China's Influence On Non-Trade Concerns In International Economic Law

Maastricht University, Faculty of Law

Professor Paolo Farah organised with a grant from China-EU School of Law (CESL) in Beijing three conferences on China and Non-trade Issues. The first was held at the University of Turin (November 23-24, 2011), the second at Tsinghua University and the third was hosted by the Faculty of Law of the Maastricht University, the Netherlands, January 19-20, 2012.

Hall of fame at Maastricht University, Faculty of Law

The papers of the speakers presented will be collected in a book edited by Professor Farah called "China's Influence on Non-Trade Concerns in International Economic Law", will be published by Ashgate Publishing (UK), forthcoming in 2012. Beside the English version, there will be an Italian, Hungarian and Chinese version of the book, thanks to the CESL in Beijing.

Law scholars at Faculty of Law, Maastricht University

Professor Farah describes what non-trade concerns of international trade are and why they are of crucial importance: "Both public opinion and policy makers fear that international trade, in particular a further liberalization thereof, may undermine or jeopardize policies and measures on a wide variety of issues, for example, the protection of the environment and a sustainable development, good governance, cultural rights, labour rights, public health, social welfare, national security, food safety, access to knowledge, consumer interests and animal welfare." The list is not exhaustive and includes intellectual property rights.

Professor Paolo Farah

This author had the honour to present his paper 'Rise and Demise of U.S. Social Media in China' at the last conference hosted by the Faculty of Law of the Maastricht University. It is about how U.S. social media sites such as Facebook, Twitter and YouTube were cloned by Chinese social media sites, RenRen, Sina Weibo and Youku, then blocked from China, and then the Chinese clones got funding in the U.S. at the New York Stock Exchange or NASDAQ.

Speakers from right to left
Professor Anselm Kamperman Sanders, Arianna Broggiato, Danny Friedmann, Rogier Creemers

On January 19, the programme for experts included:
Professor Farah of the University of Turin and visiting scholar of Harvard Law School (East Asian Studies) and Professor Thomas Christiansen of Maastricht University, Political Science Faculty of Arts and Social Sciences, discussed the EU External Action toward China on Non-Trade Concerns in International Economic Law.

Professor Thomas Christiansen

Sergi Corbalán, Executive Director of the Fair Trade Advocacy Office (FTAO) in Brussels, was talking about fair trade and the new EU policies on Corporate Social Responsibility and Development.

Sergi Corbalán

Benjamin Barton of King's College of London, gave a presentation about the EU, China and international development.

Benjamin Barton

Professor Anselm Kamperman Sanders of the Faculty of Law of Maastricht University gave a presentation on China-EU Relations in the Field of Intellectual Property Law. He is not only Intellectual Property Law, Director of the Advanced Masters Intellectual Property Law and Knowledge Management (IPKM LLM/MSc), and Academic Director of the Institute for Globalisation and International Regulation (IGIR), but also Director of the Annual Intellectual Property Law School and IP Seminar of the Institute for European Studies of Macau (IEEM), Macau SAR, China.

Professor Anselm Kamperman Sanders

Arianna Broggiato, BIOGOV UNit, Université Catholique de Louvain, Centre for the Philosophy of Law (CPDR) talked about Genetic Resources and Traditional Knowledge at the Crossroads of Intellectual Property and the Environmental Regime.

Rogier Creemers, who made a transfer from Maastricht University to the Centre of Socio-Legal Studies at Oxford University presented his paper called Cultural Products and the WTO: China's Domestic Censorship and Media Control Policies. Rogier has an interesting blog called China Copyright and Media.

Rogier Creemers

On January 20, the programme focused on public health, product and food safety and consumer protection. Lukasz Gruszczynski of the Law Institute of the Polish Academy of Science talked about product safety in the framework of the WTO agreement on Technical Barriers to Trade.

Lukasz Gruszczynski

Denise Prevost of Faculty of Law of the Maastricht University discussed her paper Health Protection Measures as Barriers to EU Exports to China in the framework of the WTO Agreement on Sanitary and Phytosanitary Measures.

