Copyright 2000 Federal News Service, Inc.
Federal News Service
February 16, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 3289 words
HEADLINE:
PREPARED TESTIMONY OF JOHN CHEN CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER
AND PRESIDENT SYBASE, INCORPORATED ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
SUBJECT - U.S.-BILATERAL TRADE AGREEMENT AND THE ACCESSION OF
CHINA TO THE WORLD TRADE ORGANIZATION
BODY:
Mr. Chairman, and members of the Committee:
Thank you for the
opportunity to present the views of Sybase and the Business Software Alliance on
the recently concluded bilateral trade agreement with the Peoples' Republic of
China, and the prospect of China's accession to the World Trade Organization.
The U.S.-China bilateral WTO accession agreement reached on November 15, 1999 is
a solid win for the U.S. high-technology industry.
Specifically, the
Chinese market offers bright prospects to the U.S. software industry. If we are
able to realize these prospects, the gains for U.S. workers, U.S.
competitiveness, and the U.S. balance of trade will be overwhelmingly positive.
In the view of my company, as well the American software industry, bringing
China into the World Trade Organization as soon as possible is the best way to
reap that harvest. Introduction
My name is John Chen. I am Chairman of
the Board, Chief Executive Officer and President of Sybase, Inc., one of the
largest independent software companies in the world. Our company's mission is to
help businesses manage and deliver applications, content and data anywhere they
are needed. Sybase was founded in 1984, is headquartered in Emeryville,
California, and has over 4,200 employees worldwide. Our software products are
sold all over the world, including in China, where we maintain six offices and
are among the leading foreign firms in terms of software sales. Markets in China
that Sybase has successfully entered include banking and finance,
telecommunications, security, government, transportation, healthcare and the
public sector of energy, TV stations and retail. As another example of Sybase's
commitment to building our business in China, we have just opened the Asian
Solutions Center in January of this year in Hong Kong. Jointly sponsored by
Sybase and Hong Kong Productivity Council, the Asian Solutions Center enables
local and regional application vendors, systems integrators, and industry
service specialists to take advantage of the center's marketing, technical,
business alliance and consulting resources to develop leading-edge IT solutions
for both local and regional businesses.
Sybase is also a member of the
Policy Council of the Business Software Alliance, on whose behalf I am
testifying today. BSA is the voice of the world's leading software developers
before governments and with consumers in the international marketplace. Its
members represent the fastest growing industry in the world. BSA educates
computer users on software copyrights; advocates public policy that fosters
innovation and expands trade opportunities; and fights software piracy. BSA
members include Adobe, Apple Computer, Autodesk, Bentley Systems, Compaq, Corel
Corporation, IBM, Intel, Intuit, Lotus Development, Macromedia, Microsoft,
Network Associates, Novell, Sybase, Symantec and Walker Digital. BSA Websites:
www.bsa.org; www.nopiracy.com.
I would also like to note that BSA is a
member of the High-Tech Industry Coalition on China. The coalition is comprised
of 11 trade associations representing U.S. manufacturers of semiconductors and
semiconductor equipment and materials, computers, electronics, software and
telecommunications equipment, as well as U.S. Internet companies. A list of
coalition members is attached and the coalition has submitted a written
statement for your review. The Coalition wholeheartedly encourages the Congress
to quickly move to grant PNTR for China.
In the U.S.,
the software industry is growing three times as fast, and producing new jobs at
a rate more than five times as fast, as the economy as a whole. One of the key
ingredients in this great success story has been sales outside the U.S. - in a
word, exports. The U.S. software industry as a whole brings in 60 percent of its
revenue from sales outside the U.S. According to a recent study commissioned by
BSA, the U.S. software industry is expected to generate a trade surplus of more
than $20 billion this year. That includes a hefty trade surplus
with China, a country with whom most other sectors of the economy are running a
big trade deficit. Increasing trade with China - and especially, increasing U.S.
exports to China - is a crucial goal for Sybase, for BSA companies generally,
and for the U.S. economy as a whole. That is why we in the software industry are
so enthusiastic about the prospect of China joining the World Trade
Organization. We also strongly support the recently negotiated bilateral trade
agreement with the PRC, which is an essential factor in making China's WTO
accession possible. Bringing China into the WTO offers us the best policy tools
available for opening up the Chinese market, particularly by reducing the
widespread copyright piracy that acts as an enormous market access barrier for
our industry. For this reason, we urge Congress to act as promptly as possible
to grant China permanent normal trade relations (PNTR), which
is a prerequisite to making WTO membership a reality.
