1.

What is your advice to the government of China in regard to the protection of intellectual
property?

Since joining the World Trade Organization (WTO), China started to look at its legal framework and
amended its IPR and related laws and regulations to comply with the WTO Agreement on Traded-
Related Aspect of Intellectual Property Rights (TRIPs). Despite stronger statutory protection, China
continues to be a haven for counterfeiters and pirates and enforcement measures taken to date have
not been sufficient to deter massive IPR infringements effectively. one of the problems that sought to be
a cause for this is that Jurisdiction of IP protection is diffused throughout a number of government
agencies and offices, with each typically responsible for the protection afforded by one statute or one
specific area of IP-related law. There may be geographical limits or conflicts posed by one administrative
agency taking a case, involving piracy or counterfeiting that also occurs in another region.

Officials in China are not denying that they have a problem in the IPR but what they did so far did not
solve their issue, the following summarize my advices to china in order to sort out the IPR problem:

- The government needs to communicate to the Chinese people that IP enforcement is not
something brought in from outside to control Chinese society and to keep Chinese society from
progressing. “It is rather like your own grain that you plant in the ground which will grow and
later enable you to harvest, to become richer, to become better educated, and to have a better
life for all consumers. Therefore, the perception of the IP system must be changed, and IP must
be seen as one of the normal parts of doing business. This can be done via the educational
system, on TV and in other media, and via campaigns, which educate, but also prosecute IP
infringement.” (Mr. Thomas Pattloch, Intellectual Property Officer with the Delegation of the
European Commission to China at the Beijing office of the European Commission to China.)
- the existing administrative abilities are insufficient and China need to do more through giving
more training to officials to act and through increasing the number of officials who are working
in the enforcement of the IPR systems
- China should rely more on the criminal measures rather than administrative measure to combat
IPR infringements.

2. What procedures and policies could enhance the health and safety features of China’s
exports?

After joining WTO and all the disputes rose from EU and USA related to the health and safety, it seems
that China’s government is committed to improve food and drug safety supervision and standards
through increasing inspections required safety certificates before some products could be sold and to
track down on government corruption.
In 2007, two memoranda of agreement covering specific food and feed items as well as drugs and
medical devices were signed between China and US governments with the following requirements:

- register all such products that would be exported and obtain certification that would guarantee
their safety
- inspect firm’s manufacturing these products at least annually to insure that they met US
standards
- sharing information between both governments and gave US official within the FDA the right to
inspect production facilities in China which led to the creation of a new FDA office in China in
2008

3. Do China lower labor standards and lower environmental standards create a permanent
unfair competitive advantage for firms located in China?

If we look at the current situation as it is, then yes there is unfair competitive advantage for the firms
located in China but it is NOT PERMANENT. Labor standards and environmental standards inside China
are still lower than other rich nations such as USA and EU which significantly reduce the cost of
manufacturing. We should look at this debate from different sides: first, china considered itself in its
early stages of economic growth focusing on increasing national economic growth and rising its national
level standards, it seems unfair to compel china to adhere to the newer expensive standards set by
western nations that recognized a wide array of environmental impacts that a firm’s operations could
create and came to increasingly understand the linkage between these environmental impacts and the
health of the general populace. Of course china’s position created an unfair competitive advantage for
firms located in china which attracted foreign investment and distorted trade patterns because china’s
exports and imports competing products could be manufactured at lower cost.

But on the other hand, and as a consequence of this, firms located elsewhere will keep putting pressure
on their governments to impose compensatory tariffs and to compel china to adapt higher labor and
environmental standards and since china will have to adhere to the KYOTO protocol it will have to come
up with a long term plan to compel which will eventually remove the unfair competitive for firms
located in china in the long run.

4. What is your advice to the government of China in regard to its foreign exchange policies?

It seems that Chinese authorities do not respond well to external pressure for policy change. Changing
exchange rate policy in China is a political decision made at the highest level of government.
Accordingly, China's leaders do not want to be seen as bowing in the face of foreign pressure. This is said
to be particularly true at the moment because relations between China and some of the developed
countries, especially the United States, have become increasingly tense. In these circumstances, the
Chinese authorities could choose to cling to the current fixed exchange rate policy to project strength.
The suggestion from this argument is that the rest of the world should ease pressure on China, and a
change in China's exchange rate will come at a more appropriate time.
The reality is, however, that without pressure being exerted to encourage a change in its exchange rate
policy, China will have no reason to move. And when patience grows thin and pressure rises again, this
same argument will be trucked out once more to try to further postpone policy adjustment.
There are no good reasons for other countries to diminish their pressure on China to change its
exchange rate policy. The heat is on, and the heat needs to stay on.
Chinese authorities recognize that China needs to change its growth model and rebalance its economy
away from heavy reliance on investment and exports to generate growth toward greater reliance on
consumption. That will not be accomplished unless greater flexibility and an appreciation of the
exchange rate are permitted. It is understandable that a country might resist being called on to make a
policy change that would entail a sacrifice to benefit of the rest of the world. But that is not the case in
this instance. Increasingly, other countries will feel justified in strongly pressing China to change its
exchange rate policy.
If China continues to resist, other countries will ramp up pressure and are likely to choose to retaliate
against China's exports to try to force a change. China has to act soon and in a decisive manner to avoid
doing itself great harm.

