5月8日日内瓦中美大使激辩实录

 China-US Debate on AB, 232, 301 at the WTO General Council Meeting

Geneva, 8 May 2018

Agenda Item4: Selection of New Appellate Body Members

Ambassador Zhang Xiangchen:

Thank you, Mr. Chairman, and good morning colleagues. At the outset, I would like to bid a farewell to the Ambassadors of Sweden and Indonesia, who are leaving us. I wish them all the best in their future endeavors.

I would also like to extend my warm welcome to our new colleagues, especially Dennis. At this critical juncture, members have expectations to you indeed. I hope your arrival could bring luck to this Organization.

This is the first of the three Agenda Items at today's General Council meeting that have been requested by China.

Before proceeding to the subject matter, I would like to explain why China is requesting three agenda items at today's General Council meeting.

First of all, I would like to point out that, the WTO is facing grave challenges.

As the Airgram indicates that the three agenda items China requested are Selection of New Appellate Body Members, US Section232 Investigations and Measures on Steel and Aluminium Products, and US Section301 of the Trade Act of1974.

The reason for us to focus on these issues is simple, that is, 23 years after the establishment of the WTO back in 1995, this institution is now faced with an unprecedented challenge.

The most urgent and burning question that the WTO has to answer now is how to respond to unilateralism and protectionism.

Before the end of the Uruguay Round, GATT contracting parties have severely suffered from the unilateral and protectionist measures. In order to curb their spread, Members have negotiated and agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes and other WTO agreements. The prohibition on unilateral and protectionist measures became the bedrock and central elements of the multilateral trading system ever since.

However, what is most dangerous and devastating is that the US is systematically challenging these fundamental guiding principles by blocking the selection process of the Appellate Body members, applying restrictive trade measures under Section232 and threatening to impose tariff measures of 50 Billion USD of goods imports from China under Section 301 of US domestic law. Any one of these, if left untreated, will fatally undermine the functioning of the WTO. But the reality is that the WTO is currently confronted with “three hard blows" which are referred above.

Hence, we are requesting these three items to be included in today's meeting and we are ready to discuss ways to tackle these severe challenges with all Members.

We earnestly expect all members to join efforts and defend our system, rules and order, defend the equal rights of all Members, and defend the dignity of the international law. In so doing, we can collectively strengthen and improve the multilateral trading system, and prevent the unilateral or protectionist actions from damaging this system and undermining international trade.

Secondly, regarding this Agenda Item 4, I would like to point out that, the Crown Jewel of the WTO is losing its brilliance.

The dispute settlement mechanism with its efficiency and effectiveness is widely considered to be the crown jewel of the WTO. Since1995, several hundreds of trade disputes have been settled through such mechanism. And such system has become one of the most efficient and effective dispute settlement mechanism in the history of international law. Within such system, the Appellate Body plays a vital role in ensuring the stability and predictability of the WTO system and its rules.

Currently, the dispute settlement system is facing the most difficult time since its creation.

Only four of the seven Appellate Body members are in office. If the selection process is not launched, the functioning of the Appellate Body will be paralyzed, which will put the entire dispute settlement system in crisis.

Without such system, the WTO trade rules will no longer be effectively enforced, and the trust and credibility of the multilateral trading system will be deeply undermined. Ultimately, we will not be able to effectively control the unilateralism and protectionism.

We noticed that the US has expressed for many times its concerns with respect to the WTO dispute settlement system. In our view this system functions generally well and the US is among the Members who benefitted the most from such system.

Any concerns with respect to the system can and should be addressed by discussion under the framework of the WTO. And China is willing to engage in such discussion. However, we cannot agree to link these concerns with the selection process.

The Member-driven mechanism does not mean that it is driven by only one single Member. By taking the selection process as a hostage, the US is abusing the decision making mechanism of consensus. We urge that the commencing of the selection process should start, so that the Appellate Body can resume its proper functioning as soon as possible.

Thank you, Mr. Chairman.

