Tensions increase over tackling violations of US IP in China

Disagreements have erupted in the US over how to handle China’s alleged intellectual property theft and counterfeiting activities – by force or through the art of negotiation.

During an International Trade Commission hearing, China was slammed by some US business and trade groups for forcing firms to turn over intellectual property and for jeopardising the US economy, urging for a forceful response in retaliation by the US. But other groups noted the progress China had made in recognising and enforcing IP rights and called for more peaceful discussions.

The hearing follows the signing of an executive memorandum by US president Donald Trump in August, authorising an enquiry into US perceived IP violations in China, which has led to the launch of an investigation by the US Trade Representative’s office, under section 301 of the 1974 Trade Act.

This could allow Trump to impose tariffs and import quotas and rescind licenses for Chinese firms if discriminatory restrictions on the US are found. China has opposed the investigation, which it believes is outside the framework of the World Trade Organisation (WTO).

Testifying on behalf of the Commission on the Theft of American Intellectual Property – a private group monitoring China’s handling of IP – Richard Ellings said China “cheats across the board”, with firms experiencing theft and forced technology transfer, and called for a US response based on “strength and leverage”, Reuters reported.

He added that many companies were afraid to report IP abuses because of what impact that might have on the stock market. “In quiet conversation, we find out incredible stories about the pressure and the few options companies have,” the Asia Times reported Ellings as saying.

Owen Herrnstadt, director of trade and globalisation for the International Association of Machinists and Aerospace Workers, gave the example of the development of China’s first commercial passenger jet, the C919. According to the Asia Times, Herrnstadt said the development was achieved through the forced transfer of technology and by playing Boeing and Airbus off each other.

However, the far-reaching claim of IP theft was refuted by Erin Ennis, senior vice president of the US China Business Council. According to a survey of its 200 members, only a third had been asked to transfer technology and only a minority had not been compensated, Reuters said.

Ennis urged the US not to take unilateral action that could risk a trade war.

Meanwhile, other groups present noted the pilot of IP courts in China as a positive step, while others acknowledged the positive role China plays in the US economy.

In response to the hearing, Chinese experts called for bilateral discussions to address the complaints of IP theft instead of the US focusing on a path of unilateral actions, which could exacerbate current trade tensions, the *Global Times *reported.

They also queried the credibility of the US’ claims.

“The US couldn’t specify when, where and how their IPR were infringed, so the hearing has become one-sided and we won’t recognise such a vague claim,” He Weiwen, an executive council member at the China Society for the WTO, told the news service. “China has no laws or regulations to force foreign firms to transfer technology, and if IPR theft took place, a US company could file a lawsuit and there will be a Chinese court to take the case and make a ruling. I’m sure any violation would be rectified in a lawful manner.”

He said bilateral channels already existed to solve disputes via negotiations, which could be referred to the WTO if negotiations were unsuccessful. “The US action harms the equal, win-win atmosphere and the practice of settling differences via dialogue,” He said.

This position was echoed by Chen Zhou of the China Chamber of International Commerce, according to Bloomberg. “We are quite confused and greatly concerned about the investigation,” as any unilateral penalties on China “may trigger a trade war”, Chen said.

But Donald Trump has campaigned on an American First agenda and was clear about his “duty” to protect Americans when he signed the August memorandum, saying: “We will stand up to any country that unlawfully forces American companies to transfer their valuable technology as a condition of market access. We will combat the counterfeiting and piracy that destroys American jobs.”

China has ambitions to become a world leader in technologies, such as electric cars, and has looked to actively compete with the US and Europe. Reports have suggested that new Chinese rules have pressured foreign firms to join joint ventures and share confidential company information with local partners, as well as storing local data on Chinese servers, which opponents claim could remove protections on US tech secrets and IP.

China has rejected the allegations of IP violations.