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3. Barriers to trade
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3.1 Tariff and tariff administrative measures

3.1.1 Tariff peaks

In 2005, tariff peaks were maintained in importing such goods as meat, vegetables, fruit, vegetable oil, food, beverage, tobacco, textile products, footwear, bicycles, etc. The ad valorem tariff rates reached 74.9 percent and 57.7 percent respectively on tobacco and cigarettes, and high tariffs were imposed on the above- mentioned goods in the form of non ad valorem duties. China exports to the EU a large quantity of footwear, vegetables, fruit, fish meat, food, tobacco and bicycles, which were all within the scope of goods subject to high tariff rates. Protecting the uncompetitive industries through tariff peaks not only prevents reasonable competition of the relevant industries, but also affects the normal trade of the above-mentioned goods between China and the EU.

3.1.2 Seasonal duties

Seasonal duties were imposed on tomatoes, oranges, citrus fruit, grapes, apples, pears, apricots, cherries, peaches and plums by the EU in 2005. Except that tomatoes and oranges were charged seasonal duties in the form of compound duty, the EU imposed seasonal import duties on the above goods in the forms of ad valorem duty, compound duty and mixed duty. In addition, the EU published standard import value of most of the above products, which were subject to frequent changes. The practice has led to complicated duties and changeable rates. As China exports these goods to the EU in large quantities, the complicated and changeable seasonal duties adopted by the EU have resulted in more uncertainty to the Chinese enterprises exporting to the EU.

3.1.3 Other technical duties

Besides ad valorem duties levied as part of import duties on certain sugar products, cocoa, biscuits, bread and potatoes, the additional duty is also levied on the basis of the agricultural content of milk fat, milk protein, sucrose/invert sugar and starch/glucose on the product concerned. Specific methods for duties are published once a year. The practice of tax imposition based on parameters of agricultural components has caused much uncertainty which has increased the export risk for the enterprises.

3.2 Import restrictions

3.2.1 Quantitative restrictions on the import of textiles

On 13 October 2004, the European Council of Ministers passed a decree stipulating that as of 1 January 2005, the EU would abolish all 210 quotas on textile products and garments from the WTO members. On 14 June 2005, the Memorandum of Understanding of China-EU Textile Trade was signed and the EU imposed quantitative restrictions on textiles products of 10 categories from China again. As numerous orders had been placed by the European importers prior to that, the quotas were used up soon. Millions of Chinese textile products, which had exceeded EU's import quotas for the year, were blocked at European ports. After consultation, the European Commission announced the method for solving the blocked textile products on 13 September on the basis of the agreement signed in Beijing on 5 September, which adjusted the import volume to the level enough for solving all the blocked products. According to the method, China should resolve half of the blocked textile products through adjustment, while the EU should resolve the other half by increasing the import quantity unilaterally. To prevent such an event from happening again, both sides agreed to adopt the flexible provisions agreed upon in 2006 and 2007.

The Chinese side welcomes the EU's practice and its undertaking to exercise restraint on the application of its rights under Article 242, but the Chinese side will be concerned about the effectiveness in the EU's implementation of the bilateral agreement.

3.2.2 Import surveillance

The EU's import surveillance does not affect the automatic import licensing, but adds burden to the European importers and causes unnecessary barriers to trade.

In January 2005, the European Commission adopted prior Community surveillance over footwear products of five six-digit and one eight-digit tariff subheadings from China by means of automatic import licensing, and certain footwear products were subject to import surveillance. The provisions sha ll apply until 31 January 2006 at the latest and shall be valid throughout the EU Member States. The release for free circulation in the EU market of the footwear products under these tariff subheadings are subject to the import surveillance document issued by the competent authorities of the Member States, for which the importers should provide more than a dozen items of information. Although it is free to obtain the document and there are no quantitative restrictions, the practice adds unnecessary burden to the Chinese footwear

In March 2005, the European Commission extended the period of import surveillance over certain steel products originating in third countries from 31 March 2005 to 31 December 2006. The EU deems it necessary to extend the prevailing prior Community surveillance on the basis of the accelerated pace of increasing imports and a threat of injury to the EU steel producers in order to provide advanced statistical information permitting rapid analysis of import trends. As the official bulletin especially points out that China has been increasing its production capacity at a very accelerated pace, and that China has reduced its import and increased its export, the Chinese side will watch closely the impact on the export of steel products from China to the EU due to the implementation of the provision in question.

3.3 Barriers to customs procedures

The 25-member EU adopts the same Community Customs Code and its implementation rules, but they appear to leave to the discretion of national customs authorities decisions in a number of key areas of customs administration. This has resulted in disparate administration of these customs measures in a number of respects.

First, there are differences in the classification and valuation of goods as well as differences in procedures for the classification and valuation of goods, including the provision of binding classification and valuation information to importers. Second, there exist differences in procedures for the entry and release of goods, including use of automation in some Member States but not others, different certificate of origin requirements, different criteria among Member States for the physical inspection of goods, different licensing requirements for importation of food products, and different procedures for processing express delivery shipments. Third, differences also exist in procedures for auditing entry statements after goods are released into the stream of commerce in the European Communities. In addition, there are differences in penalties and differences in procedures regarding the imposition of penalties for violation of customs rules. Finally, record-keeping requirements are also different. The disparate administration of customs measures in the EU has increased the uncertainty for the Chinese exporting enterprises.