(Interventions by EU, Mexico, Cambodia, Zimbabwe, Russia, Honduras, Uganda, Japan, Bolivia, Tanzania, Qatar, Benin, Guinea, Turkey, Norway, Hong Kong China, Brazil, Venezuela, Canada, Pakistan, Maldives, Switzerland, Australia, Myanmar, Thailand, Liberia, Ecuador, Kazakhstan, India, Sri Lanka, Guatemala, South Korea, Egypt)

Ambassador Dennis Shea:

The United States appreciates the opportunity afforded by this agenda item to address concerns surrounding the functioning of the WTO's dispute settlement system in general and of the Appellate Body in particular.

We have taken note of the expressions of concern on the part of the sponsor of this agenda item and other Members. I'm happy to have a chance to review briefly the perspectives of the United States, and I look forward to continue engaging with my colleagues on these important questions.

Members of this organization are fond of applauding the WTO as an international paragon of the rule of law. And indeed, the WTO's rule-book has substantial value, including for the United States, and adherence to those rules has generally contributed to global economic stability.

But something has gone terribly wrong in this system when those charged with adjudicating the rules are so consistently disregarding those very rules. What we are dealing with, fundamentally, is a steadily worsening rupture of trust on the part of the Appellate Body. That ruptured trust has, in turn, placed in jeopardy the political sustainability of our entire dispute settlement system. Despite years of warnings from my predecessors, and expressions of concern from respected WTO voices, including former Directors-General, the Appellate Body not only has rewritten our agreements to impose new substantive rules we Members never negotiated or agreed, but has also been ignoring or rewriting the rules governing the dispute settlement system, expanding its own capacity to write and impose new rules.

This unapproved rule-breaking and rule-making is obvious to anyone who looks honestly at how the system operates. Rules that we, as WTO Members, negotiated and approved domestically stipulate that the Appellate Body must render its decisions within 90 days there are no exceptions given. And yet the AB now almost never meets that deadline, breaking the rules without authorization from its bosses— namely, us, the Members of this Council and of the DSB. Similarly, the AB has decided that it can deem a person who "ceases to be a member of the Appellate Body" to continue to be a member, despite there being no basis whatsoever in the DSU for such actions. I could go on with examples.

Beyond this flaunting of rules meant to govern its own activity, the Appellate Body has compiled a troubling track record of expansive interpretations that effectively create new WTO law, a function clearly reserved to Members through the process of negotiation.

But our lack of progress in negotiations bears a strong relationship to this culture in which many Members consider that certain outcomes can be most easily achieved through litigation rather than through the hard work of negotiation.

If the United States is now taking actions that some consider to be disruptive, it is important to understand that this comes only after many years of unheeded warnings. It is important to understand that a dispute settlement system that ignores existing rules and writes new rules undermines the WTO as a forum for negotiation and discussion. It is important to understand that dispute settlement that goes beyond existing rules has not been approved by Members and does not have democratic legitimacy or support. Our goal is to ensure that any system of dispute settlement can sustain the support of all Members. We do not see how perpetuating the existing dysfunctions through a complacent approach to the filling of Appellate Body vacancies can advance that objective.

As I stated yesterday in our informal Heads of Delegation meeting, the United States is deeply interested in working with those other Members who share our commitment to a better, more politically sustainable, and truly Member-driven World Trade Organization. That interest applies with no greater relevance than with respect to the issue currently being discussed in this Council.

Agenda Item 5: US Section232 Investigations and Measures on Steel and Aluminium Products

Ambassador Zhang Xiangchen:

Thank you, Mr. Chairman,

China would recall its statement made at the General Council meeting on 7 March. We would reiterate our grave concern over the Section232 measures taken by the United States, because these measures are distorting trade, lacking transparency, and they are discriminatory and will severely damage the multilateral trading system and the world trade.

Unfortunately, despite the strong objections from the Membership, the US issued presidential proclamations on the following day,8 March, deciding to impose25 percent and10 percent of additional import duty respectively on certain steel and aluminum products. These measures not only seriously impair the interests of all the exporting Members to the US, but also seriously disrupt the existing order of international trade in steel and aluminium products.

