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Cablegate: 2007 U.S.-China Legal Exchange

VZCZCXRO8501
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #6979/01 3092352
ZNR UUUUU ZZH
P 052352Z NOV 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 3260
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 BEIJING 006979

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR WASHINGTON DC

E.O. 12958: n/a
TAGS: ECON ETRD EINV CH
SUBJECT: 2007 U.S.-China Legal Exchange

(U) Sensitive but unclassified. Not for
dissemination outside USG channels. Not for Internet
distribution.

1. (SBU) Summary: The Department of Commerce and the
Ministry of Commerce held the 2007 U.S.-China Legal
Exchange in Xi'an, Beijing, and Shanghai from October
22-27. The program consisted of U.S. and Chinese
presentations on each country's inbound investment
and trade secrets regimes as well as open discussion
on both topics. The Chinese audience members were
very engaged in the discussion and sought additional
information on the U.S. investment regime and
practical steps that companies can take to protect
their trade secrets in the United States. Government
officials from both sides agreed to hold the 2008
Legal Exchange program in the United States.

2007 U.S-China Legal Exchange
-----------------------------

2. (U) During the week of October 22, the U.S.
Department of Commerce and China's Ministry of
Commerce (MOFCOM) held the 2007 U.S.-China Legal
Exchange, a cooperative exchange program under
Commercial Law Working Group of the U.S.-China Joint
Commission on Commerce and Trade. Department of
Commerce General Counsel John Sullivan led a
delegation of U.S. commercial law experts to discuss
the U.S. legal regimes governing inbound foreign
investment and the protection of trade secrets. The
delegation was composed of General Counsel Robert
Hoyt, Department of the Treasury; Deputy General
Counsel David Bowsher, Department of Commerce;
Attorney-Advisor Joel Blank, Department of Commerce;
and Rex Hockaday, Senior Corporate Counsel,
Caterpillar, Inc. MOFCOM hosted programs in Xi'an,
Beijing, and Shanghai and recruited local professors,
government officials, and attorneys to engage on both
topics.

CFIUS Process and Investment Policies
-------------------------------------

3. (U) Mr. Hoyt provided an overview of the legal
regime governing investment, particularly focusing on
the framework that guides national security reviews
conducted by the Committee on Foreign Investment in
the United States (CFIUS). Mr. Hoyt stressed that
CFIUS provides a voluntary review mechanism that
looks only at transaction-specific national security
concerns and does not have the authority to consider
other issues, such as economic security or broad
industrial policies. Mr. Bowsher provided additional
information on how the federal system of government
in the United States impacts the U.S. investment
regime as well as on the Department's Invest in
America Initiative. Mr. Hockaday detailed the legal
framework governing trade secrets in the United
States and identified practical steps that companies
can take to protect those secrets under that legal
framework.

4. (SBU) Chinese professors and attorneys in each
city presented information on China's investment and
trade secrets regimes. Their overviews on investment
identified a lack of clarity on the relationship
between China's 2006 Regulations on the Merger and
Acquisition of Domestic Companies by Foreign
Investors (M&A Regulations) - administered by MOFCOM -
and the recently promulgated Anti-Monopoly Law (AML),
which will go into effect on August 1, 2008. Under
the M&A Regulations, all mergers with and
acquisitions by foreign entities must be reviewed and
cleared by MOFCOM, which analyzes whether such
transactions will impact the national economic
security of China. Under the AML, the antitrust
authority (not yet esablished) will review similar
mergers and acquisitions and analyze whether such
transaction will impact national security.

5. (SBU) The Chinese presenters noted that neither
the M&A Regulations nor the AML define the scope of
the respective reviews for national economic security
and national security. U.S. presenters noted that
this lack of clarity on the scope of each review and

BEIJING 00006979 002 OF 002


the relationship between the reviews and the
reviewing authorities creates confusion when foreign
investors are considering entering the Chinese market.
China should work to clarify these reviews in order
to make its investment regime more manageable. In
addition, neither legal authority establishes a time
frame for review, which reduces the certainty of
investing in China.

Trade Secrets
-------------

6. (SBU) The Chinese also presented on China's legal
regime protecting trade secrets. China does not have
a single law or regulation establishing the legal
framework for trade secrets; instead, China protects
trade secrets through a web of laws on contracts,
unfair competition, and labor standards. As a result
of this approach the system remains confusing and
does not establish a uniform definition or consistent
practices on trade secrets. The Chinese presenters
suggested that, for China to have a truly leading
regime on trade secrets, China develop a single law
that defines trade secrets and eliminates the lack of
uniformity.

7. (SBU) The Chinese audience was very engaged and
seemed to benefit from the information exchange,
suggesting the importance of continued dialogue on
both of the Legal Exchange's topics and on the rule
of law in general. Regarding investment, the
audience was interested in better understanding the
CFIUS review process and the factors that CFIUS
considers when analyzing a transaction. Mr. Hoyt
stated that the factors considered vary from
transaction to transaction and that he could not
discuss specific examples, but that the Treasury
Department will issue guidance on the review process
in April.

8. (U) Mr. Bowsher extended an invitation to host a
Chinese delegation in 2008 for the next Legal
Exchange and suggested that coordination begin early
next year. The Chinese agreed that we should
continue the program next year and look forward to
visiting the United States.

Randt

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