3.4 Technical barriers to trade

The EU has promulgated in recent years a large number of technical regulations, standards and developed conformity assessment procedures. Some have officially taken effect, of which some contain stringent requirements, and some even lack sufficient scientific proof, which directly or indirectly constitutes technical barriers to imports. The impact of these practices on Chinese exports to the EU has become increasing apparent.

3.4.1 Technical regulations Directives on electrical and electronic equipment

On 13 August 2005, Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2005 on waste electrical and electronic equipment (Directive WEEE) took effect. The Directive states that producers of products placed on the market after 13 August 2005 should provide deposit ensuring the expenses incurred in the collection, treatment, recycling and environment-friendly disposal of waste electrical and electronic products to be paid by the producers, and that producers pay for the disposal of waste products (not intended for private household users) placed on the market (historical wastes) before 13 August 2005 according to the market share of the producers. Medical equipment is one of the ten categories Directive WEEE covers. In July 2005, the EU decided that the application of Directive WEEE for medical equipment should be extended to 2008.

Besides, Directive 2002/95/EC of the European Parliament and of the Council on the restriction of the use of certain hazardous substances in electrical and electronic equipment (Directive RoHS) specifies the maximum amount of six hazardous substances including lead, mercury, cadmium, chromium VI, PBB and PBDE used in electrical and electronic equipment placed on the market as of 1 July 2006. Because the EU has not announced the specific testing standards and the designated testing organizations, enterprises wonder how they can get the RoHS inspection report.

Moreover, the Directive does not specify how Member States should monitor the implementation of RoHS and how to punish activities violating the Directive. The product scope covered by the two directives almost includes all electrical and electronic equipment for civilian use, thus directly affecting the export of household electrical appliances and electronic products from China to the European market. China is particularly concerned over the sharing of the cost for the disposal of historical wastes and the method for deposit as well as the current absence of standard testing methods for the implementation of RoHS directive and the amendment to the exemption list.

These problems will increase the cost for enterprises to take counter-measures and there will be more uncertainty in their export business. It is not conducive to foreign producers to provide products in conformity with the two directives timely. China hopes a uniform RoHS testing standard will be published at an early date and that the EU will approve and authorize the labs responsible for testing harmful and hazardous substances in electrical and electronic equipment announced by the Chinese government so as to facilitate the inspection of products to be exported to the EU. REACH Proposal (draft)

In November 2005, the EU Proposal Concerning Registration, Evaluation and Authorization of Chemicals (Draft) was passed by the European Parliament in the first voting. The voting approved over 1000 amendments to the draft REACH including two major modifications. First, it substantially reduces the testing requirements for about 17,500 to 20,000 chemicals with an annual production or import of 1 to 10 tons. Therefore, the number of chemical substances subject to testing has been reduced from about 30,000 to 15,000. The second one is a compulsory requirement. Hazardous substances must be replaced by safe chemical substances if there are any substitutes. It is expected that the draft REACH will be finally voted in autumn 2006. If passed, REACH regulation will replace 40 existing legal acts and create a single system for all chemical substances and be implemented in all the 25 Member States of the EU.

Though REACH will play a positive role in strengthening the safety management of chemicals and the reduction of damages caused by chemicals to human health and environment, certain aspects are not reasonable. First, it will increase the production cost by a large margin for the over complicated registration procedures and high testing fees. Second, according to the regulation, only the enterprises and individuals within the EU territory have the right to register and provide data regarding the registration, evaluation, authorization and limited use of chemical components contained in relevant chemicals and downstream products. The exclusive requirement results in different treatment towards the EU producers and non-EU producers.

Moreover, the regulation does not state specific procedures for evaluation and approval of chemicals, which may lead to discretion in government enforcement. The Chinese side is concerned about the negative impact it may have on downstream industries and international trade of chemical products.

The Chinese side hopes that the EU will take into consideration the gap between the developing countries and the developed countries in technology and capital and grant certain preferential treatment or transitional arrangement to the developing nations. Pursuant to REACH requirements, if the testing data is in conformity with GLP Standard (Good Laboratory Practice), it can be submitted to the EU enterprise or individual to complete registration. But at present, there are not any internationally accredited GLS Standard Labs in many developing countries. The EU should give certain technical support and financial aid to the developing countries with regard to the GLP system and lab building. The Eco-design Requirements for Energy-using Products (EuPs)

The European Commission issued Directive 2005/32/EC of the European Parliament and of the Council on establishing a framework for the setting of ecodesign requirements for energy-using products (EuPs) in July 2005. It is provided that manufacturers should control products' energy consumption by means of product design or adopting environmental management system, conduct conformity assessment in pursuant to the implementation rules formulated by the European Commission separately, and the CE marking be attached. Otherwise, the product is not allowed to be placed on the market. In line with the regulation, the EU Member States should formulate relevant laws and regulations to officially implement the directive as of 11 August 2007 at the latest.

