WORLD TRADE  
ORGANIZATION  G/SCM/125 
18 November 2008 
 (08-5596) 
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 Countervaili ng Measures undertook the seventh transitional 
review of China pursuant to paragraph 18 of the Protocol on the Accession of the People's Republic of 
China (WT/L/432) at its regular meeting held on 29 October 2008.  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 16 October 2008, which has been circulated in 
document G/SCM/N/182.  3. Questions submitted in the context of the 2008 transitional review have been circulated in 
documents G/SCM/Q2/CHN/40 (European Communiti es) and G/SCM/Q2/CHN/41 (United States).  
The Statements made in the context of this tran sitional review at the meeting of 29 October 2008 are 
reflected in the minutes of the meeting, the relevant paragraphs of which are annexed. 
 G/SCM/125 
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Excerpt from the minutes of the regular meeting of the Committee on Subsidies and Countervailing 
Measures held on 29 October 2008, to be  circulated as document G/SCM/M/66  
 
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 paragraph 18 of the Protocol of Accession of the People's Republic 
of China to the World Trade Organization provided that all subsidiary bodies, including this 
Committee, "which have a mandate covering Ch ina's commitments 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 related provisions of [the] Protocol."   
 2. China was to provide relevant information in  advance of the review, including information 
specified in Annex 1A to the Pr otocol.  China could also raise issues relating to any reservations 
under Section 17 or to any other specific commitments made by other Members in the Protocol, in subsidiary bodies which had a rele vant mandate.  This Committee was required to report the results of 
the review promptly to the Council for Trade in Good s.  The review was to take place after accession 
in each year for eight years, with a final review in year 10 or at an earlier date decided by the General 
Council. 
 
3. The Chairman noted that there were no pro cedures set out for the conduct of the transitional 
review in the Protocol, except that China was to provide relevant informa tion in advance of the 
review.  In this regard, Annex 1A specified that  China was requested to provide information on the 
following to this Committee in ac cordance with Article 18.1 of its Accession Protocol:  "Pricing 
Policies": (a) "application of existing or any other pr ice controls and the reason for their use"; and (b) 
"pricing mechanisms of China's state trading enterp rises for exported products".   The notification of 
China provided for in Annex 1A has been circulated in document G/SCM/N/182, dated 
20 October 2008.  The European Communities and the United States had submitted questions in the 
context of this transitional review, which had b een circulated in docume nts G/SCM/Q2/CHN/40 and 
41.   
 
4. The delegate of the European Communities  saw the transitional review as a useful 
supplement to bilateral discussions with China on its subsidies policy, including China's observance 
of WTO obligations and its commitments under the Protocol of Accession.  China became a Member 
of the WTO in 2001 and its first subsidy notifica tion in 2006 represented an important step towards 
observing the fundamental principle of transparency as required under the SCM Agreement .  As had 
been reiterated on several occasions, China had s till not completed its firs t subsidy notification 
submitted in 2006, although it had been called upon by  several WTO Members to do so.  This in and 
of itself raised the question whether China was willi ng to fully abide by its WTO obligations.  This 
was further emphasized by the fact that China had not yet submitted the new and full subsidy 
notification which had been due by 30 June 2007.  
 
