WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/C/W/342 
14 October 2011  
 
(11-5051) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN UNION 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 the Protocol of Accession of the People's Republic of China ("China") 
 
Questions and Comments of the European Union on the Implementation by China 
of its Commitments on Trade in Services 
  
 The following communication, dated 12 October 2011, from the delegation of the European Union is being circulated to the Members of the Council for Trade in Services.   
 
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 1. The EU recognizes and welcomes China's continuous efforts over the past ten years to 
implement its WTO commitments for services and woul d like to encourage Ch ina to continue these 
efforts.  Significant challenge remain in realising th e benefits of many of the commitments that China 
has de iure implemented since de facto it appears that  China continues  to maintain or erect restrictive 
or cumbersome terms of entry in some sectors.  These entry barriers prevent or discourage foreign 
suppliers from gaining market access through inform al bans on new entry, high capital requirements, 
branching restrictions, cumbersome and non transpar ent licensing procedures or restrictions taking 
away previously acquired market access rights.   
2. The EU would like to transmit, in advance of th e meeting of the Council for Trade in Services 
on 3 November 2011, the following questions and co mments on the implementation by China of the 
GATS agreement, its commitments listed in the Sc hedule of Specific Commitments and of related 
provisions of its Accession Protocol. 
3. In order to ensure effective review of the implementation by China of its commitments, the 
EU requests China to provide responses and releva nt information to the following questions in 
advance of the meeting of the Council for Trade in  Services in accordance with the paragraph 18 of 
the Protocol of Accession of China.   
4. The EU reserves its right to raise additiona l questions, upon receipt of responses to its 
questions and comments by China, in  accordance with paragraph 8 a nd paragraph IV.3 (a) of Annex 
1A of the Protocol of Accession of China. 
I. AIR TRANSPORT SERVICES 
5. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XVII for Mode 1 on Computer Reservation Systems (CRS).   
6. In January 2011 China issued for public comments the draft Interim Regulations on 
administering the review and ratification of direct access to and use of foreign computer reservation S/C/W/342 
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  system by foreign airlines' agents in China (" Interim Regulations").  The European Commission 
provided comments on the draft Interim Regulations  on the 17 January and again on the 19 August on 
the revised draft Interim Regulations.  
7. In parallel and in light of concerns relating to  this trade barrier, the European Commission is 
conducting a fact gathering investigation regarding the CRS service market in China.  In this context, 
the European Commission sent out, on 26 July 2 011, questionnaires to th e Chinese authorities to 
which, so far, no response has been provi ded (the deadline for the responses being 
24 September 2011). 
8. In view of its latest draft Interim Regulation and the lack of responses to the questionnaires, 
could China explain: 
(a) When does China expect to issue the final version of the Interim Regulation on 
administering the review and ratification of direct access to and use of foreign computer reservation system by foreign airlines' agents in China ("Interim Regulation")?  
(b) Does China expect any further public consultation on the Interim Regulation? 
(c) What will be the legal status of the s upplementary Explanations on Drafting the 
Interim Regulation ("Explanations")? 
(d) How does, in China's view, the new Inte rim Regulation guarantee the level playing 
field and equal treatment for foreign and domestic CRS ("Computer Reservation System") service providers in China, co nsistent with China's GATS commitments? 
(e) Are Chinese airlines obliged to apply on behalf of all their travel agents a 
permit/authorisation/license/approval in order for them to provide CRS services?  
(f) The EU understands from the last draft In terim Regulation and its supplementary 
explanations that there would be a single permit regime in place according to which 
foreign airlines apply, on behalf of their sales agents, for permits allowing their sales 
agents to directly access and use foreign computer reservation system.  Is the same 
procedure required of Chinese airlines?  
(g) In China's view, are China's CRS servi ces open for foreign investment?  Which 
legislation applies to such i nvestments and services activities?  
(h) We would ask China to clarify if both, domestic and foreign CRS service providers 
need to obtain a permit/authorisation/li cense/approval in order to provide these 
services to Chinese airlines and agents of Chinese airlines? 
(i) We would ask China to clarify if both, domestic and foreign CRS service providers 
need to obtain a permit/authorisation/li cense/approval in order to provide these 
services to foreign airlines and agents of foreign airlines? 
(j) Have there ever been any application and/or rejection of a 
permit/authorisation/license/approval for a fo reign CRS service provider, and, in case 
of rejection, why?  S/C/W/342 
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  (k) Have there ever been any application and/or rejection of a 
permit/authorisation/license/approval for a dom estic CRS service provider, and, in 
case of rejection, why? 
(l) According to EU's understanding of the last draft of the Interim Regulation it is the 
airline that has to apply, on behalf of each of its travel agent, for an approval to have 
access to the foreign CRS provider. Is that correct?  
