Solving the IPR Problem

The recent announcement of the WTO decision on the US IPR case against China has spurred me to say a bit more about the IPR issue, with maybe some implications for other complex issues we pursue with China:

When you think of it, why the heck is it so hard to solve the IPR problem in China? We all know why it’s a problem (pick one please): a) the leaders of China just don’t get it; if we could just explain the importance of IPR protection to the top leaders we could get the problem fixed; or (b) they intentionally allow weak IPR enforcement so Chinese companies can rip off foreigners; if we force them to change their approach they could solve this issue in short order.

The problem is pretty clear. The folks who spent so much time on it in the Bush 41 Administration must have been incompetents. Same for the people who worked it for eight years in the Clinton Administration. Not to mention the gaggle of people engaged during the Bush 43 Administration. Clearly all were unimaginative, too soft, or not the sharpest knives in the drawer.

Stating it as I have above shows (I hope) just how silly it is when an outside observer rails about the fecklessness of an administration (whichever one that is at the time) in solving the IPR problem.

The fact is, no matter how tough, nice, or clever we are, we cannot achieve dramatic, short-term breakthroughs on the large complex issues in the bilateral relationship such as IPR. I don’t say this to excuse Chinese government behavior nor to say the US should give up and stop pushing China on key areas of difference. I say it because I believe sound policy can only come from an accurate understanding of the constraints we face in the real world (consider the counter example in another context: “This will be a cakewalk!” “They will welcome us with open arms!”)

In thinking about IPR (and similar problems) we need to distinguish between two kinds of issues we face in China. There are those issues that can be solved by relatively simple and easy-for-the-central-government-to-implement regulatory changes. A good example is tariff cuts promised as a part of China’s WTO commitment (accomplished completely, on time).

But IPR falls into the second category of issues, those which lie beyond the ability of the central government to address in the short term because they have broad economic impact and involve implementation across the country of a complex set of attitudinal, structural, and behavioral changes. To some degree we need to recognize that all politics is local, even in China.

Strengthened IPR protection is a key element of innovation and growth in China IN THE LONG RUN (and that’s why there are many in China who support stronger protection). But in the short run strict IPR enforcement causes job and revenue losses. So, there are large groups (local officials benefitting legally (via tax revenue) or illegally (via corruption)) from IPR violations; officials who don’t benefit from IPR violations but who are concerned about the impact of increased social instability if illegal factories are closed; owners, managers, and workers in the counterfeit industry, etc.) who have a strong incentive to ignore existing regulations and lobby against stronger enforcement. And in China, relationships trump rules, so add to the list of obstructionists all of the relatives and close friends of those who stand to benefit from lax IPR enforcement.

Q: Ok, but China is a dictatorship and the Communist Party can accomplish anything it wants, right? (Note: I appeared on a panel with a representative of one of the best known US human rights groups who actually made this point.) A: Nope.

Policymaking in China today (within both Party and government) has moved far from the single powerful figure (think: Mao Zedong) who could issue decrees from on high and have some hope they would be followed across the country. Policymaking and enforcement today is a highly decentralized mechanism that requires consensus among officials with diverse interests. Implementation of rules is further eroded by the fact that relationships trump rules and for sure in every locality there are officials who have relationships with those who benefit from flouting central government laws/directives.

Think IPR is a special case? That the Chinese government intentionally allows weak IPR enforcement as a way to facilitate theft of ideas by Chinese companies from foreigners? First consider the fact that Chinese companies steal more from each other than from foreign companies. But, also, look beyond IPR. Think about the failure of the government/party to enforce domestic food safety laws; mining safety laws; traffic laws! There is a systemic issue of governance in China that goes far beyond IPR enforcement. If enforcement of food safety laws, which threaten the health of Chinese children, is weak, think about the challenges of implementing a more controversial set of rules such as IPR.

I should note that one of the additional complicating factors limiting the implementation of IPR (and other rules) is lack of capacity, i.e., a shortage of highly professional, well trained government officials who can regulate the complex rules of a modern economic society. In IPR, how many police understand the nuances of investigating IPR cases? How many judges and prosecutors have this knowledge? To what extent do Chinese officials have the habit of cooperating across agency and geographic boundaries on complex cross-jurisdictional issues? (Very little as all China hands know.)

[Note: on the issue of enforcement of laws I recall reading some years back that China is a highly under-policed country, i.e., that the per capita number of police (Public Security plus People’s Armed Police) was well below that of the US or other developed countries. Never could again locate that reference, but if a reader stumbles across this blog and can confirm (or correct) that data I’d be grateful. If my recollection of this is correct, certainly gives a different picture of the “this police state” than many observers have.]

Ok, so by now I sound like a whiner who is making excuses for China’s shortcomings. As I noted at the top of the post, my point is just that good policy has to be founded on an accurate understanding of the situation on the ground. In the case of IPR, good policy in my mind will try to accomplish two things:

1) in the short run: aggressive pursuit of specific issues where Chinese laws, regulations, or practices fall short and where we see an ability for China to implement a fix. The IPR case the USG brought in Geneva is a good example of trying to identify specific shortcomings that are addressable by the Chinese government. Negotiation under the JCCT mechanism is another good avenue for this effort.

