WORLD TRADE  
ORGANIZATION  G/MA/W/70 
5 August 2005 
 (05-3523) 
Committee on Market Access Original:   English 
  
 
CHINA'S
 TRANSITIONAL  REVIEW  MECHANISM  
 
Communication from the European Communities  
  
 The following communication, dated 2 August 2005,  is being circulated at the request of the 
Delegation of the European Commission.  
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 The EC is transmitting comments and questions we ll in advance of the meeting of the Market 
Access Committee of XX September 2005, in orde r for the Chinese authorities to reply to and 
complete any outstanding information.   Once the information to be provided by China in accordance with paragraph 8 and 
paragraph IV.3 (a) of Annex 1A of  its Protocol of accession has been received, the EC might come 
back with additional questions. 
  The EC’s comments and questions relate to the following priority items: Chinese exports 
restrictions and the New Automobile Policy.  Chinese exports restrictions 
 
 
 The EC refers to its 2004 communication in wh ich it had reminded China of its commitments  
 
• to eliminate, upon accession, export restrictions unless they could be justified under WTO rules 
(§ 165 of the Working Party Report) and 
• to notify any possible export restrictions to the WTO. 
  Justification requested for the existing export r estrictions by the EC since the TRM exercise 
of 2002 has not been provided  by the Chinese authorities nor was it transmitted to the WTO. 
  The EC thus remains concerned about the WTO compliance of a number of the export restrictions maintained by China.  China is th erefore urged to comply with its accession related 
commitments and to bring its export regime of ra w materials into conformity with WTO rules.  
  The EC attaches particular importance to and re fers to earlier bilateral exchanges on coke and 
rare earths. It urges China  
• to notify in line with Part I-Section 8 (b) of  the Protocol of accession the quantities associated 
with the export restrictions imposed on the products listed in the Chinese document of 17 October 2003 (and on any other product that  may not be included in this list) and  
 
• to transmit to the WTO the justification for theses export restrictions; or 
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 • When no such justification exis ts, correctly notify to the WTO when and how it intends to bring 
its coke export regime in line with WTO rul es and also to transmit all necessary information 
when this will be case for rare earths. 
  The EC is also concerned that a number of e xport restrictions maintained by China may affect 
the supply of raw hides and skins for European tanners. 
  In this context, the EC would like to urge China  
• to clarify and notify the products subject to export restrictions and taxes; 
• to transmit to the WTO the justification for theses export restrictions. 
 
Automobiles
 
  The EC refers to its concerns regarding the New Automobile Policy (hereafter “NAP”) 
already voiced in last year’s transitional review, especially with a view to the wide scope of state intervention and the uncertainty about the implem enting regulations that will supplement the new 
policy. Given the experience of how the NAP was devel oped, the EC wishes to stress the transparency 
obligations under WTO rules with regard to the outstanding implementation regulations of the NAP. 
Publishing drafts of these implementing regul ations well in advance would allow other WTO 
Members to comment on them.   The EC would like to draw China’s sp ecial attention to the following issues 
 
i) Administrative measures for the import of auto mobile components fulfilling the characteristics of 
a whole vehicle   
 
 These measures are  
 
• likely to invalidate some of China’s WTO ac cession commitments (abolition of local content 
requirements and TRIMs, national treatment obligation); 
 
• in violation of WCO classification criteria (as reclassification of car parts as whole vehicles 
leads to a payment of double import tax). 
 
 The measures will have a major negative economic and technical impact on the EC 
manufacturers and on the development of the Chinese automotive industry itself.   
 
 The EC therefore urges China to review its  new legislation regarding WTO and WCO aspects 
and to be open for a constructive in depths discu ssion on this matter in order to develop solutions 
that are both, promoting China’s goals of furt her localization of parts production and facilitating 
business for EC automobile manufacturers.  
 
ii) Joint venture ownership limitation   
 
  The NAP imposes restrictions on foreign invest ors, which have contributed substantially to 
the rapid development of China’s automotive sector . Foreign joint venture partners are still not 
allowed majority ownership in automobile produc tion. Moreover, participation of foreign joint 
venture partners in automobile manufacturing pr ojects is limited to two for the production of 
passenger cars and two for commercial vehicles (“ 2+2”). Due to the global nature of the 
automotive industry and the brand strategies of lo cal companies locked in 50/50% ventures with 
foreign vehicle makers such restrictions ar e counterproductive to the NAP’s objective of 
promoting international competitiveness.  G/MA/W/70 
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  In this context the EC urges China  
• to allow foreign majority investment and 
• to eliminate the “2+2” regulation.  
 
  The EC likes to draw China’s attention to the f act that a review of the joint venture ownership 
regulation might well help to facilitate to solve the problem related to the localisation of parts 
production (see i). 
 iii) Type Approval/ Homologation Standards
 
 
  Vehicles/components produced in Chin a are type-approved according to the China 
Compulsory Certification (CCC) regulation. Since the CCC rules are not internationally 
recognized these vehicles are marketable on th e domestic market only. Moreover, vehicles 
importers have to carry considerable – and sometimes prohibitive – costs as vehicles already type 
approved according to EU Directives that conform to the internationally recognized 
homologation standards of the 1958 UN/ECE Agreemen t have to be approved again according to 
the CCC rules. The CCC regulation thus effectiv ely constitutes a non-tariff market access barrier. 
   Against this background the EC reco mmends China’s accession to the 1958 UN/ECE 
agreement as soon as possible.  
 
  Adhesion to the Agreement would allow Chin a both to recognize and itself to deliver 
homologation results obtained in accordance with the testing methods it prescribes. That would 
facilitate the sales of China-made cars in other co untries. In addition, China would be able to 
proactively participate in preparing internationally recognized homologation standards as they continue to evolve. 
 
China Compulsory Certification (CCC) Regulation 
 
 
 The European Communities would also like to dr aw the attention of the Chinese authorities to 
the growing difficulties encountered by European  exporters owing to the China Compulsory 
Certification (CCC) regulation. Several sectors are a ffected by provisions that appear to be trade 
restrictive and not proportional to the obj ectives stated by the Chinese legislation. 
 
Trade and Distribution  
 
 The EC commends the efforts made by China to comply with its WTO commitments in the 
Trade and Distribution sectors.  
  In this area, the EC wishes to mention the following concerns:  -  The lack of consistency in the approval pro cedures for the establishment of foreign invested 
commercial enterprises in all locations throughout China; 
-  Delays encountered by foreign invested ma nufacturing companies and wholly foreign owned 
companies in getting approval to carry out distribution activities; 
-  The high registered capital requirements for setting up foreign invested commercial 
enterprises; 
-  The prohibition to wholly foreign-owned trad ing companies located in free-trade zones to 
include distribution in their business scope. 
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  In this regard, the EC would be grateful if China could: 
 -  When it will set up a uniform system of appr oval of the establishment of Foreign Invested 
Commercial Enterprises in all locations throughout China; 
-  Provide information on the average time for a pproval of an application for foreign invested 
manufacturing companies and wholly foreign owned companies to carry out distribution 
activities; 
-  Confirm that the minimum registered capita l required by authorities throughout China for a 
foreign invested commercial enterprise enga ging is RMB 300 for retailing and RMB 500 for 
wholesaling. 
-  Indicate whether and when it is consider ing allowing wholly foreign-owned trading 
companies located in free-trade zones to include distribution in their business scope. 
-  Indicate when it will issue regulations on direct selling.  
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