14. Safeguards
154. The representative of China stated that upon accession, China would implement its Regulation on Safeguard by which the future safeguard measures would be regulated. The contents of this new regulation would be fully consistent with the Agreement on Safeguards. China was in the process of drafting safeguard legislation in accordance with Article 29 of the Foreign Trade Law and the Agreement on Safeguards. The Working Party took note of this commitment.
C. EXPORT REGULATIONS
1. Customs Tariffs, Fees and Charges for Services Rendered, Application of Internal Taxes to Exports
155. Some members of the Working Party raised concerns over taxes and charges applied exclusively to exports. In their view, such taxes and charges should be eliminated unless applied in conformity with GATT Article VIII or listed in Annex 6 to the Draft Protocol.
156. The representative of China noted that the majority of products were free of export duty, although 84 items, including tungsten ore, ferrosilicon and some aluminum products, were subject to export duties. He noted that the customs value of exported goods was the F.O.B. price of the goods.
2. Export Licensing and Export Restrictions
157. The representative of China confirmed that the list of all entities responsible for the authorization or approval of exports would be updated and republished in the official journal, the MOFTEC Gazette, within one month of any change thereto. The Working Party took note of this commitment.
158. The representative of China said that China applied its export licence system to certain agricultural products, resource products and chemicals. China's export licencing system was administered in accordance with the "Interim Procedures for the Export Licencing System". In 1992, there were 143 categories of products subject to export licencing which accounted for 48.3 per cent of the total value of the China's exports, but by 1999, the total number of products subject to export licensing had been reduced to 58 categories and 73 items with an export value of US$ 18.5 billion, taking up only 9.5 per cent of total exports. Export licences for these products were issued according to the stipulated commodity scope respectively by the Administrative Bureau of Quota and Licence ("ABQL"), the Special Commissioner Offices ("SCO") located in 16 provinces and the Commissions of Foreign Economic Relations and Trade ("COFTEC") of various provinces, autonomous regions, municipalities directly under the central government and those with independent budgetary status. The main criteria used in determining whether a product was subject to export licensing, as set down in the Foreign Trade Law, were: (1) maintenance of national security or public interests; (2) protection against shortage of supply in the domestic market or exhaustion of natural resources; (3) limited market capacity of importing countries or regions; or (4) obligations stipulated in international treaties. Export licensing was also used for statistical purposes.
159. He further noted that an application for an export licence had to be submitted to the licence issuing institutions authorized by MOFTEC, together with documents approving the export by the competent departments, and other relevant materials (such as the Export Qualification Certificate for the enterprises, export contract and so on). The procedures were the same for all export destinations. A decision on the request for an export licence normally took three working days. Licences were valid for six months and could be extended once. FIEs engaged in exporting products were required to obtain export licences if the products to be exported were subject to the licensing requirement. If the products were not subject to licensing, customs clearance would be given after examination by Customs on the basis of export contracts and other relevant documents.
160. Certain members of the Working Party noted the conditions in the GATT 1994 in regard to non-automatic licensing and export restrictions. They pointed out that export prohibitions, restrictions and non-automatic licensing could only temporarily be applied under Article XI of the GATT 1994 to prevent or relieve critical shortages of foodstuffs or other products essential to an exporting WTO Member. Article XX of the GATT 1994 also allowed for restrictive export measures, but only if such measures were made effective in conjunction with restrictions on domestic production or consumption. These members noted that some of the criteria of the Foreign Trade Law referred to above did not at present meet the specific conditions laid down in Articles XI and XX of the GATT 1994.
161. Members of the Working Party welcomed the steady reduction in the number of products subject to export licensing in China. Certain members reiterated their request for the submission of a complete list of restrictions presently applied. These members expressed concern that the remaining number was still high, covering about ten per cent of export trade, and requested that they be either reduced further or eliminated by the date of accession in order to achieve full compatibility with GATT requirements. Some members expressed particular concern about export restrictions on raw materials or intermediate products that could be subject to further processing, such as tungsten ore concentrates, rare earths and other metals.
162. The representative of China confirmed that China would abide by WTO rules in respect of non-automatic export licensing and export restrictions. The Foreign Trade Law would also be brought into conformity with GATT requirements. Moreover, export restrictions and licensing would only be applied, after the date of accession, in those cases where this was justified by GATT provisions. The Working Party took note of these commitments.
163. The representative of China stated that China prohibited export of narcotic drugs, poisons, materials containing State secrets, precious and rare animals and plants.
164. Some members of the Working Party expressed concern about China's restrictions on exports of silk. Certain other members expressed concern about export restrictions on other goods, in particular raw materials or intermediate products that could be subject to further processing, such as tungsten ore concentrates, rare earths and other metals. Members of the Working Party urged China to ensure that any such restrictions that were imposed or maintained complied with the terms of the WTO Agreement and the Draft Protocol.
165. The representative of China confirmed that upon accession, remaining non-automatic restrictions on exports would be notified to the WTO annually and would be eliminated unless they could be justified under the WTO Agreement or the Draft Protocol. The Working Party took note of this commitment.