Denise Prevost

Enrico Bonadio of the Law School of the City University of London presented his paper on Plain Packaging of Cigarettes and Public Health under the TRIPs Agreement.

Enrico Bonadio

Paolo Vergano of FratiniVergano European Laywers in Brussels gave a Practitioner's Perspective on Specific Non-Trade Concerns in the Areas of Food Safety and Consumer Protection: A Comparative Analysis of WTO Notifications.

Paolo Vergano

Lorenzo di Masi presented his paper on The Protection of Public Health and Food Safety in East Asia Regional Trade Agreements (RTAs): ASEAN and China.

Lorenzo di Masi

Maastricht city on the banks of the Maas

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Wrong Reasons, Right Conclusion: Why China Imitates Western Brands

Global branding, local marketing
Genuine IKEA in Hong Kong offers "lucky bamboo"
Photo: Danny Friedmann

Panos Mourdoukoutas, professor of economics at Long Island University, gives four reasons why China imitates Western brands. See his Forbes article here. Since I do not agree with all of them, I have given my comments below his assertions:

Mourdoukoutas: 1. "A get rich quickly mentality. After suffering for many decades from the failures of communism, some Chinese people have been trying to improve their standard of living, but they have yet to grasp the meaning of modern capitalism: a system of wealth creation within certain social norms, including respect for other people’s property."
Friedmann's comment: The countries of Eastern Europe also suffered for decades from the imposed plan economies when they were satellite states of the Soviet Union. However, after the wall fell, the intellectual property rights were not as widespread infringed as in China. Precisely because Chinese completely "grasp the meaning of modern capitalism" they make use of every leeway possible. Especially so, since a sufficient safety system by the state is lacking.

Mourdoukoutas: 2. "The belief that intellectual property is a social good. Coming of a communist rule, where many commodities belong to society, and therefore, could be shared among all society members, some Chinese people believe that intellectual property, including brand names can just be shared for free."

Friedmann's comment: See my comment above. Mr Mourdoukoutas does not mention the evolution from trademark counterfeiting to copying design and business methods. This shows that a growing number of Chinese companies understands the value of brands and are starting to develop them.  

Mourdoukoutas: 3. "Weak enforcement of property rights. Intellectual property receives little protection in China, especially when it comes to prosecuting and punishing violators."

Friedmann: Intellectual property and enforcement in China has improved significantly over the years. One can argue that the authorities have a duty to enforce on their own initiative. But China is compliant to article 41 (5) TRIPs when it has other priorities to spend its resources on (see page 46 of my thesis). Therefore the proprietors should take the first step to enforce their IPRs. There are enough possibilities: enforcement via customs, the courts, administrative route or even criminal route, see here.   

Mourdoukoutas: 4. "A supply side approach to entrepreneurship. In western countries, developing a new brand is a form of demand side entrepreneurship that begins and ends with the consumer; it involves a great deal of consumer research and engagement that require the commitment of great deal of human and non-human resources—and that’s what makes western brands so successful. In China, brand development is a form of supply side entrepreneurship that begins with supply, with abundant labor and financing, but little market research and consumer involvement—and that’s why Chinese brands flip."

Friedmann: I do not agree. Chinese approach entrepreneurship from the demand side. As I pointed out in my article about 11 Furniture, the IKEA clone, see here, Chinese entrepreneurs in second and third cities are listening to what the consumers want. In these second and third tier cities they want high quality, safe goods (Shaun Rein even asserts that Chinese assume Western fast food is healthy, see here) that can be bought in a comfortable way. Many Chinese perceive that these product attributes are provided by Western brands.

UPDATE August 8, 2011:
Professor Mourdoukouras was interviewed by CTV and he argues that Chinese counterfeiters cannot replicate service of Western brands. Again I do not agree. See here.

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Innovation: "Paradoxes, Google and China"

Google and China have found each other in a marriage of convenience, in order to serve the one god they both live by: innovation. This article deals with censorship and intellectual property. Two of the biggest challenges that the internet present to the legal community. The main characters are two of the biggest actors on the internet stage: Google and China. Google wants to offer all the information available to everyone, while not doing evil. China interprets having all the information available to everyone as an evil that will lead to instability.


