States expressed its concerns to MIIT and requested that China notify the 
measure to the WTO TBT Committee.  The United States also offered to work with MIIT on best 
practices for addressing privacy and sec urity associated with mobile smart devices.  In response, in 
June 2012, MIIT published the draft measure on the MIIT website and asked for public comments 
within 30 days.  In addition, in November 2012, China notified the draft measure to the WTO TBT 
Committ ee and indicated that it would accept comments for a 60 -day period.   
3.180.   The United States and US industry were concerned because the far -reaching regulatory 
approach embodied in the draft measure – which is exclusively oriented toward government 
mandates rath er than voluntary private sector -developed global standards and public -private 
cooperation – is unprecedented among the leading markets for mobile smart devices and could 
create significant trade barriers.  Furthermore, the potential inclusion of numerous v oluntary 
standards relating to smart terminal requirements could create further trade barriers, as it could 
readily lead to these voluntary standards becoming mandatory standards within MIIT 's testing and 
certification process.  Unfortunately, in November 2 013, MIIT finalized and began implementing 
this measure, along with two associated voluntary standards.  The United States remains 
concerned about what appears to be an effort to put non -Chinese companies at an unfair 
disadvantage.  
Patents Used in Chinese N ational Standards  
 
3.181.   China has prioritized the development of Chinese national standards in documents such as 
the Outline for the National Medium to Long -Term Science and Technology Development Plan 
(2006 -2020) , issued by the State Council in February 2006, and amplified shortly thereafter in the 
11th Five -year Plan (2006 -2010) for Standardization Development , issued by SAC.  More recently, 
China has also publicly expressed its resolve to rely on either non -patented technology or patented 
technology made avail able at prices lower than those that patent owners would otherwise seek to 
charge when developing standards.  As a result, China 's treatment of patents in the standard 
setting process has garnered increasing attention and concern around the world, including  in the 
United States.   
3.182.   Over the years, the United States has engaged repeatedly with China on issues relating to 
the use of national standards.  This engagement has included the submission of extensive written 
comments on draft measures.   
3.183.   In July 2014, the  United States provided written comments on the eighth draft of the Rules 
of the Administration for Industry and Commerce on the Prohibition of Abuses of Intellectual 
Property Rights for the Purposes of Eliminating or Restricting Competition . In April 2015 , SAIC 
adopted the final version of this measure.  A key US industry concern in the measure is that Article 
13 suggests that a patent holder is subject to a commitment to license its patent on fair, 
reasonable and non -discriminatory (FRAND) terms merely bec ause its patent has been 
incorporated into a standard.  
3.184.   In September 2014, the United States provided written comments on the draft 
Interpretations of the Supreme People 's Court on Certain Issues Concerning the Application of Law 
in the Trial of Patent Infr ingement Cases II . Article 27 of this draft measure addressed disputes 
between patent holders and potential licensees relating to non -compulsory national, industrial or 
local standards.  The United States recommended that Article 27 be modified in several w ays, 
including to clarify that Article 27 should apply only to patents that the patent holder has 
committed voluntarily, and without coercion by government or quasi -government entities, to 
license on FRAND terms as part of its participation in a standards -setting process.  The United 
States also recommended that Article 27 be modified to clarify the circumstances under which a 
patent holder may be found to have violated FRAND principles by negotiating in bad faith and also 
make clear that an alleged infringe r should have an opportunity to assert non -infringement and 
that patent holders are entitled to FRAND compensation where infringers are permitted to continue 
to use a patented invention.  The United States further recommended that, where courts must 
determi ne an appropriate FRAND royalty, they should take into account that patent holders in 
China face challenges in enforcing their patents and securing appropriate compensation for the use 
of their patents and, in addition, take steps to avoid outcomes that un der-compensate patent 
holders or undermine incentives to innovate.   WT/GC/W/746  
 
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  3.185.   At the December 2014 JCCT meeting, the United States and China recognized that 
standards setting can promote innovation, competition and consumer welfare and also reaffirmed 
that IPR prote ction and enforcement is critical to promote innovation, including when companies 
voluntarily agree to incorporate patents protecting technologies into a standard.  The two sides also 
recognized that concerns may exist relating to the licensing of standards -essential patents that are 
subject to licensing agreements.   
3.186.   As in-depth discussion of these issues continued into 2015 and beyond, the United States 
has expressed concern because China 's standard setting rules do not ensure that participation in 
the stan dards development process is open to all persons.  Indeed, reports from US industry 
indicate that even foreign enterprises with operations in China are unable to participate in 
standards setting on a non -discriminatory basis.  The United States continues to press China to 
take further steps to ensure that standards development processes are open to all interested 
parties, both within the context of China 's consideration of its draft Standardization Law  and the 
functioning of China 's current standardization system.   
3.187.   China made one potentially significant standards -related commitment at the 
November  2015 JCCT meeting.  It pledged that licensing commitments for patents in voluntary 
standards are made voluntarily and without government involvement in negotiations  over those 
commitments, except as otherwise provided by legally binding measures.  Since then, in various 
venues, the United States has urged China to further ensure that the rights of patent owners to 
determine how to utilize their proprietary technology in standards development are protected.   
Information Security Standards  
 
3.188.   Beginning in 2010 and continuing through 2012, both bilaterally and during meetings of 
the WTO 's TBT Committee, the United States raised its concerns with China about framework 
regulations for information security in critical infrastructure known as the Multi -Level Protection 
Scheme (MLPS), first issued in June 2007 by the Ministry of Public Security and MIIT.  The MLPS 
regulations put in place guidelines to categorize information  systems according to the extent of 
damage a breach in the system could pose to social order, public interest and national security.  
The MLPS regulations also appear to require, by reference, purchasers ' compliance with certain 
information security technic al regulations and encryption regulations that are referenced within the 
MLPS regulations.   
3.189.   Among other things, the MLPS regulations bar foreign products from information systems 
graded level 3 and above, because all products deployed must be developed by Chinese 
information security companies and must bear Chinese intellectual property in their key 
components.  Additional troubling product testing provisions for level 3 and above require 
companies to disclose product source code, encryption keys and other c onfidential business 
information.  To date, hundreds of request for proposals (RFPs) incorporating MLPS requirements 
have come from government agencies, the financial sector, telecommunications companies, the 
power grid, educational institutions and hospita ls in China.  These RFPs cover a wide range of 
information security software and hardware, and many of them exclude the purchase of foreign 
products by incorporating level -3 requirements.  
3.190.   If implementing rules for the MLPS regulations are issued and apply b roadly to commercial 
sector networks and IT infrastructure, they could have a significant impact on sales by US 
information security technology providers in China.  The United States therefore has urged China to 
notify any MLPS implementing rules laying dow n equipment -related requirements in accordance 
with China 's obligations under the TBT Agreement.  
3.191.   At the December 2012 JCCT meeting, China indicated that it would begin the process of 
revising the MLPS regulations.  It also agreed that, during that process,  it would enter into 
discussions with the United States regarding US concerns.  Throughout 2013 and 2014, using the 
JCCT process, the United States pressed China to fully and quickly implement its JCCT 
commitment to revise the MLPS regulations.  To date, how ever, China has not yet revised those 
regulations.  In 2015, concerns about the MLPS regulations were heightened in light of provisions 
contained in the draft Administrative Regulations on the Informatization of Insurance Institutions  
that mandate complianc e with MLPS requirements.  At the November 2015 JCCT meeting, China 
agreed to strengthen exchange and dialogue with the United States in this area.   WT/GC/W/746  
 
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  3.192.   At the November 2015 JCCT meeting, China acknowledged an important clarification that it 
had made in a March  2000 announcement.  In that clarification, China made clear that it limits the 
scope of its encryption regulations to software and hardware specifically dedicated to encryption 
functions.  
3.193.   In 2016, however, concerns about China 's MLPS regulations were ampli fied as China 
adopted new measures, such as the Cybersecurity Law . These measures appear to create an 
analogous or overlapping "cybersecurity  multi-level protection scheme. " As discussed in the Secure 
and Controllable ICT Policies section below, the United  States actively engaged China when it was 
drafting the Cybersecurity Law  while also continuing to press China on its overall approach with 
regard to regulation in the area of cybersecurity, and these efforts continued in 2017.   
Secure and Controllable ICT  Policies  
 
3.194.   Since 2015, concerns about China 's regulations addressing information security have 
heightened as China has pursued a series of measures that would impose severe restrictions on a 
wide range of US and other foreign ICT products and services with  an apparent long -term goal of 
replacing foreign ICT products and services.  These measures include provisions relating to 
standards and conformity assessment procedures as well as provisions relating to intellectual 
property ownership and research and deve lopment requirements.  These provisions stem from a 
May 2014 announcement by the Cyberspace Administration of China (CAC) that it would 
implement a broad -reaching "Cybersecurity  Review Regime " focused on ensuring that technology 
in China is "secure  and cont rollable. " This policy direction was affirmed in November 2016 with 
China 's passage of a Cybersecurity Law , which puts in place an overarching statutory framework 
for the regulation of cybersecurity in China.  
3.195.   In July 2015, the National People 's Congress passed a National Security Law  with a stated 
purpose of safeguarding China 's security.  However, this law included sweeping provisions 
addressing economic and industrial policy.   
3.196.   In December 2015, the National People 's Congress passed a Counterte rrorism Law . 
Leading up to the passage of this law, the United States and numerous stakeholders around the 
world had expressed serious concerns about the then -draft Counterterrorism  Law, particularly with 
regard to provisions that seemed to extend far beyo nd the law 's general objective of reinforcing 
the government 's authority to investigate and prevent terrorism.  Especially troubling trade -related 
concerns in the original draft law included in -country data storage requirements and restrictions on 
cross-border data flows for  "all telecom and Internet businesses, " as well as requirements for 
telecommunications and Internet service providers to pre -install cryptographic solutions in their 
equipment.  The final version of the law removed those requirements and r estrictions, but it 
remains unclear whether they will nevertheless be included in subsequent implementing measures.  
Additionally, new obligations in the Counterterrorism Law  requiring companies in the 
telecommunications and Internet -related services sector s to "provide technical support and 
assistance, including handing over access or interface information and decryption keys, " to 
proactively monitor their networks for terrorism information and to disclose any discovered 
terrorism information to the regulat ory authorities could present undue burdens on foreign 
companies.   
3.197.   In November 2016, the National People 's Congress passed the Cybersecurity Law , which 
became effective in June 2017.  Leading up to the passage of this law, the United States and 
numerous oth er WTO members had expressed serious concerns to China about the contents of two 
circulated drafts of the law, as did private sector stakeholders.  For example, in August 2016, 46 
global industry groups signed a letter to China 's Premier Li describing their  serious concerns.  
Confirming WTO member and private sector concerns, the final version of the law imposes far -
reaching and onerous trade restrictions on imported ICT products and services in China.  Among 
other things, the law requires testing for products  sold into "critical  information infrastructure, " 
which is vaguely and broadly defined.  
3.198.   China 's implementation of its "secure  and controllable " policies extended beyond the 
pursuit of these new laws.  Over the past three years, China has adopted a large nu mber of other 
measures incorporating the concept of "secure  and controllable. " Particular areas of concern 
include the vague definition of "secure  and controllable " and its potential implications for WT/GC/W/746  
 
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  discrimination against foreign firms, cross -border data flow restrictions and requirements for in -
country storage of data, as well as encryption requirements.  
3.199.   To date, Chinese legislators and regulators have never publi cly defined the term  "secure 
and controllable. " The United States has expressed its strong concern that the term appears to 
mean products and technologies with domestically owned and registered intellectual property or 
conforming to other localization requ irements and that this term will be interpreted to mean 
products, technologies or intellectual property of domestic origin.  Numerous global technology 
stakeholders and governments have expressed similar concern that the lack of a concrete 
definition of  "secure and controllable " allows Chinese regulators to interpret the term in a 
discriminatory fashion.   
3.200.   Requirements in various  "secure and controllable " measures to use domestically owned 
and registered intellectual property call into question China 's prior bilateral commitments to treat 
intellectual property owned or developed in other countries the same as intellectual property 
owned or developed in China.  In addition, these requirements undermine the flexibility needed by 
domestic and foreign companies to make their own ICT product procurement decisions on the 
basis of their unique business considerations and as dictated by any legal or fiduciary 
responsibilities to protect their customers ' information.  These requirements also could impair the 
ability of co mpanies to quickly and effectively respond to new cybersecurity risks.  Furthermore, 
these requirements could result in companies needing to operate different ICT platforms for 
different markets, which would increase costs prohibitively and detract from bus iness efficiencies 
without any guarantee of more or enhanced security.  These requirements also raise serious 
questions and concerns by associating intellectual property rights with national security.   
3.201.   China 's numerous  "secure and controllable " measures als o have included potential 
generally applicable restrictions on cross -border data flows and requirements for in -country 
storage of data, which have been criticized by the United States and numerous other WTO 
members and by the private sector.  Given the inte rnational nature of the modern economy, a 
company 's ability to transfer data across borders to its headquarters or other locations is 
important for conducting data analysis to improve the quality of its risk management.  Cross -
border data transfers also can  be necessary for international businesses to meet regulatory 
obligations in their home countries or other jurisdictions.  Similarly, requirements for in -country 
storage of data would not appear to further data security and integrity, but instead would impo se 
restrictions that could unduly raise the cost for international firms doing business in China, as well 
as for Chinese companies that have global operations.  These requirements also run counter to 
trends in most major economies, where efforts are expende d not in restricting data transfers or 
requiring local data storage, but rather in ensuring that appropriate protections are in place once 
information has been transferred.   
3.202.   With regard to encryption requirements in China 's numerous "secure  and controllabl e" 
measures, the United States has emphasized to China the importance of China 's acknowledgement 
at the November 2015 JCCT meeting of its prior bilateral commitment that it would only regulate 
encryption technologies that, "at  their core, are dedicated to encryption and decryption 
operations. " Numerous references in recent Chinese measures to "domestic " cryptography create 
concern that they may refer to various measures related to cryptography that set goals of applying 
domestic cryptography requirements ac ross China 's financial services sector and other sectors.  
Accordingly, the United States has urged China to live up to its commitment not to mandate in 
generally applicable measures the use of domestic encryption technologies, so as to ensure that 
companie s are free to utilize the encryption technologies most appropriate for their needs, 
regardless of their country of origin.   
3.203.   Given all these concerns, the United States has identified the issue of technology policy as 
a top US priority.  Over the past few ye ars, China has committed that generally applicable 
measures to enhance ICT cybersecurity in commercial sectors should be consistent with WTO 
rules, be narrowly tailored, take into account international norms, be non -discriminatory and not 
impose nationalit y-based conditions or restrictions on the purchase, sale or use of ICT products by 
commercial enterprises unnecessarily.  In addition, China has expressly confirmed that its prior 
commitments relating to information security measures apply to its "secure  and controllable " 
policies.  China also agreed that it would notify relevant "secure  and controllable " technical 
regulations to the WTO TBT Committee.  WT/GC/W/746  
 
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  3.204.   Despite the apparent progress represented by these various commitments, China issued 
numerous draft and f inal cybersecurity measures in 2017 that raised serious questions about 
China 's approach to cybersecurity regulation.  Key measures of concern include the Security 
Assessment of Cross -Border Transfer of Personal Information and Important Data , the Catalogue  
of Network Critical Equipment and Cybersecurity Products , a series of cybersecurity -related 
national standards and numerous sector -specific cybersecurity requirements.  These measures do 
not appear to be consistent with the non -discriminatory, non -trade re strictive approach to which 
China has committed.   
3.205.   Accordingly, throughout the past year, the United States conveyed serious concerns to 
China about its approach to cybersecurity regulation.  The United States used written comments on 
draft measures, bilater al engagement under the auspices of the CED and multilateral engagement 
at WTO committee meetings in an effort to persuade China to revise its policies in this area to 
ensure that they are consistent with its WTO obligations and bilateral commitments.  
Secure and Controllable ICT Standards  
 
3.206.   In November 2016, the National Information Security Standardization Technical 
Committee, chaired by the Cyberspace Administration of China (CAC), released a series of 
proposed cybersecurity standards for public comment.  Included among the standards were 
proposed "secure  and controllable " product standards for central processing units (CPUs), 
operating systems (OS) and office software suites, as well as standards on testing specifications 
for "secure  and trustworthy " office information systems.  Seven standards relating to the MLPS also 
were released, covering cloud computing, mobile Internet and other applications.  In 2017, the 
technical committee released an additional four tranches of cybersecurity standards for public 
comment.  
3.207.   Throughout 2017, working closely with US industry stakeholders, the United States 
expressed serious concerns about stringent requirements laid out in many of the draft standards, 
which would make it difficult for foreign technology companies to comp ly. In addition, it appears 
that many Chinese enterprises switched to purchasing Chinese products instead of foreign 
products based on the draft standards.  The United States submitted written comments on the 
various iterations of the draft standards and fo llowed up with meetings in Beijing with Chinese 
regulatory authorities.  In 2018, the United States will continue to press China to take steps to 
ensure that its policies in this area are consistent with its WTO obligations and bilateral 
commitments.  
Import Ban on Recoverable Materials   
 
3.208.   In July 2017, China notified to the WTO 's TBT Committee two measures from China 's 
Ministry of Environment and Protection (MEP) that would limit or ban imports of certain 
recoverable wastes and recovered materials, such  as plastic waste and unsorted paper.  However, 
the comment periods provided by China were less than the 60 days required by the TBT 
Agreement, and the timeframe for implementation was less than six months.   
3.209.   According to MEP, effective January 2018, China w ill ban imports of 24 kinds of solid 
wastes under four classes, including plastic wastes, unsorted waste paper, textile remnants and 
vanadium slag.  Additionally, effective September 2017, China began enforcing new standards for 
the identification of solid waste in which it utilized a broad definition that applies to substances 
that have lost their original production or functional value, various manufacturing and agricultural 
by-products, environmental control by -products and other substances are now identi fied by MEP as 
solid waste.   
3.210.   These measures represent the first of a series of anticipated actions outlined in the State 
Council 's Implementing Plan for Banning the Entry of Overseas Garbage and Promoting the Reform 
of the Management System for Solid Waste  Imports . This plan calls for, among other things, a 
comprehensive ban on the import of "heavily  polluting " solid wastes by the end of 2017 and a 
more gradual phase out of recoverable wastes and recovered materials in order to advance a 
policy of local sub stitution.  Consistent with this plan, it does not appear that similar restrictions 
apply to domestically sourced recoverable wastes or recovered materials.   WT/GC/W/746  
 
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  3.211.   US exports to China of the recoverable wastes or recovered materials covered by the 
measures totale d $479 million in 2016.  US stakeholders expect the measures to have significant 
negative impact on those exports.   
3.212.   Shortly after China notified the measures at issue to the TBT Committee, the United States 
began raising its serious concerns about the measu res, both bilaterally and at the WTO, and urged 
China to halt its implementation of these measures.  In 2018, the United States will continue to 
urge China to reconsider its approach.   
3.4.5.3   Conformity  Assessment Procedures  
3.213.   China 's regulatory authorities appear to be turning more and more to in -country testing for 
a broader range of products.  This policy direction is troubling, as it is inconsistent with common 
international conformity assessment practices, which favor processes that accept test results from 
internationally recognized laboratories, the concept of a "supplier's  declaration of conformity " and 
other similar trade -facilitating conformity assessment mechanisms.   
3.214.   The United States is unaware of any meaningful efforts by China to move toward a system 
that recognizes test results or conformity assessment certifications from bodies other than Chinese 
government -run testing, certification, or accreditation entities.  Instead, China has developed plans 
to expand the China Compulsory Certification Mark (CCC Mar k) scheme and its mandatory testing 
requirements to information security, an area in which most countries do not engage in 
government certification.  China also continues to prepare to implement in -country government 
testing for compliance with its new regu lations on hazardous substances in electronic information 
products.  In addition, China issued a measure, which it subsequently suspended, establishing a 
burdensome new regime for government inspection of imported medical devices that have already 
satisfied  applicable Chinese certification requirements before being exported to China.  Working 
with US industry, the United States will continue to urge China in 2018 to reverse this trend and 
move in the direction of more globally recognized conformity assessment  practices.  
Telecommunications Equipment  
 
3.215.   The product testing and certification processes in China for mobile phones have been 
significantly more burdensome and time -consuming than in other markets, which increases the 
costs of exporting products to China.  China 's three main type approval certification processes for 
mobile phones are the Network Access License (NAL), the Radio Type Approval (RTA), and the CCC 
Mark.  While each one represents a different certification process, there are overlapping testing 
requirements among them, particularly between the NAL and the RTA with regard to radio 
telecommunications testing requirements for electromagnetic interference and between the NAL 
and the CCC Mark with regard to electromagnetic compatibility and product safe ty. In addition to 
redundancy, China 's testing requirements are often unclear and subject to change without written 
notification and adequate time for companies to adjust.  Companies must often determine what 
testing requirements are applicable by communica ting directly with the relevant regulatory body, 
rather than by having access to a comprehensive, published list of testing requirements.  The WAPI 
mandate in MIIT 's approval certification process for mobile phones represents a clear example of 
unpublished requirements.  Companies have also reported that, in some cases, testing 
requirements for products can change on an almost monthly basis.  
3.216.   In bilateral meetings in 2010, the United States and China discussed testing and 
certification redundancies in the are a of telecommunications equipment.  As a result of these 
meetings, China 's MIIT and US regulatory officials, together with global industry stakeholders, 
conducted a one -day workshop in May 2010 to discuss prevalent concerns about 
telecommunications testing and certification requirements from a technical perspective.  China also 
committed, at the December 2010 JCCT meeting, that it would develop a one -stop shopping 
mechanism for telecommunications network access license and radio type approval.  At the 
November  2011 JCCT meeting, China agreed to publish the procedures for this new mechanism by 
the end of 2011.  In December 2011, MIIT announced the implementation of its December 2010 
JCCT commitment through the establishment of a single application window for both  RTA and NAL 
testing and certification.  In February 2012, a one -stop-shopping mechanism became operational 
on MIIT 's website, with MIIT 's Telecommunications Equipment Certification Center being appointed 
to process applications for both testing and certifi cation processes.   WT/GC/W/746  
 
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  3.217.   Based on industry 's experience to date, it does not appear that MIIT 's approach is 
meaningful in terms of streamlining the MIIT processes.  The United States remains concerned that 
it does not actually eliminate any redundancies or unnece ssary elements of the testing and 
certification processes.  It also does not appear to address a fundamental concern that unnecessary 
functionality testing is a major cause of the burdensome nature of these processes.  In addition, 
the lack of transparency i n the NAL testing and certification process remains a concern, as NAL 
requirements are not readily available to the public.   
CCC Mark System  
 
3.218.   As previously reported, CNCA regulations establishing a new Compulsory Product 
Certification System, issued in Dec ember 2001, took full effect in August 2003.  Under this system, 
there is now one safety mark – the CCC Mark – issued to both Chinese and foreign products.  
Under the old system, domestic products were only required to obtain the "Great  Wall" mark, while 
imported products needed both the "Great  Wall" mark and the  "CCIB" mark.  Despite the changes 
made by the regulations, US companies in some sectors continue to express concerns about 
duplication in certification requirements, particularly for r adio and telecommunications equipment, 
medical equipment and automobiles.  
3.219.   Meanwhile, to date, China has granted more than 150 Chinese enterprises accreditation to 
test and at least 14 Chinese enterprises accreditation to certify for purposes of the CCC Mar k. 
Despite China 's commitment that qualifying majority foreign -owned joint venture conformity 
assessment bodies would be eligible for accreditation and would be accorded national treatment, 
China so far has only accredited six foreign -invested conformity a ssessment bodies.  It is not clear 
whether these six foreign -invested conformity assessment bodies play a sizeable role in accrediting 
products sold in China.  China has also not developed any alternative, less trade -restrictive 
approaches to third -party cer tification, such as recognition of a supplier 's declaration of 
conformity.  As a result, US exporters to China are often required to submit their products to 
Chinese laboratories for tests that may be unwarranted or have already been performed abroad, 
resulting in greater expense and a longer time to market.  One US-based conformity assessment 
body has entered into an MOU with China allowing it to conduct follow -up inspections (but not 
primary inspections) of manufacturing facilities that make products for ex port to China requiring 
the CCC Mark.  However, China has not been willing to grant similar rights to other US-based 
conformity assessment bodies, explaining that it is only allowing one MOU per country.  Reportedly, 
Japan has MOUs allowing two conformity as sessment bodies to conduct follow -up inspections, as 
does Germany.   
3.220.   Going forward, the United States has remained in close contact with US industry.  The 
United States also has been working to further expand the scope of testing and certification 
activities  available to US providers in China.   
Medical Devices  
 
3.221.   Since the creation of China 's CCC Mark system, one of the more significant problem areas 
has been duplicative certification requirements for imported medical equipment.  The United States 
has made many efforts to persuade China 's regulatory authorities to make needed changes, so far 
with uneven results.  
3.222.   In March 2014, China 's State Council finalized and published Order No. 650, the 
Regulations for the Supervision and Administration of Medical Devices . Even though Order No. 650 
was a key measure expected to result in the creation and update of numerous rules and 
requirements pertaining to clinical trials, testing, inspections, evaluations, re -registration and post -
market surveillance, China did not notify  it to the WTO 's TBT Committee.  Since then, China has 
notified many of the proposed implementing measures to the TBT Committee and has solicited 
public comments on them.   
3.223.   The United States and US industry have raised concerns relating to Order No. 650 and the 
various implementing measures with the relevant Chinese government authorities, using the JCCT 
process, meetings of the WTO TBT Committee and other engagement opportunities and venues.  
Particular provisions of concern include the requirement that a med ical device be registered in the 
country of export before it can obtain approval in China, and remaining local clinical trial WT/GC/W/746  
 
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  requirements.  China 's slow approval process for new medical devices also continues to create 
market disruptions for the sector.  
3.224.   The United States has concerns about the requirement that a medical device must be 
registered in the registrant 's country of origin before it can be accepted for registration in China.  
In consultations through the JCCT process, SFDA 's successor, CFDA, assure d the United States 
that implementation would be effectively the same as the prior requirement and that certification 
from the country of origin would satisfy the requirement under Order No. 650.  However, the 
United States remains concerned about this requ irement, as it places unnecessary market entry 
delays on imported medical devices, while offering no actual assurance regarding the safety and 
efficacy of the medical devices in question. The lack of registration in the manufacturer 's home 
country or count ry of export is not necessarily an indication that a medical device is unsafe.  
Moreover, since the United States does not have this same requirement, Chinese medical devices 
can enter the US market months and, in  some cases, years before similar US medical devices can 
enter China 's market, putting US industry at a significant disadvantage.  
3.225.   The United States is also concerned about ongoing clinical trial requirements that further 
delay the entry of US medical devices into China 's market. For products  not listed in the exemption 
catalogues, foreign manufacturers have limited options and unclear guidance as to how they can 
demonstrate safety and effectiveness to obtain clinical trial waivers.  The United States has urged 
CFDA to expand the ways that fore ign companies can demonstrate eligibilities for these 
exemptions.   
3.226.   In May 2017, CFDA followed up by issuing three proposed notices, known as Notices 52, 
53 and 54, addressing clinical trials and related time -to-market issues.  In October 2017, China 's 
State  Council released the Opinions on Deepening Reform of the Review and Approval System and 
Encouraging Innovation of Drugs and Medical Devices,  which seeks to further advance the policies 
outlined in Notices 52, 53 and 54.  In November 2017, CFDA issued draft  Technical Guidelines for 
the Acceptance of Overseas Clinical Trial Data of Medical Devices . This draft measure  indicated 
that overseas clinical data would be accepted even for Class III medical devices . Despite the 
positive reforms set forth in these draf t and final measures, China in practice continues to require 
local data for multi -regional clinical trials for medical devices and also continues to require certain 
other clinical trials for medical devices to take place in China.  The United States will co ntinue to 
examine how recent regulations impact China 's treatment of non -Chinese medical devices 
companies and press China to modernize and enhance its approval system to ensure US 
companies do not take on unnecessary costs or encounter unnecessary delays to enter China 's 
market.  
3.227.   In 2015, China reinstated and increased registration fees for both medical devices and 
pharmaceutical products.  For Class II medical devices, while foreign manufacturers are required to 
pay a set amount, registration fees for domes tic manufacturers are set by the provincial regulatory 
authorities and can vary.  The United States continues to press relevant Chinese regulatory 
authorities to ensure equitable treatment and access for US medical device manufacturers and to 
keep the regis tration fees at a reasonable level.  The United States also has pressed China to 
establish concrete metrics to ensure that the performance of China 's regulatory authorities in 
reducing product approval delays, given the additional resources flowing from the  substantial 
registration fees.  At the November 2015 JCCT meeting, China agreed to publish annual reports 
evaluating how its registration and approval processes for pharmaceuticals and medical devices 
are performing.  
3.228.   In March 2017, MOF and NDRC issued the Notification on Policies for Clearing and 
Standardizing Some Administrative Fees , which eliminates the collection of 41 administrative fees. 
Later that month, CFDA issued Circular 187, specifying that medical device testing fees would be 
cancelled by April  2017.  The cancellation of these fees has led to an unwillingness on behalf of 
Chinese testing laboratories to provide their services to industry.  Since the issuance of this notice, 
many laboratories have indicated either that they will no longer guarantee  timelines for completion 
of tests or that they no longer will accept product -testing responsibilities requiring travel for on -
site testing.  These developments have caused concern for industry as well as significant additional 
delays in the registration of  medical devices.  
3.229.   In January 2017, eight Chinese ministries announced a new policy that appears to allow no 
more than two invoices in the distribution chain for drugs, one from the manufacturer to a WT/GC/W/746  
 
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  distributor and another from the distributor to the end -use hospitals.  Although this two -invoice 
system was only meant to apply to drugs, multiple local authorities in China are also applying this 
same requirement to medical devices.  In practice, drug and medical device manufacturers use 
many distributors for a particular product, depending on geographic location, expertise, 
competitive pricing and other factors.  Meanwhile, to date, China 's regulatory authorities have not 
provided a clear definition of the "two  invoices " system, leaving a great deal of misunderst anding 
among medical device manufacturers and distributors.  This new policy also is causing significant 
uncertainty in the China market, with the potential for creating, among other things, an unfair 
advantage for a handful of distributors in their dealing s with manufacturers.  
3.230.   In September 2017, the National Health and Family Planning Commission (NHFPC) notified 
medical device manufacturers that they had two weeks to provide a wide range of data in order to 
participate in China 's pricing and reimbursement p rogram for public and military hospitals.  The 
United States and other foreign governments immediately raised serious concerns about this 
measure with the Chinese authorities.  Although NHFPC subsequently extended its deadline by two 
weeks, US and other foreign companies still encountered significant burdens in providing the vast 
amount of data required of them, which included data not required to be produced in other 
countries.  
Cosmetics  
 
3.231.   In December 2013, CFDA issued a notice requiring forei gn cosmetics manufacturers to 
submit a certificate of free sale establishing that an imported product is also being sold in the 
country of origin. As many cosmetics products are manufactured globally and designed specifically 
for particular destination mar kets, this new requirement amounted to an effective ban on many 
imported cosmetics normally sold in China and contributed to severe time -to-market delays.  The 
United States has raised concerns with China about this new requirement in both bilateral 
meeting s and before the WTO TBT Committee.  
3.232.   In November 2014, CFDA released a draft measure, the Regulations on the Supervision 
and Administration of Cosmetics , for public comment . US industry had concerns about several 
provisions in this draft measure, including provisions that appeared to contain unfair requirements 
for foreign products.  For example, the draft measure retained the certificate of free sale 
requirement for imported cosmetics.  It also generated concerns relating to product safety 
determinations and ingredient management and treatment of confidential business information 
during claims substantiation.  
3.233.   Later that same month, CFDA issued another draft measure, the Administrative Measures 
on Cosmetic Labeling , for public comment.  This draft measure poses  many concerns for the US 
industry, including a blanket ban of over -labels on cosmetics packages, which would require 
foreign manufacturers to re -design packages specifically for the Chinese market.  This requirement 
could result in high production costs an d lengthy time -to-market delays, as well as a loss of brand 
equity.   
3.234.   In coordination with US industry, the United States has been engaging with CFDA in order 
to highlight US industry 's concerns regarding the two November 2014 draft measures.  It appears 
that China has since placed the draft Administrative Measures on Cosmetic Labeling  on hold.  In 
addition, in July 2015, the SCLAO released a revised draft Cosmetics Supervision and 
Administration Regulation  for public comment.  The revised draft adopts a number  of practices 
welcomed by international cosmetics companies, including changes more in line with international 
practices relating to the management of product safety determinations and the notification of new 
ingredients, as well as a reduction in the numb er of cosmetics products classified as special.  At the 
same time, there are remaining concerns on claims management, given unclear provisions as to 
how confidential business information will be addressed in substantiation.   
China RoHS  
 
3.235.   The United States co ntinues to be concerned by China 's Administrative Measures for 
Controlling Pollution Caused by Electronic Information Products, issued by MIIT and several other 
Chinese agencies effective March 2007.  This measure is modeled after existing EU regulations th at 
restrict hazardous substances in electronic products and is known as "China  RoHS. " While both the 
EU regulations and China 's regulations seek to ban lead and other hazardous substances from a WT/GC/W/746  
 
