WORLD TRADE  
ORGANIZATION  G/L/899 
23 October 2009 
 (09-5251) 
Committee on Trade-Related Investment Measures  
  
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE 
PROTOCOL OF ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE 
WORLD TRADE ORGANIZATION
1 
 
Report of the Chairman  
 
 1. Pursuant to Paragraph 18 of the Protocol of Accession of the People's Republic of China, the 
Committee on Trade-Related Investment Measures carri ed out the eighth annual review under China's 
Transitional Review Mechanism (TRM) at its meeting on 16 October 2009.   
2. In a communication dated 29 September 2009, China submitted information on Annex 1A of 
its Protocol of Accession in connection with this  review.  This submission was distributed in 
document G/TRIMS/W/64, dated 29 September 2009. 
3. Written questions regarding China's Transitiona l Review were submitted in advance of the 
review by the European Communities, Japan a nd the United States.  These submissions were 
circulated as documents G/TRIMS/W/69 da ted 5 October 2009, G/TRIMS/W/68 dated 
5 October 2009, and G/TRIMS/W/67 date d 2 October 2009, respectively.   
4. Annex 1 to this report reproduces the releva nt sections of the Minutes of the TRIMs 
Committee's meeting held on 16 October 2009 in wh ich Members' substantive discussions regarding 
China's eighth Transitional Review are reflected.  
 
 
  
                                                     
 
1 WT/L/432 G/L/899 
Page 2  
 
   
Annex 1
 
  
Relevant Sections of the Minutes 
 
of the meeting held on 16 October 2009  
 
(G/TRIMS/M/29 ) 
 
 
F. TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH  18 OF THE PROTOCOL OF 
ACCESSION OF THE PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION  
 
1. The Chairperson  recalled that under Paragraph 18 of China's Protocol of Accession 
(WT/L/432) the TRIMs Committee was required to revi ew annually, over a period of eight years after 
China's accession, the implementation by China of  the TRIMs Agreement and the related provisions 
of the Protocol of Accession, and to report to the Council for Trade in Goods (CTG) on the results of its review.  The seventh annual review of China had taken place on 23 October 2008, and the relevant 
report had been submitted to the CTG as document G/L/859.   
2. With respect to this year's review, the eighth, the Chairperson said that in order to discharge 
its reporting obligations in a timely manner, th e TRIMs Committee needed to undertake the review 
and submit its report in advance of the next meeting of the CTG which was scheduled for 
30 October 2009.  Pursuant to para graph 18 of China's Protocol of Accession, the CTG would in turn 
report to the General Council by November 2009.  
3. The Chairperson said that the Committee had received a communication from China 
concerning information required under Annex 1A of  its Protocol of Accession, which had been 
circulated as document G/TRIMS/W/64.  She added that the Committee had also received 
communications from the European Communities, Japan and the United States which contained 
comments and questions to China in the contex t of this review.  These communications were 
circulated in documents G/TRIMS/W/69, G/TRIMS/W/68, and G/TRIMS/W/67, respectively.     
4. The Chairperson proposed that, in keeping with previous practice, the Committee would 
conduct the review in the following manner:  she woul d first give the floor to the delegations of the 
European Communities, Japan and the United States th at had submitted questions to China, and to any 
other delegation that wished to comment on this item.   She would then invite the delegation of China 
to answer the questions and provide any other informa tion it  might wish to share with the Committee.    
5. The Committee so agreed
. 
6. The representative of the European Communities  welcomed the opportunity to participate in 
the Eighth TRM exercise for China in the Committ ee.  He indicated that despite the impressive 
progress China has made in integrating into the rules-based world trading system, WTO Members 
were still confronted with some important areas of co ncern.  He considered this review mechanism to 
be an important forum for addressing such concerns a nd encouraged China to participate actively in it, 
as well as to respond to Members' questions in a s ubstantive manner in the course of the meeting and 
in a written form following the meeting.  He refe rred to the communication circulated in document 
G/TRIMS/W/69 on 5 October 2009 which had set in detail the concerns of the European 
Communities.  Some of the comments contained in this document were raised in earlier TRM exercises in the Committee, as well as bilaterally, but they might have  not been addressed in a fully 
satisfactory manner.     G/L/899  
 Page 3 
 