Download the chapter here of Friedmann, Danny, Paradoxes, Google and China - How Censorship Can Harm and Intellectual Property Can Harness Innovation (July 1, 2011), which is a chapter of the book: Aurelio Lopez-Tarruella (Ed), Google and the Law, IT and the Law Series, TMC Asser, Forthcoming. 

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32 Senators Urge Vice-Premier State Council to Fix IPR and Indigenous Innovation Policy in China

32 U.S. senators have sent an open letter to Wang Qishan, China's Vice-Premier of the State Council. They urge him to use the U.S.-China Joint Commission on Commerce and Trade (JCCT) to address the problems U.S. companies face in regard to:

• Intellectual Property Rights in China;
• China's policy to favour indigenous innovation and not signing the World Trade Organization's Government Procurement Agreement.

Evidently the trade organisation that was created to advance the interests of the software industry Business Software Alliance (BSA) was quite successful in putting their case on the agenda:

"The United States has been raising this issue for many years, and China has repeatedly committed to take steps to address U.S. concerns. For example, in 2006, China committed in the JCCT to ensure that Chinese government agencies and state-owned enterprises use only licensed software. But China has failed to implement this commitment. We urge China to implement this commitment on a timely basis, and in a transparent manner that allows IPR holders to verify the legitimacy of the software used by these entities."

Read the bipartisan letter on the Fair Currency Coalition Blog here.

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IP Dragon Book Review: Poorly Made In China

Paul Midler's book Poorly Made in China is remarkable. He not only wrote a first hand account of the challenges companies face when they manufacture their products in China, but did it in a lucid, literary style, something you would not expect given the prosaic character of the subject. How exciting can the production of soap and shampoo be, let alone read about it? Well, Mr Midler shares his travails, surprise, doubt, confusion and discovery in a way that you virtually experience it. He describes the factories so that you can almost smell the fumes, taste the paint. It helps that Mr Midler uses a first person narrative, but also the protaganists become real (even though all names of persons and companies have been changed, except for Mr Midler's), and to some extent it is not even impossible to identify with the culprits. The book gives ample illustrations of the infamous quality fade: manufacturers who start to use less and less of a certain ingredient, change some production method, all to save some money.

Counterfeit Culture is one of my favourite chapters. It includes an unforgettable scene about Bernie who is managing the China business for Johnson Carter and wants a breakdown of the ingredients King Chemical uses when it is manufacturing their soaps and shampoos and Sister, who is the co-owner of King Chemical: "Sister said that she was not compelled to provide a breakdown. The details were their trade secrets, she insisted.
This infuriated Bernie. "The product line came from my sample set. What trade secret? It's my fucking product!"

Mr Midler dryly determined: "the factory was claiming intellectual property rights over its copying methods."

In the same chapter Midler convincingly debunked the myth that Marco Polo ever went to China, how in a Confucian sense the manufacturer feels superior to its customers, how whistle blowers in China are not revered even though they become complicit in working at a factory that manufactures lethal products and he shows that poverty is not always the cause of quality fade. Mr Midler illustrated China's reference for counterfeit products over authenticity with the story of emperor Qianlong. When the emperor found out that a small jade cup was not made during the Ming Dynasty, but was made by the grandfather of the curator he praised the counterfeiter: "The emperor even had a special box commissioned for the jade cup, which he saw as a model of sorts, and on the box he had inscribed a kind of treatise on the art of counterfeiting."

Many Western importers seem all too willing to do business with Chinese suppliers who offer to manufacture their products against prices that are too cheap to even break even. And after they find out that their manufacturer uses stagecraft and trickeries, or manufacture in larger batches then they authorised (third shift counterfeiting), they often have invested so much time, effort and money to smoothen the relationship with this supplier, that they do not want to start all over again.

There is a nice saying in the book that the Western importers play checkers and the suppliers chess. Mr Midler means that the manufacturers are doing business in a non-linear way.

