RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/261 
24 August 2005 
 (05-3746) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE UNITED STATES 
 
Transitional Review Mechanism Pursuant to Paragr aph 18 of the Protocol on the Accession of the 
People's Republic of China ("China")  
 
 
 The following communication, dated 23 August 2005, from the delegation of the United States is being circulated to the Members of the Council for Trade in Services 
 
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Questions From the United States to China concerning Services
 
 
I. DISTRIBUTION SERVICES 
1. The United States appreciates the progress that the Ministry of Commerce (MOFCOM) has 
made in recent months to address earlier pr oblems regarding the implementation of China's 
distribution services commitments.  Please provide information on the number of applications for 
distribution licenses submitted by foreign-invested  enterprises and the number of approvals granted 
pursuant to the Measures on the Management of Fore ign Investment in the Commercial Sector issued 
by MOFCOM in April 2004. 
II. DISTRIBUTION OF BOOKS, NEWSPAPERS AND MAGAZINES 
2. Within the context of China's WTO commitments , the concept of "trading rights" includes the 
right to import goods into China and the right to e xport goods from China, as explained in China's 
Protocol of Accession.  The right to sell goods within China is governed by separate commitments 
principally relating to "distribution services" set fo rth in China's Services Schedule.  In the business 
world, trading rights and distribution services are funda mentally inter-related, and often an enterprise 
will need both of them to carry out its business plan. 
3. In its Protocol of Accession, China committed to eliminate its system of examination and 
approval of trading rights and make full trading rights automatically ava ilable for all Chinese 
enterprises, Chinese-foreign joint ventures, wholly foreign-owned enterprises and foreign individuals, 
including sole proprietorships, within three years of its accession, or by 11 December, 2004, the same 
deadline for China to eliminate most restrictions  in the area of distribution services.  The only 
exceptions applied to products listed in Annexes 2A and 2B, such as grains, cotton and tobacco, for 
which China reserved the right to engage in stat e trading.  In April 2004, the National People's 
Congress issued the revised Foreign Trade Law .  Except with regard to products reserved for state 
trading, the new law provided for trading rights to be automatically available through a registration 
process for all domestic and foreign entities and individuals, effective 1 July, 2004.  
4. In the Services Schedule accompanying its Protocol of Accession, China separately 
committed that, within three years after accession (or by December 11, 2004), it would permit foreign 
service suppliers to supply wholesaling services, commission agents' services and retail services S/C/W/261 
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through wholly foreign-owned enterprises wit hout any market access or national treatment 
limitations, with the exceptions of chemical fertiliz ers, processed oil and crude oil, salt and tobacco 
(and except with regard to certain chain st ores).   In April 2004, MOFCOM issued the Measures on 
the Management of Foreign Investment in the Commercial Sector .  These measures lifted market 
access and national treatment restrictions on w holly foreign-owned enterprises engaging in 
wholesaling services, commission agents' services and retail services and removed then-existing 
product exceptions for books, news papers, magazines, pharmaceu tical products, pesticides and 
mulching films (but not for chemical fertilizers, pr ocessed oil, crude oil, salt and tobacco) as of the 
scheduled phase-in date of 11 December, 2004.  Th ese regulations also provided that licensed foreign 
service suppliers of wholesaling services, commission agents' services and retail services could also 
engage in importing and exporting. 
5. The United States is concerned because, despite the revised Foreign Trade Law and the new 
distribution regulations, other Chinese measures app ear to provide different treatment for wholly 
foreign-owned enterprises seeking to engage in  importing and exporting and the provision of 
wholesaling services, commission agents' services and retail services for books, newspapers and 
magazines.  The Catalogue for the Guidance of Foreign Investment Industries , issued by the National 
Development and Reform Commi ssion and MOFCOM in Novemb er 2004 and effective January 
2005, several months after the effective date of the Measures on the Management of Foreign 
Investment in the Commercial Sector , lists the "importing of books , newspapers and periodicals" 
under the category of "prohibited" foreign investment.  Similarly, the Administrative Regulations on 
Publishing , issued by the State Council in December 2001, wholly reserves the importation of books, 
newspapers and periodicals for state trading enterprises.  Meanwhile, the Catalogue for the Guidance 
of Foreign Investment Industries also lists "wholesale or retail  business of books, newspaper and 
periodicals" under the "restricted" category, whic h means that an invest ment requires special 
government approvals, although a f ootnote adds that "wholly foreign-owned enterprises will be 
permitted no later than 11 December, 2004, and can e ngage in the distributio n of books, newspapers, 
[and] magazines."  In addition, in September 200 4, two months after the effective date of the 
Measures on the Management of Foreign Investment in the Commercial Sector , the General 
Administration of Press and Publication adopted the Administrative Measures on Subscription of 
Imported Publications , which appear to restrict the dist ribution of imported publications by 
subscription to the state tradi ng enterprises described in the Administrative Regulations on Publishing .  
(a) The United States will submit questions for China regarding the rights to import and 
export books, newspapers and magazines in connection with the transitional review 
before the Committee on Market Access. 
