WORLD TRADE  
ORGANIZATION  G/TRIMS/W/41 
1 August 2005 
 (05-3457) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
  
 The following communication, dated 28 July 2005, is being circulated at the request of the 
Delegation of the European Communities. 
 
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TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18  
OF THE PROTOCOL ON THE ACCESSION OF THE PEOPLE'S  
REPUBLIC OF CHINA ("CHINA") 
 
  1. The EC is transmitting these comments and ques tions in advance of the meeting of the 
Committee on Trade-Related Investment Measures (T RIMs) on 10 October, in order for the Chinese 
authorities to reply and to complete any informa tion that may be incomplete. The questions build 
upon the previous meetings of the Committee on TRIMs on 14 October 2002, 3 October 2003 and 
25 October 2004, as well as previous questions from the EC and its member States as contained in 
documents G/TRIMS/W/21, G/TRIMS/W/31 and G/TRIMS/W/36.  
2. Once the information to be provided by Ch ina in accordance with paragraph 8 and 
paragraph IV.3(a) of Annex 1A of its accession pr otocol has been received, the EC may submit 
additional questions, including questions pertaining to issues that have been raised in previous EC 
communications. 
3. At this point in time, the EC’s comments and questions are focused on the following priority 
items:  
• Amendment of clauses contained in contract ual arrangements that are incompatible 
with the TRIMs Agreement 
• Industrial Guideline Catalogue for Foreign Investments 
• New Automobile Policy 
 4. In connection with its accession to the WTO, Ch ina has committed itself to comply fully with 
the TRIMs Agreement through abolishing legisl ation and other measures constituting TRIMs upon 
joining the WTO  and through "providing relevant informa tion, including information contained in 
Annex 1A, to each subsidiary body in advance of th e review". More specifi cally, paragraph 3 of the 
Accession Protocol for China reads: 
"3. China shall, upon accession, comply  with the TRIMs Agreement, without 
recourse to the provisions of Article 5 of the TRIMs Agreement.  China shall 
eliminate and cease to enforce trade and foreign exchange balancing requirements, 
local content and export or performance re quirements made effective through laws, G/TRIMS/W/41 
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 regulations or other measures.  Moreo ver, China will not enforce provisions of 
contracts imposing such requirements.  Wit hout prejudice to the relevant provisions 
of this Protocol, China shall ensure that the distribution of import licences, quotas, tariff-rate quotas, or any other means of  approval for importation, the right of 
importation or investment  by national and sub-national authorities, is not 
conditioned on :  whether competing domestic suppliers of such products exist;  or 
performance requirements of any kind, such as loca l content, offsets, the transfer of 
technology , export performance or the conduct of research and development in 
China."   
Amendment of TRIMs incompatible clauses in contractual arrangements
 
 5. During the last TRM, China stated that TRIMs incompatible clauses in contracts "should not 
be regarded as invalid automatically or be an nulled through or by government actions or 
interference." Similar statements have been made  by China at earlier occasions as well, at which 
China has also informed Members about the fact that the contracts and articles of association of a 
foreign invested enterprise become effective only after they have been approved by the competent 
authority.  
6. Yet, Paragraph 3 of the Protocol of accession la ys out a clear obligation for China to not only 
abolish or amend TRIMs-incompatible  legislation, but also to ensure that any contracts containing 
TRIMs-incompatible commitments and obligations would not be enforced. 
7. In this context, the EC would be grateful if China could: 
Confirm that for its part it will ensure that any contracts which may contain TRIMs 
incompatible commitments and obligations will not be enforced by China, including before 
domestic law courts or other administrati ve tribunals or bodies and that the TRIMs-
incompatible commitments and obligations  are to be considered null and void. 
 
Industrial Guideline Catalogue for Foreign Investment 
 
 
8. Upon acceding to the WTO, China accepted to provide information regarding a number of 
economic policy areas (as well as other areas). In th e area of investment specifically, China accepted 
to provide the Committee on Trade-Related Investme nt Measures with information about "completed 
revisions to investment guidelines in conformity  with the WTO Agreement", cf.. Annex 1A, II, 2 
(p. 85) of document WT/ACC/CHN/49. 
9. With respect to China’s Industr ial Guideline Catalogue for Foreign Investment, at the last 
TRM, China alluded to prospective amendments to the Guideline Catalogue by stating "[a]t present, 
the competent authorities are working on the amendm ent, and the new version will be issued and 
implemented soon after its appr oval by the State Council".   
10. In this context, the EC would be grateful if China could: 
Confirm whether the amendment has been made as well as specify in more detail what the 
amendment entails, especially as regards the stat us of the Catalogue on Investment and the 
categorisation of restricted; permitted; and encouraged investments, and requirements relating to transfer of technology.   G/TRIMS/W/41 
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 New Automobile Policy  
 
11. The EC refers to its concerns regarding the New Automobile Policy (hereafter "NAP") 
already voiced in last year’s transitional review, especially with a view to the wide scope of state intervention and the uncertainty about the implem enting regulations that will supplement the new 
policy. Given the experience of how the NAP was devel oped, the EC wishes to stress the transparency 
obligations under WTO rules with regard to the outstanding implementation regulations of the NAP. 
Publishing drafts of these implementing regul ations well in advance would allow other WTO 
Members to comment on them. 
12. The EC would like to turn China’s speci al attention to the following issues 
(i) Administrative measures for the import of automobile components fulfilling the 
 characteristics of a whole vehicle   
13. These measures are likely to invalidate some of China’s WTO accession commitments 
(abolition of local content requirements and TRIMs, national treatment obligation). 
14. The measures will have a major negative ec onomic and technical impact on the EC 
manufacturers and on the development of the Chinese automotive industry itself.   
15. The EC therefore urges China to review its new legislation regarding WTO (as well as WCO) 
aspects and to be open for a constructive in dept hs discussion on this matter in order to develop 
solutions that are both, promoting China’s goal s of further localization of parts production and 
facilitating business for EC automobile manufacturers.  
(ii) Joint venture ownership limitation   
16. The NAP imposes restrictions on foreign investor s, which have contributed substantially to 
the rapid development of China’s automotive sector . Foreign joint venture partners are not allowed 
majority ownership in automobile production. Mo reover, participation of foreign joint venture 
partners in automobile manufacturing projects is limited to two for the production of passenger cars 
and two for commercial vehicles ("2+2"). Due to th e global nature of the automotive industry and the 
brand strategies of local companies locked in 50/ 50% ventures with foreign vehicle makers such 
restrictions are counterproductive to the NAP’s obj ective of promoting international competitiveness. 
17. In this context the EC urges China 
• to allow foreign majority investment and 
• to eliminate the "2+2" regulation.  
 
18. The EC would like to draw China’s attention to the fact that a review of the joint venture 
ownership regulation might well help to facilitate to solve the problem related to the localisation of 
parts production (see (i)). 
 
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