Historically, the oldest forms of appropriation of American and other foreign-created intellectual goods were film, record, and software piracy, and counterfeiting of luxury goods and pharmaceuticals.
As is happening today, IP got injected into the trade process, but the waltz was long and slow. The USTR would complain of China’s failure to halt piracy of US-created goods; the two countries would enter into a MOU [memorandum of understanding] in which China would agree to clean up its act; three years later the USTR would identify continuing violations and come back and say, “this time we really mean it;” and the two countries would enter into another, more detailed MOU, and so on.
Eventually what happened was that, as China’s domestic copyright industries found themselves competing with cheap knock-offs of foreign goods, they pressed the Chinese government to fortify the IP enforcement process on its own. (To put this in perspective, this is also what happened a century earlier in the US, which until 1890 failed to protect foreign works, and then waited yet another century before joining the major international copyright treaty.)
Although piracy and counterfeiting remain issues in China, the two newer forms of siphoning off foreign IP value are theft—often cyber theft—of extraordinarily valuable trade secrets and know-how, and the technology transfers required of American and other foreign companies as a condition to doing business on Chinese soil. Traditions of territoriality and sovereignty, as well as the willingness of foreign companies to trade IP for access to the Chinese market, give the latter a degree of legitimacy that outright industrial espionage lacks.
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