China's theft of intellectual property

Cases of European firms forced to transfer technology in China are increasing 

By Michael Martina


BEIJING -- Cases of European firms forced to transfer technology in China are increasing despite Beijing saying the problem does not exist, a European business lobby said, adding that its outlook on the country’s regulatory environment is “bleak”.
China’s trading partners have long complained that their companies are compelled to hand over prized technology in exchange for access to the world’s second-largest economy.
Demands by the United States that China address the problem are central to the two countries’ ongoing trade war, which has seen both sides pile tariffs on billions of dollars of each other’s goods.
The European Union Chamber of Commerce in China said on Monday that results from its annual survey showed 20% of members reported being compelled to transfer technology for market access, up from 10% two years ago.
Nearly a quarter of those who reported such transfers said the practice was currently ongoing, while another 39% said the transfers had occurred less than two years ago.
“Unfortunately, our members have reported that compelled technology transfers not only persist, but that they happen at double the rate of two years ago,” European Chamber Vice President Charlotte Roule said at a news briefing on the survey.
“It might be due to a number of reasons... Either way, it is unacceptable that this practice continues in a market as mature and innovative as China,” Roule said.
In certain “cutting edge” industries the incidence of reported transfers was higher, such as 30% in chemicals and petroleum, 28% in medical devices, and 27% in pharmaceuticals, she added.
China’s top Communist Party newspaper, the People’s Daily, said on Saturday that Washington’s complaints on the issue were “fabricated from thin air”.
Companies have long feared retribution for speaking up about abuses by government administrators or state-backed local partners, particularly without true recourse in China’s Communist Party-controlled courts.
Amid the escalating U.S.-China trade war, Beijing has put pressure on the EU to stand with it against U.S. President Donald Trump’s trade policies, though the world’s largest trade bloc has largely rebuffed those efforts.
The EU has also become increasingly frustrated by what it sees as the slow pace of economic opening in China, even after years of granting China almost unfettered access to EU markets for trade and investment. 

However, European officials say publicly that they do not support the use of tariffs as a solution.
Trump earlier this month raised tariffs on $200 billion in Chinese imports to 25 percent from 10 percent, and has said the duties are causing companies to move production out of China to Vietnam and other countries in Asia.
The majority of European firms in the chamber’s survey said that their business strategies were not changed by the trade war, though it was completed by 585 respondents in January and February, well before the United States’ latest tariff increase.
At the time, 6% of respondents said they were moving or had moved production out of China as a result of the tariffs, and 4% said they were considering or had already decreased investment in China. Forty-nine percent of the respondents affected by U.S. tariffs said their companies had covered the cost themselves and kept prices the same.
The chamber added that members had a “bleak outlook” on China’s regulatory environment, with 72% of members saying they expected obstacles to increase or stay the same in the coming five years, even as the Chinese government has vowed continued reform and opening.

Chinese promises never delivered

China Reneged on Trade Commitments
By Ana Swanson and Keith Bradsher

President Trump is facing pressure to show that the pain of his trade war will be worth it for the companies, farmers and consumers caught in the middle.

WASHINGTON — President Trump’s top economic advisers on Monday accused China of reneging on previous commitments to resolve a monthslong trade war and said Mr. Trump was prepared to prolong the standoff to force more significant concessions from Beijing.
Mr. Trump, angry that China is retreating from its commitments just as the sides appeared to be nearing a deal and confident the American economy can handle a continuation of the trade war, will increase tariffs on $200 billion worth of Chinese goods on Friday morning, his top advisers said.
“We’re moving backwards instead of forwards, and in the president’s view that’s not acceptable,” his top trade adviser, Robert Lighthizer, told reporters on Monday.

“Over the last week or so, we have seen an erosion in commitments by China.”
Mr. Trump’s last-minute escalation highlights his administration’s difficult political position as it tries to fend off criticism that he has not been sufficiently tough on China. 

The president is facing pressure to show that the pain of his trade war will be worth it for the companies, farmers and consumers caught in the middle. 

Mr. Trump’s decision to upend an agreement that many expected to be finalized this week in Washington appears to be a political calculation that staying tough on China will be a better proposition in the 2020 campaign.
Fueling that decision is the president’s growing confidence that his trade policies are bolstering the American economy, without any downside. 