China: The
Opportunity
The Chinese market presents an unsurpassed opportunity for
Sybase and the entire U.S. software industry. According to the most recent
estimates I have seen, about $ 1 billion worth of software was
sold in China in 1998. That market is growing at a phenomenal annual rate of 30
percent, according to the U.S. Foreign and Commercial Service. If anything, that
estimate may be too conservative. When you reflect on the fact that the number
of Internet users in China quadrupled during 1999 alone - and is expected to
more than double again by the end of this year - you can understand why the
Chinese demand for computer software of all kinds is growing by leaps and
bounds. And, Sybase has found that there is an emerging generation of Chinese
that are ready to embrace Sybase's powerful Enterprise Portal solutions that
help them deliver on the promise of e-Business.
No country is better
situated to meet that demand than the United States. American software products
are preeminent in every market in every country around the world - including in
China -- where U.S. firms account for an estimated 80 percent of all software
sold by foreign companies. Our software industry is an unrivalled generator of
U.S. jobs - nearly a million of them -- and good jobs, too, paying on average
more than double the average salary for non-software jobs in the private sector.
The more U.S. software is sold in China, the more good jobs are created here at
home. So opening the Chinese market as much as possible to U.S. software exports
is both good business for the software industry, and good public policy for the
United States. For us, that is what PNTR and Chinese accession
to the WTO are all about. Leading software companies like Sybase can only
benefit, creating new high quality U.S. jobs, from China's entering the WTO.
Of course, I am not saying that bringing China into the WTO will be a
panacea, or that it automatically guarantees that U.S. companies will thrive in
the Chinese market. There are a number of significant obstacles that must be
overcome. But establishing permanent normal trade relations with China and
bringing China into the WTO are the best ways to help us deal with those
obstacles.
The chief barriers to the Chinese market for U.S.
software companies fall into two main categories: Market access and copyright
piracy. If China is brought into the WTO on the terms contained in the new
bilateral trade deal, we will be in a much better position to attack barriers in
both categories.
Market Access Barriers
In the first category
are the traditional market access barriers generally addressed through WTO
agreements. Tariffs are a prime example. Today, the duties, taxes and other fees
for importing software into China run about 30 to 40 percent. Tariffs are high
on other information technology products as well. These tariffs make our
products less competitive to Chinese buyers. As part of the WTO accession
package, China is agreeing to sign on to the Information Technology Agreement
(ITA), which requires all signatories to zero out their tariffs on computer
software and a host of other information technology products. Clearly, that will
enhance our prospects in the Chinese market.
China also maintains a
number of non-tariff trade barriers, ranging from import quotas to restrictions
on the right of foreign companies to establish businesses in China or to
undertake wholesale and retail distribution of products there. In the bilateral
agreement recently negotiated with China, many of these barriers would be phased
out. For instance, U.S. software companies would be allowed to directly
distribute their products anywhere in China within two years (on the wholesale
level), and within three years (at retail). It is notable that the Chinese have
even agreed to allow some foreign investment in the telecommunications
infrastructure, and in content services to be provided over these networks and
via the Internet. These opportunities would have been unthinkable for China just
a few years ago; they are of particular interest to many U.S. software
companies, and will become available to Americans only once China joins the WTO.
Finally, as a WTO member, China will be subject to a number of general
obligations that will facilitate the market prospects of U.S. software
companies. These commitments include national treatment obligations, so that
U.S. companies cannot be treated less favorably than domestic Chinese
competitors, and transparency, so that the rules of trade are publicly available
and known to all. Clearly the U.S. software industry will benefit from a more
level playing field in China.