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  wide range of electronic products, there are significant diff erences between the two regulatory 
approaches.  
3.236.   Throughout the process of developing the China RoHS regulations, there was no formal 
process for interested parties to provide comments or consult with MIIT, and as a result foreign 
stakeholders had only limit ed opportunity to comment on proposals or to clarify MIIT 's 
implementation intentions.  China did eventually notify the regulations to the TBT Committee, but 
the regulations did not provide basic information such as the specific products for which mandatory  
testing will be required or any details on the applicable testing and certification protocols, 
generating concern among US and other foreign companies that they would have insufficient time 
to adapt their products to China 's requirements and that in -count ry testing requirements would be 
burdensome and costly.  
3.237.   In July 2012, MIIT posted on its website another draft revision of the China RoHS 
regulations for public comment, and US industry submitted comments on it.  To date, MIIT has not 
finalized this draft r evision.  
3.238.   In January 2016, MIIT announced a new RoHS measure that expands both the set of 
restricted chemicals as well as the scope of products subject to  RoHS restrictions, effective July 
2016.  This expansion was of serious concern to manufacturers in the United States, given that it 
requires new labeling and certification procedures for many products.  It remains unclear how 
China will proceed with implementation of the new RoHS measure.  Since then, the United States 
has engaged China, urging it to extend t he deadline for manufacturers to comply with the 
requirements set forth in the new RoHS measure and to take steps to ensure that the new RoHS 
measure will not disrupt commerce.  The United States will continue to actively engage China in 
this area going for ward.  
3.4.5.4   Transparency  
3.239.   In the area of transparency, AQSIQ 's TBT inquiry point, established shortly after China 
acceded to the WTO, has continued to be helpful to US companies as they try to navigate China 's 
system of standards, technical regulations and confor mity assessment procedures.  In addition, 
China 's designated notification authority, MOFCOM, has been notifying proposed technical 
regulations and conformity assessment procedures to the TBT Committee so that interested 
parties in WTO members are able to co mment on them, as required by the TBT Agreement.   
3.240.   However, in 2017, as in prior years, almost all of the notified measures have emanated 
from AQSIQ, SAC or CNCA and have rarely included measures from other agencies that appear to 
require notification, such  as MOH, MIIT, the Ministry of Environmental Protection and CFDA.  
Several years ago, in part to address this problem, China had reportedly formed a new inter -
agency committee, with representatives from approximately 20 ministries and agencies and 
chaired b y AQSIQ, to achieve better coordination on TBT (and SPS) matters, but progress has 
been inconsistent in this area.  
3.241.   As a result, some of China 's TBT measures continue to enter into force without having first 
been notified to the TBT Committee, and without foreign companies having had the opportunity to 
comment on them or even being given a transition period during which they could make necessary 
adjustments.  In addition, as the United States has consistently highlighted during regular meetings 
and the annua l transitional reviews before the TBT Committee, the comment periods established 
by China for the TBT measures that have been actually notified continue to be unacceptably brief 
in some cases.  In other cases, some US companies have reported that even when sufficient time 
was provided, written comments submitted by US and other foreign interested parties seemed to 
be wholly disregarded.  In still other cases, insufficient time was provided for Chinese regulatory 
authorities to consider interested parties ' comments bef ore a regulation was adopted.  
3.4.6   Other Internal Policies  
3.4.6.1   State -Owned and State -Invested Enterprises  
3.242.   While many provisions in China 's WTO accession agreement indirectly discipline the 
activities of state -owned and state -invested enterprises, China al so agreed to some specific WT/GC/W/746  
 
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  disciplines.  In particular, it agreed that laws, regulations and other measures relating to the 
purchase of goods or services for commercial sale by state -owned and state -invested enterprises, 
or relating to the production of goo ds or supply of services for commercial sale or for non -
governmental purposes by state -owned and state -invested enterprises, would be subject to WTO 
rules.  China also affirmatively agreed that state -owned and state -invested enterprises would have 
to make p urchases and sales based solely on commercial considerations, such as price, quality, 
marketability and availability, and that the government would not influence the commercial 
decisions of state -owned and state -invested enterprises.  
3.243.   After China 's establishment of SASAC in 2003, it became evident that the Chinese 
government was intent on heavily intervening in a broad range of decisions related to the 
strategies, management and investments of state -owned enterprises.  SASAC was specifically 
created  to represent the state 's shareholder interests in state -owned enterprises, and its basic 
functions include guiding the reform of state -owned enterprises, taking daily charge of supervisory 
panels assigned to large state -owned enterprises, appointing and r emoving chief executives and 
other top management officials of state -owned enterprises, supervising the preservation and 
appreciation of value of state -owned assets, reinvesting profits and drafting laws, regulations and 
departmental rules relating to the management of state -owned assets.  
3.244.   In December 2006, the State Council issued the Guiding Opinions on Promoting the 
Adjustment of State -owned Assets and the Restructuring of State -owned Enterprises , which calls 
on SASAC to "enhance  the state -owned economy 's controlling power, " "prevent the loss of state -
owned assets, " encourage "state -owned capital to concentrate in major industries and key fields 
relating to national security and national economic lifelines " and "accelerate  the formation of a 
batch of predominant enterprises with independent intellectual property rights, famous brands, 
and strong international competitiveness. " The decree then specifically identifies seven "strategic " 
industries, where state capital must pla y a leading role in every enterprise.  These industries 
include civil aviation, coal, defense, electric power and grid, oil and petrochemicals, shipping and 
telecommunications.  The decree also provides that key enterprises in "pillar " industries must 
remain  under state control.  These industries include automotive, chemical, construction, 
equipment manufacturing, information technology, iron and steel, nonferrous metals, and 
surveying and design, among others.  
3.245.   Particularly since the start of the global econo mic downturn in late 2008, state -owned 
enterprises at the central government level have been aggressively acquiring and merging with 
other central state -owned enterprises as well as provincial and local state -owned enterprises and 
private enterprises.  According to one Chinese government statement, 82 percent of central state -
owned enterprises ' assets are concentrated in the petro -chemicals, electric power and grid, 
defense, telecommunications, transport, mining, metallurgy and machinery sectors.  Central sta te-
owned enterprises also supply almost all of the crude oil, natural gas, ethylene and basic 
telecommunication services for China 's economy.  
3.246.   In October 2008, China 's National People 's Congress passed the Law on  State -owned 
Assets of Enterprises , which bec ame effective in May 2009.  The objectives of this law are to 
safeguard the basic economic system of China, consolidate and develop China 's state -owned 
enterprise assets, enable state -owned enterprises to play a dominant role in the national economy, 
especi ally in "key " sectors, and promote the development of China's "socialist  market economy. " 
The law calls for the adoption of policies to promote these objectives and to improve the 
management system for state -owned assets.  It also addresses SASAC 's role, th e rights and 
obligations of state -owned enterprises, corporate governance and major matters such as mergers, 
the issuance of bonds, enterprise restructuring and asset transfers.  The law further stipulates that 
the transfer of state assets to foreigners sho uld follow relevant government policies and shall not 
harm national security or the public interest.  
3.247.   In March 2010, SASAC issued a potentially far -reaching measure, the Interim Provisions on 
Guarding Central State -Owned Enterprises ' Commercial Secrets , effective as of the date of its 
issuance.  This measure appears to implement the Law on Guarding State Secrets , which the 
National People 's Congress amended in 2009.  It is unclear why the commercial secrets of state -
owned enterprises need to be protected throu gh a measure applicable only to state -owned 
enterprises, when the commercial secrets of all enterprises in China are already subject to 
protection.  WT/GC/W/746  
 
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  3.248.   In July 2010, the Central Committee of the Communist Party and the State Council issued 
the Opinions on Furt her Promoting the Implementation of the "Three -Major One -Large " Decision -
making System . This measure requires state -owned enterprises to establish a collective decision -
making system in which the Communist Party plays a significant role in major business d ecisions, 
major personnel changes and major project arrangements (known as the "three  majors "). It also 
requires the movement of large amounts of funds ( the "one  large") to be decided collectively by 
the leadership team, which includes representatives from  the Communist Party.   
3.249.   Separately, the Chinese government also has issued a number of measures that restrict 
the ability of state -owned and state -invested enterprises to accept foreign investment, particularly 
in key sectors.  Some of these measures are dis cussed below in the Investment section, and 
include restrictions on foreign investment not only in the public sector but also in China 's private 
sector.   
3.250.   In November 2013, as previously reported, the Third Plenum Decision  endorsed a number 
of far -reaching economic reform pronouncements, which called for making the market "decisive " in 
allocating resources, reducing Chinese government intervention in the economy, accelerating 
China 's opening up to foreign goods and services, and improving transparency and th e rule of law 
to allow fair competition in China 's market.  It also called for reforming China 's state -owned 
enterprises.  While these pronouncements appeared to signal a high -level determination to 
accelerate needed economic reforms, which have not material ized, it was clear from the beginning 
that they were not designed to reduce the presence of state -owned enterprises in China 's 
economy.  Rather, in the case of state -owned enterprises, the reform objectives were to 
consolidate and to strengthen those enterp rises and to place them on a more competitive footing, 
both in China and globally.   
3.251.   Indeed, since the issuance of the Third Plenum Decision , new policies have continued to be 
formulated that further strengthen the power of the Chinese government and the Co mmunist Party 
in state -owned enterprises.  In May 2015, for example, the Politburo of the Communist Party 
issued a document requiring that all organizations (including private companies) have Communist 
Party organizations so that Communist Party policy can be implemented across society.  In 
August  2015, the Communist Party Central Committee and China 's State Council jointly issued the 
Guiding  Opinions on Deepening the Reform of State -Owned Enterprises , a measure that requires 
state-owned enterprises to adhere  to the Communist Party 's leadership, give full play to the core 
political role of Communist Party organizations and strengthen the Communist Party 's 
responsibility to select corporate officers.   
3.252.   In September 2016, SASAC and MOF jointly released the report edly State Council -
approved Implementing Plan for Perfecting Central Enterprise Functional Classification and 
Performance Evaluation , which announces that central state -owned enterprises will be categorized 
as commercially driven enterprises, strategic ent erprises or public -interest enterprises, subject to 
different performance evaluation criteria.  While the focus for commercial state -owned enterprises 
is to be on reasonable returns on capital, this measure also provides that returns will be 
satisfactory if  these enterprises need to, for example, safeguard national security (meaning not 
only national defense security, but also energy and resource security, food security and cyber and 
information security), provide public services, contribute to the developme nt of strategic emerging 
industries or implement major "go -global " programs.  This approach to commercial state -owned 
enterprises indicates that China likely will not meet its May 2012 S&ED commitment to develop a 
market environment of fair competition for enterprises of all kinds of ownership and to provide 
them with non -discriminatory treatment in terms of credit provision, taxation incentives and 
regulatory policies.  
3.253.   In recent years, China 's central and provincial government authorities have sought to 
reform state -owned enterprises by pressuring private companies to invest in, or merge with, state -
owned enterprises.  This drive toward "mixed  ownership " is seen as a way to inject innovative 
practices into and create new opportunities for inefficient state -owned enterprises.  In 
October  2017, SASAC 's chairman confirmed that mixed ownership is a primary element of SASAC 's 
reform efforts and instructed state -owned enterprises to complete their mixed -ownership 
reorganizations by the end of 2017.  President Xi addressed this same subject in his remarks at the 
19th Party Congress, held in October 2017, where he stated that further reform of state -owned 
enterprises will include the development of mixed -ownership enterprises and will turn these 
enterprises into wor ld-class, globally competitive enterprises.  President Xi also stated that China WT/GC/W/746  
 
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  will work to increase the value of state -owned enterprises and make them stronger, bigger and 
better.  
3.254.   At present, the number of troubling issues relating to state -owned enterp rises in China is 
growing.  Various actions of the Communist Party, the Chinese government and China 's state -
owned enterprises continue to impede the ability of US firms to invest in China and compete with 
China 's state -owned enterprises in China and other markets, while true state -owned enterprise 
reform does not appear to be on China 's agenda.  
3.4.6.2   State Trading Enterprises  
3.255.   In its WTO accession agreement, China agreed to disciplines on the importing and 
exporting activities of state trading enterprises.  China committed to provide full information on the 
pricing mechanisms of state trading enterprises and to ensure that their import purchasing 
procedures are transparent and fully in compliance with WTO rules.  China also agreed that state 
trading enterprises woul d limit the mark -up on goods that they import in order to avoid trade 
distortions.   
3.256.   Since China 's WTO accession, the United States and other WTO members repeatedly have 
sought information from China on the pricing and purchasing practices of state trading enterprises, 
principally through the transitional reviews at the WTO.  However, China has only provided general 
information, which does not allow a meaningful assessment of China 's compliance efforts.  
3.257.   China also has not been making notifications under Artic le XVII:4(a) of the GATT 1994 and 
paragraph 1 of the Understanding on the Interpretation of Article XVII of the GATT 1994, which 
requires China to notify its state trading enterprises.  Prior to this year, China had not submitted a 
notification since 2003, despite the emergence of new state trading enterprises in subsequent 
years.   
3.258.   In September 2014, after failing to persuade China to submit an up -to-date notification of 
its state trading enterprises, the United States submitted a counter notification to the  Working 
Party on State Trading Enterprises pursuant to paragraph 4 of the Understanding on the 
Interpretation of Article XVII of the GATT 1994.  In this counter notification, the United States 
identified 153 state trading enterprises, including 44 state tr ading enterprises not previously 
notified by China, and provided detailed information on the establishment and operations of these 
enterprises for the benefit of other WTO members and the public.  
3.259.   In October 2015, China finally submitted a notification add ressing its state trading 
enterprises.  However, this notification did not include much of the detailed information envisioned 
by the WTO 's notification requirement.  
3.260.   In June 2016, through the Working Party on State Trading Enterprises, the United States 
submitted numerous follow -up questions seeking to fill in the many gaps in China 's notification.  In 
March 2017, China replied to the US questions, stating that much of the information could not be 
provided because it was business confidential.  In November 201 7, after having found much of this 
same information in public sources, the United States filed a counter -notification that attempts to 
fill in many of the missing pieces of information for several of the previously notified state trading 
enterprises.   
3.4.6.3   Gove rnment Procurement  
3.261.   The WTO Agreement on Government Procurement or GPA, is a plurilateral agreement that 
currently covers the United States and 46 other WTO members.  The GPA applies to the 
procurement of goods and services by central and sub -central governm ent agencies and 
government enterprises specified by each party, subject to specified thresholds and certain 
exceptions.  It requires GPA parties to provide MFN and national treatment to the goods, services 
and suppliers of other GPA parties and to conduct their procurement in accordance with 
procedures designed to ensure transparency, fairness and predictability in the procurement 
process.  WT/GC/W/746  
 
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  3.262.   China is not yet a party to the GPA.  It committed, in its WTO accession agreement, to 
initiate negotiations for accessi on to the GPA  "as soon as possible. " Until it completes its accession 
to the GPA, China has committed in its WTO accession agreement that all of its central and local 
government entities will conduct their procurements in a transparent manner.  China also a greed 
that, where it opens a procurement to foreign suppliers, it will provide MFN treatment by allowing 
all foreign suppliers an equal opportunity to participate in the bidding process.   
GPA Accession  
 
3.263.   At the April 2006 JCCT meeting, China agreed to initi ate GPA negotiations no later than 
December 2007.  China subsequently initiated negotiations on its accession to the GPA in 
December 2007 with the submission of its application for accession and its initial offer of coverage, 
known as its Appendix I Offer.  In May 2008, the United States submitted its Initial Request for 
improvements in China 's Initial Appendix I Offer, and other GPA parties submitted similar 
requests.  In September 2008, China submitted its responses to the Checklist of Lists for Provision 
of Information Relating to Accession.  
3.264.   In 2009, the United States held three rounds of negotiations with China on the terms and 
conditions of China 's GPA accession.  In addition, at the July 2009 S&ED meeting, China agreed to 
submit a report to the WTO 's Government Procurement Committee, before its October 2009 
meeting, setting out the improvements that China would make in its revised offer.  In October 
2009, China submitted the report, which indicated that improvements to its offer would provide for 
the co verage of more entities, goods and services and lower thresholds.  Subsequently, following 
further bilateral engagement by the United States, China committed during the October 2009 JCCT 
meeting to submit a revised offer as early as possible in 2010.  
3.265.   In 2010, the United States held three more rounds of negotiations with China on the terms 
and conditions of China 's GPA accession and the development of its government procurement 
system.  In addition, the United States submitted questions to China on its resp onses to the 
Checklist of Lists for Provision of Information Relating to Accession.  At the May 2010 S&ED 
meeting, China committed to submit its first Revised Offer in July 2010, as it later did.  The United 
States then submitted its Second Request for impro vements in China 's proposed coverage of 
government procurement in September 2010.   
3.266.   At the December 2010 JCCT meeting, the United States obtained China 's commitment to 
accelerate its accession to the GPA, as China agreed to work with provincial and local go vernments 
and to submit a robust revised offer of coverage in 2011.  During President Hu 's January 2011 visit 
to Washington, China expressly committed that its next revised offer would include sub -central 
entities.  Subsequently, China reiterated that it wou ld submit a second revised offer in 2011, which 
it did in November 2011.  
3.267.   In 2011, the United States held three rounds of negotiations with China on its accession to 
the GPA.  The negotiations included US experts who explained the US government procurement 
system and the implementation of US commitments under the GPA.  The negotiations also focused 
on the coverage of government enterprises under the GPA, with the United States requesting that 
China add state -owned enterprises to its GPA coverage.  
3.268.   At the May 20 12 S&ED meeting, China committed to submit "a  new comprehensive revised 
offer that responds to the requests of the GPA parties … before the [GPA] committee 's final 
meeting in 2012. " China subsequently submitted its third revised offer in November 2012.  This 
revised offer falls short of the coverage provided by the United States and other GPA parties, as 
China responded to few requests made by GPA parties.  These requests had sought to extend 
coverage to state -owned enterprises, include additional services co verage, eliminate broad 
exclusions and significantly expand coverage of sub -central entities.  The United States, the EU and 
other GPA parties described the revised offer as highly disappointing, both in terms of scope and 
coverage.  At the December 2012 JCC T meeting, China agreed to engage seriously with the United 
States on outstanding core issues relating to the scope of projects that qualify as government 
procurement and the extent to which state -owned enterprises in China engage in government 
procurement  activities.  WT/GC/W/746  
 
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  3.269.   In 2013, using a new mechanism for technical discussions with China established through 
the S&ED process, the United States secured two commitments from China in an effort to expedite 
China 's accession to the GPA while continuing to push for r obust terms that are comparable to the 
coverage of the United States and other GPA parties.  At the July 2013 S&ED meeting, China 
agreed to submit by the end of 2013 a new revised offer to join the GPA.  China followed through 
by submitting its fourth revise d offer.  However, China 's revised offer was short of the coverage 
provided by other GPA parties.   
3.270.   At the December 2013 JCCT meeting, China committed to accelerate its GPA accession 
negotiations and submit in 2014 an additional revised offer that is on the whole commensurate 
with the coverage of GPA parties.  In December 2014, China tabled a revised offer.  The revised 
offer was not on the whole commensurate with the coverage of GPA parties and remains far from 
acceptable to the United States and other GPA par ties, as significant deficiencies remain in a 
number of critical areas including thresholds, entity coverage, services coverage and exclusions.  
China 's Government Procurement Regime  
 
3.271.   In January 2003, China implemented its Government Procurement Law . However, China 's 
Government Procurement Law  directs central and sub -central government entities to give priority 
to "local " goods and services, with limited exceptions, as China is permitted to do, because it is not 
yet a party to the GPA.  Since the adopti on of the Government Procurement Law , MOF has issued 
various implementing measures, including regulations that set out detailed procedures for the 
solicitation, submission and evaluation of bids for government procurement of goods and services 
and help to clarify the scope and coverage of the Government Procurement Law . MOF also issued 
measures relating to the announcement of government procurements and the handling of 
complaints by suppliers relating to government procurement.  
3.272.   It is notable, however, that the Government Procurement Law does not cover most public 
works projects, which represent at least one -half of China 's government procurement market.  
Those projects are subject to a different regulatory regime, established by China 's Tendering and 
Bidding Law, which entered into force in January 2000.  In September 2009, the State Council 
circulated NDRC 's draft regulations implementing the Tendering and Bidding Law  for public 
comment.  In October 2009, the United States submitted written comments on these dr aft 
regulations in which it emphasized, among other things, the need for greater clarification of the 
relationship between the Tendering and Bidding Law  and China 's Government Procurement Law , 
and the need to define "domestic  products. " In December 2011, t he State Council issued the final 
implementing regulations for the Tendering and Bidding Law , which entered into force in 
Februar y 2012.  
3.273.   As previously reported, beginning in 2003, the United States expressed concerns about 
policies that China was developi ng with regard to government procurement of software.  In 2003, 
the United States specifically raised concerns about MOF implementing rules on software 
procurement, which reportedly contained guidelines mandating that central and local governments 
– the lar gest purchasers of software in China – purchase only software developed in China to the 
extent possible.  The United States was concerned not only about the continuing access of US 
software exporters to China 's large and growing market for packaged and cust om software – $7.5 
billion when the MOF rules went into effect – but also about the precedent that could be 
established for other sectors if China proceeded with MOF 's proposed restrictions on the purchase 
of foreign software by central and local governmen ts. At the July 2005 JCCT meeting, China 
indicated that it would indefinitely suspend its drafting of implementing rules on government 
software procurement.   
3.274.   Subsequently, in 2007 and 2008, the United States grew concerned with statements and 
announcements  being made by some Chinese government officials indicating that state -owned 
enterprises should give priority to the purchase of domestic software.  In response, at the 
September 2008 JCCT meeting, China clarified that its formal and informal policies relat ing to 
software purchases by Chinese enterprises, whether state -owned or private, will be based solely 
on market terms without government direction.  
3.275.   Meanwhile, in December 2007, one day before China tabled its Initial Appendix I Offer in 
connection with it s GPA accession, MOF issued two measures that would substantially restrict the 
Chinese government 's purchase of foreign goods and services.  The first measure, the WT/GC/W/746  
 
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  Administrative Measures for Government Procurement on Initial Procurement and Ordering of 
Indigenous Innovative Products , was directed at restricting government procurement of 
"indigenous  innovative " products to "Chinese " products manufactured within China.  The central 
government and provincial governments followed up by creating catalogues of qualifying 
"indigenous  innovation products. " The second measure, the Administrative Measures for 
Government Procurement of Imported Products , severely restricted government procurement of 
imported foreign products and technologies.  While China may maintain  these measures until it 
completes its GPA accession, the United States has raised strong concerns about them, as they 
run counter to the liberalization path expected of a WTO member seeking to accede to the GPA.  
3.276.   In 2009, China reinforced its existing "Buy  China " measures at the central, provincial and 
local government levels.  For example, in May 2009, MIIT issued a circular entitled Government 
Procurement Administration Measures , which applies to MIIT and its direct subsidiaries.  The 
measure required entit ies engaging in government procurement to give priority to domestic 
products, projects and services as well as to indigenous innovation products, except where the 
products or services cannot be produced or provided in China or are for use outside of China.  
Similarly, in May 2009, nine central government ministries and agencies jointly issued the 
Opinions on Further Strengthening Supervision of Tendering and Bidding Activities in Construction 
Projects , which included a "Buy  China " directive for all projects under China 's stimulus package.  
This directive specifically requires that priority be given to "domestic  products " for all government -
invested projects, unless the products are not available in China, cannot be purchased on 
reasonable commercial terms in C hina or are for use abroad.   
3.277.   During the July 2009 S&ED meeting, China committed to treat products produced in China 
by foreign -invested enterprises the same as products produced in China by Chinese enterprises for 
purposes of its Government Procurement Law . China later reaffirmed this commitment and further 
committed during the October 2009 JCCT meeting to issues rules implementing it.  In addition, the 
United States and China agreed to establish a multi -agency working group to conduct regular 
discussions ad dressing issues raised by government procurement and by the purchases of state -
affiliated enterprises and organizations and private entities pursuing national strategic objectives.  
3.278.   In 2010, China circulated two draft measures intended to implement its Government 
Procurement Law . The first draft measure, the Regulations to Implement the Government 
Procurement Law , was issued by MOF in January 2010.  The United States submitted comments in 
February, in which, among other things, it expressed concern that the d raft measure did not 
provide a GPA -consistent regime.  The United States also expressed concern that the draft measure 
did not provide more specificity about the conduct of government procurement.  The second draft 
measure, the Administrative Measures for Go vernment Procurement of Domestic Products , was 
issued for public comment in May 2010 by MOF, MOFCOM, NDRC and the General Administration 
of Customs.  In accordance with China 's October 2009 JCCT commitment, this draft measure set 
out the requirements for a product to qualify as a "domestic  product. " The United States submitted 
comments on this draft measure in June 2010, in which it expressed concerns about the lack of 
details regarding how the draft measure would be implemented as well as its broad applicat ion.  
3.279.   Separately, in November 2009, MOST, NDRC and MOF issued the Circular on Launching 
the 2009 National Indigenous Innovation Product Accreditation Work , requiring companies to file 
applications by December 2009 for their products to be considered for ac creditation as "indigenous  
innovation products. " This measure provides for preferential treatment in government 
procurement to any products that are granted this accreditation.  Subsequently, the United States 
and US industry, along with the governments and  industries of many of China 's other trading 
partners, expressed serious concerns to China about this measure, as it appears to establish a 
system designed to provide preferential treatment in government procurement to products 
developed by Chinese enterpr ises.  
3.280.   In April 2010, MOST, NDRC and MOF issued a draft measure for public comment, the 
Circular on Launching 2010 National Innovation Product Accreditation Work . The draft measure 
would amend certain of the product accreditation criteria set forth in the November 2009 measure, 
but would leave other problematic criteria intact, along with the accreditation principles, 
application form and link to government procurement.  In addition, the draft measure originally 
was to become effective the day after comments  were due.  The United States submitted 
comments in May 2010, in which it asked China to suspend the implementation of the indigenous 
innovation accreditation system and to engage in consultations with the United States to address WT/GC/W/746  
 
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  US concerns with the syste m. To date, the draft measure has not been finalized, and the Chinese 
authorities have not requested or accepted applications for accreditation.  
3.281.   At the December 2010 JCCT meeting, China committed not to maintain any measures that 
provide government procure ment preferences for goods or services based on the location where 
the intellectual property is owned or was developed.  One month later, during President Hu 's visit 
to Washington in January 2011, China went further by agreeing that it would "not  link its 
innovation policies to the provision of government procurement preferences. " Subsequently, at the 
May 2011 S&ED meeting, China also committed to "eliminate  all of its government procurement 
indigenous innovation products catalogues " when implementing the ag reement reached during 
President Hu 's visit.  Finally, at the November 2011 JCCT meeting, China announced that the State 
Council had issued a measure requiring provincial and local governments to eliminate all links 
between China 's innovation policies and g overnment procurement preferences by December 2011.  
Notwithstanding these repeated promises, recent reports have identified measures that a number 
of Chinese provincial and local governments have adopted, or have continued to maintain, that call 
for govern ment procurement preferences for indigenous innovation products.  
3.282.   At the December 2010 JCCT meeting, China also agreed that, in 2011, it would revise a 
major MIIT catalogue, which covers heavy equipment and other industrial machinery, and that it 
would not use the revised catalogue for import substitution or the provision of export subsidies or 
otherwise to discriminate against foreign suppliers.  Once again, however, it failed to fulfill this 
promise.  MIIT issued a draft of the revised catalogue for public c omment shortly before the 
November 2011 JCCT meeting, but it has not yet issued a final revised catalogue.  
3.283.   In 2014, the United States engaged with China on the draft Implementation Rules of the 
Government Procurement Law  and the draft Administrative Measur es for Government Procurement 
of Domestic Goods . The United States recommended that China ensure that the provisions 
contained in these measures allow enough flexibility for Chinese government agencies to continue 
to procure high -quality items with complex  international supply chains at a reasonable price and to 
avoid disruptions of trade.  In January 2015, China issued the final version of the implementing 
rules, which took effect in March 2015.  Consistent with its commitment at the 2011 S&ED 
meeting, the i mplementing rules remove a provision calling for measures that accord preferences 
to indigenous innovation products.  The implementing rules also removed a provision that would 
have treated all intellectual property as a good.  However, they still contain a non-exhaustive list of 
bases according to which future rules and policies could be adopted that discriminate against 
foreign goods and services.  
3.284.   In April 2016, the MOF released a draft of the Administrative Measures for the Bidding and 
Bids for Government Procurement of Goods and Services . This draft measure builds on China 's 
Government Procurement Law  and lays out information that should be made available to bidders in 
the government procurement process and how procuring agencies and procurement officials 
should evaluate bids to determine a winning bidder.  In May 2016, the United States submitted 
comments on the draft measure.  These comments asked for clarifications and provided comments 
calling on MOF to increase transparency in procedures and timelines fo r tendering and bidding, 
create a domestic review or challenge procedure for bidders to utilize, increase predictability for 
bidders by turning optional provisions into required ones, and promote consistency with 
requirements of the GPA in order to provide  benefits for potential bidders from the United States. 
To date, China has not provided any direct reply to these comments.   
3.285.   In September 2016, SASAC and MOF jointly released the Implementing Plan for Perfecting 
Central Enterprise Functional Classification  and Performance Evaluation , which divides China 's 
central government level state -owned enterprises into three categories for purposes of regulation, 
i.e., commercial, strategic and public interest.  Ensuring coverage of state -owned enterprises that 
conduct  procurements for governmental purposes is critical to China 's successful GPA accession.  
This issue will continue to receive attention from the United States and others going forward.    
3.286.   In April 2017, MOF issued the Notice on Further Improving the Informat ion Disclosure 
Work on Government Procurement , a measure  that seeks to improve transparency.  It establishes 
a single official national government procurement information website, makes provincial 
government procurement information websites components of th e national government website, 
requires provincial government finance departments to uniformly follow the central domain name WT/GC/W/746  
 
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  system and requires the public disclosure of transaction -specific information.  It also calls for the 
conduct of a third -party assessment of the transparency of the government procurement process.   
3.287.   Going forward, the United States will continue to examine the treatment being accorded to 
US suppliers under China 's government procurement regime.  The United States also will continue 
to urge China to apply its regulations and implementing rules in a transparent, non -discriminatory 
manner.   
3.5  INVESTMENT  
3.288.   Upon its accession to the WTO, China assumed the obligations of the Agreement on Trade -
Related Investment Measures (TRIMS Agreement), whi ch prohibits investment measures that 
breach GATT Article III obligations to treat imports no less favorably than domestic products or the 
GATT Article XI obligation not to impose quantitative restrictions on imports.  The TRIMS 
Agreement thus expressly req uires elimination of measures such as those that require or provide 
benefits for the incorporation of local inputs (known as local content requirements) in the 
manufacturing process, or measures that restrict a firm 's imports to an amount related to its 
exports or related to the amount of foreign exchange a firm earns (known as trade balancing 
requirements).  In its WTO accession agreement, China also agreed to eliminate export 
performance, local content and foreign exchange balancing requirements from its l aws, regulations 
and other measures, and not to enforce the terms of any contracts imposing these requirements.  
In addition, China agreed that it would no longer condition importation or investment approvals on 
these requirements or on requirements such as  technology transfer and offsets.  
3.289.   In recent years, China has repeatedly affirmed its plans to further open China to foreign 
investment, including in the November 2013 Third Plenum Decision  and in other key policy 
documents, such as the November 2015 Fifth Plenum Decision  and the 13th Five -year Plan , 
released in March 2016.  China has not taken steps to follow through on these promises, except in 
limited instances, and in the case of some promises it seems to be going backwards on access.  
China also has purs ued other actions that discriminate against or otherwise disadvantage foreign 
investors, including an administrative approval system providing a case -by-case review of any 
foreign investment.  Foreign investors also have expressed great concern that draft C hinese laws 
and policy statements seem to suggest that China intends to pursue a broad definition of "national  
security, " to include "economic  security, " under its national security review regime.  
3.290.   In addition, China 's investment restrictions are often acco mpanied by other problematic 
industrial policies, such as the development of China -specific standards (see the Standards and 
Technical Regulations section above) and the increased use of subsidies.  Many of these policies 
appear to represent protectionist t ools created by the Chinese government 's industrial planners to 
shield inefficient or monopolistic enterprises, particularly those in which the Chinese government 
has an ownership interest, from competition.  At the same time, foreign investors in China als o 
continue to voice concerns about lack of transparency, inconsistent enforcement of laws and 
regulations, weak IPR protection, corruption and a legal system that is unreliable and fails to 
enforce contracts and judgments.  
3.291.   As discussed below, the United St ates has raised the need for China to substantially 
liberalize its investment restrictions and related policies in bilateral fora, such as the JCCT and the 
S&ED, and multilaterally in WTO meetings.  The November 2013 Third Plenum Decision , as 
reinforced by some aspects of the November 2015 Fifth Plenum Decision , affirms China 's plan to 
allow the market to play a decisive role and directs the government to broaden foreign investment 
access in China, including for a number of services sectors, and to explore t he possibility of a 
mechanism for allowing foreign investment under a "negative  list" approach.  The 13th Five -year 
Plan further emphasizes China 's plans to expand sector openings, reduce market access barriers 
and encourage foreign capital.  However, for th e most part, China has not taken any meaningful 
steps to implement these pledges.   
3.292.   In January 2015, MOFCOM released a draft Foreign Investment Law  that potentially would 
unify China 's existing three general laws applying to foreign investment and would spe cifically 
provide a framework for providing pre -establishment and post -establishment national treatment 
for foreign investors under a negative list approach.  Although the status of that draft law is not 
clear, the United States has a number of concerns wit h it, including the existence of many WT/GC/W/746  
 
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  elements that could be used to prohibit or restrict market access for foreign investors, such as a 
case-by-case approval system and a new, overly broad national security review.  
3.293.   In October 2015, China 's State Council i ssued the Opinions on the Implementation of the 
Market Access Negative List System , which focuses on the implementation of a negative list under 
China 's investment regime.  This measure applies to both domestic and foreign investors and 
launches negative li st pilot programs in select regions in China from December 2015 to December 
2017 in order to lay the groundwork for formally introducing a unified nationwide market access 
negative list system starting in 2018.  Of particular concern, the measure also sets forth a broad 
definition of "national  security, " which includes factors such as economic, cultural and financial 
security, for China 's regulatory authorities to take into account when implementing the negative 
list. The United States is also concerned about many other aspects of the proposed national 
security review, including its application to greenfield investments and the invitation for Chinese 
competitors to nominate transactions for review.  
3.294.   In July 2017, Ch ina issued a revised Foreign Investment Catalogue , which did not address 
key foreign investor priorities, such as the lifting of investment restrictions for important services 
sectors, extractive industries, the agriculture sector and certain manufacturing  industries.  In 
addition, while the revised Foreign Investment Catalogue  includes a negative list, it also includes a 
"positive  list" of encouraged sectors, with some industries listed in both categories, so it remains a 
hybrid approach rather than a true negative list for administering foreign investment.  
3.295.   In July 2017, President Xi stated publicly that China is still planning to enact a new basic 
law for foreign investment.  However, it is not clear whether he was referring to the finalization of 
the Janua ry 2015 draft Foreign Investment Law  or entirely new legislation.   
3.296.   In November 2017, during President Trump 's visit to Beijing, China announced that it 
would be relaxing certain restrictions on foreign investment in banking services, life insurance 
service s and securities and asset management services.  China also announced its intent to loosen 
its 50 -percent foreign equity cap for the production of NEVs in free trade zones.  To date, however, 
it has not made any of these changes.  
Investment Approvals  
 
