[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
WILL CHINA PROTECT INTELLECTUAL PROPERTY?
NEW DEVELOPMENTS IN COUNTERFEITING, PIRACY, AND FORCED TECHNOLOGY
TRANSFER
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HEARING
before the
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 22, 2010
__________
Printed for the use of the Congressional-Executive Commission on China
Available via the World Wide Web: http://www.cecc.gov
_____
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CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
Senate House
BYRON DORGAN, North Dakota, Chairman SANDER LEVIN, Michigan, Cochairman
MAX BAUCUS, Montana MARCY KAPTUR, Ohio
CARL LEVIN, Michigan MICHAEL M. HONDA, California
DIANNE FEINSTEIN, California TIMOTHY J. WALZ, Minnesota
SHERROD BROWN, Ohio DAVID WU, Oregon
SAM BROWNBACK, Kansas CHRISTOPHER H. SMITH, New Jersey
BOB CORKER, Tennessee EDWARD R. ROYCE, California
JOHN BARRASSO, Wyoming DONALD A. MANZULLO, Illinois
GEORGE LeMIEUX, Florida JOSEPH R. PITTS, Pennsylvania
EXECUTIVE BRANCH COMMISSIONERS
Department of State, To Be Appointed
Department of Labor, To Be Appointed
Department of Commerce, To Be Appointed
At-Large, To Be Appointed
At-Large, To Be Appointed
Charlotte Oldham-Moore, Staff Director
Douglas Grob, Cochairman's Senior Staff Member
(ii)
C O N T E N T S
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Page
Opening statement of Hon. Byron L. Dorgan, a U.S. Senator from
North Dakota, Chairman, Congressional-Executive Commission on
China.......................................................... 1
Levin, Hon. Sander, a U.S. Representative from Michigan;
Cochairman, Congressional-Executive Commission on China........ 4
Feinstein, Hon. Dianne, a U.S. Senator from California; Member,
Congressional-Executive Commission on China.................... 5
Murck, Christian, President, American Chamber of Commerce in the
People's Republic of China..................................... 7
Lee, Thea Mei, Deputy Chief of Staff, AFL-CIO.................... 9
Frazier, Greg, Executive Vice President for Worldwide Government
Policy, Motion Picture Association of America.................. 11
Suttmeier, Richard P., Professor of Political Science, Emeritus,
University of Oregon........................................... 14
Appendix
Prepared Statements
Murck, Christian................................................. 30
Lee, Thea Mei.................................................... 34
Frazier, Greg.................................................... 36
Suttmeier, Richard P............................................. 39
Levin, Hon. Sander............................................... 42
Smith, Hon. Christopher H., a U.S. Representative from New
Jersey; Ranking Member, Congressional-Executive Commission on
China.......................................................... 43
Levin, Hon. Carl, a U.S. Senator from Michigan; Member,
Congressional-Executive Commission on China.................... 44
Submissions for the Record
Prepared Statement of Robert W. Holleyman, II, President and CEO,
Business Software Alliance..................................... 46
``Piracy is a Danger to Entertainment Professionals,'' submitted
by the Department of Professional Employees, AFL-CIO (DPE) for
the Arts, Entertainment and Media Industries Unions Affiliated
with DPE, AFL-CIO Executive Council Statement, Orlando,
Florida, March 2, 2010......................................... 50
WILL CHINA PROTECT INTELLECTUAL PROPERTY? NEW DEVELOPMENTS IN
COUNTERFEITING, PIRACY, AND FORCED TECHNOLOGY TRANSFER
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WEDNESDAY, SEPTEMBER 22, 2010
Congressional-Executive
Commission on China,
Washington, DC.
The hearing was convened, pursuant to notice, at 2:18 p.m.,
in room 628, Dirksen Senate Office Building, Senator Byron
Dorgan, Chairman, presiding.
Also present: Representative Sander Levin, Cochairman; and
Senator Dianne Feinstein.
OPENING STATEMENT OF HON. BYRON DORGAN, A U.S. SENATOR FROM
NORTH DAKOTA, CHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON
CHINA
Chairman Dorgan. I'm going to call the hearing to order.
This is a hearing of the Congressional-Executive Commission
on China. I'm Senator Byron Dorgan, Chairman of the Commission.
We will be joined momentarily by other members of the
Commission.
The hearing today is on the subject of: ``Will China
Protect Intellectual Property? New Developments in
Counterfeiting, Piracy, and Forced Technology Transfer.''
This country has a relationship with China that is very
important, and will become even more important going forward.
That relationship, however, has a number of very vexing,
difficult issues attached to it, one of which is the issue of
international trade. We run a very large trade deficit with the
country of China. It is a deficit that is the highest trade
deficit in the world with the United States.
We also are very concerned, and have long been concerned,
with China with respect to the safeguarding of intellectual
property, and have been concerned about piracy and
counterfeiting on intellectual property and other goods coming
from the United States.
I noticed in last week's Wall Street Journal a story that
in many ways summarizes much of what concerns us, and one of
the reasons that we have called this hearing. This hearing
occurs a long while after the Congress passed PNTR [Permanent
Normal Trade Relations] with China, and many of us had high
hopes that there would be very dramatic changes as China joined
the World Trade Organization [WTO] and China would take steps
as a full partner in the international community of trade to
protect intellectual property and to shut down piracy and
counterfeiting.
But China, in many ways, while making some progress and
some success in other areas, in many ways China, I believe, has
turned a blind eye to the issue of piracy and counterfeiting
and has engaged in managed trade with the sole purpose of
running a very large trade surplus with our country, or we a
deficit with them, in a way that I think has been fundamentally
unfair.
But the Wall Street Journal story of September 16 says the
following:
China's government is considering plans that would force
foreign automakers to hand over cutting-edge electric vehicle
technology to Chinese companies in exchange for access to the
nation's huge market, international auto executives say.
China's Ministry of Industry and Information Technology is
preparing a 10-year plan aimed at turning China into a world's
leader in developing and producing battery-powered cars and
hybrids, according to executives at four car companies who are
familiar with the proposal.
The draft suggests that the government could compel foreign
automakers that want to produce electric vehicles in China to
share critical technologies by requiring the companies to enter
into joint ventures in which they are limited to a minority
stake, executives say.
Then, finally, the plan is ``tantamount to China strong-
arming foreign automakers to give up battery, electric motor,
and control technology in exchange for market access in
China.'' This is just last week, but it goes on.
It is interesting to me, in our trade relationship with
China, we have this very large trade deficit, somewhere in the
neighborhood of $250 billion a year. When we have trade
negotiations and opportunities to work with the Chinese on
trade--which should always be mutually beneficial if two
partners negotiate trade issues, you ought to end up with
something that is considered to be mutually beneficial--somehow
we end up not quite in that area.
Intellectual property--for example, movies--after
negotiations, we're able to see 20 foreign movies into the
Chinese marketplace. Twenty. Is it a wonder, then, that there
is massive copying, illegal copying, of that intellectual
property and then distributed and sold on the streets of China?
Not to me, it's not. If our market is open to Chinese goods,
why should the Chinese market not be wide open to our goods?
It is not that the Chinese are not able to control
counterfeiting and piracy. We had an interesting lesson with
respect to the Olympics. The Olympic logo belonged to the
Chinese Government. It was their property. When people on the
streets of China began to take that logo and put it on pencils,
and pennants, and so on and use it for their own purposes, the
Chinese Government very effectively shut it down because that
belonged to them. Demonstrating that they can shut this down
ought to suggest to us that if they see this happening to
American intellectual property, they could shut it down as
well, but they choose not to.
China, I think, has failed to comply with its commitments
to protect intellectual property rights. It made that promise
when it joined the WTO. I think that failure has a direct
impact here in this country. The impact: Americans out of work,
American jobs shift to China, misery from American
manufacturing workers who used to have good jobs that paid
well, with good benefits, that are now this morning putting on
their clothes and going out and looking for a job. That's the
impact of all of this.
It has a profound impact on our country when you run a
trade deficit of this size that represents a trade deficit
intended by the Chinese Government, because of the managed
trade system they wage, and also a trade deficit based on the
kind of difficulty that we have making sure that our
intellectual property is not hijacked in a foreign country, as
has been the case in China too often.
There have been some things that represent good news in
China. The government has reformed some of its legal
infrastructure. It's amended its copyright, patent, and
trademark laws in order to be compliant with WTO rules. But the
question is not too much that. The question is, how are these
things enforced? Is there really an intent to enforce these
areas as a part of the international community and
international trade?
Since China joined the WTO in 2001, we've seen about 2.5
million jobs lost in the United States due to the U.S.-China
trade deficit, that is, our deficit with China. Some of the
great American brand names no longer are American; they have
long since moved to China in search of cheap labor and so on.
That's an issue that's related, but somewhat different than
copyright and intellectual property infringement and
counterfeiting.
But the Chinese Government has really systematically
refused to effectively police the black markets that exist for
counterfeit and pirated goods. We had a USTR, U.S. Trade
Representative's, 2010 Special 301 Report and it says,
``Widespread IPR infringement continues to affect products,
brands, and technologies from a wide range of industries.''
China accounts for 79 percent of IPR-infringing goods
smuggled into the United States. When you walk down the street
of a major city--you walk down the street and see all kinds of
people selling wristwatches, and purses, and scarves, and so
on, most of it counterfeit. Our USTR says 79 percent of the
intellectual property-infringing goods smuggled into the United
States comes from China. That's $7.6 billion in 2009, a $900
million increase over 2008.
I won't talk about the market barriers and other related
issues. I would just say that the healthy relationship that we
hoped for and expect in the future with China is a relationship
that does not now exist in international trade, and that
relationship, in my judgment, must change.
We must expect China, which has now joined the WTO, to
abide by the rules, to aggressively enforce intellectual
property rights, to shut down the issues dealing with
counterfeiting and piracy, and to take effective action to
demonstrate to us they are ready to become full partners in
international trade in the way that we understand international
trade should be conducted.
It is also the case--and I have written a book about this
subject of international trade--that it is unsustainable for us
to have a $200-250 billion-a-year trade deficit with a single
country. That's not sustainable and is going to have to change
as well.
But with all of that, let me just say that this Commission
has been active in pursuing a wide range of subjects. I have,
and so has my colleague, Representative Levin, who chaired this
Commission previously, indicated where appropriate that certain
progress has been made in some areas of China, but there are
many other areas that have not yet begun to see the kind of
changes that are necessary.
Much of what we have done with this Commission has focused
on those who have been sent to the darkest prisons of the rural
areas of China for basic acts of free speech, and the violation
of their human rights concerns us, and will always concern us.
We, at this point, maintain the largest repository of
information on prisoners in Chinese jails who are human rights
prisoners, and we're going to continue to work on that. Today
we're talking about a different subject: ``Will China Protect
Intellectual Property? New Developments in Counterfeiting,
Piracy, and Forced Technology Transfer.''
I am joined by my colleagues, Representative Levin and
Senator Feinstein. Representative Levin, would you wish to make
an opening comment?
STATEMENT OF HON. SANDER LEVIN, A U.S. REPRESENTATIVE FROM THE
STATE OF MICHIGAN, COCHAIRMAN, CONGRESSIONAL-EXECUTIVE
COMMISSION ON CHINA
Representative Levin. Thank you. It's my privilege to join
you, Mr. Chairman and Senator Feinstein, during this uniquely
busy time here in the Congress. You have covered the subject so
well, so let me just add a few thoughts.
Senator Dorgan, I think you were so right to point out the
work of this Commission. It has done invaluable work in terms
of human rights, including labor rights. Its charge from the
very beginning also related to the rule of law, and that's the
basic subject here today. It's really, this hearing, of utmost
importance to our businesses and our workers, in part because
they lose billions of dollars every year through the
infringement of intellectual property rights in China.
The Chinese Government has failed to comply with its
commitments to protect intellectual property rights that it
made in joining the WTO, and unfortunately it continues to
undermine protections for intellectual property contained in
its own laws, and so by shining a spotlight on this, the
Commission has an important role to play. You mentioned,
Senator Dorgan, the Wall Street Journal article. I think as we
read it, we said to ourselves, something has to give.
Indeed, China's industrial policies have had a common
thread. They have a purpose and the effect of tilting the
playing field to favor Chinese companies and against U.S.
companies and workers, and those in other countries. As you
said, this is not either a sound or a sustainable basis for the
important mutually beneficial U.S.-China relationship, nor is
it a viable foundation for the development of rule of law in
China.
Indeed, there is a widening chasm between what we hear from
the Chinese Government about IPR protection and what we know to
be true. For example, we hear that the legal infrastructure
supporting intellectual property rights has improved. We hear
that courts are becoming more professionalized and skilled at
handling complex issues.
We hear that Chinese rights holders are turning to Chinese
courts to assert their rights more than in the past, and that
there's been a measurable increase in the number of civil
intellectual property cases in Chinese courts. We hear that
foreign plaintiffs are winning intellectual property cases at
increasing rates.
That's what we hear, but this, unfortunately, is what we
know: the American Chamber of Commerce in China surveyed its
members this year, and found 63 percent rated intellectual
property enforcement in China as ``ineffective.'' We know IPR
infringement in China is more widespread than before.
Counterfeit exports have increased. We know that the
enforcement of IPR judgments is difficult in China and damages
are still inadequate. The Chinese Government has often taken
insufficient steps to address these difficulties.
So in sum, we know that the Chinese Government could be
doing far more--far, far more--to protect intellectual property
rights. We know, for example, in 2009--and I'll just cover
these briefly--79 percent of intellectual property infringement
product seizures at the U.S. border were of Chinese origin.
We know that China's State-Owned Assets Supervision and
Administration Commission has the power to require state-owned
enterprises to certify that all software they use is properly
licensed, but that hasn't been required. We know that the
production of counterfeit parts experienced a period of
significant growth in China relating to auto parts and beyond,
and we know that Chinese Government access barriers lead
consumers to the black market.
And let me say this very clearly: Chinese Government
censorship leads consumers to the black market, and that in
turn incentivizes the violation of IPR rights. The Chinese
Government often denies the link between human rights and the
commercial rule of law, but there is a clear link and the
Chinese Government itself helps to create this link. There can
be no doubt that Chinese flagrant abuse of international rules
undermines the rule of law.
There is no doubt that widespread intellectual property
rights infringement in China continues to affect--and you
mentioned this, Mr. Chairman--products, brands, and
technologies from a wide range of industries, and imperils the
health and safety of both American and Chinese consumers, and
imposes billions of dollars of losses yearly on American
business and workers.That is why change is necessary, both in
the Chinese Government's behavior and in the action we take in
response. So this is an important hearing for us, for the
entire Congress, for the country, and I think for China and our
relationships, so we look forward eagerly to the testimony
before us.
Thank you.
Chairman Dorgan. Congressman Levin, thank you very much.
Senator Feinstein, would you like to make an opening
statement?
STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM
CALIFORNIA; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
Senator Feinstein. Just a few. I come at this a little
differently, and I want to thank you both for your concern. I
mean, I've been going to China now for over 30 years, and I
remember what life was like there before 30 years. I think we
have to remember that. China is a country 5,000 years old.
Prior to normalization in 1979, begun by the Shanghai
communication in 1972, China had been closed to the west for
150 years. It had been run by emperors that were arbitrary,
arrogant.
The transition from a rule of man to a rule of law, I
think, has moved rather substantially in this 30-year period.
It isn't there yet. It isn't what we want to see, but I think
it has to be understood that movement is made. I have found in
certain areas--and I'll give you one, on the piracy issue--I
met with the President of China in the 1990s at the request of
the motion picture industry and others, and I was assured that
all the pirate companies in Guangdong had been closed. Somebody
came in and gave me a list of 32 companies who owned them,
where they were located, what they did. I sent this to the
USTR, who then sent it to China, and they were all closed.
Now, either this is wilful avoidance, or certain people in
the government really didn't know. I'm not making a plea for
the government. I think the government has to begin to
understand what cyber-intrusion is doing, what intellectual
property rights mean. I come from a State where intellectual
property rights are extraordinarily important. I mean, this is
innovation. This is movement and they must be protected, and
there are laws to protect them, patent laws, copyright laws,
all of this. In the Judiciary Committee, we have a patent bill
that has just come out.
The problem is, there is inconsistent dialogue. There is
virtually not the kind of communication that should go on on an
ongoing basis between officials of our government and officials
of the Chinese Government. Constant, monthly working away at
this. I think because of this long history of China, because so
much of it just being the rule of man, that to get this to a
modern commercial code, modern patents, a modern criminal code,
is really an effort.
I just wanted to say that because I think it's easy to make
the judgment that China doesn't want to do any of this. I don't
necessarily believe that's correct. I think we have to really
press this issue home because it's extraordinarily important to
the relationship.
Chairman Dorgan. Senator Feinstein, thank you very much
for your perspective. You and I have been together in Beijing,
and I know that you have a long association with the country of
China and have had a lot to do with sister cities and various
things. So, thank you for that perspective as well. We
appreciate that.
Senator Feinstein. You're welcome.
Chairman Dorgan. We have four witnesses today. The first,
is Christian Murck. Christian Murck is the president of the
American Chamber of Commerce in the People's Republic of China.
I'm told that he traveled here from Beijing yesterday to, among
other things, come to this hearing. We appreciate it very much.
You get the longest distance award today. We appreciate your
willingness to make that effort.
He was, in 2002, elected as president of the American
Chamber in China. He is also the independent director of J.P.
Morgan Chase Limited in China. From 2001 to March 2010, he
served as Vice Chairman-Asia, Chief Executive-Asia, and
Managing Director of China for APCO Worldwide. He's a graduate
of Yale College, with a bachelor's degree, and Princeton
University with a Ph.D.
Mr. Murck, thank you for being with us. The full statements
of all of the witnesses will be included as you have brought
them to us, and we would ask each of the witnesses to
summarize.
Mr. Murck, you may proceed.
STATEMENT OF CHRISTIAN MURCK, PRESIDENT, AMERICAN CHAMBER OF
COMMERCE IN THE PEOPLE'S REPUBLIC OF CHINA
Mr. Murck. Thank you, Mr. Chairman. It's an honor and a
pleasure to appear before you. I testified once before in front
of this Commission in June 2002 before your Cochairman, who I
believe at the time was Chairman of the Commission. I was
pleased to discover on your Web site that that testimony still
survives, hidden away in one of the far recesses of the
archives.
It gave me a chance to look at what I said eight years ago
about intellectual property rights protection in China. One of
the things I have tried to do in my current statement is review
what has happened between 2002 and 2010. When we look at the
enforcement regime and the legal infrastructure that supports
intellectual property rights over that timeframe, we do see
slow but discernible progress. That is based on a common point
of view which is held in principle by both the United States
and the Chinese: that intellectual property infringements are
not only illegal, but undesirable, and are not a basis on which
to build economic growth in a sustainable fashion.
