U.S.-China Trade: Summary of 2003 World Trade Organization	 
Transitional Review Mechanism for China (25-JAN-05, GAO-05-209R).
                                                                 
China's 2001 accession to the World Trade Organization (WTO)	 
raised expectations with Congress and the private sector about	 
the prospects for China to reform its markets and allow greater  
access to foreign goods and services. As part of our long-term	 
body of work related to China's membership in the WTO, we	 
reported in October 2004 on how the U.S. Trade Representative	 
(USTR) and the Departments of Commerce, State, and Agriculture	 
were positioned to monitor and enforce China's compliance with	 
its WTO commitments in 2003. In that report, we examined the	 
multilateral annual WTO review of China's progress, referred to  
as the Transitional Review Mechanism (TRM). We found that the TRM
has ongoing limitations in its participation and its procedures. 
We made recommendations to improve related U.S. government	 
activities. In a subsequent request, Congress asked us to provide
detailed information about the TRM process in 2003 so that they  
could better gauge the level of activity and the efficacy of the 
United States and other WTO members' efforts to utilize it.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-209R					        
    ACCNO:   A16256						        
  TITLE:     U.S.-China Trade: Summary of 2003 World Trade	      
Organization Transitional Review Mechanism for China		 
     DATE:   01/25/2005 
  SUBJECT:   Foreign governments				 
	     International agreements				 
	     International economic relations			 
	     International organizations			 
	     International relations				 
	     International trade				 
	     International trade regulation			 
	     China						 

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GAO-05-209R

United States Government Accountability Office Washington, DC 20548

January 25, 2005

The Honorable Max Baucus Ranking Minority Member Committee on Finance
United States Senate

The Honorable Charles B. Rangel Ranking Minority Member Committee on Ways
and Means House of Representatives

The Honorable Sander M. Levin Ranking Minority Member Subcommittee on
Trade Committee on Ways and Means House of Representatives

Subject: U.S.-China Trade: Summary of 2003 World Trade Organization
Transitional Review Mechanism for China

China's 2001 accession to the World Trade Organization (WTO) raised
expectations with Congress and the private sector about the prospects for
China to reform its markets and allow greater access to foreign goods and
services. As part of our longterm body of work related to China's
membership in the WTO, we reported in October 2004 on how the U.S. Trade
Representative (USTR) and the Departments of Commerce, State, and
Agriculture were positioned to monitor and enforce China's compliance with
its WTO commitments in 2003.1 In that report, we examined the multilateral
annual WTO review of China's progress, referred to as the Transitional
Review Mechanism (TRM). We found that the TRM has ongoing limitations in
its participation and its procedures. We made recommendations to improve
related U.S. government activities. In a subsequent request, you asked us
to provide detailed information about the TRM process in 2003 so that you
could better gauge the level of activity and the efficacy of the United
States and other WTO members' efforts to utilize it.

In response to your request, we compiled information about WTO members'
participation and about the particular implementation issues raised by the
United States and other WTO members' during the TRM, using WTO documents.
We

1For more information, see GAO, U.S.-China Trade: Opportunities to Improve
U.S. Government Efforts to Ensure China's Compliance with World Trade
Organization Commitments, GAO-05-53 (Washington, D.C.: Oct. 6, 2004).

                          GAO-05-209R U.S.-China Trade

organized this information into separate tables for each of the 16 WTO
subsidiary

2

bodies with a role in reviewing China's WTO commitments (encs. I through
XVI). We further discuss our methodology below.

Summary

As seen in the enclosed tables, 11 out of a total of 148 WTO members
participated in the 2003 multilateral review of China's trade commitment
implementation. These members participated in the TRM process by
submitting written questions to China prior to meetings of 16 WTO
subsidiary bodies with a role in the Transitional Review Mechanism (TRM),
or by raising issues verbally with China during these meetings, which
occurred from September to December 2003. Specifically, 7 WTO members both
submitted written questions and discussed issues verbally in some TRM
meetings: the United States, the European Communities, Japan, Chinese
Taipei,3 Australia, Canada, and Mexico. Four other members-Brazil, Korea,
Norway, and Pakistan-only participated verbally during some meetings. The
United States was the most active member in the 2003 TRM, participating
one or both ways in 14 of the 16 subsidiary bodies; the exceptions were
the Committees on Balance-of-Payments Restrictions and Rules of Origin.
Table 1 displays an overview of member participation for the 2003 TRM.

2The subsidiary bodies are described as councils or committees and
generally are organized according to the various trade subjects covered by
the WTO agreements. These subsidiary bodies include the Committees on
Agriculture, Anti-dumping Practices, Balance-of-Payments Restrictions,
Customs Valuation, Import Licensing, Market Access, Rules of Origin,
Safeguards, Sanitary and Phytosanitary Measures, Subsidies and
Countervailing Measures, Technical Barriers to Trade, Trade in Financial
Services, and Trade-Related Investment Measures, as well as Councils for
Trade in Goods, Trade in Services, and Trade-Related Aspects of
Intellectual Property Rights.

3Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu.

                      Page 2 GAO-05-209R U.S.-China Trade

Table 1: WTO Member Participation in China's Transitional Review
Mechanism, 2003

                                WTO members                        Chinese    
                                that submitted WTO members that submission of 
                        Date of    written     participated in  required TRM  
WTO subsidiary body  meeting   questions        meeting       information  

Committee on Agriculture 9/25/2003 EURU.S., Chinese U.S., EC, Chinese N/A
Taipei Taipei

Committee on Import 10/2/2003 U.S., EC, Japan, U.S., EC, Japan, Yes
Licensing Chinese Taipei Chinese Taipei

Committee on Rules of 10/3/2003 Chinese Taipei Chinese Taipei N/A Origin

Committee on Trade-10/3/2003 U.S., EC U.S., EC, Japan, Yes~Related
Investment Brazil ~Measures~

Committee on Customs 10/6/2003 U.S., Chinese U.S., EC, Chinese Yes
Valuation Taipei Taipei

Committee on Market 10/20/2003 U.S., EC, Japan U.S., EC, Japan Yes Access

         Committee on       10/20/2003      Japan        U.S., EC, Japan  Yes 
          Safeguards                                                      
         Committee on       10/23/2003   U.S., Japan       U.S., Japan    N/A 
    Antidumping Practices                                                 
    Committee on Subsidies  10/28/2003 U.S., EC, Mexico U.S., EC, Japan,  Yes 
      and Countervailing                                     Mexico       
           Measures                                                       
    Committee on Sanitary   10/29/2003    U.S., EC,     U.S., EC, Chinese N/A 
      and Phytosanitary                 Chinese Taipei       Taipei       
           Measures                                                       
    Committee on Technical  11/7/2003  U.S., EC, Japan   U.S., EC, Japan  Yes 
      Barriers to Trade                                                   
    Committee on Balance-   11/13/2003  Chinese Taipei   Chinese Taipei   N/A 
of-Payments Restrictions                                               

         Council on        11/18/2003 U.S., EC, Japan,  U.S., EC, Japan,  Yes 
        Trade-Related                                                     
Aspects of Intellectual             Chinese Taipei   Chinese Taipei,   
       Property Rights                                  Korea, Pakistan   
    Council for Trade in   11/26/2003 U.S., EC, Japan   U.S., EC, Japan,  Yes 
            Goods                                            Canada       
    Committee on Trade in  12/1/2003  U.S., EC, Japan,  U.S., EC, Japan,  N/A 
     Financial Services               Chinese Taipei,   Chinese Taipei,   
                                           Canada      Canada, Australia, 
                                                             Norway       
    Council for Trade in   12/5/2003  U.S., EC, Japan,  U.S., EC, Japan,  Yes 
          Services                    Chinese Taipei,   Chinese Taipei,   
                                         Australia         Australia      

Source: GAO analysis of WTO documents.

Notes:~Chinese Taipei = Separate Customs Territory of Taiwan, Penghu,
Kinmen and Matsu.~EC = European Communities.~N/A = not applicable.~

                      Page 3 GAO-05-209R U.S.-China Trade

The number and scope of issues raised by WTO members during the 2003 TRM
process varied by WTO subsidiary body, as demonstrated in the enclosed
tables. Some committees addressed numerous issues. For example, the
Council on Trade-Related Aspects of Intellectual Property Rights covered
various concerns, including those related to how China treated
semiconductor layout design, pharmaceutical products, and consulting
services. In contrast, only a few issues were brought up in the Committee
on Balance-of-Payments Restrictions. Chinese Taipei was the only member to
raise concerns to this committee, and these took the form of a few
specific questions, such as the rationale behind China's regulation
governing small value trade between Chinese Taipei and China. In addition,
the enclosed tables reveal that some issues are broad in nature, while
others are very technical and specific.

Background

China's December 2001 accession to the WTO resulted in commitments to open
and liberalize its economy so as to offer a more predictable environment
for trade and foreign investment in accordance with WTO rules. However, at
the time of its accession, some WTO members noted that because of the
significant size, rapid growth, and transitional nature of the Chinese
economy, a pragmatic approach should be taken, and this was reflected in
China's accession agreement. China's WTO commitments, many of which were
scheduled to be phased in over time, required China to make extensive
changes to its trade regime. As a result, WTO members, particularly the
United States,4 pushed for China's accession package to include
commitments creating this Transitional Review Mechanism (TRM). This
mechanism, which is unique to China, is intended to be a means for WTO
members to annually review China's implementation of its WTO commitments
and the development of China's trade with other WTO members until all of
China's commitments are phased in.5 This multilateral monitoring process
allows WTO members to better understand China's trade practices and to
communicate their expectations to China.

China's WTO accession agreement defines (1) the scope and process for the
WTO review and (2) the method of exchange of information. First, the
agreement lays out the scope of review and some procedures for China and
WTO members to follow; these require annual reviews by 16 WTO subsidiary
bodies and then a broader review by the WTO General Council, which makes
use of the findings of the subsidiary bodies. The reviews are to occur
annually for eight years, with a final review by the 10th year.6 Second,
China's accession agreement calls for China to provide a broad

4A provision in the legislation authorizing the President to grant
permanent normal trade relations to China stated that "it shall be the
objective of the United States to obtain ... an annual review within the
WTO of the compliance by the People's Republic of China with its terms of
accession to the WTO." Pub. L. 106-286 S: 401, 114 Stat. 900.

5The TRM is in addition to WTO's trade policy review mechanism, which
provides for a broad review of the trade regimes of all WTO members on a
scheduled basis. WTO members viewed the trade policy review mechanism as
insufficient to oversee China's implementation of its commitments and
pursued the TRM.

6The final review can take place at an earlier date to be decided by the
General Council.

                      Page 4 GAO-05-209R U.S.-China Trade

range of information annually to the WTO subsidiary bodies for their
reviews on its (1) economic policies, (2) framework for making and
enforcing policies, (3) policies affecting trade in goods and services,
and (4) trade-related intellectual property regime.7

In October 2004, we reported on how the USTR and the Departments of
Commerce, Agriculture, and State pursued China's WTO compliance in 2003.
Among other things, we found that overall WTO member participation in the
review declined from the previous year, and U.S. submission of questions
was less timely. Furthermore, procedural and other types of problems that
arose during the 2002 review continued to limit the effectiveness of the
2003 TRM. Specifically, the United States and some other members were
disappointed that China refused to provide written answers to members'
written questions in advance of TRM meetings. Additionally, some members
were disappointed that the review did not result in any conclusions or
recommendations regarding China's implementation. Nevertheless, the TRM
has benefits, and we concluded that these could be enhanced by increased
member participation and earlier U.S. submissions, both of which would
increase the potential for full and informed responses from China.8

Scope and Methodology

To prepare tables detailing issues raised by the United States and other
WTO members, as well as responses from China, we analyzed official World
Trade Organization documents. These documents include members'
communications submitted prior to the TRM meetings and minutes to TRM
meetings for all 16 WTO subsidiary bodies with roles in reviewing China's
WTO commitments. We did not include information on informal side meetings
frequently held by the U.S. and Chinese officials. According to a USTR
official, U.S. delegates further explained U.S. concerns at these informal
meetings and were often able to obtain more detailed responses from China.
In addition, we did not include issues or responses raised outside of
items specifically labeled under the TRM agenda.

Within the tables, we categorized issues and responses into broad theme
topics, most of which are identical or similar to those used by WTO
members. For instances in which the United States and other WTO members
raised similar issues, we aligned these issues in the tables. If China
provided responses to issues raised, we used our judgment to align the
issues with responses to the extent possible, but we did not evaluate the
extent to which China answered specific issues raised by WTO members. We
generally reported Chinese responses verbatim from statements documented
in the TRM meeting minutes, making only minor editorial modifications for
language clarity. However, in categorizing China's responses, we
rearranged parts of them and did not include some of China's general
statements if we could not link them to a

7See GAO, World Trade Organization: First-Year U.S. Efforts to Monitor
China's Compliance, GAO03-461 (Washington, D.C.: Mar. 31, 2003).

8For more information, see GAO, U.S.-China Trade: Opportunities to Improve
U.S. Government Efforts to Ensure China's Compliance with World Trade
Organization Commitments, GAO-05-53 (Washington, D.C.: Oct. 6, 2004).

                      Page 5 GAO-05-209R U.S.-China Trade

specific issue; therefore, the enclosed tables may not present as complete
a picture of China's responses as the original source documents.
Furthermore, we did not prepare a table for the final 2003 TRM meeting in
the WTO General Council. Six members besides China participated and made
general statements about China's trade reforms rather than raise specific
implementation issues during the General Council meeting.9

Since our work is based mainly on publicly available information, we did
not request agency comments but provided a draft letter with enclosures to
the Office of the U.S. Trade Representative. A USTR official provided
technical comments that we have incorporated into this report, as
appropriate.

We performed our work from September through December 2004 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to interested congressional
committees and the
U.S. Trade Representative. We will make copies available to others on
request. In
addition, this report will be available at no charge on the GAO Web site
at
http://www.gao.gov.

If you have any questions about this report, please contact me at (202)
512-4128 or at
[email protected], or Adam Cowles, Assistant Director, at (202) 512-9637 or
[email protected]. Victoria Lin, Bradley Hunt, and Jamie McDonald were the
principal
contributors to this report.

Loren Yager
Director, International Affairs and Trade

Enclosures

  9For minutes of the 2003 General Council meeting, see www.wto.org, document
                               symbol WT/GC/M/84.

                      Page 6 GAO-05-209R U.S.-China Trade

                                    Contents

                                      Page

Enclosure I Committee on Agriculture 8
Enclosure II Committee on Anti-dumping Practices 10
Enclosure III Committee on Balance-of-Payments Restrictions 14
Enclosure IV Committee on Customs Valuation 15
Enclosure V Committee on Import Licensing 20
Enclosure VI Committee on Market Access 27
Enclosure VII Committee on Rules of Origin 34
Enclosure VIII Committee on Safeguards 35
Enclosure IX Committee on Sanitary and Phytosanitary Measures 37
Enclosure X Committee on Subsidies and Countervailing Measures 43
Enclosure XI Committee on Technical Barriers to Trade 47
Enclosure XII Committee on Trade in Financial Services 53
Enclosure XIII Committee on Trade-Related Investment Measures 60
Enclosure XIV Council for Trade in Goods 62
Enclosure XV Council for Trade in Services 68
Enclosure XVI Council for Trade-Related Aspects of Intellectual Property
Rights 79

Page 7 GAO-05-209R U.S.-China Trade

Enclosure I Committee on Agriculture

Summary of issues by    Raised by   Raised by                              
           theme         United States other WTO       China's response
                                        members  
                               Trade in soybeans
Disagreement that                                                          
China's State                                                              
Administration for                                                         
Quality Supervision,                                                       
Inspection and                                                             
Quarantine (AQSIQ)                                                         
identified valid                              Concerning quarantine of     
scientific basis for    Writtena              agricultural products, China 
suspension of soybean                         stated that in formulating   
imports from                                  and implementing Sanitary    
companies based on                            and Phytosanitary (SPS)      
detections of                                 measures, China strictly     
phytophthora sojae in                         abided by the SPS Agreement  
shipments of                                  and all other World Trade    
soybeans.                                     Organization (WTO) rules,    
Reason for China's                            especially the science-based 
delayed announcement                          and transparency principles. 
of its plans for a      Written,a             Since 1999, China had        
suspension of soybean    Verbalc              identified several cases of  
shipments from                                soybean epidemic in imports  
companies in                                  shipped from the United      
question.                                     States. China had notified   
Purpose of announcing                         the U.S. authorities nine    
plans for a                                   times, but no improvement    
suspension of                                 had been made on the part of 
shipments without       Written,a             the United States. For the   
setting a date on        Verbalc              time being, China had not    
which the suspension                          banned any foreign companies 
would become                                  to export soybeans to China. 
effective.                                    China hoped that the U.S.    
Existence and result                          authorities would take       
of risk assessment in                         strict quarantine measures   
    accordance with the                          with respect to its exports  
    requirements of the    Written,a             of soybean to China so as to 
Agreement on Sanitary    Verbalc              ensure soybean shipments     
     and Phytosanitary                           were free from this epidemic 
       Measures (SPS                             or any other diseases.       
        Agreement).                              (Verbalc) China had          
    Explanation of how                           discovered soybean rust in   
suspending shipments                          the U.S. shipments but so    
of soybeans from the    Written,a             far China had not and was    
companies in question    Verbalc              not planning to take any     
     would address the                           actions to suspend U.S. or   
     identified risk.                            other Members' exports of
Explanation of how                            soybeans to China. China was
China is ensuring,                            seeking solutions to solve
consistent with its                           this problem and suggested
obligations under the                         that discussions continue at
SPS Agreement, that                           a technical level. (Verbalc)
any measures            Written,a             
addressing               Verbalc              
Phytophthora sojae                            
are not arbitrarily                           
or unjustifiably                              
discriminating                                
between Members.                              

                      Page 8 GAO-05-209R U.S.-China Trade

    Summary of issues by   Raised by Raised by other                          
            theme           United     WTO members       China's response
                            States                   
                    Transparency of tariff-rate quotas (TRQ)
                                                     Tariff quota fill rates  
                                                      (in percent) provided   
Information on the fill                            for wheat, corn, rice,  
rate of TRQs by product           Chinese Taipei   soybean oil, rape-seed  
and the average quota               -Written,b     oil, palm oil, sugar,   
amount that each quota                Verbalc      cotton, wool, and wool  
holder obtains.                                      tops for 2002, and    
                                                      January through August  
                                                        of 2003. (Verbalc)    
Public availability of            Chinese Taipei  
    information on quota               -Written,b    
          holders.                       Verbalc     
Criteria China uses in            Chinese Taipei  
       TRQ allocation                  -Written,b    
          decision.                      Verbalc     
                                     Other
Export subsidies on                               
corn and possible                                 
discriminatory           Verbalc                  
value-added tax                                   
policies.                                         

Source : GAO analysis of WTO documents.
aCommunication from U.S.: G/AG/W/59; dated 9/12/03.

bCommunication from Chinese Taipei: G/AG/W/60; dated 9/12/03.

cCommittee report detailing verbal statements made during meeting:
G/AG/R/36; meeting dated 9/25/03.

                      Page 9 GAO-05-209R U.S.-China Trade

Enclosure II Committee on Anti-dumping Practices

                      Page 10 GAO-05-209R U.S.-China Trade
                                                                   China had                                                                                                                             
                                                                   enacted the                                                                                                                           
                                                                   Provisional                                                                                                                           
                                                                   Rules on Access                                                                                                                       
                                                                   to Public                                                                                                                             
                                                                   Information in                                                                                                                        
                                                                   anti-dumping                                                                                                                          
                                                                   (AD)                                                                                                                                  
                                                                   investigations.                                                                                                                       
                                                                   Its Article 5                                                                                                                         
                                                                   provides for                                                                                                                          
                                                                   the types of                                                                                                                          
                                                                   public                                                                                                                                
                                                                   information                                                                                                                           
                                                                   that can be                                                                                                                           
                                                                   accessed by the                                                                                                                       
                                                                   interested                                                                                                               
                                                                   parties. Its                                                                                                             
                                                                   legal authority                                                                                                          
                                                                   can be found in                                                                                                          
                                                                   Article 23 of                                                                                                            
                                                                   the AD                                                                                                                   
                                                                   Regulations.                                                                                                             
                                                                   (Verbalc)                                                                                                                
                                                                   Actually,                                                                                                                
                                                                   access to                                                                                                                
                                                                   information on                                                                                                           
                                                                   injury and                                                                                                               
                                                                   causal link was                                                                                                          
                                                                   made possible                                                                                                            
                                                                   under Article 8                                                                                                          
                                                                   of the                                                                                                                   
                                                                   Anti-Dumping                                           Mechanisms for                                                    
                                                                   Regulations of                                         judicial,                                                         
                                                                   China, as well                                         arbitral or                                                       
                                                                   as in Articles                                         administrative                                                    
                                        Lack of access             6 and 9 under                                          review are in                            Unclear role             
                                        to, and lack of            the rules on                                           place to allow                           of the State             
                                        completeness               the             Availability,                          parties to                               Council                  
                                        of, the public             investigation   on a regular                           challenge a                              Tariff                   
Summary        Raised                   record in                  and the         basis, of                              final                                    Commission in            
  of    Raised   by                     Chinese                    determination   documents                              determination                            China's                  
issues    by    other  China's  General anti-dumping    Written,a  of injury to    related to    Written,a                by the         Writtena                  anti-dumping  Written,a  
  by    United   WTO   response         investigations;  VerbalC   the industries. the injury     VerbalC                 Ministry of                              proceedings;   VerbalC   
 theme  States members                  type of                    Here, there was aspects of                             Commerce                                 Tariff                   
                                        documents in               a particular    anti-dumping             The process   (MOFCOM);                                Commission's             
                                        official record            circumstance    proceedings.             of government details of                               amendment of             
                                        in an                      already                                  restructuring steps taken to                           MOFCOM                   
                                        investigation              referred to,                             was still     ensure the                               determination            
                                        or review.                 that is the                              going on. Of  relevant                                                          
                                                                   Government's                             course, it    tribunal is                                                       
                                                                   restructuring                            was China's   independent of                                                    
                                                                   process. The                             intention to  the                      Judicial review                          
                                                                   functions of                             make such     authorities.             and                                      
                                                                   the former                               documents or                           administrative                           
                                                                   State Economic                           information                            review are                               
                                                                   and Trade                                available in                           stipulated in                            
                                                                   Commission                               the public                             the                                      
                                                                   (SETC) with                              reading room                           Administrative                           
                                                                   regard to the                            in the                                 Proceedings Law                          
                                                                   investigation                            future. Even                           and                                      
                                                                   of injury had                            before the                             Administrative                           
                                                                   already been                             Ministry of                            Review Law.                              
                                                                   incorporated                             Commerce was                           Article 53 of                            
                                                                   into the newly                           established,                           the AD                                   
                                                                   established                              SETC already                           Regulations                              
                                                                   Ministry of                              had a                                  provides for                             
                                                                   Commerce                                 statutory                              administrative                           
                                                                   (MOFCOM).                                requirement                            review and                               
                                                                   Therefore, the                           to disclose                            judicial review                          
                                                                   information                              such                                   for AD                                   According to
                                                                   relating to                              information                            investigations.                           Article 38
                                                                   both the                                 to the                                 Judicial review                             of AD
                                                                   analysis of                              interested                             of AD                                    Regulations,
                                                                   dumping and the                          parties,                               determination                              it makes
                                                                   determination                            which can be                           was further                              decisions on
                                                                   of the injury                            found in                               clarified by                             the level of
                                                                   was now                                  Article 43 of                          the Supreme                                 tariff
                                                                   provided by                              the Rules on                           People's Court                            duties on
                                                                   MOFCOM, and the                          the                                    in its judicial                          the proposal
                                                                   interested                               investigation                          interpretation.                           of MOFCOM.
                                                                   parties may                              and                                    Such reviews                              So far, it
                                                                   access MOFCOM                            determination                          also apply to                              has not
                                                                   for that                                 of industry                            Customs                                  modified any
                                                                   information.                             and injury.                            enforcement.                                 such
                                                                   (Verbalc)                                (Verbalc)                              (Verbalc)                                proposal by

                      Page 11 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                            The delegate  
                                                                                                                                                                                                                                            of China had  
                                                                                                                                                                                                                                            checked the   
                                                                                                                                                                                                                                            WTO ADA.      
                                                                                                                                                                                                                                            Article 6.1.3 
                                                                                                                                                                                                                                            of the ADA,   
                                                                                                                                                                                                                                            at footnote   
                                                                                                                                                                                                                                            16, read "it  
                                                                                                                                                                                                                                            being         
                                                                                                                                                                                                                                            understood    
                                                                                                                                                                                                                                            that where    
                                                                                                                                                                                                                                            the number of 
                                                                                                                                                                                                                                            exporters     
                                                                                                                                                                                                                                            involved is   
                                                                                                                                                                                                                                            particularly  
                                                                                                                                                                                                                                            high the full 
                                                                                                                                                                                                                                            text of the   
                                                                                                                                                                                                                                            written       
                                                                                                                                                                                                                                            application   
                                                                                                                                                                                                                    In response to          is to be      
                                                                                                                                                                                                                    China's                 provided only 
                                                                                                                                                                                                                    notification            to the        
                                                                                                                                                                                                                    of initiation           authorities   
                                                                                   With regard to                                                                                                                   of                      of the        
                                                                                   such                                                 Relevant                                                                    investigation           exporting     
                                                                                   complaints,                                          agency that                            China's                              to the                  member or the 
                                                                                   judicial review                                      China notified                         notification            In regard to Japanese                relevant      
                                                                                   and                                                  about the                              to the                  the request  Embassy, the            trade         
                                                                                   administrative                                       initiation of                          Committee the           to notify    Japanese                association". 
                                                                                   review were                                          the                                    relevant                relevant     Government has          This might    
                                                                                   possible and                                         investigation                          portions of             laws and     no obligation           not apply in  
                                                                                   could be        Notification                         instead of                             law and                 regulations, to notify the           all           
Summary        Raised                                                              resorted to by       of                              directly                In practice,   regulation              China would  initiation of           dimensions to 
  of    Raised   by                                                                the relevant    implementing                         notifying the           what the       that dictate            of course    the                     the fact that 
issues    by    other  China's                  MOFCOM.                  Writtena  parties. China   rules for   Writtena                exporters or    Japan - authorities    how Customs    Verbalc  consider it, investigation   Japan - China was     
  by    United   WTO   response                (Verbalc)                           also had         expiration                          producers in    Verbalc did in China   Administration          and try to   to the          Verbalc only          
 theme  States members                                                             special laws     reviews to                          the following           was to send    applies                 see if this  Japanese                notifying the 
                                                                                   and regulations  Committee.                          countries;              the            anti-dumping            was actually company. In             Japanese      
                                                                                   governing the                                        some                    notification   duties,                 required by  accordance              diplomatic    
                                                                                   enforcement and                                      investigations          prior to the   collects                WTO in       with the AD             mission in    
                                                                                   the levying of                                       initiated               public notice  anti-dumping            accordance   Agreement, it           China. He had 
                                                                                   customs duties                         Chapter 5 of  without                 of initiation  duties and              with China's was the                 quoted it     
                                                                                   by the General                         China's AD    notification            to the         provides for            obligations. investigating           just to       
                                                                                   Customs                                Regulations   to the                  diplomatic     judicial                One          authority that          indicate the  
                                                                                   Administration.                        focuses on    responding              mission of the review.                 additional   was obliged to          difficulty    
                                                                                   (Verbalc)                              the           party.                  country of                             note-even    notify the              the           
                                                                                                                          time-limits                           those                                  now, if      companies that          investigating 
                                                                                                                          and review of                         companies                              someone was  are subject to          authority may 
                                                                                                                          AD duties and                         whose products                         interested   the                     have in       
                                                         Procedures to                                                    price                                 were subject                           in gaining   investigation.          notifying all 
                                                         ensure that the                                                  undertakings.                         to the                                 access to                            the           
                                                         General Customs                                                  The                                   investigation.                         the                                  interested    
                                     in                  Administration                                                   provisions                            So, in the                             information                          parties,      
                                proceeding;              properly                                                         were                                  particular                             on injury                            because the   
                                  criteria               assesses and                                                     formulated in                         cases referred                         they could                           parties have  
                                 applied in              collects the                                                     compliance                            to in the                              directly                             to be known   
                                 amendment;              anti-dumping                                                     with the WTO                          question posed                         approach the                         to the        
                                  stage at               duties imposed                                                   Anti-Dumping                          by Japan, that                         Ministry of                          investigating 
                                which Tariff             by MOFCOM;                                                       Agreement                             diplomatic                             Commerce for                         authority.    
                                 Commission              procedures for                                                   (ADA). The                            mission should                         such                                 This was a    
                                     is                  importers when                                                   expiration                            be the                                 information                          practical     
                                 consulted;              seeking redress                                                  reviews will                          Japanese                               if they                              difficulty    
                                   public                if the General                                                   be conducted                          Embassy in                             could not                            and he did    
                                 available               Customs                                                          in strict                             Beijing. The                           find such                            not think     
                                  actions                Administration                                                   conformity                            view that this                         information                          there was any 
                                  taken by               makes an error                                                   with the AD                           was compliance                         in the                               specific or   
                                   Tariff                in duty                                                          Regulations                           with Article                           public                               very clear    
                                 Commission              collection or                                                    and the WTO                           6.1.3 of the                           reading                              direct        
                                     in                  product                                                          ADA.                                  WTO ADA.                               room.                                requirement   
                                proceedings.             classification.                                                  (Verbalc)                             (Verbalc)                              (Verbalc)                            set           

                      Page 12 GAO-05-209R U.S.-China Trade
                                                                                 In these                                                                                         
                                                                                 investigations,                                                                                  
                                                                                 Chinese                                                                                          
                                                                                 authorities                                                                                      
                                                                                 published all                                                                                    
                                                                                 anti-dumping                                                                                     
                                                                                 investigations                                                                                   
                                                                                 to be initiated                                                                                  
                                                                                 and notified                                                                                     
                                                                                 them to                                                                                          
                                                                                 relevant                                                                                         
                                                                                 agencies of the                                                                                  
                                                                                 countries                                                                                        
                                                                                 (regions)                                                                                        
                                                                                 concerned                                                                                        
                                                                                 before making                                                                                    
                                                                                 the public                                                                                       
                                                                                 notices. The                                                                      
                                                                                 notice of                                                                         
                                                                                 initiation of                                                                     
                                                                                 investigations                                                                    
                                                                                 leaves all                                                                        
                                                                                 parties                                                                           
                                                                                 sufficient time                                                                   
                                                                                 to register and                                                                   
                                                                                 respond. In                                                                       
                                                                                 addition,                                                                         
                                                                                 Chinese                                                                           
                                                                                 competent                                                                         
                                                                                 authorities                                                                       
                                                                                 issued                                                                            
                                                                                 questionnaires                                                                    
                                                                                 to all                                                                            
                                                                                 registered                                                                        
                                                                                 respondent                                                                        
                                                                                 companies,                                                                        
                                                                                 thereby                                                                           
                                                                                 allowing them                                                                     
                                                                                 to furnish                                                                        
                                                                                 information and                                                                   
                                                                                 evidence. At                                                                      
                                                                                 the request of  Determinations                                                    
                                                                                 interested      in                                                                
                                                                                 parties,        investigations                                                    
                                                                                 hearings were   did not meet                                                      
                                                                                 organized in    requirements                                                      
                                                                                 some cases to   of "positive                                                      
                                                        Application of           allow           evidence" and                                                     
                                                        "facts                   interested      "objective               While                                    
                                                        available" to            parties to      examinations";           establishing                             
                                                        determine                further express considerations           industry                                 
                                                        anti-dumping             their opinions. of data                  injuries and   Insufficient              
                                                        measures                 The Chinese     accuracy,                the causal     data disclosure           
Summary Raised Raised                                   against                  investigation   evaluation of            links between  in determining            
  of      by     by    China's                          Japanese "all   Japan -  authority has   injury factors  Japan -  other factors, injury and       Japan -  
issues  United  other  response                         other"          Writtenb in all the      not in an       Writtenb Chinese        dumping margins  Writtenb 
  by    States   WTO                                    companies                investigations  unbiased                 authorities    in                        
 theme         members                                  without                  provided        manner,                  strictly abide investigations;           
                                                        serving a                companies with  evaluation of            by the WTO ADA adequate                  
                                                        notice of                adequate        all economic             and the        remedies.                 
                                                        initiation or            opportunity to  factors,                 Chinese                                  
                                                        questionnaires           access the      causal                   legislations                             
                                                        to companies.            relevant        relationships            in the                                   
                                                                                 information via in terms of              following                                
                                                                                 either public   price and                aspects:                                 
                                                                                 channels or     between                  conducting a                             
                                                                                 their           dumping and              full and                                 
                                                                                 diplomatic      injury to                comprehensive                            
                                                                                 missions in     domestic                 analysis and                             
                                                                                 China.          industry.                assessment of                            
                                                                                 Therefore, the                           all indicators                           
                                                                                 above                                    determining                              
                                                                                 anti-dumping                             injury as                                
                                                                                 determinations                           recognized by                            
                                                                                 made by China                            WTO;                                     
                                                                                 are consistent                           demonstrating                            
                                                                                 with the                                 by positive                              
                                                                                 requirements of                          evidence that                            
                                                                                 Article 6.8 of                           the volume of                            
                                                                                 the ADA and its                          imports from                             
                                                                                 Annex II. It is                          each country                             
                                                                                 proper that the                          is not                                   
                                                                                 Chinese                                  negligible and                           
                                                                                 Authority                                conducting an                            
                                                                                 applied facts                            analysis of                              
                                                                                 available to                             competition                              
                                                                                 determine AD                             conditions                               
                                                                                 measures                                 between                                  
                                                                                 against "all                             imported                                 
                                                                                 other"                                   products and                             
                                                                                 companies of a                           between                                  
                                              Chinese                            country that                             imported                                 
                                               cases                             failed to                                products and                             
                                              against                            respond and                              domestic like                            
                                               coated                            were unknown to                          products while                           In all the
                                               paper,                            the Chinese                              cumulatively                             anti-dumping
                                              Phthalic                           authority or if                          assessing the                            investigations
                                             Anhydride                           the information                          effects of                               in which
                                               (PA),                             is not provided                          imports from                             preliminary
                                              Styrene                            within a                                 more that one                            determinations
                                             Butadiene                           reasonable                               country,                                 have been
                                               Rubber                            period. All of                           conducting an                            made, the
                                               (SBR),                            these measures                           analysis of                              Chinese
                                             Polyvinyl                           adopted by the                           other causes                             authorities
                                              Chloride                           Chinese                                  of industry                              expounded in
                                               (PVC),                            Authorities are                          injuries and                             Notices of
                                             Toluidine                           fully                                    clarify in the                           Determination
                                                 Di                              consistent with                          Notice of                                on the data
                                   forth in  Isocyanate                          the AD                                   Determination;                           and facts
                                   the ADA.  (TDI), and                          Agreement.                               and so on.                               based on which
                                   (Verbalc)   Phenol                            (Verbalc)                                (Verbalc)                                the injury

    Summary of issues  Raised by Raised by                                    
        by theme        United   other WTO          China's response
                        States    members  
                                           determinations were made, to       
                                           facilitate the comments by         
                                           interested parties on the          
                                           determinations to protect their    
                                           own interests. (Verbalc)           
                                           On the examination of physical     
                                           characteristics and uses of the    
                                           products for determinations of     
                                           "like products" in the             
                                           anti-dumping investigations of     
                                           Coated Paper, SBR and TDI. The     
                                           Chinese Authority took full        
       Inadequate                          account of the physical            
     examination of                        characteristics, chemical          
physical characters            Japan -  characteristics, uses and means of 
       and uses of               Writtenb  distribution of the products and   
      products for                         other factors according to Article 
    determination of                       2.6 of the ADA in the              
    "like products."                       determination of "like product" in 
                                           its investigations of coated       
                                           paper, SBR and TDI. All the        
                                           determinations are available in    
                                           the public notice of preliminary   
                                           or final determinations. This      
                                           practice is in full conformity     
                                           with the ADA. (Verbalc)            

Source: GAO analysis of WTO documents.

aCommunication from U.S.: G/ADP/W/436; dated 10/22/03. bCommunication from
Japan: G/ADP/W/434; dated 9/30/03. cCommittee report detailing verbal
statements made during meeting: G/ADP/12; meeting dated 10/23/03-10/24/03.

                      Page 13 GAO-05-209R U.S.-China Trade

Enclosure III Committee on Balance-of-Payments Restrictions

    Summary of issues by   Raised by Raised by                                
            theme           United   other WTO        China's response
                            States    members  
                                  Restrictions
                                               As it is known to all, the     
                                               convertibility of current      
                                               account is, according to the   
                                               Article VIII of International  
                                               Monetary Fund (IMF)            
                                               Agreements, not to impose      
                                               restrictions on the payment    
    China's intention to                       and transfer of the current    
    lift restrictions on              Chinese  international transactions (in 
    retention of foreign             Taipei -  China, current transactions    
    exchange earnings and            Writtena  with Hong Kong, Macao and      
    settlement of current                      Chinese Taipei are also        
    account transactions.                      included). It is for the       
                                               purpose of bona fide test,     
                                               anti-money laundering, and     
                                               curbing hot money to require   
                                               the relevant documents for     
                                               payment in and purchase of     
                                               foreign exchange under current 
                                               account. (Verbalb)             
Rationale behind                            
Regulation Governing                        
Small Value Trade                           
between Chinese Taipei                      
and China stipulating              Chinese  
that the only means               Taipei -  
allowed for settlement            Writtena  
of small value                              
bilateral trade                             
transaction is                              
convertible currencies.                     
                                               According to the Notice to     
                                               State Administration of        
                                               Foreign Exchange (SAFE)        
National treatment of                       Regarding the Related Issues   
foreign-invested                            of the Further Adjustment of   
enterprise in allowing                      the Foreign Exchange Account   
foreign exchange                   Chinese  for Current International      
deposit accounts to               Taipei -  Transactions (Huifa (2002) No. 
open in a place other             Writtena  87), the qualifications for    
than place of                               opening foreign exchange       
registration.                               account for current            
                                               international transactions of  
                                               foreign-invested enterprises   
                                               (FIEs) and Chinese enterprises 
                                               have been converged. (Verbalb) 
                                               The principle of               
                                               convertibility of the current  
                                               account has been strictly      
                                               followed by China. The         
                                               earnings and dividends of the  
                                               foreign investor of the FIEs   
      Plans to simplify                        are allowed to be remitted     
      foreign-invested                         out. The relevant documents to 
        enterprise's                  Chinese  the authorized banks are       
qualification procedure           Taipei -  required for the bona fide     
    in respect of outward            Writtena  test of the earnings by the    
remittance of earnings                      foreign partners, and it is    
        or dividends.                          also a regulatory requirement  
                                               for normal and legitimate      
                                               operation of the FIEs under    
                                               the legal framework including  
                                               the Law of China on Foreign    
                                               Invested Enterprises.          
                                               (Verbalb)                      

Source: GAO analysis of WTO documents.

aCommunication from Chinese Taipei: WT/BOP/W/25; dated 10/31/03.
bCommittee report detailing verbal statements made during meeting:
WT/BOP/R/71; meeting dated 11/13/03.

                      Page 14 GAO-05-209R U.S.-China Trade

Enclosure IV Committee on Customs Valuation

                      Page 15 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                Article 55 of                                        
                                                                                                                                                                                the Customs                                          
                                                                                                                                                                                Law of the                                           
                                                                                                                                                                                People's                                             
                                                                                                                                                                                Republic of                                          
                                                                                                                                                                                China                                                
                                                                                                                                                                                definitely                                           
                                                                                                                                                                                stipulates                                           
                                                                                                                                                                                that the                                             
                                                                                                                                                                                customs value                                        
                                                                                                                                                                                of either the                                        
                                                                                                                                                                                imported or                                          
                                                                                                                                                                                exported goods                                       
                                                                                                                                                                                will be                                              
                                                                                                                                                                                examined and                                         
                                                                                                                                                                                determined on                                        
                                                                                                                                                                                the basis of                                         
                                                                                                                                                                                the                                                  
                                                                                                                                                                                transaction                                          
                                                                                                                                                                                value of the                                         
                                                                                                                                                                                goods being                                          
                                                                                                                                                                                valued. There                                        
                                                                                                                                                                                could be found                                       
                                                                                                                                                                                corresponding                                        
                                                                                                                                                                                provisions for                                       
                                                                                                                                                                                this in the                                          
                                                                                                                                                                                Regulations on                                       
                                              China                                                                                                                             Import and                                           
                                          consideration                          Availability                                                                                   Export Tariff                                        
                                              of a                               of revisions                                                                                   of the         Request for                           
                                           transaction                           to Customs                                                                                     People's         China to                            
                                            involving                            Law and                                                                                        Republic of    incorporate                           
                                             related                             Regulations                                                                                    China            WTO CVA                             
                                           parties (as                           for WTO                                                                  Discrepancy           (hereinafter    definition                           
                                           defined in                            member                                                                   between               referred to as  of "price             After China    
Summary Raised Raised                     the Agreement                          review,                                                                  Decree and            Tariff           actually             entered the    
  of      by     by    China's             on Customs                            including             Chinese                                            WTO                   Regulations),    paid or              WTO, the       
issues  United  other  response            Valuation,   Writtena                 status of    Writtena Taipei -                                           Agreement's Writtena  and in The      payable,"   Writtena  Chinese        
  by    States   WTO                       CVA) to be                            Regulations           Writtenb                                           definition            Rules of        different             Customs        
 theme         members                     prima facie                           on Import                                                                of                    General            from               Administration 
                                           grounds for                           and Export                                                               transaction           Administration  definition            made an        
                                           determining                           Tariff of                                                                value.                of the          in Decree             overall
                                            that the                             the People's                                                                                   People's       No. 95, into           revision to
                                            price has                            Republic of                                                                                    Republic of    all relevant           the valuation
                                              been                               China,"                                                                                        China            laws and             laws and
                                          influenced by                          relating to                                                                                    Regarding      regulations.           regulations,
                                               the                On the use of  CVA.                                                                                           Determination                         and also
                                          relationship.           the                                                                                                           on Customs                            abided by the
                                                                  transaction                                                                                                   Value of                              stipulations
                                                                  value among                                                                                                   Imported and                          of the WTO
                                                                  related                                                                                                       Exported Goods                        Valuation
                                                                  parties,                                                                                                      (hereinafter                          Agreement in
                                                                  Article 3.6                                                                                                   referred to as                        the aspect of
                                                                  and 42 of The                                                                                                 Rules for                             valuation
                                                                  Rules of                                      Fulfilling the commitments                                      Valuation).                           methods, the
                                                                  General                                       it made upon accession to                                       The entire                            adjustments
                                                                  Administration                                the WTO and to meet the                                         Chinese                               for the price
                                                                  of Customs of                                 requirement of Article 12                                       Customs                               paid or
                                                                  the People's                                  the Customs Valuation                                           valuation law                         payable, and
                                                                  Republic of                                   Agreement, China published                                      framework has                         the rights and
                                                                  China                                         the Customs Law and the                                         been set up in                        interests of
                                                                  Regarding                                     Rules Regarding                                                 line with the                         the interested
                                                                  Determination                                 Determination on Customs                                        principle of                          parties. It is
                                                                  on Customs                                    Value of Imported and                                           respecting                            clearly
                                                                  Value of                                      Exported Goods. Besides, an                                     trade reality                         stipulated in
                                                                  Imported and                                  official journal, "Gazette                                      and based on                          the Rules for
                                                                  Exported Goods                                of China Customs" is also to                                    the                                   Valuation that
                                                                  set forth                                     be established in the near                                      transaction                           if the
                                                                  guidelines on                                 future. Interested parties                                      value. The                            transaction
                                                                  the issue,                                    may also visit the web site                                     minimum value                         value cannot
                                                                  which was in                                  of the General                                                  or reference                          be determined,
                                 China's                          conformity                                    Administration of Customs of Notification                       prices have                           the customs
                                responses                         with WTO                                      China for information         of China's                        definitely                            value for the
                                 to WTO                           rules.                                        (http://www.customs.gov.cn). implementing                       been banned.                          goods should
                                checklist                         (Verbald)                                     (Writtenc)                       law                            (Writtenc)                            be

                      Page 16 GAO-05-209R U.S.-China Trade
                                                                         In accordance                                      
                                                                         with Article                                       
                                                                         8.2 of the                                         
                                                                         Agreement,                                         
                                                                         Article 3 of                                       
                                                                         The Rules of                                       
                                                                         General                                            
                                                                         Administration                                     
                                                                         of Customs of                                      
                                                                         the People's                                       
                                                                         Republic of                                        
                                                                         China                                              
                                                                         Regarding                                          
                                                                         Determination                                      
                                                                         on Customs                                         
                                                                         Value of                                           
                                                                         Imported and                                       
                                                                         Exported Goods                                     
                                                                         stated                                             
                                                                         explicitly                                         
                                                                         that "The                                          
                                                                         customs value                                      
                                                                         of the                                             
                                                                         imported                                           
                                                                         goods,                                             
                                                                         including the                                      
                                                                         charges                                            
                                                                         associated                                         
                                                                         with the                                           
                                                                         transport of                                       
                                                                         imported goods                                     
                                                                         and the cost                                       
                                                                         of insurance                                       
                                                                         and associated                                     
                                                                         costs incurred                                     
                                                                         prior to                                           
                                                                         unloading of                                       
                                                                         the goods at                                       
                                                                         the port                                           
                                                                         within the                                         
                                                                         customs                                            
                                                                         territory of                                       
                                                                         the People's                                       
                                                                         Republic of                                        
                                                                         China."                              
                                                                         Chapter V of                         
                                                                         The Rules of                         
                                                                         General                              
                                                                         Administration                       
                                                                         of Customs                           
                                                                         Regarding                            
                                                                         Determination                        
                                                                         on Customs                           
                                                                         Value of                             
                                                                         Imported and                         
                                                                         Exported Goods                       
                                                                         provided that                        
                                                                         the cost of                          
                                                                         freight and                          
                                                                         insurance for                        
                                                                         goods imported                       
                                                                         shall be                             
                                                                         determined in                        
                                                                         accordance                           
                                                                         with the                             
                                                                         charges                              
                                                                         actually paid.                       
                                                                         This was a                           
                                                                         fundamental    Information           
                                                                         principle,        that               
                                                                         which applied  importer is           
                                                Clarification            broadly to the required to           
                                                  of customs             calculation of submit when           
Summary        Raised                           administration           freight,       requesting            
  of    Raised   by                             calculation of  Chinese  insurance and   change to   Chinese  
issues    by    other  China's                     freight,     Taipei - other charges  sequential   Taipei - 
  by    United   WTO   response                 insurance, and  Writtenb in the customs  order of    Writtenb 
 theme  States members                          other charges            value of       application           
                                                   by fixed              imported and       of                
                                                 percentage.             exported        deductive            
                                                                         goods. Article method and            
                                                                         26 and 28 of    computed             
                                                                         the Rules set    method.             
                                                                         forth that if                        
                                                                         the freight or                       
                                                                         insurance for                        
                                                                         imported goods                       
                                                                         could not be                         
                                                                         determined or                        
                                                                         did not occur,                       
                                                                         the customs                          
                                                                         administration                       
                                                                         shall                                
                                                                         calculate the                        
                                                                         custom value                         
                                                                         on a                                 
                                                                         percentage                           
                                                                         basis. The                           
                                                                         condition for                        
                                                                         this                                 
                                                                         calculation                          
                                                                         method was                           
                                                                         that the                             
                                                                         freight or                           
                                                                         insurance for                        
                                                                         imported goods                       
                                                                         could not be                         
                                                                         determined or                        
                                                                         did not occur,                       With regard
                                                                         which was                            to the
                                                                         rarely the                           application
                                                                         case in the                          of the
                                                                         course of                            computed
                                                                         trade. In the                        value method
                                                                         drafting of                          and the
                                                                         these                                deductive
                                                                         provisions,                          value method,
                                                                         the practice                         China was
                                                                         and standards                        committed to
                                                                         for                                  fully
                                                                         transportation                       applying the
                                                                         and insurance                        Agreement and
                                                                         industry had                         refrained
                                                                         been taken                           from any
                                                                         into adequate                        reservations.
                                                                         consideration.                       According to
                                                                         The percentage                       the
                                   determined,                           basis                                Agreement,
                                   in turn on                            calculation                          the computed
                                   the basis of                          was the result                       value shall
                                   the                                   of broad                             include the
                                   transaction                           experience and                       cost or value
                                   value of the                          statistics.                          of materials
                                   identical                             Generally,                           and
                                   goods, the                            these                                processing,
                                   transaction                           designated                           profit,
                                   value of the                          percentages                          general
                                   similar                               were lower                           expenses and
                                   goods, and                            than prices in                       other
                                   the method                            actual trading                       expenses like
                                   of deduction                          practice. In                         freight and
                                   (Article 7)                           line with the                        insurance.
                                   and so on,                            market                               Chinese
                                   all of which                          situation,                           legislation
                                   are quite in                          however, the                         required
                                   line with                             level of the                         importers to
                                   the                                   percentage was                       provide the
                                   stipulations                          a variant                            necessary
                                   of the WTO                            rather than a                        information
                                   Valuation                             constant                             for the
                                   Agreement.                            figure.                              application
                                   (Writtenc)                            (Verbald)                            of the

                      Page 17 GAO-05-209R U.S.-China Trade
                                                                                                                                              After China                                                                                                                                      
                                                                                                                                              entered the                                                                                                                                      
                                                                                                                                              WTO, the                                                                                                                                         
                                                                                                                                              Chinese                                                                                                                                          
                                                                                                                                              Customs                                                                                                                                          
                                                                                                                                              Administration                                                                                                                                   
                                                                                                                                              made an                                                                                                                                          
                                                                                                                                              overall                                                                                                                                          
                                                                                                                                              revision to                                                                                                                                      
                                                                                                                                              the valuation                                                                                                                                    
                                                                                                                                              laws and                                                                                                                                         
                                                                                                                                              regulations,                                                                                                                                     
                                                                                                                                              and also                                                     Request for             Chinese law                                                 
                                                                                                                                              abided by the                                                China to add            lacking                                                     
                                                                                                                                              stipulations                                                 provision               provision                                                   
                                                                                                                                              of the WTO                                                   that                    that the                                                    
                                                                                                                                              Valuation                                                    deduction               amount for                                                  
                                                                                                                                              Agreement in                                                 for profit              profit and                                    
                                                                                                                                              the aspect of                                                and general             general                                       
                                                                                                                                              valuation                                                    expenses be             expenses is                                   
                                                                                                                                              methods, the                                                 taken as a              to be taken                                   
                                                                                                                                              adjustments                                                  whole and               as a whole                                    
                                                                                               Decree No.                                     for the price  Discrepancy                                   determined              and                                           
                                                                                               95's lack of                                   paid or          between                                     on the basis            determined                                    
Summary        Raised                           Clarification                                  reference to                                   payable, and   Decree and                                    of                      on the basis             Decree's             
  of    Raised   by                             about whether  Chinese                         and                                            the rights and CVA's scope                                   information             of                        lack of             
issues    by    other  China's                  China made a   Taipei -                        application   Writtena               Writtena  interests of       of      Writtena               Writtena   supplied by  Writtena   information  Writtena   information Writtena  
  by    United   WTO   response                 reservation    Writtenb                        of                                             the interested "identical                                    the importer            supplied by                about              
 theme  States members                          to Article 4                                   Circumstances                                  parties. It is goods" and                                    unless the              or on behalf             currency             
                                                of CVA.                                        of Sales                                       clearly         "similar                                     importer's              of the                  conversion.           
                                                                                               Test.                                          stipulated in    goods."                                     figures are             producer                                      
                                                                                                                                              the Rules for                                                inconsistent            unless the                                    
                                                                                                                                              Valuation that                                               with those              producer's                                    
                                                                                                                                              if the                                                       obtained in             figures are                                   
                                                                                                                                              transaction                                                  sales in the            inconsistent                                  
                                                                                                                                              value cannot                                                 country of              with those                                    
                                                                                                                                              be determined,                                               importation             "usually                                      
                                                                                                                                              the customs                                                  of the                  reflected in                                  Currently,
                                                                                                                                              value for the                                                imported                sales of the                                  the U.S.
                                                                                                                        Discrepancy           goods should                                                 goods of the            goods of the                                  Dollar, the
                                     computed                                                                           between               be determined,                                               same class              same class                                    Japanese Yen,
                                    value. In                                                                           Decree and            in turn on the                                               or kind.                or kind."                                     the Hong Kong
                                   the absence                                                                          WTO CVA's             basis of the                                                                                                                       Dollar and
                                      of the                                                                            method used           transaction                                                                                                                        the Euro were
                                   information,                                                                         to                    value of the                         Discrepancy                                                                                   four fully
                                   the request                                                                          determine             identical                              between                                                                                     exchangeable
                                    to use the                                                                          customs               goods, the                            Decree and                                                                                   currencies
                                     computed                                                                           value if              transaction                             CVA's                                                                                      used for most
                                   value could                                                                          imported              value of the                          deductions                                                                                   international
                                     only be                                                                            goods                 similar goods,                           for                                                                                       transactions.
                                   objected by                                                                          cannot be             and the method                       commissions,                                                                                  The SAFE
                                    the custom                                  Related                                 determined            of deduction                         profit, and                                                                                   published the
                                    authority.                           parties-circumstances                          under                 (Article 7)                            general                                                                                     exchange
                                    (Verbald)                                of sales test                              provision.            and so on, all                        expenses.                                                                                    rates against
                                                                                                                                              of which are   
                                                                                                                                              quite in line  
                                                                                                                                              with the       
                                                                                                                                              stipulations   
                                                                                                                                              of the WTO     
                                                                                                                                              Valuation      
                                                                                                                                              Agreement. In  
                                                                                                                                              order to       
                                                                                                                                              maintain the   
                                                                                                                                              transparency   
                                                                                                                                              of the Customs 
                                                                                                                                              laws and       
                                                                                                                                              Regulations,   
                                                                                                                                              any rules and  
                                                                                                                                              regulations    
                                                                                                                                              concerning     
                                                                                                                                              customs        
                                                                                                                                              valuation are  
                                                                                                                                              duly issued in 
                                                                                                                                              the form of    
                                                                                                                                              Customs        
                                                                                                                                              Decrees or     
                                                                                                                                              Gazettes.      
                                                                                                                                              (Writtenc)     

                      Page 18 GAO-05-209R U.S.-China Trade
                                   renminbi (RMB)                                                                                                                                                                                                                                                             
                                   of these                                                                                                                                                                                                                                                                   
                                   currencies,                                                                                                                                                                                                                                                                
                                   which                                                                                                                                                                                                                                                                      
                                   constituted                                                                                                                                                                                                                                                                
                                   the basis for                                                                                                                                                                                                                                                              
                                   transfers.                                                                                                                                                                                                                                                                 
                                   Given the                                                                                                                                                                                                                                                                  
                                   stability of                                                                                                                                                                                                                                                               
                                   the U.S.                                                                                                                                                                                                                                                                   
                                   Dollar's                                                                                                                                                                                                                                                                   
                                   exchange rate                                                                                                                                                                                                                                                              
                                   versus the                                                                                                                                                                                                                                                                 
                                   RMB, this rate                             Provisions in                                                                                                                                                                                                                   
                                   was generally                              Chinese law                                                                                                                                                                                                                     
                                   taken by SAFE                              for withdrawal                                                                                                                                                                                                                  
                                   as the basis                               of goods under                                                                                                                                                                                                                  
                                   in the                                     guarantee, in                                                                                                                                                                                                     
                                   determination                              accordance                                                                                                                                                                                                        
                                   of the                                     with Article                                                                                                                                                                                                      
                                   exchange rate                              13 of the                                                                                                                                                                                                         
                                   for other                                  Agreement, was                                                                                                                                                                                                    
                                   foreign                                    a basic custom                                                                                                                                                                                                    
                                   currencies                                 practice to                                                                                                                    Availability                                                                       
                                   versus the                                 speed up                                                                                                                       of "Rules of                                                                       
                                   RMB. In the                                customs                                                                                                                        General                                                                            
                                   calculation,                               clearance. As                                                                                                                  Administration                                                                     
                                   the exchange                               a condition      Information on                                       Absence of                                               of the                                                                             
Summary        Raised              rate of the                                for this          "sufficient                                         CVA's                 Explanation                        People's                                                                           
  of    Raised   by                currency                                   provision, the  guarantees" and                                       definition            and                                Republic of                                                               Chinese  
issues    by    other  China's     against the                      Writtena  required           its legal      Writtena                 Writtena   of goods   Writtena   application Writtena               China          Writtena                                          Writtena Taipei - 
  by    United   WTO   response    U.S. Dollar at                             guarantee was   obligations for                                       of the                of Decree's                        Regarding                                                                 Writtenb 
 theme  States members             the time of                                only requested Customs to release                                     same class            Article 19.                        Determination                                                                      
                                   the                                        when the            goods to                                          or kind in                                               on Customs                                                                         
                                   transaction                                custom value   importer/exporter.                                     Decree.                                                  Value of                                                                           
                                   (could be                                  was difficult                                                                                                                  Imported and                                                                       
                                   specified by                               to determine.                                                                                                                  Exported                                                                           
                                   the date) in                               The guarantee                                                                                                                  Goods."                                                                            
                                   the                                        should cover                                                                                                                                                                                                      
                                   international                              the ultimate                                                                                                                                                                                                      
                                   currency                                   payment of                                                                                                                                                                                                        
                                   market was                                 custom duties                                                                                                                                           Fulfilling the commitments                                
                                   taken as the                               for which the                                                                                                                                           it made upon accession to                                 
                                   reference and                              goods might be                                                                                                                                          the WTO and to meet the                                   
                                   its rate                                   liable. In                                                                                                                                              requirement of Article 12                                 
                                   against RMB                                that spirit,                                                                                                                                            the Customs Valuation          Legal                      China
                                   could be                                   it was                                                                                                                                                  Agreement, China published     steps                      committed
                                   determined.                                rational for                                                                                                                                            the Customs Law and the      planned to                   itself to the
                                   Authorities                                the sum of the                                                                                                                                          Rules Regarding              implement                    full
                                   were convinced                             guarantee to                                                                                                                                            Determination on Customs     provisions                   application
                                   that the       Availability of             be larger than                                                                                                                                          Value of Imported and        of the WTO                   of the WTO
                                   exchange rate  information on              the declared                                                                                                                                            Exported Goods. Besides, an   Decision                    Agreement on
                                   through this   "relevant                   value. Given                                                                                                                                            official journal, "Gazette     on the                     Customs
                                   approach was a regulations"                the variety of                                                                                                                                          of China Customs" is also to Treatment                    Valuation,
                                   reliable and   citing                      imported                                                                                                                                                be established in the near       of                       including
                                   WTO-consistent requirements                goods,                                      Incorporation                                                            China's                            future. Interested parties    Interest                    valuation
                                   basis for the  needed for                  determining                                 of                                                                     submission                           may also visit the web site  Charges in                   methodologies
                                   calculation of importer/exporter           the guarantee                               Interpretative                                                             on                               of the General                  the                       set forth in
                                   the value of   to request goods            differed under                              Notes to CVA                                                           information                          Administration of Customs of  Customs                     Articles 1
                                   foreign        to be released              the specific                                into Chinese                                                            required                            China for information         Value of                    through 8
                                   currencies.    from customs                circumstances.                              laws and                                                               under Annex                          (http://www.customs.gov.cn).  Imported                    thereof, upon
                                   (Verbald)      custody.                    (Verbald)                                   regulations.                                                               1A                               (Writtenc)                     Goods.                     its

Summary of issues   Raised by   Raised by                                  
       by theme      United States other WTO         China's response
                                    members  
                                             accession. In addition, China    
                                             would apply the provisions of    
      Legal steps                            the two Decisions taken by the   
      planned to                             Committee on Customs Valuation   
       implement                             concerning the treatment of      
provisions of the                         interest charges in the customs  
    Decision on the                 Chinese  value of imported goods and      
     Valuation of      Writtena    Taipei -  valuation of carrier media       
     Carrier Media                 Writtenb  bearing software for data        
Bearing Software                          processing equipment as soon as  
       for Data                              practicable, but in any event no 
      Processing                             later than two years from the    
      Equipment.                             date of accession, as referred   
                                             to in paragraph 143 of the       
                                             Working Party Report on          
                                             Accession of China. (Writtenc)   

Source: GAO analysis of WTO documents.

aCommunication from U.S.: G/VAL/W/127; dated 10/3/03.
bCommunication from Chinese Taipei: G/VAL/W/126/Rev.1; dated 9/25/03.
cCommunication from China: G/VAL/W/125; dated 9/22/03.
dCommittee report detailing verbal statements made during meeting:
G/VAL/M/36; meeting dated 10/6/03.

