China-US Debate on AB,232, 301 at the WTOGeneral Council Meeting
Geneva, 8 May 2018
Agenda Item4: Selection of New Appellate Body Members
Ambassador ZhangXiangchen:
Thank you, Mr. Chairman,and good morning colleagues. At the outset, I would like to bid a farewell tothe Ambassadors of Sweden and Indonesia, who are leaving us. I wish them allthe best in their future endeavors.
I would also like toextend my warm welcome to our new colleagues, especially Dennis. At thiscritical juncture, members have expectations to you indeed. I hope your arrivalcould bring luck to this Organization.
This is the first of thethree Agenda Items at today's General Council meeting that have been requestedby China.
Before proceeding to thesubject matter, I would like to explain why China is requesting three agendaitems at today's General Council meeting.
First of all, I would like to point out that, the WTO isfacing grave challenges.
As the Airgram indicatesthat the three agenda items China requested are Selection of New Appellate BodyMembers, US Section232 Investigations and Measures on Steel and AluminiumProducts, and US Section301 of the Trade Act of1974.
The reason for us to focuson these issues is simple, that is, 23 years after the establishment of the WTOback in 1995, this institution is now faced with an unprecedented challenge.
The most urgent andburning question that the WTO has to answer now is how to respond tounilateralism and protectionism.
Before the end of theUruguay Round, GATT contracting parties have severely suffered from theunilateral and protectionist measures. In order to curb their spread, Membershave negotiated and agreed on the Understanding on Rules and ProceduresGoverning the Settlement of Disputes and other WTO agreements. The prohibitionon unilateral and protectionist measures became the bedrock and centralelements of the multilateral trading system ever since.
However, what is mostdangerous and devastating is that the US is systematically challenging thesefundamental guiding principles by blocking the selection process of theAppellate Body members, applying restrictive trade measures under Section232and threatening to impose tariff measures of 50 Billion USD of goods importsfrom China under Section 301 of US domestic law. Any one of these, if leftuntreated, will fatally undermine the functioning of the WTO. But the realityis that the WTO is currently confronted with “three hard blows" which arereferred above.
Hence, we are requestingthese three items to be included in today's meeting and we are ready to discussways to tackle these severe challenges with all Members.
We earnestly expect allmembers to join efforts and defend our system, rules and order, defend theequal rights of all Members, and defend the dignity of the international law.In so doing, we can collectively strengthen and improve the multilateraltrading system, and prevent the unilateral or protectionist actions fromdamaging this system and undermining international trade.
Secondly, regarding thisAgenda Item 4, I would like to point out that, the Crown Jewel of the WTO islosing its brilliance.
The dispute settlementmechanism with its efficiency and effectiveness is widely considered to be thecrown jewel of the WTO. Since1995, several hundreds of trade disputes have beensettled through such mechanism. And such system has become one of the mostefficient and effective dispute settlement mechanism in the history ofinternational law. Within such system, the Appellate Body plays a vital role inensuring the stability and predictability of the WTO system and its rules.
Currently, the disputesettlement system is facing the most difficult time since its creation.
Only four of the sevenAppellate Body members are in office. If the selection process is not launched,the functioning of the Appellate Body will be paralyzed, which will put theentire dispute settlement system in crisis.
Without such system, theWTO trade rules will no longer be effectively enforced, and the trust andcredibility of the multilateral trading system will be deeply undermined.Ultimately, we will not be able to effectively control the unilateralism andprotectionism.
We noticed that the US hasexpressed for many times its concerns with respect to the WTO disputesettlement system. In our view this system functions generally well and the USis among the Members who benefitted the most from such system.
Any concerns with respectto the system can and should be addressed by discussion under the framework ofthe WTO. And China is willing to engage in such discussion. However, we cannotagree to link these concerns with the selection process.
The Member-drivenmechanism does not mean that it is driven by only one single Member. By takingthe selection process as a hostage, the US is abusing the decision makingmechanism of consensus. We urge that the commencing of the selection processshould start, so that the Appellate Body can resume its proper functioning assoon 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 Statesappreciates the opportunity afforded by this agenda item to address concernssurrounding the functioning of the WTO's dispute settlement system in generaland of the Appellate Body in particular.
We have taken note of theexpressions of concern on the part of the sponsor of this agenda item and otherMembers. I'm happy to have a chance to review briefly the perspectives of theUnited States, and I look forward to continue engaging with my colleagues onthese important questions.
Members of thisorganization are fond of applauding the WTO as an international paragon of therule of law. And indeed, the WTO's rule-book has substantial value, includingfor the United States, and adherence to those rules has generally contributedto global economic stability.
But something has goneterribly wrong in this system when those charged with adjudicating the rulesare so consistently disregarding those very rules. What we are dealing with,fundamentally, is a steadily worsening rupture of trust on the part of theAppellate Body. That ruptured trust has, in turn, placed in jeopardy thepolitical sustainability of our entire dispute settlement system. Despite yearsof warnings from my predecessors, and expressions of concern from respected WTOvoices, including former Directors-General, the Appellate Body not only hasrewritten our agreements to impose new substantive rules we Members nevernegotiated or agreed, but has also been ignoring or rewriting the rulesgoverning the dispute settlement system, expanding its own capacity to writeand impose new rules.
This unapprovedrule-breaking and rule-making is obvious to anyone who looks honestly at howthe system operates. Rules that we, as WTO Members, negotiated and approveddomestically stipulate that the Appellate Body must render its decisions within90 days there are no exceptions given. And yet the AB now almost never meetsthat deadline, breaking the rules without authorization from its bosses— namely, us, theMembers of this Council and of the DSB. Similarly, the AB has decided that itcan 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 DSUfor such actions. I could go on with examples.

