WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/31 
14 September 2007 
 (07-3832) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to the Questions Posed by MEXICO1  
Regarding the New and Full Notification of CHINA2 
  
 The following communication, dated 7 September 2007, is being circulated at the request of 
the Delegation of China.    
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GENERAL
 
 
Question 1 
 
 Paragraph 10.1 of Part I of the Protocol of Accession (WT/L/432) states the following:   
 
 "China shall notify the WTO of any subsidy within the meaning of Article 1 of the 
Agreement on Subsidies and Countervailing Me asures ("SCM Agreement"), granted or 
maintained in its territory, organized by specifi c product, including those subsidies defined in 
Article 3 of the SCM Agreement.  The information provided should be as specific as possible, following the requirements of the questionnaire on subsidies as noted in Article 25 of the 
SCM Agreement."  
(a) Could the People's Republic of China (PRC) please specify whether the new and 
full notification of information on programmes granted or maintained at the 
central government level in China (G/SMC/N/123/CHN) includes all subsidy programmes granted at all levels of government?  Could China please give 
details of any subsidy programmes provi ded that have not been reported? 
 Reply
 
  China believes that apart from the fact that the notification China submitted in April 2006 did 
not include those from the local governments, the notification is complete based on the information gathered on subsidies maintained at the central government level.  If there are other policies and 
measures to be found in future which according to the SCM Agreement fall in the scope of subsidies 
to be notified, they will be incorporated in futu re notifications from China.  On notification on 
subsidies from local government, China is now intern ally discussing how to gather information in an 
efficient and an effective way.  Preparations for notification on local subsidies will entail education of 
local officials on the SCM Agreement in a more in-dep th and technical approach.  It will also involve 
a lot of other preparatory work.  Therefore it is s till difficult for China to propose a timetable now.   
                                                     
 
1 G/SCM/Q2/CHN/22.   
2 G/SCM/N/123/CHN.   G/SCM/Q2/CHN/31 
Page 2  
 
   (b) Could the PRC please indicate how in th e new and full notification it sought to 
organize the subsidy programmes by specific product, including the subsidies defined in Article 3 of the SCM Agreement?   
 
Reply
 
 
 Submitting China's subsidy notification is to obser ve the obligation of transparency under the 
SCM Agreement.  As indicated at the beginning of China's subsidy notification, submission of China's 
notification does not mean that China necessarily re gards those policies or measures included in the 
notification as "specific subsidies" within the mean ing of the SCM Agreement.  However, in order to 
give Members clear descriptions of some existi ng policies which could be regarded by them as 
specific subsidies, the notification does take in some policies which China believes are not specific 
and are not actually to be subject to the notification obligation.     As a matter of fact, compared with generally applicable preferential tax policies, there are not 
many subsidies specific to products in China.  In  China's subsidy notification, those policies and 
measures named to be specific to products are spec ific to those specific products, while others not 
named as specific to certain products are generally  available to all enterprises satisfying publicized 
conditions.  Details of each of the notified policy an d measure are self-explanatory in the notification.   
 
Question 2 
 
 Paragraph 10.2 of Part I of the Protocol of Accession (WT/L/432) states the following:     "For purposes of applying Articles 1.2 and 2 of the SCM Agreement, subsidies provided to state-owned enterprises will be viewed as specific if, inter alia, state-owned enterprises are the 
predominant recipients of such subsidies or stat e-owned enterprises receive disproportionately 
large amounts of such subsidies."  
 
 (a) In the new and full notification the P RC indicates that it has included certain 
activities which arguably are not (or are not always) "specific subsidies" within 
the meaning of Article 2 of the SCM Agreement.  In this connection, could it 
please clarify why it has not provided the information showing that state-owned 
enterprises are not the predominant recipients of such subsidies or recipients of disproportionately large amounts of su ch subsidies, in accordance with 
paragraph 10.2 of Part I of the Protocol of Accession?  
 Reply
 
  In the subsidy notification China submitted, in formation is detailed enough and self-evident to 
prove that state-owned enterprises are not the predom inant recipients of the benefits under the policies 
and measures or recipients of disproporti onately large amounts of such benefits.   
 Question 3   Paragraph 10.3 of Part I of the Protocol of Accession (WT/L/432) states the following:     "China shall eliminate all subsidy programme s falling within the scope of Article 3 of 
the SCM Agreement upon accession."   
  (a) Could the PRC please specify which subsidy programmes have been eliminated, 
pursuant to Article 3 of the SCM Agreem ent, and if some programmes have not 
been eliminated, could it explain why?  
  G/SCM/Q2/CHN/31 
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  Reply  
 
 China has explained in various occasions th e background of the policies which several 
Members suppose to be inconsistent with China's WTO obligations.  These are policies formulated at 
the early stage of China's reform and opening-up process to attract foreign investment and later 
incorporated into the taxation legislation in the 1994 tax regime reform in China.  With further reform 
of the tax regime in China including the implementation on 1 January 2008 of the new Income Tax Law of the People's Republic of China for En terprises, these policies will be adjusted.   
 
