Will feathers or shrapnel fly in the Sino-American trade war over IP
 Expert thinking appears to be converging on the likelihood of a Sino-American trade war in the New Year unless some issue or event emerges to break the logjam over Intellectual Property rights.
At issue is technology transfer with the bullish Trump administration saying that Beijing's insistence that if Americans want to market its own technology it must first tell all while at the same time forbidding the export of new Chinese technologies the US might copy.
There's much more to it than that, of course, but that is the nub of the matter, about which China is inscrutably silent as ever.
Granted there are two sides to every story - even this one. There are those who take the generous view, saying that all technology transfers bring benefits to all eventually so western protectionists should stop fussing. But that is not the hawk's eye view, represented by the Donald Trump White House. The US President appears ready to fight this issue hammer and tong.
There are several courses contemplated for the campaign. One, already launched by the US Trade Representative is a "301" investigation into whether China's intellectual property rules and practices are unfairly disadvantaging US firms.
"The investigation is all about discovering - and rectifying - the damage done to US companies from Chinese practices - which include the use of Chinese government funds to invest in or acquire US companies and assets to obtain technologies - the theft of intellectual properties from US companies - and the forced transfer of technology and intellectual property from US firms to Chinese firms," said Kim Iskyan, publisher of Singapore's Stansberry Churchouse Research.
"The key issue here is how technology is shared with local partners, and the economics of the agreement. The US aims to allow American companies to establish licensing deals without excessive conditions," he said.
Americans also object to Chinese government funds being used to invest in or acquire US companies and assets to obtain technology and intellectual property.
Said Mr Iskyan: "The US is concerned that government funds like the National IC Fund and the Made in China 2025 fund are causing market distortions in China's quest to obtain technology. Americans want to reduce using these funds to acquire high-tech US firms.
"The cyber theft of intellectual property, trade secrets and confidential business information is another issue. The US believes that government-sponsored theft is giving Chinese companies advantages over US companies. The US wants the Chinese government to agree not to support cyber-enabled theft," said Mr Iskyan.
Said Melbourne's Monash University international business professor Giovanni Di Lieto: "Other acts, policies and practices relate to tech transfer, intellectual property and innovation. The US will be investigating other issues such as China’s antitrust laws against US companies, in the hope of getting China to refrain from using these laws as leverage against US companies.
"More specifically, in the words of the 2017 Special 301 Report, China tops the Priority Watch List as it systematically 'imposes requirements that US firms develop their IP in China or transfer their IP to Chinese entities as a condition to accessing the Chinese market'," said Dr Di Lieto.
"This shows how forced technology transfers are inherently related to the various domestic laws and international treaties regulating foreign investment. In fact, since China's accession to the World Trade Organisation (WTO) in 2001, its commercial and administrative law has been gradually easing the stringent rules that govern foreign invested entities.
"Last October there was a major revision of the statutes concerning wholly foreign-owned entities, equity joint ventures and contractual joint ventures, which no longer require the approval of China's Ministry of Commerce, but just a plain registration.
"But the devil's in the details, as the Commerce Ministry maintains a catalogue for the Guidance of Foreign Investment Industries with a schedule of encouraged industries. In essence, this is a negative list of sectors and firms denied to foreign investment and ownership.
"In business-law terms," said Dr Di Lieto, "the ministerial catalogue restricts foreign firms to those corporate structures and market access requirements that enable the legal transfer of technological know-how to their Chinese partners.
"Add to this, China's newly introduced Cybersecurity Law, which imposes security assessments on data transfer overseas in ways that may force IPR disclosures to local firms. Furthermore, effective from June 2017, the Cybersecurity Law restricts enterprises identified as "critical information infrastructure operators" to storing data domestically.
"All these issues paint a picture in which the USTR is yet another step closer to taking legal action against China's technology-transfer tactics. The defensive instrument of choice is crucial to define how the looming Sino-American trade war is going to affect the future of economic globalisation," he said.
Instead of "301" solution, the USTR can either go multilateral by bringing the claim before the WTO Dispute Settlement Unit, or it can go solo by imposing unilateral restrictions on Chinese goods, services and investment based on the Section 301 investigation.
"The multilateral option seems less likely, considering President Trump's change of tack in trade and industrial policy. On the other hand, the unilateral option would certainly be quicker to implement and more to the taste of trade hardliners in Trump's administration. However, it would certainly spark Chinese commercial retaliations and thus lead to unprecedented geopolitical troubles across the Asia-Pacific region," he said.
Dr Di Lieto also noted that the European Union is promoting to its major trade partners a multilateral investment court modeled on the WTO dispute-settlement mechanisms. But while the scheme shows promise, it will take years if not decades to set itself up.
What's more President Trump is looking for legal sparks to wage a full-blown trade war with China as a sure way to leave a long-lasting legacy from his America First foreign policy agenda, said Dr Di Lieto.
Agreeing, Mr Iskyan said: "I think this investigation is likely just the start of a US-China trade war. It's widely assumed the investigation will find China at fault in several areas. It's also likely that China will not make major concessions to the US. Some of the targets of the 301 investigation include Chinese President Xi Jinping's key initiatives to modernise China's economy.
"When China and the US fail to reach an agreement, Trump will likely launch major tariffs against Chinese imports next year. And you can bet China's government will fight back. China knows how to exploit the advantages it has over its adversaries.
"Meanwhile, don't forget that getting into a trade tussle with China is a campaign promise that's relatively easy for President Trump to keep," said Mr Iskyan.
With the US shifting away from globalisation - via the trade war with China, the wall with Mexico and making it more difficult for Muslims to enter the US, to name a few - the door is open for China to take up the mantle of globalisation.
One of the most important benefits of globalisation is free trade. And China has made it clear that it will be happy to replace the US in any potential trade deals - most notably in the wake of the dissolution of the Trans-Pacific Partnership (TPP) at the hands of the United States. |
