I. The Aim of US Special Section 301
The United States has imposed massive tariffs on Chinese
exports on the vague argument of ‘theft’ of US intellectual
property and “discriminatory” transfer of technology
requirements. This is inconsistent with the WTO rules.
The US argument ignores that China has implemented its
obligations under the WTO Agreement on Trade-related
Aspects of Intellectual Property Rights (“TRIPS Agree-
ment”), and that in some areas, as noted below, has even
introduced TRIPS-plus provisions.
Unlike the case of the US that freely copied European
technologies to initiate its industrialization process, Chi-
na’s current industrial development and technological
upgrading is taking place under the tight standards for
protection and enforcement of intellectual property estab-
lished by the TRIPS Agreement. Annual royalty pay-
ments by Chinese companies for the use of foreign tech-
nologies (notably to US right-holders) increased more
than twenty times since the establishment of the WTO up
to U$S 24 billion1. Moreover, as a result of a dramatic in-
crease in recent years, R&D investment in China has
reached 2.1% of GDP. It accounts for 20.8% of global
R&D, a percentage equivalent to R&D conducted in all
the European countries together2. As a result, China has
become one of the world's top 20 most-innovative econo-
mies3.
The unilateral trade retaliation imposed by the US on
the theft argument aims at weakening the Chinese econo-
my and, principally, at slowing down its industrial devel-
opment and technological catching-up. It also raises sys-
temic concerns. On the one hand, such measures affect
international trade and distort production chains that
involve many other countries, particularly in Asia4. On
the other, any country –even if fully TRIPS compliant–
may be victim of the intimidation and economic effects of
the measures based on the US Trade Act of 1974. Alt-
hough the procedures leading to the application of such
measures have an appearance of legality, they are
US Claims under Special Section 301 against China
Undermine the Credibility of the WTO
By Nirmalya Syam* and Carlos M. Correa**
POLICY BRIEF
No. 51 █ September 2018
Abstract
The US action to place China in the Special 301 ‘Priority Watch List’ is unjustified and in contravention to the WTO rules. The
claims made against China are based on standards self-determined by the Office of the United States Trade Representative
(USTR), not on international standards. This is an example of a systemic problem that requires a concerted response. WTO
members should unite to firmly oppose the imposition of unilateral measures that undermine the multilateral trading system
and the credibility of WTO as a ruled-based institution.
*******
La décision des États-Unis d’inscrire la Chine sur la liste des pays à surveiller en priorité (Priority Watch List, en anglais) établie dans le
rapport spécial dressé au titre de l’article 301 de la législation américaine sur le commerce est injustifiée et contrevient aux règles de l’Orga-
nisation mondiale du commerce (OMC). Les allégations contre la Chine se fondent sur des critères définis par le Bureau du représentant des
États-Unis pour les questions commerciales internationales et non pas sur des critères internationaux. C’est un parfait exemple de problème
systémique qui doit être traité de manière concertée. Les membres de l’OMC devraient s’unir pour s’opposer fermement à l’imposition de
mesures unilatérales qui fragilisent le système commercial unilatéral et la crédibilité de l’OMC en tant qu’institution fondée sur des règles.
*******
La decisión de los Estados Unidos de incluir a China en la lista de observación prioritaria (Priority Watch List) que figura en el informe de
la Sección 301 de la Ley de Comercio de los Estados Unidos es injustificada y contraviene las normas de la Organización Mundial del
Comercio (OMC). Las alegaciones contra China se basan en criterios libremente determinados por la Oficina del Representante de los Esta-
dos Unidos para Asuntos Comerciales (USTR) y no en criterios internacionales. Esto es un ejemplo de un problema sistémico que requiere
una respuesta concertada. Los miembros de la OMC deberían unirse para oponerse firmemente a la imposición de medidas unilaterales que
debilitan el sistema comercial multilateral y la credibilidad de la OMC como una institución basada en normas.
