China Agrees To Update Intellectual Property Rules, Asks U.S. To Relax Export Controls

China's Vice Premier Wang Qishan at the 2010 JCCT meeting.

Government officials from both the United States and China on Wednesday said that they had made progress on several key issues that had been on the table during their trade negotiations in the past couple of days in Washington, D.C.

China addressed many of the U.S. business community’s concerns about its government procurement policies favoring local companies, prohibited subsidies to Chinese companies and government software purchasing practices.

The country’s officials also pledged to not enact policies that discriminate against U.S. companies and to make its burgeoning smart grid and 3G cellular markets more open.

According to the U.S. Commerce Department, China plans on investing $10 billion annually between 2011 and 2020 to build a national smart grid, and an additional $590 billion to build an electric power grid.

“The work we’ve done today will benefit both China and the United States.  We have agreed to a variety of measures that will make America’s businesses more competitive in the global marketplace by China not discriminating against American companies selling everything from industrial machinery and telecom devices to equipment for large scale wind farms,” said U.S. Commerce Department Secretary Gary Locke in his closing statement to the 21st annual U.S.-China Joint Commission on Commerce and Trade meeting.

“On the indigenous innovation front, China will revise its major equipment catalogue in 2011 and publish a draft for public comment to ensure there is no discrimination against foreign suppliers.” he added.

“China agreed to a series of intellectual property rights commitments that will protect American jobs,” said U.S. Trade Representative Ron Kirk in a press statement. We expect to see concrete and measurable results, including increased purchase and use of legal software, steps to eradicate the piracy of electronic journals, more effective rules for addressing internet piracy, and a crack down on landlords who rent space to counterfeiters in China.”

Commerce issued a statement saying that the Chinese government has agreed to establish a software asset management system for government agencies to track implementations of legitimate software. The Chinese officials also said that they would promote the use of licensed software in 30 major Chinese state-owned enterprises. Both sides are scheduled to discuss “before the middle of January,” verification and compliance procedures.

Locke and Kirk led the U.S. delegation in its talks with China, while China’s Vice Premier Wang Qishan led the Chinese delegation.

Wang said that the process had yielded “positive outcomes.”

“The two sides, through candid exchanges and dialogues, have enhanced mutual understanding and trust and laid the groundwork for intensive, in-depth, close economic cooperation between the two countries,” Wang said in a Xinhua news article.

The Chinese officials also pressed U.S. government officials on export controls.

“In our efforts to increase our imports, we very much hope that those countries still having a trade deficit vis-a-vis China could lift or relax export controls towards China,” the Agence-France Presse quoted the Chinese Commerce Minsister Chen Deming as saying.

For its part, the U.S. Commerce Department said that the Chinese government is getting its judiciary system to conduct a study on drafting judiciary interpretations on internet intermediary liability.

“The United States and China have agreed to actively support this process in order to obtain the early completion of a judicial interpretation that will make clear that those who facilitate online infringement will be equally liable for such infringement,” according to a Commerce Department statement.

Addressing a long-standing concern of the U.S. business community, the two sides also formally agreed that neither will “adopt or maintain measures that make the location or the development or ownership of intellectual property a direct or indirect condition for eligibility for government procurement preferences for products and services.”

The U.S.-Business Council, which has been vocal on many of these issues, praised the trade negotiators for their work.

“We are pleased that there was movement on some of the key concerns  raised by USCBC and our member companies,” USCBC President John Frisbie said in a press statement “It is  critically important to show progress in advance of the expected state  visit of President Hu Jintao in January.”

“The JCCT needs to be sized to fit today’s much larger and more  complex commercial relationship,” he added. “It needs to be  effective throughout the year at reducing tensions and solving mutual  problems, as well as to show that sanctions and legislation are the  wrong approach. I know the US government supports this objective, and we  hope today’s progress shows that China also sees the JCCT as an  effective vehicle to address the challenges we face.”

On the issue of export controls, though the Obama administration may want to loosen them, it’s doubtful that Congress will allow it to do so, said Denis Simon, a China expert and professor of international relations at Penn State University.

He also doubts that the expected “trading bonanza” as a result of the change will materialize, he said, since there’s still a lot of competition in those markets from international companies.

Importantly, both countries also agreed to re-examine how they calculate their trade statistics. Trade experts have become concerned with existing methodologies because they don’t reflect the complex realities of how modern high-tech products are created part by part, in regions all around the world.

Editor’s Note: The Intellectual Property Breakfast Club will hold a February 8, 2011 breakfast panel at Clyde’s in downtown Washington DC on China and IP. To register for this FREE event, click here.

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