Document: WT/DS362/R Page B-1 ANNEX B SUBMISSIONS OF CHINA CONTENTS PAGE B-1 Executive Summary of the first written submission of China B-2 B-2 Executive Summary of the oral statement of China at the first substantive meeting B-16 B-3 Closing oral statement of China at the first substantive meeting B-21
Document codes: WT/DS362/R
Complainant: U.S.
Respondent: China
Third parties: Argentina, Australia, Brazil, Canada, EU, India, Japan, South Korea, Mexico, Taiwan, Thailand, Turkey
Dispute stage: Panel
Agreements cited: Art. 61, 41.1, 46, 59, 9.1, 14, 3.1  Intellectual Property (TRIPS)

ANNEX B

SUBMISSIONS OF CHINA

CONTENTS PAGE
B-1 Executive Summary of the first written submission of China B-2
B-2 Executive Summary of the oral statement of China at the first
substantive meeting
B-16
B-3 Closing oral statement of China at the first substantive meeting B-21
B-4 Executive Summary of the rebuttal submission of China B-23
B-5 Executive Summary of the oral statement of China at the second
substantive meeting
B-39
B-6 Closing oral statement of China at the second substantive meeting B-44

ANNEX B–1

EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION
OF CHINA

I. INTRODUCTION
1. The United States falls far short of meeting its burden of showing that China is noncompliant
with its obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights
("TRIPS"). In its first written submission, th e United States has consistently mischaracterized
Chinese law and practice. The United States has also sought to expand significantly the scope of
Members' obligations under TRIPS; and it has disreg arded the very first paragraph of the Agreement:
"Members shall be free to determine the appropriate method of implementing the provisions of this
Agreement within their own legal systems."
2. In its Claim One (Section IV of the US Submission) , the United States has failed to
demonstrate that China's criminal law is inconsiste nt with China's obligations under TRIPS. The US
argument is based on a formulation of TRIPS Article 61 that was expressly rejected at the time TRIPS
was negotiated. Contrary to the US claim, China faithfully complies with its obligations under TRIPS
by providing criminal procedures and penalties for willful counterfeiting and piracy that are
appropriate within the commercial context and legal structures of China.
3. In its Claim Two (Section V of the US Submission), the United States misstates China's
TRIPS obligations, mischaracterizes Chinese Cust oms' practices, and accordingly, has failed to
demonstrate that Chinese Customs deals with seized in fringing goods in a manner that is inconsistent
with TRIPS Article 59.
4. In its Claim Three (Section VI of the US Submission), the US argument is based on
fundamental errors in the understanding of Chinese co pyright law. The United States' chief concern
in its third claim – and its central misunderstanding – is that China's laws do not provide automatic
and immediate copyright protection. The US claim collapses when this error is corrected.
5. Further in regard to its Claim Thre e, the United States fails to make a prima facie case as to
assertions in its pleadings relating to TRIPS Article 3 (national treatment) and Article 14 (related
rights).
II. CHINA'S CRIMINAL THRESHOLDS ARE CONSISTENT WITH CHINA'S
OBLIGATIONS UNDER TRIPS ARTICLES. 61 AND 41.1
A. C
HINA'S INTELLECTUAL PROPERTY ENFORCEMENT REGIME
6. China has three legal regimes for the enforcemen t of intellectual property rights: criminal,
administrative and civil enforcement. China empl oys all three regimes in its efforts to combat
counterfeiting and piracy. Criminal measures are u sed against counterfeiting and piracy when those
acts are undertaken on a sufficient scale to exceed China's thresholds for criminal enforcement and
China also takes government action against activit y through its administrative law enforcement
system. Alongside these two forms of government action, China makes civil enforcement rights
available to intellectual property rights holders.

1. China has imposed criminal sanctions on willful trademark counterfeiting and
copyright piracy on a commercial scale
7. China presents a detailed description of its crim inal law regime for intellectual property.
China explains each of the criminal laws that c oncern intellectual property infringement, the specific
thresholds of activity that trigger criminal san ctions under each law, and the calculation of these
thresholds. China further explains that criminal penalties are available in instances of unfinished
products or indicia of commercial scale infringe ment; and that Chinese law allows for private
individuals to initiate criminal action.
8. In the course of describing this legal regime, China endeavors to address and correct
numerous US misstatements and mischaracterizations. In describing Chinese criminal law, the United
States has misrepresented the scope of China's "illegal business operation volume" threshold for
criminal activity, ignoring the fact that Chinese authorities include evidence of infringing goods at
other warehouses, in transportation, and already so ld. The United States has disregarded China's
cumulative calculation of criminal thresholds over th e multiple years of the cr iminal activity. It has
ignored the alternative nature of the thresholds und er several of China's laws, which is to say that
infringement triggers criminal enforcement if it meet s any one of the criminal thresholds. Finally, the
United States has wrongly claimed that China may not administer criminal penalties for unfinished
products and indicia of infringement, when Chinese law clearly provides otherwise.
2. China employs an administrative enforcement regime that imposes significant
deterrence on Intellectual Property infringement beneathcCriminal thresholds
9. China describes the government administrative enforcement regime that operates separately
from the criminal law, and is not subject to the minimum thresholds of criminal law. China's
administrative enforcement system is a unique featur e of China's legal structure that does not have a
parallel in most Western systems, including the US legal system. Contrary to the US assertion that
the thresholds in Chinese criminal law create "a safe harbor" for low-level intellectual property
infringement, China in fact operates a government-led enforcement system to which infringement on
any scale is subject. Low-level intellectual propert y infringers do not operate free of government-led
enforcement in China.
3. The US assertions on infringement trends are unfounded
10. China addresses the US allegation that a high pr oportion of copyright infringement cases fall
beneath the numerical thresholds and that infringers reduced their volume of copies to avoid criminal
liability when the criminal thresholds were lowere d. The dataset on which the United States relies
comes from administrative raids carried out at the request of the right-holders themselves: its
probative relevance is unclear, and in any event, the data does not support the US assertions of
statistical trends.
B. THE UNITED STATES BEARS AN ESPECIALLY HIGH BURDEN OF PROOF IN ADVANCING THE
CLAIM THAT CHINA FAILS TO MEET ITS ARTICLE 61 OBLIGATION
11. As the complaining party, the United States bears the burden of proof in advancing the
argument that China's criminal enforcement regime does not comply with the obligation articulated in
TRIPS Article 61. In this particular instance, however, the United States bears a significantly higher
burden than it would normally encounter. That is because the United States is advancing a claim –
that Members of TRIPS must enact criminal laws that meet highly specific international standards –
that cuts decisively against the tradition and norms of international law.

12. International organizations accord great defe rence to national authorities in criminal law
matters. A review of international law shows that states have traditionally regarded criminal law as
the exclusive domain of sovereign jurisdiction; where sovereign governments are subject to
international commitments concerning criminal la w, these commitments afford significant discretion
to governments regarding implementation; and inte rnational courts have been exceedingly reluctant
to impose specific criminal standards on states.
13. In light of prevailing international law, the United States must not merely show that its
proposed interpretation of the TRIPS Article 61 obliga tion is correct by ordinary standards. It must
also persuade this panel that the parties to TRIPS ag reed to an obligation to reform their criminal laws
of such specificity that it is a sharp departur e from the practice of every country in every other
international forum that relates to national criminal laws.
C. TRIPS
 ARTICLE 61 REQUIRES THAT MEMBERS SET FORTH CRIMINAL THRESHOLDS FOR
COUNTERFEITING AND PIRACY WITHIN THE BROAD AND DISCRETIONARY MEANING OF
"COMMERCIAL SCALE"
14. TRIPS Article 61 declares that "Members shall provide for criminal procedures and penalties
to be applied at least in cases of willful trademar k counterfeiting or copyright piracy on a commercial
scale." The core of the dispute between the Unite d States and China is the meaning and scope of
"commercial scale". The United States advances a pr oposed definition that is inconsistent with the
ordinary meaning and that was expressly rejected by the TRIPS negotiators.
15. The obligation set forth in Article 61 is that Members impose criminal penalties for willful
infringement that involves a significant magnitude of activity, as appropriate within the commercial
context and legal structures of the Member. China meets this obligation.
1. The ordinary meaning of "commercial scale" is not any scale of activity undertaken for
financial gain
16. The United States sets forth a deeply flawed definition of "commercial scale". The United
States argues that the ordinary meaning of "commercial scale" may be adduced by combining the
ordinary meaning of "commercial" ("interested in financial return") and "s cale" ("magnitude, extent,
or degree"). By this synthesis, the United States claims, the term "commercial scale" has two distinct
meanings and would capture two classes of activity: first, "commercial scale" would capture any
activity that has the purpose of financial return. (T hat is, the single sale of an item for one US cent
would constitute commercial scale activity). S econd, "commercial scale" would also capture
activities, "regardless of motive or purpose" that "are of a sufficient extent or magnitude to qualify as
'commercial scale' in the relevant market."
17. The US interpretation is inconsistent with the plain meaning of Article 61. The interpretation
violates the principle that Article 61 must be read so as to give full effect to all words of the provision.
The US definition also wrongly presumes that th e meaning of the phrase "commercial scale" is
nothing more than the sum of "commercial" and "scale".
18. In fact, a careful review of the common u sage of the phrase shows that "commercial scale"
refers to a significant magnitude of infringeme nt activity. The World Intellectual Property
Organization Committee of Experts on Measures Against Counterfeiting and Piracy set forth a
definition of "commercial scale" in February 1988 that made abundantly clear that the phrase was
intended to be a broad and flexible standard and al so that it was designed to cover more than simply
the "will to make profit". Other uses of "comme rcial scale" in GATT documents and by the United
States Government itself support this interpretation of the phrase.

2. The context of Article 61 shows that Members never intended to bind themselves with
specific, concrete standards for National Criminal Law
19. Following the Vienna Convention on the Law of Treaties ("Vienna Convention"), TRIPS
Article 61 must be read in accordance with its context. Several elements of this deserve
consideration.
20. First, TRIPS does not define what constitutes substantive infringement. Where both the scope
of rights and the definition of the act that constitutes infringement is left to each country to define, it
strains reasonable interpretation to find a specific, concrete threshold at which this undefined act must
constitute a crime. At a minimum, there should be clear evidence that the par ties agreed to such an
odd structure. No such clear evidence exists.
21. Second, the lack of specificity in the language of Article 61 stands in sharp contrast to the
specific provisions that are laid out in Articles. 42 th rough 48 of TRIPS. It also stands to contrast to
the specific provisions set forth in the Agreement on Implementation of Article VI of the GATT and
Agreement on Subsidies and Countervailing Measures. Where the negotiating parties wished to
impose detailed and concrete obligations, they expressed that requirement of specificity in clear terms.
22. Finally, Article 61 must be understood in th e context of Article 1.1, which sets out the
"Nature and Scope of Obligations" for the entire agreement; and Article 41.5, which sets forth the
"General Obligations" for "Enforcement of Intell ectual Property Rights" in Part III of TRIPS.
Articles 1.1 and 41.5 demonstrate that Members re fused to accept TRIPS as an agreement that would
force them into legal harmonization. On the contrary, they insisted on their rights to carry out
enforcement in accordance with their own legal traditions and subject to the specific context – such as
constraints on enforcement resources – of their resp ective circumstances. These Articles underscore
not only that Article 61 should be read broadly, but that "commercial scale" was intentionally vague –
and left undefined – precisely because a large bloc of Members would never have accepted a more
specific and intrusive obligation.
3. The proposed US definition is inconsistent with the object and purpose of TRIPS
23. The Vienna Convention provides that a treaty must be interpreted "in the light of its object
and purpose." The object and purpose of TRIPS, laid out clearly in the Preamble to the Agreement,
are to enhance international trade though the protect ion of intellectual property within the framework
of Members' legal norms and resource constraints. The object and purpose underscore that TRIPS
Article 61 should not be read to harmonize legal systems across Members or to disregard Members'
interests in developing criminal measures that reflect its own legal norms and public interests.
4. The subsequent actions of Members – including the United States – reveal that they
understood "Commercial Scale" to impose only a broad and high standard
24. Members have consistently fa iled to interpret "commercial scale" to mean any activity
undertaken for a commercial purpose. The expe riences of the Canadian Government and the
European Community show that they did not u nderstand "commercial scale" to simply cover any
activity undertaken for a commercial purpose.
25. The practice of the United States in its subsequent bilateral free trade agreements has been to
define carefully "commercial scale" to cover any ac tion for financial gain. There would be no reason
to negotiate this definition with countries that al ready are subject to the TRIPS obligations, if the
terms already had this meaning in TRIPS. On the c ontrary, the US insistence on developing a stricter
definition in the bilateral context underscores that "commercial scale" as set forth in TRIPS is a broad
concept that permits considerable national discretion. It is an acknowledgement that the United States

failed to secure in the TRIPS Article 61 negotiations the obligation that it nonetheless seeks to impose
here.
5. The negotiating record shows that the parties understood "Commercial Scale" to set
forth a broad standard to cover significant infringement activity
26. The negotiating record of TRIPS demonstrates convincingly that the "commercial scale"
standard was proposed and adopted as a clear alte rnative to the formulation now advanced by the
United States. The real TRIPS standard was underst ood to be broad and flexible and also to target
counterfeiting and piracy of a significant scale. The negotiating parties, on multiple occasions,
considered and rejected the formulation that crim inal penalties apply to any counterfeiting or piracy
conducted for commercial gain.
D. C
HINA HAS IMPLEMENTED ITS ARTICLE 61 OBLIGATION TO IMPOSE CRIMINAL MEASURES
AGAINST WILLFUL COUNTERFEITING AND PIRACY ON A COMMERCIAL SCALE
27. The "commercial scale" standard under TRIPS Article 61 is a broad standard, subject to
national discretion and local conditions. The Panel, in considering whether China has fulfilled its
obligation, should judge whether the criminal th resholds employed by Chinese law fall within the
legitimate range of "commercial scale" and within the legitimate scope of sovereign discretion. Given
the broad nature of the "commercial scale" sta ndard and the importance of deference to national
discretion, China respectfully proposes that th e Panel determine whether China's law imposes
criminal penalties for willful infringement that involv es a significant magnitude of activity and that is
appropriate within the commercial context and lega l structures of China. China imposes criminal
penalties for infringement activity th at exceeds the thresholds set fort h in its law. This leaves two
issues for the Panel's consideration: are the crimin al thresholds appropriate within the structure of
Chinese law? And are the thresholds reasonable in the context of commerce within China?
1. The Panel should conclude that China's crimi nal thresholds are appropriate in light of
the structure of China's criminal law
28. China employs thresholds across a range of commercial crimes, reflecting China's allocation
and prioritization of criminal enforcement, prosecuti on and judicial resources. Consistent with its
obligations under Article 61 and its rights under Article 41.5, China has set forth criminal measures
for intellectual property infringement that are proportional to other commercial crimes.
29. The United States would require China to up-end its criminal law regime. It would require
that China all but eliminate thresholds – according to the US formulation of "financial gain," the
threshold would be RMB1 – and consequently create an unworkable regime of criminal law
enforcement, and prioritize the criminal enforcem ent of intellectual property offenses over that of
other extremely serious crimes, such as currency counterfeiting and bribery. This would be an
audacious departure from the defere nce to national law and respect for the allocation of enforcement
resources envisioned in TRIPS.
30. China has acted in good faith to implement its Article 61 obligation. China's criminal
thresholds for counterfeiting and piracy are reasona ble and appropriate in th e context of its legal
structures and its other laws on commercial crimes.
2. China's criminal thresholds are appropriate in light of the scale of commerce within
China
31. The criminal thresholds are reasonable not just in terms of China's legal structure, but also in
terms of the scale of commerce in China, a reasonable reference point for gauging a Member's