* Nirmalya Syam is Senior Programme Officer with the Development, Innovation and Intellectual Property Programme.
** Prof. Carlos M. Correa is the Executive Director of the South Centre.
ing to geographical indication (GI) and trademarkThe United States has imposed massive tariffs on Chinese
exports on the vague argument of ‘theft’ of US intellectual
property and “discriminatory” transfer of technology
requirements. This is inconsistent with the WTO rules.
The US argument ignores that China has implemented its
obligations under the WTO Agreement on Trade-related
Aspects of Intellectual Property Rights (“TRIPS Agree-
ment”), and that in some areas, as noted below, has even
introduced TRIPS-plus provisions.
Unlike the case of the US that freely copied European
technologies to initiate its industrialization process, Chi-
na’s current industrial development and technological
upgrading is taking place under the tight standards for
protection and enforcement of intellectual property estab-
lished by the TRIPS Agreement. Annual royalty pay-
ments by Chinese companies for the use of foreign tech-
nologies (notably to US right-holders) increased more
than twenty times since the establishment of the WTO up
to U$S 24 billion1. Moreover, as a result of a dramatic in-
crease in recent years, R&D investment in China has
reached 2.1% of GDP. It accounts for 20.8% of global
R&D, a percentage equivalent to R&D conducted in all
the European countries together2. As a result, China has
become one of the world's top 20 most-innovative econo-
mies3.
The unilateral trade retaliation imposed by the US on
the theft argument aims at weakening the Chinese econo-
my and, principally, at slowing down its industrial devel-
opment and technological catching-up. It also raises sys-
temic concerns. On the one hand, such measures affect
international trade and distort production chains that
involve many other countries, particularly in Asia4. On
the other, any country –even if fully TRIPS compliant–
may be victim of the intimidation and economic effects of
the measures based on the US Trade Act of 1974. Alt-
hough the procedures leading to the application of such
measures have an appearance of legality, they are
US Claims under Special Section 301 against China
Undermine the Credibility of the WTO
By Nirmalya Syam* and Carlos M. Correa**
POLICY BRIEF
No. 51 █ September 2018
Abstract
The US action to place China in the Special 301 ‘Priority Watch List’ is unjustified and in contravention to the WTO rules. The
claims made against China are based on standards self-determined by the Office of the United States Trade Representative
(USTR), not on international standards. This is an example of a systemic problem that requires a concerted response. WTO
members should unite to firmly oppose the imposition of unilateral measures that undermine the multilateral trading system
and the credibility of WTO as a ruled-based institution.
*******
La décision des États-Unis d’inscrire la Chine sur la liste des pays à surveiller en priorité (Priority Watch List, en anglais) établie dans le
rapport spécial dressé au titre de l’article 301 de la législation américaine sur le commerce est injustifiée et contrevient aux règles de l’Orga-
nisation mondiale du commerce (OMC). Les allégations contre la Chine se fondent sur des critères définis par le Bureau du représentant des
États-Unis pour les questions commerciales internationales et non pas sur des critères internationaux. C’est un parfait exemple de problème
systémique qui doit être traité de manière concertée. Les membres de l’OMC devraient s’unir pour s’opposer fermement à l’imposition de
mesures unilatérales qui fragilisent le système commercial unilatéral et la crédibilité de l’OMC en tant qu’institution fondée sur des règles.
*******
La decisión de los Estados Unidos de incluir a China en la lista de observación prioritaria (Priority Watch List) que figura en el informe de
la Sección 301 de la Ley de Comercio de los Estados Unidos es injustificada y contraviene las normas de la Organización Mundial del
Comercio (OMC). Las alegaciones contra China se basan en criterios libremente determinados por la Oficina del Representante de los Esta-
dos Unidos para Asuntos Comerciales (USTR) y no en criterios internacionales. Esto es un ejemplo de un problema sistémico que requiere
una respuesta concertada. Los miembros de la OMC deberían unirse para oponerse firmemente a la imposición de medidas unilaterales que
debilitan el sistema comercial multilateral y la credibilidad de la OMC como una institución basada en normas.
