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Defending the Infringement: Taking the steam out of China's 'White Paper' on IPR
TYC[Tuesday, May 10, 2005 22:05]
"Copying enjoys a long tradition in China and does not carry a stigma. Copying a masterpiece was historically considered an art form in its own right, while Chinese students have been taught for centuries to copy their teachers as accurately as possible before attempting to create."

The origin of the need to protect intellectual property creations can be traced back in history as one of the consequences of the Industrial Revolution during which new manufacturing techniques and new industrial products were developed and exported, thus catapulting an increase in commercial and cultural relations between various countries.

Concrete and legal steps towards an international understanding of protecting intellectual property system began with The Paris Convention for the Protection of Industrial Property (March 1883), which entered into force in 1884 among 14 States. Today 186 States are member of the Paris Convention, which was the first attempt to harmonize national laws by setting common rules.

Numerous and consequential conventions, treaties and agreements have followed since, including The Berne Convention for the Protection of Literary and Artistic Works (September 1886), the Madrid Agreement for the Repression of False and Deceptive Indications of Source on Goods (1891), Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (1957), the Trademark Law Treaty (1994), the Patent Cooperation Treaty (1970) , the Patent Law Treaty (2000), the Universal Copyright Convention , World Intellectual Property Organisation (WIPO), the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement) etc. to reinforce a universal system of intellectual property protection.

China's intellectual property laws and systems are relatively new and acutely ineffectual as compared to some of China's major trading partners, thus opening up wide alleys for infringement, counterfeiting and piracy.

However when China's 15 years struggle to join the WTO came to an end as she formally signed the 900 page document in a ceremony carried live in Chinese State Television on November 10 2001, by the 142 WTO members at Doha, Qatar, the common believe and expectation was that as a WTO member, China will be obliged to comply with various obligations to open its markets, including the General Agreement on Tariffs and Trade (GATT)-Agreement on Trade Related Aspects of Intellectual Property (TRIPS). TRIPS, which requires members to provide high levels of intellectual property (IP) rights protection and enforcement for copyrights, trademarks, patents, and trade secrets, among other forms of IP rights, must be implemented within one year of accession.

This was with the anticipation, that engaging China would do the houdini than isolating the rogue nation. Optimists said it could eventually make China's secretive, undemocratic and corrupt government more open and accountable. China's advent into WTO's fold was viewed as a positive development by even Human Rights Watch, whose statement read , "We welcome the deal between the US and China on WTO entry.  This agreement is good not only for trade but also for human rights and the rule of law. Over the long term, China's membership in the WTO could increase pressure for greater openness, more press freedom, enhanced rights for workers, and an independent judiciary.

Jean-Pierre Cabestan in his book, 'L'administration Chinoise après Mao', however downplayed the euphoria saying, " Potentially, China and its trade partners will benefit from China's accession to the WTO. It will be difficult, however, for the Chinese party-state to follow the law of comparative advantage that underlies free trade. For this is the law of economic rationality, whereas Beijing operates by political rationality".

If Beijing takes the risk of substantial adherence to world trading rules, the illusory nature of the market in most of the Chinese economy will become clear. Revealed will be a maze of hidden subsidies, insider connections, double book-keeping, fake stock markets, inflated statistics, and courts of law that bow a knee to the Communist Party. Shattered will be the myth that " the state shrank" in China under Deng and Jiang, said Ross Terrill, in his latest book on China , " The New Chinese Empire".

"I hate our China policy", President Bill Clinton burst out at a White House staff meeting. " I mean … we gave them the trade privileges and change our commercial policy and what has it actually changed?", reported Washingtong Post, June 21 st 1998.

"A future US President may feel a similar frustration with China's deceptive behaviour in the world trade Organization, as Beijing gives assurances to Geneva but allows key provinces to flout them. Ultimately, the reason for Beijing's intractability is that the party-state habitually rewrites history and prettifies reality to preserve its power and protect an imperial agenda. The CCP is obsessed with doctrine, even as the populace yawns at the emptiness of the doctrine. Give and take with various nations does not come naturally to the party state. History, in CCP view, has bestowed on the party state a destiny hidden to the outside eye", explained Ross Terrill.

But realists concerned of China's accession include Labour Unions.  The statement by AFL-CIO President John Sweeney, released November 15, 1999 states, "The fevered rush to admit China to the WTO is a grave mistake. It is disgustingly hypocritical of the Clinton White House to invoke the need to "put a human face on the global economy" while prostrating itself in pursuit of a trade deal with a rogue nation that decorates itself with human rights abuses as if they were medals of honor".

China's disturbingly unreliable record in complying with international agreement verified through UN treaty on political and civil rights, which China pledged to honor, and China's continuing record of persecution confirms and seals the doubt of many.  In fact, even as U.S. trade negotiators were talking in Beijing , a Chinese court sentenced four members of a spiritual movement to lengthy prison terms.  It would be naive to assume China might suddenly behave differently if allowed into the World Trade Organization.

