WORLD TRADE  
ORGANIZATION  G/SCM/121 
21 November 2007 
 (07-5112) 
Committee on Subsidies 
and Countervailing Measures  
 
 
 
CHAIRPERSON'S REPORT TO THE COUNCIL FOR TRADE IN GOODS 
ON TRANSITIONAL REVIEW OF CHINA  
 
 
1. The Committee on Subsidies and Countervailing Measures undertook the sixth transitional 
review of China pursuant to paragraph 18 of the Protocol on the Accession of the People's Republic of 
China (WT/L/432) at its regular meeting held on 25 October 2007.   
2. Annex 1A to the Protocol requires China to submit information on the following to this 
Committee:  "Pricing Policies":  (a) "application of ex isting or any other price controls and the reason 
for their use";  and (b) "pricing mechanisms of  China's state trading enterprises for exported 
products".  China submitted the information in this respect on 15 October 2007, which has been 
circulated in document G/SCM/N/167.   
3. Questions submitted in the context of the 2007 tr ansitional review have been circulated in 
documents G/SCM/Q2/CHN/32 (European Communitie s) and G/SCM/Q2/CHN/33 (United States).  
The statements made in the context of this tran sitional review at the meeting of 25 October 2007 are 
reflected in the minutes of the meeting, the re levant paragraphs of which are annexed.   G/SCM/121 
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   Excerpt from the minutes of the regular meeting of the Committee on Subsidies and 
Countervailing Measures held on 25 October 2007, to be circulated as document G/SCM/M/64.   
 D. TRANSITION REVIEW UNDER PARAGRAPH 18 OF THE PROTOCOL OF 
ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA TO THE WORLD TRADE 
ORGANIZATION  
 1. The Chairman
 recalled that paragraph 18 of China's Protocol of Accession to the WTO 
provided that all subsidiary bodies, including th is Committee, "which have a mandate covering 
China's commitments under the WTO Agreement or [t he] Protocol shall, within one year after 
accession, review, as appropriate to their mandate, the implementation by China of the WTO 
Agreement and of the related provisions of [the ] Protocol".  China was to provide relevant 
information in advance of the review, including info rmation specified in Annex 1A to the Protocol.  
China could also raise issues relating to any reser vations under Section 17 or  to any other specific 
commitments made by other Members in the Protoc ol, in subsidiary bodies which had a relevant 
mandate.  The Committee was required to report the resu lts of the review promptly to the Council for 
Trade in Goods.  The Review was to take place af ter accession in each year for eight years, with a 
final review in year 10 or at an earlier date decided by the General Council.   
2. The Chairman noted that China's Protocol of Accession to the WTO did not set out any 
procedures for the conduct of the transitional revi ew, except that China was to provide relevant 
information in advance of the review.  In this rega rd, Annex 1A specified that  China was requested to 
provide information on the following to this Co mmittee in accordance with Article 18.1 of its 
Accession Protocol:  "Pricing Policies":  (a) "applica tion of existing or any other price controls and 
the reason for their use";  and (b) "pricing mech anisms of China's state trading enterprises for 
exported products".  The notification of China prov ided for in Annex 1A had been circulated in 
document G/SCM/N/167, dated 17 Oc tober 2007.  The European Communities and the United States 
had submitted questions in the context of this tr ansitional review (documents G/SCM/Q2/CHN/32 and 
33).  Before proceeding to these questions, the Chai rman opened the floor for general comments.   
3. The delegate of the United States  said that this was the sixth annual transitional review of 
China.  The review was designed to help Member s to understand and to assess the progress that China 
had made in adopting and complying with WTO di sciplines and the specific commitments in China's 
Protocol of Accession.  From that perspective, th e United States believed that the transitional review 
continued to be a useful mechanism.  It helped to  provide needed additional transparency for China's 
trade regime, as it allowed Members to seek and obtai n clarifications regarding China's various trade 
policies and practices.  The review also provided Members with a multilateral forum for conveying their expectations of China and their concerns w ith China's implementation and compliance efforts.  