* Nirmalya Syam is Senior Programme Officer with the Development, Innovation and Intellectual Property Programme.
** Prof. Carlos M. Correa is the Executive Director of the South Centre.
applications
These claims are based on standards self-determined by
the USTR, not on international standards. In accordance
with 19 U.S.C. 2242 (‘Identification of countries that deny
adequate protection, or market access, for intellectual
property rights’), a “foreign country may be determined
to deny adequate and effective protection of intellectual
property rights, notwithstanding the fact that the foreign
country may be in compliance with the specific obliga-
tions of the Agreement on Trade-Related Aspects of Intel-
lectual Property Rights...”.7 This means that the US claims
the right to impose its own rules and to ignore those
agreed upon under the TRIPS Agreement, including the
flexibilities that WTO members may legitimately use to
pursue their national priorities and protect essential inter-
ests, such as in the area of public health.
As a member of WTO, China’s intellectual property law
and policy must be in conformity with the requirements
in the TRIPS Agreement and the provisions of the interna-
tional treaties that it incorporates. China is also bound vis-
à-vis the parties of other intellectual property treaties it
has signed. In accordance with the terms of its accession
Protocol to the WTO, China has the same obligations un-
der the TRIPS Agreement as other developing countries.
The Accession Protocol requires China to bring its intellec-
tual property laws and provisions into conformity with
the TRIPS Agreement but, with one exception, does not
require China to go beyond the obligations imposed by
those provisions. Thus, the merit of US claims on the basis
of which China has been placed in Priority Watch List
must be tested on the anvil of China’s WTO obligations
regarding the TRIPS Agreement. A preliminary review of
the USTR arguments in the light of such obligations sug-
gests the following:
First, there is no obligation on any WTO member under
the TRIPS Agreement to enact a specific law for the pro-
tection of trade secrets. Article 39.2 of the TRIPS Agree-
ment recognizes the right of natural or legal persons to
protect information lawfully under their control from be-
ing disclosed to third parties without their consent, but
does not prescribe how WTO members should implement
such protection. Many WTO members do not have a spe-
cific trade secret law, but they generally protect it in the
framework of unfair competition rules. China has the flex-
ibility under the TRIPS Agreement to determine how to
protect trade secrets and is not required to enact a specific
trade secret law.
Second, the TRIPS Agreement requires WTO members
to provide right holders with effective procedures and
mechanisms for enforcing their rights, including measures
to prevent infringements and remedies which constitute a
deterrent to further infringements. However, the specific
nature of these procedures and remedies are not specified.
Indeed, WTO members have no obligation to create spe-
cial regimes for the enforcement of IP that is separate from
the general enforcement regime they have. Nonetheless,
China has gone further and established specialized intel-
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Claims under Special Section 301 against China Undermine the Credibility of the WTO
P O L I C Y B R I E F
grounded on arbitrary interpretations of foreign laws
promoted by the industry’s lobbies that ultimately
shape the US trade policy.
II. Analysis of US claims under Special Sec-
tion 301
Possible reasons for the alleged violation of US intellec-
tual property rights in China are articulated in the
USTR Special Section 301 Report,5 which places China,
along with other countries, on the so-called “Special
301 priority watch list”. This designation implies that,
in the view of the US administration, the intellectual
property laws and policies of China have serious defi-
ciencies that require increased USTR attention, and
which may lead to unilaterally determined economic
sanctions.