The Major Barrier: Piracy
The
second major type of market access barrier our companies have faced in China is
the lack of effective intellectual property protection. Copyright piracy - the
unauthorized copying, distribution or sale of our copyrighted computer programs
-- is an extremely serious problem for the software industry in China. BSA
estimates the piracy level for packaged software applications at 95 percent for
1998. That means that for every legitimate, licensed copy of such an application
in use in China, there are about 19 pirate copies.
Some of those pirate
copies are counterfeit CD-ROM's sold in a shopping arcade or on a street corner.
Many others are illegal, unlicensed copies, which are made within a business
enterprise, government agency, or other institution. A company may buy one
legitimate copy of the program and then, in violation of its licensing
agreement, make it available for use on ten, twenty, or a hundred PC's, whether
on a network or by making unauthorized physical copies. In all, BSA
conservatively estimates that software piracy in China cost the U.S. business
software sector more than $800 million in revenue in 1998.
Piracy of U.S. software, in whatever form it takes, eats into the market
that U.S. software companies would otherwise serve. BSA companies spend millions
to research, develop, test, market, distribute, support and service the best
computer programs in the world. Our licensing fees must allow us to recover
those costs and make a profit, in part to fund ongoing research, development and
testing. The pirate, whether on a street corner or in an office suite, has none
of those costs - he just takes the product, and makes the copies available free
or for a small fraction of the legitimate price.
Competing with piracy
is economically impossible. It's very difficult to persuade a customer to buy a
product when he can readily take it for free without legal consequences. So when
piracy dominates a market as it does in China, it constitutes an obstacle to
market entry far more formidable than any tariff, import quota, or other more
traditional market access barrier.
Impact of WTO Accession
How
will China's entry into the WTO help in the fight against software piracy? The
strongest multilateral trade tool we have for promoting good copyright
protection in foreign markets is the WTO Agreement on Trade Related Aspects of
Intellectual Property Rights - the TRIPS Agreement. This pact obligates WTO
member countries to enact strong copyright laws, to put effective enforcement
provisions on the books and to actually apply those laws in practice. Indeed, to
fulfill their TRIPS obligations, countries must criminally prosecute those who
are committing copyright piracy on a commercial scale, including unauthorized
use in the corporate environment, and must impose punishments on pirates that
are sufficient to create deterrence.
As part of the WTO accession
package, China has promised to come into compliance with the TRIPS Agreement
immediately, without any delay or transition period. That commitment gives us a
powerful tool in combating software piracy in China.
The TRIPS Agreement
not only sets standards for intellectual property protection and enforcement; it
also provides -- for the first time -- a strong multilateral mechanism for
ensuring that countries meet these standards. That mechanism is the WTO dispute
settlement process. Once China joins the WTO, if it is not complying with the
requirements of the TRIPS Agreement, the U.S. (as well as its trading partners)
can invoke the dispute settlement process to strongly encourage China into
compliance.
WTO dispute settlement has already succeeded in bringing
countries into compliance with their TRIPS obligations relating to copyright
enforcement and has worked effectively for U.S. copyright owners. BSA is
confident that it will work in China, too. But only if China joins the WTO can
this effective tool be used to deter the huge software piracy problem we face
there. Congress can help companies employ this tool by approving
PNTR for China.
Piracy: Recent Developments and Future
Prospects
The software piracy picture in China is naturally a concern.
The numbers that have already been cited, for piracy levels and for the
resulting losses to U.S. software companies, speak for themselves. Nevertheless,
I believe there is some basis for optimism about the future. Although China's
problem of copyright piracy is long-standing - this issue brought the U.S. and
China to the brink of a trade war twice in the mid-1990's - we have made some
progress in a few areas. Let me cite three of them.
