Metodología y niveles de actuación - FORMULACIÓN DEL MODELO

Revisión de Conocimientos

2. FORMULACIÓN DEL MODELO

2.1. Metodología y niveles de actuación

I pointed out that the US has damages of 20 to 24 billion dollars a year from piracy in China. . . . The honest citizens of China have a lot to gain by protecting IPR. It creates jobs. Creates innovation. Rewards competition.

Pirates don’t need education. Pirates need jail time. Pirates don’t respect rules. Pirates respect force.

(William Lash, US Assistant Secretary of Commerce)¹

Introduction

Given the economic development after 1978, the consolidation of a market economy in the constitution of China in 1993 and the flourishing of the latest consumption revolution in 1998, Sino-American trade disputes in general and IPR infringement in particular are inevitable. The third plenum of the Chinese Communist Party’s (CCP) Eleventh Central Committee in December 1978 changed the official government policy from ideological confrontation to economic development. In terms of official announcement, the economic reform was considered as an ‘imperative need to reform eco-nomic structure for China’s socialist modernization’.²In terms of academic inquiry, economic reform ‘was a reorientation of Chinese development strat-egy’ (Naughton 1996: 59). To accommodate their views, having reset the orientation of China’s path of development, the recapturing of the material foundation of state development became the logic behind the economic reform.

Moreover, the effort towards economic development was further con-solidated when the concept of a market economy obtained legal status. On 29 March 1993, the statement ‘The state practices socialist market economy’ was officially adopted at the first session of the eighth National People’s Congress (Constitution of the People’s Republic of China 1994:

94). The constitutional nature of a market economy enabled China to move further towards an era of consumption revolution. In December

2003, the Constitution of the People’s Republic of China was further revised. Article 13, specifically, allowed legal private property to be pro-tected by the Constitution (Xinjinbao, 23 December 2003: A04). Finally, a new generation of consumers (the single child), are now creating a new level of a consumer revolution with enormous purchasing power bolstered by their parents, grandparents, aunts and uncles (Li 1998: 6). Those youngsters, known as ‘little emperors’ will certainly demand trendy goods and information products, which are prone to fall into the category of IPR items commonly infringed upon. These alarming trends in China will add some fuel to the already hot trade disputes in Sino–American relations. In 2005, the annual survey of the American Chamber of Commerce in China revealed that 80 per cent of the respondents regarded intellectual property rights protection in China as either totally ineffective or ineffective (Asian Wall Street Journal, 2–4 September 2005: A3). Coupled with the mount-ing trade deficits and the undervaluation of Chinese currency, renminbi (or yuan), Sino–American IPR disputes are now being considered not just an imperative, but a matter of national interest.

IPR infringements are global phenomena. Other than China, (which tops the Priority Watch List) the United States has put Russia, Belize, Brazil, Egypt, India, Indonesia, Israel, Lebanon, Turkey, Ukraine and Venezuela on the Priority Watch List in the 2006 Special 301 Report. Among others, the US has long had discontents with developing countries over IPR infringements. The first section of this chapter will examine more broadly the offensive (IPR infringements) and defensive (IPR protection) experi-ences between the US and developing countries as a whole. The second section illustrates that IPR infringements increasingly have become an issue of national interest to the US, in connection with other pressing eco-nomic issues such as the unprecedented trade deficits with China and the disgruntled knowledge industry’s demands for more intellectual property protection. With the increasing pressure on the exchange rate of renminbi and the binding force of the TRIPS agreements, more and more national clout has been brought to bear concerning disciplinary measures over China’s IPR infringements. The third section will trace the historical dis-putes between the US and China over IPR since the 1990s. The US and China first signed the Sino-American Memorandum of Understanding on the Protection of Intellectual Property in January 1992. However, this agreement proved ineffective in curbing rampant IPR infringements in China. Further efforts were made with the US–China Joint Commission on Commerce and Trade (JCCT) in 2004 and the placing of China on top of the Special 301 Report as well as the more recent launch of the Special Provincial Review (SPW) in 2007. In the post-Cold War global economic environment, IPR infringements are becoming more and more vital as a

kind of non-traditional security issue, such that consistent efforts such as Strategic Economic Dialogues (SED) will be maintained between the US and a rising economic super power-China.

