Made in China: Episode II

Recently the senior executives of Mattel apologized for their recall
of the toys made in China. The Chinese media seize this opportunity to
claim that the wave of Western media reports questioning the country's
export safety was unfair. It is worth noting, however, that
technically the apologies from Mattel are only to the Chinese people,
more specifically the Chinese customers (see below for the excerpt
from Reuters); they are not to the Chinese government, or the Chinese
OEM manufacturers for Mattel.

The Mattel apology underlines the fact that China is not only the
factory of the world, it is also the market of the world, where
billions of consumers, armed with an ever-stronger RMB, tries to buy
more and more goods, which, of course, include Barbie, the top
money-maker for Mattel. Moreover, one can not really separate "Made in
China" with "Sold in China": without the money they make in the
foreign-invested firms in China, how could an average Chinese worker
afford all these expensive Western products? Thus, Mattel probably
should also apologize to their suppliers, because when the workers in
these factories get off work, they become the consumers whom Mattel
wants to please.

Below is the Reuters Report:

China seizes on Mattel apology to emphasize safety
Mon Sep 24, 2007 12:56pm EDT

BEIJING (Reuters) - China highlighted Mattel's apology over its recall
of huge numbers of toys on Monday to press Beijing's claim that its
exports are generally safe and foreign politicians and media have
unfairly hyped quality scares.

Before those recalls, a spate of complaints involving unsafe Chinese
products ranging from other toys and seafood to toothpaste that
entered EU and U.S. markets prompted calls on both sides of the
Atlantic for stricter scrutiny of made-in-China goods.

Thomas Debrowski, executive vice president of worldwide operations for
toymaker Mattel Inc, apologized on Friday following recalls of about
21 million Chinese-made toys over five weeks. The recalls stoked U.S.
complaints that lax Chinese quality controls threatened foreign
consumers.

"Mattel takes full responsibility for these recalls and apologizes
personally to you, the Chinese people and all of our customers who
received the toys," Debrowski told China's quality watchdog chief, Li
Changjiang, in Beijing.

The vast majority of recalled toys suffered from a design defect that
was Mattel's own fault, Debrowski said.

Mattel subsequently issued a statement saying his words had been
"mischaracterized" -- though it did not specify how -- and his apology
was directed at buyers of its toys.

But China's state-run media have seized on his remarks to make their
government's case that the country has been the victim of unfair
accusations echoed throughout the international media.

"The apology, though delayed, should help dispel the suspicion
American customers harbor against Chinese-made products," the China
Daily said in an editorial.

"Its (Mattel's) reputation will be impaired when the whole truth about
the recalls is finally made public."

Last week Mattel CEO Robert Eckert had to defend his company's toy
safety record as Democratic lawmakers accused him of stonewalling a
U.S. congressional probe into production practices in China.

The People's Daily -- the official voice of China's ruling Communist
Party -- said the apology showed the wave of Western media reports
questioning the country's export safety was unfair.

"If China's toy exports depended solely on a cheap price and did not
ensure quality, we would never have won such a massive worldwide
market," the paper said, citing a toy-making association official in
Guangdong, the southern province where Mattel produces many of its
toys.

The paper said that China-based suppliers and workers had suffered
unfairly because of the Mattel recalls.

The International Herald Leader, a newspaper issued by the official
Xinhua news agency, called for U.S. news media to follow Mattel's
example and apologize for what it called flagrant bias.

"The U.S. media have also made an irreplaceable contribution to making
made-in-China wear these dark accusations for so long," the paper
said.

But Xinhua has also reported that police detained four Chinese
nationals accused of having supplied one of Mattel's contract
manufacturers, the Lida Toy Company, with the substandard paint behind
the first recall in August.

Wall Street Journal interview on China's first WTO case against the US in 5 years

Recently China brought a case against the US on the measures taken by the US on imports of coated paper. I was interviewed by the WSJ on the case (see below). For those who are interested in knowing more technical details about the case, you can find my posting at the International Economic Law and Policy Blog here.

China, in assertive move, challenges U.S. at WTO
Andrew Batson. The Wall Street Journal Asia. Hong Kong: Sep 17, 2007. pg. 8

BEIJING -- China is showing a new willingness to aggressively defend its interests as the world's largest exporter, filing a case at the World Trade Organization challenging U.S. trade policies.

The dispute concerns trade penalties the U.S. imposed in March in a fairly narrow market for a kind of glossy, high-quality paper, which is used in magazines and art books.

But it has the potential to broadly affect Chinese exporters, because the U.S. broke with 23 years of its practice and allowed U.S. firms much broader leeway to seek protection against Chinese imports.

Underscoring the importance of the case, this is only the second time China has formally used the WTO's dispute-settlement process since it joined the trade group in 2001. The first time was in March 2002, when China followed several other nations in challenging duties U.S. President George W. Bush imposed on steel imports.

In Washington, where anti-China sentiments are fueling a broader political backlash against globalization, the Bush administration brushed aside the complaint.

"We are fully confident in our trade-remedy laws," said Sean Spicer, a spokesman for U.S. Trade Representative Susan Schwab. Mr. Spicer said the administration intends to "vigorously defend" U.S . trade laws before the WTO.

Chinese officials have long preferred private dialogue to public confrontation and have criticized the U.S. for bringing several cases this year against China at the WTO. Political pressure to block Chinese imports has been rising in the U.S., and the trend has been compounded by recent scares over unsafe Chinese toy imports and pet food tainted with illegal chemicals from China.

With Chinese exporters increasingly worried about access to the U.S. market, China's government is under pressure to challenge any barriers, analysts said.

"Instead of trying to work out the solutions through secret political negotiations, China now becomes more and more willing to use the dispute-settlement system," said Henry Gao, a former WTO official.