It's hard to dispute, on the other hand, that China's opening to the world in order to attract foreign investment has been relatively positive for freedom. But the endorsement China's leadership receives from American executives is so damaging to the cause of human rights today that it undercuts the beneficial effects of engagement. ''Businesses act the way they think China wants them to,'' said John Kamm, Director, Dui Hua Foundation.

Yet the releases of a White Paper titled, "New Progress in China's Protection of IPR" on the 21st of April; by China's State Council Information Office, a week ahead of the World's Intellectual Property Rights Day on the 26 th of April, is but a re-enactment of the customary farce by China, despite the perceptible hard realities of its non-compliance of all international laws.

And as if this was not enough evidence, China doled out another nauseating act when Shanghai Star daily, on 21 st April, reported China's setting up an " Intellectual Property Park ". The report says, "The city government on April 20 kicked off a weekly citywide campaign to protect intellectual property rights (IPR) from infringement. As the key component of the campaign, a patent exchange center will be set up at the Shanghai Intellectual Property Park (IP Park) on April 25 to promote the registration and sale of patents", said Gu Yonghua, a spokesman for the Shanghai IPR Administration.

The IP Park gimmick is not a new trick employed by China to hoodwink the international observers. In fact, last year too, the same drama was enacted when it set up a similar IP Park in Yangpu District, which the authorities, then, boasted of performing as a public multi-function platform to provide integrated services such as innovation, transformation, intellectual property rights application, safeguarding and education etc. But the act proved just another propaganda campaign that failed to dim the ongoing piracy. The icing on the venomous cake was the State Council's launching of a one-year campaign for 'IPR protection' from September 2004- -August 2005 with great fanfare. But the 'benefits and the changes' through these assurances and acts are sadly oblivious to the world.

Likewise, at the April 2004 US-China Joint Commission on Commerce and Trade ( JCCT) meeting, in response to concerns raised by the United States , Vice Premier Wu Bangua presented an "action plan" to address the IPR problem in China . Intended to "substantially reduce IPR infringement," this action plan calls for improved legal measures to facilitate increased criminal prosecution of IPR violations, increased enforcement activities and a national education campaign. Following was the Chinese Vice Commerce Minister Zhang Zhigang's promise at the 20th Conference of Sino-Spanish Joint Committee for Economy and Trade held on Nov 10, 2004, assuring "that a sound legal system for IPR protection which is all in accordance with the WTO rules has been ready in China . Both administrative and judicial channels for IPR protection are available here".

All these typify China's paradoxical tradition of unparallel claims of formulating laws on protection and consistent encouragement of piracy. As a China watcher acknowledges, "we can expect lots of frills and cosmetic gestures from China but no real movement forward on substantive issues".

Although the latest White Paper of "New Progress in China's Protection of IPR" boasts in length on having made major progress in ' IPR protection in China over the past years' , various news reports, independent researchers and trade representatives have reported in sharp contrast to the claims laid by China.

China continues to be a haven for counterfeiters and pirates. International trade associations report that that counterfeiting and piracy rates in China remain among the highest in the world, exceeding 90 percent for virtually every form of intellectual property.

Mr. William Lash, Assistant Secretary of Commerce for market access and compliance told press reporters in Beijing on April 12, a few days before China released its "White Paper" that piracy in China was actually getting worse. He said that the breadth, sophistication and the damage of piracy continued to grow as losses suffered by the U.S. from piracy in China amounted to an alarming tune of 20 to 24 billion dollars a year.

In the same month that China published its white paper, acting U.S. Trade Representative Peter Allgeier said that China was being elevated to the priority watch list of countries failing to give adequate protection to intellectual property rights (IPR) such as trademarks and patents, for failure to effectively protect intellectual property rights and to meet its commitment to significantly reduce infringement levels".

In addition, just a few days after China published its 'white paper', saturated with claims and figures asserting its 'leapfrogging development' in IP system, the 2005 Special 301 Report Out-of-Cycle Review issued on April 29 stated that piracy and counterfeiting rates remained at extremely high levels due to China's inadequate and non-deterrent enforcement system.

According to one Copyright Industry Association, the piracy rate in China remains one of the highest in the world (over 90 percent) while it is estimated that on average, 20 percent of all consumer products in the Chinese market are counterfeit.

An article in Business Week titled, " China's Piracy Plague", lucidly divulge that China is home to a thriving black market. The article highlighted the extreme extent of piracy in China by taking the example of a city named Yiwu, a five hour train ride from Shanghai where '10 boxes of six fake Gillette razor blades each could be bought wholesale for a total of 65 cents, as opposed to the Beijing market price of $9.60 for a pack of 10-pack of the real thing'. The article estimated that 200,000 distributors buy close to 2,000 tons of goods in Yiwu on a daily basis. With a single city in China distributing 4 million tonnes of fake goods in China , it is perhaps beyond comprehension to estimate the amount of fake goods that the thousands of cities in China generate and distribute on a daily basis. Even worse, there are certain local areas in China where the whole economy is devoted to producing pirated goods.