(m) How many and which sales agents in China we re granted the approvals to use foreign 
CRS? 
(n) How many and which sales agents in Chin a were granted the approvals to use 
domestic CRS? 
(o) What are the current domestic CRS service providers in China? 
(p) What are the current foreign CRS service providers in China? 
(q) Please identify the laws and regulations th at apply to domestic suppliers of CRS 
services, and the laws and regulations that apply to foreign suppliers of CRS services. 
(r) What are, if any, the differences between  the legislations ruling the domestic and 
foreign computer reservation system providers in China? 
(s) Which Chinese authorities have the competence to regulate the supply of CRS 
services and/or the CRS market in China, and what are its competences? 
II. CONSTRUCTION SERVICES 
9. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XVII for Mode 3 with regard to the construction sector.  The 
EU would welcome clarifications on the implementation of these commitments in a number of areas. 
10. Noting that the implementing rules of Decree 114 include temporary measures, the EU 
requests additional clarification about when Chin a intends to issue permanent implementing rules 
which would provide more legal certa inty than temporary measures.   
11. The EU would like to point out that the require ments in Decree 114 for the establishment of a 
foreign invested qualified design company in Chin a are very burdensome and effectively foreclose 
access to the Chinese market.  For example, foreign invested companies cannot apply for the highest 
level of design qualification in their initial appli cation even if they possess the necessary qualification 
and, contrary to international practice, their prev ious international experience within a group (global 
track record) is not recognised.  The EU enquir es whether China intends to ease these requirements. 
12. The EU requests clarification on the fact that China's GATS commitments in construction 
services do not include specific limitations on the number of foreign professional staff for foreign-
invested enterprises or residency requirements, while Decree 114 foresees such requirements.   
13. China's GATS commitments in construction ser vices do not mention any limitation as regards 
national treatment in Mode 3.  However, No tice No 73 on foreign pe rsonnel of construction 
enterprises foresees a residency requirement of thr ee-month per year.  The EU would like to know 
when China intends to abolis h these residency requirements. S/C/W/342 
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  14. High capital requirements put an unnecessary burden on companies and could be replaced by 
more market oriented instruments.  The EU would li ke to know whether China is considering relaxing 
the registered capital and net assets requirements and replacing them with alternative financial 
instruments, such as letters of guarantees, insurance bonds or bank guarantees.   
III. DISTRIBUTION SERVICES 
15. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XVII for Mode 3 with regard to distribution services.  The EU 
would welcome clarifications on the implementation of these commitments in a number of areas. 
16. As regards the distribution of refined oil pr oducts in China, this is regulated by Measures for 
the Administration of the Refined Oil Market  (Order of the Ministry of Commerce No.23 [2006]) and 
the Notice on Relevant Issues about the Business Opera tion of the Private Enterprises of Refined Oil 
Products  (No. 602 [2008] of the National Developmen t and Reform Commission).  During the 2009 
TPRM, China assured the Members that th e regulation 23 [2006] replaced the Opinion  Rectifying 
Small Refineries and Standardizing Distribution of Crude Oil and Oil Products by the State Economic 
and Trade Commission & Related Authorities (State Council, Guobanfa No. 38 [1999]), at least as far 
as conditions for wholesale licences are concerned. Howe ver, China also pointed out that certain parts 
of the regulation 38 [1999] continue to be in force.  In this regard, could China list the articles still in 
force from the regulation 38 [1999]?  
17. Furthermore, EU raised already in 2009 TPRM the problem with Chinese state-owned 
incumbents, who continue to benefit from nearly monopolistic situation on wholesale market that was 
established by state with the mentioned regulation 38 [1999] and who refuse to negotiate long-term 
contracts for wholly or partly foreign owned co mpetitors essentially ensuri ng that no competitive 
situation on wholesale market would emerge. Could china describe which measures has China put in 
place since last TPRM to ensure that the state-tr ading enterprises of refined oil respect China's 
obligations under Article VIII of the GATS, in partic ular to ensure that the state-trading enterprises do 
not abuse their position to act in a manner incons istent with China's distribution commitments.  
18. As regards investments above $100 million, a sp ecial approval is requested in petrochemical 
sector from NDRC.  China has not made public any conditions or even areas of compliance for these strategic investments allowing discretionary decisions .  Could China provide the list of conditions for 
investment in petrochemical related areas? 
19. Furthermore, in relation to investments men tioned above, an opinion on necessity is given by 
an expert panel.  The composition of neither the expert panel, nor the procedure for choosing the 
members is not made public, not ex-ante nor ex-post, and is claimed to be consisting of 
representatives of direct competitors.  The mentione d expert panels do not pr ovide any confidentiality 
to the applicant, which is required to submit deta iled financial and technical data on the investment 
project.  Could China provide the criteria and pr ocedures for the mentione d expert panels as well 
