By Nicholas Hager, Transatlantic Community Analyst
China’s relatively new foray into drone creation serves as a reminder of how extensively, and rapidly, it has modernized. But it also underscores a problem which has been both pervasive and intractable. China’s government and businesses are committing intellectual property (IP) theft on a vast scale, and this threatens the national and economic security of the U.S. and European States. The IP – defined by the World Intellectual Property Organization as “inventions, literary and artistic works, and symbols, names, images and designs used in commerce” – of firms within both the U.S. and Europe has been repeatedly expropriated by, or at the behest of, China, and has affected industries as diverse as the production of cleaning equipment, chemical engineering, and internet service provision.
The true economic impact of this theft is staggering. One estimate suggests that it costs the U.S. alone $300 billion per year, which is “roughly the equivalent of the current American trade balance with Asia.” This is not only a clear violation of the principle of jus inter gentes in public international law – here exemplified by the Paris Convention of 1883, of which both China and the U.S. are signatories – but also of international rules, such as the WTO’s TRIPS agreement. Given that this problem is prevalent, pernicious, and clearly prohibited, the question becomes: How do we address it? There are at least two principle categories of action, neither of which are exhaustive or exclusive of each other.
One possible avenue is a legal offensive. At first glance, this seems to be a problematic because, while China has acceded to the Paris Convention, it has done so with the stipulation that it not be bound to the Convention’s provisions for dispute resolution. This abrogates the legal grounds by which to seek arbitration by the International Court of Justice. That said, China’s actions appear to clearly violate the TRIPS agreement, which counts the aforementioned Paris Convention among its primary legal referents. And unlike the Convention, the TRIPS agreement, accedence to which is implicit in WTO membership, has a robust enforcement mechanism. As a rapidly developing and expanding economy, China has a vested interest in maintaining its ability to work within the WTO – not only because that provides it a place at the table in international trade negotiations, but because it wants to preserve its ability to settle economic disputes through WTO arbitration, which it has done frequently. Because of these factors, China will probably feel compelled to address these complaints – as it already did in a previous dispute involving DVD piracy – and may be more likely to fully and genuinely implement the arbitration’s ruling.
Additionally, there is, in the nascent Transatlantic Trade and Investment Partnership (TTIP) and Transpacific Partnership (TPP), hope that China can be checked by the combined economic leverage that the U.S., EU, and others would gain from their conclusion. The TTIP, whose focus is the “creation of a massive trade bloc” between the U.S. and EU, has the potential to change the current dynamics of the global economy by boosting the “competitiveness and expanding [the] market share” of U.S. and EU companies. Because Europe and the U.S. are China’s largest export markets, they could make things very difficult for China if it were to oppose them on an important issue like IP theft. And the economic boost and harmonization that may emerge from the TTIP would increase this leverage. “Chinese products [would already be] less competitive in [those] markets,” as a result of the TTIP, and if the U.S. and EU wanted to, they could effectively “[bottle] up [China’s exports] within its shores.” This is not to suggest that the TTIP could, or should, be used to impose unfair trade conditions, or to begin a trade war, but the extraordinary amount of influence it would provide would undoubtedly alter the Chinese calculus. And, in combination with the TPP, it would probably be enough to extract at least a modicum of compliance from them.
The TPP, which could eventually include most of Southeast Asia, East Asia, and Australia, but might not include China, has obvious consequences for the Chinese economy, regardless of outcome. If China does “join the TPP, [it will be] on US terms [because it is] a creature fashioned largely by Washington.” While China’s presence in the TPP would be valuable, the Partnership would nonetheless remain a viable and powerful economic coalition and could easily carry on in its absence. China, on the other hand, “[already] suffering from diminishing competitiveness, [should be] keen to avoid any further hits to its trade position,” and it also wouldn’t want to risk exclusion from the benefits of “a successful and extensive TPP, [such as] tariff-free or…reduced [exports].” To avoid having its regional economic dominance undermined, China will need to accept “Washington’s…strong standards [for protection of] intellectual property, labor and [the] environment along with [regulating] state-owned enterprises.” Moreover, if China declines to join the Partnership, either through unwillingness or an inability to meet these demanding standards, it will be so much the worse for it. The TPP, absent China, has the potential to undo much of its regional power by making “the region’s markets…better integrated and more competitive,” which could see Chinese products and labor being bypassed for cheaper options.
China has undertaken its quest to modernize through stolen intellectual property with relative impunity because there has been no real mechanism or response to deter it. With the threat of losing ground in its biggest export markets, locally and farther afield, it would be forced to heed much more serious warnings to halt its illicit activities. While these agreements are far from finalized and have a multiplicity of moving parts, both of which confound efforts to predict their utility as a viable method of coercion, it nonetheless seems like they, in conjunction with WTO arbitration, should give the U.S., EU, and others the ability to successfully press for China’s compliance.