WORLD TRADE  
ORGANIZATION  G/L/751 
24 October 2005 
 (05-4879) 
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 
 
Report of the Chairman
 
  
1. In accordance with Paragraph 18 of the Protoc ol of Accession of the People's Republic of 
China, the Committee on Trade-Related Investment Measures carried out the fourth annual review 
under China's Transitional Review Mechanism (TRM) at its meeting on 10 October 2005.   
2. Written questions in connection with China's TR M were submitted in advance of the review 
by the European Communities a nd the United States.  These submissions were circulated as 
documents G/TRIMS/W/41, and G/TRIMS/W/42, respectively.   
3. In a communication dated 6 October 2005, Ch ina submitted information on Annex 1A of its 
Protocol of Accession in the context of the TRM.   This submission was distributed in document 
G/TRIMS/W/45, dated 7 October 2005. 
4. Annex 1 to this document reproduces the rele vant sections of the Minutes of the TRIMs 
Committee meeting held on 10 October 2005 in wh ich the substantive discussions on China's TRM 
are reflected.   
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 G/L/751 
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 Annex 1
 
           
 
Relevant Sections of the Minutes  
of the meeting held on 10 October 2005  
 
(G/TRIMS/M/22 ) 
 
 D. T
RANSITION REVIEW MECHANISM PURSUANT TO PARAGRAPH  18 OF THE PROTOCOL OF 
ACCESSION OF THE PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION  
11. The Chairman  recalled that under Paragraph 18 of Chin a's Protocol of Accession, the TRIMs 
Committee was required to review annually, over a pe riod of eight years after China's accession, the 
implementation by China of the TRIMs Agreement a nd the related provisions of the Protocol and to 
report to the Council for Trade in Goods (CTG) on the results of its review.  The third annual review 
had taken place in October 2004 and the relevant report had been  submitted to the CTG as document 
G/L/708.   
12. With regard to this year's review, he said th at in order to discharge its reporting obligations 
the TRIMs Committee would need to  undertake the review and submit its report in advance of the 
next meeting of the Council for Trade in Goods, wh ich was planned for 10 November 2005.  Pursuant 
to paragraph 18 of China's Protocol of Accession, the Council for Trade in Goods would in turn report 
to the General Council by the end of the year.  He then said that the Committee had received 
communications from the European Communities a nd the United States, containing questions in 
connection with China's Transitional Review Mechan ism.  These submissions had been circulated in 
documents G/TRIMS/W/41 and 42, respectively.  In addition, the Committee had received a 
communication from China, dated 6 October 2005, c oncerning information provided under Annex 1A 
of its Protocol of Accession.  This had been circulated in document G/TRIMS/W/45.  
13. He proposed that, in accordance with past practice, the Committee conduct the review as 
follows: he would first give the floor to those dele gations that had submitted questions to China, and 
to any other delegation that wished to comment on th is item.  He would then offer the floor to the 
delegation of China to answer the questions and pr ovide any further information they might wish to 
share with the Committee.   With respect to th e Committee's reporting obligation to the Council for 
Trade in Goods, he understood that Members wo uld wish the Committee to follow the same 
procedure that had been adopted in previous years,  i.e., the Chairman would submit a brief, factual 
report, which would make reference to the submissi ons made in connection with this year's review 
and would contain in an annex the relevant parts of  the Minutes of this meeting.  He had taken the 
liberty of asking the Secretariat to prepare a draf t outline of his report for Members' consideration. 
This had been circulated as document G/TRIMS/W/44.  If Members agreed to this outline, and once 
the relevant sections of the Minutes had been attached to it, he would forward the report to the Council for Trade in Goods.  
14. The Committee agreed
 on the proposed procedure to discharge its reporting obligations. 
15. The representative of the European Communities  thanked the delegation of China for its 
submission, which had been circulated on 7 October.  He said that it was unfortunate that most of the 
questions in his delegation's present communication had already been raised in the past, and so far had 
not yet been answered in a fully satisfactory manner in the EC's view.  For example, with regard to 
the contractual arrangement clauses, which the EC  believed were incompatible with the TRIMs 
Agreement, the EC had raised this issue at last year's review and was still awaiting confirmation from 
China that it would ensure that any contracts whic h might contain commitments incompatible with the  G/L/751 
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 TRIMs Agreement would not be enforced, incl uding before domestic la w courts or other 
administrative tribunals.  The EC was still seeking this assurance from China. 
16. The issue of the Industrial Guideline Catalogue for Foreign Investments had also been raised 
by his delegation at the last Transitional Review  Mechanism (TRM).  On that occasion, China had 
alluded to prospective amendments to the catalogue .  The EC would like to seek confirmation from 
China on whether the amendments that were referred to last year had been made.  The EC would also 
appreciate having more details regarding what the am endments entailed, especially with regard to the 