China holds the view that the requirements in the directive are beyond the necessary limit of legislation. It constitutes great technical and financial difficulties to developing countries if enterprises are required to carry out environmental evaluation in the whole process from designing to discarding of the energy-using products. The implementation of the directive will lead to extremely severe barrier to export from the developing countries including China. The Directive on electromagnetic compatibility

In December 2004, the EU published the revised Directive 2004/108/EC of the European Parliament and of the Council, of 15 December 2004, on the approximation of the Law of Member States relating to electromagnetic compatibility, which will replace the current revised Directive 1989/336/EEC and take effect in July 2007. The newly amended directive further specifies the basic requirements all related equipment must meet, namely protection, information and labeling requirements. Besides, it also simplifies conformity assessment procedures. In addition, the new directive has made major revisions in the following two aspects: more strict requirements for information and documents; and special system for fixed equipment. But the directive is hardly operational as it extends the discretion of relevant implementing agencies, thus increasing difficulty for enterprises to be in conformity with the directive. The Chinese side has expressed its concern. The Directive banning the use of cadmium in batteries for electrical Vehicles

Directive 2000/53/EC which is modified on the basis of the proposal made by the European Commission stipulates that the use of cadmium in batteries for electrical vehicles should be banned as of 1 July 2005, but allows the use of cadmium in batteries for electrical vehicles sold before 1 July. According to the proposal of the Commission, besides replacing the use of cadmium in batteries for electrical vehicles, the led content in auto parts, including led alloy tyre, engine components and handles on windows and doors will also be restricted.

The EU is a major market for electrical vehicles. China has expressed its concern over the impact of the practice in question on the export of Chinese electrical vehicles to the EU. The directive prohibiting the use of six types of phthalates in toys

In December 2005, the European Parliament passed Directive 2005/84/EC of the European Parliament and of the Council on amending for the 22nd time Council Directive 76/769/EEC on the approximation of the laws, regulations and administrative provisions of the Member States relating to restrictions on the marketing and use of certain dangerous substances and preparations (phthalates in toys and childcare articles) , which prohibits the use of six types of phthalates in toys, of which DEHP, DBP and BBP will be permanently prohibited while the other three types (DINP, DIDP and DNOP) will be prohibited in toys likely to be put into children's mouths. The ban is not only applicable to toys produced within the EU territory, but also to toys imported to the EU. The new directive ha s set higher requirements on producers and will be burdensome to the exporters.

3.4.2. Technical standards

After making representations and lobbying by the interest parties, the EU announced that it would not implement temporarily the EN 13869 Standard (the CR Standard) for lighters and igniters with the ex-factory prices of less than 2 Euros to install child-resistant device in April 2004.

On 27 May 2005, a draft resolution was circulated by DG Health and Consumer Protection of the European Commission, requiring the 25 Member States to implement the CR Standard for lighters on account of the danger caused to children by disposable lighters. Article 1 of the draft still maintains that the defining line for disposable lighters is the unit price at 2 Euros. In July 2005, a mission was sent by MOFCOM to make representations regarding the EU CR draft resolution on lighters, during which the Chinese side pointed out that the statistics cited by the EU draft resolution are out-dated, inaccurate and short of logic, thus, not constituting legal conditions for the EU to make the draft. Meanwhile, the mission also pointed out that the linkage between the price and the safety of a product and the test method are not in conformity with the relevant stipulations of the WTO. At the safety committee meeting of the European Commission on the Directive on General Product Safety held on 15 July 2005, the Commission canceled the voting arrangement due to the disparate opinions on CR Standard draft resolution among the Member States, which undermines the foundation for voting.

In December 2005, DG Health and Consumer Protection of the European Commission circulated the new revised draft resolution among the Member States, requiring compulsory implementation of the CR Standard. The new draft resolution partially accepted the viewpoints of the Chinese side during the representation and gave up the defining line of "2 euros" as the product coverage. Instead, it is replaced by the technical definition. And it also revised the testing organization and export restrictions. The Chinese side will keep on watching the development of the EU's new CR draft resolution.

3.4.3 Labels of origin of imported products

According to the current EU regulations, only documents of origin should be submitted for customs declaration when importing products from a third country. Producers do not have the responsibility to attach labels of origin to the product. In case of so doing, the producer should ensure that the information is absolutely right in order to avoid misleading consumers or competitors.

In September 2005, the European Parliament adopted a report on the textile and clothing industry after 2005. The report laid emphasis on the necessity of compulsory regulations on labels of origin and names of producers for textile and clothing products so that consumers are in the position to know the origin of the product.

3.5 Sanitary and phytosanitary measures

3.5.1 Technical regulations Legislation on food and feed safety control

The legislation was approved by the European Parliament in March 2005 and entered into force on 1 January 2006. It especially requires that the import food should be in conformity with the standards laid down in the new legislation on food, otherwise the Commission has the right to cancel the right to import.