There is a substantial bureaucratic momentum, as well as a
common interest of the American and Chinese business
communities behind improving intellectual property rights
enforcement. We are disappointed that the progress has been so
slow and there are still some notable areas which remain to be
improved, particularly with respect to copyright protection of
motion pictures and music, and some others. But basically we do
see a way forward and we do see partners that we have been
working with for some time, and some of that is outlined in my
statement.
We are, at AmCham-China, turning our attention to a problem
which is qualitatively different, where we do not share a
common stance and a common approach. That is to a range of
industrial policies often having to do with intellectual
property. We are looking at the impact on our future market
access and on American competitiveness.
It appears to us that many of China's industrial policies
can be seen as intended to strengthen national champion
companies by encouraging them to acquire or develop
intellectual property, and giving them protected domestic
markets in which to gain scale with the ultimate objective of
being globally competitive.
In this case, the Chinese policies reflect considered,
deliberate choices which are inimical to our commercial
interests and which restrict both national treatment for
foreign companies in the Chinese market and the development of
a market economy. We were most alarmed by this development,
starting late last year, by the release of a circular on
indigenous innovation, which defined so-called indigenously
innovated products in a manner which would exclude not only
imported products, but also those of foreign-invested
enterprises in China, and by the prospect that this might then
be used in government procurement and State-owned enterprise
procurement.
Since then, there has been a very active dialogue on this
subject and many Chinese senior leaders, including Premier Wen
Jiabao last week at the World Economic Forum meeting in
Tianjin, have responded that the draft regulations or the 2009
regulations on this subject were improperly done, they have
been changed, and that there is no intent to discriminate
against the products of foreign companies.
But our concerns are substantially broader than simply that
one set of regulations. They go also to technology transfer
issues of the kind that the Wall Street Journal cited, which
is, I would emphasize, still in the planning stages and has not
yet actually happened. They go to issues of standards and how
standards are formulated. They go to the CCC [China Compulsory
Certificate] mark and how that is conducted, and to a range of
other issues, many of which are outlined in my full statement.
These are qualitatively different from the issue of simply
enforcing the rights of a trademark owner, or a patent holder,
or a copyright holder. The Chinese market is one not only of
very large scale, but also where there is very large future
potential for growth. In many cases, it is simply too important
strategically for companies to think about washing our hands
and withdrawing.
On the other hand, it is clearly a market which is going to
be very different in the future, as it is today from our own,
in that there will be a large state-owned sector. We have to
come to terms with that fact and figure out what we can do to
negotiate a mutually beneficial relationship between our
economy and the Chinese economy in order to realize the benefit
of the synergies and the growth potential which we think are
there.
Some of the suggestions that we might think about are
included in my statement. I will just say that the Congress--
that is, the Senate Finance Committee--did a very useful thing
by encouraging or requesting the ITC [U.S. International Trade
Commission] to launch an investigation on this subject. We have
supported that by arranging for our members to be interviewed
by the Commission. But I think much more will have to be done
to develop a broad strategy, both for the U.S. Government, and
also for U.S. companies, about how to respond to both the
potential, and also the competitive issues that we will face in
the future.
Some of the answer is in broader public sector/private
sector partnerships, such as the aviation and energy programs
that we are engaged in with support of the TDA [U.S. Trade and
Development Agency]. Some of it is in better export promotion
and strengthening the National Export Initiative. Some of it is
in stronger action at the World Trade Organization, with
respect to good cases have recently been brought by USTR, and a
good deal of it lies in strengthening our own competitiveness
in general.
Much of our future is in our own hands; it doesn't depend
on what China, or anybody else, does. I have in mind here our
tax structure, our educational system, our fiscal deficit, and
the whole range of other things that could be put under the
category of national competitiveness.
With that, I will refer you to my full statement and look
forward to your questions. Thank you.
Chairman Dorgan. Mr. Murck, thank you very much. We
appreciate your testimony.
Next, we'll hear from Thea Mei Lee. Thea Mei Lee is the
Deputy Chief of Staff at the AFL-CIO. Previously she worked as
an international trade economist at the Economic Policy
Institute in Washington, DC, and as an editor at Dollars and
Cents magazine in Boston. She's the author of ``A Field Guide
to the Global Economy,'' published by the New Press. Her
research projects include reports on the North American Free
Trade Agreement on the impact of international trade on U.S.
wage inequality in the domestic steel and textile industries.
She's a graduate of Smith College and has a master's degree
from the University of Michigan.
Thea, you may proceed. Thank you very much.
[The prepared statement of Mr. Murck appears in the
appendix.]
STATEMENT OF THEA MEI LEE, DEPUTY CHIEF OF STAFF, AFL-CIO
Ms. Lee. Thank you so much, Mr. Chairman, Mr. Cochairman,
and Senator Feinstein. It's a great pleasure to be here on
behalf of the 11.5 million working men and women of the AFL-CIO
to talk about this very important topic today. I think a lot of
people assume that business cares about intellectual property
rights [IPR] enforcement, but labor is not that interested.
In fact, IPR enforcement is very important to many AFL-CIO
members, not just in the entertainment and media industries,
but also in the manufacturing sector. It's important to
American jobs, wages, to innovation and economic growth,
consumer safety, tax revenues, and the reputation of American
products.
It is also true that much of the labor movement's policy
priorities with respect to China have focused on other issues,
including currency manipulation, worker rights, and illegal
subsidies, but the lax enforcement of IPR protections remains a
key contributing factor to our lopsided trade relationship.
Both in the arts and entertainment sector, where copyrights
are routinely ignored, and in the manufacturing sector, where
counterfeit parts and products are rampant, billions of dollars
in revenue and thousands of good jobs are at stake. There's a
common theme to many of the trade tensions between the United
States and China.
We've raised many issues over the years, including
violations of workers' rights, workplace safety and health,
consumer protections, and intellectual property rights. These
are linked because they're part of a single coherent economic
strategy on the part of the Chinese Government.
It's an export-led strategy, which is disrespectful of
international norms and basic human protections. So, these
issues are all part of the same kinds of struggles and tensions
that we have with the Chinese Government. We need our
government to focus on how to address these in a more effective
way than has been done in the past.
Taking steps now to address the Chinese Government's
flagrant violations of its international obligations with
respect to IPR is crucial to setting a sustainable, long-term
trajectory for our bilateral relationship. This really does
have to do with the issue that Mr. Murck raised about forced
technology transfer and innovation, and where the next
generation of innovation happens.
If the U.S. Government doesn't take more care to ensure
that American workers and American businesses can benefit from
the kinds of innovation and inventions that happen here in the
United States, we will feel the impact of that for generations
in terms of lost American jobs.
We often hear business and government officials tout the
promise of the Chinese market, and of course it is both large
and fast growing, but meaningful access to that market for
American producers and workers is severely undercut by IPR
infringement.
If American entertainment products and software cannot sell
at a reasonable price in the Chinese marketplace and if the
legitimate owners of those products are not able to receive
their fair share of the revenues, then the size of the Chinese
market is, for all intents and purposes, a tiny fraction of
what it ought to be. Similarly, American products are in direct
competition with Chinese-produced counterfeits, costing jobs in
third country markets, as well as in the United States of
America.
Over many years, the U.S. Government has made repeated
attempts to cajole, pressure, or convince the Chinese
Government to improve its IPR enforcement record through the
use of Special 301 cases, priority watch lists, the Joint
Committee on Commerce and Trade talks, and finally, WTO cases.
Each one of these things is important because it sends a
message to the Chinese Government. But overall I'd have to say
it has been a long, frustrating history of trying to deal with
these issues in a piecemeal fashion. We haven't really seen the
kinds of results we'd like to see, as you said, Mr. Chairman,
in your opening remarks, and as Mr. Levin said as well. Over
all, we still have enormous violations and a failure on the
part of the Chinese Government to take this issue seriously and
to give it the kind of attention it deserves.
This summer, the U.S. Trade Representative filed a request
for a WTO panel. That was an important case, which challenged a
number of practices on the part of the Chinese Government,
including the quantity and thresholds in China's criminal law
that must be met in order to start criminal prosecutions or
obtain criminal convictions for copyright piracy. It also
contested the Chinese rules that allow IPR-infringing goods
that are seized by the Chinese authorities to be released into
commerce, following the removal of the fake labels. Of course,
this totally undermines the whole point of removing these
products from the marketplace.
The third issue that USTR raised was also an important one:
a challenge to the denial of copyright protection for works
that are awaiting Chinese censorship approval. Under Chinese
copyright law, there is no protection for these copyright
holders before the censorship approval is granted. These are
all enormously important issues.
Let me just conclude by saying that the Commission has
asked the question: ``Will China protect intellectual property?
'' I believe that the answer in the end will depend on our own
government's actions. We haven't really been successful to date
in cajoling, or convincing, or persuading the Chinese
Government to act effectively.
The real key is going to be raising the price for non-
compliance so that it exceeds the gains that are currently
being earned by violating the intellectual property rights
norms. Until that happens, American workers and businesses will
continue to pay a high price, and the Chinese Government will
continue on its current short-sighted path. I look forward to
your questions and I look forward to the rest of the testimony
today.
Thank you very much.
Chairman Dorgan. Ms. Lee, thank you very much.
Next, we will hear from Mr. Greg Frazier, executive vice
president for Worldwide Government Policy at the Motion Picture
Association of America. He coordinates the development and
execution of the government advocacy initiatives of the Motion
Picture Association on behalf of its members. He has spent more
than two decades in public service, lastly as Chief Agriculture
Negotiator in the Office of the USTR, serving with the rank of
ambassador. Before that, he was Chief of Staff at the U.S.
Department of Agriculture from 1995 to 1999, and he has held
several professional staff positions in the House of
Representatives as well, and many other activities.
He is a graduate of Kansas State University, and the
University of Connecticut with a master's. Mr. Frazier, thank
you for being with us.
[The prepared statement of Ms. Lee and the statement of the
AFL-CIO Executive Council appear in the appendix.]
STATEMENT OF GREG FRAZIER, EXECUTIVE VICE PRESIDENT FOR
WORLDWIDE GOVERNMENT POLICY, MOTION PICTURE ASSOCIATION OF
AMERICA
Mr. Frazier. Thank you, Senator. I appreciate the
invitation to be here. I was listening to your opening
statement and I thought: ``I'm not really sure what I can add
to what Senator Dorgan said.'' You made the comment that, with
a quota of only 20 foreign films allowed into China, is there
any wonder that there's a movie piracy problem there.
If you look at my statement and if you look at the comments
that we and our members have made over the last couple of
years, you put your finger on what we believe is the critical
component to dealing with movie piracy in China.
We start out by saying--most people don't realize this--
that the movie industry is a trade success story. The men and
women who work in the movie industry--and it's not just in
California, but it's all over the country--earn about half of
their earnings from outside of the United States, so it's a
real success story. There's a positive balance of trade for the
U.S. movie industry in every country where it does business,
including China.
The Chinese market is a real paradox. We did a study a
couple of years ago and we estimated that the movie piracy rate
in China was 90 percent. That means, for every 10 DVDs sold in
China, 9 were pirated.
Yet, the Chinese market is one of the fastest-growing
theatrical markets in the world. The member companies that I
represent, that I work for, their box office revenues from 2008
to 2009 doubled in China. This was a huge increase. If you look
over the last two years, it has gone up about 100 percent, so
it's a growing market. There's a demand for American
entertainment in China.
But if you put that in context, what they earned in 2009 in
China is probably about what they will earn in the United
States in the month of September. Growing market, lots of
piracy.
What's the problem? If you were in Beijing and you went
from Mr. Murck's office and you were to take a walk to
Tiananmen Square, I think you might be able to see what the
problem is.
You would leave Mr. Murck's office, and very soon you would
get to the Silk Market. You would walk up to the Silk Market
and somebody would come up to you and whisper, ``DVDs,'' and
shove underneath your face a fistful of all of the latest
movies that just opened in the United States this past weekend.
You might conclude that there were lots of U.S. films available
in China, and it would be a reasonable conclusion.
If you kept walking quite a bit further, there's a mall
near Tiananmen Square called Oriental Plaza mall. I would
direct you to two places in that mall. On one end is an audio-
visual store--two stories. On the top story is equipment, on
the bottom floor, is music and films. If you are patient enough
and you look hard enough, you will find the American movies.
It's probably about two rows of movies. Virtually none of them
are current, none of them are new movies. They're fine movies,
but they're not the latest releases.
How does that square with what happened at the Silk Market?
Why could I get anything I wanted at the Silk Market but I
can't at the AV store?
If you went down the mall a little bit there's a cinema in
there. The cinema is as modern as any cinema that you would see
anywhere in Washington, DC. You might see one American film
playing there.
So here is the paradox: There is an abundance of American
movies in China. Unfortunately, most of them are pirated. As
you said in your statement, China only permits 20 foreign films
into its market every year. That's not just 20 from the United
States, it's 20 from all destinations. Then there are further
restrictions we face as I have summarized in my written
statement on television programs and home entertainment
products.
So we believe that until we can get into that market and
those barriers can come down, there's no way that we can
compete with the Chinese pirates. Unfortunately, as other
witnesses have said and as you have indicated, the pirated
products that are coming out of China are showing up all over
the world. This is not just a victimless crime. It's not just
American men and women who are suffering.
I'm not going to say every time we buy a pirated movie it
goes to an organized crime syndicate, but the Rand Corporation
released a report two years ago and it said more than likely
not, when we buy a $2 DVD in the Silk Market in Beijing, that
money is going to go to an organized criminal syndicate based
in China, perhaps doing business all over the world.
So what do we do about that? Again, in your statement you
indicated, about the basics of the law, it needs changes, it
needs refinements here and there. But the real problem, we
believe, as you indicated, is lack of commitment from the
Chinese authorities. When you were there during the Olympics it
was almost impossible to find counterfeit Olympic logo
material. They had an interest and a desire to protect it, and
they did.
From time to time, the Chinese Government launches these
campaigns, they're going to clean up this city, this district,
that district. And you know, they do for a week, two weeks,
three weeks. But you go back, and the material is there.
There's not a sustained role, sustained commitment to address
that problem.
After many years of dealing directly with the Chinese
Government, dealing with the U.S. Government, the companies
that I work for decided they needed to escalate this, so we
went to the U.S. Government and we asked them to take a suit
against China for its IPR violations and for its market access
restrictions.
I am pleased to say that after thousands of hours of work
by this Administration and the previous Administration, the
U.S. Government prevailed at the WTO in a case that made
important challenges to China's market access barriers, and,
therefore, the piracy problems in China.
China has until the middle of March to come into compliance
with the WTO ruling against it in the market access case. We
believe that this is a critical time period on how China comes
into compliance and what the future is, both in terms of our
ability to grow that market and which we believe will go hand-
in-hand with dealing with the piracy problem.
I guess I would close by saying that, the U.S.-Chinese
relationship is complicated and there are many things at play,
and movies are just one aspect. I also know you have very busy
schedules, and so I appreciate you holding this hearing now
during this busy time.
At the same time all three of you and your colleagues meet
with Chinese officials all the time. Senator Feinstein talked
about how she's been going there for over 30 years and meets
with people, and she is respected and known there. The extent
to which you also have those meetings, the extent to which you
engage with Chinese officials, don't forget to mention how
important the market access barriers are to the growth of the
U.S. film industry in the China market. Coming from the U.S.
Congress, it carries a lot of import, it carries a lot of
weight. The few words that you can talk about intellectual
property problems, the market access problems, believe me, will
go a long way and will be greatly appreciated by the companies
that I work for and the men and women in the American film
community. Thank you.
Chairman Dorgan. Mr. Frazier, thank you very much for the
testimony. We appreciate your being here.
Finally, we will hear from Richard Suttmeier, Professor of
Political Science, Emeritus, at the University of Oregon. He
has written widely on science and technology development issues
in China. His current research includes an NSF-supported study
of the role of science and technology in U.S.-China relations,
the role of technical standards in China's technology policy,
and the Chinese approaches to the management of technological
risks. He is well-published and we're very pleased that he has
come to join us today.
Mr. Suttmeier, you may proceed.
[The prepared statement of Mr. Frazier appears in the
appendix.]
STATEMENT OF RICHARD P. SUTTMEIER, PROFESSOR OF POLITICAL
SCIENCE, EMERITUS, UNIVERSITY OF OREGON
Mr. Suttmeier. Thank you very much, Mr. Chairman. I
appreciate the invitation to join you here.
I have about six points I'll try to make, very briefly. The
first one, is that I think it is useful to always remember that
this issue is occurring in a context where we have a global
economy, but not really a global consensus on norms affecting
intellectual property systems. That is true, I think, with
regard both to the efficiency of intellectual property issues
and intellectual property arrangements, and it is also true, I
think, with regard, especially when we talk about the third
world, to questions about fairness of the existing intellectual
property regulations and institutions.
Second, I think it is also useful to remember that, in
China, this IP question manifests itself in somewhat different
ways depending on the type of intellectual property you're
talking about, whether it's patents, whether it's trademarks,
whether it's copyrights. Different actors in China get involved
in developing regulations and enforcement, and I think that
that effects very much the way--we need to sort of parse out
what the different types of IP issues are at different times.
I would add that also pertains to industry, and I think it
also increasingly pertains to the question of Chinese
innovators as rights claimants. So if we begin to look at some
fields of Chinese innovative activity we see certain kinds of
patterns, and in other fields we see other kinds of patterns.
Third, there clearly are changes in Chinese thinking, as
you have heard already. I think it is worth keeping in mind
comparative experience here; China is not the first developing
country that has had serious IPR infringement problems,
although it is clearly a very special case, as we all know.
But one of the things that comparative experience suggests
is that as we begin to have a community of Chinese innovators
in China, they begin to develop an interest in stronger IP
protection. I think we're beginning to see that in China and
that is true at the level of individuals and individual
companies, but also is manifested in the state itself.
Now, I come to all this as a person who looks at larger
industrial policy, and science and technology policy questions.
To reinforce what Mr. Murck has said, the landscape is changing
in China very quickly with regard to the role of intellectual
property in the Chinese economy. With the launching of the big
Medium- to Long-term Plan for science and technology [MLP]
China's leaders are supposed to--through R&D activities and
industrial policy measures--make China into an innovative
society by the year 2020. This is where the indigenous
innovation idea comes from. I address that a bit more in my
written submission.
But I think it's important to recognize that central to
this whole national effort, which has really become a very
important part of Chinese public policy, is to make China a
creator, a producer of IP. I think that the government
understands very well that it cannot realize its objectives if,
in fact, we have a deeply flawed intellectual property rights
protection system.
Now, that's not to say that there are not very serious
abuses, as you have heard, but I do think that it is important
to try to get a sense of the context of that plan, because one
of the things it's doing, is producing a whole series of
incentives to make Chinese research institutes, universities,
and especially companies more innovative. The policy is being
operationalized by measuring IP output of one sort or another,
whether it be professional papers from universities or patents
from universities, research institutes, and companies.
