China's intellectual property rights commitments in the WTO: legal and economic implications

7 CWR Article China & WTO Rev. 2018:1; 7-34 http://dx.doi.org/10.14330/cwr.2018.4.1.01 pISSN 2383-8221 • eISSN 2384-4388 China’s Intellectual Property Rights Commitments in the WTO: Legal and Economic Implications Lenka Fojtíková ∗ This article assesses the compliance of China’s domestic laws in the area of intellectual property rights protection with the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS), which China obliged to accept upon its entrance into the WTO. It also discusses the implications which result from the implementation and enforcement of the intellectual property rights in China for doing business in China. The significance of intellectual property rights protection for achieving the strategic objects formulated by China’s policy-makers and China’s reputation in the world is tackled, as well. Qualitative research based on the concept of compliance showed that China’s compliance with its TRIPS obligation should be evaluated with respect to different country-specific as well as country non-specific factors. However, the experience from the historical development of the leading world inventors, such as Japan or the United Kingdom, should also be considered. Keywords: China, WTO, Intellectual Property Rights, TRIPS Agreement, State Intellectual Property Office, Dispute Settlement Body, WIPO I. IntroductIon After the announcement of economic reforms by Deng Xiaoping in the late 1970s, China made massive steps to integrate into the world economy. The state China and WTO Review * Associate Professor at the Faculty of Economics of the VŠB-Technical University of Ostrava, Czech Republic; Member of the Board of Czech ECSA. Ph.D. (VŠB-TU, Ostrava). ORCID: https://orcid.org/0000-0002-1544-2421. The research article was supported by the Czech Science Foundation, Project No. [17-22426S] “Law Aspects of China’s Incorporation into the Global Trade System.” The author may be contacted at: [email protected] / Address: VŠBTechnical University of Ostrava, Faculty of Economics, Havlíčkovo náb. 38a, Ostrava 702 00 Czech Republic. 8 Lenka Fojtíková CWR monopoly of foreign trade and the policy of autarkic self-reliance were abandoned and foreign trade decisions were decentralized. Special enterprise zones were created as free trade areas. 1 Normalizing China’s diplomatic relations during the 1970s with the US, Japan and other developed market oriented countries contributed to lifting its international isolation. In 1971, China was admitted to the UN, and in 1980, regained its membership in the most influential economic and financial organizations, such as the World Bank and the International Monetary Fund (“IMF”). 2 Since the early 1990s, China has increased its global outreach and participation in other international organizations. As China has risen to a world economic power, its name is spelled in different forums. China has replaced the American and European controlled international financial institutions as the principle lender in Latin America. It is not only the largest investor in African energy and mineral resources, but also the principle market for Saudi Arabian, Sudanese and Iranian petroleum. 3 In the first decade of the new millennium, China’s rise, together with other emerging developing countries that became known as the BRICS (Brazil, Russia, India, China and South Africa), has changed the architecture of world trade. 4 China is currently the world’s biggest manufacturer and exporter. While in 1973 China’s share in the world merchandise exports was only 1 percent, it was 14.2 percent in 2015. 5 This means that China´s share in the world exports increased more than fourteen times during 1973‒2015, while the share of the US declined from 12.2 to 9.4 percent during the same period. 6 In addition, the growing trade surpluses with its main trading partners enable China to achieve the highest reserves of foreign exchange in the world, which reached more than USD 3 trillion in 2016, 7 holding over USD 1.3 trillion in the US treasury notes. 8 In particular, Chinese yen (RMB)’s inclusion into the special drawing rights (“SDR”) on October 2016 is a milestone in the internationalization of its currency; it is an affirmation of the success of China's economic development. 9 Since China has recorded economic success in many areas, it has become the subject of frequent academic discussions. Today, many authors are analyzing the impact of China’s economic growth and its WTO membership on other countries around the world. 10 China’s changing role in world trade is not expressed only by its growing market share, but also the structure of its exports. The reform measures carried out by China’s authorities during the 1980s and the 1990s, followed by the open‒door 9 CWR China’s IP Commitment in WTO policy, attracted investors from the US and other developed countries, who moved their production to China, including new technology and technical measures. In response to this challenge, China recorded success in the production and export of high-tech products. While the US and Japan recorded a decline of their market share in high-tech products during 1994-2007, China significantly increased it reaching 21.2 percent in 2007. 11 In 2015, China’s high-technology export has already reached USD 554.3 billion, which accounted for 25.8 percent of the world market share. 12 However, data about high-tech exports have to be considered carefully because China is included into multinational production chains, in which production and sales are distributed among several countries around the world. China became the 143rd Member State of the World Trade Organization (“WTO”) on December 11, 2001 after 15 years of bilateral and multilateral negotiations. 