Trade Complains About China’s WTO Compliance for IPR, Currency, Customs

USTR sought comments on this issue in August 2010 to help it prepare for the agency’s annual report to Congress on the topic. (See ITT’s Online Archives or 08/03/10 news, 10080325, for BP summary of USTR’s request.)

Piracy and IPR Infringement Continue Despite Two WTO Wins

According to the International Intellectual Property Alliance (IIPA), despite the positive outcome of two 2009 WTO cases on China’s intellectual property rights (IPR) inadequacies in which the U.S. largely prevailed, success will only occur if China actually implements these rulings.

In addition, numerous issues remain. For example, China’s Criminal Law fails to subject to criminal liability the infringement of some exclusive rights which constitute “copyright piracy on a commercial scale.” China has also never brought a criminal case against the unauthorized use of business software in a business setting, even in egregious cases. In addition, China does not immediately seize infringing copies of titles intended for release as packaged products and which are still undergoing censorship review, resulting in inadequate protection and enforcement.

Textiles Still Subsidized, Including Currency “Subsidy”, Despite WTO Win

Several organizations complained of continued subsidization of Chinese industries. For example, the National Council of Textile Organizations (NCTO) states that China has failed to act in accordance with its WTO commitments because it continues to administer massive subsidies, often WTO-illegal, to its textile and apparel industry, including a significant undervaluation of the Chinese Yuan.

NCTO states that three years ago, it conducted an analysis of Chinese subsidies which found 73 subsidies applicable to China’s domestic textile industry. Though USTR responded to some of NCTO’s complaints by launching the WTO “Famous Brands” case, resolution of this case did not force China to end its other subsidies. As a result, most of the subsidies on the NCTO list are still in place.

Indigenous Innovation, Procurement Policies Disadvantage U.S. Firms

The U.S.-China Business Council states that China’s efforts to link its “Indigenous Innovation” policies to government procurement are particularly troubling. The Council explains that in 2009, China issued a draft central-level procurement catalogue that sought to provide procurement benefits for domestic products that acquired indigenous innovation status. Since very few goods produced by foreign-owned companies have made local government lists, it seems that the policy is intended to skew competition for government purchases in favor of Chinese companies.

Certification and Testing are Barriers due to China’s Lack of Lab Capacity, Etc.

According to the U.S. Council for International Business (USCIB), the Chinese government has established numerous certification, licensing, and testing requirements on products services, and production materials. In most cases, these requirements involve government approval of all covered products and materials before these are allowed to enter the market. Due to the lack of capacity to administer the requirements, or infrastructure (e.g., qualified laboratories) to carry out the requirements, the requirements often function as barriers to those products' and materials' access to the Chinese market. Examples include the new chemical registration regime, the battery registration regime, the imported pharmaceuticals program, and the regime for restricting the material content of electronic products.

Lack of Fairness & Transparency in Antidumping Procedures

The USCIB is also concerned about a lack of transparency and procedural fairness in China’s antidumping process. For example, Chinese authorities proceed to accept incorrect and misleading statistics without disclosing actual data submitted, and not in a summarized form. In addition, Chinese customs authorities struggle with proper classification procedures, misclassifying products, resulting in erroneous conclusions based on inaccurate statistics in both the dumping and injury phases of AD cases.

Customs Reform, Modernization and Simplification Needed

Several comments stated that China needs to pursue customs reform, modernization and simplification. Among other things, China was urged to do more than partially adhere to the ATA Carnet conventions for temporary, duty-free imports and to adhere to the conventions for Professional Equipment and Commercial Samples. There was also concern about a May 2010 regulation which introduced a new importer and exporter registration system and HS code for Low Value Shipments. In addition, there was criticism of Customs clearance being performed at origin or destination, not at port-of-entry or exit, promoting additional fragmentation of customs authority and supervision. China‘s IT systems for customs clearance was also criticized for not meeting modern standards or China‘s economic growth needs.

Suggest USTR Seek WTO Action, Focus on Tangible Outcomes, Etc.

There were many suggestions for USTR action with China, some of which include:

• seek meaningful, results-oriented implementation of existing WTO cases;
• continue to press for strong WTO-consistent enforcement;
• address barriers and industrial policies that impose discriminatory requirements on foreign companies and rights holders; and
• focus less on one-off commitments made at annual ministerial meetings and more on tangible results such as increasing overall sales and exports to China.

(D/N USTR--2010--0019)