"commercial scale" thresholds. It is appropriate – in light of the meaning of "commercial scale" under
TRIPS – for a Member to set thresholds that are re lated to the indicators of a sustainable commercial
enterprise.
32. China has set forth an illegal business volume th reshold – just one of several alternative
criminal thresholds – that is significantly below the level at which even the smallest commercial
enterprises operate in China. Ch ina has chosen its criminal thresholds not so as to minimize its
obligations under TRIPS, but because in its sove reign judgment these thresholds best capture the
points at which intellectual property infringement imperils the public order and warrants criminal
enforcement.
3. The Panel should not consider the novel obli gations that the United States seeks to
impose on China
33. In assessing whether China has implemented its leg itimate obligations to set forth appropriate
criminal laws, the Panel should disregard the unfou nded obligations that the United States seeks to
impose on China. First, China does not have an obligation to consider the commercial impact of
infringement. Under TRIPS, criminal enforcemen t is required if the infringing activity is on a
commercial scale, not if the impact of the infringing activity is on a commercial scale.
34. Second, China does not have an obligation to rela x or change its evidentiary standards. The
United States argues that because certain evidence of infringement – such as the volume of goods
stored in warehouses or already sold – may not alwa ys be available to Chinese authorities, then, for
that reason, the criminal thresholds are overly hi gh. In fact, China fully complies with its TRIPS
obligation by setting forth a reasonable "commercial scal e" standard for the application of criminal
procedures and penalties. TRIPS imposes a substantive legal obligation and China meets it. The
evidentiary procedures that China employs in determining whether or not certain infringement meets
this commercial scale have no legal relevance.
E. CHINA FULFILLS ITS OBLIGATIONS UNDER THE SECOND SENTENCE OF ARTICLE 61 AND
ARTICLE 41.1 TO AFFORD REMEDIES AND PROCEDURES PURSUANT TO THE FIRST SENTENCE OF
ARTICLE 61
35. The United States argues that China also brea ches the second sentence of Article 61 and
Article 41.1. However, both these provisions are conditional on the first sentence of Article 61.
Unless the United States can demonstrate that China breaches its obligations under the first sentence
of Article 61, it cannot demonstrate that China also breaches its obligations under the second sentence
of Article 61 and Article 41.1. Having failed at the former task, the United States fails at the latter.
III. CHINA'S MEASURES FOR THE DISPOSITION OF INFRINGING GOODS SEIZED
BY CUSTOMS ARE CONSISTENT WITH CHINA'S OBLIGATIONS UNDER TRIPS
ARTICLE 59
36. In its Claim Two, the United States alleges that Chin ese Customs' legal framework for
dealing with seized infringing goods is inconsistent with TRIPS. Specifically, the United States
argues that Chinese Customs does not have the aut hority to order the disposal of infringing goods
outside the channels of commerce in such a way as to avoid harm to the right-holder ("disposal
authority"), or to order the destruction of such good s ("destruction authority"). The US argument is
based, in part, on a misstatement of China's law concerning the disposition of infringing goods; and,
in part, on the faulty premise that Chinese Customs lacks the authority to destroy infringing goods if
destruction is not the government's preferred method of disposition.

37. China fully satisfies its TRIPS obligations: Chinese Customs has the required disposal
authority, reflected in its power both to allow the donation of infringing goods to social welfare
organizations as well as to allow the sale of such go ods to their right-holders . Chinese Customs also
has destruction authority, as evid ent in its discretionary power to determine whether infringing goods
qualify for destruction. China notes that, while TRIPS requires that Chinese Customs have the
appropriate disposition authority, TRIPS does not limit Customs to dealing with infringing goods only
by the means set forth in TRIPS.
A. C
HINESE CUSTOMS' DISPOSITION OF INFRINGING GOODS
38. China presents detailed descriptions of the f our alternative disposition methods available
under Chinese law to the General Administration of Customs of the People's Republic of China
("Customs"). First, Customs has the authority to donate infringing goods to social welfare
organizations, if it determines that the goods are su itable for such purposes and do not pose health or
safety risks; Customs has the legal responsibility of ensuring that donated goods are exclusively used
by social welfare organizations and that they ar e exclusively used for social welfare purposes.
Second, Customs has the authority to enter into a voluntary sale of the infringing goods to their right-
holders. Right-holders may choose to purchase infringing goods where, for example, these seized
goods are determined to be overruns illicitly produced by a licensed manufacturer, and are therefore
identical to the licensed goods. Third, Customs has the authority to publicly auction infringing goods,
if Customs has decided that the first two dispositio n methods are not available, and also if it has
formally solicited comments from the right-holders, determined that the goods do not pose health or
safety risks, and concluded that the auction is co st-effective, and removed all infringing features.
Finally, Customs has the authority to destroy infri nging goods, if it has determined that the other
disposition methods are not available.
B. C
HINA COMPLIES WITH TRIPS ARTICLE 59 BECAUSE IT PROVIDES BOTH DISPOSAL AND
DESTRUCTION AUTHORITY
39. TRIPS Article 59 (which incorporates the first sen tence of Article 46) requires that China's
Customs have the authority to order that infringi ng goods be "disposed of outside the channels of
commerce in such a manner as to avoid any harm caused to the right holder, or… destroyed."
40. Article 59 does not require that China limit Cust oms' disposition methods to disposal outside
the channels of commerce and to destruction. Cu stoms must have the auth ority to use both such
methods, but Article 59 does not impose the obligation to use solely those authorities. The standard
for compliance with Article 59 is that, first, Cust oms has the authority to dispose of infringing goods
outside the channels of commerce in such a way as to avoid harm to the right-holder and, second,
Customs has the authority to destroy infringing goods. China's Customs, contrary to US allegations,
possesses both disposal authority and destruction authority.
1. China's Customs has the authority to dispose of infringing goods outside the channels of
commerce while avoiding harm to the interests of the right-holder
41. China's Customs has the authorit y to order that infringing goods be "disposed of outside the
channels of commerce in such a manner as to avoid an y harm caused to the right holder," by virtue of
its power to sell infringing goods to their right-holde rs and, independently, by virtue of its power to
donate infringing goods to social welfare organiza tions. In both circumstances, Customs has the
authority to dispose of the infringing goods outsid e the open market while paying due regard to
interests of the right-holders.

2. China's Customs has the authority to destroy infringing goods
42. China's Customs possesses the authority to or der the destruction of infringing goods, as
referenced in TRIPS Article 46 and incorporated in Article 59. Chinese law sets forth criteria for the
disposition of infringing goods by Customs. These crite ria reflect an official preference for the use of
other disposition methods, but Customs has the legal discretion to determine whether the criteria are
met and therefore which disposition method is appropriate.
43. The US first written submission itself, as well as US and other Member practice, makes it
clear that "authority" was never intended to be absolute and unconditional. The sequencing of
disposition methods, coupled with Customs' discretion to determine whether the relevant criteria have
been met, is consistent with a grant of destruction authority.
44. Indeed, Customs chose to destroy 58 per cent of the total value of infringing goods between
2005 and 2007. This is demonstrative proof that the putative hierarchy of disposition options does not
hinder Customs' ability to order destruction of infringing goods.
C. CHINESE CUSTOMS' USE OF PUBLIC AUCTION IS WHOLLY CONSISTENT WITH ITS OBLIGATIONS
UNDER TRIPS
45. The United States alleges that Chinese Customs' public auction of infringing goods breaches
Article 59. While TRIPS Article 59 requires th at Customs have both disposal authority and
destruction authority, it does not limit Customs to those two methods of disposition. TRIPS does not
forbid the use of public auction. And in practice, Customs rarely uses public auction. This method of
disposition accounts for only 2 per cent of the total value of infringing goods.
1. TRIPS Article 59 does not require Members to limit the disposition of infringing goods
to disposal outside the channels of commerce or destruction
46. The plain meaning of "authority," plus Member practice on the disposition of infringing
goods, and the negotiating history of Article 59, a ll underscore the fact that although Members must
afford to their customs agencies both disposal aut hority and destruction authority, they are in no way
required to limit their customs agencies to disposal outside the channels of commerce and to
destruction. Customs' authority to publicly au ction infringing goods is wholly consistent with
Article 59.
2. Public Auction is consistent with the guiding principles of Articles 46 and 59
47. The two stated principles of Article 46 (and therefore Article 59) is "to create an effective
deterrent to infringement" and to "avoid any harm caused to the right holder." Public auction is
consistent with both these principles. First, infri ngers whose goods are auctioned are left in exactly
the same position as if the goods had been destroye d: in both instances the infringers lose the goods
without any compensation. Moreover, Customs' use of a reserve price at the auctions ensures that
infringers do not have the opportunity to purchase the seized goods at the public auction at an
unreasonably low cost and use these goods in furthe rance of counterfeiting activity. Second, right-
holders have a legal, formal right to comment pr ior to any public auction; this procedure helps
Customs to determine that a good would be inapprop riate for public auction, and thereby helps avoid
harm to the right-holders.

D. C
HINA DISCHARGES ANY LEGAL OBLIGATIONS ASSOCIATED WITH THE FOURTH SENTENCE OF
TRIPS ARTICLE 46
48. The United States contends that China also breaches TRIPS in so far as Customs' use of
public auction – one of four available disposition met hods – "is inconsistent with the principle in the
fourth sentence of Article 46." While the United St ates appears to advance two different versions of
this argument, neither is credible.
49. If the United States argues, as it does in the "Intro duction" to its first written submission, that
the fourth sentence of Article 46 means that Customs must have the authority to keep infringing goods
outside the channels of commerce, the foregoing sections demonstrate that Customs has this authority.
50. If the United States argues that the fourth sente nce of Article 46 imposes a ban on the return
of trademark-infringing goods to the channels of commerce, then it fails to show that the fourth
sentence of Article 46 is incorporated into Ar ticle 59 and (therefore imposes an obligation on
Customs), and further fails to show that Custom s has breached the obligation expressed in the first
sentence of Article 46.
1. The fourth sentence of Article 46 is not inco rporated into Article 59 and therefore does
not apply to China's Customs
51. The plain text of TRIPS suggests that the fourth sentence of Article 46 does not apply to
Article 59. The parties to TRIPS considered the treatment of counterfeit trademark goods by customs
authorities and dealt with it specifically in Article 59. If the parties had intended further obligations
they would have listed them there.
2. If the fourth sentence of Article 46 is incorporated into Article 59 and does impose an
independent obligation, China is compliant
52. Even if the fourth sentence of Article 46 were incorrectly read to set forth an independent
obligation on Customs authorities, China's Customs would fulfill this obligation.
53. First, Chinese Customs has an obligation to remove all infringing features, not just the
trademarks, from the seized goods. Second, in ad dition to removing the trademark, Customs must
formally solicit comments from the right-holder. Formal comment is a meaningful step, which allows
right-holders to identify specific concerns – such as any safety threats that the goods pose, or the
presence of proprietary design features that cannot be removed – and allows Customs to determine
that an auction would not be appropriate. Custom s has the legal discretion to reject public auction
after consulting with the right-holders.
IV. CHINA'S MEASURES FOR THE PROT ECTION AND ENFORCEMENT OF
COPYRIGHT AND RELATED RIGHTS ARE CONSISTENT WITH CHINA'S
CBLIGATIONS UNDER TRIPS
A. OVERVIEW
54. China maintains government review and approva l processes with respect to the publication
and distribution within China of a variety of work s, including films and DVD releases. In general
terms, a work subject to these processes may be published or distributed only if the required
authorization is obtained. The United States does not object to the existence of these processes, nor
could it. This sovereign right is an inherent, reserved power – acknowledged by international law as
referenced in Article 17 of the Berne Convention for the Protection of Literary and Artistic Rights

("Berne Convention"), and expressly incorporated in to the WTO structure through Article 9.1 of the
TRIPS Agreement.
55. The US Claim Three, which deals with th ese mechanisms, is based on a fundamental
misstatement of Chinese law.
56. First, the vast majority of the US claim is based on the erroneous allegation that works that
have not completed government c ontent review, including works not yet submitted for review and
works awaiting review, are denied copyright protection. They are not denied copyright protection.
Chinese law protects copyright from the time a work is created. Article 2 of the Copyright Law of the
People's Republic of China ("Copyright Law"), which goes unmentioned in the US first written
submission, grants full copyright protection both prio r to and during authorization review. It does so
by expressly incorporating into Chinese law the rights conferred under inte rnational agreements
including both the Berne Convention and the TRIPS Agreement.
57. Second, the United States contends that works that fail content review are denied copyright
protection under Article 4.1. This also is false. The content review process operates independently of
Copyright Law Article 4.1. The only result of a finding of prohibited content through the content
review process is a denial of authority to publish. Such a finding does not lead to a denial of
copyright, and China is not aware that a finding in a c ontent review process has ever led to a denial of
copyright protection. The remainder of the US claim fails for this reason.
B. T
HE US CLAIM RESTS ON A MISSTATEMENT OF CHINESE LAW
1. Contrary to the US claim, copyright pr otection under Chinese law attaches to works
upon creation, and is not dependent upon content review
58. While publication for certain types of works w ithin China requires content review, copyright
in such works vests upon creation and is independent of publication. While such works are pending
review they enjoy the full panoply of copyright.
59. Under Article 2 of China's Copyright Law, foreign authors from TRIPS Member states enjoy
automatic protection of copyright upon completion of a work, as does any Chinese citizen. This
protection applies equally to works that have not been submitted for review and to works that are
pending review, and indeed regardless of whether the work is officially published in China at all. The
US contention that copyright protection is in any way contingent on content review is simply wrong
as a matter of law.
2. Contrary to the US claim, prohibition of publication as a result of content review does
not trigger denial of copyright
60. The second principle error of the United States lies in its contention regarding the legal effect
of denial of a license to publish or distribute a work . The United States asserts that such denial leads
also to a denial of copyright under Article 4.1 of the Copyright Law. In fact, this is not the case. The
content review process operates independently of Ar ticle 4.1, and the only result of a finding of
prohibited content in that process is a denial of aut hority to publish. Nothing in that finding leads to a
denial of copyright.
61. The administration of content review, on th e one hand, and the administration of the
copyright laws, on the other hand, are separate, i ndependent processes. Content review is conducted
by administrative agencies under the State Council, not the courts. In contrast, copyright is enforced
by the Chinese judicial system, and by the National Copyright Administration of China ("NCAC")

and its local affiliates. Neither of these bodies r esponsible for copyright is bound by administrative
agency findings in the content review processes.
62. The United States erroneously tries to link th e vesting of copyright with the successful
completion of review. But the result of content revi ew is a license enabling distribution, not an award
of copyright. Under Article 2 of the Copyright Law of the People's Republic of China, in full
compliance with Berne Article 5(2), copyright vests automatically and is recognized without
administrative formality.
63. Content review is an independent and unrelated process that does not determine whether a
work is copyrighted.
C. C
HINA PROTECTS COPYRIGHT IRRESPECTIVE OF CONTENT REVIEW PROCESSES
64. The United States draws four conclusions from its erroneous interpretation of Chinese law.
The United States alleges that China does not protect copyright for (1) works that have not been
submitted for content review, (2) works that are pending content review, (3 ) unedited versions of
works that have been edited to pass content review, and (4) works that have failed content review. In
reality, none of these assertions is correct. China in fact protects works regardless of a work's status
under content review.
1. China's right to conduct content review is not in question
65. The United States does not challenge China's ri ght to conduct content review, and such a
challenge would not be successful. The sovereign right of governments to regulate and even prohibit
the content of works clearly authorizes China's content review mechanisms.
66. Berne Article 17 provides:
"The provisions of this Convention cannot in any way affect the right of the
Government of each country of the Union to control, or to prohibit by legislation or
by regulation, the circulation, presentation, or exhibition of any work or production . .
. ."
67. Thus, all rights granted to authors under the Berne Convention are limited by Berne
Article 17. The plain meaning of Berne Article 17, and of official WIPO commentary, as well as
every treatise on the topic, supports this view. Th is recognition is carried into TRIPS Article 9.1,
which adopts Berne Article 17.
68. Moreover, the power to protect the public wellbeing is inherent and incidental to sovereignty.
Article 17 of the Berne Convention is not an exhaus tive codification of the sovereign right to censor,
but instead merely references this power, stating that the Convention's provisions cannot in any way
limit this sovereign privilege.
2. China protects copyright in works that h ave not been submitted for review and works
that are currently pending content review
69. The first two points of contention raised by the United States involve works that have not
been submitted for content review, and works that are pending content review.
70. Copyright vests in a work prior to any consider ation being given to content review processes,
and is not delayed to await the c onclusion of those processes. This conclusion is demonstrated not
only by legal analysis, but also by actual practice in China.