Beyond this flaunting ofrules meant to govern its own activity, the Appellate Body has compiled atroubling track record of expansive interpretations that effectively create newWTO law, a function clearly reserved to Members through the process ofnegotiation.

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

If the United States isnow taking actions that some consider to be disruptive, it is important tounderstand that this comes only after many years of unheeded warnings. It isimportant to understand that a dispute settlement system that ignores existingrules and writes new rules undermines the WTO as a forum for negotiation anddiscussion. It is important to understand that dispute settlement that goesbeyond existing rules has not been approved by Members and does not havedemocratic legitimacy or support. Our goal is to ensure that any system ofdispute settlement can sustain the support of all Members. We do not see howperpetuating the existing dysfunctions through a complacent approach to thefilling of Appellate Body vacancies can advance that objective.

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

Agenda Item 5: US Section232 Investigations and Measureson Steel and Aluminium Products

Ambassador Zhang Xiangchen:

Thank you, Mr. Chairman,

China would recall itsstatement made at the General Council meeting on 7 March. We would reiterateour grave concern over the Section232 measures taken by the United States,because these measures are distorting trade, lacking transparency, and they arediscriminatory and will severely damage the multilateral trading system and theworld trade.

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

In order to defend the legitimaterights under the WTO Agreements, as well as to safeguard the fundamental valuesand principles of this Organization, China requested for consultations with theUS under the DSU on 5 April.

The purpose of theSection232 measures by the US against steel and aluminium products according toour understanding is not to protect so-called "national security" ofthe US, but rather it serves to protect the commercial interests of thedomestic industries. As such, such measure should be considered as safeguardmeasures under the Agreement on Safeguards, and meet necessary requirements asset in that agreement.

According to the report bythe US Department of Commerce and statistics provided by the US Department ofDefense, it is obvious that the reason of these measures is not "nationalsecurity".

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

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

That means the importssubject to the restriction of the Section232 measure on steel accounts for only5% of the steel consumption of the US. It was not mentioned at all whetherthese restricted imports are related with the US defense industries.

Here my question is, whythese imports, which accounts for merely 5% of US consumption and are mostlyordinary mid-and-low end products, will threaten the "nationalsecurity" of the US?

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

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

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

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

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

This is obviouslyviolating the WTO rules. And this is back-tracking the train of history, andsimply puts the global trade back to the old era of quotas.

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

Thank you, Mr. Chairman.

Ambassador Dennis Shea:

Mr. Chairman, the UnitedStates finds it curious that China has asked to place this item on the agendafor today's meeting.

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

Against this backdrop, weare perplexed that China now asserts its status as a victim. In any event, I amhappy to have this opportunity to recall to Members' attention the reasonsunderlying the United States' defense of critical national security interests.

The United States haspreviously informed Members about the proclamations issued by the Presidentpursuant to Section232 of the Trade Expansion Act of 1962, as amended.

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

Certain Members have sincesought consultations with the United States with regard to the President'sproclamations. Those Members have our responses.

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

We are, however, willingto discuss with any Member questions they may have about the President'sactions, as well as the circumstances of pernicious state intervention, marketdistortion, and massive and persistent overcapacity in certain economies thatnecessitated the actions.

The President issued theSteel and Aluminum Proclamations pursuant to Section232 of the Trade ExpansionAct of 1962, determining that tariffs are necessary to adjust imports of steeland aluminum articles that threaten to impair the national security of theUnited States.