5. The delegate of the European Communities noted that subsidies pr ovided by sub-national 
governments was an area specifically highlighted by  Members in paragraph 173 of the Working Party 
Report on China's accession to the WTO .  As a result it might be expected that discussions on subsidy 
issues would focus more on substance rather than  on China's implementation of specific commitments 
that it had made in its Protocol of Accession.  
 6. As a consequence of these shortcomings, the European Commission continued to uncover 
subsidy schemes which had not been notified. A ccording to information the European Commission 
had, China subsidized the development of name br ands for export at both the federal and the sub- G/SCM/125 
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  federal level of government.  These subsidies ap peared to be contingent upon export and were 
therefore inconsistent with Article 3 of the  SCM  Agreement  as prohibited subsidies. 
 7. By continuously failing to update its insufficient subsidy notification or to submit a new and full subsidy notification in due time, WTO Members we re left with only one of two options:  to accept 
China's disregard for the legitimate interests of WTO Members and WTO obligations regarding 
transparency and notification requirements; or, to initiate formal dispute settlement proceedings - a 
path that the European Communities, and - one w ould assume - China, would prefer to avoid.  
 8. In light of this the delegate of the Eur opean Communities encouraged  China to commit to a 
specific timeline for the submission of information on its sub-federal programm es and of its next new 
and full subsidy notification.   9. Furthermore, the delegate of the European Communities requested China to provide it with 
comprehensive information on the subsidy schemes that had been specifically addressed at this 
meeting regarding the development of name brands  for export and regarding subsidies in its semi 
conductor industries, and to immediately notify those schemes or to terminate them.   10. The delegate of the United States
 said that this was the seven th annual transitional review 
mechanism for China.  The United States believed th at the transitional review mechanism continued 
to be a useful mechanism.  The transitional revi ew mechanism helped to provide needed additional 
transparency for China's trade regime so that Members could better understand and assess the 
progress that China had made in implementing and complying with its WTO obligations.  One of 
those obligations was to provide a complete subsidy notification.   11. After nearly five years as a WTO Member, Ch ina had submitted its firs t subsidy notification. 
While this was a positive step, the notification was la rgely incomplete as it failed to include a single 
sub-central government measure.  In explaining th e incompleteness of its notification, China had 
stated that it was "internally discussing how to gath er information in an efficient and an effective 
manner."  While for some WTO Members the absence of sub-central government measures may not be important, that was not true in the case of China.   
12. The United States had highlighted in prior s ubmissions to this Committee that provincial and 
local authorities in China played a very important  role in implementing industrial policy, including 
subsidy policy.  Therefore, the notification of sub-central government measures by China was imperative.  For example, it had recently been repo rted that one of China's provincial governments 
was providing assistance to four textile compan ies so they could avoid bankruptcy.  This 
demonstrated the important role of local governments, as well as China's commitment to maintain 
production in an industrial sector in which it was already a dominant supplier worldwide
. 
 
13. The delegate of the United States continued that a second obligation China assumed when it 
joined the WTO was to immediately eliminate all export subsidies.  The United States and other WTO 
Members had raised numerous questions over the years with respect to what appeared to be 
unreported subsidy programmes at va rious levels of government that were all contingent upon export 
performance.  The United States had also raised these  same concerns bilaterally, based on evidence of 
legal measures that clearly appeared to provide prohi bited export subsidies.  Notably, all of these 
programmes were implemented well after China beca me a WTO Member.  China had not taken steps 
to address the concerns of the United States or similar concerns expressed by other WTO Members.   
Most disturbingly, publicly available legal measur es at the central and local governments clearly 
indicated that some of these pr ogrammes appeared to have been formulated and adopted under the 
direction of the central government.  Given that th e end of the period of the trade review mechanism 
was drawing nearer, it was particularly troubling to see China taking what seemed to be new steps backwards rather than forwards, by implementin g what appeared to be new prohibited subsidy G/SCM/125 
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  programmes, at nearly all levels of government, prom oted and sanctioned by the Central Government.   
Continuation down such a path was not tenable.  China needed to meet its obligations to provide a full 
subsidy notification covering all le vels of government, and to termin ate without delay any prohibited 
subsidies in place.  
14. A third obligation China undertook when it became a WTO Member was that it "would not 
influence, directly or indirectly, commercial decisi ons on the part of state- owned or state-invested 
enterprises", as set forth in paragraph 46 of th e Working Party Report accompanying China's WTO 
Protocol of Accession.  The delegate of the United States noted that China was currently 
consolidating state ownership of large or strate gically important state-owned enterprises ("SOEs") 
under the State Assets Supervision and Administra tion Commission ("SASAC").  The approximately 
150 SOE holding companies owned by SASAC controlled thousands of companies across a wide range of industries and accounted for most of the pr ofits in the SOE sector.  A recent paper issued by 
The General Office of the State Council (GBF [2006] No. 97) stated that the dominant position of public ownership would be maintained, and estab lished a mechanism by which profits from SOEs 
would fund the re-organization of state-owned enterp rises, consistent with national industrial policies 
and planning.  Given the government's heavy relia nce on industrial policies and the government's 
explicit goal of maintaining a leading role for SOEs  in China, the United St ates asked China how it 
intended to proceed with its plans for SOEs and, at  the same time, meet its WTO obligation to operate 
its SOEs solely on a commercial basi s without government interference. 
 