3.297.   Since China 's accession to the WTO in December 2001, US and other foreign companies 
have expressed serious concerns about the administrative licensing process in China, both in the 
context of the foreign investment approval process currently being used by China (about which the 
United States has serious concerns) and in myriad other contexts.  While China took initial steps to 
improve administrative licensing in 2004 with the issuance of the Administrative Licensing Law , 
which was apparently designed to improve tr ansparency, create uniformity and streamline the 
licensing process, significant problems remain.  US industry reports that, in practice, many Chinese 
government bodies at the central, provincial and municipal government levels do not comply with 
this law.  US industry also reports that vague criteria and possibilities for delay in the licensing 
process provide licensing officials with tremendous discretion, thereby creating opportunities for 
corruption, and sometimes lead to foreign enterprises and products b eing treated less favorably 
than their domestic counterparts.   
3.298.   China 's maintenance of any type of formal or informal foreign investment approval process 
is of great concern.  As set forth in an extensive study conducted for a US industry association, 
confid ential accounts from foreign companies indicate that Chinese government officials at times 
use China 's current foreign investment approval process to restrict or unreasonably delay market 
entry for foreign companies, to require the foreign company to take on a Chinese partner, or to 
extract valuable, deal -specific commercial concessions as a price for market entry.  These same 
accounts also indicate that the Chinese government officials at times tell the foreign company that 
it will have to transfer technolo gy, conduct research and development in China or satisfy 
performance requirements relating to exportation or the use of local content if it wants its 
investment approved, even though none of these requirements is set forth in Chinese law and 
China committe d in its WTO accession agreement not to impose these requirements.   
3.299.   This situation has been able to persist in part because of the absence of the rule of law in 
China, which fosters the use of vague and unwritten policies and does not provide for meaningfu l WT/GC/W/746  
 
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  administrative or judicial review of Chinese regulatory actions, thereby enabling government 
officials to take unilateral actions without fear of legal challenge.  Exacerbating this situation is the 
fact that foreign companies are hesitant to speak out pu blicly, or to be perceived as working with 
their governments to challenge China 's foreign investment review practices, because they fear 
retaliation from Chinese government officials.  The US industry association study notes that foreign 
companies have conf identially reported receiving explicit or implicit threats from Chinese 
government officials – typically made orally rather than in writing – about possible retaliatory 
actions that could have severe repercussions for a company 's business prospects in Chin a. 
3.300.   In many cases, it appears that Chinese government officials are motivated by China 's 
industrial policy objectives when they use their unchecked power to dictate or influence foreign 
investment outcomes.  With China 's state -led economic development model,  the government issues 
five-year plans that set objectives for virtually every sector of the economy.  While these plans in 
broad terms seek to foster national champions, protect state -owned enterprises, promote 
indigenous innovation and guide the developme nt of Chinese domestic industry up the value chain, 
they also include specific guidelines addressing matters such as technology transfer and the use of 
local content, as well as decisions about industry consolidation, production capacity, product lines 
and similar decisions normally made by the marketplace.  
3.301.   Even though China has revised a number of laws, regulations and other measures on 
foreign investment to eliminate requirements relating to export performance, local content, foreign 
exchange balancing an d technology transfer, as China committed to do in its accession agreement, 
some of the revised measures, for example, continue to encourage technology transfer or the use 
of local content, without formally requiring it.  From the beginning, US companies we re concerned 
that this "encouragement " in practice could amount to a "requirement " in many cases, in light of 
the high degree of discretion provided to Chinese government officials when reviewing foreign 
investment applications.  Moreover, according to US companies, even without formal 
encouragement, some Chinese government officials still consider factors such as technology 
transfer and the use of local content when deciding whether to approve an investment or to take 
some other action, such as recommend approval of a loan from a Chinese policy bank, which is 
often essential to the success of a project.   
3.302.   Over the years, the United States and other WTO members, including the EU and Japan, 
have raised concerns in this area during meetings of the WTO TRIMS Co mmittee.  The United 
States and several other WTO members also highlighted this area during China 's Trade Policy 
Reviews, including the most recent one, which took place in July 2016.   
3.303.   On the bilateral front, the United States has pressed its concerns with technology transfer 
through the JCCT and S&ED processes and other avenues.  During the February 2012 visit of then -
Vice President Xi to the United States, China affirmed that technology transfer and technological 
cooperation shall be decided by businesses i ndependently and will not be used by the Chinese 
government as a pre -condition for market access.  At the December 2012 JCCT meeting, China also 
confirmed that it would correct in a timely manner any measures that were inconsistent with this 
commitment.   
3.304.   At the July 2014 S&ED meeting, China committed to treat applicants for administrative 
licenses and approvals under the same rules and standards as the United States with regard to the 
resources available to accept and process applications and the number of a pplications permitted at 
one time from an applicant, and to strictly implement existing laws and regulations to adequately 
protect any trade secret or sensitive commercial information provided by the applicant during the 
administrative licensing or approva l process, as required by law. However, these commitments did 
not result in any change to China 's overall approach of requiring case -by-case administrative 
approvals for foreign investments in the restricted category.  
3.305.   Despite the overall reduction in licen se approval requirements and the focus on 
decentralizing licensing approval processes, there has been little real progress.  To date, US 
companies report that China 's alleged improvements have only had a marginal impact on their 
licensing experiences so far .  WT/GC/W/746  
 
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  New Investment Restrictions  
 
3.306.   The United States and US industry have become particularly concerned about new 
restrictions on investment being proposed and implemented by China.  Often, these restrictions are 
accompanied by other problematic industrial pol icies, such as the increased use of subsidies, 
preferences for using domestic rather than imported goods, and the development of China -specific 
standards.   
3.307.   In August 2006, China made a further move toward a more restrictive investment regime 
when it issued  new regulations on mergers and acquisitions (M&A) involving foreign investors.  
These regulations strengthened MOFCOM 's supervisory role over foreign investment, in part by 
requiring MOFCOM 's approval of M&A transactions that it believes impact "national  economic 
security " or involve traditional Chinese brands or well -known Chinese trademarks.  Three years 
later, in July 2009, China issued revised regulations addressing M&A involving foreign investors, 
without having provided a notice -and-comment period.  The revised regulations retain the review 
criteria from the 2006 regulations.   
3.308.   In December 2006, as discussed above in the State -owned and State -Invested Enterprises 
section, SASAC, the government entity charged with overseeing China 's interests in state -owne d 
enterprises, published a list of key sectors that it deemed critical to the national economy.  SASAC 
committed to restrict foreign participation in these sectors by limiting further foreign investment in 
state-owned enterprises operating in these sectors.  
3.309.   In August 2007, as discussed above in the State -owned and State -Invested Enterprises 
section, China enacted its Anti-monopoly Law . Among other things, this law called for China to 
establish a review process to screen inward investment for national securit y implications.  China 
also passed a National Security Law  in July 2015.  While this law 's stated purpose is to safeguard 
China 's security, it includes sweeping provisions addressing economic and industrial policy.  It also 
provides the basis for a more restr ictive national security review process and, along with the 
subsequently enacted Cybersecurity Law , provides the underpinnings for other significant 
restrictions on foreign investment, such as restrictions on the purchase, sale and use of foreign 
ICT produ cts and services, cross -border data flow restrictions and data localization requirements.  
3.310.   More generally, US industry has expressed serious concerns about China 's increasing use 
of these and other investment restrictions, which are often seen as protectionist tools used by 
China 's economic planners to shield selected Chinese domestic enterprises, including inefficient or 
monopolistic enterprises, from foreign competition.  US industry views China 's investment 
restrictions as deeply worrisome and co unter to the market -oriented principles that have been the 
basis for much of China 's economic success over the past few decades.  US industry has observed 
that these investment restrictions are more likely to retard the growth and development of the 
Chinese economy than to accomplish the state planners ' ultimate objective of creating 
internationally competitive domestic enterprises.  
3.311.   In 2017, as in prior years, the United States raised its concerns about China 's investment 
restrictions on multiple occasions, using bilateral mechanisms such as the CED.  The United States 
also raised investment -related concerns in committee and council meet ings at the WTO, as it will 
continue to do in the future.   
Foreign Investment Catalogue  
 
3.312.   Since shortly after China acceded to the WTO, as previously reported, the United States 
has urged China to liberalize its investment regime and to remove restrictions  on industries of key 
interest to the United States.  For the most part, these efforts have yielded little progress.  
3.313.   In 2002 and 2005, the State Council issued revised versions of the Catalogue Guiding 
Foreign Investment in Industry  (Foreign Investment Cata logue ). These versions of the Foreign 
Investment Catalogue  generally reflected China 's decision to adhere to its commitments to open 
up certain sectors to foreign investment, although notable exceptions involved the importation and 
distribution of copyrigh t-intensive products such as books, newspapers, journals, theatrical films, 
DVDs and music (see the Trading Rights section above).  In addition, while China continued to 
allow foreign investment in a number of sectors not covered by its WTO accession agreem ent, one WT/GC/W/746  
 
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  notable exception to this progress continued to be the area of production and development of 
genetically modified plant seeds, which China continued to place in the "prohibited " category.   
3.314.   In 2007, the State Council issued a revised Foreign Invest ment Catalogue . Unfortunately, 
this revised catalogue placed new restrictions on several industries, including chemicals, auto 
parts, rare earths processing, biofuel production and edible oil processing, while the prohibitions 
and restrictions facing copyr ight-intensive products and genetically modified plant seeds remained 
in place.  
3.315.   In December 2011, China published another revised Foreign Investment Catalogue , which 
entered into force in January 2012.  This revised catalogue made only minor improvements.  
3.316.   China 's Foreign Investment Catalogue , as revised in March 2015, did not provide 
liberalization in most of the areas important to foreign investors.  In addition, in some cases, it 
seemed to go backwards on access.  
3.317.   China 's most recently revised Foreign Inve stment Catalogue , issued in July 2017, did 
remove certain restrictions on foreign investment, which seem to be represent useful 
improvements, including for edible seed oil processing, rice, flour, sugar and corn processing, 
biofuels, credit rating and valu ation services, and motorcycle manufacturing.  It is not yet clear if 
these actions will enable foreign investors to secure concrete benefits.   
3.318.   At the same time, the July 2017 Foreign Investment Catalogue  continues to impose 
significant restrictions in a nu mber of areas important to foreign investors, such as key services 
sectors, extractive industries, the agriculture sector and certain manufacturing industries.  With 
regard to services sectors in particular, China maintains prohibitions or restrictions in k ey sectors 
such as cloud computing services, telecommunications services, film distribution and film 
production services, video and entertainment software services, and certain financial services.  The 
description of China 's restrictions on the telecommunic ations services sector also could be read as 
going backwards on the market access that was promised in the March 2015 Foreign Investment 
Catalogue . 
Automotive Sector  
 
3.319.   In a separate commitment, China agreed to revise its Industrial Policy for the Automotiv e 
Sector  to make it compatible with WTO rules and principles by the time of its accession.  However, 
China missed this deadline, and US industry reported that some local officials were continuing to 
enforce the WTO -incompatible provisions of the policy.  Following repeated engagement by the 
United States and other WTO members, including the EU, Japan and Canada, China issued its new 
auto policy in May 2004.  This policy included provisions discouraging the importation of automobile 
parts and encouraging the us e of domestic technology.  It also required new automobile and 
automobile engine plants to include substantial investment in research and development facilities, 
even though China expressly committed in its WTO accession agreement not to condition the right  
of investment on the conduct of research and development.  
3.320.   In 2005, as previously reported, China began to issue measures implementing the new 
auto policy.  One measure that generated strong criticism from the United States, the EU, Japan 
and Canada was the  Measures on the Importation of Parts for Entire Automobiles , issued by NDRC 
in February 2005.  This measure imposed charges that unfairly discriminated against imported 
automobile parts and discouraged automobile manufacturers in China from using imported 
automobile parts in the assembly of vehicles.  This treatment appeared to be inconsistent with 
several WTO provisions, including Article III of GATT 1994 and Article 2 of the TRIMS Agreement, 
as well as the commitment in China 's accession agreement to eliminate all local content 
requirements relating to importation.  In 2006, the United States, the EU and Canada initiated WTO 
cases challenging China 's treatment of automobile parts, once it had become clear that dialogue 
would not lead to a satisfactory r esolution.  A WTO panel and the WTO 's Appellate Body both issued 
decisions in 2008 in favor of the United States and the other complaining parties, finding that 
China 's treatment of automobile parts was WTO -inconsistent.  China repealed its discriminatory 
rules on automobile parts in 2009.  WT/GC/W/746  
 
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  3.321.   Additional problems began to arise after China 's economic planners decided that the 
Chinese auto industry should focus on developing expertise in manufacturing so -called new energy 
vehicles, or NEVs, which include alternati ve fuel vehicles such as electric, fuel cell and bio -diesel 
vehicles.  With that decision, China began devoting substantial resources – and creating new 
policies – to assist Chinese automobile enterprises in developing cutting -edge NEV technologies 
and buil ding domestic brands that could succeed in global markets.  
3.322.   The most significant policies pursued by China can be traced to regulations issued by 
NDRC in 2007 and by MIIT in 2009 that required manufacturers of NEVs in China to "demonstrate  
mastery " over, a nd hold intellectual property rights in, one of three core NEV technologies:  
batteries, drive systems or control systems.  In 2017, these regulations were replaced by new 
regulations requiring manufacturers of NEVs in China to "demonstrate  mastery " over the  
development and manufacturing technology of a complete NEV, rather than just one of three core 
technologies, and to possess key R&D capacities. Because China only allows foreign automobile 
manufacturers to operate in China through joint ventures with Chin ese enterprises, and none of 
these joint ventures can be majority foreign -owned, this requirement effectively requires foreign 
automobile manufacturers to transfer their core NEV technologies to their Chinese joint venture 
partners.  
3.323.   Reportedly, China also is considering additional regulations that would require all NEVs 
manufactured in China to be sold under Chinese, rather than foreign, brands.  These same reports 
indicate that China 's regulators may have already informed foreign automobile manufacturers th at 
their joint ventures must commit to launch Chinese NEV brands in order to get approval for new or 
expanded production facilities.  
3.324.   China has also pursued related policies similarly designed to promote the development of a 
Chinese NEV industry at the expe nse of foreign enterprises.  For example, in March 2011, NDRC 
issued a draft Foreign Investment Catalogue  that proposes a new limitation on foreign ownership 
in NEV parts manufacturing facilities in China to no more than 50 percent.  Previously, foreign 
automobile parts manufacturers could establish in China as wholly foreign -owned enterprises.  
Ultimately, in the final Foreign Investment Catalogue  that went into effect in January 2012, China 
narrowed the scope of these proposed investment restrictions, and it  applied the 50 -percent 
foreign investment cap only to NEV battery manufacturing facilities.  This cap remains in place in 
the 2017 Foreign Investment Catalogue . 
3.325.   China also has used a catalogue of approved NEV models to determine eligibility for 
consumer su bsidies and other incentive programs maintained by the Chinese government.  It 
appears that to date domestic but not imported NEVs are included in this catalogue, raising 
national treatment concerns.   
3.326.   Similarly, some municipal government -level restrictions intended to reduce pollution raise 
national treatment concerns.  For example, in November 2013, the Beijing municipal government 
introduced new license plate restrictions that reserve a proportion of Beijing license plates for 
Chinese -made NEVs, beginning i n 2014.  Since then, additional Chinese municipalities have 
adopted or are considering similar measures.  
3.327.   In 2011, the United States repeatedly raised serious concerns about China 's NEV policies 
bilaterally.  The United States also highlighted its concerns ab out China 's NEV policies during the 
final transitional review before the WTO 's TRIMS Committee in October 2011.  At the 
November  2011 JCCT meeting, China committed that it will not require foreign automobile 
manufacturers to transfer technology to Chinese e nterprises or to establish Chinese brands in 
order to invest in China 's market for NEVs.  China also committed that foreign -invested enterprises 
would have equal access to subsidies and other preferential policies for NEVs and that these 
policies would conf orm to WTO rules.  
3.328.   Public announcements by several foreign automobile manufacturers indicate that their joint 
ventures with Chinese enterprises have been approved by NDRC and MIIT to establish new 
production facilities in China, and these approvals have coi ncided with public commitments by the 
foreign automobile manufacturers to launch new Chinese NEV brands and to establish or expand 
research and development in China.  This pattern of investment approvals is troubling, as it 
suggests that Chinese regulators may be pressuring foreign automobile manufacturers to establish WT/GC/W/746  
 
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  Chinese brands and to make additional research and development investments in China as 
conditions for approving new production facilities.  A number of other foreign automobile 
manufacturers ha ve announced plans to manufacture NEVs in China, and therefore the United 
States will closely examine developments related to China 's commitment not to require technology 
transfer, as these automobile manufacturers seek regulatory approval for the launch o f their NEV 
models.   
3.329.   In October 2012, MOF, MIIT and MOST issued two new measures establishing a fiscal 
support fund for manufacturers of NEVs and NEV batteries.  It appears that, in order to qualify for 
funding under these measures, an enterprise must demonstrate ownership of intellectual property 
and "mastery " of core NEV technologies and also meet a minimum level of investment in China -
based research and developm ent. As foreign automobile manufacturers are required to form 50 -
percent joint ventures with Chinese partners, these requirements could effectively require them to 
transfer core NEV technology to their Chinese joint -venture partners in order to receive the  
available government funding.  These measures therefore raise serious questions in light of China 's 
November 2011 JCCT commitment not to mandate technology transfer and China 's May 2012 
S&ED commitment to treat intellectual property rights owned or develop ed in other countries the 
same as Chinese -owned or Chinese -developed intellectual property rights.  
3.330.   In recent years, it appears that China has begun to tie subsidies and other support for 
manufacturers of NEVs and NEV batteries to lists of qualified manufac turers located in China.  For 
example, the central government and certain local governments provide subsidies in connection 
with the purchase of NEVs, but they only make these subsidies available when certain Chinese -
made NEVs, not imported NEVs, are purcha sed. China appears to pursue similar policies involving 
NEV batteries, leading to lost sales by US-based manufacturers.  This discriminatory treatment 
raises serious concerns in light of China 's WTO obligations.   
Steel Sector  
 
3.331.   In July 2005, China issued a new Steel and Iron Industry Development Policy . As 
previously reported, this policy contains many government mandates pertaining to the commercial 
behavior of Chinese steel enterprises and created high barriers for potential foreign investors in 
China 's steel sector.  The policy also appears to discriminate against foreign equipment and 
technology imports.  Like other measures, this policy encourages the use of local content by calling 
for a variety of government financial support for steel and iron projects utilizing newly developed 
domestic equipment.  It also calls for the use of domestically produced steel -manufacturing 
equipment and domestic technologies, despite the commitment that China made in its WTO 
accession agreement not to condition the right of in vestment or importation on whether competing 
domestic suppliers exist.    
3.332.   China 's 2005 steel policy is also striking because of the extent to which it attempts to 
dictate industry outcomes and involve the government in making decisions that should be made by 
the marketplace.  This high degree of government direction regarding the allocation of resources 
into and out of China 's steel industry raises concerns not only because of the commitment that 
China made in its WTO accession agreement that the government would not influence, directly or 
indirectly, commercial decisions on the part of state -owned or state -invested enterprises, but also 
more generally because it represents another significant example of China reverting to a reliance 
on government management of market outcomes instead of moving toward a reliance on market 
mechanisms.  Indeed, this increasing tendency is at the root of many of the WTO compliance 
concerns raised by US industry.  
3.333.   In June 2010, the State Council published the Opinions on Strengtheni ng Energy Saving 
and Emission Reduction and Accelerating Structural Adjustment in the Iron and Steel Sector . This 
measure reiterated existing steel policies, specifically identifying a number of well -known 
objectives for the sector, such as controlling ste el industry growth, strengthening efforts to 
eliminate outdated capacity, promoting energy savings and emissions reduction, technical 
innovation, accelerating mergers, disciplining access to iron ore imports and promoting domestic 
iron ore mining, and enco uraging domestic steel producers to explore mining and steel 
investments abroad.   
3.334.   In July 2010, MIIT released the Regulations and Conditions of Production and Operation of 
the Iron and Steel Industry . These regulations are intended to support the objective s laid out in WT/GC/W/746  
 
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  the State Council 's June 2010 measure.  They also indicate that small steel mills will be shut down, 
establish operating standards for larger steelmakers and address issues such as product quality 
and environmental protection.  At the time, ste el analysts viewed these regulations as a prelude to 
China 's next five -year steel plan.   
3.335.   In October 2011, MIIT published China 's 12th Five -year Plan  for the steel industry, 
covering the period from 2011 to 2015.  As the plan itself notes, China 's steel prod uction grew from 
350 million MT in 2005 to 684 million MT in 2011, with the steel industry accounting for 10 percent 
of national industrial output.  Despite China 's goal of eliminating inefficient steel capacity, and 
despite slowing growth in domestic steel  demand, stagnant demand in export markets and 
significant Chinese steel company losses, steel production in China continued to grow throughout 
the period of the 12th Five -year Plan . Indeed, the steel industry 's rate of growth during this period 
exceeded the growth rates of the Chinese economy as a whole as well as the global steel industry, 
and China shifted from being a net importer of steel to being a large net exporter of steel.  These 
developments led many analysts, including the OECD Steel Committee, to raise concerns that 
significant excess capacity in China may cloud the prospects for the steel industry 's profitability, 
both in China and in other economies.  China 's 12th Five -year Plan  for the steel industry raised a 
number of specific concerns.  In pa rticular, the plan continues to place the government in the role 
of closely managing the development of the steel industry.  The plan specifies where to build, close 
or relocate steelmaking capacity, how much to spend on research and development, and even 
what products Chinese steel producers are to make.  In addition, the plan continues to emphasize 
"self-sufficiency " in steel production and states that continued reliance on imports of certain steel 
products is a problem to be addressed.  For example, the pla n appears to set specific targets for 
Chinese producers ' share of the domestic market in high -grade steel products that are currently 
supplied primarily by foreign steelmakers, including US steelmakers.  In the case of automotive 
steel and silicon steel she ets, the plan sets a goal of Chinese producers supplying 90 percent of the 
domestic market by 2015.  The plan also provides no indication that China 's current restrictions on 
foreign investment are to be liberalized.  At the same time, the plan lays out obje ctives for 
overseas investment by China 's steel producers and explains that incentives will be provided to 
support investment in foreign iron ore mines and steel plants to create groups with "powerful  
international competitive strength. " Additionally, as e nvisioned by the plan, China is continuing to 
support the largest steel companies through subsidies, raw materials export restrictions and other 
preferential government policies.  
3.336.   Effective October 2012, MIIT issued the Iron and Steel Industry Normative Con ditions , 
which serve as the guiding norms for the steelmaking industry in China.  These industry norms 
offer incentives for compliance and disincentives for non -compliance.  Qualifying enterprises are 
entitled to preferential support policies, including bank  loans and government grants for 
technology upgrades, while non -qualifying enterprises may be forced to restructure and local 
governments are directed to adopt measures to restructure or phase out these enterprises.  In 
2013, China announced two batches of qualifying steelmaking enterprises that are entitled to 
government support.  While China has heralded the use of industry norms as a move toward a 
more "market -oriented " approach to guiding the industry, the MIIT norms maintain a high degree 
of government d irection regarding the allocation of resources toward China 's steel industry and 
demonstrate China 's continued reliance on government management of market outcomes.   
3.337.   In October 2013, China 's State Council issued the Guiding Opinions on Resolving the 
Proble m of Severe Excess Capacity  to address excess capacity in the steel, cement, electrolytic 
aluminum, plate glass and shipbuilding industries.  As the measure itself noted, China 's then -
current steel capacity dramatically exceeded market demand and, as of the  end of 2012, China 's 
steel utilization rate was only 72 percent – much lower than the international average.  While the 
measure aimed to rein in excess capacity, it also raised a number of concerns.  For example, it 
encouraged banks to provide financing for  technology upgrades, and it called for policies to 
encourage Chinese steelmakers with excess capacity to relocate their excess capacity abroad, such 
as tax rebates for equipment and products relocated abroad.   
3.338.   In November 2013, MOF issued a new subsidy measure that provides grants for the 
"transformation  and upgrade " of centrally controlled state -owned enterprises in a handful of 
industries, including steel.  This measure provides grants of up to RMB 500 million ($82 million) for 
large projects.   WT/GC/W/746  
 
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  3.339.   In February 2016, China 's State Council issued another measure directed at the excess 
capacity problem, the Opinions on Resolving Overcapacity in the Iron and Steel Industry to Gain 
Profits and Development . This measure c alls for the reduction of crude steel capacity in China by 
100 to 150 MMT within five years, beginning in 2016.   
3.340.   Over the years, throughout the push and pull of these myriad central government policies 
and the efforts of sub -central governments to support local steel producers and the tax revenue 
and jobs that they represent, China 's steelmaking capacity and crude steel production has grown 
dramatically.  
3.341.   Between 2000 and 2014, China accounted for more than 75 percent of global steelmaking 
capacity growth.  China's capacity reached 1,128 MMT in 2014, a figure that represented more than 
one-half of global capacity.  According to information provided by China in connection with the 
Global Forum on Steel Excess Capacity, China 's steelmaking capacity decreased from  1,128 MMT 
to 1,073 MMT between 2014 and 2016, which would equate to a reduction of about 55 MMT, or 
about five percent of China 's pervious steelmaking capacity.  China 's data is based on Chinese steel 
companies whose revenues are above RMB 20 million.  Howe ver, between 2014 and 2016, China 
also accounted for the largest share of new additions of crude steel capacity, amounting to 
42 MMT.  
3.342.   Currently, China 's steelmaking capacity alone is more than double the combined 
steelmaking capacity of the EU, Japan, the  United States and Russia, even though China has no 
comparative advantage with regard to the energy and raw material inputs that make up the 
majority of costs for steelmaking.  Indeed, 94 percent of China 's crude steelmaking capacity by 
production process i s in blast oxygen furnaces, which require iron ore and other basic inputs, and 
only six percent is in electric arc furnaces, which make steel from steel scrap.   
3.343.   Meanwhile, China 's steel production and steel exports have fluctuated in recent years.  
From 201 4 to 2015, China 's steel production decreased by two percent, falling from 822 MMT in 
2014 to 804 MMT in 2015.  At the same time, China 's apparent consumption, a measure of steel 
demand, decreased faster, falling by six percent from 2014 to 2015.  Largely as  a result, China 's 
steel exports grew by 21 percent, increasing from 91 MMT in 2014 to 110 MMT in 2015.  In 2016, 
China 's steel production increased by 0.5 percent, rising from 804 MMT in 2015 to 808 MMT in 
2016.  China 's apparent consumption increased by tw o percent from 2015 to 2016, and China 's 
steel exports correspondingly decreased by three percent, declin ing from 110 MMT in 2015 to 
107 MMT in 2016.  In the first 10 months of 2017, as compared to the same time period in 2016, 
China 's steel production incr eased by five percent, China 's apparent consumption rose three 
percent, and China 's steel exports declined by approximately 30 percent.  
3.344.   At the WTO, the United States has pressed its concerns regarding China 's steel policies, in 
regular meetings and through the transitional reviews before the Committee on Import Licensing, 
the TRIMS Committee, the Subsidies Committee and the Council for Trade in Goods, with support 
from other WTO members, including Canada, Mexico, the EU and Japan.  The United States a lso 
co-sponsored with the EU a recent session before the Subsidies Committee meeting examining 
subsidies that contribute to excess capacity.  In addition, the United States focused on China 's steel 
policies in connection with China 's first five Trade Policy  Reviews at the WTO, held in 2006, 2008, 
2010, 2012 and 2014, and in plurilateral fora such as meetings of the OECD Steel Committee.  
3.345.   In particular, the United States and other WTO members, including Canada and Mexico, 
have called for China to eliminate sub sidies to its steel industry, except for those designed to 
facilitate capacity elimination or to address worker dislocation, to implement steel industry 
stimulus policies in a manner that encourages domestic consumption rather than exports and does 
not dis criminate against imports, to eliminate the use of differential VAT rebates and duties on 
steel exports as a tool of industrial policy, to allow market forces rather than restraints on imports 
and exports to determine steelmaking raw material input supply and to eliminate restrictions on 
foreign investment in China 's steel industry.  Several steel industry associations from North and 
South America and Europe have pressed similar concerns.  
3.346.   Bilaterally, China has made a series of commitments to reduce its exce ss steel capacity.  
However, China 's efforts to implement these commitments have not materially impacted the 
severe excess capacity situation in China 's steel sector.  For example, at the July 2014 S&ED WT/GC/W/746  
 
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  meeting, the United States secured a commitment from Ch ina to establish mechanisms that 
strictly prevent the expansion of crude steelmaking capacity and that are designed to achieve, 
over the next five years, major progress in addressing excess production capacity in the steel 
sector.  At the June 2016 S&ED mee ting, China made several further commitments with regard to 
excess industrial capacity.  Specifically, China committed to take effective steps to address the 
challenges of excess capacity so as to enhance market function and encourage adjustment.  With 
regar d to excess capacity in the steel industry, where China 's State council had issued guidelines 
calling for the elimination of 100 to 150 million MT of steel capacity, China committed to undertake 
further steps to ensure market forces are not constrained, so  that its steel industry develops a 
stronger market orientation to enhance efficiency, and, in doing so, progressively reduces excess 
capacity.  China also committed to ensure that no central government plans, policies, directives, 
guidelines, lending or su bsidization targets the net expansion of steel capacity.  China further 
committed to adopt measures to strictly contain steel capacity expansion, reduce net steel 
capacity, eliminate outdated steel capacity and urge the exit of steel production capacity tha t falls 
short of environment, energy consumption, quality or safety requirement standards and to actively 
and appropriately dispose of "zombie  enterprises " through bankruptcies and other means.  
Subsequently, at the Presidential summit in Hangzhou, in Septe mber 2016, the United States also 
secured China 's agreement to support the establishment of a global forum to address excess steel 
capacity.   
3.347.   At a meeting hosted by China as the G20 President in September 2016 in Hangzhou, the 
G20 Leaders issued a communiq ué calling for the establishment of a Global Forum on Steel Excess 
Capacity.  In the communiqué, the G20 Leaders called for enhanced information sharing and 
cooperation and for effective steps to be taken to address the challenges of the severe excess 
capac ity situation in the steel industry to enhance market function and encourage adjustment.  
3.348.    After several preparatory meetings, the Global Forum was formally launched and its first 
meeting held in December 2016.  The 33 members of the Global Forum include G2 0 members and 
interested OECD members, representing approximately 93 percent of the world 's steel production.  
The OECD Secretariat participates in the Global Forum in a facilitator role, with functions including 
technical and analytical support, as well as  meeting facilitation.  
3.349.   Consistent with the G20 Leaders ' Hangzhou mandate for increased information sharing, 
one of the first tasks of the Global Forum was to develop a mechanism to exchange data on crude 
steel capacity and on subsidies and other government  supports that contribute to excess steel 
capacity.  All 33 members of the Global Forum participated to some degree in the subsequently 
launched information -sharing exercise, but much work remains.  It appears that certain members 
did not submit complete inf ormation regarding subsidies and other government supports, and all 
of the information provided needs to be reviewed and analyzed.   
3.350.   The Hangzhou mandate was highlighted at the G20 Leaders ' meeting in Hamburg, 
Germany, in July 2017, where G20 Leaders called  on members to rapidly develop concrete policy 
solutions that would reduce excess steel capacity and to produce a substantive report with those 
solutions by November 2017.  In response, Global Forum members developed a set of principles to 
serve as the basi s for policy action by Global Forum members.  These principles include enhancing 
market function by refraining from market -distorting subsidies and government support measures, 
fostering a level playing field in the steel industry, ensuring market -based out comes and 
encouraging adjustment, among other things.  With these principles as guidance, Global Forum 
members outlined a series of recommendations for concrete policy solutions to reduce excess 
capacity and to enhance market function in the steel sector.  These recommendations are 
contained in the report adopted at a November 2017 Ministerial meeting of the Global Forum and 
include, among other things, the removal of market -distorting subsidies and other types of support 
by governments and government -related  entities that contribute to excess capacity, whether or 
not prohibited by WTO rules.  At that meeting, the United States and other Global Forum members 
also emphasized that true market reform is essential to solving to the excess capacity crisis.  
China 's approach of setting capacity reduction targets is not a long -term solution, as meaningful 
progress can only be achieved by removing subsidies and other forms of government support so 
that markets can function properly.  The United States and other Global For um members also 
highlighted the need for state -owned enterprises and private steelmakers to be treated equally.  
3.351.   Next steps for the Global Forum in 2018 include additional information exchanges among 
Global Forum members regarding progress being made in imp lementing the recommendations WT/GC/W/746  
 
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  contained in the November 2017 Ministerial report, plus three more meetings, with Argentina 
taking on the duties of the chair as the new G20 President.  Through these activities, Global Forum 
members will discuss, review and as sess submitted information and evaluate the steps being taken 
by each member.  To be successful, this exercise will need complete information regarding market -
distorting support from all members and a clear path forward for implementation of true market -
based reforms.   
3.352.   Separately, in April 2017, the Commerce Department self -initiated an investigation into 
the effects of steel imports upon US national security pursuant to section 232 of the Trade 
Expansion Act of 1962.  As of December 2017, this investigation was ongoing.  
Aluminum Sector  
 
3.353.   Beginning in 2015, excess capacity in China 's aluminum sector contributed to a severe 
decline in global aluminum prices, harming US producers and workers.  As the data show, monthly 
production of aluminum in China doubled betw een January 2011 and July 2015, and since then it 
has continued to grow.  Large new facilities are being built with government support, including 
through energy subsidies.   
3.354.   The United States ' bilateral engagement of China since the severe decline in global prices 
began has yielded no progress.  Even securing a commitment from China merely to discuss the 
severe excess aluminum capacity situation with the United States and to begin exchanging 
information required months of haggling, and the responsible Chinese ministries demonstrated no 
interest in implementing those commitments.   
3.355.   In a WTO case launched on 12 January 2017, the United States challenged certain 
subsidies provided by the Chinese government to producers of primary aluminum.  This case seeks 
to addres s US concerns that China 's subsidies appear to have caused "serious  prejudice " to US 
interests within the meaning of WTO subsidy rules by artificially expanding Chinese capacity, 
production and market share and by causing a significant lowering in the glob al price for primary 
aluminum.  Consultations have not taken place in this case.  
3.356.   In April 2017, the Commerce Department self -initiated an investigation into the effects of 
aluminum imports upon US national security pursuant to section 232 of the Trade Expansion Act of 
1962.  As of December 2017, this investigation was ongoing.  
3.6  AGRICULTURE  
3.357.   Upon its accession to the WTO, China assumed the obligations of the WTO Agreement on 
Agriculture, which contain s commitments in three main policy areas for agricultural products:  
market access, domestic support and export subsidies.  In some instances, China also made further 
commitments, as specified in its accession agreement.   
3.358.   In the area of market access, WTO me mbers committed to the establishment of a tariff -
only regime, tariff reduction and the binding of all tariffs.  As a result of its accession negotiations, 
China agreed to significant reductions in tariff rates on a wide range of agricultural products.  China  
also agreed to eliminate quotas and implement a system of TRQs designed to provide significant 
market access for certain bulk commodities upon accession.  This TRQ system is very similar to the 
one governing fertilizers (discussed above in the Import Regul ation section).  China 's goods 
schedule sets forth detailed rules intended to ensure appropriate administration of the agriculture 
TRQ administrator – originally the State Development and Planning Commission (SDPC), which is 
now called NDRC – and to require  it to operate with transparency and according to precise 
procedures for accepting quota applications, allocating quotas and reallocating unused quotas.  
3.359.   In the area of domestic support, the WTO objective is to encourage a shift in policy to the 
use of meas ures that minimize the distortion of production and trade.  Essentially, WTO members 
committed to reduce over time the types of domestic subsidies and other support measures that 
distort production and trade, while remaining free to maintain or even increas e support measures 
that have little or no distorting effect, such as agricultural research or training by the government.  
China committed to a cap for trade - and production -distorting domestic subsidies that is lower WT/GC/W/746  
 