In that regard, the transitional review was a useful supplement to bilateral discussions with China.  By 
now, after nearly six years of WTO membership, Ch ina should have implemen ted almost all of the 
commitments that it had made in its Protocol of Acce ssion.  As a result, it might be expected that the 
transitional review mechanism would focus more on China's ongoing adherence to WTO rules than on 
China's implementation of specific commitments it had made in its Protocol of Accession.   
4. The delegate of the United States considered th at the submission in 2006 of China's first 
subsidy notification since China had become a WTO Member in December 2001 represented an 
important step for China, as the notification obligation under the SCM Agreement  was one of the more 
important transparency obligations required of WTO Members.  The United States appreciated the 
efforts that China had made in compiling its notif ication and the written answers China had provided 
to the questions posed by the Unite d States with respect to the notification.  However, the notification 
listed several programmes that in the view of the United States were prohibited subsidies under 
Article 3 of the SCM Agreement .  China's answers to questions  of the United States implicitly 
recognized that some of these programmes were indeed prohibited and would be eliminated.  More  G/SCM/121 
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  generally, the United States remained concerned th at neither provincial s ubsidy programmes nor any 
bank lending programmes had been notified.  China's continued failure to notify any  sub-national 
subsidies left a very significant gap in Chin a's accounting for the full range of its subsidy 
programmes, especially given the importance of sub-national governments in  setting economic policy 
in China.  The difficulties China had identified in notifying subsidies administered by sub-national 
authorities were not unique to China.  "[S]ubsid ies provided by sub-national governments" was an 
area specifically highlighted by Members in para graph 173 of the Working Party Report on China's 
accession to the WTO (WT/ACC/CHN/49).  China had now been a WTO Member since 2001 and, 
therefore, had had a very significant period of tim e to educate sub-national authorities.  Moreover, 
numerous WTO Members, including the United Stat es, had identified a wide range of subsidy 
programmes administered by local or provincial authorities in China.  At a minimum, it would have 
been helpful if China had addressed all of these spec ific programmes.  The problem of the lack of 
transparency was compounded by the fact that s ub-national authorities in China appeared to be 
providing prohibited subsidies that China had specifically committed to eliminate upon accession to the WTO almost six years ago.  In document G/SCM/Q2/CHN/33, the United States described two 
specific sub-national programmes that very clea rly appeared to be contingent upon export 
performance.  Even more disturbingly, one of  these programmes was linked to exports of key 
products, as defined in China's national five-year pl ans.  This indicated a parallel between national 
and local economic policies that promoted the subsid ization of exports.  In light of the above, he 
asked China to commit to a specifi c timeline for the submission of information on its provincial 
programmes and of its next new and full notification.   
5. With respect to China's banking  and financial sector, the delegate of the United States noted 
that at paragraph 172 of th e Working Party Report on China' s accession to the WTO China's 
representative had stated "that China's objective w as that state-owned enterprises, including banks, 
should be run on a commercial basis and be respon sible for their own profits and losses".  Despite 
China's ongoing banking reforms, which were criti cal given China's export-dependent, investment-
driven economy and its large and growing role in  world production and trade, the United States 
remained concerned that China would not meet it s stated objective of ensuring that China's state-
owned banks would be run on a commercial basis in  the absence of a decisi on to privatize China's 
"Big Four" state-owned commercial banks.  The c oncerns of the United States about non-commercial 
banking practices in China were heightened by pub licly-available evidence and studies indicating that 
state-owned bank lending practices c ontinued to be heavily influenced by state industrial policies and 
that state-owned enterprises continued to receive  a disproportionate amount of lending from state-
owned banks relative to the amount of loans receive d by more productive private sector companies.  