In order to defend the legitimate rights under the WTO Agreements, as well as to safeguard the fundamental values and principles of this Organization, China requested for consultations with the US under the DSU on 5 April.

The purpose of the Section232 measures by the US against steel and aluminium products according to our understanding is not to protect so-called "national security" of the US, but rather it serves to protect the commercial interests of the domestic industries. As such, such measure should be considered as safeguard measures under the Agreement on Safeguards, and meet necessary requirements as set in that agreement.

According to the report by the US Department of Commerce and statistics provided by the US Department of Defense, it is obvious that the reason of these measures is not "national security".

The steel used by the US defense industry only accounts for 3% of the domestic steel consumption of the US, while the output of the US steel industry equals to 84% of its domestic consumption, that is, roughly28 times of its defense demand.

On the other hand, the US import of steel accounts for around16% of its consumption, and about 70% of its import comes from the Members exempted, temporarily or permanently, from the Section 232 measure.

That means the imports subject to the restriction of the Section232 measure on steel accounts for only 5% of the steel consumption of the US. It was not mentioned at all whether these restricted imports are related with the US defense industries.

Here my question is, why these imports, which accounts for merely 5% of US consumption and are mostly ordinary mid-and-low end products, will threaten the "national security" of the US?

If steel and aluminium products will affect so called "national security", can anyone find any group of products- from agricultural products to minerals, from textiles to high-tech products- that have no linkage with "national security"?

If an import of ordinary steel and aluminum products which equals to 5% of the domestic market is a threat to the "national security", we can only assume that it is a very precarious security for a super power, and what proportion of imports is "safe" to national security?

If it's justifiable to raise tariffs according to such "national security" investigations, are the WTO Schedules of Concessions still binding?

We further noticed that the United States is seeking quotas or voluntary export restraints, which are explicitly prohibited by the WTO rules.

It is reported that Mr. Peter Navarro, the White House Trade Assistant, said on 1 May that "any country, or entity like the EU, which is exempted from the tariffs, will have a quota and other restrictions which are necessary to defend the aluminum and steel industries from imports in defense of our national security.

This is obviously violating the WTO rules. And this is back-tracking the train of history, and simply puts the global trade back to the old era of quotas.

Here, China would call on the whole Membership to urge the US to honour its obligations under the WTO Agreements and to immediately withdraw its Section232 measures, so that the normal order of international trade can be restored.

Thank you, Mr. Chairman.

Ambassador Dennis Shea:

Mr. Chairman, the United States finds it curious that China has asked to place this item on the agenda for today's meeting.

For, in fact, we would not find ourselves in the current juncture were in not for China's own self-interested policy of contributing to massive global overcapacity in steel and aluminum. This policy has been carried out over a period of many years, without regard to global impacts, and China has responded to mounting concerns with considerable talk but not much action.

Against this backdrop, we are perplexed that China now asserts its status as a victim. In any event, I am happy to have this opportunity to recall to Members' attention the reasons underlying the United States' defense of critical national security interests.

The United States has previously informed Members about the proclamations issued by the President pursuant to Section232 of the Trade Expansion Act of 1962, as amended.

I won't repeat our previous intervention on this issue, but will refer Members to our statement at the Council for Trade in Goods meeting on March23— a statement we provided consistent with the Decision Concerning Article XXI of the General Agreement taken by the GATT Council on 30 November1982.

Certain Members have since sought consultations with the United States with regard to the President's proclamations. Those Members have our responses.

We note the attempt by some Members to cast the President's actions in terms that suit their desire to pursue a particular WTO recourse. These attempts are without valid foundation and we will not entertain them.

We are, however, willing to discuss with any Member questions they may have about the President's actions, as well as the circumstances of pernicious state intervention, market distortion, and massive and persistent overcapacity in certain economies that necessitated the actions.

The President issued the Steel and Aluminum Proclamations pursuant to Section232 of the Trade Expansion Act of 1962, determining that tariffs are necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the United States.