Mr. Trump and his advisers have seized on strong first-quarter economic growth as vindication that their tough approach to trade is accelerating the economy, and putting the United States in a stronger position than China to withstand any blowback from higher tariffs. 

Gross domestic product surged past forecasts in the first quarter, rising 3.2 percent on an annual basis in part because of a sharp slowdown in imports.
Steven Mnuchin, the Treasury secretary, attributed the strong growth to Mr. Trump’s economic policies, including on trade.
“There’s no question that some of the trade policies helped in the G.D.P. number,” Mr. Mnuchin said.

American investors seemed to back Mr. Trump’s position on Monday, as markets opened lower but then largely shrugged off Mr. Trump’s threat to raise tariffs on $200 billion worth of goods to 25 percent on Friday and eventually tax an additional $325 billion worth of Chinese products.
A final trade agreement could still be reached. 

Mr. Lighthizer and Mnuchin said on Monday that the Chinese delegation had not canceled travel plans to come to Washington on Thursday and Friday for negotiations.
“We’re not breaking up talks at this point,” Mr. Lighthizer said.
Mnuchin said the United States would reconsider imposing higher tariffs on China if the negotiations got “back on track.” 

He added that negotiators had been optimistic in the past about the prospects for a deal and had been planning for a summit meeting between Mr. Trump and Xi Jinping to finalize the deal.
But Mnuchin said it became “particularly clear over the weekend” that the Chinese had moved negotiations “substantially backwards.”
China, which depends on the United States economy for trade, said on Monday that it still planned to send a delegation to the United States this week for talks, though a spokesman for the Chinese Foreign Ministry declined to specify whether it would include Vice Premier Liu He, who has led the talks for the Chinese.
The threat of additional tariffs poses a major problem for Xi, who had been counting on a trade deal to keep China’s growth engine humming.
China’s economic growth began to slow last year as Beijing tried to tame the country’s overreliance on lending. 

President Trump’s initial tariffs last year hurt Chinese manufacturers and consumer confidence, worsening the slowdown. 

China’s economic slowdown limited Xi’s options to retaliate against American tariffs and put pressure on him to reach a deal.
In recent months, thanks in part to new lending, China’s slowdown appeared to stabilize. 

The prospect of a trade deal also increased consumer and investor confidence and led many economists to project that China’s growth would improve.
New tariffs could derail that progress.
“If tariffs are hiked this Friday and new tariffs come soon after that, the biggest negative impact will likely occur in the next few months,” Tao Wang, an economist specializing in China at UBS, said in a research note.
She estimated that a full-blown trade war with the United States could cut China’s economic growth rate by 1.6 to 2 percentage points over the next 12 months. 

That would be a considerable cut: Last year, China’s economy grew 6.6 percent, according to official figures, and the government has set an official target of 6 to 6.5 percent this year.
On Monday, Mr. Trump repeated his insistence that China rebalance its economic relationship with the United States and end its role as a net exporter of goods.


Donald J. Trump
✔@realDonaldTrump
The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!

The decision to up the ante came after Mr. Trump’s trade advisers made a short trip to Beijing last week. 

Mr. Lighthizer returned from that visit dismayed by China’s refusal to mention commitments it had made to update various Chinese laws in the final text of the trade agreement, people familiar with the situation said. 

Even Mnuchin, who has been more optimistic about the prospects of a deal, was dismayed that the Chinese were not doing more to reach an agreement.
Instead, Chinese negotiators had insisted that any concessions would need to be achieved through regulatory and administrative actions, not changes to Chinese law passed through its legislature. 

The provisions included the forced transfer of technology from American companies to Chinese firms.
Chinese negotiators have also continued to insist that Mr. Trump lift the tariffs he has placed on $250 billion worth of goods more quickly than the administration wants. 

With the two sides still disagreeing over issues including how China subsidizes its companies, its restrictions on data transfers, its approvals of genetically modified seeds and rules for foreign cloud computing companies, the president concluded late last week that China’s offers were not good enough.
On Sunday, Mr. Trump’s tariff threats drew praise from both sides of the political aisle.
“Hang tough on China, President @realDonaldTrump,” Senator Chuck Schumer of New York, the Democratic leader, said on Twitter.
“Excellent decision by @realDonaldTrump!” Laura Ingraham, a Fox News host, tweeted, which the president retweeted onto his feed. 

