WORLD TRADE  
ORGANIZATION  G/L/835 
13 November 2007 
 (07-4917) 
Committee on Trade-Related Investment Measures  
  
 
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE 
PROTOCOL OF ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE 
WORLD TRADE ORGANIZATION
1 
 
Report of the Chairman  
 
 
1. Pursuant to Paragraph 18 of the Protocol of Accession of the People's Republic of China, the 
Committee on Trade-Related Investment Measures ca rried out the sixth annual review under China's 
Transitional Review Mechanism (TRM) at  its meeting on 1 November 2007.   
2. Written questions regarding China's Transitiona l Review were submitted in advance of the 
review by the United States and the European Comm unities.  These submissions were circulated as 
documents G/TRIMS/W/54 and G/TRIMS/W/55, respectively.     
3. In a communication dated 30 October 2007, Chin a submitted information on Annex 1A of its 
Protocol of Accession in connection with this revi ew.  This submission was distributed in document 
G/TRIMS/W/56, dated 31 October 2007. 
4. The relevant sections of the Minutes of the TR IMs Committee's meeting held on 1 November 
2007 in which Members' substantive discussions re garding China's sixth Transitional Review are 
reflected are reproduced in the Annex to this report.  
 
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1 WT/L/432 G/L/835 
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  ANNEX 
 
Relevant Sections of the Minutes
 
of the Meeting held on 1 November 2007  
 
(G/TRIMS/M/26 ) 
 