 
  7. The representative of the European Communities ex plained that the first key issue was that 
pertaining to local content requirements.  He st ated that the European Communities took note of 
China's position that it had honoured its accession commitments with respect to the elimination of local content requirements.  Ho wever, the European Communities remains concerned about reports 
from industry that the local content requirements c ontinue to be applied in China across several 
sectors, especially at the local level.  He request ed China to provide information on measures it would 
foresee to address this situation and an assessment of  how the various review mechanisms that were 
available for industry would have resulted in lo cally applied local content requirements being 
rectified.    
8. The second key issue was the European Communities' long-standing concerns regarding 
China's Steel Industry Development Policy.  Th e representative of the European Communities 
continued to urge China to lift its foreign ownershi p limits so that investment decisions could be 
based on sound and objective foundations.  He also requested China to provide written information on 
the criteria used to define requirements pursu ant to Article 23 as well as further information 
concerning  the details of Article 18 of th e NDRC Steel Industry Development Policy.  
9. The third key issue was the clauses containe d in contractual arrangements that were 
incompatible with China's obligations under its  Accession Protocol.  The representative of the 
European Communities invited China to elaborate fu rther on this application process, in particular 
how China monitored it so as to en sure its compliance with the TRIMs Agreement.  In addition, he 
requested China to clarify how it ensures that the approval for investment by  national and sub-national 
authorities was not conditioned on either performance  requirements or local content requirements of 
any kind.  
10. The fourth key issue was the Joint Ventur e Ownership Limitations.  During previous 
transitional reviews before the Committee, China argued that it had "the legitimate right to 
independently judge on the level of maturity of specific industries and to decide on the speed of 
investment liberalization".  The representative of the European Communities inquired about the 
progress China had achieved in opening certain key sectors for foreign investment since the last 
transitional review in 2008.  He also requested Chin a to elaborate on the time frames it could foresee 
for further investment liberalization, notably in li ght of Minister Chen Deming's September speech at 
the Xiamen fair that recalled China's plan to gra dually reduce the restrictions of the equity caps for 
foreign investment.   
11. Finally, the representative of the European Communities invited China to provide further 
information concerning the regulations for the implementation of the Law of the PRC on Sino-
Foreign Equity Joint Ventures, and in particul ar provisions pursuant to Articles 41 and 43.   
12. The representative of Japan
 welcomed the opportunity of participating in the TRM of China 
pursuant to its Accession protocol.  She requested clar ification with regard to the issue of performance 
requirement.  She indicated that Japan's ques tions were already circulated in document 
G/TRIMS/W/68 dated 5 October 2009.  China had co mmitted itself to comply fully with relevant 
provisions under the TRIMs Agreement as well as its A ccession Protocol, in particular, paragraph 7.3. 
Paragraph 7.3 stated, "China shall eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or  performance requirements made effective through 
laws, regulations or other measures.  Moreover, China will not enforce provisions of contracts 
imposing such requirements."  In this regard, the representative of Japan inquired whether China 
could confirm that at present any means of approval of the right of importation or investment by 
national and sub-national authoriti es would not be conditioned on performance requirements of any 
kind, such as local content, offsets, the transfer  of technology, export performance or the conduct of 
research and development in China and if it was the case, she requested China to explain the reason. G/L/899 
Page 4  
 