3. Export Subsidies
166. Some members of the Working Party noted that China had provided a list of prohibited subsidies falling within the scope of Article 3 of the SCM Agreement and a timetable for their elimination, in Annex 5B of the Draft Protocol. Those members considered this list to be incomplete.
167. The representative of China confirmed, as provided in Section 10.3 of the Draft Protocol, that it would eliminate all export subsidies, within the meaning of Article 3.1(a) of the SCM Agreement, by the time of accession. To this end, China would, by accession, cease to maintain all pre-existing export subsidy programmes and, upon accession, make no further payments or disbursements, nor forego revenue or confer any other benefit, under such programmes. This commitment covered subsidies granted at all levels of government which were contingent, in law or in fact, upon an obligation to export. The Working Party took note of this commitment.
168. On the same basis, the representative of China confirmed that China would eliminate, upon accession, all subsidies contingent upon the use of domestic over imported goods, within the meaning of Article 3.1(b) of the SCM Agreement. The Working Party took note of this commitment.
D. INTERNAL POLICIES AFFECTING FOREIGN TRADE IN GOODS
1. Taxes and Charges Levied on Imports and Exports
169. Some members of the Working Party expressed concern about the application of the VAT and additional charges levied by sub-national governments on imports. Non-discriminatory application of the VAT and other internal taxes was deemed essential.
170. The representative of China confirmed that upon accession, China would ensure that its laws and regulations relating to all fees, charges or taxes levied on imports and exports would be in full conformity with its WTO obligations, including Articles I, III:2 and 4, and XI:1 of the GATT 1994, and that it would also implement such laws and regulations in full conformity with these obligations. The Working Party took note of this commitment.
2. Industrial Policy, including Subsidies
171. Some members of the Working Party expressed concern that the special features of China's economy, in its present state of reform, still created the potential for a certain level of trade-distorting subsidization; this could have an impact not only on access to China's domestic market, but also on the performance of Chinese exports in the markets of other WTO Members, and should be subject to effective SCM Agreement disciplines. In view of this, some members felt that it would be inappropriate for China to benefit from certain provisions of Article 27. The representative of China, in turn, considered that certain provisions of this Article should be available to China, and informed the Working Party of the efforts being undertaken, as part of its ongoing reform process, to reduce the availability of certain types of subsidies. China was committed to implementing the SCM Agreement in a manner that was fair and equitable to China and to other WTO Members. In line with this approach, the representative of China stated his intention to reserve the right to benefit from the provisions of Articles 27.10, 27.11, 27.12 and 27.15 of the SCM Agreement, while confirming that China would not seek to invoke Articles 27.8, 27.9 and 27.13 of the SCM Agreement. The Working Party took note of these commitments.
172. Some members of the Working Party, in view of the special characteristics of China's economy, sought to clarify that when state-owned enterprises (including banks) provided financial contributions, they were doing so as government actors within the scope of Article 1.1(a) of the SCM Agreement. The representative of China noted, however, that such financial contributions would not necessarily give rise to a benefit within the meaning of Article 1.1(b) of the SCM Agreement. He pointed out that China's objective was that state-owned enterprises, including banks, should be run on a commercial basis and be responsible for their own profits and losses. The Working Party took note of this commitment.
173. Some members of the Working Party, while understanding the difficulties involved in gathering information, raised concerns over the comprehensiveness of the subsidy notification which China had provided in Annexes 5A and 5B to the Draft Protocol, as last modified on 31 May 2000. Some members of the Working Party explained that, as an illustration of the above, certain types of subsidies did not appear in Annexes 5A and 5B. Those members of the Working Party first identified state support through the banking system, notably government-owned banks, in the form of policy loans, the automatic roll-over of unpaid principal and interest, forgiven and non-performing loans, and the selective use of below-market interest rates. Some members also referred to unreported tax subsidies, investment subsidies and subsidies provided by sub-national governments, some of which favoured exporting firms. Other members mentioned subsidies granted to the telecommunications, footwear, coal and shipbuilding sectors. The representative of China explained that, in common with many other Members, China had experienced difficulty in obtaining accurate data about all types of subsidies. He also indicated that China was attempting to reduce the availability of certain types of subsidies, in particular by reforming its tax system and making government-owned banks operate on a commercial basis. The representative of China stated that China would progressively work towards a full notification of subsidies, as contemplated by Article 25 of the SCM Agreement. The Working Party took note of this commitment.
174. Some members of the Working Party also raised concerns regarding the subsidies that China provided in connection with SEZs and other special economic areas. Some of these appeared to be contingent upon export performance or on the use of domestic goods. The representative of China noted that the main purpose of such subsidies was to promote regional development and foreign investment. He confirmed that China would, upon accession, eliminate any such subsidies which were inconsistent with the SCM Agreement. The Working Party took note of this commitment.