The United States did not take action pursuant to Section201 of the Trade Act of1974, which is the law under which the United States imposes safeguard measures. And as evidenced by our recent notifications with respect to solar products and large residential washers, the United States is well aware of what constitutes a safeguard as well as what its notification obligations are under the Agreement on Safeguards.

Moreover, Article12.3 of the Agreement on Safeguards states that a "Member proposing to apply or extend a safeguard measure shall provide adequate opportunity for prior consultations" with Members having a substantial interest in exports of the product concerned. However, the United States is not "proposing to apply or extend a safeguard measure" with respect to steel or aluminum and, therefore, Article12.3 does not apply and China's requests for consultations pursuant to Article12.3, like its initial characterization of the tariffs, have no basis in the Agreement on Safeguards.

Because the steel and aluminum actions are not safeguard measures, the United States considers that Article8.2 of the Agreement on Safeguards does not justify China's suspension of concessions or other obligations. China has asserted no other justification for its measures, and the United States is aware of none. Therefore, it appears that China's actions have no basis under WTO rules.  

(Interventions by South Africa, Russia, Brazil, Uganda, Venezuela, Cuba, Bolivia, Japan, Qatar, Pakistan, Cambodia, EU, Turkey, Switzerland, Hong Kong China, India, Norway)

Ambassador Zhang Xiangchen (Second Intervention):

Thank you Mr. Chairman. I'm sorry to take the floor again. I would like to make a comment on the relationship between Section232 measures and overcapacity and to make our discussion more interactive.  But before that, let me briefly react with two points.

First, on the nature of Section232 measures.

From the investigation report by the US Department of Commerce and the Presidential Proclamation on the steel and aluminium Section232 measures, we could find a clear inherent logic: the continued growth of imported products has allegedly caused serious injury to domestic industries, and therefore it is necessary to raise tariffs against imports from all over the world.

Such logic, according to our understanding, complies with the definition and conditions for implementing safeguard measures stipulated in Article19 of the GATT1994 and the Agreement on Safeguards.

Second, on China's suspension of concession measures.

According to Article 8 of the Agreement on Safeguards and Article19.3 of the GATT1994, because a delay would cause irreversible damages, China notified the Council for Trade in Goods on 29 March and implemented suspension of concessions on 2 April.

In terms of substantial aspect, China strictly follows the provisions of Article8.2 of the Agreement on Safeguards that the suspension of concessions should be "substantially equivalent" to safeguard measures. The measures we took are symmetrical and restrained.

Mr. Chairman, China raised the issue of section232 measures not for our own self-interest, but for the interest of the system.

However, it seems that someone has attempted to sell a flawed logic that trade protection is a response to overcapacity, and overcapacity is caused by the intervention and subsidies of the Chinese government. Therefore, it is China's responsibility to address the issue of overcapacity.

Why I said this logic is a flawed one? Overall, China is at the middle and low end of the global value chain. To a large extent, China's production is determined by the others from the multinational corporations, and China produces, assembles products according to the demand in the international market. Since 2008, Chinese government has adopted proactive fiscal and monetary policies, expanded investment, in order to mitigate the shock wave of the global financial crisis. China has made significant contribution and its efforts were praised by many countries. A decade from then, as soon as some countries stepped onto the path of recovery, they seem to have quickly put that history behind. It now becomes China's problem to absorb increased capacity, which is essentially the product of stimulus policies in response to the financial crisis. Chinese government and people now bear tremendous adjustment pains. Tens of thousands of workers have lost their jobs. Nevertheless, we are doing what we can do to reduce excess capacity.

China stands ready to discuss with other Members within the framework of the WTO on how to keep the WTO rules more adaptable to the new situation, and on how to better safeguard a fair and reasonable international trade order.

However, we do not agree to arbitrarily throw several "hats" onto China and describe China's strategy as distorting the world market, because this is completely not true and will make China a wrong target in the current situation when trade protectionism is prevalent.

Thank you, Mr. Chairman.

Agenda Item 6: US Section301 of the Trade Act of 1974

Ambassador Zhang Xiangchen:

Thank you, Mr. Chairman,

I assume that the WTO members are not unfamiliar with something called Section301 of the1974 Trade Act of the United States.

