China’s compromise

The ‘Made in China 2025’ industrial policy aims to transform China from a low-wage copycat manufacturing economy to a high-value generator. But Beijing’s aspiration for global dominance in sectors including aerospace and aviation, robotics and artificial intelligence, 5G communications and self-driven cars has been dubbed a threat to the world order.

There have been concerns for a while now that Chinese joint ventures, in violation of World Trade Organisation rules, coerce investors to share proprietary intellectual property (IP) in return for access to lucrative domestic markets. For instance, a 2017 law required foreign automobile manufacturers to disclose sensitive technology regarding new energy vehicles, causing an uproar among investors. Authorities quickly backed down from such preconditions.

U.S. Trade Representative Robert Lighthizer’s 2017 probe targeted precisely those sectors of Beijing’s 2025 policy that it believed would impact national security. The investigation was triggered under the infamous Section 301 of the 1974 Trade Act, which authorises unilateral retaliation against the unfair trade practices of other nations. As a consequence, the total amount of tariffs, effective and proposed, against China stood at $517 billion in 2018. These are in addition to the punitive levies slapped in early 2018 against global steel and aluminium imports. In coordinated actions, the U.S. Justice and Commerce Departments have pursued Chinese state-owned firms and intelligence agents for economic espionage in the aerospace, aircraft engine and semiconductor technology arenas. Fujian Jinhua is at the centre of criminal litigation for alleged theft of trade secrets worth billions of dollars from U.S. firms. The company is the high-tech parallel to the Chinese telecom giant Huawei, which Washington and its allies have barred from bidding for 5G network contracts, seeing it as a national security threat.

The row over the loss of new energy vehicles technology by automobile firms, in return for access to the Chinese markets, is one of many areas where the EU and the U.S. found common cause. Along with Japan, they came together that year to counter the structural factors they believe fuel Beijing’s forced IP transfers and other market distortions. But such joint efforts are unlikely to fructify, as the U.S. prefers unilateralism in pursuit of its ‘America First’ agenda. The flip side of disregarding multilateral rules is resorting to arbitrary action to serve political ends. The Section 301 tariffs, for example, are said to have been applied to ancillary industries in the supply chain. Similarly, import exemptions on Chinese goods have been allowed where Beijing is the sole supplier and denied if there are other exporters.

The U.S. and China will have to find greater common ground for the smooth flow of two-way trade. China’s new Bill promising to end forced technology transfers will hopefully be a step in this direction.

The writer is a Deputy Editor at The Hindu in Chennai

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Printable version | May 4, 2021 6:55:32 AM |

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