B.

The Transitional Review Mechanism

 

 

 

1.

What is required by Article 18 of the Protocol

 

Prior to acceding to the WTO, China made significant modifications to its trading system.  Upon accession, China assumed commitments to liberalize its trading regime, including making further significant reductions in its tariffs and certain non-tariff barriers. However, China's accession to the WTO in December 2001 was not the culmination of the transformation of its trading system.  Recognizing that China still needed to accomplish huge changes over a period of years before China would be in full compliance with all of its WTO obligations, other Members wanted to establish an annual monitoring mechanism that would oversee the progress of China's compliance with its WTO commitments and that would focus a light on China's implementation process.  The United States, for example, explicitly made an annual review of China's compliance with its WTO obligations an element of its national trade policy.  In the bill that extended nondiscriminatory treatment (normal trade relations treatment) to the People's Republic of China, Congress expressly provided:

It shall be the objective of the United States to obtain as part of the Protocol of Accession of the People's Republic of China to the WTO, an annual review within the WTO of the compliance by the People's Republic of China with its terms of accession to the WTO.[1]

 

 

This provision is codified at 22 U.S.C. § 6931.  Given China's importance to the world trading system, the concerns of the United States and other Members were not surprising.

Thus, in the Protocol on Accession, China agreed to an annual review of its progress in implementing its WTO obligations.  As set out in the Protocol. this annual process, referred to as the Transitional Review Mechanism ("TRM"), would occur for eight consecutive years starting in 2002 with one final review of China's compliance and implementation in the tenth year following accession.[2]  The TRM process is unique to China.

Article 18 of the Protocol on Accession establishes the Transitional Review Mechanism and sets out the requirements and procedures for conducting the TRM.  Article 18 provides that sixteen WTO subsidiary bodies, each of which has a mandate in reviewing China's WTO commitments, shall, within one year of China's accession, and on an annual basis thereafter (for eight years), review China's implementation of its WTO commitments.  The sixteen subsidiary bodies with a role in the TRM are:

·         Council for Trade in Goods

·         Council for TRIPs

·         Council for Trade in Services

·         Committee on BOP Restrictions

·         Committee on Market Access

·         Committee on Agriculture

·         Committee on Sanitary and Phytosanitary Measures

·         Committee on Technical Barriers to Trade

·         Committee on Subsidies and Countervailing Measures

·         Committee on Anti-Dumping Measures

·         Committee on Customs Valuation

·         Committee on Rules of Origin

·         Committee on Import Licensing

·         Committee on TRIMs

·         Committee on Safeguards

·         Committee on Trade in Financial Services

 

China is required (pursuant to Protocol Annex 1A) to provide certain specific information to these bodies in advance of their review, and China may raise before these bodies issues relating to commitment reservations by other Members.  Each body is directed to report the results of its review to the relevant WTO council, and that council in turn shall make a report to the General Council.[3] 

            Article 18.2 directs that the General Council shall, within one year of China's accession, and on an annual basis thereafter (for eight years), review China's implementation of its WTO commitments in accordance with the framework set out in Protocol Annex 1B.[4]  The General Council may make recommendations to China and other Members pursuant to its review.[5]

The text of Article 18 is presented in the following box:

 

18.          Transitional Review Mechanism

 

1.             Those subsidiary bodies1 of the WTO which have a mandate covering China's commitments under the WTO Agreement or this Protocol shall, within one year after accession and in accordance with paragraph 4 below, review, as appropriate to their mandate, the implementation by China of the WTO Agreement and of the related provisions of this Protocol. China shall provide relevant information, including information specified in Annex 1A, to each subsidiary body in advance of the review. China can also raise issues relating to any reservations under Section 17 or to any other specific commitments made by other Members in this Protocol, in those subsidiary bodies which have a relevant mandate. Each subsidiary body shall report the results of such review promptly to the relevant Council established by paragraph 5 of Article IV of the WTO Agreement, if applicable, which shall in turn report promptly to the General Council.

 

2.             The General Council shall, within one year after accession, and in accordance with paragraph 4 below, review the implementation by China of the WTO Agreement and the provisions of this Protocol. The General Council shall conduct such review in accordance with the framework set out in Annex 1B and in the light of the results of any reviews held pursuant to paragraph 1. China also can raise issues relating to any reservations under Section 17 or to any other specific commitments made by other Members in this Protocol. The General Council may make recommendations to China and to other Members in these respects.

 

3.             Consideration of issues pursuant to this Section shall be without prejudice to the rights and obligations of any Member, including China, under the WTO Agreement or any Plurilateral Trade Agreement, and shall not preclude or be a precondition to recourse to consultation or other provisions of the WTO Agreement or this Protocol.

 

4.             The review provided for in paragraphs 1 and 2 will take place after accession in each year for eight years. Thereafter there will be a final review in year 10 or at an earlier date decided by the General Council.

 

1    Council for Trade in Goods, Council for Trade-Related htmects of Intellectual Property Rights, Council for Trade in Services, Committees on Balance-of-Payments Restrictions, Market Access (covering also ITA), Agriculture, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Subsidies and Countervailing Measures, Anti-Dumping Measures, Customs Valuation, Rules of Origin, Import Licensing, Trade-Related Investment Measures, Safeguards, Trade in Financial Services.

 

 

Annexes 1A and 1B to the Protocol detail the types of information that China must provide to the relevant subsidiary bodies in the context of the TRM and the issues that the General Council shall address in the TRM.

Annex 1A organizes the information that China is directed to provide by subject area and, within each area, more specifically identifies that information that China should provide to particular subsidiary bodies.  The following identifies the subject areas and summarizes the type of information that China is required to provide within those areas pursuant to Protocol Annex 1A.[6]

Ø                  ECONOMIC DATA, including information regarding:

·            recent import/export statistics

·            current account data on services

·            capital account data regarding foreign direct investment

·            tariff revenues, non-tariff taxes, and other border charges levied exclusively on imports

·            the value of export duties/taxes

·            trade volume subject to tariff exemptions

·            commissions/mark-ups/other fees charged on imports subject to state/designated trading

·            share of import/export trade held by state-owned enterprises (SOEs)

·            annual and 5-year economic development programs, or any industrial/sectoral policies of central and sub-central government entities

·            annual VAT receipts

 

Ø                  ECONOMIC POLICIES, including information regarding:

·            non-discrimination (e.g., repeal of WTO-inconsistent laws and regulations; provision of full GATT national treatment)

·            foreign exchange and payments (e.g., exchange measures required by IMF)

·            investment regime

·            pricing policies (e.g., price controls; pricing mechanisms of state trading enterprises (STEs))

 

Ø                  FRAMEWORK FOR MAKING AND ENFORCING POLICIES, including information regarding:

·            structure and powers of the government

·            authority of sub-central governments

·            uniform administration

·            revision/enactment of domestic laws and regulations related to WTO commitments

 

Ø                  POLICIES AFFECTING TRADE IN GOODS, including information regarding:

·            tariff rate quotas

·            non-tariff measures (including quantitative import restrictions)

·            import licensing

·            customs valuation

·            export restrictions

·            safeguards

·            technical barriers to trade (e.g., standards and harmonization of standards; conformity assessment bodies and procedures)

·            trade-related investment measures (e.g., status of trade and foreign exchange balancing requirements, local content and export performance offsets and technology transfer requirements; measures concerning motor vehicle production and investment)

·            state trading entities (e.g., extension of trading rights; access to raw materials in textiles; increased access to trade in fertilizer and oil)

·            government procurement (e.g., laws and regulations; transparency)

 

Ø                  POLICIES AFFECTING TRADE IN SERVICES, including information regarding:

·            updated laws, regulations, etc. affecting trade in services

·            licensing procedures and conditions between domestic and foreign service suppliers

·            updated lists of authorities responsible for administration of trade in services

·            independence of the regulatory authorities

·            status of licensing applications in sectors where specific commitments were made

 

Ø                  TRADE-RELATED INTELLECTUAL PROPERTY REGIME, including information regarding:

·            Copyright, Trademark and Patent Law amendments

·            compliance with and full application of TRIPS Agreement

·            IPR enforcement efforts

 

Ø                  SPECIFIC QUESTIONS IN THE CONTEXT OF THE TRANSITIONAL REVIEW MECHANISM (received from either the General Council or any of the subsidiary bodies)

 

Annex 1B identifies the issues that the General Council should address in the context of the TRM.  These are: (1) the review of the TRM reports submitted by each of the responsible subsidiary bodies; (2) the state of development of China's trade with other Members and trading partners; and (3) any recent developments and cross-sectoral trade issues respecting China's trade regime.[7]

The following boxes provide the specific requirements of Annex 1A and Annex 1B.

ANNEX 1A

INFORMATION TO BE PROVIDED BY CHINA

IN THE CONTEXT OF THE TRANSITIONAL REVIEW MECHANISM

 

                China is requested to provide information on the following in accordance with Article 18.1 of the Protocol of Accession.  The requested information should be provided annually, except in those cases where China and the Members agree that it is no longer required for the review.

 

I.              ECONOMIC DATA

 

(a)           most recently available import and export statistics by value and volume, by supplier country at the HS 8-digit level

(b)           current account data on services, by source and destination in line with the statistical requirements of the IMF

(c)           capital account data for inward- and outward-realized foreign direct investment by source and destination in line with the statistical requirements of the IMF

(d)           the value of tariff revenues, non-tariff taxes, and other border charges levied exclusively on imports by product or at the highest level of detail possible, but at least by HS heading (4‑digit) at the beginning of the review mechanism

(e)           the value of export duties/taxes by product

(f)            the volume of trade subject to tariff exemptions by product or at the highest level of detail possible, but at least by HS heading (4-digit) at the beginning of the review mechanism

(g)           the value of commissions, mark ups and other fees charged on imports subject to state trading or designated trading imposed through government regulation or guidance, if any

(h)           the shares of imports and exports accounted for by the trading activities of state-owned enterprises

(i)            annual economic development programmes, China's five-year programmes and any industrial or sectoral programmes or policies (including programmes relating to investment, export, import, productions, pricing or other targets, if any) promulgated by central and sub-central government entities

(j)            annual receipts under the Value-Added Tax (VAT), with separate information for imports and domestic products as well as information on VAT rebates

 

II.            ECONOMIC POLICIES

 

1.             Non-Discrimination (to be notified to the Council for Trade in Goods)

 

(a)           the repeal and cessation of all WTO inconsistent laws, regulations and other measures on national treatment

(b)           the repeal or modification to provide full GATT national treatment in respect of laws, regulations and other measures applying to internal sale, offering for sale, purchase, transportation, distribution or use of: after sales service, pharmaceutical products, cigarettes, spirits, chemicals and boiler and pressure vessels (for pharmaceutical products, chemicals and spirits there is a reservation of the right to use a transitional period of one year from the date of accession in order to amend or repeal relevant legislation)

 

2.             Foreign Exchange and Payments (to be notified to the Committee on Balance-of-Payments Restrictions)

 

(a)           exchange measures as required under Article VIII, Section 5 of the IMF's Articles of Agreement and such other information on China's exchange measures as was deemed necessary in the context of the transitional review mechanism 

 

3.             Investment Regime (to be notified to the Committee on Trade-Related  Investment Measures)

 

(a)           completed revisions to investment guidelines in conformity with the WTO Agreement 

 

4.             Pricing Policies (to be notified to the Committee on Subsidies and Countervailing Measures)

 

(a)           application of existing or any other price controls and the reason for their use 

(b)           pricing mechanisms of China's state trading enterprises for exported products

 

III.           FRAMEWORK FOR MAKING AND ENFORCING POLICIES

 

1.             Structure and Powers of the Government/Authority of Sub-Central Governments/Uniform Administration (to be notified to the General Council)

 

(a)           revision or enactment of domestic laws, regulations and other measures related to China's commitments under the WTO Agreement and Protocol, including those of local governments at the sub-national level, that have been promulgated since accession or the previous meeting of the relevant body under the Transitional Review Mechanism 

(b)           establishment and operation (upon accession) of the mechanism pursuant to Section 2(A), paragraph 4 of the Protocol under which individuals and enterprises can bring cases of non-uniform application of the trade regime to the attention of national authorities

 

IV.           POLICIES AFFECTING TRADE IN GOODS

 

1.             Tariff Rate Quotas (to be notified to the Committee on Market Access)

 

(a)           administration of TRQs on a transparent, predictable, uniform, fair and non-discriminatory basis using clearly specified timeframes, administrative procedures and requirements and evidence of a consistent national allocation (and reallocation) policy  including:

                (i)            provision of volume/value of the quota or TRQ made available;

                (ii)           reallocated quota or TRQ applied for;

                (iii)          the volume/value of requests for allocation or reallocation denied;

                (iv)          fill rates for the quota or TRQ;

                (v)           for TRQs, the amount of any goods entered at the over quota rate; and

                (vi)          time taken to grant a quota or TRQ allocation.

