WORLD TRADE  
ORGANIZATION  WT/DS359/14 
13 February 2008 
 (08-0639) 
 Original:   English/ 
 Spanish 
 
 
 
CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR 
EXEMPTIONS FROM TAXES AND OTHER PAYMENTS 
 
Communication from China and Mexico  
 
 
The following communication, dated 7 February  2008, from the delegation of China and the 
delegation of Mexico, is circulated at the request of those delegations. 
 
 
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The Governments of the People's Republic of China and Mexico wish to notify the Dispute 
Settlement Body that we have reached an agreement with respect to the matter raised by Mexico in 
the dispute China – Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and 
Other Payments  (WT/DS359). 
 
Please find attached the texts of the agreem ent, in the form of a memorandum of 
understanding. We ask that you circulate this notification and the attachments to the Dispute 
Settlement Body. 
     
 
   WT/DS359/14 
Page 2  
 
  Memorandum of Understanding Between the People's Republic of China and  
the United Mexican States Regarding Certain Measures Granting Refunds,  
Reductions or Exemptions from Taxes or Other Payments 
 
 
 Whereas the United Mexican States ("Mexico") filed requests for consultations with the 
People's Republic of China ("China") on 26 February  2007 and 4 May 2007 pursuant to Articles 1 and 
4 of the World Trade Organization (WTO) Unde rstanding on Rules and Procedures Governing the 
Settlement of Disputes, Article XXII:1 of the WTO General Agreement on Tariffs and Trade 1994, 
Articles 4 and 30 of the WTO Agreement on Subsidi es and Countervailing Measures, and Article 8 of 
the WTO Agreement on Trade-Related Investment Measures, regarding certain measures granting 
refunds, reductions or exemption fro m taxes or other payments (DS359); 
  Whereas China and Mexico held constructive consultations in Geneva on 20 March and 
22 June 2007;  
 
 China and Mexico have agreed as follows: 
 
1. During the consultations, Mexico described its concerns about the WTO-consistency of tax 
preferences provided under:  
(a) the Circular of the Ministry of Finance and the State Administration of Taxation 
Concerning Tax Credit To Enterprise Inco me Tax for Purchase of Domestically 
Produced Equipment by Enterprises with  Foreign Investment and Foreign Enterprises , 
CaiShuiZi [2000] No. 49, issued on 14 January 2000, and the Circular of the State 
Administration of Taxation on  Printing and Issuing the Measures On Tax Credit To 
Enterprise Income Tax for Purchase of Domestically Produced Equipment by 
Enterprises with Foreign Investment and Foreign Enterprises , GuoShuiFa [2000] No. 
90, issued on 18 May 2000; and  
 (b) the Circular on Printing and Issuing the Int erim Measures on Credit and Exemption of 
Enterprise Income Tax for Investment in  Domestically Made Equipment for 
Technological Renovation , CaiShuiZi [1999] No. 290, issued by the Ministry of Finance 
and the State Administration of Taxation on 8 December 1999.   
  In this regard, China has explained that legal in struments of at least equal legal stature to the 
circulars identified in sub-paragr aphs (a) and (b) above will contai n provisions stating that these 
circulars are repealed, and will be issued by th e competent authorities, by 31 December 2007, 
effective no later than 1 January 2008.  China conf irms that the tax preferences under the circulars 
identified in sub-paragraphs (a) and (b) above will not be reinstated.  
 2. During the consultations, Mexico described its concerns about the WTO-consistency of tax 
preferences provided under:   
(a) Article 9 of the Provisions of the State Council on the Encouragement of Foreign 
Investment , GuoFa [1986] No. 95, issued on 11 October 1986 (hereinafter " State 
Council Provisions "); Article 6 of the Income Tax Law of the People's Republic of China 
on Enterprises with Foreign Investment and Foreign Enterprises , Order  No. 45, 
promulgated on 9 April 1991 (hereinafter " FIE Income Tax Law "); and Article 75, 
paragraph 1, section 8 of the Rules for the Implementation of  the Income Tax Law of the 
People's Republic of China on Enterprises with Foreign Investment and Foreign 
Enterprises , Decree No. 85, issued by the State Council on 30 June 1991 (hereinafter 
"FIE Income Tax Implementing Rules ");   WT/DS359/14 
 Page 3 
 
 
   
(b) Article 8 of the State Council Provisions ; Article 6 of the FIE Income Tax Law ; and 
Article 75, paragraph 1, section 7 of the FIE Income Tax Implementing Rules ; and 
 
