WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/40 
22 October 2008 
 (08-5131) 
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 the EUROPEAN COMMUNITIES to CHINA  
   The following communication, dated 21 October 2008, is being circulated at the request of the Delegation of the European Communities.   
 
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Notification requirements 
 
 Article 25 of the Agreement on Subsidies and Countervailing Measures ("SCM-Agreement") 
sets out the requirements for subsidy notifications ac cording to which Members agreed that subsidies 
shall be notified not later than 30 June of ev ery second year.  This area of requirement was 
specifically addressed in the Protocol of Accession of the People's Republic of China under paragraph 
"10 subsidies" in which China committed to notif y the WTO of any subsidy within the meaning of 
Article 1 of the SCM-Agreement and to eliminate all subsidy programmes falling within the scope of 
Article 3 of the SCM Agreement upon Accession.     China's first subsidy notification was incomple te and only submitted long after the deadline, 
and it would appear that China now follows the same approach by not ha ving submitted the subsidy 
notification covering calendar years 2005 and 2006 which was due on 30 June 2007.   
 
 a. Could China please explain whether it is currently working on this subsidy 
notification and confirm that the notificati on will cover federal, provincial and local 
governmental subsidies and when it expects to submit its subsidy notification?   
 
 b. In light of the very late submission of China's first subsidy notification which 
severely undermines the usefulness of such a notification to other WTO Members we 
request that China submit its subsidy notification as soon as possible or provide a specific commitment for the submission of subsidy programmes at all levels of government.   G/SCM/Q2/CHN/40 
Page 2  
 
  Prohibited Subsidies  
 
1. In its Protocol of Accession China not only committed to provide a subsidy notification by a 
stipulated deadline, but also committed to eliminat e all subsidy programmes falling within the scope 
of Article 3 of the SCM-Agreement.  Irrespective of  China's continued failure to provide a full and 
timely subsidy notification the EU continues to unc over prohibited subsidy schemes which have only 
recently been adopted.  On this occasion, the EU poi nts to the fact that China according to available 
information subsidises the development of name bra nds at various levels of governments.  In this 
regard we make reference to the Circular on Printing and Distributing the Method of Nanhai District, 
Foshan City for Supporting and Aw arding Independent Innovation, Brand Drive and Enterprise IPO  
of 17 October 2007 which is addressed to all to wn governments, all district offices and all 
organizations directly under Nanhai District Gove rnment.  According to "category 2:  Award for 
creation of famous brands" it is the stated objective of this category to award RMB 2m in a lump sum 
to a product which was rated for the firs t time as China World Top Brand Product
 in the current year.  
Moreover, a product of an enterprise which has b een rated as a China Famous Export Brand will be 
awarded RMB 500,000 in a lump sum.  This program seems to originate from a Circular on Carrying 
out Evaluation of Products to be recognized  as China World Top Brand of 24 March 2005 setting out 
the eligibility criteria in order to qu alify as a China World Top Brand Product .  According to the 
eligibility criteria the applying product must be:    
• in international front ranks in the industr y in terms of total output and export volume 
• exported to many countries and regions 
 
 a. Please identify the products MOFCOM rates as China World Top Brand Product and 
as China Famous Export Brand respectively?   
  b. Please indicate how many of these products  have benefitted from this scheme to date 
and provide the amounts per product and per enterprise?   
 
 c. Please describe the relationship between the Circulars mentioned above?    2. Over the course of the last year the EC has identified the Circular of Nanchang Municipal 
People's Government on Printing and Distributing the Interim Measures for Administration of 
Nanchang Foreign Trade Developm ent Fund of 3 August 2007 .  This Circular explicitly states inter 
alia "that these measures are formulated to furt her strengthen the administration of foreign trade 
development fund, optimize the environment of forei gn trade, promote growth of foreign trade export 
and expedite the development of foreign-orie nted economy.  The Municipal finance earmarks 
RMB 6M of the development fund from fiscal budget ea ch year to support enterp rises' foreign trade.  
The money not used in a year will be brought to next  year for continued use.  Support export of local 
products and range of support: any enterprise which creates USD 3M or above of foreign exchange 
from the export of local products in a year.  Enterprise of which export amount of local products in the current year is USD 3-5M (including USD3 M) will be awarded RMB 30,000.  If the amount 
exceeds the base, additional RMB 1,000 will be aw arded for each 1 per cent of excess but the 
maximum amount is RMB 30,000".   
 
 a. These measures clearly appear to be e xport contingent once a certain threshold has 
been exceeded.  Could China please indicate how many enterprises have benefited from this program to date and the amounts provided?   
  b. Please explain in detail the developmen t fund, its capitalisation, the funding source 
and policy objectives?   
  G/SCM/Q2/CHN/40 
 Page 3 
 
 
  Subsidies – semi conductor industries 
 
 We have been repeatedly informed that th e semi-conductor industries have been receiving 
subsidies in the form of income tax exemptions for five years followed by a 50-per cent rate for 
five years at 7.5 per cent in addition to free electr icity and water.  Moreover, China applies a 3-per 
cent value-added tax rate on China-made chips.   
  a. Please describe the specific incentives provi ded to the semi-conductor industries?   
  b. Are there any incentives offered which are contingent upon export performance or 
contingent upon the use of domestic over imported goods as appears to be the case 
with the 3 per cent VAT rate for China-made chips?   
  
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