  13. The representative of the United States
 welcomed China to the Eighth TRM, the second to 
last, and also put great value on this mechanism as  an opportunity to explore certain issues in the 
several areas that this review would deal with.  He  associated himself with the comments made by the 
European Communities and Japan  and indicated that  the United States had specific issues to raise in 
this context, as contained in document G/TRIMS/ W/67 dated 2 October 2009. The issues related to 
investment in medical institutions and whether China had any plans to remove restrictions on 
approved partners for original e quipment manufacturers; whether there were any plans to lower the 
minimum registered capital requirements for establishi ng holding companies; and whether there were 
any plans to harmonize the rules for amending, dissolv ing or restructuring investments such as joint 
ventures.  Finally, he requested additional informa tion relating to the legal basis for denying mergers 
and acquisitions pursuant to the August 2006 Regula tions on Mergers and Acquisitions of Domestic 
Enterprises by Foreign Investors Decree adopt ed by the Ministry of Commerce.    
14. The representative of Canada  appreciated the opportunity to review China's commitments 
pursuant to paragraph 18 of the China's Protocol of Accession.  He noted the interest of other 
Members concerning the TRIMs Agreement and in  particular the written communications.  He 
indicated that Canada would continue mon itoring this discussion with interest.   
15. The representative of China  indicated that China had received the questions from the 
European Communities, Japan and the United States under the agenda item of transitional review.  
16. On the comments and questions concerning Chin a's commitments in respect of the TRIMs 
Agreement as found in paragraph 7. 3 of the Accession Protocol of China, more specifically those 
commitments on such performance requirements as local  content, offsets, the transfer of technology, 
export performance or the conduct of research and development, etc, the representative of China 
reiterated the statement that his de legation had made in the transitiona l reviews of previous years in 
the Committee.  He emphasized that China had faithfully honoured these commitments and that 
detailed information could be found in the minutes of the meetings of the Committee regarding the 
steps China took after accession to fulfil these comm itments, including for example the changes made 
to its legislation.  There was also much explana tion on the implementation of the revised legislation 
which since then had been consistent with the TRIMs Agreement.  In addition, China had also 
elaborated on the administrative and judicial review  mechanisms available to citizens and enterprises 
should they believe that they have problems in this  respect.  In China's view, these actions taken and 
means made available had already r esulted in a complete and comprehe nsive system that ensured that 
China's commitments in respect of the TRIMs Ag reement had been and would continue to be 
honoured.  
17. The representative of China noted that the Eu ropean Communities in its questions referred 
generally to industry reports on problems in respect of trade-related investment measures.  However, 
China had doubts as to whether the specific parties concerned had in reality pursued means available 
to them to address the problems, for example either administrative review or judicial review 
procedures, should they encounter such problems. 
18. One common specific question posed by the Eu ropean Communities and Japan was whether 
Articles 41 and 43 of the Regulations for the Implementation of the Law on Chinese-Foreign Equity 
Joint-Ventures were problematic in the light of China's obligations under the TRIMs Agreement.  The 
representative of China clarified that while China's commitment was that the approval for the right of 
importation or investment was not conditioned on pe rformance requirements including the transfer of 
technology, it nevertheless would not stop the part ies to a joint venture contract from negotiating 
provisions on technology transfers according to th eir own wish.  If a contract contained such 
provisions as a result of business negotiations, then Articles 41 and 43 would kick-in, which would 
protect better the interests of the parties to the c ontract.  It should be noted that there were no 
provisions in China's legislation indicating that a joint venture contract should contain technology  G/L/899  
 Page 5 
 
