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Punishing Theft Does Not Violate Free Trade

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Punishing Theft Does Not Violate Free Trade

January 10, 2017

Many assert that President-elect Donald Trump is against free trade. But standing against the theft of intellectual property and old-fashioned mercantilism, as Trump has promised to do, is an appropriate role for the chief executive. Allowing other countries to cheat us is not free trade.

America consistently outperforms the rest of the world in the sphere of intellectual property.  People throughout the world identify with American art, music, software, and clothing designs, and benefit from American pharmaceuticals and patents.

Yet American intellectual property is routinely stolen.  Each year, the United States Trade Representative publishes a report entitled “Special 301 Report” on intellectual property theft—yet does nothing about it.

This year Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela are the 11 countries on the “Priority Watch List.” USTR has “the most significant concerns regarding insufficient [intellectual property rights] protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection.” Another 23 countries are on a “watch list.”

Most of the same countries are on the “priority watch list” year after year.  China and several other countries have been on the list for many years.  There is no credible punishment from stealing American intellectual property, so countries continue to do it. Theft pays.

Intellectual property is stolen when American corporate employees are thrown in prison or harassed in a government shake-down, or when American companies are hauled into foreign courts and accused of stealing their own patents. Sometimes American Internet companies are kicked out a country that fosters its own imitative companies to displace the American ones. In other places, pharmaceuticals are manufactured without license. And by now everyone knows about foreign hackers invading American websites.  

American businesses have grown inured to intellectual property theft. They expect theft in countries around the world and they cannot fight back because they risk being banned from lucrative markets. The combination of theft and no enforcement reinforce one another, and our government needs to respond.

It is not just American businesses that lose, it is also American creators. Millions of Americans create and promote intellectual property. When foreigners copy CDs and sell these pirated copies on the streets, our creators are worse off.

Although USTR publishes reports every year identifying American intellectual property theft, it usually does nothing to prevent such theft or punish countries that foster intellectual property theft.

America continues to provide full access to American markets for offending countries.  Pirate countries have little if any incentive to respect our property.  The wonder is not that some countries steal our intellectual property; the wonder is that all countries do not steal our intellectual property given the weakness of our response.

Countries may tell us that it is impossible for them to prevent their citizens from copying our goods.  But when China, for example, can make book publishers in Hong Kong disappear because it disagrees with the content of the books, it can certainly close down the fake Apple stores.

America should take a tough line with countries on the USTR’s Section 301 Priority Watch List. Here are five suggestions.

1. We could limit their commercial activities in the United States. Alternatively, we could limit imports of those products with their intellectual property—or ours.

2. When an American company is being harassed in a foreign country, we could haul the ambassador in and ask what is going on. If China holds up our imports, we could hold up their imports.

3. If the country is on the special watch list, the Commerce Department could request the International Trade Administration do audits of intellectual property protection in those countries.

4. We could limit, and not expand, the commercial activities of countries on that watch list.

5. If a country appears for a second year on the list, the Commerce Secretary could be required to prepare a special report to the President on remedial actions.

Our government should be proudly standing up for our companies. It is not free trade when other countries steal our products.  And retaliating against theft does not violate the principles of free trade.

 

Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.

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