                      Page 19 GAO-05-209R U.S.-China Trade

Enclosure V Committee on Import Licensing

                      Page 20 GAO-05-209R U.S.-China Trade
                                                                     The procedures                                                                                                                                                                                                                                         
                                                                     concerning                                                                                                                                                                                                                                             
                                                                     import                                                                                                                                                                                                                                                 
                                                                     inspection                                                                                                                                                                                                                                             
                                                                     permits were                                                                                                                                                                                                                                           
                                                                     established on                                                                                                                                                                                                                                         
                                                                     the basis of the                                                                                                                                                                                                                                       
                                                                     Law of the                                                                                                                                                                                                                                             
                                                                     People's                                                                                                                                                                                                                                               
                                                                     Republic of                                                                                                                                                                                                                                            
                                                                     China on the                                                                                                                                                                                                                                           
                                                                     Entry and Exit                                                                                                                                                                                                                                         
                                                                     of Animal and                                                                                                                                                                                                                                          
                                                                     Plant                                                                                                                                                                                                                                                  
                                                                     Quarantine,                                                                                                                                                                                                                                            
                                                                     adopted on 1                                                                                                                                                                                                                                           
                                                                     April 1992, and                                                                                                                                                                                                                                        
                                                                     its Implementing                                                                                                                                                                                                                                       
                                                                     Regulation                                                                                                                                                                                                                                             
                                                                     adopted on 1                                                                                                                                                                                                                                           
                                           Enforcement by            January 1997                                                                                                                                                                                                                                           
                                           China's State             (which had been                                                                                                                                                                                                                                        
                                           General                   notified to the                                                                                                                                                                                                                                        
                                           Administration            WTO in documents                                                                                                                                                                                                                                       
                                           of Quality                G/SPS/N/CHN/P/4  Steps to                                                                           Reason for                                                                                                                            The import   
Summary Raised Raised                      Supervision               and              ensure fair                                                                          90-day                                                                                                      Conflicting             permit       
  of      by     by    China's             and Inspection Written,a  G/SPS/N/CHN/P/5, treatment of                                          Written,a                      valid                                                                                                       import       Written,a  procedures   
issues  United  other  response            and Quarantine  Verbale   respectively).   import       Writtena                                  Verbale                     period for Writtena                                Writtena               Writtena                 Writtena   requirements  Verbale   related to   
  by    States   WTO                       Procedures                The said         process for                                                                          import                                                                                                      for                     entry of     
 theme         members                     (AQSIQ) to                procedures were  agricultural                                                                       inspection                                                                                                    genetically             animal and   
                                           control the               not newly        products.                                                                           permits.                                                                                                     modified                plant        
                                           pace and                  developed, and                                                                                                           All                                                                                      organism                quarantine
                                           quantity of               applied equally                                                                                                          applications                                                                             (GMO)                   did not come
                                           agricultural              to all countries                                                                                                         would be                                                                                 products:               under
                                           imports.                  exporting                                                                                                                accepted and                                                    Reason for               (1)                     automatic
                                                                     animals and                             The import                                                                       approved                                                        requirement              requirement             registration
                                                                     plants as well                          permit                                                                           within nine to                                                  for importer             for an                  procedures,
                                                                     as their                                procedures                                                                       30 days by                                                      to specify               Interim                 given the
                                                                     products to                             were neutral                                                                     AQSIQ, as long                                                  commodity                Safety                  differences
                                                                     China, not aimed                        in                                                                               as they were                                                    weight,                  Certificate,            in the
                                                                     at a certain                            application                                                                      in conformity                                                   country of               which                   epidemic
                                                                     country. China                          and                                                                              with the                                                        origin, and              requires an             situation of
                                                                     wanted to make                          administered                                                                     provisions of   Duplicative                                     port of entry            existing                the source
                                                                     it clear that                           in a fair                                                                        the quarantine  requirements             Reason for             before                   contract, to            nations and
                                                                     the import                              and                                                                              law and its    for facilities            requirement            entering into            obtain an               the relevant
                                                                     permit regime                           equitable                                                                        implementation inspections of            for                    an import                import                  preventive
                                                                     concerned SPS                           manner in                                 This regime was                        rules as well  an enterprise             importers              contract;                inspection              and
                                                                     measures and was                        conformity                                also set up in                         as AQSIQ       that processes            to re-apply            reapplication            permit and              treatment
                                                                     not related to                          with Article  Steps to ensure             line with Article                      Decree No. 25.  agricultural             for a new              for license              (2)                     measures, as
                                                                     import licensing                        1.3 of the       that the                 2.2 of the                             This ensured   commodities by            import                 if any of the            requirement             well as the
                                                                     procedures                              Agreement on administration of            Agreement and did                      that China's     AQSIQ and               inspection             elements                 for an                  risk and
                                                                     applied to                              Import       import process is            not have                               import permit      State                 permit                 listed above             inspection              management
                                                                     control the                             Licensing       not having                trade-restricting                      regime was     Administration            rather than            change by                permit                  thereof
                                Inspection                           quantity in                             Procedures.  trade-restricting            effects.                               fair and just.  of Industry              permit                 more than 10             before                  concerning
                                 permits                             trade. (Verbale)                        (Verbale)        effects.                 (Verbale)                              (Verbale)      and Commerce.             extension.             percent.                 entering                disease

                      Page 21 GAO-05-209R U.S.-China Trade
                                            introduction.                                                                                 
                                            However,                                                                       The            
                                            importers                                                                      liberalization 
                                            qualified to                                                                   of             
                                            apply for                                                                      distribution   
                                            import                                                                         rights would   
                                            permits could                                                                  be executed in 
                                            submit                                                                         accordance     
                                            applications                                                                   with the       
                                            to AQSIQ on                                                                    Schedule of    
                                            an equitable                                                                   Specific       
                                            basis.                                                                         Commitments on 
                                            Concerning                                                                     Services.      
                                            the questions                                                                  Currently,     
                                            on import                                                                      enterprises in 
                                            requirements                                                                   China with     
                                            for GMO                                                                        foreign        
                                            products, the                                                                  investment had 
                                            Ministry of                                                                    the right to   
                                            Agriculture                                                                    import         
                                            of China had                                                                   equipment,     
                                            decided to                                                                     technology,    
                                            extend                                                                         raw material   
                                            Circular No.                                                                   and other      
                                            222 to 20                                                                      goods for      
                                            April 2004,                                                                    self-use, and  
                                            wherein                                                                        export their   
                                            contents                                                                       products,      
                                            concerning                                                                     while for the  
                                            application                                                                    importation of 
                                            requirements                                                                   goods and      
                                            and approval                                                                   technology     
                                            procedures                                                                     other than the 
                                            for                                                                            above-listed,  
                                            genetically                                                                    enterprises    
                                            modified (GM)                                                                  should change  
                                            products                                                                       the scope of   
                                            remained                                                                       their business 
                                            unchanged.                                                                     as required by 
                                            The Ministry                                                                   relevant       
                                            of                                                                             legislation.   
                                            Agriculture                                                                    The Foreign    
                                            had                                                                            Trade Law of   
                                            entertained                                                                    the People's   
                                            the idea of                                                                    Republic of    
                                            indicating on                                                                  China was      
                                            an Interim                                                                     being revised  
                                            Safety                                         Applicability of                to reflect     
                                            Certificate                                    Provisional Rules               that specific  
Summary Raised Raised            into a     the names of                                  on Establishment of  European    requirement.   
  of      by     by    China's  contract    importers                                        Sino-Foreign      Communities In January     
issues  United  other  response   with      whose                      Writtena              Foreign Trade     (EC) -      2003, the      
  by    States   WTO            supplier.   applications                                   Companies to all    Writtenb    former         
 theme         members                      were                                          joint ventures with              Ministry of    
                                            submitted                                       minority share                 Foreign Trade  
                                            after 20                                      foreign-investment.              and Economic   
                                            September.                                                                     Cooperation    
                                            However, when                                                                  (MOFTEC)       
                                            they found                                                                     promulgated    
                                            that such a                                                                    the Interim    
                                            measure, were                                                                  Rules for      
                                            it to be                                                                       Establishing   
                                            implemented,                                                                   Sino-Foreign   
                                            would                                                                          Trade Joint    
                                            contradict                                                                     Ventures,      
                                            that adopted                                                                   endowing       
                                            by AQSIQ,                                                                      legally        
                                            they had not                                                                   incorporated   
                                            in fact                                                                        Sino-foreign   
                                            carried out                                                                    joint ventures 
                                            this idea.                                                                     with the right 
                                            Therefore to                                                                   of import and  
                                            reply to the                                                                   export for the 
                                            question,                                                                      goods,         
                                            China had not                                                                  technology and 
                                            promulgated                                                                    services       
                                            such a policy                                                                  within the     
                                            as had been                                                                    approved       
                                            mentioned in                                                                   scope, and the 
                                            the questions                                                                  right to       
                                            presented,                                                                     conduct        
                                            namely a                                                                       domestic       
                                            policy which                                                                   wholesale of   
                                            required the                                                                   the goods      
                                            provision of                                                                   imported by    
                                            the                                                                            the joint      
                                            importer's                                                                     ventures       
                                            name upon                                                                      themselves.    
                                            application                                                                    With           
                                            of the         Reason for                                                      distribution   
                                            Interim       requirement                                                      also included, 
                                            Certificate       for                                                          the scope of   
                                            for GMO       inspections                                                      the rights     
                                            products;          of                                                          granted by the 
                                            therefore the  facilities                                                      Interim Rules  
                                            alleged       that import                                                      went beyond    
                                            contradiction  processed                                                       what China had 
                                            contained in  agricultural                                                     committed to   
                                            the questions  goods but                                                       in the         
                                            had not         not for                                                        Protocol. In   
                                            actually        domestic                                                       that spirit,   
                                            taken place.   processing             Trading                                  the Interim    
                                            (Verbale)     enterprises.            rights                                   Rules had

Summary of issues by  Raised by Raised by                                  
           theme          United   other WTO         China's response
                          States    members  
                                             prescribed some requirements on  
                                             experiences and registered       
                                             capital for both Chinese and     
                                             foreign parties of the joint     
                                             venture. In addition,            
                                             "Sino-foreign joint venture"     
                                             referred to in the Interim Rules 
                                             included joint ventures solely   
                                             engaged in import and export     
                                             business and wholesale of        
                                             imported products, as well as    
                                             other types of enterprises,      
                                             which applied for the operation  
                                             of such businesses and satisfied 
                                             the requirements of the Interim  
                                             Rules. (Verbale)                 
                                             According to China's commitments 
                                             upon accession, China would      
                                             eliminate the system of          
                                             examination and approval of      
                                             trading rights within three      
                                             years from accession. At that    
                                             time, China would permit all     
                                             domestic and foreign enterprises 
    Elimination of the                       and individuals, including sole  
requirement for prior                     proprietorships of other WTO     
      experience and                 EC -    Members, to export and import    
minimum capital when            Writtenb  all goods (with the exception of 
     granting trading                        products listed in Annex 2A of   
          rights.                            the Protocol reserved for        
                                             importation and exportation by   
                                             state trading enterprises)       
                                             throughout the customs territory 
                                             of China. Trading right in this  
                                             context only referred to the     
                                             right for importation and        
                                             exportation, not including the   
                                             right of distribution in China.  
                                             (Verbale)                        
Time frame for                            
adopting definitive               EC -    
legislation and                 Writtenb  
information on its                        
scope.                                    
                         Quotas and tariff-rate quotas
                                             With regard to the alleged       
                                             problem of license trade, i.e.   
      Large parts of                         selling quota for profit, such   
      automobile and                         practice was against the Chinese 
fertilizer quotas not                     law and subject to severe        
allocated to genuine              EC -    punishment. China hoped that     
     importers but to              Writtenb  Members would provide relevant   
     other parties not                       information and evidence on this 
    involved in import                       illegal trade. His authorities   
        activities.                          would deal with the offenders    
                                             according to the law and         
                                             slashing their quotas for the    
                                             next year. (Verbale)             
Transparency                                                               
issue-assurance that                      In strict accordance with their  
full quantity of auto             EC -     commitments upon accession and  
and fertilizer quotas           Writtenb       the Regulations on the      
and tariff-rate                             Administration of Import and   
quotas are allocated                      Export of Goods of the People's  
to genuine importers.                          Republic of China, his

                      Page 22 GAO-05-209R U.S.-China Trade

                      Page 23 GAO-05-209R U.S.-China Trade
                                                      authorities                                                                                                            
                                                      had promptly                                                                                                           
                                                      published the                                                                                                          
                                                      total volume                                                                                                           
                                                      and allocation                                                                                                         
                                                      criteria of                                                                                                            
                                                      2003 import                                                                                                            
                                                      TRQs for                                                                                                               
                                                      fertilizers,                                                                                                           
                                                      distributed                                                                                                            
                                                      2003                                                                                                                   
                                                      fertilizer                                                                                                             
                                                      TRQs in full                                                                                                           
                                                      quantity, and                                                                                                          
                                                      allocated TRQs                                                                                                         
                                                      for state                                                                                                              
                                                      trading and                                                                                                            
                                                      non-state                                                                                                              
                                                      trading                                                                                                                
                                                      enterprises                                                                                                            
                                                      directly to                                                                                                            
                                                      importers in                                                                                                           
                                                      line with                                                                                                              
                                                      specified                                                                                                              
                                                      proportions.                                                                                                           
                                                      The allocation                                                                                                         
                                                      process had                                                                                                            
                                                      been                                                                                                                   
                                                      administered                                                                                                           
                                                      in a fair and                                                                                                          
                                                      transparent                                                                                                            
                                                      manner.                                                                                                                
                                                      Enterprises                                                                                                            
                                                      went about the                                                                                                         
                                                      importation of                                                                                                         
                                                      fertilizers                                                                                                            
                                                      according to                                                                                                           
                                                      the market                                                                                                             
                                                      situation,                                                                                                             
                                                      either for                                                                                                             
                                                      themselves or                                                                                                          
                                                      as an agent,                                                                                                           
                                                      and their                                                                                                              
                                                      business                                                                                                               
                                                      activities                                                                                                             
                                                      were free from                                                                                                         
                                                      any government                                                                                                         
                                                      interference.                                                                                                          
                                                      (Verbale)                                                                                                              
                                                      Paragraph 130                                                                                                          
                                                      of the Working                                                                                                         
                                                      Party Report                                                                                                           
                                                      stated that in                                                                                                         
                                                      allocating                                                                                                             
                                                      quotas for                                                                                                             
                                                      imported                                                                                                               
                                                      products for                                                                                                           
                                                      wholesale or                                                                                              
                                                      retail                                                                                                    
                                                      distribution,                                                                                             
                                                      China would                                                                                               
                                                      consider                                                                                                  
                                                      historical                                                                                                
                                                      performance,                                                                                              
                                                      experience and                                                                                            
                                                      ability in                                                                                                
                                Publication           servicing, as                                                                                             
                                of criteria           well as the                                                                                               
                                applied for           qualifications                                                                                            
                                the                   of importers                                                                                              
                                allocation            required by                                                                                               
Summary Raised Raised           of the                the Agreement                                                                     Actual auto             
  of      by     by    China's  licenses       EC -   on Import                            EC -                   Chinese                 imports      Japan -  
issues  United  other  response for          Writtenb Licensing                          Writtenb                 Taipei -  Automobile significantly  Written,c 
  by    States   WTO            automobile            Procedures.                                                 Writtend              lower than     Verbale  
 theme         members          and                   The allocation                                                                   import quota.            
                                fertilizer            criteria for                                                                                              
                                quotas and            quotas of                                                                                                 
                                tariff-rate           automobiles                                                                                               
                                quotas.               imported for                                                                                              
                                                      sale were as                                                                                              
                                                      follows:                                                                                                  
                                                      first, verify                                                                                             
                                                      the importer's                                                                                            
                                                      qualification                                                                                             
                                                      to conduct                                                                                                
                                                      automobile                                                                                                
                                                      trade in                                                                                                  
                                                      China; second,                                                                                            
                                                      check the                                                                                                 
                                                      operational                                                                                               The volume
                                                      ability of the                                                                                            of import
                                                      importer (i.e.                                                                                            quotas was
                                                      the venue for                                                                                             not
                                                      sale and                                                                                                  necessarily
                                                      maintenance);                                                                                             equal to
                                                      and third,                                                                                                actual
                                                      examine the                                                                                               import
                                                      business                                                                                                  volume, and
                                                      performances                                                                                              the fill
                                                      of the                                                                                                    rate of
                                                      importer. The                                                                                             quotas
                                                      Chinese                                                                                                   depended on
                                                      Government                                                                                                actual
                                                      would not                                                                                                 demand for
                                                      allocate                                                                                                  imported
                                                      quotas for                                                                                                automobiles
                                                      sale to                                                                                                   on the
                                                      importers                                                                                                 Chinese
                                                      without sale                                                                                              market. Over
                                                      qualification                                                                                             recent
                                                      and                                                                                                       years,
                                                      operational                                                                                               automobiles
                                                      ability.                                                                                                  produced by
                                                      Importers with                                                                                            Chinese
                                                      prominent                                                                                                 enterprises
                                                      operational                                                                                               (including
                                                      ability and                                                                                               joint
                                                      historical                                                                                                ventures)
                                                      performance                                                                                               had
                                                      would receive                                                                                             satisfied
                                                      more quotas.                                                                                              the needs of
                                                      Importers                                                                                                 Chinese
                                                      might decide                                                                                              consumers
                                                      the                                                                                                       with
                                                      composition of                                                                                            enhanced
                                                      products for                                                                                              quality,
                                                      their quotas                                                                                              diversified
                                                      at their own                                                                                              models and
                                                      discretion,                                                                                               lower
                                                      i.e. they                                                                                                 prices.
                                                      could                                                                                                     Therefore,
                                                      themselves                                                                                                although the
                                                      determine the                                                                                             need for
                                                      type,                                                                                                     automobiles
                                                      specification                                                                                             on the
                                                      and model of                                                                                              Chinese
                                                      automobiles of                                                                                            market had
                                                      their choice.                                Specific                                                     considerably
                                                      The Chinese                                  measures to                                                  increased,
                                                      Government                                   ensure that                                                  the need for
                                                      would grant                                  quota-holders                                                imported
                                                      import quotas                                are able to                                                  high-price
                                                      in light of    Interchangeability            obtain                                                       automobiles
                                                      their          of import licenses            necessary                                                    was still
                                                      selections.    between different             import                                                       limited. In
                                                      (Verbale)       types of models.             license.                                                     particular,

                      Page 24 GAO-05-209R U.S.-China Trade
                                              given the fast growth in        
                                              production of automobiles below 
                                              2000 cubic centimeters (cc) and 
                                              their relative low prices       
                                              compared with imported cars of  
                                              the same class, Chinese         
                                              importers had voluntarily       
                                              increased the proportion of     
                                              automobiles above 2000 cc in    
                                              their applications for import   
                                              quotas, so as to avoid          
                                              competition with Chinese auto   
                                              manufacturers. (Verbale) In     
                                              accordance with Table One and   
                                              Table Two of Annex 3 of China's 
                                              Protocol of Accession, there    
                                              were 65 Harmonized System (HS)  
                                              codes covered in the sector of  
                                              automobiles and their key parts 
                                              which were subject to quota     
                                              administration. Based on these  
                                              65 HS codes, China had          
                                              committed US$ 6 billion worth   
                                              of quota for automobiles and    
                                              their key parts and had made a  
                                              commitment to increase this by  
                                              15 percent annually during the  
                                              transition period. In 2003, the 
                                              total amount of US$ 9.125       
                                              billion should also be based on 
                                              these 65 HS codes. According to 
                                              the timetable on the            
                                              elimination of non-tariff       
                                              measures committed by China, in 
                                              the years 2001, 2002 and 2003   
                                              China had consecutively         
                                              eliminated its quota            
                                              administrative measures on some 
                                              automobiles and key parts, but  
Summary of Raised by Raised by             these parts of the products     
issues by   United   other WTO China's     which had been imported should  
     theme     States    members  response    also be included in the import  
                                              statistics for 2003, or else it 
                                              would be unfair to China. As    
                                              concerned the substantial       
                                              disparity alleged by Japan      
                                              concerning the committed volume 
                                              and the actual volume of        
                                              imports, the Chinese            
                                              representative offered the      
                                              following explanation: in the   
                                              statistics provided by Japan,   
                                              the period covered extended     
                                              from April 2002 to March 2003.  
                                              The committed volume was not    
                                              the actual volume of imports,   
                                              because the actual amount of    
                                              imports would depend solely on  
                                              the market for automobiles in   
                                              the Chinese market. (Verbale)   
                                              Concerning the period covered   
                                              by these statistics, the first  
                                              quarter of 2002 also used       
                                              quotas allocated for the whole  
                                              year, because in order to meet  
                                              the requirements of Chinese     
                                              domestic manufacturers and some 
                                              importers, before April 2002    
                                              the Chinese Government had      
                                              already arranged for the import 
                                              quotas for 2002, or else all    
                                              the domestic automobile         
                                              manufacturers in China would    
                                              have to stop their production.  
                                              Therefore the period covered by 
                                              the statistics should extend    
                                              from January 2002 to March      
                                              2003. (Verbale) China had noted 
                                              that in Japan's statistics,     
                                              auto knock-down kits, or CKD    
                                              and SKD, which were imported    
                                              for assembly in China, were not 

                      Page 25 GAO-05-209R U.S.-China Trade
                                   included,                                                                                                                                                                             
                                   because in the                                                                                                                                                                        
                                   past two years                                                                                                                                                                        
                                   in the initial                                                                                                                                                                        
                                   period of                                                                                                                                                                             
                                   production of                                                                                                                                                                         
                                   new car models                                                                                                                                                                        
                                   by Chinese                                                                                                                                                                            
                                   domestic                                                                                                                                                                              
                                   manufacturers,                                                                                                                                                                        
                                   they had to                                                                                                                      With regard to                                       
                                   import a                                                                                                                         punitive                                             
                                   considerable                                                                                                                     measures                                             
                                   amount of                                                                                                                        against                                              
                                   knockdown kits                                                                                                                   importers                                            
                                   for assembly                                                                                                                     failing to                                           
                                   production;                                                                                                                      return unused                                        
                                   for the import                                                                                                                   quotas,                                              
                                   of these parts                                                                                                                   Regulations on                                       
                                   they had to be                                                                                                                   Import and                             
                                   granted                                                                                                                          Export of                              
                                   certain                                                                                                                          Goods of                               
                                   quotas;                                                                                                                          People's                               
                                   however, as                                                                                                                      Republic of                            
                                   regarded                                                                                                                         China                                  
                                   customs                                                                                                                          specified that                         
                                   statistics,                                                                                                                      in the event                           
                                   because these                                                                                            Number of               that an                                
                                   parts arrived                                                                                            quota                   importer did                           
                                   at the customs                                                                                           holders to              not use all                            
                                   in the form of                                                                                           whom China              quotas in its                          
                                   component                                                                                                applied                 possession for                         
                                   parts, they                                                                                              provision               the year, he                           
                                   had not been                                                                                             for quota               should return                          
                                   incorporated                                                                                             holders not             remaining                              
                                   in the                                                                                                   having                  quotas to the                          
                                   statistics for                                                                                           imported                administrative                         
                                   complete                                                                             Actual              their full              authority for                          
                                   automobiles.                                                                         quotas              allocation              import quotas                          
Summary        Raised              The final                                                                              for               would                   before 1                               
  of    Raised   by                aspect could                                                 Japan -                 2003 by   Japan -   receive a      Japan -  September of                  Japan -  
issues    by    other  China's     be attributed                  Japan -                      Written,c                 item    Written,c  proportional  Written,c the current                  Written,c 
  by    United   WTO   response    to the                         Writtenc                      Verbale                 and by    Verbale   reduction in   Verbale  year; if he                   Verbale  
 theme  States members             restrictions                                                                         country             their quota             failed to do                           
                                   placed by                                                                              of                allocation              so and failed                          
                                   certain                                                                              origin.             in the                  to use the                             
                                   suppliers in                                                                                             subsequent              remaining                              
                                   Japan.                                                                                                   year unless             quotas by the                          
                                   According to                                                                                             the quantity            end of that                            
                                   their                                                                                                    is returned             year, the                              
                                   information,                                                                                             for                     quota                                  
                                   some                                                                                                     allocation              authority                              
                                   manufacturers                                                                                            by 1                    would reduce                           
                                   and suppliers                                                                                            September;              his quotas for                         
                                   in Japan had                                                                                             total                   the next year                          
                                   placed                                                                                                   reduction in            accordingly.                           
                                   restrictions                                                                                             quota.                  Considering                            
                                   on the number                                                                                                                    that import                            
                                   of Chinese                                                                                                                       quotas of 2002                         
                                   importers,                                                                                                                       could be                               
                                   mainly                                                                                                                           extended to 31                         
                                   limiting the                                                                                                                     March 2003,                            
                                   number of                                                                                                                        there were no                          
                                   Chinese                                                                                                                          quotas                                 
                                   importers who                                                                                                                    returned in                            
                                   could sign                                                                                                                       2002. If a                             Regarding the
                                   contracts with                                                                                                                   quota holder                              alleged
                                   suppliers in                                                                                                                     failed to use                           control by
                                   Japan.                                                                                                                           all quotas in                           the Chinese
                                   According to                                                                                                                     his possession                         Government of
                                   their                                                                                                                            by the end of                            granting
                                   understanding                                                          According to                                              2003 and       Concern with               import
                                   from these                                                               China's                                                 failed to      method that             licenses for
                                   importers,     Disparity                                              understanding,                                             return the     Chinese                  automobiles
                                   Japanese       between                   Confirmation from                 the                                                   unfilled       government              below 2000 cc
                                   suppliers had  reported                    China that no               automobiles                                               quotas within  controls the            displacement,
                                   also placed    Customscleared            items are subject            and key parts                                              the specified  number of                the Chinese
                                   restrictions   auto imports              to import quotas             covered by the                                             time limit,    auto import             delegate said
                                   on the amount  and nominal                 other than 44                  quota                                                  the Chinese    licenses to                 that
                                   of automobiles quota for                    items under               administration                                             authorities    be granted              according to
                                   to be exported 2003; measures            complete vehicles             should be 65                                              would reduce   by category;             China's WTO
                                   to China on a  to improve                     and one                    HS codes                                                his quotas for licenses not             commitments
                                   monthly basis. implementation            item-bodies-under            instead of 45.                                             the next year. granted                 importers had
                                   (Verbale)      of quota.                    auto parts.                 (Verbale)                                                (Verbale)      impartially.                 the

    Summary of issues by  Raised by Raised by                                 
           theme           United   other WTO        China's response
                           States    members  
                                              discretion to choose the types, 
                                              specifications and models of    
                                              some automobiles to be          
                                              imported, and the relevant      
                                              authorities in China, by        
                                              deriving from their needs and   
                                              choices, issued the relevant    
                                              licenses. In fact, given the    
                                              quick growth of the production  
                                              of automobiles below 2000 cc    
                                              and the relative low prices     
                                              compared with imported cars,    
                                              Chinese importers had           
                                              voluntarily increased the       
                                              proportion of automobiles above 
                                              2000 cc in their applications   
                                              for import quotas, so as to     
                                              avoid competition with Chinese  
                                              auto manufacturers. (Verbale)   
          Measures for administration of licenses for import of goods
Reason for requirement                     
that one license be                        
used at one customs               Chinese  
office that appears to           Taipei -  
place restrictions on            Writtend  
traders going against                      
the principle of trade                     
facilitation.                              
Circumstances in which            Chinese  
    license for multiple            Taipei -  
    entries is granted.             Writtend  
Laws protecting                            
license applicant's               Chinese  
right of appeal or               Taipei -  
review if application            Writtend  
is not approved.                           
     Measures on the administration of automatic import licensing of goods
Requirement to submit             Chinese  
an import contract in            Taipei -  
the case of automatic            Writtend  
import licensing.                          
    Requirement of other                      
    necessary documents                       
    specified in China's             Chinese  
      Measures on the               Taipei -  
     Administration of              Writtend  
      Automatic Import                        
    Licensing of Goods.                       
Justification for                          
article stipulating                        
that the entire                   Chinese  
application be made              Taipei -  
over again if                    Writtend  
automatic import                           
licenses need to be                        
extended or changed.                       

Source: GAO analysis of WTO documents.
Note: An additional document source is a communication from China:
G/LIC/W/20; dated 9/23/03.

aCommunication from U.S.: G/LIC/Q/CHN/9; dated 9/25/03.

bCommunication from European Communities: G/LIC/Q/CHN/5; dated 8/14/03.

cCommunication from Japan: G/LIC/Q/CHN/6; dated 9/1/03.

dCommunication from Chinese Taipei: G/LIC/Q/CHN/7; dated 9/19/03.

eCommittee report detailing verbal statements made during meeting:
G/LIC/11; meeting dated 10/2/03.

                      Page 26 GAO-05-209R U.S.-China Trade

Enclosure VI Committee on Market Access

                      Page 27 GAO-05-209R U.S.-China Trade
                                                                           According to                                                                                                                                                                                                                   
                                                                           China's                                                                                                                                                                                                                        
                                                                           commitments                                                                                                                                                                                                                    
                                                                           upon                                                                                                                                                                                                                           
                                                                           accession,                                                                                                                                                                                                                     
                                                                           China would                                                                                                                                                                                                                    
                                                                           eliminate the                                                                                                                                                                                                                  
                                                                           system of                                                                                                                                                                                                                      
                                                                           examination                                                                                                                                                                                                                    
                                                                           and approval                                                                                                                                                                                                                   
                                                                           of trading                                                                                                                                                                                                        China        
                                                                           rights within                                                                                                                                                                                                     implemented  
                                                                           three years                                                                                                                                                                                                       "VAT         
                                                                           from                                                                                                                                                                                                              drawback     
                                                                           accession. At                                                                                                                                                                                                     upon Levy"   
                                                                           that time,                                                                                                                                                                                                        measures on  
                                                                           China would                                                                                                                                                                                                       ordinary VAT 
                                                                           permit all                                                                                                                                                                                                        payers       
                                                                           domestic and                                                                                                                                                                                                      producing    
                                                                           foreign                                                                                                                                                                                                           and selling  
                                                                           enterprises                                                                                                                                                                                                       integrated   
                                                                           and                                                                                                                                                                                                               circuits.    
                                                                           individuals,                                                                                                                                                                                                      The refunded 
                                                                           including sole                                                                                                                                                                                                    tax          
                                                                           traders from                                                                                                                                                                                                      represented  
                                                                           WTO Member                                                                                                                                                                                Reason for              the part of  
                                                                           countries, to                                                                                                                                                                             differential            total tax    
                                                                           export and                                                                                                                                                                                treatment of            levied in    
                                                                           import all                                                                                                                                                                                reduced                 excess of    
                                                                           goods with the                            Time schedule                                                                                                                                   value-added             three        
                                                                           exception of                              for China to                                                                                              Time schedule                         tax (VAT)               percent of   
                                                                           products                                  implement                                                                                                 and                                   applied to              the taxable  
                                                                           outlined in                               automatic                                                                                                 implementation                        integrated              value. This  
                                                                           Annex 2A of                               availability of                                                                                           procedures for                        circuits                measure was  
Summary        Raised                                                      the Protocol                              trading rights                                                                                            phase-in                              designed or             a part of    
  of    Raised   by                                                        reserved for                              to all                                                                                           Japan -  commitment on    Japan -              manufactured            China's      
issues    by    other  China's                           Writtena          importation                     Writtena  enterprises in   Writtena                                                                       Written,c trading rights  Written,c Value-added in China and Written,a  policies on  
  by    United   WTO   response                                            and                                       China and                                                                                        Verbale  of               Verbale      tax     full VAT on   Verbale   the          
 theme  States members                                                     exportation by                            foreign                                                                                                   joint-venture                         imported                integrated   
                                                                           state run                                 enterprises and                                                                                           enterprises                           integrated              circuits     
                                                                           enterprises                               individuals,                                                                                              with majority                         circuits;               industry,    
                                                                           throughout the                            including sole                                                                                            share of                              status of               and did not  
                                                                           custom                                    proprietorships,                                                                                          foreign                               review of               violate WTO  
                                                                           territory of                              by 11 December                                                                                            investment.                           measures by             national     
                                                                           China. Trading                            2004.                                                                                                                                           Chinese                 treatment    
                                                                           rights in this                                                                                                                                                                            ministries              principle. A 
                                                                           context only                                                                                                                                                                              and                     17 percent   
                                                                           referred to                                                                                                                                                                               agencies.               VAT was      
                                                                           the right of                                                                                                                                                                                                      imposed on   
                                                                           importation                                                                                                                                                                                                       both         
                                                                           and                                                                                                                                                                                                               imported and 
                                                                           exportation,                                                                                                                                                                                                      domestically 
                                                                           and did not                                                                                                                                                                                                       produced     
                                                                           include the                                                                                                                                                                                                       integrated   
                                                                           right of                                                                                                                                                                                                          circuit      
                                                                           distribution                                                                                                                                                                                                      products     
                                                                           in China. The                                                                Applicability of                                                                                                                     when they    
                                                                           liberalization                                                               "Provisional Rules                            Time schedule                                                                          entered the  
                                                                           of                                                                           on the                                        and reason                                                                             market. No   
                                                                           distribution                                                                 Establishment of                              for delay of                                                                           extra VAT    
                                                                           rights would      Conditions                                                 Sino-Foreign                                  revision of                                                                            was levied   
                                                                           be exacted in   required to be                                               Foreign Trade                                 the Foreign                                                                            on imported  
                                                                           accordance       fulfilled by                                                Companies" to all                             Trade Law of                                                                           products     
                                                                           with the       foreign-invested                                              joint ventures with                           China related                                                                          directly or  
                                                                           schedule of     enterprise to                                                minority share                Time schedule   to phase-in                                                                            indirectly.
                                                                           specific        obtain trading                                               foreign-investment,           and scope for   commitments                                                                            Thus this
                                                                           commitments on rights, relating                                              "trading" joint                adoption of    on trading                                                                             policy was
                                                                           services at       to minimum                                                 ventures, and                 "Provisional    rights for                                                                             consistent
                                            Measures                       the time          registered                                                 Sino-foreign joint            Rules on the    joint-venture                                                                          with Article
                                           governing                       enterprises in  capital, past                                                venture companies             Establishment   enterprises                                                                            III.2 of
                                         trading rights                    China with        import and                                                 that were already                  of         with minority                                                                          General
                                               of                          foreign         export levels                                                established in       Verbale  Sino-Foreign    share of                                                                               Agreement on
                                Trading foreign-invested          EC -     investment had    and prior                                         EC -     China when rules     EC -     Foreign Trade   foreign                                                                                Tariffs and
                                rights    enterprises.            Writtenb the right to     experience.                                        Writtenb were implemented.    Writtenb  Companies."    investment.                                                                            Trade
                                                                           import         
                                                                           equipment,     
                                                                           technology,    
                                                                           raw material   
                                                                           and other      
                                                                           goods for self 
                                                                           use and to     
                                                                           export their   
                                                                           products. For  
                                                                           the            
                                                                           importation of 
                                                                           goods and      
                                                                           technology     
                                                                           other than     
                                                                           those just     
                                                                           listed,        
                                                                           enterprises    
                                                                           should change  
                                                                           their scope of 
                                                                           the business   
                                                                           as required by 
                                                                           the relevant   
                                                                           legislation.   
                                                                           The foreign    
                                                                           trade law of   
                                                                           the People's   
                                                                           Republic of    
                                                                           China was      
                                                                           being revised  
                                                                           to reflect the 
                                                                           specific       
                                                                           requirements   
                                                                           on that.       
                                                                           (Verbale)      
                                                                           China had      
                                                                           already        
                                                                           responded to   
                                                                           questions in   
                                                                           relation to    
                                                                           trading        
                                                                           rights,        
                                                                           automobile     
                                                                           quotas and     
                                                                           fertilizer     
                                                                           TRQs in a      
                                                                           meeting held   
                                                                           under the      
                                                                           Committee on   
                                                                           Import         
                                                                           Licensing      
                                                                           Procedures and 
                                                                           the statement  
                                                                           by the head of 
                                                                           the Chinese    
                                                                           Delegation had 
                                                                           been provided  
                                                                           to the         
                                                                           Secretariat.   
                                                                           (Verbale)      

                      Page 28 GAO-05-209R U.S.-China Trade
                                                                          China had     
                                                                          adjusted its  
                                                                          policies in   
                                                                          relation to   
                                                                          the           
                                                                          fertilizer    
                                                                          VAT,          
                                                                          including the 
                                                                          differential  
                                                                          policies on   
                                                                          monoammonium  
                                                                          phosphate     
                                                                          (MAP) and     
                                                                          diammonium    
                                                                          phosphate     
                                                                          (DAP) in      
                                                                          2001, to      
                                                                          bring them    
                                                                          into          
                                                                          conformity    
                                                                          with the      
                                                                          national      
                                                                          treatment     
                                                                          principle     
                                                                          contained in  
                                                                          Article III   
                                                                          of GATT 1994. 
                                                                          After the     
                                                                          adjustment,   
                                                                          China began   
                                                                          to implement  
                                                                          the same VAT  
                                                                          policies on   
                                                                          imported and  
                                                                          domestic      
                                                                          fertilizers.  
                                                                          However, it   
                                                                          continued to  
                                                                          exempt MAP    
                                                                          from VAT      
                                                                          while         
                                                                          imposing VAT  
                                                                          on DAP.       
                                                                          Different VAT 
                                                                          measures on   
                                                                          these two     
                                                                          were adopted  
                                                                          based on the  
                                                                          agricultural  
                                                                          production    
                                                                          requirements  
                                                                          and           
                                   (GATT) 1994.                           fertilizer    
                                   Based on such                          products of   
                                   understanding,                         China. MAP    
                                   the rebate was                         and DAP were  
                                   a kind of                              two different 
                                   subsidy paid    Reason for             products with 
                                   to domestic    differential            different     
                                   producers      treatment of            uses and      
                                   allowed by      diammonium             users.        
                                   Article         phosphate              Although the  
                                   III.8(b) of       (DAP)                reserves of   
                                   GATT.          produced in             Chinese       
                                   (Verbale) Work  the United             phosphorite   
Summary Raised Raised              was underway     States,               mines were    
  of      by     by    China's     on a further      which     Written,a  quite         
issues  United  other  response    study of the     competes    Verbale   abundant,     
  by    States   WTO               issue, but     with similar            most of them  
 theme         members             according to    phosphate              were lean     
                                   preliminary    fertilizers             ores, so the  
                                   conclusions,   produced in             cost of ore   
                                   the policy of  China, such             concentration 
                                   rebate upon         as                 was quite     
                                   collection     monoammonium            high. As a    
                                   adopted by the  phosphate              result, in    
                                   Chinese           (MAP).               order to      
                                   government was                         fully apply   
                                   a subsidies                            phosphate     
                                   payment to its                         resources and 
                                   national                               protect the   
                                   products and                           environment,  
                                   was allowed                            China         
                                   under Article                          implemented   
                                   XIII. B of                             VAT exemption 
                                   GATT which                             measures      
                                   stated that                            encouraging   
                                   the provisions                         the           
                                   of that                                production of 
                                   article should                         MAP directly  
                                   not prevent                            from          
                                   the payment of                         relatively    
                                   subsidies                              lean ores.    
                                   exclusively to                         Producers     
                                   domestic                               were also     
                                   producers,                             encouraged to 
                                   including                              produce       
                                   payments to                            compound      
                                   domestic                               fertilizers.  
                                   producers                              (Verbale)     
                                   which were                             Article III   
                                   derived from                           of GATT 1994  
                                   the proceeds                           stated that   
                                   of internal                            same duties   
                                   taxes or                               should be     
                                   charges                                levied on     
                                   applied                                identical or  
                                   consistently                           similar,      
                                   with the                               mutually      
                                   provisions of                          substitutable 
                                   the article                            and directly  
                                   and the                                competitive   
                                   subsidies                              products.     
                                   effected                               However, MAP  
                                   through                                and DAP were  
                                   governmental                           goods of a    
                                   purchases of                           different     
                                   domestic                               nature and    
                                   products. In                           were not      
                                   accordance                             directly      
                                   with that                              competitive   
                                   provision,                             nor           
                                   China believed                         substitutable 
                                   that its VAT                           products in   
                                   policy with                            China. They   
                                   regard to                              were not      
                                   integrated                             identical or  
                                   circuits was                           similar goods 
                                   not in                                 due to their  
                                   violation of                           different     
                                   the national                           natures. They 
                                   treatment                              were not      
                                   principle of                           substitutable 
                                   GATT.                                  products due  
                                   (Verbale)                              to their      

                      Page 29 GAO-05-209R U.S.-China Trade
                                           different use. In                                                                 With regard                                                                                                                                                                                 
                                           China, DAP was                                                                        to                                                                                                                                                                                      
                                           directly applied in                                                                questions                                                                                                                                In 2003,                                          
                                           manufacturing, while                                                              in relation                                                                                                                               the volume                                        
                                           MAP was mainly used                                                                 to new                                                                                                                                  of                                                
                                           to produce compound                                                               automobile                                                                                                                                non-state                                         
                                           or special                                                                         policies,                                                                                                                                trading                                           
                                           fertilizers. They                                                                 the Chinese                                                                                                                               quotas for                                        
                                           were not competitive                                                              delegation                                                                                                                                urea was                                          
                                           products. China had                                                                   had                                                                                                             Information           180,000                                           
                                           been producing DAP                                                                 clarified                                            Possible                                                      on the                tons, while                                       
                                           since 1965.                                                                        the issue                                            establishment                                                 total                 that of                                           
                                           Currently, VAT was                                                                  in the                                              of a dual                                                     quantity of           state                                             
                                           levied on both                                                                       Trade                                              distribution                                                  each                  trading                                           
                                           imported and                                                                        Review                                              network for                                                   fertilizer            quotas was                                        
                                           domestically-produced                                                              Mechanism                                            domestically                                                  TRQ for               1,620,000;                                        
                                           DAP. In 2001, prima                                                               (TRM) under                                           produced and                                                  2003 that             the volume                                        
                                           facie consumption of                                                               the TRIMS                                            imported                                                      was                   of DAP         China's                            
                                           DAP was 4,970,000                                                                 Committee.                                            vehicles;                                                     allocated             non-state   implementation           
Summary Raised Raised                      tons, including                                                                   Given that                                            China's plan                                                  for                   trading         of its               
  of      by     by    China's             3,290,000 tons of                                              Written,a           issues in                                            to establish a                                                importation           quotas was   commitments             
issues  United  other  response            imports which                                                   Verbale           relation to                                 Writtena  "Law           Writtena                                       through     Writtena  1,190,000     regarding    Writtena  
  by    States   WTO                       represented a 66                                                                  automobile                                            Controlling                                                   state                 tons while   reallocation            
 theme         members                     percent of total                                                                   financing                                            the                                                           trading               that of     of 2003 TRQ on           
                                           consumption. These                                                                  and the                                             Monopolization                                                enterprises           state       fertilizer and           
                                           statistics showed                                                                  separate                                             of Automobile                                                 and                   trading       wool tops.             On 27 August
                                           that production and                                                                operation                                            Brands" to                                                    quantity              quotas was                           2003, MOFCOM
                                           consumption of DAP in                                                             network for                                           prohibit                                                      allocated             4,760,000                             published
                                           China had increased                             Status and                            new                                               dealers from                                                  for                   tons; the                             the notice
                                           instead of having                               implementation                    automobiles                                           selling both                      Time schedule               importation           volume of                                 on
                                           decreased as a                                  of new                             would be                                             imported and                      for                         through               non-state                            application
                                           consequence of a tax                            automobile                         discussed                                            domestic cars.                    legislation                 non-state             trading                                  for
                                           exemption measure on                            industrial                         under the                                                                              on car                      trading               quotas for                           reallocation
                                           MAP. There was no                               policy                            Council for                                                                             financing and               entities.             compound                               of 2003
                                           comparative relation                            "Guidelines                        Trade in                                                                               confirmation                                      fertilizers                           fertilizer
                                           between the two kinds                           for Current                        Services   Information on   Implementation                                   EC -      that China                                        was 600,000                          TRQ through
                                           of products.                                    Development of                    they would   China's new         of new                                       Written,b will not                                          tons while                           some media,
                                           Consequently, VAT     Information               Automobile                        not address   automotive       automobile                                     Verbale   impose any                                        that for                              requiring
                                           measures on these two   on VAT                  Industry" that                       those      policy and       industrial                                     Japan -   performance                                       state                                 importing
                                           kinds of products       regime                  may discourage                      issues    clarification    policy seeking                                   Written,c rule or         Tariff-rate                       trading was                          entities to
                                           were not in violation applied to     Automobile the                                  here.        on the        to restrict                                     Verbale   excessive         quotas                          2,380,000                               return
                                  EC -     of Article III of     copper raw     (non-quota importation of           EC -      (Verbale)   policy's WTO      imports of                                     EC -      capital          (TRQ) and                        tons.                                  unfilled
                                  Writtenb GATT 1994. (Verbale)  materials.      issues)   auto parts.              Writtenb             compatibility.       CKDs.                                        Writtenb  requirements.     quotas                          (Verbale)                               quotas

