RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/306 
13 October 2009 
 
 (09-4975) 
Council for Trade in Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol of the Accession of the People's Republic of China ("China")  
 
 
 The following communication, dated 9 October 2009, from the delegation of the European Communities, is being circulated to the Me mbers of the Council for Trade in Services. 
 
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 1. The EC would like to transmit, in advance of the meeting of the Council for Trade in 
Services, the following questions and comment s on the implementation by China of the GATS 
agreement, its commitments listed in the Schedule of Specific Commitments and of related provisions 
of its Accession Protocol. 
2. In order to ensure effective review of the implementation by China of its commitments, the 
EC 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.   
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 8 a nd paragraph IV.3 (a) of Annex 
1A of the Protocol of Accession of China. 
I. AIR TRANSPORT SERVICES 
4. 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).   
5. On 5 December 2008, the Council for Trade in Se rvices addressed the annual review of the 
implementation by China of the WTO Agreement.   On that occasion, China reported that the 
Regulation on Computer Reservation Systems was under preparation and hence it was not possible to address the specific questions presented by EC.   
6. During the 2008 annual review, China stated that (see S/C/M/92/) "foreign airlines could use 
CRS to sell or reserve tickets for customers after their appointed Chinese agents were approved by the 
CAAC.  According to the CAAC, there was no in formation about approved agents failing to use 
foreign CRS services." However, China has not approve d foreign CRS so that they can join China's 
Billing and Settlement Plan (BSP) and hence Chines e agents approved by CAAC in accordance with 
Provisional Administrative Measures on the Usage of Computer (Passenger) Reservation System by 
Air Transport Enterprises and their Sales Ag ents within the Territory of China  (CAAC, 1995, No. 51) 
are unable to sell tickets using foreign CRS. Could China explain: S/C/W/306 
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  (a) Whether and based on which legislation, foreign CRS are required to get a special 
approval before they can participate in China's BSP; 
(b) Which legislation implements the authori sation and approval requirements listed in 
items 298, 301, 360, 361 and 362 of the Decision of the State Council on Establishing 
Administrative Permission for the Administrative Examination and Approval of Items 
Necessary to be Retained (Order of the State Council 412, 29 June 2004) .  
(c) Based on which legislation or approval, the only local CRS provider TravelSky is 
operating and is allowed to participate in China's BSP; 
(d) How this is in compliance with Chinese co mmitments on CRS services, in particular 
commitments on national treatment? 
7. In addition, foreign airlines have submitted app lications for the use of foreign CRS by their 
designated travel agents in accordance with Provisional Administrative Measures on the Use of 
Computer Passenger Reservation System by Forei gn Air Transportation Enterprises and Their Sales 
Agents in China (Regulation 51/199 5). These applications have not b een approved or refused despite 
Regulation 51/1995 setting a time limit of sixty (60) days. Requests for information about the status of 
these applications have also been ignored, includ ing during the annual review in CTS in 2008.   
8. The EC wishes to point out that both problems ha ve been brought to the attention of China on 
several occasions, inter alia in the questions raised in the annual review in 2008 as well as at highest 
political level in the EU-China High Le vel Economic Dialogue in April 2009.  
9. With this in mind, the EC requests China to give an update on the progress of drafting the 
new regulation, in particular its scope, the timeframe for its approval and entry into force. The EC 
reminds China that China did not list any tran sitional periods for CRS services and that China 
specifically committed upon accession not to enforce an y laws and regulations affecting trade in 
services unless they are published and readily ava ilable to other WTO Members. Also upon accession, 
China undertook to publish all of China' s licensing procedures and conditions.  