“No other president has had the guts to take on the China challenge.”
Mr. Lighthizer said on Monday that the United States was targeting some “very pernicious actions” by the Chinese, and that reversing them would have an enormous benefit for the American economy and the world. 

He also pushed back against reports that the evolving agreement would do little to address China’s subsidization of key industries.
Analysts have questioned whether volatility in the stock markets could change the president’s mind. Mr. Trump’s tariff threats caused markets in Asia to plummet Monday morning, but in the United States, the S&P 500 index closed down 0.45 percent, while the Dow Industrial was down just 0.25 percent.
It was unclear whether markets viewed Mr. Trump’s tariff threat merely as a negotiating tactic. 

The president has turned to tariffs as a source of leverage to bring other negotiations to the close. 

In talks last year over the North American Free Trade Agreement, Mr. Trump threatened to leave Canada out of the deal entirely and strike a deal with Mexico, a gambit that brought negotiations to a rapid conclusion.
In a note on Monday, Joshua Shapiro, the chief United States economist for MFR, an economic research firm, said his forecast and most others assumed that the United States-China trade talks resulted in no further damage, at a minimum. 

The Necessary War

Chinese growth in investment, factory production and consumer spending have all slowed this year, and its economic growth has slowed alongside. 

By Mark Landler
Shipping containers in the Port of Los Angeles after being imported to the United States in 2010. Aides to the president say he believes that the United States has the upper hand on China.

WASHINGTON — President Trump is confident that the United States is winning its trade war with China. 

The world’s two largest economies are in the opening stages of a new economic Cold War, one that could persist well after President Trump is out of office.
President Trump intensified his trade fight this week, imposing tariffs on $200 billion worth of Chinese goods and threatening to tax nearly all imports from China if it dared to retaliate. 

His position has bewildered, frustrated and provoked Beijing, which has responded with its own levies on American goods.
The diplomatic stalemate has many in the business and policy communities considering the possibility that the United States may be in a protracted trade fight for years to come.
Kevin Rudd, a former prime minister of Australia, said in an interview that 2018 signaled “the beginnings of a war of a different type: a trade war, an investment war and a technology war between the two great powers of the 21st century, with an uncertain landing point.”
Signs of fallout were already apparent: Jack Ma backed off a pledge he had made in a meeting with President Trump last year to create one million jobs in the United States, telling the Chinese news site Xinhua that “the promise was made on the premise of friendly U.S.-China partnership and rational trade relations,” a premise he said no longer exists.
The latest tit-for-tat leaves little room for concessions, at least in the interim, as both countries dig in their heels and China tries to remain strong, despite an economic softening that President Trump clearly sees as an opening to force Beijing’s hand.
Chinese growth in investment, factory production and consumer spending have all slowed this year, and its economic growth has slowed alongside.

The situation is expected to worsen as effects of the escalating American tariffs ramp up.
While the United States made overtures toward China in recent days to talk trade in Washington this month, some officials said they now doubted Beijing would engage again at a high level until after the midterm elections in November, when Xi Jinping may meet President Trump on the sidelines of an economic summit meeting in Buenos Aires.
President Trump himself seemed to dangle the prospect that he, and he alone, could broker a resolution that threatened to cause economic pain to companies and consumers on both sides of the Pacific.
“Hopefully, this trade situation will be resolved, in the end, by myself and Xi Jinping, for whom I have great respect and affection,” Mr. Trump said in his statement announcing the tariffs.
Yet it is not clear that either side will see a reason to back down. 

President Trump believes that the United States has the upper hand on China, with an ability to impose tariffs on a far larger number of goods than the Chinese can match given that America imports far more than it exports. 

And while the tariffs are unpopular with Republican lawmakers, farmers and manufacturers, his trade approach remains popular with his political base.
The Chinese side has its own political reasons to avoid capitulation. 

