RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/307 
21 October 2009 
 (09-5184) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM JAPAN 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol of the Accession of the People's Republic of China ("China")  
 
 
 The following communication, dated 19 Octobe r 2009, from the delegation of Japan, is being 
circulated to the Members of th e Council for Trade in Services. 
 
_______________ 
 
 
Questions and Comments of Japan on the Implementation by China  
of its Commitments on Trade in Services-  
  
1. Japan appreciates China’s commitment to improve continuously the level of liberalization for 
8 years in accordance with the services schedule made  at the time of accession. Japan believes that 
liberalization in the services sector will not only e nhance the efficiency of the sector, but also 
contribute to China’s overall economic growth. Wh ile regulatory framework has been upgraded, it 
seems that implementation does not keep pace with  the upgraded regulations even after this final 
TRM. In this regard, Japan would like to reiterate  that implementation of China’s commitment needs 
to be secured. Japan also continu es to encourage China to make furt her efforts to enhance regulatory 
transparency, thus maximizing the benefits of liberalization.  
2. Japan is of the view that there are still rooms fo r further improvements in this area, in view of 
China’s commitment to transpar ency as described in the Report of the Working Party on the 
Accession of China. In accordance with paragraph 18  of the Protocol on the Accession of the People’s 
Republic of China, which states that “China sha ll provide relevant information to each subsidiary 
body in advance of the review” and in the spir it of cooperation to render the TRM process most 
efficient and effective, Japan requests China to provi de with, in advance of the Regular Meeting of the 
Council for Trade in Services, responses and rele vant information to the following questions and 
comments. 
I. OTHER BUSINESS SERVICES 
A. C
OMPUTER AND RELATED SERVICES  
3. Japan understands that the General Administra tion of Press and Publication (GAPP) and the 
National Copyright Administration announced that China will ban all foreign investments in online 
games. Furthermore, datacenter for server must be settled when the foreign company  supplies the 
online game service, and wholly foreign-owned subsidiaries are not permitted for the commercial 
presence. In this regard, Japan would like China to provide the relevant laws and regulations as well 
as the legal background of this new measure. S/C/W/307 
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  B. A
DVERTISING SERVICES  
4. In the last review, China stated that “wholly  foreign-owned advertising firms have been 
allowed to set up in China after 10 December, 2005”  and “[China] provided great market access to 
foreign investors”. Japan appreci ates China’s liberalization of the advertising services. However, 
Japan would like to point out that  only suppliers that mainly opera te advertising services are permitted 
to establish wholly foreign-owned companies unde r the Regulations on Foreign Investment in 
Advertising Firms. The relevance between this requirement and the “adverse impacts” that China 
indicated at the last TRM is unclear. In genera l, companies whose main business is not operating 
advertising services need to advertise their own pro ducts or services effectively, in cooperation with 
the production departments within the companies. China has not explained why a foreign company 
whose main business is not advertising services is not permitted to establish wholly foreign-owned 
subsidiaries. In respect to China’s schedule of commitments, China has unde rtaken commitments to 
establish wholly foreign-owned subsidiaries in Mode 3 under the GATS Artic le XVI on Advertising 
Services within four years after accession. In addition, China has committed to the National 
Treatment without any limitations in Mode 3 based  on Article XVII. As Japanese firms in China are 
strongly interested in this issue, Japan would like to ask China to explain the consistency of these 
measures with China’s schedule of commitments in Advertising Services.    C. A
RCHITECTURAL /ENGINEERING SERVICES  
5. Japan understands that license approval as a China’ s architects/engineers certified by Ministry 
of Construction of the People's Repub lic of China is required when the foreign company is engaged in  
Architectural/Engineering services in China. Howeve r, when the foreign architects/engineers obtain 
the license approval, the graduation degree certifie d by Ministry of Education of the People's 
Republic of China is obliged. Furthermore, the fore ign architects/engineers who has degree of foreign 
university are not provided even to take the ex amination for the license.  As a result, foreign 
architects/engineers  face difficulties to acquire the China’s architects/engineers license, and this 
become the actual limitation for foreign architects/ engineers. Japan would like China gives the equal 
treatment for architects/engineers. In this regard, Japan would like China to explain the consistency of 
these measures with China’s commitments in th e Architectural/Engineering Services under the 
GATS. 
II. TELECOMMUNICATION SERVICES 
6. Regarding an entry into the telecommunicati ons market in China by foreign affiliate 
