WORLD TRADE  
ORGANIZATION  WT/DS359/13 
13 July 2007 
 
 (07-3005) 
 Original:   Spanish 
  
 
CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR 
EXEMPTIONS FROM TAXES AND OTHER PAYMENTS 
 
Request for the Establishment of a Panel by Mexico
 
 
 
 The following communication, dated 12 July 2007, from the delegation of Mexico to the 
Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.  
_______________ 
 
  On 26 February and 4 May 2007, Mexico requ ested consultations and further consultations, 
respectively, with the People's Republic of China pursuant to Articles 1 and 4 of the Understanding 
on Rules and Procedures Governing the Settlement of Disputes  ("DSU"), Article XXII:1 of the 
General Agreement on Tariffs and Trade 1994 ("GATT 1994"), Articles 4 and 30 of the Agreement 
on Subsidies and Countervailing Measures  ("SCM Agreement"), and Article 8 of the Agreement on 
Trade-Related Investment Measures  ("TRIMs Agreement"), with rega rd to certain measures granting 
refunds, reductions, or exemptions from taxes ot herwise due to the Government.  Mexico held 
consultations with the People's Republic of Chin a on 20 March and 22 June 2007.  Unfortunately, 
those consultations did not resolve the dispute. 
 
 The first set of measures that were the subject  of consultations are measures granting refunds, 
reductions, or exemptions to enterprises in the Peopl e's Republic of China from taxes otherwise due to 
the Government, on the condition that those en terprises purchase domestic over imported goods.  
Consequently, these measures appear to be incons istent with Articles 3.1(b) and 3.2 of the SCM 
Agreement .  Furthermore, because they make advantag es conditional on an enterprise's purchase of 
domestic over imported equipment, these measures a ppear to accord to imported products treatment 
less favourable than that accorded  to like domestic products, in  a manner inconsistent with 
Article III:4 of the GATT 1994 and Article 2. 1 and Annex 1, paragraph 1(a) of the TRIMs Agreement .  
For the same reasons, these measures appear not to comply with the obligations of the People's 
Republic of China under paragraphs 7.2-7.3 and 10.3 of Part I of its Protocol of Accession, and 
paragraph 1.2 of Part I of its Protocol of Accessi on (to the extent that it incorporates paragraph 203 of 
the Report of the Working Party on the Accession of China).  The measures that give rise to these 
apparent inconsistencies include the following, as well as any amendments thereto and any 
implementing measures:  
1. Circular of the State Administration of Taxation Concerning Transmitting the Interim 
Measure for the Administration of Tax Refunds  to Enterprises with Foreign Investment for 
their Domestic Equipment Purchases
1, read in conjunction with the  Circular of the State 
Administration of Taxation and the National Development and Reform Commission of the 
People's Republic of China, on Printing and Issuing the Trial Measures for the 
                                                      
1 GuoShuiFa [1999] No. 171 (20 August 1999). WT/DS359/13 
Page 2  
 
  Administration of Tax Rebate for the Purcha se of Domestically-Produced Equipment in 
Foreign Investment Projects.
2 
 
2. Circular of the Ministry of Finance and the State Administration of Taxation Concerning the 
Issue of Tax Credit for Business Income Ta x for Homemade Equipment Purchased by 
Enterprises with Foreign Investment and Foreign Enterprises3, read in conjunction with the 
Circular of the State Administration of Taxation on Printing and Distributing the Measures 
Concerning Business Income Tax Credit on th e Investment of Enterprises with Foreign 
Investment and Foreign Enterprises by Way of Purchasing Homemade Equipment .4  
Subsidies under these programmes will continue to be granted under the Enterprise Income 
Tax Law of the People's Republic of China5, by virtue of Article 57 of that Law. 
 3. Circular on Distribution of Interim Measur es Concerning Reduction and Exemption of 
Enterprise Income Tax for Investment in Dom estically Made Equipment for Technological 
Renovation .
6  Subsidies under this programme wi ll continue to be granted under the 
Enterprise Income Tax Law of th e People's Republic of China, by virtue of Article 57 of that 
Law. 
  The second set of measures that were the subject  of consultations gran t refunds, reductions, or 
exemptions from taxes otherwise due to the G overnment, on the condition that the beneficiary 
enterprises meet certain export performance criteria.  These measures thus appear to be inconsistent 
with Articles 3.1(a) and 3.2 of the SCM Agreement  and, consequently, with pa ragraph 10.3 of Part I of 
the Protocol of Accession of the People's Republic of China and paragraph 1.2 of Part I of its Protocol 
(to the extent that it incorporates paragraph 167 of the Report of the Working Party on the Accession 
of China).  These measures include the followi ng, as well as any amendments thereto and any 
implementing measures: 
 
