WORLD TRADE  
ORGANIZATION  G/C/W/589 
16 November 2007 
 
 (07-4998) 
Council for Trade in Goods Original:   English 
  
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18  
OF THE PROTOCOL ON THE ACCESSION OF THE  
PEOPLE'S REPUBLIC OF CHINA ("CHINA")  
 
Questions From the UNITED STATES to CHINA
 
 
  The following communication, dated 14 November 2007, is being circulated at the request of 
the delegation of the United States.  
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  In document G/C/W/587, the United States subm itted questions to China in connection with 
the 23 November 2007 meeting of the Council for Trad e in Goods for the purposes of the transitional 
review mandated by China’s Protocol of Accessi on.  The United States wishes to pose the following 
additional questions to China.  Some of these questi ons relate to matters that were raised by the 
United States and other Members, but not answered  by China, during the transitional reviews held 
before the TRIMS Committee and the TBT Committee,  which were held after the United States 
submitted document G/C/W/587.    1. Export Duties on Lead Metal 
1. The United States understands that China decide d in 2006 to eliminate the 13 percent value-
added tax (VAT) rebate available upon export of refined metal lead and then, in 2007, imposed a duty 
of 10 percent on exports of refined metal lead.  These actions caused a steep decline in China’s 
exports of refined metal lead and have contributed to a sharp rise in world prices, which have gone 
from approximately US$1,300 per metric ton (MT) at the time of China’s elimination of the export 
VAT rebate in 2006 to approximately US$3,200 per MT in recent months.  Meanwhile, Chinese 
domestic prices have reportedly declined because of China’s captive refined metal lead production, 
giving China’s downstream producers a significant competitive advantage over foreign downstream 
producers. 
(a) Please explain the purposes underlying China’s elimination of the export VAT rebate 
for refined metal lead and China’s impositi on of export duties on refined metal lead. 
(b) In Section 11.3 of Part I of its Protocol  of Accession, China committed not to impose 
export duties on any goods not appearing on th e list of goods subject to export duty in 
Annex 6 of its Protocol of Accession.  Refined metal lead does not appear on the 
Annex 6 list.  Please explain how China justifies its imposition of export duties on 
this product in light of the commitment that  China made in Section 11.3 of Part I of 
its Protocol of Accession. 
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  2. Import Restrictions on Technologies 
2. On 2 November 2007, MOFCOM issued a Catalogue of Technologies Whose Imports Are 
Banned or Restricted , which lists technologies whose imports are banned or restricted.  In a statement 
accompanying the release of this catalogue, MOFCOM  stated that the catalogue is intended to 
implement China’s 2006-2020 medium- and long-term  science and technology development plans by 
"restricting blind imports, guiding enterprises to  import advanced and appropriate foreign 
technologies, and promoting assimilation of importe d technologies and re-innovation."  The catalogue 
reportedly contains 126 types of technologies in 19 industries.  It bans technology imports that would 
"endanger national security, affecting social and public  morality and social public interest, affecting 
human or animal and plant lives and health, or da maging ecology and environment."  It restricts 
technology imports "for the purpose of establishing or accelerating the establishment of specific 
domestic industries," "for ensuring the nation’s intern ational financial status and international balance 
of payments" or if such imports “do not comply with industrial policies.”   
(a) Please identify the technology imports that are banned under the catalogue. 
(b) Please explain how China justifies these bans in light of its obligations under 
Article XI of the General Agre ement on Tariffs and Trade 1994. 
(c) Does China ban the sale of th e same technology products if produced domestically?  
If not, why not? 
(d) Please identify the technology imports that are restricted under the catalogue. 
(e) Has China decided on the import restrictions that will be imposed on these imports?  
If so, please describe them, and explain how China justifies them in light of its 
obligations under Article XI of the Gene ral Agreement on Tariffs and Trade 1994. 
3. M&A Regulations 
3. In August 2006, new regulations on mergers and acquisitions (M&A regulations) were jointly 
issued by China’s Ministry of Commerce (MOF COM), the State-owned Assets Supervision and 
Administration Commission, the State Administra tion of Taxation, the State Administration of 
Industry and Commerce, the China Securities Regulat ory Commission and the State Administration of 
Foreign Exchange.  The regulations strengthen MOFC OM’s supervisory role over foreign investment, 
in part by requiring MOFCOM’s approval of M&A transactions that  it believes impact state economic 
security or involve famous Chinese brands.  The regulations also place MOFCOM in the role of determining if the domestic acquisition target has b een appropriately valued.  In the interest of 
transparency, and so that the United States and other WTO Members can better understand how 
China’s M&A regulations may or may not be releva nt to the TRIMS Agreement or commitments that 
China made in its WTO accession agreement, the United States seeks the following clarifications 
from China: 
(a) Article 12 of the M&A regulations calls  for MOFCOM’s approval of any deal 
involving a "major industry", having "impact on the state economic security" or 
concerning "famous trademarks or traditional Chinese brands."  This language is very 
broad and appears to require MOFCOM approval on most foreign investment 
transactions.  Please explain what the quo ted terms mean.  Does China intend to 
define these terms in the implementing rules? 
(b) Article 14 of the M&A regulations requires that MOFCOM approve the valuation of 
any merger or acquisition.  What qualifi cations and experience will be required of  G/C/W/589 
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  those who determine the appropriate valuati on?  On what basis will they determine 
the value? 
(c) Chapter 5 of the M&A regulations requires reporting of any M&A transaction that 
meets specific criteria or involves "very la rge market share" or "“other important 
factors" that affect competition.  Wi ll the recently enacted Anti-Monopoly Law 
(AML) supersede these reporting requireme nts and the anti-monopoly examination of 
foreign M&A transactions under these regulations?  If not, what will be the relationship between the anti-monopoly reviews under Chapter 5 and the AML?     