status of the catalogue of investment.  His delegatio n would also wish to have information on where 
these amendments had been published and where they could be found. 
17. On the new automobile policy and related out standing issues, the EC continued to have 
concerns regarding the publica tion of drafts of these implemen ting regulations. The EC would 
appreciate receiving the drafts well in advance so as to allow it and other Members to conduct a 
proper examination of them in the WTO.  More pr ecisely, the EC had concerns over the so-called 
Administrative Measures for the Imports of Automo bile Components Fulfilling the Characteristics of 
a Whole Vehicle.  His delegation would urge Chin a to review its new legislation in the WTO, 
allowing for an open and constructive in-depth discu ssion on this matter.  The EC would be seeking to 
have this discussion with its Chinese partners.  He added that the same concerns arose when looking 
at the joint venture ownership limitation foreseen in th e new automobile policy.  In that context, his 
delegation wanted to draw China's attention to the fact that a review of the joint venture ownership 
regulation might help to facilitate solving the problem related to the localisation of parts production.   
18. His delegation also shared the United States' concerns over China's recently implemented 
steel policy, known as the Steel Industry Developm ent Policy.  More specifically, the EC had 
concerns regarding two basic provisions of this ne w policy.  One was Article 23, which in the EC's 
view appeared to discriminate between domestic a nd foreign companies.  In that regard, the EC 
sought further clarification from China on the crite ria that it intended to use for applying this 
provision.  The second set of provisions concerned Article 17 and Article 18 of the same piece of 
legislation, which basically foresaw a ban on outdat ed techniques and equipments.  The EC wished to 
receive more information from China on the defin ition of "outdated equipm ents" and "advanced and 
practical equipment".   His delegation was willing to have a fruitful exchange with China on this issue 
and receive information to take back home in view  of the next review in the Council for Trade in 
Goods.  
19. The representative of the United States  said that he had not much to add to the 
communication that his delegation had submitted on this issue.  The United States basically had three 
separate areas where it required further clarification:  the foreign investment catalogue; the automobile 
industrial policy; and the steel policy.  His delega tion would appreciate any further information that 
the Chinese delegation could shed on these matters.  
20. The representative of Chinese Taipei  said that, according to paragraph 203 of China's 
Working Party Report, prior to acceding to the WT O China had revised its Laws on Chinese-foreign 
Equity Joint Ventures, on Foreign Capital Ente rprises, and on Chinese-foreign Contractual Joint 
Ventures to bring them into compliance with th e TRIMS Agreement by eliminating the foreign-
exchange balancing and trade-balancing requireme nts, local content requirements, and export 
performance requirements.  While from the legal pers pective there was general conformity with WTO 
rules, Chinese Taipei's companies that had invested in China said that they were facing some 
problems.  Therefore, his delegation would like to ask two questions to China.  First, given that 
differing interpretation of Chinese law and regula tion had led to a situation where there was 
inconsistent enforcement by the central and local gov ernments, he asked if any measures or concrete 
actions had been taken to ensure consistency a nd transparency. Secondly, he asked if China was 
considering the drafting of a law such as an administ rative procedural law that would provide for fair G/L/751 
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 and open procedures to be followed in administrativ e action in order to protect the interests of 
business.  If so,  his delegation would appreciate if  China could provide further details on the main 
provision of this law. 
21. The representative of China
 said that prior to this meeting his delegation had submitted to the 
TRIMS Committee the information required by Annex 1A of its Protocol of Accession 
(G/TRIMS/W/45). At present, he would like to provi de responses to the issues of concern raised by 
Members.   
22. Firstly, he stated that the Chinese Government  faithfully honoured its commitments made in 
the Protocol on the Accession of China to the World Trade Organization (WTO) and the Working 
Party Report.  China had made two amendments in 2000 and 2001 respectively, to the Law on Sino-
Foreign Equity Joint Ventures of the People’ s Republic of China, the Law on Sino-Foreign 
Cooperative Joint Ventures of the People’s Repub lic of China, the Law on Foreign-Invested 
Enterprises of the People’s Republic of China and their implementing rules or measures as well as 
related regulations.  Articles therein on foreign-ex change balance, trade balance, local content and 
export performance which contradicted the TRIMs Ag reement had been clearly removed. However, 
without the consensus reached through consultation between the consenting parties on any terms of an 
existing contract, the contract itself or some of its  articles could not be altered or invalidated by a 
Chinese court or any other administrative body through  a mandatory order.  He requested Members to 
refer to his delegation's more detailed explanations made during previous reviews on this point, which 
he believed were complete and clear. 
