Cablegate: Usitc Is an Independent Agency

DE RUEHBJ #1777/01 1300252
P 090252Z MAY 08



State for INL - JVigil
USTR for China Office - AWinter; IPR Office - RBae;
and OCG - SMcCoy
Commerce for National Coordinator for IPR Enforcement
Commerce for WPaugh, NWinetke
Commerce for MAC 3204/LRigoli, ESzymanski
Commerce for MAC 3042/SWilson, JYoung
LOC/Copyright Office - STepp
USPTO for Int'l Affairs - LBoland, EWu
DOJ for CCIPS - MDubose and SChembtob
FTC for Blumenthal
FBI for LBryant
DHS/ICE for IPR Center - Dfaulconer, TRandazzo
DHS/CBP for IPR Rights Branch - GMacray, PPizzeck
ITC for LLevine, LSchlitt
State for White House OTP Ambassador Richard Russell

E.O. 12958: N/A

1. (SBU) Summary. On March 25, 2008, International
Trade Commission (ITC) Chairman Daniel Pearson met
with Ministry of Commerce (MOFCOM) Vice Minister (V/M)
Yi Xiaozhun and Director General (DG) Li Ling. V/M Yi
proposed closer cooperation on information sharing and
said China wants to work with the United States to
lower multilateral trade barriers. DG Li expressed
concern about United States firms' "abuse" of Section
337 filings and Unites States Department of Commerce's
(DOC) use of data from surrogate countries in
antidumping calculations involving nonmarket economies.
Pearson said the United States is open to more
cooperation and sought MOFCOM's assistance in
gathering data for an analysis requested by
Congressman Rangel. He said the ITC was an
independent agency, known for balanced reports that
helped defuse political pressure in the bilateral
trade relationship. End Summary.

V/M Yi Proposes Closer Cooperation

2. (SBU) V/M Yi proposed closer and more constructive
cooperation between the ITC and MOFCOM, especially the
sharing of customs and statistical data. Yi said open
trade was in both countries' interests. China wanted
to work with the United States toward further
liberalization at the WTO and in the Doha round.
There was room for the United States to decrease
agricultural subsidies, he said. Yi noted that half
of 337 cases were settled before judgment was rendered.
Chairman Pearson agreed that agricultural subsidies
were distorting. He noted there had been a large
increase in the caseload of Section 337 investigations,
reflecting the growing inter-connectedness of the
global economy. He added that requests for anti-
dumping investigations were not initiated by the
United States, but by industry. In outlining the
ITC's mandate, Pearson explained that Congress and
USTR routinely ask the ITC to conduct studies on the
trade policies and practices of other countries.
Congressman Rangel had made such a request related to

DG Li Expresses Concern About 337 Abuse...

3. (SBU) DG Li, who formerly was the leading MOFCOM
official supporting the now-stalled bilateral IPR
dialogue, relayed that MOFCOM's Bureau of Free Trade
(BOFT), which she currently oversees, is responsible
for supporting Chinese responses to section 332 and
337 investigations. China is a major target of
section 337 investigations, in particular, she said.
China is concerned about United States firms' abuse of
the 337 statute. Litigation costs are high.
Intellectual property right (IPR) holders target
Chinese small and medium-sized enterprises that cannot
afford to defend themselves. The general exclusion
orders of the statute leads to exclusion of products
from firms that may not have known about the cases.
DG Li requested that the United States postpone the
deadline for comments on revisions to the 337 process
until the end of April so that MOFCOM could submit

BEIJING 00001777 002 OF 003

detailed comments. [Note: USG agencies may wish to
note that MOFCOM intends to sumit comments on these
revised rules, yet Chinse agencies have recently
denied opportunitie for USG to provide comments on
draft IPR-relted rules, particularly patent law
amendments, in light of China's determination to
suspend bilateral IPR cooperation. End Note]

4. (SBU) In response to DG Li's point on the severity
of general exclusion orders, ITC Chief of Staff Mary
Beth Jones noted that general exclusions were not
granted automatically. Rather, they were granted when
the infringing producers were hard to find or had
resisted being identified, or when there was a public
interest in the matter, such as excluding potentially
unsafe infringing products, like pharmaceuticals. In
addition, if the administrative law judge hearing the
case recommended a general exclusion order, the
recommendation had to be approved by a majority of the
ITC's six committee members.