Many manufacturers lure importers of Western countries that abide by intellectual property rights laws to place orders, so that they get their hands on the design and marketing of their products. The manufacturers then produce more products than is authorised. This third shift surplus they trade with countries that do not observe intellectual property rules stringently. As Mr Midler put it: "Manufacturers that produced products using unique, original designs provided by importers, realized that they were perfectly positioned to take advantage of the situation by moving designs from one part of the world to the other, while earning a premium in the process. This was not customer segmentation, but an arbitrage opportunity."

And if these manufacturers have the know-how of a product, they sometimes do not even have to violate intellectual property rights to get new customers. Mr Midler explains that not only technology transfer takes place but also disintermediation; in that case, the supplier deals directly with the importers' retailers, thereby removing the importer from the business equation.

Disclaimer: Not reading this book about manufacturing in China is at your own risk.

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JCB's Chairman Compares China's IPR Enforcement To Disease At Banquet With Premier Wen

Jonathan Guthrie's article for the Financial Times about the travails of JCB, the manufacturer of loaders, forklifts etc. to survive the economic crisis, includes quotes of its chairman. This Sir Anthony Bamford allegedly said to the Chinese premier Wen Jiabao during a banquet that the unlicensed copying of Western technology by Asian manufacturers equals "cancer".

Is this an effective metaphor or a hyperbole that is offensive to those who suffer from it directly or indirectly? According to Wikipedia, cancer is a class of diseases in which a group of cells display uncontrolled growth, invasion and sometimes metastasis. Many times the counterfeit and piracy can grow beyond the control of the rights holder. Invastion (intrusion on and destruction of adjacent tissues): it can destroy market share of the genuine product. Metastasis (spread to other locations in the body via lymph or blood): spread to other locations via export or up and downloading. It might be accurate at some level, but very stylish it is not. And these expletives lead to inflation of meaning. What's next? Godwin's law comes to mind.

One cannot accuse Sir Anthony of using euphemisms or much talent for diplomacy. Then again he is not mentioning China but uses the more generic category of Asian manufacturers. But premier Wen took the hint that he was meaning China and Guthrie reported that premier Wen answered according to Sir Anthony: "He said that China was a big country with millions of mouths to be fed, and that many Chinese businesses were suing Chinese competitors for the same reason".

In the first part of the answer "China is a big country with millions of mouths to be fed" the premier plays the "China as a developing country" argument. And the latter part "many Chinese businesses were suing Chinese competitors" contends that the problem that bothers foreign businesses also bothers Chinese companies. In other words the problem is distributed equally over foreign and domestic companies. This remains to be the question. China can easily come up with a number of intellectual property rights (IPR) disputes between Chinese companies that outnumber those IPR disputes where a foreign companies' IPR in China is involved, in absolute terms. However, if one looks at the relative numbers I am positive that the percentage of foreign firms whose IPR are infringed in China is higher than the percentage of domestic companies' IPR that is being infringed in China.

In short: domestic companies' IPR infringed divided by all domestic companies with IPR versus

foreign companies' IPR in China infringed divided by all foreign companies with IPR in China

Openly critizising China's IPR enforcement to the Chinese premier during a banquet is a route not much travelled by fellow captains of industry. To my knowledge it is the first time (let me know if I have missed other examples). Most company representatives are afraid that critique will lead to repercussions, in the form of covert barriers. Let's look how JCB fares in China in the future.

Read Mr Guthrie's article here.

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What is so special about Special 301 vis-à-vis China? Part II

The previous part can be seen here: Part I.

Yes, Special 301 is special, but what is rather normal?