                      Page 30 GAO-05-209R U.S.-China Trade
                                                                                                             Quantity of Import TRQ 
                                                                                                             made available for     
                                                                                                             2003, number of        
                                                                                                             enterprises/applicants 
                                                                                                             filed and granted for  
                                                                                                             TRQ reallocation,      
                                                                                                             quantity of TRQs for   
                                                                                                             allocation or          
                                                                                                             reallocation rejected, 
                                                                                                             fill rates for quota   
                                                                                                             or TRQ, amount of any  
                                                                                       Information           goods entered at the   
                                                                                       on 2003               over quota rate, time  
                                                                                       quota                 taken to grant a quota 
                                                                                       allocation            or TRQ allocation -    
                                                                                       for autos             specified for wheat,   
                                                                                       and other             maize, rice, soybean   
                                                                                       products:             oil, rape seed oil,    
                                                                                       total                 palm oil, sugar,       
                                                                                       quantity of           cotton, wool, wool     
                                                                                       quotas                top, urea, diammonium  
                                                                                       applied               phosphate, nitrogen,   
                                                                                       for; number           phosphorous, potassium 
                                                                                       of requests           (NPK). (Writtend) With 
                                                                                       for quotas            regard to TRQ          
                                                                                       denied;               allocation for         
                                                                                       total                 automobiles in 2003,   
                                                                                       quantity of           in accordance with     
                                   before                                              quotas                China's WTO            
                                   September 15  Confirmation            On 10 October allocated             commitments, China had 
                                   of that      that China has           2003, MOFCOM  to                    fully allocated the    
                                   year, and        fully                made public   end-users;            US$ 9.125 billion      
                                   stating that allocated DAP            the total     minimum               worth of quotas for    
Summary Raised Raised              applications TRQs for 2003            volume, the   size of               automobiles. No return 
  of      by     by    China's     for           and has not             principles of individual            quotas had been        
issues  United  other  response    reallocation   sought to    Writtena  allocation    quota       Writtena  received before 10     
  by    States   WTO               would be      control the             and the       allocation;           September 2003 and     
 theme         members             accepted      level of DAP            application   fill rates            therefore the          
                                   from            imports               procedures of for the               government authority   
                                   September 15    through               TRQs for      quotas;               in charge of quota     
                                   to September administrative           fertilizer    total                 administration did not 
                                   30 and that      means.               import as of  quantity of           exercise any           
                                   reallocation                          the year      quotas                reallocation in this   
                                   would be                              2004. The     allocated             regard. (Verbale) In   
                                   completed                             competent     to entities           accordance with Public 
                                   before 15                             Chinese       that had              Notice No. 58 issued   
                                   October                               authorities   not                   by the former MOFTEC   
                                   2003. On                              had already   previously            in 2002, China         
                                   October 14,                           distributed   been                  eliminated import      
                                   MOFCOM                                all 5,950,000 allocated             quota administration   
                                   circulated                            tons of DAP   quotas; and           for motorcycles and    
                                   the public                            for 2003, and total                 crane lorries ahead of 
                                   notice for                            had not       quantity of           schedule, while        
                                   fertilizer                            adopted       quotas                automobiles and its    
                                   TRQs                                  import        allocated             key parts remained     
                                   reallocation                          controlling   to                    under quota            
                                   as of the                             measures.     enterprises           administration in      
                                   year 2003,                            Enterprises   with                  2003. In line with its 
                                   amongst                               could, at     foreign               accession commitments, 
                                   which the                             their own     ownership.            the Chinese government 
                                   volume for                            discretion,                         had already            
                                   compound                              decide on the                       distributed US $9.1    
                                   fertilizers                           time and                            billion worth of       
                                   was 350,000                           import volume                       quotas. Given that     
                                   tons, that                            in light of                         they had not come to   
                                   for DAP was                           market                              the end of 2003, it    
                                   12,000 tons                           demands,                            would be impossible to 
                                   and for                               without                             calculate the filled   
                                   urea, 20,000                          government                          rate of quotas at the  
                                   tons.                                 interference.                       present stage.         
                                   (Verbale)                             (Verbale)                           (Verbale)              

                      Page 31 GAO-05-209R U.S.-China Trade
                                                        The process                                                                                                                                                                                     
                                                        for tariff                                                                                                                                                                                      
                                                        quota rates,                                                                                                                                                                                    
                                                        publishing the                                                                                                                                                                                  
                                                        total volume                                                                                                                                                                                    
                                                        of TRQs for                                                                                                                                                                                     
                                                        fertilizers in                                                                                                                                                                                  
                                                        2003 and 2004                                                                                                                                                                                   
                                                        and also                                                                                                                                                                                        
                                                        publishing                                                                                                                                                                                      
                                                        conditions for                                                                                                                                                                                  
                                                        enterprises                                                                                                                                                                                     
                                                        applying for                                                                                                                                                                                    
                                                        the allocation                                                                                                                                                                                  
                                                        of such quotas                                                                                                                                                                                  
                                                        was                                                                                                                                                                                             
                                                        transparent                                                                                                                                                                                     
                                                        and fair. With                                                                                                                                                                                  
                                                        regard to the                                                                                                                                                                      
                                                        reselling of                                                                                                                                                                       
                                                        quotas,                                                                                                                                                                            
                                                        according to   Quotas                  Request for                                                                                   Provision                Method               
                                                        Chinese        officially              China to                                                                                      that quota               for                  
                                                        legislation    announced as            publish the                                                                                   holders not              granting             
                                                        this was an    issued                  criteria                                                                                      having                   import               
                                                        illegal act    conform to              applied for           Interchangeability                                                      imported                 licenses             
                                                        and one to be  China's                 the                   of import licenses                                                      their full               that                 
Summary Raised                                          combated       commitments             allocation            between different                                                       allocation               China                
  of      by            China's                         seriously. The but                     of the                types of models                      Japan -                  Japan -   would          Japan -   uses to     Japan -  
issues  United          response                        Chinese        quantities              licenses              (e.g., engine                       Written,c                Written,c  receive a     Written,c  control    Written,c 
  by    States                                          government     actually                for quotas            specifications)                      Verbale                  Verbale   proportional   Verbale   the         Verbale  
 theme                                                  firmly cracked allocated               and                   with regard to                                                          reduction in             number of            
                                                        down on all    are smaller,            tariff-rate           automobiles.                                                            their quota              import               
                                                        kinds of       including               quotas for                                                                                    allocation               licenses             
                                                        reselling      import                  automobile                                                                                    in the                   granted              
                                                        activities and quotas on               and                                                                                           subsequent               by                   
                                 Large parts            they requested automobiles.            fertilizer.                                                                                   year unless              category.            
                                 of the                 that the                                                                                                                             the quantity                                  
                                 quotas for             European                                                                                                                             is returned                                   
                                 automobile             Communities                                                                                                                          for                                           
                                 and                    provide then                                                                                                Status of                reallocation                                  
                                 fertilizer             with any                                                                                                    China's                  by 1                                           China had
                                 not                    relevant                                                                                                    quota                    September;                                    already made
                                 allocated to           information                                                                                                 allocation               number of                                     detailed and
                                 the genuine            they may have                                                                      Confirmation             and                      quota                                           specific
                                 importers              concerning                                                                         that no                  reallocation             holders to                                    explanations
                                 (state-owned           reselling so                                                                       other items              for 2003 in              whom this                                        in the
                                 or not) but            that the                                                                           subject to               light of                 provision                                        Import
                                 to other               Chinese                                                                            automobile               ensuring a               applied in                                     Licensing
                                 parties not            authorities                                                                        import                   transparent              China's                                       Committee on
                                 involved in            could deal                                                                         quotas for               system;                  allocation                                     2 October
                                 import                 with it.                                                                           2003 other               actual                   of import                                       2003. In
                                 activities,            (Verbale) The                                                                      than 44                  quotas for               quotas in                                     particular,
               Raised            from which             administration                                                                     items under              2003, not                fiscal year                                     they had
               by other          the genuine            of imported                  Japan -                                               complete                 only item by             (FY) 2003;                                    highlighted
               WTO               importers              automobiles,                 Written,c                                             vehicles and             item, but                total number                                      the
               members           have to                with regard to               Verbale                                               one item                 also by                  of                                             disparity
               EC -              "buy" the     EC -     the disparity                EC -                   EC -                           under auto               country of               reductions                                       issue.
               Writtenb          licenses.     Writtenb existing                     Writtenb               Writtenb                       parts.                   origin.                  in quotas.                                     (Verbale)
                                                        between the    
                                                        actual and the 
                                                        committed      
                                                        volume, from   
                                                        April 2002 to  
                                                        March 2003,    
                                                        namely in the  
                                                        first year of  
                                                        China's        
                                                        administration 
                                                        of quotas for  
                                                        automobiles;   
                                                        the            
                                                        administration 
                                                        of the import  
                                                        quota for      
                                                        2003; the      
                                                        transparency   
                                                        of             
                                                        distribution   
                                                        procedures and 
                                                        the criteria   
                                                        for            
                                                        distribution.  
                                                        (Verbale)      
                                                        China had      
                                                        already made   
                                                        detailed and   
                                                        specific       
                                                        explanations   
                                                        in the Import  
                                                        Licensing      
                                                        Committee on 2 
                                                        October 2003.  
                                                        In particular, 
                                                        they had       
                                                        highlighted    
                                                        the disparity  
                                                        issue.         
                                                        (Verbale)      

                      Page 32 GAO-05-209R U.S.-China Trade
                                                                  In China,                                                                                                           
                                                                  taxable value                                                                                                       
                                                                  for the                                                                                                             
                                                                  purpose of                                                                                                          
                                                                  imposing                                                                                                            
                                                                  consumption                                                                                                         
                                                                  tax included                                                                                                        
                                                                  a consumption                                                                                                       
                                                                  tax factor,                                                                                                         
                                                                  i.e.: taxable                                                                                                       
                                                                  value = (cost                                                                                                       
                                                                  + profit)/(1                                                                                                        
                                                                  -consumption                                                                                                        
                                                                  tax rate).                                                                                                          
                                                                  Such a                                       The relevant                                                           
                                                                  calculation                                  WTO Agreement                                                          
                                                                  method                                       did not                                                                
                                                                  applied to                                   stipulate the                                                          
                                                                  both imported                                types of                                                               
                                                                  goods and                                    duties that                                                            
                                                                  domestic                                     should be                                                              
                                                                  goods. The                                   levied by WTO                                                          
                                                                  consumption                                  Members, nor                                                           
                                                                  tax factor                                   did it                                                                 
                                                                  was put into                                 require WTO                                                            
                                                                  the taxable                                  Members to                                                             
                                                                  value while                                  implement the                                                          
                                                                  calculating                                  same types of                                                          
                                                                  and levying                                  duties as                                                              
                                                                  consumption                                  those                                                                  
                                                                  tax on either                                contained in                                                           
                                                                  imported or                                  the schedule                                                           
                                                                  domestic                                     of                                                                     
                                                                  products. Due                                concessions.                                                           
                                                                  to such a                                    The agreement                                                          
                                                                  method, the                                  only required                                                          
                                                                  consumption                                  that the                                                               
                                                                  tax factor                                   duties be                                                              
                                                                  was taken                                    imposed at a                                                           
                                                                  into account                                 level no                                                               
                                                                  when the                                     higher than                                                            
                                                                  selling price                                the committed                                                          
                                                                  of domestic                                  duty rates.                                                            
                                                                  products was                                 This had been                                                          
                                                                  being                                        recognized in                                                          
                                                                  determined.                                  previous WTO                                                           
                                                                  Thus, since                                  Understanding                                                          
                                            Reason for            the taxable            Reason for            on Dispute                                                             
                                            different             value of                specific             Settlement                                                             
                                            and higher            domestic              duties using           (DSU) cases                                                            
Summary        Raised                       tax base              products               excessive             by the                                              Information        
  of    Raised   by                         used to               already               tariff rates           Appellate                     Japan     Prohibition    about           
issues    by    other  China's              compute     Writtena  included a    Tariffs  imposed on   Japan -  Body.                       -Written,c  on sale of    China's    Japan 
  by    United   WTO   response             consumption           consumption           photographic  Writtenc Therefore,                   Verbale      imports     plan to      -   
 theme  States members                      tax for               tax factor,             products             although                                               limit           
                                            imported              the                    instead of            China had                                                              
                                            and                   corresponding          ad valorem            made                                                                   
                                            domestic              consumption             duties.              commitments                                                            
                                            goods.                tax was the                                  in relation                                                            
                                                                  taxable value                                to ad valorem                                                          
                                                                  multiplied by                                duties on the                                                          
                                                                  the tax rate.                                35 kinds of                                                            
                                                                  Since the                                    photographic                                                           
                                                                  import value                                 products, it                                                           
                                                                  of imported                                  still had the                                                          
                                                                  goods did not                                right to                                                               
                                                                  include a                                    apply                                                                  
                                                                  consumption                                  specific                                                               
                                                                  tax factor,                                  duties on                                                              
                                                                  such a value                                 these                                                                  
                                                                  was converted                                products. In                                                           
                                                                  into a                                       2003, China                                                            
                                                                  taxable value                                had lowered                                                            
                                                                  that                                         the specific                                                           
                                                                  contained a                                  duty rates on                                                          
                                                                  consumption                                  the 35 kinds                                                           
                                                                  tax factor.                                  of                                                                     
                                                                  The                                          photographic                                                           
                                                                  consumption                                  products.                                                              
                                                                  tax was then                                 Specific                                                               
                                                                  worked out                                   duties                                                                 
                                                                  based on the                                 imposed on                                                             
                                                                  converted                                    these                                                                  
                                                                  taxable                                      products were                                                          
                                                                  value.                                       within the                                                             
                                                                  Otherwise,                                   committed                                                              
                                                                  the value of                                 tariff rate                                                            
                                                                  imported                                     level and                                                              
                                                                  goods would                                  were                                                                   
                                                                  not contain a                                therefore not                                                          
                                                                  consumption                                  in violation                                                           
                                                                  tax factor,                                  of China's                                                             
                                                                  while that of                                commitments.                                                           
                                                                  domestic                                     However,                                                               
                                                                  goods would,                                 China wished  Time                                                     
                                                                  which would                                  to continue   schedule for                                             
                                                                  lead to                                      the technical tariff                                                   
                                                                  unfair                                       consultations amendments                                               
                                                                  treatment in                                 with Japan to to apply                                                 
                                                                  relation to                                  ensure that   China's                                                  
                                                                  tax                                          specific duty tariff                                                   
                                                                  imposition on                                rates         concessions                                              
                                                                  imported and                                 remained at a for 35 items                                             
                                                                  domestic                                     reasonable    of                                                       
                                Consumption                       products.                                    level.        photographic                                             
                                    tax                           (Verbale)                                    (Verbale)     products.                                                

Summary of issues Raised by Raised by                                      
       by theme       United   other WTO           China's response
                      States    members   
the scope of                           
"management right                      
to passenger                           
vehicles,"                             
required of                            
retail dealers in                      
passenger                   Written,c  
vehicles, either             Verbale   
to domestic cars                       
or imported cars;                      
belief that such                       
regulation should                      
not be                                 
introduced.                            
                                          With respect to wastes that could   
                                          be used as raw materials, the       
                                          former National Environmental       
                                          Protection Agency, with other       
                                          governmental departments concerned, 
                                          jointly issued the "Provisions on   
                                          Administration of Environmental     
                                          Protection on Import of Wastes" on  
                                          March 1, 1996, and a "List of       
                                          Wastes Used as Raw Materials and    
                                          Restricted in Import" had also been 
                                          annexed. Wastes listed in the       
                                          catalogue could be imported upon    
                                          examination and approval by the     
                                          former National Environmental       
                                          Protection Agency (now called the   
                                          State Environmental Protection      
                                          Administration). The import of      
                                          unlisted wastes was thereby         
        China's                           prohibited. Therefore, it could be  
    prohibition on                        seen that China did not generally   
      used goods,                Japan    prohibit the importation of all     
    including worn             -Written,c used goods or wastes. (Verbale)     
     clothing and               Verbale   China prohibited the importation of 
     automobiles;                         used clothing and automobiles in    
    possibility to                        line with the "general exception"   
abolish measures.                      principle and health quarantine in  
                                          international trade. The measures   
                                          on used clothing and automobiles    
                                          were implemented on a               
                                          non-discriminatory basis.           
                                          Applicable regulatory procedures    
                                          were transparent and the catalogue  
                                          of prohibited products was publicly 
                                          available, fully consistent with    
                                          WTO rules. In addition, those       
                                          measures were adopted for the       
                                          purpose of protecting the life and  
                                          health of humans, animals and       
                                          plants; nor had they constituted    
                                          discrimination or trade             
                                          restrictions in disguised forms;    
                                          thus they were in conformity with   
                                          "general exception" rules enshrined 
                                          in Article XX(b) of GATT 1994.      
                                          (Verbale)                           

Source: GAO analysis of WTO documents.
aCommunication from U.S.: G/MA/W/51; dated 10/10/03.

bCommunication from European Communities: G/MA/W/49; dated 8/14/03.

cCommunication from Japan: G/MA/W/50; dated 9/8/03.

dCommunication from China: G/MA/W/52; dated 10/15/03.

eCommittee report detailing verbal statements made during meeting:
G/MA/M/35; meeting dated 10/20/03.

                      Page 33 GAO-05-209R U.S.-China Trade

Enclosure VII Committee on Rules of Origin

                      Page 34 GAO-05-209R U.S.-China Trade
                                                                                                         In accordance                                                                                                                                           
                                                                                                         with Article 8 of                                                                                                                                       
                                                                                                         Announcement                                                                                                                                            
                                                                                                         No.17, 2001 of                                                                                                                                          
                                                                                                         the General                                                                                                                                             
                                                                                                         Administration of                                                                                                                                       
                                                                                                         Customs, the                                                                                                                                            
                                                                                                         party dissenting                                                                                                                                        
                                                                                                         to the decision                                                                                                                                         
                                                                                                         made by the                                                                                                                                             
                                                                                                         Customs may apply                                                                                                                                       
                                                                                                         for                                                                                                                                                     
                                                                                                         administrative                                                                                                                                          
                                                                                                         review or bring a                                                                                                                                       
                                                                                                         suit before a                                                                                                                                           
                                                                                                         people's court.                                                                                                                                         
                                                                                  Review of              In accordance                                                                                                                                           
                                                                                  origin by              with Article 6,                                                                                                                                         
                                                                                  judicial,              the review had                                                Punishment for                                   Customs list                             
                                                                                 arbitral, or            the right to                                                    import of                                           for                China's existing 
Summary        Raised                       Method of              The method   administrative           change or annul                                               products whose                                   manufacturing           non-preferential 
  of    Raised   by                        calculating    Chinese  applied was   procedures;    Chinese  specific          Regulations      Chinese                      origin is     Chinese                               and       Chinese  rules of origin  
issues    by    other  China's            percentage of   Taipei - that the       importer's    Taipei - pre-determination concerning       Taipei - In accordance        falsely      Taipei -  Actions such            processes,    Taipei - for exports were 
  by    United   WTO   response            substantial    Writtena value-added      appeal      Writtena of origin made by confidentiality  Writtena with Article 9 of  reported or    Writtena    as false              application   Writtena promulgated on 8 
 theme  States members                   transformation.           component    procedures for           the Customs. The  of information.           Announcement      counterfeited;            declaring of           of rules, and            March 1992 and  
                                                                   was more       ruling on              application of                              No.17, 2001 of      published                country or             calculation            came into effect 
                                                                   than 30         origin;               administrative or                           the General         records of                 faking               of assembly            on May 1, 1992.  
                                                                   percent in   authority that           judicial review                             Administration of  punishment.             certificate of             ratio.                The rules were
                                                                   the total       assesses              was based on                                Customs, the                                origin were                                       applied in
                                                                   value of a      appeal.               Administrative                              Customs would not                          dealt with by                                   issuing Chinese
                                                                   new product,                          Review Law of the                           disclose the                                  Customs                                       certificate of
                                                                   the                                   People's Republic                           information for                             according to                                      origin for
                                                                   calculation                           of China,                                   origin                                        relevant                                     non-preferential
                                                                   of which was                          Provisions for                              pre-determination                           stipulations                                     exports upon
                                                                   that the CIF                          the                                         without the                                of Customs Law                                     request of
                                                                   value of                              Implementation of                           specific                                       of the                                      consignee of the
                                                                   non-original                          Administrative                              permission of the                             People's                                      export and had
                                                                   component                             Review Law of the                           person concerned,                           Republic of                                     no binding on
                                                                   was 70                                Customs of the                              except to the                              China and the                                   importing side.
                                                                   percent or                            People's Republic                           extent that it                                Rules of                                       There was no
                                                                   less in FOB                           of China, and                               may be required                            Administrative                                       origin
                                                                   value of the                          Administrative                              to be disclosed                            Penalties for                                     declaration
                                                                   product                               Procedure Law of                            in the context of                               the                                         requirement by
                                                                   after being                           the People's                                judicial                                   Implementation                                    Customs for
                                Imported                           processed.                            Republic of                                 proceedings.                               of the Customs Exported                             exports.
                                 goods                             (Verbalb)                             China. (Verbalb)                            (Verbalb)                                  Law. (Verbalb)  goods                              (Verbalb)

Source: GAO analysis of WTO documents.
aCommunication from Chinese Taipei: G/RO/W/99; dated 9/22/03.

bCommittee report detailing verbal statements made during meeting:
G/RO/56; meeting dated 10/3/03.

Enclosure VIII Committee on Safeguards

                      Page 35 GAO-05-209R U.S.-China Trade
                                                                China's                                                                                                                       
                                                                safeguard                                                                                                                     
                                                                investigation                                                                                                                 
                                                                on certain                                                                                                                    
                                                                imported steel                                                                                                                
                                                                products had                                                                                                       
                                                                been carried                                                                                                       
                                                                out in full                                                                                                        
                                                                compliance                                                                                                         
                                                                with the WTO                                                                                                       
                                                                Agreement on                                                                                                       
                                                                Safeguards and                                                                                                     
                                                                in strict                                                                                                          
                                                                conformity to                                                                                                      
                                                                China's                                                                                                            
                                                                safeguards                                                                                                         
                                                                laws.                                                                                                              
                                                                Regarding the                                                                                                      
                                                                provisional                                                                                                        
                                                                and definitive                                                                                                     
                                                                safeguard                                                                                                          
                                                                measures on                                                                                                        
                                                                certain                                                                                                            
                                                                imported steel                                                                                                     
                                                                products,                                                                                                          
                                                                China had                                                                                                          
                                                                notified the                                                                                                       
                                                                Committee on                                                                                                       
                                                                Safeguards of                                                                                                      
                                                                the findings                                                                                                       
                                                                with regard to                                                                                                     
                                                                serious injury                                                                                                     
                                                                and the threat                                                                                                     
                                                                thereof caused                                                                                                     
                                                                by increased                                                                                                       
                                                                imports, as                                                                                                        
                                                                well as the                                                                                                        
                                                                authority's                                                                                                        
                                                                decisions to   Legal                                                                                               
                                                                apply such     basis                                                                                               
                                         Detailed               measures, thus enabling                                                                                            
                                         explanation            having         the                                                                                                 
                                         on legality            fulfilled its  Government                                                                                          
                                         of                     notification   to retain                                                                                           
                                         provisional            obligations    measures                                                                                            
                                         and                    under the      on                                                                                                  
                                         definitive             Agreement on   products                                                                                            
                                         safeguard              Safeguards.    that the                                                       The EC                               
                                         measures on            China's        State                                                          questions                            
                                         certain                investigating  Economic                                                       concerning the                       
                                         steel                  authorities    and Trade                                                      review of                            
Summary Raised Raised                    products               also made      Commission            Article 16 of                            China's                  Delay in    Concerning
  of      by   by      China's  Measures and China's   Japan -  adequate       (SETC)       Japan -  China's                           EC -   safeguard                  China     any delay
issues  United other   response on steel schedule     Written,a information    determined  Written,a safeguards                       Verbalb measures would           notifying     in the
  by    States WTO                       aiming at     Verbalb  disclosures    do not       Verbalb  regulations                              be referred to           rules to    submission
 theme         members                   totally                regarding      cause                 provided that                            capital for                 the          of
                                         repealing              findings of    injury;               in a case where                          further                              
                                         these                  the            immediate             a preliminary                            consideration.                       
                                         measures;              investigation, repeal or             determination                            (Verbalb)                            
                                         Chinese                and notified   plans of              established the                                                               
                                         measures               disclosed      mitigating            existence of an                                                               
                                         not in                 information to measures,             increase in the                                                               
                                         conformity             Members having and                   quantity of an                                                                
                                         with                   a substantial  schedule              imported                                                                      
                                         Safeguards             interest,      aiming at             product and                                                                   
                                         Agreement.             including      repealing             injury and a                                                                  
                                                                Japan.         measures              causal link                                                                   
                                                                Moreover,      to these              between the                                                                   
                                                                pursuant to    products.             two, MOFTEC and                                                               
                                                                the rules set                        the State                                                                     
                                                                out in                               Economic and                                                                  
                                                                Articles 12.3                        Trade                                                                         
                                                                and 12.4 of                          Commission                                                                    
                                                                the Agreement                        (SETC) should                                                                 
                                                                on Safeguards,                       continue with                                                                 
                                                                China had held                       their                                                                         
                                                                consultations                        investigations                                                                
                                                                with those                           and, on the                                                                   
                                                                Members having                       basis of the                                                                  
                                                                substantial                          findings of                                                                   
                                                                interest,                            such                                                                          
                                                                including                            investigations,                                                               
                                                                Japan,                               make a final                                                                  
                                                                furnished the                        determination                                                                 
                                                                relevant                             which should be                                                               
                                                                information,                         published by                                                                  
                                                                and exchanged                        MOFTEC.                                                                       
                                                                views on the                         Accordingly, a  Inconsistencies                                               
                                                                measures.                            final           in China's                                                    
                                                                China's                              determination   measures;                                                     
                                                                safeguard                            was published   possibility                                                   
                                                                measures on                          by MOFTEC on 19 that China                                                    
                                                                certain                              November 2002.  might review                                                  
                                                                imported steel                       Relevant        its measures                                                  
                                                                products had                         information     before their                                                  
                                                                been, and                            could be found  three-year                                                    
                                                                would continue                       in the Official expiry and                                                    
                                                                to be, applied                       Notice          China's                                                       
                                                                according to                         published by    consideration                                                 
                                                                the timetables                       the Ministry of of a review in                                                
                                                                stipulated in                        Foreign Trade   the event that                                                
                                                                China's                              and Economic    the U.S. and                                                  
                                                                Official                             Cooperation,    E.C. steel                                                    
                                                                Bulletin on                          now the         safeguard                                General              
                                                                definitive                           Ministry of     measures were                           safeguard             
                                                                measures.                            Commerce.       revoked in the                          measures              
                                                                (Verbalb)                            (Verbalb)       coming months.                           Verbalb              

                              Raised by Raised by                             
Summary of issues by theme  United   other WTO      China's response
                               States   members   
                                                  China's legislative         
                                                  notifications, that was     
                                                  attributable to government  
                                                  restructuring which China   
WTO in light of China                          has been engaged in         
having undertaken a                            starting from March or      
safeguard investigation                        April 2003. China           
before all the necessary                       considered that it was only 
rules had been issued and                      appropriate for it to make  
notified.                                      the necessary modifications 
                                                  and changes to the original 
                                                  legislations because of the 
                                                  restructuring of the        
                                                  Chinese government          
                               Verbalb            departments. (Verbalb)      
    Lack of transparency in                       
    China's decision-making                       
process for the safeguard                      
     measures (e.g. unclear                       
     process for allocating                       
            quotas).           Verbalb            
Criteria China had used in                                                 
determining which WTO                                                      
Members would be accorded                                                  
the status of a developing                     With regard to the specific 
country or region for                          issues raised by the United 
purposes of Article 9.1 of                     States, such as the         
the Agreement (provision                       standards or criteria that  
requiring non-application                      China had used for defining 
of safeguard measures to                       developing countries, at    
developing country WTO                         least for the purpose of    
Members where import share                     China's safeguard           
criteria were met), and                        investigations, and other   
whether those criteria                         issues such as the          
were clear and                                 treatment of non-WTO        
transparent.                Verbalb            Members, these were already 
China's treatment of                           covered by China's written
non-WTO Members under                          replies to written
Article 9.1, given that it                     questions. (Verbalb)
did not provide for the                        
exclusion of countries                         
that were not WTO Members.  Verbalb            
Protection of confidential                     
data submitted during the                      
course of a safeguard                          
investigation, especially                      
when outside experts were                      
employed.                   Verbalb            
Access to non-confidential                     
information from safeguard                     
investigations by                              
interested parties and by                      
the general public, in                         
terms of the procedural                        
requirements for and                           
limitations on such                            
access.                     Verbalb            
Refunding of safeguard                         
duties collected pursuant                      
to provisional measures                        
when definitive measures                       
were not imposed on the                        
relevant products.          Verbalb            
      Terms and conditions                        
covering China's extension                     
     of safeguard measures.                       

Source: GAO analysis of WTO documents.
Note: An additional document source is a communication from China:
G/SG/W/195; dated 10/17/03.

aCommunication from Japan: G/SG/Q2/CHN/2; dated 9/19/03.

bCommittee report detailing verbal statements made during meeting:
G/SG/66; meeting dated 10/20/03.

                      Page 36 GAO-05-209R U.S.-China Trade

Enclosure IX Committee on Sanitary and Phytosanitary Measures

                      Page 37 GAO-05-209R U.S.-China Trade
                                                                                                                                                           China's WTO                                                                                                                                                    
                                                                                                                                                           Notification                                                                                                                                                   
                                                                                                                                                           and Enquiry                                                                                                                                                    
                                                                                                                                                           Center in the                                                                                                                                                  
                                                                                                                                                           Ministry of                                                                                                                                                    
                                                                                                                                                           Commerce is                                                                                                                                                    
                                                                                                                                                           responsible                                                                                                                                                    
                                                                                                                                                           for SPS                                                                                                                                                        
                                                                                                                                                           notifications.                                                                                                                                                 
                                                                                                                                                           The SPS                                                                                                                                                        
                                                                                                                                                           Enquiry Point                                                                                                                                                  
                                                                                                                                                           is established                                                                                                                                                 
                                                                                                                                                           in the State                                                                                                                                                   
                                                                                                                                                           General                                                                                                                                                        
                                                                                                                                                           Administration                                                                                                                                                 
                                                                                                                                                           for Quality                                                                                                                                                    
                                                                                                                                                           Supervision                                                                                                                                                    
                                                                                                                                                           and Quarantine                                                                                                                                                 
                                                                                                                                                           (AQSIQ). All                                                                                                                                                   
                                                                                                                                                           SPS                                                                                                                                                            
                                                                                                                                                           notifications                                                                                                                                                  
                                                                                                                                                           undergo the                                                                                                                                                    
                                                                                                                                                           technical                                                                                                                                                      
                                                                                                                                                           review of the                                                                                                                                                  
                                                                                                                                                           SPS Enquiry                                     Results of                                                                                                     
                                                                                                                                                           Point and then                                     risk                                                                                                        
                                                                                                                                    Explanation            are notified                                   assessments                                                                                                     
                                                                                                                                      of steps             to WTO through                                  conducted                                                                                                      
                                                                                                                                      taken to             China's WTO                                    for China's                                                                                                     
                                                                                                                                    ensure that            Notification                                     plans to                                                                                                      
                                                                                                                                    other Member           and Enquiry                                      suspend                                                                                                       
Summary        Raised                                                                                                                Countries             Center.        Full list of                      soybean                                                                                                       
  of    Raised   by                                                                                                                 are given a            (Verbald) To   products                        imports from                                                                                                    
issues    by    other  China's                                       Writtena            Writtena                                    realistic             date in 2003,  subject to        Science-based companies in Writtena                             Writtena                 Writtena                   Writtena  
  by    United   WTO   response                                                                                                     opportunity            China has made mandatory           measures       U.S.,                                                                                                        
 theme  States members                                                                                                               to comment            24 SPS         health                           Argentina                                                                                                      
                                                                                                                                    on notified            notifications. certification.                  and Brazil,                                                                                                     
                                                                                                                                    measures in            Some of these                                    based on                                                                                                      
                                                                                                                                     advance of            were specific                                   detections                                                                                                     
                                                                                                                                       their               detailed                                            of                                                                                                         
                                                                                                                                    application.           implementation                                 Phytophthora                                                                                                    
                                                                                                                                                           rules                                            sojae in                                                                                                      
                                                      Role of State                                                                                        corresponding                                  shipments of                                                                                                    
                                                      General                                                                                              to laws or                                      soybeans.                                                                                                      
                                                      Administration                                                                                       regulations                                                           On the issue                                                                             
                                                      of Quality                                                                                           that had been                                                         of soybean                                                                               
                                                      Supervision,                                                                                         previously                                                            quarantine                                                                               
                                                      Inspection and                                                                                       notified to                                                           measures,                                                                                
                                                      Quarantine                                                                                           WTO. The                                                              China had                                                                                
                                                      (AQSIQ) in                                                                                           regulations                                                           provided the                                                                             
                                                      monitoring the                                                                                       enacted and                                                           necessary                                                                                
                                                      development                                                                                          revised under                                                         clarifications                                                                           
                                                      and                                                                                                  the auspices                                                          during the                                                                               
                                                      implementation                                        Explanation                                    of the                                                                transitional                                                                             
                                                      of China's                                               of how                                      Ministry of                                                           review by the                                                                            
                                                      regulatory                                              comments                                     Health are                                                            Committee on                                                                             
                                                      controls for                                           were taken                                    national food                                                         Agriculture.                                                    Role of AQSIQ            
                                                      seafood,                                              into account                                   safety                                                                No single                                                       in monitoring            
                                                      including                                              when China                                    standards at                                                          foreign                                                              the                 
                                                      Decree 31,                                              notifies                                     the draft                                                             company's                                                       development,             
                                                      Certification                                          changes in                                    stage. The                                                            soybeans were                                                  implementation,           
                                                      Requirements                Time                      SPS measures                                   first 17                                                              suspended or                                                         and                 
                                                      for                       schedule                     after the                                     drafts have                                                           prohibited     Risks that                                      notification of           
                                                      Fresh/Chilled,              for                         proposed                                     been notified                                                         from being      Decree 31              Scientific                 laws and               
                                                      Frozen and                AQSIQ to                      date of                                      to the WTO,                                                           imported into      is                 justification              regulations             
                                                      Processed                  notify                      entry into                                    for comments                                                          China on SPS   endeavoring            for Decree 31            covering food,            
                                   Notification of    Aquatic                    Degree           EC -      force of the  EC -                    EC -     from Members.                                                         grounds.           to                 certification             forestry and             
                                measures/transparency Products.                   31.             Writtenb  legislation.  Writtenb                Writtenb (Verbald)                                                             (Verbald)       mitigate.             requirement.                 fishery               

                      Page 38 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                        China respects the 
                                                                                                                               China fully                                                              principle of       
                                                                                                                               respects the                                                             non-discrimination 
                                                                                                                               principles                                                               in the course of   
                                                                                                                               identified                                                               developing and     
                                                                                                                               in the SPS                                                               implementing SPS   
                                                                                                                               Agreement,                                                               measures. For      
                                                                                                                               especially                                                               products with      
                                                                                                                               the                           Chinese                                    identical risks,   
                                                                                                                               principle of                  experts                                    China's SPS        
                                                                                                                               a scientific                  have                                       measures,          
                                                                                                                               basis, in                     received                                   especially end     
                                                                      Concern that                                             the process                   and are                                    product criteria,  
                                                                      the                                                      of                            now                                        are applied        
                                                                      notification                                             developing                    studying                                   equally to         
                                                                      MOH draft                                                and                           the                                        domestic and       
                                                                      regulations                                              implementing China's          experts'                                   imported products. 
                                                                      would compel                                             its SPS      implementation   report on                                  The recent         
                                                                      the                                                      measures.    of European      cosmetics            Equal                 standards revised  
                                                                      initiation of                     Measures to            China's SPS  and Chinese      which was            application           or developed by    
                                                                      an immense                        ensure that            measures are experts'         drafted by           of MOH's              the Ministry of    
                                                                      set of                           sanitary and            all based on scientific       the EC               new                   Health, in which   
                                                                      complex                          phytosanitary           risk         assessment       panel.               regulations           some Members are   
Summary Raised Raised                                                 testing,                         measures are            assessments. applied to       China pays           covering              interested, will   
  of      by     by    China's                                        grading and                        based on              In December  cosmetics,       great      National  food,                 also apply equally 
issues  United  other  response                            Writtena   risk          Writtena            scientific             2002, China  including        attention  treatment forestry,   Writtena  to domestic and    
  by    States   WTO                                                  assessment                        principles             published    finding that     to the               and fishery           imported products  
 theme         members                           Risk                 reviews,                          and are not            Regulatory   substances       work done            products              once they are      
                                              assessments             which may                         maintained             Measures on  banned in        by Chinese           between               approved.          
                                             completed on             unjustifiably                       without              Import Risk  China, or        and                  domestic              (Verbald) China is 
                                             the products             deny imports                      scientific             Analysis for those subject    European             and                   a centralized      
                                               for which              of products,                       evidence.             Animals and  to specific      experts.             imported              country, and all   
                                             standards and            such as                                                  Animal       import           China will           products.             the SPS measures   
                                              tolerances              grain,                                                   Products     measures, were   consider                                   (including         
                                                  are                 processed                                                (AQSIQ       actually safe.   the                                        national standards 
                                              established             foods, dairy,                                            Decree No.                    revision                                   related to SPS)    
                                               at levels              meat and                                                 40) and                       of the                                     developed by the   
                                                 more                 poultry into                                             Regulatory                    control                                    central government 
                                              restrictive             China.                                                   Measures on                   measure if                                 are enforced       
                                               than the                                                                        Import Risk                   the                                        nation-wide. The   
                                               relevant                                                                        Analysis for                  experts                                    Constitution of    
                                             international                                                                     Plants and                    from both                                  China and the      
                                               standards                                                                       Plant                         sides can                                  current legal and  
                                               regarding                                                                       Products                      achieve                                    standards          
                                               MOH's new                                                                       (AQSIQ                        consensus                                  framework can      
                                products         draft                                                                         Decree No.                    on the                                     effectively ensure 
                                published     regulations                                                                      41), which                    scientific                                 the uniform        
                                by             on food,                                                                        were                          basis and                                  implementation of  
                                Ministry     forestry, and                                                                     notified to                   technical                                  SPS measures       
                                of Health       fishery                                      EC -                     EC -     WTO.                          issues.                                    across the         
                                (MOH).         products.                                     Writtenb                 Writtenb (Verbald)                     (Verbald)                                  country. (Verbald) 

                      Page 39 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                         The procedures 
                                                                                                                                                                                                                                                                         set forth in   
                                                                                                                                                                                                                                                                         two decrees,   
                                                                                                                                                                                                                                                                         namely, AQSIQ  
                                                                                                                                                                                                                                                                         Decree No. 7,  
                                                                                                                                                                                                                                                                         Administrative 
                                                                                                                                                                                                                                                                         Measures for   
                                                                                                                                                                                                                                                                         the Entry-Exit 
                                                                                                                                                                                                                                                                         Inspection and 
                                                                                                                                                                                                                                                                         Quarantine for 
                                                                                                                                                                                                                                                                         Grains and     
                                                                                                                                                                                                                                                                         Feed Stuffs,   
                                                                                                                                                                                                                                                                         as well as     
                                                                                                                                                                                                                                                                         AQSIQ Decree   
                                                                                                                                                                                                                                                                         No. 25,        
                                                                                                                                                                                                                                                                         Administrative 
                                                                                                                                                                                                                                                                         Measures for   
                                                                                                                                                                                                                                                                         Import Permit  
                                                                                                                                                                                                                                                                         for Entry of   
                                                                                                                                                                                                                                                                         Animal and     
                                                                                                                                                                                                                                                                         Plant          
                                                                                                                                                                                                                                                                         Quarantine,    
                                                                                                                                                                                                                                                                         apply equally  
                                                                                                                                                                                                                                                Description of           to all         
                                                                                                                                                                                                                                                the steps to             countries      
                                                         Concern that                                                                                                                                                                           ensure that              exporting      
                                                         certain meat                                                                                                                                                                           Administrative           animals and    
                                                         and poultry                                                                                                                                                                            Measures for             plants as well 
                                                         standards are                                                                                                                                                                          the Entry-Exit           as their       
                                                         significantly                                                                                                                                                                          Inspection and           products to    
                                                         stricter than                                                                                                                                                                          Quarantine for           China.         
                                                         those set by                                    Extent to                                                                                                                              Grains and               (Verbald) The  
                                                         Codex and are                                  which China                                                                                                                             Feed Stuff,              procedures and 
Summary        Raised                                    blocking the                                   has unified                                                                                                                             and                      processing     
  of    Raised   by                                      entry of                                      sanitary and                                                                                                                  Inspection Administrative           periods for    
issues    by    other  China's                Writtena   imports;      Writtena                        phytosanitary                                                                                                                    and     Measures for   Writtena  the            
  by    United   WTO   response                          standards for                                   measures                                                                                                                     approval  Entry Animal             application    
 theme  States members                                   domestically                                   applied to                                                                                                                   procedures and Plant                and issuance   
                                                         produced meat                                 domestic and                                                                                                                             Quarantine,              of import      
                                                         and poultry;                    The standards   imported                                                                                                                               comply with              permits are    
                                                         scientific                      applied to      products.                                                                                                                              its                      clearly        
                                                         rationale and                   domestic meat                                                                                                                                          obligations of           specified in   
                                                         risk                            and poultry                                                                                                                                            the Agreement            Decree No. 7   
                                                         assessments                     products are                                                                                                                                           on the                   and Decree No. 
                                                         for standards                   the same as                                                                                                                                            Application of           25, that also  
                                                         for imported                    those applied                                                                                                                                          Sanitary and             stipulate that 
                                                         products.                       to imported                                                                                                                                            Phytosanitary            all importers  
                                                                                         ones. These                                                                                                                                            Measures.                are equally    
                                                                                         standards are                                                                                                                                                                   eligible to    
                                                                                         all                                                                                                                                                                             submit         
                                                                                         established                                                                                                                                                                     application as 
                                                                                         on the basis                                                                          The recent                                                                                long as they   
                                                                                         of relevant                                                                           standards                                                                                 fulfill the    
                                                                                         international                                                                         revised or                                                                                requirements   
                                                                                         standards.                            China respects the                              developed                                                                                 of applying    
                                    Risk                                                 The standards                            principle of                                 by the                                                                                    for import     
                                 assessment                                              for poultry                           non-discrimination                              Ministry of Steps taken                                                                   permits. All   
                                 supporting                                              meat were                              in the course of                               Health, in  to eliminate                                                                  the            
                                  differing                                              notified to                             developing and                                which some  multiple or               Steps taken                                         applications   
                                  treatment                                              the Technical                          implementing SPS                               Members are duplicative                to ensure                                          will be        
                                under AQSIQ's                                            Barriers to                             measures. For                                 interested, control                  that the same                                        accepted and   
                                 Decree 44,                                              Trade (TBT)                             products with    Steps taken to               will also   procedures                conformity                                          approved       
                                Certification                                            Committee in                           identical risks,  ensure that the              apply       and to avoid              assessment                                          within 9 to 30 
                                Requirements                                             2002 and                                 China's SPS     principle of                 equally to  imposing                  procedures                                          working days   
                                  for Live                                               modification                              measures,      non-discrimination           domestic    requirements             apply to both                                        by AQSIQ if    
                                   Aquatic                                               to them is                              especially end   with regard to               and         exclusively              imported and                                         they are in    
                                  Products,                                              underway in                           product criteria,  expanded list of             imported    on imported                domestic                                           conformity     
                                    which                                                accordance                               are applied     products subject             products    products                   products                                           with the       
                                  mandates                                               with the                                  equally to     to health                    once they   subject to                subject to                                          regulations    
                                  different                                              comments made                            domestic and    certification                are         health                      health                                            identified in  
                                practices for                                   EC -     by Members.                  EC -     imported products. system is fully     EC -     approved.   certification  EC -      certification                                        the Quarantine 
                                  imports.                                      Writtenb (Verbald)                    Writtenb     (Verbald)      respected.          Writtenb (Verbald)   system.        Writtenb     system.                                           Law            

                      Page 40 GAO-05-209R U.S.-China Trade
                                   and its                                                                                                                                                                                                                                       
                                   Regulation of                                                                                                                                                                                                                                 
                                   Implementation                                                                                                                                                                                                                                
                                   as well as                                                                                                                                                                                                                                    
                                   AQSIQ Decree                                                                                                                                                                                                                                  
                                   No. 25. To                                                                                                                                                                                                                                    
                                   facilitate the                                                                                                                                                                                                                                
                                   application                                                                                                                                                                                                                                   
                                   for the import                                                                  The                                                                                                                                                           
                                   permit, since                                                                   Government of                                                                                                                                                 
                                   1 September                                                                     China                                                                                                                                                         
                                   2003, AQSIQ                                                                     attaches                                  Measures to                                                                                                         
                                   has introduced                                                                  great                                     ensure           China is a                                                                                         
                                   online                                                                          importance to                             consistent and   centralized                                                                                        
                                   application                                                                     the principle                             uniform          country, and               Consideration                                                           
                                   whereby                                                  Policy and             that SPS      Risk assessment             application of   all the SPS                of other less                                                           
                                   importers may                                            schedule to            measures        as basis for              China's          measures                       trade                                                               
                                   file the                                                align Chinese           shall be        sanitary and              sanitary and     (including                  restrictive                                                            
Summary        Raised              application                                             sanitary and            based on       phytosanitary              phytosanitary    national                     means to                                                              
  of    Raised   by                through                         Chinese                 phytosanitary           international  measures when              measures         standards                   achieve the                                                            
issues    by    other  China's     internet                        Taipei                  measures with           standards. In measures do not             throughout the   related to                 objective of                                                            
  by    United   WTO   response    access from                    -Writtenc                  relevant              December         conform to               country,         SPS) developed               consumer                                                              
 theme  States members             their own                                               international           2001, AQSIQ    international              avoiding         by the central              protection                                                             
                                   office. This                                              standards             issued            standard                unnecessary      government are                  and                                                                
                                   practice has   Information on                               where               "Regulatory    guidelines or              additional       enforced                    information                                                            
                                   remarkably     the content of                           appropriate.            Measures      recommendations.            regional/local   nation-wide.               for food and                                          Consideration     
                                   reduced the    Administrative                                                   Governing the                             regulations      The                         cosmetics.                                           for steps to      
                                   cost of        Regulations on                                                   Adoption of                               and standards    Constitution                                                                     improve the       
                                   application    the Review and                                                   International                             imposed by       of China and                                                                     coordination of   
                                   and improved   Permission for                                                   Standards"                                regional/local   the current                                                                      the different     
                                   the efficiency Entry of                                                         (AQSIQ Decree                             authorities.     legal and                                                                        administrations   
                                   of approvals.  Quarantined                                                      No. 10),                                                   standards                                           Consideration of             that have a       
                                   This makes the Imported                                                         which                                                      framework can                                           relevant                 regulatory        
                                   issuance of    Animal and                                                       stipulates                                                 effectively                                           international              competence in     
                                   import permit  Plant Products                                                   clearly the                                                ensure the                                          standards by the             the SPS field     
                                   conform to the and compliance                                                   principles                                                 uniform                                                   Codex                  (which are,       
                                   regulations    both with                                                        and                                                        implementation                                      Alimentarius and             inter alia,       
                                   identified in  China's                                                          procedures                                                 of SPS                                                International              AQSIQ, the        
                                   Article 8 and  accession                  International                         for adopting                                               measures       Less trade                               Office of                Ministry of       
                                   Annex C of the commitments                standards and                         international                                              across the     restrictive                          Epizooties/Office            Agriculture,      
                                   SPS Agreement. and with the                consistency                 EC -     standards.                      EC -                       country.       measures EC                EC -      International de   EC -      the Ministry of   
                                   (Verbald)      SPS Agreement.             EC - Writtenb                Writtenb (Verbald)                       Writtenb                   (Verbald)      - Writtenb                 Writtenb  Epizooties (OIE).  Writtenb  Health and        

                      Page 41 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                       As expressed in 
                                                                                                                                                                                                                                       the             
                                                                                                                                                                                                                                       notification,   
                                                                                                                                                                                                                                       the measures    
                                                                                                                                                                                                                                       taken in AQSIQ  
                                                                                                                                                                                                                                       Notice No. 36   
                                                                                                                                                                                                                                       are based on    
                                                                                                                                                                                                                                       the fact that   
                                                                                                                                                                                                                                       chloramphenicol 
                                                                                                                                                                                                                                       residues were   
                                                                                                                                                                                                                                       detected not    
                                                                                                                                                                                                                                       only in milk    
                                                                                                                                                                                                                                       powder and veal 
                                                                                                                                                                                                                                       from the        
                                                                                                                                                                                                                                       Netherlands by  
                                                                                                                                                                                                                                       France and      
                                                                                                                                                                                                                                       Germany, but    
                                                                                                                                                                                                                       Steps to        also in salted  
                                                                                                                                                                                                                       ensure that     casings from    
                                                                                                                                                                                                                       proportional    the Netherlands 
                                                                                                                                                                                                                       response in     by China at a   
                                                                                                                                                                                                                       accordance      later stage. It 
                                                                                                                        In March                                                                                       with Article    is a            
                                                                                                                        2002, to                                                                                       5 of the SPS    provisional     
                                                                                                                        protect the                                                                                    Agreement is    emergency       
                                                                                                                        health and                                                                                     adapted to      measure taken   
                                                                                                                        life                                                                                           risk,           following       
                                                                                              China's belief            security of                                                                                    including a     unsuccessful    
                                                                                                 that the               the people                                                                                     measure         consultations   
                                                                                              internationally           of China,                                                                                      restricting     with the        
                                                                                                recognized              the                                                                                            imports on      Netherlands.    
                                                                                              standards (WHO            Ministry of                                                                                    all             Even after the  
                                                                                                and OIE) in             Health and                                                                                     foodstuffs of   measure came    
                                                                                              connection with           AQSIQ                                                         Consideration                    animal origin   into force,     
Summary        Raised                                                                           ingredients             issued a                                                      of other less                    from another    China still     
  of    Raised   by                                                                            derived from             joint                                                             trade                        member          detected        
issues    by    other  China's                                                                  cattle and              decree                                                         restrictive                     country as a    chloramphenicol 
  by    United   WTO   response                                                                sheep tissues            which                                                         alternatives                     response to a   in animal       
 theme  States members                                                                          coming from             prohibits                                                        on BSE                        single          products        
                                                                                               countries and            the import                                                       related                       positive        originating     
                                                                                                  regions               and sale of                                                     measures.                      interception    from the        
                                                                                              affected by BSE           cosmetics                                                                                      of a            Netherlands in  
                                                                                              do not fulfill            containing                                                                                     veterinary      a number of     
                                                                                               the level of             ingredients                                                                                    drug residue    cases. In       
                                                                                              protection set            derived                                                                                        in a single     addition, some  
                                                                                               up by China.             from cattle                                                                                    consignment     other Members   
                                                                                                                        and sheep                                                                                      of casings      have also       
                                                                                                                        tissues                                                                                        and with no     identified      
                                                                                                                        coming from                                                                                    positive        chloramphenicol 
                                                                                                                        countries                                                                                      interceptions   in poultry meat 
                                                                                                                        and regions                                                                                    having been     and aquatic     
                                                                                                                        affected by                                                                                    reported in     products        
                                                                                                                        BSE. At the                                                                                    other food      imported from   
                                                                                                                        same time,                                                                                     products        the             
                                                                                                                        China        Scientific                                                                        before the      Netherlands.    
                                                                                                                        classified    basis for                                                                        measure was     According to    
                                                                                                                        the raw       deviating                                                                        introduced.     the explanation 
                                                                                                                        materials     from the                                                                                         by the          
                                                                                                                        with BSE      existing                                                                                         Netherlands,    
                                                                                                                        risks and   international              Level of                                                                the reason for  
                                                                                                                        takes       standards, as             protection                                                               the existence   
                                                             Consideration                                              different    required in                  and                                                                  of              
                                                             for adopting                                               measures on Article 2 of              scientific                                                               chloramphenicol 
                                                               measures                                                 those with     the SPS               justification                                                             in casings      
                                                             rationalizing                                              lower risk,  Agreement,               applied by                                                               exported to     
                                                            the repartition                                             thus        for measures             China to the                                                              China is that   
                                                             of competence                                              reducing     introduced               imports in                                                               there is        
                                                              between the                                               the burden  which relate              comparison                                                               chloramphenicol 
                                                               different           Bovine                               on            to import                with the                                                                in feedstuffs   
                                                            administrations      Spongiform                             cosmetics    restricting               level of                                                                imported from   
                                                             that have an      Encephalopathy                           importers   on a range of             protection                                                               Eastern         
                                 the State Food               overlapping      (BSE) related                            to some       products                applied to                               Proportionality                 European        
                                    and Drug      EC -        role in SPS      measures EC -                   EC -     extent.      related to    EC -        national     EC -                       of measures EC                  countries.      
                                Administration).  Writtenb      issues.           Writtenb                     Writtenb (Verbald)       BSE.       Writtenb   production.   Writtenb                     - Writtenb                    (Verbald)       

     Summary of issues by    Raised by Raised by                              
             theme            United   other WTO       China's response
                              States    members  
                                                 On the basis of relevant     
                                                 information and promises     
                                                 provided by the Netherlands, 
                                                 China has revoked the        
                                                 restriction on some products 
                                                 and conditionally lifted the 
                                                 import ban on dairy products 
                                                 and casings. At the moment,  
                                                 Chinese experts are studying 
                                                 the investigation report on  
                                                 the residue control system   
                                                 of the Netherlands and       
                                                 coming to a final appraisal  
                                                 on the basis of the study.   
                                                 The administrative decision  
                                                 by AQSIQ will be made as     
                                                 soon as possible in line     
                                       EC -      with the professional        
                                       Writtenb  findings. (Verbald)          
      China's citation of                        
       Article 5.7 when                          
    defending proportional                       
       response measure.                         
         Application of the principle of regionalization EC - Writtenb
                                                 China respects and follows   
Justification for                             the principle of             
non-application of                            regionalization provided for 
measures in line with                         in Article 6 of the SPS      
Article 6 of the SPS                          Agreement and treats animal  
Agreement (the                                and plant diseases on the    
application of the                            basis of this principle.     
principle of                                  China encourages Members to  
regionalization) when                         submit applications for      
China introduced a                            regionalization in written   
measure restricting                           form and provide the         
imports of porcine origin                     necessary documents to prove 
from France due to                            their status as indicated in 
Classical Swine Fever;                        Article 6.3 of the SPS       
circumstance under which                      Agreement. China will make   
provisions related to                         the decisions after          
principle of                                  evaluation and inspection    
regionalization would be                      tours to the applicant's     
applied.                                      territory in a timely        
                                                 manner. (Verbald)            

Source: GAO analysis of WTO documents.

Note: An additional document source is a committee report detailing verbal
statements made during meeting: G/SPS/R/31; meeting dated 10/29/03-
10/30/03.

aCommunication from U.S.: G/SPS/W/139; dated 10/3/03.

bCommunication from European Communities: G/SPS/W/137; dated 9/30/03.

cCommunication from Chinese Taipei: G/SPS/W/138; dated 10/1/03.

dCommunication from China (verbal statement): G/SPS/GEN/452; dated
10/29/03-10/30/03.

