CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR EXEMPTIONS FROM TAXES AND OTHER PAYMENTS
Document: Request for the Establishment of a Panel by the United States
Date: 13 July 2007
Document codes: WT/DS358/13
Complainant: U.S.
Respondent: China
Third parties: Argentina, Australia, Canada, Chile, Colombia, Egypt, EU, Japan, Taiwan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 3.1(b), 3.2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994Art. 2.1, Annex 1  Trade-Related Investment Measures (TRIMs)Part I, para. 1.2, Part I, para. 7.2, Part I, para. 7.3, Part I, para. 10.3  Protocol of Accession

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

Request for the Establishment of a Panel by the United States

 The following communication, dated 12 July 2007, from the delegation of the United States
to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.

 On 2 February and 27 April 2007, the Unite d States requested consultations with the
Government of the People's Republic of China ("China") pursuant to Articles 1 and 4 of the
Understanding on Rules and Procedures Go verning 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"), with regard to certain
measures granting refunds, reductions, or exempti ons from taxes otherwise due to the government.
1
The United States held consultations with China on 20 March and 22 June 2007. Unfortunately, those
consultations did not resolve the dispute.

 Certain of the measures that were the subject of the above consultations provide refunds,
reductions, or exemptions to enterprises in China from taxes otherwise due to the government on the
condition that those enterprises purchase domestic over imported goods. Accordingly, these measures
appear to be inconsistent with Article 3.1(b) a nd 3.2 of the SCM Agreement. Furthermore, because
they condition advantages on an enterprise's purch ase of domestic over imported equipment, these
measures appear to accord imported products treatme nt less favourable than that accorded "like"
domestic products, inconsistent w ith Article III:4 of the GATT 1994 and Article 2.1 and Annex 1,
paragraph 1(a), of the TRIMs Agreement. For the same reasons, these measures appear not to comply
with China's obligations under paragraphs 7.2-7.3 an d 10.3 of Part I of its Protocol of Accession and
paragraph 1.2 of Part I of its Protocol of Accession (to the extent that it incorporates paragraph 203 of
the Report of the Working Party on the Accession of China). The measures that give rise to these
apparent inconsistencies include the following, as well as any amendments and any related or
implementing measures:

1. 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 ,
2 read in conjunction with the Circular of the State
Administration of Taxation and the National Development and Reform Commission of the
People's Republic of China, on Printing and Issuing the Trial Measures for the
Administration of Tax Rebate for the Purcha se of Domestically-Produced Equipment in
Foreign Investment Projects.
3

1 WT/DS358/1 and WT/DS358/1/Add.1.
2 GuoShiFa [1999] No. 171 (20 August 1999).
3 GuoShuiFa [2006] No. 111 (24 July 2006).

2. Circular of the Ministry of Finance and the St ate Administration of Taxation Concerning the
Issue of Tax Credit for Business Income Ta x for Homemade Equipment Purchased by
Enterprises with Foreign Investment and Foreign Enterprises ,
4 read in conjunction with the
Circular of the State Administration of Taxation on Printing and Distributing the Measures
Concerning Business Income Tax Credit on th e Investment of Enterprises with Foreign
Investment and Foreign Enterprises by Way of Purchasing Homemade Equipment .5
Subsidies under this program will continue to be granted under the Enterprise Income Tax
Law of the People's Republic of China,6 by virtue of Article 57 of that Law.

3. Circular on Distribution of Interim Measur es Concerning Reduction and Exemption of
Enterprise Income Tax for Investment in Dom estically Made Equipment for Technological
Renovation.
7 Subsidies under this program w ill continue to be granted under the Enterprise
Income Tax Law of the People's Republic of China,8 by virtue of Article 57 of that Law.