Question 4 
 
 Could the PRC please indicate the degree of  progress made in eliminating the subsidy 
programmes listed in Annex 5.B ("Subsidies to be phased out ") to the Protocol of Accession?   
 
Reply
 
 
 The policies and measures contained in Annex 5B to the Protocol of Accession of China were 
all eliminated around the time when China acceded  to the WTO. Among these policies and measures, 
those related to the Industrial Policy on Autom obiles ceased implementation as of 1 January 2002 
according to Decree No. 11 of the Ministry of Finance dated 11 December 2001.  The State Council Circular on Industrial Policy on Automobiles menti oned in Annex 5B was also replaced by a revised 
Development Policy for the Automobile Industry.  The subsidies provided to certain state-owned 
enterprises running at a loss by the central budget, as li sted in Annex 5B, were eliminated since 2001.   
 
Question 5 
 
 Could the PRC please indicate which are new programmes and which have been 
modified or eliminated, by comparing the progr ammes reported in the Protocol of Accession 
and those set out in the new and full notification?   
 
Reply
 
 
 On whether the policies and measures in the ne w and full notification are new, this can be 
easily identified because in the notification there is  an item named "Duration of the subsidy and/or 
any other time-limits attached to it".  Informa tion provided under this item explains whether the 
notified policies and measures are new or not.  For example, XXXII "Development funds for SME"is new.  It started in 2004 as indicated  in the item in the notification.   
 
Question 6 
  Could the PRC please explain how the subsidies in the new and full notification with no specified time period are to be eliminated?   
 Reply
 
 
 Where the duration of the policies and measures notified is from a particular year to "present", 
it means the legislation granting the benefits does not  specify the end date.  However, this does not 
mean that they do not have an end date.  For example, quite a number of preferential tax policies 
notified will be adjusted or eliminated with the furt her reform of the tax regime in China, including 
the implementation of the new Income Tax Law of the People's Republic of China for Enterprises on 
1 January 2008.   G/SCM/Q2/CHN/31 
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  Question 7 
  Could the PRC please explain how it ensured that all the subsidy programmes in effect were reported?  In particular, we would like to know whether there are any specific subsidy 
programmes in sectors of production such as textiles, footwear, toys, steel, chemicals and 
agriculture.  If so, could the PRC please list the subsidy programmes relating to the above-
mentioned production sectors?   
 
Reply
 
 
 As explained earlier, China believes that apar t from the fact that the notification China 
submitted in April 2006 did not include those from lo cal governments, the notification is complete 
based on the information gathered on subsidies mainta ined at the central government level.  If there 
are other policies and measures to be found in futu re which according to the SCM Agreement fall in 
the scope of subsidies to be notified, they will be incorporated in future notifications from China.  
Information collected for preparation of the first new and full subsidy notifi cation to WTO shows that 
there is no subsidy specific for the sectors of tex tiles, footwear, toys, steel or chemicals.  Those 
specific for the agriculture sector have been included in the notification.   
 
Question 8 
 
 Could the PRC please indicate whether the programmes in the new and full notification 
establish as a requirement for entitlement to benefits under the subsidy programmes that the 
subsidies be contingent on the use of domestic over imported products?  If so, could it explain 
the consistency of this requirement with the obligat ions laid down in Article 3.1(b) of the SCM 
Agreement? 
 
Reply  
  On whether some of the notified policies are consis tent with the obligation in Article 3.1(b) of 
the SCM Agreement, currently it is being dealt with in the dispute settlement procedures of the WTO.  
China has explained in various occasions the b ackground of the policies which several Members 
believe to be inconsistent with China's WTO obligat ions.  With further reform of the tax regime in 
China including the implementation on 1 January 2008 of the new Income Tax Law of the People's 
Republic of China for Enterprises, th ese policies will be adjusted.   
 
Question 9 
 
 Could the PRC please provide details of the specific criteria for selecting enterprises that receive benefits under the subsidy programmes listed in the new and full notification?  Could it also indicate the number of enterprises that benefited under these programmes in the period 2001-2004 and the sector(s) of production to which they belong?  
 Reply
 
  Criteria for enterprises to benefit from the notif ied policies and measures have been included 
in the notification.  Please refer to the notification fo r details.  On number of enterprises that benefited 
and the sector(s) to which they belong, China does not have st atistics in this regard.   
 