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  than the cap permitted for developing c ountries and that includes the same elements that 
developed countries use in determining whether the cap has been reached.   
3.360.   In the area of export subsidies, WTO members committed to ban the use of these 
subsidies unless they fall within one of four categor ies of exceptions.  The principal exception allows 
export subsidies subject to certain reduction commitments.  However, like many other WTO 
members, China agreed to eliminate all export subsidies upon its accession to the WTO and did not 
take any exceptions.  
3.361.   Another important agricultural area is covered by the WTO Agreement on the Application 
of Sanitary and Phytosanitary Measures (SPS Agreement), under which China also became 
obligated.  The SPS Agreement establishes rules and procedures regarding the formul ation, 
adoption and application of sanitary and phytosanitary measures, i.e., measures taken to protect 
against risks associated with plant or animal borne pests and diseases, additives, contaminants, 
toxins and disease -causing organisms in foods, beverage s or feedstuffs.  The rules and procedures 
in the SPS Agreement require that sanitary and phytosanitary measures address legitimate 
human, animal and plant health concerns, do not arbitrarily or unjustifiably discriminate between 
WTO members ' agricultural a nd food products, and are not disguised restrictions on international 
trade.  The SPS Agreement requires that the measures in question be based on scientific grounds, 
developed through risk assessment procedures and adopted with transparency, while at the s ame 
time it preserves each member 's right to choose the level of protection it considers appropriate 
with regard to sanitary and phytosanitary risks.  
3.362.   Other WTO agreements also place significant obligations on China in the area of 
agriculture.  Three of the  most important ones are GATT 1994, the Import Licensing Agreement 
and the TBT Agreement, which are discussed above (in the sections on Import Regulation and 
Internal Policies Affecting Trade).  
3.363.   China also made several additional commitments intended to rec tify other problematic 
agricultural policies, either upon accession or after limited transition periods.  For example, China 
agreed to permit non -state trading enterprises to import specified TRQ shares of wheat, corn, rice, 
cotton, wool and vegetable oil, although these products had been subject to import monopolies by 
state trading enterprises.  
3.364.   Since China 's accession to the WTO, a variety of non -tariff barriers have continued to 
impede US agricultural trade with China, particularly in the area of sanitary  and phytosanitary 
measures, where China 's actions often have not appeared to be guided by scientific principles, and 
in the administration of tariff -rate quotas for certain bulk agricultural commodities, where low 
quota fill persists despite domestic demand for imported products.  The United States and China 
have only been able to resolve some of these issues, and those resolutions have required 
protracted negotiations.  
3.365.   In 2017, US exporters continued to be confronted with non -transparent application o f 
sanitary and phytosanitary measures, many of which have appeared to lack scientific bases and 
have impeded market access for many US agricultural products.  China 's seemingly unnecessary 
and arbitrary inspection -related import requirements also continued to impose burdens and 
regulatory uncertainty on US agricultural producers exporting to China in 2017, as did the 
registration and certification requirements that China imposes, or proposes to impose, on US food 
manufacturers.  China 's duties on imports of US chicken broiler products, which the United States 
continues to challenge at the WTO, also disrupted trade.    
3.6.1   Tariffs  
3.366.   Tariffs on agricultural goods of greatest importance to US farmers and ranchers were 
lowered from a 1997 average of 31 percent to 14 perc ent, in almost all cases over a period of five 
years running from 1 January 2002, or by 1 January 2006.  China did not have to implement any 
new tariff reductions in 2015, as the last few required tariff reductions on agricultural goods took 
place in 2008.  
3.367.   US exports of some bulk agricultural commodities have increased dramatically in recent 
years, and continue to perform strongly, as discussed below in the sections on China 's WT/GC/W/746  
 
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  Biotechnology Regulations and Tariff -rate Quotas for Bulk Agricultural Commoditie s. US exports of 
consumer -oriented agricultural products totaled $2.2 billion in 2016, up from $1.9 billion in 2015, 
and are up 10 percent during the first nine months of 2017, compared to the same period in 2016.  
Meanwhile, US exporters remained active in  two product categories that fall outside the scope of 
the WTO Agreement on Agriculture.  US exports of forest products to China totaled $2.5 billion in 
2016, up from $2.1 billion in 2015, and are up 24 percent during the first nine months of 2017, 
compared  to the same period in 2016.  US fish and seafood exports to China totaled $960 million in 
2016, down from $1.0 billion in 2015, but are up 25 percent during the first nine months of 2017, 
compared to the same period in 2016.   
3.368.   However, the full market acces s potential of China 's tariff cuts was not realized for some 
products.  As discussed below, a variety of non -tariff barriers continue to impede market access for 
US agricultural exports to China, particularly exports of consumer -ready and value -added 
produc ts. 
3.6.2   Tariff -rate Quotas on Bulk Agricultural Commodities  
3.369.   An issue of particular concern involves China 's commitments relating to TRQs on bulk 
agricultural commodities, which include several commodities of particular importance to US 
farmers, such as wheat, corn and rice.  Since SDPC (and later NDRC) began implementing these 
commitments following China 's accession, a series of problems have undermined the market 
access envisioned by WTO members.  NDRC 's lack of transparency continues to create significant 
conce rn. 
3.370.   As previously reported, in 2002, the first year of this TRQ system, it appeared that SDPC 
had decided to allocate TRQs in a manner that would protect domestic farm interests and maintain 
the monopoly enjoyed by state trading enterprises.  SDPC operated with only limited transparency, 
refusing to provide specific details on the amounts and the recipients of the allocations.  At the 
same time, SDPC reserved a significant portion of the TRQs for the processing and re -export trade, 
despite China 's commitment to provide market access and national treatment for imported 
products.  SDPC also allocated a portion of the TRQs for some commodities in smaller than 
commercially viable quantities, and it employed burdensome licensing requirements.  
3.371.   In 2003, NDRC issued n ew regulations for shipments beginning January 2004.  Key 
changes included the elimination of separate allocations for general trade and processing trade, 
the elimination of certain unnecessary licensing requirements, and the creation of a new 
mechanism for  identifying allocation recipients.  At the same time, transparency continued to be 
problematic, although some improvement did take place for some of the commodities subject to 
TRQs.   
3.372.   While these systemic changes were taking place, spurred on by sustained US engagement, 
exports of some bulk agricultural commodities from the United States showed substantial 
increases, as changes in market conditions created import demand and the TRQ system, at least in 
part, was used to facilitate imports.   
3.373.   For example, while  US exports of wheat to China totaled an unusually high amount of $495 
million in 2004, as the TRQ allocations for wheat did not appear to act as a limiting factor, in 
subsequent years they declined dramatically.  Beginning in 2011, US exports of wheat to C hina 
started to climb again, reaching $1.3 billion in 2013 before dropping precipitously in 2014 to $194 
million and in 2015 to $160 million, before increasing to $205 million in 2016.  US exports of wheat 
to China increased by 92 percent during the first nine months of 2017, compared to the same 
period in 2016.  
3.374.   US exports of corn to China have increased in recent years, growing from $8 million in 
2007 to $1.3 billion in 2012, before declin ing to $974 million in 2013.  In 2014, due to China 's 
biotechnology policies, and concurrent with China 's decision to liquidate substantial domestic corn 
stocks, corn exports tumbled to $84 million.  In 2015, US corn exports to China nearly doubled, but 
remained relatively low compared to previous years.  However, US corn exports to China dropped 
to $49 million in 2016.  Through the first nine months of 2017, US corn exports to China rose 
again, increasing by 208 percent, compared to the same period in 2016.  WT/GC/W/746  
 
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  3.375.   Exports of US rice to China have long been hampered by the lack of an agreed 
phytosanitary protocol.  While the United States and China finally signed a rice protocol in 
July 2017, China has continued to delay its implementation.  However, even if the United S tates 
were able to resolve this issue, market access for US rice would likely still be hampered by the low 
fill rates for China 's rice TRQs.  
3.376.   In February 2016, China submitted its WTO notification on TRQ fill rates for 2013 and 
2014.  In both 2013 and 2014, China filled less than 50 percent of its TRQ allocation for rice.  
Currently, the United States does not have market access to fill China 's quota for rice.  While the 
United States and China have come to completion of a phytosanitary protocol to allow import s of 
rice from the United States, China has not given a timeline for signing the protocol, despite 
numerous high -level requests from the United States.  
3.377.   Throughout 2016, the United States continued to raise concerns about NDRC 's TRQ 
administration, both bil aterally and at the WTO.  These concerns related to allocation principles and 
transparency, among other matters.  The TRQs for rice, corn and wheat are of particular concern.  
Due to China 's poorly defined criteria for applicants, unclear procedures for distr ibuting TRQ 
allocations, and failure to announce quota allocation and reallocation results, traders are unsure of 
available import opportunities and producers worldwide have reduced market access opportunities.  
In order to improve this situation, in Decemb er 2016, the United States launched a WTO case 
challenging China 's administration of TRQs for rice, wheat and corn.  Consultations took place in 
February 2017.  A WTO panel was established to hear the case at the United States ' request in 
September 2017, and  17 other WTO members joined as third parties.  
3.6.3   China 's Biotechnology Regulations  
3.378.   As previously reported, one of the most contentious agriculture trade issues that arose 
during China 's first year of WTO membership involved new rules implementing June 2001 
regulations relating to biotechnology safety, testing and labeling.  The implementing rules, issued 
by China 's Ministry of Agriculture (MOA) shortly before China 's WTO accession, did not provide 
adequate time for scientific assessment and the issuance of fo rmal safety certificates for 
biotechnology products.  The US products most affected were soybeans, which had seen exports to 
China grow to more than $1 billion in 2001, while corn and other products, such as consumer 
products made from biotech commodities, remained at risk.  Following concerted, high -level 
pressure from the United States, China agreed to issue temporary safety certificates until formal 
safety certificates could be issued.  China subsequently issued a formal safety certificate for a US 
biotechn ology soybean variety known as Roundup Ready soybeans in February 2004.  By the time 
of the April 2004 JCCT meeting, China had also issued formal safety certificates for six corn 
events, seven canola events and two cotton events.  China issued a formal safet y certificate for 
another corn event a few months later, leaving only one corn event still awaiting formal approval.  
China issued a formal safety certificate for this last corn event at the time of the July 2005 JCCT 
meeting.  
3.379.   Nevertheless, other US concerns with China 's biotechnology regulations and implementing 
rules remain.  For example, China requires a product to be approved in the country of origin before 
it can be submitted in China for approval, and China 's National Biosafety Committee normall y 
reviews new product applications only during at most three meetings each year.  In 2014, the 
United States learned that MOA only will issue regulatory decisions on applications once a year, 
and that MOA considers factors other than science when evaluating  new biotechnology 
applications.  These practices present significant and unnecessary delays for bringing US goods into 
the China market.  China 's lack of clarity on the requirements applicable to products stacked with 
multiple traits is a cause for addition al concern, as are China 's sometimes duplicative and 
unprecedented testing requirements.   
3.380.   In 2007, MOA developed, issued and implemented some troubling new regulations without 
circulating them for public comment in advance or even consulting with relevant stakeholders such 
as the United States and US industry.  For example, in January 2007, MOA added a new 
requirement that biotechnology seed companies turn over key intellectual property as part of the 
application process when seeking safety certificates.  MOA later dropped this requirement, although 
it still unnecessarily requires the submission of other intellectual property.  In another example, in 
March 2007, MOA halted a pilot program, which had been developed over two years of bilateral 
discussions, aimed at allowing MOA to review products under development in the United States WT/GC/W/746  
 
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  prior to completion of the US approval process.  As a result, the MOA approval process can still only 
begin after the completion of the US approval process.  Even if the MOA approval p rocess proceeds 
quickly, trade may still be disrupted, as importers need time to apply for vessel based safety 
certificates and Quarantine Inspection Permits, both of which require valid safety certificates for 
biotechnology products and can take up to 30 working days.  
3.381.   In 2007, 2008 and 2009, the United States raised its concerns about these developments 
in several bilateral meetings, including JCCT working group meetings and other bilateral meetings 
focused on biotechnology issues.  At the December 2007 JCC T meeting, China committed to 
eliminate a requirement to submit viable biotechnology seeds for testing during the approval 
process, which will reduce the possibility of illegal copying of patented agricultural materials.  
3.382.   Disruptions to trade continued to be a concern thereafter due to China 's asynchronous 
approval process, excessive data requests, duplicative requirements, an onerous process for 
extension of existing certificates and the potential for low -level presence of an unapproved event.  
In late 2012 , China also re -introduced the requirement that biotechnology seed companies must 
submit viable seed with their biotechnology applications.  In addition, an apparent slow -down in 
issuing approvals generated concern, as approvals were overdue for numerous bi otechnology 
events.  At the same time, investment restrictions continued to constrain foreign companies ' ability 
to increase product development in China and to maintain control over important genet ic 
resources.  
3.383.   In 2014, China 's regulatory system for biotec hnology products became increasingly 
problematic.  For example, China stalled several applications by issuing notices temporarily 
suspending their approval, citing public opinion and other non -scientific reasons.  US exports of 
corn and dried distillers ' grains with solubles, or DDGS, were particularly affected by China 's 
problematic regulatory system.  
3.384.   China had begun rejecting shipments of imported corn in November 2013 because of the 
detection of an unapproved genetically engineered (GE) event, MIR 162.  Subsequently, some 
traders were able to re -route shipments to other markets, and trade from US corn shippers to 
China largely ceased for the whole of 2014, with corn shipments dropping from $1.3 billion in 2013 
to $84 million in 2014.   
3.385.   In July 2013, the Chine se regulatory authorities notified the United States that US DDGS 
must be accompanied by a  "GMO test report " with an official US government stamp certifying that 
the product does not contain unapproved GE events.  Eventually, China accepted an industry 
polymerase chain reaction (PCR) test report or certificate statement indicating the use of PCR 
testing.  However, this step did not take place before some US exports of DDGS to China were 
disrupted because they contained MIR 162.   
3.386.   At the December 2014 JCCT  meeting, the United States and China agreed on a new 
Strategic Agricultural Innovation Dialogue (SAID), which was intended to implement the 
agreement reached between President Obama and President Xi.  This new dialogue was designed to 
bring together a dive rse set of Chinese ministries and US agencies at the Vice Minister level and 
focus on science -based agricultural innovation and the increased use of innovative technologies in 
agriculture.   
3.387.   In April 2015, China published a draft proposal to revise elements  of its biotechnology 
regulatory process.  China 's proposed revisions included a reduction in the frequency of regulatory 
decisions and the use of factors other than science, including politics and public opinion, when 
evaluating new biotechnology applicati ons. These changes, if made permanent, would further slow 
the regulatory review process beyond the systemic delay already brought about by China 's 
asynchronous approvals policy.   
3.388.   In 2015, MOA started routinely asking biotechnology seed companies for new da ta relating 
to acute oral toxicity studies, even though international best practices as outlined by the OECD 
recommends that new data should be requested only in exceptional circumstances.  To date, in 
other countries where the regulatory authorities have a pproved biotechnology products, the 
regulatory authorities have never asked for new data, which is a particularly onerous requirement.   WT/GC/W/746  
 
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  3.389.   At the November 2015 JCCT meeting, the United States pressed China to reaffirm its 
commitment to adopt a timely, transpa rent, predictable and science -based approval process.  The 
United States also pressed China to move expeditiously to approve backlogged biotech event 
applications.  Despite this engagement, delays in China 's approvals of agricultural products derived 
from bi otechnology worsened in 2016, creating increased uncertainty among traders and resulting 
in adverse trade impact, particularly for US exports of corn.  In addition, the asynchrony between 
China 's product approvals and other countries ' product approvals wide ned.  
3.390.   In February 2016, China issued safety certificates for only three of the 11 products of 
agricultural biotechnology under final review.  However, China continued to delay approvals for 
eight other products, with applications dating as far back as 2011,  even though more than a dozen 
other countries previously deemed them to be safe.   
3.391.   At the November 2016 JCCT meeting, China indicated that it would have the opportunity to 
review the status of its safety evaluation for these products in December 2016.  Howe ver, China 
gave no indication as to whether it would issue safety certificates for them.  
3.392.   In May 2017, as part of the initial results of the CED 's 100 -day action plan, China 
committed to accelerate its long -delayed review of eight pending US biotechnology product 
applications.  Specifically, China committed to hold frequent meetings of the expert body that 
reviews biotechnology product applications and to ensure that this body assesses the safety of a 
product based solely on its intended use.  It further comm itted to ensure that any additional 
information requested by this body similarly pertains solely to the safety of a product for its 
intended use.  By the time of the CED plenary meeting in July 2017, China had only approved four 
of the eight applications, a nd its expert body continued to ask applicants for information unrelated 
to the intended use of the products.  Since that meeting, work on the remaining four applications 
appears to have stalled.  In 2018, the United States will continue to press China to fo llow through 
on its CED commitment.   
3.6.4   Sanitary and Phytosanitary Issues  
3.393.   In 2017, China 's SPS measures continued to pose increasingly serious problems for US 
agricultural producers exporting to China.  As in prior years, the United States repeatedly engaged 
China on a number of SPS issues, in high -level bilateral meetings and technical discussions as well 
as during meetings of the WTO 's SPS Committee.   
3.394.   Market access for US soybeans and grain continued in 2017, and progress was made in 
addressing SPS barriers f or some beef products.  However, little progress was made in addressing 
SPS barriers for poultry products, and market entry requirements for processed foods and 
horticultural products continue to be burdensome.  In addition, China continued its nationwide 
suspension of imports of US-origin poultry and poultry products tied to highly pathogenic AI.    
3.395.   In many instances, progress on SPS matters was made difficult by China 's inability to 
provide relevant science -based rationales for maintaining its import restric tions against US-origin 
products.  For example, China has been unable to provide a science -based rationales for import 
restrictions on US poultry products and some US beef and pork products, as described below.  In 
addition, China 's regulatory authorities continued to issue significant new SPS measures without 
first notifying them to the SPS Committee and providing WTO members with an opportunity to 
comment.  Traders remain concerned because China 's SPS measures often lack clarity and do not 
appear to be bas ed on risk -based approaches.   
BSE-related Import Bans  
 
3.396.   In December 2003, China and other countries imposed a ban on imports of US cattle, beef 
and processed beef products in response to a case of BSE found in the United States.  Since that 
time, on numerou s occasions, the United States has provided China with extensive technical 
information on all aspects of its BSE -related surveillance and mitigation measures, internationally 
recognized by the World Organization for Animal Health (known by its historical F rench acronym 
OIE) as effective and appropriate, for both food safety and animal health.   WT/GC/W/746  
 
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  3.397.   At the April 2006 JCCT meeting, China committed to conditionally reopen the Chinese 
market to US beef, subject to the negotiation and finalization of a protocol by te chnical experts.  
Jointly negotiated protocols, and accompanying export certificates, are normal measures 
necessary for the export of any livestock products from the United States to any trading partner.  
However, further negotiations in 2006 and 2007 made i t clear that China was only contemplating a 
limited market opening, rather than displaying a willingness to begin accepting US beef and beef 
products in a manner consistent with the OIE 's classification, and China provided no scientific 
justification for t he limitation.  
3.398.   At the December 2010 JCCT meeting, the United States and China agreed to resume talks 
on US beef market access.  The two sides subsequently held a series of meetings, which did not 
produce agreement on market access terms.   
3.399.   In May 2013, the U nited States received the lowest risk status for BSE from the OIE, i.e., 
negligible risk.  Using the JCCT process, the United States again pressed for a science -based 
market opening by China for US beef, and China agreed to re -engage, and further meetings t ook 
place in 2013 and 2014.  
3.400.   In 2014, US officials at all levels pressed China to follow through on its 2013 JCCT 
commitment.  In June 2014, a team of Chinese officials visited the United States to study the BSE 
issue.  Further discussions were subsequently h eld in October and November 2014 in an effort to 
reach agreement on the terms and conditions for US beef to access China 's market, but these 
discussions did not yield a positive outcome.  China 's requirements remained inconsistent with OIE 
guidelines and co ntinue to contrast sharply with US requirements.  At the JCCT meeting in 
December 2014, the United States continued to press China to re -consider its approach, given the 
negligible risk status that US beef has obtained from the OIE, and to propose alternati ve terms 
and conditions that are consistent with OIE guidelines.  However, China remained unwilling to alter 
its approach.  In 2015 and 2016, the United States continued to urge China to agree to an OIE -
consistent market opening for US beef. Despite these ef forts, the ban remained in place, and the 
United States continued pressing its concerns with China.  
3.401.   In September 2016, China 's Premier Li stated that China was willing to re -open its market 
for US beef. This statement was preceded by a Chinese delegation visit to the United States to 
verify the status of US animal health, food safety and traceability systems.  Following Premier Li 's 
statement, MOA and AQSIQ published a joint announcement lifting the ban on  bone-in and 
boneless beef under 30 months, conditioned on the United States meeting certain animal health 
and traceability requirements.  While the announcement removed one regulatory barrier, it did not 
include other regulatory changes that are necessary for a resumption of market access for US 
beef, as China 's regulatory agencies were demanding that any export protocol include unscientific 
requirements that deviate from current US government and industry standards.   
3.402.   One month after the April 2017 Mar -a-Lago summit meeting between President Trump and 
China 's President Xi, as part of the initial results of the CED 's 100 -day action plan, China agreed to 
allow the resumption of US beef shipments into its market.  However, China 's regulatory authorities 
insisted  on maintaining certain conditions that the United States considers unwarranted and 
unscientific.  Specifically, the export protocol that the two sides negotiated grants access only to US 
beef and beef products from cattle less than 30 months of age, and it  does not allow full product 
scope within that age range, maintaining a ban on certain offal items and processed products.  In 
addition, China continues to maintain non -BSE-related restrictions such as prohibitions on the 
detection of ractopamine and hormon es in US beef and beef products at China 's ports of entry.   
3.403.   In 2018, the United States will continue examine the ongoing implementation of the export 
protocol.  The United States also will continue to press China to eliminate age -related, product -
scope and veterinary drug restrictions that are not consistent with OIE guidelines and Codex 
Alimentarius (Codex) standards.  
Pathogen Standards and Residue Standards  
 
3.404.   Since 2002, as previously reported, China has applied SPS -related requirements on 
imported raw meat  and poultry that are not based on science or current scientific testing practices.  
One requirement establishes a zero tolerance limit for the presence of Salmonella bacteria in raw WT/GC/W/746  
 
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  meat and poultry.  Similar zero tolerance standards exist for Listeria and other pathogens.  
Meanwhile, the complete elimination of these bacteria in raw meat and poultry is generally 
considered unachievable.  Moreover, China apparently does not apply this same standard to 
domestic raw meat and poultry, raising national treatment c oncerns.  
3.405.   In 2008, despite assurances from China 's regulatory authorities that they were in the 
process of revising China 's pathogen standards, little progress was seen.  At the September 2008 
JCCT meeting, China did agree to re -list several US poultry plant s that had earlier been de -listed 
for alleged violations of zero tolerance standards for pathogens.  Although this step did not address 
the important underlying need for China to revise its pathogen standards, it did enable some US 
poultry plants to resume shipment to China.   
3.406.   In December 2008, the United States hosted a team of Chinese government officials and 
academic experts to observe how the US government and US industry regulate the use of 
veterinary drugs related to animal health.  This visit was intend ed to address China 's continuing 
ban on ractopamine residue in pork.  China maintains that it has serious concerns about the safety 
of ractopamine, but to date it has not provided any evidence that it has conducted a risk 
assessment despite repeated US requests.  
3.407.   During several subsequent JCCT working group meetings, the United States requested that 
China adopt an interim maximum residue level (MRL) for ractopamine in order to address the 
problems presented by China 's current zero -tolerance policy, while Chi na awaited the results of 
deliberations at the Codex Commission regarding the finalization of international MRLs for 
ractopamine.  However, China would not agree to take any steps to address its zero -tolerance 
policy.   
3.408.   Since July 2014, pork products have be en exported from the United States to China under 
the Never Fed Beta Agonist program of the US Department of Agriculture 's Agricultural Marketing 
Service (AMS).  Through this program, the AMS certifies that a pork product has been produced 
from pigs that ha ve been tested for ractopamine, and the pork product is tracked from plant entry 
to issuance of an export certificate and shipment to China.  While the program description originally 
discussed with China states that ractopamine test results will not accompa ny shipments, China has 
been insisting that shipments include those test results.  In addition, in September 2014, China 
suspended 12 production and cold storage facilities due to ractopamine detections that predated 
the implementation of the Never Fed Beta  Agonist program.  In November 2014, China suspended 
an additional establishment.  In December 2015, China released several hundred new MRL limits 
for horticultural products.  In a positive sign, the majority of these limits were adopted at Codex 
levels.  About six months later, China released another set of MRL limits, the majority of which also 
were in line with Codex standards.  However, many of these MRL limits were set as "temporary " 
MRL limits, and China has indicated that it may change the limits at a lat er date.  
3.409.   Overall, China continues to maintain without scientific justification maximum limits for 
certain heavy metals, MRLs for veterinary drugs and regulatory action levels for other residues 
that are inconsistent with Codex guidelines and other internat ional standards.  China also enforces 
a zero tolerance for some residues, even where Codex has adopted guidelines that many of 
China 's major trading partners have adopted.  US regulatory officials have encouraged their 
Chinese counterparts to adopt MRLs that  are scientifically based, safe and minimally trade -
disrupting.  
Avian Influenza Import Suspensions  
 
3.410.   In January 2015, China announced a suspension of imports of US poultry and poultry 
products from all US states in response to the US Department of Agriculture 's December 2014 
notification of the presence of HPAI in several US states.  China has been unwilling to follow OIE 
guidelines and accept poultry from regions in the United States unaffected by this disease.   
3.411.   As of December 2017, C hina is the only major market that maintained a nationwide 
suspens ion of imports of US-origin poultry and poultry products in direct response to the HPAI 
outbreak, which has been eradicated from the United States.  China is the largest of these trading 
partners, blocking US poultry exports that had totaled as high as $427 million in 2013.  WT/GC/W/746  
 
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  3.412.   US officials have continued to urge China to take steps to remove or limit the suspension, 
which remains in place.  In this regard, the United States increasingly has stres sed the importance 
of regionalization as a long -term solution in a globalized economy.  Avian influenza outbreaks, both 
low pathogenicity and high pathogenicity, are occurring with greater frequency due to migratory 
bird movements and globalized trade flows . The United States has continued to press for OIE -
approved regionalization measures in cases of isolated outbreaks, like those in the United States.  
To date, although US regulators have met with China to discuss regionalization, China has 
remained unwilli ng to adopt regionalization measures, even for low pathogenicity avian influenza 
(LPAI).  Nevertheless, at the November 2016 JCCT meeting, China agreed to exchange information 
and collaborate with the United States on efforts to move toward a regionalizatio n approach for 
HPAI consistent with OIE guidelines in place of the current nationwide ban that China has imposed 
on the United States.   
3.413.   In July 2017, Chinese regulatory officials from AQSIQ and MOA traveled to the United 
States and conducted an audit of th e US avian influenza regionalization system.  In August 2017, 
the United States notified the OIE that it had fulfilled its requirements and could self -declare 
freedom from HPAI.  Despite the fact that the United States is now recognized as HPAI -free, China 
continues to maintain its restrictions on US poultry exports without scientific justification.  
Dairy Certification Requirements  
 
3.414.   In April 2010, China 's AQSIQ notified the United States that it would begin imposing new 
conditions on the import of dairy prod ucts under a December 2009 measure, which was to become 
effective in May 2010.  Of specific concern were requirements that the United States certify on 
export certificates for dairy shipments that they are free of many diseases that are not of concern 
in pasteurized milk products.  Responding to requests from the United States, China delayed the 
effective date to June 2010 and subsequently allowed the United States to continue to ship 
products to China after the new effective date, so long as technical discus sions were ongoing.  
However, this situation was still creating a heightened level of uncertainty for US exporters and 
their potential Chinese buyers.  In December 2012, the United States and China provisionally 
agreed upon a bilateral certificate, and it wa s fully implemented in early 2013.  Since then, the 
United States has maintained close contact with US industry, and it appears that the finalized 
certificate is generally helping to facilitate market access for exports of US dairy products to China.  
3.415.   In Jun e 2017, the United States and China signed an MOU identifying the third -party 
certification bodies that are authorized to audit US dairy facilities to ensure that they comply with 
Chinese food safety requirements.  This MOU should lead to increased market a ccess for US dairy 
exporters.  Since the signing of the MOU, the United States has been closely examining its 
implementation, as part of the United States ' continuing efforts to ensure the unhindered access of 
US dairy exports to China 's market.  
Transparenc y 
 
3.416.   As in the TBT context, some of China 's SPS measures continue to enter into force without 
having first been notified to the SPS Committee, and without other WTO members having had the 
opportunity to comment on them, even though they appear to be the type  of measures that are 
subject to the notification requirements of the SPS Agreement.  Many of these unnotified measures 
are of key concern to foreign traders.  Examples include unnotified measures implementing 
important new registration requirements, residue  standards, inspection requirements and 
quarantine requirements, even though these measures constrain US exports of frozen meat, dairy 
products, grain, poultry, feed, horticultural products, and a variety of processed produ cts and 
alcoholic beverages.  
3.417.   In 2017, as in prior years, the United States urged China 's regulatory authorities to 
improve the transparency of their SPS regime by notifying more measures.  The United States also 
highlighted this concern during meetings before the WTO 's SPS Committee.  The United States will 
continue to seek improvements from China in this area in 2018.  WT/GC/W/746  
 
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  3.6.5   Inspection -related Requirements  
3.418.   In 2009, AQSIQ began implementing new measures imposing various inspection -related 
requirements.  The first of these measures, known as Decree 118, requires all overseas feed and 
feed ingredients manufacturers shipping to China to undergo facility and product registration.  
Since then, AQSIQ has implemented additional measures, including a 2012 measure known as 
Decree 145, which currently e xtends this registration process to meat, poultry, seafood, dairy and 
infant formula exporters and which eventually will expand it to include to all overseas food 
manufacturers.  Under Decrees 118 and 145, AQSIQ determines the registration requirements 
industry-by-industry and announces each industry 's registration requirements separately.   
3.419.   This registration process has been extremely onerous and cumbersome for US agricultural 
exporters.  In particular, the requirement for AQSIQ to individually inspect all or  most facilities for 
each product, combined with limited AQSIQ staffing, has resulted in extensive delays.  Decree 118 
has already resulted in trade disruptions in feed ingredients and additives, and there is currently 
no process for new feed additives to g ain market approval in China.  In addition, Decree 145 
created a significant backlog in the registration of US dairy products.  In response, the United 
States has urged AQSIQ to limit trade disruptions under Decrees 118 and 145.  The United States 
also has be en working closely with US agricultural exporters to facilitate their navigation of the 
requirements established by these decrees.  
3.420.   In 2016, AQSIQ informed the US Embassy in Beijing about a new requirement that 
imported foods shipped to China be accompanie d by an official certificate.  AQSIQ cited Article 92 
of China 's 2015 Food Safety Law  and the Codex Guidelines on the General Format Official 
Certificates as the basis for the new requirement, which will be reflected in implementing 
regulations being drafte d. According to AQSIQ, importers would be required to provide certificates 
attesting that food shipments comply with the requirements of Chinese laws, regulations and 
standards. Certificates currently required for certain food products and being issued by countries in 
accordance with other Chinese legal requirements governing imported food safety or under 
bilateral agreements would remain valid.  AQSIQ explained that this new requirement would take 
effect beginning in October 2017.  The United States raised c oncerns about this issue with China 
both bilaterally and in coordination with several other WTO members.  The United States requested 
that China provide additional clarification and scientific justification for the new requirement and 
that China notify draf t implementing measures to the WTO 's TBT Committee.   
3.421.   In June 2017, China notified its draft Measures for the Administration of Certificates 
Attached to Foods Exported to China  to the TBT Committee.  However, the United States and other 
like-minded WTO membe rs continued to raise concerns with China about the broad scope of and 
lack of clarity in the certificate requirement.  In September 2017, China notified the TBT Committee 
that it would allow a two -year transitional period for the certificate requirement, a s it was changing 
the enforcement date from October 2017 to October 2019.  The United States will use this time 
period to continue to press China for clarifications regarding the scope of products subject to the 
certificate requirement and the applicable sc ientific justifications.   
3.6.6   Domestic Support  
3.422.   After its accession to the WTO, China began making significant changes to its domestic 
subsidies and other support measures for its agricultural sector.  China has established direct 
payment programs, instituted m inimum support prices for basic commodities and sharply 
increased input subsidies.  China has implemented a cotton reserve system, based on minimum 
purchase prices, although, since 2014, facing large stocks of cotton reserves, China has moved 
away from mini mum purchase prices to a target price -based support approach.  China also has 
begun several new support schemes for hogs and pork, along with a purchasing reserve system for 
pork.  
3.423.   In October 2011, China submitted its overdue notification concerning domesti c support 
measures for the period 2005 through 2008.  Even though this notification documented an increase 
in China 's support levels, the United States was concerned that the methodologies used by China 
to calculate support levels, particularly with regard to China 's price support policies and direct 
payments, resulted in underestimates of those support levels.  Indeed, since China 's accession to 
the WTO, it appeared that China 's agriculture system had transformed from a system focused on WT/GC/W/746  
 
