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US Carrot, Not Stick, Key to IPR Protection
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By Shen Dingli

The US government has lately been showing in no uncertain terms its unhappiness with China's protection of the United States' intellectual property rights (IPRs). On April 20 China released a 64-page action plan promising to toughen its laws and increase crackdowns on piracy.

One needs to commend the US government for taking this dispute to the WTO. At least this differs from the long tradition of the US unilaterally imposing sanctions without resorting to a world organization where both parties are members bound by the organization's rules.

Some would sympathize with the United States while understanding the status of IPR protection in China. There is no dispute over US concerns, but as to the approaches to addressing the problems, there exist a variety of views.

The United States tends to think that China either has no ability or intention of fixing the problem. The US argues that the Chinese government has a responsibility to provide protection and ought to have the capacity to improve quickly. Such a view is not incorrect but is somewhat simplistic.

The truth has a lot to do with economics. For a long time, China has been isolated from the world, and its economic system has been quite different from the rest of the world. Consequently, the pricing system of China differs greatly.

Before China opened to the world, it operated independently from the global economy and its people received low wages. Since prices were also low, the purchasing power of the renminbi was actually higher than the official exchange rate would indicate.

With China's opening, its price system has been challenged by the outside world and as a result is being transformed.

On one hand, the inexpensive Chinese labor force has been a magnet for foreign outsourcing. On the other hand, most Chinese consumers cannot afford Western goods under IPR protection. For instance, a Windows Vista package could cost a Chinese worker a month's salary.

Consumers are often forced to choose between not using these products at all in order to respect intellectual property rights or use the products without enough respect for such rights.

Likewise, the Chinese government is faced with a similar dilemma: either rigorously implement its commitment to IPR protection while curtailing domestic demand or meet consumer demand while incrementally enforcing protection.

This is the dilemma of all developing economies. To its credit, the Chinese government has made the strategic decision to launch economic reform, to join international regimes of intellectual property rights, and to eventually accede to WTO.

In assuming its responsibilities it is confronting great challenges. It is unfair for the US to blame Beijing without recognizing the work done and the immensity of the job.

There is much room for improvement on the Chinese side and the authorities are committed to this challenge. However, its success entails cooperation across the Pacific. It is fairly easy to compare the morality behind addressing the IPR issue with some of America's own behavior.

One obvious example, Chinese don't consider US troops' involvement in the 1900 siege of Beijing respectful.

Still, US actions do not provide an excuse for China to evade its own responsibility in cracking down on pirating. But China's conformity with international standards requires international cooperation.

First and foremost, the US needs to understand the complexity of the differences between US and China price systems. The United States is partially responsible for the difference because of its past effort to isolate China. The United States should understand that China needs more time to meet the daunting challenges of IPR protection.

Second, making concessions to the developing countries by discounting the standard prices of goods with US intellectual property rights provides the best incentive to build a consumer culture with respect for law, especially for economically disadvantaged countries.

The US strategy should not be to expect Chinese not to buy these goods or to punish them when the two price systems are so skewed. Rather, it should nurture customers who are willing to respect IPRs while paying reasonable prices.

Third, the US should reach an agreement with China for phased implementation of IPR protection. There exist not only unequal economic conditions between the two countries but also significant regional disparities within China.

With phased IPR protection, the US could encourage the Chinese central government to launch protection with regional governments and finally all other sectors following suit.

Forth, encourage the good practices already in effect.

On April 10, a Council on Foreign Relations Task Force report on Sino-American relations was released advocating continuing the trajectory of engagement set by Richard Nixon's visit to China in 1972. The report calls for an "affirmative agenda".

Its major findings are to incorporate China into a global system integration is a responsible course involving a blend of engaging China on issues of mutual concern, weaving China into the fabric of international regimes on security, trade and human rights. These findings affirm the outcome of past engagements that have motivated China as a stakeholder in the world system. The same approach will increasingly intertwine China's interests with the rest of the world.

The wisdom of integrating China into the community of nations has so far worked and should continue to be effective.

Given China's current challenges, IPR protection neither constitutes an imminently pressing issue nor vital interest. Many competing priorities demand more attention and resources.

China will continue to make progress on IPR protection, and its overall improvement is commensurate with China's advancement in economic development and integration into the world economy.

Compared with punitive measures, the engagement approach is far more productive.

The author is executive dean, Institute of International Studies, and director, Center for American Studies, Fudan University.

(China Daily April 25, 2007)

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