World Trade
Organization RESTRICTED S/C/W/261
24 August 2005 (05-3746) Council for Trade in Services Original: English

communication from the united states

Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol on the Accession of the People's Republic of China ("China")

The following communication, dated 23 August 2005, from the delegation of the United States is being circulated to the Members of the Council for Trade in Services

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Questions From the United States to China concerning Services

Distribution Services
The United States appreciates the progress that the Ministry of Commerce (MOFCOM) has made in recent months to address earlier problems regarding the implementation of China's distribution services commitments.
In its Protocol of Accession, China committed to eliminate its system of examination and approval of trading rights and make full trading rights automatically available for all Chinese enterprises, Chinese-foreign joint ventures, wholly foreign-owned enterprises and foreign individuals, including sole proprietorships, within three years of its accession, or by 11 December, 2004, the same deadline for China to eliminate most restrictions in the area of distribution services.
China separately committed that, within three years after accession (or by December 11, 2004), it would permit foreign service suppliers to supply wholesaling services, commission agents' services and retail services through wholly foreign-owned enterprises without any market access or national treatment limitations, with the exceptions of chemical fertilizers, processed oil and crude oil, salt and tobacco (and except with regard to certain chain stores).
Distribution Services: Sales Away From a Fixed Location
The United States understands that China's State Council recently approved regulations intended to implement China's WTO commitments with regard to sales away from a fixed location, or direct selling.
In Notice 556, issued by the State Post Bureau in October 2002, however, it provides as follows: "When international freight forwarding agent enterprises that operate international express delivery of correspondence and goods possessing the characteristics of correspondence handle entrustment procedures, the validity period of the entrustment certificate and the entrustment scope must be in line with the content of the MOFTEC approval certificate.
To date, the United States has heard of no compelling rationale for such a requirement, and the fact that there has been little or no new entry in the basic telecommunications sector suggest that this requirement is functioning as a market entry deterrent, for both Chinese and foreign operators.
Section 5 of the Basic Telecommunications Reference Paper also specifically calls for an independent telecommunications regulator that is separate from, and not accountable to, any supplier of basic telecommunications and makes decisions on an impartial basis.
In paragraph 314 of the Working Party Report accompanying its Protocol of Accession, however, China committed that foreign service suppliers required to form joint ventures with Chinese entities to operate in China were free to chose their joint venture partner, and that they could choose a partner from a sector outside the sector of operation of the joint venture.
In addition, Decree 114 for the first time requires foreign enterprises to incorporate in China, and it imposes high minimum registered capital requirements and foreign personnel residency requirements that are difficult for many foreign-invested enterprises to satisfy.
For instance, China imposes a waiting period of three years before a foreign law firm can open each additional office in China, provides for an application process that could take as long as nine months, and requires that market need be demonstrated.