WORLD TRADE  
ORGANIZATION   
G/SCM/140 
1 November 2011 
 (11-5511) 
Committee on Subsidies 
and Countervailing Measures  
 
 
 
CHAIRPERSON'S REPORT TO THE COUNCIL FOR TRADE IN GOODS 
ON TRANSITIONAL REVIEW OF CHINA  
 
 1. The Committee on Subsidies and Countervailing Measures undertook the ninth and last 
transitional review of China pursuan t to paragraph 18 of the Protoc ol on the Accession of the People's 
Republic of China (WT/L/432) at its regul ar meeting held on 26-27 October 2011. 
 
2. Annex 1A to the Protocol requires China to submit information on the following to this 
Committee: "Pricing Policies":  (a) "application of ex isting or any other price controls and the reason 
for their use"; and (b) "pricing mechanisms of Chin a's state trading enterprises for exported products".  
China submitted the information in this respect on 20 October 2011, which has been circulated in 
document G/SCM/N/232.  
3. The statements made in the context of th is transitional review at the meeting of 26-
27 October 2011 are reflected in the minutes of the meeting, the relevant paragraphs of which are 
annexed. 
 G/SCM/140 
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Excerpt from the minutes of the regular meeting of the Committee on Subsidies and Countervailing 
Measures held on 26-27 October 2011, to be circulated as document G/SCM/M/79 
 
E. TRANSITION REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF 
ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE WORLD TRADE 
ORGANIZATION   
 
1. The Chairman recalled that para graph 18 of the Protocol of Accession of the People's Republic 
of China to the World Trade Organization provided th at all subsidiary bodies, including this Committee, 
"which have a mandate covering China's commitmen ts under the WTO Agreement or [the] Protocol 
shall, within one year after accession, review, as appropriate to their mandate, the implementation by 
China of the WTO Agreement and of the rela ted provisions of [the] Protocol."   
2. China was to provide relevant information in advance of the review, including information 
specified in Annex 1A to the Protocol.  China could also raise issues relating to any reservations under 
Section 17 or to any other specific  commitments made by other Member s in the Protocol, in subsidiary 
bodies which had a relevant mandate.  This Committee had to repor t the results of the review promptly 
to the Council for Trade in Goods.  Review was to take place  after accession in each year for eight years, 
with a final review in year ten or at an earlier date decided by the General Council.  The Chairman 
recalled that this was the ninth and thus the last transitional review conducted under China's Protocol of 
Accession. 
3. The Chairman indicated that the Protocol c ontained no procedures for the conduct of the 
transition review, except that China was to provide re levant information in advance of the review.  In 
this regard, Annex 1A specified th at China was requested to provide information on the following to the 
Committee in accordance with Article 18.1 of its  Accession Protocol:  "Pricing Policies": (a) 
"application of existing or any other price contro ls and the reason for thei r use"; and (b) "pricing 
mechanisms of China's st ate trading enterprises for exported pr oducts".  The notification by China 
provided for in Annex 1A had been circulated in document G/SCM/N/232, dated 20 October 2011. 
4. The delegate of China stated that the info rmation provided in document G/SCM/N/232 was 
self-explanatory and that it reflecte d efforts made by China after access ion with regard to pricing reform. 
5. The delegate of the United States stated that when China had signed its Protocol of Accession to 
the WTO ten years ago, it had agreed to an a nnual Transitional Review Mechanism (TRM) to be 
conducted before 16 Committees  and Councils each fall for eight years, with a final review by year 
ten.  This was year ten.  For this final TRM, the United States wished to share its observations on 
China's first ten years of WTO membership. 
6. As Members could recall, the TRM had been  created largely b ecause China had been 
admitted to WTO membership before it had revised a ll of its trade-related laws and regulations to 
become WTO-compatible, and because  China had been allowed a variet y of transition periods before 
it took on certain WTO obligations.  Active mon itoring of China's commitments through the TRM 
was considered important for China to successfully  integrate into the WTO's open, market-oriented 
and rules-based trading system and to help ensure  that WTO Members benefited fully from liberalized 
trade with China.  The annual TRM meetings therefore provided Members with opportunities to 
review with China, in a multilateral setting, the efforts that China had taken to implement specific 
commitments made in its Protocol of Accession as well as China's efforts to comply with the 
obligations that it had taken on under the many ag reements that made up the WTO Agreement.   
