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R 160649Z MAY 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 7937
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1826
RUEAHLC/DHS WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC

UNCLAS BEIJING 003273 
 
SIPDIS 
 
INFO CHINA POSTS 
 
USDOC FOR NATIONAL COORDINATOR FOR IPR 
ENFORCEMENT - CISRAEL 
USDOC FOR ITA/OCEA/MCQUEEN 
USDOC FOR ITA DAS KASOFF 
USDOC PASS USPTO FOR DUDAS, ANTHONY, BOLAND, WU, 
TONG 
STATE PASS USTR FOR STRATFORD, WINTER, ALTBACH, 
ESPINEL, BAE, MCCOY, CELICO 
GENEVA PASS USTR 
STATE ALSO FOR H 
STATE PSS US-CHINA ECONOMIC AND SECURITY REVIEW 
COMMSSION 
USDOJ FOR CCIPS - ASHARRIN 
USDOJ FOR CHEMTOB 
FTC FOR BLUMENTHAL 
FBI FOR LBRYANT 
TDA FOR SCHOW 
DHS/ICE FOR IPR CENTER - DFAULCONER 
DHS/CBP FOR IPR RIGHTS BRANCH - PPIZZECK 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ETRD KIPR EIND PREL WTRO CH
SUBJECT: CHINA/IPR:  U.S.-CHINA ECONOMIC AND 
SECURITY REVIEW COMMISSION EXPRESSES CONCERNS TO 
MOFCOM 
 
¶1. (SBU) Summary: In an April 23 meeting with the 
U.S.-China Economic and Security Review 
Commission (USCC) that focused on the state of 
IPR protections in China, Ministry of Commerce 
(MOFCOM) North American Affairs Deputy Director 
General Jin Xu told USCC Chairwoman Carolyn 
Bartholomew and other delegation members that 
China continues to take IPR matters seriously and 
has made more progress in recent years in areas 
such as education and enforcement.  Jin pointed 
to efforts by MOFCOMQs IPR Working Group, 
including its annual release of Action Plans on 
IPR Protection, as evidence that China is making 
real progress.  Repeating official positions, Jin 
noted that ChinaQs IPR situation is not unique in 
the world and that others should look at the 
structure of ChinaQs judicial system to 
understand how ChinaQs IPR enforcement worked. 
MOFCOM Fair Trade Bureau Office Director Liu 
Danyang raised the issue of the United States 
Department of CommerceQs countervailing duty 
assessment against certain Chinese paper 
manufacturers, calling it a form of 
discrimination stemming from a miscalculation by 
the Department of Commerce.  USCC delegation 
members urged Jin to recognize that, despite 
ChinaQs claims of progress, United States 
businesses continue to complain about a lack of 
improvement in ChinaQs IPR environment and that 
there are growing concerns about ChinaQs decision 
to create categories of state-supported Qpillar 
industries.  End Summary. 
 
MOFCOM Claims IPR Progress, 
But Gives Few Examples 
--------------------------- 
 
¶2. (SBU) In an April 23 meeting with the U.S.- 
China Economic and Security Review Commission 
(USCC), Ministry of Commerce North American 
Affairs Deputy Director General Jin Xu said that 
China continues to take IPR matters seriously and 
has made more progress in recent years in areas 
such as education and enforcement.  ChinaQs 
annual March 15 QConsumer Rights Protection Day 
and a 2006 conference in Xiamen to solicit IPR 
feedback from the international business 
community and Chinese provincial governors are 
examples of how China continues to improve its 
IPR environment.  As further evidence of ChinaQs 
efforts, MOFCOM IPR Working GroupQs Chou Zhongyi 
cited the release of the 2007 Action Plan on IPR 
Protection which covered 276 measures over 10 
issue areas, larger than the 2006 IPR Action Plan 
which contained only 160 measures.  When asked 
for additional examples of recent IPR progress, 
however, Chou did not give any further 
information and instead referred the delegation 
to the 2007 Action Plan web site for more 
information. 
 
¶3. (SBU) In response to a USCC question on how 
China would manage innovation and patent policy 
as the country developed further, Chou said that 
 
 
 
 
China is working on measures as part of President 
Hu JintaoQs plan for China to become an 
Qinnovative countryQ by 2020.  China held a 
technology innovation conference in January 2006 
to address these very issues, and Chou affirmed 
that the concept of IPR-protected innovation is 
fundamental to ChinaQs plans.  Chou also 
acknowledged that, according to Chinese patent 
law, those who invest resources in a discovery 
are the owners of the patent.  The purpose of 
measures that support innovation is to guarantee 
the patent ownership incentive. 
 
Only General Explanations 
For China's IPR System 
------------------------- 
 
¶4. (SBU) Asked specifically what mechanisms 
MOFCOM uses to bring IPR problems to the 
attention of the ChinaQs legislating bodies, DDG 
Jin said that the IPR Working Group under the 
leadership of Vice Premier Wu Yi cooperates 
closely with 30 different Chinese government 
offices to develop practical approaches and make 
laws more effective.  Jin noted that China now 
had Qtens of thousandsQ of people in government 
working on IPR enforcement, and it is important 
for others to understand that China uses both 
administrative measures and criminal enforcement 
as tools in IPR protection. 
 
