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Letter to His Excellency Zhang Yesui, Ambassador of the People's Republic of China to the United States


Location: Washington, DC

Senate Foreign Relations Committee Chairman John Kerry (D-MA) today sent a letter to Ambassador Zhang Yesui of the People's Republic of China to share his concerns with China's Draft Notice Launching the National Indigenous Innovation Product Accreditation Work for 2010. Senator Kerry argues that it is in everyone's best interest to encourage an environment that truly enhances opportunities for innovation and that China should consider the views of key stakeholders in China's economic success on this issue.

"Building a robust, balanced, and mutually beneficial economic relationship between the United States and China is an important goal for both countries," said Chairman Kerry. "While I welcome China's commitment to strengthening its own innovative capacity and its recent efforts to address some of the more troubling aspects of China's "indigenous innovation' policies, I have concerns that these policies will still hamper the competitiveness of some of the most cutting-edge foreign suppliers of technology to China and will likely decrease innovation inside China as well."

"I know my concerns about China's "indigenous innovation' policies are shared not only by many in the U.S. business community, but also by China's other major trading partners and investors. I look forward to working with the Chinese government in the weeks and months ahead to ensure that policies designed to foster "indigenous innovation' do not have unintended, harmful consequences."

The full text of the letter is below:

His Excellency Zhang Yesui
Ambassador of the People's Republic of China to the United States
3500 Williamsburg Lane Northwest,
Washington, DC 20008-1207

Dear Ambassador Zhang:
I write todevelopment, strengthening higher education, and forging partnerships with U.S. firms. Over the past 30 years, I have seen first-hand what China has accomplished by providing incentives for private sector research and development, improving science and engineering education, promoting entrepreneurship, and fostering innovation clusters. I believe continuing to foster a spirit of innovation in China is critical to addressing global challenges from climate change to energy security to public health.
I appreciate the Chinese Government's efforts to address some of the most troubling aspects of the national indigenous innovation product accreditation system (NIIP) first detailed in the November 2009 Circular No. 618 and accompanying Instructions ("the 2009 Notice"). The April 9 Draft 2010 Circular on the National Indigenous Innovation Product Accreditation System relaxed the requirements for Intellectual Property ownership and trademark registration of products seeking accreditation. This was a welcome step.
However, I still have many remaining concerns about the Draft Notice. On balance, the Draft Notice and related policies still appear likely to decrease, not increase, innovation in China. Many of the policies being considered by China broadly linked to indigenous innovation run the risk of limiting the types of products that are developed and used in China and curtailing some of the most innovative suppliers, the associated R&D, and resulting innovation benefits to the Chinese people.
In particular, establishing a register or list of qualified "indigenously innovated" products appears likely to discriminate against foreign-made technology. Policies that favor one technology over another, including specific lists or catalogues of designated products, are counterproductive to promoting long-term innovation. Such lists tend to promote uneven treatment and risk being easily outdated as soon as issued, particularly given the innovative nature of the products the catalogues are designed to spur.
Another major area of concern involves the requirement in the Draft Notice that a product be locally researched and developed in order to gain accreditation (Accreditation Condition (2)). Accreditation Condition (2) and related provisions imply that in order for a product to be eligible for inclusion in the NIIP Catalogue, research and development must have been led by a Chinese entity in China. Most foreign firms, some joint ventures, and even some Chinese firms will be unable to satisfy this requirement. Conditioning market access on the place of development distorts competition and will not encourage innovation.

Moreover, establishing such a register would be a clear move away from compliance with the WTO Government Procurement Agreement (GPA), as opposed to towards GPA compliance. While I appreciate that China is not yet a member of the GPA, Beijing nonetheless committed in its WTO accession agreement to submitting a GPA accession proposal in the future. That commitment was welcomed at the time, and I remain hopeful that China will eventually come within the GPA.

I know my concerns about the Draft Notice are shared by many in the business community, not just in the United States, but in China's other major trading partners and investors as well. Given the remaining serious concerns about the Draft Notice, I urge the Ministry of Science and Technology (MOST), the National Development and Reform Commission (NDRC) and Ministry of Finance (MOF) not to publish the indigenous innovation product list and not to carry forward this program without first giving additional serious consideration to the views of key stakeholders in China's economic success, including China's foreign trading and investment partners. The upcoming Strategic and Economic Dialogue session in late May will provide an important opportunity for our two nations to discuss this vital issue at a high level.
I look forward to working with you and your government to encourage an environment that truly enhances opportunities for innovation in China. I remain deeply committed to building a mutually beneficial relationship with China across all areas.


John F. Kerry
Chairman, Senate Foreign Relations Committee

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