Article 34 of the Commercial Bank Law of China st ated that commercial banks shall conduct their 
lending business in accordance with national and soci al-development needs and under the guidance of 
the industrial policies of the State.  This provi sion would seem to be inconsistent with China's 
commitment to the objective of China's state-ow ned banks operating on a co mmercial basis.  Lending 
pursuant to the Chinese Government's industria l policies was commonly accepted as one source of 
China's problem with non-performing loans.  China had attempted to address this problem by transferring non-performing loans of state-owned comme rcial banks – initially at face value, and later 
at arbitrarily fixed values – to state-owned asset management companies.  While the use of asset management companies was a commonly accepted practice, it appeared that China had also 
implemented a debt-to-equity swap mechanism fo r its state-owned asset management companies for 
the purpose of keeping several hundred state-owned ente rprises out of bankruptcy.  In this respect, the 
delegate of the United States reiterated the request made by his delegation during the 2006 transitional 
review for an explanation as to the basis upon whic h state-owned enterprises were eligible for debt-to-
equity conversions and the term s and conditions under which such  conversions were made.  The 
United States also understood that the state-owned en terprises that participated in debt-to-equity 
swaps would be required to repurchase their asset mana gement company-held equity stakes within ten 
years and would be interested in a description of the terms and conditions under which these repurchases would occur.  Finally, he noted that Ch ina's asset management companies were originally G/SCM/121 
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  intended to be in existence for a fixed period of te n years and asked if it was still China's intention to 
liquidate or otherwise terminate the operations  of the currently-established asset management 
companies after ten years.  He also asked more  generally whether the asset management companies 
were continuing to purchase non-performing loans from China's "Big Four" state-owned commercial 
banks.   
6. With respect to textiles, the delegate of the Un ited States recalled that at last year's meeting, 
the United States had voiced its view that there seemed  to be little need or justification for China to 
subsidize textile producers, given the clear comp arative advantage China had in textiles and the 
current trends in Chinese production and trade volumes .  For example, China's share of world exports 
had risen from 18 per cent to 27 per cent between 2004 and 2006.  In response, China had stated that 
subsidies were needed for "str uctural adjustment and technology upgrading".  The United States 
considered, however, that the forces of competiti on within China and from foreign companies should 
drive technological innovation and industry structur e in China's textile industry.  An industry 
characterized by efficient production and internationally competitive companies would be the outcome of such an adjustment process if compan ies faced hard budget constraints and were exposed 
to effective market discipline.  Subsidies were not the answer - they fundamentally undermined the 
adjustment process, precluded efficient outcomes a nd distorted international trade.  Continued 
subsidies, often provided at the provincial level a nd therefore, non-transparently, were not needed for 
China's textile industry to remain competitive a nd will only increase the trade friction between China 
and its trading partners.  To the extent that such  subsidies were contingent upon exportation, they 
should be terminated without delay.   
7. The delegate of the United States said that steel was another area of continuing concern for 
the United States.  China's steel production grow th was unprecedented and did not appear to be 
consistent with market demand.  China was by fa r the world's largest producer of steel and would 
produce nearly 500 million metric tons of crude steel in 2007.  China's share of global steel production had grown from 20 per cent in 2002 to 36 per cen t in the first half of 2007.  In 2006 and in 
the first half of 2007, China's production had excee ded that of the European Union (EU 25), Japan, 
and the United States combined.  China had quickly moved from being a large net importer of steel in 2004 to becoming a large net exporter in 2006.  Ch ina's first half 2007 total steel exports had 
increased 97 per cent over 2006 levels.  Very recently, the International Iron and Steel Institute had 
estimated that China's net exports would exceed 50 million metric tons in 2007.  To put this number in perspective, it was equal to Korea's total cons umption of steel.  While the Chinese Government had 
announced policies to close some inefficient or pol luting steel mills and to promote consolidation 
among its more than 1,000 steel producers, its effo rts to date had not succeeded in slowing capacity 
growth.  It remained to be seen if recent administrative measures of the Chinese Government would significantly reduce the flow of exports.  Here, a nd in other fora, the United States had stressed its 
concern that government action, not market mechan isms, was driving much of the capacity expansion 
in China's largely state-owned industry.  There was public info rmation available concerning 
government grants, debt-for-equity conversions, pref erential loans and other support to Chinese steel 
producers that did not appear in China's subsidy notif ication.  Even Article 16 of China's current five-
year plan for steel – which the United States had raised in a joint submission with Canada and Mexico made in 2005 – specifically provided for state support in the form of "tax refunds, discounted interest 
rates, funds for research and other policy suppor t for major iron and steel projects utilizing newly 
developed domestic equipment".  If the burden of state-supported steel oversupply shifted to the 
international steel market, one could expect to see in creased scrutiny of China's subsidies in the steel 
sector and industry requests for national and multilate ral remedies regarding Chinese steel exports.   
