Forced Technology Transfer Research Articles

Critical analysis of the new Chinese foreign investment law in the prism of China-EU CAI and China-US bit negotiations

The Chinese foreign direct investment legal system prior to 2019 evolved constantly, although it failed to satisfactorily address the main issues for foreign direct investments. The new Chinese Foreign Investment Law of 2019 and its Implementing Rule made a landmark improvement to the legal system. This new reform went hand in hand with the China-EU Comprehensive Agreement on Investment (CAI) and China-US BIT and their negotiations. It played a preparative role for the progress made in these two influential investment agreements. It offered unprecedent solutions in areas such as the pre-establishment national treatment, prohibition of forced technology transfer and the enhanced foreign investment protection. Nonetheless, further reforms on SOEs are still needed. The ratification of the China-EU CAI and the reanimation of the China-US BIT, albeit unlikely to happen anytime soon, would still provide long-desired clarity to the dispute resolution mechanism, national security review system and forced technology transfer issue.

The Biden Administration’s Trade Policy: Promise and Reality

AbstractThis Article critically analyzes seven elements of the Biden administration trade policy: (1) buy American; (2) tariffs; (3) World Trade Organization; (4) free trade agreements; (5) China; (6) technology; and (7) Russia. Although President Biden has made a clean break from Trump policies in many areas, this is not the case when it comes to international trade. Regretfully, Biden has chosen to keep in place most of the failed trade policies of his predecessor—the Trump tariffs and the China trade war. It is not too late to shift ground, to negotiate mutual abolition of the Trump tariffs, to open free trade negotiations with the EU and UK, to join the Comprehensive and Progressive Trans-Pacific Partnership, to adopt a multilateral strategy with allies to check Chinese trade excesses, and to reengage with the World Trade Organization. Topping the list of needed reforms of the multilateral trading system are: (1) subsidies; (2) state-owned enterprises; and (3) forced technology transfer. These are best addressed through a WTO plurilateral agreement and/or preferential trade agreements. The Biden administration should prioritize these urgent reforms. Rather than promoting “free” trade and multilateral trade reforms, the Biden administration continues its predecessor’s nationalistic policies so that trade serves domestic political ends. Such state intervention in trade policy consists of the strategic use of tariffs, subsidies, “buy American” rules, and regional trade arrangements without regard to the rules of the multilateral trading system. These new policies represent a decisive retreat from globalization and openness to trade.The Congress, directed by the Biden administration, has adopted a far-reaching industrial policy in the form of four laws that subsidize key sectors of the U.S. economy: American Rescue Plan Act ($40 billion); Infrastructure and Jobs Act ($1.2 trillion); Inflation Reduction Act ($369 billion); and Chips Act ($252.7 billion). This subsidization coupled with “buy American” protectionism constitute a departure from the free trade ideal that has characterized U.S. policy since the end of World War II.

Does quid pro quo benefit state-owned enterprise's innovation in China?

Quid pro quo policies, mainly in foreign partial acquisitions of state-owned enterprises (SOEs) in China, have been controversial due to the corresponding forced technology transfer for market access. Whether and how quid pro quo affects SOE innovation has received limited attention. This study develops a model to analyze how government intervention in SOEs’ social responsibility and the cost advantage of multinational enterprises (MNEs) affect SOE innovation during partial acquisitions. The model shows that increases in SOEs’ social responsibility in industries strongly characterized by public goods and significant technical disparities compared with MNEs and reductions in SOEs’ social responsibility in industries with intense competition decrease SOEs’ relative control. Due to MNEs’ cost advantage, they can often gradually gain control of joint ventures, which weakens SOEs’ innovation resources and independence. The results imply that even if quid pro quo brings technology to SOEs, it is not conducive to SOE innovation; therefore, the government should liberalize quid pro quo.

Why the United States Was Wrong in the Forced Technology Transfer Debate with China

Why the United States Was Wrong in the Forced Technology Transfer Debate with China

The Political Economy of Technology Transfer Rules of the US-China Phase One Trade Agreement: Competition of Global Technology Leadership

Over the past four decades, Intellectual Property (IP) has been one of the main controversies of US-China trade relations. But the current US-China trade war contains a new focus – technology transfer. This article adopts a socio-legal and economic approach to examine the current technology and trade tensions between these two countries and why China became an Information Technology (IT) powerhouse. It first provides an overview of IP and technology transfer rules under the Phase One US-China Economic and Trade Agreement (POA). It then explores different forms of forced technology transfer activities and the in-depth reasons for the US to shift its main IP concerns from IP enforcement to technology transfer. It explains why the US and China trade war is inevitable, why the current US-China IP-trade war is significantly different from previous ones, and the economic and political reasons behind the global technology leadership competition by the two countries. Finally, the author concludes that the POA and its technology transfer rules are not the ends of the game but just the start of the global technology leadership competition between the US and China.