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  generating tax reven ues from agricultural producers into a system that provided substantial net 
subsidies to agricultural producers, with many of the subsidy mechanisms tied to production 
incentives and resulting in increased production of Chinese agricultural products that c ompete with 
imports from the United States.  
3.424.   In 2015, the United States pressed China to address the mounting concerns about its 
increased domestic support spending, which are negatively impacting global trade flows.  In 
May 2015, China submitted its most re cent notification concerning domestic support measures to 
the WTO, but it only provided information up to 2010.  The United States remains concerned that 
the methodologies used by China to calculate support levels, particularly with regard to its price 
support policies and direct payments, may result in underestimates.  In addition, reports 
commissioned by certain US farm groups to calculate support levels for certain commodities, 
including corn, wheat, rice and soybeans, have concluded that China may be substantially 
exceeding its WTO -agreed domestic support spending limits.  
3.425.   In September 2016, the United States init iated a WTO case against China, challenging 
government support for the production of rice, wheat and corn as being in excess of China 's 
commitments.  Like other WTO members, China committed to limit its support for producers of 
agricultural commodities.  China's market price support programs for these agricultural 
commodities appear to provide support far exceeding the agreed levels.  This excessive support 
creates price distortions and encourages overproduction.  Consultations took place in 
October  2016.  In Ja nuary 2017, a WTO panel was established to hear the case at the United 
States ' request, and 27 other WTO members joined as third parties.  In 2018, hearings before the 
panel are expected to take place, and the panel is expected to issue its decision.   
3.426.   Throu ghout 2017, the United States continued to review closely China 's use of domestic 
subsidies and other support measures for other agricultural commodities.  The United States also 
pressed China to provide an up -to-date notification of its domestic support me asures to the WTO 
and also to provide more clarity regarding its methodologies for calculating support levels in order 
to ensure proper reporting and China 's adherence to its WTO commitments.  
3.6.7   Export Subsidies  
3.427.   Shortly after China 's WTO accession, US industr y became concerned that China was 
providing export subsidies on corn, despite China 's commitment to eliminate all export subsidies 
upon accession.  It appeared that significant quantities of corn had been exported from China, 
including corn from Chinese gov ernment stocks, at prices that may have been 15 to 20 percent 
below China 's domestic prices.  As a result, US corn exporters were losing market share for corn in 
their traditional Asian markets, such as South Korea and Malaysia, while China was exporting 
record amounts of corn.   
3.428.   The United States has pressed its concerns about possible export subsidies on corn with 
China in bilateral meetings.  The United States has also raised its concerns and sought additional 
information about China 's corn policies – including the use of potentially excessive VAT export 
rebates – during meetings before the Committee on Agriculture, including the transitional reviews.  
Eventually, however, China began trending toward becoming a net importer of corn, and it 
appeared that China 's exports were being made on a commercial basis, although concern remains 
regarding the operation of China 's VAT rebate system for corn.   
3.429.   It is difficult to determine whether or to what extent China maintains export subsidies in 
the agricultural sector, i n part because China has not notified all of its subsidies to the WTO.  For 
example, China has not notified subsidies provided in connection with agricultural export bases, 
which appear to include subsidies contingent upon export performance.  
3.430.   The United Sta tes will continue to investigate the Chinese government 's subsidization 
practices in 2018, although China 's incomplete subsidy notifications hinder those efforts.  The 
United States will make every effort to ensure that any use of export subsidies is elimin ated. WT/GC/W/746  
 
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  3.7  INTELLECTUAL PROPERTY RIGHTS   
3.431.   With its acceptance of the TRIPS Agreement, China agreed to adhere to generally accepted 
international norms to protect and enforce the intellectual property rights held by US and other 
foreign companies and individuals.  Specifically, the TRIPS Agreement sets minimum standards of 
protection for copyrights and related rights, trademarks, geographical indications, industrial 
designs, patents, integrated circuit layout designs and undisclosed information.  The TRIPS 
Agreement  also sets minimum standards for IPR enforcement in administrative and civil actions 
and, in regard to copyright piracy and trademark counterfeiting, in criminal actions and actions at 
the border.  The TRIPS Agreement requires as well that, with very limite d exceptions, WTO 
members provide national and most favored nation treatment to the nationals of other WTO 
members with regard to the protection and enforcement of intellectual property rights.  
3.432.   Since its accession to the WTO, China has established a framew ork of laws, regulations 
and departmental rules relating to its WTO commitments.  However, reforms are needed in key 
areas, such as updating China 's laws and regulations in the area of trade secrets, providing 
regulatory data protection for pharmaceutical p roducts in a manner consistent with international 
research and development practices and legal standards, further improvement of China 's 
measures for copyright protection on the Internet following China 's accession to the WIPO Internet 
treaties, and addres sing deficiencies in China 's criminal IPR enforcement measures.  In addition, a 
growing number of draft and final Chinese measures present market access challenges or 
otherwise contribute to an uneven playing field in China for US and other foreign intellec tual 
property rights holders.  
3.433.   Even though China 's State Council released the 13th National Five -Year Plan for 
Intellectual Property Right Protection and Utilization  in January 2017 and the State Council Leading 
Group to Combat Intellectual Property Rights Infringement and the Sale of Shoddy Goods 
published an Action Plan on IP Protection of Foreign -Invested Enterprises  in September 2017, 
effective IPR enforcement rem ains a serious problem throughout China.  There have been 
individual reports of welcome cooperation between certain rights holders and local authorities, and 
some court decisions that appear to uphold the rights of US mark holders, but overall IPR 
enforceme nt is hampered by inefficient civil recourse mechanisms as well as a still insufficient 
commitment overall, as demonstrated by resource constraints, lack of training, lack of initiative, 
lack of transparency in the enforcement process and its outcomes, pro cedural obstacles to civil 
enforcement, lack of coordination among Chinese government ministries and agencies, and local 
protectionism and corruption.  
3.7.1   Legal Framework  
Overview  
 
3.434.   As previously reported, at the time of its accession to the WTO, China was in t he process 
of modifying the full range of IPR laws, regulations and departmental rules.  Within several months 
after its accession, China had completed amendments to its Patent Law , Trademark Law and 
Copyright Law , along with regulations and departmental ru les to implement them.  China also had 
issued regulations and departmental rules covering specific subject areas, such as integrated 
circuits, computer software and pharmaceuticals.  US experts, together with experts from other 
WTO members, subsequently part icipated in a comprehensive review of these measures as part of 
the first transitional review before the TRIPS Council in 2002.  
3.435.   As China has continued to issue new IPR measures, there are still instances when it issues 
measures in final form without having  provided an opportunity for public comment.  Many of these 
measures are considered "normative  documents " within China 's legal system and are styled as 
"opinions " or "guidance ," but they still have a decisive effect on how policies that affect IPR are 
imple mented and therefore should be published in proposed form for public comment.  The United 
States routinely has provided detailed written comments on various draft Chinese measures 
relating to intellectual property rights.  The United States also has followed  up with bilateral 
meetings where necessary.  
3.436.   In addition, the United States repeatedly has urged China to pursue additional legislative 
and regulatory changes, using both bilateral meetings and the annual transitional reviews before WT/GC/W/746  
 
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  the WTO 's TRIPS Council.  The focus of the United States ' efforts has been to persuade China to 
improve its laws and regulations across all critical areas, including criminal, civil and administrative 
IPR enforcement and legislative and regulatory reform.  For example, obst acles that have been 
noted in the area of criminal enforcement include China 's high criminal thresholds, the lack of 
criminal liability for certain acts of copyright infringement, the profit motive requirement in 
copyright cases, the requirement of identic al trademarks in counterfeiting cases, and the absence 
of minimum, proportional sentences and clear standards for initiation of police investigations in 
cases where there is a reasonable suspicion of criminal activity.  The United States also has been 
press ing China to adopt a variety of improvements to its administrative and civil enforcement 
regimes.  For example, China 's failure to clarify that sports broadcasts are eligible for copyright 
protections is an ongoing concern.  While not all of these issues rai se specific WTO concerns, all of 
them will continue to detract from China 's enforcement efforts until addressed.  
Technology Localization  
 
3.437.   The United States remains concerned about a range of Chinese policies and practices that 
condition market access or t he receipt of government benefits or preferences on relevant 
intellectual property being owned or developed in China or on key intellectual property being 
disclosed to Chinese government authorities.  These policies and practices are objectionable not 
only because of their apparently discriminatory treatment of foreign rights holders, but also 
because they seem to be calculated to pressure foreign companies to transfer their technologies to 
enterprises in China.  These policies and practices also seem to disc ourage Chinese enterprises 
from developing their own innovative technologies.  Concerns among US and other foreign 
stakeholders are growing because of new and proposed measures being issued by China in this 
area. 
3.438.   As previously reported, in prior years, Chin a has made JCCT and S&ED commitments not 
to maintain any measures that condition eligibility for government procurement preferences for 
goods or services based on where associated intellectual property is owned or was developed, and 
to treat IPR owned or d eveloped in other countries the same as IPR owned or developed in China.  
China also has agreed to revise or eliminate various measures that appeared to be inconsistent 
with these commitments.  
3.439.   Earlier engagement through the July 2014 S&ED meeting had focuse d on the need for 
China to address US concerns about China 's pursuit of intellectual property localization.  At that 
time, China committed that its Ministry of Science and Technology would develop a pilot program 
addressing an eligibility condition for a ta x measure requiring high technology enterprises to, as an 
alternative to IP ownership, hold a global exclusive license to the relevant technology.  
Nevertheless, this work stream has not resulted in the necessary amendments to the measure at 
issue, and US concerns therefore remain unaddressed.  
3.440.   Meanwhile, China has continued to issue new and proposed policies and practices 
discriminating against foreign rights holders and pressuring foreign companies to transfer their 
technologies to enterprises in China.  A number of measures issued in the name of enhancing 
cybersecurity or protecting national security impose unwarranted IP disclosure conditions and 
contain provisions requiring related IP rights to be owned and developed in China.  Of additional 
concern are recently issued measures affecting the pharmaceuticals and medical devices 
industries, including the provision of expedited regulatory treatment for localized manufacturing or 
owning a Chinese patent.   
3.441.   Another technology transfer issue involves the innovat ion-impeding restrictions relating to 
the licensing of intellectual property imposed by the State Council 's Regulations on  Technology 
Import and Export , which went into effect in 2002.  Among other things, these regulations appear 
to impose contractual rest rictions on the licensing of foreign technology into China, such as by 
requiring mandatory indemnities against third party infringement and mandatory ownership of 
improvements by domestic licensees.  At the same time, no similar restrictions appear to apply  to 
license agreements between two Chinese enterprises or when a Chinese enterprise is exporting 
technology.  At the November 2016 JCCT meeting, China committed to actively research how to 
revise these regulations to address US concerns and to hold a joint seminar with the United States 
on this topic, but to date China has not published any proposed revisions, and therefore the United 
States ' concerns remain unaddressed.  WT/GC/W/746  
 
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  Trade Secrets  
 
3.442.   In November 2017, China 's National People 's Congress adopted amendments t o the Anti-
unfair Competition Law  that took effect on January 1, 2018.  Despite strong encouragement from 
the United States, China did not take this opportunity to create a stand -alone law governing trade 
secrets, which could have reduced the existing confu sion surrounding the numerous laws and 
administrative regulations that impact the protection of trade secrets in China.  The amended law 
raises some concerns.  For example, it contains a definition of trade secrets that could exclude 
certain types of proprie tary information from its scope of protection, and it continues to limit its 
application to actions of entities engaged in commercial activity, rather than actions taken by any 
natural or legal person.  The amended law also does not provide for higher damag es in cases of 
willful misappropriation.  
Online Copyright Protection  
 
3.443.   Since China acceded to the WTO, a sustained focus of US engagement has involved 
China 's online copyright protection, which is especially important in light of China 's rapidly 
increasin g number of Internet users.  This engagement has seen important but incomplete steps 
put forward by China.   
3.444.   In December 2016 and November 2017, China published drafts of a new E-Commerce Law  
for public comment.  In written comments, the United States has str essed that the final version of 
this law should promote an effective notice -and-takedown regime that addresses online piracy and 
counterfeiting while providing appropriate safeguards to Internet service providers.  
Trademark Issues  
 
3.445.   The United States has p ressed China to address a variety of weaknesses in China 's legal 
framework that do not effectively deter, and that may even encourage, certain types of infringing 
activity.  For example, US companies continue to face numerous trademark challenges in China, 
such as unauthorized parties ' "squatting " on foreign company names, designs, trademarks and 
domain names, the registration of other companies ' trademarks as design patents and vice versa, 
the use of falsified or misleading license documents or company docu mentation to create the 
appearance of legitimacy in counterfeiting operations, false indications of geographic origin of 
products, and trademark registrations that are made in bad faith by unscrupulous Chinese 
registrants.  The United States also has raised  concerns with China about key unresolved 
questions, such as the need to clarify the constructive knowledge standard applied in landlord 
liability proceedings.  
3.446.   Of particular and growing concern is the continuing registration of trademarks in bad faith, 
as disputes involving bad faith trademark filings persisted in 2017.  US companies across industry 
sectors continue to face Chinese applicants registering their marks and "holding  them for ransom " 
or seeking to establish a business building off of the US compa ny's global reputation.  These 
incidents have caused consumer confusion, commercial harm and costly legal proceedings.  While 
China 's National People 's Congress amended China 's Trademark Law  in 2013, including through 
the addition of provisions to combat bad faith trademark filings, expanding protection to sound 
marks, permitting multi -class registration and streamlining application and appeal proceedings, the 
amended law has not been suffici ent to surmount the great challenges facing rights holders, 
particularly in curbing bad faith registrations of foreign marks.   
Pharmaceuticals  
 
3.447.   Beginning in 2015, China embarked on wide -ranging reforms to its pharmaceuticals 
regulatory framework.  Several a spects of the measures issued by China raise serious concerns.   
3.448.   In particular, the Opinions on Reforming the Review and Approval Systems for Drugs and 
Medical Devices , a normative document issued by the State Council in final form in April 2015 
without an opportunity for public comment, contains provisions incentivizing technology transfer to 
China, calls for the conditioning of marketing approvals based upon pricing considerations, and 
puts forward a definition of "new  drug" that departs from international  best practices.  China 's 
implementation of this State Council measure will remain a central focus of the United States 
going forward.  WT/GC/W/746  
 
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  3.449.   Patent protection is another area of serious concern of US pharmaceutical stakeholders.  In 
particular, SIPO examination gu idelines governing information disclosure requirements for 
pharmaceutical patent applications have been revised through a series of amendments making 
these guidelines more restrictive.  As a result, applications for pharmaceutical patents have been 
denied i n China, even as US and other leading patenting authorities granted patents for the same 
pharmaceutical innovations.  In addition, patents granted prior to the adoption of the more 
restrictive SIPO guidelines have been vulnerable to invalidation challenges in China based on the 
retroactive application of these guidelines.  
3.450.   In October 2016, SIPO issued proposed revisions to the patent examination guidelines that 
partially bear on US concerns.  One proposed revision would clarify that, in their examination 
process, patent examiners must consider post -filing supplemental test data having an "obtainable " 
basis in the original specification.  Final revisions to the patent examination guidelines that entered 
into force in April 2017 require patent examiners to take into account this supplemental test data.  
However, there are reports that China 's patent examiners continue to deny applicants ' requests to 
supplement their test data.  Meanwhile, several oth er aspects of China 's system for protecting 
pharmaceutical products either remain opaque or fall short of the standards prevailing in the 
United States and other jurisdictions.  For example, the guidelines do not explicitly apply to both 
the sufficiency of disclosure and inventiveness.  
3.451.   The United States also continues to be concerned about the extent to which China provides 
effective protection against unfair commercial use of, and unauthorized disclosure of, undisclosed 
test or other data generated to obta in marketing approval for pharmaceutical products.  China 's 
law, and a commitment that it made in its WTO accession agreement, require China to ensure that 
no subsequent applicant may rely on the undisclosed test or other data submitted in support of an 
application for marketing approval of new pharmaceutical products for a period of at least six 
years from the date of marketing approval in China. However, Chinese law does not include an 
appropriate definition of the term "new  chemical entity " for purposes o f identifying test or other 
data entitled to protection.  There is evidence that, as a result of this situation, generic 
manufacturers of pharmaceutical products have been granted marketing approvals by China 's 
CFDA prior to the expiration of the six -year p rotection period and, in some cases, even before the 
originator 's product has been approved.   
3.452.   At the December 2012 JCCT meeting, China committed to define the term "new  chemical 
entity " in a manner consistent with international research and development pra ctices in order to 
ensure regulatory data of pharmaceutical products are protected against unfair commercial use 
and unauthorized disclosure.  More than four years later, in May 2017, CFDA finally issued the draft 
Policies Relevant to the Protection of the Rights and Interests and Innovators for the 
Encouragement of Innovation in Drugs and Medical Devices , known as draft Notice 55.  Draft 
Notice  55 lacks essential details, which creates uncertainty about its implementation and therefore 
undermines the purpose  of data protection.  In addition, the United States is concerned that draft 
Notice 55 would reduce the duration of data protection to the extent that an application for 
marketing approval in China has been received more than one year after first approval by 
regulatory authorities in the United States, the European Union or Japan.   
3.453.   An additional area of concern in the pharmaceuticals sector involves the long delays in 
China 's review of applications for permission to market new and innovative pharmaceutical 
products in China, and for these products to be placed on approved reimbursement lists.  These 
concerns, along with analogous concerns relating to medical devices, have been the focus of 
various bilateral meetings with China.  As the United States has pointe d out, a reduction in 
regulatory delays would speed access by China 's public to potentially life -saving medications and 
help sustain incentives for further pharmaceutical innovation.  
3.454.   In August 2015, China 's State Council issued a normative document entitle d Opinions of 
the State Council on Reforming the Review and Approval System for Drugs and Medical Devices , 
which outlined the State Council 's guidance for reforming China 's drug and medical devices 
registration review and approval systems. This measure cal led for several reforms that could have 
far-reaching implications for the registration and approval of foreign pharmaceutical products.  For 
example, it proposed a definition for "new  drug" that could significantly affect the introduction of 
foreign pharmac euticals into China 's market and that would be inconsistent with international best 
practices.  In addition, the State Council measure called for providing accelerated review and 
approval for innovative new pharmaceuticals where the applicant has shifted ma nufacturing WT/GC/W/746  
 
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  activities to China.  It also calls for the expedited review and approval of pharmaceuticals listed in a 
catalogue determined, in part, by MIIT – an agency without a direct link to determining safety and 
efficacy or public health priorities.  
3.455.   The State Council did not publish its Opinions on Reforming the Review and Approval 
Systems for Drugs and Medical Devices  in draft for public comment before issuing it in final form.  
At about the same time, CFDA released a series of draft measures implementi ng the State Council 
measure.  The United States raised transparency concerns and pressed China to allow comment on 
the substance of these various measures before they were finalized and implemented.  The United 
States also urged China to use the opportunity  of amending these measures to promote the early 
notification and resolution of patent disputes and to ensure that China provides effective protection 
of regulatory test data.  
3.456.   In April 2016, CFDA issued the draft Announcement Concerning the Undertaking on the 
Sales Price of Newly Marketed Drug  without soliciting public comment.  This draft measure 
effectively would require drug manufacturers to commit to price concessions as a pre -condition for 
marketing approval of new drugs.  Given its inconsistency with in ternational science -based 
regulatory practices, which are based on safety, efficacy and quality, the draft measure elicited 
serious concerns from the United States and US industry.  
3.457.   CFDA continued to be very active in 2017.  In April 2017, CFDA issued a dra ft Decision on 
Import Drugs Registration Management . In May 2017, CFDA followed up by issuing four draft 
notices, known as Notices 52, 53, 54 and 55, addressing clinical trials and related time -to-market 
issues for both pharmaceuticals and medical devices.  China 's Center for Drug Evaluation 
subsequently issued a draft Proposed List of Drugs Approved for Marketing in China . More recently, 
in October 2017, China 's State Council released the Opinions on Deepening Reform of the Review 
and Approval System and En couraging Innovation of Drugs and Medical Devices , which seeks to 
further advance the policies outlined in draft Notices 52, 53, 54 and 55.  In October 2017, China 
also published limited draft revisions to the Drug Administration Law  and stated that future 
proposed revisions to the remainder of this law would be forthcoming.  In November 2017, CFDA 
issued the draft Drug Registration Regulations , which purport to promote reform and development, 
but actually reinforce a dated policy of only providing data prote ction for drugs first marketed in 
China.  Drugs first marketed outside China would not qualify under CFDA 's definition of "new  drug" 
and therefore would not be eligible for data protection.  Working closely with US industry, the 
United States submitted written comments to the appropriate Chinese authorities on all of these 
draft measures.  The United States also has followed up with direct engagement of CFDA.   
3.458.   In general, these draft measures have some positive aspec ts but lack critical definitions 
and other details, which will need to be set out in subsequent implementing measures.  It also will 
need to be made clear that the implementation of the final measures at all levels of government in 
China is to be consistent  for foreign and domestic companies.  
3.459.   In 2018, the United States will remain in close contact with US industry and will examine 
developments vigilantly in this area.  The United States also will continue to engage CFDA as 
necessary to ensure that US interest s are protected.  
Other Patent Issues  
 
3.460.   In recent years, China 's regulatory authorities have issued draft updates to its 
Standardization Law , as well as proposed and final measures relating to standards that incorporate 
patents and relating to "secure  and co ntrollable " concepts, departmental rules on competition 
enforcement as it relates to intellectual property from Anti-monopoly Law  enforcement agencies, 
draft Patent Law  amendments, and a judicial interpretation on patent infringement proceedings.  
Individua lly and collectively, these proposed and final measures continue to generate concerns 
among US and other foreign stakeholders.  The United States has been carefully examining 
developments and has raised concerns with particular aspects of these various meas ures.  
Geographical Indications  
 
3.461.   At the December 2014 JCCT meeting, China agreed that a term, or its translation or 
transliteration, is not eligible for protection as a GI in its territory where the term is generic in its WT/GC/W/746  
 
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  territory.  China also committed th at the relationship between trademarks and GIs is to be handled 
in accordance with relevant articles in the TRIPS Agreement and that legal means are available for 
interested third parties on the above grounds to object to and to cancel any registration or 
recognition granted to a GI.  In addition, where a component of a compound GI is generic in its 
territory, China agreed that the GI protection is not to extend to that generic component.  At the 
November 2015 JCCT meeting, China further clarified that these commitments apply to all GIs, 
including those protected pursuant to international agreements.  China also committed to follow 
transparent procedures for developing cancellation procedures for already -granted GIs and 
targeted the end of 2016 for publishing t hese procedures in draft for public comment.  
3.462.   In March 2016, AQSIQ issued the Measures on Protection of Foreign Geographical 
Indication Products , which lists circumstances for the revocation of foreign GIs.  The United States 
has been raising questions and m aking suggestions to improve this system and continues to work 
with AQSIQ on ways to help ensure that common names are not disadvantaged in China and to 
address possible inconsistencies between AQSIQ 's treatment of GIs and the trademark and GI 
systems main tained by SAIC and MOA.  
3.463.   In June 2017, AQSIQ issued a notice listing numerous geographical indications to be 
considered for potential recognition through a bilateral agreement with the European Union.  The 
announcement offered a 60 -day period for interested parties to file oppositions.  The United States 
raised a number of procedural questions regarding this process and encouraged AQSIQ to give full 
consideration to stakeholder input.  The United States also asked AQSIQ to abide by China 's 
existing bilateral co mmitments to the United States relating to GIs.  Going forward, the United 
States will continue to engage China actively to ensure that China complies with its bilateral and 
multilateral commitments and adheres to best practice standards.   
3.7.2   Enforcement  
Overv iew 
 
3.464.   The TRIPS Agreement requires China to ensure that enforcement procedures are available 
so as to permit effective action against any act of IPR infringement covered by the TRIPS 
Agreement, including expeditious remedies to prevent infringement and reme dies that constitute a 
deterrent to further infringement.  Effective IPR enforcement has not been achieved, and IPR 
infringement remains a serious problem throughout China.  IPR enforcement is hampered by 
inefficient civil recourse mechanisms as well as a st ill insufficient commitment overall, as 
demonstrated by resource constraints, lack of training, lack of initiative, lack of transparency in 
the enforcement process and its outcomes, procedural obstacles to civil enforcement, lack of 
coordination among Chin ese government ministries and agencies, and local protectionism and 
corruption.   
3.465.   Largely as a reflection of enforcement concerns, the United States elevated China to the 
Special 301 "Priority Watch List " in April 2005, where it has remained through 2017.  Challenges 
have evolved over time, and important new concerns have arisen.  The Special 301 Report for 2017 
notes that China 's IP-related goals are tempered by contradictions and lagging implementation.  
High-level policy statements from China supporting increased protection of intellectual property 
rights should have a positive guiding effect on China 's ongoing IP legal reform, yet they also stand 
in contrast with the broad range of ongoing challenges in what remains a complex and uncertain 
environment fo r IP rights holders.  
3.466.   No longer published concurrently with the Special 301 report, the Notorious Markets List 
identifies online and physical markets that exemplify key challenges in the global struggle against 
piracy and counterfeiting.  The 2017 Notorious  Markets List, as in prior years, included several 
examples of notorious physical and online markets located in China.   
3.467.   The United States continues to place the highest priority on addressing IPR protection and 
enforcement problems in China.  Nevertheless, it is clear that there will continue to be a need for 
sustained efforts from the United States and other WTO members and their industries, along with 
the devotion of considerable resources and political will to IPR protection and enforcement by the 
Chinese  government, if significant improvements are to be achieved.   WT/GC/W/746  
 
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  3.468.   The United States has worked with central, provincial and local government officials in 
China in a sustained effort to improve China 's IPR enforcement, with a particular emphasis on the 
need for  dramatically increased utilization of criminal remedies as well as the need to improve the 
effectiveness of civil and administrative enforcement mechanisms.  In addition, a variety of US 
agencies has held regular bilateral discussions with their Chinese co unterparts, which have been 
periodically supplemented by technical assistance programs.   
3.469.   Meanwhile, the United States has continued to pursue a comprehensive initiative to 
combat the enormous global trade in counterfeit and pirated goods, including exports  of infringing 
goods from China to the United States and the rest of the world.  The Intellectual Property 
Enforcement Coordinator, a White House position, coordinates these and other efforts.  In fiscal 
year 2016, US customs authorities made 31,560 seizures  of IPR -infringing goods, which, if 
genuine, would have a total estimated manufacturer 's suggested retail price (MSRP) value of more 
than $1.38 billion.  Of these seizures, 45 percent, by estimated MSRP value, originated from China, 
with a total estimated M SRP value of $617 million.  An additional 43 percent, with a total MSRP 
value of $600 million, was shipped from Hong Kong.  
3.470.   Over the years, China has pursued policies that continue to impede effective enforcement.  
Several of these policies were the focus of a WTO case initiated by the United States in April 2007, 
seeking changes to China 's legal framework that would facilitate the utilization of criminal 
remedies against piracy and counterfeiting, enhance border enforcement against counterfeit goods 
and provi de copyright protection for works that have not obtained approval from China 's 
censorship authorities.  As discussed above, China did not appeal WTO panel rulings in favor of the 
United States and subsequently modified the measures at issue, effective March  2010.   
3.471.   At the same time, other changes were needed to address market access concerns.  As the 
WTO ruled in 2009 in a WTO case brought by the United States, China maintains market access 
barriers, such as import and distribution restrictions, which discoura ge and delay the introduction 
of numerous types of legitimate foreign products into China 's market.  These barriers have created 
additional incentives for infringement of copyrighted products like books, newspapers, journals, 
theatrical films, DVDs and musi c and inevitably lead consumers to the black market, compounding 
the severe problems already faced by China 's enforcement authorities.  The United States 
welcomed the steps that China took in 2011 to comply with the WTO rulings in this case with 
regard to b ooks, newspapers, journals, DVDs and music.  The United States also welcomed the US-
China MOU covering theatrical films, which so far has provided significant increases in the number 
of foreign films imported and distributed in China each year and significa nt additional revenue for 
US film producers.  Further developments relating to the films MOU are discussed above in the 
Trading Rights section.   
Trade Secrets  
 
3.472.   The United States remains seriously concerned about continued instances in which 
important trade secrets of US companies have been stolen by, or for the benefit of, Chinese 
competitors.  US companies investing in research and development in China are particularly at risk 
that locally hired engineers and other employees with access to their trade secret  information will 
steal that information and transfer it to a competing state -owned enterprise or private Chinese 
enterprise.  It has been difficult for some US companies to obtain legal relief through China 's legal 
system against those who have benefitted from this type of theft, despite apparently compelling 
evidence demonstrating guilt.  The United States is also concerned that many more trade secrets 
cases involving US companies and Chinese competitors go unreported, both because US 
companies want to avoi d both reputational harm and because they weigh the costs of pursuing 
legal relief against the likelihood of obtaining no redress through Chinese legal channels and 
possible commercial repercussions for shining light on the conduct at issue.  Largely for th ese 
reasons, according to a 2015 industry survey, approximately 50 percent of US companies doing 
business in China choose not to transfer key technologies into China.  
3.473.   As previously reported, the United States and China increased their bilateral exchanges o n 
the important issue of trade secrets, including in the JCCT IPR Working Group and the S&ED 
process and through direct engagement between senior -level US and Chinese government officials.  
Ensuring that companies are able to protect and enforce their IPR i n China effectively, including 
trade secrets, is essential to promoting successful commercial relationships between US and 
Chinese companies.  The United States has urged China to take a holistic approach and to address WT/GC/W/746  
 
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  many critically needed elements to st rengthen its trade secrets regime, including in the areas of 
enhancing access to preliminary injunctions and evidence preservation orders, increasing 
damages,  and protecting trade secrets from damaging disclosure by government bodies.  
3.474.   Going forward, protection against trade secret misappropriation in China will continue to be 
a top priority for the United States.  The United States expects China to fully implement its past 
commitments and to make further needed improvements in its trade secrets regime.  
Software Piracy  
 
3.475.   For several years, the United States has raised serious concerns about software piracy in 
China.  A major focus of the United States ' engagement of China in this area has focused on 
Chinese government agencies and state -owned enterprises.  
3.476.   As previously reported, in response to US concerns about software piracy raised during the 
run-up to the April 2006 JCCT meeting, China issued rules requiring that computers be pre -
installed with licensed operating system software and that government agen cies purchase only 
computers satisfying this requirement, and a series of other JCCT and S&ED commitments relating 
to software piracy, including ones requiring Chinese government agencies at all levels of 
government and central state -owned enterprises to p urchase and use legitimate software, and to 
promote the centralized procurement of software.   
3.477.   Nevertheless, the relatively modest progress made by China over the last several years in 
reducing the rate of end -user business software piracy rates is of conti nuing concern to the United 
States and to a variety of software developers.  The United States will insist upon timely, 
meaningful and verifiable implementation of China 's JCCT and S&ED commitments to eliminate the 
use of unauthorized software at all levels  of government and to discourage the use of unauthorized 
software by enterprises, including major state -owned and state -invested enterprises, beginning 
with pilot projects encouraging automated software asset management and increased deterrent 
penalties fo r violators.  
3.478.   China exacerbated the challenges facing US and other foreign suppliers of software in 2013 
when the State Council and MOF issued measures that impose price controls and related 
requirements on software purchases by government entities and poss ibly state -owned enterprises 
that appear to promote the purchase of domestic software over foreign software.  The United 
States has raised serious concerns with China about these measures, particularly in light of China 's 
JCCT and S&ED commitments relating to intellectual property localization.   
Other Piracy Issues  
 
3.479.   Despite many special campaigns in China over the years to combat piracy, repeated 
bilateral commitments by China to increase enforcement and an increase in civil IPR cases, sales 
of US copyright -intensive goods and services in the China market remain substantially below levels 
in other markets, measured in a variety of ways, ranging from spending on legitimate music as a 
percentage of GDP to software sales per personal computer.  The United States accordingly has 
urged China to continue its efforts to improve both protection and enforcement and to ensure that 
they result in an increase of sales of legitimate goods and services from all sources, including 
imports.  
3.480.   One problem is that television and r adio tariffs for the broadcast of musical works were not 
adopted in China until January 2010, nine years after it was obligated to do so.  These tariffs 
remain remarkably low.  
3.481.   In addition, piracy of movies (including during the pre -release phase), televisi on 
programming and music remains widespread, particularly online, as China 's Internet users are 
increasingly turning to streaming media to watch foreign movies and television programming.  The 
encouraging growth of legitimate platforms streaming licensed co ntent experienced a damaging 
setback when Chinese regulations governing content review imposed procedural obstacles that 
have resulted in extensive delays in legitimate platforms obtaining broadcast permissions.  The 
United States has strongly encouraged Ch ina to streamline procedures to avoid impediments to 
the streaming of licensed content.  WT/GC/W/746  
 
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  3.482.   An additional growing concern involves illegal online content distribution via over -the-top 
set-top-boxes, known as media boxes.  Not only is this illegal practice wides pread in China, but 
also China is reported to be the source of a substantial share of media boxes pre -adapted to 
connect the user to online sources providing unlicensed content.  China 's regulatory authorities 
have taken some initial enforcement steps, but more steps are needed, as is closer cooperation 
with their US counterparts.   
Counterfeiting Issues  
 
3.483.   China 's widespread counterfeiting not only harms the business interests of rights holders, 
both foreign and domestic, but also includes many products that p ose a direct threat to the health 
and safety of consumers in the United States, China and elsewhere, such as pharmaceuticals, food 
and beverages, batteries, auto parts, industrial equipment and toys, among many other products.  
While the United States has r eceived some positive reports about administrative and criminal 
enforcement efforts taken against some of the largest and most egregious offenders, it is clear 
that these efforts collectively have failed to arrest growth of counterfeiting in China, which r emains 
the world 's largest counterfeit producer and seller.  
3.484.   A particularly serious ongoing concern involves counterfeit semiconductors.  As they enter 
the supply chain, they create the risk of installation of fake and shoddy semiconductor components 
in ele ctronic equipment, including in equipment used for critical functions related to agricultural 
safety and security and a host of industrial sectors.   
3.485.   Over the past few years, several cases involving infringing and adulterated agricultural 
chemicals have com e to light.  These cases have caused significant public health, economic and 
environmental damage in China.  At the same time, some trademark holders have reported a 
reduction in the visibility of counterfeit goods for sale in certain major retail and wholes ale markets 
in China, and at least one trademark holder has reported that good enforcement activity followed 
its multi -year engagement with local authorities.  Reports of improvements could be the result of 
intensified administrative and criminal enforcemen t in certain areas.  It also may be attributable to 
steps taken by national and local AICs to target landlords of physical markets as part of a wider 
effort to promote enforcement of intellectual property rights, as well as court decisions that have 
found l andlords liable for infringement that they knew or should have known was taking place on 
their premises.  However, as noted above, greater clarity and uniformity in standards governing 
landlord liability is sorely needed, as many markets in China continue t o trade in counterfeit and 
pirated merchandise.   
Border Enforcement  
 
3.486.   With regard to border enforcement, the United States has encouraged China 's General 
Administration of Customs to build on and expand enforcement cooperation relating to counterfeit 
and pi rated goods destined for export.  In 2007, the General Administration of Customs entered 
into a cooperation agreement with US customs authorities to fight exports of counterfeit and 
pirated goods.  Following the first working group meeting under the agreemen t in January 2013, 
both sides exchanged information on IPR enforcement practices and conducted a month -long joint 
IPR enforcement operation focused on interdicting counterfeit consumer electronics in April 2013.  
The working group met again in December 2015  and planned a second joint operation.  Since that 
meeting, the US and Chinese customs authorities have conducted additional working group 
meetings and joint IPR enforcement operations and have exchanged seizure data for enforcement 
and targeting purposes.  During these operations, the US and Chinese customs authorities have 
focused on stopping shipments of IPR infringing goods from entering US commerce, with the US 
customs authorities making seizures at the US border and the Chinese customs authorities 
interdicting exports of counterfeit goods destined for the United States.   
3.8  SERVICES  
3.487.   The commitments that China made in the services area begin with the General Agreement 
on Trade in Services.  The GATS provides a legal framework for addressing market access and 
national treatment limitations affecting trade and investment in services.  It includes specific 
commitments by WTO members to restrict their use of those limitations and provides a forum for 
further negotiat ions to open services markets around the world.  These commitments are contained 
in national services schedules, similar to the national schedules for tariffs.  WT/GC/W/746  
 