71. China presents actual cases demonstrating that its law operates unequivocally to grant
copyright protection to works that are pending content review, and for works that have not yet been
submitted for content review, and for works that do not require such review.
72. China respectfully notes that the US first writte n submission provides neither a legal analysis
nor any valid examples to support its claim with respect to the supposed lack of protection of
copyright in works that have not been submitted or that are currently pending review. In contrast,
China has provided both.
3. China protects the copyright in unedited versi ons of works that have been edited in
content review, and in works that have failed content review
73. The third and fourth elements of the US allegati on are that copyright is denied to the unedited
version of works that are found, in the publication review process, to contain prohibited content, and
that copyright is denied to works that have failed the content review process.
74. Neither US allegation is correct. On the contrary, China demonstrates that, in the case of
films, for example, works that fail content review, works that were edited to pass content review, and
works that are un-reviewed are all protected by copyright enforcement actions initiated by the NCAC.
75. The United States has neglected to offer any le gal analysis to support its interpretation of
Chinese law, and also has failed to offer any exam ple of copyright being denied to an unedited
version or to a work that has failed content review . The United States has not provided to the Panel a
single example of a case where a defendant in a copyright infringement action successfully has
asserted a defence that the work did not enjoy copy right because it failed a content review process.
China respectfully submits that its Supreme People's Court is not aware of a single instance in which
such a defense has successfully been asserted.
D. S
INCE CHINA DOES NOT FAIL TO PROTECT COPYRI GHT IN THE INSTANCES ALLEGED BY THE
UNITED STATES, CHINA DOES NOT FAIL TO COMPLY WITH ITS OBLIGATIONS UNDER TRIPS
76. The entire second part of the US argument on Cl aim Three details the supposed international
rights that are denied by China's alleged failure to protect copyright. As demonstrated above, the US
allegations of copyright denial are false, bei ng founded on a major error in understanding Chinese
law. Since copyright is not denied, none of the rights enumerated in the second part of the US
argument are in fact violated.
77. At paragraphs 215-219 of its fi rst written submission, the United States alleges that a denial
of copyright protection under Copyright Law Article 4.1 is an unauthorized "exclusion" of a class of
works from copyright protection, and that such de nial abrogates certain rights specified in those
paragraphs that are guaranteed to authors by the Berne Convention. This claim does not survive the
argument presented by China in its first written s ubmission, which demonstrates that Article 4.1
simply does not act in the manner alleged by the Un ited States. China respectfully submits that the
US case fails because of a complete misapprehension of Chinese law in this regard. China further
notes that to the extent that Article 4.1, independently of the content review process, might act to deny
copyright protection to a work found by a court to be "prohibited by law" – a case the United States
has not attempted to make – this act of prohibition is protected by Berne Convention Article 17. The
denial of copyright protection in such a case, i. e. taking from an author the right to limit the
distribution and use of a work whose distribution is co mpletely banned, is a legal and material nullity.
The economic rights accorded to authors and artists under the Berne Convention equate to a private
right of censorship – rights that are preempted when there is supervening public prohibition as
expressly authorized by Berne Article 17. The United States has not demonstrated that the failure to

protect copyright in such works further reduces any rights of authors beyond the act of prohibition
itself.
78. At paragraphs 220-225 of its firs t written submission, the United States alleges that a content
review process imposes a prohibited "formality" on the grant of copyright. This contention does not
survive the argument presented by China in its first written submission, which demonstrates that
recognition of copyright is in fact not contingent upon completion of any content review process, and
therefore no formality is imposed.
79. At paragraphs 232-243 of its first written subm ission, the United States alleges that China
fails to provide enforcement procedures in instances wh en copyright is denied. This claim also fails
in light of the arguments presented by China, which show that copyright in fact is not denied as
alleged by the United States.
E. T
HE UNITED STATES HAS FAILED TO PRESENT A PRIMA FACIE CASE TO SUPPORT EITHER ITS
NATIONAL TREATMENT CLAIMS OR ITS RELATED RIGHTS CLAIMS , AND THE PANEL SHOULD
ACCORDINGLY ENTER A FINDING IN FAVOUR OF CHINA ON THESE MATTERS
80. In its Panel request, the United States allege d a number of national treatment violations,
subsidiary to its main allegations that Copyrigh t Law Article 4.1 denies copyright in violation of
TRIPS. Similarly, in its Panel request, the United States also alleged, again as a subsidiary matter,
that Copyright Law Article 4.1 may deny related rights to performers and phonogram producers in
violation of TRIPS Article 14.
81. The United States has failed in its first written submission to make a prima facie case to
support either its national treatment claims or its related rights claims. China respectfully submits
that in light of this fact, the Panel should rule in favour of China on each of these allegations.
1. The Appellate Body has repeatedly and unambig uously ruled that the initial burden of
proof in establishing a prima facie case lies with the complaining party
82. The Appellate Body has been called upon several times to clarify the burden of proof in WTO
dispute settlement proceedings. On each of these occasions the Appellate Body has confirmed that
the burden of proving that a Member's law is non-co mpliant with WTO obligations rests wholly with
the complaining party. The compla ining party must both properly asser t and prove its claim. If such
proof is absent or deficient, then the respondent has no burden going forward.
2. The United States has failed to meet its burden
83. China submits that the Panel should deny the national treatment and related rights claims
raised by the United States.
84. With regard to the alleged TRIPS Article 14 re lated rights violations, the United States has
presented no evidence, and its allegations concerni ng related rights do not even amount to a properly
pled claim. The United States admits as much in its submission.
85. With regard to the national treatment arguments, the US first written submission has
neglected to assert any claim whatsoever and thus has seemingly abandoned those claims.
86. Since the United States has failed to establish a prima facie case, China respectfully requests
that the Panel rule against the United States, findi ng that the United States has failed to make a case
either that China's measures violate TRIPS Article 14, or that they deny national treatment.

87. Lastly, China respectfully notes that while the United States listed numerous separate
measures its Request for Establishment of a Panel, it appears to have attempted to make a case in its
first written submission with respect to only five of those measures. China accordingly requests that
the Panel find that the United States has failed to assert a prima facie case with respect to the
remaining measures, and to rule that the United St ates as a procedural matter has failed to establish
any violation of TRIPS with respect to: Regulations on the Administration of Broadcasting;
Regulations on the Administration of Telecommunication; Measures for the Administration of Import
of Audio and Video Products; Procedures for Ex amination and Approval for Publishing Finished
Electronic Publication Items Licensed by a Foreig n Copyright Owner; Procedures for Examination
and Approval of Importation of Fi nished Electronic Publication Items by Electronic Publication
Importation Entities; Procedures for Recording of Imported Publications; Interim Regulations on
Internet Culture Administration; and Several Opinions on the Development and Regulation of
Network Music.
V. CONCLUSION
88. For the reasons set forth in this submission, China respectfully requests that the Panel find
China's measures to be consistent with China's obligations under the TRIPS Agreement. China
respectfully submits that the United States has failed to meet its burden of proof with regard to many
of China's measures, and has failed to show that any of China's measures are not in compliance with
China's obligations.

ANNEX B-2

EXECUTIVE SUMMARY OF THE ORAL STATEMENT OF CHINA AT THE FIRST
SUBSTANTIVE MEETING

I. INTRODUCTION
1. Thank you, Mr. Chairman and members of the Panel. The United States has set forth legal
theories in this case that are highly flawed and that have little bearing on the intellectual property
marketplace. China urges the Panel to reject all the US claims.
2. For China, it is not solely a handful of domestic laws at stake in this dispute – although of
course this is extremely important. Beyond that , China believes that the balance of rights and
obligations in TRIPS is also very much at stake in this dispute.
3. Developing Members repeatedly and emphatically stated that they would accept the
obligations of TRIPS only – and only
 – with due deference to their norms, to their legal systems, and
to their resource constraints. But the United States would simply ignore all of this. Willful blindness
to the plain record of objections by the devel oping Members would ill-serve the WTO community as
it seeks to negotiate the Doha round of agreements.
II. CLAIM ONE
4. Mr. Chairman and members of the Panel: please allow me to address the first claim by the
United States. This first claim is that China's cr iminal law does not fulfill TRIPS Article 61. TRIPS
Article 61 declares that "Members shall provide for criminal procedures and penalties to be applied at
least in cases of willful trademark counterfeiting or copyright piracy on a commercial scale."
5. The Panel is being urged to read the broad la nguage "commercial scale" very strictly. China
urges the Panel to consider this issue carefully in light of the traditional rules of interpretation, which
recognize that countries do not lightly surrender sove reign powers. In particular, China urges the
Panel to ask whether the United States has given it sufficient basis to believe that the parties meant
"commercial scale" to impose a strict standard of criminal law.
6. In China, economic crimes are defined by estab lishing a threshold. Illegal activity that
exceeds a certain scale is made subject to the crimin al sanction. China has set the thresholds for
intellectual property crimes at the same level as for similar commercial crimes.
7. Two very distinct aspects of the Chinese system have a bearing on how these thresholds are
set. First, in China, private parties have the ri ght to initiate criminal actions. This makes the
threshold a very important matter in terms of the conservation of criminal enforcement resources.
Second, China employs an administrative enforcement re gime in parallel to the criminal system. This
is an enforcement regime that does not appear to have a parallel amongst Western countries. Through
administrative enforcement, the Chinese authorities can swiftly and effectively target infringement
activity of any scale. Low-scale infringers do not have a "safe harbor". They are subject to vigorous
administrative punishment. These low-scale infringe rs simply do not warrant vastly more time-
consuming and costly criminal proceedings.
8. The United States reads "commercial scale " to mean commercial intent : any activity
undertaken for financial gain. This is a significan t misstatement. The negotiating parties explicitly

rejected a commercial intent standard when it was offered in the negotiations. Among the third
parties, few agree with the US definition.
9. The US interpretation is not the ordinary mean ing of "commercial scale". The United States
never really confronts the ordinary meaning of the overall phrase "commercial scale". Instead, the
United States tries to add together dictionary meanings of "commercial" and "scale".
10. The WIPO Committee made it clear that "commerc ial scale" is a broad standard that should
be based on multiple factors and local circumstances. It does not delimit a rigid and definite threshold
of activity. And "commercial scale" refers to a si gnificant magnitude of activity. It was designed to
cover cases where the "manufacture
" of infringing goods should be criminal. This directly contradicts
the US contention. "Commercial scale" does not mean any activity undertaken for financial gain.
"The will to make profit" is only one of several factors to be considered.
11. This is the ordinary meaning of "commercial scale". It refers to a magnitude of activity. It is
a broad standard, not precisely defined. It permits each Member's standard to reflect its own legal
system and economic reality.
12. This is the same meaning that is found in ol der GATT documents – and indeed, in US laws.
It is the meaning that the TRIPS negotiating partie s considered as they debated whether to adopt a
"commercial scale" standard and as they rejected the plain "commercial" standard.
13. China notes that the United States and the third parties have put forward widely divergent
definitions of "commercial scale". Each party insists that its is the fair reading of the phrase. But the
vast range of meanings itself shows that "commercial scale" does not refer to a specific standard. The
standard is vague and open to interpretation.
14. The Appellate Body has held that if a term is vague or ambiguous, the Panel should adopt the
interpretation that is less onerous and interferes less with a country's sovereignty. Article 61 touches
on Members' domestic criminal law – the very core of national sovereignty. Here, more than any
other domain, the Appellate Body must not as sume lightly that Members intended the more
burdensome, more intrusive meaning.
15. China also wishes to emphasize the particular c ontextual role of Article 1.1 and Article 41.5
of TRIPS. During the Uruguay Round negotiations, developing countries objected strenuously to new
enforcement obligations that would prescribe ri gid standards and would ignore principles of
sovereignty. Developing countries prevailed, over opposition from the United States and others, on
the inclusion of both Article 1.1 and Article 41.5.
16. This dispute will represent the first interpreta tion by the WTO of Articles 1.1 and 41.5 of the
TRIPS. The Panel is being urged to read these pr ovisions as having little or no effect. China urges
the Panel to consider the policy balance that led to the incorporation of these provisions. China does
not seek to avoid its obligations. But China urges the Panel to consider whether the United States has
given it reason to find that these provisions simply have little or no meaning.
17. These provisions establish the context of Article 61. TRIPS cannot be read to require a
Member to distort its legal system or to focus greater resources on intellectual property enforcement
than on general law enforcement.
18. The conclusion should be clear. Article 61 of TRIPS requires that China set forth criminal
measures against counterfeiting and piracy of a certa in magnitude. It allows China reasonably to
define that magnitude within its domestic legal st ructures and resource constraints. China has done
precisely that. China has set forth criminal thr esholds for intellectual property at a low scale of

commerce in a manner that is consistent with its thresholds across the range of commercial criminal
law.
III. CLAIM TWO
19. Mr. Chairman and members of the Panel, let me now turn to the second claim by the United
States. The United States alleges that, under Chines e law, China's Customs agency disposes of seized
infringing goods in a manner that is inconsistent with TRIPS Article 59. This claim is also without
merit.
20. TRIPS Article 46 and 59 together obligate Members to provide their Customs with authority
to dispose of goods outside the channels of commerc e in such a manner as to avoid harm to the right-
holder, or to destroy the goods.
21. China's Customs has disposal authority in tw o different ways: by donating infringing goods
to social welfare organizations and, alternatively, by entering into the voluntary sale of infringing
goods to their right-holders. The United States rests its argument on whether these procedures are
conducted in such a manner as to avoid harm to the right-holder.
22. While the United States repeatedly implies
 possible harms from China's donations to charity,
its written submission does not identify so much as a single instance where the donation of an
infringing good harmed a right-holder. The evid ence before the panel is that Chinese Customs
successfully donates infringing goods to social welfar e organizations without any harm to the right-
holders.
23. In the case of the sale of infringing goods to ri ght-holders – which is far less frequent than
donation of goods – the right-holder has an entirely voluntary choice as to whether to purchase the
goods if doing so advanced its interests. China respectfully submits that this cannot harm the right-
holder, and the United States offers no evidence to the contrary.
24. In regard to the destruction authority, Chin ese Customs has the needed authority to destroy
infringing goods. Chinese law sets forth a discre tionary sequence of disposition methods that is
entirely consistent with TRIPS. Chinese law prefers that infringing goods be donated or sold to their
right-holders. And if those methods are not ava ilable, Chinese law prefers that infringing goods be
sold at public auction. And if none of those methods is available, Chinese law provides that
infringing goods be destroyed. Chinese Customs are fully vested with the authority to order
destruction, and frequently exercise that authority. Indeed, the evidence befo re the panel makes clear
that destruction frequently takes place – by value, 58 per cent of the seized infringing goods in China
were destroyed over the most recent three year period.
25. The United States objects to the rare instances where Chinese Customs u ses a public auction
to dispose of infringing goods. The United States cont ends that public auction is inconsistent with
China's obligation under Article 59 to provide both disposal authority and destruction authority. But
this argument clearly fails because, under TRI PS, Chinese Customs must have the authority
 – but not
the obligation – to dispose infringing goods or to destroy them. The text of Article 59 does not say
"shall" order destruction or disposal, rather it expressly says "shall have the authority to" so order.
26. The United States also advances that China's lim ited use of public auctions violates the fourth
sentence of Article 46. This sentence states that th e simple removal of a counterfeit trademark is not
sufficient to release goods back into the channels of commerce, other than in exceptional cases.
27. China questions whether the fourth sentence of Article 46 is incorporated into Article 59 –
and therefore whether it applies to Chinese Customs.