  G/SCM/140 
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  7. During the initial phase-in period following its accession to the WTO, China had 
implemented a set of sweeping commitments, incl uding reducing tariffs, eliminating non-tariff 
barriers that denied national treatment and mark et access for goods and services imported from other 
WTO members, and making legal improvements in  intellectual property protections and in 
transparency.  These actions had d eepened China’s integration into the international trading system, 
facilitating and strengthening China's rule of law and economic reform.  Trade and investment had 
also expanded dramatically between China and its many trading partners.      
8. Nevertheless, even though China had taken ma ny impressive steps to reform its economy 
since joining the WTO ten years ago, the overall pict ure remained complex, given a troubling trend in 
China toward increased state inte rvention in the Chinese economy in recent years.  Frequently, trade 
frictions with China could be traced to China's pursuit of industrial policies that relied on excessive, 
trade-distorting government intervention – includin g the widespread use of subsidies – intended to 
promote or protect China's domestic industries a nd state-owned enterprises.  This government 
intervention reflected the fact th at China's movement away from a centrally-planned economy toward 
a free-market economy governed by rule  of law remained incomplete.   
9. Looking at developments relating to the juri sdiction of this Committee in particular, the 
delegate recalled that, as a result of its accessi on negotiations, China had agreed to assume the 
obligations of the Subsidies Agreement.  As a r esult, China had become subject to the Subsidies 
Agreement's disciplines on a Member's use of subsidi es, and it had also become obligated to adhere to 
detailed rules prescribing the manner and basis on wh ich a Member could take action to offset the 
injurious subsidization of products  imported from another Member.  
10. Over the past 10 years, China had made significant progress in developing a legal framework 
for its countervailing duty regime.  Nevertheless,  while there had been numerous improvements in 
China's countervailing duty practice since the first TR M in 2002, China had more to do to make its 
countervailing duty investigative and decision-maki ng processes fully transparent and procedurally 
fair for all parties, as envisioned by the Subsid ies Agreement.  The United States delegation had 
recently made a detailed statement about these c oncerns during the TRM before the Anti-Dumping 
Committee and would not repeat them  before the Subsidies Committee. 
11. The United States also noted that, in recent y ears, China had initiated certain countervailing 
duty investigations under troubling circumstances.  Some of th ese investigations had generated WTO 
disputes in which multiple WTO violations had been  alleged, including claims of inconsistency not 
only with fundamental obligations relating to transparency and pro cedural fairness, but also key 
aspects of the injury determinations.  The Unite d States had initiated two of those disputes, one 
involving grain-oriented electrical steel (DS414) a nd the other involving broiler products (DS427).   
12. Turning to subsidies disciplines, China's record of compliance wa s poor when it came to the 
obligations that China took on regarding its use of subsidies.  As would be discussed, China 
maintained an opaque subsidies regime, and it a ppeared to have employed numerous prohibited 
subsidies as an integral part of industrial polic ies designed to promote or protect its domestic 
industries and state-owned enterprises. 
13. Transparency was a core principle of the WT O Agreement, and it was firmly enshrined as a 
key obligation under the Subsidies Agreement.  Ar ticle 25 obligated every Member to file regular 
notifications of all of the specific subsidies that it maintained. This information was required so that it 
was possible to assess the nature and extent of a Member's subsidy programs.  Until the preceding 
week, despite being one of the top traders among WTO Members, China had filed only one subsidy 
notification since joining the WTO almost ten years prior, and it had only covered the time period from 2001 to 2004.  That notification, submitted in  2006, had been incomplete as it had failed to 
notify any subsidies provided by provincial and local government authorities, as well as numerous G/SCM/140 
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  central government subsidies.  At that time, the United States and several other Members had 
expressed serious concerns about the incompleten ess of China's notification.  Since then, the 
United States and several other Members had repeated ly requested that China submit its notifications 
for the periods subsequent to 2004.   