8. Finally, the delegate of the United States noted  that in its written submission his delegation 
had again raised the issue of government policies to  support the restructuring of companies in China's 
northeast regions.  The United States was particular ly concerned by recent announcements indicating  G/SCM/121 
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  that under a new "blue print plan", the Government  of China would support state and private firms 
engaged in "priority areas" with favour able policies, in terms of tax ex emptions, loans and land use.   
9. The delegate of the United States concluded by saying that during the review of China's 
subsidy notification at the Special Meeting that ha d immediately preceded this Regular Meeting China 
had indicated that it would be prepared for a more fulsome discussion of the issues during the 
transitional review.  The United States looked forw ard to that more fulsome discussion.  The 
United States was concerned that many of the issues it had identified in the past remained.  Moreover, 
the on-going examination by the United States of China's industrial policies continued to uncover practices that impacted upon sensitive industrial sectors,  some of which very clearly appeared to be 
prohibited under the SCM Agreement .  The continuation of these practices invited the use of domestic 
or multilateral trade action remedies – a path that  the United States, and presumably China, would 
prefer to avoid.   
10. The delegate of the European Communities
 stated that the European Communities 
appreciated the transitional review mechanism, which enabled all Members to better understand 
China's laws and the progress China had made since its accession to the WTO.  While considerable 
progress had been made by China in some areas, the fulfilment of the principle of transparency still 
remained a problem, as set out in the statem ent and questions submitted by the European 
Communities for this transitional review (documen t G/SCM/Q2/CHN/32).  In particular, China had 
not provided an explanation why it had not notifie d subsidies at all leve ls of government.  
Additionally, there were still existing export subsid y schemes, which raised se vere concerns to the 
European Communities.  Therefore, he expressed the hope that China would provide meaningful 
responses to the questions of the European Communities.   
11. The delegate of Japan  stated that while Japan had not submitted written questions in the 
context of this year's transitional review, Japan shared some of the concerns expressed by other 
Members in their written submissions.  The fact  that some of the questions in these written 
submissions had also been posed in 2006 showed th at the responses of China were not sufficient to 
address Members' concerns, including those of Japan.  In this regard, as a general matter, Japan hoped 
that China would respond to questions clearly in an  adequate and timely manner.  He then turned to 
two specific areas of concern.  First, Japan had a st rong interest in developments in China's banking 
and financial sectors, and shared the concerns of th e United States in this regard.  Japan considered 
that if Chinese state-owned commercial banks pr ovided loans to uncreditworthy enterprises, or 
supplied lending on terms a nd conditions inconsistent with mark et considerations, such loans and 
lending constituted subsidies within the meaning of the SCM Agreement .  China had explained that as 
a result of the reform of the banking and financ ial sector, Chinese state-owned commercial banks now 
provided loans on a commercial basis.  However, th e details with respect to this reform were not 
clear.  For example, as pointed out by the Un ited States at paragraphs 10-12 of document 
G/SCM/Q2/CHN/33, it was unclear how Chinese stat e-owned commercial banks could take lending 
decisions on a commercial basis given that these banks  were also required to act consistently with 
China's national industrial policy.  He urged China to provide a clear explanation on this point.   
