RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/286 
22 October 2007 
 (07-4557) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol of Accession of the People's Republic of China ("China")  
 
 
 The following communication, dated 19 October 2007, from the delegation of the European Communities is being circulated to the Members of the Council for Trade in Services.  
 
 
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 1. The EC would like to transmit the following qu estions and comments on the implementation 
by China of its commitments on trade in services, in  advance of the meeting of the Council for Trade 
in Services. 
2. The EC’s questions and comments relate to the following services sectors:  legal services;  
postal and courier, including express delivery ser vices;  telecommunications;  construction, 
architectural and engineering services;  tourism;  distribution services, and air transport services. 
3. The EC reserves its right to raise additiona l questions, upon receipt of responses to its 
questions and comments by China, in accordance with  paragraph 18 and paragr aph V of Annex 1A of 
the Protocol of Accession of China. 
I. LEGAL SERVICES 
4. The EC recognises the ongoing efforts of China in implementing its WTO commitments in 
the area of the legal services. The EC notes, howev er, that certain measures which are incompatible 
with China's GATS commitments are being maintained  in the legal services sector. The EC wishes to 
enquire when China will remove these requirements. 
5. The Administrative Regulations on Representati ve Offices of Foreign Law Firms in China , 
which are in effect since 1 January  2002 state in its Article 7 (3) that, as a condition for applying to 
establish a representative office, foreign law firms need  to demonstrate an "actual need to establish a 
representative office in China to conduct legal service business." The Implementation Rules of the 
Administrative Regulations on Representative Offices of Foreign Law Firms in China , in effect since 
1 September 2002, set out in its Article 4 the specifi c factors used to assess this  "need". Such a need 
requirement, seen in conjunction with the conditions  for the determination of a need, constitutes a de 
facto  Economic Needs Requirement (ENT). Such a requi rement is not listed in China's Schedule of 
Specific Commitments. China argued in last year 's transitional review mechanism that this 
requirement is maintained to assess the actual "receptivity" of legal services in China. This 
explanation confirms the EC's understanding that the measure refe rred to amounts to an Economic 
Needs Requirement (ENT). Another reason that China quoted to maintain this "need" measure is that 
it is deemed necessary to analyse a foreign law fi rms' legal practice history, professional capability S/C/W/286 
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  etc. The EC fails to understand how China can verify  the need of a foreign law firm to supply legal 
services on the basis of such measures, i.e. do the professional capabilities of a law firm indicate 
anything on a firm's "need" to establish in China?  
(a) Can China explain when it will remove this ENT?  
(b) Can China explain how many applications  for the establishment of representative 
offices of foreign law firms have been rejected since 2002 on the grounds of a failure 
to demonstrate the need requirement in Ar ticle 7(3) and Article (4) of the above-
mentioned legislation? 
6. China's GATS commitments allow foreign represen tative offices to "provide information on 
the impact of the Chinese legal environment." While China has defined in the above-mentioned 
Regulations and Implementation Rules the ser vices which cannot be supplied by foreign 
representative offices, the EC has not yet received a response to its question which specific activities 
foreign representative offices can engage when they provide information on the impact of the Chinese 
legal environment. Can China provi de a positive list of activities whic h can be undertaken as regards 
the provision of information on the impact of the Chinese legal environment? 
II. POSTAL & COURIER SERVICES, INCLUDING EXPRESS DELIVERY SERVICES 
7. The EC has at the previous transitional review mechanism meetings raised a number of 
questions and comments with regard to the reform  of postal law in China. The EC would like to 
understand what progress China has made in reforming its postal law.  
(a) Is it correct that China has adopted a ninth revision of its draft postal law?  
(b) Does China intend to make this dr aft available to WTO Members?  
8. Based on the information that has been circulat ed on the drafts of the postal law, the EC 
would like to raise a number of questions regardin g this reform, on which it would be grateful to 
receive detailed replies: 
(a) When China joined the WTO, it permitted foreign companies to provide express 
delivery services under government issued licenses, with a narrowly defined 
limitation on the delivery of private letters reserved to China Post. However, it seems 
that the 9th draft postal law would include a provision that would bar foreign invested 
express delivery services companies from delivering all documents, regardless of their weight. Can China confirm if this the case or not? 
(b) Can China confirm that the new postal law will provide for a definition of express 
delivery that is in line with internationa l practices, such as by adding a reasonable 
price criterion to the weight criterion used to define the monopoly? When would 
China submit for consultation a new draft postal law? 
9. China issued on 12 September 2007 posta l industry standards for express service. 
(a) Can China clarify if these standards ar e mandatory or voluntary standards? 
(b) Can China confirm whether or not these standards treat domestic and international 
services suppliers formally differently?  S/C/W/286 
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  (c) Can China clarify whether or not foreign ser vices suppliers will be consulted in the 
further development of these standards? 
III. TELECOMMUNICATIONS 
10. Which are the requirements in China for the pr ovision of "basic services"? Can China confirm 
that it does not maintain a requirement for foreign i nvestors to venture with a main Chinese partner in 
the "basic" telecom sector, in acco rdance with paragraph 314 of th e Working Party report? Is it 
correct that until present there is no single exampl e of a foreign invested equity joint venture 
providing mobile or fixed services in China? 
