Saturday, May 28, 2005

STOP once had a simple meaning: stop. That was yesterday. Today, in world trade STOP is an acronym for “Strategy Targeting Organized Piracy.” And the target is, as if you didn’t already know it, the People’s Republic of China, the biggest and most proficient counterfeiter and product pirate in the world. To give the country its proper name, the Crooked Republic of China.

Here’s a detailed case history of Chinese piracy I found in a technical publication, Automotive Body Repair News (ABRN). The moral of the story is free trade may be a good thing, but should we in its name ignore our intellectual property rights and allow China to flood Western countries with counterfeit American or Western products?

ABRN describes what happened to an American company, the Metaldyne Corp. The company makes replacement axle joints. Suddenly its sales plummeted in Eastern Europe, one of their best markets. Investigation disclosed a Chinese copycat company, which couldn’t be located, had as “Metaldyne” taken over their market at far lower prices, of course. China has anti-piracy laws but they are rarely enforced, if ever.

The Motor & Equipment Manufacturers Association (MEMA) has been working with four Cabinet departments — Justice, Treasury, Commerce and Homeland Security — to help companies like the beleaguered Metaldyne Corp.

The Chinese piracy-counterfeiting conspiracy went unremarked for several years because the felonious sales entered peripheral markets which didn’t impact, says ABRN, in core sections of North America, Europe and Asia. But then, unburdened by any legal restraints, the piratical Chinese manufacturers began moving their fakes into markets long dominated by legitimate companies. Suddenly a buyer of, say, ABC products was being offered “ABC” products at half price or better. Even worse, you couldn’t tell the fake from the original.

The author of the Frost & Sullivan report, Mary Beth Kellenberger, puts it succinctly. China has “laxer laws and the social economic structure supports counterfeiting.”

Ted Fishman, author of the just published “China Inc.: How the Rise of the Next Superpower Challenges America and the World” writes: “The Chinese economy has staked a great deal on its counterfeiters. They provide people with affordable goods. … The counterfeiters give China’s growing number of globally competitive companies the means to compete with powerful rivals who are forced to pay full fare for proprietary technologies.”

Mr. Fishman says China enjoys an incredible 9 percent annual growth, threefold that of the U.S. China now is the largest maker of toys, clothing consumer electronics and is racing to be top producer in telecommunications, biotechnology and computers. Here are the hard facts about today’s China:

(1) A domestic market of 1.3 billion consumers.

(2) A ruthless industrial drive by the Chinese government.

(3) Urbanization of some 300 million Chinese peasants and their families and the need to find them jobs.

(4) China has legitimated counterfeiting and piracy of Western manufactures.

(5) China has given up Marxism but not Leninism. Remember the Tiananmen Square massacre.

(6) Inability of the capitalist democracies to compete with China’s low wage structure.

(7) There is no independent labor movement in China to press for higher wages and better working conditions.

(8) U.S. dependence on China to keep North Korea and its nuclear ambitions in check.

No one can predict where this will end any more than anyone predicted Mikhail Gorbachev and the fall of the Soviet Union.

Arnold Beichman, a Hoover Institution research fellow, is a columnist for The Washington Times.

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