The Chinese side has expressed its concern over it and hopes to enhance communication and cooperation with the competent departments of the EU in this respect in order to facilitate the smooth development of trade. Legislation on healthcare products

Since the entry into force of the European legislation on healthcare products in August 2005, over 300 healthcare products containing a variety of nutritious ingredients such as selenium yeast, boron, chromium, etc. have been ordered to stop selling. If the product containing ingredients beyond the 140 substances permitted, it is regarded as illegal. The legislation will be implemented in two stages. The first stage of implementation starting from 1 August 2005 is to ensure the ingredients contained in the healthcare products; while the second stage will take effect 18 months later to ensure the cap of the nutritious ingredients in the healthcare products.

The legislation will exert a great impact on healthcare products containing vitamins and certain minerals to enter the European market. Many a healthcare product will not be able to sell on the European market because the nutritious elements are not contained in the list. In fact, these nutritious ingredients are good to human health, for instance, boron is good for bone and organic chromium is useful for the adjustment of blood sugar. The European healthcare products producers and healthcare products association have filed lawsuit with the European Court of Justice. They hold the view that the legislation has restricted consumers' rights to make their own choices and request that the legislation be revised. But the final ruling of the European Court of Justice maintained the validity of the European legislation on healthcare products. China exports a great amount of vitamins to the EU. Therefore, the Chinese side is highly concerned over the impact the legislation will have on Chinese enterprises. Legislation on the import of organic foodstuffs

Council Regulation (EEC) 2092/91 on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs lies at the foundation of the production, processing, labeling, standards, and management of organic products in the EU. The revised legislation states that organic products can only enter the EU through the intergovernmental mutual recognition agreement. In other words, only those products from the countries that are listed as "the third countries" of the EU can have access to the EU. At present, only six countries are listed as "the third countries". In late September 2005, a new resolution of postponing the implementation of the legislation till the end of 2006 was passed by the EU.

China has applied to the EU for being listed as the "third country". But it will generally take at least two years for the EU to go through the evaluation procedure due to its complexity and strictness. The Chinese side hopes that the EU can objectively evaluate China's application and that the mutual recognition system on organic products between the EU and non-EU countries will be more open and that the procedures will be further simplified. New regulations on labeling genetically-modified (GM) food

As of April 2004, the EU started to implement new regulations on labeling genetically-modified food, which is the strictest among the like regulations in the world. It requires all food be labeled if genetically-modified organisms exceed 0.9 percent so as to ensure the adequate right to know on the part of consumers. The regulation is also applicable to animal feed and food of animal origin. The regulation also provides the filing system, requiring genetically-modified products be able to be traced. Documentations regarding the origin, ingredients, and where-to of the products should be kept for five years. At present, internationally accepted standards for genetically-modified food are not available. China hopes the regulation in question will not constitute barriers to international trade of the relevant products. Amendments to Directive as regards indication of the ingredients present in foodstuffs

Pursuant to Directive 2003/89/EC of the European Parliament and of the Council on amending Directive 2000/13/EC as regards indication of the ingredients present in foodstuffs, all the EU Members States should ban the sale of products not in conformity with labeling requirements as of 25 November 2005 and that food sellers should list all the ingredients of the product on the label. To meet the requirements of the directive, the EU further amended the directive as regards the ingredients present in foodstuffs, requiring food labels list multiple ingredients causing allergies in March 2004. The directive also lists the 12 ingredients which may cause allergies, including grains containing gluten, fish, beetled animals, eggs, peanuts, soybeans, milk and milk products (including lactin), tree nuts, celeries, mustard, sesame, and sulphite. These ingredients must be indicated on food labels. The decision will affect the agricultural export from other countries to the EU to a certain extent. The decision on the withdrawal of the authorizations for plant protection products containing five active substances

In March 2005, Commission Decision 2005/303/EC was issued by the European Commission. According to the Decision, the EU will not permit four active substances of cresylic acid, dichlorophen, imazamethabenz, ksugamicin and polyoxin to be contained in plant protectio n products. Authorization of plant protection products containing the four active substances in question would no longer be issued as of 30 September 2005, but the sales and use of the products containing the said substances are permitted before 2006.

In December 2005, Commission Decision 2005/864/EC was published. In line with the Decision, the EU would no longer issue authorizations for plant protection products containing endosulfan and the validity of the authorizations already issued would not be extended. All the EU Member States must withdraw authorizations for plant protection products containing endosulfan before 2 June 2006 and stop using the products in question before 2 June 2007.

Pesticides containing the above-mentioned active substances are generally used in products such as grains, citrus fruit, cucurbits, pome fruit, stone fruit, strawberries, black currants and other berries, cotton, and tobacco. Some pesticides are commonly used in China. Therefore, export from China to the EU will be greatly affected due to the decision. For example, after the withdrawal of authorizations for plant protection products containing endosulfan, the EU has changed the maximum residue limit of endosulfan in tea from 30 mg/kg to 0.01 mg/kg, which means that the new standard is 3000 times stricter than the original one, and much stricter than the prevailing international standard. Tea is the traditional Chinese staple export product. Tea export from China to the EU may be in a woeful predicament due to the new EU standard and the Chinese side will be highly concerned over the issue.

Besides, the EU allows some members to use these pesticides for different purposes.