28. But even if the fourth sentence of Article 46 were read to apply, Chinese Customs complies
fully. The fourth sentence of Article 46 does not bar the release of seized counterfeit goods – it
simply provides that the mere removal of the counterfeit mark is not normally sufficient. The purpose
of Article 46 is to avoid a circumstance where in fringers could cheaply reaffix counterfeit marks and
continue their infringement activity. As China expl ained in its written submission, Customs does not
merely
 remove the counterfeit mark: it removes all the infringing features; it formally solicits
comments from the right-holders to provide proced ural protection; and, most importantly, Customs
uses a reserve price at a public auction to ensure that infringers do not have the opportunity to
purchase the seized goods at an unreasonably low cost and reaffix counterfeit marks.
29. In sum, the public auction of seized infringing goods – a procedure that China uses for two
percent of the value of such goods – is entirely consistent with Article 59.
IV. CLAIM THREE
30. Mr. Chairman and members of the Panel, I will now address the third claim of the United
States. The United States claims that China breaches TRIPS by failing to provide automatic and
immediate copyright protection to works, most particularly films and DVDs. On this claim, the point
of dispute is not the interpretation of TRIPS. This is largely a dispute about the operation of Chinese
law.
31. Under Chinese law, copyright in a work vests upon its creation. Copyright protection is not
contingent on publication. Article 2 of China' s Copyright Law explicitly incorporates the Berne
Convention's protections and exte nds automatic protection of copyright to all authors from Berne
Member states.
32. The United States failed to account for Article 2 in its written submission. Rather, the United
States claims that Article 4.1 denies copyright pr otection to works until those works pass content
review. China respectfully points out that this is not correct. China in fact does recognize and protect
copyright in works as soon as those works are created.
33. China enforces several regulations that provide for content review of works, and in some
cases does not permit publication until content has been approved. The United States does not dispute
China's right to do this. Content review, and the ri ght to prohibit the publication or distribution of
works, is a sovereign privilege that is recognized by Article 17 of the Berne Convention.
34. As a result of the protections of Article 2, works that have not been submitted for content
review still enjoy copyright protection. Works that are pending content review also enjoy copyright
protection. For works that have been edited to pass content review, China will protect the copyright
in the edited version of the work. This protec tion will include enforcement against copies of the
unedited
 version of the work, which infringe the copy right in the edited version. The unedited
versions also will be subject to enforcement for vi olation of the regulations governing publication and
distribution, such as Film Regulations. For works that have failed content review, the extent of
copyright protection in this case is an issue that does not commonly arise under Chinese law.
35. As a consequence, China respectfully submits that Article 4.1 is a legal instrument that has
limited marketplace effect. Even in the event that a work is found to be prohi bited by law, the denial
of copyright protection is unlikely to deny any meaningful value to a copyright holder. The work is
entirely prohibited and attempts to publish or distri bute the work are subject to legal enforcement.
The author's private right to censor what is already entirely banned would have little value.
36. Lastly, China also asks that the Panel note that sev eral aspects of the US claim, as stated in its
Panel request, were not briefed or substantiated by the United States in its first written submission.

These are the claims related to TRIPS Article 14 and the claims related to national treatment.
Likewise, the United States failed to offer argument with respect to a number of Chinese measures
that it referred to in its panel request. The Appella te Body has made clear that the complaining party
bears the burden to support all claims by making a prima facie case in its written submission. China
respectfully notes that the United States has failed to meet this burden in these instances. China
respectfully asks the Panel to rule against the United States on its Article 14 and national treatment
claims, and on the measures for which no support was offered.
V. CONCLUSION
37. In conclusion, China respectfully submits th at the United States has failed to present a
compelling case on any of its three claims. China very much hopes that this dispute will be laid to
rest, and that China can return to working with al l its trading partners to promote the beneficial
protection of intellectual property.

ANNEX B-3

CLOSING ORAL STATEMENT OF CHINA AT
THE FIRST SUBSTANTIVE MEETING

1. Mr. Chairman, members of the Panel: China would like to preface its formal closing
statement by making a brief point of law regarding th e interpretation of Article 61. Yesterday, some
third parties expressed concern that China might ask this Panel to depart from the customary rules of
interpretation of international agreements in the in terpretation of TRIPS Article 61. China is making
no such request, and believes that it can allay these concerns with a simple statement of its views.
2. China's point regarding the interpretation of Ar ticle 61 is as follows: First, China asks the
Panel to recognize that the obligation in Article 61 involves criminal law, which is a core sovereign
function. This is the first time that a WTO panel has been asked to interpre t an obligation regarding
criminal law.
3. Second, China asks the Panel to note that the st andard in Article 61 is vague, and subject to
interpretation. The wide variety of potential definitions that the Panel has heard in the last two days is
striking evidence of this fact.
4. Third, China asks the Panel to note the well-accepted interpretive canon in dubio mitius. This
canon holds that when a treaty standard is vague or ambiguous the Panel should choose the
interpretation that imposes the least imposition on a country's sovereignty. The Panel should choose a
more intrusive interpretation only where there is clear and specific evidence that a more intrusive
interpretation was meant.
5. The logic behind this canon is that countri es should not be assumed lightly to concede
sovereignty. The Panel accordingly must find speci fic support for an interpretation that does involve
an intrusive concession of sovereignty. China notes that the WTO Appellate Body expressly has
adopted this canon of interpretation.
6. The international criminal law cited in China' s first written submission makes clear that this
canon has particular justification in the realm of criminal law. The United States has argued for a
strict, intrusive application of Article 61. To support such a reading the United States must offer
specific evidence that the parties intende d that interpretation, as the canon of in dubio mitius requires.
The United States has not done this, and in light of TRIPS provisions like Article 1.1 and 41.5, it is
clear that the United States will be unable to do so.
7. This is the "burden" that China has described as resting on the United States. China is not
referring to a factual burden of proof, but rather to the inability of the United States to provide the
evidence to support its legal interpretation of Article 61.
8. China hopes that this puts to rest any possible misunderstanding of its argument on this point.

9. Mr. Chairman, members of the Panel: The Peopl e's Republic of China wishes to express its
deep gratitude for your willingness to serve in this dispute and for the evident diligence with which
you have approached your task. China also wishes very much to thank the WTO Secretariat Staff.

10. China takes this dispute very seriously. It has brought to Geneva a sizeable and senior
delegation of officials; and it has prepared thoroug hly for this meeting. China intends to devote
considerable attention and energy to addressing the Panel's questions.
11. For China, it is not solely a handful of domestic laws at stake in this dispute – although of
course this is extremely important. Beyond that , China believes that the balance of rights and
obligations in TRIPS is also very much at stake in this dispute.
12. China considers that the Panel faces several ve ry important tasks, including tasks for which
there are few precedents.
13. One task is the first interpretation by the WTO of an obligation involving criminal law. The
Panel is being urged to read the broad language "commercial scale" very strictly. China urges the
Panel to consider this issue carefully in light of the traditional rules of interpretation, which recognize
that countries do not lightly surrender sovereign power s. In particular, Chin a urges the Panel to ask
whether the United States has given it sufficient b asis to believe that the parties meant "commercial
scale" to impose a strict standard of criminal law.
14. Another task is the first interpretation by th e WTO of Articles 1.1 and 41.5 of the TRIPS.
The Panel is being urged to read these provisions as having little or no effect. China urges the Panel
to consider the policy balance that led to the incorporation of these provisions. China does not seek to
avoid its obligations. But China urges the Panel to consider whether the United States has given it
reason to find that these provisions simply have little or no meaning.
15. Another task is to determine whether Article 46 of the TRIPS is drafted so as to require
Members to afford their customs agencies unfettered authority to destroy infringing goods before they
can be donated, without any harm to a right holder, to a charity. China continues to be perplexed by
the US position. On the one hand, the United States appears to believe that Chinese Customs ought to
have absolute and unconstrained au thority on matters of destruction. On the other hand, the United
States criticizes Chinese Customs as insufficiently constrained on ma tters of disposal outside the
channels of commerce.
16. The United States desires that China condition donation to charity on, for example, the
determination that the goods are not defective. Ch ina in fact provides such a condition by law. But
the Panel no doubt recognizes that the condition that goods only be donated if they are non-defective
is a constraint on Customs authority. It is a constr aint in exactly the same wa y that the condition that
goods only be destroyed if they fail to meet certain criteria. Similarly, th e United States provides in
its own law – and commends to China – that donatio n of seized goods be conditioned on the approval
of the right-holder. The United States gives the a ppearance of approving the conditions for authority
that it likes and rejecting the conditions for authority that it does not.
17. A final task for the Panel is to assess Chinese co pyright law in light of the Berne Convention
and the TRIPS. Here there are two very important issues that the Panel should consider. First is the
protection of copyright provided by Article 2 of China's copyright law. This provision incorporates
into Chinese law the protections of Article 5 of the Berne Convention. Proper consideration of
Article 2 will resolve most of the dispute over Chinese law. Second, the Panel should consider
carefully the right to prohibit publication that is recognized by Article 17 of the Berne Convention.
The Panel should ask whether there is any logic to require protection of copyright where a work has
been completely prohibited by government action that is authorized by international law.
18. Mr. Chairman, members of the Panel: this concludes our statement. China thanks you again
and looks forward to responding to your questions in writing.

ANNEX B–4

EXECUTIVE SUMMARY OF THE REBUTTAL
SUBMISSION OF CHINA

I. INTRODUCTION
1. In this dispute, the United States has asked this Panel to dramatically expand the scope of
legal obligations under TRIPS, creating obligatio ns to which the drafters never agreed and
encroaching on areas of sovereignty which Members never ceded. This submission demonstrates the
proper interpretation of TRIPS in accordance with the rules for interpretation under the Vienna
Convention.
2. At the same time, the United States has consiste ntly mischaracterized China's legal regime.
In many cases, the United States has failed to make a prima facie case that China's laws are
inconsistent with TRIPS.
3. In its Claim One, the United States has failed to recognize the scope of China's criminal
enforcement against intellectual property infringem ent; and it has failed to demonstrate that TRIPS
Article 61 imposes on Members an obligation to appl y criminal measures to low-level infringement.
In fact, China's criminal law regime, properly understood, fully complies with TRIPS Article 61,
properly understood.
4. In its Claim Two, the United States has failed to demonstrate that China's legal framework for
Customs' disposal of seized goods is inconsistent with TRIPS Arts. 46 and 59. Chinese Customs has
the power to dispose of seized goods outside the ch annels of commerce in such a way as to avoid
harm to the right-holder; and it has the appropriate authority to destroy seized goods, recognizing that
authority was never envisioned in TRIPS to be ab solute and unconditional. Chinese Customs also
meets the obligation of the 4
th sentence of Article 46 – if indeed it applies to Article 59 at all – by
taking substantial steps to ensure that infringers cannot cheaply recover their infringing goods.
5. In its Claim Three, the United States has failed to present a prima facie case that Article 4.1 of
China's Copyright Law does not protect the copyrights of works at various stages of content review.
The United States has only the flawed argument that Article 4.1 violates TRIPS on its face, but this
argument fails: international law, and in partic ular Article 17 of the Berne Convention, clearly
recognizes the sovereign power to prohibit works.
II. CLAIM ONE: CHINA'S CRIMINAL THRESHOLDS ARE CONSISTENT WITH
CHINA'S OBLIGATIONS UNDER TRIPS
6. The United States claims that China breaches TRIPS Article 61 by failing to apply criminal
procedures and penalties to willful counterfeiting and infringement on a commercial scale. The
United States fails to understand China's criminal law regime; it fails to pr operly interpret the legal
obligation set forth by TRIPS Article 61; and, conse quently, it fails to recognize that China's criminal
law regime has faithfully implemented the incumbent Article 61 obligation.
7. Throughout these proceedings, the United States has demonstrated a limited understanding of
China's legal system. China identified a series of US errors in China's first written submission. While
the United States appears to have corrected certain er rors that it had earlier made – such as the scope
of the illegal business volume threshold or the altern ative nature of criminal thresholds – it has

repeated certain errors and introduced new ones. Certain third parties also have mischaracterized
Chinese law.
A. C
HINA'S INTELLECTUAL PROPERTY ENFORCEMENT REGIME
8. China addresses a series of US mischaracteriza tions of Chinese law with respect to its
intellectual property regime, including elements of it s substantive criminal law, general (derivative)
criminal law and administrative law.
1. Chinese criminal law sets forth flexible and wide-ranging thresholds for criminal
prosecution
(a) China's substantive criminal laws regarding Intellectual Property
9. China presents a detailed description of its criminal laws governing intellectual property. The
United States and other parties have routinely mischaracterized Chinese substantive criminal law.
10. First, China's criminal thresholds are not rigid, but cover a wide range of activity. Chinese
criminal law employs alternative thresholds, which serve to capture different metrics. The illegal
business operation volume threshold, in particular, is a flexible standard that potentially captures both
a small number of high-value products and a large number of low-value products – just as certain
third parties request. Moreover, Chinese criminal law has adapted to new technology, such as by
deeming internet dissemination to constitute reproduction or dist ribution under Article 217 of the
Criminal Law.
11. Second, China calculates its criminal thres holds by considering evidence over the entire
duration of the infringing act, which might last several years. Most of the hypothetical examples used
by the United States and third parties improperly condense the period of infringement. There is
scarcely an example that the United States has o ffered in these proceedings that does not depend on
ignoring the appropriate period of infringement. Relatedly, China registers its surprise that the United
States would complain that the application of admi nistrative penalties wipe the slate clean – since the
only alternative for China would be to forego administrative enforcement against low-scale
infringement.
12. Third, Chinese criminal law considers unfinis hed products and reliable indicia of criminal
infringement. China further explains two cases prev iously provided, which demonstrate that courts
took notice of semi-finished or unfinished component s and also materials and implements indicative
of infringement.
(b) China's General (Derivative) Criminal Laws regarding Intellectual Property
13. The United States and other parties to this dis pute have disregarded China's general criminal
laws, which might be characterized in western common law as "derivative" criminal laws. These laws
include inchoate crimes, such as preparation and a ttempt, and vicarious liability crimes, such as joint
crimes and criminal group activity.
14. These general criminal laws apply to the specifi c section on intellectual property crimes and
expand the scope of China's criminal measures ag ainst counterfeiting and pi racy. These general
criminal laws take into account unfinished products, non-quantita tive factors and organizational
elements.

