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Global Supply Chain News: Trump Orders Review of Chinese Intellectual Property Practices, While China Fires Back


US Claims China Policies Cost US Companies $600 Billion Annually from Theft and Forced Handover of IP

Aug. 16, 2017
SCDigest Editorial Staff

In what could ultimately a very impactful action, President Donald Trump on Monday ordered an inquiry into China's alleged theft of intellectual property and deals requiring US IP to be turned over to Chinese companies as the cost of doing business.

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"The greatest transfer of wealth in history,"New York Times Op-Ed says.

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US Trade Representative Robert Lighthizer was authorized to spend as much as one year to determine whether to launch a formal investigation of China's policies on intellectual property, which the White House and some industry groups say are harming American businesses and jobs.

China was not pleased with the news.

"If the US side ignores the facts, and disrespects multilateral trade principles in taking actions that harms both sides trade interests, China will absolutely not sit by and watch, will inevitably adopt all appropriate measures, and resolutely safeguard China's lawful rights," a Chinese government spokesperson said.

At the heart of the dispute are two issues:

• China's policy of forcing foreign companies to turn over technology to Chinese joint venture partners as a prerequisite to completing a deal

• China's failure to crack down on intellectual property theft over many years

Both are big issues in Europe as well, though the EU has not taken the same kind of formal action as Trump authorized on Monday.

Chinese rules require foreign firms who want to enter certain industries - such as energy, telecommunications and autos - to form joint ventures with local partners, which often results in the transfer of technology to the Chinese companies.

Beijing also strongly encourages global businesses to carry out R&D activities inside the country, leaving IP from the research less secure than if performed in the United States.

Chinese officials also often insist on taking a close look at technology that foreign companies want to sell in China.

"Chinese government authorities jeopardize the value of trade secrets by demanding unnecessary disclosure of confidential information for product approvals," the American Chamber of Commerce in China said in a report published in April.

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Trump administration officials have estimated that theft of intellectual property by China could cost US companies as much as $600 billion annually.

In an Op-Ed column in the New York Times this week, Dennis Blair, former director of national intelligence and a former commander in chief of the US Pacific Command, and Keith Alexander, a former commander of the United States Cyber Command and a former director of the National Security Agency, say that China's IP theft must stop.

"Chinese companies, with the encouragement of official Chinese policy and often the active participation of government personnel, have been pillaging the intellectual property of American companies," the pair opined, calling the $600 billion in revenue losses "the greatest transfer of wealth in history."

They add that "Successive American administrations have concluded that some level of exposure to China's depredations against our intellectual property is simply the cost of doing business with the world's now second-largest economy. This is not acceptable. Although China is an important trading partner with the United States, it is imperative to establish a fair and level trading environment."

Experts on China trade policy say the year-long time period for the analysis could allow China to take some action on the issues raised by the US without being seen to cave to pressure under the threat of reprisals. China repeatedly rebuffed attempts by previous US administrations to take action on its IP practices, and has insisted it rigorously protects intellectual property.

This is an event that should be closely monitored by companies sourcing from China, as it could certainly lead to trade measures by the US to which China would likely strongly respond.

One expert group, however, say the move is too late.

"Intellectual property theft is yesterday's issue," wrote  the Center for Strategic and International Studies. ""Creating new IP in the United States is more important than keeping IP from China."

Does China appropriate and sometimes steal US intellectual property? What can be done? Let us know your thoughts at the Feedback section below.


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