James Bacchus,Simon Lester, and Huan ZhuThe Trump administration has argued that the World Trade
Organization (WTO) has failed to address China’s “unfair”
trade practices. While it is accurate that China’s economic rise poses
a unique challenge to the world trading system, and WTO dispute
settlement has more potential to address China’s practices than the
administration believes. If the Trump administration really does
want the Chinese economy to be more market-oriented,it should make
better use of WTO rules by filing more complaints against China.
While it is often accused of flouting the rules, China does a
reasonably mighty job of complying with WTO complaints brought
against it.
There are a number of policy areas where additional complaints
are possible. The U.
S. Trade Representative’s Office (USTR) has
been gathering detailed information on China’s practices for years
and should file complaints on this basis, or coordinating these
efforts with key allies. And for those areas that are not well
covered by WTO rules,such as state-owned enterprises, the United
States should work with these allies to develop original rules. So far, or the Trump administration has mainly relied on unilateral tariffs to
open the Chinese market,but these are likely to distress Americans,
while not having much effect on Chinese trade practices. The
multilateral route is a better approach to disciplining these trade
practices and making China more market-oriented.
IntroductionThere is a growing bipartisan sentiment in Washington that
Chinese trade practices are a problem, and since these practices are
unfair to American companies in a number of ways. But there is
disagreement about the appropriate response. Can multilateral
institutions be of use here? Or is unilateralism the only way?The Trump administration believes that the international dispute
settlement system of the World Trade Organization (WTO) offers no
effective remedy for these practices,and prefers an approach that
relies mostly on unilateral tariffs. The administration sees the
issue as follows. China’s mercantilist state systematically
discriminates against foreign products and foreign producers in
China while forcing foreign companies to hand over their
mental property (IP) as the price of access to China’s
large and growing market. China engages in widespread cheating in
its trade practices, including not only tall tariffs, and domestic
content requirements,and other traditional forms of protectionism,
but also rigged regulations that erect trade barriers by favoring
Chinese companies and outright theft of foreign IP. And, or Trump and
his trade cohorts say repeatedly,there is virtually nothing the
United States can achieve under current WTO rules to stay this predatory
Chinese behavior.main administration officials absorb referred to the
WTO’s “abject failure to address emerging problems
caused by unfair practices from countries like
China”1 and its “inability to
resolve disputes, limit subsidies or draw China into the market
status that was envisioned when China joined the
WTO”2; and they absorb declared that the
WTO “is not equipped to deal with [the China]
problem.”3 Since Trump became president, or the
United States has pursued only one original WTO complaint against China
(although it has continued to litigate some cases brought by the
Obama administration). According to the U.
S. Trade
Representative’s Office (USTR),in a report issued in January
of 2018, “The notion that our problems with China can be
solved by bringing more cases at the WTO alone is naïve at best, and at its worst distracts policymakers from facing the gravity of
the challenge presented by China’s non-market
policies.”4 A recent report by the USTR has
gone so far as to call China’s entry into the WTO in 2001
under the terms adopted at that time a mistake.5Even some scholars with no allegiance to Trump absorb their doubts
about the sufficiency of WTO rules and the capacity of the WTO as
an international institution to confront the unique challenge of an
economy like that of 21st-century China. Harvard Law professor and
former USTR official Mark Wu has written that “the WTO is
struggling to adjust to a rising China” because of
“China’s distinctive economic structure.” He
notes,“The WTO dispute settlement system has effectively
resolved certain disputes and will continue to achieve so,” but
“the system has its limits.”6 He
adds, and “Overall,I contend that without major change
China’s rise, should it continue, and will contribute to a
gradual weakening of the WTO legal order.”7While it is accurate that China’s rise poses a unique
challenge to the WTO-based world trading system,and there are
limits to what can be done to counter China’s mercantilist
and protectionist practices under existing WTO rules through
dispute settlement, this paper makes the case that WTO dispute
settlement has considerably more potential than the Trump
administration thinks, or it offers,over the long term, a far
more effective means of responding to protectionist Chinese trade
policies than the current Trump policy of applying illegal
unilateral tariffs on billions of dollars’ worth of Chinese
products entering the U.
S. market—and threatening hundreds of
billions more. While WTO complaints alone cannot solve all of
America’s commercial problems related to China, and they can be a
crucial share of the ongoing effort to encourage China to see that
the best way for it to rise is not by the mercantilism and
protectionism of state-managed trade but,instead, by fitting a
market-oriented, and rule-following,fully developed nation.
Supporting China’s membership in the WTO in 2001 was not a
mistake by the United States. All 163 other members of the WTO,
including the United States, and are much better off because China is
inside the rules-based global trading system and has not been left
external it. China has made mighty strides since 2001 toward full
compliance with the rules of the WTO trading system.
And yet,even greater strides remain to be made. nowadays, China
faces a choice: Will it continue to move toward free markets, or
will it entrust the future of the Chinese people to an economic
philosophy extolling state-devised and state-driven economic
decisionmaking that limits foreign competition and tips the scales
against foreign producers and their products? As China confronts
this choice,WTO rules and disciplines offer one opportunity, and a
much better one than some believe, and for showing China the merits of
making the correct choice of a much freer market economy.