12. Second, the delegate of Japan noted that in r esponse to questions posed by the United States 
in the context of the transitional review that had taken place in 2006, China had stated that its export 
credit programmes were consistent with item (k) in Annex I of the SCM Agreement .  This meant that 
China considered that its export credit programme s were consistent with the OECD export credit 
arrangement.  China had also reiterated that th ese export credit programmes were based on market 
principles.  In this respect, Jap an agreed with the United States that without information on the 
detailed terms and conditions of the export credits provided by the Chinese Exim Bank, it was not 
possible to know whether the Chinese export credit  programmes were consistent with the OECD 
export credit arrangement, and were thus consistent with the WTO SCM Agreement .  He asked China 
to provide a concrete example on this matter.   G/SCM/121 
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  13. The delegate of Mexico
 thanked China for the information it had provided in 
document G/SCM/N/167.  Mexico shared some of th e concerns that had already been stated by 
various Members on China's financial sector and state enterprises, and on policies in sectors of major importance for Mexico, such as steel and textiles and the broader impact that these measures could 
have on other industries.  Her delegation was very  interested to see the written responses from China 
to the questions posed by the European Communitie s and the United States.  Referring to the review 
of China's subsidy notification at the Committee' s special meeting, she asked when China would 
provide statistical information on the programmes contained in its subsidy notification and when it 
would submit additional information on subsidies granted by authorities at a sub-central level.   
14. The delegate of Canada
 said that Canada had participated actively in the previous 
transitional reviews of China in this Committee.  In  particular, Canada had used these reviews to ask 
specific questions and note specific concerns with  respect to China's 2005 steel and iron policy.  
Canada remained concerned that China had not prov ided answers to questions asked by Canada in 
document G/SCM/Q2/CHN/15 of 13 October 2005.  Ca nada had a significant interest in seeing these 
questions answered.  Canada's concerns were centred on the high degree of intervention of the 
Chinese Government in the direction and decision- making regarding the allocation of resources into 
and within the steel industry.  These concerns were  expressed in the context of China's commitment in 
it's Accession Working Party Report, namely that the Government would not influence directly or 
indirectly commercial decisions on the part of state-owned or state-invested enterprises.  Therefore, Canada again asked that China make every effort to provide information on government assistance 
that might be available to the Chinese iron and steel industry.   
15. The delegate of Canada also re iterated some of the concerns th at his delegation had raised in 
the Committee's special meeting.  In China's answer s to questions posed by Canada with respect to 
China's subsidy notification, China had provided no  details on the means it would take to adjust 
programmes that appeared to be clear cases of s ubsidies contingent upon export performance or upon 
purchase of domestic goods over importe d goods.  He reiterated in the context of this transitional 
review, Canada's request for such details.  Canada  also remained concerned with respect to the 
provision by China of data in conformity with Article 25.3 of the SCM Agreement .  China had hinted 
that something might be done with respect to this  in China in order for China to abide by its 
obligations.  He asked the delegation of China to pr ovide more details about such efforts that would 
be made by the Government of China.   
16. The Chairman
 invited the delegation of China to re spond to the questions that had been 
raised in writing and/or in the oral statements.   
17. The delegate of China  welcomed the fact that some Members had already recognized the 
important steps that China had made in implem enting the commitments China had undertaken upon 
its accession to the WTO.  China had not only hon oured its commitment in the subsidies area, but 
more generally had honoured all its commitments  undertaken upon its accession to the WTO.  China 
was undergoing a profound reform process which, in a ddition to changes in specific sectors, like the 
financial sector and state-owned enterprises, involve d an overall change in the nature of China's 
model of economic growth towards a less resource -dependent and polluting and more environment-
friendly growth path.  Despite the fact that Chin a had only limited resources to address all the serious 
issues raised by this reform process, China had ma naged to honour it's WTO accession commitments.   