In fact, since its enactment in1974, as many as 125 investigations have been launched by the United States against 35 countries and regions around the world. This is not an ancient history. Many of us still have fresh memory of the devastations caused by these investigations.

Let us also refresh our memories that the United States has "explicitly, officially, repeatedly and unconditionally confirmed" its commitments undertaken in its 1994 Statement of Administrative Action(SAA) that it would base a Section301 decision only on adopted DSB findings. Otherwise, "the US would incur state responsibility since its law would be rendered inconsistent with the obligations under DSU Article23."

Today, the US seems to have forgotten these commitments by announcing the massive unilateral tariffs against China. It is a typical unilateral and protectionist action, which manifests an intentional and gross violation of the WTO's fundamental principle of non-discrimination.

18 years ago, the DSB adopted a clear finding that Section301 is prima facie incompatible with the multilateral trading system. It was the 1994 SAA that saved the US law from being ruled as a violation of the WTO rules.

18 years later, Section301 is coming back. It is unfortunate that China is picked as the first target, but fortunately China is big and strong enough.

We are wondering, who is the next target?

History teaches us that if the unilateralism is unrestrained, it would bring destruction to the world economy and rip all members, especially the developing countries. Anybody at any time can be its target, and nobody, especially the small and medium economies, can defend themselves on their own.

The unilateral tendency of the US's trade policy shall be of serious concern of all Members and shall be firmly rejected. To do so is not just our responsibility, but also the only right way to cope with it.

Today, the globalization has made us increasingly interdependent and forming a community of shared interests. Any unilateral action would injure others and ruin itself. As our President Xi Jinping has rightly pointed out in Davos, "pursuing protectionism is just like locking oneself in a dark room: wind and rain might be kept outside but so are light and air".

China is expecting all members to join hands together and to collectively safeguard the rules-based multilateral trading system, and we urge the US to change its course of unilateral practice and avoid dragging the world into a trade war.

Thank you, Mr. Chairman.

Ambassador Dennis Shea:

Mr. Chairman, we have now entered the realm of Alice in Wonderland. White is black. Up is down. It is amazing to watch a country that is the world's most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system. The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility.

The truth is, it is China that is the unilateralist, consistently acting in ways that undermine the global system of open and fair trade. Market access barriers too numerous to mention; forced technology transfers; intellectual property theft on an unprecedented scale; indigenous innovation policies and the Made in China 2025 program; discriminatory use of technical standards; massive government subsidies that have led to chronic overcapacity in key industrial sectors; and a highly restrictive foreign investment regime- these are the issues that should be on today's agenda. If the WTO wishes to remain relevant, it must— with urgency- confront the havoc created by China's state capitalism.

This brings me to the Section301 report that China has asked to be reflected on today's agenda.

As Members are aware, the United States has issued a detailed factual report running nearly 200 pages with more than one thousand one hundred footnotes that details China's distortive policies on technology transfer. China has not provided any evidence to refute the report's facts or conclusions, only mere denials. The report, containing extensive evidence, is available on the USTR website.

What are these policies? There are four types of practices involving technology transfer:

First, China uses foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from foreign companies.

These foreign ownership restrictions prohibit foreign investors from operating in certain industries unless they partner with a Chinese company, and in some cases, unless the Chinese partner is the controlling shareholder.

These requirements preclude foreign companies from entering the market on their own terms, and lay the foundation for China to require or pressure the transfer of technology.

China also uses its administrative licensing and approvals processes to force technology transfer in exchange for the numerous approvals needed to establish and operate a business in China.

Vague provisions and uncertainty about the applicable rules provide Chinese authorities with wide discretion to use administrative processes to pressure technology transfer or otherwise act in furtherance of China's trade-distorting industrial policy objectives. And so I am compelled to ask: is this unilateralism designed to benefit China at the expense of its trading partners?

Second, China's regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients.

China imposes a different set of rules for imported technology transfers originating from outside China, such as from foreign entities attempting to do business in China. These rules do not apply to technology transfers occurring between two domestic Chinese companies.