So people in the innovation system face strong performance
measures and strong incentives to perform. The New York Times
last week carried an interesting piece about China being a
society preoccupied with testing in its educational system,
with some saying how our students would do better if there was
more testing. Well, testing is a reality for Chinese
enterprises, for research institutes, and so forth. They do
regularly face evaluation and one of the critical performance
measures is IP output, especially numbers of patents.
Now, one of the consequences of that is that we have seen
an explosion of patenting, many of which can legitimately be
regarded as ``junk patents.'' But this is a new dynamic element
that affects the whole technology transfer issue, the
government procurement question, et cetera, because what the
government is trying to do is to make Chinese enterprises
successful IP producers. They are taking a variety of measures
to do that, some of which I think we will all agree are ill-
advised, and some of which, as Mr. Murck has pointed out, the
Chinese are backing away from.
So let me move toward a conclusion here by asking about the
relationship of the IP question to innovation. Why does China
increasingly attract so many innovators from around the world?
IPR supposedly is important for innovation, but at the same
time we all have heard that China's IPR system is very weak. So
wouldn't we expect innovators to avoid China? I raise this, in
part, in the context of your interest in wind power and clean
energy.
I think that this is a very important question as we think
about the global economy. Technology transfer--and this goes to
the forced technology transfer issue--is ultimately a business
decision and has to be understood as such. But what we know
about technology transfer decisions, and the role of
intellectual property in innovation, is that even though there
is intrinsic worth in the ideas found in IP, to capture value
from that intellectual property you need other things.
David Teece, who has written very wisely about all this,
has called these other things ``complementary assets.'' So if
we begin to think about the question of our future U.S. system
of innovation, and the future Chinese system of innovation, I
think we want to think not only about IPR and the strength of
intellectual property protection, but also these complementary
assets: Markets, market availability, scalability, finance,
human resources, et cetera, which are very central issues for a
lot of the clean technology questions.
In my submission, I quote a recent piece that addresses
that; the availability of financing; the existence of growing
capabilities in research and development; supportive government
policies that makes scalability and market growth more likely
in China. All of those things, I think, are part of the
complementary assets that make innovators attracted to China.
So increasingly, I think we can talk about living in a
global innovation system, or a global innovation network, where
we can think about countries being nodes in that network.
Fifteen years ago, China was a fairly insignificant node as
a producer of IP, and as a magnet for other innovators. China
is now growing as an increasingly important node toward a
``super-node'' status. We have been the super-node in the past.
We have been the place where creativity and innovation was
possible, largely because we had the complementary assets as
well as the very smart people who were attracted from around
the world to come here. What we have to ask ourselves is, is
China actually putting together that package now, and are we
losing it? As I suggest in the paper, I think we have to think
very hard about that.
Thank you.
[The prepared statement of Mr. Suttmeier appears in the
appendix.]
Chairman Dorgan. Mr. Suttmeier, thank you very much for
the interesting testimony. I think all four of you have given
us a lot of things to think about.
I don't want to over-simplify this, and there's a tendency,
I think, for me and everyone to over-simplify this when we talk
about our relationship with China. It's clear to me that the
trade deficit we have is not sustainable, it's clear to me that
we operate on different planes with different strategies.
China has an export strategy. It wishes to maximize its
exports, use its natural--I shouldn't say natural, use its
political--advantages of lower wages and various things to be
able to be attractive in foreign markets, while at the same
time limiting foreign exports to the Chinese marketplace.
Mr. Murck, you heard me quote the Wall Street Journal
article entitled, ``China Spooks Auto Makers,'' and the portion
says, ``The draft''--they're talking about the Chinese
Government draft--suggests the government could compel foreign
automakers that want to produce electric vehicles in China to
share critical technologies by requiring the companies to enter
joint ventures in which they are limited only to a minority
stake. Is it the case that if you would like to--let's say that
you have an electric car strategy and you've got technology and
you want to produce in China, perhaps for sale in the Chinese
marketplace, and you want to start a company in China, would
you be able to start a company as an American businessman and
own, let's say, 51 percent of that company?
Mr. Murck. The answer to your question is no. You would be
limited to a 50/50 joint venture, which is the one, for
example, that General Motors has now. In that context, General
Motors controls the technology and has management control of
the joint venture, and I think most people would argue that a
significant portion of the value of that company today lies in
the fact that they have a leading position in what is now the
largest automobile market in the world. If you drive around
Beijing in a Buick, which I do, very proudly, you will see lots
and lots of other Buicks.
Chairman Dorgan. Let me ask you----
Mr. Murck [continuing]. Now, the thing that's really
interesting about the article, which is a report of a draft
regulation, not something which has actually happened, is the
assertion that the Chinese Government is considering a policy
of allowing only a 49-percent foreign interest in a joint
venture for these cars based on new technologies. That would
imply that control of the technology and management would rest
with the local party. That would certainly be an issue and that
is precisely why the Wall Street Journal, and I think anybody
else who sees this report, would be alarmed by it.
Chairman Dorgan. But outside of the General Motors
example, it is routine, it seems to me, for China to require
that the Chinese, in these circumstances, would have
controlling interest. American companies would be allowed to
own 49 percent of an enterprise.
Ms. Lee, if that were the case in our country and we said,
you know what, if you want to come over here and do some
business, we are sorry, you can't do that unless you retain
only a minority ownership here in the United States, would
people say, what are you doing? I mean, that violates
everything we understand about free, fair, and open trade.
Wouldn't that be the response?
Ms. Lee. I think there are a lot of things that the
Chinese Government does that we would find either odd or
problematic here in the United States. Certainly the basic
principles that China agreed to when it joined the World Trade
Organization, of most favored nation, right of national
treatment, and so on, are things that are pretty routinely
violated by the Chinese Government.
Chairman Dorgan. Mr. Frazier, how did we get to the number
of 20? Who was it that sat in a trade negotiation and said to
the Chinese, ``Okay, you are right, we have a very big trade
deficit with you, we need to sell you more, so you can go from
12 movies a year to 20 movies a year? '' Good for us! Let's go
have a big dinner and celebrate this success. Who was it on our
side of the table?
Mr. Frazier. Senator, I don't know. I don't know who did
it.
Chairman Dorgan. Well, you worked for USTR. Not
necessarily then, but there had to have been someone who, out
of some understanding that it was in somebody's interest to
agree to 20 movies. Is that correct?
Mr. Frazier. You're absolutely correct.
Chairman Dorgan. Somebody signed up to that.
Mr. Frazier. Somebody signed up to it. The only logic I
have for that number is it doubled it. The old quota was 10.
Chairman Dorgan. I understand that doubled. I thought it
went from 12 to 20, but okay, so it doubled. But my
understanding also is what I thought was born of ignorance at
the time, someone on our behalf sat at a table and negotiated
and said, okay, in bilateral automobile trade, once we are
phased in completely on bilateral automobile trade, we will say
to China, ``It will be all right for you to impose a 25-percent
tariff when it's fully phased in on U.S. automobiles shipped to
China to be sold in your marketplace, and we will impose only a
2.5-percent tariff on Chinese vehicles sold in our place.''
Now, China is ramping up an automobile export industry, we
know. With a country with whom we have a very large trade
deficit, we've said it will be okay if you have a 10:1
advantage in tariffs. Someone had to have decided, on one part
of the table, wearing a U.S.A. jersey, negotiating on behalf of
our country, yes, that's in our interest. I've always tried to
find out, who are these people?
Mr. Frazier. I don't know. I don't know. I was there at
the time, but I had charge of the agriculture portfolio, so I
can only speak to some of the agricultural issues.
Chairman Dorgan. All right. What should we do with respect
to movies? Why should we believe, just to use movies as an
example--there are a lot of products out there, but movies are
an American success story.
Mr. Frazier. Right.
Chairman Dorgan. What should we expect of the Chinese with
respect to the allowing of importation of U.S. movies? Should
we have no limitation? Do we limit Chinese movies into the
United States?
Mr. Frazier. No.
Chairman Dorgan. No. And should we expect that China would
not limit the import of U.S. movies to China?
Mr. Frazier. Well, in an ideal world, yes, that's what we
would expect. As I indicated, this is a growing market for the
U.S. industry. The box office has doubled in one year; it has
gone up by 150 percent in three years. It is not just
Americans, American companies and American men and women who
are profiting from that.
It's the cinema owners in China, it's the people who work
there, the people who provide the concessions, the people who
provide the promotion, the advertisement. So there's a growing
domestic industry that's profiting from the creative work of
American men and women in the American film community. We see a
classic win-win situation. If we can put more movies there, not
only are we going to benefit, but the Chinese are going to
benefit. But it's a tough road, I'll tell you.
Chairman Dorgan. I think we have lower expectations than
we should of the Chinese as trade partners, and I think we
ought to change that some. I'm not interested in a trade war,
but I am interested in making sure we have mutually beneficial
trading relationships. I don't think that is now the case with
China.
Mr. Suttmeier, you made some interesting points about
innovations and innovators, and so one of the dilemmas we have
had is that while it may be the case that China is birthing a
whole new cadre of people creating intellectual property at
home and so on, it's also the case in many circumstances
they've determined it is much easier just to steal it.
In the first book I wrote, I pointed out that the reports
existed that the Chinese, when Viagra came out, simply re
engineered Viagra and sold it in China of their own volition.
They didn't need to buy it or import it, they just reengineered
it and sold it. That goes on all the time, doesn't it?
Mr. Suttmeier. It does go on, Mr. Chairman. But I think
what we're seeing, is a growing intolerance of the high level
of dependence on foreign technology. That's what I think is
behind all of this. The fact that it exists and the dependence
comes through illicit forms, as well as quite legal forms, is,
I think, what's troubling to the Chinese because what they see
is that those who control the IP actually then controls the
higher value-added activities of all kinds of economic
activities.
So what we're seeing is a push from the technical community
now backed by senior political leadership, to change that
balance. But you're absolutely right. One of the great problems
that the research community faces in China is that industrial
enterprises, people who are making things, whether it be Viagra
or something else, have a very strong bias toward foreign
technology. So one of the things that people are trying to do,
is to change that bias and change the balance somewhat.
Chairman Dorgan. Mr. Murck, one of the things that I note
in this country is that whenever we raise the question of
unfair trade, shipping of American jobs overseas as a result of
unfair advantage, closed markets, and so on, we are referred to
as ``protectionist,'' some say ``isolationists,'' ``xenophobic
stooges who just don't get it.'' It's a new world order. We
need to be able to compete.
You made a point earlier that I fully agree with. There are
a lot of things we need to do in our own country to get our
house in order: Fiscal policy, education policy, and so on. But
even if we have done all of that and we were at a new plateau,
having done everything we could do to set ourselves up as being
extraordinarily competitive, when we are trading with a country
that does not protect intellectual property rights and has a
managed trade strategy of saying we intend to run a very large
trade surplus with you, we intend that you be our cash cow for
hard currency needs, and we're going to do it year, after year,
after year as long as you're willing to allow that, and as long
as those who are critical in your country are called
isolationists or protectionists, nothing is going to change in
your country.
That brings me to the Chamber of Commerce. Mr. Donohue and
others would take a listen to something I say and they'd say,
well, shame on you, that's anti-business. I happen to think
that an American business man or woman, today, producing a
product that says, ``Made in America,'' in Pittsburgh or
Bismarck, wanting to compete internationally and wanting to
have a fair opportunity to compete internationally, has a very
large gripe with this country, with the Chamber, and others who
have supported a trade strategy that I think undermines our own
economic interests.
It's one thing for us not to be able to compete when the
competition is fair. It's another thing to tie our hands behind
our back and then say ``compete.'' We could do that after the
second World War with anybody and beat them; we were bigger,
better, stronger. We had the most. But these days, things have
changed.
So I mentioned the Chamber. The American Chamber of
Commerce in these countries is very important. They have a very
important role. On my first visit to Vietnam, the American
Chamber of Commerce in Vietnam said something I'll never
forget. They said, ``You know what we need in Vietnam? '' This
was a time when it was coming out into a market system with a
Communist government. ``We need more government.'' I said,
``Really? '' They said, ``Yes. You can only do business when
you can enforce contracts, when you have administrative
practices.'' It is absolutely true, that is the case.
So give me your perspective, Mr. Murck. I'm sorry for the
lengthy question. Give me your perspective of what we can, and
should, expect on behalf of American businesses producing here
today, trying to compete in an international marketplace with
the support of the Chamber of Commerce.
Mr. Murck. Well, thank you very much, Mr. Chairman, for
that question. I think this would be a good time to point out
that the American Chamber of Commerce in China is an
independent organization, supported by our members on the
ground, and we have no relationship other than a loose
affiliation as a member with the U.S. Chamber of Commerce or
Mr. Donohue. I count him among those who usually meet with me
when he comes to Beijing, but I would say my influence on his
thinking and his ideas, and those of the Chamber, is quite
limited.
I would also just like to circle back before responding
directly to your question to the Viagra issue. You might be
interested to know that the counterfeiters, at the time when
Viagra was widely copied in China, engaged in all kinds of
brand extension efforts, including soft drinks that were laced
with Viagra, and my favorite is a hot dog that was also laced
with Viagra. But at the end of day----
Chairman Dorgan. That was answering a question I hadn't
asked, Mr. Murck.
Mr. Murck. Yes. I give you that for future use.
Chairman Dorgan. Thank you.
Mr. Murck. At the end of the day, Pfizer won its case and
it is now purely an enforcement issue. That was one of the
first major IPR cases contested vigorously. The clear winner of
that case was Pfizer, so that is actually a positive example
for IPR protection.
With respect to the broader question of what you can expect
from people like ourselves or the business community in
general, I do think it is important that more American
companies begin to compete actively in global markets. I do
think there is more that we can do to make that possible in
terms of export promotion and assistance of all kinds, and I've
suggested in my statement some of the things of that sort. The
German Government does a better job, for example.
In terms of what we do with respect to our trade policy
views, we always try to express them in terms of American
national interest. I do firmly believe that the global
competitiveness of American companies is in the national
interest of the United States, including our ability to compete
in China. For that reason, I'm really not too apologetic about
the many policy statements that have come out of the American
Chamber of Commerce in China over the last 10 years. Mr.
Donohue can defend himself without any assistance from me.
In terms of the strategy that the U.S. Government ought to
adopt going forward, I would just like to associate myself with
Professor Suttmeier's statement, which I think is very
interesting and very sophisticated, and which poses the problem
that we face very clearly.
The industrial policy issue and the way in which it draws
on IPR is a qualitatively different situation than the
enforcement issue that we've been struggling with over the last
10 or 15 years, and we need to have a better approach to how we
are going to deal with the Chinese Government. We have to
convince them, on the basis of mutual benefit, to change the
way in which they're dealing with us.
One aspect of that is prioritizing the protracted, but
recently begun, negotiations to enter the government
procurement agreement at the WTO. This is enormously important
to us because China has a very large government sector, and
there are a number of other things, such as a bilateral
investment treaty, that would be other pieces of developing a
new and broader framework for the way in which we work with the
Chinese in the future.
They have explicitly stated that their goal is to bring
their global trade account into balance. So far, year-to-date,
they're about 20 percent less in terms of their global surplus
than they were a year ago, and a year ago it was less than
2008. I think there is very good reason to believe that this
will happen, but that doesn't mean the bilateral trade balance
will come into balance. This is something that will continue to
require very careful attention on your part and on the part of
the business community. Thank you.
Chairman Dorgan. Mr. Murck, thank you very much. I fear
that I have intruded on Congressman Levin's time.
Congressman Levin, take as much time as you wish.
Representative Levin. I will take just a couple of minutes
because I don't think there's any disagreement about the
importance of our relationship. Sometimes it is misstated that
there is a difference of opinion about the importance. Indeed,
it is so important, in part because it is so large, and
therefore, it is so complex. I have been trying to figure out,
as the four of you testified: What are the differences in
emphases and nuances? That isn't always easy to figure out.
There are differences in emphases among the four of you and
differences in nuances.
So I'm not sure where to begin. I will ask that my
statement be placed in the record, Mr. Chairman.
Chairman Dorgan. Without objection.
[The prepared statement of Representative Levin appears in
the appendix.]
Representative Levin. So let me just say this. I think
it's clear that China has a strategy I think it's fairly clear,
what its strategy is. You have outlined what the goals are. I
think, though, there are some changes. I think you can describe
fairly well what the strategy basically is. You mentioned about
a certain level of technology by a certain given date. They
have other goals, and I think their own strategy to achieve
those goals.
I think the problem is that our country hasn't had a
strategy. Therefore, we tend to kind of do it piece by piece,
and it's hard to fit the pieces together. In some respects, we
haven't had a strategy because there have been some in this
town who thought we did not need one, and that essentially the
best way to handle these issues is to leave them alone and
they'll work themselves out.
For example, on government procurement, Professor, I think
China decided it was better off not being a party to the
agreement for a certain period of time. I don't think it was
accidental. I think they sat down and figured out what would be
best. I think they do that as to everything. It is further
complicated, Mr. Murck, because a lot of the companies,
American companies that do business in China, are global
companies and they not only do business in China, and in many
cases import to China, but also export from China. That is
likely to increase.
So I just want to urge, I think the importance of this
hearing is to underline the need for our country to develop a
strategy as to how we're going to handle a burgeoning
development, a country that has become so important
economically, that has different structures and different
interests than we do.
So when we talk about something that's mutually beneficial,
I think we have to understand, that, as true in all kinds of
competition, there will not always be answers that are
immediately thought to be beneficial. That makes it more
difficult to work them out. But our country had better put
together a strategy as to how we're going to handle this
relationship. Those who thought we could not have one, I think,
or that it had to be outside of a larger structure, I think
they were basically wrong.
But the problem is, within this structure that now exists,
the problems remain so compelling, for example, movies. You
bring your perspective. You work with them. You tell the
typical American citizen that China has complete access, while
we have very limited, and that when we have access it's
essentially overcome by pirated product. They have to ask
themselves, how can this be? The same is true increasingly--and
you referred to this, Mr. Murck--in the industrial sector. I
thought it was excellent that GM--I was there before the plant
was even built, and I'm glad General Motors went there.
However, it creates problems as well as profit. When you
have increasing counterfeiting of auto parts and you're likely
to have, as a result of that proliferation of American
enterprise in China, an increasing number of parts produced in
China that come here that are counterfeited and compete with
American-made products, I don't think it is workable that we
not have some kind of a strategy.
So maybe I won't ask questions, because I think the nuances
in your testimony really indicate the need for us to work out
within this country how we're going to handle this increasing
trade with, and competition from, China. If, today, I asked any
of you, what is our strategy, I think you would be somewhat
hard pressed to indicate really what it is. It varies from
industry to industry.