In its 2004 Report to Congress, the Office of the U.S. Trade Representative says: "despite China's efforts to fulfill its WTO commitments, they are far from complete and have never been satisfactory, and China has demonstrated difficulty in adhering to WTO rules." Among the areas of particular concern for the United States , according to the report, are intellectual property rights, trading rights and distribution services, insurance, express delivery, telecommunications services, industrial policies and transparency, and agriculture.

Among the countries listed by The European Commission as the most problematic countries subjected to regular monitoring for the protection of intellectual property rights, China is the prominent nation indicted. " China is the place that is most worrying perhaps, because that's where we have the broadest spectrum of problems. 20% of branded products in China are fake." Pascal Lamy, the European Union's Trade Commissioner told BBC last December.

The EU has called on Chinese authorities to make it easier to prosecute product pirates. But the Chinese authorities say that because of the country's sheer size it's difficult to police copyright laws. Counterfeit goods, including books, software, DVDs, medicines and designer fashion, are widely available throughout China , despite the Government's pledge for the curb. The Commission said that between 1998 and 2002, the number of counterfeit or pirated goods intercepted at the EU's external borders increased by more than 800%. It estimates the global trade in pirated wares is worth more than 200bn euros a year (£140bn; $258bn), or about 5% of total world trade. Europe is particularly vulnerable because much of its comparative advantage in world trade rests in producing high quality, branded products.

"It's not just luxury goods, clothing, music and software companies that are complaining either, counterfeiting extended to goods as diverse as spare parts for aeroplanes and cars, to pharmaceuticals. Any country, which doesn't make enough of an effort, could be dragged to the World Trade Organisation (WTO), a step that could trigger economic sanctions", Mr Lamy further added.

Mr Saubhik Chakrabarti in his article titled, "Mouse loves copycat", published in Hindustan times, April, 25, 2005, noted, "Recently, few days before Premier Wen Jiabao's visit to India, a pink paper carried a story- Bajaj has complained about motorbikes in China that look eerily like Bajaj-made Pulsars. The message of the story is well known and, outside China , much-agonized over- the Chinese are frighteningly good at, and awfully cavalier about, copying. The moral of the story is, however, counter-intuitive".

Further elaborating Mr Chakrabarti said, "The Chinese disregard for IPR protection has many dimensions- 46 % of pirated goods sold in US comes from China; in China itself, fake outnumber genuine products by 2 to 1; branded medicines illegally copied in China are sold in over 50 countries; of ever 100 film DVDs sold in China, only five are genuine, of every 100 software packages, only two".

The white paper claims of gaining overall improvement in ' custom protection of intellectual property rights ' in China but it is a well-known fact that pirated products from China could be found throughout the world. With widespread availability of imitation and fake goods, foreign firms not only loses a large portion of the massive Chinese market, but they also accrue losses on global scale of counterfeit goods produced in China leak to the world market. China has now become a leading exporter in a growing global market for counterfeit goods.

Video, CD, DVD and software piracy have seen an astronomical rise in China in the past decade, which has not only incurred huge losses on international firms and companies but has also curtailed the growth of indigenous software companies. Although the 'white paper' maintains that China has established ' a whole set of systems for the management of audio and video products ' and has legislated more stringent software laws, piracy of audio and video products and software continues to be a major international concern.

According to the International Intellectual Property Alliance, piracy losses for business software, video games, motion pictures, recordings and books in 2002 exceeded US$1.85 billion, with piracy rates generally running 90-96 percent across all copyright industries. Business Software Alliance in its report has put China on the top of Software piracy list for four consecutive years affirming that China's piracy on video, CD, and software continues to increase annually. The report put software piracy rate in China at 98%, confirming that there were already 30 CD ROM plants pirating software in China .

Similarly, in an article, " Not The End of the World", written by Kevin Maney for USA Today, May 4, this year Mr Kevin elaborates that " Music pirating is so rampant and so entrenched in China that it's unlikely to ever be eradicated. Chinese consumers have come to believe that music is worth, at most, a few cents a song, and that copying and sharing music are totally acceptable. In all probability, no company will ever be able to sell $15 CDs or 99 cents-a-song downloads in the world's most populous nation".

In the USA , free downloads of copyrighted music are driving the recording industry to sue teenagers and holler about the morality of obtaining songs for free. But if China is the future, that's all in vain. The genie is out of the bottle. Eventually, recorded music will no longer make money. That would be nice for consumers and really bad for record companies and retailers. But the biggest concern is that this will be terrible for artists. If artists can't earn money, economic logic says they might stop making music, which would be a major loss for society.

U.S. entertainment and software firms have long complained about copyright piracy in China , where street vendors are selling illegal copies of the latest movies and software openly. The firms put losses from illegal copies of their products in China at more than $2.5 billion last year and wanted the United States to take a complaint about China to the World Trade Organisation. Piracy is rampant in China , with computer software and DVDs of Hollywood films often sold on the streets for one dollar.