(b) Please clarify how the Administrative Regulations on Publishing , the Administrative 
Measures on Subscription of Imported Publications  and the Catalogue for the 
Guidance of Foreign Investment Industries are consistent with China's commitments 
to lift market access and national treatmen t restrictions on wholly foreign-owned 
enterprises seeking to engage in wholesa ling services, commission agents' services 
and retail services for books, news papers and magazines.   
(c) If the above-described measures do not fu lly implement these commitments, please 
describe China's plans for bringing those measures into conformance with these 
commitments. 
III. DISTRIBUTION SERVICES:  SALES AWAY FROM A FIXED LOCATION 
6. The United States understands that China's St ate Council recently a pproved regulations 
intended to implement China's WTO commitments with  regard to sales away from a fixed location, or 
direct selling.  The United States is disappointed that China did not make a copy of the regulations publicly available for comment in advance, but it looks forward to reviewing the regulations and to S/C/W/261 
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China implementing its WTO commitments in this area.  The United States may submit supplemental 
questions regarding the new regulations after it has had an opportunity to review them. 
IV. DISTRIBUTION SERVICES:  FRANCHISING 
7. The United States and the U.S. private sector have expressed concerns regarding certain 
provisions of rules issued on 31 December, 2004,  regarding regulation of franchising services 
(MOFCOM Rules on the Administration of Commercia l Franchising).  Please describe the status of 
China's review of these rules. 
V. EXPRESS DELIVERY 
8. Please explain China's plans for separating Chin a Post's regulatory and operational functions, 
including the future status of the Express Mail Service (EMS).  
9. Earlier this year, the State Post Bureau requi red foreign express delivery firms to renew their 
entrustment certificates, and it only made these re newals effective for six months.  In Notice 556, 
issued by the State Post Bureau in October 2002, however, it provides as follows: "When international 
freight forwarding agent enterprises that operate international express delivery of correspondence and 
goods possessing the characteristics of correspondence handle entrustment procedures, the validity 
period of the entrustment certificate and the entrustmen t scope must be in line with the content of the 
MOFTEC approval certificate."  Please explain how the State Post Bureau's renewal requirements satisfy Notice 556. 
10. In the Services Schedule accompanying its Protocol of Accession, China committed to 
liberalize the freight forwarding agency services sector by allowing majority foreign ownership by 11 December, 2002, and wholly foreign-owned ente rprises by 11 December, 2005.  To date, however, 
China does not appear to have implemented this co mmitment with regard to air freight forwarding 
services.  Please describe China's implementation plans. 
11. In the Services Schedule accompanying its Prot ocol of Accession, China makes commitments 
on courier services "except for those currently speci fically reserved to Chinese postal authorities by 
law."  Please describe the scope of these excepted services and explain how, if at all, they differ from 
the excepted services in China's revised GATS offe r on courier services in the Doha Development 
Agenda negotiations.   
VI. TELECOMMUNICATIONS 
12. Article 5 of the Regulation on the Administration of Foreign Invested Telecommunications 
Enterprises , issued by the State Council in Decree No. 333 on 11 December, 2001 (effective 
1 January 2002), provides that, for foreign-inv ested telecommunications enterprises engaged in 
national or cross provincial basic telecommunication services, registered capital must not be less than 
RMB 2 billion ($241.2 million).  As the United States has previously commented, this capital requirement is excessively high, both when viewed in relation to the norms in other economies and in the specific context of China's telecommunications market.  To date, the United States has heard of no compelling rationale for such a requirement, and the f act that there has been lit tle or no new entry in 
the basic telecommunications sector suggest that th is requirement is functioning as a market entry 
deterrent, for both Chinese and foreign operators.  A review of start up capital requirements for basic telecommunications services providers around the world reveals essentially no capital requirement in the United States, European Communities member st ates, Canada, Japan, Australia, Argentina, Brazil 
or Chile.  Hong Kong requires only a performance bond.  India requires a bank guarantee ranging 
from $5 million to $80 million, depending on ge ographic scope.  Korea requires a $2.5 million 
performance bond or bank guarantee, while Singapo re requires a performance bond, scaled according 
to business scope.  Only Chinese Taipei maintains cap ital requirements that are comparable to those S/C/W/261 
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in China (and only for facilities-based services), a nd Chinese Taipei has been scaling them back 
following its accession to the WTO.  Is China review ing this high capital requirement to determine 
whether it is necessary and not overly burdensome?  If so, what is the status of that review? 
13. Certain aspects of China's current regulations are unclear with regard to resale-based services.  
In particular, State Council Order 291, adopted on  25 September, 2000, provides that "paging and 
resale shall be administered as value-added telecommunications services."   
(a) Please explain what the quoted language means.  Can resellers simply apply for a 
value-added license?   
(b) Does China have any plans to clarify th e licensing requirements for resale-based 
services?  