2. The Administrative Regime addresses low-scale (non-commercial scale) infringement
15. China describes the administrativ e enforcement procedures that apply against intellectual
property infringement that falls beneath the criminal thresholds. These procedures are quick, efficient
and well-suited to a high volume of low-scale infringement cases. China takes vigorous measures to
ensure that infringers beneath the criminal thr esholds in no way have "safe harbor," and that
administrative enforcement leads to significant penalties for infringers.
16. China disputes the contention that administrative enforcement is not an effective deterrent.
Administrative enforcement may impose somewhat less severe punishment, but it is far more likely to
be applied to low-scale intellectual property infringem ent than the comparable criminal laws in the
United States. Contrary to US assertions, China considers administrative enforcement an effective
remedy, not its "preferred remedy".
B. L
EGAL STANDARD FOR INTERPRETATION OF COMMERCIAL SCALE STANDARD
17. China respectfully submits that the Panel s hould apply the Article 61 "commercial scale"
standard in light of the well-accepted interpretive canon in dubio mitius . The WTO Appellate Body
has expressly adopted this canon, which has particular justification in the realm of criminal law.
18. The United States has argued for a strict and intrusive application of TRIPS Article 61. To
support such a reading, the United States must s how that the "commercial scale" standard in
Article 61 clearly and precisely has the meaning that the United States attributes to it. To the extent
that "commercial scale" is somewhat unclear or vague, the canon of in dubio mitius holds that the US
interpretation cannot prevail. Article 61 must be read to regulate Members' domestic criminal laws
only to the limit that Members expressly and unequivoca lly consented. It is the responsibility of the
United States to show that Members expressly an d unequivocally consented to accept the legal
obligation of applying criminal measures to counterfeiting and piracy of a low scale. The United
States has not fulfilled this responsibility.
C. T
HE TRIPS ARTICLE 61 OBLIGATION
19. The foremost task before the Panel in the di spute over TRIPS Article 61 is to determine the
meaning of "commercial scale". Contrary to the st atements of the United States, China has strictly
followed the rules of the Vienna Convention on th e Law of Treaties in explaining the meaning of
"commercial scale".
1. Ordinary meaning of "commercial scale"
20. The United States has failed to set forth a r easonable and supportable ordinary meaning of
"commercial scale". Its contention that commercial s cale covers any activity undertaken for financial
gain does not withstand scrutiny. The United Stat es has also failed to effectively rebut China's
contention that "commercial scale" is a broad sta ndard that refers to a significant magnitude of
activity.
(a) The United States fails to set forth a reasonable definition of "commercial scale"
21. The United States sets forth inconsistent definiti ons of the term "commercial scale". In its
previous submissions, the United States set forth a definition of "commercial scale" that includes any
activity undertaken for financial gain. However, it has also made statements inconsistent with that
definition, contending that what constitutes a co mmercial scale action can vary from situation to
situation according to a number of factors.

22. The definition of "commercial scale" adopted by the United States also serves to read the
word "scale" out of the term, rendering the te rm synonymous with "commercial purpose" or
"commercial". This definition results in a rewriting of the text of Article 61 with terms that were
explicitly distinguished and rejected in WIPO and TRIPS discussions.
23. Contrary to US assertions, dictionary definitions of individual words of a combined term do
not conclusively define the "ordinary meaning" un der Article 31.1 of the Vienna Conventions, nor is
the absence of a dictionary definition of the combin ed term determinative. The essential test of
ordinary meaning is how words are commonly used. China has provided multiple examples of
"commercial scale" being used to refer to a signifi cant magnitude of activity, while the United States
has not furnished a single example of the use it proposes.
24. The Panel should further note the wide variety of definitions advanced for "commercial scale"
during these proceedings. This variance highlights th at the phrase was intended to be a flexible one,
susceptible to different interpretations, and undersco res the salience and importance of the statutory
canon of in dubio mitius. In the face of these conflicting inte rpretations, and the apparent underlying
ambiguity or vagueness, "commercial scale" should be read conservatively and so as to intrude
minimally on Members' sovereignty.
(b) The ordinary meaning of "commercial scale" is – broadly – significant magnitude of activity
25. China submits that the essential test of the meaning of "commercial scale" should be how the
term is actually used, and sets forth a definition of "commercial scale" that is consistent with all
available evidence. Examples pr esented by China demonstrate th at governments have tended to
understand "commercial scale" to refer to a significant magnitude of activity – not
 low-scale
economic activity.
26. China presents a clarification of the legal status of the definition of "commercial scale" set
forth by the Word Intellectual Property Organi zation Committee of Experts on Measures Against
Counterfeiting and Piracy ("WIPO Committee"). Th e WIPO Committee definition is not merely part
of the negotiating record under Article 32 of the Vi enna Convention; it is not a "special meaning"
under Article 31.4 of that Convention; and it is no t a formal part of TRIPS. Rather, the WIPO
Committee definition is a noteworthy example of th e common usage of the phrase, which reveals its
"ordinary meaning" of the treaty under Article 31.1 of the Vienna Convention.
27. The WIPO Committee's Model Provisions for National Laws contradicts the US assertion that
any act undertaken for financial gain constitutes co mmercial scale: it states that the "will to make
profit" is only one of several factors. The WIPO Committee sets forth a definition that is flexible,
where the United States apparently seeks to im pose a specific standard. The WIPO Committee
definition also contradicts the US contention that "commercial scale" covers even very small-scale
activity.
28. The United States accuses China of replacing "co mmercial scale" with "industrial scale" and
argues that had the drafters of TRIPS wished for TRIPS Article 61 to apply only to industrial scale
activity, they would have used that phrase. Howeve r, the US mischaracterizes China in two respects:
China does not believe that "commercial scale" sets out as high a standard as "industrial scale," and
has never described the phrase in those terms; and China submits that "commercial scale" is a
substantially broader standard than "industrial scale," and was likely chosen quite specifically because
it has this character.

(c) Clarification of the "commercial scale" standard : the impact of infringement, the price of the
infringed good and the role of technology are not proper considerations
29. China further clarifies three particular elements of the "commercial scale" standard. First, the
plain text of TRIPS Article 61 refers to "commercial scale" as a measure of infringing activity, not the
impact of the infringement. Consequently, to read "commercial scale" as measuring the impact of the
infringement on the right-holder would abuse the text of TRIPS.
30. Second, the United States has not justified its pr emise that the impact of the infringing act on
the right-holder ought to be considered in measuri ng "commercial scale" activity. In so far as
"commercial scale" in Article 61 properly measures the infringing activity, it is eminently sensible for
Members to use the infringing price – which meas ures the value of the infringing activity – in
determining the "commercial scale" threshold.
31. Third, although several parties have suggested that the definition of "commercial scale" under
Article 61 should change to reflect changes in tec hnology, China does not believe that any change to
the legal obligation expressed by Article 61 is eith er appropriate or necessary. Significant changes
ought to be addressed in the context of new intern ational agreements. Moreover, new developments
in technology have not, in fact, undermined the commercial scale threshold. As technology has
improved, a much higher proportion of infringing activity has become subject to criminal measures.
2. The legally relevant context of TRIPS Arti cle 61 underscores that "commercial scale" is
a broad and flexible standard
32. According to Article 31.1 of the Vienna Convention, a treaty must be interpreted in good faith
in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in
the light of its object and purpose. China sets fort h several contextual factors that undermine the US
contention that Article 61 imposes a highly specific obligation on Members.
33. First, contrary to US assertions, China do es not invoke TRIPS Articles 1.1 and 41.5 as a
defense against the obligation imposed in Article 61. Instead, China has consistently highlighted
Articles 1.1 and 41.5 as relevant context for Article 61 in determining the scope of its substantive
obligation. Articles 1.1 and 41.5 were key concessions to the developing world, which the United
States and other developed third parties seek now to dismiss and disregard. These Articles strongly
counsel against interpreting Article 61 as imposing th e obligation to apply criminal measures against
any act undertaken for financial gain, as this standard would be inconsistent with China's legal system
and would require the diversion of enforcement resources.
34. Second, one of the third parties argues that the 2
nd, 3 rd and 4 th sentences of Article 61 use
flexible language, whereas the 1 st sentence contains a hard-and-fast rule obliging WTO Members to
provide criminal enforcement against willful co unterfeiting and infringement, implying that the 1 st
sentence allows no flexibility. This argument fails because Article 61 does not set forth a "hard-and-
fast rule" as to the scope of "commercial scale". Further, the 2 nd sentence provides flexibility in
determining the choice of punishment. If the 1 st sentence were read to require a Member to apply
criminal measures to low-level infringement, the acknowledged flexibility of the 2 nd sentence – which
would suggest that in some criminal law systems a low level crime need not be subject to any
punishment – would create a conundrum. The 2
nd sentence of Article 61 thus is indeed relevant
context: its very flexibility demonstrates the error of interpreting Article 61 to impose an exacting and
specific standard.
35. Third, China presents further contextual factors that warrant consideration in any examination
of the meaning of "commercial scale". Neither TRIPS nor the Berne Convention sets forth complete
definitions of "trademark counterfeiting" or "copyri ght piracy". In addition, the broad and vague

phrasing of TRIPS Article 61 stands in stark contrast to the highly detailed provisions set forth in
TRIPS Articles 42-49, as well as in relevant parts of the AD Agreement and ASCM. When the
drafters of WTO instruments intended to set forth precise standards, they did so unambiguously. The
lack of such clarity in Article 61 suggests that there was no such intent. These examples counsel
against interpreting "commercial scale" to set forth a rigid and precise standard, yet the United States
has yet to address either of these factors.
3. The object and purpose of TRIPS confirms that "commercial scale" is a broad and
flexible standard
36. Article 31.1 of the Vienna Convention provides that in addition to the context, the "object and
purpose" of the treaty should be considered in dete rmining the meaning of the treaty. The purpose of
TRIPS was to balance the protection of intellectual property rights with deference to Members' legal
systems and public policy objectives. This ba lance – between effective intellectual property
enforcement and deference to Memb ers – is consistent with inte rpreting "commercial scale" in
Article 61 to set forth a broad and flexible standard.
4. The subsequent practice of Members of TRIPS demonstrates that commercial scale is a
broad standard that refers to a sgnificant magnitude of activity
37. Article 31.3 of the Vienna Convention provides that parties should take into account any
subsequent practice in the application of the tr eaty which establishes the agreement of the parties
regarding its interpretation. The subsequent practice of Members of TRIPS provides further
confirmation that "commercial scale" was neve r generally understood to refer to any activity
undertaken for financial gain.
38. First, US practice in implementing its TRIPS Article 61 obligation demonstrates that it has
implicitly understood "commercial scale" to refer to significant magnitude, as is evidenced by a US
Department of Justice manual and from US intellectual property prosecutions. Article 61 requires that
Members "shall provide for criminal procedures and penalties to be applied
." A review of a sample of
US federal prosecutions demonstrates that in all of the 60 cases featuring copyright piracy for which
there is information as to the value of the goods, US authorities applied criminal procedures to acts
associated with at least $2,000 of infringement . Given that the US practice is to apply its IPR
criminal laws against large-scale counterfeiti ng and piracy, US practice demonstrates that
infringement "on a commercial scale" is large-scale infringement.
39. Second, Canada has explicitly defined the "comme rcial scale" standard to refer to large-scale
infringement. Notwithstanding its weak protests to the contrary, Canada's practice, pursuant to its
Copyright Enforcement Policy, has been to only apply criminal measures to large-scale offences.
40. Third, the United States has yet to address China' s argument that in a series of free trade
agreements (FTAs) subsequent to TRIPS, the Unit ed States has included an explicit definition of
"commercial scale" as "wilful infringements for th e purpose of commercial advantage or gain," a
significant departure from the standard of "commercial scale".
5. The negotiating record of TRIPS confirms th at "commercial scale" was intended to set
forth a broad standard referring to a significant magnitude of activity
41. Article 32 of the Vienna Convention provides that supplementary means of interpretation may
be utilized to confirm the meaning resulting from the application of Article 31. This may include the
preparatory work of the treaty and the circumstan ces of its conclusion. The negotiating record is
appropriate to confirm the meaning resulting from the application of Article 31, yet the United States
has yet to address it.