External technological sources, subsidies and firm productivity in China

ABSTRACT Productivity is a key factor that differentiates firm competitiveness. To promote productivity, the internal source, research and development expenditure, is undoubtedly a primary driver, while various external sources are also critical. This study examines the determinants of productivity in Chinese firms, focusing on external technological sources, especially policy-induced factors, including tariff-free imported intermediates, forced technology transfer through international joint ventures (IJVs) and production subsidies. Based on firm–customs matched data for 2001–2007, we find that the technologies embodied in imported intermediates and IJVs in technology-intensive sectors positively influence productivity. Production subsidies also have a significant and positive relationship with productivity. Overall, the above findings suggest the effectiveness of policy instruments. Further heterogeneous analyses highlight the differences in productivity effects by isolating the above factors individually in various dimensions.

Secrecy by Default: How Regional Trade Agreements Reshape Protection of Source Code

ABSTRACT A growing number of regional trade agreements include articles prohibiting access to or the transfer of source code as a condition of the import, distribution, sale, or use of software. We challenge this new approach to protecting source code in international economic law. Using Katharina Pistor’s theory of the ‘code of capital’, we find that this approach protects source code as capital at the expense of the regulatory power of states. The new approach differs from existing ways of protecting source code as well as from the protection based on copyrights, patents, trade secrecy, and provisions on forced technology transfer. We show that it establishes the secrecy of source code by default and leaves only a small window for states to require access to source code.

Forced technology transfer performance requirement in international investment agreements—a Chinese perspective

Gaining access to foreign technology is a primary determinant of economic development for developing countries, and it also plays a vital role in addressing a variety of public needs.1 For such reasons, encouraging and managing international technology transfer has become a significant governance issue.2 It has been recognized that, in addition to the World Trade Organization (WTO) legal mechanism, the national foreign investment mechanism and international investment agreements (IIAs) also regulate technology transfer through the ‘establishment rules’ and performance requirement prohibitions (PRPs).3 However, these competing and overlapping systems raise concerns about policy coherence between IIAs and parties’ policy options to manage their technology transfer obligations.4 In recent years, countries such as the USA and the European Union (EU) have repeatedly accused China of forcing technology transfer.5 For example, the USA launched a ‘301’ investigation against China and sued China in the WTO forum.6 The 301 Report issued by the USA alleged that China had imposed FTT by imposing ownership and administrative restrictions on American enterprises.7 In response to these accusations, China began a new round of reforms to improve the foreign investment regime governing technology transfer and signed some high-level investment agreements.8 However, these efforts have not been entirely successful in alleviating the misunderstandings of foreign investors over China’s technology transfer policies. These disputes are primarily attributed to the unclear boundaries for mandatory technology transfer in international investment.

Technology Transfer at the WTO: Old Promises and New Hopes of the Developing World

While the subject of forced technology transfer has elicited sharp focus in recent years, similar attention has not been directed to the issue of voluntary technology transfer under the aegis of the WTO. Technology transfer was seen as a tool to enable development by both developing countries and least developed countries (LDCs). Article 66.2 of the TRIPS Agreement entrenched technology transfer to LDCs as a hard obligation for developed countries, but its imperfect implementation has caused concerns to LDCs. Developing countries, such as India, are not beneficiaries under Article 66.2, but they have pushed for a closer link between technology transfer and development issues through a variety of ways at the WTO. Due to COVID-19, the issue of technology transfer concerning health in the LDCs becomes more important. Against this background, this article analyses the experience of LDCs with the implementation of Article 66.2 and India’s experience in its push for further entrenchment of technology transfer obligations. This article specifically assess technology transfer by the US and the EU in light of COVID-19 vis-à-vis Article 66.2. The paper pays particular attention to the various roadblocks in the implementation of Article 66.2 and the solutions as proposed by LDCs themselves. development, technology, technology transfer, TRIPS Agreement, sustainable development, health technology, developed country, Least Developed Country, developing country, Intellectual Property Rights, know-how, Article 66.2

Does technology transfer from the US to China harm American firms, workers, and consumers? A historical and analytic investigation