I will just finish with this. I was at a solar plant in
Michigan. It is three or four football fields long. They make
solar panels. The person who manages it, who is the opposite of
a xenophobe, took me aside after I had been through it and
said, unless this country has a strategy in this renewable
energy field, it is likely, in five years, every single solar
panel installed in the United States will come from China, and
not for just one reason. Currency is one, the subsidization by
the Chinese, another. It may well be that some American
companies will have an interest in those solar panel plants in
China, but this fellow tells me that all of the workers in that
company in Michigan, in five years, are likely to be out of
work, and our company out of business, if this country does not
get together itself.
Then I went to another place that produces a very important
ingredient in high technology, also in Michigan. This is a huge
plant, with endless pipes that I can't begin to understand. The
CEO says to me--he's the CEO--that unless we get ourselves
together, it's unlikely, over a period of time, that that plant
can survive.
So, I left there saying to myself, we'd better get our
heads together and not call each other labels if we have
differences, and not use some of the old shibboleths, and not
have deep cleavages before we even start to talk in this
country. There is an urgency in terms of our relationship with
China economically, and also, if I might close, in terms of
human rights.
This Commission has been invaluable in its creation and its
work on human rights. I think the Chinese need to expect that
we will not only insist on measures so that they abide by their
commitments that were made when they went into the WTO, but
also that we will continue to have an interest in the liberties
of people in China.
So I think this has been, Mr. Chairman, a really useful
hearing and I salute--if I might say so, I'm a bit biased, I
agree--the work of the Commission and its staff over these
years since the creation of the Commission. It was part of
PNTR. So, thank you very much.
Chairman Dorgan. Congressman Levin, thank you very much. I
think the point you made that is so important, is this country
and China will have a very important bilateral relationship.
The question is, will it be mutually beneficial? I think most
of the witnesses have indicated that there is movement in
China. I think Senator Feinstein put it pretty well. Just go
back 30 years and see what existed then and see what exists
now, and there's movement. You can make a pretty strong case
that things are better in China.
But you also indicated there is some urgency to address
these trade imbalances and the trade relationship with China. I
agree with that. If we don't push the requirement to address
them, we will, in 5 years, 10 years, and 15 years, see this
drag on and on and on.
Ms. Lee, tell me how it is that China can largely say to an
American company, yes, you can produce over here, in fact, we
would insist that you produce over here. You make something
that we want to buy and you buy our products, China would say
to us, so we have something that we want to buy from you. But
in order to do that, we want your manufacturer to move to China
and make it in China, and by the way, when you do, you are only
able to own 49 percent of the company. Does that violate all
kinds of WTO rules?
Representative Levin. Mr. Chairman, if you'll excuse me. I
hate to leave, especially at this moment, but I think I have to
go to another appointment. So, I will have others tell me the
answer to this salient question.
Chairman Dorgan. All right.
Representative Levin. Thank you. Thank you so much.
Chairman Dorgan. Congressman Levin, thank you very much.
Let me, by consent, also ask that the full statement of
Senator Carl Levin from the State of Michigan be included in
the hearing record at this point.
[The prepared statement of Senator Levin appears in the
appendix.]
Chairman Dorgan. Ms. Lee, you've had time to think about
that now.
Ms. Lee. Thank you, Mr. Chairman. It's an excellent
question. It's one that has been a huge problem for us and for
certain unions for many years. It is illegal under many kinds
of rules, but they are difficult to enforce. It's called an
offset agreement, where the Chinese Government negotiates with
an individual company to make a sale--for example, aircraft--
and in exchange, both jobs and technology, often, are
transferred to China.
It's something that sometimes the companies aren't happy
about, but they feel that it's impossible for them individually
to protest because if they say no, then another company from
another country could accept the deal and get the sale. Of
course, they really want that sale badly. I don't know how many
times we've raised this issue with our government and asked
them to go to the Chinese Government and negotiate and so on.
Part of the problem is that we don't have a united front
among all the different governments that deal with China. Each
one is afraid of losing that sale, so it becomes an issue. A
lot of times these deals are made in secret. They're not
explicit, they're not made public, so only the company itself
knows exactly what deal was cut. It's not in their interest to
publicize it widely. I think a lot of times these companies
make a bad decision. They hope, well, it's not good to give
away to technology on my wing production, but it's better than
losing this particular sale. So it's a very short-sighted
decision.
What we need, obviously, is a much more concerted,
multilateral approach to this problem. To date, we haven't
gotten it. Whether it's through the OECD [Organisation for
Economic Co-operation and Development], whether it's through
the World Trade Organization, we need all the governments to
come together with a united front. We need the companies to be
up front about the kinds of deals that they're being asked to
make. So far, we haven't had that kind of cooperation. It's
been very frustrating for us and it costs us a lot of good
jobs, and a lot of technology.
Chairman Dorgan. Mr. Murck, you represent the American
Chamber. And thank you for clarify all of the relationships. My
mentioning Mr. Donohue, I don't mean that in an unflattering
light. He has his own view of issues and he pursues them very
vigorously. But having said that, I hear from businesses who
say, in order to sell into China we had to move our production
to China, accept a minority ownership, and then we lost control
of our intellectual property and they're very upset about that.
I say, why don't you speak of that publicly? They say, we
don't dare. We don't dare speak of that publicly. We would
never be able to do any business with China in the future. So,
do you hear some of those same stories, Mr. Murck? I mean, it's
probably understandable why people in that situation--if
they're going to sell into China, they've got to accept the
dictums of the Chinese Government, and that's the way it is.
They're certainly not going to want to complain publicly about
it or they won't be selling there at all.
Mr. Murck. I think there are a couple of points that I
would make. First of all, in the 1980s, after the Chinese
economy began to be open in a serious way to foreign
investment, which began only in 1979, the requirement at the
time was that every foreign company had to joint venture. One
hundred percent of them were joint ventures. That requirement
has gradually been relaxed. When China entered the WTO, there
are only a few sectors in which the joint venture requirement
was maintained. One of them is automobiles, and there are some
others. There are some that are totally closed to foreign
investment even today, for example, upstream oil and natural
gas production.
Chairman Dorgan. Was that in contravention of WTO or was
that negotiated?
Mr. Murck. That was negotiated at the time.
Chairman Dorgan. All right.
Mr. Murck. The vast majority of our members are in China
on a wholly foreign-owned basis, and it's relatively unusual
nowadays for a joint venture to be established, except in those
sectors which continue to be restrictive and which were
negotiated as part of China's WTO accession. So I don't usually
hear the complaint that you mentioned in exactly that form.
However, the broader issue is absolutely there, that if you
come to China and you bring your intellectual property into the
market, it is necessary to take a very determined look at how
to protect that IPR. There is now an emerging set of best
practices which are outlined in my full statement which enables
people to do that to a large extent, but it's still one of the
major risks of coming into this market and something that
everyone has to continue to focus on.
With respect to technology transfer, these are always
individual commercial decisions. I think companies need to
understand that when they transfer technology today they are
not only winning an immediate contract, but they may also be
nurturing a future global competitor. The view that people take
of entering into these technology contracts, as a result, has
changed somewhat in the last few years. This is a new situation
which we all have to face going forward.
I would just say also that I think both myself and my
colleagues on this panel would agree with Cochairman Levin's
remark, that we don't really have a strategy and we need one.
We are very interested in thinking about this, working with
some other trade association partners. I know the U.S.
Government is working on this as well, and hearings like this
are a step in that direction.
Chairman Dorgan. Just two more questions, Mr. Frazier, and
then I want to ask Mr. Suttmeier a question. Mr. Frazier, it
seems to me key to many of these issues is to not only
negotiate good trade agreements, but also have the capability
to enforce them.
One of my significant complaints about our trade laws in
this country and the whole trade issue, is we tend to think, if
we negotiate a conclusion in a trade agreement, and negotiators
have in their mindset that to negotiate to an end and have an
agreement is success. It's less important what's in it, if you
get an agreement, that's called success. That's much easier to
do than to enforce.
In fact, recently, a couple of years ago, someone was
trying to gather up all of the trade agreements we had
negotiated with Japan so they could get them all in writing,
because they discovered they couldn't even find them, let alone
enforce them. So the question is, should we not expect, with a
wide range of these issues, a more effective and more
aggressive enforcement mechanism in the government, and where
should that be?
Mr. Frazier. Well, clearly. And I agree with you, the
negotiator's job is to negotiate an agreement, get a deal. When
I was a negotiator, one of the most important lessons I learned
is, you have to know when to step away. A done deal is not
necessarily a good deal, and sometimes the best deal is no
deal. That was based on my experience.
Also from my experience when I was at USTR, as much time as
I spent negotiating, I spent infinitely more time on the
subject that you are raising: enforcement. How do I make sure
that the other party is living up to its agreements? That is
hard work. That is a lot harder than doing the negotiating.
My own personal bias from my background, is USTR is the
place to do it. They rely on Congress for more sources, they
rely on other agencies in the Executive Branch for the
expertise and the help to do it. But you put your finger on it.
It's a lot of work, doing the enforcement.
Chairman Dorgan. Mr. Suttmeier, you indicated that because
China is nurturing innovators inside of that country, that the
failure to protect intellectual property will hurt people
inside of the country that have been nurtured by government
policy. So we should expect and understand that China, for its
own selfish reasons, will begin to tighten in these areas.
I understand the point you're making. I have very little
confidence, however, that if we do nothing and our response is
as it has always been, that there will be much difference
moving forward on the protection of our intellectual property.
You believe there will be, inevitably, improvement. Over what
timeframe would you think there will be improvement sufficient
so that we could expect the same kind of reasonable protections
in China as we provide here?
Mr. Suttmeier. That may be quite some years. A different
system, I think. It comes back, I think, a little bit to my
very first point about whether or not you can expect the
Chinese to subscribe to all of the assumptions and the norms
about intellectual property that some people in this country
do. But as you may know, even within this country we have a
pretty wide range of views about whether our patent system is
working or is it not working. It serves some industries better
than other industries.
I think that kind of churn, if you will, goes on in China
as well. One of the additional complications in all of this, I
didn't mention, but is in my written statement, is the role of
local governments and the extent to which local governments, at
the provincial and sub-provincial levels, are on the same page
as the national government.
So part of the enforcement problem is that we see local
governments with increased authority to do something and yet
they are not always doing the same thing that the central
government or central policy would suggest. So it's difficult
to answer your question, I think, because you're coming at it
from really very different philosophical and institutional
arrangements.
Chairman Dorgan. Yes. But I think in some ways it's a
matter of will. The Chinese are very active, having thousands
and thousands of people watching Internet traffic to try to
shut off mainstream Chinese citizens from free access to the
Internet. Right? That's a matter of will. They've decided,
that's what we're going to do.
Mr. Frazier made the point that when the Chinese Government
owned as their own possession the logo for the Chinese
Olympics, they were very tough in shutting down, to the extent
they could, counterfeits, the pennants, the cups, and the
pencils, and so on that were sold. They demonstrated, it seems
to me, all that I know, at that point, if they have the will to
shut something down, they shut it down.
Mr. Suttmeier. Senator, I think one of the ways I would
respond to that, is that central authority and the will that
you're talking about, is really one of the scarcest commodities
in China. So the question then becomes, where does that
commodity get allocated, to whom, and to what kind of a
problem? So, yes. I think you can repeat this in many, many
different areas of public policy. When you have a very high
priority item or issue, such as the Olympics, you can mobilize
that attention, you can mobilize that will.
Chairman Dorgan. Yes.
Mr. Suttmeier. It dissipates on a regular day-to-day
basis.
Chairman Dorgan. Your point is a fair point about local
government versus central government. But let me just say that,
sitting in your chair, we have had people who have testified
before this Commission who have spent years and years in
Chinese prisons because of a national will and a central
government that made decisions that reached way out into the
villages, into rural areas. Where this national government in
China wishes to affect behavior, it does. We know that because
we know the names of people sitting in prison today because
they spoke freely, because they went on the Internet, or did
one thing or another.
I think it is giving a pass to the central government to
suggest that someone else might do something they're not aware
of. It's a big old country. But my point is, when we have a
trade relationship with China--and our relationship is one of
engagement--we've long ago decided the best way to address the
issue of China is through constructive engagement, and
constructive engagement, we believe, through trade and travel
will lead China toward greater human rights. I think there is
some evidence that that has been the case. It's far from
perfect, to wit, the folks that are now in prison whose names
that we have, and photographs we have, for the most part.
But despite that, once we decided to engage through
constructive engagement and have a trading relationship with
China, and understanding China is going to be a major part of
our economic future--the economic future of the world for that
matter--then the question is, under what conditions do we
engage? Are they fair?
What has happened, in my judgment, is China has had a very
deliberate and very effective strategy, an export market
strategy that exports to us and to others to the extent that
they can, and then to the extent that they can, limit, as much
as is possible, the import of goods from us to them. If you go
to--again, in a book I wrote--a Wal-Mart store in China, go
search for an American-made good, and you discover part of the
problem.
The point you have brought today is very interesting,
Professor, and I'm pleased that you've done that. I had not
thought about this before. It is certainly the case that if
China is now breeding a new group of innovators to create
intellectual property in the country, they inevitably at some
point are going to want to try to protect that. But if it's
over a long period of time, we're going to be stuck between
here and there with unsustainable trade deficits and a weakened
American economy.
Mr. Suttmeier. If I may, Senator, briefly.
Chairman Dorgan. Yes.
Mr. Suttmeier. To go back to your question about, what is
the timeframe, it might be useful, in fact, to think a little
bit about the evolution of the IP system, starting from
virtually nothing in the mid-1980s to where they are today,
referencing Senator Feinstein's observations as well. You then
throw into that mix the fact that this is a very different
place in 2010 than it was in 1985.
I think there's a long way to go before you'll have all
these vigorous and very robust innovators, but there are a lot
of them beginning to emerge and I think they are not entirely
happy with the conditions that are being faced, especially in
things like software, but in other areas as well.
Chairman Dorgan. I thank you very much. We have been
trying, on a number of occasions, mostly with respect to human
rights and the issue of political prisoners in China, to shine
all the spotlights in one spot. Today, we wanted to talk about
the issue of intellectual property and related trade matters. I
think the four of you have given us a lot of interesting
information for the permanent record of this Commission to
consider, and I appreciate, Mr. Murck, you coming to us from
Beijing, and Mr. Suttmeier, you came from Oregon, is that
correct?
Mr. Suttmeier. These days, only northern New York.
Chairman Dorgan. All right. Well, you didn't travel very
far then. But I want to thank Thea Mei Lee and Greg Frazier.
Thank you, Mr. Murck. Thanks to all of you for coming to
provide testimony. We keep the records open for two weeks; if
you wish to submit supplemental information you're welcome to
do that.
This hearing is adjourned.
[Whereupon, at 4:00 p.m. the hearing was adjourned.]
A P P E N D I X
=======================================================================
Prepared Statements
----------
Prepared Statement of Christian Murck
september 22, 2010
Mr. Chairman and Members of the Commission:
Thank you for the opportunity to testify before you on intellectual
property rights in China.
I speak on behalf of the American Chamber of Commerce in China,
comprising over 1,600 companies and 2,600 individuals, and representing
the commercial interests of the American business community in China.
This Commission has a record of sustained attention to intellectual
property rights protection in China for which we thank you. I testified
before the Commission on June 6, 2002, and cited intellectual property
rights as a case study of the impact of the rule of law on business.
Revisiting this topic today, I will take the opportunity to comment on
the progress, or the lack of it, in the past eight years, as well as
new developments.
Infringement of intellectual property rights has consistently been
among the top business challenges reported by our members in our annual
business climate survey conducted for the past twelve years. In the
2010 survey, it ranked eighth, behind inconsistent regulatory
interpretation, management level human resource constraints, obtaining
licenses, protectionism, bureaucracy, unclear regulations, and lack of
transparency. IPR protection was described as critically important to
25 percent of the respondents, and very important to 45 percent. 30
percent said it was slightly important or not important. You will not
be surprised to hear the sectors most impacted are IT, high tech,
software, research-based pharmaceuticals, entertainment, and consumer
brand owners for which IPR protection is a crucial element of the
business model. Least affected are service providers such as
consultants, law firms, financial services, accountants and the like.
Our survey data confirms anecdotal evidence that IPR enforcement
has gradually improved since 2002. In that year, 21 percent of
respondents rated enforcement as totally ineffective, 63 percent as
ineffective, and 16 percent as effective or very effective. In 2010, 11
percent rated enforcement as totally ineffective, 63 percent as
ineffective, and 26 percent as effective or very effective. Given the
attention and commitment of resources to this effort by the Chinese
government, the U.S. government, and the private sector, such slow,
modest improvement is a disappointment.
Nevertheless there has been significant improvement in the legal
infrastructure supporting intellectual property rights.
Relevant laws are updated on a regular basis. The process takes
about three years and circulation of drafts for comment is now routine.
Courts are increasingly professional and fair, especially in large
cities. Enforcement of judgments against individuals and small
companies is difficult, but there is adequate enforcement against large
companies. Damages are growing, but still inadequate by international
standards.
As a result of these improvements, litigation is now common,
whereas in 2002 it was not.
The Supreme People's Court reported over 30,000 cases closed during
2009, a 29 percent increase on the prior year. Half of 2009 cases
involved copyright disputes, 23 percent trademark disputes, 15 percent
patents, 4 percent unfair competition, and 2.4 percent technology
contracts, demonstrating the range of applicable law. A common
assumption has been that once Chinese parties obtained intellectual
property rights, they would seek enforcement. That is happening. In
2009, 95 percent of lawsuits involved two Chinese parties. Chinese
rights holders are turning to the courts to assert their rights in
large numbers.
Foreign parties litigate cautiously and they generally win. In
Beijing's First Intermediate Court from 2002 to 2006, foreign parties
won 60 percent of IPR cases. In Zhejiang Province, foreign plaintiffs
won 95 percent of their cases from 2003-2008, and 99 percent in 2008.
One of our member companies for the first time recently filed a
high profile suit against a state-owned enterprise infringer, won, and
collected material damages. Though they did not recover the extent of
their commercial loss, half a dozen similar companies subsequently
quietly initiated negotiations to settle similar infringement
situations.
While not completely satisfactory and limited by the difficulty of
gathering evidence, litigation is now a much more realistic option than
in 2002.
As a general matter, however, infringement is still widespread and
continues to evolve in order to evade enforcement.
In my 2002 appearance before you, I suggested that an unintended
consequence of WTO entry might be an increase in counterfeit exports.
That has unfortunately occurred. Customs has increased inspection of
outward bound containers, but is dependent on intelligence from rights
holders. Recently, counterfeiters have shifted to small packages rather
than container shipments, complicating the interdiction effort. The
counterfeit supply chain has globalized, with distributors operating in
the Middle East and Eastern Europe. The recorded country of origin of
counterfeit goods entering the United States or European Union is often
not China. Nevertheless, China is the known source of well over half
the counterfeit goods seized at the borders of the United States and
European Union.