                      Page 42 GAO-05-209R U.S.-China Trade

Enclosure X Committee on Subsidies and Countervailing Measures (SCM)

                      Page 43 GAO-05-209R U.S.-China Trade
                                                                                                                                                                           China had                                                                            
                                                                                                                                                                           terminated all                                                                       
                                                                                                                                                                           export subsidies.                                                                    
                                                                                                                                                                           For example, at                                                                      
                                                                                                                                                                           present, China                                                                       
                                                                                                                                                                           maintained no                                                                        
                                                                                                                                                                           subsidies or                                                                         
                                                                                                                                                                           subsidy schemes                                                                      
                                                                                                                                                                           in the textile                                                                       
                                                                                                                                                                           industry, which                                                                      
                                                                                                                                                                           was in conformity                                                                    
                                                                                                                                                                           with China's                                                                         
                                                                                                                                                                           accession                                                                            
                                                                                                                                                                           commitments. The                                                                     
                                                                                                                                                                           China National                                                                       
                                                                                                                                                                           Textile Industry  List and                                                           
                                                                                                                                                                           Council referred  explanation                                                        
                                                                                                                                                                           to in the         of all                                                             
                                                                                                                                                                           questions had not subsidies                                                          
                                                                                                                                                                           engaged in any    granted at                                                         
                                                                                                                                                                           work related to   the national                                                       
                                                                                                                                                                           subsidy schemes.  and                                                                
                                               Status of                                                                                                                   The delegate of   sub-national                                                       
                                                China's                      China                                                                                         China stressed    level to                                                           
                                             collection of                   attached                                                                                      that the reports  enterprises                                                        
Summary        Raised                         information                    great                                Type of                                                  were not true.    in the                                          EC -               
  of    Raised   by                             for its                      importance to                        information                                              Since accession   following                                     Written,b            
issues    by    other  China's                  subsidy    Written,a Verbald making such                Writtena  China relies  Writtena  General Details on     Writtena  to the WTO, China sectors:      Mexico -               Writtena  Verbald  
  by    United   WTO   response              notification,  Verbald          notifications                        upon to                         subsidies                had embarked upon leather and   Writtenc                         Japan -  
 theme  States members                            and                        because it                           assemble its                    available in             extensive efforts footwear;                                      Verbald  Questions
                                             submission of                   was their                            notification.                   the textile              in the collection textiles and                                            in this
                                              its subsidy                    view, and                                                            industry for             of subsidy        clothing;                                               regard had
                                             notification.                   they believed                                                        manufacture              information. A    electric and                                            already
                                                                             that it was                                                          with raw                 number of         electronic                                              been
                                                                             also the view                                                        materials,               difficulties had  products;                                               addressed
                                                                             shared by                                                            financing of             been encountered  iron and                                                in the TRM
                                                                             many, that                                                           mill                     during the        steel;                                                  of the
                                                                             making such                                                          establishments           process,          chemical;                                               Committee
                                                                             notifications                                                        and purchase             including the     automotive              Information                     on Market
                                                                             was conducive                                                        of raw                   partial           industry.              on VAT rebate                    Access on
                                                                             to the                                                               materials-type           understanding of                            program                       20 October
                                                                             sharing of                                                           of subsidy,              the WTO                                   granted for                     2003.
                                                                             information                                                          timeline of              notification                              imports of                      China felt
                                                                             and also for                                                         the program              requirements by                          scrap copper                     it
                                                                             improving the                                                        and                      local officials,                         in accordance                    preferable
                                                                             transparency                                                         recipients,              under-performance                        with required                    not to
                                                                             of the        Description                                            role the China           of the domestic                             subsidy                       repeat
                                                                             domestic      of problems                                            National                 information                              notification                     those
                                                                             processes of  preventing                                             Textile                  collection system                           format,                       responses
                                                                             different     China from                                             Industry                 and varied                               including the                    in the SCM
                                                                             countries.    making its                                             Council plays            criteria on                              recipients of                    Committee
                                                                             China wished  notification                                           to support               statistics.                               the rebate,                     meeting
                                 Subsidies                                   to reaffirm   under                                                  subsidy                  Measures were                            the amount of                    due to the
                                notification                                 its           Article 25.1                                           programs for             being taken to                            the rebate                      limited
                                     EC                                      commitment to of the                                                 the textile              address these                             and how the                     time.
                                 -Written,b                                  fulfilling    Agreement.                                             industry.                issues, both on                          administering                    (Verbald)
                                                                             its                                                                                           the national and  
                                                                             notification                                                                                  sub-national      
                                                                             obligation.                                                                                   level, for        
                                                                             (Verbald)                                                                                     example, the      
                                                                             Concerning                                                                                    strengthening of  
                                                                             the                                                                                           the               
                                                                             notification                                                                                  communications    
                                                                             obligation of                                                                                 between ranks of  
                                                                             China, China                                                                                  officials,        
                                                                             stated that                                                                                   briefings by WTO  
                                                                             it was very                                                                                   experts, and the  
                                                                             serious about                                                                                 translation of    
                                                                             fulfilling                                                                                    the technical     
                                                                             its                                                                                           cooperation       
                                                                             notification                                                                                  handbook on WTO   
                                                                             obligations                                                                                   notification      
                                                                             and that it                                                                                   requirements.     
                                                                             was in the                                                                                    China was         
                                                                             process of                                                                                    vigorously        
                                                                             improving its                                                                                 pushing forward   
                                                                             notification                                                                                  work but that     
                                                                             system so as                                                                                  they were not in  
                                                                             to be up to                                                                                   a position to     
                                                                             the standard                                                                                  give a specific   
                                                                             set by the                                                                                    time frame for    
                                                                             WTO.                                                                                          the completion of 
                                                                             (Verbald)                                                                                     it. (Verbald)     

                      Page 44 GAO-05-209R U.S.-China Trade
                                                                      It was                                                                                                                                                                    
                                                                      established                                                                                                                                                               
                                                                      policy to                                                                                                                                                                 
                                                                      eliminate                                                                                                                                                                 
                                                                      such                                                                                                                                                                      
                                                                      subsidies                                                                                                                                                                 
                                                                      provided to                                                                                                                                                               
                                                                      state-owned                                                                                                                                                 
                                                                      enterprises                                                                                                                                                 
                                                                      running at                                                                                                                                                  
                                                                      a loss.                                                                                                                                                     
                                                                      Allegations                                                                                                                                                 
                                                                      had been                                                                                                                                                    
                                                                      made in the                                                                                                                                                 
                                                                      U.S.                                                                                                                                                        
                                                                      statement                                                                                                                                                   
                                                                      that,                                                                                                                                                       
                                                                      according                                                                                                                                                   
                                                                      to some                                                                                                                                                     
                                                                      recent                                                                                                                                                      
                                                                      Chinese                                                                                                                                                     
                                                                      press                                                                                                                                                       
                                                                      reports,                                                                                                                                                    
                                                                      the                                                                                                                                                         
                                                                      Government                                                                                                                                                  
                                                                      was still                                                                                                                                                   
                                                                      in the                                                                                                                                                      
                                                                      process of                                               Information                                                                                        
                                                                      eliminating                                  China had   on measures                                                                                        
                                                                      this                                         reduced the granted to                                                                                         
                                                                      program                                      scope of    companies to                                                                                       
                                               Status of              instead of  Identification                   products    fulfill                                                                                            
                                               elimination            terminating items reduced                    and         export                                                                                             
                                               of                     the whole   from or added                    services    requirements                         Implication on                                                
                                               "subsidies             program by  to the list of                   and the     stated on                            the Shanghai        There was no such                         
                                               provided to            the year    products or                      government  the Shanghai                         Foreign             practice as                               
Summary        Raised                          certain                2002.       services                         price       Foreign                              Investment Center   different pricing                         
  of    Raised   by                            state-owned            Request     subject to                       control and Investment                           website that        for energy, water,                        
issues    by    other  China's                 enterprises Written,a  made for    price          Writtena          that        Center                               state owned         power,                           Mexico - 
  by    United   WTO   response                which are    Verbald   the U.S.    controls, and                    vegetable   website;                             companies enjoy     transportation and               Writtenc 
 theme  States members                         running at             delegation  explanation of                   oil had     explanation                          preferential        telecommunications                        
                                               a loss";               to provide  extraordinary                    been lifted of how                               supply of water,    between                                   
                                               decree or              China with  circumstances                    from the    measures for                         electricity,        state-owned                               
                                               government             more        supporting                       list of     companies                            transport and       enterprises and                           
                                               document               detailed    each added                       Annex 4 of  fulfilling                           telecommunication   other types of                            
                                               that ended             information product or                       China's     export                                                   enterprises. The                          
                                               subsidies.             with regard service.                         Accession   requirements           The web site                      practice of                               
                                                                      to these                                     Protocol in are                    of the                            multiple pricing                          
                                                                      press                                        2001. China compatible             so-called                         for one commodity                         
                                                                      reports,                                     had not,    with                   Shanghai                          or service had                            
                                                                      such as the                                  and did     obligations.           Foreign                           been entirely                             
                                                                      source of                                    not, plan                          Investment                        eliminated in                             
                                                                      the                                          to expand                          Centre was                        China. State                              
                                                                      reports,                                     the scope                          not a                             pricing and                               
                                                                      the time                                     of products                        government                        government                                
                                                                      when the                                     in services                        web site and                      guidance pricing                          
                                                                      reports had                                  subject to                         information                       only applied to                           
                                                                      been                                         state                              it posted was                     goods and                                 
                                                                      published                                    pricing or                         not                               services,                                 
                                                                      and the                                      guidance                           authoritative                     regardless of the                         
                                                                      sectors,                                     pricing and                        and did not                       ownership of the                          
                                                                      industries                                   that any                           have binding                      enterprises.                              
                                                                      or                                           changes to                         power.                            Enterprises of all                        
                                                                      enterprises                                  the scope                          Members could                     types, including                          
                                                                      which were                                   of these                           get access to                     state-owned                               
                                                                      involved in                                  products                           the relevant                      enterprises,                              
                                                                      such                                         and                                laws and                          foreign investment                        
                                                                      reports, so                                  services                           regulations                       enterprises and                           
                                                                      as to                                        would be                           through the                       foreign                                   
                                                                      facilitate                                   published                          government                        enterprises in                            
                                authorities                           China's                                      in the                             designated                        China were treated Requirements           
                                ensure that                           efforts in                                   China                              journal: the                      on an equal           for a               Article 3 of
                                  rebates                             making                                       Foreign                            China Foreign                     footing in the      company to             the Law of
                                granted are                           appropriate                                  Trade and                          Trade and                         process of              be                the People's
                                  not in                              responses                                    Economic                           Economic                          determining        considered a            Republic of
                                 excess of                            to the                                       Cooperation                        Cooperation                       government pricing   foreign               China (PRC)
                                  rebates                             question.                           EC -     Gazette.                  EC -     Gazette.                          and guidance          direct                on Wholly
                                   paid.                              (Verbald)                           Writtenb (Verbald)                 Writtenb (Verbald)                         pricing. (Verbald)   invested             Foreign-owned

                      Page 45 GAO-05-209R U.S.-China Trade
                                               Enterprises                                                                                   
                                               stipulated                                                                                    
                                               that the                                                                                      
                                               establishment                                                                                 
                                               of a wholly                                                                                   
                                               foreign-owned                                                                                 
                                               enterprise                                                                                    
                                               shall be                                                                                      
                                               conducive to                                                                                  
                                               the                                                                            
                                               development of                                                                 
                                               China's                                                                        
                                               national                                                                       
                                               economy. The                                                                   
                                               State                                                                          
                                               encouraged the                                                                 
                                               establishment                                                                  
                                               of wholly                                                                      
                                               foreign-owned                                                                  
                                               enterprises                                                                    
                                               with export                                                                    
                                               orientation                                                                    
                                               and adoption                                                                   
                                               of advanced                                                                    
                                               technology.                                                                    
                                               Article 17                           There were                                
                                               stipulated                           three laws                                
                                               that wholly                          governing                                 
                                               foreign-owned                        foreign                                   
                                               enterprises                          investment                                
                                               shall pay                            enterprises,                              
                                               taxes in                             namely the                                
                                               accordance                           Law on                                    
                                               with relevant                        Chinese                                   
                                               state                                Foreign                                   
                                               regulations                          Equity Joint                              
                                               and may enjoy                        Ventures, the                             
                                               preferential                         Law on                                    
                                               treatment of                         Chinese                                   
                                               tax reduction                        Foreign                                   
                                               or redemption.                       Contractual                               
                                               Paragraphs 7                         Joint                                     
                                enterprise     and 8 of                             Ventures, and                             
                                devoted to     Article 75 of                        the Law on                                
                                exports;       the Rules of   Explanation           Wholly                                    
                                availability   Implementation of                    Foreign-Owned                             
                                of income      of the Income  stipulation           Enterprises.                              
                                tax            Tax Law of the in the                Among these                               
                                exemptions     PRC for        Foreign               three laws,                               
                                or rebates,    Enterprises    Investment            only the Law                              
                                and            with Foreign   Enterprise            on Wholly                                 
                                availability   Investment and Law, which            Foreign-Owned                             
                                of             Foreign        appear to             Enterprises                               
Summary Raised Raised           additional     Enterprises    require               used to                                   
  of      by     by    China's  exemptions     stipulated     enterprises  Mexico - contain the                               
issues  United  other  response and rebates    that after     with         Writtenc requirement                               
  by    States   WTO            granted to     expiration of  foreign               on export                                 
 theme         members          such           the period of  capital to            performance.                              
                                companies      income tax     export a              As part of                                
                                set up in      exemption and  percentage            the                                       
                                the special    the reduction  of their              preparations                              
                                economic       the foreign    production            for joining                               
                                zones;         investment     in order to           the WTO in                                
                                relation       enterprises    be eligible           October 2000,                             
                                between        whose export   for tax               Article 3.1                               
                                rebates and    volume for a   breaks.               of the Law on                             
                                export         year exceeded                        Wholly                                    
                                results.       7 percent of                         Foreign-Owned                             
                                               their                                Enterprises                               
                                               production for                       was amended                               
                                               the same year                        as follows:                               
                                               were entitled                        the                                       
                                               to a 50                              establishment                             
                                               percent rebate                       of a wholly                               
                                               of the normal                        foreign-owned                             
                                               rate of income                       enterprise                                
                                               tax as                               shall be                                  
                                               provided by                          conducive to                              
                                               tax law. The                         the                                       
                                               enterprises                          development                               
                                               located in                           of China's                                
                                               special                              national                                  
                                               economic                             economy. The                              
                                               zones, or                            State                                     
                                               economic and                         encouraged                                
                                               technology                           the                                       
                                               development                          establishment                             
                                               zones, or any                        of wholly                                 
                                               other                                foreign-owned                             
                                               exporting                            enterprises                               
                                               enterprises                          with export                               
                                               that already                         orientation                               
                                               enjoyed an                           and adoption                              
                                               income tax                           of advanced                               
                                               rate of 15                           technology.                               
                                               percent, would                       The original                              
                                               pay income tax                       provision,                                
                                               at the rate of                       that the                                  
                                               10 percent if                        establishment                 Gaps in     
                                               they also met                        of a foreign                 CVD legal    
                                               the above                            invested                     structure,   
                                               requirements.                        enterprise                   including    
                                               The                                  must adopt                     in the     So far, China
                                               consistency of                       advanced                      areas of       had not
                                               this provision                       technology or                 interim     initiated any
                                               with the SCM                         export all or                   and       countervailing
                                               Agreement was                        most of its                  expiration   investigations
                                               currently                            products, had                 reviews,    but that China
                                               being                                been          Countervailing rules and    was, however,
                                               reviewed.                            replaced.       Duty Laws    procedures   in the process
                                               (Verbald)                            (Verbald)     (CVD) Verbald      on       of making such

    Summary of issues by   Raised by Raised by                                
            theme           United   other WTO        China's response
                            States    members  
                                               legislation just in case such  
                                               an investigation might be      
                                               initiated in the future. That  
          access to                            delegates could be reassured   
      non-confidential                         that China would honor its     
      information, and                         commitments in the WTO and     
        undertakings.                          continue to bring its          
                                               legislation in line with WTO   
                                               rules, including in the field  
                                               of countervailing              
                            Verbald            investigations. (Verbald)      
                                               The delegate of China noted    
                                               that there was another         
                                               procedural request contained   
                                               in the last paragraph of the   
                                               statement by the U.S., namely  
                                               to reflect China's CVD laws    
                                               and regulations on Chinese     
                                               subsidy practices which had    
     Notification of all                       not yet been notified in the   
    laws and regulations                       TRM report of the Committee to 
    that had a bearing on                      the Council for Trade in       
     countervailing duty                       Goods, as well as that the     
     investigations and                        relevant minutes, Members'     
          reviews.                             questions and China's          
                                               responses be appended or       
                                               referenced in that report. The 
                                               delegate of China stated that  
                                               he wished to consult his       
                                               colleagues from the U.S. as to 
                                               the legal basis for such a     
                                               request before China made      
                                               appropriate responses to this  
                            Verbald            request. (Verbald)             
                                               This question had been         
                                               repeated a number of times     
                                               both in the Committee on       
                                               Safeguards and in the          
                                               Committee on Anti-Dumping      
                                               Practices. The role of the     
Clarification of the                        Tariff Commission was quite    
oversight role of the                       clear, as referred to, or      
State Council Tariff                        provided for, in the three     
Commission, including                       regulations that China had so  
when it may exercise                        far promulgated, namely the    
discretion in the                           regulations on anti-dumping    
course of an                                investigations, the            
investigation;                              regulations on countervailing  
encouragement for China                     investigations and the         
to establish procedures                     regulation on safeguards. The  
for publicizing the                         role, to put it simply, was    
Tariff Commission's                         for the Tariff Commission to   
decisions in                                make determinations on the     
countervailing duty                         rates of the anti-dumping,     
actions.                                    countervailing or safeguards   
                                               duty on the proposal of the    
                                               former MOFTEC, now MOFCOM. The 
                                               duty rates that it decided     
                                               would not exceed the proposed  
                                               rate of MOFCOM. This had       
                                               already been made quite clear  
                                               by China. (Verbald)            

Source: GAO analysis of WTO documents.

Note: An additional document source is a communication from China:
G/SCM/N/104; dated 10/24/03.
aCommunication from U.S.: G/SCM/Q2/CHN/6; dated 10/27/03.
bCommunication from European Communities: G/SCM/Q2/CHN/5; dated 9/30/03.
cCommunication from Mexico: G/SCM/Q2/CHN/4; dated 10/31/02.
dCommittee report detailing verbal statements made during meeting:
G/SCM/111; meeting dated 10/28/03.

                      Page 46 GAO-05-209R U.S.-China Trade

Enclosure XI Committee on Technical Barriers to Trade (TBT)

                      Page 47 GAO-05-209R U.S.-China Trade
                                                                        The content                                                                                                                                                                                                               
                                                                        of mandatory                                                                                                                                                                                                              
                                                                        standards in                                                                                                                                                                                                              
                                                                        China                                                                                                                                                                                                                     
                                                                        conforms to                                                                                                                                                             The same                                          
                                                                        the                                                                                                                                                                     technical                                         
                                                                        definition   Notification                                                                                                                                               regulations,                                      
                                                                        of technical of changes to                                                                                                                                              standards                                         
                                                                        regulations  the Chinese                                                                                               China                                            and                                               
                                                                        under the    Compulsory                                                                                                recognized the                                   conformity                                        
                                                                        TBT          Certification                                                                                             importance of                                    assessment                                        
                                                                        Agreement    System (CCC)                                                                                              adopting                                         procedures                                        
                                                                        and forms a  Mark                                                                                                      international             Status of              are applied                                       
                                              Steps to                  main         certification                                                                                             standards,                China's                to both                                           
                                              ensure China              component of scheme, which                                                                                             which had been            work with              imported and                                      
                                              notifies all              Chinese      permit                                                                                                    used as a                 conformity             domestic      Updated                             
                                              regulations               technical    applicants to                                                                                             basis for the             assessment             products.     list of                             
                                              meeting TBT               regulations. conduct                                                                                                   development of            bodies to              For imported  domestic                            
Summary        Raised                         Agreement                 Since        factory                                                                                                   its technical             implement              and domestic    and                               
  of    Raised   by                           criteria, not             accession to selfinspection            Notification              As to                                                 regulations,              commitments            products,     foreign                             
issues    by    other  China's  Notifications just those     Written,a  the WTO,     and to proceed Writtena   of proposals Verbale   transparency  International                    Writtena  standards and             to          Written,a  all bodies   conformity Writtena   China Quality  
  by    United   WTO   response               issued by       Verbale   China has    with CCC Mark              under TBT                 and         standards    Plans to address            conformity                undertake    Verbale   and agencies assessment            Certification  
 theme  States members                        China's State             notified 19  issuance on an             Agreement.            coordination                 China's limited             assessment                conformity             shall issue    bodies              Center, China
                                              Administration            mandatory    interim basis                                   among domestic                 definition of              procedures                assessments            the mark and  that are             Certification
                                              of Quality,               standards to while awaiting                                     agencies                    international              (CAPs). A                 for                    charge the   recognized             Center for
                                              Supervision,              the WTO      a full factory                                   involved in                 standards to those           publication of            imported               same fee,    by China.            Electromagnetic
                                              Inspection,               Secretariat  inspection by                                        TBT                     promulgated by the           AQSIQ had                 and                    and provide                       Compatibility,
                                              and Quarantine            under        designated                                      notifications,                 International              recognized as             domestic               the same                               China
                                              (AQSIQ).                  Article 2 of certification                                    the Chinese                  Organization for            international             products.              processing                         Certification
                                                                        the TBT      bodies;                                         representative                Standardization             the standards                                    periods and                         Center for
                                                                        Agreement.   request for                                      informed the                      (ISO),                 issued by 42                                     complaint                          Security and
                                                                        Relevant     catalogue of                                    Committee that                 International              international                                    procedures.                         Protection,
                                                                        terms are    products                                        on 30 October                 Electrotechnical            organizations.                                   The choice                             China
                                                                        also used    subject to CCC                                   2003, China                  Commission (IEC)            (Verbale)                                        of the                             Certification
                                                                        according to certification.                                  had replied to               and International                                                             conformity                          Center for
                                                                        the TBT                                                         the same                  Telecommunications                                                            assessment                         Agricultural
                                                                        Agreement in                                                    question                     Union (ITU);                                                               bodies is at                        Machinery,
                                                                        the                                                          during the SPS                   reason for                                                                the                                    China
                                                                        modification                                                     Annual                    limiting options                                                             discretion                         Certification
                                                                        of existing                                                   Transitional                  to only three                             Conformity                        of the                              Center for
                                                                        measures.                                                    Review (TRM).                  standardizing                             assessment                        applicant.                        Safety Glazing,
                                                                        (Writtend)                                                     (Verbale)                       bodies.                                procedures                        (Writtend)                            Beijing

                      Page 48 GAO-05-209R U.S.-China Trade
                                   Zhong Hua                                                                                                                                                                                                                                                                  
                                   Combination                                                                                                                                                                                                                                                                
                                   Quality                                                                                                                                                                                                                                                                    
                                   Certification                                                                                                                                                                                                                                                              
                                   Co. Ltd.,                                                                                                                                                                                                                                                                  
                                   Certification                                                                                                                                                                                                                                                              
                                   Center for                                                                                                    The spare                                                                                                                                                    
                                   Fire Products,                                                                                                parts and                                                                                                                                                    
                                   Ministry of                                                                                                   components to                                                                                                                                                
                                   Public                                                                                                        which the CCC                                                                                                                                                
                                   Security,                                                                                                     system applied                                                                                           Specific                                            
                                   China                                                                                                         and that were                                                                                            conditions                                          
                                   Certification                                                                                                 listed in the                                                                                            were set                                            
                                   Center for                                                                                                    First                                                                                                    out to                                              
                                   Automotive                                                                                                    Catalogue of   Concern with                                                                              apply for                                           
                                   Products,                                                                                                     Products were  the issue of                                                                              an                                                  
                                   Center of                                                                                                     exempted from  spare parts                                      Request for                              exemption                                           
                                   Boiler and                                                                                                    a separate     and                                              China to make                            from the                                            
                                   Pressure                                 There was no                                                         certification; components,                                      clear with                               CCC                                                 
                                   Vessel                                   discrimination,                                                      but if those   especially                                       which                                    system; a                                           
                                   Inspection and                           nor                                                                  goods were     when spare                                       authority the                            unified                                             
Summary Raised Raised              Research, the                            multiplication                                                       imported and   parts were                                       ultimate                                 fee scheme                                          
  of      by     by    China's     National                                 or duplication                                                       sold           supplied                                         decision lies                            applied to                                          
issues  United  other  response    Institute for                  Writtena  of CAPs between                                                      separately,    separately                                       as to whether                            both                                                
  by    States   WTO               the Control of                           imported and                                                         they would     for the                                          or not the                               imported   Concern with                             
 theme         members             Pharmaceutical                           domestic                                                             require a      purposes of                                      mandatory                                or         the issue of                             
                                   and Biological                           products.                                                            separate       repair or                                        certification                            domestic   fees for                                 
                                   Products, the                            (Verbale)                                                            mandatory      maintenance,                                     is required,                             goods, and conformity                               
                                   Maritime                                                                                                      certification. or when                                          in cases of                              any        assessment                               
                                   Administration                                                                                                Those goods,   components                                       uncertainty.                             difference that were                                
                                   of the         Steps taken and                                                                                whether        were                                                                                      in fees    rather                                   
                                   People's         planned to                                                                                   produced       assembled in                                                                              was due to expensive;                               
                                   Republic of       eliminate                                                                      Request      domestically   China.                                                                    Clarification   the        there appeared                           
                                   China and        duplicative                                                                     for China    or imported,                                                                             whether fixed   different  to be                                    
                                   Register of      conformity                                                                      to grant     for                                                                                        fees and      testing    variations                               
                                   Shipping at      assessment                                                                      spare        maintenance,                                                                              conformity     costs.     according to                             
                                   all levels,     requirements,                                                                    parts and    end-use, or                                                                               assessment     (Verbale)  the specific                             
                                   Register of    such as between                                         Emphasis that             components   the                                                                                      fees reflect               product under            Specification   
                                   Fishing         the CCC Mark                                              National               an           maintenance of                                                                           the real cost              question that             if and when    
                                   Vessels of the  requirements                                             Treatment               exemption,   products that                          Request for                                            of                    could lead to              so-called     
                                   People's        and those of                                             should be               following    were no longer                        China to avoid                                     certification              discrimination              factory      
                                   Republic of    the Ministry of                                         ensured in the            a            manufactured,                         subjecting end                                      and do not                between the               inspections    
                                   China and        Information                                Chinese    implementation            procedure    were exempted                          products and                                      discriminate               fees applied              included in    
                                   Local Register  Industry, or                              Compulsory     of the new              as clear     from the                     EC -         their                                             between                 to domestic     EC -      conformity     
                                   of Fishing      Health/ Food                             Certification   Compulsory              and easy     mandatory                    Verbale  components to                                      domestic and               and to          Verbale   assessment     
                                   Vessels.          and Drug                               (CCC) system  Certification   EC -      as           certification.               EC -        separate     EC -                     EC -        imported                 importing       EC -      procedures     
                                   (Writtend)     Administration.                           EC - Writtenb    system.      Writtenb  possible.    (Verbale)                    Writtenb certification.  Writtenb                 Writtenb    products.                producers.      Writtenb      are        

                      Page 49 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                      Concern that                             
                                                                                                                                                                                                                                      the approval                             
                                                                                                 The certification                                                                                                                    marks for                                
                                                                                                 bodies were obliged                                                                                                                  automobiles                              
                                                                                                 to protect the                                                                                                                       -while it                                
                                                                                                 confidentiality and                                                                                                                  seemed that                              
                                                                                                 non-disclosure of the                                                                                                                China did                                
                                                                                                 technical information                                                                                                 Hurdles        not accept                               
                                                                                                 and trade secrets                                                                                                     caused by      United                                   
                                                                                                 that were required to                                                                                                 the            Nations                                  
                                                                               Procedures        obtain certificates.                                                                                                  repetition     Economic                                 
                                                                               implemented to    Mutual recognition of                                                                                                 of tests       Commission's                             
                                                       Request for             ensure that       results should be                                                                                                     for several    (UNEC)                                   
                                                         China to              confidentiality   based on bilateral or Concern with                                                                                    parts          approval                                 
                                                       ensure local            of technical      multilateral          the issue of                                                                                    and/or         marks,                                   
Summary        Raised                                  manufacturer            information       agreements between    confidentiality                                                                                 components;    China's                                  
  of    Raised   by                                      of like               about products    governments or        of the detailed            Confirmation                                                         China's        standards                                
issues    by    other  China's                         products are            is dealt in a     organizations duly    technical                 about whether                                                         willingness    were                                     
  by    United   WTO   response                         subject to             manner that       authorized by the     documentation                products                                                           to accept      basically               Trade obstacle   
 theme  States members                                   similar               legitimate        government. China     support to be                already                                                            the results    the same                created by       
                                                        treatments             commercial        supported the         supplied by                 certified       Concern with            Explanation                 of foreign     standards as            China's Unit     
                                                           and                 interests are     recognition of        manufacturers.             according to     the issue of            of how far                  conformity     UNEC-could              Classification   
                                                       conditions.             protected at      certification/testing                            the previous         the                 foreign                     assessment     lead to a               Guidelines,      
                                                                               both national     results on an equal                              regime (for      recognition             conformity                  procedures     repetition              which deviate    
                                                                               and local         basis; in this sense                            instance, Law     of different            assessment                  based on       of tests for            from             
                                                                               levels.           China had joined the                            on Import and      conformity             will be taken               practically    several                 international    
                                                                                                 International                                       Export         assessment             into                        the same       parts, and              practices;       
                                                                                                 Electrotechnical                                  Commodity       procedures,             consideration               standards.     to different            recommendation   
                                                                                                 Commission for                                    Inspection      particularly            in the                                     certificates            that China       
                                                                                                 Electrical Equipment                                (CCIB)           where                Chinese                                    for                     accede to the    
                                                                                                 (IECEE); and,                                   certification)    products had            procedures,                                identical               1958 United      
                                                                                                 therefore, recognized                              need to        already been            notably in                                 products                Nations          
                                                                                                 the CB certificates                    EC -      undergo the       certified    EC -      sectors where                              when          EC -      Economic         
                                                                                                 issued in the context                  Verbale       new          according to  Verbale   similar          Automobile                produced in   Verbale   Commission for   
                                             EC -                    EC -                        of the IECEE system.                   EC -     certification     the previous  EC -      requirements        EC -                   different     EC -      Europe           
                                compulsory.  Writtenb                Writtenb                    (Verbale)                              Writtenb    system.          system.     Writtenb  apply.            Writtenb                 plants.       Writtenb  (UN/ECE)         

                      Page 50 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                         Concern that                                                                             
                                                                                                                                                                                         the                                                                                      
                                                                                                                                                                                         pre-market                                                                               
                                                                                                                          Concern on the                                                 registration                                                                             
                                                                                                                          so-called                                                      for                                                                                      
                                                                                                                          "active                                                        cosmetics,                                                                               
                                                                Implementation                                            pharmaceutical                                                 performed by                                                                             
                                                                   of newly                                               ingredients,"                      Discrimination              the Ministry                                                                             
                                                                enacted rules                                             given the                          of importers      Imported  of Health,                                                                               
                                                                in conformity                                             hurdles                            required to      cosmetics  was lengthy                                                                              
                                                                   with the                The import                     encountered by                     file an             were    and onerous,                                                                             
                                                                 requirements             registration                    EC producers                       application to   subject to and appeared                                                                             
                                                                stemming from                 for                         when exporting                     the Ministry         an     to be                                                                                    
                                                                 the WTO-TBT             pharmaceutical                   to China, and                      of Health to     assessment different                                                                                
Summary Raised Raised                                             Agreement                 products                      the import                         obtain a            and     from the one                                                                             
  of      by     by    China's                                   rather than              exported to                     drug license    EC -               pre-market        approval  required for                                                                             
issues  United  other  response                                   requiring              China required                   registration    Verbale            registration,     of their  domestic                                                                                 
  by    States   WTO                                            higher quality           those products Consistency of    that was                           which is         safety and producers.                                       Request for                             
 theme         members                                           standards on             to meet both  standards used    required, the                      lengthy and       hygiene   There was                                        China to                                
                                                                imported drugs            the Chinese   for active        specifications                     onerous and      qualities  another                 Request for              reconsider                              
                                                                 compared to                and the     pharmaceutical    of which had                       requires the      and to a  pre-import             China to phase            its                                     
                                                                   domestic                 national    ingredients       been the                           disclosure of     labeling  registration            out current              legislation              Request for    
                                                                   products               standards of  (API) in the      subject of                         confidential     approval.  for imported           expensive and             on labeling              the Chinese    
                                                                standards and            the country of import drug       frequent                           data, whereas    (Verbale)  cosmetics,             time-consuming            and                      authorities    
                                                                international               origin.     license           changes                            domestic                    required by                double                advertising              to formally    
                                                                  standards.               Therefore,   registration      without                            producers                   AQSIQ, which            registration             in order to              endorse the    
                                 Agreement                                                domestic and  (IDL)             external                           notify the                  apparently               system by               achieve                   important     
                                and sign up                                                 foreign     requirements      communication                      local                       established            AQSIQ, before             transparency,            achievements   
                                   to the                                                pharmaceutical and request       or                                 authorities                 a double                 import and              compliance               in de facto    
                                majority of                                              producers were for China to      consultation.                      two months                  registration  EC -      repeated at              with global               removal of    
                                the existing                                                treated     respect                                    Cosmetics after the                   system for    Verbale   local level,             practice and             BSE-related    
                                   Geneva       Pharmaceuticals                 EC -        equally.    transparency                                 EC -    launch of the               imported      EC -      for imported   EC -      a rule-based   EC -         trade       
                                regulations.     EC - Writtenb                  Writtenb   (Verbale)    obligations.                               Writtenb  product.                    products.     Writtenb   cosmetics.    Writtenb  system.        Writtenb  impediments.   

                      Page 51 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                                                                                                                                              Currently, the 
                                                                                                                                                                                                                                                                                                                                                          The                                    General     
                                                                                                                                                                                                                                                                                                                                                          inventory                           Administration 
                                                                                                                                                                                                                                                                                                                                                          of                                  of Environment 
                                                                                                                                                                                                                                                                                                                     The data                             existing                            Protection is  
                                                                                                                                                                                                                                                                                                                    testing of                            chemical   Progress made             revising the  
                                                                                                                                                                                                                                                                                                                      foreign    Detailed time            substances in                         Regulatory   
                                                                                                                                                                                                                                                                                                                   certification schedule,                consisted  consideration            Provisions on  
                                                                                Request for                                                                 Request             Under                                                                                                                               bodies was   including the            of the     of comments                 Initial     
                                                                                 China to                               Request for                Food    for China            Chinese                                                                                                                             accepted in  time for the             chemical   from                       Imports of   
                                                                  The approval     apply                               China to allow             labels   to accept            regulation                                                                   Reason why                Reason why China               China,     compilation of           substances interested                  Chemical    
                                                                  of food       transparent                               economic                  for       that              that food                                                                    China did not              will not accept            provided that the accurate             produced,  parties on                Products and  
                                                                  labels had   criteria for                             operators to             imported   approved            labels for                         Imports of                                submit WTO                eco-toxicological           these bodies  inventory of             sold,      draft Import               Import and   
                                                                  been         the approval            The Chinese     decide how to               food    labels are           imported                              bulk                                   notification                 data of new                had been    existing                 utilized   and Export                   Export     
Summary Raised Raised                                             regularly    of labels. In           regulations on   present the              products   attached            food                                products                                 regarding                     chemical                accredited by chemicals, the           in or      Registration             Environmental  
  of      by     by    China's                                    completed     particular,            food labeling      required                 were    after the            products                            for food                      Chemicals  Provisions on   Japan -    substance data    Japan -  the competent establishment   Japan -  imported   Regulations     Japan -   Requirements  
issues  United  other  response                                   within the     the best              applied to all Chinese-language            subject    goods              are subject                        processing                        and     the             Writtenc     obtained by     Writtenc   national    of detailed     Writtenc into China of Dangerous   Written,c  on Hazardous  
  by    States   WTO                                              time limits     before               pre-packaged    information on               to       enter              to approval                         did not                      environment Environmental                 reliable                institution.  administrative           from 1     Chemicals;      Verbale     Chemical    
 theme         members                                            set out in    indication             food to be       the product              approval  China, but           in the                             require a                                 Administration             laboratories in                 The      rules, and the           January    request for               Products. At  
                                                                  the          for wines and           sold in China, label(s) as long            in the   before the           Chinese                              label.                                  of New                     other countries             ecological   time for the             1992 to 30 China to take            present, this  
                                                                  pertinent       spirits              including      as the objective            Chinese    AQSIQ              language,                          (Verbale)    Request for                  Chemical                  which conduct the                and      Chinese                  April      necessary                   draft is    
                                          Request for             regulations. should follow           wines and        of consumer              language. inspection           there is a                                       China to                    Substances.                 same tests as             toxicological authority to             2003.      procedures                  publicly    
                                            China to              (Verbale)    international           spirits; and    information is            (Verbale)   takes              requirement                                   guarantee that                                            those in China.             information  start                    Foreign    with regard               available so  
                                          ensure that                            practice.             the                  met.                             place.             to          Request for                          only the                                                                            on those    receiving the            chemical   to the                    as to invite  
                                          registration                                                 information to                                                           accompany   China to                             trademark                                                                           products    notification             companies  regulation in            comments from  
                                         procedure for                                                 be provided                                                              the request clarify the                       owner/producer                                                                          should     under this               could      question,                   related     
                                         a label be no                                                 was not                                                                  with the    labeling                          could apply for                                                                       include the  law.                     access the including WTO            parties and is 
                                              more                                                     discretionary,                                                           sales       requirements                       the label, in                                                                        information                           inventory  notification.               in full     
                                         time-consuming                                                since it had                                                             certificate for products                         order to                                                                            and data                             through                               compliance   
                                  Food   than necessary                                                to meet the                                                              of the      in                                    protect                                                                          obtained from                          the                                  with the WTO  
                                labeling (currently, it                                                pertinent                                                                country of  "largescale"                         products                                                                          tests carried                          Internet.                              national    
                                  EC -     takes more    EC -                                 EC -     regulations.                     EC -                           EC -     production. or bulk       EC -                    against                                                                          out in China.                          (Verbale)                             treatment    
                                Writtenb than 90 days).  Writtenb                             Writtenb (Verbale)                        Writtenb                       Writtenb (Verbale)   packaging.    Writtenb            counterfeiting.                                                                        (Verbale)                                                                principle and  

Summary of   Raised by   Raised by                                         
issues by  United States other WTO            China's response
     theme                   members  
                                        relevant international practice on    
                                      regulatory provisions. (Writtend) As to 
                                       hazardous chemicals, China was in the  
                                         process of revising a final text.    
                                                     (Verbale)                

Source: GAO analysis of WTO documents.

aCommunication from U.S.: G/TBT/W/231; dated 10/20/03.
bCommunication from European Communities: G/TBT/W/227; dated 10/6/03.
eCommunication from Japan: G/TBT/W/229; dated 10/15/03.
dCommunication from China: G/TBT/W/235; dated 11/6/03.
eCommittee report detailing verbal statements made during meeting:
G/TBT/M/31; meeting dated 11/7/03.

                      Page 52 GAO-05-209R U.S.-China Trade

Enclosure XII Committee on Trade in Financial Services

                      Page 53 GAO-05-209R U.S.-China Trade
                                                                               Three years                                                                                                                                                                                                   
                                                                               after China's                                                                                                                                                                                                 
                                                                               accession                                                                                                                                                                                                     
                                                                               (i.e. starting                                                                                                                                                                                                
                                                                               from 11                                                                                                                                                                                                       
                                                                               December                                                                                                                                                                                                      
                                                                               2004), there                                                                                                                                                                                                  
                                                                               will be no                                                                                                                                                                                                    
                                                                               geographic                                                                                                                                                                                                    
                                                                               restrictions                                                                                                                                                                                                  
                                                                               on foreign                                                                                                                                                                                                    
                                                                               insurance                                                                                                                                                                                                     
                                                                               companies                                                                                                                                                                                       
                                                                               anymore. By                                                                                                                                                                                     
                                                                               that time,                                                                                                                                                                                      
                                                                               foreign                             Limited                                                                                                                                                     
                                                                               insurance                           number of                                                                                                                                                   
                                          Geographic                           companies                           foreign                                                                                                                                                     
                                          restriction of                       meeting                             insurance                                                                                                                                                   
                                          foreign non-life                     certain                             branches that                                                                                     Concern                                                   
Summary        Raised                     firms as                   Canada -  qualifications                      can open at                                                                                        about                                                    
  of    Raised   by                       branches to be             Writtene  will be                             one time and                                                                                     extremely                                                  
issues    by    other  China's  Insurance lifted 3 years   Written,a Australia allowed to                 Canada - in the types  Writtena               Writtena                        Canada - The minimum        high level                  Japan -              Writtena  
  by    United   WTO   response           after accession;  Verbalf  - Verbalf apply for the  Ability of  Writtene of geographic                                                        Writtene capital            of minimum                  Verbalf                        
 theme  States members                    foreign-invested            Japan -  establishment  domestic             licenses                                                                      requirements of     capital                                                   
                                          insurance firms'            Verbalf  of operational insurers             granted;                                                                      an insurance      requirement.                                                
                                          ability to                           institutions   to apply             justification                                                                 company, be it                                                                
                                          expand                               nationwide.    to be                for                                                                           domestic or                                                                   
                                          geographically.                      However, they  licensed             differential            Reduction of                                          foreign-invested,                                                             
                                                                               must approach  at the               treatment.              requirement                                           were set out in                                                               
                                                                               China          city level                                   for                                                   the "Insurance                                                                
                                                                               Insurance      or the                                       registered                                            Law", which was                                                               
                                                                               Regulatory     provincial                                   capital for                                           adopted by the                                                                
                                                                               Commission     level, and                                   low risk                                              National People's                                                             
                                                                               (CIRC) for     a                                            insurance                                             Congress of                                                                   Regarding the
                                                                               approval. This provincial                                   models, with                                          China. These                                                                     capital
                                                                               approval       license                                      the RMB 200                                           requirements were                                                              requirement
                                                                               procedure was  allows a                                     million                                               integral parts of                                       Elimination              for the
                                                                               based on the   firm to                                      registered                                            the prudential                                            of the              establishment
                                                                               prudential     offer                                        capital                                               regulatory                                               redundant               of new
                                                                               supervision of services                                     requirement             High minimum                  framework and                                             RMB 20                branches,
                                                                               the regulatory to any                                       becoming a                capital                     applied to both                                           million               China was
                                                                               body over      city or                                      ceiling                 requirements                  domestic and                     Confirmation             capital               currently
                                                                               insurance      area                                         rather than             for foreign                   foreign insurers.                 of minimum            requirement           drafting the
                                                                               enterprises    within the                                   a uniform                insurance                    The determination                  capital                  for                 detailed
                                                                               and applied to province.                                    requirement.             companies.  Verbalf          of minimum                       requirement.           branching.            rules of the
                                                                               both foreign                                                                                                      capital           
                                                                               and domestic                                                                                                      requirements was  
                                                                               insurers, thus                                                                                                    a legitimate      
                                                                               granting                                                                                                          right of a WTO    
                                                                               national                                                                                                          Member's          
                                                                               treatment to                                                                                                      regulatory        
                                                                               all foreign                                                                                                       authorities and   
                                                                               insurance                                                                                                         went beyond the   
                                                                               companies.                                                                                                        scope of General  
                                                                               Furthermore,                                                                                                      Agreement on      
                                                                               three years                                                                                                       Trade in Services 
                                                                               after China's                                                                                                     (GATS) rules and  
                                                                               accession to                                                                                                      China's accession 
                                                                               the WTO, when                                                                                                     commitments in    
                                                                               geographic                                                                                                        the insurance     
                                                                               restrictions                                                                                                      sector.           
                                                                               are lifted,                                                                                                       Therefore, it was 
                                                                               provincial                                                                                                        not appropriate   
                                                                               branches of                                                                                                       to discuss it     
                                                                               foreign                                                                                                           under the         
                                                                               insurance                                                                                                         Transitional      
                                                                               companies will                                                                                                    Review Mechanism. 
                                                                               be allowed to                                                                                                     (Verbalf)         
                                                                               conduct        
                                                                               insurance      
                                                                               business in    
                                                                               any city or    
                                                                               area within    
                                                                               the province   
                                                                               pursuant to    
                                                                               relevant       
                                                                               regulations of 
                                                                               CIRC.          
                                                                               (Verbalf)      

                      Page 54 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                          With regard                                                                                                          
                                                                                                                                                                                          to the                                                                                                               
                                                                                                                                                                                          so-called                                                                                                            
                                                                                                                                                                                          national                                                                                                             
                                                                                                                                                                                          treatment                                                                                                            
                                                                                                                                                                                          for the                                                                                                              
                                                                                                                                                                                          approval of                                                                                                          
                                                                                                                                                                                          the number                                                                                                           
                                                                                                                                                                                          of branches                                                                                                          
                                                                                                                                                                                          of foreign                                                                                                           
                                                                                                                                                                                          insurers, it                                                                                                         
                                                                                                  The                                                                                     was not                                                                                                              
                                                                                                  representative                                                                          appropriate                                                                                                          
                                                                                                  of China                                                                                to set up a                                                                                                          
                                                                                                  referred to                                       Concerning                            compulsory                                                                                                           
                                                                                                  the question                                      future                                number of                                                                                                            
                                                                                                  by the United                                     liberalization Foreign                licenses to                                                                                                          
                                                                            Allowance             States-whether                                    of insurance   life                   be issued to                                                                                                         
                                                                            of                    a joint                                           services,      operations'            foreign                                                                                                              
                                                           Administrative   geographic            venture with   China's                            China had made ability to             insures by                                                                                                           
                                Time schedule              Regulation on    expansion             foreign        implementation                     enormous       receive                CIRC at one  Application                                                                                             
                                for China's                Foreign-Invested of joint              ownership      of its                             efforts to     several                time.        of                                                                             Permission of            
Summary        Raised           issuance of                Insurance        venture               exceeding 50   commitment to                      comply with    branch                 Licenses     contemplated                                                                        all                 
  of    Raised   by             Regulations on             Companies and    insurers              percent would  open its                           the broad and  licenses at    EC -    were issued  reduction in    EC -                                                           joint-venture            
issues    by    other  China's  the              Writtena  working on the   with more  Written,a  be allowed to  pension market Written,a Australia substantive    one time or  Written,b on the basis minimum       Written,b                    Japan -                   Japan -    insurers to             
  by    United   WTO   response Administration             revision of the  than 50     Verbalf   set up         to              Verbalf  - Verbalf commitments in on a "one     Verbalf  of           capital        Verbalf                     Writtenc                  Writtenc      issue                
 theme  States members          of                         Administrative   percent               branches. He   international                      this sector.   application            prudential   requirements                                                                     insurance              
                                Foreign-Invested           Regulation on    foreign               replied in the participation                      For the        for one                principle.   to                                                                               contracts              
                                Insurance                  Insurance        ownership             affirmative,   by 11 December                     phase-in       city"                  China did    reinsurance                                          Relationship                                       
                                Companies.                 companies, where in the                and added that 2004.                              commitments in basis,                 not agree    branches.                                            between                                            
                                                           consideration    current               after                                             the insurance  unlike                 that the                                                          different                                          
                                                           was being given  ownership             geographical                                      sector (e.g.   domestic               national                                                          capital and                                        
                                                           to the possible  structure.            restrictions                                      elimination of companies.             treatment                                                         license                                            
                                                           relaxation of                          had been                                          geographical                          meant that                                                        requirements;                                      
                                                           capital                                lifted three                                      restrictions                          CIRC had to                                                       relationship                                       
                                                           requirements for                       years after                                       and the                               issue                                                             between                                            
                                                           the                                    accession,                                        opening of                            licenses to                                                       regional and                                       
                                                           establishment of                       according to                                      pension                               branches of                                                       national                                           
                                                           new branches.                          relevant laws                                     services),                            foreign                               Permission for              licenses under                                     
                                                           However, this                          and                                               China would                           insurers as                           licensed                    Insurance                                          
                                                           capital                                regulations,                                      implement its                         many as                               foreign-invested            Company                                            
                                                           requirement was                        all joint                                         commitments in                        their                                 insurers in                 Administrative                                     
                                                           aimed at                               venture                                           due time. It                          domestic                              Shanghai,                   Measures and                                       
                                                           prudential                             insurance                                         was not                               counterpart.                          Guangzhou,                  Rules of                                           
                                                           regulation and                         companies                                         appropriate to                        And there                             Dalian, Shenzhen            Regulations on                                     
                                                           was irrelevant                         would be                                          discuss future                        was not such                          and Foshan to               Administration                                     
                                                           to China's                             allowed to                                        liberalization                        a commitment                          provide services            of                                                 
                                                           accession                              establish                                         in the context                        in China's                            nationally based            Foreign-Funded                                     
                                                           commitments.                           branches.                                         of the TRM.                           schedule.                             on existing                 Insurance                                 Japan -  
                                                           (Verbalf)                              (Verbalf)                                         (Verbalf)                             (Verbalf)                             licenses.                   Companies.                               Written,c 

                      Page 55 GAO-05-209R U.S.-China Trade
                                                                                  Regarding                                                                                                                                
                                                                                  insurance, China                                                                                                                         
                                                       Consistency                said that                                                                                                                      
                                                       between (1) a              several                                                                                                                        
                                                       regulation                 questions                                                                                                                      
                                                       prohibiting                related to                                                                                                                     
                                                       foreign-invested           CIRC's daily         Approval                                                                                                  
                                                       insurers to                regulatory work  requirements and                                                                                              
                                                       engage in                  over              procedures for            Reason for                                                                         
                                                       cross-border               foreign-invested     new life               recent changes                                                                     
                                                       reinsurance with           insurance           insurance               introducing                                                                        
                                                       their associated           companies. For     products for             stricter                                                                           
                                                       enterprises                example, the     foreign-invested           reserving                                                                          
                                                       unless they are            questions raised    firms and               requirements                                                                       
                                                       otherwise                  by Australia and domestic firms;            for life                                                                           
                                                       approved by                Canada on        requirement for            insurance                                                                          
                                                       CIRC, and (2) a            approval          prior approval            products;                                         Complex                          
                                                       regulation                 requirements and by CIRC for each           request for                                     multi-stage                        
                                                       requiring a                procedures for       new life               overview of                                      approval                          
Summary Raised                                         simple approval            new life            insurance               recent changes                                  process for                        
  of      by           China's                         from CIRC to      Japan -  insurance            product;      Canada - to reserving    Canada -               Canada     foreign     Canada -             Australia
issues  United         response                        engage in this    Writtenc products, on     requirement for   Writtene requirements;   Writtene                  -    establishment  Writtene             - Verbalf
  by    States                                         line of service,           reserving           product's               request for                            Verbalf    at new                           
 theme                                                 with China's               requirements for  reapproval for            information on                                 locations in                        
                                                       commitments that           life insurance     sale in each             further                                        the insurance                       
                                                       licensing                  products, on      separate city             revisions to                                      sector.                          
                                                       procedures and             outward and           that a                its life                 Rationale                                                 
                                                       conditions would           inward           foreign-invested           insurance                behind                                                    
                                                       not act as                 cross-border      life insurance            reserving                regulations                                               
                                                       barriers to                insurance with    firm operates             regulations              such as                                       Streamline  
                                                       market access              associated       in; differences            and whether              multiple                                          of      
                                                       and would not be           enterprises, and    in actual               China has                product                                       insurance   
                                                       more trade                 on the            approval times            ensured that             requirements                                   product    
                                denominated by         restrictive than           management of          for                  it is                    for the same                                   approval   
                                foreign currency;      necessary;                 foreign exchange foreign-invested           complying with           insurance                                     process to  
                                reason for             justification              control of         and domestic             its national             product;                                        avoid     
                                regulation that        for prohibition            insurance             firm.                 treatment                reasons for                                    multiple   
               Raised           foreign-denominated    and criteria               business. These                             commitments in           the                                           approvals   
                 by             insurance contracts    CIRC uses to               regulatory                                  the design and           reserving                                        for      
                other           are prohibited, and    base                       measures were                               implementation           requirement                                   insurance   
                 WTO            on specific            consideration.             based on                                    of these new             for life                                      product in  
               members          criteria upon which                               prudential                                  reserve                  insurance                                      separate   
               Verbalf          approval is based.                                principles and                              requirements.            products.                                       areas.    
                                                                                  were legitimate. 
                                                                                  CIRC applied     
                                                                                  these measures   
                                                                                  to both foreign  
                                                                                  and domestic     
                                                                                  insurers on an   
                                                                                  equal basis. The 
                                                                                  regulatory       
                                                                                  rights of CIRC   
                                                                                  should be        
                                                                                  respected.       
                                                                                  Besides, the     
                                                                                  regulations      
                                                                                  governing the    
                                                                                  above-mentioned  
                                                                                  issues were all  
                                                                                  published and    
                                                                                  publicly         
                                                                                  available.       
                                                                                  (Verbalf)        

