China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy

Investigation No. 332-519
USITC Publication 4226

Summary

Despite broad success in the China market, many U.S. companies have reported that the infringement of their intellectual property rights (IPR) in China and China's indigenous innovation policies have undermined their competitive positions, reports the U.S. International Trade Commission (USITC) in its new report.

In response to a USITC survey, many U.S. firms reported lost sales, profits, and license and royalty fees, as well as damaged brand names and product reputation, as a result of IPR infringement in China, according to the report. U.S. firms reported losses associated with China's indigenous innovation policies as well but noted greater concern about the future implications of these evolving policies.

The report is the second of two reports completed for the U.S. Senate's Committee on Finance on IPR infringement and indigenous innovation policies in China and their effects on the U.S. economy and employment.

As requested, the report estimates the size and scope of reported Chinese IPR infringement; provides a quantitative analysis of the effect of IPR infringement in China on the U.S. economy and its sectors; and assesses the actual, potential, and reported effects of China's indigenous innovation policies on the U.S. economy and employment. The USITC found:

• Based on survey information, the USITC estimates that U.S. IP-intensive firms' losses from IPR infringement in China were approximately $48 billion in 2009. The survey was sent to over 5,000 U.S. firms in the IP-intensive part of the U.S. economy, which is the sector most likely to be affected by IPR infringement in China. Firms in this segment of the U.S. economy also spent approximately $4.8 billion in 2009 to address possible Chinese IPR infringement in 2009. These figures may be understated because they do not reflect losses incurred by firms in the rest of the economy.
  
  
• Firms reported that among the losses they incurred as a result of IPR infringement in China, those associated with copyright infringement were the largest monetarily, and those associated with trademark infringement were the most widespread. The "information and other services sector" represented the segment within the U.S. IP-intensive sector with the highest amount of reported losses associated with IPR infringement in China.
  
  
• U.S. firms in the IP-intensive economy reported that an improvement in China's IPR protection and enforcement to levels comparable to the United States' would likely increase employment in their U.S. operations by approximately 923,000 jobs.
  
  
• To complement the survey results, the USITC used a statistical and simulation analysis to estimate the U.S. economic effects of an improvement in China's IPR protection to levels comparable to the United States'. This analysis found the following effects: (1) a $21.4 billion increase in U.S. exports of goods and services, (2) a $87.8 billion increase in sales to U.S. majority-owned affiliates in China, (3) a potential 2.1 million increase in net U.S. employment under conditions of prolonged and high unemployment, and (4) some reallocations within the U.S. workforce towards more IP-intensive services sector jobs.
  
  
• Respondents to the USITC survey also expressed concerns about China's indigenous innovation policies, especially: (1) preferential support for Chinese firms in the form of tax incentives, subsidies, and preferential lending; and (2) China-specific technical standards. The USITC's case studies in the wind energy, telecommunications equipment, software, automotive, and aircraft sectors provide a fuller picture of the effects of China's indigenous innovation policies on these selected sectors.
  
  

The USITC’s report is now available at: http://www.usitc.gov/publications/332/pub4226.pdf

Also available on CD-ROM and in print; call 202.205.2000 for more information.