Why Might China And India Want To Strengthen National Intellectual Property Policy?

from the pay-attention-to-who's-talking dept

This is the third post in a series of posts looking at the question of intellectual property rights in both China and India. We’ll be adding new posts to this series each week for the next few weeks.

In the last post, we explained the numerous changes made to strengthen intellectual property in China and India. Yet, to many observers, it has not been enough. Governments, donors, academics and private industry encourage, some more subtly than others, China and India to “harmonize” their domestic intellectual property by strengthening regulations and enforcement.

The Vested Interests

According to the US-China Business Council, an industry group representing American companies operating in China, weak penalties, delayed enforcement and protectionist policies limit China’s ability to become a leading innovator (“Statement of the US-China Business Council” PDF). A survey of its members says intellectual property enforcement is China’s most serious shortfall in implementing WTO commitments, though 1/3 said it had improved. They advocate increased enforcement, more training for judges and prosecutors, public awareness campaigns and lower thresholds for criminal penalties.

The United States Trade Representative (USTR), too, condemns China’s IP regime. The USTR has placed China on the Priority Watch List of its annual “Special 301 Report” that evaluates the IP policies of dozens of countries. India, too, makes this list as a “significant concern,” though China is the primary country of concern (USTR Special 301 2008 Report). In the report, the USTR cites the US copyright industry’s estimate that piracy cost the United States $500 million in 2004 (USTR Special 301 2005 Report). Another estimate by the International Intellectual Property Association says that copyright piracy in 2008 in India and China cost the U.S. $1,096.2 million and $3,504 million, respectively (IIPA 2009 PDF). These sources also claim that counterfeiting reduces tax receipts and domestic growth. To combat this alleged threat to America’s economy, the USTR is actively working to increase global intellectual property standards through bilateral free trade agreements and the Anti-Counterfeiting Trade Agreement, currently being negotiated in secret (USTR Special 301 2008 Report). 

The Academics

These groups motives and facts should be viewed with caution – their statistics have been shown to be wildly innacurate and their motives dubious.  There are others, however, who advocate for stronger intellectual property in China and India, and believe it to be in the best interest of the two countries. Under this thinking, promoting IP in China and India will further their ability to capitalize on international information flows and promote domestic innovation. 

Most basically, the increased export opportunities available as a WTO member makes the adoption of new technologies profitable for more firms (Dutta & Sharma PDF). A recent study has shown that royalty payments for technology transfer, R&D expenditures and total levels of foreign patent applications all increase with intellectual property reforms (Branstetter 2006). One common line of thinking closely related is the belief that FDI will increase with stronger intellectual property. Executives at multinational corporations (MNCs) say that IP rules are a very important factor in deciding R&D locations – before investing substantially in new R&D, companies want to be assured that they will have the opportunity to recoup those costs through exclusive control of their innovations (Lanjouw 1997). China and India suffer from ineffective R&D – they devote a small share of labor and GDP to research, and in both countries much of the work is done by the government – so foreign investment in the sector could prove useful. India, especially, needs improvement in the commercialization of its patents (Dahlman 2005). It is argued that market incentives (via IP) would increase efficiency.

Unfortunately, the evidence is not clear-cut. A 2005 study found that IP laws have little discernible influence on the growth of R&D stocks, though the international transfer of and propensity to patent do seem to be influenced (Jaumotte 2005). Another study from the same year, though, shows that stronger intellectual property will improve the incentives for a foreign rights holder to enter emerging markets, but that it will also increase that firm’s market power, diminishing the ability of domestic firms to compete. However, technology has spillover effects, especially due to the disclosure required by patent applications, which can, in theory, make productivity gains from foreign firms available to domestic firms. Yet, although a 2004 study finds that FDI could theoretically lead to widespread gains in domestic productivity, because companies block spillover through various means, in practice, the sectoral gains are minimal. This is particularly worrisome for China and India because the sectors in which they presumably have some burgeoning capabilities will receive little benefit from international linkages.

One study found that increased intellectual property has a significant positive impact on the productivity of R&D, as measured by patents per dollar of R&D, though this metric is suspect because a patent does not necessarily translate into any economically or socially desirable outcome (Brahmbhatt 2007).

In the coming weeks, we’ll discuss the likely downsides of increased intellectual property in China and India.

Other posts in this series:

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Comments on “Why Might China And India Want To Strengthen National Intellectual Property Policy?”

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bigpicture says:

Re: Follow the Leader

You got that right. Who is this WTO anyway and whose interests does it represent? Is it a NGO as I suspect, representing the interests of the multi-national corporations who are mostly US based.

The whole basis of these IP type systems is “use to attack or defend” but don’t use to innovate. Just cannot get out of that warfare mentality.

stat_insig (profile) says:

Cost of doing business with western world!

While I was growing up in India I was completely unaware of the concept of copyright. While in university I always bought xeroxed copies of expensive american textbooks. Nobody bothered to pay the copyright holder the fees to play their music publicly. Small companies used images of cricketers and bollywood stars for advertising without paying a paisa (i.e. indian penny).

Huh! Those were the good old days.

PS: Guess how the book companies competed with xeroxing! By releasing low cost locally written textbooks 🙂

Reed (profile) says:

Re: Cost of doing business with western world!

“PS: Guess how the book companies competed with xeroxing! By releasing low cost locally written textbooks :)”

Innovation, it is what happens when governments don’t protect business models.

The title of you posts strikes me though. We have very ethnocentric thinking in the US of A. I would cation this assumption that India of China eventually has to join us with our bizarre obsession with IP.

They will likely relent somewhat when it comes to adopting IP laws, but I doubt they will ever embrace it the way we have.

stat_insig (profile) says:

Re: Re: Cost of doing business with western world!

One example if pharmaceutical industry. Without patents Indian companies were able to manufacture low cost medicines immensely helping itself and a bunch of other countries (including many in Africa). Now, being a member of WTO, had to pass stricter patent laws.

Ironically one blessing in India is lack of enforceability. Even if it illegal many infringers are not going to prosecuted.

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