CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR EXEMPTIONS FROM TAXES AND OTHER PAYMENTS
Document: Request for Further Consultations by Mexico Addendum
Date: 9 May 2007
Document codes: WT/DS359/1/Add.1; G/L/814/Add.1; G/SCM/D75/1/Add.1; G/TRIMS/D/26/Add.1
Complainant: Mexico
Respondent: China
Third parties: Argentina, Australia, Canada, Chile, Colombia, Egypt, EU, Japan, Taiwan
Dispute stage: Mutually Agreed Solution
Agreements cited: Part I, para. 1.2, Part I, para. 7.2, Part I, para. 7.3, Part I, para. 10.3  Protocol of AccessionArt. 3.1(b), 3.2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994Art. 2.1, Annex 1  Trade-Related Investment Measures (TRIMs)

CHINA – CERTAIN MEASURES GRANTING REFUNDS,
REDUCTIONS OR EXEMPTIONS FROM TAXES
AND OTHER PAYMENTS

Request for Further Consultations by Mexico

Addendum

 The following communication, dated 4 May 20 07, from the delegation of Mexico to the
delegation of China and to the Chairman of the Dis pute Settlement Body, is ci rculated in accordance
with Article 4.4 of the DSU.

 As you know, on 20 March 2007, pursuant to th e request by Mexico (DS359/1), the People's
Republic of China and Mexico held consultations regarding certain measures through which the
People's Republic of China grants enterprises locat ed within its territory refunds, reductions, or
exemptions from taxes or other payments otherwis e due to the Government. On the basis of those
consultations, held pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU), Article XXII:1 of the General Agreement on Tariffs and
Trade 1994 (GATT 1994), Articles 4 and 30 of the Agreement on Subsidies and Countervailing
Measures (SCM Agreement), and Article 8 of the Agreement on Trade-Related Investment Measures
(TRIMs Agreement), and following a subsequent re view, we understand that China has repealed a
subsidy program based on the disbursement of lo ans at discounted lending rates, identified in our
initial consultation request as the Circular of the People's Bank of China, the State Administration of
Foreign Exchange, the Ministry of Foreign Trade and Economic Cooperation and the State
Administration of Taxation Concerning Printing and Distribution Detailed Rules on Rewarding and
Punishment Concerning Provisional Regulations over Examination of Export Collections of Foreign
Exchange.

 In addition, regarding the Income Tax Law of the People's Re public of China on Enterprises
with Foreign Investment and Foreign Enterprises , also identified in our initial consultation request,
we have learned that China recently adopted a new income tax law, the Enterprise Income Tax Law of
the People's Republic of China.

 To take these developments into account, my authorities have instructed me to modify our
identification of the measures at issue and request supplemental consultations with the Government of
the People's Republic of China pursuant to Articles 1 and 4 of the DSU, Article XXII:1 of the GATT
1994, Articles 4 and 30 of the SCM Agreement, and Article 8 of the TRIMs Agreement, regarding
certain measures through which the People's Republic of China grants enterp rises located within its
WT/DS359/1/Add.1, G/L/814/Add.1,
G/SCM/D75/1/Add.1, G/TRIMS/D/26/Add.1

territory refunds, reductions, or exemptions from taxes or other payments otherwise due to the
Government. As required by Article 4.2 of the SC M Agreement, a Statement of Available Evidence
is attached to this request for supplemental consultations.

