RESTRICTED  
S/C/M/85 
12 December 2006 WORLD TRADE  
ORGANIZATION   
 ( 06-5932 ) 
  
Council for Trade in Services  
 
 
 
REPORT OF THE MEETING HELD ON 30 NOVEMBER 2006 
 
Note by the Secretariat1 
  
1. On 30 November 2006, the Council for Trade in Services held a meeting chaired by 
Ambassador István Major (Hungary).  The age nda for the meeting was contained in document 
WTO/AIR/2656.   
2. The Chairman
 said that, under Other Business, he intended to make a brief statement 
regarding organizational matters in the cont ext of the second air transport review.   
3. The representatives of Japan  and Hong Kong, China  said that their delegations wished to raise 
the issue of the Article XXI negotiations with the European Communities under Other Business.   
4. The representative of Brazil  said that, under Other Business, his delegation would make an 
announcement with regard to the notification of th e Montevideo Protocol of the Mercosur to the 
Council for Trade in Services.  
5. The Chairman  suggested that the agenda be adopted as modified.   
6. The Council so agreed . 
A. NOTIFICATIONS  PURSUANT  TO ARTICLE  V:7 OF THE  GATS 
7. The Chairman  drew the Council's attention to eight notifications made pursuant to GATS 
Article V:7 (Economic Integration).  These were the communications from Honduras 
(S/C/N/368/Rev.1);  Guatemala (S/C/N/369);  Jordan and Singapore (S/C/N/370);  Japan and 
Malaysia (S/C/N/371);  the United States, Guat emala, Honduras, El Salvador and Nicaragua 
(S/C/N/372);  the EFTA States (Iceland, Liechtenste in, Norway and Switzerland) and the Republic of 
Korea (S/C/N/373);  Costa Rica and Mexico (S/C/N/374);  as well as the United States and the Kingdom of Bahrain (S/C/N/375). 
8. The representative of Guatemala
 stated that her delegation had submitted the notification 
(S/C/N/369) on 3 July 2006 regarding the free trade agreement between Guatemala and Mexico.  This 
agreement had entered into force in 2001 with in definite duration and aimed to promote trade in 
services through further liberalization between the c ountries.  Referring to notification S/C/N/372, she 
said that the Dominican Republic - Central America - United States Free Trade Agreement had entered into force for Guatemala on 1 July 2006 with indefinite duration.  She further stated that these 
two notifications had been made in accordance with  Article V:7 of the GATS and that her delegation 
would provide more detailed in formation about these two agreem ents in the Committee on Regional 
Trade Agreements. 
                                                     
 
1 This document has been prepared under the Secret ariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/C/M/85 
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 9. Referring to notification S/C/N/371, the representative of Japan  stated that the Japan-
Malaysia Economic Partnership Agre ement had entered into force on 13 July 2006, and was the third 
such pact for Japan, following sim ilar agreements with Singapore and Mexico.  The Japan-Malaysia 
Economic Partnership Agreement cove red a substantial range of trad e in good and services. The latter 
were treated under the Chapter on Trade in Services,  while Mode 3 was covered under the Chapter on 
Investment.  In the annex to the Chapter on Trade in Services, specific commitments were scheduled 
in a positive list.  Financial services were covere d under the Chapter on Trade in Services.  Apart 
from those chapters on market access, the agreement also included provisions on intellectual property, 
controlling anti-competitive activities and improveme nt of business environment.  The negotiations 
on this agreement had been conduc ted with strong support from the Japanese industrial sector which 
wished to see improvement in the business envir onment of Malaysia.  Japan believed that the 
implementation of this agreement would greatly co ntribute to enhancing economic relations between 
the two countries.  The text of the agreement and th e related documents were available at the websites 
of the Ministry of Foreign Affairs of Japan.  The Japanese delegation would answer questions 
regarding this agreement in the Comm ittee on Regional Trade Agreements.  
10. Referring to notification S/C/N/371, the representative of Malaysia  said that her delegation 
concurred with the statement made by Japan and look ed forward to contributing to the examination of 
the agreement in accordance with the procedures agreed upon in the Committee on Regional Trade 
Agreement. 
11. Referring to notifications S/C/N/368/Rev.1 a nd S/C/N/369, the representative of Mexico  
thanked Honduras and Guatemala for these notificati ons.  Believing that these two agreements with 
Mexico would contribute to trade expansion, his dele gation wished to further trade liberalization with 
these two countries, particularly taking advantage of the broad scope of these agreements in terms of 
trade in services.  His delegation wished to reiterate  that the respective notifications did not prejudge 
the interpretation that parties might make regard ing the scope, as well as the rights and obligations 
contained therein.   
12. The Chairman  proposed that the Council take note of  the notifications and the statements 
made, and that the agreements notified be referr ed to the Committee on Regional Trade Agreements 
for examination. 