China's representative at the WTO, Sun Zhenyu, wrote a letter Friday to his U.S. counterpart, Peter Allgeier, requesting the WTO consultations. The Ministry of Commerce in Beijing declined to comment beyond its initial statement announcing the request.

The U.S. decision at issue concerns a kind of trade measure known as countervailing duties. Such duties can be imposed if complaining companies can demonstrate that their overseas competitors are being subsidized by the government. The measures are distinct from a more common type of trade-protection measure known as antidumping duties, which are intended to stop overseas companies from selling products below cost.

The U.S. designates China as a "nonmarket" economy, a condition that makes it easier for domestic companies to win antidumping actions against Chinese goods. But it hadn't previously permitted companies to also seek countervailing duties against goods from China and other nonmarket economies.

In March, the U.S. Commerce Department reversed that position and imposed preliminary countervailing duties of 10.9% to 20.4% on Chinese producers of the coated paper.

---

Greg Hitt in Washington contributed to this article.

The other side of the TRIPS dispute

According to a senior official from the the State Intellectual Property Office (SIPO), "We cannot rule out the fact that some transnational corporations abuse their IPR rights and attempt to snuff out the emergence of Chinese firms." Now the matter is not one about TRIPS, it's really about trade and competition instead!

Also, the MOFCOM noted that Chinese companies have suffered lost opportunity costs of between $69.1 billion and $147 billion in recent years as a result of IPR disputes. How much is the loss for Western companies due to the TRIPS violations in China?

More Support for Firms in IPR Disputes
Wednesday,September 12,2007 Posted: 00:31 BJT(1631 GMT)
From:China Daily  

The government is to establish a litigation response contingency fund to help companies deal with intellectual property rights (IPR) disputes, the State Intellectual Property Office (SIPO) has said.

The move comes in the face of increased IPR disputes since China's accession to the WTO in 2001.

The United States International Trade Committee (ITC) has launched 12 cases against Chinese companies - involving $1.66 billion - from January to August this year, Ministry of Commerce officials said.

The number of cases and the amount of money involved showed a year-on-year increase of, respectively, 43.8 percent and 43.2 percent, Yu Benlin, deputy chief of the ministry's fair trade bureau, said.

Such investigations have jeopardized China's hi-tech industries and structural upgrades in the country's trade exports, he said.

For the fifth year in a row, China was accused of the most violations under Section 337 of the Tariff Act of 1930. By the end of last year, the US had launched 58 investigations against Chinese companies, since it joined the WTO. There were 13 cases lodged in 2006, accounting for 39.3 percent of the world's total.

SIPO deputy chief Zhang Qin said there were two reasons for this. First, some Chinese firms do not fully understand IPR protection.

Second: "We cannot rule out the fact that some transnational corporations abuse their IPR rights and attempt to snuff out the emergence of Chinese firms."

Wrong impression

Many small and medium-sized firms choose not to challenge IPR accusations in court because of time constraints, complexity and expense, Yu said.

This may have given US investigation agencies the wrong impression that IPR infringements are common among Chinese firms, Yu said.

"This situation has led to (problems) for Chinese companies and the issuance of exclusion orders by foreign companies preventing them from doing business in the US market."

Global rivals request investigations against Chinese companies to prevent them taking significant market share and force them out of the US market because of prohibitive litigation costs, Yu said.

According to the commerce ministry, Chinese companies have suffered lost opportunity costs of between $69.1 billion and $147 billion in recent years as a result of IPR disputes.

The SIPO intends to create a steering committee on corporate IPR management and a mechanism for expert assistance, helping Chinese companies with their patent strategies.

It also aims to provide research for new technologies and products, as well as drafting IPR management charters.

Additionally, it aims to evaluate company performance regarding IPR protection, establish information platforms for domestic and global patents

It will also introduce technology monitoring mechanisms to track the activities of competitors to Chinese firms.

MOFCOM spoke up on the subsidies dispute

In response to the establishment of the panel in the subsidies case,
the MOFCOM made a statement (see below). Two points worth noting
about the statement:
1. According to MOFCOM, the Complainants "misunderstood the relevant
policies", they even "included some measures that have already been
repealed in their panel request".
2. MOFCOM alleged that the Complainants were "doing this for domestic
political reasons, in an attempt to dress up their score-card on WTO
dispute settlement by claiming credit for the unilateral actions by
China to improve its own tax system".

商务部发言人就WTO设立专家组审理 "补贴WTO争端"发表谈话
2007-09-03 22:45 文章来源：商务部
文章类型：转载 内容分类：新闻

日内瓦时间2007年8月31日，WTO争端解决机构（DSB）应美国和墨西哥的请求，设立了专家组审理我补贴WTO争端。

　　商务部新闻发言人表示：关于"补贴WTO争端案"，中方和美国、墨西哥于3月20日和6月22日在瑞士日内瓦进行了两轮磋商。中方对待磋商的态度是认真的，建设性的。但是美国、墨西哥无视磋商的进展，两次请求设立专家组，WTO争端解决机构于8月31日设立了专家组。

　　补贴WTO争端案涉及的范围主要包括，中国对于相关企业予以减免、返还所得税和增值税的有关优惠政策。事实证明，两个起诉方对相关政策有很大的误解，也无视中国经济体制改革的进展和现实。在其设立专家组的请求中，甚至包括了一些早已经被取消的措施。而且，随着中国《企业所得税法》的出台和即将实施，中国有关政策和措施已经完全符合WTO规则。

　　发言人指出：中方认为，起诉方的做法是基于国内政治的需要，企图将中国自主完善有关税收法制的活动，粉饰为其诉诸WTO争端解决机制的成果。中方坚信，起诉方的举动将不会改变中方根据社会经济发展的需要，自主完善有关包括税收制度在内的经济法律法规的有关活动。