11. The Regulation on the Administration of Forei gn Invested Telecommunications Enterprises  
sets an excessively high minimum registered cap ital requirement (RMB two billion for a nationwide 
provider). Is a reduction of these require ments under consideration in China?   
12. In the area of “value-added” telecom services, more than 22.000 licences have been issued to 
domestic operators, whereas only six licenses have b een issued to foreign- invested enterprises. 
Foreign-invested enterprises report that they en counter impediments in obtaining licences and are 
more restricted than domestic enterprises in the type of "value-added" services which they may be 
able to supply.   
(a) Can China confirm that foreign compani es do not apply to enter the market? Can 
China provide with the measures it has taken in order to address the problems 
encountered by foreign companies entering the VAS market? In this context, can 
China confirm that its licensing procedur es for value-added services are adequately 
streamlined, in line with international practi ce, so as to promote investment in this 
part of the telecoms sector?   
(b) Can China provide information on the type  of value-added services that domestic 
suppliers can provide and in particular wh ether foreign services suppliers can provide 
the same value-added services as domestic operators? 
(c) Can China provide the EC with more specific information on the organisation 
(staffing, powers vested) of its re gulatory authority responsible for 
telecommunications and especially, on the requirements guaranteeing the independence of its regulator? 
13. In March 2007, China Telecom and China Netcom  signed an agreement which seems to limit 
competition between both companies from 2007 onwards. Both companies would leave each other in control of its core markets.  
(a) How is this agreement between China Tel ecom and China Netcom compatible with 
the key principles of the WTO Reference Paper on Telecom?  
(b) What did the Ministry of Information Industry, which acts as regulator, do in 
response to this agreement between China Telecom and China Netcom?  
IV. CONSTRUCTION, ARCHITECTURAL AND ENGINEERING SERVICES 
14. The EC welcomes the efforts made by the PRC in further clarifying the regulatory framework 
applying to the construction sector , in particular through the rel ease of the long awaited Decree 114 
Implementation Regulations and the Joint Decree  155 on Foreign-Invested Construction Project 
Service Enterprises. However, the EC remains very  concerned by the existence of a number of S/C/W/286 
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  barriers to market access in China's construction and design markets, resulting from the maintenance 
of a set of provisions that effectively hamper the ability of foreign companies to compete on the 
Chinese market.  
15. Since the repeal of the Registered Foreign Contractor status granted by the former Decree 32, 
and the setting up of a revised qualification and licen sing system, the situation of foreign construction 
companies in China has deteriorated. Many elements of this new system prove to be excessive and do 
not provide enough flexibility to allow foreign companies to compete on a level playing field with domestic enterprises, and can even be counterpr oductive by restricting possibilities of foreign 
investment in China and co-operation with Chinese companies. 
16. First, although Wholly Foreign Owned Construc tion Enterprises (WFOCE) have to satisfy all 
the requirements which Chinese contractors have to satisfy, including the minimum amount of 
registered capital, management a nd technical personnel requirements, number of projects to be carried 
out each year etc., their scope of activity is limite d to the four categories of construction projects 
specified in China's WTO schedule. As a consequen ce, the requirements that these companies have to 
satisfy in comparison with the market access they  are granted are heavier (in particular capital 
requirements) than those of Chinese contractors of the same grade that do not face any restriction as 
regards the kind of projects they are allowed to undertake. In addition, the Chinese qualification 
system does not provide for sufficient flexibility to  assess the actual ability of foreign construction 
companies to supply their services in the conditions re quired by their grade: according to the drafting 
of Circular 159, which introduced some changes to Decree 113, recognition of the performance 
gained outside China by foreign companies is not systematically taken into account, which leaves a 
great degree of uncertainty for foreign contractors wishing to apply for setting up a WFOCE. This 
system acts as a disincentive to the setting up of  WFOCE, and therefore does not provide foreign 
construction companies with a real range of choices when willing to invest in China.  
17. These specific constraints on WFOCE could be an incentive for foreign contractors to set up 
joint-ventures with Chinese partners. However, the qualification grade of a Joint-Venture, as well as 
of any consortium of construction companies, under the qualification system is the lowest of each 
individual grades, even if one of the partner contract ors brings to the joint-venture the technical staff 
and skills and capital that would be sufficient to qualif y the consortium for the higher of all grades. As 
a consequence, foreign contractors with high qua lifications are constrained to find only highly 
qualified Chinese construction companies as partners  in order to undertake projects in China 
corresponding to their abilities. In the same way,  a Chinese construction company willing to associate 
with a small foreign specialised construction comp any holding a strong know-how will not be incited 
to do so. 
18. Finally, when a foreign company wishes to  acquire a Chinese construction entity, the 
regulation stipulates that the licenses and the qualifications have to be re-assessed. However, the criteria upon which this re-assessment will be base d are not published, which gives no certainty to 
foreign companies to enter into th e Chinese market through this way.  
