WORLD TRADE  
ORGANIZATION   
G/TRIMS/W/103 
4 September 2012 
 (12-4758) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
CHINA – TRADE-RELATED INVESTMENT MEASURES 
IN THE STEEL SECTOR 
 
Questions from the United States 
 
 
 The following communication, dated 31 August 2012,  is being circulated at the request of the 
Delegation of the United States.  
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 China's obligations with respect to trade-re lated investment measures are governed by the 
TRIMs Agreement as elaborated in China's Protocol  of Accession that provides in pertinent part: 
 
China shall, upon accession, comply with  the TRIMs Agreement, without recourse 
to the provisions of Article 5 of the TRI Ms Agreement.  China shall eliminate and 
cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements m ade effective through laws, regulations 
or other measures.  Moreover, China w ill not enforce provisions of contracts 
imposing such requirements.  Without prejudi ce to the relevant provisions of this 
Protocol, China shall ensure that the distribution of import licences, quotas, tariff rate quotas, or any other means of appr oval for importation, the right of 
importation or investment by national and sub national authorities, is not 
conditioned on:  whether comp eting domestic suppliers of such products exist;  or 
performance requirements of any kind, such as local content, offsets, the transfer 
of technology, export performance or the conduct of research and development in 
China.    
 Before and after its accession, China revised ma ny laws and regulations on foreign-invested 
enterprises to eliminate requirements relating to expo rt performance, local content, foreign exchange 
balancing and technology transfer in accordance with the TRIMs and other WTO agreements, and 
China's Protocol of Accession.   However, some  of the revised laws and regulations seemingly 
continue to "encourage" technology transfer or the us e of local content, without formally requiring it.  
Moreover, even when laws and regulations do not expressly encourage it, enterprises from the 
United States and other Members have continually reported that some Chinese government officials, 
who typically retain a high degree of discretion when  reviewing investment a pplications, still consider 
factors such as technology transfer and local content when deciding whether to approve an 
investment.   
 
 As one example of such distortive policies, Chin a severely restricts foreign investment in its 
steel industry, the world's largest production and consumption market for steel.  Among other restrictions, under China's 2005 Development Policies for the Iron and Steel Industry for the Eleventh 
Five Year Period  (11
th Five Year Steel Plan), China imposes equity caps of 50 per cent for foreign 
investors throughout the steel industry, requires govern ment approval of all fore ign steel investments, 
does not allow foreign firms to invest in greenfield sites and requires that foreign firms have their own G/TRIMS/W/103 
Page 2  
 
  proprietary steel technologies.  As a general matter, no foreign firm is allowed to have control of a 
steel enterprise in China.  This combination of requirements creates de facto  technology transfer 
requirements on foreign investors in the steel sect or.  In 2011, China's Ministry for Industry and 
Information Technology (MIIT) issued the Development Plan for the 12
th Five Year Program for the 
Iron and Steel Industry  (12th Five Year Steel Plan).  The 12th Five Year Steel Plan does not contain 
any changes to the 2005 investment restrictions on fo reign firms.  However, the new plan does appear 
to encourage "overseas iron and steel enterprise gr oups having international competitive strength to 
participate in domestic merging and reorganization,  as well as joint ventures and cooperation." At the 
same time, in China's 2012 Catalogue Guiding Foreign  Investment in Industry  very few steel-related 
sector activities are encouraged for foreign investme nt.  The only direct steel manufacturing that is 
"encouraged" under the Catalogue is the manufacture of nickel stainless steel.   
 1. Please explain the purpose of requiring that fore ign investors in the steel industry have their 
own proprietary technology. 
 
2. Foreign steel firms' investment proposals ha ve been reportedly turned down by China since 
2005 because there was insufficient technology transfer to the Chinese partner.  Please 
explain how denial of permission to invest on such  a basis is consistent with China's protocol 
of accession.  Please confirm that foreign steel firms may choose to invest in China and 
preserve control over their proprietary rights to key technologies, without risk of interference 
from the Chinese government.   
 
3. Is China able to provide examples of where foreign steel firms have made new or increased 
investments in the steel sector consistent w ith the Chinese government policies in the last 
5 years?  
 
4. Does China intend to continue to limit foreign steel enterprises to 50 per cent or less equity in 
steel enterprises in China, while requiring that  the foreign steelmakers have proprietary 
technologies of their own?   
  Article 16 of the 11
th Five Year Steel Plan provides for tax concessions, lowered interest rates 
and scientific research funds for enterprises that use Chinese-made equipment.  The 12th Five Year 
Steel Plan does not appear to repeal or change this policy, which appears to support the use of 
domestic over imported equipment.  
 
5. Does China continue to require that, in orde r to obtain the tax concessions, lowered interest 
rates and scientific research funds described in Article 16 of the 11th Five Year Steel Plan, 
investors use Chinese-made equipment?  Please explain how such a requirement is consistent 
with the TRIMS Agreement and China's Protocol of Accession. 
  In the 12
th Five Year Steel Plan, China has also set import substitution targets, stating that 
"large scale production will be realized for products that are imported in large quantities, such as high 
strength and high ductility steel for automobiles, s ilicon steel sheets, etc.  Their domestic market 
shares will reach above 90%; the self-sufficiency rate will reach 80% for high end products, including 
corrosion-resistant steel for ships, low temperature and pressure container plates, wheel and axle steel 
for high-speed railway, and high-pressure boiler pipe."   6. Will China approve industrial plans for fore ign investors that allo w enterprises to freely 
purchase steel from all sources, including imported st eel for high end applications in ships, 
railways, automobiles, power plants, etc.? 
  G/TRIMS/W/103 
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  7. What will the consequences be to foreign i nvested steel users if they and their Chinese 
partners do not meet the thresholds for th e domestically-sourced high-end steel products 
delineated in Section III, 3 of the 12th Five Year Steel Plan?    
  
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