CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR EXEMPTIONS FROM TAXES AND OTHER PAYMENTS
Document: Request for the Establishment of a Panel by Mexico
Date: 13 July 2007
Document codes: WT/DS359/13
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 the Establishment of a Panel by Mexico

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

 On 26 February and 4 May 2007, Mexico requ ested consultations and further consultations,
respectively, with the People's Republic of China 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"), with rega rd to certain measures granting
refunds, reductions, or exemptions from taxes ot herwise due to the Government. Mexico held
consultations with the People's Republic of Chin a on 20 March and 22 June 2007. Unfortunately,
those consultations did not resolve the dispute.

 The first set of measures that were the subject of consultations are measures granting refunds,
reductions, or exemptions to enterprises in the People's Republic of China from taxes otherwise due to
the Government, on the condition that those en terprises purchase domestic over imported goods.
Consequently, these measures appear to be incons istent with Articles 3.1(b) and 3.2 of the SCM
Agreement. Furthermore, because they make advantag es conditional on an enterprise's purchase of
domestic over imported equipment, these measures a ppear to accord to imported products treatment
less favourable than that accorded to like domestic products, in a manner inconsistent with
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 the obligations of the People's
Republic of China under paragraphs 7.2-7.3 and 10.3 of Part I of its Protocol of Accession, and
paragraph 1.2 of Part I of its Protocol of Accessi on (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 thereto and any
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
1, 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

1 GuoShuiFa [1999] No. 171 (20 August 1999).

Administration of Tax Rebate for the Purcha se of Domestically-Produced Equipment in
Foreign Investment Projects.
2

2. Circular of the Ministry of Finance and the State 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 3, 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 .4
Subsidies under these programmes will continue to be granted under the Enterprise Income
Tax Law of the People's Republic of China5, 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.
6 Subsidies under this programme wi ll continue to be granted under the
Enterprise Income Tax Law of th e People's Republic of China, by virtue of Article 57 of that
Law.

 The second set of measures that were the subject of consultations grant refunds, reductions, or
exemptions from taxes otherwise due to the G overnment, on the condition that the beneficiary
enterprises meet certain export performance criteria. These measures thus appear to be inconsistent
with Articles 3.1(a) and 3.2 of the SCM Agreement and, consequently, with paragraph 10.3 of Part I of
the Protocol of Accession of the People's Republic of China and paragraph 1.2 of Part I of its Protocol
(to the extent that it incorporates paragraph 167 of the Report of the Working Party on the Accession
of China). These measures include the followi ng, as well as any amendments thereto and any
implementing measures:

4. Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Invest ment and Foreign Enterprises
7, including Articles 75(7) and
75(8) thereof, read in conjunction with the Provisions of the State Council on the
Encouragement of Foreign Investment 8, including Articles 8 and 9 thereof, and the Income
Tax Law of the People's Republic of China on Enterprises with Foreign Investment and
Foreign Enterprises 9, including Articles 6 and 8 thereof. Subsidies under this programme
will continue to be granted under the Enterprise Income Tax Law of the People's Republic of
China, by virtue of Article 57 of that Law.

5. Rules for Implementation of th e Income Tax Law of the People's Republic of China on
Enterprises with Foreign Investment and Foreign Enterprises , 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 , including Article 6 thereof,
and Section XIII of the Catalogue for the Guidance of Foreign Investment Industries .
10

2 GuoShuiFa [2006] No. 111 (24 July 2006).
3 CaiShuiZi [2000] No. 49 (14 January 2000).
4 GuoShuiFa [2000] No. 90 (18 May 2000).
5 Order [2007] No. 63 of the President of the People's Republic of China (16 March 2007).
6 CaiShui [1999] No. 290 (8 December 1999).
7 Decree [1991] No. 85 of the State Council (30 June 1991).
8 GuoFa [1986] No. 95 (11 October 1986).
9 Order [1991] No. 45 of the President of the People's Republic of China (9 April 1991).
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).

Subsidies under this programme will continue to be granted under the Enterprise Income Tax
Law of the People's Republic of China, by virtue of Article 57 of that Law.

6. Rules for Implementation of the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Invest ment and Foreign Enterprises , including Article 81 thereof,
read in conjunction with the Income Tax Law of the People's Republic of China on
Enterprises with Foreign Invest ment and Foreign Enterprises , including Article 10 thereof.
Subsidies under this programme will continue to be granted under the Enterprise Income Tax
Law of the People's Republic of China, by virtue of Article 57 of that Law.

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

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

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

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

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

 The aforementioned measures also include pref erential treatment for enterprises with foreign
investment and foreign enterprises established in economic areas in the territory 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 ex emptions from taxes or other paym ents in a manner inconsistent
with Articles 3.1(a) and 3.2 of the SCM Agreement and, consequently, with paragraph 10.3 of Part I of
the Protocol of Accession of the People's Republic of China and paragraph 1.2 of Part I of its Protocol
(to the extent that it incorporates paragraph 167 of the Report of the Working Group on the Accession
of China).

 All these measures of the People's Republic of Ch ina appear to nullify or impair the benefits
accruing to Mexico directly or indirectly under the cited agreements.

 Accordingly, Mexico respectfully requests, pursu ant to Article 6 of the DSU and Article 4 of
the SCM Agreement, that the Dispute Settlement Body establis h a panel to examine this matter, with
the standard terms of reference as set out in Article 7.1 of the DSU.