 
  transfer agreements, neither did any provisions in its  legislation imply that the approval of a contract 
should be conditioned on inclusion in the contract of technology transfer arrangement.  The European 
Communities seemed worried that technology transfer could be taken as a de facto  requirement in 
joint venture contracts.  If that was the case, the administrative and judicial reviews would be available for the affected parties to request to revisit those approval decisions conditioned upon 
technology transfer. 
19. With respect to the comments and questions posed by the European  Communities and the 
United States on the joint venture ownership limita tions, China had clear achievements in opening up 
the market and welcoming foreign investment opportun ities in the past thirty years.  Since its WTO 
accession in 2001, there had been irrefutable facts pr oving the firm resolve of the Chinese government 
to adhere continuously to the sound trade policy and investment liberalization.  President Hu Jintao 
reaffirmed this fundamental policy of opening up in his speech at the ceremony commemorating the 
60
th anniversary of the founding of the People’s Republic .  In this regard China particularly would like 
to draw Members’ attention to the written info rmation it provided to the Committee as requested by 
Annex 1A of the Accession Protocol for the transitional review, circulated in document 
G/TRIMS/W/64.  This document indicated that China revised at the beginning of 2009 its Catalogue 
of Industries for Foreign Investment in Mid-West China  to open up 126 new specific industrial areas 
in Mid-West China to foreign investors, with i nvestment access conditions for another 154 specific 
industrial areas further improved.  It should particular ly be noted that this revision was in addition to 
the revision made only about one year ago in November 2007 to China's Catalogue of Industries for 
the Guidance of Foreign Investment  which also provided foreign investors greater access 
opportunities, and it was done at a time when the world was under the severe repercussions of the 
financial and economic crises and the pressure of trade and investment protectionism which was mounting elsewhere.  
20. The representative of China stated that in  the process of furthering the investment 
liberalization, China believed that the steps taken should be commensurate with  the development level 
of a nation, as well as the special situations of di fferent sectors.  This actually would provide an 
answer to the United States' questions regard ing the Chinese medical sector and on minimum 
registered capital requirements.  The medical se ctor would generally remain in the "restricted" 
category.  One reason would be that this sector had been undergoing major reform in China.  
However, China’s policy direction to further the liberalization was always clear and firm, and the health sector would be no exception.  As a matter of fact, studies on relaxing the foreign investment 
cap in this sector were initiated, and as a first step, according to the newly revised Catalogue of 
Industries for Foreign Investment in Mid-West China , foreign investment in the medical sector in 
seven provinces in the Mid-West China would now be in the "encouraged" category.  
21. On the questions of the European Communities concerning the Steel Industry Development 
Policy , China's clarifications and replies made in prev ious reviews had been fairly comprehensive and 
would be still valid.  As a supplement to these res ponses, China could provide additional information. 
Firstly, on the provision that "foreign investors would in principle not hold a controlling stake when investing in the Chinese steel industry", China was of  the view, as just noted, that the steps taken for 
liberalization should be commensurate with the de velopment level of a nation, an economy and a 
sector.  
22. With respect to the requirement that invest ors should have a minimum self-owned capital of 
at least 40 per cent of the total capital needed, th is was due to the background that the production 
capacity of the industry in China had already been in surplus.  The European Communities indicated 
that this limitation was counterproductive and would hinder a sound development of the steel 
industry.  However in China's view, if investment continued to flow into the sector for expansion of 
production capacity which already had been in surplus,  the industry would definitely not benefit and 
would not have a sound development.   This 40 per cent self capital requirement should be one of the G/L/899 
Page 6  
 