Like each sovereign state, the US tries to use its power to encourage/pressure other countries to protect its interests as long as it honours its obligations and commitments. Or as the report states: "(..) USTR works to protect American inventiveness and creativity with all the tools of trade policy, including this Report." And since Special 301 is not incompatible with WTO, I don't see anything wrong with a USTR's assessment excercice from a legal perspective. Subjectivity is completely legitimate for a government. This time I do not share the outcry of Mike Masnick (see below) nor the indignation of my esteemed blogger colleague Shamnad Basheer of Spicy IP. However, I do share Mr Basheer's remark in his open letter to the USTR here that "[i]f your grudge is that we haven't complied with TRIPS, please feel free to take us to the WTO dispute panel." Yes, that is each WTO member's prerogative. From a Realpolitik point of view: the BRIC-countries (Brazil, Russia, India and China) are getting more powerful economically and might be able as a bloc to change the legal and political pressure to the other side, if they wanted to and if they would not be so divided.

To be continued: see Part III and Part IV.

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What is so special about Special 301 vis-à-vis China?

Each year, since 2005, IP Dragon dealt with the annual Special 301 reports, as a ritual dance in April which had to be described concisely and quickly. Not this year. The ferociousness of the tone by some (see below Messrs. Masnick and Basheer) against the perceived lack of legitimacy, methodology and flawed content of the report combined with the important subject matter made me take a closer look.

First the legitimisation of the Special 301 procedure and its report is explored; then the content of the report about the adequacy and effectiveness of intellectual property in China (this is IP Dragon, after all) is investigated (see Part II), then some of the criticism will be debunked (see Part , and some comments on a comment on Mr Masnick's article will be made. After that the testimonies of messrs. Donnelly, Smith, Mellis and Palmedo regarding IPR in China during the hearing will be looked into.

Legitimisation: "You are not strange, you are eh... special"

The Office of the United States Trade Representative (USTR) put China also this year on the so called 'Priority Watch List' and is again subject to 'Section 306 monitoring' ("the USTR may apply sanctions if a country fails to satisfactorily implement an agreement", however these sanctions are restricted to bringing a case to the WTO, see 'Statutory language versus undertakings that remove inconsistency' below). The USTR published its annual report in which it reviews the adequacy and effectiveness of the protection of intellectual property rights in and market access to U.S. persons that rely upon the protection of intellectual property rights.

The Special 301 procedure is pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). It was controversial for some time, because many countries thought that it gave the USTR the right in case of a perceived denial of adequate and effective protection of IPRs or market access to retaliate unilaterally. Therefore the European Communities brought a case to the World Trade Organization, which got the code WT/DS152. See an excellent 63-page summary of the case, here.

The main complaint of the European Communities was that Section 301(c), which became later 19 U.S.C. Section 2411, authorises the USTR to "suspend, withdraw, or prevent the application of, benefits of trade agreement concessions", or "impose duties or other import restrictions on the goods of, and … fees or restrictions on the services of, such foreign country for such time asthe Trade Representative determines appropriate". It also came to the conclusion that because the U.S. is a member of the WTO it should bring its trade conflicts to a panel of the Dispute Settlement Body to solve the problems multilaterally. The same is also applicable to Section 306.

Statutory language versus undertakings that remove inconsistency

According to the panel the statutory language was indeed inconsistent with the obligations under the WTO Agreement. However, such inconsistency could be removed upon examination of the US' undertakings: namely a Statement of Administrative Action (SAA) in which the US promised to follow the route set out by the WTO to settle trade conflicts and made a promise that consecutive US governments will honour this pledge.

To be continued: see Part II, Part III and Part IV.

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R.I.P. Google.cn? Thanks To Censorship and IP Infringements Or Just Face-saving Exit?

Google.cn is threatening to pull out of China, because of "a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google." Read the official Google blog about it here.

- Of course it is not clear whether Google is bluffing? If they do, China probably would not care less, since Baidu, China's market leader, is China's preferred search engine anyways.
- If they don't bluff, the question is whether the censorship, vulnerability to sophisticated hacker-attacks (hacking does not seem to be a problem exclusively targeted to Google.cn or foreign companies only; days before Baidu was hacked) and the resulting intellectual property theft are the real reasons or whether Google wants to cut their losses after disappointing business results and do not want to lose face?