13. The Council so agreed . 
B. ANNUAL  REPORT  OF THE  SUBSIDIARY  BODIES  TO THE  COUNCIL  FOR  TRADE  IN 
SERVICES 
14. The Chairman  stated that, in accordance with WTO reporting procedures, the Council for 
Trade in Services was to consider the annual reports of its subsidiary bodies.  He drew the Council's 
attention to the following reports which had been adopted by the respective bodies during the course 
of the week:  the Report of the Committee on Trade in Financial Services (S/FIN/16);  the Report of 
the Committee on Specific Commitments (S/CSC/12);  the Report of the Working Party on Domestic 
Regulation (S/WPDR/9);  and the Report of the Working Party on GATS Rules (S/WPGR/16).  The 
four reports were purely factual and self-explanator y.  He suggested that the Council take note of 
these reports on the understanding that they would be annexed to the annual report of the Council and 
form an integral part of it. 
15. The Council so decided .  S/C/M/85 
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 C. ANNUAL  REPORT  OF THE  COUNCIL  FOR  TRADE  IN SERVICES  TO THE  GENERAL  
COUNCIL 
16. The Chairman  reminded Members that, in accordance with WTO reporting procedures, the 
Council for Trade in Services was to report every ye ar to the General Council on the activities in the 
Council, as well as in the subsidiary bodies.  He dr ew the Council's attention to the draft 2006 Annual 
Report of the Council for Trade in Services, cont ained in document S/C/W/276.  This Report was 
factual and self-explanatory, and the annual reports  of the subsidiary bodi es would be annexed for 
submission to the General Council.   He proposed that the Council for Trade in Services adopt the 
draft Annual Report to the General Counc il, as contained in document S/C/W/276. 
17. The representative of China  asked whether paragraph 2 of document S/C/W/276 should refer 
to the fifth transitional review of the implementa tion by China of its WTO commitments, rather than 
the fourth. The Chairman  explained that document S/C/W/276 was referring to the transitional review 
conducted last year and that this year's transitiona l review would be reflected in the 2007 report.  
18. The Chairman  proposed again that the Council for Trade in Services adopt the draft Annual 
Report to the General Council, as contained in document S/C/W/276. 
19. The Council so decided . 
D. TRANSITIONAL  REVIEW  UNDER  SECTION  18 OF THE  PROTOCOL  ON ACCESSION  
OF THE  PEOPLE'S  REPUBLIC  OF CHINA 
20. The Chairman  recalled that Section 18 of the Accession Protocol of the People's Republic of 
China provided for an annual review of the implem entation by China of the WTO Agreement and of 
the related provisions of China's Accession Protocol .  The Committee on Trade in Financial Services 
and the Council for Trade in Services were two of the bodies in which this Review was to be 
conducted.  When concluding its review, the Committ ee on Trade in Financial Services was to submit 
a report to the Council, which would form part of  the Council's report to the General Council. The 
General Council would conduc t its own review.  He noted that the Committee on Trade in Financial 
Services had conducted and concl uded the transitional review under Section 18 of China's Accession 
Protocol on Monday 27 November 2006, and that a re port had been submitted by the Chair of this 
Committee, contained in document S/FIN/17.  He proposed that the Council take note of the report 
from the Committee on Trade in Financial Services on the understanding that it would form part of 
this Council's report to the General Council. 
21. The Council so decided . 
22. The Chairman  drew the Council's attention to a Communication by China, contained in 
document S/C/W/278 providing information required by Annex 1A of China's Accession Protocol.   
23. Turning to the Review by the Council, he said that the Council would follow the same 
procedure as the one used in the previous Reviews.  He would first invite China to respond to the 
comments and questions contained in the communi cations from the United States (S/C/W/271), Japan 
(S/C/W/272), the European Communities (S/C/W/274 ), Chinese Taipei (S/C/W/275) and Australia 
(S/C/W/277).  Members would then make comment s and pose additional questions, and China would 
have the opportunity to respond. 
24. The representative of China  said that his delegation had submitted a new communication as 
required by Annex 1A, which prov ided detailed information on new laws and regulations, as well as 
new licenses granted to foreign service providers in China since the last Review.  This document had 
been circulated to Members before the meeting.   He urged Members to present their questions S/C/M/85 
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 sufficiently ahead of the meeting and not to repeated ly raise questions irrelevant to the transitional 
review process.  Moreover, China should not be  asked to liberalize further beyond its existing WTO 
commitments.  He stressed that China had c onsistently adopted a positive attitude towards the 
transitional Review and had always attached great  importance to the opportunity to exchange views 
with Members regarding the implementation of th e rights and obligations contained in China’s 
Accession Protocol.  He said that a number of ministries and agencies had been involved in the 
transitional review process.  For this meeting, hi s delegation included officials from the Ministry of 
Justice, the Ministry of Construction, the Genera l Administration of Press and Publications, as well as 
the Ministry of Commerce.  
25. He first addressed questions on distribution services .  Regarding foreign participation in the 
distribution of processed oil and crude oil, he stated that the Interim Measures on the Administration 
of Processed oil and the Measures on the Administration of Crude Oil would be promulgated soon, 
and that China would implement its commitments  on time.  On the questions relating to the Measures 
on the Administration of Foreign Investment in the Commercial Sector , he said that those Measures 
contained very clear provisions regarding the li censing procedures and requirements for approval.  
Operational guidelines had also been enacted and were available at the official website of the Ministry 
of Commerce.  China’s services schedule specified that  foreign companies were not allowed to have a 
controlling stake in chain stores with more than th irty outlets engaging in the distribution of books, 
newspapers, periodicals, pharmaceutic al products, pesticides, and processed oil, etc.  With respect to 
the wholesale and retailing of books, newspapers, periodicals and audiovisual products, he claimed 
that the requirements on registered capital and operational terms did not violate WTO provisions.  