Counterfeiting has also gone online. In one case, a single
individual was operating a virtual enterprise from his home where his
website listed hundreds of fake products available, and manufacturing,
storage, and shipping was outsourced to dispersed companies. He is now
in jail, but his business model is no doubt flourishing in the hands of
others. The issue of counterfeit goods for sale through online auction
or purchasing sites is well-known. Internet intermediary liability is
an under-developed area of law now receiving attention.
Anti-counterfeiting enforcement now often requires investigation
across both provincial borders within China and international borders.
Cooperation among international enforcement agencies continues to
lag the increasing sophistication of manufacturing, distribution, and
sales of counterfeit goods.
Copyright and patent infringement is equally widespread.
I will leave the subject of music and film copyrights to my
colleague on this panel, except to note that a significant part of the
problem is caused by the limited number of foreign films permitted to
be distributed legally in China every year. This is justified by China
as necessary to protect consumers, enable censorship, and protect the
domestic industry. It simply cedes a large market to pirates.
China now ranks second globally in the number of personal computers
shipped domestically, but 49th in revenues of international software
vendors. Most of the gap is filled by pirated software. AmCham-China is
particularly disappointed that despite clear regulations requiring
computers to be shipped with legally licensed software, and requiring
state-owned enterprises to use only legally licensed software,
compliance by SOE's is still problematic. We call on the State-Owned
Assets Supervision and Administration Commission to establish a
credible, transparent software asset management program under which all
centrally-owned SOE's will certify annually under audit that all
software on their computers, including operating systems and
applications software, is properly licensed.
Over time best practices have emerged with respect to protecting
intellectual property in China. An effective strategy usually includes:
Registration of trademarks, patents, and copyrights so
that they are effective in China;
Strong internal and technical controls, including
access limitations to intellectual property, control of
packaging, IP audits, limits on subcontracting, etc.;
Contracts with employees, distributors, suppliers and
customers that include intellectual property provisions;
Monitoring use of IPR by employees, competitors,
suppliers, and partners;
An enforcement strategy including use of investigation
firms to gather evidence, supporting enforcement agencies in
administrative and criminal cases, and private litigation; and
Active, targeted engagement with enforcement agencies
at central, provincial and local levels, both as an individual
company and through industry associations.
Companies with a presence on the ground and the revenue scale that
justifies an active, multi-faceted effort can control the commercial
impact of infringement. However, smaller firms or those without an
active presence in China are seriously disadvantaged.
In the past eight years, the U.S. and Chinese governments have
devoted time and effort to this situation.
There is a particularly productive engagement between the U.S.
Patent and Trademark Office and the State Intellectual Property Office.
Last week, for example, a patent workshop was held in Beijing organized
by USPTO, SIPO, and the U.S. Chamber of Commerce. Among the topics
covered were:
The national security review required by the Patent
Law when patents registered in China are licensed abroad;
Design and utility model patents, which meet a lower
standard of invention and are often unexamined, making them a
means of registering other's technology;
Patent disclosure requirements, especially the
requirement that direct and indirect genetic resources be
disclosed on any biotech patent;
Statutory damages;
Compulsory licensing (we hope China will continue to
construe the grounds narrowly and avoid using compulsory
licensing);
Invention remuneration (the issue is differences
between the national patent law and some provincial regulations
that has led to legal uncertainty);
Software patents
The same delegation participated this week in a workshop on bad
faith trademark filings with Chinese, European, and Japanese
representatives to review the law, procedural challenges and best
practices to deter such filings.
These topics give a good sense of the range of subjects under
active technical discussion.
Improving intellectual property rights protection has also been a
major priority of the U.S. Embassy in Beijing, represented by the
presence of an IPR Attache, the annual Ambassadors IPR roundtable, and
many other programs.
USTR and the Department of Commerce are actively engaged through
the Joint Commission on Commerce and Trade, and its IPR Working Group.
The business community is well-linked to all of these ongoing
efforts.
Our progress since 2002 can be described as a ``three yards and a
cloud of dust'' offense, slowly grinding our way forward. It isn't very
exciting, but we're better off than we were and we see a path toward
the future. There is both bureaucratic momentum and the common interest
of the Chinese and foreign business communities in improving IPR
enforcement.
Our attention at AmCham-China and in the foreign business community
in China at large is shifting from enforcement to a new consideration:
the impact on our market access and American competitiveness of Chinese
industrial policies explicitly intended to strengthen national champion
companies by encouraging them to acquire or develop intellectual
property, giving them protected domestic markets in which to gain
scale, and planning that they will then be globally competitive.
I discussed this issue earlier this year in testimony at the
International Trade Commission on June 15 and at the Ways and Means
Committee on June 16.
As the recovery from global economic crisis continues, China is
embarking on rebalancing its growth model to move back to a balanced
trade account and shift toward domestic demand as the driver of
economic growth. At the same time, the economy is being restructured to
be more efficient in its use of energy, natural
resources, and capital. Significant investments are being made in
health care and education. Wages, especially manufacturing wages, are
growing strongly after a long period of stagnation. Part of China's
strategy to adjust to new circumstances is to move its industrial
sector up the value-added curve by encouraging the development of
intellectual property through research and development, technology
transfer, and adaptation of acquired technologies.
Late last year, we and others were alarmed by the release of
policies that appeared designed to exclude imported products and the
products of foreign-invested enterprises from catalogues of products
certified as the result of ``indigenous innovation'', with the
likelihood that such catalogues would be used in government and SOE
procurement. In response to comments from many quarters, the Chinese
government entered into a serious dialogue. The Ministry of Science and
Technology has removed the most egregious aspects of the 2009
regulations from the 2010 draft. Premier Wen Jiabao on several
occasions, most recently earlier this month at the World Economic Forum
meeting in Tianjin, has directly stated that foreign-invested
enterprises in China are regarded as Chinese enterprises and will not
be discriminated against. These are welcome statements, but it is
important to recognize that there are broader concerns about the future
direction of Chinese policy and the market access of foreign companies.
Our concerns include:
Import substitution policies such as the Guiding
Catalogues of Major Indigenous Innovation Technologies and
Equipment of 2009, which specifies import substitution as a
goal.
The Government Procurement Law directly discourages
procurement of imported products. China is not a member of the
WTO Government Procurement Agreement and its first offer to
join was not commercially meaningful; a second offer made in
July was a modest improvement, but much work remains to be
done.
Standardization mandates such as the Ministry of
Industry and Information Technology requirement that the
Chinese WLAN Authentication and Privacy Infrastructure (WAPI)
standard be included with any Wi-Fi enabled mobile device.
Since this standard has not been commercially accepted
anywhere, including in China, this mandate is purely rent-
seeking.
The 2008 Patent Law expanded the grounds for
compulsory licensing, though China has not yet used them. It
also requires foreign companies in China to submit to a review
by Chinese authorities of whether a patent originated in China
``relates to the security or vital interests of the State'',
including ``the substantial economic interest of the State'',
before it can be exported.
The Standardization Administration of China is
developing standards rules that could lead to compulsory
licensing or licensing on non-commercial terms of foreign
technologies used in ``mandatory national standards'', and
possible anti-trust consequences for refusal to comply.
Exclusion of representatives of foreign-invested
enterprises from participating in and/or voting in China's
standards setting committees.
Exemptions from infringement in the patent law and
drug registration rules for ``research'' and ``non-commercial
use'' and for research for the purpose of
producing generic pharmaceuticals. These facilitate stockpiling
of infringing products, reverse engineering, and generic
competition with innovative pharmaceutical companies in advance
of patent expiration.
Technology transfer on terms favorable to the Chinese
party required to win necessary government approval for large
contracts.
Selective enforcement of the Anti-Monopoly Law, which
rarely reviews transactions involving no foreign party.
Bid specifications that favor local producers, for
example in the wind power sector.
The Multi-level Protection Scheme requiring that
technology infrastructure in key sectors runs on domestic
hardware and software where possible. This is already reducing
foreign market access in the banking sector.
Sectoral restructuring policies that generally involve
consolidation driven by state-owned enterprise expansion as the
expense of the private sector, for example, in the coal
industry and also in the rare earths industry.
These problems are qualitatively different from inadequate
enforcement of intellectual property rights. We agree in principle that
IPR infringement is illegal, undesirable, and a drag on China's
development. We are working together toward
solutions of a wide range of genuine practical difficulties to improve
enforcement. We might wish that there were stronger political will on
the Chinese side, or that better enforcement would be given a higher
priority, and they might wish we were more patient, but we share a
basic stance.
The industrial policy issues listed above, however, reflect
considered, deliberate policy choices inimical to our commercial
interests that restrict both national treatment and development of a
market economy.
The underlying problem exposed by these policies is the very
different regulatory and economic systems of our two countries. In
China, the government's regulatory and planning bodies, state-owned
enterprises, and the institutions of the Party all play a large role in
managing the society and the economy. Only the first of these have
counterparts in the United States and their role is much different. How
should we relate to an economy and a market driven to a large extent by
industrial policy?
SOE's can be simultaneously customers, suppliers, partners, and
competitors. The leaders of major SOE's are ministerial level
officials, who often hold senior Party office as Central Committee
members or alternate members. Yet given the size and growth potential
of China's markets for many products, it is strategically necessary to
compete successfully there in order to be a global leader. We cannot
throw up our hands and abandon the market because of its differences
with our. Of course, the same is also true for Chinese enterprises with
respect to the U.S., EU, and Japanese markets, where Chinese home
market advantages often turn into disadvantages.
In our active discussions with the Chinese government and media, we
often make the fundamental points that restricting competition stifles
innovation, and that
protected markets based on unique domestic standards prevent local
firms from succeeding in global markets based on harmonized
international standards. We recognize there is a vigorous policy debate
within China, with many unresolved issues.
In thinking about the future, the American Chamber of Commerce in
China starts with the premise that it is realistic to think in terms of
$3 trillion long-term goals:
(1) Increasing US exports to China from $80 billion to $1
trillion annually;
(2) Increasing the revenues of US firms producing goods and
services in China for the Chinese market from approximately
$100 billion to $1 trillion annually; and
(3) Welcoming cumulative foreign direct investment from China
in the United States of $1 trillion. Just as Japanese capital
has contributed to job creation and economic development in the
United States, so too can Chinese direct investment, giving the
investors a deeper interest in our mutual prosperity and
broader exposure to our market norms.
If we think in terms of building on the synergy between the U.S.
and Chinese economies on this scale, what must be done?
We suggest the following:
We need to understand better China's policy framework.
Based on that understanding, we can better define the goals of
our trade negotiators and private companies. For this reason,
we have supported the investigation of the International Trade
Commission now underway by arranging for member companies to be
interviewed. We look forward to the ITC reports and hope that
they will provide useful strategic input for all parties. We
hope to contribute to an ongoing strategic discussion of U.S.
options.
We support the National Export Initiative, noting that
China is our third largest and fastest growing export market.
In support of the NEI, we support increased funding
for the Trade Development Administration. AmCham-China
participates in two private sector/public sector partnerships
in aviation and energy that bring together Chinese and U.S.
government agencies with American and Chinese enterprises in
capacity-building programs partially funded with seed money
from TDA. These are generating business opportunities as well
as institutional and personal relationships that will be of
last benefit to both countries.
We also support increased funding for export promotion
through the Department of Commerce.
We support reform of U.S. export controls on the
principles proposed by Secretary Gates in March of this year.
We support prioritizing negotiation of China's
accession to the Government Procurement Agreement of the WTO,
with sub-central as well as central government commitments.
This would provide welcome assurance of future access to
important markets for both American and Chinese companies.
We support resumption of negotiation of a bilateral
investment treaty to support both American investment in China,
recognizing the large role of the state-owned sector, and
Chinese investment in the U.S.
Finally, we believe the United States must strengthen
its own competitiveness by examining R&D tax credits,
developing a forward-looking national energy policy,
maintaining immigration rules that attract talented engineers
and scientists to our country, improving our educational
system, reducing the fiscal deficit to a sustainable level and
similar measures. To a great extent, our fate is in our own
hands and does not depend on others.
Thank you for the opportunity to appear. I look forward to your
questions.
______
Prepared Statement of Thea Mei Lee
september 22, 2010
Chairman Dorgan, Co-Chairman Levin, Members of the Commission,
thank you for the invitation to participate in today's important
hearing on behalf of the eleven and a half million working men and
women of the AFL-CIO.
Intellectual property rights enforcement is often assumed to be of
interest only to business, but in fact, it is vitally important to
American workers, as it impacts jobs, wages, innovation and growth,
consumer safety, tax revenues, and the reputation of American products.
Other issues (including worker rights, currency manipulation, and
subsidies) have often dominated labor's policy priorities with respect
to China, but the lax enforcement of IPR protections remains a key
contributing factor to our lopsided trade relationship. Both in the
arts and entertainment sector, where copyrights are routinely ignored,
and in the manufacturing sector, where counterfeit parts and products
are rampant, billions of dollars in revenues and thousands of good jobs
are at stake.
Moreover, taking steps now to address the Chinese government's
flagrant violation of its international obligations with respect to IPR
is crucial to setting a sustainable long-term trajectory for our
bilateral relationship, especially with respect to technology transfer
and innovation. This will impact American jobs for generations into the
future.
We often hear business and government officials tout the promise of
the Chinese market, and, of course, it is both large and fast-growing.
But meaningful access to that market for American producers and workers
is severely undercut by IPR infringement. If American entertainment
products and software cannot sell at a reasonable price in the Chinese
marketplace, and if the legitimate owners of those products are not
able to receive their fair share of the revenues, then the ``size'' of
the Chinese market is, for all intents and purposes, a tiny fraction of
what it ought to be.
Similarly, American products are in direct competition with
Chinese-produced counterfeits, costing jobs in third-country markets,
as well as in the United States.
As Paul Almeida, president of the AFL-CIO Department for
Professional Employees, told a Senate committee this summer,
``Intellectual property equates to jobs and income for American
workers. Theft of intellectual property raises unemployment and cuts
income. For too many workers in the United States today, both jobs and
income are hard to come by. If the United States allows attacks on
intellectual property to go unanswered, it puts good livelihoods at
risk.''
The breadth and depth of the IPR problem in China are vast.
According to a 2008 USTR report on China: ``IPR infringement continued
to affect products, brands, and technologies from a wide range of
industries, including films, music and sound
recordings, publishing, business and entertainment software,
pharmaceuticals, chemicals, information technology, apparel, athletic
footwear, textile fabrics and floor coverings, consumer goods, food and
beverages, electrical equipment, automotive parts and industrial
products, among many others.''
In addition, IPR infringement means that American consumers face
risk of substandard or even dangerous products in a wide range of
areas. According to USTR, ``China's widespread counterfeiting not only
harms the business interests of foreign right holders, but also
includes many products that pose a direct threat to the health and
safety of consumers in the United States, China and elsewhere, such as
pharmaceuticals, food and beverages, batteries, automobile parts,
industrial equipment, and toys, among many other products.''
In terms of the global IPR enforcement problem, China looms large,
especially in terms of counterfeited and pirated products. The GAO
reports that, ``According to CBP data, seized counterfeit goods are
dominated by products from China. During fiscal years 2004 through
2009, China accounted for about 77 percent of the aggregate value of
goods seized in the United States'' [GAO, ``Intellectual Property:
Observations on Efforts to Quantify the Economic Effects of Counterfeit
and Pirated Goods,'' 2010].
Over many years, the U.S. government has made repeated attempts to
cajole, pressure, or convince the Chinese government to improve its IPR
enforcement record, through the use of Special 301 cases, priority
watch lists, the Joint Committee on Commerce and Trade, and, finally,
WTO cases.
While there have certainly been some improvements in China's legal
framework, violations of IPR remain rampant, and the Chinese government
continues to introduce new and problematic policies, including most
recently the indigenous innovation policy, which sought to impose
technology transfer and purchasing requirements on companies seeking to
do business in China, violating China's IPR and procurement
commitments.
This summer USTR filed a request for a WTO dispute panel,
challenging several aspects of China's IPR law and enforcement regime.
First, the request questioned quantitative thresholds in China's
criminal law that must be met in order to start criminal prosecutions
or obtain criminal convictions for copyright piracy and trademark
counterfeiting. Second, the request contested Chinese rules for
allowing IPR-infringing goods seized by Chinese customs authorities to
be released into commerce following the removal of fake labels or other
infringing features, contrary to WTO rules. Third, USTR challenged the
denial of copyright protection for works awaiting Chinese censorship
approval. Chinese copyright law provides no protection for copyright
holders before censorship approval is granted.
We appreciate USTR's initiative in bringing this case to the WTO
and hope that our government will continue to insist that the Chinese
government fully comply with international norms in this important
area.
Innovation and creativity fuel the most vibrant sectors of the U.S.
economy, including the arts, entertainment and media sector and
manufacturing. Both of these are enormously important to American
workers, and both are hard hit by the Chinese government's failure to
protect IPR.
A recent AFL-CIO Executive Council statement on piracy laid out the
challenge in the arts, entertainment, and media sector: ``Entertainment
professionals may work for multiple employers on multiple projects and
face gaps in their employment. Payment for the work they have completed
helps sustain them and their families through underemployment and
unemployment. For American Federation of Television and Radio Artists
(AFTRA) recording artists in 2008, 90 percent of income derived from
sound recordings was directly linked to royalties from physical CD
sales and paid digital downloads. Screen Actors Guild (SAG) members
working under the feature film and TV contract that same year derived
43 percent of their total compensation from residuals. Residuals
derived from sales to secondary markets funded 65 percent of the
International Alliance of Theatrical Stage Employees (IATSE) [Motion
Picture Industry] Health Plan and 36 percent of the SAG Health and
Pension Plan. Writers Guild of America, East (WGAE)-represented writers
often depend on residual checks to pay their bills between jobs; in
some cases, the residual amounts can be as much as initial
compensation. Online theft robs hard-earned income and benefits from
the professionals who created the works.''
In the manufacturing sector, the estimates of losses from
counterfeiting run to billions of dollars. Again, the victims include
workers, who face lost jobs and income. From auto parts to circuit
breakers, counterfeiting endangers all of us with unreliable products.
It then taints the original products with the inferior quality of the
counterfeits. As with the arts, entertainment, and media industries,
the consequences include a diminished incentive to invest and a
downward spiral for U.S. workers and our economy.
The question posed by the Commission is ``Will China Protect
Intellectual Property? '' I believe that the answer depends on our
government's actions. To date, despite many efforts, we have not done
enough to insist that the Chinese government fully comply with its
international obligations. Until the price for non-compliance exceeds
the gains, American workers and businesses will continue to pay a high
price, and the Chinese government will continue on its current short-
sighted path.