14. Given China's lack of transparency, the Un ited States had devoted significant time and 
resources to identifying, monitoring and analysing China's subsidy practices, and these efforts had 
confirmed significant omissions in China's subsidies notification.  These efforts had also made clear 
that provincial and local governments played an im portant role in implementing China's industrial 
subsidy policies.  Recent academic literature, fo r example, indicated that provincial and local 
governments were responsible for a large percentage  of China's investment in industry, much of 
which was often misdirected into sectors with  excess capacity.  The significant scope of the 
government's support in pursuit of its industrial polici es at all levels of government could be seen in 
the massive funds allocated as part of China's recen tly issued Twelfth Five-Year Plan, which, by some 
accounts, amounted to over RMB 1.2 trillion.   
15. China's large and growing role in world production and trade made it important that Members 
understood the nature of China's subsidy regime at both the central and sub-central government level.  
China's lack of compliance with its subsidy notif ication obligation, however, prevented Members 
from obtaining the necessary knowledge and understanding of subsidy polic y formulation in China.    
In the face of repeated unfulfilled promises from Ch ina that it would soon file a new subsidies 
notification, the United States earlier that month had raised this issue through the filing of a counter-notification under Article 25.10 of the Subsidies Ag reement.  In the counter-notification, the 
United States had identified 200 unreported subsid y programs that China had maintained since 2004, 
including many provided by provincial and local government authorities.   
16. After the United States had filed its counter-no tification, China had finally submitted the new 
subsidies notification that it had been promisi ng.  Covering only the period from 2005 to 2008, 
China's notification had again failed to notify a si ngle subsidy administered by provincial or local 
governments.  Moreover, the notified central govern ment subsidies were largely the same partial 
listing of subsidies as those notified in China's 2006 s ubmission.  As a result, China's notification was 
again incomplete.   
17. The United States noted as well that China's re cent subsidy notification included only a few 
of the subsidies identified in the United States' counter-notification.  It was now incumbent upon 
China to promptly provide detailed information and data regarding the operation of the many subsidy 
programs from the United States' counter-notification that China had yet to notify. 
18. The United States noted that China had also ha d a poor record of adherence to a separate 
transparency obligation to which China had committed in its Protocol of Accession.  There, China 
agreed to notify all "annual economic developm ent programmes, China's five-year programmes and 
any industrial or sectoral programmes or polici es (including programmes related to investment, 
export, import, productions, pricing or other targets,  if any) promulgated by central and sub-central 
government entities."  These industrial policy plans typically were a major source of government 
subsidization in China, particularly w ith respect to state-owned enterprises. 
19. This was an important transparency ob ligation for China because industrial policy 
implementation in China favoured state-owned ente rprises and involved government, or non-market-
based, allocations of resources.  It also involved gove rnment restrictions on firms with respect to their 
choice of technologies, the scale of their operations, the selection of investment projects and products 
produced, and the provision of subsidies.  Given the size of China's economy, industrial policy implementation in China had the potential to adversel y affect the interests of other Members, whether 
or not China achieved its policy objectives.     G/SCM/140 
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  20. Over the past 10 years, while China had provided some limited information with regard to its 
national five-year plans, it appeared that China ha d not provided any information with respect to the 
national plans governing particular sectors or th e plans adopted by sub-central governments. 
21. It was particularly troubling that, throughout its first 10 years of WTO membership, China 
appeared to have made frequent use of subsidies that were prohibited by the Subsidies Agreement.  