175. Some members of the Working Party requested information from China on the Steel Import Substitution Programme, which appeared to provide export subsidies to the big four steel groups in China. In response, the representative of China clarified that China did not collect VAT on imported and domestically produced steel used as raw material for the processing trade. Such a policy, in his view, was consistent with WTO rules and the practices of many WTO Members, and thus should not be considered as subsidies.
176. Some members of the Working Party requested information from China on the "China High-Tech Product Export Catalogue", which set forth central government export policies for the telecommunications, computer software, aviation and aerospace, lasers, pharmaceuticals, medical equipment, new materials and energy industries. In response, the representative of China clarified that products listed in the Catalogue would enjoy full VAT rebate treatment, while other exported products would only be given partial VAT rebate treatment. Such a policy, in his view, was consistent with Article XVI of the GATT 1994 and relevant Annexes of the SCM Agreement. He further confirmed that the VAT rebates were applied only to exported products and not to domestically consumed products.
3. Technical Barriers to Trade
177. The representative of China stated that China had set up a TBT notification authority and two enquiry points which had been notified to the TBT Committee. Upon accession, notices of adopted and proposed technical regulations, standards and conformity assessment procedures would be published. The names of the publications where this information could be found would be included in China's Statement of Implementation and Administration under Article 15.2 of the TBT Agreement, which would be submitted upon accession. The Working Party took note of this commitment.
178. The representative of China stated that, further to China's implementation of WTO provisions, internal mechanisms would exist, upon accession, to inform and consult with, on an ongoing basis, government agencies and ministries (at national and sub-national levels), and private sector interests on the rights and obligations under the GATT 1994 and the TBT Agreement. Concerning questions from some members of the Working Party on the opportunity for public consultation and comment on proposed standards and technical regulations, the representative of China confirmed that, upon accession, China's procedures would clearly indicate that such opportunity existed and that comments would be given due consideration regardless of origin. The representative of China also confirmed that, upon accession, China would have in place minimum timeframes for allowing public comment on proposed technical regulations, standards and conformity assessment procedures as set out in the TBT Agreement and relevant decisions and recommendations adopted by the TBT Committee. The Working Party took note of these commitments.
179. Several members of the Working Party requested information on the extent to which international standards were used as the basis for existing Chinese standards, details on China's plans for using international standards as the basis for new standards, and details on China's plans for reviewing existing standards so as to harmonize them with relevant international standards.
180. In response, the representative of China stated that, as a full member of, for example, ISO, IEC and ITU, China actively participated in the development of relevant international standards. With China's efforts in restructuring government agencies, China would, not later than four months after accession, notify acceptance of the Code of Good Practice. The representative of China stated that for government standardizing bodies, a clear policy existed to periodically review existing standards, inter alia, to harmonize them with relevant international standards where appropriate. Furthermore, China would speed up its process of revising the current voluntary national, local and sectoral standards so as to harmonize them with international standards. The Working Party took note of these commitments.
181. Some members of the Working Party expressed concern that China's use of the terms "technical regulations" and "standards" was not always consistent with the definitions found in the TBT Agreement, e.g., China sometimes used the word "standards" to refer to mandatory requirements that fell within the definition of "technical regulations". These members noted that China had developed a number of different types of measures, referred to as "standards", at levels other than the central government, in particular, regional, sectoral, and enterprise levels.
182. In response, the representative of China stated that China, in its notifications under the TBT Agreement, including its notifications under Article 15.2 and in publications referenced therein, and in modifications of existing measures, would use the terms "technical regulations" and "standards" according to their meanings under the TBT Agreement. The Working Party took note of these commitments.
183. Some members of the Working Party also expressed concern that China did not use relevant and available international standards as the basis for some of its existing technical regulations. Several members asked for information on the extent to which international standards were used as the basis for existing technical regulations, details on China's plans for using international standards as the basis for new technical regulations, and details on China's plans for reviewing existing technical regulations so as to harmonize standards referenced in them with international standards or their relevant parts.
184. In response, the representative of China stated that since 1980, China had taken the active adoption of international standards as the basis for technical regulations as a basic policy of accelerating industrial modernization and promoting economic growth. The representative of China confirmed that this policy also required technical regulations to be reviewed every five years, inter alia, to ensure that international standards were used in accordance with Article 2.4 of the Agreement. He also confirmed that China would provide this policy as part of its notification under Article 15.2 of the Agreement. He noted that as a result of China's efforts in the past 20 years, the use of international standards as the basis for technical regulations had increased from 12 per cent to 40 per cent. China had begun formulating a standardization development programme in a bid to meet the challenges of the 21st century and the requirements provided for in the TBT Agreement, and had undertaken to further increase the use of international standards as the basis for technical regulations by 10 per cent in five years. The representative of China also confirmed that China would make publicly available procedures to implement Article 2.7 of the Agreement. The Working Party took note of these commitments.
185. Bearing in mind the relevant provisions of the TBT Agreement, some members of the Working Party asked China to identify local government bodies, directly below the central government level, and non-governmental organizations, that were authorized to adopt technical regulations or conformity assessment procedures. The representative of China replied that China would provide a list of relevant local governmental and non-governmental bodies, upon accession, as part of its notification under Article 15.2 of the TBT Agreement. The Working Party took note of this commitment.