42. The WIPO Committee definition of "commercial scale" was the basis for the ultimate phrase
in TRIPS Article 61. Delegations to the WIPO plenary session explicitly distinguished "commercial
scale" from "for commercial purpose" and "for commercial gain." The TRIPS negotiating parties
rejected efforts by both the United States and Canada to replace "commercial scale" with
"commercial". Thus they clearly understood the terms to have different meanings, and the negotiating
parties clearly did not embrace the meaning of "commercial".
D. C
HINA HAS FULLY IMPLEMENTED ITS TRIPS ARTICLE 61 OBLIGATION
43. China has met its obligation under Article 61 by setting forth criminal measures against
"commercial scale" infringement. Notwithstanding the United States' arguments to the contrary,
China has done so in a manner that is appropriate within its legal and commercial context.
1. China has implemented Article 61 in China's legal and commercial context
44. The Panel must first consider whether China's IP R criminal thresholds are appropriate within
the structure of Chinese law. China sets forth criminal thresholds for intellectual property
infringement parallel to those for other illicit activities. Members have the legal right to implement,
as far as possible, their Article 61 obligation within their own legal systems and practice (Article 1.1),
and in such a way as to avoid diverting general la w enforcement resources (Article 41.5). Moreover,
the 2nd sentence of Article 61 directs Members to apply criminal punishment that is comparable to that
for other crimes. Thus contrary to US assertions , how China's IPR criminal laws fit within the
broader structure of China's legal structure is cr itical to determine whether China implements the
"commercial scale" standard in good faith.
45. The second question is whether China's threshol ds are appropriate within the context of
Chinese commerce. China's 50,000 RMB (US$6,900) threshold for illegal business volume is less
than one per cent of the annual revenue of industri al enterprises that are o fficially "small size" and
less than 25 per cent of the annual revenue of th e individual or household business operation (the
smallest economic unit that China tracks). China has set forth criminal thresholds that capture
intellectual property infringement of any reasonable sc ale. In addition, the per capita income measure
proposed by the United States is an inappropriate me tric of commercial scale activity. "Commercial
scale" is a not a measure of how much individuals earn – it is a measure of business activity. Per
capita GDP is not a measure related to commercial activity, much less "commercial scale" activity.
2. Article 61 does not require that Members' authorities be given highly discretionary
Standards to enforce
46. The phrase "commercial scale" is a broad and flexible standard; and the WIPO Committee
definition of the phrase suggested that a variety of f actors might be considered in applying it. This
does not
 mean that Members have an obligation under TRIPS to implement a highly discretionary
standard, but simply that Members have flexibility in implementing it.
47. The WIPO Committee definition of "commercial scale" is a preeminent example of the
common usage of the phrase and it was relied upon by the negotiating parties to TRIPS. However,
the WIPO Committee definition is not a formal part of TRIPS. Therefore, the Panel should reject any
exhortations to incorporate the WIPO Committee definition into TRIPS.
48. Under TRIPS Article 1.1, Members have the ri ght to implement obligations in accordance
with their own legal system and practice. Acting within their sovereign discretion and in accordance
with their legal system, Members may have legitim ate interests in the uniform regulation of illicit
activity across markets, products, operators and re gions. Members' legal systems may also be
incompatible with foreign notions of judicial di scretion. Thus while the concept of "commercial

scale" would permit
 highly discretionary standards, TRIPS does not require it, but instead counsels in
favor of standards that are consistent with Members' reasonable discretion and in accordance with
their legal system and practice.
3. Hypothetical examples do not show that China has failed to implement TRIPS Article 61
49. The United States and several other parties have advanced a bewildering array of hypothetical
examples in an attempt to show that China do es not comply with TRIPS Article 61. These
hypothetical examples prove no such thing. The United States, as the complaining party, must
provide evidence that Chinese laws actually function to exclude a category of infringement that meets
the "commercial scale" standard. Hypothetical examples do not qualify as sufficient evidence.
Moreover, the hypothetical examples that have b een advanced during these proceedings are deeply
flawed and mischaracterize Chinese law.
III. CLAIM TWO: CHINA'S MEASURES FOR THE DISPOSITION OF SEIZED GOODS
ARE CONSISTENT WITH CHINA'S OBLIGATIONS UNDER TRIPS
50. The United States has failed to demonstrate that Chinese Customs' legal framework for
handling seized goods is inconsistent with TRIPS. The United States has failed to show that Chinese
Customs lacks the proper authority to dispose infri nging goods outside the channels of commerce in
such a manner as to avoid harm to the right-holder; or that Chinese Customs lacks an appropriate level
of destruction authority under TRIPS. The United States has also failed to show that Chinese
Customs' use of public auction – undertaken in c onjunction with removing all infringing features and
using a reserve price so as to prevent any economic benefit to the infringer – is inconsistent with the
4
th sentence of Article 46. China has implemented its TRIPS obligations regarding seized goods fully
and in good faith.
A. CHINA COMPLIES FULLY WITH THE 1
ST
 SENTENCE OF ARTICLE 46 AS APPLIED TO CHINESE
CUSTOMS BY ARTICLE 59
51. The 1 st sentence of Article 46, as incorporated by Article 59, imposes two obligations on
Members. First, they must vest their customs agencies with the authority to dispose infringing goods
outside the channels of commerce in such a manner as to avoid harm to the right-holder. Second,
Members must vest their customs agency with the authority to d estroy infringing goods. China has
fulfilled the first obligation by granting its Custom s appropriate authority to donate seized infringing
goods to social welfare organizations or to en ter into a voluntary sales transaction with the
right-holder that wishes to purchase the goods. It has fulfilled the second obligation by endowing its
Customs with appropriate authority to destroy infringing goods. Having fully satisfied these two
obligations, China is not barred under TRIPS from permitting its Customs to employ additional forms
of disposition.
1. The United States has failed to establish that customs lacks disposal authority
52. The United States has failed to show that Chin ese Customs lacks the authority to dispose of
infringing goods outside the channels of commerce in such a way as to avoid harm to the right-holder.
As long as Customs has available to it an option that does avoid harm to the right-holder, it has the
genuine authority to dispose of infringing goods out side the channels of commerce in such a manner
as to avoid harm to the right-holder, consistent with TRIPS.
(a) Donation to social welfare organizations reflects TRIPS disposal authority
53. Chinese Customs has the authority to donate sei zed goods to the Red Cross Society of China
("Red Cross") as well as to other social welfare organizations in such a manner as to avoid harm to the

right-holder. Customs may only donate goods that are appropriate for social welfare purposes (no
luxury or defective goods); and Customs has a le gal responsibility to ensure that the donated goods
are properly and exclusively used by social we lfare organizations. Chinese law stipulates that
donations to other social welfare organizations must remain outside the channels of commerce. The
United States has provided the Panel with no eviden ce of harm to the right-holders from Customs'
regime of donations to the Red Cross and other charities.
54. Under Chinese law, social welfare organizations are not allowed to sell the infringing goods
donated by Customs. Therefore, Customs' donation of all such goods avoids harm to the right-holder.
55. Moreover, the legally binding memorandum between Customs and the Red Cross ensures that
donated goods are used exclusively for social welf are purposes. Customs clearly has the power to
order the donation of infringing goods to the Red Cro ss, and, thus, by definition, authority to order
that these goods be disposed outside the channels of commerce in such a manner as to avoid harm to
the right-holder.
(b) Transfer to the right-holders reflects TRIPS disposal authority
56. Chinese Customs also has the authority to sell seized goods to an interested right-holder. This
disposition method plainly avoids any harm to th e right-holder because the right-holder would not
voluntarily purchase the goods unless it benefited from the transaction.
2. The United States has not established that customs lacks destruction authority
57. The United States has also failed to show that Chinese Customs lacks the authority to order
the destruction of infringing goods. China has vest ed Customs with appropriate destruction authority
within the meaning of TRIPS Arts. 46 and 59.
(a) TRIPS does not require absolute authority
58. The United States asserts that the "authority" required under TRIPS must be absolute and
unconditional. This assertion is contrary to the practice of the United States and other Members, to
the arguments that the United States has advanced elsewhere in these proceedings, and to a wide
variety of legitimate government regulations. The US claim – that China may not condition in any
manner whatsoever the destruction authority it vests in its Customs – is untenable in light of any
reasonable interpretation of TRIPS.
(b) The destruction authority vested in Chinese customs is an appropriate grant of authority under
TRIPS
59. All the evidence before the Panel suggests that "authority" under TRIPS Arts. 46 and 59 may
be appropriately conditioned. The United States has not advanced any argument to date as to why
Chinese Customs' destruction authority is not approp riate under TRIPS. China offers four factors to
help inform the relevant analysis.
(i) Discretion
60. Customs has considerable discretion to make the subjective determination of whether
 an
infringing good meets the criteria for each dispos ition method and therefore, whether it ought to be
destroyed. Once Customs determines that an in fringing good meets the criteria for a disposition
method, it has a legal obligation to carry out that disposition process.

(ii) Autonomy
61. Customs has complete autonomy in making the determinations relevant to whether an
infringing good ought to be destroyed. Its decisi ons are not subject to the approval of some third
party, which might effectively constrain the agency's power.
(iii) Legitimate Government Interests
62. Each of the particular priorities have legitimat e government interests consistent with China's
sovereign discretion afforded by TRIPS Article 1.1, such as preferring that goods be put to socially
useful purposes through donation to charitable organizations.
(iv) The Principles of TRIPS Articles 46 and 59
63. All four disposition methods employed by Cust oms are consistent with the principles of
TRIPS Articles 46 and 59 because they effectively deter infringement and avoid harm to the right-
holder.
3. TRIPS allows Members to publicly auction formerly infringing goods in addition to
disposal and destruction
64. China has satisfied its obligation under the 1
st sentence of Article 46 as incorporated into
Article 59 to vest Customs with appropriate dispo sal authority and destruction authority. Members
have every right under TRIPS to allow their customs agencies disposition options other than disposal
outside the channels of commerce and destruction.
(a) The United States now concedes that public auction is compatible with the 1 st sentence of
Article 46
65. Members clearly have the legal right under TR IPS to allow their customs agencies to conduct
public auctions. If a Member provides disposal an d destruction authority, then it may also allow
public auction, consistent with the 1 st sentence of Article 46. The United States has now conceded
this point.
(b) Public auction is consistent with the principles of the 1st sentence of Article 46
66. The public auction procedure which China's Cust oms employs is fully consistent with the
principles of Article 46. First, public auction is no less a deterrent to infringement than donation or
destruction; Customs' use of a reserve price at th e auction ensures that infringers lack the opportunity
to cheaply reclaim the seized goods and use them in furtherance of any counterfeiting activity.
Second, public auction of seized goods is no more harmful to the right-holder than donation or
destruction. Customs only undertakes public auction of seized goods once it has removed all
infringing features to prevent damage to the right-holder.
B. CHINA COMPLIES FULLY WITH ALL OBLIGATIONS IN THE 4
TH
 SENTENCE OF ARTICLE 46 AS
APPLIED BY ARTICLE 59 – AND THE UNITED STATES HAS NOT OFFERED ANY CONTRARY
EVIDENCE
67. China is in full compliance with Article 59. Th e United States has failed to show that the 4 th
sentence of Article 46 is incorporated into Article 59 and therefore applies to Chinese Customs. Even
if the 4th sentence of Article 46 were read to apply, Chinese Customs measures fulfill that provision.

1. The 4th sentence of Article 46 is not incorporated into Article 59
68. The United States wrongly asserts that the 4 th sentence of Article 46 is incorporated into
Article 59. The relevant principles of Article 46 – which are incorporated into Article 59 – are those
related to the authority to order disposal or destruction. The 4 th sentence of Article 46 does not
provide any authority to dispose or destroy; and it does not elaborate on the requirement of authority.
Rather, it sets forth the circumstances under wh ich domestic authorities may discharge infringing
goods within the channels of commerce.
2. China complies fully with the 4th sentence of Article 46
69. Even if the 4 th sentence of Article 46 were read to be incorporated into Article 59, China
would be in full compliance. Chinese Customs complies with the 4 th sentence of Article 46 because it
takes steps beyond the mere removal of the infringing mark to prevent the cheap return of the seized
goods to the infringers. The US reading of the 4th sentence is inconsistent with the plain text.
(a) The 4th sentence of Article 46 bars the cheap retu rn of seized goods to infringers that would
allow them to unfairly profit
70. The United States wrongly argues that the 4 th sentence of Article 46 imposes a categorical bar
on the discharge of seized counterfeit goods into the channels of commerce, other than in "exceptional
circumstances". If authorities take measures that ex ceed the mere removal of the infringing mark and
that thereby prevent infringers from cheaply r eclaiming the seized goods, then authorities may
discharge such goods into the channels of commerce.
71. First, the 4th Sentence of Article 46 does not limit the discharge of seized counterfeit goods to
"exceptional cases". The United States misreads the plain text of the 4th sentence of Article 46 to limit
the discharge of seized counterfeit goo ds to exceptional cases only. The 4 th sentence does not impose
a ban, but rather a threshold, that, when met by measures exceeding the "simple removal of the
trademark unlawfully affixed," permit the discharge of the goods into the channels of commerce.
72. Second, the central focus and plain meaning of the 4 th sentence of Article 46, especially the
term "release," is not the public sale of the seize d good, but the return of the good to the infringer,
from whom it might continue, once more, into the channels of commerce.
73. Likewise the "exceptional cases" exemption to the 4 th sentence of Article 46 – and the
restriction on the release of seized goods – refers to returning the seized goods to the infringer. If this
exception pertains exclusively to the return of th e seized goods to the infringers, then so does the
scope of the restriction itself.
74. Third, the 4th sentence of Article 46 is intended to prevent infringers from cheaply reclaiming
seized goods, with only the marks removed. The ne gotiating record underscores that the purpose of
the fourth sentence of Article 46 is to ensure that authorities deprive infringers of economic benefits
from the goods, not to bar the return of seized goods to the channels of commerce.
(b) Chinese customs satisfies the 4th sentence of Article 46
75. Chinese Customs complies with any obligation of the 4 th sentence of Article 46 because prior
to public auction, it takes measures that exceed th e mere removal of the infringing mark and that
thereby prevent infringers from cheaply reclaiming the seized goods: it eliminates all infringing
features and not just the infringing trademark; it formally solicits comments from the right-holder;
and, most significantly, it establishes a reserve pr ice, based on an expert appraisal, for the public

auction of the seized goods. Such measures clea rly meet the sufficiency threshold under the 4
th
sentence of Article 46 for permitting discharge into the channels of commerce through public auction.
IV. CLAIM THREE: CHINA'S MEASURES FOR THE PROTECTION AND
ENFORCEMENT OF COPYRIGHT AND RELATED RIGHTS ARE CONSISTENT
WITH CHINA'S OBLIGATIONS UNDER TRIPS
76. In its Claim Three, the core contention of the United States all along has been that, as a
consequence of Article 4.1 of China's Copyright Law, China fails to protect the copyrights of works
that are at various stages of content review. In fact, as China has demonstrated, the US attempt to link
Article 4.1 with China's content review processes is fatally flawed.
77. China notes that the United States now appears to be advancing an argument that Article 4.1
on its face is a violation of TRIPS. This is also a flawed contention. China has demonstrated that the
sovereign power to prohibit works, recognized in Article 17 of the Berne Convention, in fact does
permit TRIPS Members to maintain a provision of la w such as Article 4.1. China also notes that the
United States has failed to demonstrate that Article 4.1 has any adverse effect whatsoever on
copyright protection in China.
A. T
HE UNITED STATES HAS FAILED TO MAKE A PRIMA FACIE CASE WITH RESPECT TO
VIRTUALLY ALL OF THE LEGAL THEORIES IT ADVANCED IN CLAIM THREE
78. For the amalgam of US theories relating to cont ent review (collectively referred to in this
section as the US "Content Review Theories"), th e United States has given the Panel no supporting
evidence. In contrast, the Panel received from Chin a significant evidence to th e contrary of the US
theories. As a result, the Panel now has before it a situation where the United States has made
allegations for which it has advanced no supporting evidence. Under the rules of the WTO, the
United States has failed to make a prima facie case.
1. WTO Law requires a ruling against a complaining party that fails to establish a prima
facie case
79. The United States has brought an "as such" challe nge to China's Article 4.1. The Appellate
Body has stated that it will "expect" that measures subject to "as such" challenges will "normally have
undergone, under municipal law, thorough scrutiny ... to ensure consistency with the Member's
international obligations" and there will be both presumption and strong expectation that a measure is
"not inconsistent with those obligations."
2. The United States Content Review Theories assume that copyright protection is
contingent upon content review, but the Un ited States has offered no evidence to
support such a claim
80. The United States mistakenly alleged in its first written submission that China will not protect
copyright in (1) works that are awaiting the results of content review, (2) the unedited version of a
work that has been edited to pass content review , (3) works that have failed content review, and
(4) works that have never been submitted for review.
81. The United States, in asserting its Content Re view Theories, has the clear and particular
factual burden of proving that China's Article 4.1 operates through the prepublication licensing
system.
82. At no point does the United States cite a singl e authority for this proposition. The United
States apparently supposes that the point is evident from the text. But the text of Article 4.1 says