China's mandatory requirements for importation of foreign technology are discriminatory and clearly more burdensome than the requirements applicable to domestic Chinese companies.

Specifically, China mandates that all indemnity risks be borne by the foreign technology transferor. Parties cannot negotiate the allocation of this risk, even if the transferee would be willing to bear the risk under the contract.

China also mandates that all improvements belong to the party making the improvement and that a foreign licensor cannot stop the Chinese licensee from making improvements to the technology. China further requires that joint ventures, mandated under Chinese law, may continue to use transferred technology after the conclusion of any licensing contract.

These restrictions tip the technology transfer regime in favor of Chinese entities before a foreign company even attempts to enter the market in China. And so I am compelled to ask: is this unilateralism designed to benefit China at the expense of its trading partners?

Third, China directs and unfairly facilitates the systematic investment in, and acquisition of, foreign companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.

The role of the state in directing and supporting this outbound investment strategy is pervasive and evident at multiple levels of government— central, regional, and local.

China has devoted massive amounts of financing to encourage and facilitate outbound investment in areas it deems strategic.

To implement these policies, China employs tools such as investment approval mechanisms and a system of "encouraged" sectors to channel and support outbound investment.

These investments and acquisitions align with state objectives and policies, and are often undertaken by state-owned enterprises that are, by definition, owned and controlled by the government.

Even when undertaken by companies in which the government does not own an observable controlling stake, these transactions are frequently guided and directed by the state.

In addition, many of these transactions are funded by state-owned entities or banks, often in situations where comparable commercial financing would have been unavailable. And so I am compelled to ask: is this unilateralism designed to benefit China at the expense of its trading partners?

Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of foreign companies to access their sensitive commercial information and trade secrets.

For over a decade, China has conducted and supported cyber intrusions into U.S. commercial networks, targeting confidential business information held by U.S. firms.

Through these cyber intrusions, China has gained unauthorized access to a wide range of commercially-valuable business information, including trade secrets, technical data, negotiating positions, and sensitive and proprietary internal communications.

China has used cyber-enabled theft and cyber intrusions to serve its strategic economic objectives. Documented incidents of China's cyber intrusions against U.S. commercial entities align closely with China's industrial policy objectives. And so I am compelled to ask: is this unilateralism designed to benefit China at the expense of its trading partners?

These four technology transfer policies harm every Member, and every industry in every Member, that relies on technology for maintaining competitiveness in world markets and increasing its people's standard of living.

Instead of addressing its damaging and discriminatory policies, China accuses the United States of "unilateralism."

This criticism has absolutely no validity. To the contrary, the four policies and practices I have outlined are examples of unilateralism by China, advancing its own interests at the expense of all of ours, and causing economic harm worth tens of billions of dollars annually to the United States, and multiples of that to WTO Members collectively.

The WTO system is not threatened— as China claims— where a Member takes steps to address harmful, trade distorting policies not directly covered by WTO rules. To the contrary, what does threaten the WTO is that China is asserting that the mere existence of the WTO prevents any action by any Member to address its unfair, trade-distorting practices and policies— unless those policies are currently subject to WTO dispute settlement.

If the WTO is seen as a shield protecting those Members that choose to adopt policies that can be shown to undermine the fairness and balance of the international trading system, then the WTO and the international trading system will lose all credibility and support among our citizens.

(Interventions by Russia, EU, Japan, Cambodia, Venezuela, Cuba, Bolivia, Brazil, Pakistan, Tanzania)

Ambassador Zhang Xiangchen (Second Intervention):

Thank you, Mr. Chairman.

It seems that it has been an intense morning. This afternoon, I hope we can be a bit more relaxed, otherwise it would be unfair to our newly arrived colleagues who are jumping right to this heavy debate.

Dennis raised a very good question this morning: what is unilateralism? In fact, I think he liked this question so much that he asked it for four times.