companies, Japan welcomes the 50 percent decrease of the minimum capital regulations pursuant to 
Article 5 of the Regulation on the Administration of Foreign Invested Telecommunications Enterprises. However, Japan recognizes that the cost  of basic telecommunications services in China 
have remained high, which is a billion yuan (15 billion yen) on a national level and 100 million yuan 
(1.5 billion yen) on a provincial level. In the last re view, China stated that “C hina was a vast country 
with an enormous population, which required heavier front-loaded investment in telecom 
infrastructure than those in most other countries. ” Nonetheless, while the minimum capital regulations 
cover a market entry through resale, Japan believes th at the China’s explanation, a vast investment is 
necessary across the board, does not always apply th e all types of investment. Based on these grounds, 
Japan  would like to know whether there is a possib ility to abolish the minimum capital regulations in 
China, so that the liberalization of the market woul d be further promoted. Even if it is difficult for 
China to abolish all of the minimum capital regula tions, Japan also would like to know whether there 
is possibility to abolish the minimum capital regula tions in the resale business or to further cut the 
minimum capital should be immediately taken by China.  
7. China has committed to the Reference Paper, and provision 2.4 of the Reference Paper 
stipulates that “a major supplier will make publicly av ailable either its interconnection agreements or  S/C/W/307 
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  a reference interconnection offer.” For the implemen tation of this commitment, it is required to 
guarantee public availability of rules for interconnec tion by disclosing them. In this regard, after 
restructuring of major basic telecommunication ope rators in China, Japan would like to ask the 
following questions: 
(a) According to article 18 of the “Regulati on on Telecommunications” and article 7 in 
“Regulation on the Interconnections betw een Public Telecommunication Networks 
(Decree 9 of the Ministry of Information Industry)”, dominant telecommunications business operators are required to establish rules for interconnection and implement 
these rules after receiving permission. Coul d China explain whether these rules for 
interconnection are disclosed to the public consistently with the Reference Paper to 
which China has committed? 
(b) If this is the case, Japan would like to have information on where to obtain 
appropriate documents on these rules as well as the name of the law and the article number that oblige operators to disclose them for interconnection. 
(c) If these rules for interconnection are not discl osed to the public, Japan would like to 
confirm whether China has the intention to  disclose these rules for interconnection by 
establishing a law that stipulates such ob ligation in accordance with the Reference 
Paper? 
8. Japan would like to ask China to  provide details on the present situation, future procedures, 
and schedule for the establishment of the Telecommuni cation Law, since China explained in the last 
review that it was “now under legislative review”. 
9. China has made certain reservations on the right to place restrictions on foreign capital 
participation in the telecommunications business in  the Chinese schedule, such as,  “….Foreign 
investment in joint ventures shall be no more than  (30/49/50) per cent…..”.  China also uses a similar 
description in the present offer. Si nce Japan can not find the restrictions on indirect shareholding in 
these reservations, Japan would like China to confirm that these reservations do not include indirect 
shareholding. In addition, Japan would like to ask  China to provide with an update on the number and 
foreign affiliation of basic and value-adde d service suppliers operating in the Chinese 
telecommunications market (For example, when Japan’s corporation A owns x% of stock in a corporation B and the corporation B owns y% of st ock in China’s corporation C, Japan would like 
China to confirm whether or not the target of fore ign equity limitation in this case will apply A’s 
indirect shareholding of C (xy). 
10. Regarding the commercial presence of  IT related or Telecommunication services, approval 
from MIIT is required when the joint venture corpor ation is established. However, Japanese firms in 
China found difficulties in this approval process. In th is regard, Japan would like China to explain the 
detail of this approval process. 
III. CONSTRUCTION AND RELATED ENGINEERING SERVICES 
11. After China’s accession to the WTO, China has made proactive efforts for promoting trade 
liberalization to fulfill her responsibility. However, we regret that recently its speed seems to slow 
down in the area of construction and related engin eering services. We strongly expect that China 
continues to address our interests with sincerity.  
12. Upon China’s WTO accession in 2001, China committed to permit the establishment of 
wholly foreign-owned enterprises, instead of former system to issue construction permission of direct 
contract on a project-by-project basis. We understand that this measure took effect in 2002, however, S/C/W/307 
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  additional conditions for employment and minimum capital have been imposed for establishment of 