14. In paragraph 309 of the Working Party Report, China agreed that, upon its accession to the 
WTO, the organizations regulating services industries in China would be independent of the services 
suppliers they regulate.  Section 5 of the Basic Telecommunications Reference Paper also specifically 
calls for an independent telecommunications regulat or that is separate from, and not accountable to, 
any supplier of basic telecommunications and mak es decisions on an impartial basis.  In the 
telecommunications sector, however, China has not yet established an independent regulator, as the 
Ministry of Information Industry (MII) is not structurally and financially separate from all telecommunications operators and providers.  Do es the draft telecommunications law create a 
regulator outside of MII?  How will it be shielded  from industrial promotion and market management 
functions, which could be inconsistent  with the role of an impartial regulator?  What is the anticipated 
schedule for establishing this entity?  
15. The United States understands that China's teleco mmunications law continues to circulate in 
draft form among China's ministries and agencies.  Wh en will this draft law be circulated for public 
comment?  Will China provide a reasonable period for written comments to be submitted on the draft 
law? 
16. In the Administrative Measures on Interna tional Telecommunications Gateways , issued by 
MII on 21 June, 2002, China restricts the ownership,  construction and administ ration of international 
gateways to state-owned enterprises.  Previously , China has explained how these measures work, but 
it has not attempted to justify these restrictions in light of the commitments that China made in the 
Services Schedule accompanying its Protocol of Accession.  In its Services Schedule, China assumed market access and national treatment obligations in the telecommunications services sector and did not allow for any limitations on the ownership of the suppliers of these services, other than joint 
venture requirements.  Could China please explain how it justifies the restrictions in the 
Administrative Measures on International Telecommuni cations Gateways in light of the commitments 
that it made in its Services Schedule?  Are new entrants in any other sub-sector of telecommunications limited to partne ring with state-owned operators?  
17. The United States understands that China requires foreign service suppliers to joint venture in 
the basic telecommunications sector with certain designated Chinese partners .  In paragraph 314 of 
the Working Party Report accompanying its Protocol  of Accession, however, China committed that 
foreign service suppliers required to form joint ventures with Chinese entities to operate in China 
were free to chose their joint venture partner, and that they could choose a partner from a sector 
outside the sector of operation of the joint venture.   Please explain how China justifies its restriction 
on choice of partner in light of these commitments.   
18. Since China's accession to the WTO, how many applications has MII received from foreign 
carriers seeking to provide telecommunications servi ces in the Chinese market?  How many of these 
applications have been approved or denied in the basic services sector?  How many of these S/C/W/261 
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applications have been approved or denied in the value-added services sector?  What criteria are used 
to evaluate these applications? 
19. China has reportedly licensed numerous new dom estic value-added service suppliers.  Do 
these suppliers offer services beyond the illustrative list  of services that China set  forth in the Services 
Schedule accompanying its Protocol of Accession?  If so, will China extend national treatment to 
foreign suppliers interested in offering similar services, not expressly noted in the illustrative list, 
which fall under China's domestic de finition of value-added services?  Is China planning on updating 
its domestic definition of value-added services?  If so, what is the timetable? 
20. In the Services Schedule accompanying its Protocol of Accession, China committed to 
consider further liberalization of the teleco mmunications sector during the Doha Development 
Agenda negotiations, particularly with regard to fo reign equity participation.   Nevertheless, China's 
revised services offer makes no new offer in the telecommunications sector.  What is China's position 
on the issue of further liberalization in this sector  during the Doha Developm ent Agenda negotiations?  
VII. CONSTRUCTION SERVICES 
21. In September 2002, Ministry of Construction (M OC) and the Ministry of Foreign Trade and 
Economic Cooperation (now MOFCOM) issued the Rules on the Administration of Foreign-Invested 
Construction Engineering Design Enterprises , known as Decree 114.  This decree provides a schedule 
for the opening up of construction engineering design services to joint ventures with majority foreign 
ownership and to wholly foreign-owned enterp rises, although to date the necessary implementing 
rules have not been issued.  Decree 114 created conc erns for U.S. and other foreign firms by imposing 
new and more restrictive conditions than existed prior to China's WTO acce ssion, when they were 
permitted to work in China on a project-by-project basis pursuant to MOC rules.  In addition, 
Decree 114 for the first time requires foreign enterpri ses to incorporate in China, and it imposes high 
minimum registered capital requirements and fore ign personnel residency requirements that are 
difficult for many foreign-inv ested enterprises to satisfy. 
(a) Does China have any plans to revise Decree 114?  If so, please describe those plans? 
(b) When does China intend to issue proposed Decree 114 implementing rules for public 
comment?   
VIII.  LEGAL SERVICES 
22. While the United States acknowledges China's st eps toward opening the legal services sector, 
foreign firms continue to face one rous restrictions regarding market access and national treatment in 
China.  For instance, China imposes a waiting peri od of three years before a foreign law firm can 
open each additional office in China, provides for an application process that could take as long as 
nine months, and requires that market need be de monstrated.  Please describe whether China has plans 
to address these concerns, which have been raised by the United States and other Members in the past, 
in the light of China's GATS commitments.  
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