18. Specifically with respect to subsidies, the dele gate of China noted that while some Members 
had suggested that China was providing prohibited e xport subsidies in the form of preferential rates 
for foreign investment enterprises, this issue had b een solved with the adoption by China of a uniform 
tax rate for domestic and foreign inv ested enterprises.  In this regard , he considered that preferential 
income tax rates provided to foreign investment en terprises could not be rega rded as export subsidies 
per se  since most Members used preferential tax rates in  order to attract foreign investment.  In any  G/SCM/121 
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  event, the adoption of a uniform income tax rate had resolved this issue.  With respect to the 
allegations of some Members that China was providi ng value added tax rebates that discriminated in 
favour of domestic products, the delegate of Chin a stated that China was not providing any such 
discriminatory value added tax rebates.  The value added tax rebate provided to companies purchasing 
domestic equipment only served to  compensate for the tax-free treatment enjoyed by imported 
products.  Thus, the tax rebate w as not intended to discriminate agai nst imported products, but rather 
was intended to eliminate the discrimination agains t domestic products.  The delegate also indicated, 
in this connection, that China w as reforming its value added tax sy stem from a production-based to a 
consumption-based system.   
19. With respect to the issues raised by some Me mbers regarding textiles and steel, the delegate 
of China emphasized that the trade problems in th ese sectors could not be attributed to alleged 
subsidization by China.  These sectors had histori cally been sensitive even when China was still a 
small exporter.  Thus, trade in steel had long been a problem among developed countries, as 
illustrated by the failed efforts of the OECD member  countries to agree on mu ltilateral disciplines in 
this area.  Regarding state-owned enterprises, the de legate of China stated that China's state-owned 
enterprises had not developed due to subsidies but  because China had a comparative advantage in 
production costs.  Globalization had resulted in a reallocation of production activities to China, 
particularly in the manufacturing sector, due to Chin a's significant advantage in production costs.  The 
delegate of China also observed that for half a centu ry world trade in agricult ure had been distorted by 
domestic and export subsidies pr ovided by developed countries which had seriously harmed 
developing countries and that China was the only larg e country that had undertaken not to provide any 
agricultural export subsidies.  He also pointed to th e persistent pattern of s ubsidization used by other 
Members in areas such as research and development, aircraft, and the import protection to the textiles 
and clothing industries.   
20. The delegate of China stated that at prev ious meetings of the Committee, China had 
addressed in some detail the questions and comment s of other Members.  China's responses would 
enable Members to better understand the measures and policy tools of China in the area of subsidies 
and clarify the issues on which there existed mi sunderstandings.  In September 2007, China had 
responded fully to all of the 120 questions posed by the United States, th e European Communities, 
Japan, Turkey, Canada, Australia and Mexico.  W ith regard to the notification of subsidies 
administered by sub-national authorities, the Wo rking Party Report on China's accession to the WTO 
specifically indicated that the Chinese Governme nt faced difficulties in collecting information on 
subsidies of sub-national authorities.  Other Me mbers had expressed their understanding of this 
difficulty in the Report.  As a consequence of the di fficulties facing China in respect of the collection 
of information regarding subsidies of sub-national authorities, there was no definite timetable for the 
notification of subsidies administered by sub-natio nal authorities.  However, he stressed that China 
had a uniform national trade policy and that local gove rnments did not have much authority to provide 
large amounts of export subsidies or other kinds of subsidies.  After China's entry into WTO, the 
central Government had sent clear instructions to local governments to abolish measures inconsistent 
with WTO rules.  During recent years, local g overnments had begun to review local subsidies to 
ensure their consistency with WTO rules.  The Chinese Government was currently in the process of 
devoting more resources to the review of local government subsidy programmes.   
21. With regard to incentive policies in support of the development of the software industry, the 
delegate of China stated that the policy obj ective of these incentives was to upgrade the industry 
structure which will, in turn, enhance the developm ent of service industries like software.  These 
measures were trade promotion measures that were  permitted by WTO rules, even though not covered 
by the SCM Agreement .   