                      Page 56 GAO-05-209R U.S.-China Trade
                                                                                                                                                                       China believed                                                               
                                                                                                                                                                       that a WTO                                                                   
                                                                                                                                                                       Member was                                                                   
                                                                                                                                                                       entitled to                                                                  
                                                                                                                                                                       set its own                                                                  
                                                                                                                                                                       minimum                                                                      
                                                                                                                                                                       working                                                                      
                                                                                                                                                                       capital                                                                      
                                                                                                                                                                       requirements                                                                 
                                                                                                                                                                       for branches                                                                 
                                                                                                                                                                       of foreign                                                                   
                                                                                                                                                                       banks. Some                                                                  
                                                                                                                                                                       other WTO                                                                    
                                                                                                                                                                       Members also                                                                 
                                                                                                                                                                       had different                                                                
                                                                                                                                                                       working                                                                      
                                                                                                                                                                       capital                                                                      
                                                                                                                                                                       requirements                                                  
                                                                                                                                                                       for branches                                                  
                                                                                                                                                                       of foreign                                                    
                                                                                                                                                                       banks,                                                        
                                                                                                                                                                       although                                                      
                                                                                                                                                                       levels might                                                  
                                                                                                                                                                       differ.                                                       
                                                                                                                                                                       Secondly,                                                     
                                                                                                                                                                       China's                                                       
                                                                                                                                                                       minimum                                                       
                                                                                                                                                                       working                                                       
                                                                                                                                                                       capital                                                       
                                                                                                                                                                       requirement                                                   
                                                                                                                                                                       was a                                                         
                                                       Requirement                                                                                                     prudential     Requirements                                   
                                                       that an                                                                                                         requirement,   for minimum                Draft               
                                                       insurance                                                                      High minimum                     which was set  working                 regulation             
                                                       company must                                                                     working                        up according   capital and             that would             
Summary Raised Raised                                  have senior                                                                      capital                        to the         capital                    limit               
  of      by     by    China's                Norway   management      Canada -                                    Canada -           requirements Written,a           development    adequacy                 interbank             
issues  United  other  response                  -     personnel for   Writtene                                    Writtene            for direct   Verbalf            level of its   ratios                   financing             
  by    States   WTO                          Verbalf  the branch                                                                     branches of                      financial      required for               to 40               
 theme         members                                 office who                                                                       foreign                        sector and the each direct             percent of             
                                Ability of             speak Chinese;                                                                    banks.                        regulatory     branch in                   RMB                
                                Chinese                criteria used                                                                                                   capacity of    China from              liabilities            
                                owned vessel           to assess this                                                                                                  the financial  the same                of a bank.             
                                to buy                 qualification.                                                                                                  authority. The bank.                                          
                                insurance                                                                                                                              requirement                                                   
                                directly                                                                                                                               also tried to                                                 
                                from an                                         Regarding the                                                                          cater for the                                                 
                                insurance                                       questions on                                                                           demands of                                                    
                                company not                                     language                                                                               foreign bank                                                  
                                incorporated                                    requirements for                                                                       branches in                                                   
                                or present                                      senior                                                                                 terms of their                                                
                                in China;                                       management                                                                             business                                                      
                                taxes                                           personnel of                                                                           operation.                                                    
                                applicable                                      foreign-invested                                                                       Thirdly, along                                                
                                to such                                         insurance                                                                              the same line,                                                
                                cross-border                                    companies, China                                                                       China also had                                                
                                business;                                       said that CIRC                                                                         working                                                       
                                restrictions                                    had already                                                                            capital                                                       
                                on the                                          changed the                                                                            requirements                                                  With regard to
                                ability of a                                    related                                                                                for branches                                                  the 40 percent
                                Chinese                                         qualification                                                                          of domestic                                                   limitation on
                                company to                                      requirements                                                                           banks.                                                        interbank
                                obtain                                          contained in the                                                                       However, with                                                 borrowing, the
                                foreign                                         measures                                                                               the                                                           Chinese
                                exchange to                                     governing the    Requirement that                                                      improvement of                                                representative
                                buy direct                                      qualifications   foreign-invested                                             Japan -  the risk                                                      said that at
                                non-life                                        of senior        firms obtain                                                 Verbalf  management                                                    present there
                                insurance                                       management       special written                                              Chinese  system of                                                     was no such
                                from                                            personnel of     permission from                                             Taipei -  foreign banks                EC -                             regulation for
                                insurance                                       insurance        the regulator                                               Written,d and the                      Written,b                        foreign banks.
                                companies                                       companies. The   before they can                                              Verbalf  development of               Verbalf                          The
                                not                                             language         negotiate                                                   Canada -  China's                      Canada -                Japan -  requirement
                                incorporated                                    requirement was  contractual                 Banking                          Verbale  regulatory                   Writtene               Written,c did not exist
                                or present                                      no longer in     deposits with                 EC -                          Australia framework,                   EC -                    Verbalf  at this
                                in China.                                       force. (Verbalf) local banks.                Writtenb                        - Verbalf China Banking                Writtenb               Canada -  moment. China
                                                                                                                                                                       Regulatory     
                                                                                                                                                                       Commission     
                                                                                                                                                                       (CBRC) would   
                                                                                                                                                                       relax the      
                                                                                                                                                                       minimum        
                                                                                                                                                                       capital        
                                                                                                                                                                       requirement    
                                                                                                                                                                       for foreign    
                                                                                                                                                                       banks          
                                                                                                                                                                       accordingly.   
                                                                                                                                                                       Finally, the   
                                                                                                                                                                       Chinese        
                                                                                                                                                                       representative 
                                                                                                                                                                       reiterated     
                                                                                                                                                                       that the       
                                                                                                                                                                       determination  
                                                                                                                                                                       of the minimum 
                                                                                                                                                                       capital        
                                                                                                                                                                       requirements   
                                                                                                                                                                       was a          
                                                                                                                                                                       legitimate     
                                                                                                                                                                       right of a     
                                                                                                                                                                       Member to      
                                                                                                                                                                       regulate, and  
                                                                                                                                                                       it was         
                                                                                                                                                                       irrelevant to  
                                                                                                                                                                       GATS rules and 
                                                                                                                                                                       China's        
                                                                                                                                                                       accession      
                                                                                                                                                                       commitments.   
                                                                                                                                                                       He expressed   
                                                                                                                                                                       the hope that  
                                                                                                                                                                       future TRM     
                                                                                                                                                                       processes      
                                                                                                                                                                       would not be   
                                                                                                                                                                       bothered by    
                                                                                                                                                                       such           
                                                                                                                                                                       irrelevant     
                                                                                                                                                                       questions.     
                                                                                                                                                                       (Verbalf)      

                      Page 57 GAO-05-209R U.S.-China Trade
                                                                                                                                                                          The licensing                                                              
                                                                                                                                                                          procedure for                                                              
                                                                                                                                                                          foreign banks was                                                          
                                                                                                                                                                          a domestic                                                                 
                                                                                                                                                                          regulation issue                                                           
                                                                                                                                                                          in nature, based                                                           
                                                                                                                                                                          on the need of                                                             
                                                                                                                                                                          prudential                                                                 
                                                                                                                                                                          regulation and in                                                          
                                                                                                                                                                          conformity with                                                            
                                                                                                                                                                          the internal                                                               
                                                                                                                                                                          working formality                                                          
                                                                                                                                                                          of China's                                                                 
                                                                                                                                                                          regulatory body.                                                           
                                                                         Some of the                                                                                      This licensing                                                             
                                                                          questions                                                                                       procedure applied                                              
                                                                         raised were                                                                                      equally to                                                     
                                                                          related to                                                                                      foreign-invested                                               
                                                                            CBRC's                                                                                        banks and                                                      
                                                                          prudential                                                                                      domestic banks.                                                
                                                          Requirement   regulation and                                                                                    Secondly,                                                      
                                                            for 30      administration  Reason for              Procedures                                                according to                                                   
                                                          percent of      of foreign     limited                and                                                       China's research,                                              
                                                          the working   invested banks  opening of              criteria                                                  many WTO Members                                               
                                                          capital of      (e.g., the     foreign       EC -     used in                                                   had similar                                                    
                                                            foreign     requirement to banks to one  Written,b  determining                        Multi-stage   Chinese  requirements with                                              
Summary        Raised                                     branches to     deposit 30    new branch    Verbalf   the extent                          licensing   Taipei -  regard to                                                      
  of    Raised   by                                           be          percent of    per year,     Japan -   of local              On the       process for  Written,d licensing                                                      
issues    by    other  China's                             deposited       working        unlike      Verbalf   currency     Japan -  questions     banks as     Verbalf  procedures for                 Canada -               Canada - 
  by    United   WTO   response                           at a local      capital of     Chinese     Canada -   services     Writtenc concerning      trade     Canada -  the approval of                Writtene               Writtene 
 theme  States members                                    bank listed   foreign banks     banks;     Written,e  that a                the          barrier for  Written,e foreign banks.                                                 
                                                          by Chinese      at a local     prudent      Verbalf   foreign               commitment     market      Verbalf  Certain                                                        
                                                          authorities    bank). These  restrictions  Australia  financial             to permit      access.              developed-country                                              
                                                          or used to    measures were     in its     - Verbalf  institution           foreign                             Members also                                                   
                                                              buy          for the      licensing               is allowed            financial                           required a                                                     
                                                          Government      purpose of     regime.                to engage             institutions                        "preliminary                                                   
                                                            bonds.      regulating the                          in.                   to provide                          review" or                                                     
                                                                        operations of                                                 local                               "pre-review"                                                   
                                                                        foreign banks,                                                currency                            stage before                                                   
                                                                        and were based                                                business to                         final approval.                                                
                                                                        on prudential                                                 Chinese                             Thirdly, at                                                    
                                                                         principles.                                                  enterprises                         present, Members                                               
                                                                        The objective                                                 two years                           were engaged in   Plan and                                     
                                                                         was to keep                                                  after                               discussions on a  time                                          There was
                                                                        away financial                                                accession.                          possible          schedule to                                      one
                                                                        risks arising                                                 In that                             multilateral      introduce              Reason for            question on
                                                                           from the                                                   regard,                             discipline on     more                   requirement               the
                                                                         operation of                                                 China would                         licensing         flexibility            that the              requirement
                                                                        foreign banks.                                                implement                           procedures, and   into                   value of a             that the
                                                                            These                                                     those                               therefore it was  China's                foreign                value of
                                           was of the                     prudential                                                  commitments                         inappropriate for capital                bank's                  foreign
                                           view that                    regulations to                                                in due time                         the Committee to  rules to               foreign                 banks'
                                           future                          prevent                                                    according to                        review China's    help                   currency                foreign
                                           liberalization                 financial                                                   what was                            licensing         smaller                deposits               currency
                                           should not be                 risks should                                                 stated in                           procedures before firms                  received               deposits
                                  Writtene discussed in                    also be                                                    the                                 any possible      compete on             within                  within
                                  EC -     the context of                 respected.                                                  schedule.                           discipline in the a more even            China shall              China
                                  Writtenb TRM. (Verbalf)                 (Verbalf)                                                   (Verbalf)                           future. (Verbalf) footing.               not                   should not

                      Page 58 GAO-05-209R U.S.-China Trade
                                                                                                                                                      Auto financing                                                                                                                                     
                                                                                                                                                      regulation did                                                                                                                                     
                                                                                                                                                      not permit                                                                                                                                         
                                                                                                                                                      direct                                                                                                                                             
                                                                                                                                                      branching from                                                                                                                                     
                                                                                                                                                      abroad. The                                                                                                                                        
                                                                                                                                                      reasons for                                                                                                                                        
                                                                                                                                                      not allowing                                                                                                                                       
                                                                                                                                                      direct                                                                                                                                             
                                                                                                                                                      branching from                                                                                                                                     
                                                                                                                                                      abroad were                                                                                                                                        
                                                                                                                                                      the following.                                                                                                                                     
                                                                                                                                                      Firstly,                                                                                                                                           
                                                                                                                                                      auto-financing                                                                                                                                     
                                                                                                                                                      institutions                                                                                                                                       
                                                                                                                                                      belonged to                                                                                                                                        
                                                                                                                                                      non-banking                                                                                                                                        
                                                                                                                                                      financial                                                                                                                                          
                                                                                                                                                      institutions                                                                                                                                       
                                                                                                                                                      under China's                                                                                                                                      
                                                                                                                                                      regulatory                             On the issue of                                                                                             
                                                                                                                                                      system, the                            the requirements                                                                                            
                                                                                                                                                      administration                         imposed on                                                                                                  
                                                                                                                                                      of which was                           auto-financing                                                                                              
                                                                                                                                                      conducted by                           institutions (e.g.                                                                                          
                                                                                                                                                      CBRC pursuant                          minimum capital                                                                                             
                                                                                                                                                      to relevant                            requirements and                                                                                            
                                                                                                                                                      regulations                            others), the                                                                                                
                                                                                                                                                      governing                              representative of                                                                                           
                                                                                                                                                      financial                              China said that                                                                                             
                                                                                                                                                      institutions.                          they were of a                                                                                              
                                                                                                                                                      However,                               prudential nature,                                                                                          
                                  exceed 70                                                                                                           companies                              based on the fact  Conditions                                                                               
                                 percent of                                                                                                           engaging in                            that the           imposed on                                                                               
                                the value of                             Plans to                                                 Condition           the auto                               auto-financing     car                                                Condition                             
                                 its foreign                             expedite                                                   that              financing                              market in China    financing                                            that                Condition that  
Summary Raised Raised             currency                               applications                                              direct             business were                          was just at a      institutions   Condition of                      auto-finance            deposit-taking  
  of      by     by    China's  assets within                            submitted to                         Written,a           branching           regulated by                           beginning stage.   in order to    high minimum  Written,a           companies are           from local car  
issues  United  other  response    China;                                obtain motor Writtena                 Verbalf              from              different                              The regulatory     be eligible       capital     Verbalf             not allowed            manufacturers   
  by    States   WTO             request for                             vehicle                                                  abroad is           regulatory                             body had           to get a       requirements.                       to set up             does not seem   
 theme         members           any details                             financing                                                   not              authorities in                         insufficient risk  license,                                           internal              to be allowed.  
                                 of China's                              licenses.                                                allowed.            other Members.                         control capacity   such as                                           branches or                            
                                  plans to                                                                                                            Therefore,                             and lacked         restrictions                                     subsidiaries.                           
                                   remove                                                                                                             China could                            supervision        on total                                                                                 
                                restrictions.                                                                                                         not establish                          experience.        assets.                                                                                  
                                                                                                                                                      effective                              Besides, all these                                                                                          
                                                                                                                                                      communication                          requirements,                                                                                               
                                                exceed 70                                                                                             with foreign                           including minimum                                                                                           
                                                percent of the                                                                                        regulatory                             capital                                                                                                     
                                                value of the                                                                                          authorities.                           requirements, were                                                                                          
                                                banks' foreign                                                                                        As a result                            non-discriminatory                                                                                          
                                                currency                                                                                              CBRC's found                           and applied to                                                                                              
                                                assets within                                                                                         it extremely                           both foreign and                                                                                            
                                                China. In                                                                                             difficult to                           domestic                                                                                                    
                                                reply, the                                                                                            exchange                               auto-financing                                                                                              
                                                representative                                                                                        information                            companies.                                                                                                  
                                                of China said                                                                                         with foreign                           (Verbalf)                                                                                                   
                                                that prior to                                                                                         regulatory                                                                                                                                         
                                                his country's                                                                                         bodies and to                                                                                                                                      
                                                accession, the                                                                                        regulate.                                                                                                                                          
                                                ratio was 40                                                                                          Secondly, this                                                                                                                                     
                                                percent. After                                                                                        requirement                                                                                                                                        
                                                accession, the                                                                                        applied to                                                                                                                                         
                                                ratio was                                                                                             both domestic                                                                                                                                      
                                                increased                                                                                             and foreign                                                                                                                                        
                                                substantially,                                                                                        companies. For  Requirements                                                                                                                       
                                                up to 70                                                                                              the purpose of     that a                                                                                                                          
                                                percent. China                                                                                        prudential     shareholder of                                                                                                                      
                                                would further                                                                                         regulation,          an                                                                                                                            
                                                relax this                                                                                            domestic auto  auto-financing                                                                                                                      
                                                ratio during                                     Deregulation                                         financing       company must                                                                                                                       
                                                the five-year                                    of interest                                          enterprises       meet for                                                                                                                         
                                                phase-in                                         rate charged                                         were also not  certain level                                                                     EC -                                              
                                                period                                           by motor                                             permitted to      of total                                                                       Written,b                                         
                                                mentioned in     Motor                           vehicle                                              establish         assets,                                                                        Verbalf                                           
                                                the schedule.   vehicle                          financing              EC -                 EC -     branches.      revenues, and   EC -                                                              EC -                     EC -                     
                                                (Verbalf)      financing                         entities.              Writtenb             Writtenb (Verbalf)      profitability.  Verbalf                                                           Writtenb                 Writtenb                 

                        Raised by Raised by                                   
Summary of issues by  United   other WTO           China's response
          theme          States   members EC - 
                                  Writtenb     
Condition that                              
activities of an                            
auto-finance company                        
may be stopped if it                        
loses in one year                           
more than 50 percent                        
of the capital or                           
accumulates losses                          
over three years                            
representing more                           
than 10 percent of                          
the capital.                                
                            Securities EC - Writtenb
                                               In accordance with China's     
                                               existing laws and regulations, 
                                               a fund management company,     
     Limitation that                           whether domestically-owned or  
     securities fund                           joint-venture, was not allowed 
management companies                        to manage assets for           
     manage assets of                          institutional investors        
retail investors but                        because this service did not   
    are not allowed to                         exist in China due to the      
     manage assets of                          special situation of the       
      institutional                            Chinese securities market. In  
        investors.                             other words, this service for  
                                               institutional investors was a  
                                               new service in China, and was  
                                               therefore not covered by       
                                               China's commitments. (Verbalf) 
Limitation that only                                                       
domestic securities,                           The questions on minimum    
fund management or                             capital requirements and    
investment trust                             licensing procedures, which   
companies may hold                 EC -        were similar to the ones    
the highest capital             Written,b   raised with regard to banking  
contribution,                    Verbalf     and insurance services, had   
limiting the choice                             already been answered.     
of partners for                                       (Verbalf)
foreign investors in                        
joint ventures.                             
Complex multi-stage                         
approval process for                        
establishment of new                        
      locations for                 Canada -   
         foreign                    Writtene   
participation in the                        
     fund management                           
         sector.                               

Source: GAO analysis of WTO documents.

aCommunication from U.S.: S/FIN/W/35; dated 11/24/03.
bCommunication from European Communities: S/FIN/W/32; dated 11/12/03.
cCommunication from Japan: S/FIN/W/30; dated 9/29/03.
dCommunication from Chinese Taipei: S/FIN/W/34; dated 11/19/03.
eCommunication from Canada: S/FIN/W/33; dated 11/12/03.
fCommittee report detailing verbal statements made during meeting:
S/FIN/M/43; meeting dated 12/1/03.

                      Page 59 GAO-05-209R U.S.-China Trade

Enclosure XIII Committee on Trade-Related Investment Measures (TRIMS)

                      Page 60 GAO-05-209R U.S.-China Trade
                                                                        Upon join                                                                                                                                  
                                                                        the WTO,                                                                                                                                   
                                                                        China has                                                                                                                                  
                                                                        eliminated                                                                                                                                 
                                                                        or ceased to                                                                                                                               
                                                                        implement                                                                                                                                  
                                                                        the                                                                                                                                        
                                                                        provisions                                                                                                                                 
                                                                        like foreign                                                                                                                               
                                                                        currency                                                                                                                                   
                                                                        balancing                                                                                                                                  
                                                                        requirement,                                                                                                                               
                                                                        local                                                                                                                                      
                                                                        content and                                                                                                                                
                                                                        etc., which                                                                                                                                
                                                                        were                                                                                                                                       
                                                                        contained in                                                                                                                               
                                                                        the 1994                                                                                                                                   
                                                                        Automobile                                                                                                                                 
                                                                        Industrial                                                                                                                                 
                                                                        Policy. The                                                                                                                                
                                                                        newly                                                                                                                                      
                                                                        drafted                                                                                                                                    
                                                                        Policy on                                                                                                                                  
                                                                        the                                                                                                                                        
                                                                        Development                                                                                                                                
                                                                        of Auto                                                                                                                                    
                                                                        Industry is                                                                                                                                
                                                                        now with the                                                                                                                               
                                                                        State                                                                                                                                      
                                                                        Council for                                                                                                                                
                                                                        approval.                                                                                                                                  
                                                                        During the                                                                                                                                 
                                                                        process of                                                                                                                
                                                                        enactment,                                                                                                                
                                                                        we published                                                                                                              
                                                                        the draft of                                                                                                              
                                                                        new policy                                                                                                                
                                                                        on the                                                                                                                    
                                                                        website for                                                                                                               
                                                                        the opinions                                                                                      Revisions to            
                                                                        from all                                                                                           investment             
                                           Status of                    walks of the                                                                                     guidelines in            
                                           China's                      society.                                                                                           conformity             
                                           research                     General      Legal steps                            Legal steps                                   with the WTO            
                                           and study                    Motors,      to                                    to raise the                                    Agreement,             
                                           to issue                     Association  completely                            limit within                                  especially as            
                                           new                          of           remove all                                which                                      regards the             
Summary        Raised                      automobile                   Automobile   restrictions                           investments                                  status of the            
  of    Raised by                          industrial                   Industry in  on the                                  in motor                                     Catalogue on            
issues    by   other   China's  Automotive policy and  Writtena Japan - Japan and    categories,  Writtena                    vehicle    Writtena                General Investment and    EC -   
  by    United WTO     response   sector   issuance of          Verbald some         types or                              manufacturing                                      the        Writtenb 
 theme  States members                     new                          companies in models of                               could be                                    categorization           
                                           Guidelines                   the European motor                                  approved at                                  of restricted;           
                                           for Current                  Union (EU)   vehicles                                   the                                      permitted; and           
                                           Development                  are among    permitted                              provincial                                     encouraged             
                                           of                           those who    for                    According to      level.                                      investments,            
                                           Automobile                   submitted    production.            Paragraph 205                                                     and                 
                                           Industry.                    comments.                           of the Working                                                requirements            
                                                                        Afterwards,                         Party Report                                                  relating to             
                                                                        we have sent                        on the                                                        transfer of             
                                                                        the draft                           Accession of                                                  technology.             
                                                                        directly to                         China, the                                                                            
                                                                        the                                 category                                                                              
                                                                        companies in                        authorizations                                                                        
                                                                        the                                 by the Chinese                                                                        
                                                                        industry,                           Government                                                                            
                                                                        the research                        could continue                                                                        
                                                                        institute                           to distinguish                                                                        
                                                                        and scholars                        between trucks                                                                        Before accession
                                                                        alike for                           and buses,                                                                            to the WTO,
                                                                        their                               light                                  The draft of                                   China had
                                                                        inputs, and                         commercial                             the upcoming                                   already modified
                                                                        explicitly                          vehicles and                           development                                    three basic laws
                                                                        require the                         passenger                              policy on                                      in respect of
                                                                        Chinese                             cars. In the                           automobile                                     foreign direct
                                                                        parties of                          Policy on the                          industry is                                    investment - Law
                                                                        joint                               Development of                         characterized                                  of People's
                                                                        ventures to                         Automobile                             by its                                         Republic of
                                                                        solicit the                         Industry,                              provisions on                                  China on
                                                                        opinions of                         which is in                            deregulation                                   Sino-Foreign
                                                                        their                               the process of                         and transfer                                   Equity Joint
                                                                        foreign                             revision, the                          of approval                                    Ventures, Law of
                                                                        partners.                           measures                               authority to                                   People's
                                                                        Beside that,                        restricting                            governments                                    Republic of
                                                                        extensive                           the production                         at provincial                                  China on
                                                                        and in-depth                        under each                             levels. After                                  Sino-Foreign
                                                                        exchanges of                        category will                          the issuance                                   Cooperative
                                                                        ideas,                              be eliminated.                         of the new                                     Joint Ventures
                                                                        discussions                         The new Policy                         Policy, the                                    and Law of
                                                                        and                                 is now waiting                         invest limits                                  People's
                                                                        consensus                           for the                                on auto                                        Republic of
                                                                        building                            approval from                          manufacturing                                  China on
                                                                        have been                           the State                              that could be                                  Foreign-invested
                                                                        conducted                           Council and                            approved at                                    Enterprises as
                                                                        with many                           will be                                provincial                                     well as their
                                                                        foreign auto                        enforced as                            level will be                                  implementing
                                                                        makers on a                         soon as the                            increased as                                   rules. The
                                                                        number of                           legislative                            required in                                    revised
                                                                        specific                            procedures are                         the Working                                    legislation has
                                                                        issues.                             completed.                             Party Report.                                  eliminated or
                                                                        (Verbald)                           (Writtenc)                             (Writtenc)                                     ceased

                      Page 61 GAO-05-209R U.S.-China Trade
                                   the                                                                                      
                                   implementation                                                                           
                                   of provisions                                                                  
                                   on foreign                                                                     
                                   currency                                   China has                           
                                   balancing,                                 revised the Law                     
                                   local content,                             of the People's                     
                                   export                                     Republic of                         
                                   performance                                China on                            
                                   requirement                                Chinese-Foreign                     
                                   and mandatory                              Equity Joint                        
                                   technology                                 Venture; Law on                     
                                   transfer.                                  Chinese-Foreign                     
                                   (Writtenc) On                              Contractual                         
                                   February 11,                               Joint Venture;                      
                                   2002, State                                and Law on                          
                                   Council of                                 Wholly Foreign                      
                                   China                                      Owned                               
                                   promulgated                                Enterprises and                     
                                   newly-amended                              their                               
                                   the Regulation                             respective                          
                                   on Guiding the                             implementing                        
                                   Foreign                                    regulations.                        
                                   Investments.                               The revision                        
                                   Afterwards,                                includes the                        
                                   strictly                                   elimination and                     
                                   according to                               cessation of                        
                                   WTO rules and                              enforcement of                      
                                   commitments                                requirements on                     
                                   upon accession                             trade and                           
                                   to WTO, China                              foreign                             
                                   amended the                                exchange                            
                                   original                                   balancing,                          
                                   Guiding                                    local content,                      
                                   Industrial     Amendment of                export          Contracts which     
                                   Catalogue for  contractual                 performance,    may contain TRIMs   
                                   Foreign        arrangements that           compulsory      incompatible        
                                   Investment in  contain                     technology      commitments and     
                                   a              TRIMsincompatible           transfer, and   obligations will    
                                   comprehensive  commitments and             etc. This       not be enforced     
Summary        Raised              manner. It was obligations in              revision has    before domestic     
  of    Raised by                  made effective such a way that             got extensive   law courts or       
issues    by   other   China's     as of April 1, they will contain    EC -   media coverage. other                  EC
  by    United WTO     response    2002. The      obligations which  Writtenb Chinese         administrative      -Writtenb
 theme  States members             Catalogue      are fully                   government      tribunals or        
                                   lists 371      compatible with             respects        bodies and that     
                                   industries and the TRIMs                   freedom of      the                 
                                   divides them   Agreement;                  contract. If    TRIMs-incompatible  
                                   into three     indication of how           the articles of commitments and     
                                   categories     China might                 association or  obligations are to  
                                   including      institute such              contract of     be considered null  
                                   "encouraged,"  amendments.                 enterprises     and void.           
                                   "restricted"                               with foreign                        
                                   and                                        investment                          
                                   "prohibited"                               approved before                     
                                   for foreign                                amendment of                        
                                   investment, of                             the relevant                        
                                   which 262 are                              laws contain                        
                                   encouraged, 75                             the terms on                        
                                   restricted and                             foreign                             
                                   34 prohibited.                             exchange                            
                                   All the                                    balance, local                      
                                   industries not                             contents, and                       
                                   listed in the                              export                              
                                   Catalogue are                              performance,                        
                                   considered as                              and the                             
                                   permitted. The                             investors on                        
                                   contents in                                both sides can                      
                                   relation to                                reach an                            
                                   liberalization                             agreement, they                     
                                   committed by                               may file the                        
                                   China upon                                 application to                      
                                   accession are                              relevant                            
                                   listed in the                              authorities to                      
                                   Attachment to                              alter or                            
                                   the Catalogue.                             nullify those                       
                                   In addition,                               terms. The                          
                                   requirement                                application                         
                                   for technology                             will be                             
                                   transfer has                               processed                           
                                   been                                       timely and in a                     
                                   eliminated in                              manner                              
                                   approving the                              consistent with                     
                                   foreign                                    TRIMs                               
                                   investment.                                agreement.                          
                                   (Verbald)                                  (Verbald)                           

Source: GAO analysis of WTO documents.

aCommunication from U.S.: G/TRIMS/W/32; dated 9/23/03.
bCommunication from European Communities: G/TRIMS/W/31; dated 8/14/03.
cCommunication from China: G/TRIMS/W/34; dated 10/1/03.
dCommittee report detailing verbal statements made during meeting:
G/L/648; meeting dated 10/3/03.

Enclosure XIV Council for Trade in Goods

                      Page 62 GAO-05-209R U.S.-China Trade
                                                                   According to     
                                                                   China's          
                                                                   commitments upon 
                                                                   accession, China 
                                                                   would            
                                                                   progressively    
                                                                   liberalize the   
                                                                   availability and 
                                                                   scope of the     
                                                                   right to trade   
                                                                   so that within   
                                                                   three years      
                                                                   after accession  
                                                                   all domestic     
                                                                   enterprises and  
                                                                   foreign          
                                                                   enterprises and  
                                                                   individuals,     
                                                                   including sole   
                                                                   proprietorships  
                                                                   of other WTO     
                                                                   Members, would   
                                                                   have the right   
                                                                   to export and    
                                                                   import all goods 
                                                                   (with the        
                                                                   exception of     
                                                                   products listed  
                                                                   in Annex 2A of   
                                                                   the Protocol     
                                                                   reserved for     
                                                                   importation and  
                                                                   exportation by   
                                                                   state trading    
                                                                   enterprises)     
                                                                   throughout the   
                                                                   custom territory 
                                                                   of China. The    
                                                                   point that the   
                                                                   trading rights   
                                                                   in this context  
                                                                   only referred to 
                                                                   the right of     
                                                                   importation and  
                                                                   exportation, not 
                                                                   including the    
                                                                   right of         
                                                                   distribution in  
                                                                   China. The       
                                                                   liberalization   
                                                                   of distribution  
                                                                   rights would be  
                                                                   executed in      
                                                                   accordance with  
                                                                   the Schedule of  
                                                                   Specific         
                                                                   Commitments on   
                                                                   Services and     
                                                                   governing        
                                                                   regulations in   
                                                                   China. (Verbald) 
                                                                   Given the        
                                                                   above-mentioned  
                                                                   commitments and  
                                                                   relevant laws    
                                                                   and regulations  
                                                                   governing        
                                                                   foreign-invested 
                                                                   enterprises, the 
                                                                   enterprises in   
                                                                   China with       
                                                                   foreign          
                                            Measures               investment had   
                                           governing               the right to     
                                         trading rights            import           
                                               of                  equipment,       
                                        foreign-invested           technology, raw  
                                          enterprise;              material and     
Summary Raised Raised                   China's limited            other goods for  
  of      by     by    China's          availability of  Writtena  self-use, and    
issues  United  other  response          trading rights  Verbald   export their     
  by    States   WTO                          for                  products. While  
 theme         members                  foreign-invested           for the          
                                         enterprises by            importation and  
                                            imposing               domestic         
                                         conditions on             distribution of  
                                        the eligibility            the goods other  
                                            of those               than the above   
                                          enterprises.             listed, the      
                                                                   enterprises      
                                                                   should apply for 
                                                                   the expansion of 
                                                                   its business     
                                                                   scope of         
                                                                   distribution in  
                                                                   accordance with  
                                                                   China's          
                                                                   timetable        
                                                                   regarding        
                                                                   distribution in  
                                                                   the Schedule of  
                                                                   Specific         
                                                                   Commitments on   
                                                                   Services and     
                                                                   other relevant   
                                                                   regulations in   
                                                                   China.           
                                                                   Furthermore, the 
                                                                   Chinese          
                                                                   Government also  
                                                                   allowed          
                                                                   foreign-invested 
                                                                   enterprises to   
                                                                   engage in import 
                                                                   and export,      
                                                                   domestic         
                                                                   purchase and     
                                                                   distribution in  
                                                                   China through    
                                                                   the              
                                                                   establishment of 
                                                                   specific trading 
                                                                   company, holding 
                                                                   company,         
                                                                   logistics        
                                                                   company,         
                                                                   distribution     
                                                                   enterprises,     
                                                                   procurement      
                                                                   centre, etc.     
                                                                   (Verbald)        
                                                                   Trading rights   
                                                                   only referred to 
                                                                   import and       
                                                                   export, not      
                                                                   distribution. In 
                                                                   this regard,     
                                                                   foreign invested 
                                                                   enterprises with 
                                                                   majority or      
                                                                   minority         
                                                                   ownership should 
                                                                   follow the       
                                                                   relevant         
                                                                   provisions of    
                                                                   the regulations  
                                                                   with regard to   
                                                                   foreign invested 
                                                                   enterprises.     
                                                                   These            
                                                                   enterprises      
                                                                   could import     
                                                                   goods, services  
                                                                   and technologies 
                                                                   for their own    
                                                                   use, and if      
                                                                   those            
                                                                   enterprises      
                                                                   imported goods   
                                Trading                            and services to  
                                rights                             be               

                      Page 63 GAO-05-209R U.S.-China Trade
                                                                                    With regard                                                                                                                                                              
                                                                                    to the                                                                                                                                                                   
                                                                                    capital                                                                                                                                                                  
                                                                                    requirements                                                                                                                                                             
                                                                                    of trading                                                                                                                                                               
                                                                                    companies set                                                                                                                                                            
                                                                                    up by foreign                                                                                                                                                            
                                                                                    investment,                                                                                                                                                              
                                                                                    one was                                                                                                                                                                  
                                                                                    referring to                                                                                                                                                             
                                                                                    foreign trade                                                                                                                                                            
                                                                                    companies                                                                                                                                                                
                                                                                    only.                                                                                                                                                                    
                                                                                    Regarding the                                                                                                                                            In China,       
                                                                                    question                                                                                                                                                 customs imposed 
                                                                                    raised by the                                                                                                                                            duties and VAT  
                                                                                    U.S. about                                                                                                                                               for the         
                                                                                    holding                                                                                                                         Explanation              importation of  
                                                                                    companies,                                                                                                                      of VAT rebate            copper scraps,  
                                                                                    their                                                                                                                           program                  copper ore      
                                                                                    functions                                                                                                                       works, i.e.              concentrates    
                                                                                    were much                                                                                                                       amount of VAT            and raw copper  
                                                                                    more than                                                                                                                       originally               by              
                                                                                    trading, and                                                                                                                    paid, entity             coppersmelting  
                                                                                    China imposed                                                                                                                   that pays                enterprises     
                                                Explanation of                      capital                                                                                                                         VAT, entity              reaching a      
                                                how conditions                      requirements  Exclusion                                                                                                         to which VAT             certain         
                                                of                                  on those      of                                                                                                                rebate is                production      
                                                foreign-invested                    companies.    conditions                                                                                                        paid, amount             scale. After    
                                                enterprises                         With regard   relating                                                                                                          of a rebate              paying the duty 
                                                relate to                           to logistics  to minimum                                                                                                        received by              and tax, a      
                                                minimum                             companies set registered                          Distinction                           Measure                                 entity,                  company could   
                                                registered                          up by foreign capital,                              between                             that                                    availability             apply for the   
Summary Raised Raised                           capital, past                       investment,   past                                 so-called                            implements                              of rebate                drawback of 30  
  of      by     by    China's                  import and                  EC -    these         import and                        "trading joint     EC -                 the policy                              upon the      Written,a  percent VAT on  
issues  United  other  response                 export levels,   Writtena Written,b companies     export     Writtena               ventures (JVs)"  Written,b              for        Writtena                     exportation    Verbald   presentation of 
  by    States   WTO                            and prior                  Verbald  were actually levels and                              and         Verbald               rebates of                              of finished              dutypaid        
 theme         members                          experience,                         involved in   prior                             "manufacturing"                         the VAT on                              or                       proofs. The     
                                                consistent with                     distribution, experience                             JVs.                               imported                                semi-finished            refunded tax    
                                                China's                             purchasing    in the                                                                    copper.                                 products                 should be       
                                                commitments to                      and a series  draft                                                                                                             copper                   applied to the  
                                                provide full                        of other      revisions                                                                                                         products,                technological   
                                                rights to trade                     activities.   to the                                                                                                            application              innovations of  
                                                to                                  So with this  Foreign                                                                                                           and                      the enterprise. 
                                                foreign-invested                    expanded      Trade Law.                                                                                                        differences              VAT rebate      
                                                enterprises.                        business                                                                                                                        in                       policy on       
                                                                                    scope China                                                                                                                     application              copper          
                                                                                    had to impose                                                                                                                   of VAT rebate            materials       
                                                                                    capital                                                                                                                         to imported              applied to all  
                                                                                    requirements                       At present,                                                                                  scrap or                 enterprises     
                                                                                    for these                          the Foreign                                                                                  domestically             reaching        
                                   distributed                                      companies.                         Trade Law of                                                                                 sourced                  certain         
                                   within                                           China was now                       China was                                                                                   copper scrap.            production      
                                   Chinese                                          revising its                          being                                                                                                              scale, and was  
                                   territory                                        foreign trade                      revised. The                                                              China currently                             not conditioned 
                                   they needed                                      law.                                 current                                                                 applied 17 percent                          on ownership of 
                                   firstly to                                       According to                       draft of the                                                              VAT on both                                 the enterprise  
                                   file the                                         the draft of                         Foreign                                                                 domestic and                                or local        
                                   application                                      the foreign                         Trade Law                                                                imported goods,                             content.
                                   for changing                                     trade law                            did not                                                                 which was fair and                          Copper-smelting
                                   their                                            China would                        contain the                                                               non-discriminatory                          enterprises had
                                   business                                         further                            requirements                                                              in terms of the                             to pay VAT
                                   scope and                                        specify the                         on minimum                                                               value of goods.                             while importing
                                   after doing                                      trading                             registered                                                               The current VAT                             copper
                                   that they                                        rights and                           capital,                                                                rebate policy was                           materials. The
                                   could                                            their                               import or                                                                consistent with                             amount of VAT
                                   undertake                                        availability                          export                                                                 the national                                should be the
                                   distribution                                     to foreign                         performance                                                               treatment rule                              total sum of
                                   business in                                      invested                           and history                              Value-added                      under Article III                           dutiable value
                                   China.                                           companies.                         experience.                                  tax                          of GATT 1994.                               and tariff
                                   (Verbald)                                        (Verbald)                           (Verbald)                                policies                        (Verbald)                                   multiplied

                      Page 64 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                  Fluorspar was a  
                                                                                                                                                                                                  kind of          
                                                                                                                                                                                                  non-regenerative 
                                                                                                                                                                                                  resource under   
                                                                                                                                                                                                  the protection   
                                                                                                                                                                                                  of the Chinese   
                                                                                                                                                                                                  Government. The  
                                                                                                                                                                                                  mining of        
                                                                                                                                                                                                  fluorspar had a  
                                                                                                                                                                                                  significantly    
                                                                                                                                                                                                  negative impact  
                                                                                                                                                                                                  on the           
                                                                                                                                                                                                  environment.     
                                                                                                                                                                                                  China had been   
                                                                                                                                                                                                  attaching great  
                                                                                                                                                                                                  importance to    
                                                                                                                                                                                                  the              
                                                                                                                                                                                                  exploitation,    
                                                                                                                                                                                                  processing and   
                                                                                                                                                                                                  consumption of   
                                                                                                                                                                                                  exhaustible      
                                                                                                                                                                                                  resources. From  
                                                                                                                                                                                                  the 1970s, China 
                                                                                                                                                                                                  had begun to     
                                                                                                                                                                                                  impose export    
                                                                                                                                                                                                  quotas on        
                                                                                                                                                                                                  fluorspar while  
                                                                                                                                                                                                  restricting the  
                                                                                                                                                                                                  domestic mining  
                                                                                                                                                                                                  and production   
                                                                                                                                                                                                  of fluorspar.    
                                                                                                                                                                                                  Pursuant to      
                                                                                                                                                                                                  China's Foreign  
                                                                                                                                                                                                  Trade Law, the   
                                                                                                                                                                                                  Regulations on   
                                                                                                                                                                                                  the              
                                                                                                                                                                                                  Administration   
                                                                                                                                                                                                  of Import and    
                                                                    The VAT rebate                                                       VAT rebate                                               Export of Goods  
                                                                      policy only                                                        policy on                                                and China's      
                                                                      applied to                                                         copper                                                   commitments upon 
                                                                    imported copper                                                      materials                                                accession, China 
                                                                    scraps, copper                                                       applied to                                               still imposed    
                                                                   ore concentrates                                                      all                                                      export quota     
                                                                    and raw copper                                                       enterprises                                              administration   
                                                                   and did not apply                                                     reaching                                                 on fluorspar.    
Summary Raised Raised                                                  to other                                                          certain                  WTO                             Due to the       
  of      by     by    China's     by VAT rate                      products. China                                                      production               justification          Japan -  depleting of     
issues  United  other  response    for copper            Writtena  did not implement                 Writtena                  Writtena  scale, and               for the       Writtena Writtenc fluorspar        
  by    States   WTO               materials.                         any similar                                                        was not                  export quota                    resources and    
 theme         members             According to                     policy on other                                                      conditioned              on fluorspar.                   its shrinking    
                                   relevant                        products or adopt                                                     on                                                       production, the  
                                   policy and                          any other                                                         ownership                                                domestic         
                                   provisions,                       preferential                                                        of the                                                   consumption and  
                                   the                                policies on                                                        enterprise                                               export of        
                                   government                      copper-processing                                                     or local                                                 fluorspar had,   
                                   would refund                      enterprises.                                                        content.                                                 in turn,         
                                   30 percent                          (Verbald)                                                         (Verbald)                                                gradually        
                                   of the paid                                                                                                                                                    decreased.       
                                   VAT to the                                                                                                                                                     China's export   
                                   enterprise.                                                                                                                                                    quota            
                                   (Verbald)                                                                                                                                                      administrative   
                                   After                                                                                                                                                          measure on       
                                   payment of                                                                                                                                                     fluorspar was    
                                   duties,                                                                                                                                                        consistent with  
                                   enterprises                                                                                                                                                    the "general     
                                   could apply                                                                                                                                                    exceptions"      
                                   for a                                                                                                                                                          provided in      
                                   drawback of                                                                                                                                                    Article XX of    
                                   VAT on                                                                                                                                                         GATT 1994 -      
                                   presentation                                                                                                                                                   "nothing in this 
                                   of duty paid                                                                                                                                                   Agreement shall  
                                   proofs. This                                                                                                                                                   be construed to  
                                   policy only                                                                                                                                                    prevent the      
                                   applied to                                                                                                                                                     adoption or      
                                   exporters of                                                                                                                                                   enforcement by   
                                   finished                                                                                                                                                       any contracting  
                                   products and                                                                                                                                                   party of         
                                   semifinished                                                                                                                                                   measures:        
                                   products.                                         Preferential                                                                                                 including those  
                                   This tax                                          policies                                                                                                     relating to the  
                                   rebate                                            benefiting                                                                                                   conservation of  
                                   system was                                        copper scrap,                                                                                                exhaustible      
                                   equally                                           copper or                 Preferential                                                                       natural          
                                   applied to                                        semi-fabricated           policies                                                                           resources if     
                                   all          Measures                             products such             benefiting                                                                         such measures    
                                   enterprises  similar                              as flat-rolled            copper scrap,                                                                      are made         
                                   reaching a    to VAT                              products, long            copper or                                                                          effective in     
                                   certain       rebate                              products and              semi-fabricated                                                                    conjunction with 
                                   production   programs                             pipe and tube,            products                                                                           restrictions on  
                                   level           on                                whether those             conditioned on                                                                     domestic         
                                   regardless   imported                             policies                  domestic                                                                           production or    
                                   of the       products                             involve the               production or                                                                      consumption."    
                                   ownership of  other                               VAT, other                ownership, or                                                                      Furthermore,     
                                   the            than                               taxes, duty               on domestic or                                                                     according to the 
                                   enterprise.   copper                              drawback or               foreign                                  Export                                    WTO rules, the   
                                   (Verbald)     scrap.                              tariffs.                  content.                              restrictions                                 general          

                      Page 65 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                          The WTO did  
                                                                                                                                                                                                                                          not provide  
                                                                                                                                                                                                                                          for the      
                                                                                                                                                                                                                                          specific     
                                                                                                                                                                                                                                          definition,  
                                                                                                                                                                                                                                          forms and    
                                                                                                                                                                                                                                          territorial  
                                                                                                                                                                                                                                          scope of     
                                                                                                                                                                                                                                          border       
                                                                                                                                                                                                                                          trade, and   
                                                                         With regard to                                                                                                                                                   only set     
                                                                         the export                                                                                                                                                       forth a      
                                                                         license, only                                                                                                                                                    fundamental  
                                                                         20 RMB was                                                                                                                                                       provision    
                                                                         collected for                                                                                                                                                    that "the    
                                                                         the cost of                                                                                                                                                      provisions   
                                                                         the license                                                                                                                                                      of this      
                                                                         itself. No                                                                                                                 The border                            Agreement    
                                                                         other fees                                                                                                                 trade policy                          shall not be 
                                                                         were charged.                                                List of                                                       of China was                          construed to 
                                                                         Secondly,                                                    products                               List of the            in line with                          prevent      
                                                Justification            fluorspar was                                                taken off                                products             the MFN                               advantages   
                                                for export               a scarce                                                     the list of                                that               principle of                          accorded by  
                                   abolition of license fee              resource with                                                imports from                           continue to            GATT 1994. The                        any          
                                   quantitative on fluorspar;            great market   Detailed                                      border areas                             receive              list of          China's              contracting  
                                   restrictions requirement              demand.        information                                   that can                               preferential           preferential     plans to             party to     
Summary Raised Raised              set forth by for exporters            Production was on the                                        benefit from                           border area            treatment for   eliminate             adjacent     
  of      by     by    China's     the Article  to pay fees   Written,a  falling in     restriction    Japan -                 Border preferential Written,a                  treatment;            border trade   preferential           countries in 
issues  United  other  response    XI did not   which range    Verbald   recent years   of domestic   Written,c                trade  treatment in  Verbald                  explanation  Writtena  was published     border    Writtena  order to     
  by    States   WTO               preclude the from 85                  in China,      fluorspar      Verbald                        the form of                            of products'           by the          treatment             facilitate   
 theme         members             various      percent to               where the      production                                    reduced                                  benefits             Ministry of        for                frontier     
                                   exemptions   more than 150            costs of       and                                           import                                 from reduced           Finance with    products.             traffic."    
                                   as contained percent of               exploitation   consumption.                                  duties                                    import              approval by                           Therefore,   
                                   in Articles  the fluorspar            and                                                          and/or VAT,                              duties,              the State                             special      
                                   XII to XXI   cost.                    transportation                                               and measure                            reduced VAT,           Council and                           preferential 
                                   of GATT                               were                                                         that ended              According to     or both.             the executive                         treatments   
                                   1994. During                          constantly                                                   preferential            Bulletin No.                          agency was the                        for border   
                                   recent                                rising, which                                                treatment.              27 and No. 39                         general                               trade were   
                                   years,                                resulted in a                                                                        issued by the                         customs                               allowed by   
                                   domestic and                          surge of                                                                             State General                         administration                        the WTO, and 
                                   foreign                               demand and                                                                           Customs                               in China. The                         advantages   
                                   prices of                             shortage in                                                                          Administration                        list was                              and          
                                   fluorspar                             supply. It was                         In recent                                     on 1 May 2003                         published in                          conveniences 
                                   had risen to                          this gap                               years the                                     and 11 June                           several                               accorded by  
                                   various                               between the                            production of                                 2003                                  batches and up                        a            
                                   degrees.                              supply and the                         fluorspar had                                 respectively,                         until now                             contracting  
                                   This rise in                          demand that                            been                                          China had                             there had been                        party to     
                                   price was                             was the cause                          constantly                                    removed boric                         no complete                           adjacent     
                                   determined                            of the rise in                         decreasing.                                   acid and 19                           and uniform                           countries    
                                   by the rules                          price and was                          Exports,                                      other products                        document                              were not     
                                   of market                             not the result                         together with                                 from the list                         containing all                        inconsistent 
                                   rather than                           of quota                               domestic                                      of products                           products                              with the     
                                   the export                            restrictions                           consumption,                                  subject to                            subject to                            basic        
                                   quotas by                             imposed by the                         had also been                                 border trade                          preferential                          principle of 
                                   the Chinese                           Chinese                                decreasing                                    import duties                         treatment for                         the WTO,     
                                   Government.                           Government.                            significantly.                                policy.                               border trade.                         i.e. Most    
                                   (Verbald)                             (Verbald)                              (Verbald)                                     (Verbald)                             (Verbald)                             Favored      

                      Page 66 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                            Administrative                        
                                   Nation                                                                                                                                                                    Measures on                          
                                   (MFN).                                                                                                                                                                    Information                          
                                   China had                                                                                                                                                                Publication of                        
                                   committed                                        In line with                                                                                                              Government                          
                                   in its                                           China's reform                                                                                                           Procurement                          
                                   accession                                        and opening up                                                                                                           and Measures                         
                                   protocol to                                      process, and                                                                                                            on Complaints                         
                                   apply WTO                                        to implement                                                                                                                by the                            
                                   Agreements                                       the                                                                                                                       Suppliers                           
                                   and the                                          commitments                                                                                                                would be                           
                                   protocol                 Time schedule           upon its                                                                                                                 promulgated                          
                                   across the               to circulate            accession,                                                                                                              together with                         
                                   whole                    draft of                China was now,                                                                                                               the                              
                                   customs                  several                 according to                                                                                                            Administrative                        
                                   territory                trade-related           its                                                                                            Timetable for             Measures on                          
                                   including                laws,                   arrangement of                                                                                  circulating             Tendering and                         
                                   border                   regulations,            legislative                                                                                     and issuing              Bidding for                          
                                   trade                    and measures,           plan, revising                                                                                    sets of                 Goods and                           
                                   areas, and               including               relevant laws                                                                                   implementing            Services under                        
                                   would                    amendments to           and                                                                                                rules,                 Government                          
                                   develop and              the foreign             regulations                                                                                      including               Procurement.                         
                                   implement                trade law,              mentioned by                                                                                      measures              Administrative                        
                                   laws,                    amendments to           some Members                                                                                    relating to              Measures on                          
                                   regulations              commercial              in their                                             Timetable for                                  the                    Software                           
Summary        Raised              and other                banking law,            questions.                                            issuing the                              administration           Procurement by                        
  of    Raised   by                measures in              regulations             Amendments to                Canada                 Measures on the                            of government                 the                              
issues    by    other  China's     relation to              on rules of   Writtena  these laws and                  -                  Administration of  Writtena                    software    Writtena   Government,                 Writtena 
  by    United   WTO   response    trade in                 origin for              regulations                  Verbald                  Bidding of                                procurement,            Administrative                        
 theme  States members             goods in a               imports and             would be open                                     Government-Procured                               the                  Measures on                          
                                   uniform,                 exports,                for public                                        Goods and Services                           administration               Expert                            
                                   impartial                import and              comment                                             in final form.                             of bidding for            Recruitment                          
                                   and                      export tariff           pursuant to                                                                                      goods and              for Government                        
                                   rational                 regulations,            provisions of                                                                                   services in              Procurement                          
                                   manner.                  construction            the                                                                                              government                  and                              
                                   Border                   engineering             Legislation                                                                                     procurement,             Examination                          
                                   trade                    design                  Law and                                                                                             the                  Measures on                          
                                   policies                 regulations             Regulations on                                                                                 administration            Institutions                         
                                   had been                 and                     the Drafting                                                                                   of government            of Government                         
                                   uniformly                intellectual            Procedure of                                                                     Opinions had   procurement               Collective                          
                                   implemented              property                Administrative                                                                  been solicited  information,             Procurement                          
                                   and                      rights                  Regulation. In                                                                   extensively        the                   were to be                          
                                   enforced in              customs                 addition,                                                                       concerning the examination of           promulgated at                        
                                   the                      protection              China would                                                                     Administrative  centralized               the end of                          
                                   provinces                regulations.            also notify      Lack of                                                         Measures on     government             2003. Comments                        
                                   and regions                                      those laws and transparency                                                     Tendering and   procurement                on these    Timetable for          
                                   in border                                        regulations to  in China's                                                       Bidding for   institutions,             measures had  establishment          
                                   areas of                                         the WTO. Above approach to                                                        Goods and         the                   also been         and               
                                   China as an                                      all, China       TRQ and                                                        Services under administration           solicited. The  information           
                                   important                                        would fully       quota                                                           Government   of complaints             Ministry of   on completion          
                                   part of                                          fulfill its     allocation                                                       Procurement,  by suppliers,             Finance had      of the              
                                   China's                                          commitments on for certain                                                      which was due     and the                  made the     Government            
                                   foreign                                          transparency    products,                                                           to be      administration            accession to   Procurement           
                                   trade                                            made upon its  particularly                                                     promulgated in of government            the Government   Agreement            
                                   policies.                                        accession to   agricultural           Government                                December 2003.  procurement              Procurement   (GPA) working          
                                   (Verbald)   Transparency                         WTO. (Verbald) commodities.           procurement                                 (Verbald)       experts.                Agreement       group.              
                                                                                                                                                                                                                (GPA)      

                      Page 67 GAO-05-209R U.S.-China Trade
                                                                                             Since became a                                                                                                   
                                                                                             Member, China                                                                                                    
                                                                                             had been                                                                                                         
                                                                                             actively                                                                                                         
                                                                                             laying the                                                                                                       
                                                                                             ground work                                                                                                      
                                                                                             for the full                                                                                                     
                                                                                             implementation                                                                                                   
                                                                                             of the                                                                                                           
                                                                                             commitments                                                                                                      
                                                                                             relating to                                                                                                      
                                                                                             government                                                                                                       
                                                                                             procurement                                                                                                      
                                                                                             contained in                                                                                                     
                                                                                             its accession                                                                                                    
                                                                                             protocol, and                                                                                                    
                                                                                             these efforts                                                                                                    
                                                                                             had yielded                                                                                                      
                                                                                             remarkable                                                                                                       
                                                                                             results in                                                                                                       
                                                                                             many ways.                                                                                                       
                                                                                             China's first                                                                                                    
                                                                                             Government                                                                                                       
                                                                                             Procurement                                                                                                      
                                                                                             Law was                                                                                                          
                                                                                             published in                                                                                                     
                                                                                             2001 and was                                                                                                     
                                                                                             followed by                                                                                                      
                                                                                             the enactment                                                                                                    
                                                                                             of a series of                                                                                    
                                                                                             supplementary                                                           China's                   
                                                                                             rules. The                                                              intention to              
                                                                       All                   implementing                                                            reconsider a              
                                                                       government            regulation to                                                           measure to                
                                                                       procurement           the Law was              Timetable                                      establish a               
                                                                       procedures            also being               for China's                                    dual                      
                                                                       are                   drafted. Since           response on            With regard             distribution              
                                                                       conducted             the Government           U.S.                   to the                  network for               
                                  Timetable                            in a                  Procurement              questions to           questions               domestically              
Summary         Raised           intended for    EC -                  transparent  Japan -  Law took                 China raised           posed by                produced and              
  of              by    China's    China to    Written,b               manner and   Writtenc force,          Customs  in                     Members                 imported          EC -    
issues           other  response    start       Verbald                that the     EC -     purchase       valuation connection   Writtena  concerning  Automobiles automobiles;    Written,b 
  by              WTO            negotiations   Japan -                MFN          Verbald  activity                 with the               customs                 the              Verbald  
 theme          members          to join the   Writtenc                principle             falling under            transitional           valuation,              legislative               
                                     GPA.                              is applied            the provisions           review                 China had               process for               
                                                                       to all                of the State             before                 provided                its adoption;             
                                                                       foreign               Council had to           Committee on           responses               timetable for             
                                                                       suppliers             follow                   Customs                in the                  notification              
                                                                       in                    government               Valuation.             context of              to the WTO;               
                                                                       practice.             procurement                                     TRM held by             concerns about            
                                                                                             procedures,                                     the                     its WTO                   
                                                                                             which had to                                    Committee               compatibility.            
                                                                                             be made                                         of Customs                                        
                                                                                             transparent.                                    Valuation                                         
                                                                                             According to                                    on 6                                                  A new
                                                                                             the existing                                    October                                             automobile
                                                                                             regulations of                                  2003. If                                           development
                                                                                             Ministry of                                     Members had                                       policy was in
                                                         one of its                          Finance,                                        further                                           the process of
                                                         research                            procurement                                     questions                                         being drafted.
                                                         subjects in                         from foreign                                    to China's                                          During the
                                                         2003. The                           suppliers had                                   responses                                            drafting
                                                         establishment                       to go under                                     during TRM,                                       process China
                                                         and                                 international                                   they could                                             had
                                                         composition                         public                                          raise these                                        extensively
                                                         of the panel                        tendering.                                      questions                                         solicited the
                                                         of experts                          Information                                     under the                                         opinions from
                                                         would be                            relating to                                     appropriate                                          various
                                                         further                             the bidding                                     agenda item                                          parties,
                                                         decided based                       and winner had                                  in the                                            including U.S.
                                                         upon the                            to be made                                      meeting of                                            and EU
                                                         results from                        public via the                                  the                                               manufacturers.
                                                         the                                 media                                           Committee                                           The final
                                                         preliminary                         designated by                                   with the                                           solution of
                                                         study, while                        the Ministry                                    mandate, to                                        this problem
                                                         the timetable                       of Finance. Up                                  which China                                       would have to
                                                         for the                             till now, no                                    would                                             wait until the
                                                         launch of                           complaints                                      provide                                           final text of
        Raised                                           negotiations                        from foreign                                    answers                                              this new
          by                                             would be set                        suppliers had                                   according                                           policy was
        United                                           in the same                         been filed to                                   to due                                              ready and
        States                                           manner.                             the Ministry.                                   procedures.                                         published.
        Verbald                                          (Verbald)                           (Verbald)                                       (Verbald)                                           (Verbald)

Source: GAO analysis of WTO documents.
Note: An additional document source is a communication from China:
G/C/W/474; dated 11/21/03.
aCommunication from U.S.: G/C/W/473; dated 11/17/03.
bCommunication from EC: G/C/W/476; dated 11/26/03.
cCommunication from Japan: G/C/W/471; dated 11/29/03.
dCommittee report detailing verbal statements made during meeting:
G/L/664; meeting dated 11/26/03.

