WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/24 
20 October 2006 
 
 (06-5094) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
TRANSITIONAL REVIEW MECHANISM PURSUANT TO 
SECTION 18 OF THE PROTOCOL ON THE ACCESSION 
OF THE PEOPLE'S REPUBLIC OF CHINA 
 
Questions from the EUROPEAN COMMUNITIES to CHINA with regard to  
China's Transitional Review Mechanism on Subsidy Practices  
 
 
 The following communication, dated 20 October 2006, is being circulated at the request of the Delegation of the European Commission. 
 
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  The EC  are transmitting comments and ques tions in advance of the meeting of the 
Committee on Subsides and Countervailing Measures in  order for the Chinese authorities to reply to 
and complete any outstanding information.  
General: 
  The EC appreciate the efforts that China made in order to fulfil its obligations resulting from 
its accession to the WTO and welcomes China's first s ubsidies notification.  The EC have submitted a 
number of specific questions related to China' s subsidy notification (document G/SCM/Q2/CHN/16 
dated 25 July 2006) and looks forward to receivi ng replies at the meeting of the Committee on 
Subsides and Countervailing Measures of 26 October 2006.   
 While China's first subsidy notification was made long after due time, the notification still 
appears to be incomplete as it focuses only on subs idies provided at a federal government level and 
omits substantial subsidies that China maintains.  However, subsidies provided at the regional and 
local government level also fall under the ASCM Agreem ent.  Moreover, some subsidies appear to be 
inconsistent with the obligation under Art 3 of the ASCM Agreement.  Nevertheless no indications 
have been made to either withdraw  them or have been given an explanation how this is in line with 
the ASCM Agreement.  The EC request China to complete its initial notification as soon as possible 
and look forward to receiving it.   
Questions: 
 
Q1.  Earlier this year it has been reported that Ch ina offers a special VAT refund scheme for silk to 
be exported the functioning and the purpose of which is rather unclear. 
  Could the Chinese government please confirm that  such programme exists?  If it exists can 
China please indicate which products and how many  enterprises are subject to this VAT refund 
scheme?  We also seek information on the purpose of the scheme, the normal VAT rate on silk 
products and the VAT refund rate?  G/SCM/Q2/CHN/24 
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Q2.  China appears to have, on 14 September 2006, reduced or otherwise modified the VAT refunds that are paid upon exportation of a range of products including certain chemicals, copper, 
nickel, aluminium, lead, zinc and tin products and other base metal products. 
 
 Can China confirm that this is the case? If so, what are the applicable reduced rates of VAT 
refund upon exportation and what is the normal rate of  refund?  What is the purpose of the reduced or 
otherwise modified VAT refunds on these products?   Q3.  According to recent press releases, China envisages to modify the "Automotive Industry 
Development Policy" reinforcing the conditions for EU  manufacturers to invest in China.  According 
to this Chinese government may also decide to grant financial support to Chinese manufacturers in 
order to promote export of vehicles.   Can China please provide information on the lat est development on th e "Automotive Industry 
Development Policy" in order to dispel legitim ate concerns raised by the proposed policy? 
 Q4.  Till now the EC have not received any satisfy ing replies to its questions 4 to 7 of the TRM 
questionnaire G/SCM/Q2/CHN/7 in regard to certain  subsidy schemes nor is this covered by the 
notification.  The EC reiterate its questions and asks China to provide a r esponse to these questions, 
and in particular, whether or not su ch subsidy programmes exist, and if  they exist to describe them in 
more detail.  These questions are listed below: 
 Q4.1.  According to: www.tdctrade.com, (as of 16.02.2004) and www.chinadaily.com.cn, (as of 
14.02.2004) the Shenzhen Word Trade Organizatio n Affairs Office sponsors a fund of more than 
10 million Yuan in order to reimburse up to 30 per cent of legal fees to local export companies facing 
anti-dumping lawsuits.  The fund aims to "encourage local export companies to aggressively strive for 
their legal rights in the anti-dumping cases through legal action".    Can China please explain this system in detail,  how it is compatible with Article 3 ASCM and 
provide information if such funds also exist in other cities or regions or at a national level and, if that 
is the case, provide a detailed description? 
 
Q4.2.  According to www.tdctrade.com, (as of 01.03.2004) the Gu angdong Provincial Government 
supports private enterprises to "expand outward".  Eligible private enterprises may apply for special 
funds conceived for developing foreign trade activi ties.  These funds include: market exploration, 
export credit insurance, offshore processing trade proj ect loan interest subsidy, export research and 
development fund, anti-dumping pro ceedings fund, export re bate account loan interest subsidy fund 
and outward-looking enterprises development fund.    Can China please explain in detail how these f unds work, which companies are eligible for 
benefiting from these funds and how they are compa tible with the obligations resulting from Article 3 
ASCM?  
 
 Can China please provide information if similar funds exist in other provinces or at national 
level?  Q4.3.  According to www.tdctrade.com, (as of 01.05 .2004) the Export Interest Subsidy for Shenzhen 
Enterprises has been raised from 20 per cent to 40 pe r cent.  The policy of subsidising US$0.03 for 
every US$1 export of general merchandise is only a pplicable to merchandise procured in Shenzhen.  
SMEs with export value below US$15 million are eligib le for application.  Fund allocation is on a 
first-come-first-served basis.  This year the fund would provide RMB 800 million.    G/SCM/Q2/CHN/24 
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   Can China please explain in detail how this fund works, which companies are eligible for 
benefiting from this fund and how it is compatib le with the obligations resulting from Article 3 
ASCM?    Can China please provide information if similar funds exist in other provinces or at national 
level? 
 Q4.4.  Similar information was reported from Zhe jiang Province.  According to these resources, an 
Export Subsidy Fund based on a federal programme  enables regional authorities to provide all 
exporting companies exporting for more than US$3 million with a subsidy of 0,01 RMB per each US$ 
exceeding this threshold.  
  Can China please explain in detail how this fund works, which companies are eligible for 
benefiting from these funds and how it is compatib le with the obligations resulting from Article 3 
ASCM? 
 
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