 

2.             Non-Tariff Measures including Quantitative Import Restrictions (to be notified to the Committee on Market Access)

 

(a)           the introduction, re-introduction or application of any non-tariff measures other than those listed in Annex 3 of the Protocol and elimination of non-tariff measures

(b)           implementation of the schedule for phased elimination of the measures contained in Annex 3

(c)           quota allocation and reallocation in conformity with WTO requirements, including the Agreement on Licensing Procedures following criteria set out in the Report of the Working Party on the Accession of China ("Report ")

(d)           distribution licences, quotas, tariff rate quotas or any other means of approval for importation are not subject to conditions set out in Section 7, paragraph 3 of the Protocol 

 

3.             Import Licensing (to be notified to the Committee on Import Licensing)

 

(a)           implementation of the provisions of the Agreement on Import Licensing Procedures and the WTO Agreement applying the measures set out in Section 8 of the Protocol including provision of the time taken to grant an import licence

 

4.             Customs Valuation (to be notified to the Committee on Customs Valuation)

 

(a)           the use of valuation methods, other than the stated transaction value

 

5.             Export Restrictions (to be notified to the Council for Trade in Goods)

 

(a)           any restrictions on exports through non-automatic licensing or other means justified by specific product under the WTO Agreement or the Protocol 

 

6.             Safeguards (to be notified to the Committee on Safeguards)

 

(a)           implementation of China's Regulation on Safeguards 

 

7.             Technical Barriers to Trade (to be notified to the Committee on Technical Barriers to Trade)

 

(a)           notification of acceptance of the Code of Good Practice not later than four months after China's accession

(b)           periodic review of existing standards of government standardizing bodies and harmonization of the same with relevant international standards where appropriate 

(c)           revision of current voluntary national, local and sectoral standards so as to harmonize them with international standards 

(d)           use of the terms "technical regulations" and "standards" according to their meaning under the TBT Agreement in China's notifications under the TBT Agreement, including under Article 15.2 thereof and publications referenced therein, and in modifications of existing measures 

(e)           review of technical regulations every five years to ensure international standards are used in accordance with Article 2.4 of the Agreement and provision for adoption of international standards as the basis for technical regulation as part of its notification under Article 15.2 of the Agreement

(f)            progress report on increase of the use of international standards as the basis for technical regulations by ten per cent in five years 

(g)           provision of procedures to implement Article 2.7 of the Agreement 

(h)           provision of a list of relevant local governmental and non-governmental bodies that are authorized to adopt technical regulations or conformity assessment procedures as part of China's notification under Article 15.2 of the Agreement 

(i)            ongoing updates on the conformity assessment bodies that are recognized by China

(j)            enactment and implementation of a new law and relevant regulations regarding assessment and control of chemicals for the protection of the environment in which complete national treatment and full consistency with international practices would be ensured within one year after China's accession following conditions set out in 3(t) of the TBT Working Party Report 

(k)           information on whether, one year after accession, all conformity assessment bodies and agencies are authorized to undertake conformity assessment for both imported and domestic products and are following the conditions outlined in Section 13, subparagraph 4(a) of the Protocol

(l)            assignment of the respective responsibilities of China's conformity assessment bodies solely on the basis of the scope of work and type of product without any consideration of the origin of a product no later than eighteen months after accession

(m)          notification of the respective responsibilities assigned to China's conformity assessment bodies to the TBT committee 12 months after accession

 

8.             Trade-Related Investment Measures (to be notified to the Committee on Trade-Related  Investment Measures)

 

(a)           elimination and cessation of enforcement of trade and foreign exchange balancing requirements, local content and export performance offsets and technology transfer requirements made effective through laws, regulations or other measures

(b)           amendments to ensure lifting of all measures applicable to motor vehicle producers restricting the categories, types or models of vehicles permitted for production (to be completely removed two years after accession)

(c)           increased limits within which investments in motor vehicle manufacturing could be approved at the provincial government at the levels outlined in the Report

 

9.             State Trading Entities (to be notified to the Council for Trade in Goods)

 

(a)           progressive abolishment of state trading in respect of silk measures, increasing and extending trading rights, granting the right to trade to all individuals no later than 1 January 2005

(b)           access to supplies of raw materials in the textiles sector at conditions no less favourable than for domestic users, and not adversely affected access to supplies of raw materials as enjoyed under existing arrangements

(c)           progressive increases in access by non state trading entities to trade in fertilizer and oil and the filling of quantities available for import by non state trading entities

 

10.          Government Procurement (to be notified to the Council for Trade in Goods)

 

(a)           laws, regulations and procedures

(b)           procurement in a transparent manner and application of the MFN principle

 

V.            POLICIES AFFECTING TRADE IN SERVICES (to be notified to the Council for Trade in Services)

 

(a)           regularly updated lists of all laws, regulations, administrative guidelines and other measures affecting trade in each service sector or sub-sector indicating, in each case, the service sector(s) or sub-sector(s) they apply to, the date of publication and the date of entry into force

(b)           China's licensing procedures and conditions, if any, between domestic and foreign service suppliers, measures implementing the free choice of partner and list of transport agreements covered by MFN exceptions

(c)           regularly updated lists of the authorities, at all levels of government (including organizations with delegated authority) which are responsible for the adoption, implementation and reception of appeals for laws, regulations, administrative guidelines and other measures affecting trade in services

(d)           independence of the regulatory authorities from the service suppliers

(e)           foreign and domestic suppliers in sectors where specific commitments have been undertaken indicating the state of play of licensing applications on sector and sub-sector levels (accepted, pending, rejected)

 

VI.           TRADE-RELATED INTELLECTUAL PROPERTY REGIME (to be notified to the Council for Trade-Related htmects of Intellectual Property Rights)

 

(a)           amendments to Copyright, Trademark and Patent Law, as well as relevant implementing rules covering different areas of the TRIPS Agreement bringing all such measures into full compliance with and full application of the TRIPS Agreement and the protection of undisclosed information

(b)           enhanced IPR enforcement efforts through the application of more effective administrative sanctions as described in the Report

 

VII.         SPECIFIC QUESTIONS IN THE CONTEXT OF THE TRANSITIONAL REVIEW MECHANISM (to be notified to the General Council or relevant subsidiary body)

 

(a)           response to specific questions in the context of the transitional review mechanism received from the General Council or a subsidiary body

 

 

 

ANNEX 1b

 

ISSUES TO BE ADDRESSED BY THE GENERAL COUNCIL IN ACCORDANCE

WITH SECTION 18.2 OF CHINA'S PROTOCOL OF ACCESSION

 

–              Review of the reports and the issues referred to in Section 18.1 of China's Protocol of Accession.

–              Development of China's trade with WTO Members and other trading partners, including the volume, direction and composition of trade.

–              Recent developments and cross‑sectoral issues regarding China's trade regime.

 

                The Rules of Procedure of the WTO General Council  shall apply unless specified otherwise.  China shall submit any information and the documentation relating to the review no later than 30 days prior to the date of the review.

 

 

 

 

 

2.

Experience in the first review

 

 

 

 

(a)

Timing of review issues

 

There is no time frame for the conduct of the TRM included in the Protocol of Accession.  A few months after China's accession, controversy surfaced over the TRM timing issue as Members sought to get the TRM process started by raising substantive compliance issues and TRM procedural issues at early committee meetings in 2002.

At the request of the United States, "implementation of WTO commitments by the People's Republic of China" was placed on the agenda at the regular meeting of the Council for Services on March 17, 2002.  Specifically, the United States raised issues regarding insurance and express delivery services, and stated that it would seek opportunities to raise other issues in other WTO bodies as necessary.  The United States also pointed out that WTO Members should raise their concerns regarding China's implementation throughout the course of the year, and any such concerns should subsequently be reflected in the annual transitional review at the end of the year.  In response, China said the issues raised were too complex for an immediate response, and indicated that it believed the proper forum for raising such issues was in the transitional review mechanism.  In China's view, "there was only one annual review within the provisions of Section 18 of the Protocol" and "none of the statements made at this meeting should be included in the annual review within the framework of the TRM."[8]

Subsequently, at the regular meetings of many committees in the spring and early summer of 2002, preparation in relation to the transitional review mechanism was raised as part of the agenda.  The discussions held at these meetings focused on whether new guidelines and procedures needed to be established to advance the TRM process.  Members, such as the United States, urged agreement on the three timing issues that the Protocol does not spell out, namely, (1) how far in advance must China submit the relevant information set out in Annex 1A, (2) how far in advance must Members submit their specific questions for China, and (3) how far in advance must China submit its responses to Members' questions. 

To ensure adequate time for preparation for a constructive review, the United States proposed a 90-60-30 day formulation in which China's notification would be submitted 90 days in advance of the meeting at which the review would take place, questions would be posed to China 60 days in advance of that meeting, and China would respond to these questions 30 days in advance of the meeting.[9]  China rejected the proposal.  At the Committee on Market Access, for example, China stated that its obligation was stipulated in Paragraph 18 and that it was unacceptable to go beyond that and increase the obligations of China in terms of specific time-frames or procedures.[10]

Based on proposals at many committee meetings, committee chairs engaged in informal consultations with China and other Members to resolve their difference of views on TRM procedural matters.  By mid-year 2002, it was generally agreed that the first TRM review would be held at the last regular subsidiary body meetings of 2002.  However, no consensus was achieved regarding the timing for submission of required information China, questions from Members, and responses by China.  Nevertheless, as a voluntary gesture, Members began submitting written questions for the TRM review as early as August 2002.  The first TRM review occurred at the Council on TRIPS on September 17, 2002.  The following table shows the timing of events during the first TRM in 2002.

Timing of TRM-Related Events -- 2002

2002

Event

March

·         The US puts "Implementation of commitments by the People's Republic of China" on the agenda of the regular meeting of the Council for Trade in Services.

April

·         "Preparation in connection with paragraph 18 of the Protocol on the Accession of the People's Republic of China" put on the agenda of the regular meeting of the Committee on Safeguards.

·         EC raises timing issues in relation to the transitional review at the regular meeting of the Committee on Antidumping Practices.

May

·         "Preparation in connection with paragraph 18 of the Protocol on the Accession of the People's Republic of China" put on the agenda of the regular meetings of the Committee on Customs Valuation, Subsidies and Countervailing Measures, Import Licensing, and TRIMS.

June

·         "Preparation in connection with paragraph 18 of the Protocol on the Accession of the People's Republic of China" put on the agenda of the regular meetings of the Committee on Agriculture, Market Access, SPS Measures, Financial Services, and Council for Trade in Services.

August

·         Members begin to submit written questions to China in the context of the first TRM.