(d) Will any anti-monopoly review of mergers be  carried out separately from the national 
economic security review under Article 12 of the M&A Regulations?  Please explain. 
(e) What plans do the relevant Chinese agencies have for issuing implementing rules for 
the M&A regulations, in addition to the guidelines issued in March 2007 on the requirements for filing reports under Article 51?  Will opportunities be provided for public comment on drafts of these implementing rules? 
4. Medical Device Border Examination 
4. China’s Administration of Quality Supervision,  Inspection, and Quarantine (AQSIQ) issued 
the Administrative Measures on Examination and Supervision of Imported Medical Devices  in late 
June 2007, to be effective 1 December 2007.  Known as Decree 95, this measure imposes an 
examination and supervision regime  on imported medical devices.  China cites as underlying statutory 
authority for this measure its 2002 Law on Import and Export Commodity Inspection.  
5. Decree 95 establishes three risk categories of medical devices and three categories for 
importers, based on their experience and other factor s.  It requires certain percentages (ranging from 
10 to 100 percent) of imported medical devices in each risk category to be subject to inspection.  The 
intensity and type of inspection vary based both on  the category of the importer and the risk category 
of the product.   For example, 100 percent of medi cal devices categorized in the highest risk category 
(e.g., MRIs and pacemakers) are s ubject to inspection.  Decree 95 also calls for a product catalogue 
that specifies which medical devices are subject to particular inspection regimes.  These inspections 
would be in addition to the exis ting certification requirements that foreign manufacturers must obtain, 
prior to exporting medical devices to China, through the normal regulatory process at the State Food and Drug Administration and the Certification a nd Accreditation Administration.  In addition, 
Decree 95 sets out requirements for foreign manufactur ers to report product defects, requirements on 
donated medical devices and requirements on remanufact ured medical devices.  Decree 95 appears to 
go substantially further than comm on international practice, where bor der inspection is generally done 
only on a very small percentage of already-cer tified devices, and done in response to targeted 
concerns. 
6. The United States has serious substantive concer ns about this measure, as well as concerns 
about China’s failure to notify the measure to the WTO.   
(a) Article 23 of Decree 95 provides authority fo r AQSIQ to conduct nine different types 
of inspection at the time a covered pr oduct is imported, including electromagnetic 
compatibility, emissions, and performance asse ssment of diagnostics.  This inspection 
authority, whether it is exercised for 10 per cent, 30 percent, 50 percent or 100 percent 
of imported medical devices (depending on risk categorization and company classification) as indicated in the measure, would mean exhaustive border inspection 
in a manner going substantially beyond comm on international practice.  Please clarify 
how frequently AQSIQ and its designees w ill conduct actual inspections of medical G/C/W/589 
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  devices at the point of entry, and how frequently AQSIQ and its designees will 
merely conduct verification of required paperwork. 
(b) Please identify and describe any regulations or  other measures that require inspection 
of domestic medical devices ma nufactured and sold within China, after those medical 
devices have received type approval and SFDA certification.  
(c) Does China have any regulations or other measures that regulate the domestic 
distributors of domestically manufactured medical devices in a manner similar to the scheme set out in Decree 95 for the importers of imported medical devices?  Please explain. 
(d) Please describe the fee that will be assessed  when AQSIQ conducts an examination 
and supervision.  How much will an indi vidual examination cost?  What is the 
purpose of the fee and on what basis is it calculated?   
(e) In bilateral discussions with the United States, China has argued, among other things, 
that it sees no need to notify the measure, given that the overarching law (its 2002 Law on Import and Export Commodity Inspection) was notified to the WTO.  
However, the TBT Agreement notification oblig ation applies to any measure that fits 
the definition of a technical regulation unde r Annex 1 of the Agreement, subject to 
the provisions of Article 2.9.  Thus, a WTO Member’s characterization of a measure as a law, a regulation or some other type of  measure is not determinative.  The United 
States routinely notifies to the WTO chang es made by not only laws enacted by the 
US Congress, but also regulations and other measures issued by regulatory agencies.  
Please explain China’s justification for not notifying Decree 95 to the WTO. 
(f) China has also argued that notification of Decree 95 is not required because this 
measure does not impose any requirements on foreign manufacturers, and only impacts domestic Chinese entities involved in importation. By its terms, the measure 
requires the examination of imported medical devices, based on a scale from low-risk 
to high-risk medical devices.  The measure also requires foreign manufacturers to 
report defects, and imposes penalties in the form of increased examinations of imported devices based on product returns or quality complaints.  The measure 
additionally regulates medical devices imported for research purposes, as well as used medical devices, and provides authority to AQSIQ to stop the import of defective medical devices based on reporting from a risk alert system.  The underlying law on 
which this measure is based, the Law on Import and Export Commodity Inspection, is 
focused on the inspection of import and export commodities.  Given these facts, please explain China’s position that this measure does not impose any requirements 
on foreign manufacturers, and only impacts domestic Chinese entities involved in importation.  
(g) Will China notify Decree 95 to the WTO and permit WTO Members and interested 
persons the opportunity to present comments in writing, and for China to hear the 
concerns of Members and interested persons  and make appropriate modifications to 
the regulations, and for China to allow e xporters time to adapt their products and 
export procedures to China’s requirement s?  Given the short time before the 
measure’s effective date, will China cons ider suspending the measure, including its 
1 December 2007, effective date, so that this process can take place? 
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