WORLD TRADE  
ORGANIZATION  G/AG/W/69 
25 August 2008 
 (08-3965) 
Committee on Agriculture Original:   English 
  
 
CHINA'S TRANSITIONAL REVIEW MECHANISM 
 
Questions to China from the United States in the c ontext of the Transitional Review Mechanism under 
Paragraph 18 of the Protocol of Accessi on of the People's Republic of China  
 
  The following communication, dated 13 Augus t 2008, has been received from the Delegation 
of the United States, with the request that it be ci rculated to Members, for the purposes of the Seventh 
Transitional Review to take place at the forthcoming meeting of the Committee. 
 
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Domestic support for China's pork industry 
 1. Article 4 of China's Enterprise Income Tax Law establishes a generally applicable enterprise 
income tax rate of 25 per cent.  However, Article  86 of China's Enterprise Income Tax Law, which 
became effective on 1 January 2008, wholly ex empts agricultural producers from the payment of 
enterprise income taxes with regard  to the "rearing of livestock", including pork.  This Article also 
wholly exempts agricultural processo rs from the payment of enterprise income taxes with regard to 
the preliminary processing of pork. 
(a) Please explain how China's Enterprise Income Tax Law defines the term "enterprise" 
in the context of (i) pork producers and (ii) pork processors. 
(b) Please identify the amount of revenue generated by (i) pork producers and (ii) pork 
processors in China in 2007.  Please also provide any available estimates for 2008. 
2. The United States understands that pork producer s in China can receive a payment of RMB 
100 per head for every sow, up from an earlier pa yment rate of RMB 50 per head.  The Chinese 
government previously indicated that the value of these payments was $886 million when the payment was RMB 50 per head. 
(a) Please describe the eligibility criteria for pork producers to receive payments under 
this program. 
(b) What is the total annual value of the RMB 100 per head payments? 
(c) Please identify the measures establishing this payment program. 
3. The United States understands that the Chin a Insurance Regulatory Commission oversees a 
sow insurance program, and that total annual premiu ms for this program are $2.9 billion, with the 
Chinese government paying for 76 per cent of the total annual premiums. G/AG/W/69 
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  (a) Please describe the eligibility criteria for pork producers to receive payments under 
this program. 
(b) Is it correct to conclude that the Ch inese government is paying $2.2 billion in 
premiums annually under this insurance program, while pork producers pay the remaining $700 million?  If not, please identify the correct amounts.  
(c) Please identify the measures establishing this insurance program. 
4. The United States understands that China makes payments to large-scale pork breeding farms, 
based on farm size.  Specifically, farms with 500- 999 heads receive RMB 2 million per year, farms 
with 1,000-1,999 heads receive RMB 4 million per year, farms with 2,000-2,999 heads receive 
RMB 6 million per year and farms with greater than 3,000 heads receive RMB 8 million per year. 
(a) Please describe the eligibility criteria for pork producers to receive payments under 
this program. 
(b) What was the annual value of payments made under this payment program in 2007? 
(c) Please identify the measures establishing this payment program. 
5. The United States understands that China make s payments to pork producers in Southern 
China for weather-related losses and that these pa yments range from RMB 200,000 to RMB 1 million, 
depending on the size of the production facility. 
(a) Please describe the eligibility criteria for pork producers to receive payments under 
this program. 
(b) What was the annual value of payments made under this payment program in 2007? 
(c) Please identify the measures establishing this payment program. 
6. The United States understands that China makes payments to pork processors related to the 
slaughtering of hogs, with the payment being between RMB 50 and RMB 100 per head slaughtered. 
(a) Please describe the eligibility criteria for pork processors to receive payments under 
this program. 
(b) What was the annual value of payments made under this payment program in 2007? 
(c) Please identify the measures establishing this payment program. 
7. The United States understands that China makes payments to pork producers related to the 
artificial insemination of sows, with payments of RMB 10 per dose and an additional RMB 10 for 
each sow that is successfully bred. 
(a) Please describe the eligibility criteria for pork producers to receive payments under 
this program. 
(b) What was the annual value of payments made under this payment program in 2007? 
(c) Please identify the measures establishing this payment program.  G/AG/W/69 
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  8. Please identify the total value of China's pork production in 2007.  Please also provide any 
available estimates for 2008. 
Discriminatory VAT exemptions 
 