13 When China entered the WTO, it would obviously have to accept not only the general rules of the multilateral trade system, but also specific commitments in order to liberalize its trade regime and to provide easier access to its internal market for suppliers from other WTO members. Although China has now been a member of the WTO for more than 15 years and recorded significant progress in trade liberalization, the protection of intellectual property rights (“IPRs”) in China has been the subject of serious discussion and doubts all the time. Did China implement the WTO’s commitments into its laws? Why should China accept its WTO’s commitments? What role does intellectual property protection play in the current Chinese economy? What implications does it have on the private sector in China? What implications does it have on investors and patent-holders from the other WTO members? Especially, these questions open the door for interesting discussion. The article will begin by determining the IPRs issue in the frame of the WTO agreements and the complex of the multilateral trade rules. A mechanism for solving trade disputes among the WTO members is also introduced. The article will then focus on China’s commitments in the area of IPRs and explores if China implemented its commitments into its laws. It will discuss different factors and conditions that have an impact on the fulfilment of China’s commitments in the WTO in the area of IPRs including the enforcement of law on the state and local level. This means that the implementation of IPR’s commitments into China’s law as well as the effective enforcement of law is an important assumption for 10 Lenka Fojtíková CWR achieving positive results and the protection of innovators and patent-holders. The article will mention not only the progress, but also current issues concerning the protection of IPRs that have remained in China all the time. The article will tackle these issues in a complex of China’s membership in the WTO, including the WTO dispute settlement system. Finally, it will consider the economic implications of IPRs (both residents and non-residents from the other WTO Member States) in China and the significance of IPR protection for the Chinese government. II. Intellectual ProPerty rIghts: From gatt to Wto Although the value of international trade in intellectual property (“IP”) is not statistically recorded, “intellectual property is information with a commercial value.” 14 The owners of inventions, designs or other creations have a right to negotiate payment in return for others using them. In contrast to goods, the stock of this knowledge does not diminish with its consumption and the marginal cost of disseminating them is often zero. 15 However, IP, especially the development of technological innovations, usually requires considerable investments and thus cost. The IPRs has special significance when developed countries would recognize that rapidly emerging economies, such as BRICS, are able to compete with them in many industrial areas. Although trade in counterfeit goods has been a problem for a long time, as technologies for duplication became more advanced and the reproduction of IP easier and cheaper, trade in goods embodying stolen IP became a more serious issue. 16 A. The First Steps in the Global IPRs Protection Before founding the WTO, several international conventions laid down standards for the protection of IP. The most important are the Paris Convention (on copyright), the Rome Convention (on neighbouring rights), and the Treaty on Intellectual Property in Respect of Integrated Circuits. These and many others conventions are administered by the World Intellectual Property Organization (“WIPO”). However, the WIPO was regarded as ineffective in enforcing the various treaties and the international conventions were not able to meet the 11 CWR China’s IP Commitment in WTO increasing needs of business communities that arose in the trade area. 17 Unilateral measures for ensuring the IP protection enacted by the individual countries on the basis of national legislative, could not substitute those accepted on the multilateral level, either. Thus, multilateral trade rules started to be developed through the General Agreement on Tariffs and Trade (“GATT”) in the late 1940s, but the provisions and work related to IP were also limited. In practice, strengthening the IP protection was not a priority for all countries. While the OECD countries called for multilateral rules and the enforcement of IPRs, many developing countries argued that the adoption of the OECD levels of IP protection would be detrimental to the welfare of their population and the development of their economy. 18 Another concern of most developing countries was that a greater protection of IPRs would strengthen the monopoly power of multinational companies, thereby detrimentally affecting the poor population by raising the price of medicines and food. 19 On the other hand, newly industrializing countries especially in Asia, dependent on the transfer of technology from developed countries, realized that inward foreign direct investments (“FDI”) would be conditioned by greater IP protection. That is why the IP issue was negotiated for several years during the GATT rounds of negotiations whose big part was to find the solution required to accept trade-offs from all countries (or, in other words, a trade-off between IPRs and the rest of the agenda). However, in contrast to other agenda, the negotiations about IPRs were not about freeing trade, but about more protection. At the end of the Uruguay Round in 1994, the contracting parties of the GATT 1947 signed an agreement establishing the WTO in which the Trade Related Aspects of Intellectual Property Rights (“TRIPS”) became one of the three pillar agreements with GATT 1994 and the GATS. 20 Although the TRIPS Agreement allowed some exceptions on non-discrimination with respect to the number of international conventions in specific circumstances, it is possible to consider achieving trade-off in this area as the reason behind the success of the multilateral trade system. 