RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/272 
29 September 2006 
 (06-4656) 
Council for Trade in Services Original:   English 
  
 
 
COMMUNICATION FROM JAPAN  
 
Transitional Review Mechanism in connecti on with Paragraph 18 of the Protocol on 
 
the Accession of the People's Republic of China ("China")  
 
 
 The following communication, dated 27 Septem ber 2006, from the delegation of Japan is 
being circulated to the Members of the Council for Trade in Services.   
 
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Questions and Comments of Japan on  the Implementation by China  
of its Commitments on Trade in Services  
  
1. Japan appreciates China’s firm commitment  to continuously improving the level of 
liberalization in accordance with the services sc hedule made at the time of accession. While 
regulatory framework has been acco rdingly upgraded, it seems that implementation does not keep 
pace with the upgraded regulations, particularly at local levels. Japan understa nds that this might be 
attributed to the fact that China is an immense country with 23 provinces and levels of development 
are diverse across these provinces. In this regard, Jap an would like to reiterate that implementation at 
provincial level needs to be secured. 
2. In particular, the process of examining applica tions for license is not standardized based on 
introduced regulations and some Japanese companies have been kept waiting for the outcome of the 
application process. Japan would like to remind Ch ina of paragraph 308 of the Working Party Report; 
308. The representative of China also confirme d that upon accession China would ensure that 
China's licensing procedures and conditions woul d not act as barriers to market access and 
would not be more trade restrictive than necessary .  In accordance with  China's commitments 
under the WTO Agreement, the Draft Protocol a nd its Schedule of Specific Commitments, the 
representative of China confirmed that for those services included in China's Schedule of 
Specific Commitments, China would ensure that:  
 (a) China's licensing procedures and conditions w ere published prior to becoming effective;  
 (b) In that publication, China would specify  reasonable time frames for review and decision by 
all relevant authorities in China's licensing procedures and conditions;  
 (c) Applicants would be able to request licensing without individual invitation;   (d) Any fees charged, which were not deemed to  include fees determined through auction or a 
tendering process, would be commensurate with  the administrative cost of processing an 
application; S/C/W/272 
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  (e) The competent authorities of China would,  after receipt of an application, inform the 
applicant whether the application was considered  complete under China's domestic laws and 
regulations and in the case of incomplete applic ations, identify the additional information that 
was required to complete the application and pr ovide the opportunity to cure deficiencies;  
 
(f) Decisions would be taken promptly on all applications;  
 (g) If an application was terminated or denied , the applicant would be informed in writing and 
without delay the reasons for such action.  The applicant would have the possibility of 
resubmitting, at its discretion, a new application that addressed the reasons for termination or 
denial; 
 (h) If an application was approved, the applicant would be informed in writing and without delay.  The licence or approval would enable th e applicant to start the commercial operations 
upon registration of the company with SAIC for fiscal and other similar administrative purposes.  
This registration would be completed within 2 m onths of the submission of a complete file, as 
required by public SAIC regulations, and in a ccordance with China's Schedule of Specific 
Commitments;   (i) Where China required an examination to li cence professionals, such examinations would 
be scheduled at reasonable intervals.    
 