September

·         TRM Review held by:

qCouncil for TRIPS

qCommittee on Market Access

q         Committee on Import Licensing

q         Committee on Agriculture

October

·         TRM Review held by:

qCouncil for Trade in Services

qCommittee on TRIMS

qCommittee on Safeguards

qCommittee on Anti-Dumping Practices

q         Committee on Technical Barriers to Trade

q         Committee on Trade in Financial Services

q         Committee on Subsidies and Countervailing Measures

November

·         TRM Review held by:

qCommittee on Customs Valuation

qCommittee on SPS Measures

qCommittee on Rules of Origin

q         Committee on Balance-of-Payments

q         Council for Trade in Goods

December

·         TRM Review by the General Council.

 

 

 

 

 

(b)

Data supplied by China at beginning of review

 

Pursuant to Annex 1A of Paragraph 18 of the Protocol of Accession, China is required to submit certain information to the relevant WTO subsidiary bodies in advance of the transitional review.  As reviewed in Section B.1. above, the information required covers a wide range of subject areas pertaining to trade, and includes economic data, economic policy, and information on legislative efforts to ensure compliance with specific commitments.

During the first transitional review, China submitted all the information required under Annex 1A except for information on foreign exchange and payments which was supposed to be notified to the Balance-of-Payments Committee.[11]  A detailed list of China’s submissions is included in Appendix 1. 


Article 18 and Annex 1A do not specify the format that China should follow in preparing information submissions.  China therefore made the initial determination as to how substantial and detailed the information would be that it submitted.  Except for economic data (such as trade statistics, capital account data, current account data, tariff revenue, etc.) and a few areas which could be quantified (such as market access changes in service sectors), most of the information required consisted of a literal introduction of relevant trade regimes and policies, or a description of the status of implementation efforts by China on specific commitments.

Examples of information submissions by China are presented below.  The first deals with the pricing mechanism of China's state trading enterprises for export products:

 

II.     Economic Policies

4.     Pricing Policies

(b)     Pricing mechanism of China’s state trading enterprises for export products

 

The Pricing Law of the People’s Republic of China stipulates that state pricing and government guidance pricing only apply to products and services as published, regardless of the ownership of the enterprises.  Prices of products and services that are not subject to state pricing and government guidance pricing shall be determined by the market, and eventually by the enterprises themselves.  Pricing mechanism of state trading enterprises for exports is also determined by the enterprises with reference to the price of international market.  It is generally set by adding cost of distribution (including cost of storage and transportation, interest rate and inspection fees etc.) to the cost of domestic purchase.[12]

 

 

A second example details the efforts that China made to increase the use of international standards as the basis for its technical regulations:

 

 

IV.   Policies Affecting Trade in Goods

7.     Technical Barriers to Trade

(f)     progress report on increase of the use of international standards as the basis for technical regulations by ten per cent in five years

 

China committed to increase 10% of its technical regulations taking international standards as the basis.  In order to meet this commitment, China is now developing a nationwide programme and annual implementation plan.  A nationwide meeting was convened specially for promoting the alignment with international standards and advanced foreign standards.  The meeting was attended by more than 30 vice-minister level officials and addressed by the State Councilor Madame WU Yi.  To encourage the adoption of international standards, AQSIQ, jointly with other 6 ministries and commissions, published Opinions on Promoting Alignment with International Standards to actively encourage the adoption of international standards.  Harmonization of standards has become an important technical foundation for the development of national economy and safeguard for enhancing the overall level of product quality and the competitiveness in domestic and world market, for expanding foreign trade and for maintaining the sustainable, healthy and quick development of the Chinese economy.

 

The Chinese Government has taken standardization as one of the main strategies for scientific and technological development so as to ensure that international standards are scientifically and promptly adopted.  The specific requirements for use of international standards as the basis for technical regulations are:  (1) To timely revise the mandatory standards based on relevant international standards once the international standards have been revised, and adopt the newest edition of the international standards;  (2) If new mandatory standards or revision of the established ones are necessary, international standards should be used as the basis for both preparation and revision if appropriate;  (3) On average there will be an annual 2% increase use of international standards as the basis for technical regulations in five years so that the commitment of 10% increase in 5 years will be definitely met.[13]

 

 

 

In areas where no actions had been taken, in its submission, China simply reconfirmed its determination to fulfil the particular commitment.  The following is an example of this kind of response.

 

IV.   Policies Affecting Trade in Goods

8.     Trade-Related Investment Measures

b.      Amendments to ensure lifting of all measures applicable to motor vehicle producers restricting the categories, types or models of vehicles permitted for production (to be completely removed two years after accession)

 

The Chinese government shall completely lift the said measure in line with the commitment made with respect to the timeframe, so as to ensure that motor vehicle producers have right to choose categories, types or models of vehicles they will produce.[14]

 

 

 

At the TRM reviews conducted by a committee to which China submitted information under Annex 1A, China highlighted its efforts in preparing the submission, noted that it had paid special attention to the written questions from certain Members, and expressed its belief that the information it provided appropriately addressed the concerns raised by these Members.

In response to China's submissions, Members generally expressed their appreciation and commented that the information represented a good start to an overall understanding of the compliance efforts made by China.  Typically, Members raised few questions regarding the details in China's information submission.  This was due to the fact that, in most cases, Members received China's submission only a few days before the TRM review, and, hence, did not have sufficient time for an in-depth examination and analysis prior to the review.  Members such as the US and the EC, however, reserved their right to put forward further questions or requests for clarification to China.

Section 18.2 of the Protocol of Accession stipulates that China shall provide information specified in Annex 1A to relevant committees "in advance of the review."  However, that provision does not define "in advance of the review."  Annex 1B, titled "Issues to be addressed by the General Council in Accordance with Section 18.2 of China's Protocol of Accession," appears to set a timeframe for China's submission by providing that "China shall submit any information and the documentation relating to the review no later than 30 days prior to the date of the review."  But, this provision would appear to apply only to China's submission to the General Council, not to its submissions to the subsidiary bodies.  In this regard, however, it should be noted that China failed to observe the 30 day timeframe, as its submission to the General Council dated November 19, 2003 was only 21 days prior to the General Council's review on December 10, 2003.  

As for the information that China submitted to the other committees or councils, the information was received by the committees or councils, on average, 3 days in advance of the TRM review.  At the Council for Trade in Goods, the United States made the following comments:

The representative of the United States said that the information provided was precisely the type of information warranted under the TRM.  It would have been helpful to have had information further in advance of the meeting.  The US did not have all its experts present to review the Annex 1A submission from China which it had just received and it was difficult to respond to the points made in China's statement at this meeting, not having had the information in advance.[15]

 

 

On one occasion, at the Market Access Committee's review, Members raised specific concerns with respect to the information required under Annex 1A.  There, Australia noted with interest the information provided in sections (i), (iii) and (iv) concerning China's administration of tariff rate quotas, i.e., the volume of TRQs made available, the volume of requests for allocations denied, and the fill rates of tariff rate quotas by July 31, 2002.  Australia observed:

[W]ith the exception of wool, all agricultural product tariff quotas were oversubscribed and in most cases the volume of requests for allocation denied were several times the volume of tariff rate quota available.  By comparison, and notwithstanding that they cover the period to 31 July, the fill rates for some products were shown to be extremely low.  His delegation {i.e. the Australian} asked China for a general comment on why it considered the fill rates were generally so low given the heavy oversubscription of many of the tariff rate quotas.[16]

 

China responded with the following explanation:

It was the first year of China's accession and many applicants wanted to get more quotas and the quantity asked by the applicants was much more than the quantity China had committed to under its WTO commitments.  So that was why there was a discrepancy, and the low fill rate for certain products was because of the situation of demand and supply in the market.  So China could not control the fill rate, it could only guarantee the full allocation of the quotas.[17]

 

 

 

 

 

(c)

Willingness of China to respond to questions in writing

 

Annex 1A of the Protocol of Accession is titled "Information to be Provided by China in the Context of the Transitional Review Mechanism."  Under Section VII of Annex 1A, China is required to provide a "response to specific questions in the context of the transitional review mechanism received from the General Council or a subsidiary body."  In the first TRM, there was an intense debate over whether China should respond in written form to questions from other WTO Members in advance of the review.  Members such as the United States, the EC and Japan considered written responses as essential to a meaningful review and effective monitoring and argued that China should provide timely and written responses.  In response, China took the position that written answers were not required, and that to provide them would be going beyond the mandate of paragraph 18 of the Protocol of Accession, which does not specifically spell out the form that China's responses should take.  Generally, China's approach was to address Members' concerns and questions orally at the committee meetings.

The debate over written responses began at the Market Access Committee meeting on September 23, 2002.  At that review, Members expressed disappointment over China's inadequate oral responses to their questions and requested prompt written answers.  China argued in response that there was no legal obligation to provide answers in written form and the information it had submitted appropriately addressed the concerns raised by Members.  China pointed out that although at that meeting "Members had to finalize China's transitional review mechanism on market access, ... other channels for the exchange of information were open."[18]  In a gesture of goodwill, China proposed to convene an informal meeting to address outstanding issues outside of the TRM process.  In the end, however, China's proposal was withdrawn as Members insisted on pursuing formal opportunities to continue the discussion as part of the formal record of the TRM process.

A similar debate occurred in other committee reviews as Members continued to urge China to submit written responses in a timely manner in order to achieve a useful review.  In addition, Members pushed for procedures to allow an extended process of questions and answers.  Members complained that they did not have sufficient time to digest the information and oral responses provided by China at the committee meetings.  Such Members did not consider the review completed until there were opportunities to pose further questions in the context of the TRM.  At the Antidumping Practices Committee, China reiterated its position in a comprehensive manner with respect to the procedural issues dispute, and again restated its position at the Services Council, which is summarized as follows:

·        Paragraph 18 of the Protocol of China's Accession serves as the only legal basis governing the TRM exercise, and no one in the room could justify a request for written responses from that paragraph.  It is not the mandate of this Committee to interpret the paragraph.

 

·        The information provided prior to the meeting, at the meeting and the explanations provided, are sufficient for a meaningful review.  The statement made by the head of the Chinese delegation will be submitted to the Secretariat and Members can get copies for transparency purposes.

 

·        Members who have any follow-up questions might approach experts present at the review, and China would hold informal bilateral discussions with them. Informal bilateral contacts have nothing to do with the TRM, and China is not intending to substitute this for the multilateral exercise, but to supplement the multilateral exercise.

 

·        The questions could not be exhausted by one TRM.  A TRM is an 8-10 year programme, and China does not expect to graduate from an 8-10 year program in one year, so there will be many more opportunities, multilateral and bilateral.[19]

 

At the meetings of the Council for Trade in Goods held on November 22, 2002, and of the General Council on December 10, 2002, the EC, joined by Japan and the United States, called for more orderly procedures, such as a fixed timetable for the transmission of questions and replies, to be put in place to make the TRM more productive and efficient in the years ahead. The EC argued that the TRM should follow the common rules and practices in the WTO to ensure that questions and replies were exchanged in writing in advance of a committee's meeting.[20]  In response, China reiterated that the TRM had been successful in providing a useful and effective channel for information exchange and mutual understanding between China and other Members, but that China would not agree to any request for a practice beyond the provisions in the Protocol, such as a request for written replies to Members' questions.[21]

 

 

 

 

(d)

Nature of the reports provided

 

According to article 18.1 of the Protocol of Accession, "each subsidiary body shall report the results of [the TRM] review promptly to the relevant Council established by paragraph 5 of Article IV of the WTO Agreement, if applicable, which shall in turn report promptly to the General Council."  As to the nature and substance of the report, the Protocol provides no guidance.  During the first TRM, the subsidiary bodies developed a unified approach in preparing their reports.  They prepared factual reports, with references to the documents concerned and attached relevant portions of the minutes of the TRM meeting that related to the transitional review.  The minutes of the committee meetings reflect the discussions, statements, questions, and responses raised by the Members.