15. The delegate of the United States noted that  the last section of the US submission included 
several questions regarding domestic support for Chin a's agricultural sector.  Many of those questions 
were asked in the committee meeting of the Co mmittee on Agriculture.  At that meeting China 
asserted that many of those questions were more a ppropriate for this Committee.  The United States 
was now repeating those questions with the exp ectation that China would provide a clear and 
complete response.  
 
16. The delegate of Japan  noted that while Japan had not submitted written questions in the 
context of this year's transitional review, Japan shared some of the concerns expressed by other 
Members in their written submissions.  The fact that some of the questions in those written 
submissions had also been posed in 2007 showed that  the responses from China were not sufficient to 
address Members' concerns.  In this regard, as a general matter, Japan hoped that China would 
respond to questions clearly and in an adequate and timely manner.  
 17. Japan had an especially strong interest in developments in China's banking and financial 
sectors, and shared the concerns of the United States in this regard.  Japan co nsidered that if Chinese 
state-owned commercial banks provided loans to un creditworthy enterprises, or supplied lending on 
terms and conditions inc onsistent with market considerati ons, such loans and lending constituted 
subsidies within the meaning of the SCM Agreement .  China had explained that as a result of the 
reform of the banking and financial sector, Ch inese state-owned commercial banks now provided 
loans on a commercial basis.  However, the details w ith respect to this reform were not clear.  For 
example, as pointed out by the United States at paragraphs 10-12 of documen t G/SGM/Q2/CHN/33, it 
was unclear how Chinese state-owned commerci al banks could take lending decisions on a 
commercial basis given that those banks were also required to act consisten tly with China's national 
industrial policy.  Japan requested China to provide a clear explanation on this point.    18. The delegate of Canada
 thanked the United States and th e European Communities for their 
communications and looked forward to reviewing China's answers.  Cana da agreed that the 
notification process was important for transparency  purposes and had been a key element of the work 
of this Committee.  In the context of previous tran sitional reviews, Canada had raised concerns with 
respect to China's industrial policies and subsidy programmes, in particular in the iron and steel 
sectors.  Those concerns remained.  Canada therefor e shared the interest of some other Members in  G/SCM/125 
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  having more information regarding programmes identified in the written submissions from the 
European Communities and the United States, includi ng programmes that supported name brands in 
international markets, issues relating to SOE operati ons in China, VAT rebates and VAT exemptions.   
 19. The delegate of Mexico
 echoed the concerns of previous delegations, noting that not much 
was known about the subsidy programmes at vari ous levels of the Chinese Government.  The 
implementation of programmes which appeared to be prohibited subsidies under Article 3 of the SCM 
Agreement was also a concern.  Mexico would be paying  close attention to the answers provided by 
China to these concerns. 
 
20. The delegate of China  took note of the statements made by the previous speakers.  Before 
responding to the written questions from the United States and European Communities, the delegate 
of China wanted to make some general comments.   21. The delegate of China firmly rejected any implication that China had failed to fulfil its 
transparency commitments in the area of subsidies.  China had always made it clear that preparation 
of subsidy notifications would in volve tremendous difficulties – this had been made clear to the 
Working Party when paragraph 173 of the Working Pa rty Report was drafted, which was why, in that 
same paragraph, China had committed to "progressively  work towards a full notification of subsidies, 
as contemplated by Article 25 of the SCM Agreement .  The Working Party took note of this 
commitment."  The delegate from China repeated the phrase,  "China would progressively work 
towards a full notification of subsidies, as contempl ated by Article 25 of the SCM Agreement."  This 
was what China had committed to do and this was ex actly what China had been doing ever since its 
accession and it is what China would continue to do.  It was never an easy task to finalize the first 
new and full notification of China's subsidy measure s and programmes at the central government level 
in April 2006, only a few years after China's accession.  The notification had contained 
comprehensive information covering the period 2001 to 2004.  China would never agree that 
finalising this notification in 2006 amounted to a fa ilure to honour its accession commitment.  On the 
contrary, China believed its efforts were a reflecti on of its commitment to the fundamental principle 
of transparency.  This was especially true given its serious capacity constraints as a newly acceded developing country Member.  There had been de lays in the subsidy notifications from some 
developed Members, in sharp contrast to the efforts made by China.  
 