186. With respect to conformity assessment procedures, several members of the Working Party asked for information about the extent to which international guides and recommendations were used as the basis for existing conformity assessment procedures, details on China's plans for using such guides and recommendations as the basis for new conformity assessment procedures, and details on China's plans for reviewing existing conformity assessment procedures so as to harmonize them with relevant international guides and recommendations.
187. In response, the representative of China stated that China played a full part in the preparation by appropriate international standardizing bodies of guides and recommendations for conformity assessment procedures, e.g., as a full member of ISO CASCO. He stated that it was difficult to quantify the extent to which such guides and recommendations were used as the basis for existing conformity assessment procedures. He confirmed that China would use relevant guides or recommendations issued by international standardizing bodies as the basis for new conformity assessment procedures in accordance with Article 5.4 of the TBT Agreement. The representative of China also stated that existing conformity assessment procedures were reviewed concurrently with and under the same policy as related technical regulations, inter alia, to ensure the use of relevant international guides or recommendations in accordance with Article 5.4 of the TBT Agreement. He also confirmed that, upon accession, China would ensure that the same conformity assessment procedures were applied to both imported and domestic products. The Working Party took note of these commitments.
188. Some members of the Working Party expressed concerns about the complexity and inconsistency of China's conformity assessment regime with TBT Agreement requirements. In particular, those members noted that conformity assessment on imported and domestic products was not performed by the same governmental entities and that this situation could result in less favourable treatment for imports. In response, the representative of China stated that the Chinese government had already decided to merge CIQ-SA and CSBTS into the State General Administration of the People's Republic of China for Quality Supervision and Inspection and Quarantine ("AQSIQ"), under its policy of development of market economy and further reform and opening up in China. The representative of China confirmed that the AQSIQ was responsible for all policies and procedures related to conformity assessment in China. He further stated that other government ministries and agencies developed conformity assessment policies and procedures but that these had to be authorized by AQSIQ before they could be enacted.
189. Some members of the Working Party expressed concern about the consistency of the Law of the People's Republic of China on Import-Export Commodity Inspection ("the Law"), and the Regulations for the Implementation of that Law ("the Implementing Regulations"), with the TBT Agreement. In particular, provisions for technical regulations and conformity assessment procedures did not adequately address fundamental obligations such as transparency, non-discrimination, national treatment, and the avoidance of unnecessary barriers to trade.
190. Some members of the Working Party expressed concern about a conformity assessment procedure known as Statutory Inspection, which was described, inter alia, in Articles 4, 5, and 6 of the Law and Articles 4, 5, and 9 of the Implementing Regulations. They stated that it was inconsistent with the principle of national treatment and constituted an unnecessary obstacle to international trade. Members of the Working Party agreed that WT/ACC/CHN/31 and WT/ACC/CHN/32, lists of products subject to Statutory Inspection, did not prejudge the legal status, nature or effects of notified technical regulations and standards under the WTO Agreement. The representative of China stated that China would bring the Law and Implementing Regulations, as well as other relevant legislation and regulations, into conformity with the TBT Agreement by the date of accession. The Working Party took note of this commitment.
191. Some members of the Working Party expressed concern about a conformity assessment procedure, and the application thereof, known as the Safety Licence System for Import Commodities ("the System"), which was described in Article 22 of the Law and Article 38 of the Implementing Regulations. They stated that it was inconsistent with the principle of national treatment and constituted an unnecessary obstacle to international trade (e.g., due to the frequent plant inspections required). In response, the representative of China confirmed that, for technical regulations and conformity assessment procedures related to goods currently subject to the Safety Licence System for Import Commodities, relevant legislation and regulations would be brought into full conformity with the TBT Agreement by the date of accession. The Working Party took note of this commitment
192. Responding to the concerns of members of the Working Party, the representative of China confirmed that to eliminate unnecessary barriers to trade, China would not maintain multiple or duplicative conformity assessment procedures, nor would it impose requirements exclusively on imported products. The Working Party took note of this commitment.
193. Some members of the Working Party expressed concern with respect to the confidentiality of information in connection with conformity assessment procedures undertaken by China. In response, the representative of China confirmed that China would fully implement the obligations of Article 5.2.4 of the TBT Agreement in this regard. The Working Party took note of this commitment.
194. Some members of the Working Party expressed concern about China's practice of not accepting the results of conformity assessment by bodies in other WTO Members. In this regard, those members noted the obligation of unilateral acceptance of the results of conformity assessment as described in Article 6.1 of the TBT Agreement. The representative of China responded that products certified by bodies recognized by China would require no additional conformity assessment procedures in China, except for random sampling of said products. Furthermore, where random sampling was undertaken and China's test results differed from the test results of competent bodies in other WTO Members, the representative of China confirmed that China would act in accordance with international guidelines and recommendations, where these existed, or would provide a process of review with the objective of resolving such differences. Some members of the Working Party requested China to make public and update on an ongoing basis information on conformity assessment bodies that were recognized by China. The representative of China confirmed that China would provide this information. The Working Party took note of these commitments.
