By Sheila Watson
Contributing Writer

U.S. business groups have been lobbying the Bush administration to bring a formal complaint with the World Trade Organization against China’s enforcement of intellectual property rights, a step that could lead to economic sanctions against China if the United States won its case.

In addition to the intellectual property issues, the trade deficit and concerns over currency manipulation in China have caused a backlash in Washington, D.C.

In a recent 29-page review of trade relations between the United States and China, it was noted that, of the soaring U.S. trade deficit, which hit $726 billion last year, China accounts for one-fourth that amount, with a $202 billion trade gap.

Those numbers prompted lawmakers in Congress to protest that the Bush administration is not doing enough to counter China’s unfair trade practices.

U.S. Sen. Lindsey Graham, R-S.C., along with Sen. Charles Schumer, D-N.Y., is sponsoring legislation that would impose across-the-board penalty tariffs of 27.5% on Chinese goods unless China improves its business and trade practices.

“Whether it’s currency manipulation, intellectual property theft, counterfeit goods or human rights abuses, China is going backward rather than forward,” Graham said. “China needs to adopt human rights and economic policies that are consistent with the international community.”

The White House was quick to respond to the congressional moves. In a Jan. 5 press release from the Department of Justice, U.S. Attorney General Alberto Gonzales announced the appointment of Federal Prosecutor Christopher P. Sonderby to serve as Intellectual Property Law Enforcement Coordinator for Asia. The position was created in response to recommendations from the Justice Department’s Task Force on Intellectual Property.

In addition, the Office of U.S. Trade Representatives announced Feb. 24 that the Bush administration is sending trade negotiators to China to discuss that country’s progress on improving intellectual property rights.

“Part of our intent is to determine what information the Chinese government has available on intellectual property enforcement and how they can most easily present it to us,” said USTR general counsel Jim Mendenhall during a press conference.

Without progress on piracy issues, Mendenhall said, “The United States will consider filing trade cases against China before the World Trade Organization. We are running out of options short of a more formal process to move this forward.”

Protection as strategy

Last November, the U.S. Department of Commerce launched a China intellectual property rights advisory program, teaming up with the American Bar Association, the National Association of Manufacturers and the American Chamber of Commerce in China to help businesses protect their intellectual property rights.

“IP-based businesses are the largest sector of the U.S. economy, and IP-based industries must be able to protect their ideas in order to protect their livelihood,” said U.S. Commerce Secretary Carlos Gutierrez during the U.S. Chamber of Commerce Anti-Counterfeiting and Piracy Summit.

A sure legal footing is important in dealing with China, said John McElwaine, a partner with Nelson Mullins Riley and Scarborough LLP who specializes in intellectual property law.

“Any company that is doing business in China or having anything manufactured in China should be very concerned about intellectual property,” McElwaine said. “China has not yet proven to the world market that it will respect the IP rights of others. It is by no means yet a certainty that your IP will be protected.”

China requires a registration in that country in order to have IP rights enforced, McElwaine said.

“If it’s not registered, they don’t believe an individual or company has rights in the market,” he said. “Culturally, they’ll respect that piece of paper, and you’re less likely to have counterfeit goods come back into the United States.”

McElwaine also recommends getting the U.S. Customs and Border Protection involved.

“Since 9/11, Customs has beefed up its monitoring of goods coming into the United States,” he said. “They’ve made it a lot more user friendly for the trademark, copyright and patent registrations to be enforced at the borders.”

In fact, such a scenario played out recently, with the U.S. customs office targeting approximately 40 shipments of textile and apparel merchandise at the Buffalo, N.Y. port of entry in January.

CBP import specialists and officers participated in the two-week blitz, which uncovered significant violations, including inaccurate marking, merchandise misclassification to avoid visa/quota restrictions and a number of intellectual property rights violations.

“These special operations are necessary for CBP to maintain a robust trade enforcement program and to ensure compliance with laws and regulations governing all imports,” said Jayson P. Ahern, assistant commissioner for the Office of Field Operations for the U.S. Customs Office.

Competitiveness as strategy

In his State of the Union address, President George W. Bush unveiled a $50 billion, 10-year plan to re-energize basic research to compete with China and India.

In the plan, he proposed to double the funding for three core research agencies: the National Science Foundation, the National Institute of Standards and Technology, and the Department of Energy’s Office of Science.

Over the years, grants from these agencies have contributed significantly to organizations in the Lowcountry, including the South Carolina Research Authority and the Medical University of South Carolina.

The president’s plan was formulated in response to a 500-page study by the National Academy of Sciences that addressed the alarm over economic competition from Asia.

The study endorses the idea that government-funded basic research in the physical sciences is essential to spurring innovations that later find their way into commercial applications. The most famous example is the Internet, which began as a Department of Defense project. The plan received raves from Silicon Valley and unexpected praise and promises of cooperation from Democrats.

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