China's Broken Promises
June 26, 2019
I’ll mostly just post quotes from the USTR’s (United States Trade Representative) 2017 report to Congress on China’s WTO compliance without comment. Obviously, if you believe the US not to be trustworthy on such matters (or perhaps just the USTR?), then this won’t convince you of any wrongdoing by the Chinese. The same allegations are repeated by European Union member states, the European Union, Japan and Canadian authorities, to name the most important ones. I doubt that they’re all lying.
For example, at the 2010 S&ED meeting, the 2012 S&ED meeting, the 2012 Obama-Xi summit meeting and the 2014 JCCT meeting, China committed that foreign companies are free to base technology transfer decisions on business and market considerations and to independently negotiate and decide whether and under what circumstances to assign or license intellectual property rights to affiliated or unaffiliated enterprises. It seems clear, however, that China’s regulatory authorities do not allow U.S. companies to make their own decisions about technology transfer and the assignment or licensing of intellectual property rights, but instead continue to require or pressure foreign companies to transfer technology as a condition for securing investment or other approvals.
China also has repeatedly committed not to link government procurement preferences to the ownership or development of intellectual property (IP) in China, including at the 2010 JCCT meeting, the 2011 S&ED meeting and the 2011 JCCT meeting. However, as recently as the November 2016 JCCT meeting, the United States brought to China’s attention more than 30 provincial and local measures linking government procurement preferences to the ownership or development of IP in China. Outside the government procurement context, China also has made broad commitments to treat IP owned or developed outside China the same as IP owned or developed in China, including at the 2012 S&ED meeting, the 2014 JCCT meeting and the 2015 JCCT meeting. Still, China continues to pursue myriad policies outside the government procurement context that require or favor the ownership or development of IP in China.
At the 2015 Obama-Xi summit meeting, the 2016 S&ED meeting and the 2016 JCCT meeting, China committed that its “secure and controllable” information and communications technology (ICT) policies applicable to the commercial sector will not unnecessarily limit or prevent commercial sales opportunities for foreign suppliers of ICT products, services and technologies and will not impose nationality-based conditions and restrictions on the purchase, sale or use of ICT products, services and technologies by commercial enterprises unnecessarily. Nevertheless, China continues to pursue myriad mercantilist policies under the guise of cybersecurity, as evidenced by, among other things, significant declines in commercial sales of foreign ICT products and services in China.
China has repeatedly committed to review applications of agricultural biotechnology products in a timely, ongoing and science-based manner and to implement specific changes to the review process, including at the 2015 Obama-Xi summit meeting, the 2015 JCCT meeting and the 2016 S&ED meeting and during the run-up to the 2017 CED meeting. Undeniably, however, China’s approval process remains troubling, as the Chinese regulatory authorities continue to review applications slowly and without scientific rationale, while Chinese companies continue to try to build up their own capabilities in the area of agricultural biotechnology. China even issued a new measure after the 2016 S&ED meeting that added ambiguity and delay to the approval process, without making the previously promised changes.
For example, confidential accounts from nonChinese enterprises indicated that Chinese government officials, acting without fear of legal challenge, at times required these enterprises to transfer technology as a condition for securing investments approvals. Similarly, in the trade remedies context, China’s regulatory authorities at times seemed to pursue antidumping (AD) and countervailing duty (CVD) investigations and impose duties for the purpose of striking back at trading partners that legitimately exercised their rights under WTO trade remedy rules. As three WTO cases won by the United States confirm, China’s regulatory authorities pursued these investigations even when necessary legal and factual support for the duties is absent. In addition, U.S. industry and industries from other WTO Members have asserted that China’s competition policy enforcement authorities not only target foreign companies, but also at times use Anti-monopoly Law investigations as a tool to protect and promote domestic national champions and domestic industries.
The United States secured a series of similar commitments from China in the government procurement context, where China agreed to de-link indigenous innovation policies at all levels of the Chinese government from government procurement preferences, including through the issuance of a State Council measure mandating that provincial and local governments eliminate any remaining linkages by December 2011. Nearly five years later, however, this promise had not been fulfilled. At the November 2016 JCCT meeting, in response to U.S. concerns regarding the continued issuance of scores of inconsistent measures, China announced that its State Council had issued a document requiring all agencies and all sub-central governments to “further clean up related measures linking indigenous innovation policy to the provision of government procurement preference.” Again, the United States should not have to seek the same promises over and over through multiple negotiations.
The United States and other WTO members also have continued to press China to notify all of its subsidies to the WTO in accordance with its WTO obligations. Since joining the WTO 16 years ago, China has not yet submitted to the WTO a complete notification of subsidies maintained by the central government, and it did not notify a single sub-central government subsidy until July 2016, when it provided information only on sub-central government subsidies that the United States had challenged as prohibited subsidies in a WTO case.