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  3.488.   In its Services Schedule, China committed to the substantial opening of a broad range of 
services  sectors over time through the elimination of many existing limitations on market access, 
at all levels of government, particularly in sectors of importance to the United States, such as 
banking, insurance, telecommunications, distribution and professional  services.  At the time, these 
commitments were characterized as a good start toward opening up China 's services sectors.   
3.489.   China also made certain "horizontal " commitments, which are commitments that apply to 
all sectors listed in its Services Schedule.  The two most important of these cross -cutting 
commitments involve acquired rights and the licensing process.  Under the acquired rights 
commitment, China agreed that the conditions of ownership, operation and scope of activities for a 
foreign company, as set o ut in the respective contractual or shareholder agreement or in a license 
establishing or authorizing the operation or supply of services by an existing foreign service 
supplier, will not be made more restrictive than they were on the date of China 's acces sion to the 
WTO.  In other words, if a foreign company had pre -WTO accession rights that went beyond the 
commitments made by China in its Services Schedule, the company could continue to operate with 
those rights.   
3.490.   In the licensing area, prior to China 's WTO accession, foreign companies in many services 
sectors did not have an unqualified right to apply for a license to establish or otherwise provide 
services in China.  They could only apply for a license if they first received an invitation from the 
relevant  Chinese regulatory authorities, and even then the decision -making process lacked 
transparency and was subject to inordinate delay and discretion.  In its accession agreement, China 
committed to licensing procedures that were streamlined, transparent and mo re predictable.  
3.491.   Under the terms of its Services Schedule, China was allowed to phase in many of its 
services commitments over time.  The last of these commitments was scheduled to have been 
phased in by 11 December 2007.  
3.492.   At present, 16 years after China 's accession to the WTO, significant challenges still remain 
in securing the benefits of many of China 's services commitments.  Through WTO dispute 
settlement, the United States was able to fully open China 's financial information services sector in 
2009, as C hina followed through on the terms of a settlement agreement requiring China to create 
an independent regulator and to remove restrictions that had been placed on foreign financial 
information service suppliers.  Similarly, through WTO dispute settlement, t he United States was 
able to secure the removal of importation and distribution restrictions applicable to copyright -
intensive products such as books, newspapers, journals, DVDs and music, while also entering into 
a commercially beneficial MOU with China r elating to the importation and distribution of theatrical 
films.  However, strong concerns remain with regard to the implementation of other important 
services commitments, such as in the area of electronic payment services, where China has not 
yet opened u p its market to permit foreign companies to supply electronic payment services for 
domestic currency credit and debit card transactions, even though it lost a WTO dispute on this 
issue and agreed to come into compliance with its GATS commitments by 31 July 2013.  
3.493.   In 2017, China also continued to maintain or erect restrictive or cumbersome terms of 
entry in some sectors that prevent or discourage foreign suppliers from gaining market access.  
Many of these actions raise questions about commitments made by Chin a in its Services Schedule.  
For example, China maintains an informal ban on entry in the basic telecommunications sector, 
and despite its commitments to open this sector, China has not granted any new licenses since 
acceding to the WTO on 11 December 2001.  The requirement that any joint venture partners for 
basic telecommunications services be majority government -owned provides a direct, non -
transparent mechanism for enforcing this ban and shuts off foreign suppliers from private Chinese 
enterprises that ma y be more attractive partners.  China also has issued very few licenses for 
foreign value -added telecommunications suppliers and continues to seek to regulate this sector 
according to a very restrictive listing of licenses that does not correspond to the in novative nature 
of the services involved.  In addition, although China announced that it was removing registered 
capital requirements for many sectors (on a non -discriminatory basis) in 2014, the subsequently 
issued implementing rules are somewhat vague and  the impact on foreign suppliers in many 
sectors is still not clear.  Moreover, in sectors such as banking, insurance and legal services, 
uneven and sometimes discriminatory application of branching regulations limit or delay market 
access for foreign suppl iers. In other sectors, particularly construction services, problematic 
measures appear to be taking away previously acquired market access rights.   WT/GC/W/746  
 
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  3.494.   Overall, the US share of China 's services market remains well below the US share of the 
global services mar ket. Any successes that US services suppliers have experienced in China 's 
market have been attributable largely to the incremental market openings phased in by China 
pursuant to its WTO commitments, with China providing few additional significant market openings 
beyond those to which it committed 16 years ago in its WTO accession agreement.  
3.8.1   Distribution Services  
3.495.   Prior to its WTO accession, China generally did not permit foreign enterprises to distribute 
products in China, i.e., to provide wholesaling, com mission agents ', retailing or franchising 
services or to provide related services, such as repair and maintenance services.  These services 
were largely restricted to Chinese enterprises, although some foreign -invested enterprises were 
allowed to engage in distribution services within China under certain circumstances.  
3.496.   In its WTO accession agreement, China committed to eliminate national treatment and 
market access restrictions on foreign enterprises providing these services through a local presence 
within three years of China 's accession (i.e., by 11 December 2004), subject to limited product 
exceptions.  In the meantime, China agreed to progressively liberalize its treatment of wholesaling 
services, commission agents ' services and direct retailing services (except for sales away from a 
fixed location), as described below.  
3.497.   Overall, China has made progress in implementing its distribution services commitments.  
As discussed below, however, significant concerns remain in some areas.  
3.8.1.1   Wholesaling Services  
3.498.   China committed that, immediately upon its accession to the WTO, it would begin to 
eliminate national treatment and market access limitations on foreign enterprises providing 
wholesaling services and commission agents ' services through a local presence pursuant to an 
agreed schedule of liberalization.  Within three years after accession (i.e., by 11 December 2004), 
almost all of the required liberalization should have been implemented.  By this time, China agreed 
to permit foreign enterprises to supply wholesaling services and commission agents ' services 
within China through wholly foreign -owned enterprises.  In addition, exceptions that China had 
been allowed to maintain for books, newspapers, magazines, pharmaceutical products, pesticides 
and mulching films were to  be eliminated.  Exceptions for chemical fertilizers, processed oil and 
crude oil (but not salt and tobacco) were to be eliminated within five years after accession (i.e., by 
11 December 2006).  
3.499.   As previously reported, MOFCOM issued the Measures on the Manag ement of Foreign 
Investment in the Commercial Sector  in April 2004.  Among other things, these regulations lifted 
market access and national treatment restrictions on wholly foreign -owned enterprises and 
removed product exceptions for books, newspapers, mag azines, pesticides and mulching films as 
of the scheduled phase -in date of 11 December 2004.  The regulations also required enterprises to 
obtain central or provincial -level MOFCOM approval before providing wholesale services, and they 
appeared to set relat ively low qualifying requirements, as enterprises needed only to satisfy the 
relatively modest capital requirements of the Company Law rather than the high capital 
requirements found in many other services sectors.  Since the issuance of the regulations, US 
companies have been able to improve the efficiency of their China supply chain management.  In 
addition, many of them have been able to restructure their legal entities to integrate their China 
operations into their global business more fully and efficient ly, although problems remain in certain 
areas.   
Books, Movies and Music  
 
3.500.   As in the area of trading rights, China continued to impose restrictions on foreign 
enterprises ' distribution of copyright -intensive products such as books, newspapers, journals, 
theatrical films, DVDs and music, despite its commitments to remove most market access and 
national treatment restrictions applicable to the distribution of these products by no later than 
11 December 2004.  China 's restrictions were set forth in a complex web of measures issued by 
numerous agencies, including the State Council, NDRC, MOFCOM, the Ministry of Culture, SARFT 
and GAPP.   WT/GC/W/746  
 
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  3.501.   As previously reported, the United States initiated a WTO dispute settlement case against 
China in April 2007 challenging the impo rtation and distribution restrictions applicable to 
copyright -intensive products such as books, newspapers, journals, theatrical films, DVDs and 
music.  As discussed above in the Trading Rights section, a WTO panel issued its decision in August 
2009, ruling  in favor of the United States on all significant claims, and China appealed.  The WTO 's 
Appellate Body rejected China 's appeal on all counts in December 2009, and China agreed to come 
into compliance with these rulings by March 2011.  China subsequently iss ued several revised 
measures, and repealed other measures, relating to its distribution restrictions on imported books, 
newspapers, journals, DVDs and music, although these steps have not yet brought China into full 
compliance with the WTO 's rulings, parti cularly with regard to the online distribution of music.   
3.502.   With regard to theatrical films, China proposed bilateral discussions with the United States 
in order to seek an alternative solution.  After months of negotiations, which included discussions 
between the two sides ' Vice Presidents, the United States and China reached agreement in 
February 2012 on an MOU designed to provide for substantial increases in the number of foreign 
films imported and distributed in China each year, substantial additiona l revenue for US film 
producers and the opening up of distribution opportunities relating to imported films.  The MOU 
also provides that it will be reviewed after five years in order for the two sides to discuss issues of 
concern, including additional compe nsation for the US side.  
3.503.   To date, China has not yet fully implemented certain of its MOU commitments, including a 
critical commitment to open up film distribution opportunities relating to imported revenue -sharing 
films.  In addition, US industry reports t hat China has been imposing an informal quota on the total 
number of US revenue -sharing films and flat -fee films that can be imported each year, which, if 
true, would undermine the terms of the MOU.  As a result, the United States has been pressing 
China fo r full implementation of the MOU.  
3.504.   The films MOU provides that it will be reviewed in calendar year 2017 in order for the two 
sides to discuss issues of concern, including additional meaningful compensation for the US side in 
terms of the number of revenue -sharing films to be imported each year and the share of gross box 
office receipts received by US enterprises.  At the November 2016 JCCT meeting, China promised 
that those discussions not only will seek to increase the number of imported revenue -sharing fil ms 
and the US share of gross box office receipts, but also will seek to address outstanding US 
concerns relating to other policies and practices that may impede the US film industry 's access to 
China 's market, such as importation rights, the number of dist ributors of imported films and the 
independence of distributors, among other issues.  In 2017, in accordance with the terms of the 
MOU, the two sides began discussions regarding the provision of further meaningful compensation 
to the United States.  
Pharmace uticals  
 
3.505.   China committed to allow foreign suppliers to distribute pharmaceuticals by 
11 December  2004, and it began accepting applications from and issuing wholesale licenses to 
foreign pharmaceutical companies about six months after that deadline. At the same time, despite 
overall progress in this area, many other restrictions affecting the pharmaceuticals sector continue 
to make it difficult for foreign pharmaceutical companies to realize the full benefits of China 's 
distribution commitments.  The United S tates is continuing to engage the Chinese regulatory 
authorities in these areas as part of a broader effort to promote comprehensive reform and to 
reduce the unnecessary trade barriers that foreign companies face.  
Crude Oil and Processed Oil  
 
3.506.   China committ ed to permit foreign enterprises to engage in wholesale distribution of crude 
oil and processed oil, e.g., gasoline, by 11 December 2006.  Shortly before this deadline, as 
previously reported, China issued regulations that prevent US and other foreign enter prises from 
realizing the full benefits of this important commitment.  In particular, China 's regulations impose 
high thresholds and other potential impediments on foreign enterprises seeking to enter the 
wholesale distribution sector, such as requirements relating to levels of storage capacity, pipelines, 
rail lines, docks and supply contracts.  It appears that some of these requirements can only be 
satisfied by China 's state -owned enterprises.  The United States has raised concerns about these 
regulations in  connection with past transitional reviews before the Council for Trade in Services, 
while US industry has attempted to compete under difficult circumstances.   WT/GC/W/746  
 
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  Automobiles  
 
3.507.   China began to implement several measures related to the distribution of automobile s by 
foreign enterprises in 2005, including the February 2005 Implementing Rules for the 
Administration of Brand -Specific Automobile Dealerships, jointly issued by MOFCOM, NDRC and 
SAIC.  In November 2005, NDRC followed up with the Rules for Auto External M arks, and in 
January 2006 MOFCOM issued the Implementing Rules for the Evaluation of Eligibility of Auto 
General Distributors and Brand -specific Dealers . While US industry has generally welcomed these 
measures, they do contain some restrictions on foreign enterprises that may not be applied to 
domestic enterprises.  The United States has been closely reviewing how China applies these 
measures in an effort to ensure that foreign enterprises are not adversely affected by these 
restrictions.   
3.8.1.2   Retailing Services  
3.508.   China committed that, immediately upon its accession to the WTO, it would begin to 
eliminate national treatment and market access limitations on foreign enterpri ses providing 
retailing services through a local presence pursuant to an agreed schedule of liberalization.  Within 
three years after accession (i.e., by 11 December 2004), almost all of the required liberalization 
should have been implemented.  By this time , China agreed to permit foreign enterprises to supply 
retailing services through wholly foreign -owned enterprises.  In addition, by this time, exceptions 
that China had been allowed to maintain for pharmaceutical products, pesticides, mulching films 
and pr ocessed oil were to be eliminated.  An exception for chemical fertilizers was to be eliminated 
within five years after accession (i.e., by 11 December 2006).  
3.509.   As previously reported, the April 2004 distribution regulations issued by MOFCOM lifted 
market acce ss and national treatment limitations on wholly foreign -owned enterprises and 
removed the product exceptions for pesticides and mulching films as of the scheduled phase -in 
date of 11 December 2004.  These regulations also removed the product exception for c hemical 
fertilizer as of the scheduled phase -in date of 11 December 2006.  In addition, in the 2011 
Catalogue Guiding Foreign Investment in Industry , China removed the retailing of over -the-
counter medicines from the "restricted " category of foreign investm ents. China made one further 
change when it revised this catalogue in 2017 by lifting its restrictions on the retailing of 
pharmaceutical products more broadly.  
Processed Oil  
 
3.510.   China committed to allow wholly foreign -owned enterprises to sell processed oil , e.g., 
gasoline, at the retail level by 11 December 2004, without any market access or national 
treatment limitations.  However, to date, China has treated retail gas stations as falling under the 
chain store provision in its Services Schedule, which permi ts only joint ventures with minority 
foreign ownership for "those  chain stores which sell products of different types and brands from 
multiple suppliers with more than 30 outlets. " This treatment has severely restricted foreign 
suppliers ' access to China 's retail gas market, a situation that has been exacerbated by China 's 
restrictions on foreign enterprises that seek to engage in wholesale distribution of crude oil.  
3.8.1.3   Franchising Services  
3.511.   As part of its distribution commitments, China committed to permit the  cross-border 
supply of franchising services immediately upon its accession to the WTO.  It also committed to 
permit foreign enterprises to provide franchising services in China, without any market access or 
national treatment limitations, by 11 December 20 04.  
3.512.   In December 2004, as previously reported, MOFCOM issued new rules governing the 
supply of franchising services in China, which included a requirement that a franchiser own and 
operate at least two units in China for one year before being eligible to o ffer franchises in China.  In 
2007, China eased the requirement that a franchiser own and operate at least two units in China 
by allowing a franchiser to offer franchise services in China if it owns and operates two units 
anywhere in the world.   WT/GC/W/746  
 
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  3.8.1.4   Direct Sell ing Services  
3.513.   In its WTO accession agreement, China did not agree to any liberalization in the area of 
direct selling, or sales away from a fixed location, during the first three years of its WTO 
membership. By 11 December 2004, however, China committed to lift market access and national 
treatment restrictions in this area.  
3.514.   Although the business volume of direct sales companies in China continues to grow, the 
growth potential of this sector remains hindered by restrictions in the regulations governing direct  
selling services in China.  These regulations were issued more than 10  years ago and do not reflect 
the more relaxed regulatory approach governing emerging models of retailing services, such as 
online marketing, which are competing directly with direct sal es. Problematic provisions in the 
direct selling regulations include restrictions on the types of products that can be sold, restrictions 
on compensation methods and onerous requirements regarding service sales centers.  All of these 
restrictions place dire ct sellers at a competitive disadvantage with new forms of retailing and do 
not seem consistent with China 's own expressed interest in fostering innovation in the retailing 
sector.  To date, US engagement has failed to persuade China to reconsider the various 
problematic provisions in its direct selling regulations.   
3.8.2   Financial Services  
3.8.2.1   Banking Services  
3.515.   Prior to its accession to the WTO, China had allowed foreign banks to conduct foreign 
currency  business in selected cities.  Although China had also permitted foreign banks, on an 
experimental basis, to conduct domestic currency business, the experiment was limited to foreign 
customers in two cities.   
3.516.   In its WTO accession agreement, China committed to a five -year phase -in for banking 
services by foreign banks.  Specifically, China agreed that, immediately upon its accession, it would 
allow US and other foreign banks to conduct foreign currency business without any market access 
or national treatment l imitations and conduct domestic currency business with foreign -invested 
enterprises and foreign individuals, subject to certain geographic restrictions.  The ability of US and 
other foreign banks to conduct domestic currency business with Chinese enterprise s and 
individuals was to be phased in.  Within two years after accession, foreign banks were also to be 
able to conduct domestic currency business with Chinese enterprises, subject to certain geographic 
restrictions.  Within five years after accession, forei gn banks were to be able to conduct domestic 
currency business with Chinese enterprises and individuals, and all geographic restrictions were to 
be lifted.  Foreign banks were also to be permitted to provide financial leasing services at the same 
time that Chinese banks are permitted to do so.  
3.517.   Since its accession to the WTO, China has taken a number of steps to implement its 
banking services commitments.  At times, however, China 's implementation efforts have generated 
concerns, and there are some instances i n which China still does not seem to have fully 
implemented particular commitments.  
3.518.   As previously reported, shortly after China 's accession to the WTO, the PBOC  issued 
regulations governing foreign -funded banks, along with implementing rules, which became 
effective February 2002.  The PBOC also issued several other related measures.  Although these 
measures appeared to keep pace with the WTO commitments that China had made, it became 
clear that the PBOC had decided to exercise significant caution in opening up the banking sector.  
In particular, it imposed working capital requirements and other requirements that exceeded 
international norms and made it more difficult  for foreign banks to establish and expand their 
market presence in China.  Many of these requirements, moreover, did not apply equally to foreign 
and domestic banks.  
3.519.   For example, China appears to have fallen behind in implementing its commitments 
regardin g the establishment of Chinese -foreign joint banks.  In its Services Schedule, China agreed 
that qualified foreign financial institutions would be permitted to establish Chinese -foreign joint 
banks immediately after China acceded, and it did not schedule an y limitation on the percentage of 
foreign ownership in these banks.  To date, however, China has limited the sale of equity stakes in WT/GC/W/746  
 
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  existing state -owned banks to a single foreign investor to 20 percent, while the total equity share 
of all foreign investor s is limited to 25 percent.   
3.520.   Another problematic area involves the ability of US and other foreign banks to participate 
in the domestic currency business in China, the business that foreign banks were most eager to 
pursue in China, particularly with regard  to Chinese individuals.  As previously reported, despite 
high capital requirements and other continuing impediments to entry into the domestic currency 
business, participation of US and other foreign banks in the domestic currency business expanded 
tremend ously after China acceded to the WTO on 11 December 2001, first with regard to foreign -
invested enterprises and foreign individuals and later with regard to Chinese enterprises, subject 
to geographic restrictions allowed by China 's WTO commitments.  China h ad committed to allow 
foreign banks to conduct domestic currency business with Chinese individuals by 
11 December  2006, but it was only willing to do so subject to a numbe r of problematic restrictions.  
3.521.   In November 2006, the State Council issued the Regulat ions for the Administration of 
Foreign -funded Banks . Among other things, these regulations mandated that only foreign -funded 
banks that have had a representative office in China for two years and that have total assets 
exceeding $10 billion can apply to in corporate in China.  After incorporating, moreover, these banks 
only become eligible to offer full domestic currency services to Chinese individuals if they can 
demonstrate that they have operated in China for three years and have had two consecutive years 
of profits.  The regulations also restricted the scope of activities that can be conducted by foreign 
banks seeking to operate in China through branches instead of through subsidiaries.  In particular, 
the regulations restricted the domestic currency busines s of foreign bank branches.  While foreign 
bank branches can continue to take deposits from and make loans to Chinese enterprises in 
domestic currency, they can only take domestic currency deposits of RMB 1 million ($164,000) or 
more from Chinese individual s and cannot make any domestic currency loans to Chinese 
individuals.  In addition, unlike foreign banks incorporated in China, foreign  bank branches cannot 
issue domestic currency credit and debit cards to Chinese enter prises or Chinese individuals.  
3.522.   Other  problems arose once the Regulations for the Administration of Foreign -funded Banks  
went into effect in December 2006.  For example, Chinese regulators did not act on the applications 
of foreign banks incorporated in China to issue domestic currency credit and debit cards, or to 
trade or underwrite commercial paper or long -term listed domestic currency bonds.  
3.523.   Since 2007, China has made various bilateral commitments to implement incremental 
improvements in the access of US banks to its market.  Significant mar ket openings have been 
elusive, however.   
3.524.   For example, in 2007, China committed to act on the applications of foreign banks 
incorporated in China seeking to issue their own domestic currency credit and debit cards. 
However, the PBOC insists as a condition of its approval that the banks move the data processing 
for these credit and debit cards onshore, a costly step that has limited foreign participation in the 
market to date.   
3.525.   In 2011, China 's interbank bond market oversight body issued qualifying criteria for 
underwriters and opened up a window for applications.  Many US and other foreign institutions 
subsequently applied, although the application procedures were discriminatory and non -
transparent, and initially only one foreign bank was approved to underwri te. Years later, during 
the run -up to the July 2017 CED meeting, China issued bond settlement Type A licenses and 
underwriting licenses to two qualified US financial institutions.  
3.526.   In 2011, China committed to allow locally incorporated US and other foreign  banks in 
China to distribute mutual funds, act as custodians for mutual funds, and serve as margin 
depository banks for qualified foreign institutional investors engaging in financial futures 
transactions. In 2013, China pledged that locally incorporated foreign banks and securities firms 
will be able to directly trade government bond futures, but has not yet allowed domestic or foreign 
banks to trade these hedging instruments.  China also has not followed through on a commitment 
to implement measures to re cognize the enforceability of close -out netting, and as a result 
financial institutions continue to incur sharply increased costs.   WT/GC/W/746  
 
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  3.527.   The continued existence of these various formal and informal barriers to foreign 
participation in the Chinese banking sector  has disadvantaged foreign banking institutions.  Indeed, 
it has contributed, in part, to a decline in foreign banking assets ' share of overall Chinese banking 
system assets since 2006.   
3.528.   In November 2017, immediately after President Trump 's visit to Beijing , China unilaterally 
announced that it would be taking steps to ease restrictions on foreign banks ' access to China 's 
market, including by lifting the equity caps on single and multiple foreign investors in existing 
Chinese -owned banks and financial asset management companies and by beginning to apply the 
same set of rules for domestic and foreign investment in these banks.  To date, China has not yet 
implemented these changes, although some work has begun.  In late December 2017, the CBRC 
issued a proposed m easure that would begin to standardize market access for foreign banks by 
providing clarity regarding the legal basis for foreign banks to make equity investments in Chinese 
financial institutions and by easing some licensing requirements for foreign banks . 
Securities and Asset Management Services  
 
3.529.   Over the years, the United States has pressed China for further liberalization of its 
securities and fund management services sector beyond its original WTO commitments, where 
China capped foreign ownership inte rests in securities firms at 33 percent and in fund 
management firms at 49 percent.  Following a commitment made at the May 2012 S&ED meeting, 
China raised permissible foreign ownership in securities firms from 33 percent to 49 percent.  Later, 
at subsequent  S&ED meetings, China committed to gradually raise the permitted equity holding of 
qualified foreign financial institutions in securities and fund management companies.  China also 
committed to allow wholly foreign -owned qualified foreign financial institut ions to apply for 
registration of private fund management entities to engage in private securities fund management 
business.  Since then, China has taken limited steps to follow up on these commitments.  In 2017, 
China approved one foreign company to establi sh a majority (i.e., 51 percent) foreign -owned joint 
venture in the securities sector, and applications from other foreign companies reportedly are 
under consideration.  In addition, China has licensed several wholly foreign -owned companies to 
provide priva te fund management services to high -wealth individuals and large institutional 
investors, although these services represent only a subset of the services normally provided by 
securities and asset management companies.   
3.530.   Notably, foreign equity caps are not the only restrictions that China imposes on foreign 
securities firms and fund management firms.  China also restricts the scope of businesses in which 
these firms can engage.  
3.531.   In November 2017, immediately after President Trump 's visit to Beijing, China unil aterally 
announced that it would phase out existing foreign equity caps for securities, fund management 
and futures companies over the next three years to allow access for wholly foreign -owned 
companies.  To date, China has not yet implemented any of these changes.  
3.8.2.2   Motor Vehicle Financing Services  
3.532.   In its WTO accession agreement, China agreed to open up the motor vehicle financing 
sector to foreign non -bank financial institutions for the first time, and it did so without any 
limitations on market access or n ational treatment.  These commitments became effective 
immediately upon China 's accession to the WTO.  As previously reported, China finally implemented 
the measures necessary to allow foreign financial institutions to obtain licenses and begin offering 
auto loans in October 2004, nearly three years after its accession to the WTO.  
3.533.   At the May 2012 S&ED meeting, China committed to approve applications by qualified auto 
financing companies (AFCs), including foreign -invested entities, to issue financial bonds in  China, 
so that they have regular access to financing in the interbank bond market.  In addition, China 
committed that foreign -invested and Chinese -invested AFCs would enjoy the same treatment in 
issuing asset -backed securities during the trial period of as set securitization in China.  WT/GC/W/746  
 
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  3.8.2.3   Insurance Services  
3.534.   Prior to its accession to the WTO, China allowed selected foreign insurers to operate in 
China on a limited basis and in only two cities.  Three US insurers had licenses to operate, and 
several more were eith er waiting for approval of their licenses or were qualified to operate but had 
not yet been invited to apply for a license by China 's insurance regulator, the China Insurance 
Regulatory Commission.   
3.535.   In its WTO accession agreement, China agreed to phase out  existing geographic 
restrictions on all types of insurance operations during the first three years after accession.  It also 
agreed to expand the ownership rights of foreign companies over time.  Specifically, China 
committed to allow foreign life insurers to hold a 50 -percent equity share in a joint venture upon 
accession.  China also committed to allow foreign property, casualty and other non -life insurers to 
establish as a branch or as a joint venture with a 51 -percent equity share upon accession and to 
establish as a wholly foreign -owned subsidiary two years after accession.  In addition, foreign 
insurers handling large scale commercial risks, marine, aviation and transport insurance, and 
reinsurance were to be permitted to establish as a wholly foreign -owned subsidiary five years after 
accession.  China further agreed to permit all foreign insurers to expand the scope of their activities 
to include health, group and pension/annuities lines of insurance within three years after 
accession.  
3.536.   China also made addi tional significant commitments relating specifically to branching.  
China committed to allow non -life insurance firms to establish as a branch in China upon accession 
and to permit internal branching in accordance with the lifting of China 's geographic rest rictions.  
China further agreed that foreign insurers already established in China that were seeking 
authorization to establish branches or sub -branches would not have to satisfy the requirements 
applicable to foreign insurers seeking a license to enter Chi na's market.  
3.537.   As previously reported, CIRC issued several new insurance regulations and implementing 
rules after China acceded to the WTO.  These measures implemented many of China 's 
commitments, but they also created problems in the critical areas of capita lization requirements, 
branching and transparency, and foreign insurers have often faced restrictions or obstacles that 
hinder them from expanding their presence in China 's market.   
3.538.   Since China 's accession to the WTO, US engagement has led to improvements with regard 
to capital requirements and licensing, although many other needed improvements remain.  For 
example, China continues to use formal and informal policies and practices to maintain market 
access barriers that limit the market share of foreign -invested insurance companies in China 
following China 's accession to the WTO.  At present, in the life and pension insurance sectors, 
where China only permits foreign companies to participate in Chinese -foreign joint ventures, with 
foreign equity capped at 50 p ercent, the market share of these foreign -invested companies is less 
than seven percent.  China also caps foreign equity at 50 percent in the health insurance sector.  
The market share of foreign -invested companies in the non -life (i.e., property and casualt y) 
insurance sector is only two percent, despite the absence of foreign equity caps.  In addition, 
although China 's Foreign Investment Catalogue  indicates that China has liberalized its insurance 
brokerage services sector, China has not provided clarificati on to confirm that foreign insurance 
brokers will be subject to the same rules as domestic insurance brokers, which is necessary to 
enable foreign brokers to take advantage of the promised market opening.  Meanwhile, China has 
entirely closed its market for  political risk insurance to foreign participation.  
3.539.   Over the years, the United States has pressed China regarding the need for CIRC to follow 
non-discriminatory procedures to approve US companies for internal branches and sub -branches, 
following establish ed regulatory time frames and recognizing the right to obtain approval for 
multiple, concurrent branches.  The United States also has pressed CIRC to further open up the life, 
health and pension insurance, insurance brokerage and other insurance sectors, an d to follow non -
discriminatory procedures when approving new licensing requests and internal branching requests.  
At the July 2013 S&ED meeting, China announced that it planned to expand its pilot projects for 
tax-deferred insurance pension products to addi tional regions and that it would treat domestic 
enterprises and foreign -invested enterprises equally with regard to participation and any future 
expansion.  At the July 2014 S&ED meeting, China announced that it welcomes foreign companies 
to submit applicat ions for internal branches and that it would follow the timeframes set forth in its 
own regulations in reviewing and approving those applications.  WT/GC/W/746  
 
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  3.540.   In November 2017, immediately after President Trump 's visit to Beijing, China unilaterally 
announced that it would allow foreign investors to hold up to 51 percent equity in the life 
insurance sector in three years, with this cap removed entirely in five years, in order to allow 
access for wholly foreign -owned companies.  To date, China has not yet implemented any  of these 
changes.  
Enterprise Annuities Services  
 
3.541.   China maintains a complex approval process for the licensing of suppliers of enterprise 
annuities services, and China 's regulatory authorities – which include the Ministry of Human 
Resources and Social Sec urity as well as the China Banking Regulatory Commission, the China 
Securities Regulatory Commission and CIRC – have not granted any new licenses in more than 
seven years.  Even under previous licensing windows, China licensed very few foreign suppliers, 
and only for limited elements of enterprise annuities services.  The United States has been urging 
China to re -open its licensing process for suppliers of enterprise annuities services and to ensure 
that its licensing procedures are transparent and do not dis criminate against qualified foreign 
suppliers.   
Auto Insurance Services  
 
3.542.   For years, the United States had sought the opening of China 's mandatory third party 
liability auto insurance services sector to foreign -invested insurance companies.  During the 
May 2011 S&ED meeting, China pledged to "actively  study and push forward the opening of " 
mandatory third party liability auto insurance in China to foreign -invested insurance companies, 
even though China was not required to open this services sector by its GAT S commitments.  At the 
May 2012 S&ED meeting, China noted that it had amended its regulations to allow foreign -
invested insurance companies to sell mandatory third party liability auto insurance in China.   
3.8.2.4   Financial Information Services  
3.543.   In its WTO accession  agreement, as noted above, China committed that, for the services 
included in its Services Schedule, the relevant regulatory authorities would be separate from, and 
not accountable to, any service suppliers they regulated, with two specified exceptions.  One of the 
services included in China 's Services Schedule – and not listed as an exception – is the "provision  
and transfer of financial information, and financial data processing and related software by 
suppliers of other financial services. "  
3.544.   As previousl y reported, following its accession to the WTO, China did not establish an 
independent regulator in the financial information services sector.  Xinhua, the Chinese state news 
agency, remained the regulator of, and became a major market competitor of, foreig n financial 
information service providers in China.  In addition, in 2006, a major problem developed when 
Xinhua issued a measure that precluded foreign providers of financial information services from 
contracting directly with or providing financial inform ation services directly to domestic Chinese 
clients.  Instead, foreign financial information service providers were required to operate through a 
Xinhua -designated agent, and the only agent designated was a Xinhua affiliate.  These new 
restrictions did not a pply to domestic financial information service providers and, in addition, 
contrasted with the rights previously enjoyed by foreign information service providers since the 
issuance of the 1996 rules, well before China 's accession to the WTO in December 200 1.  
3.545.   In March 2008, after it had become clear that sustained bilateral engagement of China 
would not resolve the serious WTO concerns generated by Xinhua 's restrictions, the United States 
and the EU initiated WTO dispute settlement proceedings against China . Canada later joined in as 
a co-complainant in September 2008.  In November 2008, an MOU was signed in which China 
addressed all of the concerns that had been raised by the United States, the EU and Canada.  
Among other things, China agreed to establish an independent regulator, to eliminate the agency 
requirement for foreign suppliers and to permit foreign suppliers to establish local operations in 
China, with all necessary implementing measures issued by April 200 9, effective no later than 
June 2009.  Subse quently, China timely issued the measures necessary to comply with the terms of 
the MOU.  WT/GC/W/746  
 
