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Claude Barfield – December 10, 2018 6:00 am | AEIdeas  –  Chinese intellectual property theft: Where trade policy meets security policy – Intellectual Property, Technology and Innovation

While confusion still reigns over the details of just what was agreed to in the G20 meeting between President Donald Trump and Chinese President Xi Jinping, clearly the issue of intellectual property (IP) was on the agenda, and, in whatever degree of detail, accusations of Chinese theft of foreign IP and its discriminatory rules against foreign patent holders.

Several days after the Buenos Aires meeting, Beijing announced new, more stringent punishments for Chinese companies or individuals caught stealing IP. In a decision memo, the Chinese government set out some 38 punishments for IP violators, including denial of access to government funding. In some ways the mere publication of the memo (which explicitly referred to American complaints) was an important concession: Until quite recently the Chinese government had officially denied that significant IP theft occurred in China.

Cyber economic espionage

Although there was no specific flagging of state-sponsored or state-directed cyber espionage, White House economic aide Larry Kudlow, who was deeply involved in the negotiations, stated that the US and China are “pretty close” to an agreement on IP theft. At this writing, there are no more details.

But any purported agreement would come freighted with a history of Chinese perfidy regarding its prior commitments and, of equal importance, complex if not intractable questions regarding the scope of definition of permissible — and impermissible — economic espionage. As I’ve noted in previous blogs, in response to threats of strong retaliation, in 2015 President Xi promised President Barack Obama that in the future, the Chinese government would not pass along to Chinese companies important economic and technical data gleaned from cyber espionage. Over the past year, however, Chinese government-directed cyber espionage has ticked up substantially. It has also reappeared buttressed by much more sophisticated techniques. A number of incursions have coincided with technologies associated with China’s “Made in China 2025” program to achieve independent dominance in those sectors by that year.

In response, the Trump administration through the Department of Justice has mounted the China Initiative, aimed at bringing to justice Chinese IP theft culprits. The drive has included a series of indictments against alleged Chinese perpetrators, including both individuals and companies — and extraordinary charges against 10 Chinese intelligence officials from the Chinese Ministry of State Security. The administration has indicated that additional charges and indictments are likely to follow.

Further, recently the US has explicitly tied cyber espionage to vital US national security interests. In the 2018 Department of Defense (DoD) Cyber Strategy, China is named along with Russia, Iran, and North Korea as “states that can pose strategic threats to US prosperity and security.” At the same time, the DoD announced a cyber “defense forward” strategy, which means that the US “will defend forward to disrupt or halt malicious cyber activity at its source, including activity that falls below the level of armed conflict.”

Critics have argued the DoD’s new strategy unacceptably increases the risk of conflict escalation, but defenders (including the author) argue that it is a necessary response to earlier failed US policy responses to unabated Chinese cyber theft. As one close observer has noted:

Make no mistake: The Defense Department chose to pursue a more aggressive course because of the failure of previous efforts. . . . The 2015 agreement between the United States and China on commercial cybertheft seems to have failed to appreciably slow the widespread hacking of American targets by state-affiliated Chinese operatives.

Briefly, there are two reasons to doubt that a future US-China cyber espionage pact will ultimately be successful. First, as indicated above: In the end, whatever his promises, President Xi may feel a strong imperative for China to continue to claw its way up the technology ladder, by hook or by crook.

The trade war between China and the United States is, in many ways, a technology war, because it reflects a struggle for which state will achieve technological mastery. . . . China views US actions as illegitimate efforts to contain China’s rise and maintain American hegemony. It complains that the United States is adopting a “Cold War mindset.” . . . It also asserts its right to adopt policies that are conducive to development.

Many experts agree with this assessment, which, if accurate, portends a rocky future for any Chinese cyber commitment.

A second reason to be skeptical concerning a truce on espionage is the continuing confusion and disagreement over what constitutes permissible and impermissible espionage. The supposed bright line the US had advanced — not passing along IP or trade secrets gleaned from spying — actually blurs for a number of reasons, as a recent analysis by David Sanger in The New York Times amply illustrates. Theft of the designs of the F-35 fighter jets has traditionally been counted as a type of activity carried on by all nations with such capabilities. But what about dual-use technologies, which abound in high-tech electronics, aerospace, and emerging artificial intelligence–related areas? Is the probing of law firms and financial institutions associated with Silicon Valley off limits?

Members of Congress still firmly believe that China’s worst act of cyber aggression was the theft of some 22 million records from the Office of Personnel Management. Yet US intelligence officials have ruefully admitted admiration for the technical prowess involved: Former Director of National Intelligence James Clapper had to “kind of salute” the Chinese for their prowess and said he would have done the same thing had he found such a vulnerability in China.

Finally, there is the reality that in the Chinese system it is ultimately impossible to separate the state from the private sector. As one expert told Sanger, while there is a separation between US intelligence agencies and private companies, “China’s Communist Party, which has control over practically all aspects of policy there, would make no distinction.”

All this is not to argue that the US government should lessen its counterattacks, but only to suggest that it will have to be more precise in its targeted responses and more prepared to provide greater corroborating evidence (read: intelligence) to support its charges and indictments. The national security rationale is a necessary addition to the US response to Chinese IP pillaging, but it should not become a rationale for a self-defeating fortress mentality.Learn more:Trump ups the ante in fight against China’s flagrant IP theftThe dual goals of the Trump administration’s new attack on Chinese intellectual property theft

www.aei.org/publication/chinese-intellectual-property-theft-where-trade-policy-meets-security-policy/?mkt_tok=eyJpIjoiWkRjMk1EY3lOR1V4TkRJMCIsInQiOiJoT3kwY0ViQTBTK0JscW5UQ1VITkNXMFpTUFwvd2xSTTlOWXJSK3NKWE5jZnRxQmpzOURRVWd2MUt6NUVTcmxhbGg5alpUa0tERHRORkRZN1ZFVTZOczE0aGNQTUJxUmtcL2pDVG1FaVR5cU1MRjY2WlwvV2ltcER4R3JkQ3pXbzB4VSJ9