In the first TRM, the form of the committees' reports was not a topic of debate, except to the extent that some Members sought general clarifications.  At the Council for TRIPS, Japan emphasized that the report needed to actually reflect the review and provide necessary information for the General Council's to review in order to decide whether to make recommendations.  At the Committee on Market Access, Japan raised the following concern as to the nature of the report and the minutes of the meeting: 

She {i.e., Japan's representative} had understood the Chairman as stating that the minutes of his meeting would reflect the discussions, statements, and sentiments raised by delegations under this agenda item. Was her understanding correct that the report itself would not reflect the more detailed parts of the substantive discussions or the sentiments raised by the delegations such as the point that there may have been some differences of interpretation of the TRM exercise, and that instead, the report would be a very simple description of the factual exchanges.[22]

 

 

The Chairman responded that:

[I]n his own assessment, if the Committee were to try and make the report as comprehensive as possible, it ran the risk of trying to interpret what Members had said.  This meant that the Committee would have to come back to clear that report which would be a never ending process because consensus would not be possible on what was said by some delegations at this meeting.  That was the reality.  On the other hand, the minutes would reflect in a factual manner what had transpired at this meeting.  The report would outline that the agenda item was considered but for more substantive coverage of the proceedings the minutes would need to be referred to.[23]

 

 

Given the approach of the committees to the nature of their reports, it was not surprising that the final committee reports did not contain any recommendations as to how China could improve its compliance efforts.  A press report at the time reflected the low expectations for the TRM reports:

[T]he 16 WTO committees that are now working on various parts of the overall review might only be able to issue a report that consists of minutes of various public meetings, the official said.  He added that as of now, it appears unlikely that China would agree to a report that includes any finding that China has fallen short on implementation.

 

Each report from the 16 WTO committees must receive unanimous consent, meaning China could block the adoption of any report that it finds objectionable.[24]

 

 

Although paragraph 18 of the Protocol provides that the General Council may make recommendations, no recommendations were generated in the final WTO report by the General Council on the basis of the reports of the 16 subsidiary bodies.  Like the committees' reports, the General Council's report required unanimous consent.  To the extent that China found any language in the reports unacceptable, it could block adoption.  At the end of the first TRM, the committee reports were quietly adopted without controversy.

World Trade Organization members this week quietly and without fanfare adopted the first transitional review mechanism (TRM) report on China’s implementation of its WTO obligations, offering light and generally unspecific criticism of how China performed in the first year of its membership.

* * *

The final WTO report, as anticipated, consisted of the minutes of meetings from the 16 WTO subsidiary bodies that analyzed China’s compliance efforts over the year.  Absent from the final package was any recommendation that China improve its efforts in future TRMs, which are to go on for eight years with a final review scheduled in the tenth year.

 

Trade sources noted that China’s WTO accession package requires the TRM process, but says only that the General Council “may” make recommendations.  A WTO spokesman said there had been no visible push from WTO members to have the report make recommendations for how China could improve its implementation record, or to have some kind of cover statement for the report.

 

Several trade sources chalked this up to countries’ expectation that China would simply reject any recommendation or summary that criticized its performance on implementation in any way."[25]

 

 

 

 

 

(e)

Issues identified by WTO Members

 

In the context of the first transitional review, 13 WTO members submitted a total of 74 documents to the 16 WTO subsidiary bodies.  With a view to conducting an across-the-board examination of China's compliance efforts in light of the fundamental WTO principles of most-favored nation, national treatment, transparency, and consistency, the submissions of the 12 Members presented comments and raised questions regarding China's first year implementation of its WTO commitments.  (Appendix 3 contains a summary table of submissions of questions to China by other WTO Members and Appendix 5 contains a listing of questions and concerns raised by WTO Members in each committee).

The following table shows the number of submissions of questions by WTO Members to the relevant committees and councils in the second TRM.

 

Despite a few success stories noted and a general recognition of China's first-year efforts, Members expressed numerous concerns, with an emphasis on the following areas: (i) intellectual property rights protection; (ii) tariff rate quota administration; (iii) auto quota administration; (iv) tariffs; (v) VAT administration; (vi) subsidies; (vii) transparency; and (viii) services.  These areas are reviewed below.

i.          Intellectual property rights protection (IPR)

At the TRIPS Council, 7 WTO Members presented China with nearly 200 questions respecting the actions it had taken to protect and enforce IPR.  While applauding China's efforts to improve the IPR regime, Members strongly complained that China had made little genuine progress, as IPR violations were still rampant in China.  The following is a summary of urgent IPR problems noted by the Members.

Ø      The level of piracy and counterfeiting remains extremely and unacceptably high.  Damages are growing serious and export of infringing goods to third countries is beginning to have negative effects on international trade.

 

Ø      Regarding IPR enforcement:

·         in criminal procedures, China should strengthen criminal penalties and amend guidelines for criminal prosecution;

·         in administrative procedures, China should raise the upper limit of administrative penalties;

·         in judicial procedures, China should reconsider provisions regarding compensation for losses so that judicial recourse would become more attractive.

 

Ø      China should also strengthen cooperation among different enforcement authorities and eliminate local protectionism.

 

Ø      China should completely destroy seized infringing goods, in order to prevent repetition of counterfeit crimes, and should not charge a fee for destruction from the rights holders.

 

Ø      China Customs should be empowered to transfer serious cases they discover to prosecutors for criminal investigation and prosecution.  Both the high bonds and storage fees that are requested by the Chinese customs authorities are responsible for deterring many IP owners from recording their rights with Customs.  Such bonds should be lessened.

 

Ø      For the protection of well-known trademarks, foreign well-known trademarks are not given equal treatment with Chinese trademarks.  The Chinese Trademark Office, with the issuance of the new Trademark Law and the Implementing Regulations, should begin processing applications for foreign well-known trademarks.

 

Ø      For patent/trademark application, China should eliminate a requirement under its Patent Law and Trademark Law that foreign applicants carry out procedures to obtain patent/trademark rights in China through representative offices designated by the Chinese Government as those for foreign applicants. This provision is in violation of the national treatment principle under TRIPS.[26]

 

ii.         Tariff rate quota administration (TRQ)

China's administration of its tariff rate quotas was a high profile topic during the first TRM.  As highlighted in Members' written submission and oral presentations, TRQ administration in China fell far short of China's commitment to ensure that TRQs are administered:

on a transparent, predictable, uniform, fair and non-discriminatory basis using clearly specified timeframes, administrative procedures and requirements that would provide effective import opportunities; that would reflect consumer preferences and end-user demand; and that would not inhibit the filling of each TRQ.[27]

 

 

The following is a summary of Members' allegations of major violations of China's TRQ commitments as noted during the first TRM:

Ø      China reserves a portion of TRQs to entities that process commodities for re-export.  This sub-quota system is not based on consumer preferences and end-user demand but on the government's subjective and non-transparent assessment of demand for processing.

 

Ø      China has failed to provide a list of quota holders which is important for exporters to identify potential business partners and verify China's efforts to fill up quota shares.

 

Ø      China requires quota-holders to provide detailed, time-sensitive commercial information, such as price and origin, prior to obtaining an import license.  These requirements unduly restrict end-users' ability to adjust to market conditions and to operate based on commercial considerations.

 

Ø      Procedures in China for importers to apply for TRQs and receive TRQ certificates are cumbersome.  The end users need to apply to SDPC twice for a single allocation - once for the initial allocation and a second time for SDPC's approval to use that allocation on the condition that the importer has a signed contract.  Quota-holders are then required to apply for and obtain, at both the local and national level, an additional import license from AQSIQ before the product can be imported.

 

Ø      China committed to TRQ allocations that would be made in commercially-viable shipping quantities.  Reports from traders, however, indicate that some allocations are in commercially-nonviable amounts.

 

Ø      The 2002 TRQ allocation was delayed until May, which caused significant disruption and uncertainty to trade. [28]

 

iii.        Auto quota administration

As with the agricultural TRQs, during the TRM, Members complained of the lack of transparency in China's auto quota allocation.  They said that China failed to provide information about the importers that were granted allocations or about the breakdown between automobiles, auto kits requiring assembly in China, and parts (e.g., engines).  The discrepancy between the quota actually allocated and the quota officially announced was a subject of debate.  China had stated at the Market Access TRM that the entire $7.9 billion quota would be allocated in 2002, and that, by August 2002, $4.8 billion of the quota had been filled.  However, Japan estimated that from April 2002, when the quota opened, to July 2002, only $1.3 billion in auto exports had entered China.[29]

iv.        Tariffs

With respect to tariffs, at the Market Access TRM, Members complained that China had not adhered to the its bound ad valorem rates for some products in China's tariff schedule.  In particular, Japan challenged China to justify the practice of assessing duties on photographic film on a square meter basis, which, Japan claimed, boosted the actual tariff duties above the bound rates.[30]  In addition, Canada asked China to supply a timeline for replacing its variable duty for newsprint with an ad valorem rate.[31]

v.         VAT administration

The TRM process raised a host of issues concerning China's VAT regime.  The focus of Members' allegations was that China administered the VAT tax in a discriminatory manner, violating the requirement in Paragraph 2 of Article III of GATT 1994 that a WTO Member cannot impose taxes on imported products that are greater than those imposed on domestic products.  The following VAT problems were identified at the TRM:

Ø      China exempts all phosphate fertilizers except DAP from China's VAT, because DAP, according to the US, a product produced in the US, competes with similar phosphate fertilizers produced in China, such as MAP.[32]

 

Ø      China exempts from the VAT all nitrogen fertilizers except urea, while allowing a partial VAT rebate for domestic producers of urea.[33]

 

Ø      China charges domestically produced wheat and corn a maximum of 3% VAT, whereas imports of both commodities are subject to 13% VAT.[34]

 

Ø      As part of the support program for the integrated circuit industry, China is rebating 40 percent of a value-added tax to companies that export a certain percentage of their production.  China also appears to reduce the value added tax charged to IC producers.[35]

 

vi.        Subsidies

 

During the TRM, the United States stated that China's continued export subsidies for corn raised a serious concern about whether China had complied with its WTO commitments to eliminate export subsidies on agricultural products.  As noted by the US, according to some market reports, China had been selling corn in the world market at prices that were US$ 20-30 per ton less than the world price.[36]

vii.       Transparency

At many committees during the TRM, Members complained about China's poor record of providing opportunities for public comment before new or amended laws and regulations became effective.  China agreed as part of its accession commitments to provide a reasonable period for comment to the appropriate authorities before such measures were implemented.[37]  However, Members alleged that China implemented the majority of its new laws and regulations without receiving comments by WTO Members and allowed only a very short comment period for a limited portion of new laws.[38]

viii.      Services

Numerous concerns were raised at the first TRM with regards to China's implementation of its commitments in opening up various service sectors.  The following summaries review a number of service sectors concerning which Members made comments.

Banking

The Chinese banking sector is generally viewed as a sector that could not survive open foreign competition.  USTR noted in its 2002 report to Congress on China's WTO compliance that, since accession, China has decided to exercise extreme caution in opening up the banking sector.