Decades of spectacular economic growth have made China into an important geopolitical player. As Chinese companies improve their capabilities across several areas of advanced technology, including artificial intelligence, some US policymakers and pundits lament the country’s ‘unfair trade practices’ and serial ‘theft of American intellectual property’, particularly through so-called forced technology transfer. China hawks claim these practices hurt US companies, workers, and consumers. Do Chinese technology practices harm economic efficiency? What are their distributional consequences? To address these questions, we explore the different modalities of international technology transfer and flesh out their economic consequences. We also investigate the recent history of technology transfer, providing examples from the industrialisation experiences of European countries and the Asian Tigers. We surmise that current Chinese processes are neither novel nor alarming from the standpoint of either economic efficiency or distribution: US firms are collecting record royalty payments for their intellectual property from China and generating gangbuster profits due to their access to Chinese labour, suppliers, and the country’s growing consumer market. American consumers benefit from US–China economic interdependence and so do some workers. The consequences for the US economy as a whole are positive. While we are agnostic about whether these practices threaten America’s national security, we offer ideas for how to prevent China from acquiring its most sensitive military technology.

RETRACTED: Government regulation of the Internet as instrument of digital protectionism in case of developing countries

The research is devoted to the study of digital protectionism technologies, in particular, Internet censorship as a non-tariff barrier to digital trade and the determination of the strategic motives of states to use them. The reports ‘Freedom on the Net’ and ‘The network readiness index 2020’ acted as a basic data source for the study of modern instruments of government regulation of interactions in the digital environment. Internet censorship technologies have been considered in six countries with varying levels of Internet freedom: Russia, Belarus, Kazakhstan, Georgia, Armenia and Estonia. The key instruments of digital protectionism as a non-tariff barrier of the digital economy have been identified, such as: localisation requirements; restrictions on cross-border data flow; system of national protection of intellectual property rights; discriminatory, unique standards or burdensome testing; filtering or blocking; restrictions on electronic payment systems or the use of encryption; cybersecurity threats and forced technology transfer. Internet censorship technologies have been demonstrated and their influence on the strategic development of trade relations between economies in cyberspace has been determined. The scientific value of the article lies in substantiating the understanding of Internet censorship as a natural tool for regulating the development of a digital society and international trade relations. Each state at one time goes through a technological stage of development, which leads to the emergence of different levels of digital isolation and integration; and Internet censorship is a natural element in the system of building a national platform economy and consolidating the country’s internal technological and innovative advantages in digital realities.

The Law and Economics of “Forced” Technology Transfer and Its Implications for Trade and Investment Policy (and the U.S.–China Trade War)

Abstract “Forced technology transfer” is a central issue in the ongoing U.S.–China trade row. The phrase encompasses a number of different practices, but the most significant according to various commentators involve measures that require foreign investors in China to partner with domestic entities as a condition of making an investment, either by forming a joint venture or affording Chinese investors a controlling equity stake. These “corporate structure requirements” empower prospective Chinese partners to bargain for technology transfer as a condition of forming a new venture or otherwise enable them to learn the details of foreign technology through participation in the business enterprise. Foreign investors are free to reject such requirements and forego the associated investment opportunities, and in this sense any technology transfer pursuant to China’s requirements is “consensual.” For ease of reference, this essay refers to these corporate structure requirements as CSR. The analysis to follow examines the economics of CSR from both the national and global welfare perspectives. It indicates how CSR may undercut the national welfare of the USA even if it is profitable for U.S. investors. The global welfare implications of CSR, however, are much less clear, which offers an explanation for the absence of any constraints on CSR in typical trade agreements. A clear role for restrictions on CSR does emerge, however, in investment agreements that seek to eliminate investment protectionism by requiring “pre-establishment national treatment” for foreign investors. This analysis has immediate policy implications for the ongoing trade dispute with China.

U.S.-China Trade Relations in the Biden Era: Trade War, Industrial Policy, and Rule-Based International Order

Presidential candidate Joe Biden's team declared President Trump's trade war with China a failure when Democratic nominee Senator Kamala Harris told Vice President Mike Pence at the U.S. vice presidential debate that “You lost that trade war.” Half a year has passed since Biden took over the White House, the U.S.-China trade war is still going on, though in a much less pompous manner than what President Donald Trump once liked it to be. President Biden refused to make significant change to Trump's tough stance on U.S.-China trade relations on the ground of the accusations of China's “stealing” intellectual property (IP), state subsidies to enterprises, forced technology transfer from foreign companies, among others. On the other hand, China has not backed off from the trade war, though it arguably made many concessions in the so-called “Phase 1 trade deal” signed by the United States and China on January 15, 2020, in which China pledged to buy US$ 200 billion more of American goods and services in 2020 and 2021, in addition to the commitments to strengthen protection and remove forced technology transfer. Evidence suggested that China was still far behind prorated targets of a full year when Biden assumed presidency in January 2021. More significantly, Chinese President Xi Jinping has been taking the opportunities offered by the trade war to remake the Chinese economy toward state capitalism. Additionally, as the trade war was happening, the Trump administration intensified its assault on the multilateral trading system under the World Trade Organization (WTO) and effectively paralyzed the Appellate Body, a crucial part of the WTO's Dispute Settlement System.

