WORLD TRADE  
ORGANIZATION  G/TRIMS/W/42 
14 September 2005 
 
 (05-4016) 
Committee on Trade-Related Investment Measures 
 Original:   English 
 
 
COMMUNICATION FROM THE UNITED STATES 
 
 The following communication, dated 12 September 2005, is being circulated at the request of 
the Delegation of the United States. 
_______________ 
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18  
OF THE PROTOCOL ON THE ACCESSION OF THE PEOPLE'S  
REPUBLIC OF CHINA ("CHINA") 
 
Questions From the United States to China   
Concerning Trade-Related Investment Measures  
 
 I. FOREIGN INVESTMENT CATALOGUE 
1. In November 2004, the National Developmen t and Reform Commission (NDRC) and the 
Ministry of Commerce issued a revised Catalogue for the Guidance of Foreign Investment Industries .  
This catalogue became effective in January 2005.   The new catalogue places the "importing of books, 
newspapers and periodicals" under the category of "prohibited" foreign investment, even though 
China committed in its Protocol of Accession (at para graph 5) to make full trading rights, i.e., the 
right to import and the right to export, automatica lly available for all Chinese-foreign joint ventures, 
wholly foreign-owned enterprises and foreign individu als, including sole proprietorships, within three 
years of its accession, or by 11 December 2004, subj ect only to exceptions appl ied to products listed 
in Annexes 2A and 2B (primarily grains, cotton a nd tobacco), for which China reserved the right to 
engage in state trading.  Please explain how this  provision of the new catalogue is consistent with 
China's trading rights commitments. 
2. China committed in the Services Schedule accompanying its Protocol of Accession that, 
within three years after accession (or by 11 Dece mber 2004), it would permit foreign service suppliers 
to supply wholesaling services, commission agents' services and retail services through wholly foreign-owned enterprises without any market a ccess or national treatment  limitations, with only 
exceptions for certain products (chemical fertilizers, processed oil and crude oil, salt and tobacco) and 
certain chain stores.  Meanwhile, the new Catalogue for the Guidance of Foreign Investment 
Industries  places the "wholesale or retail business of  books, newspapers and periodicals" in the 
"restricted" investment category. 
 (a) Please describe the restrictions that apply. 
 
(b) Please explain how these restrictions are consistent with China's services 
commitments.  
 
(c) Do any restrictions apply to subordinate services such as sales promotion, advertising 
with regard to the wholesale or resale of books, newspapers and periodicals? 
 G/TRIMS/W/42 
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 3. The new Catalogue for the Guidance of Foreign Investment Industries  places the "printing of 
publications" in the "restricted" investment category. 
(a) Please describe the restrictions that apply. 
 
(b) In this context, does "printing" include "binding", or is the "binding of publications" 
not part of any "restricted" investment category? 
 
4. The new Catalogue for the Guidance of Foreign Investment Industries  places the "publishing, 
producing [and] master issuing of books, newspapers  and periodicals" in the "prohibited" investment 
category. 
(a) Please explain what "publishing" means in this context. 
 
(b) Please explain what "producing" means in this context. 
 
(c) Please explain what "master issuing" means in this context. 
 