21 However, Stigliz argues that TRIPS should never have been part of the WTO, because it separates the developing and developed countries and has made it more difficult to close the gap between these two types of countries. He also maintains that it provides little protection for the IP of developing countries. 22 Thus, finding the right balance between the interests of innovators (a lobby of patentholders) and a wider public interest (a lobby of poor 12 Lenka Fojtíková CWR countries) sometimes puts national governments into a difficult position, in which they have to make a decision following some compromises. B. IPRs Protection under the WTO The TRIPS Agreement defines IPRs as “the rights given to persons over the creations of their minds,” and it distinguishes (1) copyright and related rights, (2) trademarks, (3) geographical indications, (4) industrial designs, (5) patents, (6) layout designs (topographies) of integrated circuits, and (7) protection of undisclosed information. 23 In contrast to the previous international conventions, the TRIPS Agreement establishes the minimum standards of protection for the above mentioned seven areas; sets minimum standards for the enforcement of IPRs in administrative and civil actions; makes the general dispute settlement mechanism of the WTO available to address TRIPS related issues; and extends basic GATT principles such as transparency, national treatment and most favoured nation (“MFN”) to IPRs. 24 On the one hand, the TRIPS Agreement sets the minimal standards of protection, while, on the other hand, problems arise in context with the implementation of the commitment. Article 1 of the TRIPS Agreement provides: “… Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.” 25 The WTO members are obliged to provide procedures and remedies under their domestic law for the effective enforcement of IPRs of rightholders on the principle of national treatment, which means to apply the IPRs rules in the same way for domestic as well as foreign subjects. Since 2001, the negotiations about IPR have continued in the frame of the Doha Development Round (“DDR”). They brought other changes in the TRIPS Agreement, 26 which has currently resulted in two added amendments into the TRIPS Agreement. New amendments of the TRIPS Agreement, inserted into the new Article 31 bis of the Agreement as well as the Annex and Appendix, provide the legal basis for the WTO members to grant special compulsory licences exclusively for the production and export of affordable generic medicines to other members that cannot domestically produce the needed medicines in sufficient quantities for their patients. 27 Besides public health, another task for the DDR is geographical indications and its registration system. In this area, the negotiations have continued all the time through the WTO TRIPS Council that is charged 13 CWR China’s IP Commitment in WTO with leading negotiations about all IPR issues. However, globalization and technological changes would bring new challenges for the TRIPS Agreement. For example, the rise of electronic commerce directed at the general consumer also raised issues for the protection of distinctive signs such as trademarks and geographical indications. Another concern is connected with the rise of trade in digital products. 28 Although the Council for TRIPS is responsible for administering the TRIPS Agreement, it does not have any power to impose sanctions for non-compliance. Thus, the non-complying members can be sanctioned only through the WTO dispute settlement mechanism. 29 The Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”) is a legal base for the WTO dispute settlement mechanism. 30 It sets working procedures and a proposed timetable for panel work. From this aspect, the DSU mechanism is “one of the main achievements of the Uruguay Round, primarily because it ended the reliance of dispute settlement on the consensus principle that had led to the frequent nonadoption of decisions.” 31 Currently, when a respondent country in the dispute is its ‘loser,’ it must adopt the decision of the WTO panel or Appellate Body. Otherwise, compensation and the suspension of concessions are applied in compliance with Article 22 of the DSU. III. chIna’s IPrs under the Wto: commItments and comPlIance When China acceded to the WTO in 2001, it had already participated in the TRIPS negotiations during the Uruguay Round and had initialled the Final Act. In addition, China has already been a WIPO member since 1980. In the 1990s, China also signed different IPR conventions, such as the Madrid Agreement concerning the International Registration of Marks (1989), the Berne Convention for the Protection of Literary and Artistic Works (1992), the Universal Copyright Convention (1992), the Patent Cooperation Treaty (1994), the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure (1995), the Locarno Agreement Establishing an International Classification for Industrial Designs (1996), etc. 32 The establishment of the 14 Lenka Fojtíková CWR modern Chinese IPRs system was necessitated by the opening up of the Chinese economy in the late 1970s, which needed to attract FDI and fulfil the obligation stipulated in the bilateral agreements between the Chinese government and foreign governments on cooperation in science and technology. 33 During China’s accession process to the WTO, the Working Party explored the compliance of China’s legal system with the TRIPS Agreement. In addition, during the bilateral negotiations with some WTO members, China agreed to go some way beyond the requirements of the TRIPS Agreement. 34 When China joined the WTO in 2001, it required the Chinese government to make changes to hundreds of laws, regulations and other measures affecting trade and investment. 