RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/291 
6 November 2008 
 
 (08-5386) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM JAPAN  
 
Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on 
 
the Accession of the People’s Republic of China ("China")   
 
 
 The following communication, dated 4 November 2008, from the delegation of Japan, is being circulated to the Members of the Council for Trade in Services.    
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Questions and Comments of Japan on the Implementation by China
 
of its Commitments on Trade in Services  
  
1. Japan appreciates China’s commitment to improve continuously the level of liberalization in 
accordance with the services schedule made at the time of accession.  Japan believes that 
liberalization in the services sector will not only e nhance the efficiency of the sector, but also 
contribute to China’s overall economic growth.  While the regulatory framework has been accordingly upgraded, it seems that implementation do es not keep pace with the upgraded regulations.  
In this regard, Japan would like to reiterate that the implementation of China’s commitment needs to 
be secured.  Japan also continues to encourage China to make furt her efforts to enhance regulatory 
transparency, thus maximizing the benefits of liberali zation.  Japan is of the view that there is still 
room for further improvements in this area, in view of China’s commitment to transparency as 
described in the Report of the Working Party on the Accession of China.   
2. In accordance with paragraph 18 of the Protoc ol on the Accession of the People’s Republic of 
China, which states that “China shall provide releva nt information to each subsidiary body in advance 
of the Review” and in the spirit of cooperation to render the TRM process most efficient and 
effective, Japan requests China to  provide, in advance of the Regular Meeting of the Council for 
Trade in Services, responses and relevant inform ation to the following questions and comments.   
I. OTHER BUSINESS SERVICES  (ADVERTISING SERVICES) 
3. According to the China’s servi ces schedule, China has undertak en commitments to establish 
wholly foreign-owned subsidiaries in Mode 3 un der the GATS Article XVI on Advertising Services 
within four years after accession.  In addition, Ch ina has committed to the National Treatment without 
any limitations in Mode 3 based on Article XVII.  It is permitted for the foreign advertising service 
suppliers to establish wholly foreign-owned comp anies.  On the other hand, however, those 
companies are required to fulfill certain conditions such as:  i) mainly operating the advertising 
services, ii) having three years experience after establishment under the Regulations on Foreign 
Investment in Advertising Firms  entered into force on 1 October.  In this regard, Japan would like to 
ask China to explain the consistency of these measu res with the China’s commitments in Advertising 
Services.   S/C/W/291 
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  II. TELECOMMUNICATION SERVICES 
4. In the GATS Schedule accompanying its Protocol  of Accession, China made commitments to 
a substantial number of subsectors in telecomm unication services including voice telephone services 
in basic telecommunications and did not prohibit the resale of those service areas.  On the other hand, however, in reality, foreign operators have diffi culties entering the Chin ese telecommunications 
market mainly due to uncertainty of concre te conditions on foreign operators’ providing 
telecommunication services including resale services.  It is essential to ensure transparency regarding 
conditions that foreign suppliers are required to fu lfill for entry into the telecommunications market 
including resale services when they initially ch allenge overseas telecommunications markets.  
Therefore, we would like China to improve the ma rket environment for prom oting foreign operators’ 
entry into the subsectors on which China made  a commitment in WTO, by fully excluding 
discretionary administration procedures such as requi ring additional conditions orally and explicitly 
notifying foreign operators of all the requirements for market entry.   
5. When foreign suppliers enter the Chinese te lecommunication market, a certain amount of 
registered capital is required according to Article 5 of the Regulation on the Administration of Foreign 
Invested Telecommunications Enterprises .  Concerning this minimum capital requirement, Japan 
welcomes China’s lowering of the required amount  in September 2008.  However, it is still 
recognized as excessively high, especially for basi c telecommunication (RMB 1 billion).  In last 
year’s Review, China stated that:  “minimum cap ital requirements applied e qually to domestic and 
foreign telecommunications enterprises and thus co mplied with the national treatment obligation; the 
telecommunications sector was capital-intensive and each WTO Member had its own minimum 
capital requirements in line with its actual situati on; and there was no unified requirement in this 
regard.”  Contrary to these statements, however, the minimum capital requirement in other Members 
is not as high as China’s.  Furthermore, other Memb ers allow foreign telecommunications operators to 
enter markets such as resale with relatively small cap ital outlay.  Therefore, the reasons explained by 
China are not always supportable.  Therefore, we would like to ask China to further lower currently 
required minimum capital amounts so that the liberaliza tion of the market would be further promoted.   
6. China has committed to the Reference Paper, and provision 2.4 of the Reference Paper 
stipulates that “a major supplier will make publicly av ailable either its interconnection agreements or 
a reference interconnection offer.”  For the implem entation of this commitment, it is required to 
guarantee public availability of rules for interconnec tion by disclosing them.  In this regard, Japan 
would like to ask the following two questions: 
(a) According to article 18 of the “Regulati on on Telecommunications” and article 7 in 
“Regulation on the Interconnections betw een Public Telecommunication Networks 
(Decree 9 of the Ministry of Information Industry)”, dominant telecommunications business operators are required to establish rules for interconnection and implement 
these rules after receiving permission.  C ould China explain whether these rules for 
interconnection are disclosed to the public consistently with the Reference Paper to 
which China has committed?  If this is the case, Japan would request information on 