195. Concerning foreign and joint-venture conformity assessment bodies, certain members of the Working Party noted that China should not maintain requirements which had the effect of acting as barriers to their operation, unless otherwise specified in China's Schedule of Specific Commitments. The representative of China replied that China would not maintain such requirements. Some members also observed that all foreign or joint venture conformity assessment bodies that met China's requirements should be eligible for accreditation and accorded national treatment. The representative of China confirmed that the accreditation requirements would be transparent and provide national treatment to foreign conformity assessment bodies. The Working Party took note of these commitments.
196. Some members of the Working Party raised specific concerns regarding such matters as (a) registration of initial imports of chemical products, (b) procedures to obtain and apply "CCIB" safety mark and the "Great Wall" mark, (c) automobiles and parts, and (d) the safety and quality licence system for boilers and pressure vessels. In response, the representative of China stated that China would implement the following measures prior to accession, unless otherwise indicated:
(a) Registration of Initial Imports of Chemical Products
- Enact and implement, within one year after its accession, a new law and relevant regulations regarding assessment and control of chemicals for the protection of the environment, in which complete national treatment and full consistency with international practices would be ensured.

- Ensure that chemicals listed in the "inventory chemicals" annexed to the above new law and its regulations would be exempted from a registration obligation and that a unified assessment procedure would be established for domestic and imported products under the new law and its regulations.

(b) CCIB Safety Mark and the "Great Wall" Mark
- Unify the existing certification marks, i.e., the "CCIB" mark and the "Great Wall" mark into a new certification mark. For like imported and domestic goods, all bodies and agencies would issue the same mark and charge the same fee.

- Accept testing reports for products subject to the International Electrotechnical Commission's System for Conformity Testing to Standards for Safety of Electrical Equipment ("IECEE CB Scheme") to which China was a party, and simplify the procedures for obtaining the new, unified certification mark

- Shorten the time period needed for importers to obtain both marks regarding the same products, to no more than three months.

(c) Automobiles and Parts
- Unify its laws, regulations and standards applied to domestic and imported automobiles and parts.

- Formulate, publish and implement laws and regulations, standards and implementing regulations to establish a transparent system under which all the laws and regulations would be applied so as to accord imported products treatment no less favourable than that accorded to like products of national origin.

(d) Safety and Quality Licence System for Boilers and Pressure Vessels
- Accord imported products treatment no less favourable than that accorded to products of national origin, including fees imposed for conformity assessment and the effective period of factory certification.

- Adopt international standards as the basis for technical regulations and exempt imported products from inspection where like domestic products were not subject to such inspection.

The Working Party took note of these commitments.

197. The representative of China confirmed that, except as otherwise specified in the Draft Protocol, China would apply all obligations under the TBT Agreement from the date of accession. The Working Party took note of this commitment.
4. Sanitary and Phytosanitary Measures
198. Some Members of the Working Party expressed concerns in relation to the use by China of sanitary and phytosanitary ("SPS") procedures as non-tariff barriers and raised specific instances where they considered that China's measures were not consistent with the WTO Agreement on the Application of Sanitary and Phytosanitary Measures ("SPS Agreement"). Members sought assurances that China would only use SPS measures to the extent necessary to protect human, animal or plant life or health, and that such measures would be based fully on scientific principles.
199. The representative of China stated that pursuant to the provisions of the SPS Agreement, China applied SPS measures only to the extent necessary to protect the life and health of human beings, animals and plants. He also noted that most of China's SPS measures were based on international standards, guidelines and recommendations. China would not apply SPS measures in a manner which would act as a disguised restriction on trade. In accordance with the SPS Agreement, China would ensure that SPS measures would not be maintained without sufficient scientific evidence. The Working Party took note of these commitments.
200. Members of the Working Party expressed the view that China should comply with the SPS Agreement from the date of China's accession and should ensure conformity with the SPS Agreement of all its laws, regulations, decrees, requirements and procedures relating to SPS measures. In response, the representative of China confirmed that China would fully comply with the SPS Agreement and would ensure the conformity with the SPS Agreement of all of its laws, regulations, decrees, requirements and procedures relating to SPS measures from the date of accession. The Working Party took note of these commitments.
201. Members of the Working Party noted that China's notification of laws, regulations and other SPS measures, referred to in the Draft Protocol, was provided in document WT/ACC/CHN/33. Members of the Working Party agreed that this notification did not prejudge the legal status under the WTO Agreement of the nature or effects of the notified laws, regulations and other SPS measures.
202. The representative of China said that China had set up an SPS notification authority and an SPS enquiry point which would be notified to the SPS Committee. SPS measures, including those relating to inspection, had been published in publications such as the MOFTEC Gazette. Information could also be gathered from the SPS notification authority or from China's SPS enquiry point.