China’s Pursuit of Industrial Policy Objectives: Does the WTO (Really) Have an Answer?

In the year 2016, according to estimates by the Chinese Bureau of Statistics, joint ventures (JV) with foreign partners contributed over 25% of foreign investment inflows in China. To the extent these JV help emerging economies such as China become more competitive and innovative is a positive consequence that is widely welcomed by the international community. However, the alleged forced technology transfer in these ventures is the Achilles heel that has evoked various retaliatory responses from governments worldwide. The United States recently studied the issue in its section 301 investigation and subsequently implemented various measures, including tariffs worth over USD 250 billion, which led to the onset of the so-called US-China trade war. The European Union (EU), on the other hand, called for the regulation of forced technology transfer and resorted to a more restrained manner by officially filing a complaint before the World Trade Organization (WTO). The EU’s complaint confirms the onerous set of conditions – such as forced technology transfer for approval of investments in strategic areas such as electric cars and the biotech sector – that stand in clear contrast to the China’s commitments when it first joined the WTO. For the companies, particularly those in the high tech sector, intellectual property is a key source of competitive advantage. Knowingly sharing this source of advantage means that rational firms that seek profit maximization derive some unrivalled gains through these collaborations. Against this mixed backdrop, using inter-disciplinary insights from law and business strategy, this article, a part of series of articles on the subject, critically assesses the contemporary debate and different approaches to China’s practice of ‘discriminatory licensing’ and ‘forced technology transfer’. Technology Transfer, Discriminatory licensing, Joint Ventures, section 301 US Trade Act, European Union, Market Economy Status, State Owned Enterprises, WTO

Making the WTO (Not So) Great Again: The Case Against Responding to the Trump Trade Agenda Through Reform of WTO Rules on Subsidies and State Enterprises

A range of WTO scholars, policy experts, and governmental officials have bought into the notion that the Trump Administration’s unilateralism and its assault on China’s trade policies and practices could and should be channeled instead into WTO reform efforts. While dealing with China through unilateral tariff hikes and more recently a bilateral phase I agreement, the notion of addressing some concerns through WTO reform has not fallen entirely on a deaf ear in the Administration. Thus, Japan and the EU have been able to engage the Administration in an initiative to revise and add new WTO rules in the areas of subsidies, state enterprises, and forced technology transfer. This article offers a critical assessment of this initiative, arguing that by and large the proposed changes will add incoherence to existing WTO rules and make it more difficult for WTO Members to engage in economic and industrial policies that are needed, for example, to the address the economic consequences of the COVID-19 pandemic.

Why Ricardo’s Theory of Comparative Advantage Regarding Foreign Trade Doesn’t Work in Today’s Global Economy

This article first analyzes Ricardo’s theorem, not just his argument in favor of comparative advantage, but also the conditions that are necessary for the theory to work, namely, that capital is loyal to the country of origin and that currencies will adjust to level out imbalances in trade. It then traces the flow of foreign direct investment into China and the basis for that flow – cheap labor. It then analyzes China’s manipulation of the yuan and the changes in the relative valuation of currencies. The next section of the article addresses China’s entry into the World Trade Organization and its failure to live up to its agreement to move to a market-based economy. China’s reliance on state owned enterprises, its subsidization of export and high-tech industries, and its direct and indirect coercion of technological transfer and know-how from the U. S. and other countries – all stand in opposition to the principles to which other countries have agreed in connection with their participation in the World Trade Organization. A critical factor that is not been understood in connection with global trade is that the transfer of dual-use technology to China also carries with it national security implications. The next sections look at forced technology transfer and China’s military goals, including its policy to be both industrially and militarily self-sufficient, something United States needs to be likewise. This leads to a discussion of industrial policy. China has clearly articulated its industrial policy and the steps that it will take to implement it. The United States cannot afford, either from the standpoint of providing good paying jobs for its citizens, or from the standpoint of being a leader in research and development, or from the standpoint of national security, to be dependent upon products originating from, or supply chains running through, other countries – particularly when such countries are hostile to the United States. The conclusion asserts that Sen. Rubio’s “Made in China 2025 and the Future of American Industry” may be the opening of a critically necessary dialogue on the need for, and nature of, an industrial policy for the United States. Just relying upon the mantra that free trade benefits all, and supporting such mantra on the basis that it is “proved” by Ricardo’s theorem of comparative advantage, is to put our head in the sand and ignore the evidence set forth in this article.

