courts, but overall piracy and counterfeiting levels there still remained high in 2007. U.S. copyright industries estimate that 80% to 95% of all of their members’ copyrighted works sold in China were pirated. 86
Chinese counterfeits include many products, such as pharmaceuticals, electronics, batteries, auto parts, industrial equipment, toys, and many other products, that may be exported and could pose a direct threat to the health and safety of consumers in the United States. Inadequate IPR enforcement is a key factor contributing to these shortcomings. China has high criminal thresholds for prosecution of IPR violations as well as difficulties in initiating cases. This arguably results in limited deterrence. Civil damages are also low. 87
Free trade agreements negotiated by the United States generally have included chapters that contain provisions that strengthen protection for copyrights, patents, and trademarks, as well as rules for enforcement. Recent free trade agreements, including those with Central American countries, Bahrain, Oman, and Peru have resulted in commitments to strengthen IPR protection and enforcement in those countries. The signed (but not yet approved by Congress) agreements with South Korea, Columbia, and Panama also contain IPR provisions. A number of trade and investment framework agreements with countries also have provisions to enhance intellectual property protection and enforcement.
In addition to the security, safety, integrity, and currency risks faced by companies with globalized supply chains, a policy risk also exists. A policy risk is the chance that either the home government or a foreign country will enact a change in policy that harms the business operation. U.S. embassies and organizations of U.S. businesses overseas devote considerable effort toward monitoring policy developments of local governments in order to head off adverse policy decisions. These include local content and labor requirements, import and export regulations, and safety provisions. Such policies, frequently pursued for protectionist purposes, often dictate the location of specific global supply chain activities and increase the difficulty of standardizing global supply chain efforts across multiple markets. 88
In a sense, however, global supply chains may have contributed to political stability among countries. They have created interdependencies among nations that provide incentives for governments to maintain stability in international relationships. This has lessened the prospect of political risk arising from international disputes. The growing economic interdependence between Japan and China, for example, is considered to have had a calming effect on relations when disputes have arisen over history and politics. Taiwanese businesses on the mainland also have pressed their government to relax restrictions on Chinese investment in Taiwan and for more
86 U.S. Trade Representative, 2008 Special 301 Report, Washington, DC, 2008, pp. 19-22. CRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison
U.S. Trade Representative, 2008 Special 301 Report.
88 John T. Mentzer, Matthew B. Myers, and Theodore P. Stank, Handbook of Global Supply Chain Management (Thousand Oaks, CA: Sage Publications, 2007), p. 23.