 Certain of the measures that were the subject of those consultations grant refunds,
reductions, or exemptions from taxes otherwi se due to the government on the condition that
the beneficiary enterprises meet certain export performance criteria. These measures thus
appear to be inconsistent with Article 3.1(a) and 3.2 of the SCM Agreement and,
consequently, paragraph 10.3 of Part I of Chin a's Protocol of Accession, and paragraph 1.2 of
Part I of its Protocol of Accession (to the ex tent that it incorporates paragraph 167 of the
Report of the Working Party on the Accession of China). The measures that give rise to these
apparent inconsistencies include the following, as well as any amendments and any related or
implementing measures:

4. Article 75(8) of the Rules for Implementation of the Income Tax Law of the People's Republic
of China on Enterprises with Forei gn Investment and Foreign Enterprises ,
9 read in
conjunction with Article 9 of the Provisions of the State C ouncil on the Encouragement of
Foreign Investment10 and Article 6 of the Income Tax Law of the Pe ople's Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises .11 Subsidies under this
program will continue to be granted under the Enterprise Income Tax Law of the People's
Republic of China,12 by virtue of Article 57 of that Law.

5. Article 75(7) of the Rules for Implementation of the Income Tax Law of the People's Republic
of China on Enterprises with Fo reign Investment and Foreign Enterprises ,13 read in
conjunction with Article 8 of the Provisions of the State C ouncil on the Encouragement of
Foreign Investment14 and Article 6 of the Income Tax Law of the Pe ople's Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises .15 Subsidies under this
program will continue to be granted under the Enterprise Income Tax Law of the People's
Republic of China,16 by virtue of Article 57 of that Law.

4 CaiShuiZi [2000] No. 49 (14 January 2000).
5 GuoShuiFa [2000] No. 90 (18 May 2000).
6 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
7 CaiShui [1999] No. 290 (8 December 1999).
8 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
9 Decree [1991] No. 85 of the State Council (30 June 1991).
10 GuoFa [1986] No. 95 (11 October 1986).
11 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991).
12 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
13 Decree [1991] No. 85 of the State Council (30 June 1991).
14 GuoFa [1986] No. 95 (11 October 1986).
15 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991).
16 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).

6. Article 73(6) of the Rules for Implementation of the Income Tax Law of the People's Republic
of China on Enterprises with Fo reign Investment and Foreign Enterprises ,17 read in
conjunction with Article 7 of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Invest ment and Foreign Enterprises 18 and Section XIII of the
Catalogue for the Guidance of Foreign Investment Industries.19 Subsidies under this program
will continue to be granted under the Enterprise Income Tax Law of the People's Republic of
China,20 by virtue of Article 57 of that Law.

7. Article 81 of the Rules for Implementation of the Income Tax Law of the People's Republic of
China on Enterprises with Foreign Investment and Foreign Enterprises,
21 read in conjunction
with Article 10 of the Income Tax Law of the People's Republic of China on Enterprises with
Foreign Investment and Foreign Enterprises 22 and Article 10 of the Provisions of the State
Council on the Encouragement of Foreign Investment .23 Subsidies under this program will
continue to be granted under the Enterprise Income Tax Law of the People's Republic of
China,24 by virtue of Article 57 of that Law.

8. Article 3 of the Provisions of the State Council on the Encouragement of Foreign
Investment.25

9. Circular of the State Council Concerning the Ad justment in the Taxation Policy of Imported
Equipment,
26 read in conjunction with Section XIII of the Catalogue for the Guidance of
Foreign Investment Industries.27

10. Article 25 of the Enterprise Income Tax Law of the People's Republic of China ,
28 read in
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment
Industries.29

11. Article 28 of the Enterprise Income Tax Law of the People's Republic of China ,30 read in
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment
Industries.31
12. Article 31 of the Enterprise Income Tax Law of the People's Republic of China ,32 read in
conjunction with Section XIII of the Catalogue for the Guidance of Foreign Investment Industries.33

17 Decree [1991] No. 85 of the State Council (30 June 1991).
18 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991).
19 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).
20 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
21 Decree [1991] No. 85 of the State Council (30 June 1991).
22 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991).
23 GuoFa [1986] No. 95 (11 October 1986).
24 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
25 GuoFa [1986] No. 95 (11 October 1986).
26 GuoFa [1997] No. 37 (29 December 1997).
27 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).
28 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
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).
30 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
31 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).
32 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).

 China's measures also appear to nullify or impa ir the benefits accruing to the United States
directly or indirectly under the cited agreements.

 Accordingly, the United States respectfully re quests, pursuant to Article 6 of the DSU and
Article 4 of the SCM Agreement, that the Dispute Settlement Body establish a panel to examine this
matter, with the standard terms of reference as set out in Article 7.1 of the DSU.