22. China's efforts would continue, even though it was not in a position at this moment to submit 
a second or updated New and Full notification.  Th e main reason for the delay was the major reform 
of China's internal tax policies, which resulted in  adjustments to the policies and measures contained 
in China's first notification.  It would not be sen sible to waste precious resources and limited capacity 
to notify things that were undergoing chang es.  China intended to present to Members a 
comparatively complete picture of the changes.   China was continuing to work on an updated 
notification, and to the extent possible would endeavour to cover the period from 2005 to 2008 in this second updated notification.   23. As to the question whether the second notifi cation would cover the s ub-national level, the 
delegate of China stated he had no answer at this st age.  But, China had a feeling that the effects of 
subsidies provided at the sub-national level mi ght be magnified.  In preparing China's written 
responses to the written questions from the United Stat es regarding its first notification, as contained 
in document G/SCM/Q2/CHN/28, China endeavoured to  verify those sub-national measures identified 
by the United States.  But, many of those measures  were outdated, had already been eliminated, or 
had not been understood correctly.  
 24. The delegate of China asked whether the Un ited States and the European Communities could 
reassure WTO Members that they had notified all subs idy measures at the sub-national level that they 
were obliged to notify to this Committee.  In the case of the European Communities, de minimis aid G/SCM/125 
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  was governed by Articles 87 and 88 of the EC Tr eaty.  Regulation No 69/2001 of 12 January 2001 
deemed that state aid measures granted to any single enterprise not exceeding EUR 100,000 over any 
period of three years would not meet the criteria under Article 87(1) of the EC Treaty, and would therefore not fall under the notification requirement of  Article 88(3) of the EC Treaty.  As such the 
European Communities would not notif y to this Committee subsidies gran ted to any single enterprise 
under EUR 100,000 over any period of three years.   The delegate from China invited the Committee 
to compare that to China's measures mentioned by the European Communities in its written questions.  
Even if the measures identified by the European Communities in its questions to China were all 
verified, an enterprise in China that complied with the criteria would be awarded RMB 30,000 
annually, or RMB 90,000 over three years – how did that compare to the de minimis  level of 
EUR 100,000 in the case of the European Communiti es, a developed Member.  With the exchange 
rate standing at 1 Euro to 10 RMB were China's subsidies at the sub national level really a big 
problem?  25. Turning to the specific questions, the delegate  of China noted that he had been informed by 
his authorities that the Circular on Carrying out Evaluation of Products to be recognised as China 
World Top Brand of 24 March 2005  was no longer being implemented.   Regarding the questions from 
the European Communities on the semi-conductor indus tries, details of China's measures regarding 
this particular industry were already contained in  the first New and Full notification, specifically 
item 57 in document G/SCM/N/123/CHN.  Noting the specific comment on page 3 of the written questions from the European Communities stating that  " ... China applies a 3 per cent value-added tax 
rate on China-made chips", the Chinese delegate veri fied that no such policy was in place in China. 
 26. The United States had asked whether ther e was any mechanism in place in China for 
reviewing new Central Governme nt subsidy programmes. The representative from China confirmed 
that the Central Government followed consulta tion procedures when formulating policies and 
developing measures in order to ensure WTO cons istency.  As to the efforts regarding subsidy 
programmes of local government, a comprehensive programme on legislation review was launched 
nationwide around the time of China's accession to the WTO.  As part of that process a special 
circular was issued by the State Council in September 2001 requesting all local governments to review local regulations, rules and administrative measures in line with the principles of uniform 
application, non-discrimination and transparency.  To ensure consistency w ithin the legal framework 
and uniform implementation of trade policies across the country, the Regulations on Submission of 
Regulations and Rules for Record was promulgated at the end 2001.  This included the requirement 
that all rules and regulations be submitted to the Legislative Affairs Office of the State Council for 
review within 30 days of promulgation.  This a fforded the opportunity to identify and remedy any 
inconsistencies between the local rules and regulati ons with the laws and re gulations of the Central 
Government.  In addition, anyone could write to the Legislative Affairs Office of the State Council to 
initiate a review process whenever  they identified an inconsistency in the legislation.  
 27. Regarding the question on the relationshi p between industrial policies and subsidy 
programmes, the delegate of China clarified that they were not necessarily inter-linked.  Industrial 
policies were usually general, reflective of a general policy direction and implemented through 
specific administrative measures.  Subsidy progra mmes were found in admini strative measures which 
might or might not be related to industrial policies.   It was on these specific administrative measures 
providing for subsidies that China had made its subsidy notification.  Generally speaking the 
financing of the subsidy programmes would remain at the level of government initiating the subsidy. 
 