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  3.8.2.5   Electronic Payment Services  
3.546.   In the Services Schedule accompanying its Protocol of Accession, China committed to 
remove market access limitations and provide national t reatment for foreign suppliers providing 
payment and money transmission services, including credit, charge, and debit cards.  This 
commitment was to be implemented by no later than 11 December 2006.  
3.547.   In the years leading up to 2006, China 's regulator, the PB OC, placed severe restrictions on 
foreign suppliers of electronic payment services, like the major US credit card companies, which 
typically provide electronic payment services in connection with the operation of electronic 
networks that process payment tr ansactions involving credit, debit, prepaid and other payment 
cards.  Through these services, they enable, facilitate and manage the flow of information and the 
transfer of funds from cardholders ' banks to merchants ' banks.  However, the PBOC prohibited 
foreign suppliers from handling the typical payment card transaction in China, in which a Chinese 
consumer makes a payment in China 's domestic currency, known as the renminbi, or RMB.  
Instead, through a variety of measures, the PBOC created a national champion , allowing only one 
domestic entity, CUP, an entity created by the PBOC and owned by participating Chinese banks, to 
provide these services.   
3.548.   Beginning in 2006, as the deadline for implementation of China 's commitments 
approached, a number of troubling pro posals were attributed to CUP and apparently supported by 
the PBOC.  The common theme of these proposals was that CUP would continue to be designated 
as a monopoly provider of electronic payment processing services for Chinese consumers for RMB 
processing, and that no other providers would be able to enter this market.  Through a series of 
bilateral meetings beginning in September 2006, the United States cautioned China that none of 
the proposals being attributed to CUP seemed to satisfy the commitments that China had made to 
open up its market to foreign providers of electronic payment services.  The United States 
reinforced this message during the transitional reviews before the Committee on Trade in Financial 
Services, held in November 2006.  The United State s also raised this issue on the margins of the 
first SED meeting, held in December 2006.  
3.549.   After China 's deadline of 11 December 2006, which passed without any action having been 
taken by China, the United States again pressed China.  The United States raised  its concerns in 
connection with SED meetings and other bilateral meetings in 2007 and 2008 as well as at the 
WTO during the transitional reviews before the Committee for Trade in Financial Services in 2007, 
2008 and 2009 and China 's second and third Trade  Policy Reviews, held in 2008 and 2010, without 
making progress.   
3.550.   In September 2010, the United States brought a WTO case challenging China 's various 
restrictions on foreign suppliers of electronic payment services in an effort to ensure that US 
suppliers would enjoy the full benefits of the market -opening commitments that China made in its 
Services Schedule.  Consultations were held in October 2010.  At the United States ' request, a WTO 
panel was established to hear this case in March 2011, and si x other WTO members joined the 
case as third parties.  Hearings before the panel took place in October and December 2011, and the 
panel issued its decision in July 2012.  The panel found the challenged restrictions to be 
inconsistent with China 's commitments  under the GATS.  China decided not to appeal the panel 's 
decision and subsequently agreed to come into compliance with the WTO 's rulings by July 2013.  
China did take some steps toward complying with the WTO 's rulings.  China repealed certain 
challenged meas ures, but imposed a new licensing requirement for foreign suppliers to be able to 
provide these services, without also taking the critical step of establishing a process for foreign 
suppliers actually to obtain the needed licenses.   
3.551.   In October 2014, China 's State Council announced that China would be opening its market 
to foreign suppliers of electronic payment services, but it did not issue an official decision 
confirming the opening until April 2015.  In that decision, the State Council sets out various 
requirements that must be satisfied by a company in order to receive a license and creates a two -
step application process.  It also calls for the PBOC to issue regulations to implement this licensing 
process.   
3.552.   In August 2015, the PBOC issued draft licensing r egulations for public comment, and the 
United States and US stakeholders submitted comments.  However, it was not until June 2016 WT/GC/W/746  
 
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  during the S&ED meeting that the PBOC issued final licensing regulations.  PBOC followed up with 
the issuance of additional guid ance for potential applicants in October 2016 and June 2017.  Since 
then, US suppliers reportedly have filed applications to begin preparatory work, the first of two 
required steps in the PBOC licensing process, but to date PBOC has not yet taken action to grant 
those applications.  Consequently, as of December 2017, US suppliers are effectively blocked from 
entering China 's market.  
3.8.3   Legal Services  
3.553.   Prior to its WTO accession, the Chinese government had imposed various restrictions in the 
area of legal service s. The Chinese government maintained a prohibition against representative 
offices of foreign law firms practicing Chinese law or engaging in profit -making activities of any 
kind. It also imposed restrictions on foreign law firms ' formal affiliation with Ch inese law firms, 
limited foreign law firms to one representative office and maintained geographic restrictions.  
3.554.   China 's WTO accession agreement provides that, upon China 's accession to the WTO, 
foreign law firms may provide legal services through one profi t-making representative office, which 
must be located in one of several designated cities in China.  The foreign representative offices may 
act as "foreign  legal consultants " who advise clients on foreign legal matters and may provide 
information on the imp act of the Chinese legal environment, among other things.  They may also 
maintain long -term "entrustment " relationships with Chinese law firms and instruct lawyers in the 
Chinese law firm as agreed between the two law firms.  In addition, all quantitative an d geographic 
limitations on representative offices were to have been phased out within one year of China 's 
accession to the WTO, which means that foreign law firms should have been able to open more 
than one office anywhere in China beginning on 11 Decembe r 2002.  
3.555.   As previously reported, the State Council issued the Regulations on the Administration of 
Foreign Law Firm Representative Offices  in December 2001, and the Ministry of Justice issued 
implementing rules in July 2002.  While these measures removed some market access barriers, 
they also generated concern among foreign law firms doing business in China.  In many areas, 
these measures were ambiguous.  Among other things, these measures could be interpreted as 
imposing an economic needs test for foreign l aw firms that want to establish offices in China, 
which raises WTO concerns.  In addition, the procedures for establishing a new office or an 
additional office seem unnecessarily time -consuming.  For example, a foreign law firm may not 
establish an additiona l representative office until its most recently established representative office 
has been in practice for three consecutive years.  Furthermore, new foreign attorneys must go 
through a lengthy approval process that can take more than one year.   
3.556.   These measu res also include other restrictions that make it difficult for foreign law firms to 
take advantage of the market access rights granted by China 's WTO accession agreement.  For 
example, foreign attorneys may not take China 's bar examination, and foreign law firms may not 
hire registered members of the Chinese bar as attorneys to provide advice on Chinese law, nor 
may foreign attorneys working in China otherwise provide advice on Chinese law to clients.  Foreign 
law firms have also reported that they are not gi ven the uniform right to attend or provide 
consultancy services to clients during regulatory proceedings administered by Chinese government 
agencies and that at times they are barred from accompanying their clients to certain government 
meetings, raising c oncerns in light of China 's GATS commitments.  In addition, foreign law firms 
are subject to taxes at both the firm and individual levels, while domestic law firms are only taxed 
as partnerships.  
3.557.   The United States has raised its concerns in this area both bilaterally and at the WTO 
during meetings before the Council for Trade in Services and China 's Trade Policy Reviews, with 
support from other WTO members.  To date, although a number of US and other foreign law firms 
have been able to open additional office s in China, little progress has been made on the other 
issues affecting access to China 's legal services market.   
3.8.4   Telecommunications Services  
3.558.   In the Services Schedule accompanying its WTO accession agreement, China committed to 
permit foreign suppliers to provide a broad range of telecommunications services through joint 
ventures with Chinese companies, including domestic and international wired services, mobile WT/GC/W/746  
 
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  voice and data services, value -added services (such as electronic mail, voice mail and on -line 
information and database retrieval) and paging services.  The foreign equity stake permitted in the 
joint ventures was to increase over time, reaching a maximum of 49 percent for basic 
telecommunications services and 50 percent for value -added services.  In addition, all geographical 
restrictions were to be eliminated within two to six years after China 's WTO accession, depending 
on the particular services sector.  
3.559.   Importantly, China also accepted key principles from the WTO Reference Paper on 
regulatory princi ples. As a result, China became obligated to separate the regulatory and operating 
functions of the telecommunications regulatory agency in China (now known as MIIT), which was 
the operator of China Telecom at the time of China 's accession to the WTO.  China also became 
obligated to adopt pro -competitive regulatory principles, such as cost -based pricing and the right 
of interconnection, which are necessary for foreign -invested joint ventures to compete with 
incumbent suppliers such as China Telecom, China Un icom and China Mobile.  
3.560.   Even though China appears to have nominally implemented its WTO commitments on 
schedule, no meaningful market -opening progress has taken place in the telecommunications 
services sector through 2017.  As previously reported, with regar d to basic services, MIIT 's 
imposition of informal bans on new entry, limitations on foreign suppliers ' selection of Chinese 
joint venture partners and high capital requirements, have continued to present formidable 
barriers to market entry for foreign sup pliers.  In addition, the approach that China has taken to 
regulating value -added services, including its insistence on classifying certain value -added services 
as basic services when provided by foreign suppliers, and other uncertainties presented by China 's 
classification of value -added services, have presented similarly formidable barriers to foreign 
entry.   
3.561.   In March 2016, China issued a revised Catalogue of Telecommunications Services . Among 
other things, the catalogue seeks to expand the scope of value -added telecommunications services 
to include a range of Internet -related services, including cloud computing services, thereby 
subjecting them to the foreign equity caps that apply to the telecommunications sector, even 
though these services are not teleco mmunications services, as discussed in the Internet -related 
Services section below.  In addition, the catalogue continues to maintain for licensing purposes a 
rigid and overly specific classification of what is understood as value -added telecommunications 
services instead of adopting a broad, functional definition of these services that better supports 
innovation.  
3.562.   As China completes its 16th year as a WTO member, the United States is unaware of any 
domestic or foreign application for a new stand -alone licens e to provide basic telecommunications 
services that has completed the MIIT licensing process, even in commercially attractive areas such 
as the re -sale of basic telecommunications services, leased line services or corporate data 
services.  At present, the n umber of suppliers of basic telecommunications services appears to be 
frozen at three Chinese state -owned enterprises, limiting the opportunities for new joint ventures 
and reflecting a level of competition that is extraordinarily low given the size of Chi na's market.  
Meanwhile, with regard to value -added services, the Chinese regulator – MIIT – had licensed more 
than 29,000 domestic suppliers as of November 2013, but only 41 foreign suppliers.  
3.563.   With regard to satellite services, such as video transport serv ices for Chinese broadcasters 
or cable companies, US satellite operators remain severely hampered by Chinese policies that 
prohibit foreign satellite operators from obtaining licenses to provide these services in China and 
that instead only allow a foreign  satellite operator to use a licensed Chinese satellite operator as 
an agent to provide these services.  These policies have made it difficult for foreign satellite 
operators to develop their own customer base in China, as Chinese satellite operators essent ially 
have a "first  right of refusal " with regard to potential customers.   
3.564.   Many of the difficulties faced by foreign suppliers in accessing China 's telecommunications 
market seem directly attributable to the actions of MIIT, China 's telecommunications regulator.  
While MIIT is nominally separate from China 's telecommunications firms, it maintains extensive 
influence and control over their operations and continues to use its regulatory authority to 
disadvantage foreign firms.  WT/GC/W/746  
 
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  3.565.   Over the years, the United St ates has raised its many telecommunications concerns with 
China, using bilateral engagement and WTO meetings, including the annual transitional reviews 
before the Council for Trade in Services and China 's Trade Policy Reviews, where the United States 
has r eceived support from other WTO members.  These efforts, however, achieved virtually no 
progress.   
3.8.5   Audio -visual and Related Services  
3.566.   As discussed in the Distribution Services section above, in 2011, China removed various 
importation and distribution restrict ions affecting books, newspapers, journals, sound recordings 
and DVDs in response to a successful WTO case brought by the United States.  China also entered 
into an MOU with the United States in 2012 providing increased and improved market access for 
import ed theatrical films.  At the same time, China 's regulation of other audiovisual and related 
services, including services associated with theatres (where China made a WTO commitment to 
allow 49 percent foreign ownership) as well as television and radio stati ons, production and 
programming (for which China made no commitments), has remained highly restricted.   
3.567.   With regard to theatres, China 's ownership restrictions have made it unattractive for 
foreign companies to enter into Chinese -foreign joint ventures.  Currently, no US company is 
involved in the ownership or operation of a Chinese theatre.  In addition, China prohibits foreign 
investment in the production and distribution of theatrical films.  In contrast, all of these sectors in 
the United States are open t o foreign investment, and Chinese companies own both large film 
production companies and film distributors in the United States.  
3.568.   The restrictions applicable to China 's television and radio sectors are myriad.  China does 
not permit private capital, whether domestic or foreign, to be used to establish or operate a 
television station or a radio station.  It similarly closes private capital out of radio and television 
signal broadcasting and relay stations, satellite networks and backbone networks. For televisio n 
production, Chinese -foreign joint ventures must have a minimum capital requirement of RMB 2 
million (approximately $330,000), foreign ownership is capped at 49 percent, and two -thirds of 
the programs of the joint venture must have Chinese themes.   
3.569.   With r egard to television programming generally, China imposes highly restrictive quotas.  
The Administrative Measures on the Import and Broadcast of Extraterritorial Television Programs , 
effective since 2004, restricts foreign television drama and film  programmi ng to no more than 
25 percent of total airtime, and other foreign programming to no more than 15 percent of total air 
time. Foreign programming, including animated programs, is banned between 7:00 p.m. and 
10:00 p.m. on terrestrial stations, which are Chin ese-owned.  In addition, Chinese cable operators 
are effectively prohibited from carrying foreign channels, as these channels only can be accessed 
in hotels and other areas inhabited by foreigners.  A newer concern arose in October 2014, when 
China started r estricting foreign content on Chinese streaming sites, which is the fastest growing 
means for Chinese consumers to access television shows.  US industry estimates that, as of 
October 2015, US content is limited to 12 percent of all content on Chinese stream ing sites.  In a 
related restriction, China now requires an entire season of a TV series to be submitted for content 
approval before a single episode can be made available.  This restriction encourages the pirating of 
individual episodes as they are aired du ring the season.  
3.8.6   Internet -related Services  
3.570.   China 's Internet regulatory regime is restrictive and non -transparent and impacts a broad 
range of commercial services activities conducted via the Internet.  While China is experiencing 
rapid development in online  businesses such as retail websites, search engines, network 
education, online advertisements, audio -video services, paid electronic mail, short messages, 
online job searches, Internet consulting, mapping services, applications, web domain registration, 
electronic trading and online gaming, Chinese companies dominate the China market, due 
primarily to restrictions imposed on foreign companies by the Chinese government.   
3.571.   Foreign companies seeking to participate in the development of cloud computing, includin g 
computer data and storage services provided over the Internet, are not permitted to directly 
obtain Internet Data Center (IDC) licenses in China.  Instead, a foreign company seeking to provide 
cloud computing services must establish a contractual partners hip with a Chinese company holding WT/GC/W/746  
 
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  an IDC license.  While not all of the restrictions facing foreign suppliers are set forth in final 
measures, China 's regulatory authorities are moving to formalize many of these restrictions.  In 
2016 and 2017, MIIT issued two draft measures that would further formalize China 's restrictions 
on the supply of cloud computing services.  These draft measures, together with existing 
restrictions in the 2017 Foreign Investment Catalogue  and the 2015 Telecom Services 
Classification Catalogue , would require foreign suppliers of cloud computing services to turn over 
essentially all ownership and operations to a Chinese contractual partner, resulting in the transfer 
of both technology and branding.  In the first half of 2017, the United States pressed China on this 
issue using the CE D process, without success.  
3.572.   In a development of concern relative to China 's GATS commitments, China issued draft 
Network Publishing Service Management Regulations  in December 2012.  This draft measure would 
prohibit Chinese -foreign contractual joint ventures, Chinese -foreign cooperative joint ventures and 
wholly foreign -owned enterprises from engaging in "network  publishing services, " which China 
appears to have defined broadly to cov er a wide range of Internet -based distribution services.  The 
United States submitted written comments on the draft measure in January 2013, and to date 
China has not issued a final measure.   
3.573.   In February 2016, SAPPRFT and MIIT issued new online publishing r ules. The United States 
has become very concerned about the impact of these new rules, and related measures, on the 
ability of foreign companies to engage in the online distribution of videos and entertainment 
software.  
3.574.   Overall, while the Chinese governmen t recognizes the potential of electronic commerce to 
promote exports and increase competitiveness, a variety of Chinese government policies and 
practices impede progress toward establishing a viable commercial environment, adversely 
affecting both Chinese companies and foreign companies.  For example, several Chinese ministries 
have jurisdiction over electronic commerce and impose a range of burdensome restrictions on 
Internet use (such as registration requirements for web pages and arbitrary and nontranspar ent 
content controls), stifling the free flow of information and the consumer privacy needed for 
electronic commerce to flourish.  Encryption is also regulated, and the frequent blocking of 
websites (including those of a commercial nature) inhibits the pred ictability and reliability of using 
electronic networks as a medium of commerce.   
3.575.   China also has yet to develop a legal framework conducive to the rapid growth of 
electronic commerce.  Laws recognizing the validity of "electronic  contracting " tools and stre ssing 
the importance of online privacy and security have been proposed but not yet issued.  A number of 
technical problems also have inhibited the growth of electronic commerce in China over the years, 
such as the rates charged by Chinese government -approve d ISPs, slow connection speeds and 
relatively low Internet penetration in China, although these problems are being addressed.   
3.576.   With regard to content control, Chinese government officials from as many as 12 separate 
agencies, led by CAC, closely monitor an d routinely filter Internet traffic entering China, focusing 
primarily on the content that they deem objectionable on political, social, religious or other 
grounds.  During politically sensitive periods, such as surrounding meetings of the National Party 
Congress or the National People 's Congress, the restrictions typically increase significantly; specific 
foreign websites can be completely blocked, while overall Internet access can be extremely 
limited, and Virtual Private Networks, on which many foreign fi rms rely to conduct their online 
functions, can be largely blocked.  While the purpose of the Internet restrictions purportedly is to 
address public interest concerns enumerated in Chinese law, China 's regulatory authorities 
frequently take actions that app ear to be arbitrary, rarely issue lists of banned search terms or 
banned sites and provide little or no justification or means of appeal when they block access to all 
or part of a website, putting providers of Internet -enabled services in a precarious posi tion, as 
they attempt to comply with Chinese law that can seem arbitrary.  
3.577.   This extensive regulatory regime for content control directly and indirectly affects the 
range of foreign suppliers seeking to deliver online services.  It also squarely affects forei gn news 
agencies, which operate in a services sector in which China made no GATS commitments.  China 
actively restricts who may report news and what may be reported.  These restrictions also can 
interfere with the normal business reporting operations of non -news organizations, such as 
multinational corporations, if they use the Internet to keep clients, members, their headquarters or 
others informed about events in China.  WT/GC/W/746  
 
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  3.8.7   Construction and Related Engineering Services  
3.578.   Upon its WTO accession, China committed to  permit foreign enterprises to supply 
construction and related engineering services through joint ventures with foreign majority 
ownership, subject to the requirement that those services only be undertaken in connection with 
foreign -invested construction p rojects and subject to registered capital requirements that were 
slightly different from those of Chinese enterprises.  China agreed to remove those conditions 
within three years of accession, and it also agreed to allow wholly foreign -owned enterprises to 
supply construction and related engineering services for four specified types of construction 
projects, including construction projects wholly financed by foreign investment, within three years 
of accession.  
3.579.   As previously reported, in 2002, the Ministry of  Construction (MOC), re -named the Ministry 
of Housing and Urban -Rural Development in 2008, and MOFTEC jointly issued the Rules on the 
Administration of Foreign -invested Construction Enterprises  (known as Decree 113) and the Rules 
on the Administration of F oreign -invested Construction Engineering Design Enterprises  (known as 
Decree 114).  These decrees provide schedules for the opening up of construction services and 
related construction engineering design services to joint ventures with majority foreign owne rship 
and wholly foreign -owned enterprises.  Implementing rules for Decree 113 were issued in 2003, 
but Decree 114 implementing rules were delayed until 2007.   
3.580.   Decrees 113 and 114 created concerns for US firms by imposing new and more restrictive 
conditions  than existed prior to China 's accession to the WTO, when US firms were permitted to 
work in China on a project -by-project basis pursuant to MOC rules.  In particular, these decrees for 
the first time require foreign firms to obtain qualification certificat es. In addition, the decrees for 
the first time require foreign -invested enterprises to incorporate in China.  The decrees also impose 
high minimum registered capital requirements as well as technical personnel staff requirements 
that are difficult for many  foreign -invested enterprises to satisfy.   
3.581.   With regard to the Decree 113 regulatory regime for construction enterprises, the United 
States has actively engaged China, both bilaterally and at the annual transitional reviews before 
the Council for Trade in Services, in an effort to obtain needed improvements.  In particular, the 
United States has urged China to maintain non -discriminatory procedures under Decree 113 to 
enable foreign -invested enterprises to carry out the same kinds of projects that domestic 
companies can provide.  The United States also has sought a reduction in the registered minimum 
capital requirements under Decree 113 or the use of other arrangements, such as bonds or 
guarantees in lieu of the capital requirements.  In practice, China restri cts wholly owned foreign -
invested enterprises to undertaking foreign -funded construction projects, except in cases where 
Chinese enterprises are not able to provide the necessary construction services.  The United States 
and US industry have urged China to end this discrimination.  
3.582.   With regard to the Decree 114 regulatory regime for construction engineering design 
enterprises, the United States generally welcomed the implementing rules issued by MOC in 2007, 
as they temporarily l ifted foreign personnel residency and staffing requirements imposed by 
Decree 114, and recognized the foreign qualifications of technical experts when considering initial 
licensing.  The United States has since continued to press China to make these improve ments 
permanent, using both the March 2008 US-China Best Practices Exchange on Architecture, 
Construction and Engineering and the transitional reviews before the Council for Trade in Services 
in 2007, 2008 and 2009.  Separately, the United States also has u rged China to give foreign 
construction engineering design companies the right to immediately apply for a comprehensive 
"Grade  A" license, like domestic design companies can do.  Under existing rules, set forth in 
Circular 202, the Implementation of the Adm inistrative Provisions on the Qualification of 
Construction and Engineering Supervision and Design , issued by MOC in August 2007, foreign 
companies are subjected to more restrictive licensing procedures than domestic companies.  China 
also needs to clarify its licensing requirements relating to partnerships by confirming that investors 
other than individuals, such as foreign design companies, can act as partners.  
3.583.   Meanwhile, in the area of project management services, the conflicting regulatory regimes 
of NDR C and MOHURD have allowed market access barriers for foreign -invested enterprises to 
persist.  In 2004, MOC issued the Provisional Measures for Construction Project Management . 
Known as Decree 200, this measure requires, among other things, local establishm ent and the 
possession of separate qualifications in the area of construction, engineering or design.  In WT/GC/W/746  
 
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  contrast, a measure issued by MOC and MOFCOM in 2007 – the Regulations on the Administration 
of Foreign -invested Construction and Engineering Service E nterprises  – appears to allow foreign -
invested enterprises to provide project management services without possessing separate 
construction, engineering or design qualifications, but the absence of implementing rules has 
resulted in inconsistent interpretat ions of this measure.  The United States and US industry have 
been urging China to clarify the requirements that must be satisfied by enterprises that do not 
hold construction or engineering and design licenses if they seek to provide project management 
services.  
3.8.8   Educational Services  
3.584.   In its accession agreement, China made limited GATS commitments relating to educational 
services and specifically excluded educational services provided in connection with national 
compulsory education from the scope of those c ommitments.  Currently, China only permits foreign 
educators and trainers to engage in nonprofit educational activities that do not compete with the 
Ministry of Education -supervised nine years of compulsory education, thereby inhibiting much -
needed foreign investment in this part of the education sector.  Foreign universities may set up 
nonprofit operations, but must have a Chinese university host and partner to ensure that programs 
bar subversive content and that imported informational material is adapted to  suit local conditions.  
In addition, China bans foreign organizations and companies from offering educational services via 
satellite networks.  
3.8.9   Express Delivery Services  
3.585.   The specific commitments that China made in the area of express delivery services did n ot 
require China to take implementation action upon its accession to the WTO.  Basically, China 
agreed to increase the stake allowed by foreign express delivery companies in joint ventures over 
a period of years, with wholly foreign -owned subsidiaries allow ed within four years of accession.   
3.586.   Since its WTO accession, foreign express delivery companies have continued to operate in 
China 's express delivery sector, and China has implemented its commitment to allow wholly 
foreign -owned subsidiaries.  However, Chin a still needs to expand the scope of access for foreign -
invested companies for domestic express delivery to include the delivery of documents.   
3.587.   In addition, over the years, China has issued a variety of measures that have appeared to 
undermine market acces s for foreign companies and have raised questions in light of China 's WTO 
obligations.  As previously reported, through sustained and high -level engagement, the United 
States was able to persuade China to forego a series of restrictive measures.  
3.588.   In August 2 006, the State Council finalized its Postal Reform Plan , which called for the 
separation of China 's postal operations from the administrative function of regulating China 's 
postal system, with the State Postal Bureau (SPB) to serve as the regulator and a n ew state -
owned enterprise – the China Post Group Corporation – to be set up to conduct postal business.  
China promptly put this plan into effect, and since then the United States has been regularly 
reviewing how SPB has been exercising its new authority to  license and regulate the express 
delivery sector.  
3.589.   In August 2008, the draft of a problematic new Postal Law  went before the National 
People 's Congress.  This draft excluded foreign suppliers from the document segment of China 's 
domestic express delivery ma rket and also contained other troubling provisions.  Despite extensive 
engagement by the United States, the National People 's Congress approved this law, effective 
October 2009, without significant changes.   
3.590.   Since then, the United States has worked intensiv ely with China to alleviate problems that 
foreign companies have encountered when trying to obtain permits under a new permitting system 
that SPB imposed for all suppliers of domestic express package delivery services in China.  In 
May 2012, China committed that it would take specific steps to provide fair access to its market for 
foreign suppliers of these services and that it would protect existing operations as that process 
unfolded. Since then, the Chinese regulator, SPB, has moved f orward with the issuance of more 
permits.  The United States has pressed SPB to quickly review and approve any new permits that 
US companies request, and the United States will continue to do so for as long as is needed.  WT/GC/W/746  
 
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  3.591.   At the same time, in other ways, SPB 's regulation of the express delivery sector in China 
has been problematic.  For example, China imposes overly burdensome and inconsistent regulatory 
approaches, including with regard to security inspections.  
3.8.10   Logistics Services  
3.592.   Logistics services include a number of the services sectors listed in China 's GATS Schedule, 
including road transport services, rail transport services and freight forwarding agency services, 
among others.  Generally, at this time, foreign suppliers should be permitted to supply these 
services in China without geographic limitations or restrictions on the percentage of foreign 
ownership.  
3.593.   Over the years, the Ministry of Transport has been slow to approve applications by foreign 
companies seeking to supply road transport and related logi stics services and has been unwilling 
to issue nationwide trucking licenses, which has limited the ability of foreign companies to build 
economies of scale.  In addition, while regulations issued by almost all major Chinese cities restrict 
daytime access by  trucks, enforcement of these restrictions is often discriminatory.  Local 
regulatory authorities often target their enforcement efforts at foreign companies, while permitting 
local companies to operate freely.  
3.594.   Separately, the Chinese government has directe d that support be provided to the domestic 
logistics industry as part of various industry revitalization plans.  Foreign companies invested in 
China have raised concerns about inadequate transparency with regard to implementing measures, 
inequitable treatme nt of foreign companies and unnecessary industry standardization efforts.   
3.8.11   Air Transport and Related Services  
3.595.   WTO members, including China, undertake the vast majority of their international 
commitments relating to civil air transport, including traffic ri ghts, through bilateral agreements.  
As previously reported, China made significant commitments in 2004 and 2007 agreements with 
the United States to increase market access for US providers of air transport services.  However, 
since 2007, China increasingly has constrained this sector and a lack of clarity in China 's airport 
slot allocation process, among other issues, has prevented US airlines from fully exercising rights 
granted in the 2007 agreement.  The United States has made clear that the current operat ional 
impediments need to be fixed and that any future expansion of rights would need to be based on 
mutual benefit.  
3.596.   Even though China took on relatively limited GATS commitments with regard to global 
distribution system services, concerns still have aris en in this sector.  US and European companies 
have expressed GATS and other concerns regarding China 's regulation of foreign suppliers of 
global distribution system services.  Although China issued new regulations addressing global 
distribution system servic es in 2012, these regulations only called for a modest opening to foreign 
suppliers, as they allow foreign suppliers to handle domestic segments of an international flight 
but not the most lucrative part of China 's market, which is purely domestic travel w ithin China.  
However, China has since undercut even this modest opening by imposing commercially 
unattractive requirements on foreign suppliers, including a requirement to partner with Chinese 
state-owned enterprises.  The United States has used the JCCT pr ocess without success to urge 
China to remove the significant restrictions facing foreign companies in this sector.  
3.8.12   Maritime Services  
3.597.   As previously reported, even though China made only limited WTO commitments relating 
to its maritime services sector, it t ook a significant step in December 2003 to increase market 
access for US service providers.  The United States and China signed a far -reaching, five -year 
bilateral agreement, with automatic one -year extensions, which gives US-registered companies the 
legal flexibility to perform an extensive range of additional shipping and logistics activities in 
China.  US shipping and container transport services companies, along with their subsidiaries, 
affiliates and joint ventures, are also able to establish branch offi ces in China without geographic 
limitation.   WT/GC/W/746  
 
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  3.8.13   Tourism and Travel -related Services  
3.598.   In order to obtain a license, foreign travel agencies doing business in China must register 
with the China National Travel Administration (CNTA) and must submit an initial fea sibility study 
and annual reports on future investment and possible expansion to CNTA and MOFCOM.  In 
addition, China continues to impose an annual sales requirement on foreign travel agencies, even 
though it does not impose the same requirement on domestic  travel agencies.   
3.599.   In December 2007, the United States and China signed an MOU to facilitate Chinese group 
leisure travel to the United States.  The MOU permitted marketing and sales activities in a limited 
number of Chinese provinces to promote US destinat ions and US travel -related businesses.  
Subsequent engagement, led to China 's agreement to expand the MOU to cover 27 of China 's 
31 provinces.  Most recently, in 2013, China announced that it is broadening the scope of access 
under the MOU to include two of the four remaining provinces.  
3.9  LEGAL FRAMEWORK  
3.600.   In order to address major concerns raised by WTO members during its lengthy WTO 
accession negotiations, China committed to broad legal reforms in the areas of transparency, 
uniform application of laws and jud icial review.  Each of these reforms, if fully implemented, will 
strengthen the rule of law in China 's economy and help to address pre -WTO accession practices 
that made it difficult for US and other foreign companies to do business and invest in China.  
3.9.1   Transparency  
3.9.1.1   Official Journal  
3.601.   In its WTO accession agreement, China committed to establish or designate an official 
journal dedicated to the publication of all laws, regulations and other measures pertaining to or 
affecting trade in goods, services, TRIPS or the control of foreign exchange.  China also agreed to 
publish the journal regularly and to make copies of all issues of the journal readily available to 
enterprises and individuals.   
3.602.   Following its accession to the WTO, China did not establish or designate an official journal.  
Rather, China relied on multiple channels, including ministry websites, newspapers and a variety of 
journals, to provide information on trade -related measures.   
3.603.   As previously reported, following sustained US engagement, the S tate Council issued a 
notice in March 2006 directing all central, provincial and local government entities to begin sending 
copies of all of their trade -related measures to MOFCOM for immediate publication in the MOFCOM 
Gazette . The United States subsequen tly reviewed the effectiveness of this notice, both to assess 
whether all government entities regularly publish their trade -related measures in the MOFCOM 
Gazette  and whether all types of measures are being published.  It appeared that adherence to the 
State Council 's notice was far from complete.  As a result, the United States continued to engage 
China bilaterally on the need for a fully compliant single official journal, and at the December 2007 
SED meeting China re -confirmed its WTO commitment to publish all final trade -related measures 
in a designated official journal before implementation.   
3.604.   The United States has been regularly reviewing the effectiveness of China 's official journal 
commitment since the December 2007 SED meeting.  To date, it appears that some but not all 
central government entities publish trade -related measures in this journal.  At the same time, 
these government entities tend to take a narrow view of the types of trade -related measures that 
need to be published in the official journal.  As a result, while trade -related regulations and 
departmental rules are often published in the journal, it is less common for other central 
government measures such as opinions, circulars, orders, directives and notices to be published, 
even though they are all binding legal measures.  Meanwhile, sub -central government measures 
are rarely published in the official journal.  
3.605.   In the September 2012 WTO case challenging numerous subsidies provided by the central 
government and various sub -central governments in Chi na to automobile and automobile -parts 
enterprises located in regions in China known as "export  bases, " the United States included claims WT/GC/W/746  
 
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  alleging that China had failed to abide by various WTO transparency obligations, including China 's 
obligation to publis h the measures at issue in an official journal.  Following consultations in this 
case, the two sides engaged in further discussions as China began to take steps to address US 
concerns.  
3.606.   In the December 2015 WTO case challenging discriminatory Chinese governm ent 
measures exempting sales of certain aircraft produced in China, including general aviation aircraft, 
agricultural aircraft and regional jets, from the VAT while imposing that same tax on sales of 
imported aircraft, the United States included claims all eging that China had failed to publish the 
measures at issue as required by China 's WTO transparency obligations.  Consultations took place 
in January 2016.  In October 2016, the United States announced that it had confirmed that China 
had terminated the dis criminatory tax measures.  The United States also made these measures 
publicly available.  
3.9.1.2   Translations  
3.607.   Another important transparency commitment that China made in its WTO accession 
agreement involves translations.  China agreed to make available translation s of all of its laws, 
regulations and other measures affecting trade in goods, services, TRIPS or the control of foreign 
exchange into one or more of the WTO languages (English, French and Spanish).  China further 
agreed that, to the maximum extent possible , it would make translations of these laws, regulations 
and other measures available before implementation or enforcemen t, but in no case later than 
90 days afterwards.  
3.608.   China has a poor record of compliance with its translation commitment.  Indeed, after 
15 years of WTO membership, China still has not established an appropriate infrastructure to 
undertake the agreed -upon translations of its trade -related measures in a timely manner.  
Although China has complained that it is too difficult for it to live up to this commitment, this 
excuse lacks credulity.  As the United States has pointed out, other WTO members translate all of 
their legal measures.  Indeed, one of these members – the EU  – publishes its measures in 
24 official languages.  
3.609.   Prior to 2015, China had o nly compiled translations of trade -related laws and 
administrative regulations (into English), but not other types of measures.  In addition, China has 
remained years behind in actually publishing translations of trade -related laws and administrative 
regula tions.  
3.610.   The United States has raised this issue at the WTO during the annual transitional reviews, 
including during final transitional reviews before several committees and councils that took place in 
2011.  In addition, the United States has raised this is sue in WTO cases against China.  In the 
December 2010 WTO case challenging what appeared to be prohibited import substitution 
subsidies being provided by the Chinese government to support the production of wind turbine 
systems in China, the United States in cluded a claim alleging that China had breached its WTO 
accession agreement by not translating the measures at issue into a WTO language.  China 
repealed those measures following consultations. In the September 2012 WTO case challenging 
export base subsidie s, the United States included a claim alleging that China had failed to make 
available translations of the measures at issue into one or more WTO languages.  The United States 
also included a similar claim in the December 2015 WTO case challenging China 's discriminatory 
tax treatment of imported aircraft.  
3.611.   Bilaterally, at the July 2014 S&ED meeting, China committed that it would translate trade -
related departmental rules into English within a reasonable period of time.  Subsequently, in 
March  2015, China issu ed a measure requiring trade -related departmental rules to be translated 
into English.  This measure also provides that the translation of a departmental rule normally must 
be published before implementation.  Following the issuance of this measure, the Unit ed States 
pressed China to ensure that it similarly publishes translations of trade -related laws and 
administrative regulations before implementation, as required by China 's WTO accession 
agreement.   WT/GC/W/746  
 