US discontents of IPR infringements with developing countries

The United States has IPR issues with developing countries in two major areas: offensive and defensive. The offensive problems refer to the actual losses, in terms of monetary value, caused to businesses. The notion of defensive problems refers to the preventive measures that may be adopted in order to prevent IPR infringement in some emerging countries, espe-cially former socialist countries.

Offensive: IPR infringements

In February 1988, the United States International Trade Commission released a report entitled Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade. This report was a com-prehensive study of more than 269 firms in the US which examined the effect of IPR infringements on US industries in 1986 (USITC 1998: vii and 1–1). The total loss due to IPR infringements was estimated at $23.8 billion (ibid.: 4–2). Moreover, the scope and the domain of the IPR infringements are not economic alone. Reputation, the incentive to inno-vate and social loss were also affected. It reported that:

The failure of foreign countries to protect the intellectual property rights of U.S. companies may lead to several types of losses; some of these represent transfers from the legitimate producers to counterfeit-ers, pirates, other infringcounterfeit-ers, and consumers; some represent losses to the world economy in total. . . . In addition, these diminished returns to legitimate producers are likely to reduce the incentives for, and extent of, investment in new products or processes that could be patented, trademarked, copyrighted, or otherwise viewed as intellectual prop-erty. This discouragement of incentive represents a social loss in that fewer new or improved products will be available in the future.

(Ibid.: 4–1) Industries most affected by IPR infringements include scientific and photographic, computers and software, electronics, entertainment, pharma-ceuticals and chemicals (ibid.: 4–3). In terms of geographical distribution, IPR infringements are ubiquitous. They are not restricted to developing

countries alone. But the most serious cases of infringement occur in countries clustered in Asia and Latin America. The top five are Taiwan, Mexico, Korea, Brazil and China. The reported estimated losses were US$752,501,000, US$533,435,000, US$496,090,000, US$426,285,000 and US$420,250,000, respectively (ibid.: 4–16). In brief, although the IPR infringements are considered to be one of the most important losses in trade among the US and its counterparts, the policy to stop IPR infringe-ments is not successful. For example, one of the most notorious IPR infringers, Taiwan was condemned by the US government of not doing enough to inspect pirating firms and for not honouring the agreements that were signed between the two countries in 1992 under Taiwan Copyright Law (Chen 1994: 129–130).

What makes the prevention of IPR infringements so complicated? Lester C. Thurow, a professor from MIT, coined it correctly: ‘Yet despite these differences in economic positions, cultures, and practices, no system of pro-tecting intellectual property rights can work unless most of the governments of the world agree to enforce’ (Thurow 1997: 100). The government, whether they are developed or developing, have enormous responsibilities to protect IPR and to implement the crackdown on infringements. The protec-tion of intellectual products is a necessary trend for the global society because ‘The new economic powerhouses are matters not of huge mater-ial resources, but of ideas and technology’ (Wriston 1997: 177). The ideas and technology are fragile and methods are needed to protect them from infringements. The basic reason is that IPR infringements not only affect developed countries, but the countries that infringe will be hurt in terms of real wages and the initiative for innovations retarded (Miyagiwa 1995: 12).

Defensive: IPR protection

For many years, developing countries have been very eager to grant patents to industries and companies from developed countries. The major objective has been the acquisition of technological transfer and bringing improvement to the local economies (United Nations 1975: 63). But the use and the non-use of the patents depend on many factors other than simple circulation of the economic benefits. Many considerations must be taken into account, such as importing countries’ choices, social considera-tion of the patented products towards the local countries and the patent-owners’ marketing strategies involved in the decision-making (ibid.: 56).

More importantly, patent laws and administrative regulation for the enforcement of patents are crucial to developing countries in order for them to implement patent laws effectively and efficiently (ibid.: 64).

The economic landscape of eastern Europe changed dramatically after the demise of the former Soviet Union. The collapse of the former Council for Mutual Economic Assistance (CMEA) and the decline of the communist bloc necessitated many eastern European countries to move from central planning to a market economy (McKinnon 1994: 7). In terms of trading, commodities exchanges shifted from the former communist bloc to the West or European Community (EC) especially. The former Soviet Union commu-nist bloc not only lost the political control of ideology towards those eastern European countries but also ceased to be the economic powerhouse which provided opportunities as well as market for these states. For example, from 1989–1993, imports from the EC increased by 25.3 per cent in Poland, in Czechoslovakia by 25.5 per cent and in Hungary by 16.3 per cent (de Menil 1997: 265). Trade liberalization, economic reform and internationalization became central government policies of these countries.

