WORLD TRADE  
ORGANIZATION  G/TRIMS/W/54 
5 October 2007 
 (07-4245) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
COMMUNICATION FROM THE UNITED STATES 
  
 The following communication , dated 3 October 2007, is being circulated at the request of the 
Delegation of the United States.   
 
 
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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
 
Concerning Trade-Related Investment Measures  
  I. M&A REGULATIONS 
1. Shortly before last year's transitional review  before this Committee, in August 2006, new 
regulations on mergers and acquisitions  (M&A regulations) were jointly issued by China's Ministry of 
Commerce (MOFCOM), the State-owned Assets Supervision and Administration Commission, the 
State Administration of Taxation, the State Administration of Industry and Commerce, the China Securities Regulatory Commission and the State Administration of Foreign Exchange.  The 
regulations strengthen MOFCOM's supervisory role over foreign investment, in part by requiring 
MOFCOM's approval of M&A transactions that it be lieves impact state economic security or involve 
famous Chinese brands.  The regulations also pla ce MOFCOM in the role of determining if the 
domestic acquisition target has been appropriately valued.   
2. In the interest of transparency, and so th at the United States and other WTO Members can 
better understand how China's M&A regulations ma y or may not be relevant 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/TRIMS/W/54 
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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?   
II. AUTOMOBILE INDUSTRIAL POLICY 
3. In connection with prior transitional review s before this Committee, the United States 
addressed Article 47 of China's automobile indust rial policy, published on 1 June 2004, and entitled 
"Development Policy of the Automobile Industry" , which states that a new automobile production 
plant requires a minimum investment of RMB 2 b illion, of which owned cap ital should not be less 
than RMB 800 million.  According to Article 47, th e new plant should also include an R&D facility, 
investment in which should not be less than RM B 500 million.  Article 47 additionally requires the 
establishment of an R&D facility in connection w ith new automobile engine manufacturing.   
4. The United States previously explained that , in its WTO accession agreement, China 
committed not to condition the right of investment on the conduct of research and development.  The United States cited paragraph 7.3 of China's Pr otocol of Accession ("China shall, upon accession, 
comply with the TRIMs Agreement, without recourse to the provisions of Article 5 of the TRIMs 
Agreement. ... Without prejudice to the relevant provi sions of this Protocol, China shall ensure that 
the distribution of import licences, quotas, tariff-rate quotas, or any other means of approval for importation, the right of importation or investment  by national and sub-national authorities, is not 
conditioned on:  whether competi ng domestic suppliers of such pr oducts exist; or performance 
requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China ") and paragraph 203 of the 
accompanying Working Party Report ("The allocation, permission or rights for investment will not be 
conditional upon performance requirements set by nati onal or sub-national authorities or subject to 
secondary conditions covering, for example, the conduct of research , the provision of offsets or other 
forms of industrial compensation including specifi ed types or volumes of business opportunities, the 
use of local inputs or the transfer of technology").   
5. In response to the United States ' request that China explain whether Article 47 was consistent 
with China's commitments in paragraph 7.3 of Ch ina's Protocol of Accession and paragraph 203 of 
China's Working Party Report not to condition the right of investment by mandating the conduct of research and development in China, the representative from China stated at last year's transitional 
review before this Committee that, "[a]ccording to  his knowledge, so far, the Chinese government has 
not enacted any follow-up rules on administration of  the investment in the auto manufacturing sector 
to implement the policy".    G/TRIMS/W/54 
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  (a) In the past year, has China issued any measures or taken any other actions to 
implement the requirement in Article 47 that new automobile production plants include an R&D facility?  Please explain. 
(b) In the past year, has China issued any measures or taken any other actions to 
implement the requirement in Article 47 th at new automobile engine manufacturing 
plants include an R&D facility?  Please explain. 
III. STEEL POLICY 
6. In connection with prior transitional review s before this Committee, the United States 
addressed China's steel industrial policy, rel eased by the National Development and Reform 
Commission on 8 July 2005, which mandates certain requirements as conditions for investments.  One 
of these requirements, set forth in Article 22, is  that foreign steel enterprises possess proprietary 
technology/intellectual property in the processing of steel if they are to invest in a Chinese steel 
enterprise.  Given that foreign investors are not a llowed to have a controlling share in steel and iron 
enterprises, it is the United States' view that  this requirement would seem to constitute a de facto 
technology transfer requirement.   
7. In response to the United States' request that Ch ina explain how this requirement is consistent 
with the commitments made by China in para graph 7.3 of its Protocol of Accession and 
paragraph 203 of its Working Pa rty Report, the representative from China stated at last year's 
transitional review before this Committee that "t his was a qualification criterion on the investor, 
which was different in nature from a compulsory technology transfer requirement".   
(a) Please explain how a "qualification criterion" is different from a "requirement".  For 
example, is it possible for a foreign steel  enterprise to inv est in a Chinese steel 
enterprise without possessing proprietary technology/intellectual property in the processing of steel?   
(b) Assuming that the foreign steel enterprise is required to possess proprietary 
technology/intellectual property in the pro cessing of steel, is it China's position that 
the foreign steel enterprise nevertheless does not have to share its proprietary 
technology/intellectual property with the Chinese steel enterprise in which it is investing?  Please explain.   
(c) Has China issued any measures or taken any other actions to implement the 
requirement in Article 22 that foreign steel enterprises possess proprietary technology/intellectual property in the processing of steel if they are to invest in a 
Chinese steel enterprise?  Please explain.   
IV. FOREIGN INVESTMENT CATALOGUE 
8. The National Development and Reform Commission (NDRC) and the Ministry of Commerce 
issued the Catalogue for the Guidance of  Foreign Investment Industries  in November 2004, and it 
became effective in January 2005.  The United St ates understands that this catalogue is currently 
undergoing another revision.  Will an opportunity be  provided for public comment on a draft of the 
revised catalogue?   
 
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