WORLD TRADE  
ORGANIZATION  G/MA/W/71 
6 September 2005 
 (05-3872) 
Committee on Market Access Original:   English 
  
 
CHINA'S TRANSITIONAL REVIEW MECHANISM  
 
Communication from the United States
 
  
 The following communication, dated 2 September 2005, is being circulated at the request of 
the Delegation of the United States.  
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Questions from the UNITED STATES to CHINA concerning Market Access
 
 
Tariffs on Imported Auto Parts  
 
1. On February 28, 2005, the National Development Reform Commission issued the Measures 
on the Importation of Parts for Entire Automobiles , which became effective on April 1, 2005.  These 
rules require foreign firms to register the parts they use in the manufacture of new automobiles and 
establish a “National Verification Center” to de termine whether the various imported parts are 
deemed to have formed the features of an entire automobile or an assembly system once the parts 
have been assembled within China.  If an imported pa rt is determined to constitute a “feature of an 
entire automobile,” China’s General Administration of Customs will apply the tariff rate assessed a 
complete automobile on each of the various imported pa rts rather than the tariff rate applicable to an 
individual part.  China’s bound and applied tariff rates for complete automobiles are significantly 
higher than the rates for imported auto parts, as set forth in the Goods Schedule accompanying 
China’s Protocol of Accession.  Consequently, application of the Measures on Importation of Parts 
for Entire Automobiles  appears to result in the imposition of  a tariff on auto parts in excess of the 
bound rate.  Please explain how these rules are consiste nt with the commitments made by China in the 
Goods Schedule accompanying its Protocol of Access ion and Article II of the General Agreement on 
Tariffs and Trade 1994 (GATT 1994).  2. In paragraph 7 of its Protocol of Access ion and paragraph 203 of the accompanying Working 
Party Report, China committed to eliminate all local  content requirements relating to importation.  
Despite this commitment, Articles 21 and 22 of the Measures on Importation of Parts for Entire 
Automobiles , and their accompanying Appendices, specify key parts and assemblies that must be 
localized.  Failure to localize thes e components results in the application of a discriminatory tariff.  
These rules therefore appear to improperly condition ta riff treatment on the basis of domestic content.  
Please explain how these rules are consistent with th e commitments made by China in its Protocol of 
Accession and Working Party Repor t and Article III of GATT 1994. G/MA/W/71 
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 China’s Automobile Policy  
 
3. In its 5 August 2005 submission (G/MA/W/ 70), the European Communities (EC) raises a 
number of concerns regarding China’s automobile po licy.  The United States would like to associate 
itself with the EC’s comments and questions regardin g China’s automobile polic y, including those on 
administrative measures for the import of automobi le components fulfilling the characteristics of a 
whole vehicle and joint venture ownership limitati ons.  With regard to the EC’s comments on type 
approval/homologation standards, the United States has similar concerns for vehicles built to U.S. 
standards, and would encourage China’s accession to the 1998 UN/ECE Agreement.  
 Trading Rights for Books, Newspapers and Magazines  
 
4. Within the context of China’s WTO commitm ents, the concept of “trading rights” includes 
two elements, i.e., the right to import goods (into China) and the right to export goods (from China), 
as explained in China’s Protocol of Accession.  Th e right to sell goods within China is governed by 
separate commitments principally relating to “dis tribution services” set forth in China’s Services 
Schedule.  In the business world, trading rights and distribution services are fundamentally interrelated, and often an enterprise will need both of them to carry out its business plan. 
 5. In its Protocol of Accessi on, China committed to eliminate its system of examination and 
approval of trading rights and make full trading rights automatically ava ilable for all Chinese 
enterprises, Chinese-foreign joint ventures, wholly foreign-owned enterprises and foreign individuals, 
including sole proprietorships, within three years of  its accession, or by December 11, 2004, the same 
deadline for China to eliminate most restrictions  in the area of distribution services.  The only 
exceptions applied to products listed in Annexes 2A and 2B, such as grains, cotton and tobacco, for 
which China reserved the right to engage in state trading.   
 
