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Trade talks between the US and China are slated to restart in early October, and staff-level discussions began in Washington last week. At the heart of US negotiating priorities are a series of structural reforms in the deeply embedded Chinese technology mercantilist protection system. According to well-confirmed reports, Beijing initially agreed to a number of US demands, only to reverse course in May and back away from previous commitments.
China has also claimed that it is pursuing internal reform to level the competitive technology playing field. What follows is the first part of a review and analysis of where matters stand in China regarding three issues that constitute top priorities for the US and other Chinese trading partners. This blog will focus on intellectual property (IP) protection, while part two will look at forced technology transfer/investment policy and state-directed subsidies to priority high-tech domestic sectors. In each case, the results are a mixed bag of some advances, inconclusive changes, and even backsliding.
There are two separate issues regarding China’s treatment of IP: economic espionage and outright theft; and the treatment of IP by Chinese laws, regulations, and courts. As pointed out in previous blogs, the history of Chinese economic espionage is one of promises — and broken promises. In 2015, after estimates of IP theft of more than $300 billion, President Xi Jinping gave his word to President Barack Obama that that in the future, the Chinese government would not “knowingly” allow the results of espionage to be passed on to Chinese high-tech firms to gain a competitive advantage. After an initial decline in such activity, US cybersecurity firms have recently reported a major uptick in economic espionage attacks, with the Chinese Ministry of State Security again employing outside “entrepreneurs” to augment and disguise government activity. Beijing denies the recent charges, blustering that the US claims are a “political tool” to thwart China’s economic development.
Foreign technology companies have complained for decades that China’s IP laws and regulations — and court system — were stacked against them. In recent years, partly as a result of outside pressure and partly as a result of the country’s climb up the technology ladder, Beijing has moved to reform both law and administration. In 2014, Beijing established for the first time a small group of specialized IP courts in Shanghai, Guangzhou, and Beijing, and there are plans to establish some 19 such specialized IP courts. More significantly, on January 1, 2019 a new specialized appeals court assumed jurisdiction over appeals from around the country regarding technology-related IP disputes.
The administrative court changes have been supplemented by important reforms — at least on paper — to basic trademark, trade secret, and licensing laws and regulations. This has resulted in some positive movement against local protectionism, and a bias against foreign firms. The aim is to strengthen the position of IP holders, and to institute meaningful damages and penalties.
It is too early to tell how much these administrative reforms will impact foreign firms — all of the courts are still working through complicated patent and copyright challenges, as well as adequate and fair remedies and penalties. And the reaction from foreign corporations has been mixed. A survey by the European Union Chamber of Commerce found that companies agreed that “visible progress” had been made on IP, but still 51 percent felt that enforcement was still woefully lacking.
As trade talks between the US and China restart, it is useful to review where matters stand in China regarding intellectual property (IP) protection and other top US priorities such as forced technology transfer and state-directed subsidies to high-tech sectors.
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