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  3.9.1.3   Public Comment  
3.612.   One of the most important of the transpar ency commitments that China made in its WTO 
accession agreement concerned the procedures for adopting or revising laws, regulations and 
other measures affecting trade in goods, services, TRIPS or the control of foreign exchange.  China 
agreed to provide a r easonable period for public comment on these new or modified laws, 
regulations and other measures before implementing them, except in certain specific instances, 
enumerated in China 's accession agreement.   
3.613.   As previously reported, in the first few years aft er China acceded to the WTO, China 's 
ministries and agencies had a poor record of providing an opportunity for public comment before  
new or modified laws, regulations and other measures were implemented.  Although the State 
Council issued regulations in Dec ember 2001 addressing the procedures for the formulation of 
administrative regulations and rules and expressly allowing public comment, many of China 's 
ministries and agencies in 2002 continued to follow the practice prior to China 's WTO accession, 
and no notable progress took place in 2003.  Typically, the ministry or agency drafting a new or 
revised measure consulted with and submitted drafts to other ministries and agencies, as well as 
Chinese experts and affected Chinese companies.  At times, it also cons ulted with select foreign 
companies, although it would not necessarily share drafts with them.  As a result, only a small 
proportion of new or revised measures were issued after a period for public comment, and even in 
those cases the amount of time provide d for public comment was generally too short.   
3.614.   In 2004, some improvements took place, particularly on the part of MOFCOM, which began 
following the rules set forth in its Provisional Regulations on Administrative Transparency , issued in 
November 2003.  Nevertheless, basic compliance with China 's notice -and-comment commitment 
continued to be uneven in the ensuing years, as numerous major trade -related laws and 
regulations were finalized and implemented without the NPC or the responsible ministry circulating 
advance drafts for public comment.   
3.615.   In numerous bilateral meetings with the State Council, MOFCOM and other Chinese 
ministries since China 's WTO accession, including high -level meetings, the United States 
emphasized the importance of China 's adherence to th e notice -and-comment commitment in 
China 's accession agreement, both in terms of fairness to WTO members and the benefits that 
would accrue to China.  Together with other WTO members, the United States also raised this issue 
repeatedly during regular WTO me etings and as part of the annual transitional reviews conducted 
before various WTO councils and committees.   
3.616.   At the December 2007 SED meeting, China specifically committed to publish, when 
possible, proposed trade -related measures and provide interested pa rties a reasonable opportunity 
for comment.  China also agreed that it would publish these proposed measures either in its 
designated official journal or on an official website.   
3.617.   At the June 2008 SED meeting, China then committed to publish all proposed tra de- and 
economic -related regulations and departmental rules for public comment, subject to specified 
exceptions, and to provide a comment period of no less than 30 days.  China indicated that it would 
publish these proposed measures on the Legislative Infor mation Website maintained by the 
SCLAO.  
3.618.   Two months earlier, in April 2008, the NPC 's Standing Committee had instituted notice -
and-comment procedures for draft laws.  Comments on the draft laws are to be submitted to the 
NPC's Legislative Affairs Commission,  and a new dedicated website provides information about the 
comments that have been submitted.  
3.619.   Subsequently, while the NPC began regularly publishing draft laws for public comment, and 
the State Council began regularly publishing draft regulations for pub lic comment, it appeared that 
China was having more difficulty implementing China 's new policy regarding trade - and economic -
related departmental rules.  After 2008, China did increase the number of proposed departmental 
rules published for public comment o n the SCLAO website.  However, a significant number of 
departmental rules were still issued without first having been published for public comment on the 
SCLAO website.  While some ministries published departmental rules on their own websites, they WT/GC/W/746  
 
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  often all owed less than 30 days for public comment, making it difficult for foreign interested 
parties to submit timely and complete comments.  
3.620.   In October 2010, the State Council issued the Opinions on Strengthening the Building of a 
Government Ruling by Law . This m easure directs ministries and agencies at the central and 
provincial levels of government to solicit public comment when developing their rules, subject to 
certain exceptions. However, the measure does not dictate the procedures or time periods to be 
used.   
3.621.   At the May 2011 S&ED meeting, China committed that it would issue a measure in 2011 to 
implement the requirement to publish all proposed trade - and economic -related administrative 
regulations and departmental rules on the SCLAO website for a public comme nt period of not less 
than 30 days from the date of publication, subject to certain exceptions.  In April 2012, the SCLAO 
published two measures, the Interim Measures on Solicitation of Public Comment on Draft Laws 
and Regulations  and the Notice on Related Issues Regarding Solicitation of Public Comments on 
Draft Departmental Rules , on its website.  These two measures provide that administrative 
regulations and departmental rules have to be posted on the Legislative Information Website of 
the SCLAO.   
3.622.   Since th e issuance of the two SCLAO measures in 2012, no noticeable improvement in the 
publishing of departmental rules for public comment appears to have taken place.  At the July 2014 
S&ED meeting, China confirmed that these two measures are binding on central go vernment 
ministries, but it remains clear that China needs to make more progress in this area.  
3.623.   For several years, the United States has pressed China to improve its handling of so -called 
"normative  documents, " which are regulatory documents that do not fal l into the category of 
administrative regulations or departmental rules but still impose binding obligations on enterprises 
and individuals.  To date, while China continues to consider reforms relating to the handling of 
normative documents, it has not been  willing to commit to publish them for public comment.  In 
October 2017, MOFCOM did issue a draft measure, the Opinion on the Establishment and 
Administration of Normative Documents , which proposes to require the use of notice -and-
comment procedures for cer tain types of normative documents issued by MOFCOM.  In its present 
form, this draft measure leaves much to the discretion of agency officials, as it only proposes to 
require public comment for normative documents issued by MOFCOM that are "binding " and 
involve "major  matters. "  
3.9.1.4   Enquiry Points  
3.624.   Another important transparency commitment in its WTO accession agreement requires 
China to establish enquiry points, where any WTO member or foreign company or individual may 
obtain information.  As previously reported, China complied with this obligation by establishing a 
WTO Enquiry and Notification Center, now operated by MOFCOM 's Department of WTO Affairs, in 
January 2002.  Other ministries and agencies have also established formal or informal, subject -
specific enquiry points.  In addition, some ministries and agencies have created websites to provide 
answers to frequently asked questions, as well as further guidance and information.  
3.9.2   Uniform Application of Laws  
3.625.   In its WTO accession agreement, Chi na committed, at all levels of government, to apply, 
implement and administer its laws, regulations and other measures relating to trade in goods and 
services in a uniform and impartial manner throughout China, including in special economic areas.  
In suppo rt of this commitment, China further committed to establish an internal review mechanism 
to investigate and address cases of non -uniform application of laws based on information provided 
by companies or individuals.  
3.626.   As previously reported, in China 's first  year of WTO membership, the central government 
launched an extensive campaign to inform and educate both central and local government officials 
and state -owned enterprise managers about WTO rules and their benefits.  In addition, several 
provinces and muni cipalities established their own WTO centers, designed to supplement the 
central government 's efforts and to position themselves so that they would be able to take full 
advantage of the benefits of China 's WTO membership.  In 2002, China also established an  internal WT/GC/W/746  
 
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  review mechanism, now overseen by MOFCOM 's Department of WTO Affairs, to handle cases of 
non-uniform application of laws, although the actual workings of this mechanism remain unclear.  
3.627.   During 2017, as in prior years, some problems with uniformity  persisted.  These problems 
are discussed above in the sections on Customs and Trade Administration, Taxation, Investment 
and Intellectual Property Rights.  
3.9.3   Judicial Review  
3.628.   In its WTO accession agreement, China agreed to establish tribunals for the review of  all 
administrative actions relating to the implementation of laws, regulations, judicial decisions and 
administrative rulings on trade -related matters.  These tribunals must be impartial and independent 
of the government authorities entrusted with the admi nistrative enforcement in question, and their 
review procedures must include the right of appeal.  
3.629.   Many US companies continue to express serious concerns about the independence of 
China 's judiciary.  In their experience and observation, Chinese judges contin ue to be influenced by 
political, government or business pressures, particularly outside of China 's big cities.  
3.630.   In addition, the United States continues to examine how the courts designated by the 
Supreme People 's Court 's Rules on Certain Issues Related to  Hearings of International Trade 
Administrative Cases , which went into effect in October 2002, have handled cases involving 
administrative agency decisions relating to trade in goods or services.  So far, however, there 
continues to be little data, as few US or other foreign companies have had experience with these 
courts.  
3.9.4   Other Legal Framework Issues  
3.631.   Other areas of China 's legal framework can adversely affect the ability of the United States 
and US exporters and investors to enjoy fully the rights to which they are entitled under the WTO 
agreements.  Key areas include administrative licensing, competition policy, commercial dispute 
resolution, labor laws and laws governing land use.  Corruption among Chinese government 
officials, enabled in part by China 's incomplete adoption of the rule of law, is also a key concern.  
3.9.4.1   Administrative Licensing  
3.632.   As discussed above in the Investment section, since China 's WTO accession in 
December  2001, US and other foreig n companies have expressed serious concerns about the 
administrative licensing process in China, both in the context of foreign investment approvals and 
in myriad other contexts. According to US industry, many Chinese government bodies at the 
central, prov incial and municipal government levels do not comply with the procedures mandated 
by the Administrative Licensing Law  for acceptance review and approval of administrative licenses.  
This situation creates opportunities for corruption, and sometimes leads to  foreign enterprises and 
foreign products being treated less favorably than their domestic counterparts.   
3.633.   In response to a 2013 directive from Premier Li to streamline administrative licensing 
processes, central government authorities eliminated, or delega ted to lower levels of government, 
more than 300 administrative approval requirements in 2013.  Additional streamlining took place in 
2014.  China also announced reductions in administrative approval requirements in the Shanghai 
Free Trade Zone in 2014.  In addition, at the July 2014 S&ED meeting, China committed to treat 
applicants for administrative licenses and approvals under the same rules and standards as the 
United States with regard to the resources available to accept and process applications and the 
number of applications permitted at one time from an applicant, and to strictly implement existing 
laws and regulations to adequately protect any trade secret or sensitive commercial information 
provided by the applicant during the administrative licensing  or approval process, as required by 
law.  
3.634.   Nevertheless, despite these changes and continued reform efforts, US companies continue 
to encounter significant problems with a variety of administrative licensing processes in China, 
including processes to secur e product approvals, investment approvals, business expansion 
approvals, business license renewals and even approvals for routine business activities.  While US WT/GC/W/746  
 
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  companies are encouraged by the overall reduction in license approval requirements and the focus  
on decentralizing licensing approval processes, US companies report that these efforts have only 
had a marginal impact on their licensing experiences so far.  According to US companies, problems 
continue to be most prevalent at the central government level  and generally involve foreign 
companies encountering more significant delays and receiving less favorable treatment vis-à-vis 
domestic companies, raising concerns in light of the WTO rules relating to national treatment.  
3.9.4.2   Competition Policy  
3.635.   In August 2007,  after several years of development, China enacted its Anti-monopoly Law , 
which became effective in August 2008.  Pursuant to this law, the State Council has established an 
anti-monopoly commission with oversight and coordinating responsibilities, drawing i ts members 
from several Chinese ministries and agencies.  Enforcement responsibilities have been divided 
among three agencies.  MOFCOM has assumed responsibility for reviewing mergers.  NDRC has 
assumed responsibility for reviewing cartel activities, abuse of  dominance and abuse of 
administrative power when they involve pricing, while SAIC reviews these same types of activities 
when they are not price -related.  
3.636.   After the Anti-monopoly Law  was enacted, MOFCOM, NDRC, SAIC and other Chinese 
government ministries and agencies began to formulate implementing regulations, departmental 
rules and other measures.  Throughout this process, the United States urged China to implement 
the Anti-monopoly Law  in a manner consistent with global best practices and with a focus on  
consumer welfare and the protection of the competitive process, rather than consideration of 
industrial policy or other non -competition objectives.  The United States also specifically pressed 
China to ensure that its implementation of the Anti-monopoly La w does not create disguised or 
unreasonable barriers to trade and does not provide less favorable treatment to foreign goods and 
services or foreign investors and their investments.  
3.637.   The Chinese government 's interventionist economic policies and practices and the large 
role of state -owned enterprises in China 's economy have created some possible tensions with the 
Anti-monopoly Law . One provision in the Anti-monopoly Law  "protects the lawful operations " of 
state-owned enterprises and government monopolies in  industries deemed nationally important, 
although the meaning of this provision remains unclear.  Indeed, China has enforced the Anti-
monopoly Law  against state -owned enterprises.  For example, MOFCOM  has imposed conditions on 
at least one state -owned company forming a joint venture, NDRC has conducted an investigation 
into anti -competitive price discrimination by two large state -owned telecommunications companies 
and has imposed fines for Anti-monopol y Law  violations on two state -owned liquor companies, and 
SAIC has undertaken enforcement against provincial state -owned enterprises.  However, some US 
companies have expressed concerns that enforcement against state -owned enterprises is more 
limited than a gainst private enterprises.   
3.638.   Provisions on the abuse of administrative (i.e., government) power included in the Anti-
monopoly Law , which also appear in NDRC 's and SAIC 's implementing regulations, are potentially 
important instruments for reducing the gover nment 's interference in markets and promoting the 
establishment and maintenance of increasingly competitive markets in China.  In recent years, 
NDRC and SAIC have taken a number of enforcement actions in this area to reduce government 
restraints on competit ion.  
3.639.   In June 2016, the State Council issued the Opinions on Establishing a Fair Competition 
Review System , which created a new system that could, if faithfully implemented, widen Chinese 
anti-monopoly enforcement agencies ' oversight over undue government restraints on competition 
and anti -competitive regulation of competition.  Undue government restraints and regulation that 
benefit certain parties ' interests over others can have a greater adverse effect on competition than 
the anti -competitive conduct of p rivate firms.  For example, government actors could harm 
competition by excluding new rivals or maverick incumbents through limiting licenses for 
providers, without regard to demand, or through geographic restrictions.  Given the state -led 
nature of China 's economy, the need for careful scrutiny of anti -competitive government restraints 
and regulation is high.  
3.640.   In October 2017, NDRC, SAIC, MOFCOM, MOF and SCLAO jointly issued, without first 
providing an opportunity for public comment, the Provisional Rules for  Implementing the Fair WT/GC/W/746  
 
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  Competition Review System . These rules are designed to implement the Fair Competition Review 
System and ostensibly target anti -competitive government rules, normative documents and other 
policy measures relating to market access, ind ustry development, attracting investment, tendering 
and bidding, government procurement, norm -setting for business conduct and qualification 
standards, among other things.  The rules require issuing agencies at the central and sub -central 
levels of governme nt to conduct reviews of a relevant proposed measure before introducing it so 
as to verify that the proposed measure will not harm competition.  However, the rules also contain 
a broad list of exemptions, including national economic security, cultural secur ity, national defense 
construction, poverty alleviation, disaster relief and public interest considerations.    
3.641.   Another tension in China 's organizational structure involves trade associations, which in 
China frequently appear to have strong government ties.  The United States has encouraged the 
Chinese agencies charged with enforcing the Anti-monopoly Law  to work with Chinese regulatory 
agencies with sectoral responsibilities to emphasize the importance of trade associations refraining 
from engaging in conduc t that would violate the Anti-monopoly Law . For example, while trade 
associations can usefully function to assist their members with information on opportunities and 
contacts in different markets, they also can facilitate cartel activity if appropriate gui delines are 
not followed.  In March 2017, NDRC published draft Guidelines on Trade Association Pricing Activity  
for public comment.  These draft guidelines address issues that trade association conduct can raise 
from a competition law perspective but could b e clarified and strengthened.  
3.642.   The treatment of intellectual property rights by China 's anti -monopoly enforcement 
agencies has generated concerns among US and other foreign stakeholders.  For example, 
Article  55 of the Anti-monopoly Law , which relates to conduct associated with intellectual property 
rights that eliminates or restricts competition, has raised questions for US industry about the 
scope of enforcement since its initial inclusion in the law.  In April 2015, SAIC adopted a meas ure, 
the Rules on the Prohibition of Conduct Eliminating or Restricting Competition by Abusing 
Intellectual Property Rights , which contains concerning provisions relating to essential facilities and 
standards -essential patents on which stakeholders have su bmitted comments.  Subsequently, in 
late 2015, draft versions of Anti-monopoly Guidelines on Abuse of Intellectual Property Rights  
separately prepared by the NDRC and by SAIC became public.  China has stated that these drafts, 
as others, will form the basis for the State Council 's Anti -monopoly Commission to adopt 
guidelines addressing the treatment of conduct involving intellectual property rights under the 
Anti-monopoly Law . In March 2017, the Anti -monopoly Commission published draft Anti-monopoly 
Guideline s against Abuse of Intellectual Property Rights  and invited the public to provide 
comments on them.  These draft guidelines would adopt several core principles on competition and 
intellectual property law similar to principles applied in the United States, but also appear to 
support the premise that the exercise of intellectual property rights can act as a hindrance to 
market competition, including through apparent presumptions that certain IP -related conduct 
harms competition.  The draft guidelines also rais e concerns regarding the treatment of refusals to 
license, "excessive " pricing and standard essential patents.  US government agencies have been 
following the development of the draft guidelines closely and engaging China 's anti -monopoly 
enforcement agencie s, including through the submission of written comments.   
3.643.   While initially MOFCOM 's merger decisions were quite brief, they increasingly have become 
more detailed.  This development is helpful, as in the past some US companies have criticized 
certain MOFCOM decisions for lack of adequate bases to find that a merger has or may have the 
effect of eliminating or restricting competition, and some US companies have raised concerns with 
the remedies that MOFCOM has adopted in granting conditional merger approvals.  In addition, in 
September 2017, MOFCOM published draft Measures for the Review of Undertaking 
Concentrations . This draft measure has the potential to help clarify MOFCOM 's procedures for 
reviewing concentrations of undertakings by providing guidance on whe n notifications are required 
and the procedural steps available during the notification and review process.   
3.644.   MOFCOM 's merger enforcement has tended to focus more on transactions involving foreign 
enterprises.  To date, every transaction that MOFCOM has bloc ked or imposed conditions on has 
involved at least one foreign party, although MOFCOM has been imposing conditions on fewer 
transactions in recent years.  MOFCOM also has stated publicly that the law applies to domestic 
enterprises, including state -owned en terprises, equally.  Reports indicate, moreover, that the 
percentage of merger notifications in which all parties are C hinese has risen from around 
15 percent to around 30 percent in recent years, suggesting increased domestic compliance with 
the filing req uirements of the Anti-monopoly Law . To date, MOFCOM has imposed penalties for WT/GC/W/746  
 
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  failure to file a required merger notification on more domestic transactions than transactions 
involving foreign parties.  
3.645.   Starting in 2013, NDRC increased its Anti-monopoly Law  enforcement activity noticeably.  
While both domestic companies and foreign companies have been targets of these NDRC 
investigations, US industry asserts that foreign companies appear to have come under increased 
scrutiny by China 's enforcement agencies.  In addition, US industry has expressed serious concerns 
about insufficient predictability, fairness and transparency in NDRC 's investigative processes, 
including NDRC pressure to "cooperate " in the face of unspecified allegations or face steep fines.  In 
some cases, US industry also has complained about continuing difficulties in achieving 
representation before the Anti -monopoly enforcement agencies by their counsel of choice.  
3.646.   At the July 2014 S&ED meeting, China committed to provide any party under an Anti-
monopoly Law  investigation with information about the enforcement agency 's concerns and an 
effective opportunity for the party to present evidence in its defense.  In addition, at the 
December  2014 JCCT meeting, China committed that the Chinese authori ties would treat domestic 
and foreign companies equally in Anti-monopoly Law  enforcement proceedings.  China further 
committed that the Chinese authorities ' normal practice would be to permit an investigated foreign 
company to have foreign counsel present, to advise it and to provide information on its behalf 
during the proceedings.  At the November 2015 JCCT meeting, China committed that agencies 
without Anti-monopoly Law  enforcement authority will not intervene in the enforcement decisions 
of MOFCOM, SAIC a nd NDRC.  China also clarified that its anti -monopoly enforcement agencies will 
not disclose confidential business information to other agencies or third parties, except pursuant to 
a waiver from the submitting party or under circumstances defined by law.   
3.9.4.3   Foreign NGO Management Law  
3.647.   In 2015, China 's National People 's Congress published a draft Foreign NGO Management 
Law that laid out a series of provisions regulating organizations operating within its borders.  The 
United States and numerous other governments  and stakeholders around the world expressed 
serious concerns about the draft law, as it would have a significant impact on commercial 
activities, academic exchanges, cooperation on global health matters, rule of law exchanges and 
shared environmental conc erns, as well as serious implications for investment in China by US 
NGOs and, indirectly, US for-profit companies.  In 2016, the National People 's Congress passed the 
final version of the Foreign NGO Management Law , which went into effect in January 2017.  The 
new law does not materially differ from the earlier draft, and it therefore continues to generate 
serious concerns.  
3.9.4.4   Commercial Dispute Resolution  
3.648.   Both domestic and foreign companies often avoid seeking resolution of commercial 
disputes through the Chin ese courts, due to deep skepticism about the independence and 
professionalism of China 's court system and the enforceability of court judgments and awards.  
There is a widespread perception that judges, particularly outside big cities, are subject to 
influe nce by local political or business interests.  In addition, many judges are not trained in the 
law or lack higher education, although this problem decreases at the higher levels of the judiciary.  
At the same time, the Chinese government is moving to establi sh consistent and reliable 
mechanisms for dispute resolution through the adoption of improved codes of ethics for judges and 
lawyers and increased emphasis on the consistent and predictable application of laws.  For 
example, Supreme People 's Court rules pro vide that when there is more than one reasonable 
interpretation of a law or regulation, the courts should choose an interpretation that is consistent 
with the provisions of international agreements to which China has committed, such as the WTO 
rules.  
3.649.   Despi te initial enthusiasm, there is increasing skepticism of the China International 
Economic and Trade Arbitration Commission (CIETAC) as a forum for the arbitration of commercial 
disputes.  Some foreign companies have obtained satisfactory rulings from CIETAC , but others 
have raised concerns about restrictions on the selection of arbitrators and inadequacies in 
procedural rules necessary to ensure thorough, orderly and fair management of cases.  WT/GC/W/746  
 
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  3.650.   A further problem for commercial dispute resolution in China is th at obtaining enforcement 
has often been difficult in cases where the courts or arbitration panels have issued judgments in 
favor of foreign -invested enterprises.  Chinese government officials responsible for enforcement are 
often beholden to local interests  and unwilling to enforce judgments against locally powerful 
companies or individuals.  
3.9.4.5   Labor Laws  
3.651.   China does not effectively enforce its labor laws and regulations concerning issues such as 
minimum wages, hours of work, occupational safety and health, bans  on child labor, forced prison 
labor, and participation in social insurance programs.  Many foreign -invested enterprises have 
expressed concerns about their domestic competitors ' lack of compliance with labor and social 
welfare laws due to lax enforcement.  Lax enforcement has led to significant increases in labor 
disputes and unrest in China as well as the arrest and detention of worker rights leaders.  
3.652.   China recently issued two measures intended to improve enforcement of China 's labor 
laws, but they do not go far enough in addressing foreign companies ' concerns.  The Measures for 
Announcing Major Violations of Labor Security , which entered into force in January 2017, address 
employers ' compliance with China 's labor laws by threatening to publicly name employe rs that 
commit serious labor violations.  The Measures for the Rating of Enterprises ' Labor Security 
Compliance Credit, which also entered into force in January 2017, rate employers based on a set 
of criteria that includes compliance with China 's labor laws  and subject poorly rated employers to 
routine inspections.  Unfortunately, these measures are vague, do not define key terms and leave 
enforcement to provincial and local administrative authorities, which can result in inconsistent 
implementation because m otivation and ability to pursue enforcement vary among the various 
administrative authorities.   
3.653.   China also introduced two other measures in 2017, which entered into force in July, aimed 
at improving the arbitration system that China uses to respond to labo r disputes.  The Rules on 
Labor and Personnel Dispute Arbitration Organizations  define the roles of arbitration commissions 
and courts at the provincial and local government levels, provide dedicated funding and specify 
qualifications, training and oversigh t requirements for staff.  The Rules on Handling Labor and 
Personnel Dispute Arbitration Cases address the handling of collective labor disputes involving 10 
or more workers and collective labor disputes arising from the implementation of collective labor 
agreements, among other things.   
3.654.   In addition, China 's restrictions on labor mobility, which contribute to shortages of skilled 
workers for foreign companies operating in China, continue to distort labor costs.  In part due to 
the recognition that labor mobil ity is essential to the continued growth of the economy, China is 
gradually easing restrictions under the country 's hukou (i.e., household registration) system, 
which has traditionally limited the movement of workers within the country.   
3.655.   China continues to  maintain other policies that negatively impact foreign companies, 
including restrictions on hiring contract workers.  At present, registered subsidiaries of foreign 
corporations have two options when hiring workers in China.  They can either hire full -time 
employees directly, or they can hire employees indirectly on contract from temporary placement 
agencies.  These temporary workers are known as "dispatch  workers. " However, amendments to 
the Labor Contract Law  that went into effect in July 2013 add restricti ons intended to discourage 
these companies from using dispatch workers instead of hiring long -term employees.  The Labor 
Contract Law  amendments limit the use of dispatch workers to periods of less than six months in 
auxiliary, or non -core, business operati ons or for the purpose of replacing a permanent employee 
away on leave.  Additionally, the Interim Provisions on Labor Dispatch , which entered into force in 
March 2014, further regulate employment of dispatch workers by limiting the amount of dispatch 
worke rs a business can hire to no more than 10 percent of the business ' total number of 
employees.  Businesses whose total number of employees comprised over 10 percent of dispatch 
workers prior to the implementation of the Interim Provisions on Labor Dispatch  were given until 
March 2016 to make adjustments.   
3.656.   In addition, and of great concern to the United States, China does not adhere to certain 
internationally recognized labor standards, including the freedom of association and the right to 
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  allow workers to form or join an independent union of their own choosing.  Unions must affiliate 
with the official All -China Federation of Trade Unions (ACFTU), which is under the direction of the 
Communist Party of China.  The workers at enterprises in China are required to accept the ACFTU 
as their representative; they cannot instead select another union or decide not to have any union 
representation.   
3.657.   Once an ACFTU union chapt er is established at an enterprise in China, the enterprise is 
required to pay fees to the ACFTU, often through the local tax bureau, equaling two percent of 
total payroll, regardless of the number of union members in the enterprise.  While China 's laws on 
union formation apply equally to domestic enterprises and foreign -invested enterprises, the ACFTU 
campaign may be discriminatory, both because it does not appear to be directed at private 
Chinese companies and because it appears to specifically target Fort une 500 companies, to the 
disproportionate impact of US-invested companies.  The United States continues to monitor this 
situation and is attempting to assess its effects on US-invested companies and their workers.  
3.9.4.6   Land Laws  
3.658.   China 's Constitution specifies that all land is owned in common by all the people.  In 
practice, provincial and municipal governments distribute state -owned urban land for industrial 
and residential use under a variety of terms depending on the type of land, its intended use and 
the stat us of the land -use rights "purchaser ," while agricultural collectives, under the control of 
local Communist Party chairmen, distribute collectively owned agricultural land to rural residents in 
the form of 30 -year renewable contracts.  Governments and agric ultural collectives can transfer or 
lease land -use rights to enterprises in return for the payment of fees, or other forms of 
compensation, such as profit sharing.  A major problem for foreign investors is the array of 
regulations that govern their ability to acquire land -use rights, which are limited to 50 years for 
industrial purposes in the case of foreign investors.  Local implementation of these regulations may 
vary from central government standards, and prohibited practices may be tolerated in one local ity 
while the regulations are enforced in another.  Most wholly foreign -owned enterprises seek land -
use rights to state -owned urban land as the most reliable protection for their operations.  Chinese -
foreign joint ventures usually attempt to acquire land -use rights through lease or contribution 
arrangements with the Chinese partner.  
3.659.   Chinese law does not currently define standards for compensation when eminent domain 
supersedes land -use rights.  This situation creates considerable uncertainty when foreign -invested 
enterprises are ordered to vacate premises in the public interest.  Moreover, the absence of public 
hearings on planned public projects can give affected parties, including foreign -invested 
enterprises, little advance warning.  China is aware of this pro blem, however, and is reportedly 
revising its laws to address it, but it remains unclear how extensive or effective the revisions will 
be.  
3.660.   Given the scarcity of land resources in China, the price of land -use rights and land 
allocation are important consid erations for purposes of investment, production and trade.  It is 
therefore of some concern to the United States that the Chinese government continues to exercise 
a strong hand in land -use markets in China, with the objective, in part, to ensure that land u se-
rights are allocated in accordance with a compulsory national land -use plan aimed at boosting 
grain production, and state industrial development policies aimed at sustaining urbanization and 
growth.  
3.9.4.7   Corruption  
3.661.   While WTO membership has increased China 's exposure to international best practices and 
resulted in some overall improvements in transparency, corruption remains prevalent.  Chinese 
officials admit that corruption is one of the most serious problems the country faces, stating that 
corruption poses a  threat to the survival of the Communist Party and the state.  China 's leadership 
has called for an acceleration of the country 's anti -corruption drive, with a focus on closer 
monitoring of provincial -level officials.   
3.662.   In the area of government procurement,  China has pledged in recent years to begin 
awarding contracts solely on the basis of commercial criteria.  However, it is unclear how quickly, 
and to what extent, the Chinese government will be able to follow through on this commitment.  WT/GC/W/746  
 
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  US companies compla in that the widespread existence of unfair bidding practices in China puts 
them at a competitive disadvantage.  It also undermines the long -term competitiveness of both 
domestic and foreign enterprises operating in China.  
3.663.   China criminalized the payment of b ribes to officials of foreign governments and 
international public organizations, effective in 2011, as required by the United Nations Convention 
against Corruption, which China ratified in 2006.  Although criminalizing foreign bribery represents 
an importa nt milestone, China has provided little information about how the law is being 
interpreted and enforced.  Accordingly, the United States has continued to review China 's anti -
corruption efforts and to encourage China to vigorously enforce its laws.  
 
_______________  
 
 
 
 
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  APPENDIX 1  
LIST OF WRITTEN SUBM ISSIONS COMMENTING O N CHINA 'S WTO COMPLIANCE  
(20 SEPTEMBER  2017) 
1. US Chamber of Commerce  
 
2. US Council for International Business  
 
3. United States Information Technology Office  
 
4. Computing Technology Industry Association  
 
5. Information Technology Industry Council  
 
6. Semiconductor Industry Association  
 
7. BSA │ The Software Alliance  
 
8. Telecommunications Industry Association  
 
9. International  Intellectual Property Alliance  
 
10. The App Association  
 
11. National Association of Manufacturers  
 
12. Institute of Scrap Recycling Industries  
 
13. American Iron and Steel Institute  
 
14. The Aluminum Association  
 
15. National Milk Producers Federation  
 
16. US Dairy Export Council  
 
17. Coalition of Services Industries  
 
18. AFL-CIO 
 
19. American Apparel & Footwear Association  
 
 
_______________  
 
 
  WT/GC/W/746  
 
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  APPENDIX 2  
LIST OF WITNESSES TE STIFYING AT PUBLIC H EARING ON CHINA 'S WTO COMPLIANCE  
(4 OCTOBER  2017) 
 
 
1. Josh Kallmer  
 US Information Technology Office  
 
2. Jeremie Waterman  
 US Chamber of Commerce  
 
3. Eva Hampl  
 US Council for International Business  
 
4. Kevin Rosenbaum  
 International Intellectual Property Alliance  
 
 
_______________  
 
 
 
  WT/GC/W/746  
 
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  APPENDIX 3  
FACT SHEET: INITIAL ACTIONS OF THE US-CHINA ECONOMIC COOPERATION 100 -DAY PLAN  
(11 MAY 2017 ) 
 
1. Following one more round of technical consultations between the United States and China, 
China is to allow imports of US beef on conditions consistent with international food safety 
and animal health standards and co nsistent with the 1999 Agricultural Cooperation 
Agreement, beginning as soon as possible but no later than 16 July 2017.  
2. The United States and China are to resolve outstanding issues for the import of China origin 
cooked poultry to the United States as soo n as possible, and after reaching consensus, the 
United States is to publish a proposed rule by 16 July 2017, at the latest, with the United 
States realizing China poultry exports as soon as possible.  
3. China 's National Biosafety Committee (NBC) is to hold a  meeting by the end of May 2017, to 
conduct science -based evaluations of all eight pending US biotechnology product 
applications to assess the safety of the products for their intended use.  No additional 
information unrelated to safety assessment for inten ded use is to be requested of the 
applicants.  For any product that does not pass the safety evaluation at the NBC meeting 
held in May 2017, the NBC is to operate with transparency by providing in writing to the 
applicants a complete list of requested ‎ information necessary to finalize the safety 
assessment for the products ' intended use, along with an explanation of how the requested 
information would be relevant to the safety of the products ' intended use.  The NBC is to hold 
meetings as frequently and as soon as possible after an application is resubmitted in order 
to finalize reviews of remaining applications without undue delay. For the products that pass 
the safety evaluations of the NBC, China is to grant certificates within 20 working days in 
accordan ce with Administrative License Law of the People 's Republic of China.  
4. The United States welcomes China, as well as any of our trading partners, to receive imports 
of LNG from the United States.  The United States treats China no less favorably than other 
non-FTA trade partners with regard to LNG export authorizations.  Companies from China 
may proceed at any time to negotiate all types of contractual arrangement with US LNG 
exporters, including long -term contracts, subject to the commercial considerations of the 
parties.  As of 25 April 2017, the US Department of Energy had authorized 19.2 billion cubic 
feet per day of natural gas exports to non -FTA countries.  
5. By 16 July 2017, China is to allow wholly foreign -owned financial services firms in China to 
provide c redit rating services, and to begin the licensing process for credit investigation.  
6. The US Commodity Futures Trading Commission (CFTC) intends to extend by 16 July 2017 
the current no -action relief to Shanghai Clearing House for six months, with further 
extensions amounting to up to three years, if appropriate and consistent with the conditions 
set forth in the no -action relief. The People 's Bank of China and the CFTC are to work 
towards a Memorandum of Understanding (MOU) concerning the cooperation and the  
exchange of information related to the oversight of cross -border clearing organizations.  
7. By 16 July 2017, China is to issue any further necessary guidelines and allow wholly US-
owned suppliers of electronic payment services (EPS) to begin the licensing pr ocess. This 
should lead to full and prompt market access. China is to continue to allow Chinese banks to 
issue dual brand -dual currency bankcards that allow US EPS suppliers to process foreign 
currency payment card transactions.  
8. The applicable US federal r egulatory authorities remain committed to apply in the United 
States the same bank prudential supervisory and regulatory standards to Chinese banking 
institutions as to other foreign banking institutions, in like circumstances and in accordance 
with US law. 
9. China is to issue both bond underwriting and settlement licenses to two qualified US 
financial institutions by 16 July 2017.  WT/GC/W/746  
 
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  10. The United States recognizes the importance of China 's One Belt and One Road initiative and 
is to send delegates to attend the Be lt and Road Forum in Beijing 14-15 May in Beijing.  The 
United States welcomes direct investment by Chinese entrepreneurs as it does by 
entrepreneurs from other countries. The United States welcomes Chinese participation in the 
Select  USA Investment Summit that will be held 18-20 June in Washington D.C.  
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