______
Prepared Statement of Greg Frazier
september 22, 2010
Mr. Chairman, Members of the Commission:
Better access to the Chinese market lies at the heart of the
American film community's strategy to protect the American jobs at risk
from the attacks of Chinese film and television pirates. We cannot
compete with free; Chinese film pirates are not only thieves, they are
our competitors--competitors who we have subsidized.
American men and women create and produce the entertainment Chinese
pirates peddle; US finances underwrite the profits Chinese pirates
stash into their bank
accounts. Attacking this problem, leveling this playing field, and
protecting the American jobs at risk are multifaceted--better Chinese
laws and more commitment to enforce those laws--but unless the market
barriers are removed, those efforts will fall short.
China's filmed entertainment market is a paradox: Crippled by one
of the highest piracy rates in the world--we estimated the piracy rate
at over 90 percent in a recent study--the market for films for
theatrical release is growing faster than most other markets. 2009 box
office revenues for US companies doubled from 2008, but still only
reached levels approximate to the US box office for less than one
month.
This growth is not coming at the expense of the Chinese industry--
American films are not threatening to crowd out the local industry--the
Chinese film industry is growing rapidly as well. The number of
domestic films produced in China has tripled since 2003, and box office
from domestic films grew almost 50 percent from 2008.
market barriers = more piracy
China's film market is also one of the most restricted in the
world. MPAA's\1\ work to open the market is critical to growing jobs in
the US industry, as well as being a key element of its content
protection work in China: There is no shortage of US films in China;
they are readily available in pirated form. The barriers China enforces
only keep out the legitimate products and companies; the purveyors of
pirated films have no regard for the rules enforced against US
companies.
---------------------------------------------------------------------------
\1\ The Motion Picture Association of America (MPAA) represents the
six major US motion
picture studios: Paramount Pictures Corporation; Sony Pictures
Entertainment Inc.; The Walt Disney Studios; Twentieth Century Fox Film
Corporation; Universal City Studios LLLP; and Warner Bros.
Entertainment Inc.
---------------------------------------------------------------------------
China maintains a quota on the number of foreign films it allows
into its market each year: 20. In addition, it imposes several
restrictions on US businesses in the home entertainment and television
business that do not exist elsewhere. Keep in mind as you review the
list of barriers that these barriers affect only legitimate businesses,
the businesses that play by the rules. Just as the pirates ignore
intellectual property rights, they are neither bound by nor feel any
obligation to abide by the restrictions affect our members:
Foreign Investment Restrictions--China limits foreign
ownership in cinemas and in video distribution companies to 49
percent. In the television sector, companies wholly or jointly
owned by foreign entities are prohibited from investing in the
broadcast industry.
Television Quotas--China restricts foreign television
drama and film programming to no more than 25 percent of total
airtime, and other foreign programming to no more than 15
percent of total air time. Foreign programming is banned during
prime time and may not constitute more than 30 percent of pay
television channels. Foreign animation is restricted to no more
than 40 percent of total airtime and importers of foreign
animation must produce a like amount of domestic animation.
Screen Quota--The government sets strict guidelines
for foreign films. The total time for foreign films cannot
exceed one-third of the total screen time.
Import Duties--Import duties on theatrical and home
video products are sometimes assessed on the potential royalty
generation of an imported film, a method of assessment which is
excessive and inconsistent with international practice of
assessing such duties on the value of the underlying imported
physical media. Excessive import duties place a severe drag on
investments and impede distribution of legitimate filmed
entertainment product thus increasing
demand for pirate product.
Retransmission of Foreign Satellite Signals--Local
cable networks may not carry foreign satellite channels without
government approval or landing permits, which currently are
limited to Guangdong and a handful of foreign channels.
Moreover, foreign satellite channels beaming into China are
required to uplink from a government owned encrypted satellite
platform. The annual fee for each channel remains excessively
high at $100,000.
Restrictions on Retailers--Foreign retailers are
precluded from selling home video products without entering
into a qualifying joint venture with a Chinese firm. The number
of legitimate distribution points remains far less than the
number of pirate distribution points.
Blackout Periods During Peak Seasons--The government
has historically decreed ``black-out periods'' during which no
new foreign films may be released, to prevent competition with
Chinese films released during the same period. Such blackouts
typically occur during national holidays or coincide with
political events.
None of these barriers, however, cap the Chinese audience's
appetite for the filmed entertainment the American film community
produces. You can get virtually any US film you want in China. You may
not find it in the cinema, the local television channel, nor video
store, but you can find it--in pirated form, either as a counterfeit
DVD or at a Chinese website that has obtained the product illegally.
The export and transshipment of pirate optical discs from and
through China continues to grow, especially pirate DVDs of US films.
Transshipments flow out of China to destinations worldwide, including
the US, through express mail and courier companies. The recent
emergence of high-quality, counterfeit Blu-ray DVDs supplied in large
volumes to businesses and consumers throughout the world over Chinese
retail and auction websites is among the latest examples of China's
export piracy problem.
Unfortunately, too many look at the harm of buying an illegal DVD
for $2.00 in the Silk Market as victimless, perhaps even as a souvenir
of a trip to Beijing. Besides morally wrong, there are at least two
other things wrong about that. First, it is not a $2.00 theft. Most
likely, the movie on that disc was camcorded in a theater. Illegal
camcords account for roughly ninety percent of all the illegal movies
in the world, and China is becoming a haven for camcorders. In the
first half of this year, our research indicates that 24 camcords
occurred in China. A typical MPAA member company movie may cost as much
as $100 million to make. So, the person who camcorded the movie, who
stole it off the screen, committed a $100 million theft.
Second, film piracy is not a victimless crime. According to a
report the RAND Corporation produced in 2009, organized criminal
syndicates around the world are frequently engaged in film piracy. It
generates enormous profits at, unfortunately,
little risk of apprehension. For example, the study identified Chinese
gangs with operations as far away as the UK engaged in the trafficking
illegal DVDs. It is possible the $2.00 you spend for that souvenir may
not be going to an organized crime, but there is a very high likelihood
it is.
what to do?
The American film community, alone, and in cooperation with other
industries and with the US government has engaged for years in a
dialogue with the Chinese about amending and strengthening China's
intellectual property laws.
As the market increasingly turn to the online environment, we need
to make sure it is a safe market and market in which the investment of
the US film community can be protected. That is the case all around the
world, and including in China.
Our priority with respect to China's intellectual property laws
today is urging China to address its Internet piracy problem. We
believe China must provide adequate protection in the digital
environment by criminalizing end-user piracy, adding reference to the
exclusive rights provided in the law, criminalizing violations of the
anti-circumvention provisions for technological protection measures
(TPMs) and rights management information, criminalizing Internet
offenses that are without profit motive but that have affect rights
holders on a commercial scale, and eliminating distinctions between
crimes of entities and individuals.
To foster legitimate electronic commerce, it is imperative that
China establish adequate liability for ISPs for piracy related offenses
and satisfactory measures for notice-and-takedown of websites offering
pirate materials. Such provision will foster a responsible partnership
between the content industries and the delivery networks.
The core of the problem, however, is whether the government has the
will to protect the creative works American men and film produce. In
your invitation to testify, you asked that I comment the various
campaigns the authorities have undertaken over the years to enforce
copyright violations. Some have been more successful than others. Many
have simply been show campaigns, with little discernable results. Few,
if any, however, have been enduring.
Let me illustrate: Across the street from the Silk Markets was a
store simply named ``DVD CDs.'' We prevailed upon the authorities to
raid it not once, but three times in the course of years. I met with a
senior Chinese official after the third of those and he bragged that
the store had become a sporting goods and luggage retailer. After the
meeting, we drove there and sure enough, through the windows I could
see golf clubs and suitcases. When we entered, we were quickly ushered
through a curtained passageway and into a back room with virtually any
pirated DVD I could want.
Commitment. The government has a legislative framework that, while
it needs some improvement, is fairly good. In addition, it has shown it
can clean up the streets and stop infringement--it was impossible, for
example, to find any counterfeit Olympics' goods two years ago. And, we
have increasingly seen in recent months the government crack down on
online content it finds objectionable--mostly pornography and political
content.
But, that some commitment, that same will, has too often fallen
short with respect to US filmed entertainment, to the detriment of your
constituents working to produce it.
We believe we have to continue to press the Chinese for more and
more effective copyright enforcement. The work you and your colleagues
perform in continuing to raise this problem is invaluable. The work the
Administration has performed, and continues to undertake, is as well.
That said, I do think it is time we give serious consideration to
the effectiveness of some of the bilateral engagements on intellectual
property rights. We do need to make a serious appraisal of the
accomplishments of the Joint Committee on Commerce and Trade and its
intellectual property rights working group. I cannot say today what the
course is to improve it, but I can say we would be remiss if we were
simply to continue business as usual.
I do know we have to improve access to the Chinese entertainment
market. I will conclude where I began: The men and women in the
American film community produce the most anticipated, most watched,
most memorable movies in the world. In artistic and business terms,
they can, and do, compete with anyone. However, they cannot stay on the
job if they have to continue to compete with pirates stealing their
works. We cannot compete with free.
We need to work to remove the barriers to the Chinese market--not
overnight nor all at once, but to set a process by which the playing
field levels. We believe that the next six months represents a unique
window in that process. Last December, the World Trade Organization
(WTO) ruled in favor of the complaint the US government brought against
some of these key market barriers. And I want to thank, again, and
commend the incredible effort the men and women of the Office of the US
Trade Representative did in successfully pursuing this case.
The Chinese government has committed itself to complying with this
decision by next March. We applaud them for the commitment; we await
the details. We believe it is critical--to grow US jobs and to protect
the movies in China--that these barriers come down in a way that sets
in place a dynamism in the Chinese market that enables the US film
community to grow, and that sustains the growth in the Chinese
industry.
You and your colleagues meet with Chinese officials frequently. On
this issue and on behalf of the Americans at work in the US film
industry, if I could ask you one thing, it would be: Tell the Chinese
officials how closely you are following their work to comply with the
WTO ruling. Tell them how high a priority fulsome, good faith
compliance is to improving the bilateral relationship. Tell them how
important it is to China's place in the world, to it earning the
respect of the international community, that it complies with its
international obligations.
And one more thing, tell them to see a US movie, a legitimate one.
Thank you.
______
Prepared Statement of Richard P. Suttmeier
september 22, 2010
Mr. Chairman, Members of the Commission,
It is a pleasure to be here with you today; thank you for inviting
my participation. My comments will deal mainly with China's evolving
technology and industrial policies, and the role of intellectual
property in them. Let me make the following points and then attempt to
answer any questions you may have.
1. Concerns about intellectual property rights in China are
usefully seen against the background of growing international attention
to intellectual property. On one hand, countries and companies around
the world are coming to see intellectual property as a key component of
competitiveness; a number of national governments, including China,
have introduced national IP strategies. At the same time, there is also
considerable international dissatisfaction with the norms and
procedures by which international IP regimes operate.\1\ Growing
interest in clean energy technologies in the face of worries over
climate change reinforce the increasing importance of IP but also
highlight some of the areas of international dissensus.\2\
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\1\ One useful review of the variety of views currently found in
the international discourse on IP can be found in Scenarios for the
Future, a 2008 report of the European Patent Office.
\2\ Bernice Lee, Ilian Iliev, and Felix Preston. Who Owns Our Low
Carbon Future? Intellectual Property in Energy Technologies. London,
Chatham House.
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2. We should recognize that there have been many changes in Chinese
thinking about intellectual-property over the past two decades,
including a variety of legal and institutional steps (e.g., new courts)
taken to protect intellectual property. The growing number of Chinese
innovators have acquired an interest in protecting IPR, and there is
official recognition that China's aspirations for indigenous innovation
are unlikely to be met without a far more credible intellectual
property protection regime. At the same time, the production of
intellectual property has also acquired a central role in Chinese
thinking about their technological future and in the aggressive
national technology and industrial policies now in course to realize
that future. For the international community engaged with China, these
changes are both encouraging and troubling. The encouragement comes
from the sense that Chinese companies and the Chinese state see it in
their interest to promote a more robust intellectual property
protection system. The concerns come from the fact that the
implementation of China's industrial policy sometimes puts the
intellectual property rights of foreigners at risk.
3. In 2006, China introduced its ``Medium to Long-Term Plan For
Scientific and Technological Development'' (MLP). The plan is a very
ambitious effort to make China an ``innovative society'' by 2020 by
encouraging the development of ``indigenous innovation.'' The MLP puts
a premium on the production of intellectual property; it expects that
by the end of the plan period, the number citations to papers produced
by Chinese scientists will have entered the world's top 10 countries.
It also hopes to become part of the top 15 countries in terms of
patents granted.
The term, ``indigenous innovation'' is a rather imperfect rendering
of the Chinese ``zizhu chuangxin,'' a term which defies easy
translation and, as a result, has given rise to some confusion among
English speakers. While ``indigenous'' captures part of the meaning, so
might ``independent,'' ``homegrown,'' ``self-initiated,'' ``original''
and several other terms. In the face of confusion among foreigners and,
indeed, among Chinese themselves, the Chinese Ministry of Science and
Technology has suggested that zizhu chuangxin be understood as
encompassing (1) genuinely ``original innovation'' (yuanshi chuangxin),
(2) ``integrated innovation'' (jicheng chuangxin, or the fusing of
existing technologies in new ways), and (3) ``re-innovation'' (yinjin
xiaohua xishou zaichuangxin), which involves the assimilation and
improvement of imported technologies. In desperation, some officials of
the Ministry have suggested that zizhu chuangxin be translated simply
as ``innovation.''
Confusion over translation, however, should not mask the deeper
policy and cultural significance of the term. It grows out of China's
fear of dependency on foreign technology, and what that means for the
development of national security capabilities and the relative gains
that China's manufacturers might realize in the global economy. In
addition, the concern for ``zizhu chuangxin'' has roots in a deep
cultural concern that as a great civilization, China should again
become a leader in science and technology, as it once was. With these
considerations in mind, the term might better be translated as
``sovereign innovation.''
The ambiguity surrounding the meaning of ``zizhu chuangxin'' has
meant that it has been available as a symbol for the policy
entrepreneurship of various groups in China's technical community
(membership in which is drawn from industrial, academic, and government
circles). For some, it has justified the pursuit of techno-nationalist
objectives intended to build up a China-focused national innovation
system. For others, it supports a more techno-globalist vision in which
growing Chinese capabilities in research and development are married
with global technology flows and globalized R&D to produce and
innovation system that is not bounded by narrow economic nationalism.
The challenge for the international community is to identify and
strengthen the hands of those with the latter orientation.
The pursuit of ``zizhu chuangxin'' and the making of an
``innovative society'' in China by the year 2020 involves a significant
expansion of R&D spending. But China has long suffered from a serious
gap between R&D activities and an inability to realize commercial and
other gains from turning new knowledge into practical innovations.
China is attempting to overcome this gap by incentivizing Chinese
industrial enterprises to take the challenges of innovation seriously.
Therefore a major thrust of the MLP is to transform Chinese enterprises
into centers of innovation and leaders of the national innovation
system. A variety of ``implementing policies'' in support of the MLP
are intended to privilege Chinese enterprises and support the
development of Chinese intellectual property and Chinese technical
standards. These policies in support of ``indigenous innovation'' have
tended to push China in the techno-nationalist direction, in the view
of many foreign observers, and have elicited widespread international
concern.
The MLP contains targets for the development of products containing
Chinese
intellectual property as well as technical standards based on Chinese
IP. As these targets have been operationalized, they have resulted in
an incentive structure for Chinese companies, universities, and
research institutes that rewards the filing of patents as a measure of
success. It is not surprising, therefore, that there has been a steady
growth in patenting over the past five years--although the quality of
many of these patents has been questioned.
The elements of this incentive structure include, in the first
instance, the use of IP production (measured in terms of papers and
patents) for evaluating R&D projects and for awarding new R&D grants.
But, in addition, IP criteria have been built into government
procurement policies, and policies for technical standards. Thus, in
ways that are rather unusual by international norms, China has proposed
that products qualifying for government procurement should contain
Chinese intellectual property. Apart from the ambiguity of what this
policy might mean (what is ``Chinese intellectual property''?; how is
it determined?), foreign companies have been concerned that they will
be excluded from an increasingly lucrative Chinese government
procurement market, depending on how the policy is implemented.
Although the central government appears to be backing away from the
more draconian interpretations, local governments have substantial
discretion in interpreting it and have been slower in adjusting policy
implementation in ways that are more consistent with international
norms.
While the promotion of the development of Chinese IP as part of the
MLP illustrates the growing importance of strong intellectual property
rights protection in Chinese thinking, new policy proposals in the area
technical standards illustrate the persistence of sympathies for weaker
IP. In this case, China has in recent years been troubled by what it
considers to be excessive royalty fees charged for the use of certain
technical standards. As a result, it has shown considerable interest in
trying to forge new directions for the ``patents in standards''
problem, such that the IP provisions of the Chinese standardization
system would reflect what Chinese officials believe to be a ``fairer''
formula for royalty payments.
4. There is no simple way to respond to China's ``indigenous
innovation'' initiatives, especially when they are understood in terms
of ``sovereign innovation.'' Nevertheless, responses along several
tracks are appropriate. First, China should be pushed to honor its
commitment to join the Government Procurement Agreement sooner rather
than later. Second, the United States should build on its extensive
science and technology contacts with China via commercial, academic,
and government channels to promote a vision of innovation that
transcends a limited and narrow techno-nationalism. A case can be made
that some of China's policies in support of ``indigenous innovation''
actually work against the achievement of the ``innovative society''
goal, and this case should be made frequently and forcefully in
contacts with Chinese policymakers and members of the technical
community.
Policies with regard to procurement and standards have led to the
bureaucratization of IP issues, and the complexities of central
government-local government relations in the implementation of policies
have made things worse. As in other areas of Chinese public policy,
policymaking and policy implementation are not as coherent as a ``China
Inc.'' image might lead us to believe. It is unfortunate that the areas
of incoherence can, and often do, impose costs on China's foreign
commercial partners. A positive interpretation of these problems is
that China is in a phase of development that makes incoherence
inescapable, but is trending in the direction of greater coherence and,
hence, a future with fewer conflicts over IP matters. A more troubling
interpretation, though, is that China is on a trajectory which will be
characterized both by greater policy coherence and policy development
in the areas of IP and standards which will be more difficult to
harmonize with international norms.
What is less subject to interpretation, though, is that China is
seriously and understandably committed to its own scientific and
technological development and innovative capacity, and there is little
that the international community can do to change this. Instead,
members of the international community have to devise ways of
exploiting that development by encouraging its further
internationalization, monitoring its progress, and preparing for
strategic interventions to take advantage of the new opportunities it
will offer.
