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In recent months, there has been growing debate about whether the United States should impose trade sanctions on China because of a range of issues, including the country’s fixed-rate currency, quotas in textile exports, and inadequate intellectual property protection. Writing about the Chinese currency in June in The New York Times, Senators Charles Schumer, D-New York, and Lindsay Graham, R-South Carolina, declared, “The time has come for actions, not more words.” Although the re-evaluation of the Chinese yuan has been the most pressing issue in Washington, American businesses and policy makers are equally, if not more, concerned about IP protection in China. To some extent the recent criticisms are reminiscent of the turbulent relationship between China and the U.S. in the 1980s and early 1990s. To induce China to offer stronger IP protection then, the administration threatened economic sanctions, trade wars, nonrenewal of most-favored-nation status and opposition to its entry into the World Trade Organization. This time China is a WTO member (it joined in 2001). The Agreement on Trade-Related Aspects of Intellectual Property Rights of the WTO requires that all IP disputes be settled by the WTO dispute settlement process. Groups like the International Intellectual Property Alliance, the National Association of Manufacturers and the U.S. Chamber of Commerce, have called on the Bush administration to file a formal complaint at the WTO. The administration has yet to do so, and there are at least four reasons why it should not. First, although the TRIPs agreement stipulates that each member state needs to provide effective IP enforcement, it does not define what constitutes “effective” protection. There is no doubt that a software piracy rate of 90 percent, as stated in a recent study by the Business Software Alliance, provides strong evidence of ineffective enforcement. However, The Economist magazine and critics like the Consumer Electronics Association have challenged the accuracy of these figures. It is also unlikely that the WTO would take numbers supplied by a self-interested trade group at face value. More problematic, U.S. companies have been uncooperative in supplying Chinese piracy and counterfeiting data to the U.S. government. Small and midsize companies, in particular, remain reluctant to disclose information, lest they wreck their hard-earned “guanxi” (personal connections), and face political and business repercussions. Some also find it wise to free-ride on the enforcement efforts of their competitors and partners. A WTO action would be a win-win for companies that choose to stay out of the conflict: If the U.S. prevails, they would benefit from the ruling. If the U.S. fails, however, they will have demonstrated loyalty to their Chinese connections throughout the process. Second, even if the U.S. were able to amass the needed evidence, the WTO process poses structural challenges to a general complaint about inadequate IP enforcement. Virtually all existing WTO cases have focused on the nonimplementation of specific provisions, rather than lack of general enforcement. Challenging China on nonimplementation grounds wouldn’t work, however, because most of the laws required under the TRIPs agreement are already on the books. In the wake of WTO accession, China revamped its copyright, patent and trademark laws. It also made many substantial revisions to its IP laws in response to agreements signed with the U.S. in the early 1990s. If the U.S. goes after China on nonenforcement grounds, the TRIPs agreement might even be on China’s side. Under TRIPs, a member state is not required to devote more resources to IP enforcement than to other areas of law enforcement. If China were able to show that the enforcement problems they have over piracy and counterfeiting were similar to the problems they have in, say, tax collection (which are very serious), China is likely to prevail. It is hard to imagine any country putting IP protection ahead of tax collection. Nor does the WTO require it to do so. The IP problems in China, to some extent, are not that different from those in the U.S., which has been struggling with a massive unauthorized copying problem since the emergence of Napster and other file-sharing technologies. In the past few years, the recording and movie industries have filed many rounds of lawsuits against individuals downloading copyrighted works illegally via peer-to-peer networks. At some point, we just need to recognize that intellectual property, due to its abstract nature, is generally treated differently from physical property. Even in major U.S. cities, it is not uncommon to notice hawkers selling pirated CDs and DVDs in the presence of police officers. Many IP rights holders have also complained about the difficulty of convincing federal prosecutors to take piracy and counterfeiting cases seriously. Some district attorney’s offices, they maintain, just refuse to take those cases. Third, the WTO dispute settlement process does not guarantee victory for the U.S. For example, in June 2000 the U.S. lost its WTO dispute with the European Union over �110(5) of the U.S. Copyright Act, which enables restaurants and small establishments to play copyrighted music without compensating copyright holders. Most recently the Caribbean islands of Antigua and Barbuda successfully challenged U.S. regulations on Internet gambling. To be certain, the U.S. and the European Union dominated the dispute settlement process in the first few years of the WTO’s existence, and many of the U.S.’s losses involved the European Union. However, less developed countries have used the WTO process more frequently in recent years. If the WTO rules are on their side, even tiny Caribbean islands can prevail over a trading giant like the U.S. One could only imagine what it would be like when an enormous country like China decides to face off with the U.S. Because of the customary length and detail in the WTO panel reports, it is unlikely that either the U.S. or China will win the entire case. The losing country will likely score some important points. This works in China’s favor: Even if it loses on a majority of claims, it would score some wins it can use in future WTO litigations. But if the U.S. loses, any minor points it scores will be insignificant. Such a loss would have a devastating impact that would spill over into other areas of international trade. Finally, the WTO dispute settlement process, if used improperly, will hurt the U.S.’s long-term interests in promoting international trade. Because China is currently undergoing a transition to full compliance with WTO rules, well-conceived challenges are needed to provide guidance. WTO challenges can help break up local monopolies and entrenched piracy interests, maximizing the benefits created by China’s WTO accession. If the right complaint is brought, the U.S. might even be able to enlist the support of local companies, which are equally concerned about the anti-competitive behavior of these monopolies and entrenched players. China spent 15 years negotiating exhaustively for its entry to the WTO. It is important that policy makers be patient as the country learns to become a respectable member of the international trading body. A bad case before the WTO will not only be unhelpful in liberating trade, but could potentially backfire on the entire international community. It is worse than not bringing the case at all. Peter K. Yu is an associate professor at Michigan State University College of Law. Web site: peteryu.com.

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