‘Decoupling’ with China is Not the Answer

June 28, 2021

IP Watchdog

“Never mistake activity for achievement.”

—Coach John Wooden

We’ve all seen him when driving by the strip mall. Trying to focus on the traffic, our eyes are diverted by “Tube Man,” a 10-foot tall hollow, collapsible stick figure with a fan at the bottom, adjusted so that the body repeatedly folds and then jumps upright, with arms whipping around in a constant frenzy, trying to grab our attention. And that’s the point. Tube Man accomplishes nothing except to demand that we look at what he’s doing.

I was led to Tube Man by a search for “flailing,” a word that seemed an apt label for a spate of new legislation introduced by politicians climbing on top of each other to showcase their zealous antipathy to China. More on that in a minute; but first let’s consider what “flailing” means. It’s a pretty interesting word, and it makes a perfect metaphor.

The original use of “flail” was as a noun, derivative of the Latin flagellum, to describe a threshing tool made of a handle with a “free-swinging stick” loosely attached to the end. The idea was to just wave the thing around and it would end up knocking the grains off the stalk. It didn’t much matter exactly how you moved, so long as you did it with a lot of energy. Now we use machines for threshing, and most of us are not farmers; but we have kept the word, to describe “aimless or ineffectual efforts.”

And that, in my view, describes very well the recent rush of legislative attempts to punish China. That is not to say that China is our best friend. We are in serious competition, and it’s obvious that our leading position in some critical technologies has been targeted. That “giant sucking sound” you hear in the direction of China may be some cutting-edge secrets being displaced. We should be deeply concerned. We need a thoughtful, long-term strategy to respond.

Posturing Instead of Progress

Instead, what’s happening looks more like theater. Here’s the playbill. Early this year, Senator Chris Van Hollen (D-MD) re-introduced the “Protecting American Intellectual Property Act of 2021,” which had passed the Senate in December. It would require the President to impose trade sanctions on “foreign persons” engaging in “significant theft” of U.S. trade secrets, including freezing property and banning visas of individuals and putting companies on the “Entities List” (which makes it hard to do business in the United States). It did not include any path for appeal to the courts.

In April, Senator Lindsey Graham (R-SC) proposed “The Combating Chinese Purloining (CCP) of Trade Secrets Act.” (In his press release he included that parenthetical in the title, presumably to draw attention to the clever word choice that matched the acronym for the Chinese Communist Party.) This bill would have increased jail time for trade secret theft from five to 20 years, and companies found to have participated in or benefited from such theft would be barred from applying for any U.S. patents (any patents, not just related ones). It would also have denied visas to Chinese nationals wanting to pursue graduate studies in certain technical fields.

In May, Senator Chuck Grassley (R-IA) introduced the “Stop Theft of Intellectual Property Act of 2021,” which would bar admission to the United States (or deport them, if already here) of anyone who violates or evades export control laws or commits trade secret misappropriation.

Many aspects of these proposals came together earlier this month, when the Senate passed, with a large bipartisan majority, the “United States Innovation and Competition Act.” Weighing in at 2,376 pages, the omnibus measure contained other bills that were directed at increased government investment in cutting-edge technologies: the “Endless Frontier Act” and the “Strategic Competition Act.” But plenty of room was left for the “Meeting the China Challenge Act of 2021,” which followed the approach of the Van Hollen bill, only with a longer list of sanctions and a requirement that the President must choose at least five from the list (I’m not making that up.)

Separately from this massive omnibus bill, Senators John Cornyn (R-TX) and Chris Coons (D-DE) introduced legislation to create a new committee within the International Trade Commission with the power to perform a very quick (30 days) investigation and then block imports into the country that “contain, were produced using, benefit from, or use any trade secret acquired through improper means or misappropriation by a foreign agent or foreign instrumentality.” Lest we wonder what specific countries the authors had in mind, they inelegantly named the bill the “Stopping and Excluding Chinese Rip-offs and Exports of the United States Trade Secrets Act.”

Room on the Bandwagon

Even state politicians are jumping on the bandwagon. In the last few weeks, the Florida legislature passed by unanimous vote the “Combating Corporate Espionage in Florida Act,” which makes trafficking in trade secrets a serious felony, with enhancements if it is for the benefit of a foreign government. While lawyers express concern about how the risk of false accusations will discourage labor mobility and harm the economy, Florida’s governor announced his support for the law as a “major pushback against China” in response to its alleged coverup of the origins of the COVID-19 pandemic, as well as to its “infiltration” of universities and companies to steal trade secrets.

Back in 1998, I was part of a delegation of officials, scholars and industry representatives that visited China to help celebrate the opening of its Intellectual Property Training Center in Beijing. The facility was very impressive, and we were told that 600 people a month were receiving instruction in how to work with the country’s new IP systems. This was in the run-up to China’s bid to join the new World Trade Organization (WTO), and I can remember some in the U.S. group who were skeptical that all this activity was just for show, and that China didn’t really intend to make IP a priority.

As it turned out, not only did China join the WTO but it also built a world-class legal and administrative framework for IP rights. Nevertheless, a lot remains to be done, and special challenges persist, particularly in securing even-handed treatment of foreign companies that want to do business in China. Concerns about economic espionage and forced transfer of know-how are legitimate and need to be addressed. It seemed that we were on our way to dealing with a number of these issues through the negotiations that led to the Phase One Agreement early in 2000.

Sticking to Our Commitments

But at the multilateral level – that is, at the WTO, where sovereign countries are supposed to meet, iron out trade problems, and actually sue one another through a carefully negotiated dispute resolution process – the United States has more or less walked away. We have also withdrawn from the one regional trade agreement, the Trans Pacific Partnership (TPP), that we had proposed in order to offset China’s growing economic power in Asia. Simply put, we are not engaging with China.

Some commentators in and outside government suggest that the rise of China will necessarily lead to a “decoupling” of the world’s two largest economies, and that this is appropriate, given China’s anti-democratic approach to governance. But before we allow things to slip that far, we should consider very carefully how the world has benefited from increased trade in the years before tariffs were imposed, and the value of working within institutions like the WTO and agreements like the TPP.

Passing laws that can impose new trade sanctions, freeze property, and even deny companies access to our patent office might help us feel as though we’re solving a serious problem. But we could be creating more problems, as other countries like China watch what we’re up to and pass similar laws targeting U.S. businesses.

Addressing serious issues of IP theft should not lead us into our own corners where we vent and issue pronouncements, making political points with strong rhetoric. To actually achieve progress, we need to engage directly with China, ensuring that it keeps its commitments to respect IP rights and provide fair enforcement. Nothing less than global prosperity is at stake.

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