Five things to know about China’s recent promises on protection of IPR

On Sunday 24 November, China issued a guideline for enhancing intellectual property rights (IPR) protection. IPR has been one of the main issues in the US-China trade war. 

 

The U.S. has a long list of complaints in its trade war with China: from a sizable trade deficit to restricted market access. In addition to that are complaints that the Asia giant does not import enough American goods. However, the strongest point from the US side has been forced technology transfers and intellectual property ( IP) theft. Therefore, this document from China can be seen as a gesture to nudge trade talks toward a positive direction. 

 

Below are the five things to know about the role IP theft has played in this on-going trade war: 

 

1. IP theft has been rampant for ages: 

The U.S. says China has been stealing intellectual property for years. A 2017 report by the National Bureau of Asian Research estimated “that the annual cost to the U.S. economy continues to exceed $225 billion in counterfeit goods, pirated software, and theft of trade secrets and could be as high as $600 billion.”

On the other hand, the AmChamChina-Deloitte 2019 China Business Climate Survey Report asked leading firms for the barriers that have been preventing them from increasing innovation in China. The answer is: “Lack of sufficient Intellectual Property protection.”

 

2. How does China “steal” intellectual property from foreign companies?

According to alleged victims of IP theft, the methods vary. They range from trading with, working alongside, or forming a joint venture with an overseas entity, and the Chinese side gaining access to sensitive or proprietary information. In the past, businesses often willingly gave access to a Chinese partner in order to gain access to China’s vast market. This is known as forced technology transfers.

 

China has promised to gradually reduce these requirements. In fact, it has done so, for instance, by allowing majority ownership in joint ventures in several sectors. This gives greater decision-making control to the overseas entity. In addition, it allows increased market access without the prerequisite of technology handovers. Despite all these actions, the recent circular on IP theft seems to target more covert and illicit access to proprietary technology or information.

 

3. The new rules are vague: 

China’s announcement was thin on details. Still, it did mention a two-pronged approach: raising the penalties for violators and lowering the threshold for what is considered an IP violation. “Strengthening IPR protection is the top priority in improving the system for the protection of property rights,” the document stated. However, it did not say what punishments would be meted out to offenders, nor to what extent the threshold for an action to be considered “theft” would be lowered.
 

4. When, and at what level, will this tighter enforcement take place? 

China said there should be a significant reduction in IP theft by 2022. By 2025 “social satisfaction with IPR protection in China will reach and maintain a high level.”The announcement put large responsibilities on local governments, saying they will be responsible for implementing the stricter intellectual-property-protection rules.

 

5. How much will this concession help the trade war? 

It is unclear for several reasons. For one, the rollback of tariffs has been an initial demand from the Chinese side. Movement in IP issues may be futile if the trade levies cannot be reduced or eliminated. In fact, tariffs on both sides have risen so high that they have largely overshadowed trade-theft concerns. Furthermore, US President Trump has also stressed the need for China to purchase far larger amounts of agricultural goods. In short, expect IP issues to remain on the table — but alongside a wider set of concerns from the American side.

 

Source: MarketWatch