Foreign service providers were allowed to particip ate in the distribution of books, newspapers and 
periodicals through wholly foreign owned distri bution enterprises, Chinese-foreign joint equity 
enterprises and Chinese-foreign cooperative enterprises.   Distribution meant wholesale and retail.  On 
electronic publications, noting that this was a new s ub-sector for China, he said that China was still in 
the process of considering how best to regulate it.  He pointed out that China had not made 
commitments to allow foreign service providers to participate in the distribution of films.   
26. On the issue of direct selling, he stated that  the processing and approval of applications for 
direct selling licenses followed the procedures stipulated in the Direct Selling Regulations , including 
the 90-working-day requirements.  The Measures on the Administration of Service Centres for direct 
selling enterprises  had been published in September 2006,  and contained provisions governing the 
setting-up, examination, verification and registration of service centres.  In accordance with the 
Regulations and Measures, a service centre did not have to apply for a business licence unless it also 
engaged in retail business.  The Measures also sp ecified that enterprises applying for setting up 
service centres in a city had to set up no less than one service centre in each district of the city.  The 
reason why domestic direct selling companies were  not required to have minimum three-year 
experience in the direct selling business was that do mestic firms had been pr ohibited from engaging in 
direct selling in the past.  The requirements on compensation for direct selling persons did not 
contravene any international practice, and this  issue was beyond the scope of this Review. 
27. On the issue of commercial franchising, he noted that the Rules on the Administration of 
Commercial Franchising  had been submitted to the State Council for review and would be 
promulgated in due course.  Finally, regarding th e question of allowing foreign service providers to 
participate in the distribution of chemical fertilizer s, he said that China would regulate the entry in 
accordance with the existing laws and regulations , and would implement its WTO commitments. 
28. On postal services , the representative of China addressed the issues relating to postal reform, 
revision of the postal law, the universal servic e fund, and their relationship with China’s GATS 
commitments.  He said that postal reform was still going on in China. The newly restructured China 
Postal Administration would be the supervisory and regulatory body for postal services.  China’s Postal Law was under revision, and would follow the procedures stipulated by the Law on Legislation .   S/C/M/85 
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 The question of whether and how to impose the universal service fund was not relevant to the 
transitional review process.  He pointed out th at, when joining the WTO, China did not make 
commitments in postal services, except express delivery.  For express delivery, foreign service providers were not allowed to provide services sp ecifically reserved to Chinese postal authorities by 
law.  China would allow foreign service providers to  continue to engage in  international express 
delivery of international letter items  in accordance with the Postal Law after foreign service providers 
went through the authorization procedures. 
29. Turning to telecommunication services , he first addressed the issues of the interconnection 
of leased circuits, frame relays and IP-VPN, and th e regulatory body in charge of the resolution of 
interconnection disputes.  He noted that Articles 18 to 20 of the Regulations on Telecommunications ,  
Article 7 and Articles 23 to 26 of the Administrative Rules on the Interconnection between Public 
Telecommunication Networks  were specifically devoted to th e interconnection of telecommunication 
networks.  These provisions were able to guarant ee the interconnection of basic telecommunication 
service providers and thus the interconnection of leased circuits, frame relays and IP-VPN.  The 
independent regulatory agency responsible for th e resolution of interconnection disputes was the 
Ministry of Information Industry. 
30. Regarding the issue of the minimum capital re quirement for nation-wide  and inter-provincial 
operators of basic telecommunication services, he said that such requirement was necessary both to 
guarantee the normal business operation and to safeguard the interests of users of telecommunication 
services, as the telecommunications industry was a capital-intensive industry involving economies of 
scale.  He held that each and every WTO Member had its own minimum capital requirement specific 
to its own circumstances.  There was no unified or  identical international capital requirement.  In 
responding to the question on the selection of joint venture partners by foreign providers in basic 
telecommunication services, he said that, unlike value-added telecommunication services, the number 
of licenses for basic telecommunication services was limited due to the scarcity and availability of 
such scare resources as frequencies, numbers and rights of way.  In China, there were already six 
major national basic telecommunication service operato rs, and most of the frequencies and other scare 
resources had already been allocated to these operato rs.  It was in the interest of foreign basic 
telecommunication service providers to form joint ventures with them.  He noted that the question 
relating to wireless technology (including the 3G  wireless technology) was irrelevant to the 
transitional review process.   
31. He confirmed that China’s Ministry of Info rmation Industry was an independent regulatory 
body for the telecommunication sector.  It had no role  in enterprise management, could function as an 
independent and impartial regulator, and satisfied the criteria for independent regulator set out in the 
Reference Paper.  He informed Members that th e law on telecommunications was still being drafted 
and that the legislative process would fo llow the procedures prescribed in China's Law on Legislation .   
32. With respect to the number of approved app lications by foreign telecommunication service 
providers, he indicated that the communication submitted under Annex 1A ha d provided information 
in this regard.  Regarding  the issue of the scope of business for domestic and foreign 
telecommunication service providers, he noted that  China’s service schedule specified the scope of 
telecommunication services open to foreign particip ation.  For those services not listed in the 
schedule, foreign participation was not allowed. 