5. The new Catalogue for the Guidance of Foreign Investment Industries  continues to reflect 
China's decision to adhere to most of its commitme nt to open up certain sectors to foreign investment, 
including travel agencies, human resources compan ies, cinemas, railway cargo and publications 
distribution, while it also signalled the opening- up of a number of other sectors not covered by 
China's accession agreement.  As in the case of th e previous version of this catalogue, however, one 
notable exception to this progress is the area of "pro duction and development of genetically modified 
plants seeds", which China places in the "prohibited" category.  Does China have any plans to remove 
this area from the "prohibited" category? 
II. AUTOMOBILE INDUSTRIAL POLICY 
6. In Article 47 of its automobile industrial policy, published on 1 June 2004, and entitled 
"Development Policy of the Automobile Industry", China states that a new automobile production 
plant requires a minimum investment of RMB 2 b illion, of which owned cap ital should not be less 
than RMB 800 million.  According to this article, the new plant should also include an R&D facility, 
investment in which should not be less than RM B 500 million.  Article 47 additionally requires the 
establishment of an R&D facility in connection with new automobile engine manufacturing. 
7. In its WTO accession agreement, however, China committed not to condition the right of 
investment on the conduct of research and development.   Specifically, in paragraph 7.3 of its Protocol 
of Accession, China committed:  "China shall, u pon accession, comply with the TRIMs Agreement, 
without recourse to the provisions of Article 5 of the TRIMs Agreement.  Without prejudice to the relevant provisions of this Prot ocol, China shall ensure that the distribution of import licences, quotas, 
tariff-rate quotas, or any other means of approval for importation, the right of importation or 
investment by national and sub-national authoriti es, is not conditioned on:  whether competing 
domestic suppliers of such products exist; or perfo rmance requirements of any kind, such as local 
content, offsets, the transfer of technology, export performance or the conduct of research and 
development in China ".  (Emphasis added).  Similarly, in pa ragraph 203 of its Working Party Report, 
China committed:  "The allocation, permission or  rights for investment will not be conditional upon 
performance requirements set by national or s ub-national authorities or subject to secondary 
conditions covering, for example, the conduct of research , the provision of offsets or other forms of 
industrial compensation including specified types or volumes of business opportunities, the use of local inputs or the transfer of technology".  (Emphasis added).  G/TRIMS/W/42 
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 8. Previously before this Committee (see G/L/708 and G/TRIMS/M/19), China stated that while 
Article 47 of the automobile industrial policy "did not stipulate specific and mandatory requirements 
on product R&D performance", it did "require[ ] the newly-established enterprises to set up their own Research and Development institutions" in order to  "equip the enterprises with basic technical ability 
in order to ensure that the newly-established ente rprises be able to conduct technical reconstruction 
and research and development on their own products, and that they could meet the increasing 
technical and legal requirements on safety, envir onmental protection and energy saving, as well as 
customer demand in China". 
9. Given that Article 47 of the automobile industrial policy appears to condition the right of 
investment by mandating the conduct of research an d development in China, please explain how this 
provision complies with China's commitments in pa ragraph 7.3 of China's Protocol of Accession and 
paragraph 203 of China's Working Party Report. 
III. STEEL POLICY 
10. Articles 16 and 18 of the steel industrial policy,  released by the NDRC on 8 July 2005, appear 
to discriminate against foreign equipment and tec hnology imports by encouraging the use of domestic 
products when competing domestic s uppliers exist.  Specifically, Article 16 provides for state support 
in the form of "tax refunds, discounted interest rates, funds for research and other policy support for 
major iron and steel projects utilizing newly develo ped domestic equipment", while the first part of 
Article 18 reads:  "Policy on Import of Technol ogy and Equipment:  Encourage industry to use 
domestic equipment and technology; reduce imports.  For equipment and technology that must be 
imported due to the lack of domestic ability to prod uce such or due to insufficient domestic supply, 
such equipment and technology must be modern a nd practical.  For current and future large scale 
equipment, localization of production must be orga nized".  Please explain how Articles 16 and 18 are 
consistent with the commitments made by China in paragraph 7.3 of its  Protocol of Accession; 
paragraphs 22 and 203 of its Work ing Party Report; Article 2 of the Agreement on Trade-Related 
Investment Measures;  and Article III of th e General Agreement on Tariffs and Trade 1994. 
11. Article 23 of the steel industrial policy ma ndates certain requireme nts as conditions for 
investments.  These include requi rements for certain production levels in the previous year, self-
financing of 40 per cent or above, modern technology and management, strong supply and 
distribution networks, transportation, and water, mi neral and power resources.  Furthermore, these 
requirements appear to apply only to domestic enterprises seeking to operate in cross-regional 
domestic steel operations, while foreign enterprises must meet these requirements for any investment 
in China.  In addition, domestic enterprises only n eed to meet a 5 million ton previous year quantity 
threshold for investments in common steel and a 0.5 million ton previous year quantity threshold for investments in special high-allow steel.  The corresponding thresholds  for foreign enterprises are 10 
million tons and 1 million tons.  Article 23 also doe s not allow foreign enterprises to invest in new 
business sites, but limits participation to reform  or relocation of existing enterprises and to non-
controlling stakes.  Please explain why there is a need for such discrepanci es in the treatment of 
foreign enterprises and domestic enterprises. 
12. The steel industrial policy places other restrictions on foreign investment, such as by 
requiring that foreign investors possess proprietary technology/intellectual property in the processing 
of steel.  Given that foreign investors are not allo wed to have a controlling share in steel and iron 
enterprises, this requirement would seem to constitute a de facto technology transfer requirement.  
Please explain how these restrictions are consiste nt with the commitments made by China in 
paragraph 7.3 of its Protocol of Accession and paragraph 203 of its Working Party Report. 
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