35 In order to fulfil the compatibility of China’s IPR laws with the TRIPS Agreement, China is especially obliged to: 1. ensure the national and MFN treatment to foreign right holders regarding all IPRs; 2. amend its copyright laws to clarify the payment system by broadcasting organizations which use the recording products and include provisions in rental rights in respect to computer programs and movies, mechanical performance rights, the rights of communication to the public, the protection of database compilations, provisional measures, increasing the legitimate compensation amount and strengthening the measures against infringing activities; 3. amend the trademark law to include a specific provision on the protection of geographical indications; 4. insure the protection of domestic textile design by China’s Provisions on the Implementation of the International Copyright Treaty as works of applied art; 5. modify the Patent Law to ensure improvements in the provisions regarding compulsory licensing for patents and the clarification of the subject matter that would be subject to compulsory licensing; 6. ensure effective protection against an unfair commercial use of undisclosed test or other data submitted to authorities in China; 7. ensure that China’s legal environment would be able to meet the requirements for enforcing the TRIPS Agreement; 8. adequately compensate the damages paid by the infringer to the right holder; 9. impose sufficient sanctions by administrative authorities to prevent or deter further infringement; and 10. consider the monetary thresholds for bringing a criminal action to be able to address piracy and counterfeiting in order to lead criminal procedure more 15 CWR China’s IP Commitment in WTO effectively.36 China has committed to abide fully by the rules of the TRIPS Agreement from the date of its accession to the WTO. 37 No exceptions from the application of the TRIPS Agreement, not even a transitive period for the implementation of obligations, were negotiated among China and the WTO members. IV. chIna’s comPlIance WIth the trIPs agreement A. Theoretical Aspects of Assessing the Compliance The concept of compliance is frequently used by political scientists in the field of international relations. More than the concept of compliance, however, it should be named “the concept of implementation” with respect to operationalizing compliance. 38 The model makes a standard assumption about government behaviour. In general, it is assumed that states are rational and act in their own self-interest, and that they are aware of the impact of international law on behaviour. 39 The violation of international law is not without cost. The first type of cost is sanctions, which other states may choose to impose when a given country violates international law, or does not fulfil its contractual obligations. Sanctions can have the form of economic or political measure. However, using sanctions is usually not an optimal solution of this problem. It often leads to escalating tension among countries, because every action causes additional social costs in the form of retaliatory measures or in other words “reciprocity in sanctions.” This idea is also expressed in the managerial theory of compliance that rejects sanctions and other forms of ‘hard’ enforcement in favour of the collective management of (non)- performance. 40 The second type of cost for violating an international obligation is reputation. If a country violates international law, other states may refuse to enter into future agreements, demand greater concessions when entering into such agreements, or lose faith in the strength of existing agreements. 41 In the WTO, the ‘bad’ reputation of a Member State is documented by its unfair trade practices, the violation of general WTO principles and rules or the non-fulfilment of specific commitments 22 Lenka Fojtíková CWR many IPRs rules. 77 This statement is confirmed by the international comparison. China was in the 62nd among 138 countries in IP protection with a score of 4.3 points, where the scale is in the range from 1 to 7 (7 is the best). Although the Chinese authorities improved its IPRs regulatory framework and amended its IPRs laws and regulations in order to comply with its commitments in the WTO and other international organizations or conventions, the enforcement of IPR continues would be still a major challenge for China. V. chIna’s IPrs ProtectIon under the Wto dIsPute settlement mechanIsm Although many WTO members doubt China’s compliance with the TRIPS Agreement and the fulfilment of its IPRs commitments in the WTO, there was only one case for China to be the subject of the WTO dispute settlement mechanism for its IPRs infringement. That is the China - Measures Affecting the Protection and Enforcement of Intellectual Property Rights case (DS362) between the US and China. Several other WTO members also requested to join the consultation as the third parties of this dispute. 78 The WTO’s Dispute Settlement Body (“DSB”) received a request for consultation from the US representatives on April 10, 2007. The dispute concerned measures affecting the protection and enforcement of IPRs, namely, Articles 9, 41, 46, 59 and 61 of the TRIPS Agreement. 79 The WTO panel found that Article 61 of the TRIPS Agreement (border measures – remedies) was not disrupted and concluded that the factual evidence presented by the US was inadequate to show whether or not the cases excluded from criminal liability met the TRIPS standard of ‘commercial scale’ when that standard was applied to China's marketplace. 80 The other two areas of dispute were found by the WTO’s panel to be inconsistent with the provisions of the TRIPS Agreement. In the first case, the panel concluded that the way in which China's customs auctioned the goods was inconsistent with Article 59 of the TRIPS Agreement. 81 In the second case, related to the TRIPS Agreement as well as the Berne Convention, the panel concluded that China's failure to protect copyright in prohibited works was inconsistent with Article 5(1) of the Berne Convention as incorporated in Article 9.1 of the TRIPS, so that the copyright in such prohibited 23 CWR China’s IP Commitment in WTO works could not be enforced. 