23. Secondly, by strictly following WTO rules and its accession commit ments, the Chinese 
Government had updated the old version of the Ca talogue for the Guidance of Foreign Investment 
Industries, soon after its accession.  A new versi on had been published on 30 November 2004 jointly 
by the National Development and Reform Commi ssion (NDRC) and the Ministry of Commerce 
(MOFCOM) upon the approval of the State Council, and had officially taken effect on                         
1 January 2005.  The Catalogue was divided into three categories: the encouraged (257 items), the 
restricted (78 items) and the prohibited categories (35 items).  This was the guiding document for 
applying policies on foreign-funded projects and foreign-invested enterprises.   
24. He also confirmed that there was no mandatory  technology transfer requirement in China 
regarding the approval of foreign-funded projects. In addition, China would continue to amend the 
above-mentioned Catalogue when deemed necessary.  However, China did not have yet any plan to 
remove the area of "production and development of  genetically modified plants seeds" from the 
"prohibited" category. 
25. Thirdly, he would like to respond to the qu estions on China's new Automobile Industrial 
Policy.  He stressed that the new Policy had been composed in a transparen t way.  Sufficient public 
consultation had been undertaken through comments solicitation and symposia with deeply involved 
stakeholders, inter alia , with major auto makers from foreign countries.   
26. (1) China’s auto industry  was still in an initial stage of development.  The technological level 
and competitive power of its products still lagged far behind those of develope d countries.  As import 
quotas were phased out, import tariffs further slashed  and the market further developed in the post-
accession transitional period, fiercer competition ha d taken place in China’s auto market.  The 
shareholding requirement was based upon the fact that  China’s auto industry  was at a preliminary 
stage of development and it did not contradict any WTO principle or China’s accession commitments. 
27. (2) With regard to the "2+2" requirements on se tting up joint ventures in China, he confirmed 
that this requirement was designed to prevent inv estors from over-stretching their investment, opening 
multiple production sites and competing viciously w ith one another.  The new auto industry policy  G/L/751 
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 clearly stipulated that "investors which, in associa tion with their Chinese joint-equity partners, acquire 
or merge with other auto production companies in  China may be exempt from this requirement", 
which demonstrated the Government’s supportive attitude towards further consolidation of its 
automobile industry. 
28. (3) Due to the differences in tariff levels between  whole vehicle and auto parts, it had become 
imperative that a clear-cut definition of "Whole Vehicle" be made.  Measures on the Administration 
of the Import of Automobile Components Fulfilling the Characteristics of a Whole Vehicle, which 
had come into force on 1 April 2005, contained no  mandatory requirement on domestic whole-car and 
auto part manufacturers, so it did not contradict China’s accession commitments. Moreover, it was equally applicable to foreign-invested ente rprises established in China and domestic-funded 
enterprises, thus it did not go against the principle of national treatment.  
29. (4) Regarding the requirements on setting up an R&D facility for a new automobile plant, he 
repeated the rationale behind this policy.  China wa nted to make sure that any new plant could meet 
the increasing technical and legal requirements on  safety, environmental protection and energy 
saving, as well as customer demand in China thr ough setting up its own R&D facility.  However, 
setting up an R&D facility itself did not constitu te any mandatory requirement on transfer of 
technology.  Thus, China’s requirement was not against its WTO commitments. 
30. He indicated that for more detailed explana tions on the New Automobile Policy, Members 
could refer to China’s responses made under th e TRM in the Committee on Market Access and the 
Committee on Import Licensing Procedures this year, as well as to responses made in previous reviews. 
31. Fourthly, regarding China’s steel policy, he i nvited Members to refer to China’s statement 
made under the TRM at the Committee on Import Licensing Procedures the previous month. 
32. Lastly, he announced that responses to questi ons on books, newspapers and periodicals would 
be delivered under China's TRM at the Council on Tr ade in Goods in November 2005.  Regarding the 
questions raised orally by Chinese Taipei, and recalling a similar situation in the Committee last year, 
the representative of China
 urged the delegation of Chinese Taipei to respect the procedures of the 
review by submitting valid questions in writing, if an y, well in advance of the meeting to facilitate the 
process of the review in the future. 
33. The Chairman  thanked China for replying to the questi ons that had been submitted and for the 
very comprehensive statement it made. He also tha nked the delegations that had participated in the 
exercise.   
34. The Committee took note  of the statements made and agreed  that the Report of the Chairman  
to the Council for Trade in Goods1, together with the Minutes of the present meeting on this agenda 
item, be submitted to the CTG. 
__________ 
 
 
                                                      
1 A draft Report of the Chairman to the Council fo r Trade in Goods was distributed to Members prior 
to the meeting in document G/TRIMS/W/44.