28. Turning to the questions on state-owned enterprises, China thought using the word 
"consolidation", as the United States had done in its  written questions, could be misleading.  More 
appropriate phrases to describe the process might be "streamlining" or "rationalisation".  China 
clarified that this process was not a subsidy programme .  It was a process that reflected the efforts of 
the Chinese Government to further reform its  state owned enterprises along the market economy  G/SCM/125 
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  principles, which included ensuring that decisions of those enterprises were based solely on 
commercial considerations, and that the role of the State as an investor and shareholder was separated 
from that of the managerial board of those ente rprises as the decision maker.  The State Assets 
Supervision and Administration Commission, or SASAC took on the role of the investor or shareholder on behalf of the State and aimed to pr eserve and increase the value of the state-owned 
assets.  It did not seem necessary to go into detailed analysis of the directives mentioned by the 
United States as in light of the mandate of the Committee concerning the transitional review those 
directives were not directly relevant.  However, the delegate of China wished to highlight some points 
of those directives in order to reflect the polic y direction of the Chinese government regarding its 
reform of state-owned enterprises, as he had just me ntioned.  For example,  state-owned enterprises, 
other than those of national security interest, woul d be promoting a diversified investor structure;  
state-owned enterprises were encouraged to go publ ic and be listed on stock market; and investors, 
including foreign investors, were welcome to take up shares in those enterprises.  
 29. The delegate of China noted that due to th e late arrival of written questions, the relevant 
authority had not been in a position to respond to th e questions on land administration.  He also added 
that China did not see the relevance of the questions to the mandate of this Committee, particularly 
those concerning the National Land Superintendency.  Th e delegate of China wished to reiterate that a 
basic principle adhered to by China in its economi c reforms was to allow the market to play its 
fundamental role in the allocation of resources, no ting that in China land for industrial purposes could 
now only be provided through public bidding procedures.  
 
30. The delegate of China noted that the econo mic reforms in China had led to fewer price 
controls on goods and services.  These days onl y a very small number of goods and services 
continued to be subject to state pricing, or go vernment guidance on pricing due to their importance 
and sensitivity.  Information provided to this Comm ittee in accordance with Annex 1A reflected this 
situation.   In the meantime the reform process was on-going – for example, price controls on coal and 
grain had been eliminated in the last few years.  While the reform of fuel pricing in China would not 
be completed overnight, the policy direction was clear.   31. On questions regarding the agricultural sector  and China's new Enterprise Income Tax Law, 
the delegate of China responded that  chapter one of the legislation answered the question posed by the 
United States regarding the definition of "enterpri se".  Given misunderstandings  that might be derived 
from translation the delegate from China suggested th at the United States consult the official English 
version of this particular law for the details.  As to the questions concerning the projections of values 
of income tax exemptions, China was not in a posit ion to do such projections.  The amount of tax 
forgone as a result of the implementation of prefer ential tax policies was not available as China did 
not have a statistics system for tax expenditure.  Therefore, at this point, such projections were 
impossible.  Other available details on exemptions would be included in future notifications.  Noting 
that the final Article of the legislation was Article  60, the delegate from China wondered if there had 
been a mistake in the question from the United States  given reference to a non existent Article 86.   
 32. The delegate of China referred to a previ ously raised question on which he had provided a 
response, on the VAT exemptions for agricultura l products produced by Chinese farmers.  He 
reiterated that China did not believe there to be any discrimination in appl ying such exemptions.  
China had explained repeatedly its views on this issue, including in written responses during its trade 
policy review.  This exemption of VAT in China app lied to the products directly produced by Chinese 
farmers and the corresponding stage of tax levying in  a foreign country was when a foreign farmer 
sold his/her products.  He asked whether the Unite d States or the European Communities could clarify 
whether any tax was levied on farmers in the Unite d States or in EU Member States when a farmer 
sold his/her products.  It seemed not only were fa rmers exempt from taxes in  those countries, they 
were also heavily subsidized.   G/SCM/125 
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  33. Finally, with respect to China's export VAT rebate, the delegate of China stated that the 
rebates were implemented according to legislated re bate rates, none of which were in excess of the 
original rates levied.  As such China did not  believe there was any inconsistency with the 
requirements of the SCM Agreement.   
 
