The China Challenge

In testimony on December 13, 2011 before the Congressional Executive Commission on China on the 10th anniversary of China’s WTO accession, former Under Secretary Grand Aldonas,  stated that our “two countries operate from fundamentally different assumptions about the organization of economic activity, the nature of competition, and the role of the state in the economy in their respective home markets…”

Under Secretary Adolnas is right on the money.  Our assumptions of China’s market orientation are especially challenged in the IP context, where China has developed a regulatory/public management approach to IP that differs dramatically from the private rights orientation of most countries, especially the United States. China’s approach is manifested in such areas as substantive law, distribution of enforcement resources, subsidization/promotion of IP rights, restrictions on use of IP as a private property right, and use of quantitative goals / empirical data to guide the state’s resources. It is very difficult to engage China in a durable and action-forcing manner without recognizing these basic differences, and most of the questions that China poses are beyond our trade compliance tools.

I increasingly believe that China challenges a wide range of commonly-held assumptions about the IP system, e.g.: that countries will not protect IP until they have IP of their own to protect; that developing countries traditionally have small patent offices or have few resources allocated to IP; and that IP protection changes with stage of economic development. IP is a strategic state resource in China and as a consequence, it is being managed differently as market driven expectations might otherwise suggest, and in fact China is emphasizing IP In a manner that is quite different from other BRIC countries.

Fully addressing these challenges not only requires a better understanding of China, but also requires a significant rethink of our trade policy and trade structures, both in the government and industry.  In some cases, this rethink would have been long overdue, even without the challenges posed by China’s IP and innovation systems.

For example, although IP has been an important part of trade policy, the US does do very little trade promotion involving IP rights. The US government unlike the Chinese government, does not track licensing flows as a component of our balance of trade. We also have no advocacy mechanism within the Commerce or Agricultural Departments to engage in export promotion for licensing.  Our trade promotion policy too closely promotes tangible goods, not intangible ones.

Domestically, we have defunded the White House involvement in the innovation dialogue, and we have shut down other agencies (e.g., the Technology Administration) that support technology and innovation advocacy.   Even some academic efforts, such as Penn State’s long standing Science, Technology and Society program, are being closed. I was surprised to learn that the course I taught at Fordham this past fall was the first class in North America on Chinese IP law.

To properly align and understand China, we also need to insure we retain and reward the specialized talent needed in industry, government and the non-profit sector. We have a dearth of Chinese language and law competent diplomats. Increasingly our diplomatic issues are handled by specialist agencies, such as FDA or USPTO that do not have programs in place to hire and retain area specialists.  For example, some recent advertisements in USG for China-related trade positions do not require Chinese language competency, and use of Amcit interpreters in China is generally the exception, not the rule.
By contrast, China has aggressively promoted foreign language and international trade skills over the past 30 years within its bureaucracy.

It is also certainly not China’s fault that we have not been graduating scientists and engineers in sufficient numbers to satisfy demand in the United States, or that Tsinghua and Peking U. are the principal feeder schools for US Ph.D’s in science, technology, engineering and math.   In fact, we need more of those students to study and stay in the United States, if the US is to remain competitive.

No one agency is competent to take on the complexity of the challenges, even if they were fully staffed with Chinese-trained specialists. USG also needs greater incentives for interagency coordination to insure that all resources are adequately called into play on increasingly complex trade issues. Because most agencies are thinly staffed, and many have redundant authority with other agencies (e.g, DOJ, FTC, USTR, Commerce and USPTO on IP-related aspects of antitrust), the only means of achieving an adequate depth on the issues is through interagency work sharing.

While we have reasons to be frustrated with China, we also have equally strong reasons to be frustrated with ourselves. Our lack of persistence in making these improvements is tangible.  The place to secure the most immediate improvements in trade policy formulation involving China’s IP regime is by first correcting the misalignments at home.

What are your thoughts on the matter?
Mark

2 thoughts on “The China Challenge

  1. As we move into a world where knowledge has become a tangible asset, extending the same protections we now assume exist throughout the world on real property is essential not to juts protect US companies, but to establish China as a serious player and partner in a world economy.

  2. A very refreshing and insightful view, which has the potential to move the debate onto a different and more realistic level.
    Everything in China, including IP policy, is subservient to the political needs of the state.
    One could say something similar about the US, in that state agencies see potential links among IP, technoogy and security issues. Hence the ban on certain technology exports to China.
    But IP development in the US is more the business of corporations, who may not see things in the same manner as their home country government. They are global in strategy and seek the flexibility of developing IP globally. Policy, however, remains very much part of the somewhat outdated nation-state.

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