For instance, Ireland permits the use of dichlorophen on lawns; while the UK allows it to be used on the walls a nd lawns of green houses and kindergartens. Greek has registered that kasugamycin and polyoxin is only used for strawberries, and Spain uses it for potatoes, cucumbers, cotton, citrus fruit, soybeans and plants for appreciation, while Hungary can use it for pome fruit, black pepper, potatoes and cucumbers. The disparate application of the same product to different plants in different countries aggregates the difficulty for Chinese exporters to understand the European market and has constituted barriers to the export of Chinese products to the EU to a certain extent.

3.5.2 Technical standards Laying down harmonized standards for the testing for certain residues in products of animal origin imported from third countries

In January 2005, Commission Decision 2005/34/EC on laying down harmonized standards for the testing for certain residues in products of animal origin imported from third countries was issued, which stipulates the minimum required performance limits (MRPLs) in products of animal origin imported from third countries. On the basis of the Decision, the MRPLs laid down in Annex II to Decision 2002/65/EC shall be used as reference points for action. Where results of analytical rests are at or above the MRPLs, the consignments shall be destroyed or re-dispatched; where the results of analytical test indicate the existence of residues of prohibited substances but are below the MRPLs, the consignments will not be prohibited from entering the EU market, but the competent authorities shall retain a record of the findings in case of recurrence. If the recording of four or more confirmed results below the reference points for action shows a recurrent pattern indicating the same prohibited substance from the same origin, the Commission shall bring the matter to the attention of the exporting country and shall make appropriate proposals. Upgrading the performance criteria of the articles intended to come into contact with foodstuffs

In April 2005, the European Commission issued the Commission Directive 2005/31/EC on amending Council Directive 84/500/EEC as regards a declaration of compliance and performance criteria of the analytical method for ceramic articles intended to come into contact with foodstuffs. The Directive specifies the migration limits for lead and cadmium contained in imported ceramic articles intended to come into contact with foodstuffs. The new criteria are much stricter than the original ones. The Directive requires that appropriate documentation to demonstrate that the ceramic articles comply with the migration limits for lead and cadmium set out in the Directive shall be made available by the manufacturer or the importer into the Community to the national competent authorities. Ceramic articles not in conformity with the criteria set out in the Directive will be prohibited from manufacturing and importing as of 20 May 2007.

In November 2005, the European Commission issued Commission Directive 2005/79/EC amending Directive 2002/72/EC relating to plastic materials and articles intended to come into contact with food, renewing the list of certain monomers and additives used in plastic materials and articles intended to come into contact with food, of which, the standard for the content of PVC gaskets containing epoxidised soybean oil widely used in food packaging is much stricter than before. Plastic materials and articles not in conformity with the Directive will be prohibited from manufacturing and importing as of 19 November 2007.

The change in criteria may lead to barriers to the export of relevant Chinese products. The Chinese government and enterprises concerned will pay attention to the issue. Amendments to maximum residue levels of certain pesticides including Aldicarb

In January 2006, the European Commission issued the draft directive amending Council Directive 1986/362/EEC, 986/363/EEC and Annex to Council Directive 1990/642/EEC regarding the maximum residue levels (MRLs) of aldicarb, atrazine, azinphosethyl, cyfluthrin, ethephon, fenthion, methamidophos, methomyl, thiodicarb, paraquat, and triazophos. The Annex to the Directive in question revised certain MRLs in the above-mentioned pestcides. The Chinese government is concerned about the impact the draft directive is to bring about on the bilateral trade between China and the EU.

3.5.3 Traceability labeling on fishery products

The EU requires all fishery products sold on the EU market must have traceability labels as of 1 January 2005, otherwise the product is rejected. Traceability labels indicate the management process of the production, processing, packing, and transportation of the materials of fishery products by making use of bar codes and manual readable method. In case there are health and safety problems, the origin of the fishery products can be found through the traceability labels immediately.

3.5.4 Residue monitoring plans and import ban on the products of animal origin imported from China The approval of residue monitoring plans regarding products of animal origin imported from China

In line with Council Directive 1996/23/EC, the EU Member States are not allowed to import products of animal origin from the countries listed in the Directive unless the residue monitoring plans regarding the chemicals listed in the Directive are submitted to and approved by the European Commission.

In April 2004, the European Commission issued Commission Decision 2004/432/EC on the approval of residue monitoring plans submitted by third countries in accordance with Council Directive 96/23/EC, listing the names of countries approved by the Commission with regard to the submission of monitoring plans and the categories of products approved. Two modifications have been made to the list of the countries approved by the EU afterwards. In the list revised in May 2005, only the residue monitoring plans regarding products of pigs and sheep, poultry, fishery products, rabbit meat and honey originating in China were approved. Therefore, products covered by the approved monitoring plans are fewer compared with those of other countries approved by the EU, such as Argentina, Bulgaria, Mexico, Romania, and Russia. This is not in line with the efforts made by China in formulating and implementing the monitoring plans. China hopes the EU will approve more monitoring plans through objective evaluation. Import ban regarding products of animal origin from China