22. Regarding the reform of state-owned comme rcial banks and the development of the 
financial sector, the delegate of China observed that the major state-owned commercial banks had G/SCM/121 
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  been listed successfully in the stock market.  All the state-owned commercial banks at present 
followed the provisions of the law on commercial ba nks and operated in a market-oriented manner, 
without any government interference.  The debt to equity swap programme referred to by the United 
States formed part of the policy of reform of the state-owned enterprises and had almost been completed.  Information on the historical backgr ound of this programme could be obtained from the 
website of State-Owned Asset Supervision and Administration Commission of the State Council 
(www.sasac.gov.cn).   
23. With regard to price controls, the delegate of  China stated that his delegation had provided 
the relevant information in the document subm itted prior to this meeting (G/SCM/N/167) in 
accordance with Annex I(a) of China's Protocol of Accession to the WTO.   
24. With regard to questions concerning cor porate governance in state-owned enterprises, 
dividend pay-outs by state-owned enterprises and the method of sale of ownership in large state-
owned enterprises to private entities and enterprise bankruptcy procedures, the delegate of China 
stated that these matters were addressed in the co mpany law, the security law, the law on enterprise 
bankruptcy and the general rules governing enterprise financial affairs issued by the Ministry of 
Finance in 2006.  Information on these laws wa s available at the websites of the State Asset 
Management Supervision and Administration Commissi on and the website of the Ministry of Finance 
can also be provided.  Finally, he observed that some questions raised by other Members were not 
relevant to this transitional review process.   
25. The delegate of the United States
 said that the presentation of the Chinese delegate was in 
the nature of a general overview and that perh aps only two of the 24 specific question of the 
United States questions might have been answered  through his presentation.  He urged the Chinese 
delegate to provide specific responses to the very  specific questions posed by his delegation.  He 
disagreed with the comment of th e Chinese delegate that issues rai sed by some Members regarding 
certain export subsidies and import substitution subsid ies had been solved and noted, in this respect, 
that the United States had an on-going dispute settleme nt case with China with  regard to these kinds 
of subsidies.  As a general matter, the United St ates recognized that China was going through a very 
significant reform process.  The important point, ho wever, was the issue of transparency.  When 
China was conducting its various reforms with respect  to the issues discussed in this Committee, it 
was critical that the reform process and the legal inst ruments that were used with respect to the reform 
process be made known to all in a very transparent manner.  If there was greater transparency with 
respect to the reforms there would be less ques tions from Members in Committees such as this.  
Secondly, China had made a general point with r espect to state-owned enterprises and comparative 
advantage.  While the United States recognized th at China indeed had co mparative advantages in 
certain areas, the market should determine what companies remain  in business and what companies 
should be liquidated.  It was apparent from a revi ew of China's industrial policies that the Chinese 
Government was intent on maintaining certain stat e-owned enterprises in certain sectors regardless of 
cost and regardless of market principles and comparativ e advantage.  Thirdly, with respect to the steel 
industry, other Members had raised this as a c oncern as well.  In 2005, Canada, Mexico and the 
United States had submitted a joint paper in the context of the transitional review mechanism and 
asked very specific questions with respect to state support in the steel sector, focussing largely on the 
five-year plan for steel.  Those questions had never r eally been answered.  There was also a wealth of 
publicly available information indicating that ther e was widespread subsidization in China's steel 
sector.  The United States recognized that reforms were taking place in China's banking sector and he 
commended China for the various reform efforts that  it had made to date.  However, his delegation 
still saw problems, as mentioned in his earlier interv ention.  For example, China's statement that all 
banks were required to follow the commercial bank la w was of little consolation given the fact that 
Article 34 of the commercial bank law stated that in  their lending practices commercial banks were to 
follow the Government's general industrial policies.    G/SCM/121 
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  26. Finally, with respect to the asset management companies and the debt to equity conversions, 
United States officials had indeed visited the website referred to by the delegate of China.  However, 
very significant questions remained that were reflected in the written submission made by the 
United States for this transitional review.  Thus, th is was a continuing con cern for the United States 
and the delegate hoped that China would pr ovide additional specific information.   
