Prepared Statement of The Honorable Cliff Stearns

Issues before The U.S.-China Joint Commission on Commerce and Trade

Subcommittee on Commerce, Trade, and Consumer Protection
June 9, 2005

Good Afternoon. I want to start by thanking the Department of Commerce for appearing here today to talk about the U.S.-China Joint Commission on Commerce and Trade, the JCCT. There are many important issues to discuss with regard to trade with China, and given the importance of intellectual property rights (IPR) to the American economy and its engine of innovation; we are particularly glad Mr. Dudas is here to discuss intellectual property rights (IPR). Your testimony is critical to the Committee's understanding the complexity of these problems and how we are solving them.

U.S.-China trade began to grow shortly after diplomatic relations were established in 1979, paving the way for a bilateral trade agreement and most-favored nation (MFN) treatment in 1980. Since 1980, U.S.-China trade has risen from $5 billion a year to $231 billion a year in 2004. China joined the World Trade Organization (WTO) in 2001. China is now the third-largest U.S. trading partner, its second largest source of imports, and its fifth largest export market. All of that economic activity suggests a thriving economic relationship between the United States and China. But for some, this rapid growth also represents a cause for concern, especially when we consider the $162 billion trade deficit with China in 2004. And while China continues to make significant progress in addressing a number of trade issues, the USTR in 2005 placed China on a Special 301 Priority Watch List because of its failure to significantly improve protection of intellectual property rights. This is a critical issue for this Committee, the health of the U.S. economy, and for our U.S. global leadership in developing intellectual capital, whether it's the latest Star Wars movie, the most advanced and safest automobiles, or the next generation of medicines that will save millions of lives around the world every year.

Established in 1983, the JCCT serves as a forum for high-level discussions on bilateral trade and for promoting commercial relations between the U.S and China. The Intellectual Property Working Group was established in 2004 to address the increasing problem of theft of U.S. intellectual property through counterfeiting and piracy. And while the JCCT has been a very valuable mechanism for identifying issues ripe for discussion and setting priorities, there is much work to be done and results yet to be seen. According to a recent estimate from the International Intellectual Property Alliance, U.S. copyright firms lost between $2.5 and $3.5 billion in 2004 from lost sales in China. It also is estimated that between 15 and 20% of all products made in China are fakes, either counterfeited or pirated. These figures become even more significant when one considers that in 2002, the U.S. core copyright industries' activities accounted for more that 6% of U.S. GDP and achieved foreign sales and exports of over $89 billion. These are very big numbers that represent very real economic harm to U.S. business, innovation, and jobs.

The rampant theft of U.S. intellectual property in China through illegal counterfeiting and copyright piracy continues to challenge the belief that trade and the economic inertia it creates will eventually lead to a net benefit for all involved. In those industries that are fueled by intellectual capital - movies, recordings, software, engineering, and so on - there is increasing concern that the legal IPR fortifications protecting this critical and valuable knowledge are being breached by lack of enforcement, understanding, and just plain respect for a rules-based trading system like the WTO and agreements like Trade Related Aspects of Intellectual Property (TRIPs). The engine of U.S. innovation relies on the rule of law to work and create value for both the producer and consumer. Robust intellectual property rights protection AND enforcement is equally important for the many innovative Chinese companies who are just now embracing IPR as a means to protect and grow their own investment in knowledge. We therefore, are very interested to get a status report from Undersecretary Dudas as to the current situation regarding IPR in China and the progress - and by progress I mean results-of the JCCT and the Intellectual Property Working Group to address these concerns.

It is my hope that our hearing today will identify what the JCCT is doing to stem the U.S. losses from fakes and other the ways thieves are stealing U.S. intellectual property, and indirectly, U.S. jobs and prosperity. I am heartened by the important work the JCCT is doing in the IPR area, including the establishment of a working group to consult on rule of law issues related to a market economy as wells as careful review of Chinese progress at instituting structural market reforms. Today, the Committee would like to review, in particular, the progress being made by the Chinese government to combat intellectual property theft, specifically counterfeiting and piracy, including Chinese efforts to reduce intellectual property rights infringement levels, increase penalties for intellectual property infringement, crack down on violators, and educate the Chinese public about the importance of IPR protection. Also, we would like to know how effective the United States has been in influencing China to accomplish these goals and how the success of these efforts is measured. Today, the Committee wants to hear about progress - and by that, we mean results.

Again, I would like to welcome Undersecretary Dudas here today. We look forward to your important testimony. Thank you.

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