A report in The New York Times, in August 2003, stated that the Motion Pictures Association of America estimated that last year more than 90 % of DVDs sold in China were pirated copies, and that the film piracy in the Asia- Pacific region cost filmmakers $640 million in foregone sales, with China the top violator. Screen Digest reported that in 2004 total spending on legitimate video software fell by almost 12 per cent to 8.2bn yuan ($994) with piracy being a major obstacle to growth in the Chinese video market over recent years.

"We have never seen a problem of this size and magnitude in world history. There's more counterfeiting going on in China now than we have ever seen anywhere," says Dan Chow, a law professor at Ohio State University who specializes in Chinese counterfeiting.

Procter & gamble estimates that it is losing somewhere in the vicinity of US $150 million a year in the local market. Similarly the officials of the manufacturer of Wrigley chewing gum, which has a 70 percent share of the Chinese market reported that the Chinese were violating the company's copyrights by selling pirated gum in the city of Guangzhou and had even gone so far as to copy the designs of the Wrigley distribution trucks and were now driving the same routes.

According to speculation every five out of six Yamahas in China are counterfeit. During the 108 th US Congress House Hearing of the Congressional Executive Commission on China on September 24, 2003, Henry A. Levine, Deputy Assistant Secretary, Asia Pacific Policy, U.S. Department of Commerce, Washington DC, echoed the fear of his countrymen stating, "Our manufacturers complained about rampant piracy of intellectual property, pressure to transfer technology in conjunction with their investments, trade barriers, capital markets that are largely insulated from free market principles, and so forth. We have also heard rising concerns more broadly about the pace and the direction of China's WTO implementation in areas such as transparency, distribution and trading rights, services, agriculture, financial services, and so forth. To ensure that China honors its commitments and to make sure that U.S. companies can take advantage of the opportunities that are generated, we at Commerce, working closely with our fellow agencies, have adopted an aggressive, multi-pronged approach".

As per reports, problems in pharmaceutical and brand name counterfeit were also worsening. An unnamed American executive complained that more fake products in the first five months of 2000 had been confiscated than in the previous two years combined. With the pharmaceutical products, the counterfeiting of medicines has severe implications for public health. In fact, counterfeit medicines have been identified as one of the most serious public health problems in China .

The inability to protect company trademark rights has expanded to new IPR issues, including Internet domain name piracy while problems focused on e-publishing, e-commerce and domain names are bound to worsen as Internet usage grows in China .

Bo Liu, former Deputy General Manager of Microsoft China speaking at the Harvard Asia Business Conference noted that the problem of piracy, especially software piracy in China was primarily cultural; as according to him Chinese have traditionally felt that they should only have to pay for tangible goods, not intangible software.

The white paper mentions that China has adopted a ' relatively complete system of laws and regulations that cover a wide range of subjects' while revoking a set of laws and regulations that China has promulgated. Since China acceded to the WTO, major changes in trading and IP laws were forced upon China so as to bring its IPR system in line with international standards; as echoed in the white paper of China 'actively fulfilling the international obligations to protect IPR' .

However major loopholes and ambiguities in China's so called 'complete system' of IP laws and regulations are evident, which have provided pirates and counterfeiters as well as the communist government itself alike to work its way around the legal system.

Though intended to protect intellectual property rights, the Computer Software Protection Regulations and the Copyright Law contain ambiguities, one important being the "knowingly" standard in Article 32 of the Computer Software Protection Regulations, which states:

Where the holder of software does not know or has no reasonable grounds for knowing that the software is infringing (upon an existing copyright), liability for infringement shall be borne by the supplier of the infringing software

This could become a major loophole, as any user could falsely claim that he/she was unaware of infringement of other copyrighted products, thus approving 'ignorance of infringement' as a defense under Chinese law. This is not in accord with the strict liability provisions of international standards.

Article 31 of the Rules permits the government to exempt certain software products from liability for any copyright infringements if the software is developed to implement relevant "state policies, laws, rules, and regulations." The government, to obtain source code or programs for its own use could unfairly use this rule. 

Lack of predictability and transparency in trade has greatly increased the risk factor involved in trade with China . In the agricultural sector China's WTO implementation is beset by uncertainty. Capricious practices by Chinese customs and quarantine officials can delay or halt shipments of agricultural products into China , while sanitary and phytosanitary standards with questionable scientific bases and a generally opaque regulatory regime frequently bedevil traders in agricultural commodities. Like all commodity markets, agricultural trade requires as much predictability and transparency as possible in order to reduce the already substantial risks involved and preserve margins. Agricultural trade with China , however, remains among the least transparent and predictable of the world's major markets.

The white paper dwells in length on the legal system for copyright protection and the promulgation of a number of regulations, thus claiming to have ' laid a solid legal foundation for copyright protection '. Yet, the "Copyright Law" dangerously fails to correspond to international standards and falls vulnerable to counterfeiters and pirates.

