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Economic espionage

U.S. trade rep calls out China’s intellectual property theft

DES MOINES — Ask a farmer about the crux of the U.S.-China trade war, and the answer is likely “soybeans.” Ask the chief agricultural negotiator with the U.S. Trade Representative’s office, and the answer is “intellectual property theft.”

“This is the trade issue of our era,” said Gregg Doud, the chief agricultural negotiator with the U.S. Trade Representative’s office.

Doud spoke at the Iowa Farm Bureau Federation’s annual meeting in Des Moines on Dec. 5.

One of the top trade priorities for Donald Trump’s administration is to use all possible sources of leverage to encourage other countries to open their markets to U.S. exports and provide adequate and effective protection and enforcement of U.S. IP rights.

China is the world’s largest source of IP theft, according to the USTR.

“It’s a problem that must be dealt with,” said Doud, a Kansas native who helped craft the 2012 United States Senate farm bill and spent eight years as the chief economist for the National Cattlemen’s Beef Association. “China needs to follow the rules.”

He cited one case from Iowa as an example of IP theft.

In 2013, Mo Hailong from China was arrested for participating in the theft of inbred corn seeds. Hailong admitted to being part of a conspiracy to send stolen DuPont Pioneer and Monsanto seed corn from fields in Iowa and Illinois to China, where scientists planned to reverse engineer it to reproduce its genetic traits.

Doud said this is just one of many examples of Chinese economic espionage against America.

“I hear the media refer to my boss as a hardliner on trade,” Doud said. “But when you know the facts, I defy anyone to tell me they wouldn’t be a hardliner, too.”

Counting the cost

The scale of international theft of American IP is unprecedented, totaling hundreds of billions of dollars per year, according to a 2017 report from the Commission on the Theft of American Intellectual Property.

“We estimate that the annual cost to the U.S. economy continues to exceed $225 billion in counterfeit goods, pirated software and theft of trade secrets and could be as high as $600 billion,” the report stated.

The USTR has addressed China’s IP theft in several recent reports, including the “Update Concerning China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property and Innovation,” which was released in late November 2018.

“You all have a homework assignment,” said Doud, encouraging the audience to read this 50-page report, along with two others detailing China’s IP theft, which are published on the USTR website (https://ustr.gov/).

IP theft can range from trademark counterfeiting to copyright piracy. There are several consequences of this theft, according to USTR. The first is the tremendous loss of revenue for those who made the inventions or who have purchased licenses to provide goods and services based on them, as well as of the jobs associated with those losses.

IP theft also undermines entrepreneurs’ desire to innovate, which slows the development of new inventions and industries that can expand the world economy and enhance the quality of life for more people.

In its most pernicious forms, the American intellectual property theft commission said IP infringement endangers the public. Some counterfeit products, including semiconductors, automobile parts and medicines, pose significant risks to consumer health and safety. In addition, trade in counterfeit and pirated products often fuels cross-border organized crime networks.

“China shows no sign of ceasing its policy and practice of conducting and supporting cyber-enabled theft and intrusions into the commercial networks of U.S. companies,” stated the USTR’s office in its latest report addressing this issue. “This illicit conduct provides the Chinese government with unauthorized access to IP, trade secrets, confidential business information, technical data, negotiating positions, and sensitive and proprietary internal business communications.”

In other words, China wants the best of all worlds and doesn’t feel compelled to follow the rules.

Doud said, while China became a member of the World Trade Organization in 2001, the country hasn’t reported its subsidies since 2010, even though this is required of members.

China’s support price for wheat, for example, is double the world price.

“Communist China wants control,” Doud said. “But they also don’t want to be exposed to the vagaries of the marketplace.”

Assessing a 90-day trade truce

Fighting back and requiring China to follow established trade rules is especially important to U.S. agriculture, Doud said.

The United States exported $140.5 billion of U.S. ag products in fiscal year 2017, according to the U.S. Department of Agriculture’s Foreign Agricultural Service. China was the No. 1 destination for these exports.

“Over 1 million jobs are supported by America’s ag exports,” Doud added.

How fast can the U.S.-China trade war be resolved?

“I don’t know,” he said. “Just remember it was China that put the retaliation on U.S. soybeans. Now the ball is in China’s court again.”

When Trump and his Chinese counterpart Xi Jinping met in Buenos Aires, Argentina, at the G-20 summit in early December, they bought time.

“President Trump essentially said, ‘China, you say you want to sort this out. Great!'” Doud said. “‘For 90 days, we’ll keep tariffs at 10 percent.'”

In return, the White House said China needs to agree to several conditions to reduce the trade imbalance between the superpowers. These include China agreeing to purchase a substantial amount of agricultural products and other items from the United States. If there is no agreement from China within 90 days, Trump will go ahead with his threat to increase existing tariffs on billions of dollars of Chinese goods from 10 percent to 25 percent.

The two nations also agreed to begin negotiations on structural changes to the trade relationship to iron out China’s unfair trade practices.

“Wanting people to follow the rules of international trade is a reasonable expectation,” said Doud, as IFBF members in the audience nodded in agreement. “Know we’re doing the absolute best we can for you. The potential for U.S. ag exports is enormous.”