In addition to the above monitoring plans, special protective measures have also been set out by the EU on importing products of animal origin from China. In January 2002, the EU issued Commission Decision 2002/69/EC concerning certain protective measures with regard to the products of animal origin imported from China, banning the import of all products of animal origin intended for human consumption or animal feed from China with the pre-context that chloramphenecol had been detected in fishery products from China. Through the continuous efforts of the Chinese government and enterprises concerned, the EU lifted the import ban on certain products of animal origin from China in the same year. On the basis of Commission Decision 2005/573/EC published in July 2005, the EU completely lifted the import ban on the following products, including fishery products (except aquaculture fishery products and shrimps), gelatine and pet food. For some other products, including aquaculture fishery products, shrimps (including peeled shrimps and crayfish), casings, rabbit meat, honey and royal jelly, besides meeting the general regulations regarding the EU's import from third countries, new additional regulations specifically for China must be met. In other words, the EU Member States can authorize Imports of consignments of products only if they are accompanied by a declaration of the Chinese competent authorities stating that each consignment has been subjected before dispatch to a chemical test in order to ensure that the products concerned do not present a danger to human health.

Furthermore, due to bird flu and foot and mouth disease, the EU also prohibits the import of meat of poultry, pork, mutton, beef and dairy products from China. The Chinese side hopes that the EU can make timely evaluation on the latest development of the disease risks and lift the import ban when condition permits.

3.6 Trade remedies

3.6.1 The automatic extension of trade remedy measures with the EU enlargement

According to the Treaty of Accession, the EU extended all the prevailing trade remedy measures to 25 members in May 2004 and the previous relevant legislations in the ten new Member States became nullified. Since the EU enlargement, the trade remedy measures adopted by the 15 EU members have been automatically applied to the enlarged EU of 25 members, which means that investigations initiated before 1 May 2004 will base on statistics in the EU of 15 members, but the result will be applied to the EU of 25 members. The Treaty of Accession also stipulates the enforcement methods for the transitional safeguard measures in the new Member States. In other words, within three years upon accession, when a certain domestic industry is confronted with possibly persistent threat of material injury, or threat of material injury to the industry in question, the new Member States are allowed to apply for emergent remedy measures from the EU.

With regard to the objections to the automatic extension of trade remedy measures with the EU enlargement from other countries, the EU allows foreign enterprises subject to trade remedy measure restrictions to strive for adjusting the original restrictive measures through provisional review. Active review mechanism does exist in the EU, but under the pre-context that the EU enlargement does not alter the existence of trade remedy measures substantively, the EU reviews very few cases actively while for most cases, enterprises of the third country should file request for the revision of cases, which obviously adds the cost to the enterprises responding to the cases.

3.6.2 Anti-dumping measures Large number of anti-dumping cases against China

Chinese products have been the biggest targets of anti-dumping investigations initiated by the EU in recent years. In 2005, the EU initiated eight anti-dumping investigations against China, one case fewer than that of the previous year. Meanwhile, final rulings on nine cases regarding anti-dumping against Chinese products were made, which was much more than the three cases of the previous year. The anti-dumping cases against China filed by the EU in 2005 had the features of time concentration, high values, more enterprises involved and more final rulings made. Refusing to grant China full market economy status

At present, the EU still insists on regarding China as a non market economy in the anti-dumping investigations. Since China lodged a formal request with the EU on negotiating China's full market economy status in May 2003, China has, for many times, passed on relevant information to the EU for technical evaluation by the European Commission. In 2005, in the final rulings of the anti-dumping cases, the EU granted 40 Chinese enterprises the market economy status.

In September 2005, the Joint Statement of the China-EU summit was issued after meetings between leaders of both sides. With regard to market economy status, the Joint Statement points out: "The EU side welcomed the achievements China has made towards building a market economy. The two sides agreed to launch high- level dialogues to address outstanding issues with a view to achieving positive progress on the issue of MES." The Chinese side hopes that the EU side will make timely, comprehensive and accurate evaluation on the progress China has made in its market economic reform and that both sides should have more exchanges of views through Consultations in order to solve the issue at an early date.

On 30 June and 7 July 2005, the EU initiated anti-dumping investigations against the Chinese exports of labor protection shoes and leather shoes respectively. Up to now, the EU has rejected all the applications for market economy status by the enterprises surveyed regarding labor protection shoes and leather shoes. Shoes are one of the staple exports from China, involving the employment of a large number of people. Before 2005, export of certain shoes from China was subject to the EU quota restrictions. The anti-dumping cases initiated by the EU side shortly after the lifting of quotas are not conducive to the long-term stable development of Sino-EU economic and trade relations.

The Chinese side holds the view that the export of Chinese leather shoes to the EU has not led to any injury to the EU's industries; therefore, there is no causal relationship between the two. That the EU vetoed all the applications for market economy status by the Chinese enterprises surveyed constitutes a major policy setback on the issue of market economy in terms of anti-dumping against China. The anti-dumping investigation against Chinese leather shoes is not in conformity with the relevant regulations of the WTO Anti-dumping Agreement. It has also seriously Disturbed the normal development of trade of shoes between China and the EU. The Chinese side hopes the EU will deal with the issue cautiously with a view to maintaining the Sino-EU economic and trade relations. Individual treatment and surrogate country

In dealing with anti-dumping investigations, the EU may determine whether to allow separate rates for Chinese exporters at their applications by means of individual treatment, and five criteria are provided for in this respect. In the Commission Regulation 1972/2002, the EU officially includes the five criteria determining individual treatment in its anti-dumping legislation.