33. Turning to questions relating to media-related services
, he noted that China had made no 
commitments in the broadcasting and TV sector when  joining the WTO.  He further noted that the 
box office proportion reserved to the exhibition of  domestic films did not contravene China’s 
commitments. The only commitment China had made in this sector was to allow the importation of 
twenty motion pictures on an annual basis for release on a revenue-sharing basis.   S/C/M/85 
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 34. The representative of China then addressed questions on construction, architectural and 
engineering services.   On the question of whether foreign c onstruction enterprises were permitted to 
directly engage in construction contracts, he said that China had made no commitment in this regard 
when joining the WTO.   In responding to questions concerning the Interim Administrative Measures 
on Construction Engineering Project Management , he said that China was formulating the 
administrative rules governing foreign investment in construction engineering services, which would 
include provisions on market access in terms of engineering services and engineering project 
management.  
35. Regarding registered capital and qualification requirements for construction enterprises, he 
stated that these requirements would be maintained  as they did not discriminate foreign-invested 
construction enterprises.  He further stated that the issue of recognition of the qualification of Sino-
foreign joint venture construction enterprises was not relevant to market access or national treatment 
commitments and thus not within the scope of the TRM.  On the question of why foreign invested 
enterprises were only permitted to par ticipate in four types of projects,  he noted that this was what 
China had committed on at the time of accession and that China had fulfilled its commitments.  He 
stressed that any requirement for further lib eralization was not relevant to the TRM. 
36. Addressing the concern that the tax burden on foreign dredging companies leasing vessels to 
Chinese leasing companies was higher than that on enterprises directly importing vessels from abroad, 
he explained that different taxes were involved th erein:  one was import tariff and the other service 
industry tax.  He stressed that foreign enterprises were not discriminated.  Noting the allegation that 
there existed additional market access barriers to fore ign construction enterprises in some local areas,  
he said that local authorities were not allowed to create market access barriers in violation of the Rules 
on Administration of Foreign-Invested Construction Enterprises .  His government would verify the 
information with relevant local governments.  In  responding to the enquiry on the date for the 
promulgation of the Implementing Regulations for the Rules on Administration of Foreign-Investe 
Engineering and Design Enterprises , he said that his government was soliciting public comments 
through the website of the Ministry of Constructi on and that the implementi ng regulations would be 
promulgated in due course. 
37. With respect to questions relating to legal services , the representative of China explained that 
the "three-year requirement" for foreign law firms to establish the representative office in China was 
not a quantitative restriction, but a regulatory measure aimed at the protection of the interest of legal 
service buyers.   The nine-month period for ex amination and approval was reasonable.  The 
requirement that "before establishing a representative o ffice, a foreign law firm shall provide proof of 
practical need to provide legal services in the te rritory of China" was an administrative measure 
taking into consideration of the fact that the le vel of economic development in different areas of 
China varied substantially.  So far no appli cation had been rejected for this reason. 
38. On the issue of transparency , referring to his statement made in the Committee on Trade in 
Financial Services, he thought that Members kne w China’s services-related laws and regulations 
better than those of any other major Member.  Chin a would continue its good practice in transparency. 
39. Turning to tourism and travel related services , he said that China would fulfil its GATS 
commitments to eliminate restrictions on the estab lishment of  branches of joint venture travel 
agencies and to allow for the establishment of wholly  foreign-owned travel agencies within six years 
after accession.  However, foreign-controlled travel  agencies or wholly-foreign-owned travel agencies 
were not allowed to engage in the business of Ch inese citizens’ travelling abroad, or the business of 
Chinese citizens living in other areas travelling to  Hong Kong SAR, Macau SAR and Chinese Taipei. 
Regarding the question on whether there was an eco nomic needs test on the establishment of travel 
agencies, he explained that the provision "to meet the need of travel market" provided for in Article 
11.2 of Regulations on Administration of Travel Agencies  meant that travel agencies applying for  S/C/M/85 
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 establishment had to meet the needs of travel market in terms of business scale, business scope, 
business lines, etc. It was not an economic needs test in the sense of the GATS. This provision was 
applied equally to domestic and foreign-invested trav el agencies.  He added that China did not intend 
to restrict market access through "economic needs test".  
40. On the issue of computer reservations system (CRS) services , he indicated that China 
would fulfil its commitment in this respect, whether or not there was a legislation plan. 
41. The representative of Australia  stated that his delegation had raised only two specific 
questions on telecommunication services.  One was whether Foreign Investment Telecommunications 
Enterprises (FITE) telecommunication licence appli cations would be considered by the relevant 
agencies in China throughout the year, or whethe r there were prescribed lodgement periods.  The 
other question was whether a FITE could use the existing telecommunications licences held by its 
Chinese domestic joint venture partner (i.e. to accept that licences were part of an enterprise’s asset 
register), or whether it had to apply for new li cences in the same way that a FITE whose Chinese 
domestic joint venture partner did not have any li cences would be required.  Not sure whether the 
Chinese delegation had replied to these two questions in its statement, he wished to seek guidance 
from China, either during or after the meeting.   
42. The representative of the United States  reiterated that the TRM con tinued to be important for 
both China and other WTO Members.  His delegati on recognized the progress that had been made by 
China in implementing its WTO commitments and hope d to see China continue to carry out further 
liberalization in services and provide a greater degree  of market access for foreign services providers.  
