INSIGHT: US blasts Beijing anew over technology thefts

02 May 2013 17:21  [Source: ICIS news]

By Joe Kamalick

US rekindles IPR disputes with ChinaWASHINGTON (ICIS)--The US has launched yet another broadside against China for flagrant violations of fair trade and World Trade Organisation (WTO) intellectual property protections, charging that Beijing has done little in ten years to improve.

US trade officials expressed continuing and “grave concerns” this week over misappropriation of trade secrets in China and a lack of substantive progress by Beijing toward improving protection for intellectual property rights (IPR).

In its annual report on protection of trademarks, patents, copyrights and other IPR protections, the US Trade Representative (USTR) again singled out the Middle Kingdom for failing to live up to IPR obligations required by China’s admission to the WTO in 2001.

The USTR did allow that “China is currently engaged in sustained legal reform efforts, which have resulted in the revision of laws, rules, guidelines and judicial interpretations across the range of IPR disciplines”.

“The large-scale revision of the IPR legal regime presents an opportunity to improve IPR protection and enforcement, and the US is hopeful that a legal reform effort on this scale signals China’s commitment to achieving major improvements,” the report says.

However, those pending reforms can only be characterised as “potentially positive”, the study adds.

In the meantime, “real world conditions [in China] for rights holders have overall seen little significant improvement”.

China’s trade policies have been the frequent focus of Congress, the USTR and other US policymakers, with the US accusing Beijing of outright technology thefts and other industrial espionage, targeting US chemicals producers among other strategic industries.

In the “Special 301 Report” issued on Wednesday (named after a section of the 1974 Trade Act), the USTR devoted more than six pages to on-going problems with China. Most other nations cited in the report were discussed in a paragraph or two.

The report noted that China remains on the USTR’s “priority watch list”, meaning it presents “the most significant concerns regarding insufficient IPR protection or enforcement, or otherwise limited market access for persons relying on intellectual property protection”.

Nine other nations are on that list – including India, Pakistan, Russia and Venezuela – but China remains the principal focus of USTR concerns, as indicated by the report.

“Obtaining effective enforcement of IPR in China remains a central challenge, as it has been for years,” the report said.

Far from improving and despite years of US diplomatic representations and appeals, “the situation has been made worse by cyber theft, as information suggests that actors located in China have been engaged in sophisticated, targeted efforts to steal IP from US corporate systems”.

“The theft of trade secrets is an escalating concern,” the report said. 

“Not only are repeated thefts occurring inside China but also outside China for the benefit of Chinese entities,” the analysis added.

Too often, the report relates, “Chinese authorities view trade secrets cases as routine commercial disputes rather than as serious violations of law”.

“Particularly troubling are public reports by independent security firms that actors affiliated with the Chinese military and Chinese government have systematically infiltrated the computer systems of a significant number of US companies and stolen hundreds of terabytes of data, including IP, from these companies,” the report said.

US chemicals manufacturers often have been the target of such attacks, according to the Federal Bureau of Investigation (FBI), and those infiltrations are escalating.

In addition to outright theft of IPR, the USTR report noted that Chinese officials at the central, provincial and local levels essentially force foreign firms to surrender their technologies in order to secure business opportunities in China.

“Chinese government agencies inappropriately require or pressure rights holders to transfer IPR from foreign to domestic entities”, the report says.

“Government authorities deny or delay market access or otherwise condition government procurement, permissions, subsidies, tax treatment and other actions on IPR being owned or developed in China, or licensed to a Chinese entity.”

The report cited a study issued in February this year that detailed “efforts by an arm of the People’s Liberation Army starting in 2006 to systematically infiltrate 141 companies in over 20 major industries, including 115 US companies”.

“Information reportedly stolen by this entity included technology blueprints, proprietary manufacturing processes, test results, business plans, pricing documents, partnership agreements and emails and contact lists from the victim organisations’ leadership,” USTR said.

The report highlighted continued lack of progress by Beijing in implementing promised reforms and enforcement.

As bad as they already are, conditions for IPR protection in China, the report said, “Are likely to deteriorate as long as those committing the thefts and those benefitting continue to operate with relative impunity”.

In addition to the theft of trade secrets and technology, the report noted that “problems with counterfeiting in China remain widespread”.

Included on a partial list of commonly counterfeited products were chemicals along with food and beverages, computers, electronic components, software, appliances and auto parts, among others.

Counterfeiting, USTR noted, generates three avenues of loss or damage to the company whose products are being copied. First, the original producer loses sales volumes in the counterfeiter’s country. Second, shoddy duplication of authentic products can undermine the trademark owner’s reputation. Lastly, phoney counterfeits could expose the original producer to liability lawsuits.

“For example, higher defect and failure rates among counterfeit semiconductors may cause malfunctions in the equipment in which they are incorporated, which may include medical devices, vehicle safety and braking systems and other critical applications,” the report noted.

Those counterfeit and potentially dangerous products often find their way into US and other major markets, the report points out.

“As one measure of the scale of the problem, products from China accounted for 72% of the value of the IPR infringing products seized by US Customs in fiscal year 2012,” the USTR study said – and that’s just what Customs caught.

The USTR said it would continue to consult with the Beijing government in hopes of remedying these IPR violations, but the report also said that Washington would “raise concerns relative to China’s implementation of its WTO commitments” to the WTO.

The US already has a case pending against China before the WTO for Beijing’s restrictions on access to and export of rare earth elements (REEs). 

In addition, a special congressional commission set up to monitor China’s compliance with WTO obligations recently recommended that the US begin banning the import of some Chinese products and bar dealings with some Chinese firms.

The new USTR report is likely to stir the ire of many of those in Congress who are already furious over what is seen as Beijing’s flagrant flaunting of its WTO obligations even as it takes full advantage of its WTO membership.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Joe Kamalick
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