10. As regards the draft regulation, the EC requests further information on the content of the draft 
regulation. In particular, could China please: 
(a) Describe the scope of activities covered and subject regulated (local CRS providers, 
foreign CRS providers, Chinese travel agents, foreign and Chinese Aviation 
Enterprises) under the draft new Regulation; 
(b) Describe whether and how the draft new regulation will modify the conditions of 
access and operation for foreign CRS pr oviders to China's CRS market; 
(c) Confirm that the draft Regulation foresees possibilities for direct access to and use of 
foreign CSR by Chinese travel agents; 
(d) Confirm if a licensing procedure will apply to foreign CRS providers, including with 
regard to participation and use of BSP, and,  in the affirmative, describe the licensing 
procedure, notably any conditions required to obtain a licence; 
(e) Confirm if a licensing procedure will apply to local CRS providers, including with 
regard to participation and use of BSP, and,  in the affirmative,  describe the licensing 
procedure, notably any conditions required to obtain a licence;  S/C/W/306 
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  (f) Confirm if a licensing procedure will appl y to Chinese travel agents, including for 
issuing tickets, and describe the licensing pr ocedure, notably any conditions required 
to obtain a licence. 
II. CONSTRUCTION SERVICES 
11. 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 
EC would welcome clarifications on the implementation of these commitments in a number of areas. 
12. The implementing rules of the Decree 114 include measures which are temporary: 
(a) The possibility to use "temporarily" Chinese registered architects or engineers where 
relevant foreign professionals also qua lified in China cannot be found;  
(b) The 6-month residency requirement may not be applied where foreign architects or 
engineers cannot "temporarily" satisfy it.   
13. The EC requests clarification about when Ch ina intends to issue permanent implementing 
rules which would provide more legal certainty than temporary measures.   
14. The EC 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.   
15. 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 three-month per year.  This was not removed by Circular 159.  The EC would like to know wh en China intends to abolish these residency 
requirements. 
16. High capital requirements put an unnecessary burden on companies and could be replaced by 
more market oriented instruments. The EC would like 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 
17. 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 EC 
would welcome clarifications on the implementation of these commitments in a number of areas. 
18. 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 Development and Reform Commission).   
19. However, the Order [23] 2006 did not mention repealing 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]). The [38] 1999 
foresees concentration of wholesale through two incumb ents. In this regard, the EC requests China to 
confirm that the Opinion Guobanfa No.38 [1999] is not in force anymore.  S/C/W/306 
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  20. The criteria in the Order No 23 [2006] on Administration of the Refined Oil Market require 
long-term and stable supply of refined oil to bot h wholesalers and retailers.  In case of wholesalers 
this can be achieved through owning a refinery, be ing an importer or having a long-term contract with 
a qualified importer or wholesaler.  In this respect, could China please: 
(a) Inform the EC how many qualified non-state-owned importers and how many 
qualified non-state-owned wholesalers, including foreign invested are there; 
(b) Clarify the areas, if any, in which Chinese state-trading enterprises enjoy monopoly 
rights;   
(c) Describe what measures has China put in place to ensure that the state-trading 
enterprises of refined oil who are in dir ect competition with foreign wholesale and 
retail providers on all levels of distribu tion chain respect China's obligations under 
Article VIII of the GATS, in particular to ensure that the state-trading enterprises do 
not abuse their position to act in a manner inconsistent with China's distribution commitments, in particular: 
(i) do not refuse or unduly delay entrance into contractual obligations for long-
term supply with foreign invested wholesale or retail companies; 
(ii) do not hinder in a joint-venture with majority ownership by either of the 
Chinese state-owned incumbents the application for wholesale licences in order to limit competition on the market; 
(iii) comply with Chinese legislation, in particular the profit margins for retailers 
as defined in the Notice of NDRC on Relevant Issues about the Business 
Operation of the Private Enterprises of Refined Oil Products  ( No [602] 
2008). 
(d) Inform the EC what measures has China put in place, if any, for out-of-court redress 
in case of complaints by foreign invested companies related to abuse of dominant 
position by state-owned enterprises. 