At the TRM, Members charged that Chinese regulations in the banking sector issued shortly after accession undermined the market access opening for foreign banks.  In particular, Members strongly opposed China's capital requirements for foreign banks' headquarters and branches on the basis that they far exceeded the international norms.  According to China's Regulations on the Administration of Foreign Financial Institutions, and the implementing rules, capital requirements per branch range from RMB 100 million to RMB 600 million depending on business scope (the latter amount applying to entities carrying out the full range of banking services, with corporations and individuals, in RMB and foreign currency).[39] 

Members were also concerned about restrictive provisions in the pending Regulations on Interbank Borrowing.  The draft of the regulations, issued in November 2002, stipulates that no more than 40 percent of local currency liabilities of foreign banks can be financed by borrowing from Chinese banks.  Members argued that this cap could severely hamper the ability of foreign banks to provide loans in Chinese currency, especially those banks that are not planning to establish large RMB deposit bases. [40]

Insurance

Prior to China's entry into the WTO, access to China's insurance market was a thorny issue for foreign insurance service providers.  A common complaint was that qualified insurance companies were unable to acquire a license.  Upon China's accession, foreign insurers were poised to capitalize on China's market access commitments, but many have continued to complain about the restrictions in China's regulatory mechanism for the insurance sector.  During the TRM at the Committee on Financial Services, the United States, joined by Japan, the EC and Canada, raised the following concerns:

Ø      The China Insurance Regulatory Commission (CIRC) takes the position that non-life firms already established in China, wishing to open branches, cannot do so unless they first establish as a subsidiary.  China's insistence that subsidiaries be first established goes against the commitment to allow non-life insurance firms to establish as branches and to allow sub-branching in accordance with the lifting of the geographic restrictions.

 

Ø      China is requiring a multi-step application process for the establishment of insurance companies, which goes against China's commitment not to impose licensing requirements that act as a barrier to market access.  China's Insurance Regulatory Commission still asks foreign companies to apply for a license, a step which China should remove from the process.

 

Ø      The capital requirement for foreign insurance companies is unreasonably high, given the size and scope of China's insurance market. [41]

 

Auto Financing

China committed to allow foreign companies to provide auto financing in China upon accession, that is, starting December 11, 2002.  China, however, has been lagging in issuing the final regulations on auto financing.  At the TRM in the Committee on Financial Services, the United States and Japan pushed China for a timeline on finalizing the rules, which they viewed as critical to ensuring de facto market access for foreign auto suppliers in China.

Express Courier

After WTO accession, China issued two notices concerning express delivery services.  The first, Notice No. 629, was issued on December 24, 2001 by MII, MOFTEC and SPO.  The second, Notice No. 64, was  issued in February 2002 by the SPO.  Members, such as the United States, alleged that these notices placed restrictions on the operation of foreign express delivery companies in China and ran counter to China's commitment not to roll back on the level of market access for services that existed prior to accession.[42]  

On September 5, 2002, MII, MOFTEC and SPO issued a new notice, No. 472, which was similarly criticized at the Service Council TRM.  The new notice (i.e., Supplemental Notice on the Engagement in Postal and Delivery Services for Cross-border Letters and Material of Letter in Nature) requires that foreign-invested express couriers already licensed by MOFTEC now obtain entrustment certificates from the postal authorities.  The US and the EC both challenged China on the rationale for the entrustment requirement in light of China's commitment not to reduce market access by imposing conditions on ownership, operation or scope of activities that are more restrictive than those that were in place before accession.[43]

Legal Services

Two legislative enactments govern the opening up of the legal services sector in China.  They are the Regulations on the Management of Representative Offices of Foreign Law Firms (promulgated December 27, 2001) and the implementing rules (issued July 4, 2002).  These two laws were subject to a litany of criticism during the TRM with respect to China's accession commitments.  Members, such as the US and the EC, charged that the new regulations imposed limitations on the activities of representative offices which appeared to be more restrictive than provided for in China's services schedule.  Their complaints included the following points:

Ø      Article 4 of the Regulations gives the Ministry of Justice permission to determine whether there is a need for a representative office based on demand and other factors.  This provision violates prohibitions in GATS against imposing economic needs tests in a service sector in which a Member has made market access commitments.

 

Ø      Article 9 of the Regulations allows the relevant authorities a total of nine months to consider an application to establish a representative office in China. This period is excessively long, given the requirement in the service schedule that "Decisions would be taken promptly on all applications."

 

Ø      Article 18 of the Regulations prohibits a representative from assuming representation in two or more representative offices, which increases the burdens on foreign law firms.

 

Ø      Article 10 of the Implementing Rules requires that the most recently established representative office of a foreign law firm has practiced for three years before the firm may apply to open another representative office.  This provision is not consistent with China's commitment to remove quantitative limitations on foreign law firms within one year after accession.

 

Ø      Article 33 of the Implementing Rules potentially restricts the ability of foreign law firms to advise their clients on the impact of the Chinese legal environment, further limiting the already limited business scope.  For the definition of information on the impact of the Chinese legal environment, they give a very restrictive interpretation by which specific opinions or determinations on the application of PRC law may not be provided.[44]

 

 

 

 

3.

Experience in the second review

 

 

 

 

(a)

Procedural changes if any

 

When the first TRM was concluded, some Members expressed the hope that efforts would be made to improve the process for the second TRM, especially with respect to the submission of questions and responses.  However, no Member put forward any specific plan to develop new procedures for a more efficient and smooth TRM process.  The likely reason that no such proposals were put forward is that, because consensus is required among WTO Members to bring any changes to the existing process, China, likely, would have opposed any steps to tighten the process, as the following press report illustrates:

More specifically, informed trade sources this week said that China has made it very clear that it would oppose any move to tighten the TRM process next year or any time in the future.  In addition, these sources said, China has a clear preference for easing the TRM process if possible, which could be done by folding it into the regular Trade Policy Review Mechanism (TPRM).  This process is a largely formalistic exercise in which the WTO secretariat prepares a report on a country’s trade system and the country then provides its own presentation of its trade rules to WTO members.[45]

 

 

As anticipated, the second TRM proceeded in a manner very much like the first, without any procedural changes.  The review at each committee was conducted at, and limited to, a regular committee meeting, where China explained the efforts it had made to honor its obligations and provided oral responses to questions either submitted in advance of the review by other Members or raised by Members at the meeting.  Just as in the first review, China also offered to hold informal consultations with Members to address any further concerns and unresolved issues.  The committee reports detailed the interaction among Members at the meeting but issued no recommendations on China's compliance efforts.

As in the first TRM, Members expressed the view that the TRM process was one of great importance.  Taking into account the experience of the first TRM, Members such as the EC made special efforts to ensure a more effective and meaningful review.  As noted by the EC representative at the Council for Trade in Goods:

The EC had decided this year to 1) as last year, transmit the questions well in advance of each meeting (typically six weeks); 2) focus on a limited number of priorities, and 3) raise only issues discussed already a number of times in the WTO committees or in bilateral meetings and therefore well-known to the Chinese side.  The objective of the EC was to have in each subsidiary body under the Council for Trade in Goods a meaningful discussion and detailed replies from the Chinese side to this limited number of questions.[46]

 

Compared to the first TRM, there was less debate over procedural issues at the second TRM.  Recognizing the limitations in the existing TRM framework, and the unlikely prospect of procedural changes, Members devoted more time and energy to the discussion of substantive implementation issues.  Nevertheless, the topic of written responses was again raised in a few committees (e.g., AD, SCM, LIC).  The United States raised the point that written questions and answers were the most practical and appropriate form to accurately transmit technical information.[47]  China, in response, reiterated its position that there was no legal obligation to provide written answers, and that the information it submitted in advance of the review and the oral responses it gave at the meetings were sufficient for a meaningful review.[48]  

It is noteworthy that a new controversy arose at the Committee on Import Licensing concerning whether responses by China were required at all.

A second representative of China said that, in his view, according to Section 18 of the Protocol of accession under which the transitional review was conducted, China had no obligation to answer all the specific questions.  He actually wondered if this question and answer process had to be a part of this transitional exercise at all and, therefore, wished that this transitional review be conducted strictly in accordance with section 18 of the Protocol rather than, as some Members requested, in a way that went beyond Section 18.  He hoped that the Chairperson as well as Members would abide by this understanding.

* * *

Of course, if Section 18 clearly specified that questions and answers had to be an integral part of this exercise, then China would do it, but since Section 18 did not specifically say that, China then had no obligation to take part in this so-called questions and answers part of the exercise.[49]

 

 

The United States responded as follows:

The representative of the United States said that this was disturbing for him, because, at least in his recollection, this was the first time that this issue had arisen.  As he had said before, there had been a controversy in the past about written responses but he did not recall there being a controversy with respect to providing oral responses; in fact, he thought that in 2002 China had done a very good job of trying to respond to all of the questions that were put to it as part of the transitional review.  It was clear that Section 18 of China's Protocol said that questions might be posed to China.  It did not specifically say that China had to answer those questions, but there simply could be no other interpretation of the clear intention of Section 18.  What sort of exercise would Members be engaged in if questions were allowed to be posed, but China was free to simply ignore them?  * * *  He wished to state that he did not want to make this a contentious exercise, but he felt that, under Section 18 of the Protocol, Members had a right to receive responses to the questions that Section 18 said they could pose.[50]

 

 

The debate on this new controversy was short-lived, however, as Members focused their attention on more specific questions dealing with implementation issues.

 

 

 

 

(b)

Data supplied by China at beginning of review

 

As with the first TRM, China submitted a large amount of information, as required under Annex 1A of Paragraph 18 of the Protocol of Accession, to various subsidiary bodies in advance of the second TRM.  (A list of the Chinese submissions in the second TRM is attached in Appendix 2.)  The submissions do not differ from those during the first review in terms of timing, format, and reactions from Member countries.  With respect to substance, on some items China provided no new information because policies or regimes had already been put in place to fulfil certain commitments during the first year, while, on other items, China described its ongoing efforts as some commitments phased in during the second year and others would be phasing in soon. 

Viewed quantitatively, a comparison of the information submitted in the first TRM with the information submitted in the second TRM sheds light on the progress, if any, China has made in meeting certain WTO obligations, e.g., market access expansion.  The following series of tables summarize the information submitted in both reviews on the following issues: handling of cases of non-uniform application of laws and regulations, tariff rate quota administration, method of customs valuation, state of play in the licensing application in service sectors, and intellectual property rights enforcement.

III.    FRAMEWORK FOR MAKING AND ENFORCING POLICIES

 

1.   Structure and Powers of the Government/Authority of Sub-Central Governments/Uniform Administration

 

(b)  establishment and operation (upon accession) of the mechanism pursuant to Section 2(A), paragraph 4 of the Protocol under which individuals and enterprises can bring cases of non-uniform application of the trade regime to the attention of national authorities.

 

Time Period

Cases of non-uniform application of laws, regulations, measures, etc.

Dec 2001-Oct 2002

33 cases brought; 9 resolved; 24 being processed, of which 1 is related to trade

Nov 2002-Aug 2003

35 cases brought, among which 4 are relevant to trade and are under consideration

Sources:    Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Sections I and III of Annex 1A of the Protocol, WT/GC/68 (25 November 2002); Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Sections 1A of the Protocol, WT/GC/75 (5 December 2003).

 

IV.    POLICIES AFFECTING TRADE IN GOODS

 

1.   Tariff Rate Quotas

 

(a)     Administration of TRQs on a transparent, predictable, uniform, fair and non-discriminatory basis using clearly specified timeframes, administrative procedures and requirements and evidence of a consistent national allocation (and reallocation) policy

 

(iv)    fill rates for the quota or TRQ  (in %).

 

Product

2002
(by July 31)

2003
(by Aug 31)

Product

2002
(by July 31)

2003
(by Aug 31)

Wheat

5.9

2.4

Cotton

7.6

72.8

Maize

0.1

0

Wool

37

36.6

Rice

3.3

4.1

Wool Top

30

24.5

Soybean oil

3.4

32.3

Urea

51.1

7.47

Rapeseed oil

2.2

6

NPK

23.5

50.7

Palm oil

34

60.8

DAP

77.2

33.34

Sugar

40

30.1

 

 

 

Sources:    China's Transitional Review Mechanism - Information provided by China in accordance with Annex 1A of the Protocol on the Accession of the People's Republic of China, G/MA/W/39 (19 September 2002); Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Information Required by Annex 1 of the Protocol, G/MA/W/52 (16 October 2002).

