Just in time for the opening of the annual U.S.-China Joint Commission on Commerce and Trade (JCCT) today in Washington, the U.S. International Trade Commission (USITC), an independent U.S. government agency, has released an important study on the theft of U.S. intellectual property in China, “China: Intellectual Property Infringement, Indigenous Innovation Policies.” (News release.)

To no one’s surprise, the Commission found that massive Intellectual Property Rights (IPR) infringement harms market opportunities in China and significantly diminishes the income for U.S. companies whose products are counterfeited and pirated in China (as well as other markets, including the United States).

Further, China is engaged in a concerted effort to promote so-called “indigenous innovation” policies designed with the sole intent of keeping U.S. and other foreign firms out of the huge Chinese government procurement market by requiring the development and purchase of Chinese products and technologies, sometimes through the forced transfer of technology as a prerequisite for foreign participation.

The National Association of Manufacturers expects that the U.S. government will use this study when U.S. trade negotiators meet with their Chinese government counterparts. This threat to American innovation must stop.

The study also pointed to the problem U.S. rights holders face here in the United States from counterfeit goods.  According to our Customs and Border Enforcement agency, China was the source of 79 percent of all U.S. Customs seizures in FY 2009 (mostly footwear and clothing), and Hong Kong was the source of an additional 10 percent. However, it noted:

Customs data underrepresent the degree of IPR infringement, in part because trademarks generally must be recorded with CBP to be enforceable at the border, and most trademark owners do not take this step. Only about 26,000 of 1.6 million active trademarks in the United States have been recorded with CBP.

The NAM is encouraging its members to take this important step, and for CBP and the U.S. Patent office to work together to create a consolidated process for recording a trademark or copyright.

In addition to the IPR and indigenous innovation issues, the NAM looks for progress in the JCCT meetings on the issue of China’s export restrictions on “rare earth elements,” critical to a range of high-tech products including hybrid car batteries, wind turbines and missile targeting systems.  China now produces 97 percent of the world’s supply of these elements and a range of U.S. and foreign companies are experiencing price spikes and, in some cases, supply problems as a result of Chinese policies.

Congress is paying attention as well.  Earlier this month, Senate Finance Committee Chairman Max Baucus (D-Mont.), Ranking Member Chuck Grassley (R-Iowa), and 30 other Senators sent a letter to Wang Qishan, Vice Premier of the State Council of the People’s Republic of China, urging China to make verifiable progress on intellectual property enforcement and to suspend discriminatory “indigenous innovation” policies. They also reiterated U.S. concerns about China’s unfair currency undervaluation, an issue which the NAM has long asserted to be a significant problem for U.S. manufacturing.

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