5. In joining WTO, China has pledged that technology transfer
requirements would not be a condition for foreign investment. That we
continue to hear complaints about coerced transfers indicates that
China is either ignoring its WTO commitments or has found new policy
tools to induce transfers.
In many industries, though, including clean energy, the Chinese
market is so attractive to international companies that the wresting of
some degree of technology transfer from investments is unavoidable. In
raising this point, we are reminded that technology transfer, more
often than not, is a business decision. We should also be reminded
that, except in rare cases, the business value of intellectual property
depends not solely on the quality of the intellectual contribution
embodied in the IP, but also on the ``complementary assets'' which make
it possible to exploit the value of the intellectual property.
In the area of clean energy technologies, we are increasingly
seeing that China is providing those complementary assets at a rate,
and on a scale, that makes it a magnet for owners of IP to conduct
business there. There have been a number of recent reports to this
effect; I would call your attention to a most recent one issued by
Agence France Presse, entitled ``China a Beacon for Foreign Clean Tech
Firms.'' \3\ According to this account, China has surpassed United
States this year as the most attractive market for investments in
renewable energy technologies, in large part because it has become ``.
. .a very good market to commercialize technology at scale. . . .''
Furthermore, China is providing the financial resources to facilitate
the transformation of important technical ideas into commercial
products. Quoting Nicholas Parker of the US-based Cleantech Group,
``Things are tough for companies here (in the West). . . .we have a
shortage of debt financing. The money for deployment, for building wind
farms or for building a factory where you tend to use debt financing,
has dried up due to the crisis on Wall Street. That shortage doesn't
exist in China.'' Add to China's advantages the fact that it is
creating an increasingly competent R&D system with a growing number of
capable scientists and engineers. In short, China offers markets,
financing, R&D capabilities, and a supportive policy environment for
clean energy; it is not surprising that owners of intellectual property
will risk IPR infringements by taking their business there.
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\3\ http://www.abs-cbnnews.com/business/09/19/10/china-beacon-
foreign-clean-tech-firms
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6. The points made above are intended to suggest that US thinking
about intellectual property rights in China needs a fairly major
overhaul. That there are IPR abuses in China is beyond doubt; they
affect Chinese innovators as well as foreigners, and should be opposed.
But it is also clear that the value of intellectual property is not
solely intrinsic to the ideas themselves, but requires an environment
rich in complementary assets for that value to be released. It is
becoming increasingly clear that in the area of clean energy, policy
failures resulting from what
appears to be a broken political system in United States are leading to
the squandering of the complementary assets we once had in abundance.
The globalization of innovation puts a premium on both the ability
to produce intellectual property, but also to exploit it. The global
innovation system is usefully thought of as a complex network of
interconnected nodes. The United States has been a ``supernode'' in
this network for the last 60 years as the center of IP creation and IP
exploitation and, importantly, a magnet for innovators from around the
world. Many signs indicate that China is becoming a new ``supernode''
in spite of the difficulties of its IPR regime. While it is important
for the United States to continue to work with China in moving that
regime towards international norms, there clearly is a need for new
thinking about intellectual property in China, and for a far more
imaginative approach to engaging China on these issues.
______
Prepared Statement of Hon. Sander Levin, a U.S. Representative From
Michigan, Cochairman Congressional-Executive Commission on China
september 22, 2010
The topic of today's hearing is of the utmost importance to
American workers and American business. American workers and businesses
lose billions of dollars each year to Chinese intellectual property
rights infringement.
The Chinese government has failed to comply with the commitments to
protect intellectual property rights that it made as a member of the
WTO, and it continues to undermine protections for intellectual
property contained in its own laws and regulations. By shining a
spotlight on how China's flagrant abuse of international rules
governing intellectual property rights undermines the rule of law, this
Commission has an important role to play.
The headline of a recent and detailed Wall Street Journal article
says it all: ``China Spooks Auto Makers: Foreign Companies Fear New
Rules on Electric Cars Will Erode Intellectual Property.'' The article
notes that ``China's government is considering plans that could force
foreign automakers to hand over cutting-edge electric-vehicle
technology to Chinese companies in exchange for access to the nation's
huge market.'' The article goes on to say that China's Ministry of
Industry and Information Technology is preparing a 10-year plan ``that
could compel foreign automakers that want to produce electric vehicles
in China to share critical technologies by requiring the companies to
enter joint ventures in which they are limited to a minority stake.''
The article notes how Beijing's program of so-called ``indigenous
innovation'' discriminates against foreign companies, and is said to be
``aimed at gaining control of foreign intellectual property.''
China's industrial policies have a common thread: they have the
purpose or the effect of tilting the playing field to favor Chinese
companies and against U.S. companies and workers. That is not a sound
or sustainable basis for a mutually beneficial U.S.-China relationship.
Nor is it a viable foundation for the development of the rule of law in
China.
There is an ever widening chasm between what we hear from the
Chinese government about the protection of intellectual property in
China, and what we know to be true about the protection of intellectual
property in China.
We hear that the legal infrastructure supporting intellectual
property rights has improved; we hear that courts are becoming more
professionalized and skilled at handling complex issues related to
intellectual property; we hear that Chinese rights holders are turning
to Chinese courts to assert their rights more than in the past, and
that there has been a measurable increase in the number of civil
intellectual property cases in Chinese courts; we hear that foreign
plaintiffs are winning intellectual property cases at increasing rates.
That is what we hear. But this is what we know:
We know that the American Chamber of Commerce in China surveyed its
members this year and found that 63 percent rated intellectual property
rights enforcement in China as ``ineffective.'' We know that
intellectual property infringement in China is more widespread than
before, and that counterfeit exports have increased; we know that
enforcement of intellectual property judgments is difficult in China,
that damages are still inadequate by international standards, and that
the Chinese government has not taken sufficient steps to address
difficulties in the gathering of evidence; we know that high value and
volume thresholds must be met in order to initiate criminal prosecution
of intellectual property infringement, that administrative fines are
too low and civil damages too inadequate and imposed too infrequently
to serve as deterrents, and that infringers view them merely as a cost
of doing business.
In sum, we know that the Chinese government could be doing far more
to protect intellectual property rights, but it is not doing so.
We know that in 2009, 79 percent of intellectual property-
infringing product seizures at the U.S. border were of Chinese origin;
we know that China's State-Owned Assets Supervision and Administration
Commission has the power to require Chinese state-owned enterprises to
certify that all software they use is properly licensed, but that it
has not required state-owned enterprises to provide such certification;
we know that production of counterfeit auto parts experienced a period
of significant growth in China in recent years, and that a significant
portion of counterfeit auto parts in China are manufactured in areas
the Chinese government has designated as auto parts export zones.
We know that the Chinese government's market access barriers lead
consumers to the black market. We know, for example, that to enforce
its policies of censorship, the Chinese government limits the number of
foreign films, books, and other media that may be distributed legally
in China. We know that these limits effectively create markets for
pirates. It is bad enough that Chinese government censorship practices
violate international human rights standards. But let me state this
clearly: Chinese government censorship leads consumers to the black
market, and that, in turn, incentivizes the violation of intellectual
property rights. The Chinese government often denies the link between
human rights and the commercial rule of law. But the link is clear, and
the Chinese government itself creates this link. Chinese government
censorship leads to the violation of intellectual property rights.
There can be no doubt that China's flagrant abuse of international
rules undermines the rule of law. There is no doubt that widespread
intellectual property rights infringement in China continues to affect
products, brands, and technologies from a wide range of industries, and
imperils the health and safety of both American and Chinese consumers,
and imposes billions of dollars of losses yearly on American businesses
and workers.
Change is necessary--both in the Chinese government's behavior, and
in the action we take in response. I look forward to our witnesses'
testimony.
______
Prepared Statement of Hon. Christopher Smith, a U.S. Representative
From New Jersey, Ranking Member, Congressional-Executive Commission on
China
september 22, 2010
Thank you, Mr. Chairman, and welcome to everyone this afternoon.
Mr. Chairman, the Global Intellectual Property Center estimates
annual U.S. losses caused by intellectual property infringement of
almost $125 billion in the automotive, recording, pharmaceutical, and
software industry industries alone, and we know that the Chinese
government is the cause of most of the problem.
China tolerates--in some cases, probably, encourages--widespread
infringement of American intellectual property rights, and then exports
U.S.-property rights infringing products right back to us. According to
the U.S. Trade Representative's 2010 ``Special 301 Report,'' 79 percent
of infringing products seized at our border were of Chinese origin. I
wonder how many jobs that translates into--how many American jobs would
return if key foreign countries enforced the intellectual property
agreements they signed?
I hope our witnesses address this question, as well as discuss the
tools the executive branch has to take truly decisive action to protect
American intellectual property--our workers and our economy. In the
Trade Act of 1974, Congress provided the executive with all the
authority it needs to remedy many trade injustices--injustices to our
own workers as well as to foreign workers exploited in sweatshops. The
executive branch has rarely made use of these--in fact, in 2006 then-
Congressman Ben Cardin and I joined the AFL-CIO in a Section 301
petition to President Bush, which was denied, and I recently urged AFL-
CIO leaders to petition President Obama under Section 301 of the Trade
Act. In that petition the issue was the denial of the basic worker
rights in China, and its adverse effect on American workers, and
Section 301 provided WTO-consistent remedies. So we have two very
serious issues here--the harm done to U.S. workers, and the
exploitation of Chinese workers.
Mr. Chairman, our government has a responsibility to take action
here. The unemployment rate was just reported as 9.6 percent in my
state, New Jersey, and in fact is 9.6 percent nationally--and this
means millions of people struggling to make house payments, to feed
their families. We need to ensure the President and the USTR are using
all the tools they have to fix the problem.
______
Prepared Statement of Hon. Carl Levin, a U.S. Senator From Michigan,
Member, Congressional-Executive Commission on China
september 22, 2010
I commend the Chairman and Cochairman of the CECC for holding this
important hearing. Despite nearly 10 years as a member of the WTO,
China continues to engage in unfair trade practices. Two areas of
concern I would like the Commission to look at are the actions China is
taking to favor its domestic renewable energy technology sector and
automotive parts counterfeiting.
We should all be alarmed by China's attempts to dominate the
renewable energy industry through measures that discriminate against
foreign manufacturers. China does this by requiring the use of domestic
suppliers and production for green and renewable technology. This was
validated in USTR's 2009 Special 301 report on China which noted U.S.
industry concerns about the possibility that Chinese laws or policies
in a variety of fields might be used to unfairly favor domestic
intellectual property over foreign intellectual property. The report
stated the concerns are, ``especially acute in light of Chinese
Government policies that appear to establish a procurement preference
for domestically innovated products.'' China also requires a
significant percentage of these products be exported, in order to
guarantee that its domestic companies will dominate this important
sector.
China is trying to have it both ways: protecting its home market
while exporting most of its production. The New York Times reported
that China protects its domestic producers by requiring that 80 percent
of the equipment used in Chinese solar power plants be made in China.
At the same time, over 95 percent of China's solar panel production is
exported to the United States and Europe.
China also has designs to dominate clean car technology. According
to the Wall Street Journal, China is preparing a 10-year plan to turn
China into the world's leader in developing and producing battery-
powered cars and hybrids. The draft plan suggests that China could
compel foreign auto makers who want to produce electric vehicles in
China to transfer critical technology by requiring those companies to
enter into joint ventures where the foreign auto maker would be limited
to a minority stake. I agree with the foreign auto executive that said
it is, ``tantamount to China strong-arming foreign auto makers to give
up battery, electric-motor, and control technology in exchange for
market access.'' With such government mandated policies in place, once
all of the technology is transferred the Chinese joint venture partner
will become a competitor.
At a time when American manufacturers are working hard to compete
in the emerging field of green technologies, China must not be allowed
to unfairly or illegally undermine those efforts. The United Steel
Workers of America has filed a trade petition accusing China of
violating the WTO by subsidizing exports of clean energy equipment. I
have urged the administration to investigate these allegations.
I am also concerned about the counterfeiting of auto parts,
concerns that extend beyond monetary losses to U.S. firms and directly
impact human health and safety. A counterfeit auto part could be the
wheel or the brakes on your car. Since counterfeit parts are often
substandard and produced with inferior materials, they put lives at
risk. The Motor & Equipment Manufacturers Association (MEMA) recently
testified that most counterfeits appear to be made in China.
The Gates Corporation, headquartered in Denver, CO, with operations
in Michigan, is a major manufacturer of a range of belts used in motor
vehicles and has faced a number of cases of counterfeit belts
worldwide. When Gates tested pirated timing belts it found they were
inferior to the genuine part with a significantly shorter lifespan. A
counterfeit timing belt may wear and fail prematurely with serious
cost, health, and safety consequences. A consumer advocacy group in
China relying on Chinese media reports estimates that 70 percent of
aftermarket auto parts in China are counterfeit and that approximately
13 percent of car accidents are due to fake auto parts.
In addition to the safety issues, American companies' investments
in innovation and technology development are at risk. The auto parts
industry's losses due to counterfeiting are enormous. MEMA
conservatively estimates that counterfeit goods cost motor vehicle
suppliers up to $12 billion globally in lost sales every year. Market
researchers Frost and Sullivan estimated in 2006 that the global losses
to motor vehicle suppliers due to counterfeiting would be as high as
$45 billion in 2011. In 2007 Ford Motor Co. stated that counterfeit
auto parts cost it nearly $1 billion a year. We cannot continue to
allow these types of American investments and innovations to be stolen
by foreign competitors.
For almost 20 years the United States has been aggressively
pressing China through Section 301 trade cases to improve its
intellectual property protection regime. Yet China continues to be the
number one source country for counterfeit and pirated goods seized in
fiscal year 2009, accounting for 79 percent or $204.7 million of the
total value seized. The USTR's 2010 Special 301 report continued to
list China on the Priority Watch List and stated that China continued
to be a major focus of U.S. concerns. Even though China made some
progress in improving its enforcement regime, the USTR said piracy
rates remained at ``unacceptable levels.'' The Chinese Government
itself estimates that counterfeits constitute between 15 percent and 20
percent of all products made in China and are equivalent to about 8
percent of China's annual gross domestic product.
China's trade distorting practices need to be aggressively
investigated by the USTR as we work to hold China to its WTO
commitments in international trade.
Submissions for the Record
----------
Prepared Statement of Robert W. Holleyman, II, President and CEO,
Business Software Alliance
september 22, 2010
We applaud the Commission for holding this very important hearing
on IP protection in China. This is a critical issue for BSA and our
members.
BSA is an association of the world's leading software companies and
their hardware partners around the world.\1\ BSA members create
approximately 90 percent of the office productivity software in use in
the United States and around the world.
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\1\ The Business Software Alliance (www.bsa.org) is the world's
foremost advocate for the software industry, working in 80 countries to
expand software markets and create conditions for innovation and
growth. Governments and industry partners look to BSA for thoughtful
approaches to key policy and legal issues, recognizing that software
plays a critical role in driving economic and social progress in all
nations. BSA's member companies invest billions of dollars a year in
local economies, good jobs, and next-generation solutions that will
help people around the world be more productive, connected, and secure.
BSA members include Adobe, Altium, Apple, Autodesk, AVEVA, AVG, Bentley
Systems, CA Technologies, Cadence, Cisco Systems, CNC/Mastercam, Corel,
Dassault Systemes SolidWorks Corporation, Dell, HP, IBM, Intel, Intuit,
Kaspersky Lab, McAfee, Microsoft, Minitab, PTC, Progress Software,
Quark, Quest Software, Rosetta Stone, Siemens, Sybase, Symantec,
Synopsys, and The MathWorks.
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The software industry has proven to be a remarkable engine for jobs
and economic growth. The software and related services sector employed
almost 2 million people in the United States in 2007 in jobs that paid
195 percent of the national average wage. This sector contributed more
than $261 billion to US GDP in 2007, making it the largest of the US
copyright industries.
The packaged software industry's overseas earnings contributed a
$37 billion surplus to our nation's balance of trade in 2009. As much
as 60 percent of revenues for the leading US software companies are
generated from sales outside US borders.
A few months ago the Chief Executive Officers of twelve BSA member
companies came to Washington, DC to meet with Congressional leaders and
the President's senior economic team. Their message was simple--the US
software industry is key to the US economy and China is a critical
market for our future growth.
Two Chinese practices stand in the way of American software
companies' ability to compete in China: massive illegal use of software
(nearly 4 out of every 5 computer programs installed on personal
computers (PCs) in China last year were being used illegally) and the
development of ``indigenous innovation'' policies that limit our access
to a broad swath of the Chinese market.
The indigenous innovation issue has received high-level attention
from the US government over the past year and BSA applauds this.
Progress, however, has been slow in getting China to rethink and
suspend its problematic indigenous innovation policies--from government
procurement, to standard-setting, to certification requirements--that
pose significant market access restrictions for US software and other
technology companies. These policies are characterized by significant
preferences for domestic firms and requirements seeking to compel
transfers of technology as a precondition for market access. More
action is needed.
Given its broad-based impact on the US economy, we believe the
pervasive use of illegal software in China needs intensified attention
from the US government as well.
It is now an established fact that software and computers have
changed the world in which we live. Information technology has made us
more efficient, more productive and more creative. Software and
computers deliver results on national priorities such as health care,
energy, infrastructure, education, and e-government.
Software has been at the heart of this technology revolution. It is
also a big part of the US industrial base, whether it is the software
used by steel companies, the autos we drive, or the energy saving
appliances we use in our daily lives. Software drives productivity and
innovation in almost every economic sector, helping businesses of all
sizes perform better in good times and bad.
We believe our country's ability to create jobs depends in large
part on our ability to export. We support the President's ambitious
National Export Initiative (NEI) goal of doubling US exports of goods
and services over five years. We stand ready to do our part, but cannot
do so if a market as critical as China is out of reach because of high
levels of software piracy.
Here are the facts. Our annual Global Software Piracy Study
undertaken by market research firm IDC estimates that nearly 4 out of
every 5 software programs
installed on PCs in China widely used in the government, enterprises
and by consumers in 2009 were unlicensed. The Study conservatively
estimates that the commercial value of those programs is $7.6 billion.
That is double what it was just 4 years ago. In stark contrast, the
estimated revenues from sales of PC software from US producers in China
were around $1 billion.
But these numbers, large as they are, understate the problem.
Nearly as many PCs were sold to businesses in China in 2009 as to
those in the United States. Our country's total exports to China in
2009 were $70 billion. If Chinese enterprises were to actually pay for
just the PC software they use, we conservatively estimate that total US
exports to China could grow by at least 5 percent. The impact would be
higher when the broader universe of packaged software is considered.
This gives you a good picture of what is at stake.
The economic harm due to the illegal use of software in China has
broader consequences here at home for US jobs. Products made in China
by enterprises that use illegal software hurt American competitiveness
and in many cases displace US jobs. Our companies pay for their
critical inputs of production, such as software, while many of their
Chinese competitors do not. Chinese products made with illegal software
enter our markets and undercut our goods and services. In practical
terms this harms US jobs.
