China pushes back against US's Section 301 investigation at WTO
China and the US are squaring off at the WTO over Beijing's alleged forced technology transfers. At a session of the WTO's Dispute Settlement Body last week, China's WTO Ambassador Zhang Xiangchen said that the U.S.'s "Section 301" investigations failed to prove that Chinese law required foreign firms to transfer technology to Chinese partners. Washington also has not provided evidence sustaining the allegation that China requires foreign companies to transfer technology to access the Chinese market - a violation of WTO rules - Zhang said.
Those familiar with China's business environment know that the country's laws are designed to be flexible. In a business context involving a foreign and Chinese partner, it's not uncommon for the law to be interpreted in a way that benefits the Chinese partner. In certain industries, like autos, Chinese law requires foreign firms to form a 50/50 joint venture with a local partner. The law doesn't state that foreign automakers should hand over their intellectual property to their Chinese partners. But it's not hard to imagine a scenario in which the foreign partner might do so. Otherwise, market access could be lost.
In a recent interview with O2O Brand Protection, an executive from a major global automaker stated bluntly: "It's coercive. Without explicitly stating so, the government is telling us, 'if you don't like the JV arrangement, sorry. Then you can't do business in China."
The person added: "Foreign automakers know that their Chinese partners want to absorb their technological expertise and then surpass them. And once the Chinese partners are strong enough, what happens to the foreign partners?"
On May 29, the White House published a statement on its official website describing China's unfair trade policies. "China uses foreign ownership restrictions, administrative review, and licensing processes to force or pressure technology transfers from American companies," the statement says. "China requires foreign companies that access their new energy vehicles market to transfer core technologies and disclose development and manufacturing technology."
To counter Beijing's techno-nationalism, the Trump administration has a three-pronged strategy. The first prong has the least support among experts: a 25% tariff on $50 billion in Chinese tech imports, among them products related to the Made In China 2025 plan. The final list will be released June 15.
The second and third prongs enjoy considerably more widespread support. One the one hand, Washington will continue to make its case against China's discriminatory technology licensing at the WTO. Additionally, the U.S. "will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology," the White House said on its website. The specific restrictions and controls will be announced June 30.
For its part, Beijing insists it has done nothing wrong. Speaking at the WTO last week, Zhang Xiangchen said that China’s IPR achievements have not been achieved through "so-called compulsory technology transfer." The fundamental purpose of the IPR system is to disseminate technology "so that mankind can share the benefits of innovation," Zhang said. IPR protection "cannot be used as a trade protectionist tool, and it cannot be used to curb other nations' development," he added.