VZCZCXRO2509
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3296/01 3441244
ZNY CCCCC ZZH
O 101244Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7150
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHUL/AMEMBASSY SEOUL PRIORITY 1424
RUEHKO/AMEMBASSY TOKYO PRIORITY 0136
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 2558
RHMFISS/FBI WASHINGTON DC PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 7435

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 003296 
 
SIPDIS 
 
STATE FOR EAP/CM - WKLEIN, SFLATT 
STATE FOR EEB/CIP - SFLYNN, FSAEED 
USTR FOR AWINTER, JMCHALE, TWINELAND, JGRIER 
COMMERCE FOR ITA - IKASOFF, NMELCHER, ATING 
DOJ FOR CCIPS - MDUBOSE AND SCHEMTOB 
FBI FOR LBRYANT 
STATE FOR WHITE HOUSE OSTP AMBASSADOR RICHARD RUSSELL 
NSC FOR MELISSA HATHAWAY 
 
E.O. 12958: DECL: 12/10/2019 
TAGS: CM ECON ETRD PGOV SCUL SOCI
SUBJECT: INITIAL CHINESE REBUFF OF INDIGENOUS INNOVATION 
DEMARCHE NOT THE LAST WORD 
 
REF: SECSTATE 124680 
 
Classified By: Econ Minister Counselor William Weinstein for reasons 1. 
4 (b) and (d). 
 
¶1.  Confidential - entire text. 
 
¶2. (C) SUMMARY: Ambassador Huntsman transmitted reftel 
demarche points under cover of a letter to the Ministers of 
MOST, MOF and the NDRC on December 9.  Separately, emboffs on 
December 10 delivered reftel demarche to Ministry of Finance 
(MOF) Deputy Director General Wang Ying.  Ms. Wang, MOFs lead 
on government procurement issues, asserted U.S. concerns were 
unwarranted.  She gave a lengthy series of "clarifications" 
of the November 6 Circular, which she claimed in no way 
contradicted PRC commitments at the SnED and JCCT to treat 
Foreign Invested Enterprise (FIE)-produced products the same 
as domestic products for the purposes of government 
procurement.  When pressed at the close as to whether her 
points represented China's official interagency response to 
our demarche, Wang demurred that it was instead her 
"personal" view, noting there would be further and extensive 
coordination with relevant agencies on this "very 
complicated" issue.  She did not make any commitment to 
suspending the Circular's implementation. END SUMMARY. 
 
¶2. (C) On December 09 Ambassador Huntsman transmitted reftel 
demarche points on indigenous innovation/government 
procurement  under cover of a personal letter to Minister of 
Science and Technology (MOST) Minister Wan Gang, Minister of 
Finance Xie Xuren, and National Development and Reform 
Commission Chairman Zhang Ping. (Text of cover letter sent by 
email to Washington agencies).   No direct responses to the 
Ambassador's communication have been received .  MOF had 
turned down earlier urgent requests for meetings this week at 
the Director General (DG) level with Econ Minister Counselor 
Weinstein, as had the NDRC and Ministry of Science and 
Technology (MOST), claiming no appropriate official was 
available to receive the demarche.  Eventually, Econ External 
Unit Chief Candy Green and Commerce's Market and Compliance 
Office Director Teresa Howes obtained an appointment to 
deliver reftel demarche on December 11 to Ministry of Finance 
(MOF) Deputy Director General of the Department of Treasury 
Wang Ying (MOFs lead on government procurement and WTO 
Government Procurement Agreement (GPA) accession.) 
 
¶3. (C) Stressing the importance the United States attaches to 
this issue, Green and Howes orally presented demarche points 
in their entirety and handed over an unofficial Embassy 
translation in Chinese.  Ms. Wang said she was glad to 
discuss this issue of obviously serious concern to the U.S., 
noting the "unprecedented pressure" applied by the United 
States on this issue in the past few days.  Wang cited the 
team of office directors by her side as proof of the matching 
seriousness of the PRC.  She had received a copy of 
Ambassador Huntsman's letter to her Minister at the opening 
of business December 10 and had been working all day on 
preparing a response. 
 