Indeed, to date, the United States had brought three separate WTO cases challenging scores of 
Chinese central, provincial and local government subs idies as prohibited.  In 2007, the United States, 
together with Mexico, had initiated WTO disput e settlement proceedings against China (DS358) 
challenging tax-related subsidies that appeared to take the form of both export subsidies and import 
substitution subsidies.  In 2008, the United States and co-complainants Mexico and Guatemala had 
initiated WTO dispute settlement proceedings (DS3 87) challenging a Chinese government industrial 
policy that generated a vast numbe r of central, provincial and lo cal government programs promoting 
increased worldwide recognition and sales of famous brands of Chinese merchandise through what 
appeared to be prohibited export subsidies.  In  2010, the United States had initiated WTO dispute 
settlement proceeding (DS419) cha llenging subsidies being provide d by the Chinese government to 
manufacturers of wind turbine systems that appeared  to be contingent on the use of domestic over 
imported components and parts.  While bilateral di alogue failed to resolve any of these matters prior 
to the initiation of WTO dispute settlement proceedi ngs, in each case China had either repealed the 
challenged measures or eliminated the benefits in those measures after being challenged at the WTO. 
22. Despite the positive steps that China had take n after being challenged at the WTO, it 
remained concerning that China continued to face WTO challenges alleging significant use of 
prohibited subsidies at every level of government even after 10 years of WTO membership.  The 
Subsidies Agreement's disciplines were clear and st raightforward, and it was unacceptable for China 
or any other Member to maintain prohibited subsid ies.  Going forward, the United States urged China 
to consider carefully the outstanding concerns th at the United States and other Members had raised 
about China's use of subsidies that appeared to be prohibited.  In addition, China's failure to comply 
with important transparency commitments was deep ly problematic.  Transparency was needed to 
provide the necessary balance between the rights of China and the interests of other Members that was so fundamental and crucial to the preservation the ru les-based trading system.   China had agreed to 
this important balance in principle, but had yet to fully live up to it in practice.  The United States also 
urged China to take steps to address the con cerns that had been raised about MOFCOM's 
countervailing duty practice.  The United States woul d continue to engage China, both at the WTO 
and bilaterally, until all of these outsta nding issues were satisfactorily resolved. 
23. The delegate of Canada stated that his delega tion continued to have concerns about China's 
industrial policies and their linkages with regard to subsidization.  For example, on numerous 
occasions, including in the context of previous transiti onal reviews, Canada, either individually or in 
concert with other NAFTA countries had sought clarif ications regarding China's iron and steel policy. 
Canada's concerns - which were centred on the hi gh degree of intervention of the Chinese government 
in the direction and decision making regarding the allocation of resources into and out of its steel 
industry, including subsidization - remained.  Canada acknowledged that there were difficult 
challenges in this sector in China and Canada appr eciated that China recognized this.  Canada had a 
continuing interest, as did its NAFTA partners, in learning more about the relationship between 
national five-year plans and specific government i ndustrial policies broadly and how such policies 
were implemented, coordina ted and funded between various levels of governments.  Canada noted in 
particular the efforts of China's Ministry of In dustry and Information ("MIIT") to reduce and/or 
eliminate steelmaking capacity in China and would ask for information that China could provide on 
any possible role that subsidization would or might pl ay in this endeavour.  In its answers to questions 
by the NAFTA countries in the context of the 2010 tr ade policy review of China, China had stated 
that its government would provide subsidies to suppo rt adjustment assistance related to relocation due 
to out-dated capacity, not only in the steel but othe r industries as well.  The delegate asked whether G/SCM/140 
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  China could inform the Committee as to recent implementation of that policy.  Canada also looked 
forward to seeing China's answers regarding the ro le of the state-owned enterprises in advancing 
industrial policies. 
24. The delegate of Japan welcomed this opportuni ty to review China's implementation of the 
SCM Agreement.  In the previous reviews, Ja pan had made certain remarks with regard to 
transparency.  Japan attached gr eat importance to the notification and surveillance scheme stipulated 
in Part VII of the SCM Agreement.  The poor not ification record as well as the poor content of 
notifications would severely undermine the efficacy of notifications and surveillance scheme in the 
SCM Agreement.  Japan welcomed the fact that Ch ina had made a notification the Friday before the 
Committee meeting, after five years of silence.  As  a next step, Japan expected China to meet the 
requirements of timeliness and completeness as well. 
