. /.  WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/15 
13 October 2005 
 (05-4674) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO 
SECTION 18 OF THE PROTOCOL ON THE ACCESSION 
OF THE PEOPLE'S REPUBLIC OF CHINA 
 
Questions from CANADA, MEXICO and the UNITED STATES  
to CHINA Concerning Subsidies  
 
 
 The following communication, dated 13 October 2005, is being circulated at the request of 
the Delegations of Canada, Mexico and the United States.  
_______________ 
 
Steel Policy  
 
1. The China Iron and Steel Industry Development Policy (Steel Policy), drafted by the National Development and Reform Commission and released at the 20 July 2005 executive meeting of the State Council, outlines China’s comprehensive policy for rationalization of its steel industry.  In 
particular, the Steel Policy presents a series of  objectives and policy initiatives for managing the 
development of China’s state-owned steel enterp rises, including a broad range of adjustments for 
resource and equipment utilization, regional con centration and layout, improvements in quality, 
technological innovation, investment management, and consolidation.  For example, Article 20 of the 
Steel Policy calls for the strategic reorganization of  China’s largest steel producers in a manner that 
creates an industrial structure with two 30 million- ton and several 10 million-ton level “internationally 
competitive” business groups by 2010.   
 
2. While the North American governments agree with  the goal of an efficient, rationalized steel 
industry envisioned by China’s new Steel Policy, we  have concerns regardi ng the implementation of 
this initiative to the extent that it dictates industry outcomes and involves the government making decisions that should be made by the marketplace.   For example, the Steel Policy prescribes the 
number and size of steel producers in China, where th ey will be located, the types of products that 
will and will not be produced, and the technology that will be used.  We are also concerned about the 
degree of government direction and decision-making regarding the allocation of resources into and 
out of China’s steel industry in light of  paragraphs 46 and 172 of  the Working Party Report 
accompanying China’s Protocol of Accession (WT/ ACC/CHN/49), where China agreed that the 
government would not influence, directly or indirectly, commercial decisions on the part of state-
owned or state-invested enterprises, and acknowle dged that state-owned enterprises, including banks, 
should be run on a commercial basis.    
(a) Please explain how the directives outlined in  China’s Steel Policy are consistent with 
paragraphs 46 and 172 of the Working Party Report.     
 G/SCM/Q2/CHN/15 
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(b) Please explain the role of  China’s state- owned banks in the restructuring of China’s 
steel industry.  What steps has China taken in the past and is it currently taking to ensure that the state-owned banks which lend to state-owned steel enterprises in China are operating in a manner consistent with Ch ina’s WTO obligations?              
 
(c) Which central, provincial, and local agen cies will be responsible for implementation 
of the Steel Policy?  How will conflicts between central, provincial, and/or local governments under the Steel Policy be resolved?  
 
(d) Please describe the administrative measures that will be used to implement the Steel 
Policy. 
 
(e) Has China issued any directives or establis hed any plans for the privatization of its 
state-owned steel enterprises.  If so, please describe them.   
 
(f) Does China foresee limits on the financial support that it will provide to steel 
enterprises under the Steel Policy?  If so, please describe them. 
 2. Article 16 of China’s Steel Policy specifically provides for state support in the form of “tax 
refunds, discounted interest rates, funds for resear ch and other policy support for major iron and steel 
projects utilizing newly developed dom estic equipment.”   Meanwhile, Article 18 of the Steel Policy 
states in part: “Policy on Import of Technology and Equipment:  Encourage industry to use domestic 
equipment and technology; reduce imports.  For equipm ent and technology that must be imported due 
to the lack of domestic ability to produce such or due to insufficient domestic supply, such equipment 
and technology must be modern and practical.  For current and future large scale equipment, 
localization of production must be organized.”   
 
(a) Please describe all government support provi ded to implement Article 16 of the Steel 
Policy. 
 
(b) Please describe all government  support provided to encourage China’s steel industry 
to use domestic equipment and technology in furtherance of Article 18. 
 
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