Acceding to President Trump would be considered a sign of weakness for Xi, according to analysts.
And they see no sign that China is willing to give up on Made in China 2025, an industrial program that aims for dominance in robotics, artificial intelligence, and other high tech industries that have been the domain of the United States and Europe and that President Trump has identified as a policy initiative that must be stopped.
While Chinese officials have expressed a willingness to get rid of the name Made in China 2025, they have been much more cautious about accepting limits on some of the crucial features of the country’s industrial policy, like big loans from state-owned banks at very low interest rates to favored industries.

Inside the White House, there remains a pitched battle between those who want to make a deal with Beijing and those who are determined to keep piling on pressure to force a more radical change in its trade practices. 

At the moment, the hard liners have President Trump’s ear.
“You would expect the administration to have tabled a negotiating text with a clear set of commitments, but that has apparently not been done,” said Daniel M. Price, a former trade adviser to George W. Bush. 

Price said the Trump administration had done a good job of cataloging China’s abuses: theft of intellectual property, forced transfer of technology from foreign companies, predatory joint venture agreements. 

But it has failed to marshal a coalition to confront China, instead provoking separate trade fights with the European Union, Japan, Canada and Mexico by imposing tariffs on steel and aluminum and threatening additional taxes on imported cars.
“Doing this without the E.U. and Japan fully on board as though Chinese unfair trade practices were only a bilateral problem is wrongheaded and certainly less effective,” he said. 

“But it’s very hard to galvanize your allies when you impose steel and aluminum tariffs on them and threaten auto tariffs.”
For China, a complicating factor is figuring out who has influence in President Trump’s White House. Treasury Secretary Steven Mnuchin, who has been leading the negotiations, invited China’s top trade negotiator, Liu He, to Washington for a meeting next week, even though his last visit ended badly when President Trump spurned a deal that would have cut the American trade deficit with China.
Mnuchin believes the United States must be open to talks as long as China is willing to address structural issues, including the trade gap between what America exports and what it imports, pressure on American companies to hand over valuable technology as a condition for doing business in China and intellectual property theft.
Other senior officials, notably Peter Navarro, who oversees the office of trade and manufacturing policy, have told colleagues that inviting the Chinese now was a sign of weakness. 

Mr. Navarro, an economist who made his name with book titles like “Death by China,” is among those who favor putting more pressure on China to force a change in its behavior.
His office produced a compendious report in June called, “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.” 

In early May, he and Mnuchin clashed openly during a visit to Beijing after Mnuchin excluded him and other American officials from a private meeting with Liu.
It is not clear whether Liu will visit Washington next week. 

But even if he does, people who have spoken to Chinese officials said the unraveling of the agreement Liu believed he had struck on his last visit would make him reluctant to make any deal this time.
“The Chinese deep learning from that is, ‘We should not substantively re-engage until the administration has its internal house in order,’” said Rudd, who is now the president of the Asia Society Policy Institute.
After months of bruising encounters with President Trump, Rudd said Chinese officials recognized that they would need to change their policies on trade and market access. 

President Trump’s aggressive moves drew intense criticism from some quarters at home. 

But President Trump has shown little sign of changing course. 

While there are differences among members of his economic team, there is a broad consensus in the administration about taking a hard stance toward China. 

They point to evidence that the trade pressure on China was making it less adventurous in the East China Sea, where it spars regularly with Japan.
President Trump has forged ahead with tariffs even while saying that the trade tensions were making China less cooperative in pressuring North Korea on its nuclear arsenal — a claim that puzzles some of his own advisers.
“They have been helpful; I hope they’re still helpful,” President Trump said at a news conference Tuesday with the Polish president, Andrzej Duda. 

“There’s a question about that.”
But the president added, “It got to a point where the numbers were too big.” 

China “rebuilt their country with tremendous amounts of money pouring out of the United States,” he said. 

“And I’ve changed that around.”

Commercial Cleansing

For U.S. to Stay in WTO, China Must Leave
The U.S. and its allies could use the World Trade Organization to force China to alter its trade-distorting behavior—or leave
By Greg Ip

The intensifying trade war between the U.S. and China didn’t come out of the blue. 

American frustration has long been building over China’s failure to live up to its commitments when it joined the World Trade Organization in 2001.
But President Trump’s unilateral tariffs risk a Pyrrhic victory that damages global trading rules that have broadly served U.S. interests. 

