RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/259 
2 August 2005 
 (05-3471) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
China’s Transitional Review Mechanism 2005
 
 
 
 The following communication, dated 27 July 2005, from the delegation of the European 
Communities is being circulated to the me mbers of the Council for Trade in Services 
 
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1. The EC is transmitting comments and questions in  advance of the meeting of the Council for 
Trade in Services of September, in order for the Ch inese authorities to have sufficient time to provide 
complete replies. 
2. Once the information to be provided by Ch ina in accordance with paragraph 8 and 
paragraph IV.3 (a) of Annex 1A of  its accession protocol has been received, the EC might come back 
with additional questions. 
3. The EC’s comments and questions relate to the following items: legal services; express 
delivery services; telecommunications; construction, architectural and engineering services; financial 
services; tourism; distribution services; air transport services. 
I. LEGAL SERVICES 
4. The EC recognises the ongoing efforts of China in implementing its WTO commitments in 
the area of the legal services.  However, two ma in issues still need to be addressed by Chinese 
authorities. 
(a) Severe and burdensome conditions are imposed  on foreign firms, such as the need to 
start legal services operation, a feasibilit y study, a 9 month examination approval 
period, 3 years of consecutive practice be fore establishing an additional office, 1 
partner per office.  These requirements constitute a de facto ENT.  Could China 
please indicate when it intends to remove th ese requirements, in accordance with its 
WTO commitments? 
(b) The very broad definition of “Chinese lega l affairs”, on which foreign law firms are 
not allowed to provide opinions, contrasts w ith the restrictive scope of “information 
on the impact of the Chinese legal environmen t”, the area of interest for the European 
law firms.  Could China please delimit the precise ambit of “Chinese legal affairs”, 
and provide a definition and content of “i nformation on the impact of the Chinese 
legal environment”? 
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 II. EXPRESS DELIVERY SERVICES 
5. The draft Chinese postal law dated July 19, 2004, raised a number of questions in regard to 
China’s WTO commitments, both specifically in the courier sector, and horizontally.  In the absence 
of any new draft law submitted by China since then , the EC would like to reiterate its comments about 
the revision of the postal law, on which it woul d be grateful to receive detailed replies: 
(a) The draft law seems to include express delivery of addressed letters weighting less 
than 350 gr. in the reserved area.  Ch ina’s current commitments under courier 
services, which cover express delivery, do not mention a threshold and express delivery operators have, until now, been able  to handle letters.  The EC would be 
grateful if China could please confirm that express delivery of letters weighting less 
than 350 gr. will not be included in the scope of the monopoly, and that the new 
postal law will provide a suitable defin ition of express delivery in line with 
international practice, for instance by adding a reasonable price criterion to the weight criterion used to define the monopoly.    
(b) A new provision (article 94 paragraph 2), w ould forbid the operation of delivering 
letters, printed matters and parcels except in the form of express delivery service.  
China’s WTO commitments cover all cour ier services listed under CPC 75121, which 
includes inter alia the handling of parcels and newspapers, periodicals and magazines.  
Furthermore, these commitments do not mention national treatment limitations other than foreign-equity caps.  Could China pl ease confirm that article 94 paragraph 2 will 
be removed in the final draft law?   
(c) The proposed provisions on licensing procedure for express delivery operators have 
also been modified.  Whether the procedure will be centralised or decentralised is not 
clear from the text.  The impartiality of the regulator and its independence from China Post do not appear to be clarified.  C ould China please confirm that it will ensure 
(i) that existing licences will be grandfathere d? (ii) that the licensing procedure will 
be managed at central level for foreign or  foreign-owned operators? (iii) that the 
impartiality of the licensing procedure will be guaranteed, for instance by ensuring the independence of the regulator from all operators, including China Post and its subsidiaries? 
(d) Several proposed provisions granting China Post and its subsidiaries a preferential 
treatment have been maintained or intr oduced, even for activities which could be 
understood as being outside the scope of  the universal service and opened to 
competition.  They include exemption of business tax, State compensation of losses, 
specific liability regime and exemption from licensing for express delivery of addressed letters.  China’s current commi tments in courier services do not mention 
national treatment limitations other than foreign-equity caps.  Could China please 
confirm that it will ensure, in the final dr aft law, that foreign and foreign-owned 
operators shall have no less favourable treatment than Chin a Post and its subsidiaries 
for their activities  
6. When would China submit a new draft postal la w that takes account of the above-mentioned 
comments?  
III. TELECOMMUNICATIONS 
7. The EC thanks China for its expl anations on interconnections.    S/C/W/259 
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 8. The EC however still notes that, for the establishmen t by foreign investors of joint-ventures in 
the so-called “basic” telecom sector, there is a require ment to venture with a main Chinese partner in 
the telecom sector.  This requirement appears to be in contravention with  China’s commitments set 
forth under the Working Party report.  How and when would China bring its regulation in line with its 
WTO commitments, as well as with the current practi ce in many countries where new entrants come 
from other sectors of the economy?  
9. Isn’t China de facto limiting the number of ope rators to those alread y on the “basic” market 
by restricting the choice for JV partners to those operators? 
10. So long as the joint-venture itself has experi enced personnel (who can be local experienced 
personnel hired by the joint venture), it will be able  to carry out its missions and serve adequately the 
