WORLD TRADE  
ORGANIZATION  G/MA/W/95 
9 October 2008 
 (08-4812) 
Committee on Market Access Original:   English 
  
 
CHINA'S TRANSITIONAL REVIEW MECHANISM  
 
Communication from the European Communities
 
  
 The following communication, dated 8 October 2008, is being circulated at the request of the 
Delegation of the European Communities.  
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 The EC is transmitting comments and questions in advance of the meeting of the Market 
Access Committee of 16 October 2008, in order for the Chinese authorities to reply to and complete 
any outstanding information.   Once the information to be provided by China in accordance with paragraph 8 and 
paragraph IV.3 (a) of Annex 1A of  its Protocol of accession has been received, the EC might come 
back with additional questions.  
1. Chinese exports restrictions  
1.1 The EC refers to its 2005 and 2007 co mmunications in which it had recalled China's 
commitments  
 
• to eliminate all taxes and charges applied to e xports unless specifically provided for in Annex 
6 of its accession Protocol, 
• to eliminate, upon accession, export restrictions unless they could be justified under WTO 
rules (§ 165 of the Working Party Report) and 
• to notify any possible export restrictions to the WTO. 
1.2 Justification requested on several occasions fo r the existing export restrictions and taxes by 
the EC since the TRM exercise of 2002 has not been provided by the Chinese authorities nor was it 
transmitted to the WTO.  1.3 The EC thus remains very concerned about and is not satisfied with the level of WTO 
compliance on a number of the export restrictions and taxes maintained by China.  China is therefore 
urged to comply with its accession related comm itments and to bring its export regime of raw 
materials into conformity with WTO rules.  
 G/MA/W/95 
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  1.4 The EC attaches particular importance to a nd refers to earlier bilateral exchanges on coke, 
rare earths, yellow phosphorus and n on-ferrous metals. It urges China: 
 
• to notify in line with Part I-Section 8 (b) of the Protocol of accession the quantities associated 
with the export restrictions imposed on the products listed in the Chinese document of 
17 October 2003 (and on any other product that  may not be included in this list) and  
• to transmit to the WTO the justification for theses export restrictions; or 
• When no such justification exists, correctly notify to the WTO when and how it intends to 
bring its export regime in line with WTO rules. 
1.5 The EC urges China to present a comprehensive table on the export taxes and VAT 
reimbursement schemes and other export restricti ons, in particular on non- ferrous metals and on 
chemical industry raw materials such as fluorsp ar and phosphorous. Attempts to obtain such 
information have met with failure and showed some deficiency to fulfil WTO transparency 
requirements.  1.6 As far as the introduction of new export rest rictions is concerned the EC urges China to 
comply with the obligation of consulting countries ha ving a substantial interest in trade of products 
concerned.   1.7 The EC is also concerned that a number of e xport restrictions maintained by China may affect 
the supply of raw hides and skins for European tanners.  
1.8 In this context, the EC would like to urge China: 
 
• to clarify and notify the products subject to export restrictions and taxes; 
• to transmit to the WTO the justification for theses export restrictions. 
1.9 EC urges China to ensure conformity with its Accession Protocol and in  particular article 11, 
according to which China shall eliminate all taxes an d charges applied to exports unless specifically 
provided for in Annex 6 of this Protocol or applie d in conformity with the provisions of Article VIII 
of the GATT 1994.   
2. China Compulsory Certification (CCC) Regulation  
2.1 The EC would also like stress to the Ch inese authorities its concern about the growing 
difficulties encountered by European exporters owi ng to the China Compulsory Certification (CCC) 
regulation. An increasing number of sectors are affected by provisions that appear to be trade restrictive, impose a heavy cost on importers and ar e not proportionate to the objectives stated by the 
Chinese legislation.  
 
2.2 The EC urges China to develop and implement a certification system in a way avoid 
unnecessary barriers to trade. 
 
2.3 In the ongoing review of the CCC implementation, the EC would be grateful if China could explain in detail:  
 
- Will China simplify requirements for low ri sk products, based on a effective market 
surveillance system? 
- How far will public availability of interpre tative notices and rulings issued by CNCA be 
ensured?  G/MA/W/95 
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  - How far will foreign certification bodies be a llowed to undertake certification, testing and 
inspection work under the CCC (going be yond the follow-up factory inspection)? 
- How far will the review allow for the recognition of the results of tests performed in Europe 
(when EU standards and testing requirements are identical or equivalent to the Chinese ones)? 
3. Automobiles 
3.1 The EC refers to its serious concerns re garding the New Automobile Policy (hereafter 
“NAP”) already voiced in last year’s transitional review, especially with a view to the wide scope of state intervention and the uncertainty about the implementing regulations that will supplement the 
new policy. Based on past experience on how the NAP  was developed, the EC wishes to stress the 
transparency obligations under WTO rules with rega rd to the outstanding implementation regulations 
of the NAP. Publishing drafts of these implementi ng regulations well in advance would allow other 
WTO Members to comment on them.  3.2 The EC would like to draw China’s sp ecial attention to the following issues: 
 
 
(i) Joint venture ownership limitation  
 The NAP imposes restrictions on foreign investor s, which have contributed substantially to 
the rapid development of China’s automotive sect or. Foreign joint venture partners are still 
not allowed majority ownership in automobile production. Moreover, participation of foreign 
joint venture partners in automobile manuf acturing projects is limited to two for the 
production of passenger cars and two for commer cial vehicles (“2+2”). Due to the global 
nature of the automotive industry and the bran d strategies of local companies locked in 
50/50% ventures with foreign vehicle makers su ch restrictions are counterproductive to the 
NAP’s objective of promoting international competitiveness. 
 