Currently, when calculating the normal value of exports with the origin of a non market economy, the European Commission usually chooses as the basis the cost and selling price in a surrogate country of a market economy producing like products. There is no doubt that the production situation in the exporting country differs from that in a surrogate country. After the initiation of the investigation procedure, the European Commission allows only 10 days for the responding enterprises to comment on the choice of the surrogate country or recommend another surrogate country. The European Commission's choice of a surrogate country enables it to artificially raise the dumping margins due to the time limit and complexity in choosing a surrogate country, which is unfavorable to the Chinese responding enterprises.

3.6.3 Safeguard measures

In April 2004, the Commission Decision 658/2004 published the final ruling of safeguard measures against canned citrus fruit imported from China, stating that tariff quota restrictions on canned citrus fruit will remain effective from 11 April 2004 to 8 November 2007, during which general tariff rates or preferent ial rates would apply to in-quota consignments while out-of-quota consignments would be subject to an additional tariff of Euro 30/ton. In June 2005, the European Commission issued a statement, hoping to collect data to examine the results of the safeguard measures in question with a view to evaluating the necessity of adopting the measure continuously. The impact of the safeguard measures in question on relevant Chinese enterprises can not be neglected. The Chinese side hopes that the EU will terminate the safeguard measures at an early date on the basis of the comprehensive evaluation.

In July 2005, the European Commission announced to initiate safeguard measure investigation against the import of frozen strawberries. As China is one of the major suppliers of frozen strawberries to the EU, the Chinese side will pay close attention to the investigation.

3.7 Subsidies

Large amount of subsidies are provided to certain sectors in the EU at various excuses, which, as a result, puts imported products of competitive sectors in disadvantageous position. The long-term agricultural subsidies adopted by the EU has been deteriorating the international market environment of agricultural products and harming the agricultural interests of developing countries. The reform program on the CAP in 2003 did not change fundamentally the basic situation of international agricultural market distortion it had caused. In addition, the EU also subsidizes such sectors as airplane manufacturing and ship building, fishery, tobacco, brewery, coal mining and shipping. These subsidy policies have exerted, to different extents, impact on fair trade in different industries internationally.

In April 2005, the Appellate Body of the WTO made the ruling that most of the government subsidies for sugar export by the EU had violated the relevant WTO rules. At the end of October 2005, the arbitrators of the WTO made the ruling that the EU should revise its policy of sugar subsidies before 22 May 2006 so that it would be in line with the WTO rules and the commitment of concession. In November 2005, most members of the EU reached agreement on reducing subsidies to the sugar industry, according to which the EU will, within four years, gradually lower the price of sugar by 39 percent, while the compensation for the loss of sugar farmers will be increased from 60 percent to 65 percent. The Chinese side is concerned about the conformity of the EU subsidies to other products with the WTO rules.

3.8 Export restrictions

Since the end of the 1980s, China has been listed as one of the arms embargo target countries by the EU according to the relevant EU export control regulations. In December 2003, the EU Brussels summit officially included lifting the arms embargo on China in its agenda. The Joint Statement of the 7th China-EU Summit published in The Hague after the meetings between leaders of China and the EU on 8 December 2004 stated that "The EU side confirmed its political will to continue to work towards lifting the embargo." But the meeting of the EU foreign ministers he ld in June 2005 decided to give up the original plan of lifting the arms embargo in June and expressed the view that no time table would be set in this regard. In effect, the practice has shelved the issue that should have been resolved.

The Chinese side holds the view that the discriminative practice of the EU export control against China has impeded the further development of bilateral trade and that the Chinese side requests the EU to lift the embargo with a view to ending the political discrimination against China so as to pave the way for the normal development of China-EU relations. The Chinese side hopes that the EU will honor its political commitment in real earnest and take substantial actions at an early date to lift the arms embargo on China.

3.9 Barriers to trade in services

3.9.1 Banking

German legislation governing banking activities provides that apart from the EU, Japanese and US banks, the capital of head-offices of other foreign commercial banks cannot be counted as the capital of the ir subsidiaries in Germany. In addition, Germany exercises local capital supervision and control on German branches of commercial banks of non-OECD countries. In other words, supervision and control are based on the working capital invested in Germany, while global supervision and control based on the working capital of the head office are practiced in cases of German branches of OECD countries. This supervision and control method has seriously restricted the loan business of branches of commercial banks from non-OECD countries.

The requirements on the qualification of managerial personnel of the branches of foreign banks in Germany are very harsh. It is provided that a general manager shall at least have three-year working experience in the EU countries or one-year working experience in Germany. The Chinese-funded banks complain that under the above mentioned terms, the general manager sent by the head office to the branch in Germany is prevented from performing his duty for at least one year, and these requirements greatly affect the routine operation of Chinese-funded banks in Germany.

In its banking regulations the Netherlands requires that priority should be given to the like domestic enterprises in the merger and acquisition of domestic banks. Only under the circumstances when no like domestic enterprise considers taking over in six months after the bank's announcement, will foreign businesses have the eligibility to merge and acquire. Besides, the merger and acquisition contract between the foreign business and the selling bank will not have legal effect until unanimously approved by the original boarder of directors of the selling bank and by the professional committee of the parliament.

