Monday, February 19, 2007

Sino-US relationship about IPR enforcement: New Cyclus of Threats and Reassurances

Karan Bhatia, deputy US trade representative said: "Last October, we informed China we would be filing such a case, but then agreed to hold off, with the support of US industry, when China asked for further bilateral discussion. If it becomes clear that negotiations will not be successful, then we will proceed with WTO dispute settlement."

Read the article here.

However, as Peter K. Yu has already pointed out a victory in the WTO would not necessarily solve the problem. Yu gives five reasons why the US [1] should not file a formal complaint based on the abovementioned articles.

First, there is no clear definition for effective enforcement (see article 41(1) TRIPs). What Yu writes about effective enforcement can be said too about the terms effective deterrent (see article 46 TRIPs) and deterrent (see article 61 TRIPs). The latter provision is mentioned a lot by industry trade groups, that encourage WTO members to base a case against China alleging its criminal remedies are insufficient to provide a deterrent, caused by alleged high thresholds. If it actually comes to a WTO dispute resolution settlement case, based on article 61 TRIPs, a way for the Dispute Resolution Body panel to measure the degree of sufficiency of deterrence could be to compare the thresholds of other WTO countries, preferably in the same developmental stage [2] and determine whether China’s thresholds are within a certain reasonable range.

Second, a complainant country needs to have good evidence. The paradox is that although US companies and trade groups urge the US government to file a formal complaint against China, so that the USTR is asking companies to submit their complaints, only 35 companies have handed in their complaints [3]. Companies want the problem of inadequate enforcement solved as long as it does not interfere with their direct personal interests [4]. The information China gives, based on the request of article 63 (3) TRIPs could be used as evidence, too. But if this were the only evidence, it would make the position of the complainant member very dependent on the willingness to share the information of the defendant member.

Third, almost all of the existing WTO cases focus on more specific provisions, rather than a lack of general enforcement. Comparable cases were those filed by the US against Greece and one against the EU [5].

Fourth, an adverse WTO ruling should be calculated. Even countries as small as Antigua and Barbuda can prevail against the US if the WTO rules are on their side [6]. In a dispute settlement process it is likely that both parties win some major points. This should be taken into account when a country files a formal complaint against a defendant as formidable as China.

Fifth, China needs guidance to help it make the transition to full compliance with WTO rules. Therefore well-conceived challenges before the WTO Dispute Settlement Body are needed to provide guidance during this critical period. WTO challenges will be particularly helpful in areas in which Chinese laws do not comply with more specific TRIPs provisions, as well as those in which the challenges are supported by prior WTO panel decisions.

[1] These arguments could apply to other countries as well.
[2] China’s developmental stage is difficult to compare, since it is both a developing country and a developed country. Also according to Andy Sun China is not a monolithic society or market: “Anyone who wants to do business, or have anything to do with Chinese markets should not think that way. It is actually a capsule of both time and space, ” Andy Sun, China and WTO Compliance, CASRIP Publication Series: Rethinking In’t Intellectual Property, 2000, no. 6., pg. 243, available at:
[3] The USTR received only 35 submissions from the industry through the Section 301 submission procedures in 2005 (2005 Out-of-cycle review.
[4] Probably because they fear this will have averse effect on their ability to do business in China, or they expect trade tensions or retaliations which do their business no good. Guanxi (personal connections) and political capital is important in China. Yu, From Pirates to Partners, pg. 127.
[5] US claimed that Greece in one case and the EU in another violated articles 41 and 61 TRIPs by not providing effective enforcement of IPR. Both cases were eventually settled. Request for Consultations by the US, Greece, Enforcement of Intellectual Property Rights for Motion Pictures and Television Programs, WT/DS125/1, May 7, 1998; Request for Consultations by the US, European Communities, Enforcement of Intellectual Property Rights for Motion Pictures and Television Programs, WT/DS124/1, May 7, 1998.
[6] Panel Report, US, Measures Affecting the Cross-Border Supply and Betting Services, WT/DS285.R, November 10, 2004.

Jiang Yu spokeswoman of the ministry of Foreign Affairs said at a regular press briefing that China is in the process of improving its legal system to better deal with violators of intellectual property rights and will crack down harder on "IPR infringement activities so as to protect the intellectual property of all countries' products in China."

Read the Shanghai Daily News article here.

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