The United States did nottake action pursuant to Section201 of the Trade Act of1974, which is the lawunder which the United States imposes safeguard measures. And as evidenced byour recent notifications with respect to solar products and large residentialwashers, the United States is well aware of what constitutes a safeguard aswell as what its notification obligations are under the Agreement on Safeguards.

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

Because the steel andaluminum actions are not safeguard measures, the United States considers thatArticle8.2 of the Agreement on Safeguards does not justify China's suspensionof concessions or other obligations. China has asserted no other justificationfor its measures, and the United States is aware of none. Therefore, it appearsthat China's actions have no basis under WTO rules.

(Interventions by SouthAfrica, 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 therelationship between Section232 measures and overcapacity and to make ourdiscussion more interactive. But before that, let me briefly reactwith two points.

First, on the nature ofSection232 measures.

From the investigationreport by the US Department of Commerce and the Presidential Proclamation onthe steel and aluminium Section232 measures, we could find a clear inherentlogic: the continued growth of imported products has allegedly caused seriousinjury to domestic industries, and therefore it is necessary to raise tariffsagainst imports from all over the world.

Such logic, according toour understanding, complies with the definition and conditions for implementingsafeguard measures stipulated in Article19 of the GATT1994 and the Agreement onSafeguards.

Second, on China'ssuspension of concession measures.

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

In terms of substantialaspect, China strictly follows the provisions of Article8.2 of the Agreement onSafeguards that the suspension of concessions should be "substantiallyequivalent" to safeguard measures. The measures we took are symmetricaland restrained.

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

However, it seems thatsomeone has attempted to sell a flawed logic that trade protection is aresponse to overcapacity, and overcapacity is caused by the intervention andsubsidies of the Chinese government. Therefore, it is China's responsibility toaddress the issue of overcapacity.

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

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

However, we do not agreeto arbitrarily throw several "hats" onto China and describe China'sstrategy as distorting the world market, because this is completely not trueand will make China a wrong target in the current situation when tradeprotectionism 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 WTOmembers are not unfamiliar with something called Section301 of the1974 TradeAct of the United States.

In fact, since itsenactment in1974, as many as 125 investigations have been launched by theUnited States against 35 countries and regions around the world. This is not anancient history. Many of us still have fresh memory of the devastations causedby these investigations.

Let us also refresh ourmemories that the United States has "explicitly, officially, repeatedlyand unconditionally confirmed" its commitments undertaken in its 1994Statement of Administrative Action(SAA) that it would base a Section301decision only on adopted DSB findings. Otherwise, "the US would incurstate responsibility since its law would be rendered inconsistent with theobligations under DSU Article23."

Today, the US seems tohave forgotten these commitments by announcing the massive unilateral tariffsagainst China. It is a typical unilateral and protectionist action, whichmanifests an intentional and gross violation of the WTO's fundamental principleof non-discrimination.

18 years ago, the DSBadopted a clear finding that Section301 is prima facie incompatible with themultilateral trading system. It was the 1994 SAA that saved the US law from beingruled as a violation of the WTO rules.

18 years later, Section301is coming back. It is unfortunate that China is picked as the first target, butfortunately China is big and strong enough.

We are wondering, who isthe next target?

History teaches us that ifthe unilateralism is unrestrained, it would bring destruction to the worldeconomy and rip all members, especially the developing countries. Anybody atany time can be its target, and nobody, especially the small and mediumeconomies, can defend themselves on their own.

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

Today, the globalizationhas made us increasingly interdependent and forming a community of sharedinterests. Any unilateral action would injure others and ruin itself. As ourPresident Xi Jinping has rightly pointed out in Davos, "pursuing protectionismis just like locking oneself in a dark room: wind and rain might be keptoutside but so are light and air".

China is expecting allmembers to join hands together and to collectively safeguard the rules-basedmultilateral trading system, and we urge the US to change its course ofunilateral practice and avoid dragging the world into a trade war.

Thank you, Mr. Chairman.

Ambassador Dennis Shea:

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

The truth is, it is Chinathat is the unilateralist, consistently acting in ways that undermine theglobal system of open and fair trade. Market access barriers too numerous tomention; forced technology transfers; intellectual property theft on anunprecedented scale; indigenous innovation policies and the Made in China 2025program; discriminatory use of technical standards; massive governmentsubsidies that have led to chronic overcapacity in key industrial sectors; anda highly restrictive foreign investment regime- these are the issues thatshould 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 theSection301 report that China has asked to be reflected on today's agenda.