The UK classifies banks into full-capacity banks and wholesale banks, which can only engage in wholesale financing business, according to the services provided. Up to now, no Chinese- funded bank has obtained the license of a full-capacity bank in the UK.

The Greek legislation provides that the majority of the board of directors of foreign-funded banks shall be EU citizens.

Italy exercises differential treatment between non-EU banks and domestic banks. If a bank of non-EU country wants to set up the first branch in Italy, it should be approved by the Central Bank, the Ministry of Foreign Affairs and the Ministry of Economy of Italy. With regard to technical review, if the regulatory authorities believe that the financial regulatory level of a non-EU country cannot meet the standard required by the Italian legislation, they can reject the commercial banks of the country in question to set up branches in Italy. In addition, when settling a foreign exchange transaction of over Euro 12,500, banks and other financial institutions should apply for approval from the government department of foreign exchange administration of Italy.

The above mentioned regulations have, to varying degrees, caused inconvenience to the normal operation of Chinese-funded banks in relevant countries. The Chinese side is concerned over them.

3.9.2 Exhibition

At the excuse of low prices of the Chinese products which may arouse dissatisfaction among other exhibiting companies, some Italian exhibition authorities prohibit or restrict Chinese companies from participating in specialized exhibitions of jewelry, optical instruments, textiles and garments and toilet and bathing products; and at exhibitions already participated by Chinese companies, they will, at various excuses, refuse to increase exhibiting space or allocate unpopular locations to Chinese exhibiting companies.

3.9.3 Tourism

The Italian legislation provides that tourism practitioners from non-EU countries are not allowed to be tourist guides. Local Chinese immigrants do no have the right to sit for qualification exams of tourist guides. A Chinese tourist guide cannot do his business unless accompanied by an accredited Italian tourist guide.

3.10 Unreasonable protection of intellectual property rights

According to Council Regulation (EEC) No 2081/92 of 14 July 1992 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs, geographical indications of non-EU countries cannot be registered unless they can be equally protected like the EU ones. Besides, the Regulation does not specify legal procedures for non-EU nationals to apply for the protection of geographical indications in the EU. In 2003, the EU published Council Regulation (EC) No 692/2003 amending Regulation (EEC) No 2081/92. The new Regulation provides for the same application rights for non-EU countries, but the procedures of applying for the protection of geographical indications by non-EU nationals are very complicated. It usually takes one and a half to three years for the EU organizations or individuals to apply for the protection of geographical indications, while it takes three to five years for the non-EU organizations or individuals to apply for the same.

The Memorandum of Understanding on Geographical Indications between China and the EU was signed in September 2005. Both sides agree to protect geographical indications through mutual recognitions, opening of markets and mutual cooperation, but the Chinese side holds the view that the revised EU regulation on the protection of geographical indications does not address the issue of national treatment in the application system regarding the EU geographical indications. In April 2005, the Dispute Settlement Body of the WTO approved the report of the panel, stating that the above regulation of the EU violates the principle of national treatment of the WTO.

With a view to honoring its commitment under the WTO, the EU agreed to revise the regulation before 3 April 2006. The Chinese side hopes the EU will implement its commitment in due time.

3.11 Other barriers

3.11.1 Working visa

In recent years, the visa policy of certain EU Member States on employees sent by Chinese companies to their invested companies in Europe has seriously restrained the investment of Chinese enterprises in Europe. The EU Member States impose harsh qualification requirements on employees of Chinese- funded enterprises in Europe sent from China, and the visa application procedures are complicated and time consuming. The visa granted usually allows only one entry, or with a validity of 12 months or even of 3 months.

The employees sent by some Chinese enterprises to work in France can only get visas for a short stay of 3 months, and the French government does not allow them to apply for visa extensions in France. In addition, it takes at least 6 months to obtain the working visa to France. There are also administrative obstacles to obtaining business permits and to family reunion.

On the basis of Sino-Italian Agreement for Economic Cooperation, both governments should grant long-term working visas to employees from respective countries.

However, the Italian side has always been granting business visas to employees from with validities of three or six months, thus, forcing them to come back for visas every six months.

It is quite difficult and complicated for Chinese employees to get visas to Germany. It usually takes six months to go through the complete procedure. This has also affected the continuous development of and investment by Chinese enterprises in Germany. It is very complicated, manipulative and untransparent in applying for visas and residence permits from Lithuania by Chinese employees. And it usually takes several months or half a year for Lithuanian embassies to approve and grant visas. These requirements and practices have increased the operation costs of Chinese enterprises in these countries.

3.11.2 Residence permits

Upon arriving in the EU, the managerial staff sent from China to the Chinese-funded enterprises usually encounters additional requirements when applying for residence permits. The competent authorities in certain EU Member States require the Chinese staff to submit various kinds of documents, some of which are not required for staff sent from other countries. The Chinese companies established in Belgium, Luxembourg, Germany and Bulgaria complain that the application procedures for the residence permits and working permits are very complicated for employees sent from China. Such practices have practically impeded the investment from China to the EU counties.

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