Many Chinese people have sympathy for Google's demands to be able to provide unfilitered search results and have laid flowers and wreaths at Google.cn headquarters at Zhongguancun, Beijing's high-tech centre, which the Chinese authorities called "illegal". Then again, Joel Martinsen of the always excellent Danwei.org has an article by Gao Youbin who quotes a survey by Huanqiu Online: 70 percent of respondents say that the Chinese government should not give in to Google's demands, read here (the second part of the 'Earth-shattering news').

IP Dragon would love to know what kinds of intellectual property rights were stolen, as Google alleges. Do you know?

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Zen And the Art Of Intellectual Property in China

I love that title (remix of perfect book title: Zen and the Art of Motorcycle Maintenance, by Robert Pirsig, which is a remix of the title Zen in the Art of Archery, by Eugen Herrigel who brought Zen to Europe after WOII), and have repeated it like a mantra. All the time I meditated until there was an occasion to use the title. That time has come now that the universe has alligned to this mantra, at last.

The occasion is an interesting article in the Shanghai Daily (one page free the rest paid) and a fine adaptation of the article on Xinhua with the same title (shorter but free) "Commercialism or industrialization is path to truth of Zen" about the world famous Shaolin Monastery turning to intellectual property to spread its ideas.

In the article the author asks whether the ideals of Zen Buddhism can be reconciled with commercialism/industrialization. Good question, my first take would be yes, because "seemingly disjunct or opposing forces are interconnected and interdependent in the natural world, giving rise to each other in turn." Here I would like to limit myself to some words on the three pillars of the Shaolin Monastary: Zen, martial arts and medicines.

Martial arts

Shaolin monks know not only how to use their hands (Plum flower fist, eigh flower fist and don't forget Dragon technique) and feet as lethal weapons. They also know how to protect their intellectual property rights assertively, as early as 1997; see the 2005 IP Dragon article about it here.

Martial arts. The Shaolin monastery tried to protect the incredible Shaolin kungfu style as an intangible cultural heritage with Chinese characteristics already in 2002, which was granted in 2006; see the 2006 IP Dragon article about it, here.

Medicines

China is keen to protect traditional Chinese medicines. My perception of traditional Chinese medicines is that the protection is difficult, since these medicines are highly personalised to each patient. Then again the medicines can be standardised. In 2007 Jia Hepeng wrote for Intellectual Property Watch that China still has problems with protecting traditional Chinese medicines, because of the gap between the patent system and the protection efforts for traditional knowledge, read here.

Zen 禪

Looking at the history of Zen Buddhism one could see this set of beliefs as an example of the benefits and appeals of remix, avant la lettre. It all started with Bodhidharma, an Indian prince, who went into China (teaching a special transmission outside normal Buddhist scripture), where the school of thought radically changed. This procedure happened again when the ideas were taken to Korea, and Japan and also to Vietnam it changed very much because of the influence of the local population. The result is that we now have an Indian version of Zen called Dhyāna, a Vietnamese version called Thiền, a Chinese version called Chán, a Korean version called Seon, and a Japanese version that obviously has become most popular in the West, called Zen and which is often used as a denominator of all these styles. I guess Zen is used in a dilutionary way for a long time.

I am doubtful if we would have such a wealth of branches in Zen Buddhism if the manifestations of Buddhism were protected and enforced by intellectual property rights after the time of the adventurous Bodhidharma, who went north to spread his ideas (Bodhidharma was not really infringing upon the intellectual property rights of Buddhism, even if there were any existent at the time, if he taught a special transmission outside scripture, as is said about him). Is remix the way to enlightenment?

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Intellectual Property Rights in China

Many non-Chinese companies want to profit from the Chinese economic boom. They either want to sell their products to the 1.3 billion Chinese consumers or use the low wages to produce them. Both ways companies can anticipate some IP challenges. They'll meet the IP Dragon. About this fierce creature I will write this blog. A blog that will focus on intellectual property rights (IPR) and IP law in China. A rather dynamic field of law to put it mildly.
I hope to come up with some answers to questions as:
What are the developments here in the People's Republic of China?
What are the differences between theory and practice?
How do you enforce your IP Rights in China?

If you find relevant articles please send me a link.

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