¶5. (SBU) USCC Commissioner Richard DQAmato 
recalled that a Chinese IPR analyst had once 
recommended that China create an intermediate 
level court of appeals specifically to address 
IPR cases whose hearings would otherwise be 
delayed by backlogs in higher courts.  MOFCOM 
Fair Trade BureauQs Liu Danyang said that the 
idea should be discussed with the courts 
themselves, and he questioned what jurisdictions 
such a court would cover.  IPR Working GroupQs 
Chou added that ChinaQs judicial system already 
has Qone to two thousand judgesQ specializing in 
IPR issues.  Furthermore, he said, although China 
does not have dedicated courts for IPR, there are 
divisions in the judicial system that already 
cover those issues. 
 
¶6. (SBU) USCC Commissioner Jeffrey Fiedler 
encouraged the Chinese delegation to consider 
that the politics in the IPR dispute between the 
United States and China are real, and suggested 
that Chinese officials not be too outwardly 
sensitive that certain groups in the United 
States may seem unaware of the full scope of 
ChinaQs efforts on the IPR front.  Regardless of 
ChinaQs efforts, losing money and jobs due to IPR 
violations in China is still likely to upset 
United States businesses, and many in the United 
States thought that the USTRQs WTO complaint 
against ChinaQs IPR violations did not go far 
enough.  Delegation members also expressed 
concern that the creation of Qpillar industry 
categories in China is causing heightened concern 
 
 
 
 
about subsidies for Chinese firms and how those 
firms behave internationally.  Jin answered that 
the creation of pillar industries is a result of 
ChinaQs changing economy and a new focus on 
energy and infrastructure.  China, he said, is 
even looking to develop domestic manufacturing 
capacity in specific sectors like aviation that 
could lead to export opportunities. 
 
MOFCOM Upset by USTRQs WTO Filings 
and Commerce CVD Determination 
---------------------------------- 
 
¶7. (SBU) On the issue of USTRQs filing of a WTO 
case against China for IPR violations, MOFCOM IPR 
Working GroupQs Chou said China was Qdisturbed 
and QregrettedQ USTRQs action.  China understands 
that IPR is a necessity of development, but 
pressure from the United States and EU is not the 
right way to achieve progress.  Jin later told 
the delegation that China needs its American 
friends to tell the United States people and 
policymakers about ChinaQs progress in IPR. 
 
¶8. (SBU) On the issue of the Department of 
CommerceQs preliminary find of countervailing 
duties (CVD) on coated free sheet paper from 
China, Fair Trade Bureau Office Director Liu said 
that the United States has Qmisunderstood 
subsidies in China.  Every country has some 
subsidies, he said, some of which are even 
allowed by the WTO.  Liu insisted that China does 
not have as many subsidies as the United States 
presumed.  Citing the example of four previous 
CVD complaints from Canada, Liu said that three 
cases were determined not to have subsidies, and 
in the one case where a subsidy was determined to 
exist, it was small, only 3-5 percent.  In this 
coated paper case, Liu said, the Department of 
Commerce used a Qsurrogate benchmarkQ on the loan 
rate to calculate the subsidy, which was the 
wrong methodology to use and resulted in double- 
counting.  This determination, which Liu called a 
form of discrimination, was unfair to Chinese 
companies and is having negative effects on 
Chinese industry.  He urged USCC to play a role 
in talking with the Department of Commerce to 
find a way out of this legal issue.  Both sides 
should seek to increase the benefits of the 
relationship, he said, not make more problems. 
 
Meeting Participants 
-------------------- 
 
¶9. (U) United States Participants: 
Carolyn Bartholomew, Chairwoman, USCC 
Daniel Blumenthal, Vice Chairman, USCC 
¶C. Richard DQAmato, Commissioner, USCC 
Jeffrey Fiedler, Commissioner, USCC 
Kerri Houston, Commissioner, USCC 
Larry M. Wortzel, Commissioner 
Marta McLellen, Analyst, USCC 
Dante Paradiso, Embassy Beijing Political Officer 
Michael Pignatello, Embassy Beijing Economic 
 
 
 
 
Officer (note taker) 
 
¶10. (U) Chinese Participants: 
Jin Xu, Deputy Director General, North American 
Affairs, Ministry of Commerce 
Chou Zhongyi, Officer, IPR Working Group, 
Ministry of Commerce 
Liu Danyang, Office Director, Fair Trade Bureau, 
Ministry of Commerce 
Tan Yuwei, Assistant, North American Affairs, 
Ministry of Commerce 
Gong Rui, Assistant, North American Affairs, 
Ministry of Commerce 
 
¶11. (U) The USCC delegation has cleared this 
report. 
 
RANDT