25. The delegate of Mexico wished to note at the outset that although it had successfully 
eliminated certain subsidies since accession, concerns  remained that China continued to keep in place 
a significant number of subsidies both for production and export with the aim of according benefit to 
its enterprises in the local market and rendering them more competitive in international markets. 
Mexico also wished to express its concerns regarding the application of export restrictions, in view of 
the fact that domestic subsidies could result from such  restrictions, and could work to the benefit of 
national producers.  Mexico's princi pal concerns were the following: Firs t, the delegate stated that in 
China, participation by local and provincial governme nts in industrial investment was of particular 
importance.  Certain subsidies identified in the past had been implemented by such government 
bodies.  The monitoring of such measures was cons iderably more complicated than for central 
government measures that had been notified to the Committee.  This situatio n created concerns given 
the lack of knowledge of these subsidies and the diffi culty of monitoring subs idies granted by local 
government in China.   
26. The delegate further noted that the Chinese Government had indicated that it no longer 
granted export subsidies.  However in certain ci rcumstances, China had made use of border taxes to 
encourage the export of certain products with impor ted components in other finished products in a 
number of sectors.  The delegate also stated that  China had undertaken to no longer apply subsidies 
for the export of tyres in China.  It was wort h mentioning that the production of Chinese tyres had 
fallen abruptly in the first nine months of 2008 pr incipally as a result of the faltering global economy.  
This was on the basis of information coming from th e China Rubber Industry Association (CRIA).  In 
order to assist members of the Association of Na tional Producers of Tyres, China had announced an 
increase from 5 to 9 per cent as of 1 December 2008 of  the subsidy granted on VAT credit in relation 
to exports of Chinese tyres.  Th is sort of subsidy essentially took  the form of export credits 
administered by the Export and Import Bank (EXIM) and the export credit in surances granted by the 
China Credit and Export Insurance Corporation (SINOS URE).  One example of this were the credits 
accorded to Chinese importers to enable them more easily to import essential technology and 
equipment as well as oil and natural gas and ot her mineral products imported in large volume 
containers and in long-term storage.  In his de legation's opinion, this sort of support and activities 
undertaken by the Chinese Government could l ead to unfair competition between Chinese and 
Mexican enterprises that would not be able to compete on an equal footing.  For example, a 
significant number of incentives were being maintain ed in relation to the apparel industry, where 
China was the only country participating in  the yarn and textile garment chain.  
27. Finally, his delegation wished to mention the di fficulty of monitoring measures.  Mexico in 
the past had participated in disp utes against China concerning the implementation of export subsidies, 
as was the case in relation to the "famous Chinese brands" and "globally recognized brands".  
Although China had undertaken to remove these measur es, there continued to be concern as to the 
difficulties surrounding the monitoring of the conti nued existence or not of prohibited subsidies, 
particularly in view of the fact that the majority  of such potential subsidies would be implemented by  G/SCM/140 
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  local or provincial governments, and that such  subsidies were not notified to the Committee on 
Subsidies and Countervailing Measures.  Mexico expect ed China to fully comply with its notification 
commitments and that this be done in a complete and transparent fashion. 
28. The delegate of the European Union stated th at the European Union shared many of the 
concerns raised by the previous speakers regardi ng China's subsidies practices.  These concerns were 
compounded by China's record with regard to its WTO obligations to notify regul arly details of all the 
specific subsidies that it maintained on all governme nt levels. Therefore, the European Union urged 
China to fully meet its notification obligations and furnish complete and timely notifications in 
accordance with the SCM Agreement. 
29. The delegate of Norway thanked China for pa rticipating in this TRM.  His delegation 
welcomed the information received from China in document G/SCM/N/232.  He also thanked China 
for having notified subsidies covering the period from 2005-2008.  Like others, his delegation was 
however looking forward to seeing China notifying all its subsidies programmes.  His delegation 
attached great importance to transparency as an obligation under the Subsidies Agreement. 
30. The delegate of China stated that over the p ast ten years, China had been making continuous 
and persistent efforts in fulfilling the treme ndous commitments made upon accession to the WTO.  