 
C. TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH  18 OF THE PROTOCOL OF 
ACCESSION OF THE PEOPLE 'S REPUBLIC OF CHINA TO THE WORLD TRADE ORGANIZATION  
10. The Chairman  recalled that under Paragraph 18 of China's Protocol of Accession (WT/L/432) 
the TRIMs Committee was required to review annua lly, over a period of eight years after China's 
accession, the implementation by China of the TRIMs Agreement and the related provisions of the Protocol of Accession, and to report to the Counc il for Trade in Goods (CTG) on the results of its 
review.  The fifth annual review of China had ta ken place on 25 October 2006, and the relevant report 
had been submitted to the CTG as document G/L/792.   
11. With respect to this year's review, he said th at, in order to discharge its reporting obligations 
in a timely manner, the TRIMs Committee needed to  undertake the review and submit its report in 
advance of the next meeting of the CTG which wa s scheduled for 23 November 2007.  Pursuant to 
paragraph 18 of China's Protocol of Accession, the CTG would in turn report to the General Council 
by the end of the year.  
12. He said that the Committee had received communications from the United States and the 
European Communities which contained comments a nd questions to China in connection with the 
Transitional Review.  These communications had b een circulated in documents G/TRIMS/W/54, and 
G/TRIMS/W/55, respectively.  The Committee had also received a communication from China, dated 
30 October 2007, concerning informa tion required under Annex 1A of its  Protocol of Accession.  This 
had been distributed as document G/TRIMS/W/56.  
13. He proposed that, in keeping with previous pr actice, the Committee conduct the review in the 
following manner: he would first give the floor to  those delegations that had submitted questions to 
China, and to any other delegation that wished to comment on this item.  He would then invite the 
delegation of China to answer the questions and pr ovide any other information they might wish to 
share with the Committee.    
14. The Committee so agreed
. 
15. The representative of the European Communities  welcomed the opportunity to participate in 
the sixth Transitional Review.  The EC continued to  believe that the Transitional Review Mechanism 
(TRM) was a useful mechanism and therefore they en couraged China to participate actively in this 
Review.  The TRM was a fundamental multilateral fo rum for exchanging concerns with China's WTO 
compliance efforts and it served to provide furt her transparency for China's trade regime.   
16. The EC's concerns had been set out in detail and in writing in the communication circulated 
on 16 October 2007 in G/TRIMS/W/55.  His intention was to highlight their key concerns and questions at the present meeting rather than dwe ll at length on the document.  As a preliminary 
remark he said that it was regrettable that the EC was obliged to raise again in their submission a good 
number of issues that had been raised in the TRIMs Committee in the past and to repeat questions that 
had not yet been answered in a fully satisfactory fash ion.  It was also regrettable that China had not 
circulated any written contribution for this exercise ah ead of the present meeting.  In this context, the 
EC recalled China's obligations to provide releva nt information to the TRIMs Committee in advance  G/L/835 
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  of the Review.  He therefore hoped that Chin a would provide comprehensive information and 
responses in a more substantive fashion in  the course of the present meeting.   
17. The first issue that he wished to raise c oncerned the clauses contained in contractual 
arrangements that were incompatible with China's obligations under its Acces sion Protocol.  In light 
of the EC's concerns regarding the procedur es to amend contracts which contained TRIMs 
incompatible clauses, China had noted  that the investors could change the terms of a contract by filing 
an application to the relevant authorities.  Th e EC invited China to elaborate further on this 
application process, in particular, as to how China mo nitored it so as to ensure its compliance with the 
TRIMs Agreement.  In addition, the EC requested China to clarif y how it ensured that the approval 
for investments by national and sub-national aut horities was not conditioned on either performance 
requirements or local content requirements of any kind.   
18. The second issue concerned the Regulations fo r the Implementation of the Law of the 
People's Republic of China on Sino-Foreign Equity Joint Ventures.  During previous TRM exercises, China had noted that amendments had been made to the Law on Sino-Foreign Equity Joint Ventures 
with a view to removing all Articles that were in contradiction with the TRIM s Agreement.  However, 
the EC argued that Articles 41 and 43 of the Regul ations for the Implementation of this Law still 
imposed requirements on technology transfer agreemen ts concluded by Joint Ventures.  In reference 
to Article 41, in particular, China had stated that  it was not a performance requirement and that it only 
aimed at ensuring that the technology was "appropriate  and advanced".  Nonetheless, the EC was still 
concerned about the provisions set forth in Article  43 and their linkage with Article 41.  The EC 
therefore invited China to explain how the requireme nts contained in Articles 41 and 43 related to the 
relevant provision of the Accession Protocol a nd whether it considered that these requirements 
resulted in equal treatment for imported goods as compared to domestic products.   
19. The third issue concerned local content requirement s in the energy and petrochemical sectors.  
With regard to the Measures for the Operation and Management of Clean Development Mechanism 
(CDM) projects, the EC was concerned about the lo cal content requirements they contained.  In 
particular, these local content requirements could reach 70 per cent for new projects in the renewable 
energy sector.  In this context, the EC invited Ch ina to clarify the existence of these requirements and 
the impact they could have in forei gn-invested joint venture enterprises. 
20. In addition, the EC wished to refer to the dr aft legislation from the National Development and 
Reform Commission (NDRC) which aimed at increasing the localization of large-scale petrochemical projects.  It was said that the overall objective woul d be to achieve a 75 per cent localization rate by 
2010.  In this regard, the EC requested China to explain how these requirement s were consistent with 
paragraph 7.3 of its Protocol of  Accession and to shed some light on the preparations for approving 
this draft legislation.   
21. In conclusion, he said that the EC looke d forward to written responses and additional 
information that China could provide at the present meeting on these and all the other points raised in 
the EC's communication in G/TRIMS/W/55.  
22. The representative of the United States
 said that the questions to China from his delegation 
had been circulated in document G/TRIMS/W/54.  It  contained several issues on which his authorities 
had continuing concerns and he looked fo rward to hearing the responses from China. 
23. The representative of China  wished to clarify the questions and comments his delegation had 
received prior to the meeting in relation to the TR IMs Agreement and Article 18 of China’s Accession 
Protocol.   G/L/835 
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  24. First, regarding the new Automobile Industry Development Policy , he said that it should be 
noted that the Policy only provided general guidance to the industry, and that it did not constitute a 
mandatory requirement.  Furthermore, the Chinese Government had not formulated any subsequent 
follow-up measures regarding Article 47 of the Policy.   With regard to questions on "2+2" and foreign 