The mere threat of sanctions by placing a country in
any specific category in the US watch list violates the
WTO rules. A WTO panel noted in a dispute brought in
1999 by the EU against Section 301 of the US law, that:
“the threat alone of conduct prohibited by the WTO
would enable the Member concerned to exert undue
leverage on other Members. It would disrupt the very
stability and equilibrium which multilateral dispute
resolution was meant to foster and consequently estab-
lish, namely equal protection of both large and small,
powerful and less powerful Members through the con-
sistent application of a set of rules and procedures.”6
The USTR Special Section 301 report raises the fol-
lowing concerns regarding the implementation of intel-
lectual property law and policy in China:
1. Non-enactment of a specific legislation on protec-
tion of trade secrets
2. Lack of decisive action to curb widespread manu-
facture, sale and export of counterfeit goods, or
bad faith registration of trademarks
3. Failure to address widespread online piracy and
counterfeiting in e-commerce markets
4. Use of competition law to pursue industrial poli-
cy goals
5. Disclosure obligation on patents relating to
standards
6. Treatment of supplementary data in pharmaceu-
tical patent examination
7. Strict definition of “new drug” that would be
eligible for regulatory data protection
8. Inadequate amendments to the copyright law
9. Provisions relating to technology transfer
10. Requirement to disclose ICT related IP on
grounds of cybersecurity
11. Lack of opportunities to participate in opposition,
cancellation, invalidation or other processes relat-Sixth, Chinese patent examination guidelines have been
amended to permit pharmaceutical patent applicants to
file supplementary experimental data after filing their
patent applications, but the applicant must satisfy the ex-
aminer that the technical effect of the supplementary data
is capable of being derived from the original disclosure.
The US contends that Chinese patent examiners have not
applied the new guidelines to all examination questions to
which supplementary data is germane. However, the Chi-
nese guidelines only specifically apply to the admission of
supplementary data in relation to sufficiency of disclosure
objections raised by examiners. It is a matter of policy for
China to determine whether supplementary data should
also be admitted for other examination questions such as
inventive step and novelty. This policy is fully within the
space left by the TRIPS Agreement to WTO members to
articulate patent examinations procedures.
Seventh, the US objects to the strict definition of a “new
drug” that would be eligible for regulatory data protec-
tion under Chinese law. China accepted in the WTO ac-
cession process a TRIPS-plus obligation regarding test
data for pharmaceutical products, through a commitment
to introduce a form of “data exclusivity” that is not re-
quired under article 39.3 of the TRIPS Agreement. How-
ever, this commitment10 did not include any limitation
regarding the way in which certain concepts, such as
when a drug is to be deemed “new”, could be applied.
Hence, it is a policy choice that China can legitimately
make under the WTO rules. Data exclusivity has been
imposed by the United States and the European Union to
partners in several free trade agreements, but the latter
also generally enjoy some flexibility to mitigate the nega-
tive impact of such a TRIPS-plus protection in relation to
access to medicines.11 It is also worth noting that new
draft rules aimed at enhancing test data protection were
released in China for public comment in April 2018.12
Eighth, the USTR report merely alleges without any
substantiation that major amendments in China’s copy-
right law have not been carried out. No analysis is given
in the USTR report regarding specific provisions in Chi-
na’s copyright law that are regarded by the US as incon-
sistent with TRIPS obligations.
Ninth, pursuant to an instruction from the US Presi-
dent, USTR conducted an investigation which found that
Chinese acts, policies or practices, such as foreign owner-
ship restrictions and administrative review and licensing
processes to require US companies to transfer technology,
restrictions in technology regulations on terms of licens-
ing technologies, facilitation of investment in and acquisi-
tion of US companies and their IP over cutting-edge tech-
nologies by Chinese companies, and intrusions into com-
puter networks of US companies to access sensitive com-
mercial information and trade secrets, to be unreasonable,
burdensome and discriminatory towards US commerce.