Looking forward, the demand for information and technological products will dominate their future trading agenda. It is therefore reasonable to keep an eye on the possibility of IPR infringements in these countries. According to a study by the Organization for Economic Co-operation and Development (OECD) group, a ‘double challenge’ of transforming these socialist coun-tries and the need for modernization towards a market economy in general, and the understanding of IPR regulations in particular, made the re-consideration of the legal aspects of the IPR protection unavoidable tasks (OECD 1995: 9–10). The OECD report also indicates the effort of these eastern European countries in the pursuit of IPR protection. For example, among the other eastern European countries, Bulgaria, the Czech Republic and Slovakia, Hungary, Poland and Romania are members of some major international conventions in IPR protection, including WIPO Convention, Paris Convention, Patent Co-operation Treaty, Madrid Agreements and Bern Convention (ibid.: 135–137). More recently, there has been coopera-tion between WIPO and the EC – the EC, together with signatory countries, was supposed to adopt the WIPO Copyright Treaty in 1997 (Righini 1997:

73–74). Eventually, the WIPO Copyright Treaty was approved by the EU on 16 March 2000. This section explored some problems and prospects con-fronted by developing countries in relation to IPR protection. The next section will illustrate how and why IPR infringements from China are vital to the national interest of the US.

US national interests and IPR infringement

The post-Cold War Sino-American relations can best be summarized by the title of a recent book: Living with China: U.S.–China Relations in the Twenty-first Century edited by Ezra F. Vogel, a professor from Harvard

University (1997). The book was a collection of essays prepared for the eighty-ninth American Assembly held in November 1996. The notion of

‘living with’ inevitably enounces new perspectives – accommodation and co-ordination – of US foreign relations with China. More importantly, many participants in the assembly are from major business sectors, such as the Vice President of the Boeing Company, the Chair and CEO of AT&T (China) Co. Ltd, the Chair of AEA Investors Inc. and the Chairman of Hang Lung Development Group (Hong Kong) (ibid.: 310–313). The par-ticipation of such people indicates that economic matters such as trade and business activities will be critical issues in future Sino-American relations.

In 2003, China surpassed the US as the largest recipient of FDI (Kraus 2004: 153). Its total reserves more than doubled from US$142,762 million in 1997 to US$291,128 million in 2002 (IMF 2004: 924).

In fact, when China’s president, Jiang Zemin, paid a historical visit to the United States between 26 October 1997 and 3 November 1997, the foreign relations between these two powers were consolidated into a workable manner. Jiang and President Clinton agreed that a stable relationship would serve both countries’ fundamental interests and pledged further development in the areas of military-to-military exchanges, nuclear non-proliferation and technological transfers.³The story behind Jiang’s visit was that a group from the Chinese government procurement team was sent to the United States before the formal visit, accompanied by the largest purchasing lists ever made before. More than US$4 billion of products such as Boeing planes, oil, automobiles and other infrastructure facilities were purchased from the United States as a friendly preparatory gesture of Jiang’s visit.

From the above scenario, one should realize that trade is one of the most important aspects of Sino-American relations in the future. For example, in terms of trade figures, from 1985 to 1993, the United States’

imports from China increased by 716 per cent. Yet, US exports to China increased by only 128 per cent. In 1995, moreover, the United States recorded a trade deficit of US$2.25 billion (USIS 1995: 1). Such trade deficit figures increased exponentially during 2000–2007. As can be seen from Table 3.1, the US experienced huge trade deficit with China from about US$83 billion in 2000 to US$237 billion in 2007, a three-fold increase in seven years!

On the surface, politicians have been able to make use of these trade figures to push China to open up its economy. Another case in point is the appreciation of Chinese currency – yuan or renminbi. The US has long demanded that the Chinese government re-value its currency, the renminbi. As a result of mounting pressure from the US and Europe, China allowed a small appreciation from 8.3 yuan per US$1 (which has been fixed for decades) to 8.1 yuan (2.1 per cent revaluation) on 21 July

2005 (Asian Wall Street Journal, 16–18 September 2005, A1 and A2).