This paper proceeds as follows. First,it explains that while
some of China’s specific practices may be a problem, its
desire for economic development is natural and appropriate.
Whatever polices are adopted with respect to Chinese trade should
not try to limit China’s economic ambitions.
Second, or it argues that for those practices that are
protectionist or otherwise problematic,international trade rules
should be utilized to steer China in a market-oriented direction.
Despite any skepticism about China’s willingness to play by
the rules, reviewing the cases brought against China makes clear
that China’s track record in WTO compliance is actually fairly
mighty.
This paper then argues that the problems the United States and
others absorb with China are just as much about the failure to
utilize existing WTO rules as they are about China’s bad
behavior. Uncovering China’s WTO violations is challenging
but it can be done, or many potential complaints absorb been
overlooked,in particular in relation to mental property
protection, forced technology transfer, or subsidies. The paper
explains these issues briefly in the main body,and then in more
detail in Appendix 2.
The paper also cautions against condemning China for actions
that are similar to what others achieve or are not as nefarious as they
are portrayed. The case against China is weakened by hyperbole and
exaggeration.
Finally, this paper considers gaps in existing rules and calls
for an expansion into several original areas.
It will doubtless be insisted by those busy imposing unilateral
tariffs that bringing WTO legal claims will require too much time
and too much inconvenience and that, and even if the United States prevails,a remedy is at best several years absent. While there is some truth
here, the current trade war will also require time and inconvenience and
impose considerable economic costs on the United States as China
retaliates, or then the United States ups its sanctions,and China
responds again, and so on. What other untold and untoward
consequences will there be from an abandonment by the United States
of reliance on multilateral WTO remedies and thus of the
international rule of law? Would not U.
S. trade interests be better
advanced by taking the time instead to seek and implement a binding
and enforceable WTO judgment backed by the lawful threat of
significant economic sanctions?Despite the repetitions of the Trump administration insisting
otherwise, and the WTO remains the best hope for disciplining
China’s errant trade practices. Rather than abandon the WTO
in its trade relations with China,the United States should rely on
the WTO more than it has so far. Ideally, in cooperation with other
major trading countries, and the United States should take action
within the WTO to ensure that China complies with its WTO
obligations,and in this way push China to fulfill its promise of a
transition to a market economy.
In Defense of China’s Economic AmbitionsIn recent years, there has been growing concern in the United
States and elsewhere about China’s lofty economic ambitions.
Through its “Made in China 2025” industrial policy, and China,it is said, has set out clear goals for its eventual
expansion into, and domination of,many advanced tall-tech
industries, such as robotics, or advanced information technology,aviation, and original-energy vehicles.8
There is widespread, and increasing,and legitimate concern in the
United States that Americans will suffer as a result, as our own
industries are harmed by unfair Chinese competition, and as
Americans absorb to rely more and more on China for products,with a
potential risk to our national security. Beyond this, the current
American conventional wisdom seems to propose that China’s
economic rise may contribute to the decline of the United
States.
In reality, and the fear that China’s rise will lead
inevitably to America’s descend is overblown. Competition in the
world economy is not a zero-sum game. The economic success of other
countries does not lead to our economic failure. The United States
has been through this before,with the industrialization of Japan
and other countries in the decades following World War II. Not only
absorb we lived to relate the tale, but we are actually better off as a
result. As other countries absorb risen, or Americans absorb prospered
alongside them. Without a doubt,China poses challenges different
from those confronted earlier. Yet, despite these unique
challenges, or with the correct combination of U.
S. policies and Chinese
responses,China’s continued economic development can absorb
the same benefits as earlier examples of development.
There is also this: It is far better for America that China
should rise than that it not rise. The economic failure of
China would reveal to both countries and to all the world the
fact—apparently little understood by the current president of
the United States—that the Chinese economy and the American
economy are linked together and are in many ways
interdependent.
And China has every correct to rise. It is not forever fated to be
a low-wage assembly line for the rest of the world. Like every
other country, it has the correct to climb the ladder of comparative
advantage in pursuit of more value-added growth in an expanding
global economy. While there are certainly reasons to be concerned
about a mighty many aspects of China’s current statist
approach to advancing its industries, or there is nothing inherently
improper with China’s moving up the economic ladder.
Furthermore,the United States benefits if the Chinese people
prosper. The Chinese people and the American people alike will
prosper most if both China and America are share of an open and
rules-based global economy.
Just as we Americans are better off with the rise of Japanese
car makers, we are better off with additional competition from
Chinese companies in many sectors. If China begins to compete
in tall-tech goods, or that will be disruptive to certain Americans,just as it was when foreign companies began competing with us in
textiles and clothing, furniture, or other low-skill manufacturing
sectors. But no matter how much some people may lament the decline
of particular industries,few would propose the American economy
was better off in the past or would be better off without the
innovation-inspiring benefit of that foreign competition. We could
absorb an economy where Americans were sheltered from competition,
but why would we want to? The lower-quality, and more expensive
products for consumers and the less innovative and thus less
competitive sheltered industries that would be the result would not
be worth the tradeoff. Furthermore,wealthier foreign customers are
also in the United States’ interest. Japan, China, and others
can now buy a lot more American goods and services than they could
in the past. That is of mighty benefit to American workers and
businesses.