    
  G/SCM/Q2/CHN/31 
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  Question 10 
  Does the PRC have statistics or records of which enterprises and/or sectors of industry 
are the main users or beneficiaries of the s ubsidy programmes notified (especially those 
contingent upon export performance or on the use of domestic over imported products)?  If so, 
would it be possible to provide such statistics or records?    
Reply
 
 
 China does not have statistics in this regard, because as reflected in the notification, many 
policies and measures notified are not specific to any particular industry or sector.  They usually are 
generally applicable, for example to all foreign inve sted enterprises, regard less which industries or 
sectors they are in.    
Question 11 
 
 How does the PRC monitor the use made by  beneficiary enterprises of revenue not 
collected under the preferential tax treatment pr ogrammes?  What form does such monitoring 
take?  Are there mechanisms to measure the impa ct of the programmes in terms of production, 
exports, productivity, and so on?  If so, what do they consist of and how do they operate?  
Would it be possible to know their results?  If not, is any such mechanism in the process of 
being set up?  What would it consist of?  When could results be anticipated?    
Reply
 
 
 China does not yet have a system to evaluate th e implementation of preferential tax policies.  
However, in individual cases, few tax refund measures require that the use of the refunds be subject to 
supervision and verification by the offices of the Co mmissioners of the Ministry of Finance stationed 
in relevant Provinces.    
Question 12 
 
 Are the notified programmes cumulative?  In  other words, is an enterprise eligible 
under several of these programmes?  If so, how are the tax reductions or exemptions provided?   
 
Reply
 
 
 Preferential policies of different types of taxes could be cumulative.  However, for 
preferential policies for the same type of tax, they  are not likely to be cumulative.  This therefore 
should be analyzed against specific situations.    
Question 13 
 
 What are the criteria for considering an enterprise as being "export-oriented"?   
 
Reply
 
 
 Please refer to specific policies and measures in th e notification for what kind of enterprises 
the "export-oriented enterprises" refer to.  For exam ple, "export-oriented enterprises" in II refer to 
foreign invested enterprises whose output value of  all export products in any year amounts to 70 per 
cent or more of the output value of all the products of that year of the enterprise.   G/SCM/Q2/CHN/31 
Page 6  
 
  SPECIFIC PROGRAMMES
 
 Programme III
 
 
Question 14 
 
 The new and full notification states that "[ a]ny foreign-invested enterprises engaged in 
agriculture, forestry or animal husbandry …".     (a) Could the PRC please explain what a re the criteria for considering that an 
enterprise is engaged in agriculture, forestry or animal husbandry?  Can 
enterprises that predominantly use inputs be regarded as falling in this category?  Does it also include enterprises whose products are used in this type 
of activity? 
 Reply
 
  There are no criteria other than those provide d for in Article 73 of the Rules for the 
Implementation of the Income Tax Law of the People's Republic of China for Enterprises with 
Foreign Investment and Foreign Enterprises (1991).  The policy is implemented with reference to the 
general rule for classification of industries in statistics.   
 
Programme VI
 
 
Question 15 
 
 The new and full notification states that "[e]nterprises with foreign investment which 
are technology-intensive and knowledge-intensive and whose major products are enlisted in the 
"Catalogue of High and New Technology Products  of China" promulgated by MOST and the 
sales revenue of these products of that year a ccounts for over fifty per cent of the total annual 
sales revenue of the enterprise, may be imposed a reduced enterprises income tax rate of fifteen 
per cent".   
 
 (a) Could the PRC please indicate which hi gh and new technology products listed in 
the Catalogue are eligible under the programme?   
 
Reply  
 
 Ministry of Science and Technology, Ministry of Finance and State Administration of 
Taxation in September 2006 jointly issued a re vised 2006 Catalogue of Hi gh and New Technology 
Products of China, which replaced the previous Catalogue of High and Ne w Technology Products of 
China issued in 2000.  This 2006 Catalogue is the currently applicable one and is available at the 
website of the Ministry of Science and Technolog y http://ctpep.chinatorch.gov .cn/productmulu.asp.   
 
Programmes XXI, XXII and XXIV  
 
Question 16 
 
 According to the new and full notification, preferential policies are established in these 
programmes for welfare enterprises, low-profit en terprises and enterprises providing jobs for 
the unemployed, respectively.     (a) Could the PRC please indicate these programmes include enterprises engaged in 
export production?    G/SCM/Q2/CHN/31 
 Page 7 
 
 
  Reply  
 
 Enterprises that may benefit from the preferentia l tax policy for enterprises providing jobs for 
the unemployed are largely in the service sector of commerce and trade and basically do not cover enterprises engaged in export production.  The pref erential tax policy for low-profit enterprises cover 
enterprises in various sectors and therefore may in clude enterprises engaged in export production.  
The preferential tax policy for welfare enterprises co ver enterprises engaged in export production but 
there will be no VAT refund for export products of these enterprises.    
Programmes XXVI and XXVII
 
 
Question 17 
  According to the new and full notification, preferential policies are established in these 
programmes for the research and development of  enterprises (including foreign-invested 
enterprises).   
  (a) Could the PRC please indicate whet her these programmes include enterprises 
engaged in export production?   
 
Reply
 
 
 Preferential tax policies in XXVI and XXVII ar e for research and development activities of 
domestic and foreign-invested enterprises resp ectively, no matter whether these enterprises are 
engaged in export production or not.    
 
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