A dangerous provision under the copyright law permits production of a small number of copies of copyrighted material for "non-commercial objectives." The "non-commercial objectives" explicitly listed include classroom instruction, scientific research, and conduct of official duties by state agencies. But then under this provision the authors are not entitled to remuneration for such copies, and the term "non-commercial objectives" might as well be manipulated by the parties as well as by government officials to encompass a very wide variety of purposes.

The Copyright Law stipulates that works "banned from publication" shall receive no copyright protection, but does not clearly define "banned" works. As a result the government might ban publications after the fact to suit its particular needs. If banned by the government for "public interest," a large black market could result for works legal else where in the world but illegal in China .

Industry representatives have reported that there has been no noticeable improvement in the protection of books and journals. Copyright infringement in these areas led to the loss of $130 million in 2000.

Article 5 of the Copyright Law states that the following works will not be afforded copyright protection:
  • Laws and regulations, resolutions, decisions and orders of State organizations, other documents of a legislative, administrative or judicial nature, and their official translations;
  • News on current affairs; and
  • Calendars, numerical tables and forms of general use, databases and formulas.

In addition, the Copyright Law does not apply to works of folk literature and art.

The white paper asserts that ' China has established a relatively complete and independent patent examination system ' but a closer study of the Chinese 'Patent Law' and its (un)application reveal that major loopholes and legal impediments put China alongside with countries where patents are unprotected or inadequately protected.

In sharp contrast to international standards of patent protection, the Chinese Patent Law provides that the following works will not be afforded patent protection:
  • Scientific discoveries;
  • Rules or methods for mental activities;
  • Methods for the diagnosis or for the treatment of diseases;
  • Animal and plant varieties;
  • Substances obtained by means of atomic transformation; and
  • Anything immoral or detrimental to the public interest.

Under the Chinese system, as contradictory to the patent law of various nations, Software itself cannot be patented. Software, only when combined with a computer or technique intended to solve a technical problem is afforded patent protection.

Mr. Wang Jingchuan, Commissioner, State Intellectual Protection Office (SIPO) himself admitted that China's system of patent applications and IPR protection was still in its "early stages", and had failed to keep pace with the country's booming manufacturing industries. He further added that the overall intellectual protection rights situation did not look good in China .

Furthermore, China still lagged far behind the world's major industrial countries regarding submittals of legitimate patent protection applications. Fewer than a thousand Chinese patent applications had been lodged with the World Intellectual Property Organisation compared with 44,609 from the United States , 13,531 from Japan and 2,552 from South Korea in 2003.

Although the 'white paper' claims that China is ' actively fulfilling the international obligations to protect IPR ', Office of the US Trade Representative in its 2004 report on China's WTO compliance has confirmed that since acceding to the WTO, China has increasingly resorted to policies that limit market access by non-Chinese origin goods and that aim to extract technology and intellectual property from foreign rights-holders. The report adds that the objective of these policies seems to be to support the development of Chinese industries that are higher up the economic value chain than the industries that make up China's current labor-intensive base, or simply to protect less-competitive domestic industries. The report cited examples of China's discriminatory semiconductor VAT policies, China's efforts to promote unique Chinese standards for wireless encryption and third generation (3G) wireless telephony and, more recently, a government procurement policy that mandates purchases of Chinese-produced software to highlight China's prohibitive industrial policies in 2004. The report also stated that China's regulatory regimes continued to suffer from systemic opacity, frustrating efforts of foreign -- and domestic -- businesses to achieve the potential benefits of China's WTO accession, thus directly curtailing China's claims, as quoted in the white paper of devoting 'great efforts to adjusting and improving international rules regarding IPR protection in order to let all countries of the world share the fruits and benefits brought about by the progress of science and technology'.

The 'white paper' maintains that China has established ' a coordinated and efficient work system and a law enforcement mechanism ' along with a strengthened ' administrative law enforcement in IPR protection '. However, in practice China has been much less successful in ensuring effective IPR protection, as IPR enforcement remains problematic with counterfeiting and piracy in China at epidemic levels, causing serious economic harm to business in virtually every sector of the economy.

Despite the immense potential, it remains very difficult to do business in China . There is a growing attitude within the Chinese bureaucracy that the market share of Chinese enterprises ought be protected in order to give them more time to prepare for competition. The WTO agreement requires to be implemented by registration. During the registration and implementation processes, the bureaucracy takes a very legalistic approach, creating new and different obstacles to foreign investors along the way. This has made doing business in China harder and more frustrating than some investors expected.

The requirement for transparency has undoubtedly been heralded by all those conducting business in China . The "state secret" mentality and propensity on the part of many Chinese bureaucrats to abuse discretion are quite infamous within the international community. In earlier days, foreign investors and their counsel were frequently stonewalled during negotiations with Chinese counterparts. They were often informed that matters had been decided according to "neighbor guiding" (regulations for internal use), which were confidential, and not to be disclosed. Practices such as these constitute violations of WTO obligations.

China's Marxist and socialist ideology gives them an easy way out, which they make easier by adding the 'developing country' argument. That is, China is at a stage of economic development where hi-tech and /or branded products are not yet the mainstay. When it reaches that stage, goes the official argument; China will "naturally take a stricter attitude to IP protection".

