Slapping tariffs on USD 550 billion worth of Chinese goods so far, US President Donald Trump followed through on months of threats about imposing restrictions on imports from China for its alleged unfair trade practices, including the suspected theft of American intellectual property. These violations, spanning across forging eminent brands and thieving trade secrets to coercing companies to share information technology with the local companies to gain access to China’s vast market, have for long infuriated China’s overseas competitors. The issue of Intellectual Property Rights has been a major contentious issue amidst the fierce trade war going on between the two countries. The article aims to get to the root of this highly debated key point and give you insights to be the better judge yourself.
For those unaware, Intellectual Property Rights (IPR), as defined by the World Trade Organisation, are ‘the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.’ IP is protected in law by patents, copyrights, and trademarks, enabling the creators to earn recognition or financial benefits from their inventions. In simple words, these rights allow their owner to derive all benefits from his/her any idea developed and crystallized by him/her into a product. They also entitle the said person to keep others from using, dealing, or tampering with his/her product without prior permission from him/her. In fact, the owner can sue any party illegally using his product and force them to stop and compensate for any damages.
IP theft, though not the same as taking any physical property, represents a loss of competitive advantage and opportunities which ultimately reduces the earning capacity that a party would have reaped otherwise. As per CNN, the U.S. Trade Representative has assessed the annual loss to China at between $225 billion to $600 billion on account of the “harm caused by China’s unreasonable technology transfer policies.” These technology transfers arise from China’s foreign ownership restriction laws, that require foreign businesses to enter into joint ventures with domestic Chinese companies in order to sell their good in the country.
Such ventures expose the foreign firms to transfer their intellectual property often being followed by ‘theft’ exposure ultimately. Now since such technology transfers are based on ‘mutually agreed terms’ as claimed by the Chinese WTO ambassador, it is hard to hold the country accountable. To add up to this, China’s policies are renowned for protecting their infant industries from domination via the influx of foreign companies. A 2018 report by the US Naval War College revealed that a few firms were apparently involved in a ‘malicious’ campaign to ‘hijack Internet traffic and direct it through Mainland Chinese servers for possible collection and analysis.’
A CNBC survey in 2019 also found out that 1 out of 5 companies claim their intellectual property rights to have been stolen by China within the last year! Amidst these huge allegations being thrown time and again at China’s face, the United States seems to have to gather quite a large momentum all across today, before you jump off to any conclusions yourself, let us not forget that in actual, all sorts of foreign investments, trades, licensing policies, international collaborations for research and development, cross-border export movements, open-source material collection, reverse engineering, and, in the end, not denying, theft as well, have all played an instrumental role in China’s technological advancement.
Most activities out of these are very much legitimate and have also been in favor of the US’s interests. However, what the majority of us have failed to acknowledge is the bigger picture and hand-picked only the debatable methods. China refuses to admit the use of any unfair force, while foreign companies are of the view that the market size and the attractiveness itself gives the local firms quite a heavy undue power over them. As far as the requirement of joint ventures is concerned, a lot of emerging economies have adopted it as quite a common practice.
In addition to this, joint ventures are on a declining trend in China, forming less than one-third of the inbound investment, as opposed to the two-third as of the late 1990s. China has also made steps towards providing greater flexibility for foreign investors via its new Foreign Investment Law, outlawing any forced technology transfers. What makes the issue even more interesting that China is just one in the list of 36 Section 301 violators as reported by the US Trade Representative in 2019. Years ago, even Japan, Taiwan, and South Korea found their names on the list until their GDP reached certain levels. Such a blueprint has been followed by many other nations as well, however, China finds itself in the limelight all due to its immense size, and the state-run model.
A country that had absolutely no patent rights prior to 1984, seems to have steered somewhat to the right track as we have a look down a train of events in this regard. In the 1990s, surely IP theft was at its peak, however, was never really pointed out by the West, thanks to the abundance of labor and cheap, large scale manufacturing in the country. As a part of its accession into the WTO, patent laws were revised by China in 2001, a big step towards compliance with the global standards. The Make in China 2025 program further seems to have added on to the pressure od the local firms to innovate and develop indigenous capacities.
Interestingly, the number of IP related cases in China have gone up at the rate of more than 40% in the last two years and so have the minimum damage pay-outs for violations. In 2014, the country set up three specialized IP courts, with 19 more underway currently. And much to one’s surprise, the foreign plaintiffs have fared much better in patent litigation cases here than their Chinese counterparts, as shown by records. Such developments were also acknowledged and welcomed by the USTR report in 2016. Today, China holds the second position in annual expenditure on foreign IP acquisition as well as R&D spending. Thus, to China’s defense, change is clearly happening and that too at the country’s own initiative.
But, then again, keeping both sides of the coin in view, with the country playing the historical move of protecting its domestic firms with some moral cover, the only contrast here in the case of China is that the means being used to achieve this, i.e. digital tools that some way or the other give way to intellectual property theft. Although other countries can obviously not heavily accuse China of its conservative practices, without having fingers pointed at themselves but even still, protective measures must be taken and slapping skyrocketing tariffs definitely does not seem to be the best one for this, for what the global economy desperately needs at the moment much more than confrontation, is mass co-operation. With an evolutionary view, China must be nudged by large economies to conform strictly and implement regulations and regimes parallel to international standards.
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A highly driven and motivated individual, Aradhana is currently a B.Com undergrad at SRCC. Always on the lookout for being a better version of herself than yesyerday, Aradhana has always found her muse in pen & paper. We leave the rest for her articles to communicate to you about what buzzes around this budding writer’s head!