5. Trade-Related Investment Measures
203. The representative of China confirmed that upon accession, as set forth in the Draft Protocol, China would comply fully with the TRIMs Agreement, without recourse to Article 5 thereof, and would eliminate foreign-exchange balancing and trade balancing requirements, local content requirements and export performance requirements. Chinese authorities would not enforce the terms of contracts containing such requirements. The allocation, permission or rights for importation and investment would not be conditional upon performance requirements set by national or sub-national authorities, or subject to secondary conditions covering, for example, the conduct of research, the provision of offsets or other forms of industrial compensation including specified types or volumes of business opportunities, the use of local inputs or the transfer of technology. Permission to invest, import licences, quotas and tariff rate quotas would be granted without regard to the existence of competing Chinese domestic suppliers. Consistent with its obligations under the WTO Agreement and the Draft Protocol, the freedom of contract of enterprises would be respected by China. The Working Party took note of this commitment.
204. In the context of discussions on the government's Industrial Policy for the Automotive Sector, the representative of China confirmed that this policy would be amended to ensure compatibility with WTO rules and principles. The Working Party took note of this commitment.
205. The representative of China added that amendments would be made to ensure that all measures applicable to motor vehicle producers restricting the categories, types or models of vehicle permitted for production, would gradually be lifted. Such measures would be completely removed two years after accession, thus ensuring that motor vehicle producers would be free to choose the categories, types and models they produced. However, it was understood that category authorizations by the government could continue to distinguish between trucks and buses, light commercial vehicles, and passenger cars (including multi-purpose vehicles and sport utility vehicles). The Working Party took note of this commitment.
206. The representative of China confirmed that China also agreed to raise the limit within which investments in motor vehicle manufacturing could be approved at provincial government level only, from the current level of US$30 million, to US$60 million one year after accession, US$90 million two years after accession, and US$150 million four years after accession. The Working Party took note of this commitment.
207. With respect to the manufacture of motor vehicle engines, the representative of China also confirmed that China agreed to remove the 50 per cent foreign equity limit for joint-ventures upon accession. The Working Party took note of this commitment.
6. State Trading Entities
208. Some members of the Working Party expressed concern that the activities of China's state trading enterprises were not sufficiently transparent and were not in accordance with WTO obligations. The representative of China indicated, however, that China's state trading enterprises had full management autonomy and responsibility for their own profits and losses and that China had undertaken broad and significant commitments to improve the transparency of state trading enterprises' operation and the measures relating to such operation.
209. The same members of the Working Party also stated that China should ensure that the import purchasing practices and procedures of state trading enterprises were fully transparent, and in compliance with the requirements of the WTO Agreement. They considered that China should also refrain from taking any measure to influence or direct state trading enterprises as to the quantity, value, or country of origin of goods purchased or sold, except in accordance with the requirements of the WTO Agreement. Those members also stated that as part of China's notification under the GATT 1994 and the Understanding on the Interpretation of Article XVII of the GATT 1994, China should also notify information on state trading, including, in the case of state trading of exported goods, domestic procurement prices, contract terms for delivery and financing terms and conditions.
210. In response, the representative of China stated that its state trading enterprises had full management autonomy and responsibility for their own profits and losses. However, some members of the Working Party again stated that China should undertake a commitment to ensure that all state trading enterprises complied with the requirements of the WTO Agreement. The representative of China noted that a list of products subject to state trading had been provided in Annex 2A of the Draft Protocol. He also confirmed that information on state trading enterprises, as required by the Draft Protocol, would be supplied, consistent with the requirements of paragraph 333 of this Report. The Working Party took note of this commitment.
211. Members of the Working Party took note of the specific arrangements that would apply for fertilizers and crude and processed oil. A key feature of those arrangements related to the annual allocation of import quantities. The differences in the regimes that would apply to those products were noted, in particular in regard to the obligation on state enterprises trading in fertilizers to carry over to the next year any unused import quantities.
212. Some members of the Working Party requested assurances that, for oil products, quantities reserved for non-state traders would be allocated in such a manner that they would be fully utilized. In this respect, the representative of China confirmed that imports allocated to non-state traders of crude and processed oil, as specified in Annex 2A of the Draft Protocol, would be carried over to the next year if they were not fully utilized. In addition, the representative of China agreed that China would publish, on a quarterly basis, the requests for imports that had been made by non-state traders, as well as the licences granted, and would supply information relevant to such traders upon request. The Working Party took note of these commitments.
213. Some members of the Working Party noted that prior to accession, some enterprises in China were permitted to import goods for their production purposes, including those goods included in Annex 2A. The representative of China confirmed that, notwithstanding Section 5, paragraph 1, of the Draft Protocol, non-state trading enterprises, including private enterprises, would still be permitted to import such goods for production purposes and that national treatment would be provided to such imports. The Working Party took note of these commitments.
214. Some members of the Working Party expressed concerns about supplies of raw materials in the textiles sector, and particularly in regard to supplies of silk, in the light of China's position as the major world supplier of silk, currently subject to state trading rights concerning exports.
