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DE RUEHBJ #3395/01 3520856
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O 180856Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7291
RHEHNSC/NSC WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEAWJA/DEPT OF JUSTICE WASHDC IMMEDIATE
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RUEHIN/AIT TAIPEI IMMEDIATE 7441
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE
RUEHUL/AMEMBASSY SEOUL IMMEDIATE 1441
RUEHKO/AMEMBASSY TOKYO IMMEDIATE 0156

UNCLAS SECTION 01 OF 02 BEIJING 003395 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM - WKELIN, SFLATT 
STATE FOR EEB/CIP - SFLYNN, FSAEED 
USTR FOR AWINTER, TWINELAND, JGRIER, JMCHALE 
COMMERCE FOR ITA - IKASOFF, NMELCHER, JWU 
DOJ FOR CCIPS - MDUBOSE, SCHEMTOB 
FBI FOR LBYRANT 
STATE FOR WHITE HOUSE OSTP AMBASSADOR RICHARD RUSSEL 
NSC FOR MHATHAWAY 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV EINV CH
SUBJECT: INDIGENOUS INNOVATION - KEY MINISTRY CLAIMS TO BE 
PREPARING PUBLIC RESPONSE 
 
REF: A. SECSTATE 124680 
     ¶B. BEIJING 3379 
     ¶C. BEIJING 3296 
     ¶D. BEIJING 3209 
 
¶1. (SBU) Summary. Embassy delivered Ref A demarche to 
Ministry of Science and Technology (MOST), December 18, 
regarding the joint MOST, Ministry of Finance, and National 
Development and Reform Commission Circular 618 creating a 
national accreditation system for indigenous innovation. 
MOST officials echoed earlier arguments that promoting 
"indigenous innovation" did not equate to discrimination 
against foreign companies or products, but stressed that the 
catalogue system was still being developed and they were open 
to adjusting it based on input from foreign companies and 
other concerned parties.  (Comment:  Despite this seemingly 
positive tone, the fact that MOST has to date denied industry 
associations' requests for meetings casts doubt on MOST's 
openness to industry input.  End comment.)  MOST also noted 
it is preparing a public response to international pressure 
brought by industry and governments, but did not offer 
timing.  End Summary. 
 
¶2. (SBU) December 18, Acting Econ Minister Counselor Forden 
and MAC Director Howes delivered Ref A demarche to Ministry 
of Science and Technology (MOST) Director Americas Division 
Wang and Department of Development and Planning Director Liu. 
 MOST has been the most recalcitrant of ministries in our 
attempt to deliver and discuss the joint MOST, Ministry of 
Finance (MOF), and National Development and Reform Commission 
(NDRC) Circular 618 (dated November 17, 2009) creating an 
accreditation system for national indigenous innovation. 
(Please see Refs B and C for additional demarche reports and 
Ref D for originating reporting on the China's National 
Indigenous Innovation Accrediation system.)  Explaining the 
demarche had already been passed from Ambassador Huntsman to 
the Ministers of MOST, NDRC, and MOF, Forden and Howes noted 
strong concern evidenced by the escalating interest in this 
issue from international industry and foreign missions and 
noted additional increased high-level governmental pressure 
would follow unless a workable solution is found to address 
concerns over the accreditation system. 
 
¶3. (SBU) Wang and Liu offered a number of shifting arguments 
in an attempt to justify the system.  While calling the 
system "nondiscriminatory" because it allows entities of any 
national background to apply, they did not address the fact 
that criteria de facto exclude products, including those 
based on foreign-derived intellectual property from receiving 
accreditationQWang stated that MOST's budget to promote 
innovative collaboration had increased several-fold since 
2007's Rmb 27 million (USD 4 million), and sought to justify 
the accreditation system by claiming many other MOST measures 
to promote indigenous innovation did not raise discriminatory 
national treatment concerns.  Wang and Liu also sought to 
justify the accreditation system by claiming it was in a 
"trial phase" that is still in development and offered to 
remain open to input and consultation regarding how to modify 
the accreditation system.  (Comment: today's meeting with 
MOST took inordinate amounts of effort to obtain and was 
originally scheduled at the Director General-level.  The last 
minute switch to a lower-level suggests MOST's claims to 
desire engagement on resolution is disingenous.  End 
comment.)  Director Wang noted MOST is preparing a public 
response to the numerous letters and demarches that the PRC 
has received recently on this issue, but did not offer 
specific timing. 
 
¶4. (SBU) On another tack, ECON and FCS met December 17 with 
more than 30 reps from companies and industry associations 
(USCBC, AmCham, USITO) to discuss next steps on Circular 618. 
 We heard strong consensus in support of continuing a 
broad-based effort to suspend implementation of the 
indigenous innovation accreditation system.  Firms that may 
 
BEIJING 00003395  002 OF 002 
 
 
be directly affected, such as Cummins, GE, and Microsoft were 
on board, as were component supplier firms such as Tyco, ABB, 
and Dow Chemical.  All of them expressed deep concern that if 
indigenous innovation policies move forward as currently 
understood, their business here would be severely affected. 
 
¶5. (SBU) There is also growing realization that two of the 
core high-tech fields eligible for accreditation (1. new 
energy and equipment and 2. highly-energy efficient products) 
will increase difficulties for major energy players, such as 
GE and the automobile industry, given clear trends to promote 
green technology and energy-efficient vehicles by the Chinese 
government.  All members said FIEs here are defacto excluded 
from the indigenous innovation system as currently 
understood, given the IP and Trademark local origin 
requirements.  They also questioned how "innovation" is 
supported by the "TM" requirement, given that is a branding 
tool with little or no relation to innovation.  Industry also 
raised concern over negative local media reporting attempting 
portraying the system as a "David v Goliath" battle with the 
U.S. and noted local citizen interest has not percolated up 
in support of international concerns, remaining sympathetic 
thus far with the PRC's efforts on behalf of China. 
 
¶6. (SBU) Our foreign mission colleagues additionally have 
recently reported the following developments:  EU Commission 
Head of Delegation Serge Abou sent a letter to MOST/MOF/NDRC 
Ministers on December 15.  Then Japanese Embassy in Beijing's 
Econ MC sent letters to MOST/NDRC/MOF expressing concern and 
requesting meetings, but has yet to receive appointments. 
The UK Ambassador is writing to MOFCOM this week on market 
access issues, and has been requested by his Econ Team to 
include points on indigenous innovation.  The Canadian 
Embassy reported they are still reviewng the issue.  The EU 
Chamber also sent a letter this week to the three relevant 
ministers, raising a number of clarifying questions, with 
language protesting such an accreditation system as "sullying 
China,s existing image as a highly attractive trade and 
investment destination." 
 
¶7. (SBU) Comment.  Mission China will continue to push U.S. 
industry stakeholders to engage with relevant PRC agencies to 
address concerns over the accreditation system, in hope of a 
suspension of the system before longer-term practical 
consequences ensue for concerned industry groups.  We also 
will continue to seek opportunities to press the message with 
key government agencies.  Signals to date still indicate 
possible room for the Chinese to finesse a solution and we 
support crafting forward messaging to facilitate face-saving 
room for manuever.  End comment. 
GOLDBERG