Pirates on the High Seas: Stopping Piracy at the Borders

Pirates on the High Seas

The United States and Global Intellectual Property Rights

Bénédicte Callan

1998

Stopping Piracy at the Borders: The China Case

Certainly, The Task of stopping piracy in Asia is daunting. The recent showdown with the People’s Republic of China illustrates how difficult extinguishing IP infringement actually is. China represents the most challenging case politically for the United States: it is a booming market with great technological potential but is not well integrated into the international trading system. Most important, China is not a member of the WTO. China, however, is no different than Indonesia, India, Argentina, or Turkey in that, in all cases, the United States needs first to establish a legally enforceable agreement and the enactment of domestic IP laws, and second, to encourage their incorporation into the business culture. The behind-the-borders enforcement of new IP agreements is the biggest challenge to U.S. strategy.

In the post-Mao era, China came to recognize the rights of individuals and companies to hold intellectual property and implemented an impressive array of reforms-promulgating laws and joining the major international conventions. ₇₇ But the pace of change was unsatisfactory to the United States, especially in copyright protection, and three Sino–American IP agreements were negotiated to smooth relations. The first, called the Memorandum of Understanding (MOU) on Intellectual Property Rights, was signed in 1992 and established strong legal foundations for domestic IP protection. While on paper the MOU created an exemplary intellectual property rights system, the laws did not guarantee enforcement. Through 1993 and 1994, the United States presented China with evidence of violations, sometimes including the names and addresses of companies blatantly ignoring China’s new IP laws. U.S. complaints culminated in February 1995 with the threat of $1 billion in sanctions if China did not agree to the following three measures: (1) shut down and prosecute domestic infringers, (2) halt exports of infringing goods at the border, and (3) open the Chinese market to legal U.S. movies, sound recordings, and computer software. ₇₈ Tensions with the United States were high, but Beijing capitulated at the last minute and a second agreement—the 1995 IPR Enforcement Agreement—unequivocally laid out what steps the PRC would take to abide by the earlier Memorandum of Understanding.

The story, as we know, did not end in 1995. The United States continued to monitor China’s commitments, sending delegation after delegation to Beijing and the provinces to discuss IP violations. Under U.S. pressure, China conducted over 4,000 raids, destroying millions of pirated CDs, videos, audiocassettes, and counterfeit trademark products. ₇₉ China’s emphasis, however, was on prosecuting the domestic retail sector rather than the manufacturers. So in spite of government raids, exports of pirated goods continued. From the U.S. perspective, Beijing was again not enforcing its IP agreements. In May 1996 USTR designated China a "priority foreign country" under Section 301, and threatened $2.3 billion of retaliatory tariffs to make up for lost American sales. China immediately countered with its own proposed sanctions. A frenzied exchange of delegates criss-crossed the Pacific, and at the last moment, a joint declaration averted a trade war.

Through negotiations and threats, the United States succeeded in getting the Chinese government to establish stronger intellectual property rights, but not in rapidly changing the behavior of either the government or the pirates. The second stage in ending an end to piracy requires creating a domestic constituency that supports intellectual property rights. Often, even if adequate IP laws are on the books, weak legal institutions and culture mean that many people are unaware of the prohibitions on IP use or do not to take them seriously. ₈₀ In China, the legal culture problem is exacerbated by government officials who are themselves involved in the pirate trade. An inflammatory article in Wired translates a discussion with a young Chinese man, Ye Sang, known as one of the "Four Heavenly Kings of Hacking," who works in Beijing’s Thieves Alley. Ye, who is in his early twenties, is not impressed with U.S. attempts to halt software piracy:

"They can hit China with as many sanctions as they want. Besides, they’re only punishing the central government; it can’t touch any of us. At least the foreign devils got that right the Chinese government is the one to go after. Boy they make a heap from pirating! I couldn’t copy programs for heavy-duty machines, even if I wanted to. I don’t have any originals to work with, nor do I have the know-how, equipment, or access to a market. I’ve got no alternative but to let the government make the real [financial] killing.
"The government raided us a few days ago, just to give the Yanks some face during the latest round of Sino–U.S. intellectual property talks. Go for it! All they got was a few disks. We still have software coming out our ears. Our [police] were just putting on a show for the Yankee devils. If they really wanted to enforce a ban, they’d hit the National Defense Science, Technology, and Industry Commission or the Academy of Sciences. All we get are their leftovers. The government has been breaking the same laws we have. If they don’t give a damn, why should we be scared?" ₈₁

The lack of a strong stand by top officials on IPRs, the divided bureaucratic responsibility for IPRs, and the divide between the central government and local officials is sending mixed messages to pirates and has complicated enforcement efforts. ₈₂ It is not surprising, therefore, that over 95 percent of all computer software in China is pirated, compared to 30 percent in the United States. ₈₃

The PRC’s desire to accede to the WTO has aided the U.S. position in negotiations. The United States wants consistent TRIP protection as one prerequisite to endorsing China’s membership. The battle has been over the content of legislation as overenforcement of adequate existing copyright laws. The United States is insisting that China immediately guarantee IP protection—even though developing nations that were founding members of the WTO were allowed a five-to-ten-year transition period. Because China is such an important BEM, the United States wants it to go "cold turkey." In March 1997 China announced it would not seek a transition period if it were admitted to the WTO.

Intellectual property protection disagreements have strained relations with China. It could have been worse, however. Sino–American disputes focus on the copyright industries. The most acrimonious North–South battles are over patents, as the standoffs with India and Argentina testify. The problem with patents is that pharmaceuticals and agrochemicals were granted the longest transition periods in TRIPs, because developing countries feel strongly that IP protection for such vital products is against the public interest, while advanced countries insist that without it, the ills that plague developing countries will go unheeded by science.

China illustrates the problems inherent in both reaching an IP agreement with a developing country and subsequently creating a domestic base for stronger IP rights. But while China has been in the news most recently, it is far from being the lone infringer. Each continent has its share of piracy, with a large number of Asian nations—including South Korea, Taiwan, Thailand, Hong Kong, Indonesia, Vietnam, and India—having been cited by the U.S. government for IP infringement. Eventually 150 nations will be signatories to the WTO, to abide by the minimum standards of IP protection. For the U.S. IP strategy, the adoption of IP laws overseas is the first and easiest step in a plan to create strong protection internationally. The hard part, as made perfectly clear in China, is the implementation: the monitoring and enforcement of IP statutes. Creating domestic interest in stronger IP rights is hard to achieve through simple trade pressure. In challenging Asian IP practices, U.S. strategy must take into account the subtleties of behind-the-border implementation.

Endnotes

Note 77: For an overview of the recent Chinese IPR reforms, see Michel Oksenberg, Pitman Potter, and William Abnett, "Advancing Intellectual Property Rights: Information Technologies and the Course of Economic Development in China," inNBR Analysis, The National Bureau of Asian Research, vol.7, no.4, November 1996. Back.

Note 78: The stipulations of the 1995 U.S. IPR Enforcement Agreement are drawn from a USTR Fact Sheet, "Intellectual Property Rights Enforcement in China," May 1996. Back.

Note 79: Ibid. Back.

Note 80: See William P. Alford, To Steal a Book is an Elegant Offense, Stanford: Stanford University Press, 1995. Back.

Note 81: Sang Ye, "Computer Insect," Wired, no.4.7 p. 82. Back.

Note 82: For an elaboration of the domestic politics of IP protection, see Oksenberg, Potter, and Abnett, "Advancing Intellectual Property Rights: Information Technologies and the Course of Economic Development in China." Back.

Note 83: Figures from Software Publishers Association, 1995 Report on Global Software Piracy, Washington, D.C. Back.