49. The representative of the United States said that for this final transitional review of China his delegation wished to share with Members its observations on China's first 10 years of WTO membership.
50. He recalled that the transitional review mechanism (TRM) had been created largely because China had joined the WTO before it had revised or adopted laws and regulations necessary to implement its WTO obligations, and had been allowed a variety of transition periods before full implementation. The annual TRM meetings therefore had provided Members with opportunities to review with China, in a multilateral setting, the efforts it had taken to implement specific commitments made in its Protocol of Accession, as well as obligations it had assumed under the many agreements that make up the WTO Agreement and its efforts to comply with those obligations.
51. Since the beginning of the transitional reviews, he said that the focus of the reviews had changed over time. While for the first five years of China's WTO membership the transitional reviews had focused predominantly on the scheduled phase-in of key commitments that China had made in its Protocol of Accession, the focus of the TRM had shifted and had focused more on China's compliance with its full range of WTO obligations, once the phase-in period had ended.
52. During the initial phase-in period, China had implemented a set of sweeping commitments, including reducing tariffs, eliminating non-tariff barriers that had been identified in its working party report, and had made legal improvements in IPR protections and in transparency. These actions had deepened China's integration into the international trading system, and had facilitated and strengthened China's rule of law and economic reform. Trade and investment had also expanded dramatically between China and its many trading partners.
53. He said that, since its accession, China had put in place a framework of laws and regulations which were aimed at protecting the IPR of domestic and foreign right holders, as was required by the TRIPS Agreement. However, some critical reforms were still needed in a few areas such as: the further improvement of China's measures for the protection of copyright and trademarks in the context of the Internet, correction of continuing deficiencies in China's criminal IPR enforcement measures, and the provision of remuneration to authors for the broadcast of their works that had occurred between 2001 and 2009 - the period when China had finally set default licensing rates for broadcasting recorded works.
54. His delegation was also concerned about the extent to which China had provided effective protection against unfair commercial use and unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. In its accession protocol, China had agreed to provide six years of protection against unfair commercial use for undisclosed test or other data that had been submitted to authorities in support of applications for marketing approval of pharmaceutical and agricultural chemical products which had utilized new chemical entities. This protection was to prevent any person other than the original applicant from relying on the submitted data for subsequent approvals for at least six years from marketing approval of the original product. He said that examples of marketing approval granted to applications for follow-on products prior to the expiration of the six-year period, and in some cases even before approval of the originator product, indicated that further work needed to be done to ensure consistent and effective application of this obligation. The delegation looked forward to continued work with China on this and related matters.
55. While China's laws on the books had been extensively overhauled to better reflect international standards for IPR protection, he said the inability or lack of political will in China to enforce these laws and to deter continued IP theft had led to sustained and unacceptably high levels of retail and wholesale counterfeiting, online piracy, and software theft with severe adverse effects in the United States and third-country markets to which Chinese IPR-infringing goods were exported. Widespread IPR infringement continued to affect products, brands, and technologies of a wide range of industries, which included movies, music, publishing, entertainment and business software, apparel, athletic footwear, textile fabrics and floor coverings, consumer goods, chemicals, electrical equipment, industrial products, information technology, and clean energy technology, among many others.
56. He said that the United States was, however, encouraged by focused efforts to improve IPR enforcement in China in the past year. His delegation had closely followed the efforts made under China's "Special Campaign on Combating IPR Infringement and Manufacture and Sales of Counterfeiting and Shoddy Commodities" (Special Campaign), and he believed that the new coordination and leadership structure which had been developed for the Special Campaign had enhanced the effectiveness of IPR enforcement during the period of the campaign. The delegation urged China to create a high-level management team that could drive lasting improvements in IPR enforcement by making permanent the temporary leadership structure created to manage the Special Campaign, including the key role of the Vice Premier. Institutionalizing this structure would give greater credibility to China's efforts to make a sustained, long-term improvement in IPR enforcement.
57. As a result of the Special Campaign, his delegation understood, several websites and online portals had been shut down, and three website operators had been arrested, convicted, and sentenced to prison terms and assessed significant fines. The United States urged China to sustain its work on stemming piracy over the Internet. With respect to the use of the Internet to distribute counterfeits, the United States noted several positive developments in the past year, including new measures issued by the State Administration of Industry and Commerce that required Internet Service Providers to verify the identity of online traders and to take "necessary measures to protect registered trademarks." Reports indicating that local Administrations of Industry and Commerce (AICs) had demonstrated greater willingness to intervene directly against online advertisements of counterfeit and pirated products were also encouraging.
58. To effectively stem the manufacture of counterfeits, the United States urged the Chinese Government to ensure that equipment used to manufacture counterfeit products was also seized and destroyed, as counterfeiters could otherwise resume their operations as soon as law enforcement officers had left their premises. In addition, he said, it was important for China to permit direct acceptance of serious IPR infringement cases by the Public Security Bureau (PSB) which could search and arrest counterfeiters, while administrative agencies such as the local AICs could only seize counterfeits. Following the Special Campaign, the PSB should be given the authority to directly accept all cases involving manufacturers of counterfeit and pirated products.
59. In addition to the need for significant progress to fight counterfeiting and piracy, effective IPR enforcement in China also required attention to the protection and enforcement of patents, trade secrets and other IP rights. For example, the United States was troubled by several recent media reports of major cases of trade secret theft which had affected US firms doing business in China. His delegation was further concerned about the enforcement implications of a range of challenges which had affected patent quality in China. Patents that were of low quality, or unexamined, or both, could pose obstacles to Chinese and foreign innovators who sought to protect and enforce rights in legitimate inventions. The delegate stated that effective enforcement of patents and trade secrets was not only key to the success of foreign companies, but was an essential for a business climate necessary to support investment from the kind of innovative industries that China would hope to attract and build.
60. He said that China's goal of becoming an innovative society by fostering "indigenous innovation" had created a troubling trend toward increased discriminatory policies which were aimed at coercing technology transfer. While his delegation recognised the critical role of innovation in the development and the improvement of living standards in the United States and China, he remained concerned with regard to China's innovation-related industrial policies that had discriminated against or otherwise disadvantaged US exports or US investors and their investments. The United States had been following the development of China's indigenous innovation and other intellectual property related industrial policies and had paid particularly close attention to China's policies that required or compelled US parties to transfer their IPR to Chinese parties or to Chinese subsidiaries of US firms. Chinese regulations, rules and other regulatory measures frequently called for technology transfer, and in certain cases, conditioned, or proposed to condition, the eligibility for government benefits or preferences on intellectual property being owned or developed in China, or being licensed, in some cases exclusively, to a Chinese party.
61. In view of the IPR-related developments over the past ten years and looking towards the future he said that that China's legal framework for the protection and enforcement of IPR had been improved, but there were still many areas where further progress was required. While there was a growing awareness in China of the critical role of IPR protection and enforcement to China's long term economic development, it was important that this awareness be translated into sustained efforts to protect and enforce IPRs of both domestic and foreign right holders. It was equally important that China's desire to develop an innovative and IP-intensive economy did not drive policies that discriminated against foreign IPR holders, either by according preferences to firms with indigenous IPRs and thereby limiting participation by foreign IPR holders, or by implementing government policies to compel technology transfer or terms and conditions of IPR licenses, which should instead be left to the commercial considerations of the parties without undue government interference.
62. The United States would continue to work with China in the future, both bilaterally and at the WTO, on IPR protection and enforcement strategies, innovation policies, and a range of other important IPR-related matters to ensure that China would fully comply with its WTO obligations, to the benefit of the United States, China and their trading partners.