On the countervailing side, China's legislative fra mework was clear and consistent with the WTO 
SCM Agreement, as reflected in the notifications made to the Committee of China's Foreign Trade 
Law, the Regulations on Countervailing Measures, toge ther with six pieces of department rules.  In 
practice, in contrast to the fact that China ha d been the most frequent target of countervailing 
measures for four years and there had been more  than 30 countervailing investigations against 
Chinese products since 2004, China had thus far init iated only four cases, and had always been very 
prudent in using countervailing measures, as it di d with respect to other contingency measures. 
31. In respect of subsidies, before long after acc ession, China had eliminated all known subsidy 
programmes falling within the scope of Article 3 of the SCM Agreement as undertaken, including 
those contained in Annex 5B to the Accession Protocol.  Since then, China had also been engaged in 
discussions with some Members in an open and candid spirit on ce rtain policies and measures which 
these Members had believed to be problematic.  Wh ile in view of the technicality as well as the 
historical background of some of these issues Ch ina might not always agree with these Members on 
the nature of these measures, China had been clear and consistent on such a principle that WTO rules 
and China's accession commitment should be honoure d, and China would bring such policies and 
measures into conformity with the relevant WTO rules and its accession commitment if they were 
confirmed to be WTO-inconsistent. 
32. Transparency of subsidies in China had also been a major i ssue discussed under this agenda 
item of the Committee in all these y ears.  China was fully aware of the importance of this obligation 
in the WTO, and therefore had made unimaginabl e efforts ever since accession not only to gather 
huge amounts of information but also to analyse thei r inter-relationship and to identify their nature as 
to whether a subsidy programme did exist and whethe r it indeed was subject to notification under the 
SCM Agreement.  In this course of accumulation of  experiences and expertise, a working mechanism 
at the central government level had also gradually been  put in place.  In view of the fact that China 
had started this work virtually from scratch, Ch ina believed that progress made thus far had been 
significant and had fully demonstrated China's seri ousness in honouring its commitment in this regard 
in a long-term and effective manner. 
33. China had recently submitted to the Committee its second subsidies notification.  With this 
submission, the information since accession on subs idy programmes at the central level had been 
complete up to the year 2008.  It was true that local  programmes at that stage were not yet covered.  In 
this regard, the concerns expressed by Members we re well taken.  China would try its best to G/SCM/140 
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  accelerate the work related to the local programs in the next stage and in the meantime continued to 
further improve the notification of the subsidy programmes at the central level. 
34. The Canadian delegation, in its statement, had sought clarification from China on subsidies in 
the form of adjustment assistance relating to relocati on due to out-dated capacity.  In this regard, after 
the submission of China's second subsidy notificati on, information gathering for the next subsidy 
notification was under way in Beijing.  If the inform ation gathered confirmed the existence of support 
provided in this regard, it would be in cluded in China's next notification. 
35. At the last transitional review of China by  the Committee, China also wished to call on 
Members not to misinterpret many policy statements  of China as being specific subsidies within the 
meaning of the SCM Agreement, and also not to mistake implementations by local governments of 
the already-notified programmes in itiated by the central government as local programmes initiated at 
the sub-national level.  These issues had been mu ch debated all these years in the discussions under 
this agenda item.  After the closure of this agen da item, China would continue its exchanges with 
Members, in mechanisms and th rough channels which were bala nced and which would treat all 
Members on an equal footing.  Fi nally, the delegate of China e xpressed appreciation to all Members 
for their attention to and interest in the discussions held all these year s under this agenda item of the 
Committee and thanked the Secretariat for th e work done to facilitate this work. 
36. The Committee took note of the statements made. 
37. With regard to the Committee's report on the tr ansitional review, the Chairman noted that the 
Protocol contained no guidelines for the report.  Following the review conducted in 2009, the 
Chairperson, acting on his own responsibility, had prep ared a brief, factual report, with references to 
the documents concerned, and attaching the portion of the minutes of the meeting which related to the 
transition review.  The Chairman proposed that the Committee agree to follow th e same procedure.  It 
was so decided. 
__________