Rajiv Gandhi National University of Law
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rsrr@rgnul.ac.in

CHINESE SNOOPING ON FOREIGN TRADE SECRETS: A LOOPHOLE IN INTERNATIONAL FRAMEWORK

Image taken from https://www.scmp.com/week-asia/opinion/article/2131614/why-china-and-us-will-continue-squander-money-spying.

By- Aryan BabeleRajiv Gandhi National University of Law, Punjab

Nortel, once a bigwig Canadian telecom, filed for its bankruptcy in 2009 at the same time when a little known Chinese company Huawei was on the rise in the US market. Huawei’s industrial methods had the similar R&D setup which was stolen from the hacked emails of officials of Nortel.1 Even if it is considered that Nortel drowned because of its own mismanagement, then also the penetration into the online systems of the U.S. Departments of Homeland Security and stealing of critical data of companies, including Coca-Cola, Adobe, Yahoo, and Google, are good examples of the victims of economic espionage.2

In the last decade, Internet became a new tool for collection of intelligence and a very effective method to conduct the theft of trade secrets and blueprints of foreign market with the intent of one’s own economic benefit; this is termed as “Economic Espionage” or “Industrial Espionage”. Chinese actors give the impression of playing a significant role in such activities causing American companies a loss of $250 billion in stolen information and another $114 billion in related expenses.3 Therefore, the big question is that how China, in the mature environment of international law, has continuously used economic espionage as a tool to maintain its own economic development.

Under the impact of globalization, big countries are striving for the innovation to maintain competitiveness and raise their outsource markets. Accordingly, this economic trend has escalated the prevalence of theft of trade secrets held by private foreign corporations to gain an economic advantage without paying the cost for its research and development. This is economic espionage, and nowadays it involves state-sponsored attempts to steal the trade secrets of foreign enterprises. Consequently, advancements in technology, increased mobility, rapid globalization, and the pseudonymous nature of the internet lead to increasing challenges in protecting trade secrets.4

Such activity includes the infections of computer networks, and theft of valuable data from private companies with primarily economic effects as opposed to personal injury.5 This is not limited to the stealing of the data of private-sectors but also extending the military and security risk to the victim state. The 2016 Annual Report of the US- China Economic and Security Review Commission alleged that China had appropriated elements of the F35 design and incorporated them in their J20.6

Economic espionage is not a tale of two countries, i.e., US and China. Worldwide cyber espionage cost an estimated $1 trillion in expenses in 2012.7 Over the last decade, security of twenty percent of companies of Europe have been breached and attempted to be stolen.8 The United Kingdom’s security agency MI5 in its report of 2007 warned of British companies about the risk of theft of trade secrets posed by China.9

According to an estimate of Germany’s Federal Office, German companies appraised the loss of £43bn and 30,000 jobs annually due to this Chinese threat.10 In 2015, the crime branch of Delhi Police exposed the India’s biggest ever case of industrial espionage i.e. the petroleum ministry leak. Here again, a Chinese angle of espionage was probed.11 Private companies and firms in Japan, Thailand, the Philippines, France, Italy, and Norway as well came under Chinese scrutiny.12

Notably, hundreds of investigations on economic espionage have found APT1, a Chinese originated espionage unit, instigated massive attacks and continues to steal huge quantities of information.13 The extent of the attacks and resilience of the group under extremely monitored Chinese environment suggest that the State is aware of it.14 In this impression of State- sponsored breach of another State’s sovereignty, it becomes imperative to have an international framework to prevent such activities.

However, there are no legal frameworks to monitor cyber security at the international level15, and the US is the only country to have a comprehensive statute on industrial espionage i.e. Economic Espionage Act, 1996, making the theft of trade secrets a crime. The solution to this problem can only be addressed by way of international law as it is a matter of States’ sovereignty now.

At present under the international framework, there is TRIPS, a product of GATT, as the only guidelines that require WTO members to protect intellectual property including ‘confidential information’ of trade under its Article 39 i.e. trade secrets.16 But there is no international agreement over the fact that TRIPS protects “confidential information” against industrial espionage conducted by a foreign State as the extent of its obligation is only to “commercial unfair use”. As under the TRIPS framework, there is no certainty of involving accusations of State-sponsored espionage and there is nothing in TRIPS that can prevent transnational stealing of trade secrets in cyber realm by a foreign State.

Furthermore, a government’s own participation in spying sends the message that economic espionage is acceptable and lawful in that country, which leads to a perception that there can be no state responsibility under international law.17 China is exploiting this Achilles heel of the international law.

As world economies are becoming more competitive and cyber usage is becoming more operative for these economies, it is imperative to evolve a uniform international approach to prevent any serious harm to the economy of a State by another State. Accusations are not possible in this domain and there are two suggested ways to deter such operations of states like China.

