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Predictions, prescriptions for the global intellectual property landscape

The legitimate pursuit of respective interests should not compromise the flow of people, ideas and goods across the globe.

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A major drawback of state-centric multilateral cyber security regimes is that the terms of digital trade are always designed in conjunction with the strategic national security priorities of the stronger participating state.

AT the heart of current US-China economic relations are disputes relating to intellectual property (IP) theft, digital trade, technology transfers and data flow regulations. Existing international law - for example, under the World Trade Organisation (WTO) - is ill-equipped to handle these salient issues.

For example, digital trade only falls within the purview of WTO law if issues are related to intellectual property, which is loosely regulated by Article 10 of the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. In practice however, the language and precedent of WTO law has been narrow enough to permit carpetbagging by some IP violators.

Because of this, the task of regulating the international digital economy has fallen on individual states. Global powers such as the US, China and the EU have done so by reinforcing domestic cyber security laws, establishing multilateral regulatory regimes, or crafting regional trade agreements with cyber security as one of the binding issues.

For example, a relatively recent development in digital trade protection was the addition of digital regulation requirements in Chapter 19 of the United States- Mexico-Canada Agreement (USMCA). The USMCA seeks to standardise rules for digital privacy protection, online consumer welfare, and government data disclosure across its participating parties.

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However, a major drawback of state-centric multilateral cyber security regimes is that the terms of digital trade are always designed in conjunction with the strategic national security priorities of the stronger participating state - in the above case, the US.

The danger of centring US national security interests in the creation of regional norms stems from the potential for US domestic politics to arbitrarily intervene in international digital trade between the signatories. This might also lead to the overreach of US jurisdiction over Canadian and Mexican companies.

Another problem of this approach towards digital governance is that it can lead to the emergence of digital trade blocs between major economic rivals. China has already constructed a digital firewall through an elaborate censorship system - entrenching its notion of cyberspace sovereignty.

Together with the regional approach of the US, this may impede the establishment of a truly international cyber security regime across strategic rivalries.

What impedes the crafting of a US-China cyber agreement?

China and the US have different priorities and concerns in safeguarding cyber security. This mismatch of cyber security objectives and conflict of national security interests are the greatest impediments to crafting a cyber agreement between the US and China.

The top priority for the US in adopting rules for cyber security is in protecting the market-driven technology sector and providing a clean legal infrastructure for competitive US companies to expand outward.

While technology development is driven by the private sector in the US, this is not the case in China. In the field of artificial intelligence (AI), developments in the US are primarily driven by Silicon Valley, research institutes and universities. In China, it is primarily by the State Grid Corporation (SGCC) and companies that maintain close financial ties with powerful party members.

Another key difference between US and Chinese cyber security regimes is that the Chinese government monopolises data storage and collection within its national borders. This has given significant advantage to firms that enjoy close ties with the government, thereby benefiting from access to state-owned databases.

China's top governance priorities revolve around the survival of the Chinese Communist Party (CCP), and of maintaining social stability. What the Chinese government desires from stricter cyber security regulation is control over civil society and the restriction of foreign influence in China.

As at 2019, there are at least 14 laws, regulations, guidelines, national strategies and standards implementing Chinese President Xi Jinping's dictum that "without cyber security, there is no national security".

Most of these are directed against foreign corporations and international non-governmental organisations (NGOs), requiring them to share private digital information with the Chinese government for review before proceeding with their operations in China.

A number of WTO members, led by Japan and the United States, have argued that portions of China's cyber security regime conflict with its commitments under the General Agreement on Trade in Services (GATS).

According to the 2019 National Trade Estimate Report by the US Trade Representative, the Chinese government has consistently imposed digital barriers relating to cross-border data transmission and cloud computing services.

China's cyber security law severely restricts any cross-border transfer of information that falls into the vague category of being "important", while imposing data localisation requirements on foreign companies on the grounds that they contain "personal or business information" which might endanger China's national security interests. Thus, the US has criticised China for the overbreadth of regulatory power over American and multinational businesses.

Implications on the US-China trade war

Despite the mismatch of priorities between the US and China, this problem is far from unsolvable. Nevertheless, the main issue with the Trump administration's trade war is that it adopts an overly-dichotomous, Cold War view of Sino-US rivalry in global trade.

But China is not alone in pursuing many of its data protection policies. Countries such as Russia, Indonesia and India are also forcing firms to store data locally for a range of data categories.

Ultimately, the trade war and its implications on respective global trade and economic issues - such as intellectual property and digital commerce - reflect a broader shift in future inter-state economic cooperation, favouring ad hoc globalisation over organised globalisation, resulting in a state of fragmented global governance stemming from unilateral policy changes and bilateral (over multilateral) dialogue.

On intellectual property issues, this will take the form of tit-for-tat penalties or barriers to entry for tech firms on both sides. A recent example was the Committee on Foreign Investment in the United States (CFIUS)-mandated forced sale of US firms Grindr and PatientsLikeMe by their Chinese investors Beijing Kunlun Tech and iCarbonX respectively.

Furthermore, US President Donald Trump's recent executive order - giving the US government further control over any sale of US technology related to the intentionally vaguely-defined areas of national security or the digital economy - also reflects this growing interventionist approach by the US government. This entails a more unpredictable, arbitrary operating environment for firms.

The advent of an increasingly ad hoc approach to globalisation is also conflated with a larger issue of potential decoupling in the world's two largest economies. Against this backdrop, it is premature and overly-generalised to write off the role of international organisations.

Rather, reform of the WTO can begin by identifying the low hanging fruit - common issues that almost all countries agree on, which serve to build trust in existing global institutional structures and momentum for further reform. These common issues would include new norms on non-discriminatory treatment; regulation of e-commerce; and online consumer protection.

In the long term, these low-hanging fruit agreements strengthen the exposure between countries. Regulated inter-state competition under an international framework will prevent further conflict escalation, and can help craft more enforceable international cyber security laws.

The spirit of international law is often as important as its expected outcomes, with this lowest common denominator approach helping to strengthen institutions such as the WTO.

Strengthening global norms (albeit fast-evolving ones) provides predictability and consistency that facilitates firms' overseas ventures, and globalisation in general. In the future, this may even extend towards multilateral agreement on a more comprehensive global IP framework.

Nevertheless, in this increasingly multilateral global landscape, neither the US nor China today can drive this process of crafting sustainable, legitimate global institutional norms forward alone.

Furthermore, global institutional compromise in digital trade will not be driven by governmental, track 1 diplomacy alone. Aside from the WTO hopefully taking the lead on laying a framework for IP protection and data security issues, we will also see the assertion of market forces.

Current US-China disputes on intellectual property regulation and enforcement will gradually stabilise into a strategic equilibrium, where both governments and their respective, competitive private sectors push for more stringent intellectual property enforcement.

Ultimately, formalised international norms remain crucial to facilitating the process of cooperation on digital trade. We end off with a call for cognitive empathy - the legitimate pursuit of respective interests (national, sub-national, individual or business interests, on all sides) should not compromise the fundamental right to unbridled flow of people, ideas and goods across the globe.

  • Jason Jia-Xi Wu is a Master of Arts student in the Regional Studies-East Asia (RSEA) Programme at Harvard University. Jia Yao Kuek has just graduated from the programme.