 

IV.    POLICIES AFFECTING TRADE IN GOODS

 

9.   State Trading Entities

 

(a)     Progressive abolishment of state trading in respect of silk measures, increasing and extending trading rights, granting the right to trade to all individuals no later than 1 January 2005.

 

Time Period

Number of enterprises engaged in export trade of silk

Dec 2001 - Nov 2002

Increased from 43 to 99

Dec 2001 - Nov 2003

Increased from 43 to 145

Sources:    Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Annex 1A, G/C/W/438 (20 November 2002); Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Annex 1A, G/C/W/474 (24 November 2003).

 

IV.    POLICIES AFFECTING TRADE IN GOODS

 

4.   Customs Valuation

 

(a)     the use of valuation methods, other than the stated transaction value.

 

Time Period

Rate of applying transaction value in customs value determinations

Jan 2002 - Sept 2002

94.89%

Jan 2003 - July 2003

97.56%

Sources:    Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Annex 1A, G/VAL/111 (11 October 2002); Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China - Information Required in Annex 1A, G/VAL/W/125 (24 September 2003).

 

V.     POLICIES AFFECTING TRADE IN SERVICES

 

(e)  foreign and domestic suppliers in sectors where specific commitments have been undertaken indicating the state of play of licensing applications on sector and sub-sector levels (accepted, pending, rejected).

 

 

Services sector or sub-sector

State of play of licensing applications of foreign services suppliers1

Approved

Pending

Rejected

20022

20033

20022

20033

20022

20033

 

II. SPECIFIC COMMITMENTS

 

 

 

 

 

 

2

1. BUSINESS SERVICES

A. Professional Services

a. Legal Services (CPC861, excluding Chinese law practices)

23

17

5

0

0

0

3

b. Accounting, auditing and bookkeeping services (CPC 862)

c. Taxation services (CPC 8630)

17

9

1

4

0

0

4

d. Architectural services (CPC 8671)

e. Engineering services (CPC 8672)

f. Integrated engineering services (CPC 8673)

g. Urban planning services (CPC 8674)

1

1

3

3

0

0

5

h. Medical and dental services (CPC 9312)

46

14

4

6

0

0

6

B. Computer and Related Services

n.a.4

n.a.

n.a.

n.a.

n.a.

n.a.

7

D. Real Estate Services

0

n.a.

0

n.a.

0

n.a.

8

F. Other Business Services

a. Advertising Services (CPC 871)

26

10

0

0

0

0

9

c. Management Consulting services (CPC865)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

10

e. Technical testing and analysis services (CPC 8676) and freight inspection covered by CPC 749, excluding statutory inspection services for freight inspection services

8

0

1

0

0

0

11

f.  Services incidental to agriculture, forestry, hunting and fishing (CPC 881 and 882)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

12

m. Related scientific technical consulting services (CPC 8675)

-  Onshore oil-field services

1

1

0

0

0

0

13

-  Offshore oil-field services, Geological, geophysical and other scientific prospecting services (CPC 86751)

     Sub-surface surveying service (CPC 86752)

7

1

2

1

0

0

14

p. Photographic services (CPC 875)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

15

q. Packaging services (CPC 876)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

16

s. Convention services (CPC 87909)

0

0

0

0

0

0

17

t. Translation and interpretation services (CPC 87905)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

18

- Maintenance and repair services (CPC63, 6112 and 6122)

- Maintenance and repair services of office machinery and equipment including computers (CPC 845 and 886)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

19

- Rental and leasing services (CPC 831, 832 excluding CPC 83202)

0

0

0

0

0

0

20

2. COMMUNICATION SERVICES

B. Courier Services (CPC 75121,except for those currently specifically reserved to Chinese postal authorities by law)

35

16

6

10

0

0

21

C. Telecommunication Services

8

1

0

2

0

0

22

D. Audiovisual Services

- Video, including entertainment software and (CPC 83202), distribution services

- Sound recording distribution services

1

1

2

2

0

0

23

-  Cinema Theatre Services

4

2

0

1

0

0

24

3. Construction and Related Engineering services

(CPC 511, 512, 513, 514, 515, 516, 517, 518)

1645

112

0

0

0

0

25

4. Distribution Services

A. Commission Agents’ Services (excluding salt, tobacco)

B. Wholesale Trade Services (excluding salt, tobacco)

C. Retailing Services (excluding tobacco)

53

9

9

9

0

0

26

5. EDUCATIONAL SERVICES

50

36

2

0

0

0

27

6. ENVIRONMENTAL SERVICES

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

28

7. FINANCIAL SERVICES

A. Insurance services

9

3

n.a.

23

n.a.

0

29

B. Banking Services

58

7

16

34

18

0

30

- Motor vehicle financing by non-bank financial institutions

0

0

0

0

0

0

31

- Securities

10

0

4

4

1

0

32

9. TOURISM AND TRAVEL RELATED SERVICES

A. Hotels

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

33

B. Travel Agency and Tour Operator (CPC 7471)

2

2

9

0

0

0

34

11.TRANSPORT SERVICES

A. Maritime Transport Services

- International transport (CPC 7211 and 7212 less cabotage transport services)

H. Auxiliary Services

a. Maritime cargo-handling services (CPC 741)

d. Container station and depot services

e. Maritime agency services

B. Internal Waterways Transport

b. Freight transport (CPC 7222)

n.a.

0

n.a.

0

n.a.

0

35

C. Air Transport Services

d. Aircraft repair and maintenance services (CPC 8868)

351

1

10

0

9

0

36

- Computer Reservation System services

1

0

0

1

0

0

37

E. Rail Transport Services

- Freight transportation by rail (CPC 7112)

0

0

0

0

0

0

38

F. Road Transport Services

- Freight transportation by road in trucks or cars (CPC 7123)

56

30

4

15

0

0

39

H. Services Auxiliary to all Modes of Transport

- Storage and warehousing services (CPC 742)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

40

- Freight forwarding agency services (CPC 748 and 749 excluding freight inspection)

35

16

6

10

0

0

Sources:     Communication from the People's Republic of China - Notification under Section 18 of China's Protocol of Accession to the Council for Trade in Services, S/C/W/218 (22 October 2002); Communication from the People's Republic of China - Transitional Review Mechanism under Section 18 of the Protocol on the Accession of the People's Republic of China - Information required by Annex 1A, S/C/W/234 (1 December 2003).

Notes:    1.     This table gives the state of play of applications of foreign services suppliers from the date of China’s accession to the WTO until 31 July 2003.

2.     The "2002" column covers the period from accession to July 31, 2002.

3.     The "2003" column covers the period from August 1, 2002 to July 31, 2003.

4.     n.a. = not available, due to lack of efficient statistics collection channel.

5.     This particular number is the total approvals granted for foreign services suppliers in this sector, instead of since China’s WTO accession.

 

 

 

VI.    TRADE-RELATED INTELLECTUAL PROPERTY REGIME

 

(b)  enhance IPR enforcement efforts through the application of more effective administrative sanctions as described in the Report.

 

Topics

2001

2002

Trademark law enforcement

·         Dealt with 41,163 cases in total, among which 22,813 cases were trademark infringements and 18,350 cases were in relation to other violations

·         Confiscated 250 million illegal trademark signs and 14,004 moulds, blocks and other tools directly used for infringing production

·         Destroyed 2227.74 tons of infringing products; imposed fines totaling RMB 210 million

·         Transferred 86 cases to criminal procedures, involving 88 people

·         Dealt with 39,105 cases of all kinds

·         Took over and removed 153 million illegal marks; captured 14,882 pcs of tools, such as mould and printing block

·         Destroyed 4,183.64 tons of counterfeit goods; imposed fines amounting to RMB 214 million

·         Transferred 59 cases to judicial authorities to investigate criminal liabilities, involving 78 people

·         In the case of protection of undisclosed information, investigated and dealt with 87 cases concerning infringing of trade secrets (of which the total value amounted to RMB 3,287,700), confiscated RMB 27,200 and imposed fines totaling RMB 1,881,800

Copyright law enforcement

·         Received 4,416 cases in total with 4,306 cases concluded; 3,607 cases concluded with imposition of a fine upon the infringer and 633 cases concluded with mediation

·         Transferred 66 cases to criminal procedures

·         Accepted 6,107 cases, among which 95.3% closed, 5,350 cases leading to penalties, 721 cases settled through intermediation

·         Transferred 136 cases to judicial proceedings

·         Took over more than 67,900,000 pcs of pirated products, including 20,020,000 volumes of books, 1,350,000 periodicals, 7,330,000 discs of electronic publication, 5,960,000 discs of software and other pirated products 6,150,000 pcs

Law enforcement

at border

·         Investigated and dealt with 330 cases involving infringements with the total value amounting to RMB 134,900,000; 297 cases involving export and import goods bearing counterfeit trademarks

·         Investigated and dealt with 569 cases involving infringement the total value of which amounted to RMB 95,390,000

·         The General Administration of Customs verified, approved and recorded 844 items of IPR protection at Customs

 

Sources:     Transitional Review Mechanism of China - Information Required in Annex 1A, IP/C/W/382 (16 September 2002); Transitional Review Mechanism of China, IP/C/W/415 (18 November 2003).

 

 

 

 

(c)

Issues identified by WTO Members

 

In the context of the second TRM, 7 Members submitted a total of 44 documents posing questions to China respecting implementation of its WTO commitments in the second year of WTO membership.  This was a notable decline in the number of submissions of questions from the first TRM (where there were 74 submissions from 13 Members).  Many first-year implementation issues were again subjects of serious concerns at the second TRM.  Following the first TRM, while progress was made in some areas, such as TRQ administration and capitalization requirements in some service sectors, there was no positive action by China in such areas as the auto quota, subsidies, and VAT administration.  In addition, new concerns arose as Year-2 commitments phased in, with trading rights topping the list.  (A summary table of submissions of questions to China by other WTO Members in the second TRM is contained in Appendix 4; Appendix 6 contains a listing of questions and concerns raised by WTO Members in each committee at the second TRM).

The following table shows the number of submissions of questions by WTO Members to the relevant committees and councils in the second TRM.

The following is a summary of major concerns that were highlighted at the second TRM with respect to the following areas: (i) trading rights; (ii) auto quotas and auto policy; (iii) tariff rate quota administration; (iv) intellectual property rights protection; (v) subsidies; (vi) VAT administration; (vii) China Compulsory Certification (CCC) system; and (viii) services.

i.          Trading rights

At the Committee on Market Access, Import Licensing, and the Goods Council, the US, EC and Japan voiced their concerns over China's implementation of its commitment to liberalize trading rights.  These members alleged that China had fallen behind with regard to its trading rights commitments insofar as they related to foreign-invested enterprises.  The major concerns and questions raised included the following:

Ø      Under the Provisional Rules on the Establishment of Sino-Foreign Foreign Trade Companies adopted by China in January 2003, China requires prior experience for both the Chinese and foreign joint venture partners and imposes a minimum capital requirement, which go against China's commitment under paragraph 83(a) of the Working Party Report.[51]

 

Ø      Do the Provisional Rules apply only to trading joint ventures, or all joint ventures?  Can joint ventures which were already established in China before the Provisional Rules came into force obtain trading rights under the same conditions as joint ventures established after the promulgation?[52]

 

Ø      What is the status of the revision to the Foreign Trade Law of China to reflect China’s commitments on trading rights?[53]

 

Ø      What is China's schedule to implement its commitment to grant trading rights for joint venture enterprises with majority share by December 11, 2003?  What is China’s schedule to implement the obligation to make trading rights available automatically to all enterprises in China by December 11, 2004?[54]

 

ii.         Auto quotas and auto policy

At the Committee on Import Licensing, Market Access, TRIMS, and the Services Council, Members submitted a wide range of questions with respect to China's auto quota, auto financing,[55] and the planned new automobile industrial policy regarding which China had circulated a draft for public comment in April 2003.