First, the development of an international norm prohibiting states from stealing intellectual property in the cyber domain and restraining State actions in cyberspace.18 Second, trade negotiations and dialogues such as Trans-Pacific Partnership Agreement (TPP) can be effective in increasing the importance of trade secrets protection and promoting more effective deterrence. There is a need to implement such steps in the right direction as soon as possible as industrial espionage is on period basis taking toll of innovators’ credits and job creations.

As said by General Keith Alexander “industrial espionage has resulted in the greatest transfer of wealth in world’s history”19 and economies for long cannot afford any such damages caused due to cyber snooping by any rogue State.

 

  1. Laura Payton, Former Nortel exec warns against working with Huawei, CBC News (Oct 11, 2012 5:37 PM), http://www.cbc.ca/news/politics/former-nortel-exec-warns-against-working-with-huawei-1.1137006.
  2. Ellen Nakashima, In a World of Cybertheft, U.S. Names China, Russia as Main Culprits, WASH. POST, (Nov. 3, 2011), http://www.washingtonpost.com/world/national-security/us-cyber-espionage-report-names-china-and- russia-as-mainculprits/2011/11/02/gIQAF5fRiM_story.html.
  3. Josh Rogin, NSA Chief: Cybercrime Constitutes the “Greatest Transfer of Wealth in History,” FOREIGN POL’Y, (July 9, 2012), http://thecable.foreignpolicy.com/posts/2012/07/09/nsa_chief_cybercrime_constitutes_the_greatest_transfe r_of_wealth_in_history.
  4. Katelynn Merkin, Critical Analysis: Economic Espionage and International Law, DJILP Staff (Nov 26, 2013), http://djilp.org/4721/criticalanalysiseconomicespionageandinternationallaw/
  5. Jeremy Yohe, Cyber Attacks Post Threat to Title Companies, TITLE, Mar. 2013, at 10, 12; see also Choe Sang-Hun, Computer Networks in South Korea Are Paralyzed in Cyberattacks, N.Y. TIMES, Mar.20, 2013, http://www.nytimes.com/2013/03/21/world/asia/south-korea-computernetwork- crashes.html?pagewanted=all&_r=0
  6. Robert Farley, Just How Wide-Reaching Are China’s Economic Espionage Efforts?, The Diplomat (Dec 13, 2016), http://thediplomat.com/2016/12/justhowwidereachingarechinaseconomicespionageefforts/.
  7. Katelynn Merkin, Critical Analysis: Economic Espionage and International Law, DJILP Staff (Nov 26, 2013), http://djilp.org/4721/criticalanalysiseconomicespionageandinternationallaw/.
  8. Massimo Pellegrino, The threat of state-sponsored industrial espionage, European Union Institute for Security Studies (June 2015), http://www.iss.europa.eu/uploads/media/Alert_26_Industrial_espionage.pdf.
  9. Blakely, Beware Chinese Cyber Spys, MI5 tells firms, Daily Mail (Dec. 1, 2007 10:35 AM), http://www.dailymail.co.uk/news/article-498948/Beware-Chinese-cyber-spys-MI5-tells-firms.html; see also Katelynn Merkin, Critical Analysis: Economic Espionage and International Law, DJILP Staff (Nov 26, 2013), http://djilp.org/4721/criticalanalysiseconomicespionageandinternationallaw/.
  10. Kate Connolly, German accuses China of industrial espionage, The Guardian ( Jul. 22, 2009 19:57 PM), https://www.theguardian.com/world/2009/jul/22/germany-china-industrial-espionage.
  11. Mahender Singh Manral, Corporate espionage: Prayas Jain may have sold confidential documents to Pakistan and China, India Today (Feb 23, 2015 15:07 PM), http://indiatoday.intoday.in/story/spygate-oil-ministry-prayas-jain-metis- business-solutions-pakistan-china-delhi-police-assocham-ds-rawat/1/420413.html.
  12. Katelynn Merkin, Critical Analysis: Economic Espionage and International Law, DJILP Staff (Nov 26, 2013), http://djilp.org/4721/criticalanalysiseconomicespionageandinternationallaw/.
  13. Mandiant, EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS, (2013), http://intelreport.mandiant.com/Mandiant_APT1_Report.pdf.
  14. Ibid.
  15. Reema Hibrawi, China’s economic espionage, JPINYU (May 5, 2015), http://jpinyu.com/wp-content/uploads/2015/05/4-China-Cyber-Espionages.pdf.
  16. Agreement on Trade-Related Aspects of Intellectual Property Rights art. 39, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197 [hereinafter TRIPS Agreement].
  17. Katelynn Merkin, Critical Analysis: Economic Espionage and International Law, DJILP Staff (Nov 26, 2013), http://djilp.org/4721/criticalanalysiseconomicespionageandinternationallaw/.
  18. Christopher D. Baker, Tolerance ofInternational Espionage, 19 AM. U. INT’L L. REV. 1091, 1097 (2003).
  19. Keith B. Alexander, Nat’l Sec. Agency, Keynote Address at AEI Event: Cyber-security and American Power (July 9, 2012).

 

One Response

  1. Shyam Rahim says:

    Very Educative

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