This is an interesting but also important question. Our understanding of unilateralism is taking actions that go against the multilateral rules, at the expense of other members. It doesn't mean that any measure by a single member can be labeled as "unilateral". Every country has its own economic policies. There is a line between legitimate policy space and unilateral action. The line is the multilateral rules we all agreed upon. If it's consistent with the WTO rules, the policy is legitimate, otherwise it would be unilateral. In Section301 investigations what the US is essentially asking for from China, according to my understanding, is the free market access. This should be the subject of bilateral investment negotiations rather than blatant coercion.

I also like another expression Dennis used, the shield. My understanding is that WTO is indeed a shield for members to defend themselves against trade protectionism. It is not a shield to hide any measure that goes against the WTO rules.

WTO has clear established rules on trade, and the actions by US in 301 investigations violates those rules, since the retaliatory measure clearly falls within the scope of the WTO.

It is true as someone said in the morning, that in some areas, new rules might need to be developed to address new challenges. But these new rules need to be negotiated and adopted through consensus, not unilaterally imposed by a single member. I said this morning China is prepared to discuss with other members within the framework of the WTO on how to keep the WTO rule book updated and better safeguard fair and reasonable interests of the Members.

Mr. Chairman, now I'd like to say a few words on China's development strategies and intellectual property protection.

On China's development strategy, Dennis gave China a few "hats" in the morning, such as state capitalism, mercantilism. But I think these hats are too large to fit on our head.

In its forty years of reform and opening-up, China has achieved rapid economic development. There are many different opinions about the reasons for China's economic development.

My personal observation is that there are two fundamental reasons for China's development: one is reform, to release the vitality of economic entities by implementing market-oriented reforms; and the other is opening, to incorporate globalization by opening up its markets and adhering to the international rules.

It is stipulated in Article15 of China's Constitution Law that the state has put into practice a socialist market economy, and in Article16 that state-owned enterprises have decision-making power in operation and management within the limits prescribed by law. These are the legal achievements of reform and opening up, and also the institutional guarantee for China's future development.

Indeed, it is recognized that to achieve sustainable and inclusive development, our market economy system requires further improvement, our state-owned enterprises need further reforms, our domestic market is up to be further opened, and our protection of intellectual property rights should be further strengthened.

Therefore, the remaining work on further improving government regulations, eliminating malpractice in the operation of state-owned enterprises, further removing market access barriers, and offering better protection of intellectual property rights are the targets of our future reform and opening, rather the "secret weapon" of the development of China.

Mr. Chairman,

On protection of intellectual property, our US colleagues again cited its Section301 reports as the basis for their unilateral actions. This Section301 report contained 183 pages, 1139 footnotes and 5 annexes. I'm sure that the USTR's legal team has invested a lot of time in this report. I am familiar with many of those involved in this report, I hope by now they have recovered from the intense work.

I advise the WTO Members to read this report, but not as bedtime reading, it is long enough to put you to sleep, but the distortion of facts and selective assertions, allegations and speculations in the report might keep you awake throughout the reading.

Mr. Chairman,

I have lots of data to illustrate the great progress that China has made in the protection of intellectual property rights. But I don't want to read them here. I just want to share some of my personal experiences.

Five years ago, when I was Assistant Minister at the Ministry of Commerce in charge of intellectual property right issues, I led a State Council inspection team to Gansu and Shaanxi province to inspect the work on authentic software. Gansu is a remote and underdeveloped province in Northwestern China. There, we randomly checked six computers in an agency. Five of them are installed with authentic software. The sixth computer also had authentic software installed in it; it just had a misplaced label on the outside.

The head of the agency told us that Gansu has just suffered a severe earthquake, which depleted the province's financial resources. Despite the difficulties, his agency spent 300,000 Yuan on purchase of authentic software. In the short run, this seemed like an unwise decision since the money could be spent on more urgent things like disaster relief, but they knew that this spending has to be made to ensure the long run development objectives.

There're many examples like this. Objectively speaking, WTO TRIPs Agreement imposes disproportional burdens on developing countries. But since we have all subscribed to this agreement, we make the best efforts to meet those requirements.

