Local Content Requirements After China's WTO Entry

With China's formal accession to the WTO having occurred by the time you read this, Chinese officials are busy working to identify existing laws and regulations that may require amendment or repeal in order to bring Chinese legislation into compliance with its commitments under the WTO. Examples of these can be found in directives that serve to impose obligations upon foreign investment enterprises (FIEs) to include local parts and components (hereafter local content) in the mechanical and electrical products they manufacture in China.

Discriminating Against Foreign-made Goods

Under the WTO TRIMs Agreement, China is obliged to eliminate a range of restrictions on international trade and investment, including local content requirements, regardless of whether they are contained in national or local legislation. The TRIMs Agreement also prohibits the Chinese government from enforcing existing contractual agreements that contain local content requirements. Further, Article III of GATT obliges WTO members to provide national treatment to foreign-made goods. Accordingly, local content requirements are not permitted as they provide foreign-made goods with less favourable treatment than those produced domestically.