Faced with government actions like this and with rampant piracy of its products, Microsoft has little power to respond legally, IDC's Peterson pointed out.
"In the U.S., there are a lot of things they can do if they feel they're being picked on, but in China there's not a lot they can do," Peterson said. ( accessed 12/03/08)
China and International law
China is obliged to obey the international law, which is the system of regulating the interrelationship of autonomous states and their rights and obligation with regard to one another. Microsoft while entering to the Chinese market should have been warned by the numerous cases which represents the situation Microsoft is facing now. The breach of IPR by the Chinese producers is well known and didn’t happen the first time.
Yamaha in the mid 1990’s invested $93mln in China for 3 motorbikes and engine joint ventures, within four months, copies of the finished product emerged on the market. This happened despite that China was under international conventions/agreements like World Intellectual Property Organisations which it joined in 1980, China also acceded the Paris Convention of Industrial Property signed in November 1984.
‘Commerce, the total cost to foreign companies in China from the various forms of IPR infringement runs at about $20 t0 $25 billion annually ... The International community, has urged China to strengthen its protection of IPR... ’ (T. Xiaowen 2007 p. 231)
The US has been negotiating with China on IPR since 1979, when both countries signed an agreement on Trade Relations in which, ‘...Article IV of the agreement requires China to implement patent, trademark and copyright protection...’ (T. Xiaowen 2007) . Despite the agreement and the requirements China wasn’t making enough progress in the field and was threatened by US, to impose massive sanctions. The pressure form the US pushed China to sign a memorandum of understanding on IPR protection in 1992 but after two years China’s IPR violation went further and in result led to massive friction between both countries, only just, avoid by a second MOU agreement on IPR in 1995.
A more significant role, than the US, was played by the WTO for the reason of representing nearly all nations and being a polygonal trading body rather than one nation. In the process of China accessing the WTO, the organisation required to sign the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). TRIPS indicates various aspects of IPR protection and sets a level of requirements for IPR protection in the countries within the WTO. The pressure of signing the agreement led China forcedly to improve the IPR protection to TRIPS standard and with that allowed China to join the WTO in 2001.
Reasons for Microsoft to pull out
The accession to WTO made China undertook actions to eliminate trade-related barriers in order to attract foreign investment. The laws, regulations and administrative measure are to be reformed to show the commitment of continuing improvement. . Shaffer (2005) though states that ‘A number of countries... have a panoply of laws designed to protect domestic and foreign IPR, but fail to enforce the laws or do not have adequate procedures to enable foreign parties to take advantage of the laws’, in Chinas case, those barriers belong to the ambiguous and un-presciently applied laws and regulations which lack of rules in based legal infrastructure.
The desire for China to attract foreign direct investment is high and has already rectify its status as the top destination for FDI (receiving almost $80billion in 2005 according to the World Bank) which shows that there are certain improvements. However a pressure form large companies like Microsoft, to improve the legal system, still remains which means that the China is till at some point risky for investments.
The element of private international law of a country that hosts international transactions in a commercial nature between private parties and sets rules to resolve cases involving foreign parts (i.e. link with a foreign law system) for example if an order for production is made in US by Microsoft and produced and finalized in China, the law which will govern any dispute will have to be chosen in accordance to the Rome Convention which in the ‘ Article 1(1) of the Convention provides that its rules apply to contractual obligations in any situation which involves a choice between the laws of different countries and Article 2 that the law specified by the Convention applies though it is not the law of the contracting state. Thus it applies not only if the choice is between the laws of contracting countries ...’ (Greenwood C. J. 2001 p. 191) . This is generally known as the Choice of Law, the parties’ choice of law is respected in the contract if not this agreement of convention sets down stating which law applies to the dispute. However in some cases the court must also decide whether or not they have jurisdiction to hear the case and whether or not to recognize the a foreign judgment.
This is a big threat for Microsoft and a good reason for withdrawal as doing business in China could subject it to an unequal and unfavorable legal and court system. Its a threat, as joint ventures with Chinese companies is inventible and because of that any dispute can gravelly put Microsoft in a danger of unfair treatment.
The bias side of the government which was encouraging officials and general public to use the Red Flag’s Linux operating system instead of Microsoft Window operating system is another reason for Microsoft to pull out and just prove what position is the government taking when it comes Microsoft.
‘’The latest chapter in Microsoft's stormy saga in China came last month, with the widely circulated news report that the Chinese government had barred its ministries from using Windows 2000, requiring instead that they use the locally developed Red Flag Linux.’’ ( accesed on the 12/03/08)
Conclusion
In conclusion to this essay, the reasons and motives explored in this essay are highlighting only some of the most important aspect of the disputes. The reason why Microsoft needs China is to increase it software influence in Asia, but the regulations and the legal system governing China hasn’t discouraged multinational companies, like Microsoft, the first time, although its improving gravely with successful access to the WTO and proved to decrease piracy percentage within the country since 1996, its still a very risky investment for Microsoft and with the government supporting the competitors, the IPR and the international law is not the only reason why Microsoft has been considering to move out of China.
Bibliography
Aswathappa A. International Business, Tata McGraw-Hill, 2006
Shaffer R., Earle B., Agusti F. International Business Law and its Environment, 6th Edition, West Legal Studies, 2005
Greenwood C. J. Conflict of Laws, Cambridge University Press, 2001
T. Xiaowen, Managing International business in China, Cambridge University Press, 2007
Web Reference
accessed on the 12/03/08