...and Use of Data from Surrogate Countries in CVD
--------------------------------------------- ---------

5. (SBU) DG Li said economists at ITC agreed that
ITC's practice of using data from surrogate countries
in countervailing duties (CVD) cases was inappropriate.
Recent cases used the price of land in Thailand as a
substitute for the price of land in China, which was
"very irrational." DOC faced problems responding to
many cases because it does not recognize China's
market economy status, which results in unfair
practices toward Chinese firms, Li said. China wished
to invite ITC economists to visit so that they could
better understand the reality of China's economy.
Through more exchanges, China hoped to help the ITC
develop a more comprehensive grasp of the "Chinese
situation" and Chinese efforts to protect IPR. [Note:
China has periodically complained about national
treatment and "fairness" in Section 337 cases. In a
separate development MOFCOM Director An Baisheng at a
seminar on April 7 hosted by East China University of
Politics and Law noted that he was "pessimistic" that
China would bring a WTO case against the United States
for lack of national treatment in Section 337 cases,
despite other countries having brought such cases in
the past. End Note]

6. (SBU) Pearson said he thought there was a chance
that in his lifetime China could come to be regarded
as a market economy given the degree of policy
evolution. He noted that China resorts to anti-
dumping cases liberally. China had more anti-dumping
orders against the United States than any other
country, he said.

United States Open to More Cooperation

7. (SBU) On strengthening cooperation, Pearson noted
that ITC staff had visited China in the past, which he
supported. Two of four administrative judges had come

BEIJING 00001777 003 OF 003

in the past year. With the increase in filings and
staffing shortages, it would be difficult to arrange
more visits in the short-term. Embassy Patent and
Trademark Office (USPTO) Senior Intellectual Property
Rights (IPR) Attach Mark Cohen added that the Embassy
had proposed cooperation on patent enforcement,
including Section 337 and been turned down as recently
as the prior week by local Chinese governments. He
stated that it was difficult to consider 337 actions
separate from other IPR enforcement actions, including
a recent increase in civil patent litigation involving
China, and the relatively low level of US companies
bringing IPR litigation in China. He noted upcoming
meetings on (Intellectual Property) IP that touched on
Section 337, and that there is a proposed forthcoming
visit by Court of Appeals for the Federal Circuit
(CAFC) Judge Rader, who would be lecturing in Shanghai
in July. He noted that the CAFC handles appeals of
Section 337 determinations. Cohen noted that he is
willing to help China understand the United States
enforcement system, and to exchange views on the
Chinese system at the same time, and in a separate
exchange he noted that USPTO would be funding programs
with State Intellectual Property Office (SIPO) on
patent prosecution during late April, which could also
assist Chinese companies in better understanding the
United States IPR environment.

Pearson Outlines ITC Role and its Independence
--------------------------------------------- -

8. (SBU) Chairman Pearson replied that the ITC was an
independent agency with good analytic skills that
sometimes lacked enough data to fully understand
China's economy. He agreed that section 337
litigation is expensive. He said 337 was not intended
to protect American firms and looked forward to the
day when a Chinese firm finds a United States firm
infringing on its patent via a product imported from
Mexico, in which case it could bring a 337 complaint
against the United States firm. Pearson said he
doesn't pretend to understand the DOC's methodologies
and that United States law did not permit the ITC to
pick its own data. That said, while DOC finds unfair
pricing 90 percent of the time, ITC conducts the next
step in the case - determining whether the pricing had
injured United States firms. Over the past ten years,
ITC had found that to be the case just 47 percent of
the time. He noted that 332 investigations did not
lead to remedies, only an economic analysis to better
understand the situation. Members of Congress rely on
the ITC to provide reports with balanced views,
allowing time for political pressures to dissipate.
For the study that Congressman Rangel had requested,
it would be helpful to collaborate with the Chinese
institutes and agencies that had the information.


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