Making the Case

In his Wall Street Journal op-ed on Chinese predations on American intellectual property, James Bacchus makes a pretty good case:

Intellectual property accounts for nearly 40% of the U.S. economy, and the U.S. government has a duty to protect American rights holders abroad. The annual cost to U.S. companies of pirated software, counterfeit goods, and the theft of trade secrets is as much as $600 billion. Most of these losses occur in China.

After 16 years in the WTO, China still falls far short of fulfilling its obligations to protect intellectual property rights. About 70% of the software in use in China, for example, is pirated.

Beijing’s mercantilist industrial policy, the Made in China 2025 program, aspires to make China a global leader in 10 strategic industries, including medical devices, artificial intelligence, driverless cars, and robotics. It requires that the domestic content of manufactured products be increased to 70%, state subsidies be granted, and companies in these targeted industries be protected from foreign competition.

U.S. and other foreign companies report being pressured by the Chinese government and by Chinese companies to turn over their patent rights, trade secrets and other intellectual property. Many major U.S. firms have long regarded this behind-the-scenes intimidation as simply a cost of doing business in China. Now that it could place them at a competitive disadvantage globally, they are turning to the U.S. government for help.

but the actions he proposes:

The U.S. could bring a systemic challenge to China’s intellectual property regime on the basis that the government is not fulfilling its affirmative enforcement obligations.

Trade secrets could be one part of a broad WTO challenge. The WTO agreement includes a rule requiring the protection of trade secrets, but it has yet to be asserted in a dispute settlement.

Another WTO rule requires that members administer all their laws, regulations and other actions in an “impartial” and “reasonable” manner. Is coercing foreigners out of their rights acting impartially and reasonably? If it can be shown using solid evidence that the Chinese government is engaging in such coercion, this could be another strong legal claim.

suggest that he doesn’t recognize what that case means. It means that China should never have been admitted to the World Trade Organization in the first place. China has neither the will nor even the means to enforce the obligations it has notionally undertaken. China does not have a robust system of civil law. There is no practical way for U. S. companies to seek remedies from Chinese courts for violations of their intellectual property rights. The very notion of “intellectual property” is a meaningless noise to the Chinese.

And that doesn’t even take account the systemic raids on U. S. companies, searching for intellectual property, that are obviously sponsored by the Chinese government. Under the circumstances there are no moderate, temperate remedies for this problem.

Here’s my modest proposal. Since the annual cost to the United States Chinese depradations on U. S. intellectual property is roughly equivalent to our trade deficit with China, the U. S. should stop protecting Chinese physical property. See “Made in China” on it? It’s free! Yes, it would provoke a trade war. We’re already at war. We’re just not fighting back.

1 comment… add one
  • Andy Link

    I’ve been scarce here lately due to a lot of travel. Ohio, Michigan, Wisconsin the past week, then Iowa today and Nebraska tomorrow.

    We’ve mostly been staying and visiting family. One relative is an executive for a company that produces additives for steel production. We got to talking about China because they have a plant there. They really aren’t happy and are looking to move somewhere else in Asia. The main problem is that the Chinese government inconsistently forces them to comply with all kinds of regulations while all the state-owned competitors can basically do whatever they want.

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