4. Rules for Implementation of the Income Tax Law of the People's Republic of China on 
Enterprises with Foreign Invest ment and Foreign Enterprises
7, including Articles 75(7) and 
75(8) thereof, read in conjunction with the Provisions of the State Council on the 
Encouragement of Foreign Investment8, including Articles 8 and 9 thereof, and the Income 
Tax Law of the People's Republic of China on Enterprises with Foreign Investment and 
Foreign Enterprises9, including Articles 6 and 8 thereof.  Subsidies under this programme 
will continue to be granted under the Enterprise Income Tax Law of the People's Republic of 
China , by virtue of Article 57 of that Law. 
 5. Rules for Implementation of th e Income Tax Law of the People's Republic of China on 
Enterprises with Foreign Investment and Foreign Enterprises , including Article 73(6) 
thereof, read in conjunction with the Income Tax Law of the People's Republic of China on 
Enterprises with Foreign Investment and Foreign Enterprises , including Article 6 thereof, 
and Section XIII of the Catalogue for the Guidance of  Foreign Investment Industries .
10  
                                                      
2 GuoShuiFa [2006] No. 111 (24 July 2006). 
3 CaiShuiZi [2000] No. 49 (14 January 2000). 
4 GuoShuiFa [2000] No. 90 (18 May 2000). 
5 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007). 
6 CaiShui [1999] No. 290 (8 December 1999). 
7 Decree [1991] No. 85 of the State Council (30 June 1991). 
8 GuoFa [1986] No. 95 (11 October 1986). 
9 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991). 
10 Order [2004] No. 24 of the State Development and Reform Commission, the Ministry of Commerce 
of the People's Republic of China (30 November 2004).  WT/DS359/13 
 Page 3 
 
 
  Subsidies under this programme will continue to be granted under the Enterprise Income Tax 
Law of the People's Republic of China , by virtue of Article 57 of that Law. 
 6. Rules for Implementation of the Income Tax Law of the People's Republic of China on 
Enterprises with Foreign Invest ment and Foreign Enterprises , including Article 81 thereof, 
read in conjunction with the Income Tax Law of the People's Republic of China on 
Enterprises with Foreign Invest ment and Foreign Enterprises , including Article 10 thereof.  
Subsidies under this programme will continue to be granted under the Enterprise Income Tax 
Law of the People's Republic of China , by virtue of Article 57 of that Law. 
 
7. Article 3 of the Provisions of the State Council on the Encouragement of Foreign Investment . 
 8. Circular of the State Council Concerning the Ad justment in the Taxation Policy of Imported 
Equipment
11, read in conjunction with Section XIII of the Catalogue for the Guidance of 
Foreign Investment Industries . 
 
9. Article 25 of the Enterprise Income Tax Law of the People's Republic of China , read in 
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment 
Industries . 
 10. Article 28 of the Enterprise Income Tax Law of the People's Republic of China , read in 
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment 
Industries . 
 11. Article 31 of the Enterprise Income Tax Law of the People's Republic of China , read in 
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment 
Industries . 
  The aforementioned measures also include pref erential treatment for enterprises with foreign 
investment and foreign enterprises established in  economic areas in the territory of China (for 
example, in special economic zon es, economic and technological zon es, coastal economic open zones, 
and the Hainan Special Economic Zone) to the extent  that they grant enterprises located within the 
said areas refunds, reductions, or ex emptions from taxes or other paym ents in a manner inconsistent 
with Articles 3.1(a) and 3.2 of the SCM Agreement  and, consequently, with pa ragraph 10.3 of Part I of 
the Protocol of Accession of the People's Republic of China and paragraph 1.2 of Part I of its Protocol 
(to the extent that it incorporates paragraph 167 of the Report of the Working Group on the Accession of China). 
 
 All these measures of the People's Republic of Ch ina appear to nullify or impair the benefits 
accruing to Mexico directly or indi rectly under the cited agreements. 
  Accordingly, Mexico respectfully requests, pursu ant to Article 6 of the DSU and Article 4 of 
the SCM Agreement , that the Dispute Settlement Body establis h a panel to examine this matter, with 
the standard terms of reference as set out in Article 7.1 of the DSU. 
 
__________ 
 
 
                                                     
 
11 GuoFa [1997] No. 37 (29 December 1997).