From The Wall Street Journal, via MEMA Industry News

BEIJING — U.S. Commerce Secretary Donald Evans publicly backed General Motors Corp.’s claims that a Chinese auto maker is using stolen design information to build a rival car, underscoring how increasingly sophisticated Chinese piracy is threatening foreign businesses and roiling trade relations.

Evans, in a speech to U.S. and Chinese officials and business executives yesterday, said Chery Automobile Co.’s QQ minicar is virtually a twin of the Chevrolet Spark developed by a GM unit in South Korea — GM Daewoo Automotive & Technology Co. Evans didn’t directly accuse Chery of theft, but said the company is using pirated proprietary information to produce the QQ. Mathematical formulas and other design information “were simply stolen from GM Daewoo,” Evans said. “This is an incident that defies any kind of innocent explanation.”

Evans’s remarks were the highest-level public comment by the Bush administration on the dispute between Chery and GM, whose Daewoo affiliate last month sued the Chinese company in a Shanghai court after months of accusations.

A Chery spokesman, Meng Tao, declined to comment on Evans’s remarks and the lawsuit.

The official and public U.S. attention highlights how the widespread infringement of intellectual property in China is becoming a central issue in the countries’ trade relations. There have been increased allegations of piracy problems from foreign auto makers, which have seen their robust sales of 2003 slip in recent months. Several Japanese auto makers have complained that their proprietary designs or trademarks have been used by Chinese rivals.

While once confined to inexpensive consumer products sold domestically, Chinese piracy has expanded rapidly, moving into export markets and covering complex manufactured goods. The trend isn’t upsetting only U.S. multinationals, which sell to China and use it as a manufacturing base; it also makes it politically harder for Washington to defend two-way trade that last year tipped an estimated $150 billion in China’s favor.

Nearly two-thirds of the counterfeit products seized in the U.S. originate in China, said Evans, who is stepping down as commerce secretary. He said the problem ranges from knock-offs of National Basketball Association merchandise to pharmaceuticals to the QQ.

China has responded to U.S. pressure, reinterpreting an existing law to expand criminal penalties for piracy and launching campaigns to educate officials on the need to protect intellectual-property rights. Yesterday, China’s National Copyright Administration announced three men were sentenced to prison terms of between six months and one year for commissioning two companies to make 59,000 copies of Microsoft Corp. software. The companies also were fined the equivalent of $11,000 and had the profits from their sales confiscated, the Associated Press reported.

Yet such arrests are rare, and though Evans previously has called on China to punish more offenders, he said ultimately what the U.S. wants is a sharp reduction in piracy. The QQ, he said, is becoming a test of government resolve in a key industry.

Commerce Department officials said it is premature to discuss American action against Chery, given that Chinese courts have yet to rule on GM’s suit.

In alleging the QQ is a copy of the Spark, Evans said several professional organizations found the cars have identical body structures and exterior and interior designs, and that many parts are interchangeable, according to the prepared text of his remarks. GM provided those findings to the Commerce Department, Undersecretary of Commerce Grant Aldonas said.

Editor’s Note: Babcox Publications is currently working with the Motor & Equipment Manufacturers Association and its Brand Protection Council to produce a Counterfeiting Resource Guide. The 16-page, full-color supplement will be distributed with the February issues of Counterman, Tire Review, Import Car, Brake & Front End, Tech Shop, Underhood Service magazines, and the March issue of Fleet Equipment.