I. LEGAL SERVICES 
3. The article 7 of “the Management Regulations  on Foreign Law Firms in China (Regulation 
No. 338) stipulates the requirements to establish a representative office in China. Amongst these 
requirements, the paragraph 3 provides that there mu st be an actual need to establish a representative 
office in China to conduct legal service business. Japan  believes that this requirement is a quantitative 
restriction which is not consistent with the mark et access commitment. In addition to the argument 
above, Japan would like to comment on the explana tions made by China in the last TRM. China 
mentioned the two reasons to maintain the article. The first one is “principle of prudence,” which is to 
test the credential of foreign law firms with the ai m of protecting customers. Japan believes that this 
explanation is not reasonable enough in that the cred ential of foreign law firms has nothing to do with 
local needs. The second one is “different economic development levels and the actual receptivity of 
legal services in China.” Most foreign law firms have established or are planning to establish in 
metropolitan areas such as Beijing and Shanghai. Further,  foreign law firms should be blamed if they 
suffer the lack of needs as a result of recklessly embarking on business in the areas where there is no 
demand. For all these reasons, Japan would like China to review the article 7 to provide comfort to 
foreign law firms considering establishment of legal practice in China. 
II. ARCHITECTURAL AND ENGINE ERING SERVICES (CPC 8671, 8672, 8673, AND 
8674) 
4. Regarding the market access commitment in mo de 3, “within five years after China’s 
accession to the WTO, wholly foreign-owned enterp rises will be permitted”, Ja pan would like China 
to specify exactly when China w ill implement this commitment.  
5. It is alleged that Chinese nationality is required to  sit for the exam. If so, it is not in line with 
the commitment made in the national treatment co lumn and Japan would like China to remove the 
nationality requirement. 
6. Japan would like China to confirm that there is no need to form a joint venture to provide 
services in mode 1 and 2.  S/C/W/272 
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  III. COMMUNICATION SERVICES:  TELECOMMUNICATION 
7. “Regulation on the Interconnections between Public Telecommunication Networks (Decree 9 
of the Ministry of Information Industry)”, does not govern leased circuits, frame relays and IP-VPN as 
China indicated in the last TRM. If there is no domestic law/regulation ensuring interconnection of 
leased circuits, frame relays and IP-VPN, Japan believes that China has not fully implemented 
commitment regarding the article 2.2 in the Reference Paper. If there is a law/regulation, please 
indicate the name of the law/regulation, quoting th e number of provision ensuring interconnection of 
leased circuits, frame relays and IP-VPN. In additi on, please indicate the name of law, the number of 
provisions requiring operators to disclose interconnec tion arrangements as is required under the article 
2.4 of the Reference Paper. 
8. Under the article 2.5 of the Reference Paper, a service supplier has recourse to an independent 
domestic body concerning interconnection disputes with  major suppliers. Japan assumes that this is 
guaranteed by “the Regulation on the Interconnec tions between Public Telecommunication Networks 
(Decree 9 of the Ministry of Information Industry).” However, there is no provision indicating the name of the independent domestic body in charge of this dispute settlement mechanism. Japan would 
like China to explain whether a specific governmental  body has been established, and if the body was 
already established, please indicate the names of the governmental body, the division/department in charge and related laws. If the bod y is not established, Japan believes that it is not in line with the 
article 2.5 of the Reference Paper. 
9. China has made the reservation capping forei gn capital participation up to 50% in value-
added telecommunication services. However, it is reported that China requires 100% Chinese capital 
for the approval of licenses in practice. Japan woul d like to know whether this is indeed the case. 
Please explain about licensing requirements and proce dures.  Furthermore, according to the Para 308 
(g) of Working Party Report, the a pplicant is informed in writing of the reasons for denial when an 
application for license is denied. Japan would lik e China to indicate whether this is always 
implemented. 
IV. CONSTRUCTION AND RELATED ENGINEERING SERVICES 
10. Direct contract on a project-by-project basis wa s abolished in return for the establishment of 
wholly owned foreign subsidiaries when China acce ded to the WTO in 2001. However, the conditions 
to obtain higher grades after establishing a 100% subsidiary are burdensome (e.g. 200 technical 
engineers to obtain first class qualification) and the amount of contracting is considerably limited (i.e. 
contracting limit up to five times capital except sp ecial grade). Therefore, Japan would like China to 
review and relax these conditions. 
11. This year several local governme nts (Tianjin city and Yantai city) in China promulgated the 
regulation which requires contractors to establish commercial presence incorporated in each local 
area. Each commercial presence needs to fulfill cap ital requirement and employment of technical 
managers. Japan would like China to remove this regulation which is not in line with the market 
access commitment.  
12. In plant construction, a plant contractor needs to obtain multiple qualifications including 
qualifications for roadway civil works and cons truction houses. Japan considers that these 
requirements are more burdensome than necessary, a nd would like China to consider introduce a new 
qualification for the plant contractor.   
V. DISTRIBUTION SERVICES 
13. With regards to "the Measures for the Admini stration of Foreign Investment in Commercial 
Fields", Japan believes licensing procedures in the measures are unclear and requests China to make S/C/W/272 
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  the procedures publicly available and to provide licenses to foreign capital enterprises that fulfils the 
procedures as indicated in the paragraph 308 (a) of the Working Party Report. 
14. According to the China’s accession sche dule of specific commitments on services 
(WT/ACC/CHN/49/Add.2), part of the reservations ma de in mode 3 of retailing services is as follows; 
Foreign service suppliers will be permitted to engage in the retailing of all products, except for 
the retailing of books, newspapers and magazines within one year after accession, the retailing 
of pharmaceutical products, pesticides, mulching films and processed oil within three years after 
accession and retailing of chemical fertili zers within five years after accession. 
 None, within three years a fter accession, except for: 
retailing of chemical fertilizers, within five years after accession; and-those chain stores which 
sell products of different types and brands from multiple suppli ers with more than 30 outlets. For 
such chains stores with more than 30 outlets, forei gn majority ownership will not be permitted if 
those chain stores distribute any of the following products: motor vehicles (for a period of five 
years after accession at which time the equity limita tion will have been eliminated), and products 
listed above  and in Annex 2a of the Protocol of China's WTO Accession.  
 
15. Japan would like to know whether chain stores w ith foreign majority ownership having more 
than 30 outlets can distribute books, newspapers and magazines one year after accession, the retailing 
of pharmaceutical products, pesticides, mulching film s and processed oil three years after accession 
and retailing of chemical fertilizers five years after accession. 
16. Japan would like to know the progress of drafting of the laws and regulations regarding the 
establishment of branches in distribution sector in re lation to the third paragraph of the market access 
column in horizontal commitments, “The estab lishment of branches by foreign enterprises is 
unbound, unless otherwise indicated in specific sub-s ectors, as the laws and regulations on branches 
of foreign enterprises are under formulation .” 
VI. TOURISM AND TRAVEL RELATED SERVICES 
17. Japan would like to know the progress on “a prudential study on the timeframe for removing 
the restrictions on the establishment of branches of foreign travel agencies” that China mentioned in 
the last TRM. 
18. In China, joint ventures or wholly foreign-owne d travel agencies and tour operators are not 
permitted to engage in the activities of Chinese tr aveling abroad and to Hong Kong China, Macao 
China and Chinese Taipei. Japan would like to know the prospect of future liberalization in this field. 
 
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