82 The DSB adopted a panel report at its meeting on March 20, 2009. In June 2009, China and the US informed the DSB that the reasonable period of time for China to implement the DSB recommendations and rulings would be 12 months from the adoption of the report. 83 Although the Chinese representatives stated that China had completed all necessary domestic legislative procedures for implementing the DSB recommendations and rulings, in January 2017, the US representatives again claimed that China did not appeal the WTO panel rulings in favour of the US and subsequently modified the measures at issue. 84 Article 22 of the DSU provides: If the losing Member fails to bring its measure into conformity with its WTO obligations within a reasonable period of time, the prevailing complainant is entitled to resort to temporary measures, which can be either compensation or the suspension of WTO obligations (Art. 22.1). If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements (Art. 22.2). This case demonstrates that despite all the positives, which are connected with the TRIPS Agreement, it is extremely difficult to solve IPRs disputes through the WTO’s dispute settlement mechanism. Those difficulties are due to the following factors. First, it is difficult to collect a clear evidence of systematic non-compliance with the TRIPS Agreement. Actually, IPRs disputes are small part of the total trade disputes in the WTO. Second, the fulfilment of the WTO’s commitments as well as the DSB recommendations and rulings are demanding time with unsteady results. If some form of sanction is applied to China, it can cause retaliation and escalate tension among all sides of the dispute. As mentioned above, China’s membership in the WTO does not mean that the commitments which China accepted during its accession process are automatically fulfilled. As has been said, on the one hand, China is often criticized for malenforcement of IPRs. It is still weak after 15 years of its membership in the WTO. On the other hand, the WTO Secretariat and others appreciate China’s progress relating to IPRs. One of the main questions is why China should further improve the enforcement of IPRs laws. This question may have several answers. First, the Chinese authorities would finally realize the importance of IPRs protection for Lenka Fojtíková CWR further economic development of China. 85 Second, non-compliance means to be a subject of the compensation and suspension of concessions. In addition, China’s widespread counterfeiting not only does harms the business interests of rightholders, both foreign and domestic, but also includes many products that pose a direct threat to the health and safety of consumers, 86 which influences China’s reputation in the world. In the past, China’s economic ‘miracle’ was based on the package of economic reforms following the open door policy. FDI exploded after 1992 and, within a few years, become the predominant source of technology inflows into China. Also, multinational corporations (“MNCs”) became key players transferring technology into China, for not only their attempts to access the domestic market, but also their speed including China into global production networks of hightechnology products. Chinese economic policymakers were increasingly willing to provide market access and promises of protection of IPRs to foreign MNCs if they were willing to transfer production to China. 87 In other words, the relocation of the production from developed countries, such as the US, Japan, the UK, etc. to China was also followed by a transfer of technology. Thus, the producers from developed countries got additional gains from the lower production costs and the Chinese government got an easier access to new technological progresses. However, the current situation is different. Besides being in the third position of the top host economies with FDI inflows of USD 134 billion in 2016, China was also in the second position of top home economies with FDI outflows of USD 183 billion in the same year. 88 This means that while at the end of the 20th century China was the main destination for foreign direct investment inflows from the whole world, at the beginning of the twenty-first century China has also became one of the leading investors in the world. In 1994, China’s investment in research and development (“R&D”) was below 0.6 percent of GDP, 89 but today’s gross domestic R&D spending is 2.05 percent of GDP which is higher than that of the UK and Canada. 90 Although China has been a middle-income economy all the time, it holds the 22nd position among 127 economies in the Global Innovation Index in 2017. There, China has a better position than Australia, Belgium, Italy and some other higher-income countries. 91 China has become more competitive in many economic sectors because of its own innovation and research. 92 In the past, the protection of IPRs was essential for ensuring the continued inflows of FDI 24 25 CWR China’s IP Commitment in WTO and the associated transfer of newly developed technologies, as well as fostering the development of new technologies and services in China. Currently, however, the Chinese authorities realise that the strengthening of IPRs protection is also important for its domestic innovators and IP holders. On the whole, China’s compliance with the TRIPS Agreement has a positive influence on the foreign as well as domestic owners of IPR who want stable environment for doing business in China. Table 1 shows a growing number of applicants for patents, trademarks and industrial design in China during 2001−15. While the highest number of filings was recorded in trademark, both in the beginning as well as at the end of the monitored period, the highest increase of filings was recorded in patents. Especially, patents applied by residents increased the most; it was more than 32-fold. The highest number of patent applications covered digital communication, electrical machinery, apparatus, energy, computer technology, and other fields of technology. 