(c) Article 10 of the State Council Provisions ; Articles 6 and 10 of the FIE Income Tax 
Law; and Article 81 of the FIE Income Tax Implementing Rules . 
  China confirms that, effective 1 January 2008, the Enterprise Income Tax Law of the People's 
Republic of China , Order  No. 63, promulgated on 16 March 2007 (hereinafter " Enterprise Income 
Tax Law "), repeals the FIE Income Tax Law .  In addition, China has explained that legal instruments 
to be issued by, and made effective no later than, 1 January 2008, will contain provisions stating that 
the FIE Income Tax Implementing Rules  are repealed.  With the abolition of the FIE Income Tax Law  
and the FIE Income Tax Implementing Rules , Articles 8, 9 and 10 of the State Council Provisions  will 
no longer be valid.  China has further explained that , in accordance with its schedule of administrative 
regulations revision, Articles 8, 9 and 10 of the State Council Provisions  will be eliminated by a legal 
instrument no later than 1 January 2009.   The legal instruments repealing the FIE Income Tax 
Implementing Rules  and Articles 8, 9 and 10 of the State Council Provisions  will be issued by the 
competent authorities and be of at least equal legal stature to the legal instruments being repealed.  
China confirms that the tax preferences under the lega l provisions identified in sub-paragraphs (a), (b) 
and (c) above will not be reinstated.   
3. During the consultations, Mexico described its concerns about the WTO-consistency of tax 
and other preferences provided under: 
(a) Article 7 of the FIE Income Tax Law ; Article 73,  paragraph 1, section 6 of the FIE 
Income Tax Implementing Rules ; and Section XIII of the Catalogue of Encouraged 
Foreign Investment Industries (hereinafter " Encouraged Catalogue ") within the 
Catalogue for the Guidance of Foreign Investment Industries , Order [2004] No. 24, 
issued by the National Development and Reform Commission and the Ministry of Commerce on 30 November 2004 (hereinafter " Catalogue ");  and 
 (b) the Circular of the State Council Concerning th e Adjustment in the Taxation Policy of 
Imported Equipment , GuoFa [1997] No. 37, issued on 29 December 1997; and 
Section XIII of the Encouraged Catalogue . 
 
 In this regard, China has explained that , in accordance with its economic and social 
development, it revised the Catalogue  on 31 October 2007, which revision will take effect as of 1 
December 2007.  China confirms that Section XIII of the Encouraged Catalogue  dated 
30 November 2004 will not be reinstated. 
 4. During the consultations, Mexico described its concerns about the WTO-consistency of the 
Enterprise Income Tax Law , including Articles 25, 28, 31 and 57 thereof.  China has explained that 
these provisions do not provide for the offering of any income tax preference contingent upon the use 
of domestic over imported goods or upon export pe rformance.  China has further explained that, 
notwithstanding the fact that Article 57 of the Enterprise Income Tax Law  authorizes the continuation 
of certain income tax preferences beyond 1 January 2008, it will not be implemented or applied so as 
to introduce or permit the continuation of the income  tax preferences being repealed by virtue of the 
actions described in paragraphs 1 through 3 of this Memorandum of Understanding.  These limitations 
will be made explicit under fully authoritative legal measures, and w ill be effective, no later than 
1 January 2008. WT/DS359/14 
Page 4  
 
  5. During the consultations, Mexico described its concerns about the WTO-consistency of an 
exemption for certain foreign-invested enterprises fro m payments to the State for worker allowances, 
provided under Article 3 of State Council Provisions . 
 China has explained that, at the time the State Council promulgated the State Council 
Provisions , Article 11 of the State Council Regulations on Labor Management in Sino-Foreign Joint 
Ventures , GuoFa [1980] No. 199 (26 July 1980), required foreign-invested enterprises to make such 
payments to the State.  China has confirmed, howev er, that because this requirement was eliminated 
by the State Council Decision on Abolition of Certain Administrative Regulations Promulgated Prior 
to the End of 2000 , Order [2001] No. 319 (6 October 2001), the exemption provided under Article 3 
of the State Council Provisions is no longer operative.  China confirms that Article 3 of the State 
Council Provisions may no longer serve as a legal basis to ex empt foreign-invested enterprises from 
making payments required by Chinese law, regul ation, or other official measure.   
 6. During the consultations, Mexico described its  concerns about the WTO-consistency of 
value-added tax (VAT) refunds provided under the Circular of the State Administration of Taxation 
on Printing and Issuing the Interim Measures for the Administration of Tax Refund to Enterprises 
with Foreign Investment for the Purcha se of Domestically Produced Equipment , GuoShuiFa [1999] 
No. 171, issued on 20 September 1999, and the Circular of the State Administration of Taxation and 
National Development and Reform Commission on Prin ting and Issuing the Interim Measures for the 
Administration of Tax Refund for the Purchase of  Domestically-Produced Equipment in Foreign 
Investment Projects , GuoShuiFa [2006] No. 111, issued on 24 July 2006. 
 In this regard, China has stated  that these circulars do not create a preference, either in law or 
on a de facto  basis, for the use of domestic over impor ted goods in connection with purchases of 
domestically-produced equipment when viewed in relation to the Circular of the State Council 
Concerning the Adjustment in the Taxation Policy of Imported Equipment , GuoFa [1997] No. 37, 
issued on 29 December 1997, in connection with  purchases of imported equipment.  China has 
confirmed that, in implementing the above-mentione d legal instruments as well as any new legal 
instruments that affect the operation of the above -mentioned legal instruments, it will ensure that 
imported equipment receives VAT treatment under term s and conditions no less favorable than those 
applicable to domestically-produced equipment.  7. China and Mexico agree to communicate in  a timely manner with respect to the 
implementation of the actions described above, includ ing provision of related new legal instruments. 
8. Mexico included in its supplemental request fo r consultations the preferential treatment given 
to enterprises with foreign investment and foreig n enterprises established in special economic zones 
and costal economic zones in China.  In light of th is agreement, Mexico is not further pursuing this 
matter at this time.  Nevertheless, this Memora ndum of Understanding is without prejudice to the 
rights and obligations of China and Mexico under the WTO Agreement. 
Done in Geneva, on 29 November  2007, in two copies in Chinese, Spanish and English, each text 
being equally authentic.  
               
   
For the Government 
of the People's Republic of China  For the Government 
of the United Mexican States 
 
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