share-holding limit, he reiterated that the Chin ese Government had the legitimate right to make 
independent judgment on the level of maturity of  the industry and provide guidance on development 
of the sector.  As long as China’s practices were not  inconsistent with WTO rules and/or with its 
WTO accession commitments, the position of the Government remained the same. 
25. Secondly, with regard to the Steel Industry Development Policy , he wished to make the 
following clarification.  In relation to outdate d production capacity and obsolete technology and 
products, on 2 December 2005 the State Council had published the Interim Regulation on 
Accelerating Industry Restructuring, and the National Development and Reform Commission 
(NDRC) had published NDRC Decree No. 40 of 2005 the  Catalogue of Products for Guidance of 
Industry Restructuring .  In this context, the former three sets of Catalogues of Outdated Production 
Capacity, Techniques and Products had been abolished .  The two documents gave clear definitions on 
"advance and practical" vis-à-vis "outdated produ ction capacity and products".  Members could 
download these two documents from the NDRC website, at www.ndrc.gov.cn
.  Regarding Article 18 
of the Policy, like the Automobile Industry Development Policy, the Steel Industry Development 
Policy  only served as a general guide to the indus try, and the Chinese Government had not 
implemented any subsequent compulsory measu res to reduce import or encourage production 
localization.  Regarding the ownership of intellect ual property rights (IPR), he said that it was not a 
compulsory requirement for IPR transfer.  Foreign i nvestors, together with their Chinese counterparts, 
had the full liberty to decide by themselves on wh ether or not to include a technology transfer 
requirement in their investment contracts for iron and steel projects.   
26. As concerned TRIMs incompatible clauses, he said that China had revised the Law of the 
People's Republic of China on Chinese-Foreign Equ ity Joint Ventures, the Law on Chinese-Foreign 
Contractual Joint Ventures, and the Law on Wholly Foreign-Owned Enterprises and their respective operational regulations.  The revision included the elimination and cessation of enforcement of 
requirements on foreign exchange balance, local c ontent, export performance, compulsory technology 
transfer, etc.  This revision had been widely p ublicized through extensive media coverage.  The 
Chinese Government respected the freedom of contractor s.  As concerned terms with regard to foreign 
exchange balance, local content, and export pe rformance contained in the contracts of foreign-
invested enterprises previously approved before the am endment of the relevant laws, if the contracting 
parties of both sides agreed to remove these terms, they could file an application to the relevant 
authorities.  The application would be processed in a timely manner following the TRIMs agreement.  
As concerned the number of applications filed, he regretted that his authorities were unable to obtain 
this detail prior to the present meeting.  The speci fic procedures for filing such applications were 
clearly defined in detail in the above-mentioned three Laws and their implementing measures.  
Members could have access to these Laws at the website of the Central Government of China, at www.gov.cn
.  
27. With regard to the existing text of Article 43 of the Law of the People's Republic of China on 
Chinese-Foreign Equity Joint Ventures, he said that it clearly stipulated that those Joint Ventures, 
wishing to enter into a business contract, including  a technology transfer agreement, should submit 
the contract to the competent authority for approval.   He said it was clear, in practice or in the actual 
wording, that Article 43 contained no compulsory requirement for foreign investors to include a 
technology transfer agreement in their contract.  Whether or not to include technology transfer agreement in the business contract was at the discre tion of the foreign investors and their domestic 
counterpart.  It was in fact due to  the availability of Article 43 that the legitimate rights of foreign 
investors were better protected if they voluntarily decided to include a technology transfer agreement in their contract.   G/L/835 
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  28. Regarding the status of the Industrial Catalogue for Foreign Investment , he said that the 
Chinese Government was in the process of revisi ng the Catalogue, and that views and opinions from 
the competent authority, business associations, and enterprises or individuals, foreign or domestic, 
would be solicited.   
29. As concerned the issue of local content require ments in the energy and chemical sectors, he 
said that, as far as he knew, the Chinese Government had always abided by its accession 
commitments and had followed the WTO rules in real earnest.  He was not aware of any compulsory requirements for local content as was mentione d by the EC, especially regarding the Clean 
Development Mechanism (CDM) projects.  Members would see that this was the case by 
downloading and consulting the docum ent mentioned by the EC at www.cdm.ccchina.gov.cn.  The 
document contained some articles which in fact encouraged the importation and use of foreign 
equipment and technology.   
30. Regarding the Mergers and Acquisitions (M &A) regulation and Anti-Monopoly Law, he 
wished to confirm that neither of the document s contained such requirements as local content and 
technology transfer, or import restriction.  Therefor e, it was the view of the Chinese Government that 
those questions and comments regarding the two doc uments had no relevance in the context of the 
TRIMs Agreement or to the mandate of this Transitional Review Mechanism.  Therefore, he suggested that Members not discuss these questio ns under the TRM agenda item of the present 
meeting.  
31. The representative of th e European Communities
 appreciated the efforts made by China to 
address the issues raised by the EC and to provide r esponses to their questions at the present meeting, 
though not exactly the way his delegation would have wanted to hear.  However, out of consideration 
for delegates at the present meeting, and in view of  the complicated character of the legislation that 
China had outlined and the fact that a few webs ites had been mentioned, he asked whether the 
Chinese delegation was prepared to subm it this information in writing.   
32. The representative of the United States  thanked China for the information provided at the 
present meeting, and said that he too felt that it would be useful to have the in formation in writing, or 
at least a copy of China's statement, in order to be able to accurately report to his authorities.   
33. The representative of China  said that the Chinese Governme nt was not under any obligation 
to provide written responses to the questions and comments.  However, for the purpose of 
transparency, he would provide a copy of  his statement to the Secretariat.   
34. The Chairman  said that with regard to the Committe e's reporting obligation to the CTG, he 
understood that Members would wish the Committee to follow the same pro cedure that had been 
adopted in previous years, i.e., the Chairman would submit a brief, factual report, which would 
include references to the submissions made in conn ection with this year's Review and would contain 
in the Annex the relevant parts of the Minutes of this  meeting.  He had taken the liberty of asking the 
Secretariat to prepare a draft outline of his repor t for Member's consideration.  This had been 
circulated as document G/TRIMS/W/53.  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 CTG.  
35. The Committee took note  of the statements made under this item and agreed  on the proposed 
procedure to discharge its reporting obligations concerning China's TRM.   
 
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