93 A positive correlation between patent applications (residents as well as non-residents) and patent filings is also obvious. This indicates improving the system of IPRs management in China. However, the rights-holders in China frequently have their IP rights infringed. More concretely, about 1.3 percent of seizures of counterfeit and pirated goods concerns violations of the IP rights of Chinese companies. 94 It indicates a very strong threat of counterfeiting and piracy that undermines the innovative efforts of Chinese companies relying on knowledge-based capital and using IPRs in their business strategies. In addition, counterfeiting goods causes financial loss to both the Chinese government and the IPRs holders. 95 Table 1: The Number of Patents, Trademarks and Industrial Designs in 2001-2015 96 2001 2005 2010 2015 Patent: - Applicants (Resident) 30,038 93,485 293,066 968,252 - Applicants (Non-resident) 33,412 79,842 98,111 133,612 - Filings 31,232 97,948 308,326 1,010,448 Trademark - Filings 238,301 630,346 1,054,465 2,146,666* Industrial Design - Filings 56,748 155,236 421,418 589,571 * Data available until 2014. 26 Lenka Fojtíková CWR The TRIPS Agreement has been implemented in China from both micro and macro-economic point of view. This brings gains for business (companies) and the economic growth for the whole country. In other words, the effective enforcement of IPRs in China brings a higher confidence for domestic as well as foreign investors and patent-holders, which are the source of new productions and jobs in China. Then, the economic growth creates the optimal assumptions for achieving political goals and stability in the country. In the 13th Five-Year Plan, which was approved in October 2015, Chinese policymakers considered innovations as the main driver of economic growth. 97 In order to enhance China’s capability of protecting IP, in June 2008, the State Council issued the Outline of the National Intellectual Property Strategy. The Outline identifies the strategic goal of China becoming, by 2020, a country with a comparatively high level in terms of the creation, utilization, protection and administration of IPRs. In January 2015, the State Council issued an action plan on the further implementation of IPRs strategy, highlighting the goals and measures for IPRs from 2014 to 2020. 98 The compliance of China with the TRIPS Agreement is also connected with China’s reputation among the other 163 WTO members as well as their bilateral trade partners. China is currently the leading producer of manufacturing goods in the world, so that it needs to cooperate (export as well as import) with other countries around the world. In general, the protection of IPRs produces more stability and transparency in business. On the other hand, however, the experience of some producers and exporters shows that counterfeiting and piracy have become a ‘motor’ of innovation-driven economies. They count on the possibility of the copy of their products in advance, so that they innovate their production all the time. In general, to be more competitive in the world market, it is necessary for producers to jump one step further. VI. conclusIon and recommendatIons This article has shown that although the protection of IPRs in China has become one of the urgent priorities of the Chinese government in recent, China is still the largest producing economy of counterfeit goods in the world. 99 How effectively did China absorb the TRIPS obligations into its legal system after joining the 27 CWR China’s IP Commitment in WTO WTO? Actually, China enacted domestic IP laws in accordance with the TRIPS Agreement and amended the Patent Law, the Copyright Law, the Trademark Law and IP regulations. However, some issues have remained unsolved until now, which has influenced on the investment and business in China for both residents and non-residents. Today, the effective enforcement of IPRs in China is the point at issue. It is based on the subjective assessments of other stakeholders with respect to the WTO agreements and rules, which are focused more on the implementation of IPRs commitments than their enforcement. The WTO can positively make contribution to enforcing IP laws (or compliance with the TRIPS Agreement), especially through the Council for TRIPS and the Dispute Settlement Body. However, the effective solution of IPRs disputes in the WTO has not been wholly confirmed in this article. In addition, while assessing China’s compliance, it is necessary to remember that the TRIPS Agreement establishes minimum standards and the ‘flexibility’ offered to all WTO members in interpreting various articles of the agreement makes the assessment of compliance more problematic. Eventually, the assessment of China’s compliance with the TRIPS Agreement should include both the intention and willingness of the Chinese policymakers to comply, and the capacity to do it. This is influenced by not only country specific factors (e.g., geographical feature, historical background, political and economic system, technological level), but also noncountry specific factors (e.g., further negotiations in the WTO, the improvement of the WTO dispute settlement mechanism, and the role of MNCs in China). China’s willingness and intention to improve IPRs protection were documented after 2001. However, in addition to enacting new laws and regulations and formulating development plans and strategies, a wider cooperation with other WTO members and international organizations should be necessary. In this sense, China’s policymakers are recommended to utilize the activity of the MNCs in a common endeavour to fight against counterfeiting and piracy in China. Thus, for the capacity to comply with