consumer.  Why should the Chinese partner have personnel experienced in the telecom sector, as per 
article 8 of the regulation on foreign-invested enterprises?  
11. In the area of “value-added” telecom services, could China please confirm that foreign service 
suppliers can provide the same value-added servi ces as domestic operators  on a national treatment 
basis?  
12. China explained in its answers to the 2004 TRM th at one of the objectives of its regulation is 
“to ensure the healthy development of the teleco m industry”.  Could China please explain what does 
“the healthy development of the telecom industry” mean? 
13. Finally on the issue of joint-ventures, wh at is the rationale for the minimum capital 
requirements? How have they been computed? Are domestic operators submitted to the same capital 
requirements? 
14. Separately, the EC would still like to know what  are the functions of local regulatory bodies 
apart from licensing functions? 
IV. CONSTRUCTION, ARCHITECTURAL AND ENGINEERING SERVICES 
15. The EC continues to be concerned by the l ack of openness of China's construction and 
construction design markets.  Last year, the EC ha d expressed appreciation for China's first efforts to 
take into consideration its deep concerns as rega rds regulations in these sectors.  The EC had in 
particular taken note of the changes to Decree 113,  regulating the establishment in China of foreign 
invested construction companies, through the publication in September by the Ministry of Construction of a circular (Jian-Shi 2004-159). 
 Since then however, the situation applying to  foreign construction and construction design 
companies has not improved.    
16. First, the EC would like to know when Decree 114, which regulates the field of foreign 
invested construction and engineering design enterp rises, shall be revised (see notably comment on 
residency requirements below).  The EC would also  appreciate to be informed about the planned 
timetable for the issuance of draft implementing rules for Decree 114, which, despite having been 
announced since years, have yet to be issued for c onsultation.  Finally, the EC would appreciate the 
prompt review of constraints on foreign architects and engineers, as has been done in the construction 
sector through Circular 159. 
17. Second, the EC would like to be informed on th e dates of publication and entry into force of 
Circular 200 on project management in the constr uction sector, and of the conditions applying to 
cross-border supply of integrated engineering ser vices, including construction project management. S/C/W/259 
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 18. Third, excessive capital requirements, which represent a significant barrier for foreign 
construction companies, have not been lowered.   When please does China intend to solve this 
particular issue? 
19. Fourth, questions left unanswere d by Circular 159, notably as re gards residency requirements, 
have not yet been addressed.  Could China please conf irm when it intends to bring its regulations in 
full conformity with its GATS commitments? In particular, when will China abolish the minimum 
residency requirement for foreign personnel of 3 m onths a year, which is imposed in point IV.5 of 
Notice No. 73 for construction enterprises, and of 6 months a year for construction and engineering 
design enterprises, which is imposed under Article 16 of Decree No. 114? 
V. FINANCIAL SERVICES 
20. Please refer to the comments and questions sen t on banking and securities services to the 
Committee on Trade in Financial Services.  
VI. TOURISM 
21. The EC understanding is that the Regulations on Administration of Travel Agencies dated 
11 December 2001 establish, in article 11, an economi cs needs test (ENT) for the authorisation of new 
travel agencies.  This market access limitati on is not reflected in China’s GATS schedule of 
commitments.  This has been raised to the atte ntion of the Chinese authorities in several occasions, 
including the 2003 and 2004 TRM processes. 
22. Would China please provide Members with info rmation about its plans for aligning the 
regulation of travel agencies with China’s GATS commitments in the sector? 
VII. DISTRIBUTION 
23. The Chinese authorities produced in 2004 legislatio n affecting the distribution sector in order 
to implement the corresponding phase of market  liberalisation in lin e with China’s GATS 
commitments.  In particular, a text of “Measures for the Administration of Foreign Investment in the commercial sector” was approved in April 2004, being e ffective as of June.  Several questions remain 
about this legislation and how the adjustment to subsequent phases of trade liberalisation will be done. 
24. This law affects, among others, retail distri bution services of several products for service 
suppliers with more than 30 stores.  The law indicates 49% foreign ownership until December 2006 
for distribution of books, pharmaceutical, and other pr oducts.  Although this is currently in line with 
China’s GATS commitments, the situation will ch ange as of January 2007, when China’s WTO 
commitments to allow full foreign control will appl y.  Would China please explain how it is planning 
to manage this transition? 
25. Authorisations of 100% foreign-owned distribution companies are subject to specific 
administrative procedures and requirements.  Would China please confirm that national service 
suppliers are subject to the same administrative pr ocedures, i.e., that this measure be applied on a 
national treatment basis? 
26. The law establishes that the business term of fo reign-owned companies should not be longer 
than 30 years (40 years in Central/Western China).  Would China please confirm that national service suppliers are subject to the same limitations, i.e., th at this measure be applied on a national treatment 
basis? (Note that this question does not pert ain to land use, but to the possible legal 
existence/continuity of companies for a concrete pe riod beyond 30/40 years, or an indefinite period).  S/C/W/259 
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VIII.  AIR TRANSPORT 
27. In relation to China’s commitments under the GATS for the provision of Computer 
Reservations Services (CRS), the EC notes that a regul ation is under preparation to cover this area.  
CRS providers need certainty about the legal e nvironment under which they are operating, and a 
guarantee on their scope of business and on non-discrimin atory principles to be applied.  Could China 
please update Members on the progress of legislation th at will create a legal framework for the sector? 
 
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