21. As regards distribution of pharmaceutical products  in China, China has taken (by 2008) full 
commitments on wholesale and commission agents services and limited commitments on retail services, and full commitments for selling products ma nufactured in China.  The EC understands that 
foreign invested companies who wish to wholesal e and retail pharmaceutical products produced by 
affiliates outside China need to get approval from Ministry of Commerce and also the State Food and 
Drug Administration (SFDA).  Could China please: 
(a) Clarify if a separate legal entity has to be created to import and distribute 
pharmaceuticals produced by affiliates outside of China;  
(b) Clarify in which legal act this has been established; 
(c) Clarify in which order the application has to be submitted to these authorities for 
approval; 
(d) Clarify if wholesaler are allowed to outsource the warehousing of the imported goods 
and if not, whether China has considered introducing such a possibility;  S/C/W/306 
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  22. As regards retailing services via Internet (e-co mmerce), in the Transitional Review of 2008, 
China stated (S/C/M/92) that the required IC P license for distribution over internet is non-
discriminatory and serves the interest of consumer  protection. However, the conditions for an ICP 
licence require establishment of a telecommunication enterprise as well as telecommunication sector-
specific knowledge and experience. Companies providi ng retailing services, either at fixed locations 
or over internet do not have telecommunication k nowhow and experience and are hence effectively 
put out of market. In this regards, the EC w ould welcome an explanation why a telecommunication 
licence is required for provision of distribution ser vices and whether China has considered replacing it 
with a specific authorisation procedure for provi sion of distribution services via Internet (e-
commerce)  that is not require telecommunication related experience.     
IV. POSTAL & COURIER SERVICES, INCLUDING EXPRESS DELIVERY SERVICES 
23. 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 EC would welcome 
clarifications on the implementation of these commitments in a number of areas. 
24. The new Postal Law of PRC was adopted on 24 April 2009 and entered into force on 1 
October 2009.  
25. The EC request clarification on number of issues the new law raises: 
(a) The Schedule of Specific Commitments on Tr ade in Services of China specifies the 
scope of commitments applying to all courier services that were not reserved at the 
time of accession. When China joined the WTO, according to information available 
to the EC, China permitted foreign companies to provide domestic express delivery services under government issued licenses, with only a narrowly defined limitation on the delivery of private letters that was reser ved to China Post.  However, Article 51 of 
the new Postal Law stipulates that foreign businesses are forbidden to invest in or 
operate domestic express delivery of letter articles. Article 84 defines "letter articles" 
as "information carrying materials in an enve lope style covering sealed deliveries to a 
specific person or unit according to a name and address not including books, newspapers, periodicals etc". Thus the de livery of commercial documents is not 
allowed to foreign invested express delivery companies under the new law. Therefore 
the new law constitutes a limitation which is mo re restrictive than the reserved area at 
the time of accession. Can China explain how  this is in conformity with its GATS 
commitments? 
(b) In addition, the definition in Article 84 as referred above raises an important question 
as regards documents delivered with e.g. parcels or goods shipments, such as an 
attached invoice, instruction manual, explanat ory note, which are an integral part of 
such deliveries and should not fall under the limitation concerning the delivery of letter articles. Could China confirm that the delivery of such docum ents, incidental to 
express delivery of parcels, goods shipments etc do not fall under the limitation of Article 51 and are not considered to c onstitute "letter articles" as defined under 
Article 84?  
(c) The new Postal Law entered into for ce 01. October 2009. However, several 
implementation acts are still not in place. The EC 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 a ddition could China clarify how it intends 
to define the postal monopoly?  S/C/W/306 
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  V. REAL ESTATE SERVICES 
26. 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 EC would welcome clarifications on the 
implementation of these commitments in a number of areas. 
27. 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 EC 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? 
VI. TELECOMMUNICATIONS 
28. 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 EC would welcome clarifications on the impl ementation of these commitments in a number of 
areas. 
29. On 5 December 2008, the Council for Trade in Se rvices addressed the annual review of the 
implementation by China of the WTO Agreement.  On this occasion the EC raised a number of 
questions with regard to telecommunication services,  but did not received responses to all questions. 
30. As regards basic telecommunication services, the EC requests 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 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? 
31. 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?   S/C/W/306 
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  (b) Could China please provide up to date information on the number of  
(i) applicants and approved foreign invest ed telecommunications enterprises; 
(ii) applicants and VAS licenses granted for FITE? 
32. Can China provide the EC 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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