Speech by Donald Evans, Secretary of Commerce.
Date: January 13, 2005.
Re: Rampant theft of intellectual property in the People's Republic of China.
Location: Beijing, China.
Source: Department of State.		  

Let me begin by thanking my friend Ambassador Sandy Randt, on behalf of President Bush and the American people for his service to our country. We greatly appreciate his vision and leadership in steering China and the United States toward a stronger, healthier and more productive relationship.

Before addressing the business at hand, I think we should take a moment to acknowledge an event that places economic concerns and other points of international tension into their true perspective. Several weeks ago, we all saw again the tremendous power of nature. The tsunamis that devastated many parts of Asia call all of us to reach into our hearts. We are only now beginning to gain a full sense of the destruction and the tragedy.

I'd like to share with you an update on America's humanitarian response to this crisis. President Bush announced that the United States is pledging $350 million to aid tsunami victims. And our contributions could increase further, if needed. Our governmental response is important, but it's far from the whole story. The American people are also responding to this tragedy through other avenues.

Many families, businesses and religious groups are making direct contributions to the Red Cross and other relief agencies. We expect U.S. companies to contribute hundreds of millions of dollars in relief aid to stricken areas.  Already, Pfizer, Johnson & Johnson, J.P. Morgan, Amazon.com, Microsoft and many other American corporate leaders have made substantial commitments.

Of course, relief aid can only be effective if it reaches the victims. The U.S. military is providing critical help with transportation and logistics. U.S. military aid flights have already delivered [215] tons of relief supplies. 200 Marines were deployed from Okinawa to join the U.S. aid distribution task force and two U.S. aircraft carriers are on-station off the affected countries helping to deliver aid.

Our thoughts and prayers go out to the victims and suffering families. A tragic need always brings out the compassionate spirit and loving hearts of the American people. Those struggling to recover in East Asia should know that the people of the United States will be standing beside them until they're back on their feet.

Now, let's turn our attention to the serious problem that brings us together. This forum, Mr. Ambassador, is timely, valuable and necessary.

Business books are very popular in America and the concepts they spread improve economies around the world.  One of the hottest current books explores the difficulties that leaders create when they fail to acknowledge, understand and react to the things happening around their organizations.

The book is called "Confronting Reality" and I think it's time that we directly confronted some of the unfortunate realities in the Chinese economy that are straining our trading relationship. It's time for China's leaders to forcefully confront the problem posed by widespread IPR theft, demand that it stop, and apply the resources to solve the problem.

Earlier this year, the Bush Administration took further aggressive steps to fight IPR theft. I, along with Attorney General John Ashcroft, USTR Robert Zoellick and Homeland Security Under Secretary Asa Hutchinson announced the Strategy Targeting Organized Piracy, the STOP! Initiative. STOP! Is the most comprehensive initiative ever advanced to smash the criminal networks that traffic in fake and pirated goods around the world. We are cracking down on our boarders. And we are empowering small businesses to secure their rights in overseas markets. We are using all the resources at our disposal to ensure that America's intellectual property is protected.

Because of our persistence, the Chinese government has taken steps to strengthen IPR protections, but our focus remains on results. Process is not progress. Results are progress. Commissions, panels, initiatives and memos of understanding are all encouraging signs, but they count for little unless they produce results. This is my fourth trip to China. I have visited this country more than any other during my tenure in this Administration. On each trip, I have consistently stated one main goal for our economic relationship: Trade must take place through open markets on a level playing field.

The universal presence of Chinese products across the American marketplace demonstrates that we in the United States are holding up our end of the trading relationship. It is absolutely essential that we see demonstrated results from China on IPR protection and the other structural issues that are compromising the Chinese economy in order to establish greater balance in our relationship.

We need to see rapid movement toward a rules-based economy that is transparent, predictable and open to U.S. products, services and investments. Progress toward a level playing field has been incomplete, uneven and unacceptable.

U.S. companies deserve to have their products and proprietary knowledge protected from theft. Unfortunately, in almost every category of goods capable of being manufactured in China, theft and piracy are costing American companies not only billions in lost sales, but also damage to brand reputation.

Let me give you a few examples that demonstrate the challenges American companies face in the Chinese marketplace.

One of the most flagrant and troubling examples involves the theft of a design for an entire automobile. GM Daewoo manufactures a small, popular vehicle called the Spark. The Chery Automobile Company, [a state-owned enterprise] based in Wuhu, is currently selling a car it calls the QQ. The Chery QQ is strikingly -- if not suspiciously -- similar to the Spark in every significant respect.

