February 9, 2000

• China agreed to liberalize its distribution system, one of the primary commitments sought by U.S. manufacturers and agricultural exporters. (China now generally prohibits companies from distributing imported products or providing related distribution services such as repair and maintenance services.)

• China’s distribution commitment is comprehensive, covering commission agents services, wholesaling, retailing, franchising, sales away from a fixed location, as well as related subordinated activities, such as inventory management or repair and maintenance services.

• China also made specific commitments related to distribution, such as rental and leasing services, air courier services, freight forwarding, and packing services. These commitments are found elsewhere in China’s schedule under the relevant services categories. (For more information, see resource paper on Services Related to Distribution.)

• Current restrictions for all products are phased-out within three years from the date of accession, unless specifically noted below. This tracks with China’s commitment to phase-in trading rights within three years.

• Within one year of accession, foreign service suppliers will be permitted to establish joint ventures.

• Within two years from the date of accession, foreign majority equity share is allowed and all geographic and quantitative restrictions are eliminated.

• Within three years from the date of accession, foreign service suppliers may establish wholly owned subsidiaries.

• Upon accession, foreign service suppliers will be permitted to establish as a joint venture in Zhengzhou and Wuhan.

• Within one year of accession, foreign service suppliers will be permitted to establish no more than two joint ventures in the five Special Economic Zones (Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan) and four cities (Tianjin, Guangzhou, Dalian and Qingdao). Four joint ventures are permitted in Beijing and Shanghai. Two among the four joint ventures established in Beijing may set up branches in Beijing.

• Within two years from the date of accession, foreign majority equity share is allowed in these joint ventures, and geographic restrictions will be further liberalized to include all provincial capitals and Chongqing and Ningbo.

• Within three years from the date of accession, there will be no restrictions on equity, geographic areas, or on the number of service suppliers.

• Franchising, sales away from a fixed location (both wholesale and retail) and related subordinated activities are permitted without restrictions in three years.

• For retail department stores over 20,000 square meters and chain stores with more than 30 stores, China will only permit minority equity participation in joint ventures.

• Excluded from China’s commitments are wholesaling for salt, and wholesaling and retailing for tobacco.

• China specified different end-points for liberalization for the product categories identified below. China is still obligated to provide market access and national treatment without restrictions, but there are no interim "benchmark" commitments as provided for other products.

-- For chemical fertilizers, China will allow foreigners to provide wholesale and retail services within five years from the date of accession.

-- For books, magazines and newspapers, China will allow foreigners to provide wholesale services within three years from the date of accession and retail services within five years.

-- For pharmaceutical products and pesticides, China will allow foreigners to provide wholesale and retail services within three years from the date of accession.

-- For mulching film, China will allow foreigners to provide wholesale services within three years from the date of accession, and retail services within one year.

-- For crude oil and processed petroleum products, China will allow foreigners to provide wholesale services within five years from the date of accession. For processed petroleum products, retail services will be permitted within three years from the date of accession. (Note: Crude oil is not excepted from China’s retail commitment, so it will be treated as any other product.)

• Upon accession, foreign companies may distribute all products manufactured in China, including those excepted products noted above. They may also provide the related subordinate services, as defined in Annex 1 of China’s services schedule.

• Within one year from the date of accession, foreign-invested companies may distribute both products made in China as well as imported products.

ANNEX 1

DISTRIBUTION SERVICES

Distribution trade services are comprised of four main sub-sectors:

1) commission agents services,
2) wholesaling,
3) retailing,
4) franchising.

The principal services rendered in each subsector can be characterized as reselling merchandise, accompanied by a variety of related subordinated services, including inventory management; assembly, sorting and grading of bulk lots; breaking bulk lots and redistributing into smaller lots; delivery services; refrigeration, storage, warehousing and garage services; sales promotion, marketing and advertising, installation and after sales services including maintenance and repair and training services. Distribution services are generally covered by CPC 61, 62, 63 and 8929.

COMMISSION AGENTS’ SERVICES consist of sales on a fee or contract basis by an agent, broker or auctioneer or other wholesalers of goods/merchandise and related subordinated services;

WHOLESALING consist of the sale of goods/merchandise to retailers to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services;

RETAILING SERVICES consist of the sale of goods/merchandise for personal or household consumption either from a fixed location (e.g., store, kiosk, etc.) or away from a fixed location and related subordinated services;

FRANCHISING SERVICES consist of the sale of the use of a product, trade name or particular business format system in exchange for fees or royalties. Product and trade name franchising involves the use of a trade name in exchange for fees or royalties and may include an obligation for exclusive sale of trade name products. Business format franchising involves the use of an entire business concept in exchange for fees and royalties, and may include the use of a trade name, business plan, and training materials and related subordinated services.

• Foreign service suppliers will be able to provide repair and maintenance services for household consumers goods, motorcycle, auto, and office machinery, including computers. (For repair services affiliated with a manufacturer, see resource paper on Distribution Services.)

• Foreign service suppliers may establish as joint ventures upon accession, hold a majority equity share in one year, and be free of restrictions within three years.

• China’s commitment covers rental and leasing services for machinery and equipment without operators, and personal and household goods, except for videotapes.
  
• Foreign service suppliers must hold global assets of $5 million in order to operate in China.
  
• Foreign service suppliers may establish as joint ventures upon accession, hold a majority equity share in one year, and be free of restrictions within three years.

• Foreign service suppliers may establish in China as a joint venture upon accession, hold a majority equity share within two years, and set up as a wholly owned subsidiary within four years.
  
• In order to provide cross-border services, however, foreign service suppliers must go through authorized advertising agents in China.

• Foreign service suppliers which have been engaged in inspection services in their home countries for more than three years and hold $500,000 in registered capital are permitted to establish joint ventures upon accession, hold majority equity share within two years, and be free of restrictions within four years.
  
• "Statutory inspection" services are excluded from freight inspection services commitments.

• Foreign service suppliers may establish as joint ventures upon accession, hold a majority equity share within one year, and be free of restrictions within three years.

• China’s commitments covers land-based international courier services and all services related to an international shipment handled by an express carrier.
  
• Foreign service suppliers are permitted to establish as a joint venture upon accession, hold a majority equity share within one year, and be free of restrictions within four years.

• Foreign service suppliers are permitted to establish as joint ventures upon accession, hold a majority equity share within one year, and will be free of restrictions within three years.

• Road transport: Foreign service suppliers will be able to establish as joint ventures upon accession, hold a majority equity share within one year, and be free of restrictions within three years.
  
• Rail transport: Foreign service suppliers will be able to establish as joint ventures upon accession, hold a majority equity share within three years, and be free of all restrictions within six years.

• In order to establish in China, foreign service suppliers should have at least three consecutive years experience. The minimum registered capital of a joint venture shall be no less than $1 million and the length of operation shall not exceed 20 years.
  
• Foreign service suppliers are permitted to establish a joint venture upon accession, and hold a majority equity share within one year.
  
• After one year of operation in China, a joint venture may set up a branch if it adds $120,000 to the original registered capital for each branch established.
  
• All restrictions are eliminated within four years.

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