He wished to explain some of the concerns underlying the questions in his delegation's written 
submission and to ask a few follow-up questions relating to recent events subsequent to the 
submission.   His delegation's key concerns invol ved distribution services for processed and crude oil; 
distribution services for books, newspapers and peri odicals;  sales away from a fixed location;  
express delivery services;  telecommunications;  and construction services.    
43. With respect to distribution services for pro cessed and crude oil, he noted that Chinese 
commitment permitted foreign service providers to  engage in wholesale distribution and commission 
agents' services for processed oil a nd crude oil within five years after accession, i.e. by 11 December 
2006.  The United States was concerned about draft regulations reportedly im posing limitations on the 
ability of foreign services providers to operate in Ch ina that might be more restrictive than China's 
existing wholesale regulations dating from 2000.  The United States urged China to release these draft regulations for public comments as soon as possible if  that had not already been done.  The United 
States asked China to confirm whet her the current draft of the re gulations would require foreign 
companies to build a network of gasoline-distribut ion depots, or whether foreign service providers 
would be allowed to lease such facilities from Chines e owners.  The United States also asked China to 
clarify whether or not the current draft required ne w license holders to secure long-term fuel supply 
contracts with the existing state-run players as well as to have two-year retail experience with at least ten gasoline stations. 
44. Regarding distribution services for publications, the United States remained concerned that 
China continued to maintain a variety of rest rictions on the distribu tion of books, newspapers, 
periodicals, electronic publications, and audi ovisual products despite the market opening 
commitments that China had made in these areas.  Noting that the United States and China had held a 
series of bilateral meetings on this issue, he ho ped that these discussions would lead to a mutually 
agreed resolution of some of the concerns.   
45. With respect to sales away from a fixed location,  the United Stated welcomed the issuance of 
the Administrative Procedures on Service Centres in September 2006 to further clarify China's 2005 
Regulations on Direct Selling .  The United States also supported China's efforts to protect citizens S/C/M/85 
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 from fraud while opening markets to direct selli ng.  The United States urged that the Chinese 
government ensure consistent inte rpretation and implementation of its  direct selling measures across 
the country to prevent new barriers to Chinese direct selling market from being created by variations at the district or city level with respect to how these service centres should be established.  While 
appreciating the detailed explan ation provided by China regard ing the requirements on services 
centres contained in relevant administrative procedur es, the United States was of the view that there 
were sufficient ambiguities that could pose problems.  The United States was disappointed that to date 
only a small number of foreign companies had received licenses since the Regulations on Direct 
Selling  had become effective in De cember 2005.  The United States urged China to expedite the 
review process so that foreign companies could realize the full benefits of China's commitments to 
open the sector.  It was the US understanding that  the adherence to the 90-day review process 
guidance had been decidedly maxe d.  The United States also renewed its concerns with the 
parameters that China had set around sales away from a fixed location.  In some cases China defined 
well accepted industry practices such as multi-level marketing and compensation mechanisms as legal 
activities.  It required three-year domestic direct selling experience in order to be granted a license.  
And it included overly burdensome capital requirement s.  These limitations were preventing foreign 
companies from realizing the full benefits fro m China's commitments to open this sector.   
46. With respect to wholesale distribution and commi ssion agents' services for chemical fertilizer, 
the United States noted that China's market access commitment would come into effect on 
11 December 2006.  While appreciating the inform ation provided that the commitment would be 
conducted in accordance with existing regulations, the United States still looked forward to more 
detailed information as to how this would be carried out in a timely fashion.   
47. On express delivery, the United States understood that since it had submitted its TRM 
questions, the China's State Council had gone beyond the 8
th draft of the postal law and probably was 
working on the 9th draft.   Consistent with China's tran sparency commitments, the United States urged 
China to release the draft for public comments in a u sers-friendly way so that relevant stakeholders 
would have the opportunity to express their views.   The United States also asked China to clarify 
whether the current draft excluded foreign expr ess delivery companies from providing domestic 
express delivery services.  If it did, the United States asked China to explain how this restriction was 
consistent with the commitments that China had ma de in its GATS Schedule with regard to courier 
and express delivery services.  Understanding that Chin a had taken additional steps to separate China 
Post from provincial level postal administration regulators, the United States sought additional 
information about this, as well as the broader progr ess in postal reform.  The United States also asked 
whether China had any plans to abolish entrustmen t certificates, and if so, how the plans would go 
forward.  
48. With respect to telecommunications, the United St ates reiterated its concerns about the RMB 
2 billion capital requirement for foreign-invested te lecommunications enterprises.  In the US view, the 
requirement was excessively high, both when viewed  in relation to the norms in other economies and 
in the specific context of China's telecommunicatio ns market.  The United States had urged China to 
address this issue and to set a deadline for revising th is requirement.  Interested in seeing China's draft 
telecommunications law, the United States wished to know when it would be released for public 
comments.  The United States also asked the fo llowing questions:  how many applications the 
Ministry of Information Industry (MII) had received from foreign carriers seeking to provide 
telecommunications services in the Chinese market?  How many of these applications had been 
approved or denied in the basic services sector?  How many of these applications had been approved 
or denied in the value-added services sector?  What criteria were used to evaluate these applications?  