We need to think of the problem of illegal use of software in a
different way. The problem is more pervasive, more complex, and more
pernicious than it was just a few years ago. Quite frankly, the term
``piracy'' is outdated. It does not even begin to capture the breadth
of the problem.
So what should we do?
We believe the United States should develop a comprehensive
results-based trade policy with China in place of the one-off, issue-
by-issue approach that guides the current relationship. Our primary
measure of success should be increased US exports of goods and
services.
At a recent Senate Finance Committee hearing, responding to a
Senator's comment that US-China economic policy was too focused on
``soothing words,'' Treasury Secretary Geithner said ``[t]he test of
these things is not what people say and it's not how many meetings you
have. The test is what actually happens to the terms and conditions
that US companies compete on.''
We agree wholeheartedly.
For over 20 years, the United States has engaged China in round
after round of discussions aimed at one-off issue resolution at
periodic ministerial meetings, including improved protections for
software and other forms of intellectual property. These efforts have
resulted in some positive changes, but not enough. Meaningful results
for our sector, as measured by increased exports of goods and services,
have been lacking.
As a key element of developing and implementing a result-based
trade policy, we should hold China accountable for its commitments to
combat software piracy. For example, in 2004, as part of the bilateral
US-China Joint Commission on Commerce and Trade (JCCT) negotiations,
China committed that government entities would only use legal software.
The United States has an Executive Order that requires this. Soon after
this commitment was made, the Chinese government self-declared that it
had fulfilled this promise, though provided no means for verification.
The Chinese government also committed in the JCCT that state-owned
enterprises (SOEs) would use only legal software and later made
assertions that this had generally been accomplished.
Since these commitments were made, software sales by US-based
companies have hardly budged while illegal use of PC software in China
as a whole has doubled to $7.6 billion. At present, SOEs and other
Chinese enterprises regularly use unlicensed software to operate their
businesses, safe in the knowledge that there are no consequences.
Our overall goal should be increased exports of goods and services,
but there are some immediate steps that we think should be taken.
The US government should press the Chinese government to:
Devote resources to enforcement against software
piracy that are commensurate with the scope of the problem.
Cooperate with industry's efforts to bring civil cases
to enforce software license compliance, including cases against
SOEs.
Implement verification and audit systems to measure
performance in fulfilling commitments on government and
enterprise legalization.
Make software piracy by enterprises subject to
criminal penalties.
The United States should also undertake a full examination of
available trade policy remedies to address these concerns. This would
include assessing whether
actions can be brought under the World Trade Organization (WTO) and
whether China's practices are a form of unfair competition that can be
addressed by US trade laws.
The challenges that we face due to software piracy are now being
compounded by Chinese policies that restrict our access to the Chinese
market. Over the past several years, the Chinese government has issued
a series of ``indigenous innovation'' policies that erect barriers to
US software and other products in a quest to promote domestic
champions. These Chinese policies discriminate against foreign firms
through a web of preferences for Chinese-developed technology and
standards and compel American and other foreign companies to relocate
their R&D to China or lose the ability to sell there.
To counteract the harm caused by these policies, the US government
must press the Chinese government to suspend current policies that
create market access barriers and compel IP transfers, and engage in a
meaningful dialogue on non-discriminatory approaches to promote
innovation.
We accept that we have to do our part to help ourselves. We are
doing several things. Our members continue to invest on average more
than 7 percent of revenues in R&D, with some investing close to 20
percent. We are determined to improve on our already world leading
software products. This investment will enable us to innovate, compete
and create jobs in the United States. In China, we have had a long-
standing program to pursue enforcement actions against enterprises that
illegally use our software and to educate users about the importance of
using legal software. To date, these efforts have produced limited
results. We are committed to retooling and upgrading those enforcement
and education efforts and are now in the midst of implementing a new
enforcement plan in China.
software piracy in the chinese market
The current rate of illegal software use in China is staggering.
Recent estimates from the market research firm IDC indicate that nearly
4 out of every 5 copies (79 percent) of PC software installed in China
in 2009 were illegal, with a total commercial value of $7.6 billion.
These are industry averages, and understate the dire situation that
piracy creates for many of our companies.
A leading source of these losses is what we describe as ``end-user
piracy''--the unlicensed use of software by Chinese businesses and
other enterprises. Chinese authorities do not view the unlicensed use
of software by enterprises as a crime. As a result, US software
companies must rely on China's civil and administrative systems to
pursue these infringers. The vast scale of the problem, the generally
modest civil and administrative remedies available, and the time and
expense of pursuing actions against individual companies mean that, in
practice, the software industry is largely powerless to deter, let
alone stop, the widespread illegal use of its products in China.
End-user piracy is not limited to so-called private enterprises
engaged in commercial activity in China. Far from it. Unauthorized use
of software is also extremely widespread in government agencies and in
China's massive SOEs and the companies they own. China has repeatedly
committed in the JCCT that all government agencies--including
provincial and local government authorities--and SOEs would use only
licensed software. US industry has seen little progress on these
commitments.
Other forms of illegal software use are also prevalent. For
example, hard-disk loading of software--where PC manufacturers and
resellers install unlicensed software onto PCs before their sale--is
widespread. After years of effort by the software industry and
considerable pressure from the US government, China issued a Decree in
2006 stating that all PCs produced in or imported into China must have
legal operating system software pre-installed. While implementation of
this Decree resulted in a modest increase in software sales in the
first year, progress since that time has been minimal, hindered largely
by the government's unwillingness to verify that China's PC makers are
complying with the Decree.
Physical goods piracy--including manufacture and sale of pirate CD-
ROMs, each containing thousands of dollars worth of illegal business
software, and counterfeiting of a virtually unlimited range of computer
hardware and devices--also proceeds largely unhindered. And Internet
piracy flourishes in China. China's Internet population is now by far
the largest in the world, estimated at 384 million users--a figure
greater than the entire US population. The Chinese government has not
effectively acted to stop Internet users and website operators from
distributing unlicensed software within and outside the Chinese market.
the impact on us jobs
While this illegal software use takes place thousands of miles from
US shores, its impact is felt right here at home, in cities and towns
across America.
By refusing to pay for the software they use, Chinese businesses
artificially reduce their expenses and gain a competitive advantage
over US firms. This enables Chinese companies to develop and
manufacture products more cheaply than their US competitors.
In short, the illegal use of software by Chinese companies not only
deprives US software firms of sales and revenues, but allows these
Chinese companies to undercut the sales of goods and services by their
US competitors, reducing the revenues of US companies, and depriving US
workers of good jobs.
The US International Trade Commission is currently undertaking an
investigation to better understand the scope of intellectual property
infringement and China's indigenous innovation policies and the
implications for US competitiveness and jobs. We are taking advantage
of the opportunity to participate in this investigation and believe
that the results, particularly the new economic models that may result
from this work, should provide valuable information for policymakers.
a results-based trade policy
US industry, with the strong support of the US government, has long
pressed China to protect intellectual property rights. In response,
China has taken steps to improve its IP regime, such as modifications
to its copyright and trademark laws, and the adoption of a regulation
aimed at Internet piracy. More generally, as part of its WTO accession,
China committed to following the rules-based trading system and
providing adequate intellectual property protection.
But gaps remain, and enforcement of the laws is inadequate. The
result is that US industry losses due to software piracy continue to
grow.
Indeed, the list of needed actions by the Chinese government
identified in the US Trade Representative's ``Special 301'' process
earlier this year is extensive. The list includes enforcement-related
improvements, legislative changes and market access issues.
Specifically, increases in the number of criminal prosecutions and
administrative actions against copyright infringers, greater resources
for, and training of, IP enforcement authorities, the assignment of
judges with IP expertise to hear criminal cases, and amendments to a
number of laws including the copyright law, the criminal law, and the
regulations that govern Internet enforcement.
Historically, industry and the US government have measured China's
progress towards improved intellectual property protection based on
whether China adopted these or other specific legislative and
enforcement-related measures and on commitments made by the Chinese
government as part of the Strategic & Economic Dialogue (S&ED), JCCT
and other bilateral negotiations. It is abundantly clear, however, that
this approach is not working as all of us had expected. The Chinese
government has not fulfilled many key commitments and has clearly not
undertaken the more sweeping steps necessary to meaningfully reduce
intellectual property theft.
In the next 12-18 months, the market for PCs sold to businesses in
China is expected to become the largest in the world, and yet the
outlook for software sales is dismal. On this, the past does not offer
grounds for optimism. The rate of PC software piracy in China has
declined only 7 percentage points since 2005--from 86 to 79 percent in
five years. At this rate, it will take over 40 years for China's piracy
rate to come anywhere close to the level in the United States (20
percent).
We urge the US government to consider moving away from measuring
progress based on whether or not China amends a specific law or
undertakes a discrete commitment. Instead, we need to move to a system
that measures the actual results of China's actions in terms of
increased exports of US software and reductions in software piracy in
the Chinese market.
Such a results-based trade policy would align well with President
Obama's National Export Initiative. The President set a goal of
doubling US exports in the next five years, an increase that the
Administration projects will create over two million new US jobs.
Increased exports of goods and services will also help to drive US
economic growth more broadly; growing US exports contributed nearly 2
percentage points to US economic expansion in the last six months of
2009 alone.
This same results-based approach should be applied to China. The
immediate goal should be to increase US software exports to China by 50
percent over the next two years. Given the extremely high levels of
software piracy in China, this benchmark would be reasonable to achieve
through a decrease in the software piracy rate. Utilizing clearly
defined, concrete and measurable benchmarks to assess progress would
help the United States evaluate the US-China trade relationship more
accurately and encourage China to take meaningful steps to reduce
illegal software use across the Chinese economy.
china must abide by its trade obligations
In parallel with the use of increased exports as the measure for
progress, it is necessary to ensure that China takes seriously its
international obligations and other commitments.
The Chinese government appears to have taken the view that it can
turn a blind eye to widespread illegal software use with no fear of
violating its obligations as a member of the WTO--and with no fear of
sanctions for its actions.
The US government needs trade tools to challenge Chinese practices
that have the effect of depriving the United States of benefits that it
legitimately expects from China's membership in the WTO. Chief among
these, in our view, is China's need to make meaningful progress in
reducing illegal software use and increasing market opportunities for
US software suppliers.
A WTO remedy that merits consideration is that of a non-violation
``nullification or impairment'' claim, under Article XXIII of the
General Agreement on Tariffs and Trade. Such actions are appropriate
where a WTO member's conduct, while not violating the letter of the
agreement, nonetheless denies or impairs a benefit accruing to another
party under the WTO.
Moreover, as discussed above, the high-levels of software piracy in
China also provide an unfair competitive disadvantage for Chinese firms
that use unlicensed software to produce goods and run their operations
in competition with US firms. We would suggest that this practice may
be a form of unfair competition subject to action under US trade laws.
conclusion
My testimony here demonstrates the stark reality that BSA members
are facing in China.
As US Trade Representative Kirk recently remarked, ``[i]ntellectual
property theft in overseas markets is an export killer for American
businesses and a job killer for American workers here at home.'' While
we believe that the United States must
continue to pursue a strong economic relationship with China, China's
persistent failure to protect the intellectual property of US products
and innovations and its discriminatory ``indigenous innovation''
policies seriously undermine this relationship. More importantly,
China's actions are costing US jobs.
We urge the members of the Commission to explore new solutions to
address this challenge--including results-based trade policies and
application of new trade remedies--in order to better protect US
innovators, US industry and US workers. We stand ready to assist the
Commission in this endeavor. Thank you.
______
Piracy is a Danger to Entertainment Professionals
Submitted by the Department for Professional Employees, AFL-CIO (DPE)
for the Arts, Entertainment and Media Industries Unions Affiliated with
DPE
afl-cio executive council statement, orlando, florida march 2, 2010
Motion pictures, television, sound recordings and other
entertainment are a vibrant part of the U.S. economy. They yield one of
its few remaining trade surpluses. The online theft of copyrighted
works and the sale of illegal CDs and DVDs threaten the vitality of
U.S. entertainment and thus its working people.
The equation is simple and ominous. Piracy costs the U.S.
entertainment industry billions of dollars in revenue each year. That
loss of revenue hits directly at bottom-line profits. When profits are
diminished, the incentive to invest in new films,
television programs, sound recordings and other entertainment drops.
With less investment in future works comes less industry activity that
directly benefits workers: fewer jobs, less compensation for
entertainment professionals and a reduction in health and pension
benefits.
Combating online theft and the sale of illegal CDs and DVDs is
nothing short of defending U.S. jobs and benefits. In the case of
music, experts estimate that the digital theft of sound recordings
costs the U.S. economy $12.5 billion in total output and costs U.S.
workers 71,060 jobs.\1\ In the motion picture industry, piracy results
in an estimated $5.5 billion in lost wages annually, and the loss of an
estimated 141,030 jobs that would otherwise have been created.\2\
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\1\ Siwek, Stephen. (8/21/07). The True Cost of Sound Recording
Piracy to the U.S. Economy. Retrieved from: http://www.ipi.org/IPI/
IPIPublications.nsf/PublicationLookupFullText/5C2EE3D2107
A4C228625733E0053A1F4
\2\ Siwek, Stephen. (9/20/06). The True Cost of Sound Recording
Piracy to the U.S. Economy. Retrieved from: http://www.ipi.org/IPI/
IPIPublications.nsf/PublicationLookupFullText/E274F77
ADF58BD08862571F8001BA6BF
---------------------------------------------------------------------------
Illegal CDs and DVDs have afflicted even live theatre. Websites
sell illegal DVDs of Broadway shows, which reduces sales of tickets and
authorized CDs and DVDs. Selling illegal CDs or DVDs of plays, musicals
and other shows not only steals the work of the entertainment
professionals, but makes quality control impossible.
Most of the revenue that supports entertainment professionals' jobs
and benefits comes from the sale of entertainment works including sales
in secondary markets--that is, DVD and CD sales, legitimate downloads,
royalties and, in the case of TV shows or films, repeated airings on
free cable or premium pay television. Roughly 75 percent of a motion
picture's revenues comes after the initial theatrical release, and more
than 50 percent of scripted television production revenues are
generated after the first run.
In most work arrangements, a worker receives payment for his or her
effort at the completion of a project or at set intervals. The
entertainment industry, however, operates on a longstanding unique
business model in which compensation to workers--pay and benefit
contributions--comes in two stages. Film, television and recording
artists, as well as film and television writers, receive an initial
payment for their work and then residuals or royalties for its
subsequent use. Those payments also generate funds for their health and
pension plans. The below-the-line workers, the craft and technical
people who manage equipment, props, costumes, makeup, special effects
and other elements of a production, also receive compensation for their
work, while payment for subsequent use goes directly into their health
and pension plans.
Motion picture production is a prime example. The professionals
involved with the initial production of a film--the actors who perform,
the craftspeople behind the scenes, the musicians who create the
soundtrack and the writers who craft the story--each receive an initial
payment for their work. When that work is resold in the form of DVDs or
CDs, or to cable networks or to airlines or in foreign sales, a portion
of these ``downstream revenues'' are direct compensation to the film
talent or recording artists who were involved in those productions or
recordings.
These residuals help keep entertainment professionals afloat
between projects. Entertainment professionals may work for multiple
employers on multiple projects and face gaps in their employment.
Payment for the work they have completed helps sustain them and their
families through underemployment and unemployment. For AFTRA recording
artists in 2008, 90 percent of income derived from sound recordings was
directly linked to royalties from physical CD sales and paid digital
downloads. SAG members working under the feature film and TV contract
that same year derived 43 percent of their total compensation from
residuals. Residuals derived from sales to secondary markets funded 65
percent of the IATSE MPI Health Plan and 36 percent of the SAG Health
and Pension Plan. WGAE-represented writers often depend on residual
checks to pay their bills between jobs; in some cases, the residual
amounts can be as much as initial compensation. Online theft robs hard-
earned income and benefits from the professionals who created the
works.
There are tools that can be used to fight digital piracy. Internet
service providers (ISPs) have the ability to find illegal content and
remove or limit access to it. To be truly effective, these sanctions
must depart from the costly and ineffective legal remedies
traditionally employed to counter theft of copyrighted material. The
European Union is developing and implementing model policies for which
the trade union movement is providing strong and critical support.
These policies illustrate that there are answers that make sense in a
digital age.
At the core of any effort to combat digital theft is reasonable
network management, which should allow ISPs to use available tools to
detect and prevent the illegal downloading of copyrighted works. With
respect to lawfully distributed content, ISPs should not be allowed to
block or degrade service so that both consumers and copyright would be
protected.
The unions of the AFL-CIO that represent professionals in the Arts,
Entertainment and Media Industries (AEMI) include Actors' Equity
Association (AEA), the American Federation of Musicians (AFM), the
American Federation of Television and Radio Artists (AFTRA), the
American Guild of Musical Artists (AGMA), the International Alliance of
Theatrical Stage Employees, Moving Picture Technicians, Artists and
Allied Crafts (IATSE), the International Brotherhood of Electrical
Workers (IBEW), the Office and Professional Employees International
Union (OPEIU), the Screen Actors Guild (SAG) and the Writers Guild of
America, East (WGAE). The AEMI unions are wholly in support of the
widest possible access to content on the Internet and the principles of
net neutrality, so long as intellectual property rights--and the
hundreds of thousands of jobs that are at stake--are respected.
Some would like to portray the debate over Internet theft as one in
which a few wealthy artists, creators and powerful corporations are
concerned about ``giving away'' their ``product'' because they are
greedy and cannot change with the times to create new business models.
The hundreds of thousands of people represented by the AEMI unions of
the AFL-CIO are a testament to the falsity of that proposition.
Online theft and the sale of illegal CDs and DVDs are not
``victimless crimes.'' Digital theft costs jobs and benefits. It is
critical, at this important moment in the evolution of the Internet and
potential Internet policy, for union members and leaders to publicly
and visibly engage in a sustained effort to protect members'
livelihoods, the creation and innovation that are the hallmark of their
work and the economic health and viability of the creative industries
in this country. The AEMI unions and other unions in U.S. entertainment
stress that pirated content is devastating to the entertainment
professionals who create the underlying works.
The AFL-CIO strongly supports the efforts of the AEMI unions and
the Department for Professional Employees, AFL-CIO, to combat piracy.
It commends their work with government and industry to develop workable
solutions to protect the interests of their members. The AFL-CIO urges
its affiliate unions to educate their members about the adverse impact
of piracy; to support efforts to ensure that government officials and
lawmakers are aware of, and support the protection of, entertainment
industry jobs that will be lost to online theft; to encourage their
members to respect copyright law; and to urge their members, as a
matter of union solidarity, to never illegally download or stream
pirated content or purchase illegal CDs and DVDs.