Thus, the USTR has raised tariffs on certain products of
Chinese origin and has initiated dispute settlement pro-
ceedings at the WTO against China’s alleged discrimina-
tory licensing requirements. While these issues, to the
extent covered by the WTO rules, will have to be settled
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US Claims under Special Section 301 against China Undermine the Credibility of the WTO
P O L I C Y B R I E F
lectual property tribunals in various provinces. Moreo-
ver, the primary obligation for enforcing IP rights is on
the right holder and not the State. Thus, the US allega-
tion regarding lack of decisive action to curb counter-
feit goods or bad faith registration of trademarks is un-
tenable because the onus of taking decisive action
against such acts falls on the right holders. The funda-
mental question is whether the procedures available to
right holders to initiate such enforcement action are
effective. A 2009 WTO panel ruling on a dispute be-
tween the US and China (China – Measures Affecting the
Protection and Enforcement of Intellectual Property Rights)
did not find the IP enforcement regime in China relat-
ing to customs measures and criminal liability thresh-
olds to be in contravention of the obligations under the
TRIPS Agreement.8
Third, there is no specific TRIPS obligation on WTO
members with regard to addressing counterfeiting and
piracy online. The WIPO Copyright Treaty (WCT), to
which China is a Contracting Party, requires the appli-
cation of measures necessary for the enforcement of
copyright in the digital domain, but also clarifies that
such measures need not be distinct from the general
legal system of the Contracting Party. The additional
standards of protection introduced by the WCT are not
mandatory under the TRIPS Agreement. Moreover, the
US has not alleged that China’s IP enforcement regime
relating to copyright in the digital domain is not con-
sistent with the WCT.
Fourth, contrary to US assertion, it is legitimate un-
der the TRIPS Agreement for any country to use com-
petition law and policy to advance industrial policy
goals. There are no binding international rules limiting
the policy space to design national disciplines on com-
petition law. Hence, countries are free to design their
competition laws in accordance with their domestic
interests and needs, taking their level of development
into account, subject only to the limitations arising from
the territorial applicability of such laws.
Fifth, the requirement in Chinese law for any person
participating in a standardization process to disclose all
essential patents related to technical standards is not
unique. Even in standard setting organizations in de-
veloped countries such as the American National
Standards Institute (ANSI), European Telecommunica-
tions Standards Institute (ETSI) and Organization for
the Advancement of Structured Information Standards
(OASIS), the disclosure requirement is a common
means to enable their technical committees to arrive at
a fully informed decision about the particular technical
specification and the estimated licensing costs. Such a
requirement is not banned by the TRIPS Agreement,
and is key to avoid anti-competitive practices resulting
from opportunistic conduct of patent owners. In fact, in
the US and other countries competition authorities and
courts have taken measures to protect the public inter-
ests against the abuse of standard essential patents,
including by refusal of injunctive relief.9Endnotes:
1 See statistics available from https://www.indexmundi.com/
facts/china/royalty-and-license-fees.
2 The Industrial Research Institute, 2017 R&D Trends Forecast:
Results from the Industrial Research Institute’s Annual Survey,
Research-Technology Management, 60:1, 18-25, DOI:
10.1080/08956308.2017.1255049 em.
3 In accordance with the index published annually by Cornell
University, INSEAD and the World Intellectual Property Organi-
zation (WIPO). See
http://www.wipo.int/pressroom/en/articles/2018/
article_0005.html.
4 Martin Khor, ‘Trade War – Developing Countries Should Re-
spond’, 24 July 2018. Available from
http://www.ipsnews.net/2018/07/trade-war-developing-
countries-respond/.
5 See Office of the United States Trade Representative, 2018 Spe-
cial 301 Report, pp. 38-46 at p. 38, available from
https://ustr.gov/sites/default/files/files/Press/Reports/2018
%20Special%20301.pdf. “The state of intellectual property (IP)
protection and enforcement in China, and market access for U.S.