Worried that China had reportedly licensed numer ous new domestic value- added service suppliers, 
the United States asked whether th ese suppliers offered services be yond the illustrative list of services 
that China had set forth in its Schedule.  If so, the United States urged China to extend national 
treatment to foreign suppliers interested in offering similar services, which fell under China's  S/C/M/85 
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 domestic definition of value-added services.  The Un ited States also urged Chin a to set a deadline for 
updating this domestic definition of value-added services.   
49. With respect to construction services, the United States welcomed the release for public 
comments of the draft implementing rules for Decree 114 ( Rules on the Administration of Foreign-
Invested Construction Engineering and Design Enterprises ).  The United States recognized a number 
of positive elements therein, particularly waiving a requirement for foreign engineers and architects to 
pass Chinese equivalent professional examinations  and temporarily lifting both the 25 per cent 
minimum foreign professional staff employment and annual 6-month foreign staff residency 
requirements.  However, the Unite d States still had a few concerns a bout the new implementing rules.  
In the US view,  the 25 per cent professional staff em ployment requirement remained too high even if 
Chinese staff was included in that percentage.  Asking why the 25 per cent minimum foreign professional staff employment and annual 6-month foreign staff residency requirements were 
temporarily lifted, and what "temporarily lifted"  meant, the United States believed that these 
requirements should be permanently waived.  The United States also wished to know how existing 
constructions services companies could change their permitted scope of work to be able to apply for 
engineering licenses under Decree 114.   As foreign companies were permitted to use outside 
experience in applying for establishing an initial fo reign-invested design enterprise in China, the 
United States was of the view that foreign comp anies should also be allowed to use relevant 
experience to apply for a higher class of license rather than waiting for two years under seasoning 
requirement.  This would prevent national treatment  issues that unfairly favoured domestic providers.  
While pleased that the draft implementing rules ha d been circulated for public comments, the United 
States was highly disappointed that the draft had been released to the public on 25 October 2006 with 
a deadline for public comments on 30 October 2006.  In order for prior public comments to be an effective and useful exercise, it was critical that  there be adequate opportunity for relevant 
stakeholders to present their views.  The Unite d States urged that, as China considered how to 
improve transparency practices on a governmental wide basis, it was important to have a standard 
period of sufficient duration for adequate respon se from private sector stakeholders.  Understanding 
that China might consider issuing to Chinese co mpanies a super-qualification construction services 
certificate, the United States looked forward to more information in this regard and wished to know 
whether foreign companies would also be able to apply for such comprehensive certificate.  The 
United States urged China to clarify the mechanism to allow licensed project managers to transfer 
their registration of engineers from one China-based fi rm to another.  In addition, the United States 
hoped that China would consider its repeated  suggestion to lower capital requirements for 
construction licenses and to allow the use of perfo rmance bonds in lieu of registered capital as was 
frequently practiced in other Members.  
50. The representative of the European Communities
 said that his delegation attached great 
importance to the TRM.  On postal and express deliver y services, he asked when the further draft of 
the postal law would be available for public co mments and whether express delivery of addressed 
letters would be included in the reserved area.   After having listened to China's explanation on its 
needs requirements in legal services as well as in tourism, his delegation was convinced that such 
requirements constituted Economic Needs Tests (ENTs)  as defined in Article XVI of the GATS.  In 
his delegation's view, China's clarification that these needs requirements were equally applied to 
domestic companies was irrelevant in this rega rd.  Remaining concerned about these ENTs, his 
delegation wished to know when China would remove them in compliance with its GATS 
commitments.  On telecommunications, he s ought confirmation from China that there was no 
obligation for foreign companies to ve nture with a main Chinese partner.  
51. The representative of Chinese Taipei  thanked China for having provided detailed responses to 
questions raised by her delegation in telecommuni cations as well as in tourism and travel-related 
services.  She also thanked China fo r providing an updated list of laws  and regulations.  She reiterated S/C/M/85 
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 that liberalization of trade in services would not only enhance the efficiency of relevant services 
sectors, but also contribute to China's overall economic growth.  
52. The representative of Canada  said that his delegation took this occasion to both congratulate 
and encourage China on its efforts at implementi ng its commitments and opening further its markets 
pursuant to its accession to the WTO.  Given the si ze of China's economy and its impact on trade, it 
was no surprise that China's compliance with its WT O obligations and the fulfilment of its market 
access commitments required close attention.  Th e annual transitional Review undertaken in the 
Council for Trade in Services since 2002 had facilita ted the assessment of China's compliance with 
the terms of its accession.  Moreover, this Review  had provided a forum for an open and constructive 
exchange between China and WTO Members regardi ng specific regulations, measures, or practices 
and their impact on China's services market access  commitments.  For this year's Review, it was 
evident from the submissions made by other WTO Me mbers that certain measures and regulations in 
specific sectors still caused concerns because they were  viewed as inconsistent with China's specific 
GATS commitments.  Canada thanked the other dele gations for their submissions and wished to note 
that concerns raised in respect of sales away from a fixed location were shared by Canadian direct 
sellers as well.  Although Canada di d not make a submission for this Review, it wished to focus on the 
issue of regulatory transparency.  In general te rms, the feedback his government had received from 
Canadian companies operating in China suggested th at it was still difficult to get a sense of proper 
procedures to receive administrative approvals or licenses.  Canadian companies noted that the 
decision process was often complex, open to interp retation, and not always under a truly independent 
regulator.  This had resulted in situations where local and foreign companies appeared to receive 
different treatment.  In this regard, for all service s uppliers and investors to compete effectively in the 
global  market, access to and availability of clear an d up-to-date information was crucial.  Therefore, 
Canada thanked China for its communication on info rmation required by Anne x 1A.  In particular, 
Canada remained unclear on the specific crite ria applied by China in order to sign an Approved 
Destination Status Memorandum of Understanding   with a WTO Members.  Furthermore, regarding 
the tourist quota system referred to in Measures for Administration of Outbound Tour , Canada 
understood that this had been phased out with the relevant laws and regula tions to be updated.  
