US embassy cable - 05GENEVA2809

UNCLAS SECTION 01 OF 06 GENEVA 002809 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED PLEASE HANDLE ACCORDINGLY 
 
 
STATE PASS USTR FOR ESPINEL, MCCOY, STRATFORD, WINTER, 
WELLER 
USDOC FOR DAS LEVINE, ITA/MAC/OCEA MCQUEEN/CELICO 
USDOC FOR ISRAEL 
PASS USPTO FOR DUDAS, BOLAND, BROWNING, WU, ANTHONY, NESS 
PARIS ALSO PASS USOECD 
STATE FOR EB/TPP/IPC, EAP/CM 
USDOJ FOR RIEGEL, BRYANT 
USDOJ FOR PARSKY, CHEMTOB, GAMMS, SHARRIN 
USPTO:  LASHLEY, SALMON 
GENEVA PASS TO USTR 
DHS FOR CBP/PIZZECK 
STATE PASS FTC FOR BLUMENTHAL 
 
E.O.12598: N/A 
TAGS: KIPR, ETRD, KJUS, PGOV, CH, JA, SW, CA, WTRO, EUN, Trade 
SUBJECT:  TRIPS COUNCIL, CHINA TRM, OCTOBER 25, 2005 
 
 
1.(U)  Summary.  At the fourth annual Trade Review 
Mechanism (TRM) on China?s intellectual property (IP) 
regime at the WTO, the United States, Japan and the 
European Union submitted, collectively, their most 
extensive questions to the China.  In addition, the United 
States formally submitted its Article 63 request to China 
for further detail on China?s IPR enforcement regime since 
2001, with additional Article 63 requests also then 
expected from Switzerland and Japan.  Notwithstanding this 
increased pressure, the Chinese delegation  responded by 
rejecting many of the TRM questions as unrelated to China?s 
TRIPS obligations, avoiding various challenging questions 
in their entirety, and initially rejecting the Article 63 
request in a bilateral meeting as lacking specificity and 
not within the purview of Article 63 itself.  China instead 
urged reliance on bilateral mechanisms rather than the WTO 
process.  The WTO Secretariat will draft a factual report 
of China?s review to the General Council in accordance with 
China?s TRM, containing WTO Members? interventions and 
documentation.  END SUMMARY 
 
Background 
 
2. (U)  An interagency delegation led by Acting Assistant 
U.S. Trade Representative for Intellectual Property, 
Investment and Services Victoria Espinel, and including 
Assistant USTR General Counsel Stanford McCoy, USPTO Geneva 
and Beijing based IPR Attaches, Jon Santamauro and Mark 
Cohen, as well as USPTO Attorney Advisor Deborah Lashley 
Johnson and USDOC?s Kristine Schlegelemilch attend the 
fourth annual TRM of China at TRIPS Council.  The USDEL 
also met with the Chinese delegation on October 25, 2005. 
The Chinese delegation was led by Shao Changfeng, Deputy 
Director, Notification and Policy Review Division, 
Department for WTO Affairs of MOFCOM.  Rong Min, who works 
in Law and Treaties under Li Ling of the Ministry of 
Commerce led the legal discussions, as well as Ren Gang 
from the SAIC, Xu Chao from the National Copyright 
Administration, among others.  Separate meetings were also 
held with the delegation of Japan. 
 
China Shows Less Willingness to Cooperate in a Multilateral 
Environment 
 
3. (U)  At TRIPS Council, the Chinese head of delegation 
demonstrated a markedly less interest in engaging on IPR 
issues in comparison to past meetings.  The delegation 
argued at TRIPS Council and in the later bilateral meeting 
that many of the issues being raised by the USDEL and 
others were outside of the scope of TRIPS, could be better 
handled in bilateral context, and that the scope of the 
information requested was typically at a level beyond the 
capability that even the inquiring countries could respond 
to if they had been asked the same questions.  The 
potential precedential impact of the Chinese delegation?s 
efforts to narrowed the scope of information that it would 
provide in the TRM compared to prior years and its 
ungenerous view of the scope of TRIPS were not positive, to 
say the least.  Among the inquiries China rejected were 
that China: would not provide information on substantive 
IPR provisions in its Free Trade Agreements; would not 
provide information on limitations on scope of operations 
of non-governmental organizations in China; would not 
provide information on Internet copyright; would not 
publish its administrative decisions, including 
administrative enforcement decisions; and that China has no 
plans to amend its criminal code to address alleged TRIPS- 
inconsistencies.  The Chinese delegation also asserted that 
the relationship among market access, censorship and piracy 
were not TRIPS-relevant issues. 
 
4.   (SBU) In addition to the above, in some instances, 
China flatly misstated or confused relevant Chinese laws. 
Thus, China equated the legal requirements in its Trademark 
Law to protect geographical indications (GI?s), including 
relevant implementing regulations, with a rule promulgated 
by China?s Administration for Quality Supervision, 
Inspection and Quarantine; a rule has much less legal 
effect or significance than a law in China.  China also 
advised that there are no plans to revise any IPR laws, 
when in fact a draft revision of the patent law has been 
discussed, and a revision to the Trademark Law is also 
expected to be revived for consideration by the National 
Peoples Congress.   Moreover, the Chinese delegate in the 
discussion on implementing the Doha agreement regarding 
access to medicines advised that China is drafting 
implementing legislation for Doha, which could take the 
form of a revised law. 
 
