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Incomplete Harmonization Contracts in International Economic Law: Report of the Panel, China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R, adopted 20 March 2009


In China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, the Panel addressed three main issues: 1.

the relationship between China's censorship laws and its obligations to protect copyright under the WTO Agreement on Trade Related Intellectual Property Rights (‘TRIPS’);


China's obligations under TRIPS to ensure that its customs authorities be empowered to dispose properly of confiscated goods that infringe intellectual property rights;


whether China's volume and value of goods thresholds for application of criminal procedures and penalties with respect to trademark counterfeiting or copyright piracy comply with TRIPS requirements for application of criminal procedures and penalties.

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1 Hereinafter Panel Report.

2 Horn Henrik (2006), ‘National Treatment in the GATT’, 96:1 The American Economic Review, 394404.

3 Hoekman Bernard and Trachtman Joel P. (2010), ‘Continued Suspense: EC–Hormones and WTO Disciplines on Discrimination and Domestic Regulation’, 9:01 World Trade Review, 151180.

4 Grossman Gene M. and Lai Edwin L.-C. (2004), ‘International Protection of Intellectual Property’, 94:5 The American Economic Review, 16351653.

5 Horn Henrik, Maggi Giovanni, and Staiger Robert W. (2010), ‘Trade Agreements as Endogenously Incomplete Contracts’, 100:1 The American Economic Review, 394419.

6 On the other hand, perhaps copyright protection would protect authors' rights against unauthorized edited versions, or in circumstances in which the censorship is not as fully enforced as copyright would be. Copyright would often be enforced through private claims, whereas censorship is based on government enforcement.

7 See Tomer Broude (2009), ‘It's Easily Done: The China-Intellectual Property Rights Enforcement Dispute and the Freedom of Expression’, Hebrew University International Law Forum Research Paper No. 22-09, October.

8 The Panel referred to the statement by the Appellate Body in US – Corrosion-Resistant Steel Sunset Review (WT/DS244/AB/R, adopted 9 January 2004) to the effect that ‘When a measure is challenged “as such”, the starting point for an analysis must be the measure on its face. If the meaning and content of the measure are clear on its face, then the consistency of the measure as such can be assessed on that basis alone’ (para. 168).

9 Panel Report, para. 7.30.

10 Ibid., para. 7.50.

11 Ibid., para. 7.52.

12 Ibid., para. 7.55.

13 Ibid., paras. 7.64, 7.66.

14 Ibid., para. 7.78, quoting China's first written submission.

15 Ibid., para. 7.79.

16 Ibid., para. 7.81.

17 Ibid., para. 7.103.

18 For an effort to do so, see Trachtman Joel P. (1999), ‘The Domain of WTO Dispute Resolution’, 40 Harvard International Law Journal, 333.

19 Panel Report, para. 7.117.

20 Ibid., para. 7.120, quoting China's rebuttal submission, paras. 286–287.

21 Ibid., para. 7.126.

22 Ibid., para. 7.127.

23 Ibid., para. 7.132.

24 Ibid., para. 7.134.

25 Ibid., para. 7.138.

26 Ibid., para. 7.180.

27 Ibid., paras. 7.179–7.181.

28 Ibid., para. 7.231.

29 Ibid., para. 7.197 (emphasis in original).

30 Ibid., para. 7.232.

31 Ibid., para. 7.228.

32 Ibid., para. 7.240.

33 Ibid., para. 7.239.

34 Ibid., para. 7.236.

35 Ibid., para. 7.246.

36 Ibid., para. 7.244.

37 Ibid., para. 7.252.

38 Ibid., para. 7.279.

39 Ibid., para. 7.297.

40 Ibid., para. 7.299.

41 Ibid., para. 7.324.

42 Ibid., para. 7.326.

43 Ibid., para. 7.327.

44 Ibid., para. 7.343.

45 Ibid., para. 7.497.

46 Ibid., para. 7.501 (citation omitted).

47 Ibid., paras. 7.508–7.513.

48 Ibid., para. 7.629.

49 Ibid., para. 7.495.

50 See Grossman Gene M. and Mavroidis Petros C. (2003), ‘United States – Section 110(5) of the US Copyright Act, Recourse to Arbitration under Article 25 of the DSU: Would've or Should've? Impaired Benefits Due to Copyright Infringement’, 2:2 World Trade Review, 233249. Grossman and Mavroidis note that the optimal enforcement policy is not one that ensures 100% compliance (i.e., zero copyright violations in our context) since the costs of enforcing such perfect compliance would far outweigh the benefits. In other words, below some level of thresholds, it would be globally optimal to let IPR violations occur.