persons that rely on IP protection, reflect the country’s failure to
implement promises to strengthen IP protection, open China’s
market to foreign investment, allow the market a decisive role in
allocating resources, and refrain from government interference in
private sector technology transfer decisions. ... Concerns extend
not only to gaps in legal authorities and weak Enforcement chan-
nels, but also to investment and other regulatory requirements
that promote the acquisition of foreign technology by domestic
firms at the expense of providing the reciprocity, a level playing
field, the transparency, and the predictability upon which the
United States and others rightly insist. ...The United States, other
countries, and the private sector have stressed the urgent need
for China to embrace meaningful and deep reform as it proceeds
with a years-long overhaul of its IP-related legal and regulatory
framework. Yet, results to date have disappointed, as China en-
acts measures that fail to reflect priority recommendations of the
United States and others. China’s shortcomings in this respect
suggest that China intends to continue business as usual. For
these reasons, as elaborated below, China remains a hazardous
and uncertain environment for U.S. right holders hoping to pro-
tect and enforce their IP rights.”
6 See WTO (1999), United States – Sections 301-310 of the Trade
Act of 1974, Report of the Panel, WT/DS152/R, 22 December
1999, p. 325. Available from
https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx
?Query=(@Symbol=%20wt/ds152/r*%20not%20rw*)&Language
=EN-
GLISH&Context=FomerScriptedSearch&languageUIChanged=tr
ue#.
7 U.S. Government Publishing Office, United States Code 2011,
Title 19 – Customs Duties, p. 506. Available from
https://www.gpo.gov/fdsys/pkg/USCODE-2011-
title19/pdf/USCODE-2011-title19-chap12-subchapI-part8-
sec2242.pdf.
8 WTO (2009), China – Measures Affecting the Protection and
Enforcement of Intellectual Property Rights – Report of the Pan-
el, WT/DS362/R, 26 January 2009. Available from
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds36
2_e.htm.
9 See, e.g. Jones Day, Standards-Essential Patents and Injunctive
Relief, available at
https://www.jonesday.com/files/Publication/77a53dff-786c-
442d-8028-
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Claims under Special Section 301 against China Undermine the Credibility of the WTO
P O L I C Y B R I E F
through the WTO dispute settlement procedures, the
unilateral imposition of increased tariffs on products of
Chinese origin by the US without a resolution through
the established WTO dispute settlement procedures, is
in clear contravention to the WTO rules.13 Importantly,
neither TRIPS nor the TRIMS Agreement forbid or oth-
erwise regulate technology transfer performance re-
quirements, particularly commitments of technology
transfer that companies may be required and accept to
make as one of the conditions for approval of a foreign
direct investment.
Tenth, requirements in Chinese law to disclose ICT-
related intellectual property on grounds of cybersecuri-
ty are not subject to the TRIPS disciplines; in any case,
they would fall within the security exception that is
available under that Agreement.
Finally, there is no international obligation for a
WTO member regarding the opportunity to participate
in opposition, cancellation, invalidation or other pro-
cesses relating to GIs. Moreover, the TRIPS Agreement
does not provide for a specific form of protection for
GIs. The opportunity to oppose a trademark applica-
tion or request the cancellation of trademark is granted
under the Chinese law, which is subject to the general
requirements established in article 15.5 of the TRIPS
Agreement. The modalities under which third parties
may submit an opposition or request cancellation, can
be determined by WTO national laws. Neither the Unit-
ed States nor any other WTO member has so far raised
these issues under the available WTO dispute settle-
ment mechanism.
Conclusion
The US action to place China in the Special 301 priority
watch list is unjustified and in contravention to the
WTO rules. Moreover, it ignores the significant efforts
that China has undertaken to reform its regime that
already provides more protection and enforcement for
IPRs than required in the TRIPS Agreement.
The unfounded US unilateral action against China is
a clear example of a systemic problem that requires a
concerted response. WTO members should take a deci-
sive action to prevent economic and political intimida-
tion as a tool to push reform of intellectual property
policies. Developing countries, in particular, should
unite to firmly oppose the imposition of unilateral
measures that undermine the multilateral trading sys-
tem and the credibility of WTO as a ruled-based insti-
tution.