19. Thus, it clearly appears that the freedom of fo reign contractors to set up companies in China 
under the new system is very limited and does not provide the appropriate conditions for foreign 
investors willing to develop a new business in China.  It is detrimental to the development of both 
foreign and Chinese construction companies. The rece nt regulations promulgated by China still do not 
address these outstanding issues. Therefore, the EC would like to know when China does intend to 
solve them through a fair assessment of the hamp ering and discriminatory effects of the concerned 
provisions of its qualification system? 
20. Regarding in particular the long-standing issu e of burdensome capital requirements, the EC 
would like to know whether China is considering to  relax the registered capital and net assets  S/C/W/286 
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  requirements when alternative financial instruments are available - such as letters of guarantees, 
insurance bonds or bank guarantees,  solutions that the banking market  in China can already offer – or, 
alternatively, when major international contractor s can provide sufficient security. This flexibility 
would better serve the purpose of providing safe guarantees by contractors and would allow a more 
effective use of capital by contractors. 
21. Such barriers to market access particularly affect the sector of dredging, which faces 
additional constraints: as this system de facto prevents foreign dredging companies from setting up 
foreign-invested entities in China, dredgers try to  operate as chartering companies, renting foreign 
dredging vessels to Chinese dredging companies. Ho wever, in such a case, and for a same project, a 
foreign company chartering a dredging vessel is subject to far higher taxes than a local dredging 
company directly importing a foreign dredging vessel, thus resulting in a strong unbalance in the 
respective competitiveness of local and foreign dredging companies. When does China intend to 
assess the difficulties faced in this sector and set out this issue? 
22. The EC welcomes the issuance of the long-awa ited implementing rules for Decree 114. These 
rules include positive measures which are however provided on a temporary basis: a) the possibility to 
use "temporarily" Chinese registered architects or engineers where relevant foreign architects or 
engineers also qualified in China cannot be found to meet the personnel requirements; b) the six-months residency requirement may not be applie d where foreign architects or engineers cannot 
"temporarily" satisfy it. As there is no guidance about how these "temporary" provisions are to be interpreted, there is still an uncertainty which partly undermines the value of these implementing 
rules. Therefore, the EC would welcome any clarification about whether and when these "temporary" 
measures will be made permanent. With this r espect, it is important to recall that, regarding 
requirements in terms of numbers of foreign professional staff for foreign-invested enterprises qualifying under the regime of Decree 114, as well as residency requirements pursuant to Article 16 of Decree 114, no mention is made of such li mitations to National Treatment in China's WTO 
commitments in this sector. 
23. In the same way, the residency requirements imposed by point IV.5 of Notice No 73 for 
foreign personnel of construction enterprises of th ree months a year have not been removed by 
Circular 159, although China's WTO commitments in the construction services sector do not mention 
any limitation as regards national treatment in mode 3. Could China please confirm when it intends to 
abolish these residency requirements in orde r to comply with its GATS commitments? 
V. TOURISM 
24. The EC understands that the Regulations on Administration of Travel Agencies dated 
11 December 2001 establish, in article 11, an economi cs needs test (ENT) for the authorisation of new 
travel agencies. This market access limitation is not reflected in China’s GATS schedule of 
commitments. This has been raised to the atte ntion of the Chinese authorities in several occasions, 
including the 2003, 2004, 2005 a nd 2006 TRM processes. China confir med in the 2006 TRM that it 
does not intend to restrict market access through an  economic needs test in this sector, and that the 
measure under discussion is non-discriminatory and a pplied in equal terms to national and foreign 
services suppliers. These points having been confirmed, there is an urge nt need to align its legislation 
with its indicated purposes, and it should be noted th at the current language of the law clearly and in 
unequivocal terms describes an economic needs test in the sense of GATS Article XVI. 
25. Would China please provide Members with info rmation about its plans for aligning the 
regulation of travel agencies with China’s GATS commitments in the sector? S/C/W/286 
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  VI. DISTRIBUTION SERVICES 
26. The Chinese authorities produced in 2004 legislatio n affecting the distribution sector in order 
to implement the corresponding phase of market  liberalisation in lin e with China’s GATS 
commitments.  In particular, a text of “Measures for the Administration of Foreign Investment in the commercial sector” was approved in April 2004, being e ffective as of June.  Several questions remain 
about this legislation and how the adjustment to subsequent phases of trad e liberalisation is being 
done. 
27. This law affected, among others, retail distri bution services of several products for service 
suppliers with more than 30 stores.  The law i ndicated 49% foreign ownership until December 2006 
for distribution of books, pharmaceutical, and othe r products.  Although this was at the time in 
compliance with China’s GATS commitments, the situation changed as of January 2007, when 
China’s WTO commitments to allo w full foreign control started to apply.  Would China please 
indicate what measures have been taken to impl ement this transition and align with its GATS 
commitments? 
VII. AIR TRANSPORT SERVICES 
28. China has commitments under GATS Article XV I and Article XVII for Mode 1 on Computer 
Reservation Systems (CRS). The EC understands that  legislation concerning CRS is being prepared 
by China which would facilitate the openness of the market and equal treatment of Chinese and 
foreign operators. Could China provide the latest information on the issue?   
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