 The measures concerned include the following, as well as any amendments thereto and any
related implementing measures:
• Circular of the State Administration of Taxation Concerning Transmitting the Interim
Measure for the Administration of Tax Refunds to Enterprises with Foreign Investment
for Their Domestic Equipment Purchases
1;
• Circular of the Ministry of Finance and the State Administration of Taxation
Concerning the Issue of Tax Credit for Business Income Tax for Homemade
Equipment Purchased by Enterprises w ith Foreign Investment and Foreign
Enterprises2, read in conjunction with Circular of the State Administration of Taxation
on Printing and Distributing the Measures Concerning Business Income Tax Credit on
the Investment of Enterprises with Foreign Investment and Foreign Enterprises by Way
of Purchasing Homemade Equipment
3;
• Circular on Distribution of Interim Measures Concerning Reduction and Exemption of
Enterprise Income Tax for Investment in Domestically Made Equipment for
Technological Renovation4;
• Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Investment and Foreign Enterprises 5, including paragraphs 7,
8 and 9 of Article 75 thereof, read in conjunction with the Provisions of the State
Council on the Encouragement of Foreign Investment 6, including and Articles 8, 9 and
18 thereof, and the Income Tax Law of the People's Re public of China on Enterprises
with Foreign Investment and Foreign Enterprises 7, including Articles 2, 5, 6 and 8
thereof;
• Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Investment and Foreign Enterprises 8, including Article 73(6)
thereof, read in conjunction with the Income Tax Law of the People's Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises 9, including Articles 2,
5, 6 and 7 thereof, and Section XIII of the Catalogue for the Guidance of Foreign
Investment Industries10;

1 GuoShiFa [1999] No. 171 (20 August 1999), available at www.fdi.gov.cn.
2 CaiShuiZi [2000] No. 49 (14 January 2000), available at www.fdi.gov.cn.
3 GuoShuiFa [2000] No. 90 (18 May 2000), available at www.fdi.gov.cn.
4 CaiShui [1999] No. 290 (8 December 1999).
5 Decree [1991] No. 85 of the State Council (30 June 1991), available at www.fdi.gov.cn.
6 GuoFa [1986] No. 95 (11 October 1986), available at www.fdi.gov.cn.
7Order [1991] No. 45 of the President of the People 's Republic of China (9 April 1991), available at
www.fdi.gov.cn.
8 Decree [1991] No. 85 of the State Council (30 June 1991), available at www.fdi.gov.cn.
9 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991), available at
www.fdi.gov.cn.
10 Order [2004] No. 24 of the State Development and Reform Commission, the Ministry of Commerce
of the People's Republic of China (30 November 2004), available at www.fdi.gov.cn.
WT/DS359/1/Add.1, G/L/814/Add.1,
 G/SCM/D75/1/Add.1, G/TRIMS/D/26/Add.1

• Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Investment and Foreign Enterprises
11, including Article 81
thereof, read in conjunction with the Income Tax Law of the People's Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises 12, including Articles 6
and 10 thereof, and the Provisions of the State C ouncil on the Encouragement of
Foreign Investment13, including Article 10 thereof;
• The Enterprise Income Tax Law of the People's Republic of China , including Parts IV
and VIII thereof14;
• The Provisions of the State Council on th e Encouragement of Foreign Investment 15,
including Article 3 thereof;
• Circular of the State Council Concerning th e Adjustment in the Taxation Policy of
Imported Equipment16, read in conjunction w ith Section XIII of the Catalogue for the
Guidance of Foreign Investment Industries.17

 These measures appear to provide refunds, reduc tions or exemptions to enterprises in China
on the condition that those enterprises purchase domestic over imported goods, or on the condition
that they meet certain export performance criteria. Thus, the said measures appear to be inconsistent
with Article 3 of the SCM Agreement . Furthermore, to the extent the measures accord imported
products treatment less favourable than that accorded "like" domestic products, they appear
inconsistent with Article III:4 of the GATT 1994 and Article 2 of the TRIMs Agreement. The
measures also include preferential treatment for enterprises with foreign investment and foreign
enterprises established in economic areas in the terri tory of China (for example, in special economic
zones, economic and technological zones, coastal economic open zones, and the Hainan Special
Economic Zone) to the extent that they grant enterprises located within the said areas refunds,
reductions, or exemptions from taxes or other paym ents in a manner inconsistent with the above-
mentioned WTO provisions. Finally, the measures also appear not to comply with China's obligations
under paragraphs 7.2-7.3 and 10.3 of Part I of its WTO Accession Protocol
18, as well as paragraph 1.2
of Part I of its Accession Protocol (to the extent that it incorporates paragraphs 167 and 203 of the
Report of the Working Party on the Accession of China 19), which forms part of the terms of accession
agreed between China and the WTO and is an integral part of the Marrakesh Agreement Establishing
the World Trade Organization.

