WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHN/21 
30 August 2006 
 (06-4120) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
 
SUBSIDIES  
 
Questions from AUSTRALIA Regarding th e New and Full Notification of CHINA1  
 
  The following communication, dated 28 August 2006 , is being circulated at the request of the 
Delegation of Australia.  
_______________ 
 
 
A. QUESTIONS REGARDING NOTIFIED PROGRAMMES 
 
II. Preferential tax policies for fo reign-invested export enterprises 
 
Q1. The notification indicates that foreign invested and operated enterprises which have exported seventy per cent or more of their output value of their products may pay enterprise tax calculated at a 
rate which is equivalent to 50% less than that speci fied for enterprise tax rate in the Tax Law.  This 
subsidy appears to be continge nt upon export performance in the same sense as Article 3 of the 
ASCM.  Please: 
 
(a) indicate when China intends to bring this measu re in conformity with its obligations under 
the WTO Agreements, including its Accession Protocol? 
 (b) specify other criteria, if any, for foreign inv ested/operated enterprises to meet in order to 
qualify for the reduced enterprise tax rate?  
 (c) explain how an enterprise could apply to benefit from this preferential tax policy? 
 (d) specify the amount of revenue foregone by th e government during the notification period in 
granting this subsidy? 
 (e) specify which sectors have benefited from th is subsidy during the notification period? 
 
IV. Preferential tax policies for foreign -invested enterprises engaged in energy, 
transportation infrastructure projects  
Q2. What are the criteria for qualifying for the re duced income tax rate?  What types of energy 
and transportation infrastructure projects have be nefited from this subsidy?  How many projects 
during each year of the notified period have benefite d from this subsidy?  Which industry sectors has 
this benefited? 
                                                     
 
1 G/SCM/N/123/CHN  G/SCM/Q2/CHN/21 
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X. Preferential tax policies for enterprises wi th foreign investment established in special 
economic zones (excluding Shanghai Pudong area) 
 
Q3. The notification indicates that enterprises with  foreign investment established in the Hainan 
special economic zones and engaged in certain infra structure projects such as coal mines are exempt 
from enterprise income tax for a specified period of time of starting to make a profit and then subject 
to a reduced enterprise income tax thereafter.  What are the criteria for infrastructure projects 
concerning coal mines to qualify for this advantag eous tax arrangement?  How many projects have 
benefited from this subs idy during each year of the notified period? 
 
XI. Preferential tax policies for enterprises with  foreign investment established in the costal 
economic open areas and in the economi c and technological development zones 
 
Q4. How many projects engaged particularly in “energy resource, transportation and port 
construction projects” have benefited from this preferential tax policy during each year of the notified 
period?  
XII. Preferential tax policies for enterprises with foreign in vestment established in Pudong 
area of Shanghai 
 Q 5. The notification indicates that enterprises with foreign investment engaged in energy 
resources and transport construction projects where th e period of operations is fifteen years or more 
may be exempt from enterprises taxes for a certain  period.  How does China assess the “period of 
operations”?  What specific industry sectors have benefited?  XIII. Preferential tax policies for enterprises wi th foreign investment established in the Three 
Gorges of Yangtze River Economic Zone  
 
Q 6. Please explain what is meant by “enterprises w ith foreign investment of a production nature”.  
What “other projects encouraged by the State” ha ve qualified for this preferential tax policy during 
the period of notification? 
 
XXXIII. Fund for international market exploration by SMEs 
 
Q7. The notification indicates that the funding is provided after the applicant has completed the 
market exploration activities.  Is this program discretionary?  
 
LVIII. Preferential tax policies for foreign in vested enterprises and foreign enterprises which 
have establishments or place in China and a re engaged in production or business operations 
purchasing domestically produced equipments 
 
Q8. The notification indicates that certain forei gn invested enterprises and foreign enterprises 
engaged in production or business operations may deduct forty percent of the expenses on purchasing 
domestically produced equipments from the increment of income tax of that year compared to the 
previous year.  This subsidy appears to be c ontingent upon the use of domestic over imported goods 
within the sense of Article 3 of the ASCM.  Please:  
(a) if any, specify other criteria for foreign invest ed/operated enterprises to meet in order to 
qualify for this preferential tax policy?  
 
(b) explain how an enterprise could apply to benefit from this preferential tax policy?  G/SCM/Q2/CHN/21 
 Page 3 
 
 
  (c) specify the amount of revenue foregone by th e government during the notification period 
in granting this subsidy? 
 
(d) specify which sectors have benefited from th is subsidy during the notification period? 
 LIX. Preferential tax policies for domestic enterprises purchasing domestically produced 
equipments for technology upgrading purposes 
 
Q9. The notification indicates that domestic en terprises that purchase domestically produced 
equipments for technology upgrading purposes ma y deduct forty per cent of the expenses on 
purchasing such goods.  This subsidy appears to be contingent upon the use of domestic over 
imported goods within the sense of Article 3 of the ASCM.  What are the “state industrial policies of 
the domestic enterprises”?  
LXXV. Refund of import VAT of raw copper materials  
 
Q10. What are the environmental protection criteri a?  At what point of importation of the raw 
copper materials is “collection”?  The notification indicates that only enterprises that have production 
or refining capacity over a certain threshold may qua lify for this preferential tax treatment.  What is 
meant by “imported within th e approved quantitative scope”? 
 
 
B. QUESTIONS CONCERNING SUBSIDIES NOT
 INCLUDED IN THE NOTIFICATION 
 
 In Paragraph 173 of the Report of the Working Party on the Accession of China2, the 
existence of subsidies to the telecommunications, footwear, coal and shipbuilding sectors was noted.  
 
Q11. Can China clarify what subsidies are provided to  its coal industry?  In particular, could China 
confirm that it maintains the following subsidies noted in the Report of the Working Party on the 
Accession of China:  
(a) exemptions from government port charges for coal exporting companies; 
 
(b) exemptions for coal exporting companies from paying construction levies for railways; 
 (c) a maximum limit established by the Chinese government on the commission that China’s 
coal exporting companies can charge coal producers for facilitating export transactions. 
 
Q12. Could China elaborate on the subsidies, includi ng through tax relief, it provides to its fisheries 
sector? 
 
 
__________ 
 
 
                                                     
 
2 WT/ACC/CHN/49.