. /.   WORLD TRADE  
ORGANIZATION  G/AG/W/68 
21 August 2007 
 (07-3511) 
Committee on Agriculture Original:   English 
  
 
CHINA'S TRANSITIONAL REVIEW MECHANISM 
 
Questions to China from the United States in the c ontext of the Transitional Review Mechanism under 
Paragraph 18 of the Protocol of Accessi on of the People's Republic of China  
 
  The following communication, dated 17 Augus t 2007, has been received from the Delegation 
of the United States, with the request that it be ci rculated to Members, for the purposes of the Sixth 
Transitional Review to take place at the forthcoming meeting of the Committee. 
 
 
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Discriminatory VAT exemptions 
 
1. The United States understands that many agricultural products are exempted from China's 
13 per cent value-added tax (VAT) normally applicab le to agricultural products.  For example, it 
appears that sales of agricultural commodities produced  and sold by farmers in China, such as wheat, 
cotton and corn, are exempted from the VAT.  In a ddition, it appears that sales of agricultural inputs 
produced and sold in China, such  as seed, pesticide, herbicide, agricultural machinery and certain 
fertilizers, are exempted from the VAT.  However,  when these same products are imported, it appears 
that they are assessed the VAT at the rate of 13 per cent. 
(a) Can China confirm that sales of agri cultural commodities produced and sold by 
farmers in China, such as wheat, cotton and corn, are ex empted from the VAT, while 
imports of these same products are assessed the VAT at 13 per cent?  If so, please 
identify the applicable measur es.  Please also explain how China justifies these VAT 
exemptions under its WTO obligations, including Article III of the General 
Agreement on Tariffs and Trade 1994 (GATT 1994) and Article 3 of the Agreement 
on Subsidies and Countervailing Measures (SCM Agreement). 
   
(b) Can China confirm that sales of agricultura l inputs produced and sold in China, such 
as seed, pesticide, herbicid e, agricultural machinery and certain fertilizers, are 
exempted from the VAT, while imports of these same products are assessed the VAT 
at 13 per cent?  If so, please identify the a pplicable measures.  Please also explain 
how China justifies these VAT exemptions under its WTO obligations, including 
Article III of the GATT 1994 and Article 3 of the SCM Agreement.  
   G/AG/W/68 
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  Export VAT rebates  
 
2. The United States understands that a VAT reba te is available upon the export of some 
agricultural products, including ones for which paymen t of the VAT was imputed rather than actually 
paid at a prior stage because of an exem ption (as described in question 1 above).  
(a)     Please identify the measures that gove rn how China calculates the export rebate in 
this situation.  
  
(b)      Please explain how China ensures that  the export rebate is not excessive, i.e., that it 
does not exceed the VAT actually paid.    
   
Tariff rate quotas 
 
3. US companies continue to complain about inad equate transparency in the administration of 
China's tariff rate quota regime for bulk agricu ltural commodities.  With regard to cotton, for 
example, it appears that the initial quota and an y above-quota licences continue to be issued to 
Chinese domestic entities without public announcement of the volume, timing or applicable tariff rate.  
Would China be willing to publicize this information in the future?  If not, please explain China's reasons for keeping this information confidential. 
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