6. In April 2004, the National People’s Congress issued the revised Foreign Trade Law .  Except 
with regard to products reserved for state tradi ng, the new law provided fo r trading rights to be 
automatically available through a registration process for all domestic and foreign entities and 
individuals, effective July 1, 2004.   
7. In April 2004, the Ministry of Commerce (“MOFCOM”) issued the Measures on the 
Management of Foreign Investment in the Commercial Sector .  These regulations lifted market access 
and national treatment restrictions on wholly foreign-owned enterprises engaging in wholesaling 
services, commission agents' services and retail  services and removed then-existing product 
exceptions for books, newspapers, magazines, pharm aceutical products, pesticides and mulching films 
(but not for chemical fertilizers, processed oil, crude oil, salt and tobacco) as of the scheduled phase-
in date of December 11, 2004.  These regulations al so provided that licensed foreign service suppliers 
of wholesaling services, commission agents' services and retail services could also engage in importing and exporting.  8. The United States is concerned because, despite the revised Foreign Trade Law and the new 
distribution regulations, other Chinese measures app ear to provide different treatment for wholly 
foreign-owned enterprises seeking to engage in  importing and exporting and the provision of 
wholesaling services, commission agents’ servi ces and retail services with regard to books, 
newspapers and magazines.  The Catalogue for the Guidance of Foreign Investment Industries , issued 
by the National Development and Reform Co mmission and MOFCOM in November 2004 and 
effective January 2005, several months after the effective date of the Measures on the Management of 
Foreign Investment in the Commercial Sector , lists the “importing of books, newspapers and 
periodicals” under the category of “prohibited”  foreign investment.  Similarly, the Administrative 
Regulations on Publishing , issued by the State Council in December 2001, wholly reserves the 
importation of books, newspape rs and periodicals for state trading enterprises.   G/MA/W/71 
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 (a) Please clarify how the Administrative Regulations on Publishing  and the Catalogue for the 
Guidance of Foreign Investment Industries are consistent with China’s commitments to make 
trading rights automatically available for all Chinese enterprises, Chinese-foreign joint 
ventures, wholly foreign-owned enterpri ses and foreign individuals, including sole 
proprietorships, by December 11, 2004. 
(b) If the above-described measures do not fully im plement China’s trading rights commitments, 
please describe China’s plans for bringing tho se measures into conformance with these 
commitments. 
 
Export Restrictions  
 
9. The United States remains concerned about Ch ina’s export restrictions on coke, a key steel 
input.  China is the world’s largest producer of coke, with total producti on exceeding 208 million MT 
in 2004, a 14 percent increase over 2003.  For 2005,  China announced an export quota of 14.3 million 
MT, similar to the level to which China eventually  raised the quota in 2004.  China’s export quota on 
coke, combined with the illegal sale of export q uota certificates, causes the export price for Chinese 
coke to remain artificially high.  Although MOFC OM has taken steps to stamp out the practice of 
selling export quota certificates, a significant portion of the export price remains attributable to these 
fees.  Despite the fact that WTO rules establish a general prohibition against export restrictions, with 
only limited exceptions, China has not yet formally announced when it will eliminate its coke export 
quota system.  When does China plan to eliminate its export quota system for coke? 
 
10. China also maintains export quotas and license fees on other raw materials, such as fluorspar.  
What are China’s plans for bringing these me asures into compliance with WTO rules? 
 
Tariff Rate Quotas on Fertilizers  
 
11. In the Goods Schedule accompanying its Protoc ol of Accession, China committed to allocate 
specified portions of the fertilizer tariff rate quota (TRQ) for importation through entities other than state trading enterprises.  For 2005, please provide information on the total quantity of each fertilizer 
TRQ (i.e., diammonium phosphate (DAP), urea and NPK) that was allocated for importation through 
state trading enterprises, and the total quantity of each fertilizer TRQ  allocated for importation 
through entities other than state trading enterprises. 
 12.  In the TRQ headnotes on fertilizer and wool tops (found in Part III, Section A, of China's 
Goods Schedule), paragraph 6B, China committed that  applications for reallocation of uncontracted-
for TRQ quantities shall be accepted from 1-15 Sept ember, that specific conditions for applying for 
reallocated TRQ quantities will be published in the official journal one month in advance of the 
application period, and that new allocations will be assigned by 1 October.  Please describe in detail 
(a) how China implemented its commitments rega rding reallocation of the 2004 TRQ quantities and 
(b) how China is implementing its commitments re garding reallocation of the 2005 TRQ quantities. 
 
Value-Added Tax Applied to Diammonium Phosphate  
 
13. The United States continues to have concerns  regarding the Circular about VAT Exemption 
Policy for Certain Farming Materials (No. 113/2001), jointly issued by the Ministry of Finance and the State Administration of Taxation on July 20, 2001, which exempts all phosphate fertilizers except 
DAP from China's value-added tax.  DAP, which is  produced in the United States, competes with 
similar phosphate fertilizers produced in China, such as monoammonium phosphate (MAP).  This 
measure discourages use of DAP, for which Ch ina committed to permit access under the TRQ 
commitments set forth in the Goods Schedule accompanying its Protocol of Accession, in favor of products that are not imported.  The United States  has raised this issue with China on several 
occasions, both at the WTO and bilaterally.  G/MA/W/71 
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(a) Please provide data showing China’s annual consumption of DAP through 2004, including 
the amounts sourced domestically versus imports. 
  
(b) Please provide data showing China’s annual consumption of MAP th rough 2004, including 
the amounts sourced domestically versus imports. 
 (c) Does China have any plans for revising Circular 113/2001 to eliminate the discriminatory 
treatment of DAP? 
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