9. In connection with last year's transitional re view before this Committee, the United States 
explained its understanding that many agricultura l products are exempted from China's 13 per cent 
value-added tax (VAT) normally applicable to agri cultural products.  For example, it appears that 
sales of agricultural commodities produced and sold by farmers in China, such as wheat, cotton and 
corn, are exempted from the VAT.  In addition, it appears that sales of agricultural inputs produced 
and sold in China, such as seed, pes ticide, herbicide, agricultural mach inery and certain fertilizers, are 
exempted from the VAT.  However, when these same  products are imported, it appears that they are 
assessed the VAT at the rate of 13 per cent. 
(a) In its statement during last year's transiti onal review, China appeared to confirm that 
sales of agricultural commodities produced a nd sold by farmers in China, such as 
wheat, cotton and corn, are exempted from  the VAT, while imports of these same 
products are assessed the VAT at 13 per cent.  China appeared to argue that this 
practice is consistent with Article III of the General Agreement on Tariffs and Trade 
1994 (GATT 1994) because downstream entities in China must pay the VAT in connection with transactions taking place after the initial transaction involving the farmer.  However, China did not address how it justifies the more favorable VAT 
treatment accorded to the products in question when they are sold by a farmer in 
China versus the treatment accorded to im ported products, which are always assessed 
the VAT.  Please explain how China justifies this discriminatory treatment. 
(b) In its statement during last year's transiti onal review, China also did not explain how 
it justifies the VAT exemption for farmers in China under Article 3 of the Agreement on Subsidies and Countervailing Measur es (SCM Agreement), which prohibits 
subsidies that are contingent on the us e of domestic over imported goods.  Please 
provide China's justification at this year's transitional review. 
(c) In its statement during last year's tran sitional review, China did not respond to 
questions posed by the United States regarding sales of agricultural inputs produced and sold in China, such as seed, pesticid e, herbicide, agricu ltural machinery and 
certain fertilizers.  The United States woul d ask that China respond to the following 
questions at this year's transitional review :  Can China confirm that these agricultural 
inputs are exempted from the VAT, while imports of these same products are assessed the VAT at 13 per cent?  If so, please identif y the applicable measures.  Please also 
explain how China justifies these VAT exemptions under its WTO obligations, including Article III of the GATT 1994 and Article 3 of the SCM Agreement.  
Export VAT rebates  
 
10. In connection with last year's transitional re view before this Committee, the United States 
explained its understanding that a VAT rebate is available upon the export of some agricultural 
products, including ones for which payment of the VAT  was imputed rather than actually paid at a 
prior stage because of an exemption (as explained in  question 8 above).  In its statement during last 
year's transitional review, China referenced the " Interim Regulation of the P.R.C. on VAT ", but did not 
respond to the United States' question seeking an ex planation regarding how China ensures that the 
export rebate is not excessive, i.e., that it does not exceed the VAT actually paid. 
(a) Please provide a citation to the " Interim Regulation of the P.R.C. on VAT ". G/AG/W/69 
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  (b) Please identify and provide citation to an y other measures that govern how China 
calculates the export rebate in this situati on, including any measures that specifically 
address agricultural commodities such as wheat, cotton and corn or agricultural inputs 
such as seed, pesticide, herb icide, agricultural machiner y and certain fertilizers. 
(c) Please explain how China ensures that the export rebate is not excessive, i.e., that it 
does not exceed the VAT actually paid. 
11. Please explain how China applies the VAT to agricultural and food pr oducts imported into 
China for processing and then re-exported.  Is th e VAT charged on the imported agricultural or food 
product?  Is the exported processed product eligible for a VAT rebate? 
Tariff rate quotas 
 
12. US companies continue to be concerned about inadequate transparency  in the administration 
of China's tariff rate quota (TRQ) regime for bulk ag ricultural commodities.  It  appears that the initial 
quota and any above-quota licences continue to be issued without public announcement of specific 
information about the quota allocations, such as the type and volume of quota being allocated to 
particular entities and the applicable duty rates.  When the United States raised this concern in 
connection with last year's transitional review before this Committee, China explained that it 
published information regarding the initial allocati on of TRQs and the reallocation of TRQs, citing 
National Development and Reform Commission (NDRC) Announcement No. 64 of 2006 and NDRC 
and Ministry of Commerce (MOFCOM) Announc ement No. 47 of 2007.  However, those 
announcements only address the opportunity to apply for quota allocations.  In the interests of 
transparency and the freer and more efficient flow of trade, the United States would welcome 
increased transparency in this area. 
(a) Would China be willing to publish inform ation on the entities receiving initial quota 
allocations, their initial request for an a llocation, how much of an allocation these 
entities received and whether the entities r eceived general quota allocations or 
processing quota allocations?  If not, please explain China's rationale. 
(b) Would China be willing to announce th e applied duty rates for above quota 
allocations at the time when the applicati on opportunity is made available?  If not, 
please explain China's rationale. 
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