First, five years
ago China was not only a major producer of pirated software, but also a major
exporter. Compilations of illegal copies of business applications, made in
China, were polluting the markets in Hong Kong, in Southeast Asia, even in
Russia and Eastern Europe. That is no longer the case. Pirate exports from China
are minimal in volume. While the Chinese market itself remains overrun with
pirate product, at least there has been progress in some of the neighboring
markets, which Chinese pirates used to supply.
Second, following the
lead of the United States government, the PRC has finally begun to tackle the
enormous problem of software piracy within the agencies and instrumentalities of
the Chinese government itself. Soon after President Clinton issued an Executive
Order on software asset management in the federal government, China's State
Council promulgated a decree requiring all government agencies to use only
legal, licensed software. The follow-up on this decree has been uneven, and much
more remains to be done, but we are very gratified that the Chinese government
is addressing this problem.
For BSA member companies as a whole, and
especially for enterprise software companies like Sybase, the economic impact of
corporate end- user piracy is much greater than the damage inflicted by the
retail sale of counterfeit software programs. We hope that the government
legalization process in China will be accompanied by strong enforcement actions
against Chinese corporations that engage in piracy.
Third,
although anti-piracy enforcement through administrative and criminal means is of
paramount importance, there are indications that the civil courts are becoming
more hospitable to infringement cases. Last year, one U.S. software company
obtained a civil judgment of over $100,000 - a record --
against Chinese pirates. Another successful civil case, brought by Chinese
authors whose material was posted on the Internet without their consent, has
garnered widespread publicity in the Chinese press. The world is watching with
great interest the way in which Chinese courts address the issue of corporate
end user piracy, which more than anything will reflect China's true commitment
to the protection of intellectual property rights.
Although software
piracy remains a major issue with China, I believe we are starting to see
concrete signs of a change in the attitude of the Chinese government to the
entire question of protection of intellectual property. A number of factors have
contributed to this change. One factor, certainly, has been China's
implementation of the 1995 bilateral agreement with the United States on the
enforcement of intellectual property rights.
Another factor which cannot
be underestimated is the remarkable growth of China's own software industry. The
U.S. government estimates that there were 2,000 independent software firms in
China in 1998. A Price Waterhouse Coopers study commissioned by BSA predicts
that by 2001, the software and supporting industries will account for 100,000
Chinese jobs, will produce almost $600 million in direct tax
revenues to the Chinese government, and will stimulate some
$6.2 billion in total economic activity in China. These Chinese
firms, just like the American software firms doing business in China, depend on
strong copyright protection, and are extremely vulnerable to piracy. In fact,
according to Price Waterhouse Coopers, reducing piracy levels by just ten
percent in 1997 would have added over 13,000 additional Chinese jobs and
generated almost $80 million in tax revenues.
Conclusion
It is becoming increasingly clear that the protection
of copyright is extremely important to China's economic development. The Chinese
increasingly recognize their own strong self-interest in reducing software
piracy. The best way to harness that self-interest for the benefit of our own
software industry is to bring China into the WTO. As a WTO member, China will be
committed to lowering market access barriers, leveling the competitive playing
field within its market, and, most importantly, providing strong copyright
protection and meaningful mechanisms to enforce that protection.
American software makers and the entire high-tech industry have been at
the forefront of U.S. economic expansion and technological leadership. Granting
China PNTR, coupled with the significant market reforms in
China embodied in its WTO commitments, will enable US high technology companies
to expand their market presence and business opportunities in this critical
market.
Moreover, access to American commercial information technology
enables people worldwide to improve business efficiency across all sectors,
enhance educational and social opportunities, and connect with one another.
Improved market access for U.S. commercial information technology in China will
help to advance economic and social reform in China. A timely congressional vote
granting PNTR to China is a critical and necessary step toward
securing this goal. Of course, there is a danger that China may not live up to
all its WTO commitments. But WTO membership will also subject China to a proven
dispute procedure for enforcing those commitments, one that has worked well in
the recent past to create strong pressure on countries to deliver on their
commitments regarding copyright enforcement.
END
LOAD-DATE: February 17, 2000
