CHINA – CERTAIN MEASURES GRANTING REFUNDS, REDUCTIONS OR EXEMPTIONS FROM TAXES AND OTHER PAYMENTS
Document: Request for Consultations by the United States
Date: 7 February 2007
Document codes: WT/DS358/1; G/L/813; G/SCM/D74/1; G/TRIMS/D/25
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 Consultations by the United States

 The following communication, dated 2 Februa ry 2007, from the delegation of the United
States to the delegation of China and to the Chairman of the Dispute Settlement Body, is circulated in
accordance with Article 4.4 of the DSU.

 My authorities have instructed me to request consultations with the Government of the
People's Republic of China pursuant to Articles 1 and 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes , 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 exemptions from ta xes or other payments otherwise due to the government by
enterprises in China. As required by Article 4.2 of the SCM Agreement, a Statement of Available
Evidence is attached to this request for consultations.

 These measures include the following, as well as any amendments and any related or
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 fo r Business Income Tax for Homemade
Equipment Purchased by Enterprise s with Foreign Investment and Foreign
Enterprises,2 read in conjunction with Circular of the State Administration of
Taxation on Printing and Distributing th e Measures Concerning Business Income
Tax Credit on the Investment of Enterprises with Foreign Investment and Foreign
Enterprises by Way of Purchasing Homemade Equipment;3

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.
WT/DS358/1, G/L/813,
G/SCM/D74/1, G/TRIMS/D/25

• Circular on Distribution of Interim Measures Concerning Reduction and Exemption
of Enterprise Income Tax for Investment in Domestically Made Equipment for
Technological Renovation;
4

• Articles 75(7) and 75(8) of the Rules for Implementation of the Income Tax Law of
the People's Republic of China on Enterp rises with Foreign Investment and Foreign
Enterprises,5 read in conjunction with Articles 8 and 9 of the Provisions of the State
Council on the Encouragement of Foreign Investment 6 and Articles 6 and 8 of the
Income Tax Law of the People's Republic of China on Enterprises with Foreign
Investment and Foreign Enterprises;7

• Article 73(6) 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 ,8
read in conjunction with Articles 6 and 7 of the Income Tax Law of the People's
Republic of China on Enterprises with Foreign Investment and Foreign Enterprises 9
and Section XIII of the Catalogue for the Guidance of Foreign Investment
Industries;10

• 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 ,11
read in conjunction with Articles 6 and 10 of the Income Tax Law of the People's
Republic of China on Enterprises with Foreign Investment and Foreign Enterprises 12
and Article 10 of the Provisions of the State Council on the Encouragement of
Foreign Investment;13

• Article 3 of the Provisions of the State Council on the Encouragement of Foreign
Investment;14

• Articles 3 and 6 of 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;15

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.
7 Order [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.
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 GuoFa [1986] No. 95 (11 October 1986), available at www.fdi.gov.cn.
15 YinFa [2000] No. 58 (17 February 2000), available at www.fdi.gov.cn.
WT/DS358/1, G/L/813,
 G/SCM/D74/1, G/TRIMS/D/25

• Circular of the State Council Concerning th e Adjustment in the Taxation Policy of
Imported Equipment,
16 read in conjunction with Section XIII of the Catalogue for the
Guidance of Foreign Investment Industries.17

 These measures appear to provide such refunds , reductions or exemptions to enterprises in
China on the condition that those enterprises purchase domestic over imported goods, or on the
condition that those enterprises meet certain export pe rformance criteria. Accordingly, the measures
appear to be inconsistent with Article 3 of the SCM Agreement. Furthermore, to the extent the
measures accord imported products treatment less favorable 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 appear not to co mply with China's obligations under paragraphs
7.2-7.3 and 10.3 of Part I of its Accession Protocol 18, as well as paragraph 1.2 of Part I of its
Accession Protocol (to the extent that it incorporat es 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 th e present request and to fixing a mutually
convenient date for consultations.

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/DS358/1, G/L/813,
G/SCM/D74/1, G/TRIMS/D/25

Statement of Available Evidence

• 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
20

• Circular of the Ministry of Finance and the State Administration of Taxation
Concerning the Issue of Tax Credit fo r Business Income Tax for Homemade
Equipment Purchased by Enterprise s 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 Ta x Law of the People's Republic of China
on Enterprises with Foreign Investment and Foreign Enterprises26

• 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 Pr inting and Distribution Detailed Rules on
Rewarding and Punishment Concerning Provisional Regulations over Examination of
Export Collections of Foreign Exchange
27

20 GuoShiFa [1999] No. 171 (20 August 1999), available at www.fdi.gov.cn (English translation by
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 YinFa [2000] No. 58 (17 February 2000), available at www.fdi.gov.cn (English translation by
Ministry of Commerce of People's Republic of China).
WT/DS358/1, G/L/813,
 G/SCM/D74/1, G/TRIMS/D/25

• Circular of the State Council Concerning th e Adjustment in the Taxation Policy of
Imported Equipment
28

• Catalogue for the Guidance of Foreign Investment Industries29

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).