On auto quota:

Ø      The quota quantities allocated is much smaller than quantities officially announced.  According to Japan, only $3.85 billion of a $7.94 billion auto quota from March 2002 to April 2003 had been filled, and based on imports in the first quarter of 2003, it appeared that only $4.84 billion of a $9.125 billion quota for 2003 would be filled.

 

Ø      It is reported that China controls the number of import licenses to be granted by category.  Especially, the number of import licenses granted to cars of 2,000 cc or less displacement in the sedan category is small.

 

Ø      What is the status of the implementation in 2003 of the provision that the number of quota holders not having imported their full allocation would receive a proportional reduction in their quota allocation in the subsequent year unless the quantity is returned for reallocation by September 1?[56]

 

On auto policy:

 

Ø      What is the status on the planned new automobile industrial policy and its WTO compatibility?[57]

 

Ø      What is the justification for the provision in the draft policy that discourages the importation of auto parts, and restricts imports of CKDs?[58]

 

Ø      What is the justification for the provision  on automobile dealerships in the draft policy that would require separate distribution networks for imported and domestic automobiles?[59]

 

On other issues in the auto sector:

 

Ø      What are the legal steps China has taken, or plans to take to completely remove all restrictions on the categories, types or models of motor vehicles permitted for production by December 11, 2003?

 

Ø      What are the legal steps China has taken to raise the limit within which investments in motor vehicle manufacturing could be approved at the provincial level, which were scheduled to take place starting December 11, 2002?[60]

 

iii.        TRQ administration

China's TRQ administration was an issue of serious concern to Members during the first TRM.  The major complaints with China's TRQ administration may be summarized as follows:

Ø      China maintains a sub-quota system for processing trade;

Ø      China maintains cumbersome procedures for quota applicants;

Ø      China fails to notify foreign exporters of the names of quota holders;

Ø      China fails to allocate quotas in commercially viable shipping quantities.

 

After the first TRM, Members such as the US pushed hard for changes in China's TRQ regime through various channels.  Due to China's continued failure to acknowledge compliance problems in its TRQ administration, the US considered filing a WTO dispute settlement case against China (which would have been the first such case against China).[61]  Finally, China published for comment draft revisions to its Interim Rules on Agricultural Tariff-Rate Quota Administration on July 31, 2003.  At the Committee on Agriculture, the US noted that the draft Rules reflected several improvements from the prior measures: for example, the draft Rules eliminated the separate tariff quota for processing trade (i.e., imports of goods that must be processed and re-exported).[62]  However, the US still found China's TRQ regime unsatisfactory in a number of areas, such as: 

Ø      The draft Rules still provide for restrictions relating to processing trade and, in particular, application of out-of-quota tariffs and other penalties when a processing trade enterprise sells agricultural goods without approval in the domestic market that are imported pursuant to a tariff quota allocation.

 

Ø      China's TRQ administration still lacks transparency in terms of the information regarding tariff quota holders.[63]

 

iv.        Intellectual property rights protection (IPR)

As in the first TRM, Members raised numerous concerns in the second TRM at the Council for TRIPS regarding the protection of intellectual property rights in China.  The EC stated in its submission that, “in the field of enforcement of IPR, the situation has not substantially improved in comparison with last year” and “China’s share of the world’s trade of counterfeit and pirated goods continues to increase annually.”[64]  The following is a summary of major concerns raised and questions posed by Members to China:

Ø      It is hoped that the protection of well-known trademarks in China would be strengthened without discrimination on the basis of nationality and that approval procedures should be simplified.  What is the number of domestic and foreign well-known trademarks recognized to date?[65]

 

Ø      The problem of delays in granting patents has not yet been resolved, particularly in the area of advanced technology such as liquid-screen displays, PCs, and IC cards.  With such delays, license agreements could not be concluded for investment in China and it is impossible to obtain compensation for damages caused by counterfeit goods.  What is the current status of patent pendency at the State Intellectual Property Office with respect to both foreign and domestic patent applications?[66]

 

Ø      Localism is a major obstacle to IPR protection in China.  What steps have been taken to eliminate localism that encourages a soft approach to the manufacture of counterfeit or pirated goods by local firms?[67] 

 

Ø      In addition, local authorities must enhance their transparency in terms of the provision of local rules or regulations regarding IPR as well as any local enforcement decisions, which may also help facilitate interagency cooperation, cooperation with national authorities, and closer work with rights holders.  What are the national laws that mandate greater transparency by local authorities in these areas?[68]

 

Ø      Counterfeit and pirated goods are still being exported from China.  What border enforcement efforts have been adopted by China Customs and what is the status of operation of regulating such exports?[69]

 

Ø      Given the actual degree of IPR infringement in China, the number of cases that lead to criminal prosecutions is extremely small.  China must pursue criminal prosecutions more aggressively and apply more deterrent penalties.  The present standard for prosecuting criminal cases, which includes a threshold of a certain level of sale proceeds from counterfeit goods, should be changed.[70]

 

v.         Subsidies

At the Committee on Subsidies and Countervailing Measures, the United States, the EC, and Japan expressed concerns about various issues including China's failure to notify its subsidy programs, export subsidies, and price control (in particular, vis-à-vis state owned enterprises).  Major concerns included the following:

Ø      China has not made a subsidy notification as required by Article 25.1 of the SCM Agreement since joining the WTO nearly two years ago.[71]

 

Ø      China stated at the first TRM that the program of subsidies provided to certain state-owned enterprises running at a loss had been eliminated in 2001.  However, a recent Chinese press report suggests that China is currently working to eliminate the program, indicating that the program is still in existence.[72]

 

Ø      As indicated from the website of "Shanghai Foreign Investment Center," China grants preferential policies to export oriented enterprises.  One of the benefits is the preferential supply of water, electricity, transport and telecommunication at the same price as state owned companies, which indicates that China maintains different pricing for energy use depending on whether the company is state-owned.[73]

 

In addition, at the Committee on Agriculture, the United States once again voiced its concern over China's continued export subsidies on corn.[74]

vi.         VAT

At the TRM in the Market Access Committee, the US restated its concerns regarding China's discriminatory application of the VAT tax on particular products, as that issue remained unresolved from the first TRM.  These concerns were:

Ø      China maintains a differential treatment on the VAT applied to semiconductors.

 

Ø      China exempts all phosphate fertilizers except DAP from VAT, which is produced in the US and competes with similar domestic Chinese fertilizers.[75]

 

vii.        China Compulsory Certification System (CCC)

At the TRM held by the Committee on Technical Barriers to Trade, some Members, including the EC, raised concerns over a new compulsory product certification system in China.  The new system, known as the China Compulsory Certification (CCC) system, came into effect on August 1, 2003, when it replaced two former compulsory certification systems for domestic and imported products, respectively.[76]  Members expressed the following concerns regarding China's implementation of the CCC system:

Ø      The list of products subject to mandatory certification includes spare parts and components, unless they are incorporated in whole machines.  This creates trade difficulties, especially when spare parts are supplied separately for the purposes of repair or maintenance, or when components are assembled in China.[77]

 

Ø      What are the procedures to ensure that confidentiality of technical information about products required for conformity assessment is dealt with in a manner that protects legitimate commercial interests at both the national and local levels?[78]

 

Ø      Do fixed fees (covering the application, licensing and checking of accompanying English documents) and conformity assessment fees reflect the real cost of certification?  Do these fees discriminate between domestic and imported products?[79]

 

Ø      How far will foreign conformity assessment be taken into consideration in China's procedures, notably in sectors where similar requirements apply?[80]

 

Ø      Will China notify changes to the CCC Mark certification scheme which permit applicants to conduct factory self-inspection and to proceed with CCC Mark issuance on an interim basis while awaiting a full factory inspection by designated certification bodies? [81]

 

viii.       Services

As with the first TRM, Members raised many concerns in the second TRM over China's implementation of its commitments in the services sector.  Some of the major issues raised with regarding a number of the sectors are summarized below.

Banking

Market access restrictions in China's banking sector, which were noted at the first TRM, were again highlighted at the second TRM.

Ø      Pursuant to the Regulation on the Administration of Foreign-Invested Financial Institutions and the Detailed Implementing Rules for the Regulations on the Administration of Foreign-Invested Financial Institutions, China imposes minimum capital requirements for foreign banks, on a branch-by-branch basis, that remain extremely high by international standards.[82]

 

Ø      Chinese authorities released, in November 2002, the draft of the Regulation on Interbank Borrowing that would limit inter-bank financing to 40% of RMB liabilities of a bank.  The adoption of such a ratio would hurt the business development in RMB of foreign banks and would raise concerns as to its compatibility with China's WTO commitments.[83]

 

Ø      Pursuant to the Detailed Implementing Rules for the Regulations on the Administration of Foreign-Invested Financial Institutions, foreign banks are limited to opening only one new branch per year, which constitutes a significant barrier to market access.  China justified this on prudential grounds at the first TRM, but it appears that the same limitation is not applied to Chinese banks.[84]

 

Auto Financing

China finally issued the long-awaited Administrative Measures on Auto Financing Companies on October 3, 2003 and the implementing rules on November 12, 2003.  The regulations would make it possible for foreign non-bank institutions to engage in automobile financing in China, a sector that China committed to opening immediately upon accession.  At the second TRM, Members raised concerns as to these regulations, the most important concern being China's high minimum capital requirement.  In addition, some Members (e.g., the US) asked China whether it planned to expedite applications for motor vehicle financing licenses in light of China's delay in issuing the necessary regulations.[85]

Insurance

In August 2003, the China Insurance Regulatory Commission released for public comment the draft amendments to the Regulations on the Administration of Foreign-Invested Insurance Companies.  As noted by the United States in its submission, "these draft amendments significantly reduce capital requirements, an important and highly welcome step."[86]  However, some Members (e.g., the US and the EC) still remained concerned as to whether the reduction in capital requirements applied to reinsurance branches, whether China would consider reducing the registered capital requirement for low risk insurance models, and whether China would consider eliminating the redundant RMB 20 million capital requirement for branching.[87]

At the second TRM, several Members also raised questions regarding licensing requirements.  In particular, with respect to the elimination of geographic restrictions, they asked whether China permits licensed foreign-invested insurers to provide services nationally solely based on existing licenses without applying for a new license.[88]

In addition, the United States again raised the issue of internal branching and asked China to explain why it will not permit internal branching by foreign non-life firms established in China as a branch, consistent with China's commitment to phase-out geographic restrictions.[89]  

Express Courier

In July 2003, China circulated draft amendments to its Postal Services Law.  At the second TRM, some Members (e.g., the US and the EC) noted several concerns about the draft amendments, namely:

Ø      The draft amendments give China Post a monopoly over the delivery of letters under 500 grams, which would constitute a new restriction on the scope of activities of existing foreign-invested express delivery companies.[90]

 

Ø      The draft amendment does not address the need for an independent regulator.[91]

 

Distribution Services

At the second TRM, some Members (e.g., the US and Japan) expressed concerns about China's uneven implementation of its commitment to phase in distribution services.  They requested that China provide its schedule and the relevant legislation necessary to implement China's distribution services commitments.  For instance, the US submission noted:

China appears to have implemented its commitments regarding wholesaling services and commission agents' services provided by foreign-invested enterprises with respect to goods that they manufacture in China.  * * *  However, China appears to have fallen behind in implementing its commitments regarding wholesale services and commission agents' services insofar as they relate to foreign-invested enterprises seeking to distribute goods made by other enterprises in China or imported goods.  To date, China has only opened up wholesaling services and commission agents' services to joint ventures with minority foreign ownership that can satisfy a number of stringent  qualification requirements and other restriction.