There is a more effective solution: threaten China with expulsion from the WTO.
Calling this the nuclear option doesn’t really do it justice since the nuclear weapons don’t even exist. The WTO lacks a formal mechanism to throw out a member. 

But its founding charter, the General Agreement on Tariffs and Trade, includes a section, Article XXIII, that can achieve the same thing. 

It allows a case to be brought against a member for behavior that doesn’t specifically violate the treaty but “nullifies or impairs” the benefits every other country expects to derive from the WTO.
“China’s economy is structured differently from any other major economy in ways that were not anticipated by WTO negotiators,” Jennifer Hillman, a Georgetown University law professor told Congress’s U.S.-China Economic and Security Review Commission in June.
WTO rules don’t deal well with the extensive overlap between China’s government, ruling Communist party and companies. 

Article XXIII was designed “exactly for this type of situation.”
China is more open and market oriented today than before it joined the WTO. 

It has generally adhered to the letter of WTO decisions, including when it loses cases there. 

And it argues much criticism aimed at it is unfounded. 

For example, no formal laws force foreign companies to transfer technology to Chinese firms, it says.
But as Ms. Hillman, a former member of the WTO’s top dispute-settlement panel, shows, that misses the many ways China violates the commitments it undertook when it joined the WTO. 

In the 1994 Marrakesh declaration, which led to the WTO’s creation, members agreed to a trading system based on “open, market-oriented policies.” 

Yet market forces in China are retreating as the state expands.
Foreign companies are routinely compelled to transfer technology to Chinese companies to do business there, in violation of Beijing’s commitments. 

Ms. Hillman notes that even unwritten measures can be challenged at the WTO.

China’s discriminatory licensing treatment and its failure to better police the theft of foreign intellectual property both violate its obligations under the WTO’s side agreement on intellectual property.
China, like all WTO members, is supposed to publish all of its subsidies so that others can respond to them. 

It doesn’t, because many take the form of low-cost loans, raw materials or other inputs to or from state-owned enterprises.
China isn’t sued more often for such transgressions, Ms. Hillman says, because such cases can be hard to win. 

Foreign companies are reluctant to provide evidence because they see foreign competitors as intertwined with the Chinese government, which can retaliate, for example by blocking their expansion. 

Many countries won’t bring cases against China on their own for the same reason, says Chad Bown, of the Peterson Institute for International Economics. 

No such fear exists about suing the U.S.
Ms. Hillman says this is why other countries should bring a “big, bold” case based under Article XXIII; by addressing China’s systemic violations, such a case would depend less on proving smaller, specific violations.
If the U.S., European Union, Japan, Canada, Australia, Mexico and South Korea brought the case jointly and won, China would either have to change its policies, or face WTO-sanctioned penalties on almost all of its exports. 

Ms. Hillman goes further: The findings could be used to amend the WTO charter to explicitly prohibit the offending policies. 

If China couldn’t abide by amendments, it would effectively withdraw from the WTO.
Ordinarily the WTO acts by consensus, so China could just veto the amendments. 

But Ms. Hillman notes that if consensus can’t be reached, the WTO allows amendments with a supermajority of members.
All of this is risky and unprecedented; only a handful of WTO cases have been brought under Article XXIII. (Ms. Hillman says they were much narrower and not relevant to the China situation.) 

No country has left the WTO, much less been expelled.
Putting together a case would take a long time and require the U.S. to work with allies it has alienated with tariffs. 

The Trump administration has little love for the WTO and has reportedly weighed withdrawal, while blocking appointments to its dispute settlement body.
Yet some administration officials are willing to entertain this strategy. 

Does China “want to be a part of the WTO and just behave like everybody else, or don’t they?” Kevin Hassett, chairman of the White House Council of Economic Advisers, said on Fox Business Network last week. 

“And if they don’t, then we, the community of nations, are we going to let them stay in the WTO?” 

Before he became Mr. Trump’s trade ambassador, Robert Lighthizer proposed bringing a case against China under Article XXIII.
Japanese and EU trade officials are meeting with their American counterparts in Washington Friday to discuss China. 

They already have their own reasons for wanting China to change, but now they have another: forcing China to act like it belongs in the WTO may be necessary to keep the U.S. from leaving.