Canada sought information on the status of the aff ected laws and regulations.  Finally, noting that 
China was in the process of developing its standards for the engineering profession, Canada asked that 
these standards be reasonable, fair and transparent in order to ensure access by foreign professional engineers.  Canada thanked China for its participa tion in this Review and l ooked forward to continued 
improvements in transparency which remained  key to services trade liberalization.   
53. The representative of the United States
 stated that his delegation appreciated the directive 
issued by China's State Council in March 2006, wh ich required that all tr ade-related laws and 
regulations be published in the MOFCOM Gazette by  all ministries and all levels of government.  
This was extremely important in the area of services with a large number of licenses and other 
administrative procedures required in order to partic ipate in the Chinese market .  The United States 
urged that great efforts be made to ensure full compliance with this State Council directive.  The 
United States would appreciate it if China could pr ovide information about the degree to which other 
ministries besides MOFCOM and local level official s were providing relevant  laws and regulations 
that affected the ability of foreign firms to take  advantage of China's market access commitments. 
54. The representative of China  said that his delegation took note of the comments made by other 
Members.  He himself also wished to make a few comments.  China realized that liberalization of 
services sectors was conducive to economic developm ent.  On the issue of transparency, it was 
difficult for any Member to make all its measures fully understood by other Members.  Some issues 
raised by other Members went beyond China's WTO commitments and some of them were even 
subject to debate in the services negotiations.  For ex ample, there were no clear definitions of trade in 
services and commercial presence under the GATS.  While the GATS did not recognize the right of 
establishment, a lot of foreign services providers had already set up business in China.  China had its  S/C/M/85 
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 own concerns about entering other Members' ma rkets, such as the visa problem Chinese businessmen 
were facing.  In fact, China and other developing Members were facing serious barriers in those areas 
where they had advantage, such as the movement of  natural persons.  While foreign services providers 
were allowed to set up business in China in cap ital- and technology-intensive sectors,  Chinese 
companies could not set up construction enterprises in  major developed markets to compete with local 
companies.  He stressed that the TRM could not solv e all the issues.  Some issues had been repeatedly 
raised, though they had been answered.  While r ecognizing Members' need to express their concerns, 
he said that China should be praised for its great ac hievements since its accession to the WTO.   He 
noted that in just five years, China's services industry had already been very open.  China was 
undergoing profound reforms, including reforms in th e field of trade policy, and was facing a huge 
task of opening its services sectors.  Although Ch ina needed more time to better understand the 
provisions of the GATS, it had made liberalization ah ead of some advanced Members.  He reiterated 
that China should be praised for this.  With respect  to those follow-up questions raised by Members, 
he said that there was no time or expertise to  respond to new questions.  As to demand for 
clarification on some issues, he suggested an info rmal meeting with those interested Members after 
this meeting. 
55. The representative of the European Communities  said that his delegation still had concerns 
about the implementation by China of its services comm itments and that a number of questions raised 
by his delegation had not been answered. 
56. The Chairman  thanked China for its responses and sugg ested that, before moving on to the 
issue of the report to the General Council, the Coun cil take note of the statements made and conclude 
the fifth transitional Review pursuant to Section 18 of China's Accession Protocol. 
57. The Council so decided . 
58. Regarding the report to the General Council, the Chairman  suggested that the Secretariat 
prepare a factual report stating that:  (i) at its meeting held on 30 November 2006, the Council for 
Trade in Services conducted the fifth transitional Review of the implementation by China of the WTO 
Agreement and of the related provisions of the Prot ocol, pursuant to Section 18 of the Protocol on the 
Accession of the People's Republic of China; (ii) written communications had been received from five 
WTO Members, namely the United States, Japan, the European Communities, Chinese Taipei and 
Australia;  (iii) the details of the discussion coul d be found in the meeting report contained in 
document S/C/M/85.   
59. The Council so decided . 
E. OTHER  BUSINESS 
60. The Chairman  recalled that the Council had held its fi rst dedicated meeting in the context of 
the second Air Transport Review on 12 September 2006 (the report of that meeting is contained in 
document S/C/M/84).  At the end of that meeting, it had been agreed that the next dedicated meeting 
would take place mid-December.  In the course of October, several delegations had requested postponing the second dedicated meeting.  After cons ulting with several delegations and in view of 
the fact that no objection had been raised, the Chai rman had informed all dele gations, with a fax dated 
30 October 2006, that the second dedicated meeting w ould be postponed and that  a new date would be 
proposed.  In the meantime, the Secretariat had i ssued the second part of the documentation dealing 
with developments in the air transport sector (doc ument S/C/W/270/Add.1).  He then proposed that 
the second dedicated meeting take place during the week of 5 February 2007.   