Enclosure XV Council for Trade in Services

                      Page 68 GAO-05-209R U.S.-China Trade
                                                                                                                                          Explanation                                                         Explanation            Status and                                                                              
                                                                                                                                          of                                                                      of                 time frame                                                                              
                                                                                                                         The current      conditions                                         The current      conditions                 for                 Reason for                                                      
                                                                                                                         regulation       relating to                                        regulation       relating to            issuance of             delay and                                                       
                                                                                                                         governing this   registered                                         governing this   registered                 new                    time                                                         
                                                                                                                         sector was the   capital,                                           sector was the    capital,              regulations            schedule in                                                      
                                                                     Status and                  Measures                Pilot Measures   assets,                                            Pilot Measures     assets,                  may                implementing            Schedule to                              
                                                                     timetable of             governing the              on the           past import                                        on the           past import             severely              revision of             implement                                
                                                                     regulation                provision of              Foreign-Invested and export                  Measures               Foreign-Invested and export             impact the                 the                 commitments                The "Pilot    
Summary Raised Raised                                                to implement              wholesaling               Merchandising    levels,                  governing the             Merchandising      levels,              ability of             Regulations             on wholesale            Measures on the  
  of      by     by    China's  Distribution                         commitment                services and   Written,a  Enterprises and  prior       Written,a     provision of             Enterprises and     prior                U.S. and                   on       Japan -   (foreign       Japan -  Foreign-Invested 
issues  United  other  response   services   Elimination  Writtena   on           Writtena      commission     Verbalg   that China was   experience   Verbalg       retailing     Writtena  that China was   experience  Writtena      other    Writtena    Investment   Writtenc  majority       Writtenc  Merchandising   
  by    States   WTO                         of national             elimination             agents' services            drafting a new   requirement               services by              drafting a new   requirement              foreign               of Foreign             ownership, no            Enterprises,"   
 theme         members                        treatment              of national                    by                   distribution     on joint                foreign-invested           distribution      on joint               retailers             Distribution            geographical             promulgated in  
                                              and market             treatment               foreign-invested            regulation       ventures                  enterprises.             regulation        ventures               to expand               Business              or                      1999, had given  
                                                access               and market                enterprises.              governing        with                                               governing           with                   their               Enterprises             quantitative            foreign service
                                             restrictions            access                                              wholesaling and  foreign                                            wholesaling and    foreign              presence in                for                 restrictions)            suppliers the
                                              on foreign             restrictions                                        retailing        minority                                           retailing         minority                China;                wholesale              and retailing            opportunity to
                                             enterprises             on foreign                                          services. China  ownership                                          services. China   ownership               concern                 trade                services                possess majority
                                              providing              enterprises                                         was starting to  to engage                                          was starting to   to supply                about                 services              (foreign                ownership in the
                                             distribution            providing                                           solicit opinions in                                                 solicit opinions   retail                national                (foreign              majority                 joint-venture
                                             services by             distribution                                        from industries. wholesaling                                        from industries.  services.             treatment.               minority              control,                  wholesaling
                                             11 Dec 2004.            services.                                           (Verbalg)        services.                                          (Verbalg)                                                      ownership).             easing of                 enterprises,

                      Page 69 GAO-05-209R U.S.-China Trade
                                                 which was                                                                                                                                                                                                                                                          
                                                 consistent with                                                                                                                                                                                                                                                    
                                                 the China's                                                                                                                                                                                                                                                        
                                                 commitment in                                                                                                                                                                                                                                                      
                                                 market access.                                                                                                                                                                                                                                                     
                                                 The drafting of                                                                                                                                                                                                                                                    
                                                 the new                                                                                                                                                                                                                                                            
                                                 distribution                                                                                                                                                                                                                                                       
                                                 regulation                                                                                                                                                                                                                                                         
                                                 governing                                                                                                                                                                                                                                                          
                                                 wholesaling and                                                                                                                                                                                                                                                    
                                                 retailing                                                                                                                                                                                                                                                          
                                                 services was                                                                                                                                                                                                                                                       
                                                 on-going, and                                                                                                                                                     Explanation                                                                                      
                                                 that it would                                                                                                                                                     for China's                                                                                      
                                                 provide more                                                                                                                                                      consideration                                                                                    
                                                 detailed rules                                                                                                              Explanation                           of 500 gram                                                                                      
                                                 on the                                                                                                                      for                                   restriction                                                                                      
                                                 opening-up of                                         China's plan                                                          creation of                           after it                                                                          
                                                 the distribution                                      to establish a                                                        a China                               withdrew a                                                                        
                                                 market in                                             "Law                                                                  Post                                  similar                  Timetable                           China's              
                                                 accordance with                                       Controlling                                                           monopoly on                           restriction                 for                             plans for             
Summary        Raised           geographical     the phase-in                                          the                                   China's                         the                                   with the                  issuing            China took a  separating             
  of    Raised   by             restrictions),   commitments of                                        Monopolization                        plans to                        delivery of                           issuance of               China's            positive         China               
issues    by    other  China's  especially for   China. China had                 Japan -              of Automobile   Japan -               limit the    Japan -            letters     Written,a                 the           Writtena     draft   Writtena  attitude        Post's    Written,a  
  by    United   WTO   response motor            started to                       Writtenc             Brands" to      Writtenc This policy  scope of     Writtenc           under 500    Verbalg                  Supplement               amendment           towards       regulatory   Verbalg   
 theme  States members          vehicles.        solicit opinions                                      prohibit                 did not      the                             grams in                              Notice on the             to its             Members' keen     and                
                                                 on this draft                                         dealers from             violate WTO  management                      China's                               Engagement in             Postal             interest.     operational            
                                                 from industries,                                      selling both             rules or     right of                        draft                                 Postal and                Service            Enacting a    functions.             
                                                 including                                             imported and             China's      retail                          amendment              Regarding      Delivery                   Law.              new law and                          
                                                 foreign-invested                                      domestic cars.           commitments  dealers in                      to its                 monopoly and   Services for                                 revising                             
                                                 distribution                                                                   and that     passenger                       Postal                 exclusive      Cross-border                                 existing                             
                                                 enterprises. The                                                               foreign and  vehicles                        Service                rights, the    Letters and                                  ones, even if                        The Chinese
                                                 actual market                                                                  domestic     either to                       Law.                   Chinese        Materials of                                 they aimed at                        representative
                                                 access had never                                                               investors    domestic or                                            representative Letters in                                   implementing                         referred to
                                                 been negatively                                                                would be     imported                                               recalled       Nature.                                      obligations                          paragraph 309
                                                 affected. 35                                                                   treated      cars with                                              China's                                                     under                                of the Working
                                                 foreign-invested                                                               equally in   acquisition                                            reservation in                                              international                        Party Report,
                                                 distribution                              China would                          establishing of the                                                 its                                                         treaties,                            which stated
                                                 enterprises had                           implement                            automobile   "Management                                            commitments,                                                were the                             "the
                                                 been approved    Schedule to              its                                  distribution Right to                                               which stated                                                legitimate                           representative
                                                 with 347         implement                commitments                          enterprises  Passenger                                              "except for                                                 rights of a                          of China
                                                 outlets.         commitment of            in                                   selling      Vehicles"                                              those                                                       Member and                           confirmed that
                                                 Carrefour and    full                     accordance                           either       and                                                    currently                                                   that the TRM                         for services
                                                 Wal-Mart had     liberalization           with the                             imported     publication                                            specifically                                                was not the                          included in
                                                 respectively     of wholesale             phase-in                             cars or      of                                                     reserved to                                                 right context                        China's
                                                 established more and retail               period set                           domestically criterion                                              Chinese postal                                              in which to                          Schedule of
                                                 than 30 chain    services on              out in its                           produced     for                    Express                         authorities by                                              address these                        Specific
                                                 stores in China. processed and            Schedule.                            cars.        granting               delivery                        law".                                                       issues.                              Commitments,
                                                 (Verbalg)        crude oil.               (Verbalg)                            (Verbalg)    the right.             services                        (Verbalg)                                                   (Verbalg)                            relevant

                      Page 70 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                                                                                                                                                                                        China had    
                                                                                                                                                                                                                                                                                                                                                                                                                                        separated    
                                                                                                     The issue of                                                                                                                                                                                                                                                                                                                       the          
                                                                                                     an                                                                                                                                                                                                                                                                                                                                 regulatory   
                                                                                                     entrustment                                                                                                                                                                                                                                                                                                                        body from    
                                                                                                     requirement                                                                                                                                                                                                                                                                                                                        the          
                                                                                                     for express                                                                                                                                                                                                                                                                                                                        operational  
                                                                                                     delivery                                                                                                                                                                                                                                                                                                                           business by  
                                                                                                     services had                                                                                                                                                                                                                                                                                                                       establishing 
                                                                                                     been                                                                                                                                                                                                                                                                                                                               the MII in   
                                                                                                     discussed at                                                                                                                                                                                                                                                                                                                       1998. The    
                                                                                                     the previous                                                                                                                                                                                                                                                                                                                       MII had      
                                                                                                     review. In                                                                                                                                                                                                                                                                                                                         given up all 
                                                  Provision                                          the past                                                                                                                                                                                                                                                                                                                           its          
                                                  in the                                             calendar                                                                                                                                                                     Extent to                                                                                                                                             management   
                                                  draft                                              year, 167                                                                                                                                                                    which                                                                                                                                                 functions to 
                                                  amendments                                         qualified                                                                                                                                                                    Central                                                                                                                                               China        
                                                  that                                               international                          One-time                                                                                                                              Post                                                                                                                                                  Telecom. MII 
                                                  required                                           freight                                only or                                                              Number of                                                        Office,                                                                                                                   Explanation of              could        
Summary Raised Raised                             express                                            forwarding    Step-by-step             repeated                                                             operators                                                        local post     Definition             Definition             Independence                                                China's plans to             regulate in  
  of      by     by    China's                    delivery                                           enterprises   procedure to            action of                                                            applying for                                                      offices,        of scope     EC -     of scope      EC -        of the                               Telecommunications    establish an    Written,a  an           
issues  United  other  response                   companies  Verbalg                                 and 362           get                entrustment;                                                           and number                                                       MOFTEC,        of postal   Written,b  of          Written,b   regulator                                   services         independent      Verbalg   impartial,   
  by    States   WTO                              to pay 4                                           branches had  entrustment.           duration of                                                           of operators                                                      Ministry of    monopoly.    Verbalg   universal    Verbalg       from                                                    regulator in the             fair and     
 theme         members                            percent of                                         obtained                                 the                                                                obtaining                                                        Information                           service.                operators.                                                telecommunications            transparent  
                                                  their                                              entrustment                          entrustment.                                                          entrustment.                                                      Industry                                                                                                                     sector.                  manner and   
                                                  revenues                                           and had been                                                                                                                                                                 (MII) are                                                                                                                                             acted as an  
                                                  into a                                             operating                                                                                                                                                                    granted                                                                                                                                               independent  
                                                  universal                                          quite well in                                                                                                                                                                regulatory                                                                                                                                            regulator.   
                                   regulatory     service                                            China. China                                                                                                                                                                 powers over                                                                                                                                           MII had      
                                   authorities    fund.                                              would assure                                                                                                                                                                 express                                                                                                                                               always       
                                   would be                                                          the same                                                                                                                                                                     delivery                                                                                                                                              followed the 
                                   separated                                                         procedure of                                                                                                                                                                 operators;                                                                                                                                            principle of 
                                   from, and not                                                     entrustment                                                                                                                                                                  power and                                                                                                                                             transparency 
                                   accountable,                                                      for                                                                                                                                                     Relevant             conditions                                                                                                                                            and          
                                   to any service                                                    international                                                                                                                                             text               to conduct                                                                                                                                            impartiality 
                                   suppliers they                                                    courier                                                                                                                           Submission            defining             on-site                                                                                                                                               in order to  
                                   regulated,                                                        agencies as                                                                                                                       of Chinese            regulator            inspections                                                                                                                                           promote the  
                                   except for                                                        for Chinese                                                 Centralization                                                        operators                of                in                                                                                                                                                    orderly      
                                   courier and                                                       operators.                                                  or fulfillment           Obligations                                  to the same            express             facilities                                                                 EC -       Information                                                     development  
                                   railway                                      Relevant             (Verbalg)                                                   at Sub-State             imposed on                                   entrustment           delivery             owned by                                                                   Written,b  about                                                           of China's   
                                   transportation                                text on                                                                         level of                     the                                      procedure             services             express                                                                    Verbalg    current                                                         telecom      
                                   services."                        EC -      entrustment  EC -                                 EC -                   EC -     entrustment     EC -      entrusted   EC -                   EC -     as foreign   EC -      and its   EC -      delivery                                                                   EC -       postal                                                          industry.    
                                   (Verbalg)                         Writtenb  procedures.  Writtenb                             Writtenb               Writtenb procedure.      Writtenb operators.   Writtenb               Writtenb operators.   Writtenb  powers.   Writtenb  operators.                                                                 Writtenb   reform.                                                         (Verbalg)    

                      Page 71 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                   Due to the need                                                  
                                                                                                                                                                                   for complicated                                                  
                                                                      Regarding the                                                                                                expertise and                                                    
                                                                      classification of                                                                                            the new services                                                 
                                                                      telecommunication                                                                                            emerging in the                                                  
                                                                      services, the                                                                                                telecom                                                          
                                                                      Chinese                                                                                                      industry, this                                                   
                                                                      representative                                                                                               regulation                                                       
                                                                      noted that it was                                                                                            required that                                                    
                                                                      a complicated                                                                                                the major                                                        
                                                                      issue not only for                                                                                           Chinese investor                                                 
                                                                      China, but also                                                                                              in a                                                             
                                                                      for other WTO                                                                                                foreign-invested                                                 
                                                                      Members,                                                                                                     enterprise                                                       
                                                                      especially given                                                                                             should have                                                      
                                                                      the rapid                                                                                                    technical                                                        
                                                                      development of                                                                                               personnel                                                        
                                                                      contemporary                                                                                                 suitable for the                                                 
                                                                      science and                                                                                                  operation of the                                                 
                                                                      technology. He                                                                                               enterprise in                                                    
                                                                      further noted that                                                                                           order to better                                                  
                                                                      Members had their                                                                                            protect the                                                      
                                                                      own                                                                                                          interest of                                                      
                                                                      classifications                                                                                              investors and                                                    
                                                                      based on the                                                                                                 consumers and to                                                 
                                                                      different level of Explanation                                                                               ensure the sound                                                 
                                                                      development in     of the                                  Timetable to                                      development of                                                   
                                                                      telecom            practice                                 revise the               Rationale for           the telecom                                                      
                                                                      industries, unique that                                   Regulation on              foreign                 industry. This                                                   
                                                                      domestic           certain                                     the                   investors to            requirement also                                                 
                                                                      situations and     basic                                  Administration             meet minimum            applied to                                                       
Summary Raised Raised                                                 different          telecom                                  of Foreign               capital and             domestic                                                         
  of      by     by    China's                     Written,a          approaches to      services                                  Invested                experience              enterprises,                                                     
issues  United  other  response                     Verbalg           regulate the       will be                                   Telecom                 requirements;           which was in                                                     
  by    States   WTO                                                  market. He         managed as                              Companies to              different               line with the                                                    
 theme         members                                                indicated that the value added                            allow foreign              requirements            national                                                         
                                                                      MII had adjusted   services                                operators to              for operator            treatment                                                        
                                                                      part of the        under the                                  choose                 owned only by           principle. This                                                  
                                                                      previous           new Telecom                             partners in               Chinese                 regulation                                                       
                                                                      categories and had Catalogue                              other sectors.             nationals.              required that                                                    
                                                                      republished the    of Business                                                                               the major                                                        
                                                                      revised Catalogue  Categories.                                                                               Chinese investor                                                 
                                                                      of classification                                                                                            should invest at                                                 
                                                                      in April 2003 in                                                                                             least 30 percent                                                 
                                                                      response to new                                                                                              of the total                                                     
                                                                      developments.                                                                                                capital shared                                                   
                                                                      According to the                                                                                             by all the                                                       
                                                                      new catalogue,                                                                                               Chinese                                                          
                                                                      some basic                                                                                                   investors in                                                     
                                                                      telecommunications                                                                                           order to protect                                                 
                                                                      services would be                                                                                            the interests of                                                 
                                                                      managed as                                                                                                   the Chinese and                                                  
                                                                      value-added                                                                                                  foreign-invested                                                 
                                                                      services. The                                                                                                telecom                                                          
                                                                      operator                                                                                                     enterprises.                                                     
                                  Rationale for                       qualifications and                                                                                           These                                                            
                                 reclassification                     daily management                                                                                             requirements                                                     
                                    of several                        of these basic                                                                                               increased the                           Government               
                                telecommunications                    telecommunications                        Request for                                                        liability of the                      organizations              
                                services from the                     services would be                        relevant text                                                       Chinese                              that will issue             
                                   value-added                        administered with                         on Ministry                                                        investors and      Treatment of        measures to               
                                 category to the                      reference to                             of Finance's                                                        therefore            existing          determinate               
                                 basic category,                      relevant                                 management of                    EC -                               alleviated the   operators under       geographical              
                                contrary to widely                    requirements for                             State                        Written,b                          risks on the      the regulation      scope in which     EC -    
                                     accepted                         value-added                              participation                    Verbalg                            part of foreign         on           foreign-invested  Written,b 
                                  international              EC -     services.                       EC -      in existing                     EC -                      EC -     investors.       foreign-invested        telecom        Chinese  
                                    practice.                Writtenb (Verbalg)                       Writtenb  companies.                      Writtenb                  Writtenb (Verbalg)          enterprises.      enterprises may   Taipei -  

                      Page 72 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                                                                              "Leading                                                       
                                                                                                                                                                                                                                                                                                                              telecommunication                                              
                                                                                                                                                                                                                                                                                                                              services                                                       
                                                                                                                                                                                                                                                                                                                              providers" were                                                
                                                                                                                                                                                                                                                                                                                              those providers                                                
                                                                                                                                                                                                                                                                                                                              who possessed                                                  
                                                                                                                                                                                                                                                                                                                              necessary basic                                                
                                                                                                                                                                                                                                                                                                                              telecom                                                        
                                                                                                                                                                                                                                                                                                                              facilities, whose                                              
                                                                                                                                                                                                                                                                                                                              fixed local                                                    
                                                                                                                                                                                                                                                                                                                              telephone                                                      
                                                                                                                                                                                                                                                                                                                              business                                                       
                                                                                                                                                                                                                                                                                                                              represented                                                    
                                                                                                                                                                                                                                                                                                                              greater than 50                                                
                                                                                                                                                                                                                                                                                                                              percent shares of Calculation                                  
                                                                                                                                                                                           Issuance                                                                                                                           the market within formula for                The Chinese       
                                                                                                                                                                                              of                                                                                                                              local networks,   interconnection            representative    
                                                                                                                                                                                          regulation                                                                                            List and criteria             and who had a     fees and                   referred to the   
Summary Raised                                                                                                                                                                            regarding                                                                                               for identified              substantial       revisions of               relevant          
  of      by            China's                                                                                                                                                           the public                                                                                  Japan -        Leading         Japan -  impact on the     formula decided   Japan -  regulations, such 
issues  United          response                                                                                                                                                           bidding                                                                                   Written,c  Telecommunications  Written,c market access of  by the Ministry  Written,c as Regulations on 
  by    States                                                                                                                                                                               for                                                                                      Verbalg        Services        Verbalg  other telecom     in the State      Verbalg  the Methods for   
 theme                                                                                                                                                                                     licenses                                                                                                 Providers.                operators. To     Council in                 the Settlement of 
                                                                                                                                                                                           of basic                                                                                                                           date, the         charge of                  Internetwork Call 
                                                                                                                                    Requirement                                            telecom.                                                                                                                           operators meeting information                Charge, and       
                                                                                                                                    applicable to the                                                                                                                                                                         these             industry.                  Administrative    
                                                                                                                                    agent (an entity                                                                                                                                                                          requirements were                            Measures on
                                                                                 Prudential and                                     or individual                                                                                                                                                                             China Telecom and                            Licensing for
                                                                                 special                                            that a licensed                                                                                                                                                                           China Netcom.                                Operation of
                                                                                 requirements set                                   telecom operator                                                              Procedures for                                                                                              Given the actual                             Telecommunication
                                                                                 by the                                             can entrust to                                                                   granting                                                                                                 situation of the                             Services. These
                                                                                 administrative                                     provide                                                                       frequencies as                                                                                              telecom market                               regulations,
                                                       Timetable to              department for                                     telecommunication            Regulation of                                   part of China's                                                                                              and the rapid                                published on the
                                                      issue measures             information                                        services directly            resale of a                                      commitment to               Details on the                                                                  growth of mobile                             website of MII
                                                      to determinate             industry of the                                    to customers)                service like                                    allocate the use             identification                                                                  telecom business,                            (www.mii.gov.cn),
                                                       geographical              State Council               Publication            under the                    the                                                of scarce                   of leading       Time schedule for                                            the MII was                                  were domestic
                Raised                                scope in which             referred to in              of                     Administrative               corresponding                                   resources in an                  telecom        the enactment of a                                           considering                                  regulation that
               by other                              foreign-invested            the regulation              licensing              Measures on                  service or                                     objective, timely,              operators,       Telecommunications                                           including more                               applied to all
                 WTO                                     telecom                 on                          terms of               Telecom Business             under a                                         transparent and                subject to            Act and                                                 leading telecom                              suppliers
               members                     EC -      enterprises may   EC -      foreign-invested  EC -      existing     EC -      Operation          EC -      separate       EC -                  EC -      non-discriminatory  EC -      interconnection    information on its                                           operators.                                   equally.
               Writtend          operate.  Writtenb      operate.      Writtenb  enterprises.      Writtenb  operators.   Writtenb  Licenses.          Writtenb  framework.     Writtenb              Writtenb       manner.        Writtenb   obligations.         provisions.                                               (Verbalg)                                    (Verbalg)

                      Page 73 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                        The Chinese                                                   
                                                                                                                                                                                                        representative                                                
                                                                                                                                                                                                        referred to the                                               
                                                                                                                                                                                                        Regulation on                                                 
                                                                                                                                                                                                        Telecommunications                                            
                                                                                                                                                                                                        of PRC and the                                                
                                                                                                                                                                                                        Regulation on                                                 
                                                                                                                                                                                                        Interconnection                                               
                                                                                                                                                                                                        Between Public                                                
                                                                                                                                                                                                        Telecommunication                                
                                                                                                                                                                                                        Networks.                                        
                                                                                                                                                                                                        According to these                               
                                                                                                                                                                                                        regulations,                                     
                                                                                                                                                                                                        leading telecom                                  
                                                                                                                                                                                                        operators should                                 
                                                                                                                                                                                                        develop rules on                                 
                                                                                                                                                                                                        interconnection                                  
                                                                                                                                                                                                        and report them to                               
                                                                                                                                                                                                        the MII for                                      
                                                                                                                                                                                                        approval prior to                                
                                                                                                                                                                                                        implementation.                                  
                                                                                                                                                                                                        Leading telecom                                  
                                                                                                                                                                                                        operators should                                 
                                                                                                                                                                                                        provide                                          
                                                                                                                                                                                                        interconnections                                 
                                                                                                                                                                                                        within the                                       
                                                                                                                                                                                                        specified time                                   
                                                                                                                                                                                                        limits. They were                                
                                Clarification on                                                                                                                                                        neither allowed to                               
                                whether the                                                                                                                                                             deny request for                                 
                                inclusion of                 It was a                                                                                                                                   interconnection                                  
                                categories of                complicated                                                                                                    China's plans to            from other telecom                               
                                services other               issue not only  Information on                                                                                  implement the              operators and                                    
Summary Raised Raised           than "the                    for China, but  how future new                                                                                Reference Paper on           private network                                  
  of      by     by    China's  Telecommunication   Japan -  also for other  services are      Japan -                                    Japan -                Japan -         Basic         Chinese  operators nor                                    
issues  United  other  response Services           Written,c WTO Members,    administratively  Writtenc                                   Writtenc               Writtenc  Telecommunications  Taipei - permitted to                                     
  by    States   WTO            Classification      Verbalg  especially      allowed before a                                                                                 through the      Writtend freely restrict                                  
 theme         members          List" are fully              given the rapid revision of the                                                                               Telecommunications           the right of users                               
                                consistent with              development of  List.                                                                                                Law.                  to chose the                                     
                                its accession                contemporary                                                                                                                               telecom services                                 
                                commitments on               science and                                                                                                                                provided by other                                
                                respective other             technology.                                                                                                                                operators. As                                    
                                services.                    Members had                                                                                                                                well, in offering                                
                                                             their own                                                                                                                                  inter-network                                    
                                                             classifications                                                                                                                            connections to                                   
                                                             based on the                                                                                                                               other telecom                                    
                                                             different level                                                                                                                            operators, the                                   
                                                             of development                             The Chinese                                                                                     service quality of                               
                                                             in telecom                                 representative                                                                                  leading operators                                
                                                             industries,                                referred to Article                                                                             should be as good                                
                                                             unique domestic                            9 of the Regulation                                                                             as that of like                                  
                                                             situations and                             on                                                                                              services within                                  
                                                             different                                  Telecommunications, Confirmation                                                                their own networks                               
                                                             approaches to                              which stipulated    that the                                                                    or that of like                                  
                                                             regulate the                               that "New types of  List covers                                                                 services supplied                                
                                                             market. MII was                            telecom services    supply of                                                                   to subsidiaries or                               
                                                             in the process                             other than those in services on                                                                 branches. Leading                                
                                                             of considering                             the Catalogue of    commercial               Plans for                                          telecom operators                                
                                                             and developing                             Telecom Service     basis, as                   the                                             had an obligation                                
                                                             detailed rules                             Classifications     well as that            Ministry of                                         to coordinate with                               
                                                             on                                         that are carried    a                       Information                                         users acquiring                                  
                                                             qualifications                             out on a            notification            Industry to                                         telecom network                                  
                                                             and procedures                             experimental basis  or simple                develop a                                          code number                                      Number
                                                             on recording                               using new           reporting                guideline                                          resources in order                               provided for
                                                             new services,                              technologies should will suffice                for                                             to realize the                                   licensing
                                                             and that it was                            be submitted to     to enable a             application                                         function of the                                  applications
                                                             expected that                              telecom regulatory  licensed                or a market                                         resources, with                                  of foreign
                                                             these would be                             authorities at the  service                    entry                                            necessary          Number of the                 service
                                                             adopted in the                             provincial level    supplier to              manual to                                          technical          Foreign-Invested    Australia supplier
                                                             near future.                               for record".        launch such               service                                           measures.          Telecommunications      -     approved,
                                                             (Verbalg)                                  (Verbalg)           services.               providers.                                          (Verbalg)          Enterprises (FITE)  Written,e pending,

                      Page 74 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                                                                       China had      
                                                                                                                                                                                                                                                                                                                       provided many  
                                                                                                                                                                                                                                                                                                                       explanations   
                                                                                                                                                                                                                                                                                                                       and            
                                                                                                                                                                                                                                                                                                                       clarifications 
                                                                                                                                                                                                                                                                                                                       at the         
                                                                                                                                                                                                                                                                                                                       bilateral      
                                                                                                                                                                                                                                                                                                                       level during   
                                                                                                                                                                                                                                                                                                                       the preceding  
                                                                                                                                                                                                                                                                                                                       year in        
                                                                                                                                                                                                                                                                                                                       response to    
                                                                                                                                                                                                                                                                                                                       the concern of 
                                                                                                                                                                                                                                                                                                                       certain        
                                                                                                                                                                                                                                                                                                                       Members, and   
                                                                                                                                                                                                                                                                                                                       that China's   
                                                                                                                                                                                                                                                                                                                       position had   
                                                                                                                                                                                                                                                                                           China's views on            been made very 
                                                                                                                                                                                                                                                                                           how the new                 clear. First,  
                                                                                                                                                                                                                                                                                           Rules on the                Decree No. 113 
                                                                                                                                                                                                                                                                                           Establishment of            of the         
                                applications                                                                                                                                                                                                                                               Foreign-Invested            Ministry of    
                                  lodged,                                                                                                                                                                                                                                                  Construction                Construction   
                                 approved,                                                                                         China's intention                                                                                                                                       Enterprises are             was in line    
                                issued with                                                                                             to hold                                                                                                                                            not making the              with the       
Summary        Raised            a Telecom                                                                                          consultations on                                                                                                                                       conditions of               principle of   
  of    Raised   by               Business                                               Australia                      Australia   the drafting of    Australia                                   Australia                      Australia                      Australia                 operation,          EC -    national       
issues    by    other  China's  Operational   Verbalg                                        -                              -             the              -     China took a                          -                              -                              -                     notably as        Written,b treatment and  
  by    United   WTO   response Permit, and                                              Writtene                       Written,e  Telecommunications  Written,5 positive                          Writtene                       Writtene                       Writtene                  regards            Verbalg  China's        
 theme  States members           determined                                                                              Verbalg        Law with        Verbalg  attitude                                                                                                                  qualification               commitments in 
                                unsuccessful                                                                                       interested foreign            towards                                                                                                                   requirements and            the            
                                   since                                                                                                parties                  Members' keen                                                                                                             the scope of                construction   
                                implementing                                                                                                                     interest.                                                                                                                 activities of               and            
                                regulation.                                                                                                                      Enacting a                                                                                                                foreign                     engineering    
                                                                                                                                                                 new law and                                                                                                               construction                sector, which  
                                                                                                                                                                 revising                                                                                                                  companies more              applied a      
                                                                                                                                                                 existing                                                                                                                  restrictive than            unified        
                                                      and rejected cited                                                                                         ones, even if                                Method to ensure                                                             previously.                 qualification  
                                                          for various                                                                                            they aimed at                                that                                                                                                     standard to    
                                                      sectors, including                                                                                         implementing                                 interconnection                 Method to ensure                                                         both domestic  
                                                      telecommunications.                           Whether FITEs can                                            obligations                                  rates are                      that the domestic                                                         enterprises    
                                                          (Writtenf)                                only be licensed                                             under         Method to ensure               genuinely related               body responsible                                                         and foreign    
                                                      Regarding how many                            to supply those                                              international that, subject to               to cost and that                      for                                                                invested       
                                                       FITE applications                            services listed in                                           treaties,     geographic phasing             access, by                      interconnection                                                          construction   
                                                      had been approved,                            the "translation                                             were the      of market access               competitors, to                    dispute is                                                            enterprises.   
                                                          the Chinese                               table," or                                                   legitimate    commitments,                   essential                       independent and                                                          According to   
                                                      delegate suggested                            permitted to                                                 rights of a   regulatory                     facilities is                    impartial with                                                          this decree,   
                                                        that Australia                              supply all                                                   Member and    arrangements will              possible without                 respect to all                                                          wholly         
                                                         refer to the                               services listed as                                           that the TRM  apply consistently             competitive                          market                                                              foreign-owned  
                                                       communication his                            value added                                                  was not the   across China with              disadvantage with              participants with                                                         construction   
                                                        delegation had    Reasons for               services in the                                              right context China's                        China's                             China's                   Construction,                              enterprises    
                                                      recently presented  applications              Telecommunications                                           in which to   implementation of              implementation of              implementation of              architectural,                             had been       
                                                       pursuant to Annex  falling short             Service                                                      address these the                            the                                   the                          and                                   allowed to be  
                                                      1A to the Accession of                        Classification                                               issues.       Telecommunications             Telecommunications             Telecommunications              engineering                               established as 
                                                      Protocol. (Verbalg) requirements.             Catalogue.                                                   (Verbalg)     Reference Paper.               Reference Paper.                Reference Paper.                 services                                from 1         

                      Page 75 GAO-05-209R U.S.-China Trade
                                           December 2002,                                                                                                                                       
                                           which was two                                                                                                                                        
                                           years ahead of                                                                                                                                       
                                           the time frame                                                                                                                                       
                                           set out in                                                                                                                                           
                                           China's                                                                                                                                              
                                           commitments,                                                                                                                                         
                                           and                                                                                                                                                  
                                           discriminatory                                                                                                                                       
                                           requirements                                                                                                                                         
                                           against                                                                                                                                              
                                           foreign                                                                                                                                              
                                           invested                                                                                                                                             
                                           construction                                                                                                                                         
                                           companies in                                                                                                                                         
                                           terms of                                                                                                                                             
                                           qualification                                                                                                                                        
                                           standard had                                                                                                                                         
                                           been                                                                                                                                                 
                                           abolished.                                                                                                                                           
                                           This resulted                                                                                                                                        
                                           in a further                                                                                                                                         
                                           opening-up of                                                                                                                                        
                                           construction                                                                                                                                         
                                           market to                                                                                                                             
                                           foreign                                                                                                                               
                                           investors. In                                                                                                                         
                                           order to                                                                                                                              
                                           guarantee                                                                                                                             
                                           commercial                                                                                                                            
                                           interests of                                                                                                                          
                                           foreign                                                                                                                               
                                           enterprises,                                                                                                                          
                                           the stability                                                                                                                         
                                           of transition,                                                                                                                        
                                           and the                                                                                                                               
                                           implementation                                                                                                                        
                                           of the                                                                                                                                
                                           existing                                                                                                                Information   
                                           contracts      Reasons for                                                                                              on the        
                                           already signed residence                                                                                                conditions    
                                           by foreign     requirements                                                                                             applying to   
                                           companies, the imposed on all                                                                                           the opening   
                                           Implementing   architects and                                                                                           of the        
Summary        Raised                      Rules on the   engineers to                                                                                             first and     
  of    Raised   by                        Qualification  be accounted                                                                          Japan -            additional    
issues    by    other  China's             Management for for in the                        Japan -                   Japan -                  Written,c           offices by    
  by    United   WTO   response            Facilitating   attribution of                    Writtenc                  Writtenc                  Verbalg            foreign and   
 theme  States members                     Foreign        a certificate,                                                                                           Chinese       
                                           Enterprises to and                                                                                                      lawyers;      
                                           Invest in the  qualifications                                                                                           reason for    
                                           Construction   imposed;                                                                                                 conditions    
                                           Sector         limitations to                                                                                           not listed    
                                           required that  National                                                                                                 in            
                                           "for all the   Treatment.                                                                                               schedule.     
                                           engineering                                                                                                                           
                                           contracts                                                                                                                             
                                           signed before                                                                                                                         
                                           1 October                                                                                                                             
                                           2003, or                                                                                                                              
                                           contracts                                                                                                                             
                                           remaining                                                                                                                             
                                           valid after 1                                                                                                                         
                                           October 2003,                                                                                                                         
                                           the foreign                                                                                                                           
                                           companies                                                                                                                             
                                           might continue                                                                                                                        
                                           to complete                                                                                                                           
                                           the works".                                                                                                                           
                                           Finally, the                                                                                                                          
                                           Ministry of                                                                                                                           There were no
                                           Construction                                                                                                                          geographic and
                                           had                                                                                                                                   quantitative
                                           promulgated                      Policy                                                                                               restrictions
                                           Notice No. 193                   development                                                                                          on
                                           in September                     for                                                                                                  representative
                                           2003, which                      establishment                                                                                        offices of
                                           stipulated                       of wholly                                            Requirement                                     foreign law
                                           that those                       owned                                                of having a                                     firms as
                                           foreign                          enterprises               Assurance that               minimum                                       indicated in
                                           enterprises                      before the                four types of               number of                                      China's
                                           with                             abolition of              construction              engineers in                                     commitments.
                                           Qualifications                   the Direct                projects                   one office                                      China's
                                           for                              Contracting               allowed to be             for a certain                                    representative
                                           Contracting                      Scheme in                 undertaken by              category of                                     suggested that
                                           Construction                     accordance                wholly                    construction                                     the concerned
                                           Works might                      with the                  foreign-owned              enterprises                                     Members look
                                           prolong their                    Regulation on             enterprises               constitute as                                    at this issue
                                           engineering                      the                       are subject to            barriers for                                     in terms of
                                           construction                     Administration            interpretation               foreign                                       the actual
                                           activities in                    of Foreign                but scope will            construction               Legal                 market access
                                           China until 1                    Invested                  not be overly             enterprises;              services               of foreign
                                  EC -     April 2004.                      Construction              restrictively             compatibility               EC -                 representative
                                  Writtenb (Verbalg)                        Enterprises.              implemented.               with GATS.               Writtenb               offices. More

                      Page 76 GAO-05-209R U.S.-China Trade
                                                                                                              The Chinese                                                                                                                                                                                                           
                                                                                                              representative                                                                                                                                                                                                        
                                                                                                              referred to                                                                                                                                                                                                           
                                                                                                              the                                                                                                                                                                                                                   
                                                                                                              Administrative                                                                                                                             China had no                                                               
                                                                                                              Rules on                                                                                                                                   obligation                                                                 
                                                                                                              Travel                                                                                                                                     on this                                                                    
                                                                                                              Agencies,                                                                                                                                  issue in its                                                               
                                                                                                              which                                                                                                                                      WTO                                                                        
                                                                                                              stipulated                                                                                                         Relationship            schedule.                                                                  
                                                                                                              that the                                                                                                           between the             The issue of                                                               
                                                                                                              examination                                                                                                        draft                   mergers and                                                                
                                                                                                              and approval                                                                                                       Anti-Monopoly           acquisitions                                                               
                                                                                    Plans to align            of                                                                                                                 Law of China            was related                                                                
                                                                                    the provision             applications                                        China                                                          and the                 to the                                                                     
                                                                                        on the                for the                                             would   China's views                                          Interim                 context of                                                                 
                                                                                    economic needs    EC -    establishment              Notification            notify        on                                                Measures on             competition                                                                
Summary Raised Raised                                                                test on new    Written,b of travelling                 of the                 the    compatibility                    EC -                  Equity                  policy or                                                                  
  of      by     by    China's                                                          travel       Verbalg  agencies must                 Closer              relevant       of                        Written,b               Participation           investment                                                                 
issues  United  other  response                                             Tourism  agencies in     Chinese  be in line                   Economic                WTO     Arrangement                    Japan -                in or                   policy,                                                                    
  by    States   WTO                                                                     the        Taipei -  with the                   Partnership            bodies of     with                       Writtenc                Purchase of             which was                                                                  
 theme         members                                                              Regulations on  Writtend  development                Arrangement            the CEPA   conditions      Information                           Assets of               not covered                                                                
                                                                                    Administration            plan of travel               (CEPA).               in due   set in GATS.        on the                             Domestic                by existing                                                                
                                                                                      of Travel               industry. This                                      time.                      services                            Enterprises             WTO rules.                                                                 
                                           than 50                                    Agencies.               requirement,                                      (Verbalg)                  part of the                           by Foreign              The Doha                                                                   
                                           representative Specific                                            which applied                                                                Arrangement,                          Investors;              Round had      Scope of                                                    
                                           offices of     activities in                                       equally to                                                                    including                            foreign                 not             Interim                                       Effect of    
                                           foreign law    which                                               domestic                                                                     its sectoral                          investment              concluded,   Measures and             Purpose of               Interim     
                                           firms had been representative                                      travel                                                                       coverage and                          compliance              and Members       its                   Interim               Measures;    
                                           approved in    offices of                                          agencies, was                                                                on the rules                          with one or             should not   establishment             Measures;               stricter    
                                           Beijing and    foreign                                             to regulate      Closer                                                      of origin of                          two                     show haste    of mergers              grounds for            requirements  
                                           Shanghai and   lawyers can                                         the whole       Economic                                                      services,                            overlapping             in this           and                 developing             for foreign   
                                           that none of   engage in when                                      Chinese travel Partnership                                                    including                            sets of                 regard.      acquisitions               merger                investment   
                                           them had been  providing                                           agency market  Arrangement                                                   criteria to                           regulations             (Verbalg)        (M&A)                 controls              through M&A   
                                           subject to a   information on                                      and did not      between                                                          be                               when                                   controls              specifically             than those   
                                           so-called      the impact of                                       constitute a    Hong Kong                                                     identified              Mergers and  conducted                             applicable                  for                 applicable   
                                           "Economic      the Chinese                                         market access   and China                                                      as "Hong               acquisitions through                               exclusively            investment by           to domestic   
                                  EC -     Needs Test".   legal                                               limitation.    (CEPA) EC -               EC -                                    Kong                     EC -     mergers or     EC -                   to foreign    EC -        foreign     EC -         M&A       
                                  Writtenb (Verbalg)      environment.                                        (Verbalg)       Writtenb                 Writtenb                            companies."                Writtenb   acquisitions.  Writtenb               investment.   Writtenb undertakings.  Writtenb  activity.    

                      Page 77 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                The regulatory                                                                                                                                     
                                                                                                                                                                                                                                                system on                                                                                                                                          
                                                                                                                                                                                                                                                non-vessel                                                                                                                                         
                                                                                                                                                                                                                                                operating                                                                                                                                          
                                                                                                                                                                                                                                                common                                                                                                                                             
                                                                                                                                                                                                                                                carriers                                                                                                                                           
                                                                                                                                                                                                                       Demarcations             (NVOCC) was to                                                                                                                                     
                                                                                                                                                                                                                       of scope                 administrate                                                                                                                                       
                                                                                                                                                                                                                       demarcations             those carriers                                                                                                                                     
                                                                                                                                                                 China would  Justification                            and ministry             which did not                                                                                                                                      
                                                                                                                                                                 implement    for and plans                            in charge of             physically                                                                                                                                         
                                                                                                                                                                 its          for revising                             Regulations on           operate                                                                                                                                            
                                                                                                                                                                 commitments the surety bond           The purpose of  International            vessels, but                                       Reason for                                                                                      
Summary Raised                                   Architectural                                Computer                                                           in           paid by a non            the payment of  Maritime                 issued bills                                       delay and                                        Accounting,                        Any         
  of      by            China's                    and urban                        Japan -     and                  Japan -   Transport                Japan -  accordance      vessel       Japan -  800,000 Yuan as Transportation  Japan -  of lading in                     Chinese   Trading schedule for   Japan -                 Japan -    auditing,                Chinese  accountant  
issues  United          response                   planning                         Writtenc  related                Writtenc  services                 Writtenc with the       operating     Writtenc surety bond, as and             Writtenc their names.                     Taipei -  rights  implementing  Written,c                Writtenc      and                   Taipei - from any    
  by    States                   Number of         services                                   services                                                           phase-in    common carrier            required by the Regulations              This system    Reason for the    Writtend          revisions of   Verbalg                           bookkeeping  Reason for   Writtend other WTO   
 theme                           proposed                                                                                                                        period set     under the              Regulations on  concerning               was regulated  increase in                         laws                                                         experience,            Member who  
                                 foreign                                                               Enhanced                                                  out in its  Regulations on            International   Foreign                  by the         registered                          including                Schedule and                         residency,            wished to
                                 investment                                                            transparency                                              Schedule.    International            Maritime        Investment in            Ministry of    capital                             "Foreign                 procedure                            and fixed             apply for a
                                 operations                                                            in the scope                       Schedule to            (Verbalg)      Maritime               Transportation, International            Communication, requirement on                      Trade Law of             for                                   contact              license to
                                 examined,                                                             of computer                       implement the                       Transportation.           was to protect  Freight                  and that by    foreign                             People's                 implementing                           point               practice as
                                 pending                                                               and related                         phase-in                                                    the lawful      Forwarding               issuing bills  enterprises in                      Republic of              the                                 requirements           a CPA in
                                 examination,                                                          services so                       commitment to                                                 interests of    Operation.               of lading and  the Notification                    China" to                commitment                              for                China had
                                 rejected,                     Burdensome minimum                      that service                      permit wholly                                                 cargo owners                             collecting     on Issues                           grant                    to grant                            foreigner to           to have
               Raised            and grounds                   capital and                             suppliers                         foreign-owned                                                 and to maintain                          freights,      Relating to the                     trading                  trading                             practice as            accumulated
               by other          for                           number-of-engineers                     can be sure                       subsidies for                                                 the normal                               NVOCCs bore    Experimental                        rights to                rights to                           a Certified            at least
               WTO               rejection                     requirements for                        to what                              freight                                                    order of the                             the            Establishment of                    companies                companies                              Public              two years'
               members           under the                     office registration                     regulations                        forwarding                                                   cargo transport                          liabilities of Foreign-Invested                    with foreign             with foreign                         Accountant            experience
               EC -              Interim                       felt by foreign                         they are not                         agency                                                     market.                                  carriers.      Logistic                            minority                 majority                              (CPA) in             and must
               Writtenb          Measures.                     service providers.                      subject.                            services.                                                   (Verbalg)                                (Verbalg)      Enterprises.                        ownership.               ownership.                             China               have

Summary of issues by Raised by Raised by                                   
          theme          United   other WTO         China's response
                         States    members  
                                            one year of residency and a fixed 
        stated in                           residence or fixed contact point  
Provisional Rules on                     within China. This kind of        
        Evaluating                          qualification requirement, which  
     Registration of                        related to Articles VI:4 and VI:6 
      Membership by                         of the GATS, was under discussion 
Foreign Accountants.                     by Members in the Working Party   
                                            on Domestic Regulation. (Verbalg) 

Source: GAO analysis of WTO documents.

aCommunication from U.S.: S/C/W/233; dated 11/24/03.
bCommunication from European Communities: S/C/W/229; dated 11/10/03.
cCommunication from Japan: S/C/W/228; dated 9/12/03.
dCommunication from Chinese Taipei: S/C/W/232; dated 11/21/03.
eCommunication from Australia: S/C/W/231; dated 11/19/03.
fCommunication from China: S/C/W/234; dated 11/27/03.
gCommittee report detailing verbal statements made during meeting:
S/C/M/69; meeting dated 12/5/03.