places where appropriate documents on these rules are available as well as the name of the law and the article number that ob lige operators to disclose such rules for 
interconnection.   
(b) If these rules for interconnection are not discl osed to the public, does China have the 
intention to establish a law that obliges operators to disclose these rules for 
interconnection? 
7. Could China provide details on the present situa tion, future procedures, and schedule for the 
establishment of the Telecommunication Law?  S/C/W/291 
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  8. China has made certain reservations on the right to place restrictions on foreign capital 
participation in the telecommunications business in the Chinese schedule, such as, e.g. “…. Foreign 
investment in joint ventures shall be no more than  (30/49/50) per cent…..”  China also uses a similar 
description in the present offer.  Since Japan cannot find the restrictions on indirect shareholding in 
these reservations, Japan understands that these reserv ations do not include indirect shareholding.  
China’s confirmation would be appreciated in this re gard.  In addition, Japan would like to ask China 
to provide an update on the number and foreign aff iliation of basic and value-added service suppliers 
operating in the Chinese telecommunications market.   
III. CONSTRUCTION AND RELATED ENGINEERING SERVICES 
9. Upon China’s WTO accession in 2001, China committed to permit the establishment of 
wholly foreign-owned enterprises, instead of the fo rmer system to issue construction permission of 
direct contract on a project-by-project basis.  We understand that this measure took effect in 2002.  
However, additional conditions for employment a nd minimum capital were imposed for establishment 
of foreign enterprises.  In addition to such require ments, construction works that can be undertaken by 
foreign enterprises are limited to four sections of work s, and the ceiling of contract value is restricted 
to 5 times the capital of the enterprise.   
10. Elimination of the foreign capital limitation can  be evaluated for promoting free trade.  
However, we have to point out that the above me ntioned requirements become obstacles to market 
access regardless of their apparent intention to create open market.  Under such circumstances, 
foreign construction enterprises are not able to acqui re the construction permission, even though they 
are fully capable of obtaining them, and are not able to demonstrate their expertise in the construction 
site.   
11. We would like to raise the matter of "constructor ( jian zao shi)".  In order to foster a healthy 
market and ensure quality of construction works, Ch ina introduced “constructor (jian zao shi)” to be 
assigned to every project site.  As a transitional me asure for its introduction, China issues “provisional 
constructor (jian zao shi)” licenses for those who have  “project manager (xiang mu jing li)” licenses.  
In order to issue a “provisional constructor ( jian zao shi)” license, it is required to submit a 
“Certificate for project manager qualification”.   
12. However, it is noted that this certificate will not be issued to foreigners.  As a result, foreign 
service suppliers are not be able to obtain a certificate for “provisional constructor (jian zao shi)” for “project manager (xiang mu jing li)”, thus, crea ting a barrier for entry into the market.   
13. Furthermore, in registering a company, so me local governments imposed requirements of 
minimum floor area of an office.  We believe that  such requirements have no relevance to business 
operating competence of the company.   
14. Apparently, China provides the same market  condition for both foreign and domestic 
construction companies, but, in the actual market, foreign enterprises are treated unfairly and suffer 
from discriminatory policies.   
15. We request China to provide a reasonable explan ation for the rationale of those measures and 
their consistencies with China’s commitments.  We also request China to eliminate or relax the 
restrictive regulation on awarding construction works, or to undo the abolishment of direct contract.   S/C/W/291 
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  IV. DISTRIBUTION SERVICES 
16. Japan appreciates China’s deregulation of the dist ribution market after accession to the WTO.  
On the other hand, there are still some restrictions on China’s distribution market.  Japan would like to 
confirm how China does implement China’s Distribution Services commitments.   
17. The following two items are permitted to distri bute by foreign service suppliers under China’s 
commitments.  However, the service of supply is prohibited.   
(a) Foreign service suppliers are prohibited from distributing and importing household 
use game machine and software based on  “Circular on Special Administration 
Proposal for Video Games Operational Places”  (Promulgated by Decree No.  44 of 
the State Council of the People's Republic of China in 2000) ,,  
(b) Foreign service suppliers are prohibited fro m distributing commercial secret code 
products without an authorization of the National Commission on Encryption Code 
Regulations (NCECR) under the Article VI of “Regulation Of Commercial 
Encryption Codes (China State Council Directive No. 273)”.   
18. In this regard, Japan would like to ask Chin a to explain the consistency of these measures 
with China’s commitments in the Distri bution Services sector under the GATS.   
19. Regarding the retailing services through internet in China, an ICP licen se authorized by the 
Ministry of Information Industry is required.  Acco rding to China’s statement in the last Review, the 
retailing without fixed outlets on distribution ser vices is “different from the value-added 
telecommunication services, which required an ICP license.” (S/C/M/90).   
20. In addition, China also pointed out that the de finition of the retailing without fixed outlets on 
distribution services is stipulated in Annex 2 of Ch ina’s Accession Protocol in the Service Schedule as 
below; 
Retailing services consist of the sale of good/merchandise for personal or household 
consumption either from a fixed location (e.g. sto re, kiosk, etc) or away from fixed location 
and related subordinated services.   
21. In the light of China’s commitments for retaili ng services, Japan would like to ask China to 
explain the consistency of this ICP license requireme nt for the retailing services through internet that 
consists of the sale of good/merchandise for pers onal or household consumpt ion away from fixed 
location with the China’s commitments in the Distribution Services under the GATS.   
 
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