[rocketflumes]

I understand that the scope and scale of the technology transfer agreements may be unreasonable, but surely these foreign companies aren't "forced" to oblige? I'm not sure if it's on China that many companies find it more profitable to have access to the Chinese market than to hold on to their IPs.

[HillaryBriss]

When China was admitted to the WTO, manufacturers in China gained access to other WTO member markets on better terms than they had before.

And, in theory, in exchange for that access, outside companies gained new access to the Chinese market - to investing in factories there and selling products and services there. That was supposed to be part of the WTO deal.

But, the requirement in China that state owned companies had to be partners, that IP had to be transferred to these state partners as an additional condition of doing business -- that's what is unusual, that's where the word "forced" enters the conversation.

Someone correct me if I'm wrong, but I don't think WTO rules reallly allow for that sort of required government involvement.

[fspeech]

No WTO is about trade and it is fairly silent on investment. See https://www.wto.org/english/tratop_e/invest_e/invest_info_e.... "As an agreement that is based on existing GATT disciplines on trade in goods, the Agreement is not concerned with the regulation of foreign investment. The disciplines of the TRIMs Agreement focus on investment measures that infringe GATT Articles III and XI, in other words, that discriminate between imported and exported products and/or create import or export restrictions."

[HillaryBriss]

Thanks.

I think a recent EU complaint to the WTO about IP transfer rules in China does a better job of explaining the issue than I have. Bloomberg wrote about it in June:

In its complaint, the EU is targeting rules in China on the import and export of technologies and on Chinese-foreign equity joint ventures. Certain provisions “discriminate against non-Chinese companies and treat them worse than domestic ones,” violating WTO requirements that foreign businesses be put on an equal footing and that IP such as patents be protected ...

From

https://www.bloomberg.com/news/articles/2018-06-01/europe-ta...

or

https://www.bloombergquint.com/global-economics/2018/06/01/e...

[fspeech]

EU's complaints depend on the TRIPS agreement https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.... , which appears to be silent on investment as well. If EU obtains a favorable ruling it would likely require China to treat patents owned by foreign entities equally as those owned by the Chinese. However it is unlikely to say how China should regulate foreign investments. Indeed under WTO countries have no obligations to allow foreign investments at all. Plus TRIPS contains this as well: "More precisely, Article 7 (“Objectives”) states that the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations." https://www.wto.org/english/tratop_e/trips_e/techtransfer_e....

[HillaryBriss]

Ok. So, it's about equal IP protection and not investment. Thank you for the clarification.

Based on what you're saying, it sounds like the EU and other countries could impose a wide range of conditions or restrictions onto Chinese investments or purchases without running afoul of WTO rules. Interesting stuff.

Looks like I stand both corrected and downvoted. Gotta luv HN!

[fspeech]

The theory has always been that countries would compete with each other for FDI, but the reality is a little more complicated. When Amazon put the location of its new headquarter out for bid many cities are willing to throw any concession at Amazon. However that does not mean cities like SF or NYC would do the same. Not every location has the same attractiveness for business. Similarly not all countries are the same in their attractiveness to business. You can't expect countries to not take advantage of the differentials and offer identical terms unless doing so is in their own interests.

On the other hand, as a thought experiment, what would have happened if China had been more open or fair to foreign investments? Then even more businesses would have invested in China and thus subject themselves to the influence of the Chinese government. For an example (not to imply any moral equivalence) see the tremendous power the US government wields over transactions conducted entirely between foreign entities.