the TRIPS commitments, they should consider not only the amount of efforts for the protection of IPRs, but the effectiveness and the quality of human sources. IPR protection is indispensable for foreign investors as well as IPRs holders to do business in China. However, China also needs an effective system of IPRs for several reasons. First, foreign investors and their new technologies have Lenka Fojtíková CWR played an important role in developing China’s industry all the time. Second, the Chinese government supports its own innovators and creators. From this point of view, China’s government also has an interest to protect China’s research and innovation. Third, counterfeit and piracy cause tax and customs losses. Lastly, these will damage China’s reputation in the global society. China has recorded positive progress in the area of IPRs during the last 15 years, but shortcomings still remain in the enforcement of IPRs laws in China, especially on the local level. However, the higher the economic level of a country is, the higher the necessity and stress on the protection of IPR is put. Two and a half centuries ago, fast-growing nations, such as the US and other western powers, whose capitalism as we know it today was still very much in its infancy, were a hotbed of literary piracy. In comparison with the US and western countries, up until the early nineteenth century, China retained its pre-eminent position in the world economy. It was the major producer of steel, the leader in technical innovations in textile manufacturing in the world, the source of new innovations in the production of paper, book printing and the leading trade nation. At this time, British and European manufactures followed China’s lead, assimilating and borrowing its more advanced technology, and were eager to gain entrance to China’s advanced and lucrative market. In a similar way, 40 years ago, Japan was one of the biggest patent infringers, but, in the 1990s, it changed into an exporter of new ideas and now becomes the third biggest patent filler in the world. 100 These more or less distant historical events show that the protection of intellectual property is related to a country’s economic development. China is similar the US, Japan and Britain of the past. 101 Accepting the TRIPS Agreement China can demonstrate its desire to be an innovator, not a copier. reFerences 1. A. MAdisson, Chinese eConoMiC PerforMAnCe in the Long run (OECD 2007), available at http://piketty.pse.ens.fr/files/Maddison07.pdf (last visited on Jan. 24, 2018). 2. Z. Xie, The Rise of China and Its Growing Role in International Organizations, 4(1) ICCS J. Mod. Chinese stud. 85-96 (2011), available at http://iccs.aichi-u.ac.jp/archives/ report/038/5099f0477e37a.pdf (last visited on Jan. 7, 2018). 3. Global Research, China - Rise, Fall and Re-Emergence as a Global Power. The Lessons of 28 CWR China’s IP Commitment in WTO History (May 17, 2017), available at https://www.globalresearch.ca/china-rise-fall-and-reemergence-as-a-global-power/29644 (last visited on Jan. 24 2018). 4. F. Ismail, The Changing Global Trade Architecture: Implications for Africa’s Regional Integration and Development, 51(1) J. WorLd trAde 1-22 (2017). 5. WTO, Statistical Table (2016), available at https://www.wto.org/english/res_e/statis_e/ wts2016_e/wts16_chap9_e.htm (last visited on Jan. 24, 2018). 6. Id. 7. CIA, The World Factbook: China (June 21, 2017), available at https://www.cia.gov/library/ publications/the-world-factbook/geos/ch.html (last visited on Jan. 24, 2017). 8. Supra note 2. 9. See Chinas yuan joins elite club of IMF reserve currencies, reuters, Oct. 1, 2016, available at http://www.reuters.com/article/us-china-currency-imf-idUSKCN1212WC (last visited on Jan. 24, 2018). 10. See, e.g., Ismail, supra note 4. He states that China’s rise has created both opportunities and challenges for African countries. The rise of China has created an opportunity for Africa to diversify its exports and also to export its commodities at higher prices into the Chinese market. In addition, China’s State Owned Enterprises have begun to invest in infrastructure in African countries, such as energy, road and rail transport, port development and logistic. See also L. Fojtíková, China's External Trade after Its Entrance into the WTO with the Impact on the EU, in Proceedings of the 1st International Conference on European Integration 56-65 (2012), available at https://www.ekf.vsb.cz/export/sites/ekf/icei/.content/ galerie-dokumentu/ICEI-2012-Sbornik.pdf (last visited on Jan. 24, 2018). It states that external trade has remained the main motor of the Chinese economy after its entrance into the WTO. While China’s membership in the WTO contributed to the growth of China’s market share, it had a negative influence on some EU exporters, especially Germany, France and the UK. 11. The US share reached only 13.7 % and the Japanese, 8.0 %. See euroPeAn CoMMission, trAde As A driver of ProsPerity. CoMMission stAff Working doCuMent ACCoMPAnying the CoMMission’s CoMMuniCAtion on “trAde, groWth And WorLd AffAirs” (2010), available at http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146940.pdf (last visited on Jan. 24, 2018). 12. The World Bank, High-technology exports (current US$) (2017), available at http://data. worldbank.org/indicator/TX.VAL.TECH.CD?view=chart (last visited on Jan. 24, 2018). 13. China was one of the 23 original contracting parties in the GATT in 1947. In connection with China’s revolution in 1949, however, the Chinese government did not participated in the creation of a multilateral trade system governed by the GATT for almost 40 years. In 1986, the Chinese government notified the GATT of its interest in resuming its status as a GATT contracting party and a Working Party to examine China’s status was established in March 1987. In connection with the establishment of the WTO in 1995, the GATT Working Party was converted into the WTO Working Party on the accession of China. Negotiations continued simultaneously on the bilateral and multilateral level. See L. Fojtíková, China after 15 Years in the WTO: What Role Does the Chinese State Play?, in enterPrise And CoMPetitive environMent (S. Krůtilová eds., 2017), Proceedings of the 29 30 Lenka Fojtíková CWR 20th Annual International Conference of Mendel University in Brno, at 241-50, available at https://ece.pefka.mendelu.cz/sites/default/files/imce/ECE2017_fin.pdf (last visited on Jan. 24, 2018). 