34. The delegate of the European Communities  thanked China for its replies and its 
explanations, particularly on semi conductor industries and noted he would follow up on the information provided.  China had interpreted paragraph 173 of the Working Party Report as 
allowing it to delay submission of its notification to this Committee.  The European Communities strongly disagreed with this interpretation.  Transparency was a fundamental principle of the 
WTO and the delayed submission of a subsidy no tification would severely undermine the 
usefulness of such a notification to Members.  To  be useful subsidy notifications needed to be 
timely.     35. As to China's name brand programmes, th e European Communities agreed with the view 
that notifications needed to be made irrespectiv e of the amount notified.  The delegate of the 
European Communities noted that China had also asked a question regarding the European Communities notification.  The European Communi ties was prepared to answer any question put 
to it on its notifications and would be prepar ed to terminate any prohibited subsidies found in 
Europe.  
36. The delegate of the United States
 agreed firmly with the European Communities on the 
meaning of paragraph 173 in China's Working Party Report.  It was very disturbing to hear China suggest that, in effect, it had no obligation under Article 25 of the 
SCM Agreement to make 
subsidy notifications, but rather c ould meet its obligations by merely continually working toward 
a full notification.  The delegate of the United St ates noted that he had been very involved in 
China's accession negotiations and recalled that Members of the Working Party had asked and 
expected China to provide a full notification of its subsidies at the time of its accession.  China 
provided a notification in Annex V of the Work ing Party Report, but as many Working Party 
members noted at the time it was incomplete.  Working Party Members had asked China to work 
progressively to complete that notification.  That did not amount to an alteration of China's 
obligation under Article 25 of the SCM Agreement regarding future notifications.  Seven years 
into China's WTO membership, the expectation was that China should now have notified all of 
its subsidies, including subsidies at the sub-national government level.  While China had mentioned that it was a developing country Me mber and therefore needed more time to put 
together its notification, China's Protocol of  Accession did not label China as a developing 
country Member, nor did it provide for deve loping country treatment for China under the 
SCM 
Agreement.  China was not given the right to invoke any of the developing country provisions in 
the SCM Agreement  in its Protocol of Accession.  
 37. The delegate of the United States noted c oncerns with China's sugg estion that because 
some programmes at the sub-national government leve l were dated or eliminated they were not a 
big problem.  The United States considered programmes implemented at the sub-national 
government level to be an enormous problem – it had identified, so far, more than sixty
 separate 
legal measures that appeared to provide export subsidies.    38. Following initial questions in 2006 on th e export brand programme, the United States 
interpreted this programme as providing export subsidies at the central government level.  The 
legal measure, at the level of the central govern ment, set out the parameters of the programme 
and provided guidance to sub-central governments to implement programmes along the lines of 
the central government legal measure.  The concer n was that the central government in China did 
not appear to be aware of its WTO obligations as  these legal measures clearly appeared to be 
prohibited export subsidies.  The issue of prim ary concern was not necessarily whether China  G/SCM/125 
 Page 9 
 