After several professional organizations analyzed the two cars, they determined that the strong similarities between them were no idle coincidence. The results of the QQ investigation and analysis showed that the two cars shared:

Ladies and gentlemen, the facts are clear:  This incident defies an innocent explanation.  The QQ and the Spark are twins because both cars are built from the same DNA -- the proprietary mathematical data and formulas -- that were stolen from GM Daewoo and used to build the QQ.

This example is especially troubling because Chery Automobile is partially owned by the local government. How can the rule of law take hold when those charged with enforcing the laws are either complicit in or tolerate illegal acts?  The key innovations contributed by Chinese companies shouldn't be path-breaking achievements in the art of deception.

The essential foundation of any relationship is trust.  The integrity of the law can't be expendable according to the number of local jobs affected.  The Sino-U.S. economic relationship is no different.  Sustaining support for a trading relationship within a democracy like the United States requires that our trading agreements must be durable understandings that maintain their integrity.  Last month, GM Daewoo sued Chery Automobile Company, and we hope that China's court system resolves this case quickly and with sufficient respect for the gravity of the issues at stake.

Drug maker Pfizer's difficulties securing patent protection for its Viagra medication raises another set of issues.  After initially approving Viagra for sale in China, the Patent Review Board later applied a new law retroactively to deny Pfizer's patent. This dispute is troubling for two reasons. First, the Review Board raised no concerns for medical or safety grounds because the drug met existing standards. Viagra was rejected because Pfizer had failed to "sufficiently disclose" proprietary information about how Viagra is produced. This indicates that the process for obtaining patents is not transparent or predictable. This makes China a risky market for innovation.

The second issue is the fact that phony Viagra is available for sale across China. Thus, the safe, proven medication is forced to compete with pirates that have free rein to flood the streets with fake drugs that put the public at risk.

The National Basketball Association is also having trouble in China. Despite having taken required steps to protect its intellectual property, the Chinese marketplace is still full of counterfeit NBA merchandise. The theft of these pirates affects not only the NBA, but Yao Ming -- one of China's best-known athletes and one of the NBA's "biggest" stars.

The main problem is that there are just no deterrents for the counterfeiters. The pirates simply pay token fines and go back to work stealing the NBA's logos and trademarks for sale in China and export abroad. To the pirates these are no more than simple business expenses. Until China has tough penalties -- that can't be written off -- the pirates will still be in business.

America's huge video game industry is also losing billions to Chinese piracy. Shortly after new games hit the shelves in America, black market copies are being sold on the streets of Beijing.

Piracy costs the most advanced countries in the world billions. But the fall-out from IPR violations also harms the Chinese economy because a shaky IPR environment discourages additional investment -- in high value industries.  As Chinese companies increasingly develop sophisticated products or attempt to build brand names, they face growing vulnerability to IPR crimes.

We have raised our concerns about IPR and other issues with the Chinese leadership in the interest of fair competition.

Here's the bottom line: Rhetoric without results is worthless. We need deeds, not words, from the Chinese government. The lack of tangible and real results creates skepticism at home about China's commitment.

During the days leading up to the U.S. presidential election, there was a strong current of criticism directed at China. Some critics cynically attempted to steer America backwards from engagement with the global economy by closing our markets to competition. There was significant domestic pressure in the United States to join the chorus.

President Bush rejected that approach. He kept politics out of the Sino-U.S. relationship because he recognizes the value and importance of this partnership. He followed the principled, wise, and responsible path of elevating our economic relationship above the tensions of the political season. American leaders stood up for this relationship during difficult moments, and we expect China's leaders to demonstrate that same resolve and commitment.  We've been good partners, and we expect China's leaders to make our common economic interests an equally important priority.

We're not just here to raise criticisms; we're here to help China grow and prosper. America is a good partner. The United States has offered comprehensive technical assistance. We've helped build the rule of law. We've helped define patent protection. We've partnered with Chinese officials to improve criminal enforcement. And, as Under Secretary Dudas discussed earlier today, we have an aggressive plan to do more.

We've seen that governments in Asia can generate tremendous results against piracy where the will to succeed is present.  Hong Kong has made great strides in eliminating this theft.  China can win this battle, too.  The United States is here to offer the guidance and technical assistance that can help China carry the day against IP theft, but, again, we must see China's stated commitment through discernible results.

I'm one who thinks that China and the United States will continue to be the two main engines of economic growth in the world.  I'm hopeful for the future of our relationship. Its foundation is healthy and strong. I draw my optimism from the many amazing people that I have met in China.

Let me close by restating the Bush Administration's strong commitment to building an enduring partnership that brings benefits to both countries today and the blessings of peace and stability to our children and grandchildren.