As Members are aware, theUnited States has issued a detailed factual report running nearly 200 pageswith more than one thousand one hundred footnotes that details China'sdistortive policies on technology transfer. China has not provided any evidenceto 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 foreignownership restrictions, such as joint venture requirements and foreign equitylimitations, and various administrative review and licensing processes, torequire or pressure technology transfer from foreign companies.

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

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

China also uses itsadministrative licensing and approvals processes to force technology transferin exchange for the numerous approvals needed to establish and operate abusiness in China.

Vague provisions anduncertainty about the applicable rules provide Chinese authorities with widediscretion to use administrative processes to pressure technology transfer orotherwise act in furtherance of China's trade-distorting industrial policyobjectives. And so I am compelled to ask: is this unilateralism designed tobenefit China at the expense of its trading partners?

Second, China's regime oftechnology regulations forces U.S. companies seeking to license technologies toChinese entities to do so on non-market-based terms that favor Chineserecipients.

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

China's mandatoryrequirements for importation of foreign technology are discriminatory andclearly more burdensome than the requirements applicable to domestic Chinesecompanies.

Specifically, Chinamandates that all indemnity risks be borne by the foreign technologytransferor. Parties cannot negotiate the allocation of this risk, even if thetransferee would be willing to bear the risk under the contract.

China also mandates thatall improvements belong to the party making the improvement and that a foreignlicensor cannot stop the Chinese licensee from making improvements to thetechnology. China further requires that joint ventures, mandated under Chineselaw, may continue to use transferred technology after the conclusion of anylicensing contract.

These restrictions tip thetechnology transfer regime in favor of Chinese entities before a foreigncompany even attempts to enter the market in China. And so I am compelled toask: is this unilateralism designed to benefit China at the expense of itstrading partners?

Third, China directs andunfairly facilitates the systematic investment in, and acquisition of, foreigncompanies and assets by Chinese companies to obtain cutting-edge technologiesand intellectual property and generate the transfer of technology to Chinesecompanies.

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

China has devoted massiveamounts of financing to encourage and facilitate outbound investment in areasit deems strategic.

To implement thesepolicies, China employs tools such as investment approval mechanisms and asystem of "encouraged" sectors to channel and support outboundinvestment.

These investments andacquisitions align with state objectives and policies, and are often undertakenby state-owned enterprises that are, by definition, owned and controlled by thegovernment.

Even when undertaken bycompanies 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 thesetransactions are funded by state-owned entities or banks, often in situationswhere comparable commercial financing would have been unavailable. And so I amcompelled to ask: is this unilateralism designed to benefit China at theexpense of its trading partners?

Fourth, China conducts andsupports unauthorized intrusions into, and theft from, the computer networks offoreign companies to access their sensitive commercial information and tradesecrets.

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

Through these cyberintrusions, China has gained unauthorized access to a wide range ofcommercially-valuable business information, including trade secrets, technicaldata, negotiating positions, and sensitive and proprietary internalcommunications.

China has usedcyber-enabled theft and cyber intrusions to serve its strategic economicobjectives. 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 Chinaat the expense of its trading partners?

These four technologytransfer policies harm every Member, and every industry in every Member, thatrelies on technology for maintaining competitiveness in world markets andincreasing its people's standard of living.

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

This criticism hasabsolutely no validity. To the contrary, the four policies and practices I haveoutlined are examples of unilateralism by China, advancing its own interests atthe expense of all of ours, and causing economic harm worth tens of billions ofdollars annually to the United States, and multiples of that to WTO Memberscollectively.

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

If the WTO is seen as ashield protecting those Members that choose to adopt policies that can be shownto undermine the fairness and balance of the international trading system, thenthe WTO and the international trading system will lose all credibility andsupport 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 beenan 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 jumpingright to this heavy debate.

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

This is an interesting butalso important question. Our understanding of unilateralism is taking actionsthat go against the multilateral rules, at the expense of other members. Itdoesn't mean that any measure by a single member can be labeled as"unilateral". Every country has its own economic policies. There is aline between legitimate policy space and unilateral action. The line is themultilateral rules we all agreed upon. If it's consistent with the WTO rules,the policy is legitimate, otherwise it would be unilateral. In Section301investigations what the US is essentially asking for from China, according tomy understanding, is the free market access. This should be the subject ofbilateral investment negotiations rather than blatant coercion.

I also like anotherexpression Dennis used, the shield. My understanding is that WTO is indeed ashield for members to defend themselves against trade protectionism. It is nota shield to hide any measure that goes against the WTO rules.