5. Analyze the various trade disputes involving textile, footwear, car parts and steal. For
each sector, include a time profile of the changing forces influencing the disputes.

i- Textile:
The dispute between China and Europe nations raised in 2005 when the Multi Fiber Agreement was
as a part of the WTO move to develop freer trade, at that time EU enormously experienced political
pressure when its manufacturers realized they could not compete with China’s inexpensive exports,
forcing some EU nations to block Chinese textile and clothing at their ports, while others like
Germany and Netherlands benefited from the cheap Chinese exports which offered major consumer
benefits without any offsetting manufacturing damage.

China agreed to restrain its exports in these areas in response to the dispute.

USA also experienced significant difficulties in regard to the flowed of cheap textile from China, and
reacted by imposing specific quotas for a series of textile products, and the government of China’s
agreed on these quotas that have been expired early in 2009.

ii- Footwear:
Footwear dispute also was raised due to the to the unfair cost advantage that China was giving to its
manufacturers of footwear. As a response, European Commission raise the subject of anti-dumping
which involves price adjustment instead of import quotas and they decided to impose a duty of 16.5
per cent on all imports of Chinese footwear.
By 2008, 15 EU countries voted to abolish the anti-dumping duties on Chinese footwear, leaving
only 12 countries in favor of continuing the anti-dumping duties

iii- Car Parts:

The dispute of car parts is slightly different from other disputes but the basic point is still the same,
policies of Chinese of the government of china is perceived as providing an unfair advantage to
manufacturers located in China and since Most automobile manufacturers were investing heavily in
China, they could stand to gain from the special assistance offered by the government, so they could
reduce the overall cost of their products by importing inexpensive components from their
operations in China. The slight difference here is that manufacturing firms in this industry are
multinational hence the overall cost of their operations could significantly be reduced by importing
from China.
The major point for this dispute is that foreign investments are not having the same access to
China’s subsidies as Chinese owned firms.
2nd point was that the government of china limited the foreign firm’s ability to export auto parts to
china including very high tariffs if imports exceed certain thresholds.
The 3rd point was that Chinese manufacturers could gain a financial advantage if they used only
domestic parts since the government of china was imposing different charges on vehicles
manufactured in china depending on the domestic contents of the automobile parts used in their
manufacture.
All those points were raised by WTO and in 2008 it upheld those complaints and discussed that
China was violating fair trade rules by discriminating against imported parts. Until now no serious
actions by China were taken.

iv- Steel Part

Export quotas and export taxes on certain raw materials that were essential in the steel-making
process were imposed by the government of China. From the perspective of the U.S. government
and U.S. manufacturers, these export quotas and export taxes reduced China’s domestic steel prices
and also inflated global steel prices, which put U.S. manufacturers at a competitive disadvantage. US
manufacturers claimed that its analyses indicated that the Chinese steel industry had benefited
from the equivalent of US$52 billion of government subsidies over the previous decade. A conflict
rose between US manufacturers and US business as protection of the steel industry would compel
other U.S. businesses to experience higher costs that would damage their international
competitiveness.
6. Will China achieve a level playing field in its trade and investment practices? Indicate your
views as the likely pattern of future trade disputes and their resolution.

After Joining WTO, China seems to be moving forward in sorting out the economical conflicts with rich
nations especially with the increasing pressures from those governments under the umbrella of WTO.
Some actions were giving positive signs that government of China is willing to enhance such as the new
laws for sorting out IP violations.

Another point also gave a positive sign regarding the taxation polices for foreign investments in China
where China had provided better treatment in its taxation policies for foreign-invested enterprises and
since 2008, a uniform enterprise income tax rate has been applied to all enterprises in accordance with
the Enterprise Income Tax Law. It would appear that all tax incentives now apply equally to domestic
firms and foreign ones.

In analysing China’s situation we should peer in mind that the economic growth of this country could not
be compared with rich nations such as USA and EU countries since it is still in its early stages and
absorbing other aspects of its growth need a lot of time until reaching the maturity stage with better
application of more restricted rules.

The most important point that China should sort out in order to achieve a level playing field is its
exchange rate. Until now China did not have any positive indication that it would stop manipulating the
stabilization of the value of its currency.