27. The delegate of the European Communities  considered that the statement made by the 
delegate of China was general in  nature and did not respond to the specific questions posed by his 
delegation following China's replies to questions on Ch ina's subsidy notification.  In particular, China 
had not provided any indication when it would be able  to provide the statistical data requested by the 
European Communities.  Article 10 of China's Protocol of Accession to the WTO contained an 
unambiguous obligation for China to "[...] notify th e WTO of any subsidy within the meaning of 
Article 1 of the Agreement on Subsidies and C ountervailing Measures ("SCM Agreement"), granted 
or maintained in its territory, organized by sp ecific product, including those subsidies defined in 
Article 3 of the SCM Agreement .  The information provided should be as specific as possible, 
following the requirements of the questionnaire on subsidies as noted in Article 25 of the SCM 
Agreement ".  Therefore, there was no excuse for China's failure to submit statistical data six years 
after its accession to the WTO.  Moreover, China had not responded to many of the specific questions 
posed by the European Communities in document G/SCM/Q2/CHN/25 or had provided replies that 
were partial and that were not consistent with the format according to which subsidies must be 
notified to this Committee.  Moreover, China had given no indication as to when it would submit its 
next full subsidy notification, which was due by 30 June 2007.  He concluded by requesting China to 
respond in writing to the questions posed by hi s delegation in document G/SCM/Q2/CHN/32.   
28. The delegate of Japan  noted that the delegate of China had not addressed in his statement 
the issue raised by Japan concerning the consiste ncy of China's export credit programmes with item 
(k) in Annex I of the SCM Agreement .   
29. The delegate of Canada  stated that the answers provided  by China lacked specificity and 
detail.  He urged China to improve its transparency  and noted, in this regard, that one of the tools 
customarily utilized in this Organization by Member s in order to enhance transparency was to submit 
written replies in answer to written questions.   
30. The delegate of China  stated that the question of whether questions posed in the context of 
the transitional review should be answered in wr iting had already been discussed and solved on 
previous occasions and that it was therefore not necessar y to repeat China's position on that matter.  In 
response to the comment of Japan, he stated that the terms of export credits provided by China were 
no different from the terms on which other Members provi ded export credits.  He did not consider that 
it was practically feasible, or that the Committee even had the mandate, to undertake a detailed examination of China's export credit practices as part of  this transitional review exercise.  He rejected 
the allegation that China had failed to provide sta tistical data concerning its subsidy programmes.  
China had already made great efforts in honouri ng all its WTO accession commitments.  In light of 
the tremendous task of economic re form and trade stabilization facing China, there was no basis to the 
allegations that China was unwilling to abide by its WTO obligations, including the fundamental 
principles of transparency and accountability.  It  was not constructive for Members to use the 
transitional review process to threaten to initiate dispute settlement proceedings against China.   
31. The delegate of the United States
 stated that his delegation remained extremely disappointed 
in the lack of specific responses from China at this meeting.  With r espect to the last comment of the 
delegate of China, he clarified that the Unite d States had mentioned dispute settlement in the 
comments made earlier at this meeting, but in so doing was simply referring to the existence of an on-
going dispute settlement case involving alleged prohi bited subsidies.  The United States was not 
threatening to initiate further di spute settlement proceedings.   G/SCM/121 
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  32. The Chairman
 stated that China's Protocol of Accession to the WTO did not contain specific 
guidelines on the report to be submitted by the Co mmittee on the transitional review.  Following the 
transitional review conducted at the meeting in October 2006, the Chairperson, acting on his own 
responsibility, had prepared a brief, factual report, with references to the documents concerned, and 
attaching the portion of the minutes of the meeting relating to the transitional review.  He proposed 
that the Committee agree to follow the sa me procedure.  It was so decided .   
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