 
  was able to track down all of the provincial mea sures in question, but rather that the central 
government had formulated and implemented progra mmes that appeared to be prohibited.  These 
programmes were implemented in 2005 and 2006,  long after China became a WTO Member.  
The United States considered that the mechanisms  China had in place with respect to insuring 
WTO consistency, both at the central government level and the local government levels were 
ineffective.  The reviewers, MOFCOM, of the measures in China did not appear to understand 
the full nature of China's obligations under the SCM Agreement .   
 39. The delegate of the United States noted that China had asked whether the United States had notified all of its sub-central government m easures.  While not all sub-central government 
measures may have been notified, the United Stat es stated that it had notified over 350 state 
programmes, which was 350 more sub-central government programmes than China had notified.   40. The United States welcomed the statement from the Chinese delegate that SASAC's role was limited to that of an investor interested in  maximizing state-owned asset values.  But, the 
directive cited by the United States in its writte n questions included repeated references to the 
fact that SASAC's efforts at streamlining owners hip and in regulating investment activity in the 
SOEs was to be done in accordance with state in dustrial development policies.  The directives 
also made clear that SASAC would determine both the core and non-core business of those large SOEs and would assign a  priority to the alloca tion of investment to core businesses.  How did 
SASAC intend to maximise asset values consistent w ith market principles if at the same time it 
was going to allocate or regulate investment behaviour in accordance with state industrial 
development policies?  How could SASAC maximise asset values if the directive prioritised the 
allocation of investment into core business as dictated by SASAC, rather than core business 
determined by enterprises?  The delegate of th e United States noted that SASAC had explicitly 
stated that it would maintain control over those SOEs so that no strategic investor, whether 
foreign or domestic, would have effective control over the SOEs under SASAC purview.  
 41. Finally, regarding land, it probably went without saying that land was perhaps China's 
most scarce and valuable resource relative to labo ur.  Given the scarcity of land and given its 
clear implications for both market entry and comp etition concerns, it woul d not be too much to 
ask why the Government had undertaken effort s to recentralize land administration at the 
provincial level.  There were concerns about what  that implied for transpa rency in land allocation 
in China.  42. 
The delegate of China  took note of the comments and wished to respond to the points raised.  
On paragraph 173 of the Working Party Report, what  he said should not be understood to mean that it 
was China's intention to delay its notification.  Ra ther, China was applying maximum effort to do as it 
had committed to do, and was working towards providi ng a full notification.  Secondly, regarding the 
point concerning the brands, China took note that  some Members felt MOFCOM, as the reviewer, did 
not appreciate fully China's WTO obligations.  But, there appeared to be a misunderstanding on this 
particular point. China had previously explained MOFCOM's policy in this regard, probably during 
the previous transitional review meeting or in wr itten responses in its trade policy review – the focus 
of the policy was to promote the brands to particip ate in trade fairs and trade promotion activities.   
The delegate from China noted he was not an expert in company law,  but wondered whether SASAC, 
as a shareholder and investor in a company, was prevented from expressing views on the company in which it had invested.   He also not ed that it appeared that major countries were 
nationalising company assets due to the ongoing financial crisis that had originated in the United 
States.  In saying this the delegate from China did not mean to trigger a debate, but wanted to 
reiterate that in light of the mandate of th e Committee, the discussion under this agenda item 
should focus on the WTO consistency of concrete and specific measures, rather than general 
issues such as the land administration system, SOE reform or financial assets nationalisation. 
 G/SCM/125 
Page 10  
 
