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IPR Debate Stems from Clash in Standards
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By Teng Fei

The dispute between China and the United States over intellectual property rights (IPR) has been gaining momentum in recent years as bilateral trade development speeds ahead. It is of real and present significance for both countries to deal with this core issue by objective assessment and rational analysis, and to discuss in-depth co-operation in protecting and promoting IPR in a timely fashion.

Strengthening IPR protection is the logical choice for both countries to safeguard the basic interests of their national economies. The US economy is highly dependent on technology export trade centered on IPR, and China has become the fourth-largest export market for the United States.

In the past five years, the value of US exports to China grew at a rate five times that to other countries. As the exclusive ownership of IPR will bring long-term benefits to US enterprises exporting to China, it is only natural for the United States to emphasize IPR protection for the sake of its national economic interests.

China's economic development has largely passed the phase of "imitation" and has entered that of "learning" and "innovation." It is now part of China's basic national strategy to build itself into an innovative nation, to respect others' IPR and possess its own IPR. To China, strengthening IPR protection is not a result of outside pressure, but of a real need for the development of its national economy, respect for international rules and to safeguard national security and economic interests.

The Sino-US dispute over IPR reflects different attitudes towards related international conventions. China follows the fundamental philosophy of "international treaty comes first." When China's domestic law is in conflict with an international treaty of which it is a signatory, the latter is usually applied first unless it has reservations. The US Congress, however, has made it clear, upon ratifying relevant international treaties, that US domestic law takes precedence when the two are in conflict.

The sharp contrast in the way each country treats international treaties has resulted in vastly different styles of solving IPR disputes with other countries. China is building up its own IPR regulatory system on the basis of respect for international treaties and bringing its own IPR administration in tune with international treaties. whereas the United States tends to force changes in international treaties in its favor when they do not serve US interests; or the nation reserves its self-possessed right not to follow international treaties and imposes unilateral sanctions against those it accuses of infringing on US IPR.

Along with globalization and the explosive development of information technology, IPR violations are becoming more complicated in the Chinese market, while the protection of IPR in China is faced with structural obstacles, posing a long-term threat to China-US efforts to solve the problem.

The IPR issue between China and the United States is in essence the clash of different standards followed by the two countries at different stages of development. The United States has a fully fledged anti-monopoly, competitive system and takes IPR administration, the order of market economy and trade all into account at home; while internationally it is pushing for forced global protection of IPR in a bid to gain monopoly control of foreign markets and reap as much economic benefit as possible. China has been doing its best to beef up IPR protection according to international standards, but its efforts are seriously hampered by the enormous cost born of its nascent development level and huge regional gap, which makes it very hard for China to apply US-style super-harsh protection for IPR in its domestic market.

The criminal activities in IPR infringement are undergoing a globalization of their own, with numerous perpetrators of IPR and trademark violations forming tight-knit networks throughout the world, making it increasingly difficult for China to enforce IPR laws.

The difference between the statutory mechanisms the two countries maintain is also one of the causes of bilateral disputes on IPR protection. From the standpoint of a market economy, using exclusive ownership to abuse IPR in the form of a monopoly and high prices will distort the market price system and upset the balance between supply and demand, thus leaving more room for profiting through IPR violations such as piracy.

For this, the United States and other developed countries continue to improve anti-monopoly measures and take IPR administration, the order of the market economy and trade all into account, while encouraging the market to check IPR violations by its own efforts through appropriate intervention. In contrast, China has been suffering from the persistent problem of a porous statutory mechanism for IPR administration, leaving the ill-balanced supply and demand in the Chinese market caused by some multinational companies' price monopolies intact for years. This is another reason why IPR infringement is so rampant in China.

Cross-national companies have become key players in the Chinese market, making the identification of real perpetrators of IPR violation increasingly difficult. Take computers, for instance. Most of the manufacturers of brand-name PCs in China are multinationals and most of the computers made in China are seen as a processing trade. If the use of pirated software in China is really 90 percent, it would mean a good many of those cross-national companies are using pirated software, though there is no hard evidence of that at this moment.

Now China and the United States are showing a trend of settling IPR disputes rationally.

The United States has been flirting with a domestic force of trade protectionism against China for years. Those people use imaginary, or obviously unfounded, data to wantonly blow out of proportion the seriousness of IPR violations on the Chinese market and the losses they have incurred on US businesses. Their purpose is to reap political benefit from politicizing and complicating the issue. Recently, the US protectionists whipped out another bunch of sensational figures, claiming the use of pirated software in China is 90 percent and causes US$20 billion to US$24 billion worth of losses to US IPR owners each year, all without identifying any sources or revealing how the figures were tallied.

The good news is that the US government is now aware of the complexity of China's IPR infringement problem and is seeking co-operation with Chinese law enforcement authorities, with some degree of success. For instance, the two countries joined forces to successfully crack a case of illegal online sales of pirated DVDs by a US citizen in 2004. US government officials at various levels have also emphasized on many formal occasions the importance of US-China co-operation on IPR protection to achieve mutual benefit and prosperity, while the Chinese side has responded with concrete action in a highly co-operative manner, allowing the joint IPR protection mechanism to further improve.

IPR protection requires the support of a sound and competent economic foundation that is complementary to the improvement of IPR protection. The resolution of the IPR issue depends on the all-round development of Sino-US trade and economic relations and even more on the healthy, harmonious and simultaneous development of the two countries' national economies.

The author is a researcher with the International Technology and Economy Institute under the State Council Development Research Center.

(China Daily April 19, 2006)


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