Why is the United States accusing China of stealing intellectual property?
Since China first opened up its markets, Beijing has been pursued by accusations that it forces U.S. companies to transfer technology to their Chinese trading partners in return for access to the 1.4 billion citizens of the country. country.
These accusations are in the spotlight again after the Trump administration detailed plans to impose tariffs on at least $ 50 billion of Chinese goods in a bid to punish Beijing for its technology transfer policies , stoking fears of a trade war. After Beijing hit back with its own set of tariff plans, investors feared a trade skirmish could turn into a trade war, with the S&P 500 SPX,
and the Dow Jones Industrial Average DJIA,
both negative for the year.
Notice:Chinese theft is a bigger problem than Chinese steel
As trade concerns weigh on Wall Street, here’s a guide to why intellectual property is so prominent in the U.S.-China trade tensions.
What is the magnitude of the economic losses due to the theft of intellectual property?
The US Intellectual Property Theft Commission estimates that the annual costs of losing intellectual property range from $ 225 billion to $ 600 billion. Of this amount, it is not known how much can be attributed to Chinese companies.
In a 2018 survey by the American Chamber of Commerce in China, more than half of members said intellectual property leaks were a greater concern when doing business in China than elsewhere.
How does China acquire intellectual property?
American companies must agree to set up a partnership, or a joint venture, with a Chinese company to sell their products in China, with a transfer of technology in addition. Although this type of quid pro quo is strictly prohibited by the WTO, analysts say such negotiations are generally conducted in secret.
A 2015 St. Louis Federal Reserve article estimated that half of the technology owned by Chinese companies came from foreign companies.
It is not clear, however, whether these joint venture agreements are successful in putting Chinese companies on an equal footing with the rest of the world. Even after the advent of joint ventures, US and German automakers still sell more than their Chinese competitors, although analysts say China is catching up.
National security experts say Chinese hackers have also long attempted to steal trade secrets from U.S. defense contractors. This prompted former National Security Agency chief Keith Alexander to describe Beijing’s practices as “the greatest transfer of wealth in history.”
But in 2016, FireEye, a U.S. cybersecurity firm, said breaches had seen a marked drop as Chinese hackers turned to more traditional military targets elsewhere in Asia.
Then there is the sale of counterfeit products in China. According to the U.S. Trade Representative, third-party vendors on Internet retail platforms owned by companies like Alibaba have often sold counterfeit products. Alibaba, however, points out that it has been more proactive in removing counterfeit ads, with founder Jack Ma calling the problem “cancer.”
How is the United States cracking down on Chinese practices?
The United States has threatened to implement up to $ 50 billion in tariffs against China through Section 301 of the 1974 Trade Act, which means the White House does does not have to go through the arbitration process conducted by the World Trade Organization. It comes after the U.S. Trade Representative’s investigation into intellectual property theft in August 2017. But invoking Section 301 means the United States must file a concurrent WTO complaint.
Critics of the WTO have been frustrated with what they see as an ineffective and bureaucratic watchdog after China allegedly violated the organization’s intellectual property rules in the past without serious repercussions.
The Committee on Foreign Investment in the United States, an interagency committee authorized to examine transactions that could result in control of a US company by a foreign entity, torpedoed several proposed deals that allegedly saw Chinese companies buy or acquire a controlling interest. in American companies on the grounds that national security sensitive technology can be hijacked.
But that could change, however, as Congress considers expanding the committee’s scope to more mainstream agreements involving technology transfer that have no national security implications.
How strong is intellectual property law in China?
China is preparing to strengthen intellectual property laws.
China granted a third of all new patents in the world in 2015, and more and more foreign companies are seeking to file patent-related cases in Chinese courts. A recent report from Santa Clara University Law School said foreign companies filed 10% of patent lawsuits in China, winning 70% of those cases and going against the widely held belief that US companies can’t get a fair shake in China.
Academics and lawyers say patent infringement is still prevalent, but point to Beijing’s determination to strengthen its intellectual property laws, perhaps in recognition that domestic innovation is held back by inadequate protections. This broader move towards stricter regulation also reflects China’s ambition to move up the value chain as it seeks to develop local brands in films, semiconductors and cars, which are often occupied by the United States, Japan and other advanced economies.
One source of complaint for foreign companies is that China also uses a first-to-file patent system, in other words, the first company to register a trademark will receive it, whether or not they originate the product. . This has sometimes allowed Chinese companies to sue American companies like Apple for patent infringement even though the allegedly imitated product was designed by the American company.