  43. The delegate of the United States  noted his appreciation for China's response to his 
intervention.  With respect to the famous e xport brand programme, it was very clear from the 
legal measures that in order to qualify for th e programme a firm had to export products.  The 
policy behind the programme was to encourage th e exportation of Chinese branded products, and 
it was thus a very clear case of export contingency.  The Chinese delegate had mentioned trade 
fairs and trade promotions, but this  was of little interest at this point.  The United States was 
interested in cash grants that were given to comp anies that had been recognized as the owners of 
famous export brands - cash grants that could have significant value.    44. On the issue of SOEs, from a separation standpoint and from a governance standpoint 
privatization of the SOEs would be the first best  option, but if privati zation was not an option 
there was not a concern with SASAC operating as an investor 
per se .  Of course SASAC had a 
right as the owner to participate as an investor .  The concern was more with the fact that the 
investment regulation and SASAC's ownership of those enterprises would be conducted in accordance with state industrial development policies.   Because of the link to industrial policies it 
was not clear to what extent those SOEs would operate as extensions of the government rather 
than true commercial actors.  45. The delegate of the European Communities
 thanked China for its follow up responses.  
The European Communities appreciated that Chin a had the same understanding of paragraph 173 
of the Working Party Protocol as it had, and acknowledged China's effort to undertake to submit 
timely and complete subsidy notifications.  He asked whether China could be more specific with 
regard to when it would make a complete subsidy notification.   46. On the brand names, China seemed to ha ve understood it as more or less a trade 
promotion export problem.  According to the information of the European Communities this was 
clearly an export subsidy programme rather than an issue of export promotion.    
 47. The delegate of China
 responded that on the brands issue, as had just been explained, the 
provision of assistance as contained in the MOFCOM policy was for the purposes of trade promotion.  The delegate was not convinced th at such trade promotion activity was a problem.  
Regarding the subsidy notification, China was in th e process of preparing a second notification.  
 
48. Finally, while on this particular occasion the delegate of China did not wish to enter into 
a debate on China's developing country status, he said that it was an undeniable fact that China 
was still a developing country and that China ha d all the rights that a developing country was 
entitled to in the WTO.  He had been pe rsonally involved in China's accession process. 
 
49. The delegate of the United States
 stated that China's Protocol of Accession was very clear 
on this point.  In its Protocol of Accession China agreed not to invoke any of the development country treatment provisions that are normally available under the 
SCM Agreement.    
 50. Another delegate of China
 referred his colleague from the United States to paragraph 171 
of the Working Party Report.  The final two sent ences read: "In line with this approach the 
representative of China stated his intention to reserve the right to benefit from the provisions of 
Articles 27.10, 27.11, 27.12 and 27.15 of the SCM  Agreement while confirming that China 
would not seek to invoke Articles 27.8, 27.9 a nd 27.13 of the SCM Agreement.  The Working 
Party took note of these commitments".  It was clear from those sentences what China had 
committed to and that it did have developing country status. 
 51. The delegate of the United States
 wished to provide a clarification.  The provisions of the 
SCM Agreement  that were "reserved" were provisions that dealt with anti-dumping and 
countervailing duty investigations for which the i nvestigating authority retained the authority to  G/SCM/125 
 Page 11 
 
 
  determine whether or not an investigated importin g Member was or was not, in the view of the 
investigating authority, a developing country.  Those were not provisions that China could 
invoke.  Those provisions referred to the investig ating authority.  With regard to the provisions 
that China itself could invoke, those were the ones that China had agreed in paragraph 171 not to 
invoke. 
 
52. The delegate of China  responded that China of course understood what those provisions 
meant, but the question to the United States was whether the United States was the only Member within the WTO who was entitled to judge the status of another Member?   Was that a political signal being sent to China, and also to other Me mbers, that China would not be entitled to any 
further S&D treatment for fishery negotiations, for fishing subsidies negotiations or whatsoever? 
The United States should be cautious – that posit ion would be problematic for China, for the 
United States and for this organisation.    53. 
The delegate of the United States  responded that China and the United States were going to 
have to agree to disagree and he just referred Me mbers to the terms of china's Protocol of Accession 
to reach their own conclusions.    54. The Chairman
 thanked Members for their comments and questions.  He stated that China's 
Protocol of Accession to the WTO did not contain sp ecific guidelines on the report to be submitted by 
the Committee on the transitional review.  Following the transitional review conducted at the meeting 
in October 2007 the Chairperson, acting on his own responsibility, prepared a brief, factual report, 
with references to the documents concerned, and attached the portion of the minutes of the meeting 
relating to the transitional review.  He proposed  that the Committee agre e to follow the same 
procedure.  It was so decided .   
 
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