foreign enterprises. In addition to such requirement s, construction works that can be undertaken by 
foreign enterprises are limited to four sections of work s, and the ceiling of contract value is restricted 
to 5 times as much as the capital of the enterprise.  
13. Elimination of the foreign capital limitation is valued for promoting free trade. However, 
Japan would like to point out that the above-mentione d requirements have become obstacles to market 
access in spite of China’s intention to create ope n market. Under such circumstances, foreign 
construction enterprises are not able to acquire the construction permission, even though they are fully 
capable of obtain them, and are not able to demons trate their expertise in the construction sites.   
14. China mentioned in the last review about th e future possibility of improvement of the 
restriction of minimum registered capital requirement while there were some difficulties. Therefore, 
we would like China to confirm prospect of the exam ination, and to what extent its restriction would 
be improved.10. With respect to “constructor (jian zao  shi)”, in order to foster healthy market and 
ensure quality of construction work s, the Government of China intr oduced “constructor (jian zao shi)” 
to be assigned to every project site. However, th e number of constructors is not enough so that it 
becomes obstacles to market access in the ground. Ja pan would like China to explain the consistency 
of these actual limitations with China’s schedule of commitments. 
15. Furthermore, in registering a company, some  local government, such as Tianjin City and 
Yantai City, impose requirements of minimum fl oor area of an office. We believe that such 
requirements have no relevance to business operating competence of the company.  
16. According to China’s WTO commitments and domestic law, the Government of China 
provides the same market condition for both forei gn and Chinese construction companies, but, on the 
ground, foreign enterprises face difficulties by be ing treated differently from China’s companies. 
Japan would like China to explain the consiste ncy of these measures by local governments with 
China’s schedule of commitments on NT obligations. 
IV. DISTRIBUTION SERVICES 
17. Japan appreciates China’s continuous deregula tion of the distribution market after accession 
to the WTO. It seems that people in China actually enjoy the benefit of developing distribution services. Japan would like to point out the issues in  the distribution services that are outstanding from 
the last review. As for household-use game mach ines and software, foreign service suppliers are 
prohibited from distributing and importing these items  under “Article 6 of the Circular” (S/C/M/92). 
According to China’s explanation at the last review , restrictions are necessary to protect public morals 
or maintain public order. By contrast, China’s ga me market, especially in online games, has been 
increasing rapidly. As an effect of the prohib ition on distributing leg itimate game machines and 
software, in conjunction with the growing market, ille gal items could spread dramatically. This might 
be injurious to public morals or public order, ra ther than protecting or maintaining them. Assessing 
these circumstances, at this TRM, Japan would agai n like China to explain the consistency of these 
measures with China’s commitments in the Di stribution Services sector under the GATS.   
18. Regarding the ICP license which authorizes ser vice suppliers to supply services via the 
Internet, China explained that the ICP licensing requirement applies to both foreign and domestic 
suppliers, with the aim of ensuring effective regul ation and protecting consumers. In this regard, 
Japan would like China to explain why companies whose foreign equities are over 49% cannot obtain 
an ICP license for conducting commercial business. It  seems that China fund amentally does not trust 
foreign-majority companies in operating Internet commercial businesses. Japan also would like to 
know the relevant laws or regulations for this. As China has not scheduled  limitations on license,  S/C/W/307 
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  Japan would like China to explain the consistency of these measures with Chin a’s commitments in the 
Distribution Services sector under the GATS.   
19. Regarding the franchising business, Japan understand s that the foreign company is required to 
be approved before acquiring the business license and it takes long time for this approval process. 
Therefore, Japan would like to ask China to explain clearly of these measures. Furthermore, there are 
some differences of measures for the approval of commercial presence between urban and rural areas 
in China. Some Japanese companies complain th at the foreign companies in urban areas are more 
restricted than those in rural areas. In this rega rd, Japan would like China to explain the consistency 
with the China’s schedule of commitments. 
V. ENVIRONMENTAL SERVICES 
20. Regarding the environmental services, Japanese firms in China are faced with difficulty with 
the situation such as the company’s profit rate is  limited during 10-12%. Japan would like to know if 
there is such measures in China,  and if so, Japan would like China to explain the details of the 
measures including these of the relevant laws. 
 
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