An apparently positive development took place at the July 2014 S&ED meeting, when China committed to improve its VAT rebate system, including by actively studying international best practices, and to deepen communication with the United States on this matter, including regarding its impact on trade. Once more, however, this promise remains unfulfilled. To date, China has not made any movement toward the adoption of international best practices.
In 2017, China continued to place unwarranted restrictions on foreign companies, including major U.S. credit card processing companies, that have been seeking to supply electronic payment services to banks and other businesses that issue or accept credit and debit cards in China. In a WTO case that it launched in 2010, the United States argued that China had committed in its WTO accession agreement to open up this sector in 2006, and a WTO panel agreed with the United States in a decision issued in 2012. China subsequently agreed to comply with the WTO panel’s rulings in 2013, but China did not take needed steps even to allow foreign suppliers to apply for needed licenses until June 2017.
In its WTO accession agreement, China committed to make available translations of all of its trade-related laws, regulations and other measures at all levels of government in one or more of the WTO languages, i.e., English, French and Spanish. Prior to 2014, China had only compiled translations of traderelated laws and administrative regulations (into English), but not other types of measures, and China was years behind in publishing these translations. At the July 2014 S&ED meeting, China committed that it would extend its translation efforts to include not only trade-related laws and administrative regulations but also trade-related departmental rules. Subsequently, in March 2015, China issued a measure requiring trade-related departmental rules to be translated into English. This measure also provides that the translation of a departmental rule normally must be published before implementation. This measure, even if fully implemented, is not sufficient to bring China into full compliance in this area. The United States has pressed China to ensure that it also publishes translations of trade-related laws and administrative regulations before implementation, as required by China’s WTO accession agreement.
In a WTO case initiated in September 2010, the United States challenged China’s restrictions on foreign suppliers of electronic payment services. Suppliers like the major U.S. credit card companies provide these services in connection with the operation of electronic networks that process payment transactions involving credit, debit, prepaid and other payment cards. They also enable, facilitate and manage the flow of information and the transfer of funds from cardholders’ banks to merchants’ banks. China’s regulatory regime places severe restrictions on foreign suppliers of electronic payment services. Among other things, China prohibits foreign suppliers from handling the typical payment card transaction in China, in which a Chinese consumer is billed and makes payment in China’s domestic currency, known as the renminbi, or RMB. Instead, China has created a national champion, allowing only one domestic entity, China Union Pay (CUP), to provide these services. Consultations were held in October 2010. A WTO panel was established to hear this case at the United States’ request in March 2011, and six other WTO members joined the case as third parties. Hearings before the panel took place in October and December 2011, and the panel issued its decision in July 2012. The panel ruled that China’s commitments under the General Agreement on Trade in Services (GATS) required China to allow foreign suppliers to provide electronic payment services for payment card transactions denominated in RMB through commercial presence in China on non-discriminatory terms. China decided not to appeal the panel’s decision and subsequently agreed to come into compliance with the WTO’s rulings by July 2013. To date, however, China has failed to come into compliance.
Can you expect a fair hearing if you sue in China?
This is from the Wall Street Journal:
Huntsman is battling over a crown jewel of its business, a black dye used in textiles that is less polluting to make. It filed a lawsuit in Shanghai against a Chinese company for infringing a patent on the dye in 2007. Huntsman then found a court-appointed review panel stacked against it, it said in a 2011 complaint it filed with the U.S. Commerce Department.
The three-panel members included an engineer from the company Huntsman was suing, another from a local dye-research group and a third who once worked at a local dye firm, according to the complaint and people with knowledge of the matter. The experts’ work “effectively turned them into allies and ‘spokespersons’ ” for the Chinese competitor, the complaint said.
This might shed some light on how the Chinese approach the WTO. It’s from this paper at the Singapore Management University:
Some of the thinking that informed China’s more-aggressive new strategy in WTO litigation is revealed in the following analysis of Mexico’s litigation strategy in the Soft Drinks case10 by Dr. Ji Wenhua, an official in charge of dispute settlement activities at China’s WTO Mission in Geneva. In the article he published in the July 2006 issue of the China WTO Tribune – a monthly journal on trade policy published by MOFCOM and edited by Dr. Zhang Xiangchen – then DirectorGeneral of the Treaty and Law Department of MOFCOM, Ji noted that Mexico fought an uphill battle in the case brought against it by the US, but made a good effort defending its case.
According to Ji:
In this case, Mexico’s legal position was rather weak, but it has made an unrelenting effort by raising many arguments which are tenuous at best and fighting a losing battle. While we should not publicly praise such litigation strategy and attitude, this case still offers us some worthy lessons: under certain circumstances, we should try to employ some strategies, including resorting to sophistry and delay tactics.
As a respondent, we should try to come up with as many factual and legal arguments as possible. Even if such arguments are mere sophistry, or made for purposes such as creating artificial difficulties for the panel, gaining sympathies, diverting the attention of other parties, or delaying the progress of the case, they are justified so long as they serve to protect our own interests.
Comments coming soon.