¶4. (C) Wang delivered a polite but lengthy monologue 
rebutting all the U.S. concerns as unwarranted. She averred 
that the subject circular (issued November 6 by MOST, MOF and 
NDRC) did not violate in any way the Chinese government's 
commitments on government procurement at the July SnED and 
October JCCT.  Nor, she claimed, did it contradict the 
non-discrimination provisions of the WTO.  The rationale: 
the circular's provisions are about "accreditation" of 
indigenous innovation products (IIPs) in a "broad sense", not 
about accreditation for IIPs under government procurement per 
se.  (Wang later noted, however, that the PRC was considering 
formulation of a government procurement catalogue for IIPs - 
the next  link in this chain -  but that work was still 
incomplete.  She did not see any logical contradiction here.) 
 
 
BEIJING 00003296  002 OF 003 
 
 
¶5. (C) Judging from our demarche, Wang continued, the United 
States also appeared to have "confused" the registration of 
IIPs with the registration of domestic (vice foreign) 
products.  The PRC's SnED and JCCT commitments were in 
reference to the definition of domestic products.  Definining 
IIPs was about intellectual property rights and innovation 
content, Wang elaborated, and not about domestic versus 
foreign products.  China's government was fully committed to 
following up commitments it had made in the SnED and JCCT on 
giving equal treatment to products produced by FIEs in China. 
A separate process was underwray for accreditation of 
domestic products. 
 
¶6. (C) Furthermore, the PRC had been entirely open and 
transparent in this process, Wang opined, despite U.S. 
demarche concerns to the contrary.  The PRC had published all 
the accreditation standards, application materials and 
procedures to qualify as an IIP.  The Circular itself had 
been posted on web sites of the issuing agencies.  After 
completion of the accreditation process, which would be 
managed centrally, the catalogue of qualifying products would 
also be published openly. 
 
¶7. (C) Wang described at length the context and justification 
for China's concerted policies to promote indigenous 
innovation, noting that despite attracting large amounts of 
foreign investment and advanced technology, there still 
remained a gap between these advances and technical 
innovations being made in China.  These "contradictions" 
restricted China's further development.  Key policy 
initiatives (like the Circular in question) are now being 
developed to cultivate an admosphere in which technical and 
economic innovation can flourish.  She said the United States 
also encourages indigenous innovation, noting satellite 
technologies and USG practices for identification of 
contractors (in strategic sectors) as examples. 
 
¶8. (C) Green expressed appreciation for the detailed response 
from Wang and noted it would be communicated to Washington. 
Our initial reaction, however, was that U.S.concerns remained 
as stated in the demarche, and we strongly urged China to 
suspend implementation of the Circular until such time as our 
concerns regarding it had been fully addressed.  She argued 
that innovation and IPR could not be credibly separated from 
the products in which they were integrated for the purposes 
of meeting China's JCCT and SnED commitments.  She also 
disputed China's transparency and openness in this process, 
noting that companies needed to be able to engage in dialogue 
with the PRC before standards were set to judge accreditation 
of IIPs -- not just read about them as a fait accompli. Howes 
pointed out that China's actions in this arena would chill 
innovation-heavy foreign investment and discourage economic 
growth in this area. 
 
¶9. (C) Wang said she would convey the substance of the 
meeting to her Minister and be in close consultations with 
other PRC entities on this "very complicated" issue.  She was 
not optimistic about suspending the implementation of the 
Circular's provisions, saying this process was a public one 
and such a delay would damage the government's credibility. 
Though Wang indicated at the outset that she had been 
investigating this issue with other involved agencies in 
preparation for our meeting, when pressed afterwards on 
whether her response represented an interagency cleared view 
she more cautiously stated it was merely her "personal" one. 
 
¶10. (C) COMMENT: Future high-level pressure on the PRC, 
particularly in tandem with other concerned governments, 
could usefully continue to link our larger concerns over 
discrimination against non-indigenous IP to the most 
immediate goal of suspending the circular.  We will also need 
to be prepared to respond to PRC rebuttals that USG 
procurement policies also support domestic innovation, 
particularly in strategic sectors.  END COMMENT. 
 
BEIJING 00003296  003 OF 003 
 
 
 
 
HUNTSMAN