  tests to establish that a company could meet Ar ticle 23 conditions.  Others, for example, those 
concerning technology development level, might be found in the Catalogue for the Guidance of 
Industrial Structure Adjustment and Guidance on Major Areas for Development of Hi-Tech 
Industrialization with Priority .  As to whether they were identical to foreign and domestic investors, 
the representative of China indicated that he was not informed by his competent authority of any 
additional requirements or tests applicable only to foreign investors. 
23. Regarding questions on Article 17 of the Policy , the representative of China said that while 
sticking to openness in trade and investment, China also believed that development of China's own 
equipments and technologies should be important.  These two points should not be conflicting, but 
rather complementary or mutually reinforcing in the development of a nation’s economy.  There had 
always been things that others w ould never sell, or a country had to pay dearly for simply because that 
country was not able to produce it.  That was why developing Members in the Organization, including 
China, had always stressed the significance of su ch issues as technology transfer.  Of course, China 
was fully aware of its obligations in the Organization and would ensure that measures in this regard, if 
undertaken, would be implemented consistently w ith the requirements of the TRIMs Agreement. 
24. On the question of the United States rega rding the OEMs, the competent authorities 
responsible for foreign investment policies were not ab le to identify the particular issue.  China would 
therefore be grateful if the United States could pr ovide the specific policy document it referred to, for 
example a decree or an announcement, etc. 
25. On the question concerning rules for amending, dissolving or restructuring investments such 
as joint ventures, China actually had difficulties in understanding what specific problems the 
United States had.  But for general information purposes, China would like to inform the Members 
that a specific rule in this respect, that is, the Measures for Liquidation of Foreign-Invested 
Enterprises issued in 1996 was abolished in January 200 8.  Dissolving and liquidation of enterprises 
with foreign investment would now generally follow the provisions of the Company Law  and also, if 
applicable, certain specific provisions in laws and regulations concerning foreign investment.  
26. On the question concerning Regulations on Mergers and Ac quisitions of Domestic 
Enterprises by Foreign Investors  issued in August 2006 by MOFCOM, the representative of China 
informed that this particular rule had been  revised in 2009 to become in line with the Anti-Monopoly 
Law.  When an application for mergers and acquisitions  would be declined, an explanation of reasons 
and also the legal basis for the denial would normally be provided. 
27. Lastly, on the request for written answers for th e questions raised under this agenda item, the 
representative of China stated that the position of the Chinese delegation on this issue has been clear 
and he would not repeat it.  However, to facilita te the Secretariat’s preparation of the meeting 
minutes, his delegation would send the statement just made to the Secretariat after the meeting, through which it may be available to Members. 
28. The representative of Japan
 was grateful for the detailed explanation provided by China and 
welcomed the clear and strong statement that China had faithfully honoured its commitments 
under paragraph 7.3 of its Accession Protocol.  She also  agreed with China's views that this issue was 
not new, and had been taken up in the previous m eetings.  However, the reason why Japan felt obliged 
to take up this issue again was that it was not pr ovided with a written document by China assuring that 
China would indeed honour those commitments.  In this context, she welcomed the last part of 
China's response that a copy of its statement at the meeting would be provided to Members.  She 
looked forward to having a close look at the document. 
29. The representative of the European Communities  thanked China for the responses and 
indicated that it was looking forward to seeing the written version of the statement made in order to  G/L/899  
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  analyze it and see if it actually addressed all the ques tions posed. He indicated that a reference had 
been made by China regarding the doubt it had if an industry had actually pursued the judicial and administrative review procedures set. The question posed by the European Communities was actually 
aimed at obtaining an assessment of how often the va rious review mechanisms that could be available 
to industries have resulted in locally applied local content requirements to be rectified. 
30. The representative of the United States
 thanked China for its responses and indicated that the 
United States would carefully review the info rmation China provided at the meeting.   
31. The representative of China  took the floor to comment on the question posed by the 
representative of the European Communities.  He indi cated that the Department of Treaty and Law in 
MOFCOM was responsible for certain administrative reviews of decisions which would relate to a 
certain degree to the TRIMs Agreement.  He indi cated that while to his knowledge there did not seem 
to be complete statistics available in this regard , it also seemed to him that the Department did not 
receive many cases requesting review.     
32. The Chairperson  said that with regard to the Committee's reporting obligation to the CTG, she 
understood that Members would wish the Committee to follow the same pro cedure that had been 
adopted in previous years, i.e., the Chairperson would submit a brief, factual report, which would 
include references to the submissions made in conn ection with this year's Review and would contain 
in the Annex the relevant parts of the Minutes of th is meeting.  She indicated that she had taken the 
liberty of asking the Secretariat to prepare a draft outline of her report for Members' consideration.  
This had been circulated as document G/TRIMS/W/65.  If Members agreed to this outline, and once the relevant section of the Minutes had been attached to it, she would forward the report to the CTG.  
33. The Committee took note
 of the statements made under this item and agreed  on the proposed 
procedure to discharge its reporting obligations concerning China's TRM.  
 
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