14. B. hoekMAn & M. kosteCki, the PoLitiCAL eConoMy of the WorLd trAding systeM: froM gAtt to Wto 144 (1995). 15. J. Stiglitz, Economic Foundations of Intellectual Property Rights, 57 duke L. J. 1693-24 (2008), available at http://scholarship.law.duke.edu/cgi/viewcontent. cgi?article=1362&context=dlj (last visited on Jan. 24, 2018). 16. hoekMAn & kosteCki, supra note 14. 17. The existing conventions did not contain especially a binding, effective multilateral dispute-settlement mechanism, which was needed to deal with IP related issues. See k. thoMAs, Assessing inteLLeCtuAL ProPerty CoMPLiAnCe in ConteMPorAry ChinA 44 (2017). 18. hoekMAn & kosteCki, supra note 14. 19. Id. 20. The TRIPS Agreement is Annex 1C of the Marrakesh Agreement Establishing the WTO, signed on April 15, 1994. The TRIPS Agreement was amended through the Protocol of 6 December 2005 that entered into force on 23 January 2017. See WTO, Amended TRIPS Agreement (Jan. 23, 2017), available at https://www.wto.org/english/docs_e/legal_ e/31bis_trips_01_e.htm (last visited on Jan. 24, 2018). 21. thoMAs, supra note 17. 22. Stiglitz, supra note 15. 23. TRIPS Agreement pt. II, §§ 1-7. 24. hoekMAn & kosteCki, supra note 14. 25. TRIPS Agreement art. 1(1). 26. The agenda of the DDR is covering all parts of international trade, such as goods, commercial services, IPRs and other trade related topics. However, only a partial success in trade negotiations has been recorded until now, although the final decision of the DDA has not been reached yet. See WTO, The Doha Round (Nov. 2001), available at https:// www.wto.org/english/tratop_e/dda_e/dda_e.htm (last visited on Jan. 24, 2018). 27. TRIPS Agreement art. 31 bis, Annex & Index. 28. For details, see M. Burri & t. Cottier, trAde governAnCe in the digitAL Age 305-6 (2015). 29. thoMAs, supra note 17. 30. WTO, The Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”): Annex 2 of the WTO agreement, available at https://www.wto.org/english/ tratop_e/dispu_e/dsu_e.htm (last visited on Jan. 24, 2018). 31. However, on the other hand, several issues have arisen from the operation of the DSU. See n. Perdikis & r. reAd, the Wto And the reguLAtion of internAtionAL trAde. reCent trAde disPutes BetWeen the euroPeAn union And the united stAtes (2005). 32. Trade Policy Review - China, WTO Doc. WT/TPR/S/342/Rev. 1 (adopted Oct. 12, 2016), available at https://www.wto.org/english/tratop_e/tpr_e/tp442_e.htm (last visited on Jan. 24, 2018). 33. C. Huang, Recent Development of the Intellectual Property Rights System in China 31 CWR China’s IP Commitment in WTO and Challenges Ahead, 13 MgMt. & org. rev. 39-48 (2017), available at https:// www.cambridge.org/core/journals/management-and-organization-review/article/divclasstitlerecent-development-of-the-intellectual-property-rights-system-in-china-andchallenges-aheaddiv/B4D5848771D2D89A2A8A0620E75B2763 (last visited on Jan. 24, 2018). 34. A practical case of this kind is the bilateral negotiations between the EU and China. The EU formally supported China’s entry to the WTO, because many compromise solutions were announced by China during the EU-China negotiations. See European Commission, Overview of the Terms of China’s Accession to WTO, available at http://trade.ec.europa. eu/doclib/docs/2003/october/tradoc_111955.pdf (last visited on Jan. 24, 2018). 35. USTR, 2016 Report to Congress on China’s WTO Compliance (Jan. 2017), available at https://ustr.gov/sites/default/files/2016-China-Report-to-Congress.pdf (last visited on Jan. 24, 2018). 36. For details on all China’s commitments, see Working Party Report (WT/ACC/CH/49/ Add.1) & Protocol on Accession of China (WT/L/432). 37. Accession of the People’s Republic of China (Decision of 10 November 2001), WTO Doc. WT/L/432 (adopted Nov. 23, 2001), available at https://www.wto.org/english/thewto_e/ acc_e/a1_chine_e.htm (last visited on Jan. 24, 2017). 38. thoMAs, supra note 17. 39. A. Guzman, A Compliance-Based Theory of International Law, 90 CALif. L. rev. 1823-87 (2002). 40. A. ChAyes & A. ChAyes, the neW sovereignty, CoMPLiAnCe With internAtionAL reguLAtory AgreeMents (1995). 41. Guzman, supra note 39. 42. However, the country’s share in world trade should also be considered. The leading world exporters and importers are usually participants of trade disputes more often. 43. L. henkin, hoW nAtions BehAve: LAW And foreign PoLiCy 50 (2d ed. 1979). 44. s. PAnitChPAkdi & M. CLifford, ChinA And the Wto 144 (2002). 45. ChAyes & ChAyes, supra note 40. 46. thoMAs, supra note 17. 47. Trade Policy Review - China, WTO Doc. WT/TPR/S/264 (adopted June 14, 2012), available at https://www.wto.org/english/tratop_e/tpr_e/tp364_e.htm (last visited on Jan. 24, 2018). 48. The State Council is the highest executive organ in China. 49. The administrative bodies under the State Council is composed of such bodies as the State Council, the State Intellectual Property Office, the State Administration of Industry and Commerce, the Administration of Quality Supervision, Inspection & Quarantine, the Ministry of Agriculture, the State Copyright Office, the Customs, the Public Security and Procuratorate and the State Office of IPR, and the Ministry of Commerce. See WTO, supra note 47. This source reviews the Chinese trade policy, including IPRs and explains the administrative structure of IPRs protection in China. 50. Fojtíková, supra note 13. 51. European Commission, Commission Staff Working Document on Significant distortions