nothing about content review, and the content review regulations say nothing about copyright. The
US Content Review Theories in fact are not supported in any way by the face of the text.
3. The US claim that China denies copyright protection to works that are not yet licensed
for distribution within China is demonstrab ly false: The United States has failed to
establish a prima facie case supporting its claim
83. China does not have an obligation to prove that its law is WTO-compliant. That burden is
borne by the United States. A burden in rebutta l does not shift to the r esponding party unless the
complaining party makes a sufficient prima facie case. Nonetheless, China has provided the Panel
and the United States with comprehensive factua l evidence and legal analysis demonstrating the
operation of its laws.
(a) China has provided comprehensive legal analys is, with supporting evidence, to demonstrate
that copyright protection is not contingent upon content review
84. The process of content review remains, as an ad ministrative matter, separate from copyright.
As explained by China in detail in its first wr itten submissionand in its response to the Panel's
questions, content review is conducted by a number of agencies under the authority of the State
Council. The agencies under the State Council r esponsible for content review do not apply
Article 4.1, or administer the copyright laws in any way.
(b) The Zheng Haijin opinions confirm that copyright is protected in works irrespective of their
status with regard to publication approval
85. The US contention that works that have not b een reviewed are prohibited by law is simply
wrong. To illustrate this fact, China offered analysis of the Zheng Haijin case in its First Written
Submission. The central meaning of the Zheng Haijin case is that even if a work has violated
publication regulations – e.g., a work being distri buted without a license or without having completed
mandatory review – it is still protected by the Copyright Law as long as its contents are not illegal.
(c) The US Contention that the enforcem ent action taken by the NCAC in Shrek II was not
authorized under the Copyright Law is demonstrably false
86. In the US first written submission, the Un ited States proposed a theory that in Shrek II, the
NCAC took action pursuant to unfair competition la ws and not the Copyright Law. From this
incorrect observation, the United States derived a conclusion that the NCAC did not act pursuant to
the Copyright Law because the Shrek II work had not yet been reviewed, and therefore could not
enjoy copyright protection. China has demonstrated the contrary: the NCAC not only could , but did
take action pursuant to the Copyright Law. Chin a clarified this matter in China's first written
submission.
B. ASIDE FROM THE BURDEN OF PROOF , CHINA HAS DEMONSTRATED THAT CHINA DOES NOT
MAKE COPYRIGHT PROTECTION CONTINGENT ON A FORMALITY
87. Copyright in China vests automatically, free of any formality. Berne Article 5(2) refers to
administrative requirements such as the affixing of a mark, registration, the deposit or filing of copies,
or the payment of fees. China makes no such demand s of Berne authors prior to either the vesting of
copyright, or prior to the enforcement of copyright. While for some works, content review may be
characterized as a formality precedent to publication, in no sense can it be characterized as a formality
precedent to copyright. Copyright matters are not implemented through the content review system.
As China has illustrated, in the Zheng Haijin case both the NCAC and the Supreme People's Court

affirmed that under Chinese law, it is actual illegality
 of content that is at issue in Article 4.1 matters,
and not the content review process itself.
C. THE US CONTENTION THAT ARTICLE 4.1 OF THE COPYRIGHT LAW IS A FACIAL VIOLATION OF
TRIPS IS FALSE AS A MATTER OF FACT AND LAW
88. The failure of the United States to support its Content Review Theories leaves it with only
one argument: its contention that the text of Article 4.1, regardless of how it might be applied, violates
Berne Article 5(1), and in turn denies enforcement under TRIPS Arts. 41.1 and 61. The United States
did not clearly engage with this issue in its Firs t Written Submission. The United States now appears
to contend that its primary claim all along was facial.
1. China recognizes and preserves all rights under TRIPS: the scope and operation of
Article 4.1 is extremely limited and leaves TRIPS rights unmolested
89. Chinese law recognizes and preserves all TRIPS ri ghts. China recognizes copyright in all
categories of literary and artistic works, and Chin ese law guarantees all the substantive rights required
by TRIPS, and indeed rights above and beyond those. As conceded by the United States, Article 10
of China's Copyright Law sets forth 17 substantive moral and economic rights that copyright owners
may enjoy. And under Copyright Law Article 2, China recognizes copyright for Chinese and foreign-
authored works at the moment of the work's creat ion, without any formality or precondition, whether
a work is published or unpublished.
90. China respectfully asks the Panel to recognize that Article 4.1 is in complete accord with the
censorship power recognized by Berne Article 17. It is both negligible in terms of its implications in
the marketplace, and in terms of any nullification or impairment of Member benefits.
(a) China recognizes and preserves all TRIPS rights
91. TRIPS Article 9.1 incorporates Arts. 1-21 of th e Berne Convention and defers to the Berne
text for full explication of Member obligations. Copyright Law Article 2 directly implements an
author's rights under the Berne Convention into Ch inese law. So long as copyright is granted under
the Berne Convention, that right is protected by Chinese law. China grants to authors all the
substantive protections of the Berne Convention, in addition to others, through Article 10 of the
Copyright Law.
(b) Properly understood, the scope and applicati on of Article 4.1 are extremely limited and
completely in accord with the sovereign principles recognized by Berne Article 17
92. Properly understood, Article 4.1 merely recognizes that copyright protection is meaningless in
a certain context: its core principle is that Ch inese law will not enforce the protections of the
copyright law for works the contents of which are already illegal.
93. Accordingly, the scope and operation of Article 4.1 are extremely limited. Copyright in a
work vests under Article 2 without any inquiry into whether a work is prohibited by law.
94. Under Article 4.1, to the extent that any party has a legal right to exploit the work, it is the
right-holder. If at any point the work becomes other than "prohibited by law", it is the right-holder
and his or her assignees who enjoy protection.

2. The sovereign right to prohibit works is recognized by International Law, the Berne
Convention and TRIPS, and is not limited by those Agreements
95. Article 17 of the Berne Convention expressl y recognizes a preexisting and supervening
sovereign domain in which TRIPS may not interfer e. That domain is the right of sovereign
governments to control and prohibit the production and distribution of certain works. Berne Article
17 recognizes this sovereign interest and effectiv ely denies WTO jurisdiction in this area. Berne
Article 17, both in reserving this sensitive aspect of state power to the sovereign, and by its plain-
meaning, requires broad construction and deference.
96. TRIPS incorporates the entire Berne structure of substantive rights, together with the express
recognition in Article 17 that those substantive rights are subject to the sovereign's inherent right to
prohibit. Thus when there is any conflict between the author's rights under the Berne Convention and
the sovereign's censorship privilege under Berne C onvention Article 17, the former gives way to the
latter.
3. Berne Article 17 requires broad construction and deference and even under the
narrowest reading, there are no rights granted to prohibited content that are denied by
China's Law
97. Even if Berne Article 17 is parsed as if it limit s and defines a sovereign's right to prohibit
works – which China submits is an incorrect reading – China's law still does not violate Berne or
TRIPS. This is true for two reasons: all of the economic rights of authors under either agreement are
limited by Berne Article 17, and the fundamental TR IPS enforcement right is to give authors a power
of "effective action". Failure to grant a private right to restrict publication of content that has already
been banned by the government does not in any way deny "effective" action.
(a) All economic rights of authors are limited by Berne Article 17
98. TRIPS rights are economic rights. The rights guaranteed in the Berne Convention are rights
to authorize certain otherwise permissible uses of a work. All affirmative economic rights may
therein be limited in accordance with Berne Article 17.
99. Given that all economic rights under the Bern e Convention are limited by Berne Article 17,
the denial of copyright protection to illegal works under Article 4.1 cannot violate Berne Article 5(1),
and in turn cannot violate Article 9.1 of TRIPS.
(b) There is no right of availability of enforc ement under TRIPS Part III with respect to
prohibited works
100. The United States has failed to demonstrate th at China has any oblig ation to grant TRIPS
enforcement rights to prohibited works, despite the argument set forth in its first written submission.
The fundamental obligation under Part III of the TRI PS Agreement is set forth at Article 41.1. That
Article charges Members to make available under their law procedures "so as to permit effective
action against any act of infringement of intellectual property rights covered by this Agreement ... ."
101. The US claim, in light of this provision, falls short on two grounds. First, enforcement
procedures must be provided only for rights covered by TRIPS. If a right is not covered by TRIPS,
then there is no obligation to enforce it. Second, the content at issue here has been banned by the
government. No person, whether the author or in fringer, is permitted to publish or distribute the
work. Thus, rather than grant the author a power to prohibit publication, the sovereign itself prohibits
publication – prohibition that is itself rigorously enfo rced. By definition, then, China has provided a
procedure for "effective action" against any attempt to publish that content. It is banned entirely.

4. Public prohibition completely preempts the private right of censorship
(a) Neither the Berne Convention nor TRIPS grant a right to publication: copyright enforcement
confers a private right to censor works that might otherwise be published
102. The Berne Convention and TRIPS serve primarily to secure for the author the right to prohibit
publication by others. Access to a market is not guaranteed. In other words, there is no right to
publish under international copyright.
(b) No meaningful private rights of censorship can subsist when a work is completely prohibited
103. When governments exercise their sovereign powe r to censor, the exercise of private rights is
moot: unauthorized copying is not permitted. Copyright continues, but enforcement is not needed: the
content is banned. It may not lawfully be copied, adapted, translated, and certainly not distributed.
Copyright enforcement thus is meaningless in this context.
(c) US Prohibition likewise denies effective protections for the rights of authors
104. The US law similarly subsumes protections for th e rights of authors in obscene works, and in
particular works of child pornography. Such a function comports with the overarching authority
referenced by Berne Article 17.
D. T
HE UNITED STATES HAS FAILED TO PRESENT A CASE TO SUPPORT ANY OF ITS CONTENT
REVIEW THEORIES OR ITS OTHER AMALGAM OF CLAIMS RELATING TO ARTICLE 4.1: THE PANEL
SHOULD ACCORDINGLY ENTER A FINDING IN FAVOR OF CHINA ON THESE MATTERS
1. The burden of proof lies with the complaining party
105. According to well established Appellate Body la w, the complaining party must both properly
assert and prove its claim. If such proof is absent or deficient, then the respondent has no burden
going forward: the complaining party must present and substantiate its prima facie case. In the
absence of evidence other than that which has been comprehensively rebutted, it cannot be held that
the complaining party has met its burden.
2. The United States has failed to meet its burden
106. With regard to its Content Review Theori es, the United States has wholly failed to
demonstrate that China's law makes content review a precedent condition to copyright.
107. With regard to its other claims relating to Article 4.1, the only evidence proffered by the
United States is the text of the provision itself. China has offered detailed argument on the nature of
international copyright law, and of the structure of the Berne Convention, and has shown that China's
law and practice in this regard are not inconsistent with TRIPS.

ANNEX B-5

EXECUTIVE SUMMARY OF THE ORAL STATEMENT OF CHINA AT
THE SECOND SUBSTANTIVE MEETING

I. INTRODUCTION
1. Mr. Chairman, members of the Panel: Thank you. The United States has advanced three legal
claims against China in this dispute. In each of its claims the United States has mischaracterized
China's laws and is asking this Panel to dramati cally expand the scope of legal obligations under
TRIPS.
2. China respectfully submits that this Panel must address several key questions as it confronts
the meaning of a number of obligations under TRIPS. Among these questions are the following:
What is the appropriate balance of obligations and rights, and of legal constraints and deference to
local legal systems as provided by TRIPS Articles 1. 1 and 41.5? What is th e appropriate scope of
core sovereign functions, such as criminal law enfo rcement and the power to prohibit publication?
What is the appropriate role of traditional legal principles, such as in dubio mitius?
II. CLAIM ONE
3. China wishes to address the first claim of the United States: that China's criminal law does not
fulfill TRIPS Article 61, which requires that Members must apply criminal measures to willful
counterfeiting and piracy on a commercial scale.
4. First, the definition of "commercial scale" that the United States has advanced is itself vague
and ambiguous and fails to establish any clear st andards by which to measure compliance with
Article 61.
5. Second, the actual usage of "commercial scale" suggests that it refers to a significant
magnitude of activity. China has offered several examples where "commercial scale" has been treated
as a distinctive phrase and has referred to a significant magnitude of activity. By contrast, the United
States merely tries to construct a meaning from the definitions of separate words. But the test of
ordinary meaning is how that phrase is actually used.
6. Third, the Panel, at the very least, confront s in "commercial scale" a phrase whose meaning is
vague and doubtful. China respectfully submits th at the Panel must consider two crucial legal
principles in the face of this vagueness. The first principle is that under Article 31.1 of the Vienna
Convention, the meaning of "commercial scale" must be understood in context
. The relevant context
is principally Articles 1.1 and 41.5 of TRIPS which reflect deference to the norms, legal systems and
resource constraints of Members, and were crucia l concessions for developing countries in the final
negotiating rounds of TRIPS. They suggest that TRIPS would not have imposed an exacting and
intrusive regulation of Members' criminal enforcem ent regime. The second legal principle that this
Panel should recall here is that of in dubio mitius , which holds that ambi guous legal obligations
should be interpreted to minimally intrude on Memb ers' sovereignty. This principle suggests that
although countries have the right to cede their aut hority over domestic criminal law, they should not
be presumed to do so lightly.
7. Fourth, the United States demands for itself significant discretion in its implementation of
TRIPS Article 61. The United States is correct that Members have discretion in matters of criminal

enforcement – but it is wrong as to the source of this discretion in Article 61. In fact, it is the broad
and flexible standard of "commercial scale" that grants this discretion.
8. China now turns briefly to its own legal system. In addition to misconstruing the
"commercial scale" standard of TRIPS, the Unite d States has routinely mischaracterized China's
criminal law regime.
9. Here the United States makes three principal erro rs. The first error is that the United States
frequently ignores the full breadth of evidence that is legally relevant to Chinese criminal law. The
second error is that the United States disregards China's general criminal laws. These general
criminal laws are "criminal procedures and pena lties" applicable to commercial scale counterfeiting
and piracy within the meaning of TRIPS Article 61. The third error is that the United States considers
only a single moment of infringement. China's criminal law considers the entire period of
infringement, not a snapshot in time.
10. China wishes to make one final note with r espect to the China Copy right Alliance ("CCA")
Report. The United States wrongly declares that the report shows that the "vast majority of traditional
retail outlets" operate under China's criminal thresholds.
11. The CCA Report summarizes administrative
 raids. The United States extrapolates from these
administrative raids to the general state of infringe ment. This is a logical fallacy. Just as no one
would try to measure the frequency of murder from a review of traffic police reports, so no one should
assume that administrative raids portray the full range of Chinese enforcement, which includes levels
of activity far beyond that dealt with by the administrative law.
12. In sum, China respectfully submits that the firs t claim of the United States fails. The United
States has demonstrated neither that Article 61 imposes a specific and low-scale standard, nor that
China's criminal laws fail to capture commercial scale activity.
III. CLAIM TWO
13. China now turns to the second claim advanced by the United States. However, before
addressing the substantive issues in this claim, China wishes to register an important procedural note:
the United States has failed completely in these pro ceedings to make the argument that China's laws
governing the disposition of goods destined for export are inconsistent with TRIPS. The United
States has made clear that it "takes no position" re garding the applicability of Article 59 to such
goods. The Panel should therefore hold that China' s measures concerning goods destined for export
are not subject to the US claim regarding Article 59.
14. Concerning the substance of the US claim, two distinct components are at issue in this second
claim: the proper understanding of the 1 st sentence of Article 46, as applied to Article 59; and the 4 th
sentence of Article 46, as applied to Article 59. The United States has failed to show that China
breaches TRIPS in either respect.
15. The first dispute is whether China satisfies its obligation to provide Customs with appropriate
disposal authority and destruction authority. With respect to disposal authority, China has
demonstrated that its Customs has the power to dispose of seized goods outside the channels of
commerce through donation to social welfare organizati ons and direct sale to interested right-holders.
The sole point of contention is whether Custom s may conduct these disposition methods in such a
manner as to avoid harm to the right-holder.
16. In its first written submission, the United States expressed a completely unsubstantiated
concern that defective or danger ous goods would be donated, and th at such goods might harm the