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

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

Mr. Chairman, now I'd liketo say a few words on China's development strategies and intellectual propertyprotection.

On China's developmentstrategy, Dennis gave China a few "hats" in the morning, such asstate capitalism, mercantilism. But I think these hats are too large to fit onour head.

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

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

It is stipulated inArticle15 of China's Constitution Law that the state has put into practice asocialist market economy, and in Article16 that state-owned enterprises havedecision-making power in operation and management within the limits prescribedby law. These are the legal achievements of reform and opening up, and also theinstitutional guarantee for China's future development.

Indeed, it is recognizedthat to achieve sustainable and inclusive development, our market economysystem requires further improvement, our state-owned enterprises need furtherreforms, our domestic market is up to be further opened, and our protection ofintellectual property rights should be further strengthened.

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

Mr. Chairman,

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

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

Mr. Chairman,

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

Five years ago, when I wasAssistant Minister at the Ministry of Commerce in charge of intellectualproperty right issues, I led a State Council inspection team to Gansu andShaanxi province to inspect the work on authentic software. Gansu is a remoteand underdeveloped province in Northwestern China. There, we randomly checkedsix 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 amisplaced label on the outside.

The head of the agencytold us that Gansu has just suffered a severe earthquake, which depleted theprovince's financial resources. Despite the difficulties, his agency spent300,000 Yuan on purchase of authentic software. In the short run, this seemedlike an unwise decision since the money could be spent on more urgent thingslike disaster relief, but they knew that this spending has to be made to ensurethe long run development objectives.

There're many exampleslike this. Objectively speaking, WTO TRIPs Agreement imposes disproportionalburdens on developing countries. But since we have all subscribed to thisagreement, we make the best efforts to meet those requirements.

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

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

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

It is natural thatdeveloping countries, including China, all desire technological advancements.It is also natural that the owners of technologies in the developed countrieswant to get maximum returns on their technologies, and they have all rights todo so. The frontrunners have their rights, and those who are catching up havetheir 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 todeny that China still has room to improve in terms of protection ofintellectual property right. In fact, we need to make further progress in thisarea. If companies face problems, they can go to the Intellectual PropertyCourt in China, if governments have systemic concerns, they can go the DisputeSettlement at the WTO. But no one should take unilateral sanctions prohibitedby the WTO rules.
If I heard the previouscomments correctly, some one used the word "theft" in hisintervention. 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 sonhad stolen it. Thereupon; he watched every move of the neighbor's son. He feltthat the gait, voice, and facial expressions of his neighbor's son were all notthe 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 wentup the hill to cut firewood a few days ago, he left his hatchet there. Thefollowing 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-stealerat all.
This story tells us thatsometimes, the thief is in your eyes and your heart. And it blocks you fromseeing the truth, including the important truth like the need to respect therule of law, the efforts made by the others to constantly improve and the absenceof courage to inspect one for problems. I hope this "thief' in the eyesand the heart will be gone soon and we can look at each other like normalpeople do.
Thank you, Mr. Chairman.
Ambassador Dennis Shea (Second Intervention):
I hear the murmuring. Ipromise Chair that I won't give a long speech. I want to thank Xiangchen formentioning me three times in his remarks that means he listened to what I hadto say this morning which I consider is progress. Appreciate the Hatchet storyat the end, but I have to say that the United States respect the rule of lawquite a bit. We were founded by the rule of Law. And I can say that it is notalways the case in other parts of the world. We will have much more to talkabout what unilateralism is I suspect in the coming weeks and months. I lookforward to engaging with my colleagues on that issue, including you Xiangchen.

Before closing Mr.Chairman, my delegation has taken good note of the statements deliveredyesterday and today by various members, including the joint statementsdelivered on behalf of the Informal Group of Developing Countries (IGDC). Asthe membership composition of the IGDC is not reflected on the website of theWTO, and I want my delegation to take fully account of the views expressed intheir statements, the United States would be grateful if the record of thismeeting could clearly reflect the individual WTO members who have associatedthemselves with the IGDC statement.
Thank you.
Ambassador Zhang Xiangchen (Third Intervention):

Thank you, Mr. Chairman.
I have no intention tocontinue this debate, but I just want to say that today's discussion is veryimportant and very useful. The debate on trade policy is exactly the functionof this organization.
Let me quote Adam Smith inhis great book The Wealth of Nations to end my comment. “Man is animal thatmakes bargains: no other animal does this— no dogexchanges bones with another". As trade negotiators, let’s bargain with each other, instead of biting each other.
Thankyou, Mr. Chairman.