215. In this regard, the representative of China confirmed that China would progressively abolish the system of state trading in respect of silk by measures increasing and extending trading rights, with the result that China would remove completely the silk products set out in numbers 10 and 11 of Annex 2A2 to the Draft Protocol (list of products subject to state trading on exports) and grant the right to trade in such products to all individuals and enterprises no later than 1 January 2005. Pending the implementation of this right, China undertook not to introduce any changes of a more restrictive nature to the existing structures in place for the supply of silk. The representative of China further confirmed that access to supplies of raw materials in the textiles sector would remain at conditions no less favorable than for domestic users, and gave his assurance that access to supplies of raw materials as enjoyed under existing arrangements would not be adversely affected following China's accession. The Working Party took note of these commitments.
216. Members of the Working Party noted that domestic prices for most agricultural commodities in China were higher than world prices, and this differential allowed China's state trading enterprises to import at low prices and then mark up the price when selling the product to wholesalers and end-users. Some members expressed concern that this practice could become more widespread when access opportunities were created under TRQs. Those members were particularly concerned that mark-ups could be used to reduce the competitiveness of imported products and limit the range of qualities and grades available to end-users in China. The representative of China stated that currently state trading enterprises did not mark up imported products; instead, they only charged a nominal transaction fee. Consequently, China's practice was consistent with WTO obligations, did not result in any trade-distorting effect, and that under China's law limits existed on the fees that could be charged by state trading enterprises.
217. The representative of China stated that China would ensure that no price increase in respect to imports, in particular by state trading enterprises, would result in protection beyond that allowed in its Schedule of Concessions and Commitments on Goods or that was not otherwise justified under WTO rules. The Working Party took note of this commitment.

2. Responsible agencies for policy formulation and implementation
253. The representative of China stated that, at present, different agencies were responsible for IPR policy formulation and implementation. The State Intellectual Property Office ("SIPO") was responsible for patent approval; the Trademarks Office under the State Administration for Industry and Commerce ("SAIC") was responsible for trademarks registration; the Copyright Office was responsible for copyright policy making; SAIC was responsible for anti-unfair competition, including the protection of trade secrets; the State Drug Administration ("SDA") was responsible for administrative protection of pharmaceuticals; the General Customs Administration was responsible for border measures; the Ministry of Agriculture and the State Administration of Forestry were responsible for protection of plant varieties; the Ministry of Information Industry was responsible for the protection of layout designs of integrated circuits; and the State General Administration of the People's Republic of China for Quality Supervision and Inspection and Quarantine and SAIC were responsible for combating counterfeiting activities. Other agencies like the agency for press and publications, the people's courts and police were also involved in the protection of IPR in China.
3. Participation in international intellectual property agreements
254. The representative of China stated that China became a member of the World Intellectual Property Organization in 1980. In 1985, China became a member of the Paris Convention for the Protection of Industrial Property. China was one of the first countries that signed the Treaty on Intellectual Property in Respect of Integrated Circuits, the negotiation of which was concluded in 1989. In 1989, China became a member of the Madrid Agreement Concerning the International Registration of Marks and in 1992, China became a member of the Berne Convention for the Protection of Literary and Artistic Works. In 1993, China became a member of the Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms. In 1994, China became a member of the Patent Cooperation Treaty and a member of the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks. In 1995, China became a member of the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure and applied for membership in the Protocols of the Madrid Agreement Concerning the International Registration of Marks. In 1996, China became a member of the Locarno Agreement on Establishing an International Classification for Industrial Designs; and in 1997, China became a member of the Strasbourg Agreement Concerning the International Patent Classification. Besides the above efforts, China participated in the TRIPS negotiations during the Uruguay Round and initialled the Final Act.
4. Application of national and MFN treatment to foreign nationals
255. Some members of the Working Party expressed concern that certain provisions of China's copyright and trademark laws, as well as China's Rules on Banning the Infringement of Business Secrets (23 November 1995) did not provide national treatment to foreign right-holders. The Rules on Banning Infringements of Business Secrets, for example, defined the "owner" of a trade secret as a "citizen, corporation, and other organization" and did not explicitly provide protection for foreign individuals or organizations. Some members of the Working Party further stated that national treatment should be fully applied, so that copyright enforcement action by local copyright bureaux involving foreign right-holders, would no longer require clearance by the National Copyright Administration in Beijing.
256. The representative of China responded that China's IPR laws provided that any foreigner would be treated in accordance with any agreement concluded between the foreign country and China, or in accordance with any international treaty to which both countries were party, or on the basis of the principle of reciprocity. The representative of China further confirmed that China would modify relevant laws, regulations and other measures so as to ensure national and MFN treatment to foreign right-holders regarding all intellectual property rights across the board in compliance with the TRIPS Agreement. This would include adjustments of the clearance requirement mentioned in the previous paragraph to ensure national treatment. The Working Party took note of these commitments.