2) over the long run: expand the number and scope of bilateral exchanges, conferences, seminars, and training programs that can provide the intellectual and skills-based support needed by those in China who themselves are pressing for strengthened IPR protection for the benefits it brings to China.

I’m someone willing to defend the proposition that the last three (or more) administrations have each made contributions to progress on IPR protection in China. It’s not as fast as most of us (and many officials in China) would like. However, we do ourselves no good by thinking that there continues to be a magic bullet that has eluded the idiots who have come before which could magically solve the IPR problem. This one will not be a cakewalk. We need to buckle down for a long-term effort.

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10 Comments on “Solving the IPR Problem”

  1. Leigh W Says:

    Hank: How do you think public awareness campaigns factor in? Seems to be somewhat increasing in importance to the government given the growing blogosphere — even Premier Wen is blogging these days!

    • levinehank Says:

      Interesting point, and one that goes beyond just the IPR issue. But re IPR: I tend to think that societal norms are pretty strong in China. In fact, one area we see this is that Chinese consumers are very brand conscious (this includes recognition of high status US colleges; everyone wants to go to an Ivy!). A Chinese acquaintance in HK once commented to me that he and his friends would never wear counterfeit products, because it would be seen as lower class. On the mainland, I’d think that public awareness campaigns could play a role in helping to make use of counterfeit products “uncool” at least among the young, educated elites in the coastal big cities. I know some of this has been done (didn’t the film folks get Jackie Chan to do an anti-film piracy short that was shown in mainland movie theaters before the main feature?). Of course, per my original post, there is no single magic bullet to solving the IPR issue. I think a long-term effort employing lots of methods is needed.

      Beyond IPR, the question of the use and impact of the internet in China is a fascinating one. Questions of how the Chinese government is using the web to get its message out (witness the Premier’s webchat you mentioned) and to get citizen views (e.g., during the NPC session); the whole “anti-establishment” web culture in blogs and video postings that has developed; the issue of Chinese censorship, etc, etc. Much to write about in blogs like this in the future.


  2. Sure, some IPR is important to long run innovation, but China needs to be very careful to avoid moving to the extreme the West has where too much IPR stifles innovation. See Prof. Heller’s book for how this harms long run growth: http://www.amazon.com/Gridlock-Economy-Ownership-Markets-Innovation/dp/0465029167

    • levinehank Says:

      I’m for sure no expert on this, but question that comes to my mind is: if system used in the West is stifling innovation, where do we see a better system that is producing more innovation? Developing countries? Russia?


      • The West is still so innovative because innovation comes from more than government-granted monopoly rights – a strong sense of entrepreneurship, great education, good early-stage financing opportunities, etc. Also, our IPR regime does, for all its faults, have some very important exceptions such as limitations on secondary liability, the first sale doctrine and fair use. All of those limit the ability of extreme IPRs to squash innovation, but I worry that as the USTR et al. push for stronger Chinese IPR, they will ignore these important concepts.

      • levinehank Says:

        Again, I defer to you and others re weaknesses of US IPR regime (which I have no doubt exist). Of course, as I often used to say to my Chinese counterparts when they pointed out certain protectionist elements in US trade policy (e.g., the former system of textile quotas), we are not perfect, but it is hard to find another model for China which is better as a path for China to achieve its economic goals.

        Anyway, I strongly agree with your statement that innovation requires a lot more than strong protection of intellectual property rights and there is a lot of debate in China over the best path to encourage innovation. Some of the elements you mention as important to innovation are weak in China. (Note: education may be strong in certain dimensions, but there is a lot of debate in China over whether the educational system emphasizes memorization too much at the cost of nurturing imagination and innovation). In fact, China’s current push for “indigenous innovation” (i.e., innovation by domestic companies to get out from under foreign technology “monopolies”) relies more than is healthy on the industrial planning model, with the government picking winners and losers and shaping policies to support the technologies it has chosen.

        Having been engaged in discussion of IPR issues alongside my USTR colleagues in the past, one thing I can say is that the US government has tried mightily to help Chinese counterparts understand that innovation comes from an “ecosystem” of factors, which include free flow of capital, a fair and transparent regulatory regime, etc. Many in China do get this, but there are strong vested interests that like the industrial planning model, and the debate goes on.


      • If America is the model for growth, then it is only fitting that China doesn’t protect IPR very well in its early stages of development – the USA was regarded as a “pirate nation” by many Europeans in the 18th Century, including Dickens who was enraged that American printers didn’t respect his copyrights. It was only more recently that we overstepped the balance.

        And I’m glad to hear that the conversation involves more than just IPR.

        (And I’m glad you’ve started blogging – really enjoying the posts.)

      • levinehank Says:

        Thanks for the kind remarks. Getting comments back is one of the great joys of blogging I have discovered. Thanks for offering yours.

  3. Neale S Says:

    Don’t forget about foreigners in China who are breaking IPR law. This is not limited to the cases of foreigners caught exporting large numbers of DVDs back home. Here’s a recent example about training company TW Allison in Guangzhou: http://tinyurl.com/cta7sh

    Sometimes we paint the Chinese as the bad guys, when often it is a foreigner, in this time a Canadian.

  4. Wangwei Says:

    Neale in relation to your post about TW Allison copyright infringement in Guangzhou, China, the link you are referring to is http://www.slideshare.net/morryone/tw-allison-copyright-infringement-part-1

    Your link was broken.


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