A Three-Pronged Approach: How the United States Can Use WTO Disclosure Requirements to Curb Intellectual Property Infringement in China

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Abstract

Counterfeiting and the piracy of consumer goods in China are serious and globally recognised problems. Despite concerns expressed by the US and past efforts, China has been unable to enforce IP rights effectively for decades. As a result, American businesses seeking to sell IP-protected goods in China suffer tens of billions of dollars in losses every year. This Comment aims to determine and assess what measures the US may take to reduce IP infringement in China in the short term. China's weak IP enforcement record is a result of both long-term and short-term causes. Short-term causes (that is, causes that could be remedied within the next five years) include problems with China's nascent judicial system, local protectionism and economic dependence on IP infringement, under-deterrence, market access limitations, and the vagueness of the TRIPS Agreement. However, the various proposals found in existing literature for improving China's IP enforcement record fail to adequately tackle these short-term causes and are therefore unlikely to produce an immediate benefit.

The US should adopt a three-pronged approach to improve China's IP enforcement record. First, the US should file a WTO complaint alleging an Article 63.1 violation. Article 63.1 imposes transparency standards on the adjudicative processes and regulations of WTO member states. Second, the US and China should conclude a bilateral agreement providing incentives for joint ventures between American and Chinese companies. Joint ventures will give Chinese companies an incentive to enforce their IP rights since they will then hold an ownership stake. Third, the US should, either by filing a WTO complaint or through bilateral negotiations, seek to reduce China's current market access barriers. However, because China's IP enforcement problem is largely a result of long-term causes, there may be little the US can realistically do to bring about immediate and marked improvement in the effectiveness of China's IP enforcement.

I. INTRODUCTION

Intellectual property (IP) infringement in China is one of the most pressing problems facing US-China relations. Recent estimates speculate that 86 percent of aU IP protected goods sold in China have been counterfeited or UlegaUy copied. Other studies suggest the rate is above 90 percent.2 Rampant IP infringement costs key "IP-dependent" sectors of the US economy billions each year. For example, the US software and entertainment industries suffer between $2.5 and $3.8 büon in lost sales each year.3 In 2001, China's State Councü estimated the value of all pkated goods Ui China at $19 to $24 biUion, accounting for one-fourth of the US-China trade deficit for that year.4 China's weak inteUectual property rights (IPR) enforcement problem poses an enormous risk to US companies seeking to do business in China. Without adequate protection of IP, lower-priced unauthorized copies of US companies' products flood the Chinese consumer market, substituting legitimate and higher-priced copies. China's weak IPR enforcement also increases the US-China trade deficit (itself a sensitive economic and poUtical issue) because sales of domesticaUy produced counterfeit copies replace sales of legitimate imported copies and because it discourages US companies from exporting goods and services to China. These problems wül only multiply in size as the US and China continue to Ulerease büateral trade and investment5 and as the Chinese economy continues to expand.6

The US has attempted to remedy the situation over the past two decades. The 1990s were characterized by a pattern of US threats of trade sanctions, with the intent that such sanctions would induce the Chinese government to crack down on IPR violations.7 Such direats typically failed, usually because the US withdrew the threats out of concern over potential retaliatory Chinese measures.8 In 2001, China joined die World Trade Organization (WTO).9 The WTO and its Dispute Setdement Body (DSB), which is composed of the Dispute Panel (Panel) and the Appellate Body (AB), resolves disputes concerning matters within the scope of WTO agreements. …