                      Page 78 GAO-05-209R U.S.-China Trade

Enclosure XVI Council for Trade-Related Aspects of Intellectual Property
Rights (TRIPS)

                      Page 79 GAO-05-209R U.S.-China Trade
                                                                                                                                                            Administrative                                                                                     
                                                                                                                                                            responsibility                                                                                     
                                                                                                                                                            must be                                                                                            
                                                                                                                                                            imposed in                                                                                         
                                                                                                                                                            accordance                                                                                         
                                                                                                                                                            with the                                                                                           
                                                                                                                                                            Administrative                                                                                     
                                                                                                                                                            Penalty Law or                                                                                     
                                                                                                                                                            the special                                                                                        
                                                                                                                                                            provisions of                                                                                      
                                                                                                                                                            the separate                                                                                       
                                                                                                                                                            law. Some                                                                                          
                                                                                                                                                            administrative                                                                                     
                                                                                                                                                            remedies, such                                                                                     
                                                                                                                                                            as an order                                                                                        
                                                                                                                                                            requiring the                                                                                      
                                                                                                                                                            suspension of                                                                                      
                                                                                                                                                            infringing                                                                                         
                                                                                                                                                            acts, were                                                                                         
                                                                                                                                                            similar to                                                                                         
                                                                                                                                                            civil remedies                                                                                     
                                                                                                                                                            in form, but                                                                                       
                                                                                                                                                            they were                                                                                          
                                                                                                                                                            different in   Extent that                                                                         
                                                                                                                                                            nature. In     China's                                                                             
                                                                                                                                                            cases in which administrative                                                                      
                                                                                                                                                            the form of    system                   Timely                                                     
                                        Changes due to                                                                                                      administrative provides for             delivery of                         Annual and             
                                        reorganization                                                                                                      remedies       punitive                 new Chinese                       multiyear plans          
                                        of Chinese                                                                                                          seemed to be   remedies and             laws,                             for proposed or          
Summary Raised Raised                   responsibilities                                                                                                    similar to     extent to                including                             pending              
  of    by       by    China's          or new efforts                                                                                                      civil          which such               local                              legislation,            
issues  United  other  response General at coordinating  Writtena                                 Writtena               Writtena                 Writtena  remedies,      administrative Writtena  regulations Writtena               regulations,   Writtena 
  by    States   WTO                    intellectual                                                                                                        Articles 41    actions comply           or rules,                             rules,               
 theme         members                  property matters                                                                                                    through 48 of  with the                 as well as                        interpretations          
                                        on a national or                                                                                                    the TRIPS      criminal                 draft rules                         relevant to            
                                        local basis.                                                                                                        Agreement      procedures and           available                              IPR.                
                                                                   There were no                                                                            should be      deterrent                for public                                                 
                                                                   changes to the                                                                           applied to     penalties of             comment.                                                   
                                                                   responsibilities                                                                         administrative the TRIPS                                                                           
                                                                   of China's                                                                               remedies. Some Agreement.                                                                          
                                                                   Intellectual                                                                             civil remedies                                                                                     
                                                                   Property (IP)                                                                            provided for                                                                                       
                                                                   agencies. The                                                                            in Articles 41                                                                                     
                                                                   Bureau of                                                                                through 48,                                                                                        
                                                                   Economic Crime                                                                           such as an                                                                                         
                                                                   Investigation                                                                            order                                                                                              
                                                                   under the                                                                                requiring the                                                                                      
                                                                   Ministry of                                                                              payment of                                                                                         
                                                                   Public Security                                                                          damages to                                                                                         
                                                                   was responsible                                                                          right holders,                                                                                     
                                                                   for the          Relevant                                                                could not                                                                                          
                                                                   investigation of divisions in            Information                                     apply to                                                                                           
                                                                   IP crimes. The   the Ministry            concerning                                      administrative                                                                                     
                                                                   Division of      of Public               any                                             cases in                                                                                           
                                                                   Economic Crime   Security and            specialized                                     China, since                                                                                       
                                                                   under the        Procuratorate           prosecutors,                                    neither the                                                                                        
                                                                   Supreme          that                    police or                                       Administrative                                                                                     
                                                                   Procuratorate    investigate             judiciary                                       Penalty Law                                                                                        
                                                                   was responsible  and bring               for                    Consistency of           nor the                                                                                            
                                                                   for the          prosecutions            prosecution            China's                  separate law                                                                                       
                                                                   prosecution of   for                     of                     administrative           granted such a                                                                                     
                                                                   Intellectual     intellectual            intellectual           enforcement of           power to                                                                                           
                                                                   Property Rights  property                property               IPR with TRIPS           administrative                                                                                     
                                                                   (IPR) crimes.    crimes.                 crimes.                Agreement.               authorities.                                                                                       
                                                                   Number 2                                                                                 (Verbale) The                                                             
                                                                   Criminal                                                                                 provisions on                                                             
                                                                   Tribunal of the                                                                          administrative                                                            
                                                                   Supreme People's                                                                         enforcement in                                                            
                                                                   Court was in                                                                             the Chinese                                                               
                                                                   charge of IPR                                                                            trademark                                                                 
                                                                   criminal cases.                                                                          system                                                                    
                                                                   (Verbale)                                                                                complied with                                                             
                                                                                                                                                            Article 49 of                                                             
                                                                                                                                                            the TRIPS                                                                 
                                                                                                                                                            Agreement. The                                                            
                                                                                                                                                            procedures                                                                
                                                                                                                                                            were fair and                                                 Pursuant to 
                                                                                                                                                            equitable,                                                    Article     
                                                                                                                                                            including the                                                 63.2 of the 
                                                                                                                                                            rules on the                                                  TRIPS       
                                                                                                                                                            presentation                                                  Agreement,  
                                                                                                                                                            of evidence                                                   China had   
                                                                                                                                                            and decisions                                                 notified    
                                                                                                                                                            on the merits                                                 ten main    
                                                                                                                                                            of the case in                                                dedicated   
                                                                                                                                                            writing, etc.                                                 laws        
                                                                                                                                                            The form,                                                     relating to 
                                                                                                                                                            legal basis                                                   the IPRs in 
                                                                                                                                                            and nature of                                                 full text   
                                                                                                                                                            administrative                                                and a       
                                                                                                                                                            remedies were                                                 series of   
                                                                                                                                                            different from                                                laws and    
                                                                                                                                                            those of                                                      regulations 
                                                                                                                                                            criminal                                                      in summary, 
                                                                                                                                                            remedies.                                                     including   
                                                                                                                                                            Therefore, the                                                the         
                                                                                                                                                            Chinese                                                       Criminal    
                                                                                                                                                            administrative                                                Law, the    
                                                                                                                                                            remedies could                                                Anti-Unfair 
                                                                                                                                                            not be covered                                                Competition 
                                                                                                                                                            by Article 61                                                 Law, and    
                                                                                                                                                            of the TRIPS                                                  the Civil   
                                                                                                                                                            Agreement.                                                    Procedure   
                                                                                                                                                            Nevertheless,                                                 Law.        
                                                                                                                                                            China's                                                       Following   
                                                                                                                                                            criminal legal                                                the TRIPS   
                                                                                                                                                            system met the                                                Council's   
                                                                                                                                                            requirements                                                  decision of 
                                                                                                                                                            of Article 61.                                                21 November 
                                                                                                                                                            (Verbale)                                                     1995,       

                      Page 80 GAO-05-209R U.S.-China Trade
                                                       China had also                                                                               
                                                       provided                                                                                     
                                                       information on                                                                               
                                                       its enforcement                                                                              
                                                       regime in a                                                                                  
                                                       notification of                                                                              
                                                       its responses to                                                                             
                                                       the Checklist of                                                                             
                                                       Issues on                                                                                    
                                                       Enforcement.                                                                                 
                                                       China's IPR laws                                                                             
                                                       and regulations                                                               
                                                       were                                                                          
                                                       characterized by                                                              
                                                       their broad                                                                   
                                                       coverage and                                                                  
                                                       great quantity.                                                               
                                                       A large volume                                                                
                                                       of judicial                                                                   
                                                       interpretations                                                               
                                                       and sub-national                                                              
                                                       legislation had                                                               
                                                       added to the                                                                  
                                                       complexity. The                                                               
                                                       notification to                                                               
                                                       the WTO and the                                                               
                                                       provision of                                                                  
                                                       requested                                                                     
                                                       information                                                                   
                                                       entailed huge                                                                 
                                                       tasks, not the                                                                
                                                       least of which                                                                
                                                       was translation.                                                              
                                                       As a developing                                                               
                                                       Member, however,                                                              
                                                       China would                                                                   
                                                       redouble its                                                                  
                                                       efforts to                                                                    
                                                       further improve                                                               
                                                       the notification                                                              
                                                       process while                                                                 
                                                       requesting the                                                                
                                                       necessary                                                                     
                                                       assistance on                                                                 
                                                       translation                                                                   
                                                       according to                                                                  
                                                       Article 2.5 of                                                                
                                  China's              the Agreement    Changes                                                      
                                 intentions            between the      contemplated                           Copies of             
                                to advise on           World            in the                                any national           
Summary        Raised           promulgation           Intellectual     proposed                               laws that             
  of    Raised   by                of all              Property         civil code                              mandate              
issues  by      other  China's  IPR-related  Writtena  Organization and to IPRs,     Writtena                   greater    Writtena  
  by    United   WTO   response ministerial            the World Trade  including                             transparency           
 theme  States members            rules as             Organization. As any changes                             by local             
                                  well as              a major arm in   in                                    authorities            
                                local rules            IP enforcement,  enforcement                             in these             
                                to the TRIPS           the judiciary    of IPRs.                                 areas.              
                                  Council.             departments in                                                                
                                                       China were also                                                               
                                                       subjected to the                                                              
                                                       principle of                                                                  
                                                       transparency,                                                                 
                                                       which was                                                                     
                                                       evidenced by the                                                              
                                                       public                                                                        
                                                       soliciting of                                                                 
                                                       comments for                                                                  
                                                       judiciary                                                                     
                                                       interpretations.                                                              
                                                       The Supreme                                                                   
                                                       People's Court                                                                
                                                       would further                                                                 
                                                       broaden the                                  The                              
                                                       scope of                                representative                        
                                                       commenting in                           of China said                         
                                                       the course of                              that the                           
                                                       interpretation.                          revision of                          
                                                       Meanwhile, all                           the Chinese                          
                                                       the                                     Civil Law was                         
                                                       TRIPS-related                            an important                         
                                                       laws,                                      task for                           
                                                       regulations, and                         legislators.                         
                                                       other regulatory                          The ninth                           
                                                       documents would                            National                           
                                                       be published                             Congress had                         
                                                       through the                              enacted and                          
                                                       Chinese Foreign                           revised a                           
                                                       Trade and                                draft code.                          
                                                       Economic                                  Due to the                          
                                                       Cooperation                              rapid social                         
                                                       Gazette as well                          and economic                         
                                                       as the bulletins                        development in                        
                                                       and the websites                        China, it was                         
                                                       of the relevant                          necessary to                         
                                                       government                               regulate and                         China had made
                                                       departments.                             rewrite some                         every effort
                                                       Members could                            contents of                          to enhance its
                                                       also access the                          that draft.                          administrative
                                                       enquiry point                            China needed                         transparency.
                                                       set up by the                           to do further                         This included
                                                       Chinese                                  research and                         two main
                                                       Government for                          investigation                         aspects.
                                                       interesting                                on this                            First, the
                                                       information.                               matter.                            legislators
                                                       (Verbale)                                 (Verbale)                           had

                      Page 81 GAO-05-209R U.S.-China Trade
                                                                                                                                       Article 47 of                                
                                                                                                                                       the revised                                  
                                                                                                                                       Copyright Law                                
                                                                                                                                       had added a                                  
                                                                                                                                       provision on                                 
                                                                                                                                       legal                                        
                                                                                                                                       liability for                                
                                                                                                                                       infringing                                   
                                                                                                                                       the right of                                 
                                                                                                                                       communication                                
                                                                                                                                       through an                                   
                                                                                                                                       information                                  
                                                                                                                                       network. The                                 
                                                                                                                                       principles of                                
                                                                                                                                       illegal                                      
                                                                                                                                       application                                  
                                                         enacted the                                                                   were the same                                
                                                         Legislation                                                                   as the                                       
                                                         Law, the                                                                      liabilities                                  
                                                         Regulations on                                                                for various                                  
                                                         the Drafting                                                                  infringing                                   
                                                         Procedure of                                                                  acts, whether                                
                                                         Administrative                                                                on-line or                                   
                                                         Regulations,                                                                  offline,                                     
                                                         and the                                                                       including                                    
                                                         Regulations on                                                                Internet                                     
                                                         the Drafting                                                                  Service                                      
                                                         Procedure of                                                                  Provider                                     
                                                         Rules, which                                                                  (ISP)                                        
                                                         standardized                                                                  liability.                                   
                                                         the operating                                                                 Although the                                 
                                                         procedure of                          According to                            issue                                        
                                                         administrative  Procedures            the                                     concerning                                   
                                                         power. Second,  available             Legislation                             ISP liability                                
                                                         the               under               Law, the                                was not                                      
                                                         Administrative Chinese law            Regulations on                          within the                                   
                                                         Permission Law to challenge           the Drafting   Interpretation           framework of                                 
                                Legislative              would be       the legality           Procedure of   of regulation            the TRIPS                                    
                                development to           enforced in         of                Administrative about the                Agreement,                                   
                                improve                  2004. The Law  ministerial            Regulations    right of                 China was                                    
Summary Raised Raised           administrative           further           rules               and the        communication            making an      Market                        
  of    by       by    China's  transparency,            regulated the   involving             Regulations on through         Japan -  active and     access                        
issues  United  other  response including      Writtena  boundary,      intellectual Writtena  the Drafting   information     Writtenc serious study and IPR              Writtena  
  by    States   WTO            enactment of             conditions and   property             Procedure of   network; time            of the issue. services                       
 theme         members          an                       procedure of   rights that            Rules, the     schedule of              Other                                        
                                Administrative           administrative    may be              efficacy of    when China               countries'                                   
                                Procedure Act.           permission. It inconsistent           laws and       will make the            relevant                                     
                                                         provided that  with laws or           regulations    interpretation           legislation,                                 
                                                         only laws,        other               was prior to   public.                  in particular                                
                                                         regulations    ministerial            that of local                           that of the                                  
                                                         and local        rules or             legislation                             United States                                
                                                         regulations    China's WTO            and                                     and the                                      
                                                         could          obligations.           departmental                            European                                     
                                                         establish                             rules, and the                          Communities,                                 
                                                         administrative                        efficacy of                             had aroused                                  
                                                         permission and                        local                                   general                                      
                                                         local laws                            regulations                             concerns in                                  
                                                         could                                 was prior to                            China.                                       
                                                         establish                             local                                   (Verbale) A                                  
                                                         interim                               administrative                          series of                                    
                                                         administrative                        rules. While                            activities                                   
                                                         permission.                           local                                   had been                                     
                                                         However, the                          regulations                             organized to                                 
                                                         departmental                          conflicted                              study and                                    
                                                         rule of the                           with the                                prove the                                    
                                                         State Council                         regulations of                          necessity and                                
                                                         could not                             the State                               feasibility                                  
                                                         establish                             Council, the                            of the                                       
                                                         administrative                        National                                provisions                                   
                                                         permissions.                          Congress had                            that might be                                
                                                         Thanks to                             the authority                           introduced in                                
                                                         these laws and                        to review                               the                                          
                                                         regulations,                          them. When                              regulations                                  
                                                         administrative                        local rules                             on the                                       
                                                         transparency                          conflicted                              protection of                                
                                                         had been                              with the                                the right to                                 
                                                         increasing                            departmental                            communication                                
                                                         remarkably and                        rules of the                            through                                      
                                                         the efficiency                        State Council,                          information                                  
                                                         of                                    the State                               networks in                                  
                                                         administration                        Council would                           respect of                                   
                                                         would be                              be responsible                          specific               Information           
                                                         further                               for the                                 copyright              on whether            
                                                         promoted.                             review.                                 matters.               foreigners            
                                                         (Verbale)                             (Verbale)                               (Verbale)                  or                

                      Page 82 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                        In 2002, SIPO                                                                                  
                                                                                                                                                                                                        had received                                                                                   
                                                                                                                                                                                                        252,631                                                                                        
                                                                                                                                                                                                        patent                                                                                         
                                                                                                                                                                                                        applications,                                                                                  
                                                                                                                                                                                                        including                               Disparity                                              
                                                                                                                                                                                                        inventions,                              between                                               
                                                                                                                                                                                                        utility                                 domestic                                               
                                                                                                                                                                                                        models and                              contract                                               
                                                                                                                                                       Explanation                                      industrial                             law and the                                             
                                                                                                                                                       of                                               designs, an                             licensing                                              
                                                                                                                                                       consistency                 Current              increase of   Recent data              regulations                                             
                                                                                                                                                       of with the               information            49,048 over   showing                  on patents                                              
                                                                                                                                                       relevant                   regarding             the previous  improvement              that raise                           Forms              
                                                                                                                                                       provisions of               patent               year. The     status in                concern to                         required             
Summary        Raised                                                   Information                                                                    Rules for the             pendency at            growth rate   the pendency              national                             for               
  of    Raised   by                                                     on whether                                                                     Compulsory                SIPO, with             was 24.1      of             Japan -   treatment;                        submission            
issues  by      other  China's                               Writtena   foreigners  Writtena   Patents     State     Writtena               Writtena   Licensing of  Writtena    respect to   Writtena  percent. 951  examination   Written,c    proper     Japan -                  of      Writtena  
  by    United   WTO   response individuals    Information              are                            Intellectual                                    Patents with                foreign              international for each       Verbale   enforcement  Verbale              undisclosed           
 theme  States members          from           on whether               restricted                       Property                                      TRIPS                       patent               applications  technical                by regional                        clinical             
                                outside        licensed                 in the                           Office's                                      Agreement,               applications            had been      field;                   authorities                         data to             
                                mainland       professionals            choice of                         (SIPO)                                       regarding                and domestic            filed and 697 transparency             of laws and                         insure              
                                China may      from outside             agents they                       current               Explanation            Other Use                   patent               requests had  of this                  regulations                                             
                                obtain         mainland                 may hire to                     application             of the                 Without                  applications.           been made for data.                    reflecting                                              
                                permission     China may                those which                         for                 consistency            Authorization                                    the                                        the                                                 
                                to practice    join U.S. or             have a                          compulsory              of Rules               of the Right                                     international                           relevant                                               
                                professions    foreign law              license to                       licensing              for the                Holder.                                          preliminary                             revisions                                              
                                including      firms or                 represent                       regime with             Compulsory                                                              examination.                           at the time                                             
                                law firm       consulting               foreigners,                     respect to              Licensing                                                               738 requests                           of China's                                              
                                attorneys,     companies and            as is                           any patents             of Patents                                                              for the                                 accession                                              
                                patent         continue to              indicted by                    registered in            with the                                                                international                          to the WTO.                                             
                                agents,        provide their            the Amended                       China;                patent law                                                              preliminary                                                     Data                           
                                trademark      services from            Draft                          circumstances            provisions                                                              examination                                                  exclusivity                       
                                agents, and    such a base              Regulations                       of such               restricting                                                             had been                                                      and trade                        
                                copyright      of                       on Patent                       compulsory              compulsory                                                              completed.                                                     secret                          
                                agents.        operations.              Agency.                          licenses.              licenses.                                                               (Verbale)                                                    protection                        

                      Page 83 GAO-05-209R U.S.-China Trade
                                                                            To date, the                                                                                                                    
                                                                            State Food and                                                                                                                  
                                                                            Drug                                                                                                                            
                                                                            Administration                                                                                                                  
                                                                            (SFDA) had not                                                                                                                  
                                                                            found any                                                                                                                       
                                                                            application                                                                                                                     
                                                                            for drug                                                                                                                        
                                                                            registration                                                                                                                    
                                                                            which used                                                                                                                      
                                                                            undisclosed                                                                                                                     
                                                                            information.                                                                                                                    
                                                                            In regard to                                                                                                                    
                                                                            data                                                                                                                            
                                                                            exclusivity                                                                                                                     
                                                   Explanation of           provided by                                                                                                                     
                                                    whether and             the SFDA, the                                                                                                                   
                                                    how the data            Chinese                                                                                                                         
                                                    exclusivity             representative                      SFDA's                                                                                      
                                                     provisions             referred to                         creation of                                                                                 
                                                    provided by             the relevant                        of an                                                                                       
                                                   the State Food           regulations.                        obligation                                                                                  
                                                      and Drug              Pursuant to      SFDA's             of competing                                                                                
                                                   Administration           Article 35.2   protection           drug                                                                   Procedures           
                                                       (SFDA)               of the Rules    of data             companies                                                              to protect           
Summary        Raised                                implement              on             submitted            not to                                                                confidential          
  of    Raised   by                                requirement to           Implementation    when              obtain or                                                             information           
issues  by      other  China's                        protect     Writtena  of Drug Law,   marketing  Writtena  exploit      Writtena                Writtena               Writtena       in      Writtena 
  by    United   WTO   response                     undisclosed             the SFDA would  approval            protected                                                             intellectual          
 theme  States members                                  data                not render a    for such            data,                                                                   property            
                                                   pertaining to            marketing       data is             including                                                               related             
                                                   pharmaceutical           approval       thereafter           the right of                                                          litigation.           
                                                      products              pursuant to an  denied.             an injured                                                                                  
                                                    submitted to            application by                      party to sue                                                                                
                                                     government             taking                              for theft of                                                                                
                                                    authorities             advantage of                        this                                                                                        
                                                   for marketing            other                               information.                                                                                
                                                   approval from            applicants'                                                                        SFDA's                                       
                                                       unfair               undisclosed                                                                        definition                                   
                                                     commercial             information.                                                                       of                                           
                                                        use.                Pursuant to                                                                        confidential                                 
                                                                            Article 14 of                                                                      data                                         
                                                                            the Measures                                                                       intended to                                  
                                                                            on Regulation                                                                      provide the                                  
                                                                            of Drug                                                                            same private                                 
                                confidentiality                             Registration,                                              SFDA's                  rights for                                   
                                of such data                                when putting                                               establishment           protection                                   
                                pursuant to                                 forward an                                                 of an                   of this                                      
                                TRIPS;                                      application                                                obligation              undisclosed                                  
                                statistical or                              for drug                                                   not to use              information                                  
                                other                                       registration,                                              such data for           as those                                     
                                information                                 the applicant                                              any purpose             provided by                                  
                                regarding                                   should ensure                                              other than              the Law to                                   
                                implementation                              that all data                                              the marketing           Counter                                      
                                of data                                     submitted were                                             approval of             Unfair                                       
                                requirement.                                obtained                                                   the product.            Competition.                                 
                                                                            independently. 
                                                                            Pursuant to    
                                                                            Article 21 of  
                                                                            the Measures   
                                                                            on Regulation  
                                                                            of Drug        
                                                                            Registration,  
                                                                            when putting   
                                                                            forward an     
                                                                            application    
                                                                            for drug       
                                                                            registration   
                                                                            with foreign   
                                                                            data being     
                                                                            introduced,    
                                                                            the applicant  
                                                                            should provide 
                                                                            the            
                                                                            verification   
                                                                            of the legal   
                                                                            origin of      
                                                                            data. Pursuant 
                                                                            to Article 22  
                                                                            of the         
                                                                            Measures on    
                                                                            Regulation of  
                                                                            Drug           
                                                                            Registration,  
                                                                            the SFDA was   
                                                                            entitled to    
                                                                            require        
                                                                            applicants to  
                                                                            repeat the     
                                                                            test in order  
                                                                            to ensure that 
                                                                            the relevant   
                                                                            data had been  
                                                                            obtained       
                                                                            independently. 
                                                                            Pursuant to    
                                                                            Article 52,    
                                                                            during the     
                                                                            period of new  
                                                                            drug approval, 
                                                                            the technical  
                                                                            requirements   
                                                                            upon a new     
                                                                            drug would not 
                                                                            be lowered     
                                                                            because the    
                                                                            drug of the    
                                                                            same class had 
                                                                            received a     
                                                                            marketing      
                                                                            approval       
                                                                            abroad, that   
                                                                            is to say, the 
                                                                            situation of   
                                                                            documentation  
                                                                            dependence did 
                                                                            not exist.     
                                                                            Pursuant to    
                                                                            Article 35.2   
                                                                            of the Rules   
                                                                            on             
                                                                            Implementation 
                                                                            of Drug Law,   
                                                                            the SFDA would 
                                                                            not render     
                                                                            marketing      
                                                                            approval to an 
                                                                            application    
                                                                            taking         
                                                                            advantage of   
                                                                            other          
                                                                            applicants'    
                                                                            undisclosed    
                                                                            information.   
                                                                            The SFDA had   
                                                                            the obligation 
                                                                            to protect the 
                                                                            undisclosed    
                                                                            test data      
                                                                            obtained       
                                                                            independently  
                                                                            and other      
                                                                            relevant data  
                                                                            submitted by   
                                                                            the applicant. 
                                                                            Those          
                                                                            illegally      
                                                                            disclosing     
                                                                            undisclosed    
                                                                            data would be  
                                                                            punished. The  
                                                                            SFDA would     
                                                                            accept a       
                                                                            relevant       
                                                                            application in 
                                                                            accordance     
                                                                            with Article   
                                                                            35.3 of the    
                                                                            Rules on       
                                                                            Implementation 
                                                                            of Drug Law    
                                                                            under the      
                                                                            condition that 
                                                                            measures had   
                                                                            been taken, as 
                                                                            the public     
                                                                            interest       
                                                                            required, to   
                                                                            protect the    
                                                                            data against   
                                                                            unfair         
                                                                            commercial     
                                                                            use. Besides   
                                                                            Article 120 of 
                                                                            the Civil      
                                                                            Procedure Law  
                                                                            and Article 48 
                                                                            of the         
                                                                            Provisions     
                                                                            Regarding      
                                                                            Evidence in    
                                                                            Civil          
                                                                            Litigations,   
                                                                            the other      
                                                                            provisions of  
                                                                            the Civil      
                                                                            Procedural Law 
                                                                            and other      
                                                                            laws, such as  
                                                                            the Law on     
                                                                            Lawyers and    
                                                                            the Law for    
                                                                            Promotion of   
                                                                            Science        
                                                                            provided       
                                                                            protection for 
                                                                            confidential   
                                                                            information    
                                                                            during civil   
                                                                            litigation.    
                                                                            (Verbale)      

                      Page 84 GAO-05-209R U.S.-China Trade
                                                                                                                                      Well-known                                                                                                               
                                                                                                                                      trademark                                                                                                                
                                                                                                                                      referred to a                                                                                                            
                                                                                                                                      mark that was                                                                                                            
                                                                                                                                      widely known                                                                                                             
                                                                                                                                      to the                                                                                                                   
                                                                                                                                      relevant                                                                                                                 
                                                                                                                                      sectors of the                                                                                                           
                                                                                                                                      public and                                                                                                               
                                                                                                                                      enjoyed a                                                                                                                
                                                                                                                                      relatively                                                                                                               
                                                                                                                                      high                                                                                                                     
                                                                                                                                      reputation in                                                                                                            
                                                                                                                                      China.                                                                                                                   
                                                                                                                                      Relevant                                                                                                                 
                                                                                                                                      sectors of the                                                                                                           
                                                                                                                                      public should                                                                                                            
                                                                                                                                      include                                                                                                                  
                                                                                                                                      consumers of                                                                                                             
                                                                                                                                      the type of                                                                                                              
                                                                                                                                      goods and/or                                                                                                             
                                                                                                                                      services to                                                                                                              
                                                                                                                                      which the mark                                                                                                           
                                                                                                                                      applied,                                                                                                                 
                                                                                                                                      operators who                                                                                                            
                                                                                                                                      manufactured                                                                                                             
                                                                                                                                      the said goods                                                                                                           
                                                                                                                                      and/or                                                                                                                   
                                                                                                                                      provided the                                                                                                             
                                                                                                                                      said services,                                                                                                           
                                                                                                                                      and sellers                                                                                                              
                                                                                                                                      and other                                                                                                                
                                                                                                                                      persons                                                                                                                  
                                                                                                                                      involved in                                                                                                              
                                                                                                                                      the channels                                                                                                             
                                                                                                                                      of                                                                                                                       
                                                                                                                                      distribution                                                                                                             
                                                                                                                                      of the type of                                                                                                           
                                                                                                                                      goods or                                                                                                                 
                                                                                                                                      services to                                                                                                              
                                                                                                                                      which the mark                                                                                                           
                                                                                                                                      applied. The                                                                                                             
                                                                                                                                      Chinese term                                                                                                             
                                                                                                                                      "Zhuming                                                                                                                 
                                                                                                                                      shangbiao"                                                                                                               
                                                                                                                                      (famous                                                                                                                  
                                                                                                                                      trademarks)                                                                                                              
                                                                                                                                      referred to                                                                                                              
                                                                          Although it                                                 marks which                                                                                                              
                                                                          had received                            Legal               were                                                                                                                     
                                                                          some domestic                       significance            determined by                                                                                                            
                                                                          and foreign                              and                the             Foreign                           Information on                                                         
                                                                          requests for                         differences            administrative  marks or                          whether Chinese                                                        
                                                                          the                                     among               authorities      brands                           Trademark Office                                                       
Summary        Raised                                                     determination                        well-known             for industry   that have                          (CTO) has granted                                                      
  of    Raised   by                                              Japan -  of well-known                       marks, famous           and commerce      been                            any trademarks                                                         
issues  by      other  China's  Trademarks             Writtena Written,c marks, the                Writtena     marks,     Writtena  at the         identified Writtena                for               Writtena                                   Writtena  
  by    United   WTO   response                                  Verbale  TMO had not                          provincial             provincial,        as                             three-dimensional                                                      
 theme  States members                                                    yet                                 famous marks,           municipal, or   "famous"                          marks, color                                                           
                                                                          determined                             famous               autonomous         in                             marks, olfactory                                                       
                                                                          well-known                             brands,              region level,   Shanghai                          marks, auditory                                                        
                                                                          trademarks                           trademarks             based upon the  or other                          marks.                                                                 
                                                                          under the new                        listed for             local           regions.                                                                                                 
                                                                          provisions.                           "enhanced             legislations,                                                                                                            
                                                                          (Verbale)                           enforcement."           local                                                                                                                    
                                                                                                                                      government                                                                                                               
                                                                                                                                      regulations or                                                                                                           
                                                                                                                                      other                                                                                                                    
                                                                                                                                      administrative                                                                                                           
                                                                                                                                      provisions,                                                                                                              
                                                                                                                                      having a                                                                                                                 
                                                                                                                                      relatively                                                                                                               
                                                                                                                                      high                                                                                                                     
                                                                                                                                      reputation and                                                                                                           
                                                                                                                                      a greater                                                                                                                
                                                                                                                                      influence                                                                                                                
                                                                                                                                      within the                                                                                                               
                                                                                                                                      specific                                                                                                                 
                                                                                                                                      jurisdiction.                                                                                                            
                                                                                                                                      A provincial                                                                                                             
                                                                                                                                      famous mark                                                                                                              
                                                                                                                                      was the same                                                                                                             
                                                                                                                                      as "Zhuming                                                                                                              
                                                                                                                                      shangbiao."                                                                                                              
                                                                                                                                      The Chinese                                                                                                              
                                                                                                                                      term "You Ping                                                                                                           
                                                                                                                                      Ming Pai"                                                                                                                
                                                                                                                                      (famous                                                                                                                  
                                                                                                                                      brands) was                                                                                                              
                                                                                                                                      not a legal                                                                                                              
                                                                                                                                      term in the                                                                                                              
                                                                                                                                      field of                                                                                                                 
                                                                                                                                      trademarks.                         With respect                                By the end of                            
                                                                                        List of 293                                   The Trademark                          to the                                 October 2003, the                          
                                                                                        marks                                         Office (TMO)                        determination                             TMO had received                           
                                                                                        recognized                                    never used                            of famous                                     1398                                 
                                                                                        by the                                        this term. In                        trademarks,                              three-dimensional                          
                                                                                        Chinese                                       addition, the                            the                                        mark                                 
                                                                                        Trademark                                     TMO had used                        provincial or                               applications,                            
                                           Number of                                    Office in                                     to have a list                        municipal                                among which 343                           
                                           and                                          calendar                                      of marks for                         authorities                              had been approved                          
                                           information                                  year (CY)                                     enhanced                               had the                                for registration.                          
                                           on any                                       2002, and                                     protection,                         authority to                                  For some        Standards              
                                           well-known                                   statistical                                   which had been                        make such                                   technical       regarding              
                                           marks                                        data on                                       based upon the                       decisions,                               reasons, the TMO  recognition of           
                                           recognized                                   foreign and                                   frequency and                       and were not                              had no statistics   well known             
                                           to date,                                     domestic                                      scope of                             required to                               on color marks.    marks are              
                                           and any                                      marks                                         trademark                           report to the                               In addition,    being adopted            
                                           statistical                                  recognized                                    infringement                            TMO.                                   smell and sound  by the General           
                                           data on                                      as well                                       However, this                        Therefore,                                  marks were     Administration           
                                           foreign and                                  known marks                                   practice had                         the TMO had                              non-registerable   of Customs,             
                                           domestic                                     under prior                                   been                                   no such                                    under the      Ministry of             
                                           marks                                        and new                                       abolished.                          information.                               Trademark Law.       Public               
                                           recognized.                                  procedures.                                   (Verbale)                             (Verbale)                                   (Verbale)       Security,              

                      Page 85 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                 No government                                                                
                                                                                                                                                                                 approval of                                                                  
                                                                                                                                                                                 the terms of a                                                               
                                                                                                                                                                                 license or                                                                   
                                                                                                                                                                                 assignment was                                                               
                                                                                                                                                                                 required.                                                         
                                                                                                                                                                                 However, a                                                        
                                                                                                                                                                                 trademark                                                         
                                                                                                                                                                                 license must                                                      
                                                                                                                                                                                 be reported to                                                    
                                                                                                                                                                                 the TMO for                                                       
                                                                                                                                                                                 the record,                                                       
                                                                                                                                                                                 regardless of                                                     
                                                                                                                                                                                 whether the                                                       
                                                                                                                                                                                 trademark                                                         
                                                                                                                                                                                 owners were                                                       
                                                                                                                    Article 15 of                                                Chinese or                                                        
                                                                                                                    the Trademark                                                foreign. The                                                      
                                                                                                                    Law provided                                                 recording was                                                     
                                                                                                                    that where the                                               not required                                                      
                                                                                                                    agent or                                                     for an                                                            
                                                                                                                    representative                        Information            assignment                                                        
                                                                                                                    of the owner                          on whether             contract. As                                                      
                                                                                                                    of a mark                             foreign                for the effect                                                    
                                                                                                                    applied for                           licensors              of the                                                            
                                                                                                                    the                                   and/or                 recording of a                                                    
                                                                                                                    registration                          assignees of           license                                                           
                                Supreme                                                                             in his own                            trademarks             contract,                                                         
                                People's          Civil, criminal                                                   name without                          are required           although there                                                    
                                Procuratorate     or                                                                the owner's                           to record              was no express                                                    
                                and Supreme       administrative                                                    authorization                         their                  provision in                                                      
                                People's Court    procedures and                                                    and the owner                         assignments            the Trademark                                                     
                                as a result of    standards are                                                     opposed the      Current              or licenses            Law, the                                                          
                                the amendments    in place to                                                       registration,  information            of                     judicial                                                          
                                to the            protect against                                                   the             regarding             trademarks;            interpretation Provisions on right                                
Summary        Raised           Trademark Law     companies that                                                    application     trademark             whether such           provided that, of priority added                                  
  of    Raised   by             or the new        unfairly apply                                                    should be      pendency at            recordation            where the      to "Trademark Law"   Chinese                       
issues  by      other  China's  well-known        for the         Writtena                                Writtena  refused and     the CTO as  Writtena  requires     Writtena  trademark      and "Patent Law"     Taipei -              Chinese 
  by    United   WTO   response (WK) Mark         trademark of                                                      the use should well as the            government             license        are carried out on   Writtend                      
 theme  States members          Rules;            another                                                           be prohibited.  Trademark             approval of            contract was   most-favored-nation                                
                                intention for     company, or use                                                   This problem    Review and            the terms,             not recorded   basis to all WTO                                   
                                agencies to       such a                                                            could be       Adjudication           registration           at the TMO, it members.                                           
                                rely upon         trademark, by                                                     solved through    Board.              of the                 should not                                                        
                                determinations    translating the                                                   the opposition                        complete               affect its                                                        
                                by Chinese        foreign mark                                                      or dispute                            text or only           effect, unless                                                    
                                Trademark         into Chinese or                                                   procedure. The                        its                    otherwise                                                         
                                Office for        transliteration                                                   interested                            significant            agreed between                                                    
                                enforcement       of its sounds.                                                    party could                           terms, and             the interested                                                    
                                actions.                                                                            file an                               precedence             parties, but                                                      
                                                                                                                    application                           over                   an unrecorded                                                     
                                                                            Transliteration                         with the TMO                          separately             license                                                           
                                                                            or translation                          or the                                negotiated             contract                                                          
                                                                            was one of the                          Trademark                             contract or            should not                                                        
                                                                            standards to                            Review and                            agreement.             resist a third                                                    
                                                                            determine the                           Arbitration                                                  party with                                                        
                                                                            identity or                             Bureau (TRAB).                                               good faith. In                                                    
                                                                            similarity.                             By the end of                                                addition, the                                                     
                                                                            Thus, such                              September                                                    Trademark Law                                                     
                                                                            applications                            2003, the                                                    provided that                                                     
                                                                            could be                                number of                                                    the assignment                                                    
                                                                            refused during                          pending cases                                                of a                                                              
                                                                            the trademark                           in the TRAB                                                  registered                                                        
                                                                            examination.                            was 31,924.                                                  trademark                                                         
                                                                            Moreover,                               The number of                                                should be                                                         
                                                                            interested                              pending                                                      published                                                         
                                                                            parties could                           opposition                                                   after it was                                                      
                                                                            file the        Procedures to           cases at the                                                 approved. The                                                     
                                                                            request to the  cancel                  TMO was                                                      assignee                                                          
                                                                            trademark       trademarks              16,386. The                                                  should enjoy                                                      
                                                                            review and      applied for             pending new                                                  the exclusive                                                     
                                                                            arbitration     by agents or            applications                                                 right to use                                                      
                                                                            bureau through  distributors            for                                                          the mark from                                 Definition          China had
                                                                            the opposition  without                 registration                                                 the date of                                       of                 been
                                                                            or dispute      authorization           at the TMO                                                   the                                            specific           protecting
                                                                            procedure.      of their                were 380,000.                                                publication.                                  procedure            foreign
                                                                            (Verbale)       principal.              (Verbale)                                                    (Verbale)                                        for              well-know

                      Page 86 GAO-05-209R U.S.-China Trade
                                                        marks in the                                                                                                                                                                                                 
                                                        light of                                                                                                                                                                                                     
                                                        international                                                                                                                                                                                                
                                                        conventions.                                                                                                                                                                                                 
                                                        In line with                                                                                                                                                                                                 
                                                        the Provisions                                                                                                                                                                                               
                                                        on the                                                                                                                                                                                                       
                                                        Determination                                                                                                                                                                                                
                                                        and Protection                                                                                                                                                                                               
                                                        of Well-Known                                                                                                                                                                                                
                                                        Marks, which                                                                                                                                                                                                 
                                                        had come into                                                                                                                                                                                                
                                                        force on 1                                                                                                                                                                                                   
                                                        June 2003, the                                                                                                                                                                                               
                                                        municipal                                                                                                                                                                                                    
                                                        level                                                                                                                                                                                                        
                                                        administrative                                                                                                                                                                                               
                                                        authorities                                                                                                                                                                                                  
                                                        for industry                                                                                                                                                                                                 
                                                        and commerce                                                                                                                                                                                                 
                                                        should, within                                                                                                                                                                                               
                                                        15 working                                                                                                                                                                                                   
                                                        days from the                                                                                                                                                                                                
                                                        date of the                                                                                                                                                                                                  
                                                        acceptance of                                                                                                                                                                                  Every country 
                                                        the request of                                                                                                                                                                                 might         
                                                        the interested                                                                                                                                                                                 encounter the 
                                                        party, report                                                                                                                                                                                  problem of    
                                                        and send all                                                                                                                                                                                   earlier       
                                                        the documents                                                                                                                                                                                  registered    
                                requesting              to the                                                                                                                         The                                   Co-existence of           trademarks    
                                that a                  provincial                  Changes                                                                                            registrant of                         pre-existing              and the GIs.  
                                trademark be            administrative              contemplated                                                                                       a certificate    Use of               trademark with            Article 16 of
                                considered a            authorities                 in the                                                                                             mark could     trademarks             later                     the Trademark
                                well-known              for industry                proposed                                                                                           file a          or trade              established               Law was
                                mark and                and commerce,               civil code                                                                                         complaint      names that             geographical              substantially
                                time-scaled             if the case                 to IPR,                                 Number of                                                  with the      identify the            indication                in compliance
Summary        Raised           involved;               satisfied the               including                             certification                                                local          product as             under China's             with the
  of    Raised   by             request for             requirements                adoption of                           or collective                                                authorities    "like" or              Trademark Law             exceptions
issues  by      other  China's  details of     Taipei - under Article               any          Writtena                   marks for   Writtena                             Writtena  for industry   "style of"  Writtena   that any        Writtena  provided for
  by    United   WTO   response the latest     Writtend 13 of the                   additional                            geographical                                                 and commerce       or                 trademark                 in the TRIPS
 theme  States members          status on its           Trademark Law.              measures to                            indications                                                 or might file "imitation"             registered in             Agreement.
                                revision of             The provincial              protect                                granted by                                                  a lawsuit at       in                 "good faith"              China had
                                the "Rules on           authorities                 other forms                             the CTO.                                                   the People's  conjunction             remains valid             acceded to
                                the                     should, within              of IPR, such                                                                                       Court            with a               notwithstanding           the WTO on 11
                                Determination           15 working                  as                                                                                                 requesting to  registered             that it                   December 2001
                                and                     days from the               geographical                                                                                       stop the      geographical            includes a                and the
                                Protection of           date of                     indications.                The                                                                    infringement. indication.             geographic                latest
                                Well-Known              acceptance of                                      representative                                                              (Verbale)                             sign.                     amendment of
                                Marks."                 the request of                                     of China said                                                                                                                               the Trademark
                                                        the interested                                        that the                                                                                                                                 Law had come
                                                        party, report                                       revision of                                                                                                                                into force on
                                                        and send all                                        the Chinese                                                                                                                                1 December
                                                        the documents                                      Civil Law was                                                                                                                               2001. Those
                                                        to TMO. The                                         an important                                                                                                                               marks that
                                                        TMO should                                            task for                                                                                                                                 had
                                                        make its                                            legislators.                                                                                                                               
                                                        determination                                        The ninth                                                                                                                                 
                                                        within six                                            National                                                                                                                                 
                                                        months from                                         Congress had                                                                                                                               
                                                        the date of                                         enacted and                                                                                                                                
                                                        the receipt of                                       revised a                                         Standing that                                                                           
                                                        the relevant                                        draft code.                                              a                                                                                 
                                                        documents.                                           Due to the                                        certification                                                                           
                                                        Although it                                         rapid social                                        mark owner                                                                             
                                                        had received                                        and economic                                          has to                                                                               
                                                        some domestic                                      development in                         To date, the challenge for                                                                           
                                                        and foreign                                        China, it was                            TMO had         the                                                                                
                                                        requests for                                        necessary to                          received 260  geographic                                                                             
                                                        the                                                 regulate and                               GI       term in the                                                                            
                                                        determination                                       rewrite some                          applications certification                                                                           
                                                        of well-known                                       contents of                             for the       mark on                                                                              
                                                        marks, the TMO                                      that draft.                           registration related goods                                                                           
                                                        had not yet                                         China needed                               of       or products                                                                            
                                                        determined                                         to do further                          certificate   that do not                                                                            
                                                        well-know                                           research and                           marks, 100  come from the                                                                           
                                                        trademarks                                         investigation                          of which had   place for                                                                             
                                                        under the new  Geographical                           on this                                 been       which the                                                                             
                                                        provisions.    indications                            matter.                              approved.      mark is                                                                              
                                                        (Verbale)          (GI)                              (Verbale)                             (Verbale)    registered.                                                                            

                      Page 87 GAO-05-209R U.S.-China Trade
                                                                                                 The State                                                                                                                                                                           
                                                                                                 General                                                                                                                                                                             
                                                                                                 Administration                                                                                                                                                                      
                                                                                                 for Quality                                                                                                                                                                         
                                                                                                 Supervision,                                                                                                                                                                        
                                                                                                 Inspection and                                                                                                                                                                      
                                                                                                 Quarantine                                                                                                                                                                          
                                                                                                 (AQSIQ), in                                                                                                                                                                         
                                                                                                 accordance with                                                                                                                                                                     
                                                                                                 the Regulation                                                                                                                                                                      
                                                                                                 for the                                                                                                                                                                             
                                                                                                 Protection of                                                                                                                                                                       
                                                                        Administration           Products with                                                                                                                                                                       
                                                                        of a sui                 Geographical                                                                                                                                                                        
                                                                        generis system           Indications,                                                                                                                                                                        
                                                                        for protection           carried out the                                                                                                                                                                     
                                                                        of geographic            protection of                                                                                                                                                                       
                                                                        indications by           GIs. If a                                                                                                                                                                           
                                                                        the China's              trademark or                                                                                                                                                                        
                                                                        State General            certificate                                                                                                                                                                         
                                                                        Administration           mark already                                                                                                                                                                        
                                                                        of Quality,              existed, the                                                                                                                                                                        
                                                                        Supervision,             AQSIQ would                                                                                                                                                                         
                                                                        Inspection,              still provide                                                                                                                                                        
                                                                        and Quarantine           GI protection                                                                                                                                                        
                                                                        (AQSIQ);                 from different                                                                                                                                                       
                                                                        interaction              respects and                                                                                         Information                                                     
                                                                        between the              functions                                                                                            on whether                                                      
                                                                        system of GI             according to                                                                                         foreign                 In regard to                            
                                                                        protection by            the Regulations                                                                                      rights                  re-publication                          
                                                                        the AQSIQ and            and the related                                                                                      holders have            of materials                            
                                                                        the system of            stipulations in                                                                           Regarding  had their               in Chinese                              
                                                                        protection               the TRIPS                 Steps to                                                           the     materials               textbooks, to                           
                                                                        provided for             Agreement. The            enact                                                           protection published               date, the                               
                                                                        the GIs in the           following                 implementing                                                        of     pursuant to a           National                                
                                                                        trademark                action had been           rules to the                                                    temporary  provision in            Copyright                               
Summary Raised Raised                                                   system;                  taken against             Chinese                                                          copies,   China's                 Administration                          
  of    by       by    China's                                          refused                  the                       Copyright                                                       such term  Copyright Law           of China                                
issues  United  other  response                              Writtena   protection for Writtena  infringement of           Law          Writtena                                 Writtena   was used  that provides Writtena  (NCAC) had not                Writtena  
  by    States   WTO                                                    existing mark;           GIs: the AQSIQ            regarding                                                       neither in for a                   yet obtained                            
 theme         members                                                  foreign                  was the                   protection                                                      the Berne  mandatory               any                                     
                                                                        owner's                  authorized                of copyright                                                    Convention right for               information in                          
                                                                        standing to              government                over                                                            nor in the republication           this respect                            
                                                                        challenge                agency with two           information                                                       TRIPS    of material             from foreign                            
                                                                        recognition;             major                     networks.                                                       Agreement. for Chinese             right owners                            
                                                                        number of                functions,                                                                                (Verbale)  textbooks;              or domestic                             
                                                                        recognized               namely                                                                                               scope of any            publishers.                             
                                                                        domestic and             comprehensive                                                                                        such                    (Verbale)                               
                                                                        foreign                  administration                                                                                       republication                                                   
                                                                        geographic               and law                                                                                              undertaken.                                                     
                                                                        indications;             enforcement.                                     With regard to                                                                                                      
                                                                        number of                The agencies of                                  the                                                                                                                 
                                                                        enforcement              the AQSIQ                                        legislation on                                                                                                      
                                                                        actions taken            executed random                                  copyright                                                                                                           
                                                                        for violation;           checks and law                                   protection of                                                                                                       So far no
                                                                        bilateral                enforcement                                      digital                                                                                                             copyright
                                                                        agreement                against the                                      networks, the                                                                                                       administrative
                                                                        between China            infringements                                    Chinese                                                                                                             department had
                                     obtained                           and other                of GIs and                                       representative                                                                                                      dealt with
                                   registration                         governments              trademarks in                                    said that                                                                                  Information on           such a case,
                                     in good                            for mutual               accordance with                                  there was                                                                                   whether the             and there had
                                   faith would                          recognition              the Law on                                       still much                                                                                   right to a             been no news
                                   continue to  Allowance of            using AQSIQ              Product                                          work to be                                                                                  "reasonable"            reported
                                     be valid   China's                 system.                  Quality, the                                     done by the                                                                                 royalty from            concerning the
                                      under     Trademark                                        Law on Entry                                     competent                                                                                    infringers             relevant
                                    Article 16  Law for                                          and Exit of                                      authorities in   Request for                                                               under Software           judicial
                                      of the    continued                                        Commodities                                      a thorough and information on                                                               Protections             decision. In
                                    Trademark   registration                                     Inspection,                                      careful           possible                                                                 Rule has been            addition,
                                    Law, which  of a                                             Standardization                                  manner,         developments                                                                 applied by             under Article
                                   referred to  trademark                                        Law of the                                       including the  that have taken                                                             China's courts           30 of the
                                      marks     where such                                       People's                                         investigation    place under                                                                     or                 Regulations,
                                    registered  geographic                                       Republic of                                      and study of   Chinese law or                                                              administrative           the "holder of
                                   before this  term is                                          China, and                                       the               judicial                                                                   agencies;              copies of a
                                   date rather  deceptive as                                     other relevant                                   legislative    interpretations                                                               compliance             piece of
                                    than after  to the                                           laws and                                         experiences of   to protect                                                                 with TRIPS;             software" was
                                       it.      origin of                                        regulations.                                     other Members.    temporary                                                                 consistency             defined as the
                                    (Verbale)   the goods.                                       (Verbale)       Copyright                        (Verbale)          copies.                                                                      with                end user

                      Page 88 GAO-05-209R U.S.-China Trade
                                                                                                                                                              A series of                                                                    
                                                                                                                                                              activities had                                                                 
                                                                                                                                                              been organized                                                                 
                                                                                                                                                              to study and                                                                   
                                                                                                                                                              prove the                                                                      
                                                                                                                                                              necessity and                                                                  
                                                                                                                                                              feasibility of                                                                 
                                                                                                                                                              the provisions                                                                 
                                                                                                                                                              that might be                                                                  
                                                                                                                                                              introduced in                                                                  
                                                                                                                                                              the                                                                            
                                                                                                                                                              regulations on                                                                 
                                                                                                                                                              the protection                                                                 
                                                                                                                                                              of the right                                                                   
                                                                                                                                                              to                                                                             
                                                                                                                                                              communication                                                                  
                                                                                                                                                              through                                                                        
                                                                                                                                                              information                                                                    
                                                                                                                                                              networks in                                                                    
                                                                                                                                                              respect of                                                                     
                                                                                                                                                              specific                                                                       
                                                                                                                                                              copyright                                                                      
                                                                                                                                                              matters. For                                                                   
                                                                                                                                                              example, in                                                                    
                                                                                                                                                              October 2002,                                                                  
                                                                                                                                                              the State                                                                      
                                                                                                                                                              Council had                                                                    
                                                                                                                                                              sent a high                                                                    
                                                                                                                                                              level                                                                          
                                                                                                                                                              delegation to                                                                  
                                                                                                                                                              Europe to                                                        
                                                                                                                                                              investigate    Information                                       
                                                                                                                                       Developments           copyright      regarding                                         
                                                                                                                                       in China's             systems in the Internet                                          
                                                                                               Administrative                          study of the           digital        related                                           
                                                                                               agencies that                           content of             network        enforcement                                       
                                                                                               may take                                the World              environment.   activity of                                       
                                                                                               action against                          Intellectual           In November    the Ministry                                      
Summary Raised Raised                                                            Article 17    an Internet                             Property               2002, the      of Culture                                        
  of    by       by    China's  Copyright                                        contained the Service                                 Organization           National       pursuant to                                       
issues  United  other  response   Law.                                 Writtena  same          Provider that  Writtena                 (WIPO)       Writtena  Copyright      its            Writtena                 Writtena  
  by    States   WTO                        of software                          principles as illegally                               Copyright              Administration Provisional                                       
 theme         members                      who had                              adopted in    makes content                           Treaty and             of China       Regulation on                                     
                                            performed                            Article 22 of available to                            WIPO                   (NCAC)         the                                               
                                            the                                  the Copyright the public or                           Performances           organized a    Administration                                    
                                            reasonable                           Law           downloading                             and                    delegation to  of Cultural                                       
                                            duty for                             concerning    it.                                     Phonograms             visit WIPO and Products and                                      
                                            care and had                         fair use.                                             Treaty.                exchange views Services on                                       
                                            obtained a   Software                According to                                                                 with the       the Internet.                                     
                                            copy of      regulation's            Article 21 of                                                                organization                                                     
                                            software in  allowance of            the revised                                                                  in respect of                                                    
                                            good faith.  software use            Implementing                                                                 China's                                                          In China, if
                                            Accordingly, "for the                Regulations                                                                  accession to                                                     an
                                            it could not purpose of              of the                                                                       the two new                                                      infringement
                                            be           study and               Copyright                                                                    treaties. In                                                     took place on
                                            inconsistent research"               Law, fair use                                                                July 2003, the                                                   the Internet,
                                            with Article without the             should not                                                                   NCAC had held                                                    the
                                            13 of the    consent and             conflict with                                                                a forum on the                                                   infringer,
                                            TRIPS        without                 the normal                                                                   Internet                                                         whether an
                                            Agreement.   remuneration            exploitation                                                                 Treaties and                                                     individual or
                                            If the       to the                  of the work                                                                  copyright                                                        a legal
                                            holder of    copyright               and should                                                                   protection in                            Information             entity,
                                            the copy of  owner and its           not                                    In accordance                         digital                                  on whether              should bear
                                            software     consistency             unreasonably                           with Article                          network                                  the Chinese             the
                                            used an      with the                prejudice the                          47 of the                             environment                              government              corresponding
                                            infringing   Berne                   legitimate                             Copyright Law,                        and listened                             has issued              legal
                                            copy, the    Convention as           interests of                           copyright                             to the                                   any                     liabilities
                                            person was   well as                 the right                              administrative                        opinions from                            directives              pursuant to
                                            obliged to   TRIPS;                  holder.                                departments                           legal and                                regarding               the Copyright
                                            prove that   permission of           Consequently,                          had been                              network                                  proper use of           Law. The NCAC
                                            he or she    software                Article 17 of                          authorized to                         circles. In                              the Internet            had not
                                            never knew   reproduction;           the                                    take action                           November 2003,                           on university           issued any
                                            nor had      consistency             Regulations                            against an ISP                        the NCAC would                           or college              directive
                                            reasonable   with China's            should be                              who was                               invite WIPO                              campuses, in            regarding the
                                            grounds to   Copyright               deemed as                              illegally                             experts to                               research and            proper use of
                                            know that    Law, and                consistent                             making the                            China to give                            development             the Internet
                                            such a copy  authority to            with Article                           content                               touring                                  institutions,           in
                                            was an       avoid payment           13 of the                              available to                          lectures on                              government              universities,
                                            infringing   for                     TRIPS                                  the public or                         the two new                              offices or in           government
                                            one.         legitimate              Agreement.                             downloading                           treaties.                                state-owned             offices or
                                            (Verbale)    copies.                 (Verbale)                              it. (Verbale)                         (Verbale)                                corporations.           state-owned