 We look forward to receiving your reply to the present request in order to fix a mutually
convenient date for consultations.

11 Decree [1991] of the State Council (30 June 1991), available at www.fdi.gov.cn.
12 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991), available at
www.fdi.gov.cn.
13 GuoFa [1986] No. 95 (11 October 1986), available at www.fdi.gov.cn.
14 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007), available at
www.fdi.gov.cn.
15 GuoFa [1986] No. 95 (11 October 1986), available at www.fdi.gov.cn.
16 GuoFa [1997] No. 37 (29 December 1997), available at www.fdi.gov.cn.
17 Order [2004] No. 24 of the State Development and Reform Commission, the Ministry of Commerce
of the People's Republic of China (30 November 2004), available at www.fdi.gov.cn.
18 WT/L/432.
19 WT/MIN(01)/3.
WT/DS359/1/Add.1, G/L/814/Add.1,
G/SCM/D75/1/Add.1, G/TRIMS/D/26/Add.1

Statement of Available Evidence

• Circular of the State Administration of Taxation Concerning Transmitting the Interim
Measure for the Administration of Tax Ref unds to Enterprises with Foreign Investment
for their Domestic Equipment Purchases
20;
• Circular of the Ministry of Finance and the State Administration of Taxation
Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment
Purchased by Enterprises with Foreign Investment and Foreign Enterprises21;
• Circular of the State Administration of Taxation on Printing and Distributing the
Measures Concerning Business Income Tax Credit on the Investment of Enterprises
with Foreign Investment and Foreign Enterp rises by Way of Purchasing Homemade
Equipment22;
• Circular on Distribution of Interim Measures Concerning Reduction and Exemption of
Enterprise Income Tax for Investment in Domestically Made Equipment for
Technological Renovation23;
• Provisions of the State Council on the Encouragement of Foreign Investment24;
• Income Tax Law of the People's Republic of China on Enterprises with Foreign
Investment and Foreign Enterprises25;
• Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Investment and Foreign Enterprises26;
• Enterprise Income Tax Law of the People's Republic of China27;
• Circular of the State Council Concerning th e Adjustment in the Taxation Policy of
Imported Equipment28;
• Catalogue for the Guidance of Foreign Investment Industries.29

Ministry of Commerce of People's Republic of China).
21 CaiShuiZi [2000] No. 49 (14 January 2000), available at www.fdi.gov.cn (English translation by
Ministry of Commerce of People's Republic of China).
22 GuoShuiFa [2000] No. 90 (18 May 2000), available at www.fdi.gov.cn (English translation by
Ministry of Commerce of People's Republic of China).
23 CaiShui [1999] No. 290 (8 December 1999) (English translation).
24 GuoFa [1986] No. 95 (11 October 1986), available at www.fdi.gov.cn (English translation by
Ministry of Commerce of People's Republic of China).
25 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991), available at
www.fdi.gov.cn (English translation by Ministry of Commerce of People's Republic of China).
26 Decree [1991] No. 85 of the State Council (30 June 1991), available at www.fdi.gov.cn (English
translation by Ministry of Commerce of People's Republic of China).
27 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007), available at
www.fdi.gov.cn. (English translation by Ministry of Commerce of People's Republic of China).
28 GuoFa [1997] No. 37 (29 Decem ber 1997), available at www.fdi. gov.cn (English translation by
Ministry of Commerce of People's Republic of China).
29 Order [2004] No. 24 of the State Development and Reform Commission, the Ministry of Commerce
of the People's Republic of China (30 November 2004), available at www.fdi.gov.cn (English translation by
Ministry of Commerce of People's Republic of China).