The Law and Economics of 'Forced' Technology Transfer (FTT) and Its Implications for Trade and Investment Policy (and the U.S.-China Trade War)

“Forced technology transfer” is a central issue in the ongoing U.S.–China trade row. The phrase encompasses a number of different practices, but the most significant according to various commentators involve measures that require foreign investors in China to partner with domestic entities as a condition of making an investment, either by forming a joint venture or affording Chinese investors a controlling equity stake. These “corporate structure requirements” empower prospective Chinese partners to bargain for technology transfer as a condition of forming a new venture or otherwise enable them to learn the details of foreign technology through participation in the business enterprise. Foreign investors are free to reject such requirements and forego the associated investment opportunities, and in this sense any technology transfer pursuant to China’s requirements is “consensual.” For ease of reference, this essay refers to these corporate structure requirements as CSR. The analysis to follow examines the economics of CSR from both the national and global welfare perspectives. It indicates how CSR may undercut the national welfare of the USA even if it is profitable for U.S. investors. The global welfare implications of CSR, however, are much less clear, which offers an explanation for the absence of any constraints on CSR in typical trade agreements. A clear role for restrictions on CSR does emerge, however, in investment agreements that seek to eliminate investment protectionism by requiring “pre-establishment national treatment” for foreign investors. This analysis has immediate policy implications for the ongoing trade dispute with China.

Under the Radar: Reflections on ‘Forced’ Technology Transfer and the Erosion of Developmental Sovereignty

Ongoing trade tensions between China and the United States have focused on alleged Chinese misappropriation of US-owned intellectual property (IP) and ‘forced technology transfer’ from US direct investors in the Chinese market. US government rhetoric regarding technology transfer portrays alleged Chinese demands on prospective investors to provide technology to local Chinese enterprises as some form of ‘wrongful act’.1 Recognizing limitations of the international legal regime that might characterize China’s rules and practices as ‘unlawful’, the United States labels China’s regime as ‘unreasonable’.2 This commentary is directed toward addressing concession by developing country foreign direct investment (FDI) hosts of a potentially important tool for accelerating technological development – a tool that may become more important as the prospects for developmental assistance are otherwise diminishing. Governments at all levels of development have a substantial interest in promoting inward technology transfer in a way that benefits locally-based enterprises. Governments, through legislation and/or regulatory measures, can improve the terms of trade for local businesses by setting ground rules that improve the capacity, i.e. bargaining power, of local enterprises in negotiating the terms of FDI.3

Change of Regulatory Scheme: China’s New Foreign Investment Law and Reshaped Legal Landscape

Author(s): Zhang, Mo | Abstract: Protection of foreign investment has long been an issue facing China. The newly adopted Foreign Investment Law (FIL) and Implementation Regulations not only unify the foreign investment regulations but also reformulate the regulatory regime that governs foreign investment in the country. In response to the mounting criticism of the practices in China that damage the interests of foreign investors, including, among others, forced technology transfer and commercial theft, the FIL is purposed to build a better environment so that foreign investment will be more effectively protected.The FIL changes the main themes of China’s regulation of foreign investment and puts new market access rules and measures in place on the foreign investment horizon. The FIL Implementation Regulations intend to fill the gaps left in the FIL. Still, many questions remain unanswered. Both the broadness and vagueness of the FIL require further clarification and specific measures in different aspects. The Supreme People’s Court is expected to issue judicial interpretations on various practical matters.The FIL is charged with the mission to even the playing field by providing fair treatment to foreign investors in the country, but the challenges encountering foreign businesses seeking establishment in China remain. The clear rules of implementation aside, an effective enforcement mechanism is essential to the achievement of the intended goals of the FIL.

Forced Technology Transfer and the US–China Trade War: Implications for International Economic Law

Abstract Forced technology transfer has emerged from the US–China trade war as a new issue of systemic importance. The USA, the European Union, and Japan have jointly condemned forced technology transfer as a practice undermining the proper function of international trade and called for new WTO rules to discipline the practice. This article examines the issue in the broad context of international economic law. It seeks to address the following questions: What does ‘forced technology transfer’ mean? Where did this practice come from? Why is there insufficient international regulation on the issue? What exactly are the problems inherent in such practice? And what can be done to improve the relevant international regulation?