5.   (SBU) China also advised that only Beijing and 
Shanghai have lists of foreign specially protected marks, 
when data suggests that other localities have developed or 
are contemplating such lists.  China also suggested that 
rights holders can apply to have their brands included on 
these lists, when in fact the list in Beijing, at least, is 
closed.  In the criminal IPR area, China misstated that 
arrest and investigation standards for IPR crimes can only 
be adopted by the National People?s Congress, when in fact 
such local standards have been known to exist for some time 
and have been adopted in Shanghai and elsewhere. 
 
Modest Improvements in China?s IPR Regime Revealed by China 
 
6. (U) China did advise that there has been no change in 
its policies towards licensing of investigative firms, that 
information regarding the national IPR strategy is 
available on a website, www.nipsocn, and that freight 
forwarders may be held liable for exporting infringing 
goods under appropriate circumstances.  Chinese Customs is 
drafting guidance with the Ministry of Public Security 
(MPS) on procedures with Customs procedures in 
international trade.  Chinese delegates also said criminal 
penalties may be available for service mark infringement, 
and explained that the recent judicial interpretation on 
criminal IPR enforcement does not address the relationship 
between repeated administrative offenses and criminal 
liability.  Two websites provide details on local efforts 
to improve trademark enforcement: www.baic.gov.cn and 
www.sgs.gov.cn, for Beijing and Shanghai, respectively. 
The compulsory license for textbooks applies to foreign and 
domestic textbooks, although China had not yet received any 
complaints about such efforts.   No special protection is 
afforded to well known marks under the criminal law, 
although infringements of well known marks more easily 
cross the thresholds of criminality. 
 
U.S. Highlights Continuing Challenges, While EU and Japan 
Express Dissatisfaction, Canada Expresses Weakly Worded 
Concerns 
 
7. (U) The U.S. delegation separately delivered five 
additional questions to TRIPS Council for later response by 
China, as well as a statement which highlighted areas in 
which there had been improvements by China, as well as 
outlining underlying concerns.  The U.S. statement in 
particular highlighted concerns about national treatment in 
enforcement, continued problems in squatting, including 
design squatting, the need for enhanced criminal 
deterrence, a continuing problem with lack of transparency 
in the Chinese system, and the importance of efficient 
enforcement measures to small and medium enterprises who 
are encountering infringement in China and who lack a 
physical presence in China..  The United States also 
expressed its concerns about low levels of enforcement 
action taken on behalf of foreign rights holders, as well 
as lack of transparency in the administrative system 
generally.  The United States also noted that it believed 
that only a criminal justice system could adequately serve 
the need for effective deterrence in accordance with 
China?s own legal development and the TRIPS Article 61 
obligation to have criminal procedures and penalties. 
 
8.  (SBU) The Japanese delegation, relying upon METI?s 
?Field Survey for Infringement of Intellectual Property 
Right in China? completed on June 23, 2005 (available at: 
http://www.meti.go.jp/english/report/data/050 623ChinaIPR.ht 
ml), advised TRIPS Council that ?there still exists 
significant problem in IP protection and enforcement in 
China.?  In particular, application of administrative 
sanctions is not effective enough, and as a result repeated 
infringement is rampant.  At least one half of Japanese 
companies which use remedial procedures also experienced 
repeated infringement and  that Chinese IPR enforcement is 
insufficient to deter further infringements, the Japanese 
delegation explained.  Japan underscored the importance of 
enhanced criminal prosecution against IPR infringement. 
The Japanese delegation in a separate bilateral with USDEL 
advised that it had not received any complaints about 
famous brand issues in China, a subject of the USG TRM 
inquiry, and was interested in knowing further about this. 
 
9. (U) The European Commission delegation advised that the 
Chinese response was ?not as comprehensive and detailed? as 
it would have hoped, and that it would like to see more 
questions answered.  The EC noted some progress on IP 
enforcement in China but that, like other delegations, it 
remains ?highly concerned.?  The EC noted in particular 
that it would continue to work bilaterally, building upon 
its mid-October IPR Working Group meeting in Beijing. 
(Note:  Some recipients of this report also received (SBU) 
Beijing 17254, which provided a readout of that October 18 
EU-China IPR Working Group meeting.  Endnote.) 
 
10. (U) Canada noted its concern about Chinese 
infringements of products affecting public health and 
safety, such as pharmaceuticals, and that it was pleased to 
host a recent Chinese delegation on Internet copyright 
matters. 
 
11. (U) There were no interventions from any of the several 
countries currently negotiating Free Trade Agreements 
(FTAs) with China.   As in last year?s TRM an IPR delegate 
from a North African country privately expressed his 
concerns over increased counterfeiting of trademarks from 
his country in China and their export back to his country. 
In addition, he noted that these marks were also being 
squatted upon in China.  The scheduling of the TRM did not 
permit further extensive bilateral discussions with other 
missions. 
 