reputation of the right-holders or lead to unwarrant ed legal claims. Neither the facts nor applicable
Chinese law provided any support for this claim, and the US in fact complimented China's Customs
for its donations to the Red Cross. In its written re buttal, the United States th en claimed for the first
time that ordinary infringing goods could also harm the ri ght-holders' reputation. Chinese Customs,
however, already takes steps to prevent such a theoretical harm to a right holder.
17. The other apparent concern of the United States is that a recipient social welfare organization
will resell donated goods. This con cern is equally misplaced. Chinese law requires that Customs
must ensure that donated goods are used exclusively by social welfare organizations. In this regard,
Customs diligently exercises its legal responsibility.
18. China would respectfully ask the Panel to note that China satisfies TRIPS fully by ensuring
that its Customs has the power to order the donation of seized goods in such a manner as to avoid
harm to the right-holder.
19. Under the 1st sentence of Article 46, as applied by Ar ticle 59, China must afford its Customs
destruction authority as well as disposal authority. China fully satisfies this obligation.
20. The United States affords its own Customs only conditioned authority and it insists elsewhere
that China do likewise. But the United States ha s provided the Panel no arguments as to why its
favored form of conditioning is appropriate, but China's sequencing guidelines are not.
21. China has highlighted several features of Customs' appropriate destruction authority:
considerable discretion; the exercise of inde pendence and autonomy; the pursuit of legitimate
government interests; and consistency with the pr inciples of TRIPS Articles 46 and 59. China has
explained that Customs has the destruction authority required by TRIPS, as well as the reality that the
majority of goods seized by Customs are, in fact, d estroyed by Customs in the exercise of its
discretion.
22. In sum, China has vested its Customs with the appropriate power to dispose of seized goods
outside the channels of commerce in such a way as to avoid harm to the right-holder. China has also
provided Customs with the appropriate power to destroy seized goods. In so doing, China fully
satisfies its TRIPS obligations.
23. The second dispute in Claim Two concerns the 4 th sentence of Article 46. As China has
explained, Article 59 does not appear to incorporate this provision. Article 59 refers to the "principles
set out in Article 46." But these "principles" do not modify disposal and destruction, as the United
States has alleged. These "principles" modify the authority to order disposal of destruction.
24. However, even if Article 59 we re read to incorporate the 4 th sentence of Article 46, China
fully complies with this provision.
25. The United States argues in its written rebuttal that this sentence means that seized counterfeit
goods may only be released into the channels of commerc e in exceptional cases. But the US reading
of the text disregards entirely the term "sufficient". In fact, "sufficient" clearly sets forth a threshold:
certain acts (such as merely removing the tradem ark) do not normally permit discharge into the
channels of commerce; and certain unspecified acts beyond removing the trademark do so permit.
26. This plain textual interpretation is buttressed in sev eral respects. First, there is clear evidence
– from the negotiating history and commentaries – th at the exceptional cases were understood to refer
to the return of the seized good to the non-professional infringer.

27. Second, the concern behind the 4
th sentence appears to have been that infringers might
cheaply recover seized goods, wait for another batch of infringing marks, and continue their
counterfeiting operations.
28. It is proper to read the 4
th sentence to allow public sale when authorities take needed steps –
beyond the removal of the counterfeit mark – to prev ent infringers from cheaply reclaiming the seized
goods and reapplying infringing marks.
29. China respectfully submits that the record before the panel is clear: China Customs would be
in full compliance with the 4 th sentence of Article 46, even if it we re read to apply. In addition to
removing the infringing mark from counterfeit goods, Customs eliminates other infringing features,
solicits comments from the right-holder and – most signi ficantly – sets a reserve price for the auction.
The reserve price ensures that infringers pay mark et price to recover their goods and that they
therefore are unable to cheaply continue their counterfeiting operations.
30. The Chinese Customs' option of using an auction does not violate the 1 st sentence of
Article 46, as incorporated into Article 59, becau se it is sufficient that Customs have appropriate
disposal and destruction authority. Nor does it violate the 4 th sentence of Article 46, even if that were
to apply to Article 59, because Customs take significant measures beyond simply removing the
infringing mark.
IV. CLAIM THREE
31. China turns now to the third US claim. This relates to Article 4.1 of China's Copyright Law.
32. The focus of the original US cl aim was China's content review system. In this regard, the US
claim was grounded on a complete misunderstanding of Chinese law, and the United States has failed
to carry its burden of proof.
33. The failure of the United States to support its allegations is worthy of review. At
paragraph 198 of its first written submission, the United States made four key false and unsupported
assertions.
34. First, the United States asserted that Chinese copyright law "provides no protection to works
that are awaiting the results of content review in China." China has, however, given the Panel a
specific example of this enforcement: the Shrek II enforcement actions by the NCAC, protecting the
copyright in a work that had not completed the content review process.
35. Second, the United States asserted that where a work is never submitted for content review,
China "provides no copyright protection." China, has provided legal analysis to show that such works
in fact do receive copyright protection, and has pr ovided examples of enforcement actions aimed at
protecting the copyright in such works.
36. Third, the United States stated that where a wo rk is edited to pass content review, Chinese
copyright law "provides no copyright protection for the version that was not authorized for
distribution in China." China h as demonstrated that these works do receive copyright protection:
NCAC Circular number 55 set up procedures to protect 700 US films, without inquiry as to whether
the films were edited to pass content review.
37. Fourth, the United States challenged China's content review by contending that works that fail
content review do not receive copyright protection. China, has shown that it will protect the copyright
in the legal content of a work, even if that work fails content review as a whole.

38. In its written rebuttal, the United States merely reiterated its flawed theories, focusing this
time on the contention that content review imposes a formality on the "enjoyment and exercise" of
copyright in violation of Article 5(2) of the Berne Convention. This is not true.
39. With the failure of the US arguments regarding content review, all that remains of the US
claim is a facial challenge to Copyright Law Artic le 4.1. As an initial matter, China wishes to
highlight that the United States has not been ab le to provide a single example of a case where
Article 4.1 of the Copyright Law has been applied.
40. That noted, China respectfully submits that the Panel's analysis of this facial challenge to
Article 4.1 should begin with Article 17 of the Berne Convention.
41. Article 17 of the Berne Convention recognizes, and does not limit, the sovereign right to
impose censorship.
42. The Berne rights that are incorporated in to TRIPS are economic rights. Under any
construction of Berne Article 17, there are no re maining enforceable private economic rights when a
work is subject to prevailing public censorship.
43. Finally, as part of its facial challenge to Article 4.1, the United States has argued that
Article 4.1 denies copyright protection to a cate gory of works, in violation of Article 2 and
Article 5(1) of the Berne Convention. This also is incorrect. Even when a work has been found to
contain prohibited content, China continues to recognize the author's copyright in the work's legal
content. And that copyright will be protected if it is found to be infringed by a work that is legally
circulating within China.
44. China respectfully asks the Panel to find that th e United States has failed to meet its burdens
on its Claim Three arguments, and to rule in favor of China. The United States has failed to offer
evidence to support its misreading of Chinese law, and the United States has failed to demonstrate that
Article 4.1 of China's copyright law violates TRIPS on its face.

ANNEX B-6

CLOSING ORAL STATEMENT OF CHINA AT THE
SECOND SUBSTANTIVE MEETING

I. INTRODUCTION
1. Mr. Chairman, members of the Panel: The Peopl e's Republic of China wishes to thank you
for your time and attention in this meeting, and fo r your service on this Panel. The care that you have
taken to prepare for this dispute has been evident throughout this proceeding. China also wishes to
thank the WTO Secretariat Staff for its excellent work.
2. We have now exchanged two rounds of written submissions and held two substantive
meetings. It is appropriate to cons ider the status of the key issues in this dispute, and to review the
tasks remaining for the Panel.
3. In the broadest terms, the United States has fa iled to make its case. In each of the three
claims the United States' case depends on legal inte rpretations that run counter to the governing
agreements and a flawed understanding of Chinese law and practice. On many issues the United
States has failed even to advance a prima facie case.
4. Let me briefly turn to the specific claims.
II. CLAIM ONE
5. The United States has asked this Panel to conclu de that an infringer must be subjected to
criminal penalties whenever that infringer is "seri ously engaged" in pursuing financial gain. While
the United States contends that its proposal is not an "intent" test, it is hard to describe "pursuing
financial gain" as anything else. The discussion of the proposed US definition in this meeting offered
nothing to dispel that conclusion.
6. The United States also contends that the rules of treaty interpretation leave "no doubt" about
the meaning of the "commercial scale" standard. If by that the United States means that there is no
doubt regarding it own proposed standard, China resp ectfully submits that the discussion of the US
proposal at this meeting in fact identified considerable cause for doubt.
7. China has shown that an intent test like that of the United States was expressly rejected in the
TRIPS negotiations. The Panel should also reject an intent test here, however it may be described.
8. Instead of an intent test, the TRIPS agreemen t adopted an objective test based on the scale of
infringing operations – the "commercial scale" test. It is this test that the Panel must apply.
9. To apply this test, the Panel faces a challenge. Far from being without "doubt", the test in fact
needs considerable definition. The Panel must take a very broad standard – "commercial scale" – and
apply it to the very specific implementation of a Member country. The United States has not
identified a concrete, principled approach for th e Panel to do this. Through all the pleadings and
meetings in this dispute, the United States inst ead has relied on hypothetical examples that assume
their own conclusion. These examples follow a pa ttern: they describe a hypothetical infringement,
allege that it falls beneath China's thresholds, and then assert that operations of that kind are
infringement at a commercial level. China already has briefed this issue, and will not respond to those

examples again this morning. Instead, China notes that the Panel should adopt a standard that is
objective and not the creature of hypothetical facts.
10. China, in contrast, has given the Panel two concrete measures. First, it has proposed a
comparison to official statistics that describe th e actual scale of commerce in China. Second, China
has compared the thresholds for intellectual prope rty crimes to the thresholds of other commercial
crimes, and noted the importance of this comparison in light of the second sentence of Article 61, and
in light of the deference to national systems expressed in Articles 1.1 and 41.5.
11. In defining the commercial scale standard, th e Panel faces an important decision in the
jurisprudence of TRIPS. China urges it to apply a standard that respects th e compromises reached in
the TRIPS negotiations, both in the text of Article 61 itself, and in the broader context of Article 1.1
and 41.5. At the same time, the Panel should apply a standard that is capable of principled application
to a Member's actual implementation.
12. China is confident that if the Panel applies the correct standard, it will find that China's
criminal IPR law meets that standard.
III. CLAIM TWO
13. With respect to Claim Two, the United States has asked this Panel to conclude that under
TRIPS Members may not preference donations to ch arity over destruction. China has already
explained why its Customs prefer certain dis position methods, such as charitable donation, over
destruction. Yesterday, in response to a ques tion from the Panel, the United States again commended
to China that donation of seized goods be conditioned on the approval of the right holder - just as the
United States does in its own practice. The Un ited States appears to approve the constraints on
authority that the United States itself prefers, but at the same time, reject the conditions, such as
prioritizing donation to charity, that it does not. Moreover, the United States continues to wrongly
assert that Chinese Customs injures right holders through donations to charities such as the Red Cross.
China has detailed, with numerous laws and concrete ex amples, precisely how Customs avoids harm
to the right holder. When asked during this hearing for actual examples of charitable donations
causing harm to right-holders in China, the United States declined, as it has in the past.
14. China was disappointed by the number of incons istencies and factual inaccuracies in the US
statement yesterday. For example, the United St ates told the Panel that the circumstances under
which China's legal regime permit destruction were "highly limited," but the actual Chinese Customs
data already provided in this dispute flatly cont radict that assertion. The data demonstrate the
extensive use of the destruction option by China Customs. The United States also provided the parties
and Panel with a chart purporting to explain China's disposal and destruction regime, but then later
acknowledged that the chart was incomplete, and did not cover several relevant laws and options.
15. Lastly, as the Panel deliberates and prepares its rulings, China would respectfully ask that its
decision address the complete US failure to argue that China's laws governing the disposition of
goods destined for export are inconsistent with TR IPS. The United States has made clear that it
"takes no position" regarding the applicability of Article 59 to such goods. The Panel should
therefore hold that China's measures concerning goods destined for export are not subject to the US
claim regarding Article 59.
IV. CLAIM THREE
16. China has set forth in detail the shortcomings of the US case on Claim Three. On most of the
subject matter of its claim, the United States has not made a prima facie case. On the remainder, the
US argument falls short, both because it focuses on a highly theoretical concern, and because it is

contradicted by the best reading of the Berne Conven tion. China has set these points forth in detail in
its written submissions, and will not repeat them again this morning.
17. China must, however, call to the attention of the Panel some misstatements of fact and
misstatements of China's position that were made in the US oral statement. This is not a
comprehensive list of issues, and China will not a ddress many questionable US points, particularly
those that China already has rebutted. But toda y China calls attention to several particularly
egregious misstatements that China believes it must identify on the record of this meeting.
18. First, in the absence of any concrete example of any actual application of Article 4.1, at
paragraph 69 of its oral statement the United Stat es simply blames Article 4.1 for the existence of
infringement in China. China asks the Panel to rec ognize that this is mere allegation, not fact, and
that the United States has offered no support whatsoever for this point.
19. Second, at paragraph 76 the United States claims that Article 4.1 denies copyright protection
to any work where pre-publication review is required and has not been received. This is simply not
true. China has demonstrated to the contrary in its pleadings, and China notes particularly that even at
this late stage of the proceeding the United States cannot support this statement either with legal
analysis or with a single example.
20. Third, at paragraph 77 the United States claims that China "admits" that "regardless of
whether a particular defendant raises a formal defense, courts and the NCAC must
 determine the
legality of a work de novo." China protests in the strongest terms this misstatement of its position.
China has made no such admission. China's statem ent was made in the context of a case where the
issue in fact was before the court. Once the issue is before the court, then, if content review had not
previously been undertaken, the court would have to inquire into the legality of the content de novo.
This is all that China said. China most assuredly is not of the view that such a court review of content
must be made in every copyright enforcement actio n. China also notes that the United States again
misstates this point in paragraph 78.
21. Fourth, and finally, in paragraph 79 the United States makes a major misstatement of Chinese
law. The United States alleges that content review processes prohibit the publication or dissemination
of works until the pass content review, and then tries to link this point to the language of Article 4.1.
China has briefed this point extensively and will not repeat its analysis here, but does ask the Panel to
recognize the US assertion for what it is – allegation that is simply not credible. China asks the Panel
to demand more from the United States – to demand legal analysis and specific examples.
22. These misstatements, unfortunately, characterize much of the US case before this Panel.
China respectfully requests the Panel to recognize to th e failures in the US case, and to rule in China's
favor.

23. This concludes China's closing statement. China again expresses its gratitude for the hard
work and attention of the Panel and the WTO staff, and looks forward to responding to the Panel's
written questions.