explain how confidentiality of sensitiv e business information is ensured? 
IV. POSTAL & COURIER SERVICES, INCLUDING EXPRESS DELIVERY SERVICES 
20. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XVII with regard  to courier services.  The EU would welcome 
clarifications on the implementation of these commitments in a number of areas. 
21. While China has allowed foreign express delivery companies to operate in some segments of 
the express delivery sector and has implemented its commitment to allow wholly foreign-owned  S/C/W/342 
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  subsidiaries, various concerns remain in this sector  overall. A new Postal Law of PRC was adopted on 
24 April 2009 and entered into force on 1 October 2009.  
22. The EU request clarification on number of issues the new law raises: 
(a) The new Postal Law entered into for ce 01. October 2009.  However, several 
implementation acts are still not in place.  The EU request China to provide a clear 
time-frame of when these measures, in par ticular measures relati ng to definition of 
postal monopoly will enter into force?  In addition could China clarify how it intends to define the postal monopoly?  
(b) In April 2011, China issued a draft of its  revised Catalogue for the Guidance of 
Foreign Investment Industries in which it has now included domestic express delivery 
services of mail in the category for prohibite d sectors for foreign investment.  Could 
China explain why it believes this is cohe rent with its GATS commitment for courier 
services, which stated that only services r eserved at the time of accession to China 
Post were excluded?  Judging from the revision of the Catalogue it seems logical that until now this sector had in fact been open to foreign investors since it had not been 
prohibited previously.  
23. It appears that licensing conditions for express delivery services are in practice unduly 
burdensome and in cases do not comply with Chin a's commitments under the Accession Protocol 
which demands China to indicate the state of play of licensing applications on sector and sub-sector 
levels (accepted, pending, rejected).  This has been particularly reported for applications for domestic 
parcels express delivery business licenses as set out in  the Postal Law of the People's Republic of 
China. Equally China is not facilitating the appli cation approval for the establishment of branches. 
Could China clarify how it intends to rectify such  problems and render license application processes 
more transparent and efficient? 
V. REAL ESTATE SERVICES 
24. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XV II for Mode 1 and Mode 3 with re gard to real estate services, 
without any limitations on national treatment.  The EU would welcome clarifications on the 
implementation of these commitments in a number of areas. 
25. The Notice on Issuance of the List of the First Batch of Foreign Investment Real Estate 
Projects  of July 10,2007 issued by the State Administration of Foreign Exchange (SAFE) together 
with the Notice of the Ministry of Commerce and SAFE on Further Strengthening and Regulating the 
Examination, Approval and Supervision of Forei gn Direct Investment in Real Estate Industry  of 23 
May 2007 seems to create barriers for foreign inv ested real estate businesses in conjunction with 
circulars 171, 130 and 50. In particular, the Circ ular 171 requires foreign invested enterprises to 
establish in China and increases the debt-equity ratio for foreign real-estate investors from 2:1 to 1:1. 
Furthermore Circular 130 completely forbids the use of foreign debt in Chinese property 
development.  In this regard, the EU request China to: 
(a) Confirm that FIEs are subject to different ru les on real estate services, in particular on 
debt-equity ratio, and explain how this in compliance with China's commitments 
(b) Explain the reasons for the ban on foreign debt use in Chinese property development 
and how this in compliance with China's mode 2 commitments under banking services? S/C/W/342 
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  VI. TELECOMMUNICATIONS 
26. In the GATS Schedule accompanying its Protocol of Accession, China made commitments 
under GATS Article XVI and Article XVII for Mode 3 with regard to telecommunication services.  
The EU would welcome clarifications on the implementation of these commitments in a number of areas. 
27. Could China provide information on the timi ng and progress made as regards the current 
revision of its telecommunication legislation? 
28. As regards basic telecommunication services, the EU request China to: 
(a) Confirm that China does not maintain a requi rement for foreign investors to choose a 
Chinese joint-venture partner from the b asic telecommunication sector, in accordance 
with paragraph 314 of the Working Party report?  
(b) Provide updated information on how many foreign invested joint-ventures have been 
created with non-telecoms partners? 
(c) Confirm that until present there is no single example of a foreign invested equity joint 
venture providing mobile or fixed services in China? 
29. As regards value added telecommunication services, could China please: 
(a) Describe which measures it has taken in order to address the problems encountered 
by foreign companies entering the VAS market, in particular as regards the transparency of applicable procedures?  
(b) Could China please provide up to date information on the number of  
(i) Applicants and approved foreign invested telecommunications enterprises; 
(ii) Applicants and VAS licenses granted for FITE? 
30. Can China provide the EU with specific info rmation on the organisation (staffing, powers 
vested) of its regulatory authority responsible  for telecommunications and especially, on the 
requirements guaranteeing the independence of its regulator? 
 
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