Although not everyone agrees that the trade surplus necessarily can be linked up with an unfair exchange rate directly. Albert Keidel from the Carnegie Endowment for International Peace argued that:

A surplus with one trading partner does not prove that a country’s exchange rate is unfair . . . China’s 2003 and 2004 world trade sur-pluses were not large as a share of GDP – both roughly 3 percent.

These surpluses are smaller than those for Germany, the Netherlands, Thailand, Argentina, Malaysia, and Singapore.

(2005: 1–2) Nevertheless, the rise of China after the Asian financial crisis in 1997 has become more concrete with evidence that cannot be neglected by any decision maker. China has posted huge economic challenges already towards US economic competitiveness. If IPR infringements are not treated as serious issues connecting with the US national economic inter-est, the US will hardly have any further grounds to check China as an economic rival. Among many others, IPR infringement in China is one of the major problems between China and the US. The notion of IPR trade disputes is beyond normal trade negotiations. China’s openness and the collapse of communism in the former Soviet Union doubled the intensity for the importation of media products from the United States (Barnet and Cavanagh 1994: 139). On the contrary, the law of IPR protection and the mentality of the Chinese towards law enforcement are immature, if not outright non-existent. In other words, there are cultural, legal and institutional gaps between China and the United States in relation to IPR Table 3.1 US trade deficit with China 2000–2007 (US$ million)

Year Deficit

2000 –83,833.0

2001 –83,096.1

2002 –103,064.9

2003 –124,068.2

2004 –161,938.0

2005 –201,544.8

2006 –232,588.6

2007 –237,477.5

Source: Adapted from US Census Bureau 2000–2007. Online, available at: www.census.gov/foreign-trade/balance/c5700.html (accessed 26 January 2007).

protection (Alford 1995). The reconciliation of this dilemma is a crucial factor for the future of the two countries’ foreign relations.

For one thing, the infringement of IPR in China affects both countries’

interests. IPR infringement discourages US industries in product investment, distribution and marketization. Second, those in counterfeiting destroyed the image and long developed reputation of the industries (Grossman and Shapiro 1988: 60). The incentive to invest on reputation is largely reduced because those industries will anticipate some losses due to infringement.

Since US exports are highly concentrated among a few firms (80 per cent of US exports come from 250 firms, and the top 15 exporting firms account for 25 per cent exporting manufacturing products) (Greider 1997: 216), the behaviour of Chinese industries affects US national interests. Third, IPR infringements internally discredit China in the international economy because China was a member of the Berne Convention for the protection of intellectual property rights (USDS 1992: 6). China also had agreements with the United States concerning IPR protection. In 1992, China signed the Memorandum of Understanding between the United States and the People’s Republic of China (PRC) on the Protection of Intellectual Property (ibid.: 8).

In 1995, both countries also reached an accord on the protection of IPR. To a certain extent, IPR infringement, internal legal backwardness and weak compliance with the global norms allowed the US to keep China from being accepted by the members of the WTO until December 2001. On 23 March 2004, E. Anthony Wayne, Assistant Secretary of State for Economic and Business Affairs, gave testimony before the Senate Judiciary Committee which linked intellectual property rights to national security. IPR infringe-ment is highly related to national security because the US is increasingly depending on transnational economic activities related to trade, finance, investment, knowledge and innovation. IPR infringement put these import-ant economic clouts under jeopardy.

There is a final set of issues that is making the protection of intellec-tual property an even more critical issue today. Counterfeiting and piracy in most countries around the world is a high margin, low risk activity. Combine that with a weak legal and law enforcement regime, as again we find in many countries, and you have a situation that invites organized crime and other actors to step in. INTERPOL has identified this as a serious and growing risk, and called for intellectual property crimes to be treated more seriously by governments around the globe. So in this sense, we see cracking down on intellectual prop-erty theft as part of our response to the new set of national security challenges we face as a nation.

(USDS 2004: 3)

To facilitate a collective national awareness of such issue, Wayne called for the building of knowledge, capacity and will to fight the IPR infringe-ments. With regard to China, he emphasized that the US government has spent large sums providing technical training to Chinese legal profession-als such as judges, prosecutors and customs officers. The largest opera-tional training took place in October 2003 when large numbers of IPR experts travelled to Beijing, Shanghai and Guangzhou to train Chinese legal professionals in areas such as ‘protection of IP over internet, proce-dures for collection of evidence for IPR crimes, and legal standards for opening cases against criminal networks involved in large-scale IPR

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