 In this context the EC urges China: 
  - to allow foreign majority investment and 
 - to eliminate the “2+2” regulation.  
 (ii) Type Approval/ Homologation Standards 
 Vehicles/components produced in China are type-approved according to the China 
Compulsory Certification (CCC) regulation. Since the CCC rules are not internationally recognized these vehicles are marketable on the domestic market only. Moreover, vehicles 
importers have to carry considerable – and so metimes prohibitive – costs as vehicles already 
type approved according to EU Directives that conform to the internationally recognized 
homologation standards of the 1958 UN/ECE Agreement have to be approved again 
according to the CCC rules. The CCC regulation thus effectively constitutes a non-tariff market access barrier. 
  Against this background the EC reco mmends China’s accession to the 1958 UN/ECE 
agreement as soon as possible.  
  Adhesion to the Agreement would allow China both to recognize and to deliver homologation 
results obtained in accordance with the testing methods it prescribes. That would facilitate the 
sales of China-made cars in othe r countries. In addition, China would be able to proactively 
participate in preparing internationally recogni zed homologation standards as they continue to 
evolve. G/MA/W/95 
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  (iii) The Automotive Industry Policy 
 The EC would be grateful if China could prov ide information on the latest development on 
the "Automotive Industry Development Policy", in particular as regards  (i)  any additional 
obligation imposed on EU manufacturers planning  to invest in China (e.g., obligations on 
local sourcing or local branding);  (ii) any additional limitation concerning the production of 
parts (e.g., joint venture ownership constraints) ;  (iii) any financial support granted to Chinese 
manufacturers in order to promote export of vehicles. 
 
4. Petrochemical, chemical, energy and environment sectors 
(i) JV ownership limitations and local content requirements 
 The Chinese Authorities maintain a foreign inv estment ceiling in some cases of a less than 
50% ownership position for the foreign partner th at impedes further growth and investments 
in those sectors. In addition, local content re quirements are in place for the construction of 
new plants. In this context the EC urges China to: 
 
 - allow foreign majority investment so as to encourage the continued and increased 
investment and technology transfer in the sector, and 
  - eliminate local content requirements wh ich would allow industry to catch up with 
international standards and competition.    
  (ii) Retail and wholesales fuels market opening 
There are many restrictions on foreign ente rprises that want to access China's growing 
wholesale/retail fuel sector and local enterpri ses benefit from unfair competitive advantages. 
The EC urges China to: 
 
 - Lift the majority ownership condition in the Wholesale Regulation, which sets up 
specific requirements prior to receiving access to the wholesale fuel market, as the latter cannot realistically   be met by foreign firms. 
  - Eliminate import quotas, as  these do not permit proper petrochemical economic 
activity, including by foreign companies functioning in China 
 
 - Modify the franchise and license requireme nts for allowing fuel dealership and which 
contain conditions that can only be met by PRC National Oil Companies. 
  - Change the Price Control Regulation for refined oil products which leads to 
disparities in pricing, negative margins and inability to secure reliable supply. 
  -  Repeal relevant provisions on retail distribution included in old legislation that 
discriminate foreign companies, and which should be treated by the new law. 
 
5. Pharmaceuticals 
5.1 Despite the EC repeated requests to addr ess the problems, this sector continues to be 
characterised by a variety of unnecessary, burdensome or costly registrations, licensing, certification and reimbursement procedures are creating trade barriers.   G/MA/W/95 
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  For example:   
 (a) Imported active pharmaceutical ingredients face stricter testing requirements compared to 
local manufactured products as for example the very extensive "Port Dr ug Inspection" as well 
as the case-by-case quality standard evaluation.  
(b) It typically takes 6 to 12 months to obtain clinical trial approval in China, while clinical trial 
approvals can usually be obtained within  3 months in other major markets. 
(c) The price of the originator medicine is tied to the cost-basis of its generic version plus a small 
premium. This approach is contrary to intern ational practices where the price of generics is 
linked to the originator medicine. 
(d) As regards to the National Reimbursement Drug List (NRDL) problems arise due to the fact 
that  the lists are not  annually updated and as a result the most innovative products are not 
included. 
(e) The approval and licensing procedures for the est ablishment of foreign invested commercial 
enterprises are unclear.  
5.2 On all these issues the EC reiterates its serious  concerns as some of these measures appear to 
run counter to  China’s WTO commitments, in particular national treatment.  5.3 In this regard, the EC would be grateful if China could:  
-  Ensure imported and locally manufac tured products are treated equally. 
-  Shorten clinical trial appli cation approval time to 3 months.  
-  De-link the pricing of innovative drugs (of the originator) from generics.  
-  Update reimbursement lists on an annual basis with newly registered drugs. -  Provide written and clear guidance to assist local authorities, namely drug regulatory and 
commercial bureaus, in amending business licenses for pharmaceutical companies and  
- set up a uniform system of approval of the establishment of Foreign Invested Commercial 
Enterprises in all locations throughout China.  
6. Cosmetics 
6.1 Despite the many requests by the EC, the approval procedures for imported non-special use 
cosmetics still differ from that of domestic non- special use cosmetics. For imported products, a 
multiple approval procedure is still compulsory, l eading to extensive workload, misallocation of 
personnel and financial resources and delays  in product introduction to the market. 
 6.2 This  measure is likely to invalidate some of China’s WTO commitments (national treatment 
obligation). 
 
6.3 In this regard, the EC requests that China u nifies the notification system currently in force for 
imported non-special use and domestic non-special use cosmetics. 
 
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