Contributing towards this is a large group in China that believes a strong IPR regime will be harmful economically for China and that strong IPRs are something that is being forced upon China by western powers that will benefit them at the expense of China . This large group is made up of those who profit from copying intellectual property and sell it cheap in China . Also, the state benefits from a weak IPR regime because China is a net importer of technology and must buy technology at market prices. With a weak IPR regime, the state benefits from copying or "free-riding" on foreign technology because they do not have to pay total market value for the information. The state as enforcer and prosecutor of IPR violations means that the state can behave as if it is tough on IPR violations and provide a few key prosecutions for the international observers, while allowing most IPR infringements to proceed.

China's criminal code as it stands does not allow private prosecution of patent infringements. Before China can realize the benefits of more lawyers and more courts, it must first clear away any institutional barriers, such as the criminal code's insufficiencies. Once China allows legal private enforcement through civil cases and the school system has had time to train lawyers, the IPR regime within China will strengthen. The true question is whether the United States and other more developed countries can wait for the process to happen through evolution. The state will intrude more into private business and technological innovation will be dictated not by the drive of the market, but by the reach of the state and state ideology China continues to raise the ire of its more developed trading partners because of implementation problems within the IPR regime. The multitude of laws on IPR in China are relatively insignificant given that the legal system in China is not in a position to try all of the cases or enforce the rulings. When cases are brought to trial, there is a strong tendency to try them as criminal cases. Public enforcement is both expensive and ineffective if used alone. The inclusion of private sector monitoring would be cheaper for the state, more efficient, and better for innovation while also providing more consistent enforcement relatively unaffected by political trends. Private enforcement coupled with public enforcement is needed.

Organization for Economic Co-operation and Development (OECD) in its China dialogues on Intellectual Property Rights Policy and Enforcement (09 Feb-2005) expressed concerns on the enforcement of IPR protection in China stressing that 'enforcement problem in China had become a greater concern than the IPR legislation to foreign and the Chinese stakeholders. Recent studies found that the effect of criminal and administrative enforcement was insufficient to deter the level of IPR infringement activities in China (QBPC, 2004 and DRC, 2003).

Maria Lin, a lawyer at Morgan & Finnegan argues that enforcement of the laws to protect intellectual property in China has been problematic as the court system is still in the process of reform, and relevant administrative bureaus have problems delegating authority, adding that for China to become a truly "developed" nation, it must take the enforcement of its intellectual property laws seriously.

According to a 'white paper' published in Beijing by the American Chamber of Commerce People's Republic of China (AmCham-China) and American Chamber of Commerce Shanghai (AmCham-Shanghai) despite laws and international agreements protecting intellectual property rights, a lack of political will within China to enforce those rules was allowing piracy to rapidly expand. The white paper noted that the lack of patent and copyright protection was also hurting high-tech investment in the vast Chinese market with more than three-quarters of AmCham members surveyed saying that they were negatively affected by the infringement of intellectual property rights. Directly curtailing China's claims of having established 'a coordinated and efficient work system and a law enforcement mechanism', over 90% of respondents surveyed for the white paper said that they see "virtually no enforcement" of intellectual property rights in China . According to the white paper, 50% of high technology companies surveyed said that standards and certification procedures were being used as legal, non-tariff barriers.

Although the white paper boasts of Chinese procuratorial organs having ' earnestly exercised their duties of examination of arrests and prosecutions in cases of criminal IPR infringement' , majority of China's trading partners and companies doing trade in China including Chinese citizens complain of a dysfunctional and an ineffective judiciary. Moreover, in China the courts are not independent of government: local courts are greatly influenced by their respective local governments and have their own internal Party structure. Local governments in turn depend on local companies, which more often than not indulge in piracy and counterfeiting, for employment and taxation income forming a strong piracy nexus where the administration is directly involved in the infringement network.

The governmental preference for administrative system over judiciary and criminal measures to settle IPR infringements and complaints has also been a major bone of contention for the traders. Disadvantages of the administrative channel are:

the rights holder receives no compensation for IPR infringement as a result of administrative adjudication; sometimes administrative agencies refuse to investigate a complaint due to local protectionism, corruption or lack of resources; and fines are too low to put the infringer out of business or deter future criminal activity.

Such ambiguities in the enforcement of IPR system and the government's preference of the administrative channel has discouraged foreign firms from continuing their trade with China .

Enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively, repudiating China's assertion of 'quick action and strict law enforcement'. Several factors undermine enforcement measures, including China's reliance on administrative instead of criminal measures to combat IPR infringements, corruption and local protectionism, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy.