B. SUBSTANTIVE STANDARDS OF PROTECTION, INCLUDING PROCEDURES FOR THE ACQUISITION AND MAINTENANCE OF INTELLECTUAL PROPERTY RIGHTS
1. Copyright protection
257. The representative of China stated that the Copyright Law, which was promulgated in 1990, established the basic copyright protection system in China together with the Implementing Rules of the Copyright Law (30 May 1991), the Provisions on the Implementation of the International Copyright Treaty (25 September 1992) and other related laws and regulations. In principle, this system was in compliance with the international IPR treaties and practices. For the protection of copyright and neighbouring rights, not only civil and criminal liabilities but also administrative liabilities, were provided for in this system. Hence the infringing activities could be curbed in a timely and effective manner and the legitimate rights of the right-holders could be protected.
258. Some members of the Working Party expressed concerns about the consistency of China's current law on the protection of copyright and related rights with the TRIPS Agreement. In particular, members noted the need to clarify the rights of performers and producers to bring them into conformity with the requirements of Article 14 of the TRIPS Agreement. In addition, improvements were needed with respect to enforcement of copyright to provide expressly for provisional measures to preserve evidence, including documentary evidence and for remedies sufficient to deter further infringements.
259. The representative of China responded that, realizing that there were some existing differences between China's copyright laws and the TRIPS Agreement, the amendment to the Copyright Law had been accelerated. The proposed amendments would clarify the payment system by broadcasting organizations which use the recording products and also include the following provisions: rental rights in respect of computer programs and movies, mechanical performance rights, rights of communication to the public and related protection measures, protection of database compilations, provisional measures, increasing the legitimate compensation amount and strengthening the measures against infringing activities. China's copyright regime including Regulations for the Implementation of the Copyright Law and the Provisions on the Implementation of the International Copyright Treaty would be amended so as to ensure full consistency with China's obligations under the TRIPS Agreement. The Working Party took note of these commitments.
2. Trademarks, including service marks
260. The representative of China stated that the Trademark Law, its implementing rules and other relevant laws, administrative regulations and department rules constituted the existing trademark legal system in China. The objective of these laws was to provide protection to right-holders in line with the international conventions and prevailing practices regarding intellectual property rights, which was embodied both in the regulations on the substance and procedures for trademark registration and in the protection of trademark exclusive rights. In order to protect the trademark owner's exclusive rights, China's Trademark Law contained not only civil and criminal liabilities but also provided for administrative punishment of trademark infringers. This "double-track system" for the protection of exclusive rights in trademarks could prevent trademark infringements in a timely and effective manner and protect the legitimate rights and interests of these exclusive rights. In recent years, China's judicial and administrative bodies had stepped up their efforts to protect trademark exclusive rights within their respective authority. They had settled a large number of cases that were influential, domestically and abroad, which provided adequate protection to the legitimate rights and interests of both Chinese and foreign holders of exclusive rights in trademarks, and received a positive response from domestic and foreign right-holders.
261. Some members of the Working Party reiterated their concerns about whether certain provisions of China's trademark law provided national treatment to foreign owners of trademarks. They noted that China's law required foreign owners of trademarks to use designated trademark agents, while Chinese nationals were permitted to file directly with China's Trademark Office. Members also noted that China's trademark law did not consider certain signs as eligible for protection as required under the TRIPS Agreement. These included names, letters, numerals and colours capable of distinguishing goods and services. In addition, if registrability of a trademark depends on use, China's trademark law should provide that a non-distinctive mark could qualify for registration when it has acquired distinctiveness based on use. Members also noted that it was not clear under China's law that actual use of a mark was not required before a party could file to register a mark.
262. Some members of the Working Party also raised concerns about the protection of well-known trademarks in China, in particular those not registered in China. China's laws and regulations did not specifically state the criteria for determining whether a mark was well-known and therefore members could not determine if it conformed to the requirements of Article 16 of the TRIPS Agreement. Moreover, while China had provided protection to "well-known trademarks" owned by nationals, such protection had, as yet, not been granted to the well-known trademarks of foreigners. Members also noted that certain provisions of China's trademark law needed to be extended to unregistered well-known trademarks.
263. The representative of China stated that with the development of China's market economy and the further implementation of the TRIPS Agreement, China's legislative and law enforcement bodies had also realized that the existing trademark law fell somewhat short of fulfilling the requirements of the TRIPS Agreement and the Paris Convention in a few aspects and were therefore preparing to amend the existing trademark law to fully meet the requirements of the TRIPS Agreement. Modifications would mainly be made to the following aspects: to include the trademark registration of three-dimensional symbols, combinations of colours, alphabets and figures; to add the content of collective trademark and certification trademark (including geographical indications); to introduce official symbol protection; to protect well-known trademarks; to include priority rights; to modify the existing trademark right confirmation system and offer interested parties the opportunity for judicial review concerning the confirmation of trademark rights; to crack down on all serious infringements; and to improve the system for providing damages for trademark infringement. The Working Party took note of these commitments.
3. Geographical indications, including appellations of origin
264. The representative of China stated that the relevant rules of the SAIC and the State General Administration of the People's Republic of China for Quality Supervision and Inspection and Quarantine partly provided protection for geographical indications, including appellations of origin, and that the amendments to the trademark law would have a specific provision on the protection of geographical indications.