51 Panel Report, para. 7.518 (emphasis added).

52 Ibid., para. 7.519.

53 Ibid., para. 7.525 (emphasis added).

54 Ibid., para. 7.577.

55 The Panel is quite sensible to say that thresholds have to be specific to the context. So in this sense, the Chinese law's specification of rigid thresholds might be a bit odd: infringing sales of 50,000 Yuan might be astronomical (and therefore on a commercial scale) in one market while trivial in another. Furthermore, it is worth noting that the sales revenue lost by the IPR holder and the sales revenue gained by an infringer need not always correlate perfectly. Only when the sales revenue of infringers exceeds that which the IPR holder would have earned if infringement were absent does the use of thresholds based on infringing sales work in favor of the rights holder.

56 See Grossman Gene M. and Mavroidis Petros C. (2003), ‘United States – Section 110(5) of the US Copyright Act, Recourse to Arbitration under Article 25 of the DSU: Would've or Should've? Impaired Benefits Due to Copyright Infringement’, 2:2 World Trade Review, 233249 (citations omitted).

57 William D. Nordhaus (1969), Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change, Cambridge, MA: MIT Press.

58 Grossman and Lai, ‘International Protection of Intellectual Property’.

59 Grossman and Mavroidis, ‘United States – Section 110(5) of the US Copyright Act’.

60 Helpman Elhanan (1993), ‘Innovation, Imitation, and Intellectual Property Rights’, 61:6 Econometrica, 12471280.

61 Grossman and Lai, ‘International Protection of Intellectual Property’.

62 Incompleteness is a concept of limited analytical power, insofar as, in effect, all contracts are completed by default by letting the costs remain where they fall except to the extent that the contract shifts them. The more appropriate concept to refer to is actually specificity: contracts, and treaties, can be expected to vary in their specificity. States may be expected to establish treaties of varying specificity depending on the costs and benefits of specification. One alternative to specificity is implicit delegation to dispute settlement of decisionmaking authority. This institutional alternative can provide ex post contract completion, or specification. Considering the role of precedent, it can also, over time, provide greater ex ante specification.

63 See, e.g., Article 19 of the International Covenant on Civil and Political Rights, Article 10 of the European Convention on Human Rights, Article 13 of the American Convention on Human Rights, and Article 9 of the African Charter on Human and Peoples' Rights.

64 See Broude, ‘It's Easily Done’.

65 Horn, Maggi, and Staiger (2010), ‘Trade Agreements as Endogenously Incomplete Contracts’, 394.

66 Ibid., at 406.

67 Ibid., at 416, referring to Giovanni Maggi and Robert W. Staiger (2008), ‘On the Role and Design of Dispute Settlement Procedures in International Trade Agreements’, National Bureau of Economic Research Working Paper 14067. See Trachtman Joel P. (1999), ‘The Domain of WTO Dispute Resolution’, 40 Harvard International Law Journal, 333.

68 Recall, for example, that Salman Rushdie's novel The Satanic Verses met with critical acclaim in the West but was considered offensive enough by Islamic fundamentalists to have earned him a fatwā from Ayatollah Khomeini of Iran in 1989. Indeed, the novel was even banned in India, a secular democracy with a large Muslim population.

69 Article 64.2 of TRIPS specified that NV would not be available with respect to TRIPS for the first five years from the date of entry into force of the WTO Agreement. Paragraph 45 of the 2005 Hong Kong Ministerial Declaration seems to have extended the period of nonapplication of NV indefinitely.

70 Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products (WT/DS135/AB/R, adopted 5 April 2001).

71 Bagwell Kyle and Staiger Robert W. (2001), ‘Domestic Policies, National Sovereignty, and International Economic Institutions’, 116:2 The Quarterly Journal of Economics, 519562.

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