China's failure to enforce measure to protect IP can also be largely attributed to the fact that there is a prevalent discontent between national laws and provincial and legal government laws. Often, laws do not agree to the same terms and difficulties arise when many offenders, lawyers, and even judges seek to meet their local self-interests rather than follow regional or national procedures on IPR protection, demonstrating the widespread depth of corruption and lack of faith in the national system. According to an article carried by The China Business Review , local officials in China are reluctant to tackle the counterfeiting problem because of the enormous number of jobs created by the thriving black market, accentuating the fact that Beijing finds is extremely difficult to enforce IPR policies at local and regional levels due to a weak rule of law. Several other factors, such as minimal penalties for IP violations, extremely scarce funding for enforcement agencies, and the fact that IPR offenders are very rarely imprisoned, provide a state sponsored cushion for IP offenders and pirates to freely run their black market.

The white paper brag of having ' adopted a series of measures to crack down on all kinds of criminal infringement ', supplemented with figures of solved criminal cases and arrests made, but concerns remain high on China's actual competence of putting pirates to justice. Increasing the number of criminal IPR cases, taking more stringent actions against counterfeiters, with greater fines on the violators and sufficient compensation for victims are certain fields of IPR system where China needs instant and operative action.

Although criminal penalties have been introduced in the Chinese IPR system, sentences vary between vaguely defined grades of infringement. For example, 'huge amounts' of illegal income, 'especially serious' circumstances or 'relatively large amounts' of illegal income are factors that distinguish between small violations and large illicit operations. Naturally, this vague language has discouraged foreign firms from pursuing criminal proceedings .

Also the lack of a heavier and a standardized fine system in China on counterfeiters and pirates has greatly encouraged the violators. According to a press release issued by the US Embassy Beijing on April 14, the total fines imposed in 2003 for violations of trademarks, copyrights and patents amounted to $30 million -- only 0.05 percent of the estimated sales revenue losses of over $60 billion suffered by U.S. , European Union and Japanese companies the same year.

An important factor affecting the severely imbalanced trade relationship with China is the ability of Chinese firms and the Chinese government to violate flagrantly both international and U.S. trade rules with impunity. Through massive repression of basic workers' rights, manipulation of its currency, disregard for intellectual property protections and illegal subsidies, among other actions, the Chinese government is able to drive down prices and undercut producers in the United States and abroad.

In a recent survey, another concern relates to subsidized exports. Reports abounding from different industries read that Chinese products are being sold in the United States at prices so low, they could not cover the cost of raw materials and shipping, much less full production and marketing costs. These reports suggest the possibility of widespread use of subsidies, either direct, or very likely indirect.

"Administration Announces Unit To Attack Unfair Trade Practices" reported Associated Press, Washington on September 15, 2003. The report quoted the Bush administration, accusing China of a host of trade violations and announced the creation of a new Unfair Trade Practices Team inside the Commerce Department to address trade barriers that are costing 2.5 million jobs and 37 consecutive months of job losses.

"It's important that American manufacturers have a level playing field," Presidential Spokesman Scott McClellan told reporters in discussing the new Commerce program. "To ensure that China honors its commitments and that U.S. companies benefit from these opportunities, we have adopted an aggressive and multi-pronged approach. We are going to target unfair trade practices wherever they occur. We are exploring the use of new tools to expand our trade promotion activities related to China . We are expanding our efforts to engage Chinese officials to help make sure they ``get the rules right'' as they continue their massive task of restructuring their economic system" added Mr Scott.

The demand for famous brands and the lack of strong legal protection for brands has made counterfeiting a lucrative and relatively safe commercial activity in China . Professor Daniel Chow, Ohio State University College of Law notes that, as production of counterfeit goods increased, local government-established markets became distribution centres for counterfeit goods, leading to both direct and indirect involvement by government entities in the counterfeiting trade. With the current governmental practice of scarce criminal prosecution and paltry compensation for victims, Professor Chow predicted that IPR problems would continue to worsen in China .

During the 2004 US Congressional Hearing, Secretary William Primosch said, "We are concerned about the reports that local government authorities in China are actually promoting the expansion of local industry dedicated principally to counterfeiting. At a minimum, local authorities are knowledgeable of counterfeit production and taking no action to halt it. There appears to be no mechanism for the national government to prevent local governments from aiding and abetting counterfeiting by local industry. In addition, a member has reported that the Chinese customs service has not cooperated in blocking exports of counterfeit products even when solid evidence of counterfeiting was provided. It is claimed that, since the ``exporting'' of counterfeit products does not constitute a ``sale'' of the products, the relevant Chinese law did not apply".

In China today, virtually all businesses – Chinese and foreign, large and small – and all types of products – food, cosmetics, industrial parts and fittings, high-tech to every-day – are at risk from piracy. Beyond rampant copying of trademarked goods, packaging, logos and designs, 'leakage' of trade secrets and patents and copyright infringement is also prevalent.

In history, China has never demonstrated sincerity in negotiated treaties and settlements, not even elementary faith in genuineness. Their inconsistency and non-commitment in diplomacy and penchant for diverse interpretations according to their whim is not unknown. China's poor history of not following up on agreements and routing international treaties is further vindicated by China's attempt to introduce anti-subversion bill (basic law-article 23) in Hong Kong which threatened the nations freedom of speech, press and assembly. This is in stark opposition or contrast to the earlier guarantee that Beijing would not meddle in its administrative set-up.