* * *

As in the wholesale area, China appears to have implemented its commitment to permit foreign invested enterprises to supply retailing services for their own goods manufactured in China.  * * *  However, China appears to have fallen behind in implementing its retailing services commitments insofar as they relate to joint ventures that do not manufacture their own goods in China.  To date, although China has authorized retailing services to be supplied through joint ventures with minority foreign ownership, it greatly restricts the supply of these services.[92]

 

 

 


[1]        Pub. L. 106-286, div. B, Title IV, § 401, Oct. 10, 2000, 114 STAT. 900.

[2]        Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) art. 18.4.

[3]        Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) art. 18.1.

[4]        Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) art. 18.2.

[5]        Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) art. 18.2.

[6]        See Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001), Annex 1A.

[7]        Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001), Annex 1B.

[8]        Report of the Meeting held on 19 March 2002, Council for Trade in Services, S/C/M/59 (14 May 2002) at paras. 54-70.

[9]        Minutes of the Regular Meeting Held on 29 - 30 April 2002, Committee on Safeguards, G/SG/M/19 (16 October 2002) at para. 162.

[10]      Committee on Market Access - Minutes of the Meeting - Held in the Centre William Rappard on 12 June 2002, G/MA/M/32 (11 September 2002) at para. 12.2.

[11]       See Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol of Accession of the People's Republic of China to the World Trade Organization - Report of the Chairperson to the General Council, WT/BOP/R/68 (29 November 2002); Report of the Meeting of 18 November 2002, WT/BOP/R/69 (28 November 2002).

[12]      Transitional Review under Article 18 of the Protocol of Accession of The People’s Republic of China - Information Required in Annex 1A, G/SCM/N/92 (31 October 2002).

[13]       Transitional Review under Article 18 of the Protocol of Accession of The People’s Republic of China - Submission by the People's Republic of China, G/TBT/W/190 (16 October 2002).

[14]       Id.

[15]       Report of the Council for Trade in Goods on China's Transitional Review, Council for Trade in Goods, G/L/596 (3 December 2002) at para. 3.27.

[16]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at para. 8.46.

[17]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at para. 8.47.

[18]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at para. 8.52.

[19]       Chairman's Report to the Council for Trade in Goods on Transitional Review of China, Committee of Antidumping Practices, G/ADP/8 (18 November 2002) at paras. 57 and 64.

[20]       Minutes of the Meeting on December 10, 2002, General Council, WT/GC/M/77 (13 February 2003) at para. 34.

[21]       See, e.g., Report of the Council for Trade in Goods on China's Transitional Review, Council for Trade in Goods, G/L/596 (3 December 2002) at para. 3.7.

[22]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at para. 8.64.

[23]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at para. 8.65.

[24]       US has low expectations for WTO review of China Trade Compliance, Inside US-China Trade, August 21, 2002.

[25]       WTO quietly approves China's first compliance review without recommendation, Inside US-China Trade, December 11, 2002.

[26]       Minutes of Meeting Held in the Centre Williams Rappard on 17-19 September 2002, Council for TRIPS, IP/C/M/37/Add.1 (8 November 2002) at paras. 25-60.  It should be noted that the TRIPS Council's TRM meeting in the first TRM was held in combination with its normal review of China's TRIPS implementing legislation.  As such, most of the issues and concerns addressed at that meeting related to the normal review of China's TRIPS implementing legislation rather than to the TRM per se.  Nevertheless, the questions and concerns raised in that context are relevant as well  to China's compliance with its TRIPS commitments.

[27]       Report of the Working Party on the Accession of China, WT/MIN(01)/3 (10 November 2001) at para. 116.

[28]       See, e.g., Questions to China from the United States in the context of the Transitional Review Mechanism pursuant to Section 18 of the Protocol of Accession of the People's Republic of China, G/AG/W/51 (10 September 2002) & G/AG/W/51/Add.1 (7 October 2002).

[29]       Minutes of the Meeting Held on 23 September 2002, Committee on Market Access, G/MA/M/33 (19 November 2002) at paras. 8.21 and 8.26.

[30]       China's Transitional Review - Communication from Japan, Committee on Market Access, G/MA/W/34 (30 August 2002).

[31]       China's Transitional Review - Questions from Canada, Committee on Market Access, G/MA/W/36 (12 September 2002).

[32]       China's Transitional Review Mechanism - Questions from the United States to China Concerning Market Access, Committee on Market Access, G/MA/W/35 (August 30, 2002) at para. 19.

[33]       Id.

[34]       China's Transitional Review Mechanism - Questions to China from Canada, Committee on Agriculture, G/AG/W/52 (16 September 2002).

[35]       Questions posed by the United States to the People's Republic of China, Committee on Subsidies and Countervailing Measures, WTO Document G/SCM/Q2/CHN/2 (18 October 2002) at para. 7.

[36]       Questions posed by the United States to the People's Republic of China, Committee on Subsidies and Countervailing Measures, WTO Document G/SCM/Q2/CHN/2 (18 October 2002) at para. 11.

[37]       Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001) at Item 2.C.2.

[38]       TRM China - Financial Services - Canada's Questions to the People's Republic of China, S/FIN/W/20 (1 October 2002) at para. 13.

[39]       See, e.g., Communication from the European Communities and their Member States - TRM China - Financial Services, S/FIN/W/18 (23 September 2002) at para. 3.

[40]       See, e.g., TRM China - Financial Services - Canada's Questions to the People's Republic of China, S/FIN/W/20 (1 October 2002) at para. 7.

[41]       See, e.g., Transitional Review Mechanism Pursuant to Section 18 of the Protocol on Accession of the People's Republic of China - Questions from the United States to China Concerning Financial Services, S/FIN/W/19 (1 October 2002).

[42]       US to Raise Two China Problems in WTO Services Council Next Week, Inside US-China Trade, March 13, 2002.

[43]       See, e.g., Transitional Review Mechanism Pursuant to Section 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China Concerning Services, S/C/W/212 (1 October 2002) at paras. 14-18.

[44]       Id. at paras. 3-11.

[45]       WTO quietly approves China's first compliance review without recommendation, Inside US-China Trade, December 11, 2002.

[46]       Report of the Council for Trade in Goods on China's Transitional Review, Council for Trade in Goods, G/L/664 (4 December 2003) at para. 3.3.

[47]       Chair's Report to the Council for Trade in Goods on Transitional Review of China, Committee on Subsidies and Countervailing Measures, G/SCM/111 (18 November 2003) at Annex, para. 4.

[48]       Id. at Annex, para. 27.

[49]       Report to the Council for Trade in Goods on China's Transitional Review, Committee on Import Licensing, G/LIC/11 (29 October 2003) at paras. 3.19 and 3.24.

[50]       Id. at 3.25.

[51]       See, e.g., Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China Concerning Market Access, G/MA/W/51 (13 October 2003).

[52]       See, e.g. China's Transitional Review Mechanism - Communication from the European Communities, G/MA/W/49 (9 September 2003).

[53]       See, e.g., China's Transitional Review Mechanism - Communication from Japan, G/MA/W/50 (11 September 2003).

[54]       See, e.g., Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China Concerning Market Access, G/MA/W/51 (13 October 2003).

[55]       Questions regarding auto financing are discussed in section "viii. Services," infra.

[56]       See, e.g., China's Transitional Review Mechanism - Communication from Japan, G/MA/W/50 (11 September 2003).

[57]  See, e.g., China's Transitional Review Mechanism - Communication from the European Communities, G/MA/W/49 (9 September 2003).

[58]       Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China concerning Market Access, G/MA/W/51 (13 October 2003).

[59]       See, e.g., id. 

[60]       Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China Concerning TRIMS, G/TRIMS/W/32 (24 September 2003) at paras. 2 and 3.

[61]       US Warns China of Possible WTO Dispute Case Against Farm TRQs, Inside US-China Trade, Oct 2, 2002.

[62]       Summary Report of the Meeting Held on 25 September 2003, Committee on Agriculture, G/AG/R/36 (21 October 2003) at para. 10.

[63]       Id. at para. 10-15.

[64]       Transitional Review Mechanism of China, Communication from the European Communities, IP/C/W/413 (12 November 2003) at paras. 3 and 5.

[65]       See, e.g., Transitional Review Mechanism of China - Communication from Japan, IP/C/W/410 (7 November 2003) at para. 4.B.; Transitional Review under Section 18 of the Protocol of the Accession of the People's Republic of China - Report to the General Council by the Chair, IP/C/31 (10 December 2003) at para. 60.

[66]       Id. at para. 4.C.; id. at para. 59.

[67]       Transitional Review Mechanism of China - Communication from Japan, IP/C/W/410 (7 November 2003) at para. 4.D.

[68]       Transitional Review Mechanism of China - Communication from the United States, IP/C/W/414 (12 November 2003) at para. 10.

[69]       See, e.g., Transitional Review Mechanism of China - Communication from Japan, IP/C/W/410 (7 November 2003) at para. 4.D.

[70]       Id.

[71]       See, e.g., Subsidies - Questions Posed by the United States to the People's Republic of China, G/SCM/Q2/CHN/6 (27 October 2003) at para. 1.

[72]       Subsidies - Questions Posed by the United States to the People's Republic of China, G/SCM/Q2/CHN/6 (27 October 2003) at para. 5.

[73]       Subsidies - Questions Posted by the European Communities to the People's Republic of China, G/SCM/Q2/CHN/5 (2 October 2003) at Q-2 and Q-3.

[74]       Summary Report of the Meeting Held on 25 September 2003, Committee on Agriculture, G/AG/R/36 (21 October 2003) at paras. 16-20.

[75]       Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol of the Accession of the People's Republic of China - Questions from the US to China Concerning Market Access, Committee on Market Access, G/MA/W/51 (13 October 2003) at paras. 2 and 3.

[76]       As noted by the Chinese representative at the TBT Committee at the first TRM, the CCC system is designed to ensure national treatment for imported products.  Under the new system, four unifications are realized for both imports and domestic products (i.e., unified catalogue, unified set of applicable technical regulations, standards and implementation procedures, unified certification mark and unified fee charge standard.)  See Minutes of the Meeting Held on 17 October 2002, Committee on Technical Barriers to Trade, G/TBT/M/28 (19 November 2002).

[77]       Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China - Submission by the European Communities to the TBT Committee, G/TBT/W/227 (6 October 2003) at para. 6.

[78]       Id. at para. 9.

[79]       Id. at para. 7.

[80]       Id. at para. 10.

[81]       Transitional Review Mechanism Pursuant to Section 18 of the Protocol on the Accession of the People's Republic of China - Questions from the United States to China, G/TBT/W/231 (20 October 2003) at para. 2.

[82]       See, e.g., Communication from the United States, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/35 (26 November 2003) at para. 6.

[83]       See, e.g., Communication from Japan, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/30 (29 September 2003) at para. 8.

[84]       See, e.g., Communication from the European Communities, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/32 (12 November 2003) at para. 15.

[85]       Communication from the United States, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/35 (26 November 2003) at para. 7.

[86]       Id. at para. 2.

[87]       Communication from the United States, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/35 (26 November 2003) at para. 2; Communication from the European Communities, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/32 (12 November 2003) at para. 4.

[88]       See, e.g., Communication from Japan, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/30 (29 September 2003) at para. 4.

[89]       Communication from the United States, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/FIN/W/35 (26 November 2003) at para. 1.

[90]       Communication from the United States, Transitional Review Mechanism in Connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/C/W/233 (26 November 2003) at para. 8.

[91]       See, e.g., id.

[92]       Communication from the United States, Transitional Review Mechanism in connection with Paragraph 18 of the Protocol on the Accession of the People's Republic of China, S/C/W/233 (26 November 2003) at paras. 3, 6.