On transfer of technologies, China has no law that forces companies to transfer technologies. If someone claims that there're such legal requirements, please show us the evidence. I don't think any external factors, including the government, can force the owners of the technologies to give up what they treasure the most, on the terms not acceptable to them.

My wife and I sometimes play a video game in our spare time. She is much better than me in mastering the game and she knows some special tricks to accomplish the difficult missions in the game. I asked her for those tips but she would never give it to me. But she said that she could help me to accomplish those difficult missions, if I buy her a new present, or help her with some housework. Sometimes I think this is a fair deal, so I accepted her terms, but other times, I tell her that I'd prefer to count on my own efforts. This is how market functions and similar cases are happening every day in China and in other markets.

As acknowledged by Mr. Stephen Roach, former Chairman of Morgan Stanley Asia, US and other multinational corporations willingly enter into these legally-negotiated arrangements for commercially sound reasons—not only to establish a foothold in China's rapidly growing domestic markets, but also as a means to improve operating efficiency with a low-cost offshore Chinese platform.

It is natural that developing countries, including China, all desire technological advancements. It is also natural that the owners of technologies in the developed countries want to get maximum returns on their technologies, and they have all rights to do so. The frontrunners have their rights, and those who are catching up have their freedom. But there're boundaries and limits to these rights and freedoms. And those boundaries and limits are in the rulebooks of the WTO.

I'm not saying this to deny that China still has room to improve in terms of protection of intellectual property right. In fact, we need to make further progress in this area. If companies face problems, they can go to the Intellectual Property Court in China, if governments have systemic concerns, they can go the Dispute Settlement at the WTO. But no one should take unilateral sanctions prohibited by the WTO rules.

If I heard the previous comments correctly, some one used the word "theft" in his intervention. This reminds me of a story in ancient China: Once upon a time, there was a villager who lost a hatchet. He suspected that his neighbor's son had stolen it. Thereupon; he watched every move of the neighbor's son. He felt that the gait, voice, and facial expressions of his neighbor's son were all not the same as usual. It really seemed that the hatchet had been stolen by him. After a few days, the hatchet was found. It turned out to be that when he went up the hill to cut firewood a few days ago, he left his hatchet there. The following day when he met the neighbor's son again, he noticed that his gait, his voice, and his facial expressions were not like those of a hatchet-stealer at all.

This story tells us that sometimes, the thief is in your eyes and your heart. And it blocks you from seeing the truth, including the important truth like the need to respect the rule of law, the efforts made by the others to constantly improve and the absence of courage to inspect one for problems. I hope this "thief' in the eyes and the heart will be gone soon and we can look at each other like normal people do.

Thank you, Mr. Chairman.

Ambassador Dennis Shea (Second Intervention):

I hear the murmuring. I promise Chair that I won't give a long speech. I want to thank Xiangchen for mentioning me three times in his remarks that means he listened to what I had to say this morning which I consider is progress. Appreciate the Hatchet story at the end, but I have to say that the United States respect the rule of law quite a bit. We were founded by the rule of Law. And I can say that it is not always the case in other parts of the world. We will have much more to talk about what unilateralism is I suspect in the coming weeks and months. I look forward to engaging with my colleagues on that issue, including you Xiangchen.

Before closing Mr. Chairman, my delegation has taken good note of the statements delivered yesterday and today by various members, including the joint statements delivered on behalf of the Informal Group of Developing Countries (IGDC). As the membership composition of the IGDC is not reflected on the website of the WTO, and I want my delegation to take fully account of the views expressed in their statements, the United States would be grateful if the record of this meeting could clearly reflect the individual WTO members who have associated themselves with the IGDC statement.

Thank you.

Ambassador Zhang Xiangchen (Third Intervention):

Thank you, Mr. Chairman.

I have no intention to continue this debate, but I just want to say that today's discussion is very important and very useful. The debate on trade policy is exactly the function of this organization.

Let me quote Adam Smith in his great book The Wealth of Nations to end my comment. “Man is animal that makes bargains: no other animal does this— no dog exchanges bones with another". As trade negotiators, let’s bargain with each other, instead of biting each other.

Thank you, Mr. Chairman.