Despite China's campaign of engagement with numerous nations and asserting realization of a peaceful border, the irony is that military modernization is at the peak with purchase of hi-tech weaponry from Russia and other European nation and this excessive campaign has plunged the nation into undesirable controversy of stealing, copying and pirating modern arms from foreign countries. China is currently facing some six to eight major arms cases in US, 12 cases in Russia and few dozens in other Western Countries for stealing weaponry, design technology and other state of the art arms systems. Seen from such perspective, China's iniquitous diplomacy record reveals a grim reality of China as a rogue nation.

Over the years, China has flouted every other international treaty. Besides violation of Simla Treaty with India , China has violated treaties with Russia ; fought border war at Ussuri river in Siberia in 1969. Despite being a signatory to NPT and CTBT, China has made a mockery of these treaties by supporting nuclear weapon built-up in Pakistan and North Korea . China has also violated internationally recognized bordesr by launching aggression on a fellow Communist nation i.e. Vietnam in 1979. China occupies Paracel Islands also claimed by Vietnam and Taiwan while groups in Burma and Thailand have expressed concern over China's construction of 13 hydroelectric dams on the Salween River in Yunnan Province .

China is involved in complex disputes with Malaysia, Philippines, Taiwan, Vietnam, and Brunei over the Spratly Islands; most of the rugged, militarized boundary with India is in dispute, in 2003 China together with Taiwan asserted their claims to the Japanese-administered Senkaku Islands (Diaoyu Tai); China and Kazakhstan have only recently resolved their border dispute and are working to demarcate their large open borders to control population migration, illegal activities, and trade; certain islands in Yalu and Tumen rivers are in an uncontested dispute with North Korea and a section of boundary around Mount Paektu is indefinite.

Numerous experts vouch the unreliability of Chinese statistics and documents. "Chinese history books are a concoction of tales and norms, regularly distorted for power purposes. The Chinese polity has had a tumultuous history, now operating forces, now a kingdom of the imagination. China's centrality and unity was at times a post hoc rationalization for the grabbing of other people's territory. Effectively, the CCP has essentialized a rich, ambiguous historical legacy to fuel its neo-imperial project", said Ross Terrill in his book, " The New Chinese Empire".

Notwithstanding a bundle of impressive programs and objectives donning the latest 'White Paper', Mr Paul Magnusson, Washington correspondent, Businessweek predicts that China's entry into the WTO will have a huge impact within China, an impact "so large that it might be difficult for China , the U.S. , and Southeast Asia to swallow." A change of such magnitude would require a great deal of political stability within China . But Mr. Magnusson is not optimistic because no Communist country has yet adapted to a capitalist economic system successfully.

"By 2007", predicts economist Richard Cooper ( Fair Bank Center , Harvard University , Nov.16,2001), " China will be in massive non-compliance with WTO rules. Beijing will be in the middle, between foreign complaints and Chinese provincial and local malfeasants"

China continues to advocate the wisdom of Heping Jueqi (peaceful rising), projecting itself as the emerging reckoning entity. However, Chinese scholars have been pointing out the contradiction between China's Heping Juaqi as an external relation strategy with the lack of progress in domestic policy. It is doubtful that foreign countries will be convinced about China's peaceful ascendancy if it sticks to a non-transparent and undemocratic political system. Diplomacy is often the extension of a domestic policy. A leadership's commitment to global fraternity and solidarity will be called into doubt if it is so reluctant to give the people inside China , adequate human rights, freedom and self-determination. Up until now, China shows it has no interest in playing by even the most basic rules of the world community.

Thus, the stories of development and improvement that fills the lines of the white paper titled, 'New Progress in China's Protection of IPR' issued on April 21, 2005, could be considered as a future benchmark for China to achieve in the field of IPR protection which however, cannot be taken for what China has achieved. It is easy to put forth pat answers and remedies to what ails China . The truth is that there are no easy answers. The hard reality is that the Chinese government is well aware of the steps that need to be taken to cure its intellectual property rights woes. What remains is a need for the too scarce political resolve and many long years of hard, unglamorous but sincere work to put everything in place .

Consequently, in the diplomatically sensitive run-up to the Beijing Olympics, China's relentless crusade to shore up its legitimacy by beating the drums of nationalism and its sonorous declaration of Heping Jeuqi campaign with the release of 'White Papers' to foster 'peace', 'friendship' and 'development', will do little to mask its vicious expansionist strategy and in steering it away from being labelled as the world's most recalcitrant country.

Issued on: 9th May 2005
Tibetan Youth Congress, Central Executive Committee,
P.O. Mcleod Ganj, Dharamshala-176219 ( H.P.) INDIA
Tel:+91-1892-221554 / 221239 Fax: +91-1892-221849
eMail: tyc@vsnl.com
For more information, Please visit our website: www.tibetanyouthcongress.org
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