Chinese Delegation Gets Defensive 
 
12.  (SBU) The Chinese delegation, in its closing comments, 
rejected many of the assertions made by many countries that 
China was responsible for much of the world trade in 
counterfeit goods.The Chinese delegation also pointed out 
that many of the challenges China faces are  not unique to 
China, but are also being faced by many developed and 
developing countries.  This official specifically pointed 
to a recent criminal case involving two Americans in 
Shanghai who were convicted of selling pirated DVD?s over 
the Internet (Operation Spring), as well as other cases 
suggesting international involvement in the trade of 
counterfeit and pirated goods.  Comment: This was a long- 
anticipated first effort by China to use criminal justice 
cooperation with foreign countries to support its trade 
position in IPR and highlights the critical need for 
improved cooperation between trade and criminal justice 
authorities in the United States to ensure that criminal 
cases are prosecuted or presented that advance overall 
intellectual property and trade goals.  End comment. 
 
Bilateral Meeting: The First Legal Sparring Over TRIPS 
Article 63 
 
13. (U)   A separate bilateral meeting was held between the 
USG and China over outstanding bilateral issues.  The 
meeting had originally been scheduled before the TRIPS 
Council session, but was ultimately postponed until after 
the TRM, perhaps to afford a further opportunity to the 
Chinese delegation to consider how to respond to the 
Article 63 request in a bilateral, rather than a 
multilateral context. 
 
14. (U)   The delegate from China leading this discussion 
was Rong Min, from the Law and Treaties Division of China?s 
Ministry of Commerce (MOFCOM).  Mr. Rong advised that his 
government had not yet come to a final decision regarding 
how to respond to these requests.  However, in his view, 
the US government?s Article 63.3 request was governed by 
TRIPS Article 63.1 which limited such requests to ?final 
judicial decisions and administrative rulings of general 
application,? made effective by a Member.  As, in his view, 
China is not a common law country and lacks cases of 
precedential impact, he did not view Article 63.1 as 
applying to China.  With regard to Article 63.3, the first 
sentence of 63.3 was clearly governed by Article 63.1, as 
it stated that WTO members shall ?supply, in response to a 
written request from another Member, information of the 
sort referred to in paragraph 1.? The second sentence of 
Article 63.3 was also not applicable, as it stated that ?A 
Member, having reason to believe that a specific judicial 
decision or administrative ruling or bilateral agreement in 
the area of intellectual property rights affects its rights 
under this Agreement, may also request in writing to be 
given access to or be informed in sufficient detail of such 
specific judicial decisions or administrative rulings or 
bilateral agreements.? Because, in Mr. Rong?s view, the USG 
had not identified specific decisions of concern but had 
asked for information regarding all cases, the request was 
overly broad.  Moreover, Mr. Rong also expressed his 
opinion that Article 63.3 was a one-side authorization. 
The USG may make such requests, however there was no 
corresponding Chinese obligation to respond.  Mr. Rong 
suggested that a more appropriate legal basis would be 
Article 18 of China?s Protocol of  Accession to the WTO. 
Note:  Article 18 provides the legal basis for the TRM 
itself.   End  note.14.    The Chinese head of delegation 
however took pains to note in his final comments that the 
Chinese delegation would respond to the inquiry if it was 
in fact required under TRIPS and that it was willing to 
respond to many of the USG concerns outside of the WTO 
context. 
 
15. (U)   USTR General Counsel?s Stan McCoy led the U.S. 
response.  The U.S. advised that the reason that the 
request was being made was because the Chinese government 
had previously identified these decisions as important 
enough to distribute to TRIPS Council in statistical 
format.  There is no indication in the second sentence of 
Article 63.3 that it should be governed by Article 63.1. 
The U.S. also advised that a one-sided view that members 
could pose questions without any corresponding obligation 
would render the second sentence of 63.3 ineffective, which 
certainly could not have been the drafters? intent. 
Finally, the US government was prepared to work with China 
to make the work manageable.  Most importantly, Article 63 
was intended to avoid disputes by providing a basis for a 
cooperative exchange of information. 
 
16.  (SBU)  In a separate discussion after the bilateral 
meeting of delegations with the Beijing IPR Attach,, two 
Chinese IPR officials argued noted that  the scope of the 
U.S. request is too broad for them to easily implement as 
there are simply too many IPR administrative enforcement 
cases.  They would appreciate a narrower request on 
specific issues. 
 
Comment 
 
17. (SBU) Compared to last year?s TRM, this year?s TRM 
provided considerably less constructive information on 
developments in China?s IPR system. China was also 
noticeably less willing to engage multilaterally on the 
relevant issues.  It was too early to determine what 
impact, if any, the Article 63 request will have and how 
China will respond to it as well as the overall impact on 
these requests on bilateral dialogue, including Embassy 
Beijing?s Ambassador?s Roundtables on IPR protection in 
China in Beijing and Shanghai, the JCCT IPR Working Group 
meetings, and related efforts which will no doubt be the 
subject of separate cables from Beijing and Shanghai. 
AllGEIER