June 7, 2018 / 10:11 PM / a year ago

COLUMN-Commentary: China-U.S. trade talks miss a key point

(Scott Mulhauser is the founder of Aperture Strategies, the former chief of staff at the U.S. Embassy in Beijing and the Export-Import Bank of the U.S. and a former senior advisor to the U.S. Senate Finance Committee. The opinions expressed here are his own.)

By Scott Mulhauser

June 7 (Reuters) - Amid tough talk and unveiled political positioning, China and the United States went through another round of trade talks earlier this month. Sadly, yet perhaps unsurprisingly, negotiators struggled to find common ground. The stakes are higher than ever, and discussions like these are an opportunity for the two countries to begin to mend a strained trade relationship. Still, reaching a positive outcome for both Beijing and Washington will take work after years of rising tensions and emboldened leaders on both sides of the Pacific.

This came into full view during the latest round of negotiations, which ended in a stalemate as the delegations departed the talks without sufficient progress toward any sort of agreement. In the interim, Beijing has tantalizingly offered to purchase American goods and services in exchange for the lessening of sanctions.

But as newsworthy as these tariff and trade talks are, the two countries need to take a holistic view and focus on other key pieces of economic security – in particular, the preservation of American intellectual property. This ongoing misappropriation of IP from the United States and other countries has been widely criticized by trade and legal experts across the ideological spectrum.

While China has made progress putting in place laws, regulations and a legal structure to take on IP theft, along with continuing to develop its own intellectual property, too many American innovators are still not compensated for work that gets copied, transferred and replicated in China. A report by the independent, bipartisan Commission on the Theft of American Intellectual Property estimates that pirated software, counterfeit goods and theft of trade secrets costs the U.S. economy between $225 billion and $600 billion a year.

Too often, Chinese entities use compliant authorities and friendly courts to convert American IP into Chinese IP through a routinized process of siding with Chinese companies, often without merit and by disregarding clear facts to the contrary. In these instances, certain companies in China take American IP and sue the rightful owner in Chinese court, claiming patent infringement. The court then sides with the Chinese company and forbids the American company from using its own IP in the Chinese market. If the American company seeks to continue operating in the Chinese market, it then needs to compensate and secure permission from the very Chinese entity that took its IP in the first place. In essence, this practice constitutes IP laundering – and it’s too often done with the blessings of Chinese courts.

Though successful partnerships between the two countries abound, U.S. companies are also sadly all too familiar with this tactic. Veeco Instruments’ wafer carrier technology, Knowles’ micro-electrical-mechanical systems microphones and InterDigital’s wireless mobile phone technology patents have all fallen victim to this IP practice, which was subsequently supported by Chinese courts.

It’s now time for all players in the global system, both government and private, to work on specific solutions that could address this issue constructively. This includes not only looking at how the IP regime is being built in China, but how it’s enforced. And it includes not only working with the companies benefitting from and struggling with these issues, but examining the entire process, from IP enforcement through product assembly through work with the platforms that distribute products internationally. From authorities in the United States and China working jointly on enhanced protocols to leveraging platforms and commercial web sites to plug holes that allow this appropriated IP to seep into markets, there are plenty of opportunities to improve IP enforcement.

The Trump administration has been back and forth on its approach toward China and again made news with a renewed tough-on-China stance, ordering tens of billions of dollars in tariffs on Chinese imports. While this move brought China to the negotiating table, the potential effects of these tariffs on the U.S. and international economy sparked concerns of a looming trade war that could lead to higher prices for consumers and manufacturers as operating, production and distribution costs rise in both countries.

And while countries, consumers and companies remain steadfastly engaged with China, there is also a resounding acknowledgement of the challenges of trading with a country that regularly commandeers intellectual property, forces tech transfers, zealously uses anti-monopoly laws to implement economic policy and mandates joint ventures for companies operating in China.

As U.S. and Chinese negotiators continue their discussions in the weeks ahead, this is an opportunity to go beyond tariffs and focus on the bigger picture. Hopefully the teams on both sides will seek out the real solutions needed to do just that. (Reporting by Scott Mulhauser)

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