                      Page 89 GAO-05-209R U.S.-China Trade
                                                                                                                                                        In respect of                                                                            
                                                                                                                                                        the Copyright                                                                            
                                                                                                                                                        Law, the                                                                                 
                                                                                                                                                        Regulations                                                                              
                                                                                                                                                        neither                                                                                  
                                                                                                                                                        decreased nor                                                                            
                                                                                                                                                        increased the                                                                            
                                                                                                                                                        burden of                                                                                
                                                                                                                                                        proof on the                                                                             
                                                                                                                                                        right holder.                                                                            
                                                                                                                                                        On the other                                                                             
                                                                                                                                                        hand, the                                                                                
                                                                                                                                                        revised                                                                                  
                                                                                                                                                        Copyright Law                                                                            
                                                                                                                                                        increased the                                                                            
                                                                                                                                                        burden of                                                                                
                                                                                                                                                        proof on the                                                                             
                                                                                                                                                        party against                                                                            
                                                                                                                                                        which an                                                                                 
                                                                                                                                                        action was                                                                               
                                                                                                                                                        brought by                                                                               
                                                                                                                                                        adopting                                                                                 
                                                                                                                                                        Article 43.2                                                                             
                                                                          In February of                                                                of the TRIPS                                                                             
                                                                          2002, the                                                                     Agreement. The                                                                           
                                                                          copyright                                                                     Regulations                                                                              
                                                                          administrative                                                                reflected the                                                                            
                                                                          department of                                                                 legislative                                                                              
                                                                          Zhejiang                                                                      purpose of the                                                                           
                                                                          province had                                                                  Copyright Law.                                                                           
                                                 Information on           dealt with a                           Regarding the                          According to                                                                             
                                                 whether China            case                                   removal or                             Article 3.2 of                                                                           
                                                 has undertaken           concerning                             alteration of                          the                                                                                      
                                                 any criminal,            "the U.S.                              electronic                             Regulations,                                                                             
                                                 administrative           Chemistry                              rights'                                administrative                                                                           
                                                 or civil                 Digest Disc                            management                             procedures                                                                               
                                                 prosecutions             Publication"                           information,                           could be                                                                                 
                                                 against                  pirated by                             this issue    Burden of                initiated not    Number of               Criteria in                                     
Summary        Raised                            individuals or           means of                               was not       proof on right           only on the    administrative            deciding the                                    
  of    Raised   by                              entities based           illegal                                covered by    holders under            basis of         procedures              level of                                        
issues  by      other  China's                   in China       Writtena  decoding. Two                 Japan -  the TRIPS     regulation for  Japan -  complaints        started      Japan -   administrative  Japan -                         
  by    United   WTO   response                  hacking into             suspects had                  Writtenc Agreement but copyright       Writtenc from right        without      Writtenc  department to   Writtenc                        
 theme  States members                           overseas                 decoded a                              by the WIPO   administrative           holders but     reports from             deal with a                                     
                                                 databases for            lawful copy of                         Copyright     punishment.              also with the  right holders.            case.                                           
                                                 purposes of              the disc, made Expansion of            Treaty (WCT).                          removal of                                                                               
                                                 obtaining                reproductions  the current             Nevertheless,                          cases by other                                                                           
                                                 unauthorized             and then sold  provision of            the issue was                          relevant                                                                                 
                                                 access to                them on the    the Copyright           under                                  departments,                                                                             
                                                 foreign                  Internet by    Law, which              consideration                          reports from                                                                             
                                                 copyrighted              sending        deem the                in China.                              other persons                                                                            
                                                 materials.               batches of     removal or              (Verbale)                              finding out                                                                              
                                                                          mails. The     alteration of                                                  infringements,                                                                           
                                                                          copyright      any                                                            or initiative                                                                            
                                                                          administrative electronic                                                     investigation                                                                            
                                                                          department had rights                                                         by                                                                                       
                                                                          ordered the    management                                                     administrative                                                                           
                                                                          decoder and    information                                                    departments.                                                                             
                                                                          the two        without                                                        In accordance                                                                            
                                                                          suspects to    authority to                                                   with the                                                                                 
                                                                          cease the      be                                                             Regulations,                                                                             
                                                                          infringing     infringement,                                                  the NCAC had                                                                             
                                                                          acts and       to include                                                     to investigate                                                                           
                                                                          confiscated    the                                                            the case with                                                                            
                                                                          their unlawful distribution,                                                  a great                                                                                  
                                                                          income. In     import for                                                     influence in                                                                             
                                                                          addition, the  distribution,                                                  the country,                                                                             
                                                                          competent      broadcast or                                                   which was                                                                                
                                                                          department had communication                                                  determined at                                                                            
                                                                          confiscated    to the public                                                  the NCAC's                                                                               
                                                                          the equipment  works or                                                       discretion. In                                                                           
                                                                          and tools      copies of                                                      general, an                                                                              
                                                                          mainly used to works knowing                                                  infringement                                                                             
                                                                          make           that                                                           should be                                                                                
                                                                          infringing     electronic                                                     dealt with by                                                                            
                                                                          copies,        rights                                                         the local                                                                                
                                                                          destroyed the  management                                                     administrative                                                                           
                                                                          infringing     information                                                    department of                                                                            
                                                                          copies and     has been                                                       the place                                                                                
                                                                          imposed a      removed or                                                     where the                                                                                
                                                                          forfeit on the altered                                                        infringement                                                       Definition of         
                                   corporations.                          two suspects.  without                                                        was committed.                                                         "find       Japan 
                                     (Verbale)                            (Verbale)      authority.                                                     (Verbale)                                                          infringement."    -   

                      Page 90 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                   The expression                                                             
                                                                                                                                                                                                                   of "parties'                                                               
                                                                                                                                                                                                                   names"                                                                     
                                                                                                                                                                                                                   included not                                                               
                                                                                                                                                                                                                   only the name                                                              
                                                                                                                                                                                                                   of the right                                                               
                                                                                                                                                                                                                   holder but                                                                 
                                                                                                                                                                                                                   also that of a                                                             
                                                                                                                                                                                                                   complaining                                                                
                                                                                                                                                                                                                   party.                                                                     
                                                                                                                                                                                                                   Otherwise, an                                                              
                                                                                                                                                                                                                   administrative                                                             
                                                                                                                                                                                                                   department                                                                 
                                                                                                                                                                                                                   could hardly                                                               
                                                                                                                                                                                                                   investigate a                                                              
                                                                                                                                                                                                                   case or render                                                             
                                                                                                                                                                                                                   specific                                                                   
                                                                                                                                                                                                                   administrative                                                  
                                                                                                                                                                                                                   penalties                                                       
                                                                                                                                                                                                                   without having                                                  
                                                                                                                                                                                                                   obtained                                                        
                                                                                                                                                                                                                   sufficient                                                      
                                                                                                                                                                                                                   information                                                     
                                                                                                                                                                                                                   concerning the                                                  
                                                                                                                                                                                                                   complaining                                                     
                                                                                                                                                                                                                   party, or                                                       
                                                                                                                                                                                                                   without having                                                  
                                                                                                                                                                                                                   known the                                                       
                                                                                                                                                                                                                   exact                                                           
                                                                                                                                                                                                                   complaining                                                     
                                                                                                                                                                                                                   party.                                                          
                                                                                                                                                                                                                   (Verbale) With                                                  
                                                                                                                                                                                                                   respect to the                                                  
                                                                                                                                                                                                                   negative                                                        
                                                                                                                                                                                                                   prescription                                                    
                                                                                                                                                                                                                   of                                                              
                                                                                                                                                                                                                   administrative                                                  
                                                                                                                                                                                                                   penalty,                                                        
                                                                                                                                                                                                                   Article 9 of                                                    
                                                                                                                                                                                                                   the                                                             
                                                                                                                                                                                                                   Regulations                                                     
                                                                                                                                                                                                                   was consistent                                                  
                                                                                                                                                                                                                   with Article                                                    
                                                                                                                                                                                                                   29 of the                                                       
                                                                                                                                                                                             Definition            Administrative                                                  
                                                                                                                                                                                                 of                Penalty Law of                                                  
                                                                                                                                                                                              "parties"            China, i.e.,                                                    
                                                                                                                                                                                               as both             where an                                                        
                                                                                                                                      An                                                        right              illegal act                                                     
                                            Amount of proof                                                                           administrative Explanation of                          holders and           was not                                                         
                                             right holders                                                                            department     the person who                          infringers;           discovered                                                      
Summary        Raised                        should submit                                                                            might not       has a burden                           difficulty            within two                                                      
  of    Raised   by                          as "proof of                                                                             accept an       of proof and                           for foreign           years of its                                                    
issues  by      other  China's    Writtenc   right holder    Japan -                               Japan -                   Japan -  application     the duration   Japan -                    right     Japan -  commission,                  Japan -                   Japan -  
  by    United   WTO   response             identification"  Writtenc                              Writtenc                  Writtenc for            the copyright   Writtenc                holders to   Writtenc administrative               Writtenc                  Writtenc 
 theme  States members                      when they apply                                                                           administrative administrative                             give               penalties                                                       
                                                  to                                                                                  procedures if    department                            statements            should no                                                       
                                            administrative                                                                            it was not in    specifies.                            and submit            longer be                                                       
                                              procedures.                                                                             charge.                                                  claims              imposed,                                                        
                                                                                                                                      (Verbale)                                                within              except if                                                       
                                                                                                                                                                                             seven days            otherwise                                                       
                                                                                                                                                                                              from the             prescribed by                                                   
                                                                                                                                                                                              notified             the law. The                                                    
                                                                                                                                                                                                day.               period of time                                                  
                                                                                                                                                                                                                   prescribed                                                      
                                                                                                                                                                                                                   should be                                                       
                                                                                                                                                                                                                   counted from                                                    
                                                                                                                                                                                                                   the date the                                                    
                                                                                                                                                                                                                   illegal act                                                     
                                                                                                                                                                                                                   was committed.                                                  
                                                                                                                                                                                                                   If the act was                                                  
                                                                                                                                                                                                                   of a continual                                                  
                                                                                                                                                                                                                   or continuous                                                   
                                                                                                                                                                                                                   nature, it                                                      
                                                                                                                                                                                                                   should be                                                       
                                                                                                                                                                                                                   counted from                                                    
                                                                                                                                                                                                                   the date the                                                    
                                                                                                                                                                                                                   act                                                             
                                                                                                                                                                                                                   terminated.                                                     
                                                                                                                                                                                                                   The                                                             
                                                                                                                                                                                                                   prescription                                                    
                                                                                                                                                                              The expression                       of                                                              
                                                                                                                                                                              "person who                          administrative                                                  
                                                                                                                                                                              has a burden                         penalty was                                                     
                                                                                                                                                                              of proof" as                         different from                                                  
                                                                                                                                                                              mentioned in                         that of a                                                       
                                                                                                                                                                              Article 16 of                        civil action                                                    
                                                                                                                                                                              the                                  in that the                                                     
                                                                                                                                                                              Regulations                          latter was                                                      
                                                                      The copy of a                                                                                           referred to                          calculated                                                      
                                                                      work with a     Concern                                                                                 the                                  from the date                                                   
                                                                      complainant's   that                                                                                    complaining                          on which the                                                    Regarding
                                                                      name on it      provision                                                                               party but not                        injured party                                                      the
                                                                      might be deemed would force                                                                             the right                            knew or had                                                     auction or
                                                                      as a proof of   right                                                                                   holder.                              the reasonable                                                  re-selling
                                                                      the right       holders to                                                                              Whether an                           grounds to                                                          of
                                                                      holder's        take much                                                                               illegal act                          know that his                                                   facilities
                                                                      identification. time and               Possibility                                                      was slight or                        rights were                                                      used for
                                                                      A copyright     cost to                that an                                                          not was                              infringed                                                         making
                                                                      registration    identify               administrative                                                   determined by                        while the                              Possibility              infringed
                                                                      was not         the                    department                                                       the                                  former was                             that                     goods, the
                                                                      necessarily     infringer's            refuses to                                                       administrative                       calculated                             re-distributed           person who
                                                                      required for    name, and              accept the                                                       department                           from the date                          facilities can             bought
                                                                      complainants to location               application                                                      according to                         on which the   Criterion to            hamper the                  such
                                                                      apply to        without                because the                                                      the concrete                         illegal act    consider an             deterrent                facilities
                                                                      administrative  legal                  department is                                                    circumstances                        took place or  infringement            effect of the               must
                                                                      procedures.     prosecution            not the one in                                                   of each case.                        stopped.        as illegal             administrative            observe
                                                                      (Verbale)       power.                 charge.                                                          (Verbale)                            (Verbale)       activity.              procedures.                 the

                      Page 91 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                                                                                        According to                                                        As to                                                                   
                                                                                                                                                                                                                                                                                        Article 147                                                     standards for                                                               
                                                                                                                                                                                                                                                                                        of the Civil                                                     IPR crimes,                                                                
                                                                                                                                                                                                                                                                                        Procedure                                                          two laws                                                                 
                                                                                                                                                                                                                                                                                        Law, the                                                        applied at the                                                              
                                                                                                                   Layout-designs                                                                                                                                                       parties who                                                      central and                                                      
                                                                                                                   and utility                                                                                                                                                          could not                                                       local levels,                                                     
                                                                                                                   and design                                                                                           Number of                                                       accept a                                Standards                that is, the                                                     
                                                                                                                   patents were                                                                                         civil                                                           judgment or                             under Chinese           Interpretation                                                    
                                                                                                                   protected by                                                                                         intellectual                                                    decision                                law for                  on Specific                                                      
                                                                                          Identification           China's Patent                                                                                       property                                                        might lodge                             determining             Application of                                                    
                                                                                          of all rules             Law and the                                                                                          cases heard            With regard to                           an appeal.                              that an                 Law on Several Rate of                                            
                                                                                          or                       relevant                                                                                             by Chinese             the trial term,                          According to                            agency                   Questions of  reversal of                                        
                                                                                          regulations,             regulations.                                                                                         courts,                Chinese courts  Opportunities            Article 178     Number of               decision was              Trial for    CTO and SIPO                                       
Summary        Raised                                                                     including                Forging                                                                                              cases                  would strictly  for review or            of the Civil  administrative            illegal, or                Illegal     administrative                                     
  of    Raised   by                                                                       ministerial              others'                                                                                              requesting               follow the      appeal of              Procedure      intellectual             should be                Publication   agency                                             
issues  by      other  China's                                     Japan -                rules and      Writtena  patents with                Writtena                Writtena   Enforcement                Writtena   and/or       Writtena  Regulations on     judicial    Writtena  Law, the         property    Writtena   reconsidered; Writtena  Criminal Cases decisions      Writtena                  Writtena  
  by    United   WTO   response                                    Verbale                local                    serious                                                                                              granted                Civil Procedure determinations           parties could appeals heard             special                 by the Supreme noted above on                                     
 theme  States members                                                                    enactments               circumstances                                                                                        preliminary                Law and       in China's             apply for       by Chinese              efforts made            People's Court appeal to the                                      
                                                                                          enacted to               would be                                                                                             relief                    judicial     court process.           another trial    courts.                by court to                and the     court                                              
                                                                                          semiconductor            convicted of                                                                                         whether or             interpretation.                          to the same                             better                  Regulations on indicated                                          
                                                      Stronger                            layout design            the crime of                                                                                         not inaudita              (Verbale)                             court or the                            understand              Standards for  above.                                             
                                                   administrative                         enforcement.             forging                                                                                              altera                                                          superior                                the handling              Initiating                                                      
                                   law. Moreover,    measures,                                                     others'                                                                                              parte;                                                          court for                               of                         Cases In                                                       
                                   such facilities   including                                                     patents                                                                    Statistical               length of                                                       those cases                             intellectual               Economic                                                       
                                   could be bought stiffer fines                                                   according to                                                               information               time from                                                       that had been                           property                Crimes by the                                                     
                                   only by         and increased                                                   Article 216 of Information                                                 available on              case                                                            effective.                              appeals.                   Supreme                                                        
                                   factories in      number of                                                     the Criminal    regarding                                                  the number of             initiation                                                      Besides, the                                                       People's                                                       
                                   lawful           seizures, to                                                   Law. (Verbale) any civil or                                                Administrative            to                                                              court or the                                                    Procruratorate                                                    
                                   operation and   ensure active                                                                    criminal             Deadlines for                        enforcement               adjudication                                                    procuratorate                                                      and the                                                        Regarding
                                   with the          and smooth                                                                   actions for               filing                            cases for CY              for trial                                                       could start                                                      Ministry of                                                         the
                                   requisite       administrative                                                                 infringement           semiconductor                        2002 and                  and                                                             supervising                                                         Public                               Number of                number of
                                   qualifications.   control of             Semiconductor                                          of layout             layout design                        partial year              appellate                                                       procedures.                                                       Security.                              criminal IPR             criminal
                                   (Verbale)          problem.              layout design                                           designs.             applications.                        2003 reports.             levels.                                                         (Verbale)                                                         (Verbale)                              investigations           cases of

                      Page 92 GAO-05-209R U.S.-China Trade
                                                                                                                                                                  There were two                                         
                                                                                                                                                                  main                                                   
                                                                                                                                                                  regulations                                            
                                                                                                                                                                  concerning the                                         
                                                                                                                                                                  circumstances                                          
                                                                                                                                                                  in which                                               
                                                                                                                                                                  investigations                                         
                                                                                                                                                                  should be                                              
                                                                                                                                                                  initiated by                                           
                                                                                                                                                                  the                                                    
                                                                                                                                                                  procuratorate                                          
                                                                                                                                                                  or by                                                  
                                                                                                                                                                  individuals:                                           
                                                                                                                                                                  the                                                    
                                                                                                                                                                  Interpretation                          
                                                                                                                                                                  Regarding                               
                                                                                                                                                                  Practical                               
                                                                                                                                                                  Questions                               
                                               intellectual                                                                                                       Concerning the                          
                                               property                                                                                                           Judicial                                
                                               rights                                                                                                             Application in                          
                                               infringement,                                                                                                      Hearing the                             
                                               there had been                                                                                                     Illegal                                 
                                               301 persons                                                                                                        Publication                             
                                               and 128 cases                                                                                                      Criminal Cases                          
                                               in 1998, 379                                                                                                       by the Supreme                          
                                               persons and                             In the                                                                     People's                                
                                               248 cases in                             year                                                                      Court, and the                          
                                               2000, and 702                          2002, the                                                                   Interpretation                          
                                               persons and                             Chinese                                                                    Regarding                               
                                               408 cases in                            customs                                         New                        Practical                               Regarding the
                                               2002. A total                             had                                           interpretations,           Questions                               steps which
                                 initiated,    of 1,273                               seized a                                         standards,                 Concerning the Steps taken to           were being
                                cases filed,   criminal cases                         total of   Number and                            regulations or             Judicial       facilitate               taken to
                                convictions,   relating to                            573 cases   relevant                             guidelines by              Application in referrals of             facilitate the
Summary Raised Raised            length of     intellectual                           worthy of circumstances                          the courts,                Hearing        criminal IPR             referral from
  of    by       by    China's   sentence,     property                               RMB 95.62  of criminal                           procuratorate or           Producing,     cases from               administrative
issues  United  other  response  amount of     rights had                   Writtena  million,    IPR cases   Writtena                 other agencies   Writtena  Selling        administrative Writtena  agencies, the
  by    States   WTO               fine,       been closed    Number of               including   that were                            regarding the              Counterfeit    agencies,                Chinese
 theme         members          compensation   within the     criminal                  four      privately                            circumstances in           Goods Criminal including                representative
                                 to rights     five years,    cases for               worth RMB   initiated                            which                      Cases by the   standards for            referred to
                                  holder.      and 2,104      export of                230,000     (zisu).                             investigations             Supreme        evidence                 the Provisions
                                               persons had    counterfeit              and 569                                         should be                  People's Court collection and           on the
                                               been           goods,                    cases                                          initiated by the           and the                                 Transfer of
                                               sentenced. At  hacking or              worth RMB                                        procuratorate.             Supreme                                 
                                               present, the   circumvention             95.39                                                                     People's                                
                                               Supreme        of copyright            million.                                                                    Procuratorate.                          
                                               People's Court technological           (Verbale)                                                                   At this stage,                          
                                               was drafting   protection                                                                                          the Supreme                             
                                               the judicial   measures,                                                                                           People's Court                          
                                               interpretation hacking of                                                                                          had been                                
                                               on the         copyright                                                 Statistics of                             carrying out                            
                                               application of rights                                                    privately                                 investigation                           
                                               law in         management                                                initiated                                 and research                            
                                               criminal cases information,                                              criminal cases                            concerning the                          
                                               of             trafficking                                               accepted by                               responsibility                          
                                               intellectual   in                                                        the Chinese                               and                                     
                                               property       technological                                             courts from                               scientificity                           
                                               rights'        protection                                                January to                                of the                                  
                                               infringement,  measures,                                                 September of                              Standards for                           
                                               which would    software                                                  2003 were the                             Initiating                              
                                               include the    end-user                                                  following: one                            Criminal                                
                                               criteria for   piracy,                                                   on copyright,                             Cases. China                            
                                               conviction and commercial                                                one on                                    would                                   
                                               imposing       sale or                                                   commercial                                stipulate the                           
                                               penalties. The replication                                               secrets, two                              interpretation                          
                                               interpretation of pirated                                                on selling                                with the                                
                                               would be       semiconductor                                             infringing                                feasibility or                          
                                               adopted and    layout                                                    reproductions,                            submit the                              
                                               published by   designs,                                                  18 on                                     relevant                                
                                               the Supreme    patent                                                    producing and                             law-making                              
                                               People's Court infringement                                              selling                                   suggestions in                          
                                               after strict   of utility or                                             counterfeit                               the near                                
                                               examination.   design                                                    products.                                 future.                                 
                                               (Verbale)      patents.                                                  (Verbale)                                 (Verbale)                               

                      Page 93 GAO-05-209R U.S.-China Trade
                                                                                         Chapter 3 of                                                                   
                                                                                         the Chinese                                                                    
                                                                                         Criminal Law,                                                                  
                                                                                         revised in                                                                     
                                                                                         1997,                                                                          
                                                                                         criminalized                                                                   
                                                                                         the destruction                                                                
                                                                                         of the                                                                         
                                                                                         socialist                                                                      
                                                                                         market economic                                                                
                                                                                         order. Section                                                                 
                                                                                         7 of Chapter 3                                                                 
                                                                                         was set to                                                                     
                                                                                         target the                                                                     
                                                                                         infringement of                                                                
                                                                                         IPRs and listed                                                                
                                                                                         seven crimes in                                                                
                                                                                         detail,                                                                        
                                                                                         covering                                                                       
                                                                                         trademarks,                                                                    
                                                                                         patents,                                                                       
                                                                                         copyright and                                                                  
                                                                                         confidential                                                                   
                                                                                         information. In                                                                
                                                                                         addition, on 17                                                                
                                                                                         December 1998,                                                                 
                                                                                         the Supreme                                                                    
                                                                                         Court's                                                                        
                                                                                         Interpretation                                                                 
                                                                                         on the                                                           
                                                                                         Practical                                                        
                                                                                         Problems on                                                      
                                                                                         Application of                                                   
                                                                                         Laws Against                                                     
                                                                                         Illegal                                                          
                                                                                         Publications                                                     
                                                                                         clarified the                                                    
                                                                                         standards of                                                     
                                                                                         penalty                                                          
                                                                                         regarding                                                        
                                                                                         copyright                                                        
                                                                                         offences,                                                        
                                                                                         including the                                                    
                                                                                         penalty against                                                  
                                                                                         a crime of                                                       
                                                                                         illegal                                                          
                                                                                         business                                                         
                                                                                         operation.                                                       
                                                                                         Moreover, the                                                    
                                                                                         Regulations of                                                   
                                                                                         the Standards                                                    
                                                                                         for Litigating                                                   
                                                                                         Cases in                                                         
                                                                                         Economic                                                         
                                                                                         Crimes, which                                                    
                                                                                         was promulgated                                                  
                                                                                         by the Supreme                                                   
                                                                                         People's                                                         
                                                                                         Procuratorate                                                    
                                                                                         and the                                                          
                                                                                         Ministry of                                                      
                                                                                         Public Security                                                  
                                                                                         on 18 April                                                      
                                                                                         2001, set the                                                    
                                                                                         standards of                                                     
                                                                Guidelines               prosecution in                                                   
                                                                established              IPR offences                           Information on            
                                                                apart from               except                                 whether                   
                                                                those in                 copyright                              criminalization           
                                                                China's                  crimes. Section Definition             is provided               
                                                  Susceptible   criminal code            7 of Chapter 3  of                     only of                   
Summary Raised Raised                            Criminal Cases regarding the            of the Criminal counterfeit            identical goods           
  of    by       by    China's                       by the     penalties to             Law and these   trademarks             or whether                
issues  United  other  response                  Administration be provided    Writtena  two             in China's  Writtena   counterfeiting  Writtena  
  by    States   WTO                             Organs for Law for willful              above-mentioned Criminal               of goods of the           
 theme         members                            Enforcement.  trademark                Interpretations Code and               same class or             
                                                   (Verbale)    counterfeiting           constituted the conformity             other classes             
                                                                or copyright             most            with TRIPS.            in which the              
                                                                piracy on a              fundamental                            trademark is              
                                                                commercial               basis for the                          registered may            
                                                                scale.                   protection of                          be prosecuted.            
                                                                                         IPRs in terms                                                    
                                                                                         of the criminal                                                  
                                                                                         law. In                                                          
                                                                                         addition,                                                        
                                                                                         Section 1 of                                                     
                                                                                         Chapter 3 of                                                     
                                                                                         the Criminal                                                     
                                                                                         Law, which                                                       
                                                                                         criminalized                                                     
                                                                                         the production                                                   
                                                                                         and                                                              
                                                                                         distribution of                                                  
                                                                                         counterfeiting                                                   
                                                                                         products, and                                                    
                                                                                         the Supreme                                                      
                                                                                         Court's and the                                                  
                                                                                         Supreme                                                          
                                                                                         People's                                                         
                                                                                         Procuratorate's                                                  
                                                                                         Interpretation                                                   
                                                                                         of Practical                                                     
                                                                                         Problems                                                         
                                                                                         Concerning                                                       
                                                                                         Criminal Cases                                                   
                                                                                         of Production                                                    
                                                                                         and                                                              
                                                                                         Distribution of                                                  
                                                                                         Counterfeiting                                                   
                                                                                         Products were                                                    
                                                                                         applicable to                                                    
                                                                                         some of the IPR                                                  
                                                                                         infringement                                                     
                                                                                         cases, mainly                                                    
                                                                                         trademark                                                        
                                                                                         offences.                                                        
                                                                                         Relevant                                                         
                                                                                         regulations                                                      
                                                                                         could also be                                                    "Goods of the
                                                                                         found in                                                          same class"
                                                                                         Articles 54 and                                                   meant goods
                                                                                         59 of the                                                          that were
                                                                                         Trademark Law,                                                    completely
                                                                                         Article 58 of                                                    identical, or
                                                                                         the Patent Law,                                                   of the same
                                                                                         Article 47 of                                                    category and
                                                                                         the Copyright                                                      class, or
                                                                                         Law, Article 24                                                  with the same
                                                                                         of the Software                                                   name, that
                                                                                         Regulations,                                                         share
                                                                                         Article 40 of                                                    basically the
                                                                                         the New Species                                                   same nature
                                preservation,                                            of Plant                                                         and function.
                                standards for                                            Regulations,                                                     "Goods of the
                                referral to                                              and Article 21                                                    same class"
                                criminal                                                 of the                                                            had bigger
                                prosecution,                                             Anti-Unfair                                                        extension
                                standards for                                            Competition                                                          than
                                referral back                                            Laws. Those                                                       "identical
                                to                                                       infringing                                                        goods." The
                                administrative                                           offences, once                                                     practical
                                punishment if                                            proved                                                            judgment of
                                a case is not                                            criminal, would                                                  "goods of the
                                initiated by                                             be brought to                                                     same class"
                                criminal                                                 justice by the                                                    was usually
                                justice                                                  Criminal Law.                                                     subject to
                                authorities.                                             (Verbale)                                                        comprehensive

                      Page 94 GAO-05-209R U.S.-China Trade
                                                                           Article 5 of                                        
                                                                           the Advice on                                       
                                                                           the Practical                                       
                                                                           Problems                                            
                                                                           Concerning                                          
                                                                           Administrative                                      
                                                                           Enforcement                                         
                                                                           Regarding                                           
                                                                           Trademark,                                          
                                                                           which had been                                      
                                                                           promulgated by                                      
                                                                           the State                                           
                                                                           Administration                                      
                                                                           for Industry                                        
                                                                           and Commerce,                        
                                                                           provided that                        
                                                                           "identical                           
                                                                           trademark                            
                                                                           means the                            
                                                                           characters,                          
                                                                           pictures and                         
                                                                           patterns or                          
                                                                           the                                  
                                                                           combinations                         
                                                                           of the                               
                                                                           characters and                       
                                                                           pictures on                          
                                                                           two trademarks                       
                                                                           are identical                        
                                                                           or have no                           
                                                                           visual                               
                                                                           difference by                        
                                                                           comparison."                         
                                                                           Article 9 of                         
                                                                           the Supreme                          
                                                                           Court's                              
                                                                           Interpretation                       
                                                                           on Practical                         
                                                                           Questions                            
                                                                           Concerning                           
                                                                           Applicable                           
                                                                           Laws Governing                       
                                                                           Civil Disputes                       
                                                                           on Trademarks,                       
                                                                           which had been                       
                                                                           promulgated on                       
                                                                           12 October,                          
                                                                           2001, stated                         
                                                                           that "an                             
                                                                           identical                            
                                                                           trademark                            
                                                                           defined in                           
                                                                           Item 1 of                            
                                                                           Article 52 of                        
                                                                           the Trademark                        
                                                                           Law means, by                        
                                                                           comparison,                          
                                                                           the trademark                        
                                                  Information on           being accused                        
                                                  whether the              of                                   
                                                  manufacturing,           infringement                         
                                                  distribution,            generally has                        
                                                  import or                no visual      Information           
                                                  export, of               difference     on whether            
                                                  products                 from the       the export            
                                                  bearing a mark           registered     of                    
Summary        Raised                             that cannot be           trademark of   counterfeit           
  of    Raised   by                               distinguished            the            goods                 
issues  by      other  China's                    in its         Writtena  plaintiff."    constitutes Writtena  
  by    United   WTO   response                   essential                Article 10 of  a "sale"              
 theme  States members                            aspects but is           this           within the            
                                                  not identical            Interpretation meaning of            
                                                  is                       also defined   China's               
                                                  criminalized             the principle  Criminal              
                                                  in these or              on judgment of Code.                 
                                                  other                    identical or                         
                                                  provisions of            similar                              
                                                  China's                  trademarks as                        
                                                  criminal law.            "(1) set the                         
                                                                           attention of                         
                                                                           the relevant                         
                                   assessment by                           public as the                        
                                   the judge                               standard; (2)                        
                                   based upon the                          comparison                           
                                   general                                 should be made                       
                                   knowledge of                            not only to                          
                                   the public of                           trademarks as                        
                                   certain                                 a whole, but                         
                                   products and                            also to the                          
                                   the                                     major parts of                       
                                   classification                          them". The                           
                                   of goods by                             process should                       
                                   the                                     only be                              
                                   international                           undertaken                           
                                   classification                          when the                             
                                   list of goods                           compared                             
                                   and services,                           objects were                         
                                   with the                                separated and                        
                                   trademark                               isolated.                            
                                   registration.                           Therefore, the                       
                                   The                                     Chinese                              
                                   classification                          representative                       
                                   list was not                            inferred that                        
                                   the only                                identical                            
                                   benchmark for                           trademarks in                        
                                   judgment, but                           legal terms                          
                                   an important                            made a                               
                                   standard for                            difference to                        
                                   reference. To                           what                                 
                                   sum up, one of                          "identical"                          
                                   the important                           meant in daily                       
                                   criteria to                             language.                            
                                   tell whether                            (Verbale)                            
                                   two products                            "Identical                           
                                   were of the                             trademark" was                       
                                   same class was                          different from                       
                                   whether they                            what                                 
                                   shared the                              "identical"                          
                                   same product                            meant in daily                       
                                   name, though                            language.                            
                                   they might                              China's                              
                                   have different                          standard for                         
                                   practical                               judgment was                         
                                   functions.                              whether marks                        
                                   However, those                          had no visual                          Commercial
                                   goods with                              difference.                            import and
                                   different                               According to                         export actions
                                   names could                             this                                 constituted a
                                   also be                                 understanding,                       "sale" in real
                                   defined as                              this standard                            terms.
                                   goods of the                            generally                            However, under
                                   same class as                           conformed to                             these
                                   long as they                            the principle                        circumstances,
                                   bore the same                           of being "not                           a party
                                   practical                               distinguished                        involved could
                                   function or                             in essential                         be criminally
                                   scope.                                  aspects."                              liable for
                                   (Verbale)                               (Verbale)                             smuggling or

                      Page 95 GAO-05-209R U.S.-China Trade
                                                                        Although some                                                                                                                                                                                                                    
                                                                        infringing                                                                                                                                                                                                                       
                                                                        acts did not                                                                                                                                                                                                                     
                                                                        constitute                                                                                                                                                                                                                       
                                                                        acts of crime                                                                                                                                                                                                                    
                                                                        according to                                                                                                                                                                                                                     
                                                                        Articles 217                                                                                                                                                                                                                     
                                                                        and 218 of                                                                                                                                                                                                                       
                                                                        the Criminal                                                                                                                                                                                                                     
                                                                        Law, that did                                                                 The financial                                                                                                                                      
                                                                        not mean that                                                                 threshold was                                                                                                                                      
                                                                        they were not                                                                 a major                                                                                                                                            
                                                                        criminal                               Regarding                              element, but                         As to the                                                                                                     
                                                                        acts. They                             whether China                          by no means                          so-called                                                                                                     
                                                                        could                                  had undertaken Information             the complete                         illegal                                                                                                       
                                                                        constitute                             criminal,      on whether              element in                           business                                                                                                      
                                                                        the crime of                           administrative certain                 IP-related                           amounts, on                                                                                                   
                                                                        intentional                            or civil       financial               crimes. The                          the one                                                                                                       
                                                                        property                               prosecutions   thresholds of           record of the                        hand, the                                                                                                     
                                               Information on           damaging or                            against        referring               administrative                       illegal      Provisions                                                                                       
                                               whether China            the crime of                           individuals or cases to                penalty for                          business        for                                                  Establishment                            
                                               currently                construction                           entities who   criminal                counterfeiting                       amounts       landlord                     Tougher                       of a                                 
                                               criminalizes             impediment.                            used the       prosecution,            and piracy and                       could be     liability                     measures                 forward-looking            Efficient      
                                               in its laws,             China had                              Internet to    as required             serious        Calculation           determined      for                        needed to                  enforcement              and            
Summary Raised Raised                          or has any               noticed that                           obtain access  by China's              consequences   of illegal            using other   illegal                      protect                   strategy for              deterrent      
  of    by       by    China's                 intention of             some foreign                           to computer    intellectual            could all be   business              evidence,    activities                    intellectual              intellectual              system         
issues  United  other  response                criminalizing, Writtena  countries,                   Writtena  systems,       property law, Writtena  regarded as    amount as   Writtena  such as       taken by  Writtena           property                 property which             needed for     
  by    States   WTO                           commercial               including the                          though the     may be                  factors in     proof of              written      lessee and                    rights in                will suit both             the            
 theme         members                         scale piracy,            United        Information on           acts per se    satisfied by            crime          guilt.                documents       any                        line with its             the domestic              enforcement    
                                               which is not             States, the   whether China            did not        non-monetary            determination.                       from the     instances                     international                  and                  of             
                                               undertaken for           United        has undertaken           constitute the means, such             On the other                         purchaser,     of its                      commitments.              international             intellectual   
                                               private gain             Kingdom, and  any criminal,            copyright      as barter               hand,                                witness,     imposition                                                markets.                               
                                               or profit.               Japan, did    administrative           crimes defined exchanges of            financial                            testimony,     in IP                                                                                          
                                                                        not specify   or civil                 by Articles    pirated                 threshold was                        and           matters.                                                                                        
                                                                        the aim of    prosecutions             216 and 217 of material or             a generic term                       assessment                                                                                                    
                                                                        making        against                  the Criminal   other forms             that might                           on goods. On                                                                                                  
                                                                        profits as a  individuals or           Law, their     of                      refer to sales                       the other                                                                                                     
                                                                        subjective    entities based           following acts compensation.           volume, value                        hand, in                                                                                                      
                                                                        element for   in China who             usually did.                           of goods,                            cases where                                                                                                   
                                                                        copyright     use the                  (Verbale)                              illegal                              the illegal                                                                                                   
                                                                        crimes. China Internet to                                                     profits or                           business                                                                                                      
                                                                        was taking    obtain access                                                   damages to the                       amount could                                                                                                  
                                                                        this factor   to computer                                                     right owner.                         not be                                                                                                        
                                                                        into          systems or                                                      It could also                        verified,                                                                                                     
                                                                        consideration databases                                                       exist in                             the                                                                                                           
                                                                        and weighing  overseas for                                                    various forms                        constitution                                                                                                  
                                                                        up the        purposes of                                                     like money or                        of crime                                                                                                      
                                                                        possibility   obtaining                                                       commodities,                         could be                                                                                                      
                                                                        of            unauthorized                                                    as they could                        determined                                                                                                    
                                                                        integrating   access to                                                       be transferred                       through                                                                                                       
                                     illegal                            it into its   foreign                                                         in money                             other                                                                                                         
                                   operations.                          legal system. copyrighted                                                     terms.                               factors.                         EC -                     EC -                       EC -                     
                                    (Verbale)                           (Verbale)     materials.                                                      (Verbale)                            (Verbale)                        Writtenb                 Writtenb                   Writtenb                 

                      Page 96 GAO-05-209R U.S.-China Trade
                                                                                                                                                                                                                               The guiding 
                                                                                                                                                                                                                               ideology of 
                                                                                                                                                                                                                               the         
                                                                                                                                                                                                                               Activity    
                                                                                                                                                                                                                               Plan for    
                                                                                                                                                                                                                               Fighting    
                                                                                                                                                                                                                               against     
                                                                                                                                                                                                                               Pirated     
                                                                                                                                                                                                                               Software,   
                                                                                                                                                                                                                               which was   
                                                                                                                                                                                                                               published   
                                                                                                                                                                                                                               in June     
                                                                                                                                                                                                                               2003, was   
                                                                                                                                                                                                                               to          
                                                                                                                                                                                                                               resolutely  
                                                                                                                                                                                                                               crack down  
                                                                                                                                                                                                                               on various  
                                                                                                                                                                                                                               piracy and  
                                                                                                                                                                                                                               infringing  
                                                                                                                                                                                                                               acts in     
                                                                                                                                                                                                                               respect of  
                                                                                                                                                 The cost of                                                                   software    
                                                                                                                                                 confiscation                                                                  and to      
                                                                                                                                                 and disposal                                                                  promote the 
                                                                                                                                                 of                                                                            development 
                                                                                                                                                 counterfeiting                                                                of the      
                                                                                                                                                 goods                                                                         Chinese     
                                                                                                                                                 undertaken by                                                                 software    
                                                                                                                                                 the Customs                           The Chinese                             industry.   
                                                                                                                                                 shall be borne                        Government had Activity plan            The working 
                                                                                                                                                 by right                              always been    to fight                 objective   
                                                                                                                                                 holders.                              engaged in     against                  was to      
                                                                                                                                                 According to                          fighting       pirated                  establish a 
                                                                                                                                                 Articles 14                           against        software and             fair and    
                                                                                                                         Regulations             and 15, and     Steps to              "localism".    other pirated            orderly     
                                                                                                                         and                     other relevant  eliminate             The State      goods;                   software    
                                                                                                                         notifications           provisions of   localism              Council's      information on           market and  
                                                    Recommendation                                                       to make                 the Regulation    that                Provisions on  policies to              to realize  
Summary        Raised                                for creation                                                        customs and             on the Customs encourages             Prohibiting    implement the            the         
  of    Raised   by                                   of a high                                                Japan -   other                   Protection of     soft       Japan -  Regional       activity plan            fundamental 
issues  by      other  China's                          level                       Japan -                   Written,c  enforcement    Japan -  Intellectual   approach to  Written,c Blockage in    established in  Japan -  improvement 
  by    United   WTO   response                      Coordination                   Writtenc                   Verbale   bodies         Writtenc Property       manufacture   Verbale  Market         June 2003;      Writtenc in the      
 theme  States members                                 Working                                                           informed who            Rights, the        of                 Economic       establishment            social      
                                                       Office.                                                           bear the                applicant who  counterfeit            Activities,    of activity              environment 
                                                                                                                         disposal                requested the   goods by              published on   plan in the              of software 
                                                                                                                         costs of the            Customs to        local               21 April 2001, other pirated            copyright   
                                                                                                                         infringing              detain           firms.               showed the     goods but                protection. 
                                                                                                                         products.               suspected                             positive       software;                The         
                                                                                                                                                 infringing                            attitude of    legal                    Activity    
                                                                                                                                                 goods should                          China against  responsibility           Plan was a  
                                                                                                                                                 provide a bond                        localism in    provided for             provisional 
                                                                                                                                                 to the                                the field of   ISP.                     measure,    
                                                                                                                                                 Customs. After                        intellectual                            while the   
                                                                                                                                                 a relevant                            property                                crackdown   
                                                                                                                                                 administrative                        rights. China                           on various  
                                                                                                                                                 determination,                        protected                               piracy acts 
                                                                                                                                                 judicial                              right holders                           was a       
                                                                                                                                                 judgment or                           in strict                               long-term   
                                                                                                                                                 adjudication                          accordance                              and         
                                                                                                                                                 came into                             with the laws                           standing    
                                                                                                                                                 effect, the                           and                                     task. At    
                                                                                                                                                 Customs should                        administrative                          present, a  
                                                                                                                                                 refund the                            regulations on                          crackdown   
                                                                                                                                                 remainder of                          the protection                          on software 
                                                                                                                                                 the bond, from                        of                                      piracy was  
                                                                                                                                                 which the cost                        intellectual                            included in 
                                                                                                                                                 of storage,                           property                                this Plan   
                                                                                                                                                 custody, and                          rights that                             in the      
                                                                                                                                                 disposal of                           were in                                 light of    
                                                                                                                                                 the goods as                          complete                                the current 
                                                                       Number of                                                                 well as the                           conformity                              situation   
                                                                        criminal                                                                 compensation                          with the WTO                            of China,   
                                                                      prosecutions                                                               fees to the                           TRIPS                                   and it was  
                                                                       related to              Changes that                                      interested                            Agreement.                              possible    
                                                                         patent               should be made                                     parties for                           China was now                           for this    
                                                                        rights,                   to the                                         the loss                              making every                            Plan to     
                                                                       trademark              standards for                                      induced by the                        effort to                               include     
                                                                        rights,                  criminal                                        inappropriate                         implement the                           anti-piracy 
                                                                       industrial              prosecutions                                      application                           obligations of                          work in     
                                                                         design                 related to                                       had been                              the TRIPS                               other       
                                property  EC -                         rights and               copyright                                        deducted.                             Agreement.                              respects    
                                rights.   Writtenb                    copyrights.             infringements.                                     (Verbale)                             (Verbale)                               later.      

                      Page 97 GAO-05-209R U.S.-China Trade
                                                                                                    With respect                                                                                                                                                                     
                                                                                                    to counting                                                                                                                                                                      
                                                                                                    the value of                                                                                                                                                                     
                                                                                                    infringing                                                                                                                                                                       
                                                                                                    imports, the                                                                                                                                                                     
                                                                                                    Customs would                                                                                                                                                                    
                                                                                                    follow the                                                                                                                                                                       
                                                                                                    Customs Law,                                                                                                                                                                     
                                                                                                    the Customs                                                                                                                                                                      
                                                                                                    Regulation for                                                                                                                                                                   
                                                                                                    Protection of                                                                                                                                                                    
                                                                                                    Intellectual                                                                                                                                                                     
                                                                                                    Property                                                                                                                                                                         
                                                                                                    Rights and                                                                                                        China was                                                      
                                                                                                    other                                                                                                             considering                                                    
                                                                                                    administrative                                                                                                    the revision                                                   
                                                                              Type, value           regulations.                                                                                                      of the Customs                                                 
                                                                              and                   The Customs                                                                                                       Regulation for                                                 
                                                                              quantity of           had                                                                                                               the Protection                                                 
                                                                              Customs'              cooperation                                                                                                       of                                                             
                                                                              seizures of           with                                                                                                              Intellectual                                                   
                                                                              infringing            traditional                                                                                                       Property                                                       
                                                                              goods;                authorities,                                                                                                      Rights                                                         
                                                                              disposition           including                                                                                  Status of              according to   Customs or                                      
                                                                              of goods;             public                                                                                     any                    the TRIPS      other agencies                                  
                                                                              nature of             security,                                                                                  revisions to           Agreement and  with                                            
Summary Raised Raised                                                         rights                according to                                                                               China rules            to China's     administrative                                  
  of    by       by    China's                             Japan -    Border  infringed;            the Regulation                                                                             regarding              promises upon  authority over                                  
issues  United  other  response                            Writtenc  measures whether     Writtena  on Transfer of                 Writtena                  Writtena               Writtena   Customs      Writtena  its accession  the import or  Writtena               Writtena  
  by    States   WTO                                                          goods were            Suspected                                                                                  Rules for              to the WTO.    export of                                       
 theme         members                                                        being                 Criminal Cases                                                                             Protection             The customs    pirated goods                                   
                                                                              imported or           by the                                                                                     of                     had the        over the                                        
                                                                              exported;             Administrative                                                                             Intellectual           administrative Internet.                                       
                                                                              destination           Agencies, and                                                                              Property.              authority over                                                 
                                                                              or source             other laws or                                                                                                     the import or                                                  
                                                                              of goods;             regulations.                                                                                                      export of                                                      
                                                                              and nature            (Verbale)                                                                                                         pirated goods                                                  
                                                                              of fine or            Regarding the                                                                                                     over the                                                       
                                                                              penalty               regulations of                                                                                                    Internet. The                                                  
                                                                              imposed.              the export of                                                                                                     customs and                                                    
                                                                                                    counterfeit                                                                                                       other IPR                                                      
                                                                                                    and pirated                                 Method for              Steps under                                   agencies would                                                 
                                                                                                    goods, in the                                Chinese                  way to                                      make a                                   Information           
                                                                                                    year 2002, the                              Customs to                improve                                     decision on                              on whether            
                                                                                                    Chinese                                   determine the             cooperation                                   infringement                             Customs or            
                                                                                                    customs had    Number and type             valuation of               between                                     according to                                other              
                                                                                                    seized a total of cases                    seized goods               Chinese                                     the Customs                              authorities           
                                                                                                    of 573 cases   referred to                 for purposes             Customs and                                   Regulation for                              have               
                                              Status of                                             worthy of RMB  administrative              of assessing              criminal                                     Protection of                             authority            
                                              operations                                            95.62 million, investigation;              penalties or               justice                                     Intellectual                             over export           
                                                 for                                                including four number of cases             referral to               agencies,                                    Property                                     of                
                                              regulation                                            worth RMB      referred to and               criminal               such as the                                   Rights, the                              counterfeit           
                                             of export of                                           230,000 and    provision of                prosecution              Ministry of                                   Patent Law,                              or pirated            
                                             counterfeits                                           569 cases      criminal law               under IPR laws              Public                                      the Trademark                             goods by             
                                             and pirated                                            worth RMB      applied to                    or under                Security                                     Law, and the                               mail or             
                                              goods made                                            95.39 million. criminal                   anti-smuggling                and                                       Copyright Law.                            delivery             
                                   (Verbale)  in China.                                             (Verbale)      investigations.                laws.                 Procuracy.                                    (Verbale)                                 services.            

                      Page 98 GAO-05-209R U.S.-China Trade
                                                                                                                                                                    In 2003, the   
                                                                                                                                                                    NCAC had       
                                                                                                                                                                    launched three 
                                                                                                                                                                    special        
                                                                                                                                                                    actions. In    
                                                                                                                                                                    February, the  
                                                                                                                                                                    NCAC had       
                                                                                                                                                                    launched the   
                                                                                                                                                                    Special Action 
                                                                                                                                                                    for Striking   
                                                                                                                                                                    Piracy during  
                                                                                                                                                                    the World      
                                                                                                                                                                    Intellectual   
                                                                                                                                                                    Property       
                                                                                                                                                                    Leader's       
                                                                                                                                                                    Meeting.       
                                                                                                                                                                    According to   
                                                                                                                                                                    incomplete     
                                                                                                                                                                    figures, the   
                                                                                                                                                                    copyright      
                                                                                                                                                                    administrative 
                                                                                                                                                                    departments in 
                                                                                                                                                                    Beijing,       
                                                                                                                                                                    Shanghai,      
                                                                                                                                                                    Tianjing,      
                                                                                                                                                                    Chongqing, and 
                                                                                                                                                                    the provinces  
                                                                                                                                                                    of Liaoning,   
                                                                                                                                                                    Jilin, Hainan, 
                                                                                                                                                                    Guangdong,     
                                                                                                                                                                    Fujian,        
                                                                                                                                                                    Zhejiang,      
                                                                                                                                                                    Anhui,         
                                                                                                                                                                    Jiangxi,       
                                                                                                                                                                    Jiangsu,       
                                                                                                                                                                    Yunnan,        
                                                                                                                                                                    Guizhou,       
                                                                                                                                                                    Gansu, Shanxi  
                                                                                                                                                                    and Inner      
                                                                                                                                                                    Mongolia had   
                                                                                                                                                                    checked 2,588  
                                                                                                                                                                    markets, 30    
                                                                                                                                                                    schools, and   
                                                                                                                                                                    77             
                                                                                                                                                                    enterprises,   
                                                                                                                                                                    imposed        
                                                                                                                                                                    administrative 
                                                                                                                                                                    punishments on 
                                                                                                                                                                    1,430          
                                                                                                                                                                    infringing or  
                                                                                                                                                                    pirating       
                                                                                                                                                                    entities,      
                                                                         Information on                                                                             imposed a      
                                                                           whether an                                                         Steps to              forfeit of RMB 
                                                                         administrative                                                       close down            1,339.5        
                                                                         punishment for                                                       or police             thousand,      
Summary Raised Raised                                      Relationship      an IPR                                                           markets for           suppressed 816 
  of    by       by    China's                             among civil,   infringement                                                        pirate                shops, and     
issues  United  other  response                Writtena   criminal, and    precludes    Writtena                                   Writtena   and/or      Writtena  removed five   
  by    States   WTO                                      administrative   subsequent                                                         counterfeit           cases to       
 theme         members                                     enforcement      criminal                                                          goods in              judicial       
                                                                          enforcement                                                         popular               authorities,   
                                                                          for the same                                                        locations.            and            
                                                                              act.                                                                                  investigated   
                                                                                                                                                                    one            
                                                                                                                                                                    underground    
                                                                                                                                                                    compact disc   
                                                                                                                                                                    press. In      
                                                                                                                                                                    July, the NCAC 
                                                                                                                                                                    combined with  
                                                                                                                                                                    the General    
                                                                                                                                                                    Administration 
                                                                                                                                                                    for Press and  
                                                                                                                                                                    Publication,   
                                                                                                                                                                    Ministry of    
                                                                                                                                                                    Education, and 
                                                                                                  Theoretically                                                     the National   
                                                                                                  an                                                                Anti-Piracy    
                                                                                                  administrative                                                    and the        
                                                                                                  punishment did                                                    Pornography    
                                                                                                  not preclude                                                      Working        
                                                                                                  the subsequent                                                    Committee, had 
                                                                                                  criminal                                                          launched the   
                                                                                                  enforcement                                                       2003 Autumn    
                                                                                                  for the same                                                      Special Action 
                                                                                                  act. According                                                    for Striking   
                                                                                                  to the                                                            Pirated        
                                                                                                  Provisions on                                                     Textbooks and  
                                                                                                  the Removal of                                                    Assistant      
                                                                                                  Suspected                                                         Teaching       
                                                                                                  Crime Cases by                                                    Materials.     
                                                                                                  Administrative                                                    This action    
                                Method for                                                        Enforcement                                                       was still      
                                Customs to                                                        Agencies of                                                       under way at   
                                adjudicate                                                        2001, which                                                       present. In    
                                determinations                                                    had been                                                          August, the    
                                of                                                                enacted by the                                                    NCAC had       
                                infringement                                                      State Council,                                                    launched the   
                                of particular                                                     cases of                                                          2003 Special   
                                goods by a                                                        suspected      Steps to insure                                    Action for     
                                recorded                                                          crime of       that individuals                                   Striking       
                                trademark,                                                        violating the  are deterred from                                  Pirated        
                                copyright,                                                        Copyright Law  pursuing                                           Software. On   
                                patent or                                                         should be      infringing                                         the first day  
                                other                                                             removed to     activities after                                   of this        
                                intellectual                                                      judicial       having once                                        action,        
                                property                                                          authorities.   committed an                                       250,000        
                                rights;                                                           Consequently,  offence; central                                   infringing     
                                information on                                                    it was         registry for                                       copies alone   
                                any                                                               infrequent     determining when                                   of software    
                                anticipated                                                       that a         a party has been                                   had been       
                                changes to how                                                    criminal       administratively,                                  confiscated in 
                                Customs                                                           enforcement    criminally, or                                     Beijing,       
                                adjudicates                                                       came after an  adjudicated to be                                  Shanghai, and  
                                determinations                                                    administrative civilly liable to                                  the provinces  
                                of                                                                punishment.    have infringed IP                                  of Sichuan and 
                                infringements.                                                    (Verbale)      rights.                                            Guangdong. The 

    Summary of issues by   Raised by Raised by                                
            theme          United    other WTO        China's response
                           States     members  
                                               local agencies of industrial   
                                               and commercial administration  
                                               would also step up the efforts 
                                               in clamping down on trademark  
                                               infringements. Furthermore,    
                                               local administrative           
                                               authorities for industry and   
                                               commerce conducted routine     
                                               monitoring and investigation   
                                               to discourage counterfeit      
                                               markets. If any counterfeit    
                                               goods were found in the        
                                               market, they would strictly    
                                               enforce the relevant laws and  
                                               regulations. (Verbale)         
    Regulations regarding                      
    approvals of markets                       
for the designation of                      
    markets posting signs                      
    that they contain no   Writtena            
"counterfeit products,"                     
as well as enforcement                      
    actions taken against                      
        such markets.                          
Regulations or                                                             
procedures involving                          The relevant IPR agencies    
administrative or       Writtena            undertook enforcement actions  
criminal enforcement at                     every year at the Canton Trade 
trade fairs such as the                            Fair. (Verbale)
Canton Trade Fair.                          
      Steps to deprive                         
        exporters of                           
    counterfeit goods of                       
    their right to engage  Writtena            
in international trade                      
and to provide adequate                     
     punishments against                       
            them.                              
Rules that apply to the                     
    operations of foreign                      
private investigations                      
    firms in IPR matters,                      
and any plans to permit                     
     these firms to more   Writtena            
actively assist China's                     
       administrative,                         
     criminal and civil                        
         enforcement                           
        authorities.                           
                                                The revision of the Chinese   
                                                 Civil Law was an important   
                                                 task for legislators. The    
Provisions established                       ninth National Congress had   
under Chinese civil law                      enacted and revised a draft   
to insure that civil                        code. Due to the rapid social  
penalties that are      Writtena             and economic development in   
imposed are deterrent                         China, it was necessary to   
in nature.                                    regulate and rewrite some    
                                               contents of that draft. China  
                                               needed to do further research  
                                                 and investigation on this    
                                                     matter. (Verbale)        
Provisions established                      
in China's criminal law                     
       to insure that                          
penalties are known to  Writtena            
the public at large and                     
        that criminal                          
prosecutions influence                      
      social behavior.                         

Source: GAO analysis of WTO documents.

Note: An additional document source is a communication from China:
IP/C/W/415; dated 11/17/03.
aCommunication from U.S.: IP/C/W/414; dated 11/10/03.
bCommunication from European Communities: IP/C/W/413; dated 11/7/03.
cCommunication from Japan: IP/C/W/410; dated 10/20/03.
dCommunication from Chinese Taipei: IP/C/W/411; dated 11/5/03.
eCommittee report detailing verbal statements made during meeting:
IP/C/31; meeting dated 11/18/03.

(320308)

                      Page 99 GAO-05-209R U.S.-China Trade

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