61. The Council so agreed
. S/C/M/85 
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 62. The representative of Japan  noted that Japan and a number of other Members had recently 
concluded the Article XXI negotiations with th e European Communities.  The draft schedule 
reflecting the result of the negotiations was going thr ough the certification procedure.   In accordance 
with paragraph 20 of document S/L/80, the modi fying Member – in this case, the European 
Communities – was required to clearly indicate the deta ils of the modifications in the draft schedule.  
If in the draft schedule there were modifications which were not clearly indicated and constituted 
rollbacks of commitments, Japan would not consid er those modifications as having satisfied those 
conditions required for certification.  Accordingly, Japan would not regard those parts of the draft 
schedule as certified.   
63. The representative of Hong Kong, China  noted that her delegation had concluded the 
Article XXI negotiations with the European Comm unities.  While the certification process was still 
ongoing, her delegation thanked the European Commun ities for their tremendous efforts.  She noted 
that the experience drawn from these negotiations  was particularly important because of their 
systemic implications and precedent-setting effect.  In this spirit, she stre ssed that the agreement 
between the European Communities and Hong Kong,  China had been reached on the basis of a 
number of understandings.  Notably, the compensator y adjustments were not intended to lessen the 
existing commitments of the European Communiti es and its individual Member States.  The 
procedures initiated by this exercise under rele vant communications involved exclusively 
modifications and withdrawal of specific commi tments and did not include the lists of MFN 
exemptions of the European Communities and its  individual Member States, which remained 
unchanged.  She stressed that the communicatio n from her delegation, contained in document 
S/L/219, had expressed her delegation' s understanding of Members' interest to enter into negotiations 
under Article XXI.  She believed that, in the light of the experience from this particular exercise, 
Members could enhance and further strengthen the Article XXI procedures.  Her delegation looked 
forward to this opportunity.        
64. Echoing the statement made by Japan, the representative of Switzerland  added that 
modifications that were not made in accordance with  Article XXI could not take effect by means of 
certification.  He pointed out that, in accordance with Article XXI:2(a), any modification or withdrawal was to be notified.  It was underst ood that obligations under Article XXI as well as those 
under the GATS in general remained in force, regard less of the existence or absence of declarations 
and regardless of the certification procedures. 
65. Thanking the European Communities for their efforts in the Article XXI negotiations, the 
representative of Chinese Taipei
 said that the experience Members ha d gained from these negotiations 
was very important for the future.  She indicated that there were some discrepancies in Article XXI 
procedures, as contained in S/L/80.  Echoing the statement by Switzerland, she stressed that any 
modification or withdrawal of specific commitments had to go through the Article XXI procedures.  It 
was on this understanding that her delegation had reached agreement with the European Communities 
and believed that the compensatory adjustments c ontained in the draft schedule could maintain a 
general level of mutually advantageous commitment s, no less favourable to trade than that provided 
for in the previous schedule.  Echoing the statem ent by Hong Kong, China, her delegation was also 
concerned about some MFN exemptions contained in the draft schedule and hoped that this issue 
could be solved multilaterally in the future.   
66. The representative of Korea  supported the statement by Hong Kong, China that the 
Article XXI negotiations were limited to specific commitments and that the European Communities' 
lists of MFN exemptions remained unchanged.  His delegation expected appropr iate action to be taken 
by the European Communities in this regard.   
67. The representative of the European Communities  stated that for her delegation, the 
Article XXI procedures were clear.  It was sti pulated that Members had 45 days to review her  S/C/M/85 
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 delegation's consolidated schedule.  Her delegati on would consider the certification procedure as 
concluded at the end of this 45-day period.   In pr actice, noting that the French and Spanish versions 
of the consolidated schedule had been circulated three weeks after the circulation of the English 
version, her delegation took the late r date of circulation as the beginning of the 45-day period.  As a 
result, Members had been given three additional week s to review the consolidated schedule.   She 
reiterated that her delega tion had applied the existing procedures and would continue to do so as long 
as they were not changed.     
68. The representative of Brazil  said that his country was holding the presidency of the Mercosur 
at present.  Brazil would submit to the Secretariat the notification of the Montevideo Protocol which 
concluded the negotiations on liberali zation of trade in services within the Mercosur.  It was a further 
step to strengthen this trade block.   The notifica tion would be formally made to the Council for Trade 
in Services on the understanding that it would be  forwarded to the Committee on Regional Trade 
Agreement.  For transparency pu rposes, he informed Members that the Montevideo Protocol would 
also be notified to the Committee on Trade and Development.  
69. Referring to the Chairman's proposal that the second dedicated meeting of the second air 
transport review take place during the week of 5 February 2007, the representative of the United 
States  said that she needed to confirm with her capital whether or not the experts of her country could 
come to Geneva during that week.  
70. The Chairman  said that he hoped the proposed date for the meeting of the air transport review 
would still be acceptable to all Members.   He suggested that the Council adjourn the meeting. 
71. The Council so agreed . 
__________