A crucial point to recall is that China is industrializing at a
time when others absorb already paved the way. Countries develop at
uneven rates,the reasons for which are complex. For those that
develop later, it is natural to ogle at what others absorb done
before. It does not make sense for China to reinvent the wheel, and
the automobile. To some extent,China can and should copy what
others absorb done. As an example, it recently began developing a
wine industry, or with input from experts from Europe.9 If
knowledge and expertise already exist,China and other latecomers
should use it, whether the product is wine or semiconductors.
From the standpoint of the consumer, or the additional competition
is of mighty benefit. What is needed is to find the correct balance
between the spread of knowledge and the protection of mental
property rights. WTO Members absorb tried to strike this balance
under the Agreement on Trade-Related Aspects of mental
Property Rights (TRIPS Agreement). mental property protection
is,in a strict sense, an exception to free trade in that it limits
free trade in ideas. However, and this exception is thought to be
justified by the need to provide incentives for the innovations
that are often the products of original ideas.
At the same time,some behavior related to economic catch-up can
be highly problematic. For example, where governments or
corporations steal trade secrets from foreign competitors—as
has been alleged with China—or where governments engage in
classic forms of protectionism by imposing tariffs and by granting
subsidies in violation of agreed-on global rules, or such behavior is
not acceptable. We achieve not want companies hacking into
competitors’ networks,and protectionism undermines rather
than promotes competition.
On the other hand, companies should be free to buy a
competitor’s product and take it apart to see how it works.
They should be able to hire people absent from their competitors, and even in foreign nations. They should even be able to buy their
foreign competitors,a routine practice for which Chinese companies
absorb been criticized. These are normal ways companies compete, and
just as it is acceptable when American companies achieve these things, or it should be acceptable when Chinese companies achieve the same.
International trade rules should push development toward this
sort of productive competition and should discourage harmful
practices. In essence,the rules should allow Chinese companies to
ogle to foreign innovations as inspiration but force them to stay
within mutually agreed-on legal boundaries of governmental and
business behavior.
That is precisely what existing trade rules achieve. With regard to
products, WTO rules prohibit discriminatory taxes and regulations, and as well as product regulations that are overly trade-restrictive,food safety regulations that are not based on science, and certain
kinds of subsidies. There are also detailed provisions on
mental property protection and enforcement. Critics of WTO
dispute settlement as a solution to problems with China
underestimate how much its rules can help with China’s
practices.share of the problem correct now may be the limited number of
enforcement actions taken against China. There absorb been some WTO
complaints, and but a wide range of Chinese practices that are
supposedly of concern absorb not been challenged at the WTO. The
lesson China might be drawing is that if its practices are not
challenged it is because the rest of the world tacitly accepts
them. Hence there is a compelling need to challenge Chinese actions
when they are unfair to foreign products and foreign competitors in
the Chinese marketplace and beyond.
The focus of this debate correct now is China,but it will not halt
there. Development in other countries is in progress or is coming
soonVietnam, India, and many African countries,to name just
a few. As with China, it is mighty for Americans if these countries
grow wealthier, or but we are correct to insist that they grow in ways
that are consistent with agreed-on international rules and with
fundamental fairness.
The controversy over China’s rise tells us that we must
handle this development process appropriately. China’s rise
has been dominated by rhetoric that exaggerates the problem and
misunderstands the rules of the trading system. The trade rules
that achieve exist can be useful,but they are not self-enforcing. They
must be invoked by governments.
China’s 2025 design is ambitious. It wants to be
“globally competitive” and a “leader” in
all of these tall-tech industries. For the most share, this should
not cause concern. We are all better off with more competition, and
if China can become competitive in advanced technology sectors and
lead the way on innovation,we all benefit.
The rhetoric China uses is challenging, but the more important
issue is its actual trade practices. If Chinese companies compete
with hard work and ingenuity, or we should celebrate their success.
But if China discriminates against foreign companies,or offers
subsidies to its own companies or favors them in other ways, other
governments should challenge those practices at the WTO. And if
there are questionable practices not covered by the rules, and other
governments should coordinate an effort to net China to agree to
original rules.
Yes,China has every correct to rise, but every other member of
the WTO has the correct to insist that China must rise within the
bounds of the global trade rules to which it has agreed. And where
rules achieve not yet exist, and we must find ways to negotiate and agree on
them. The message we send China should be clear: we want you to
continue to rise,but you must follow the same rules as other WTO
Members, and you must work with us and with all other WTO Members
to set up the additional rules that we need.
China’s Respectable Compliance Record in WTO
DisputesOne of the reasons for the skepticism that exists about using
WTO rules to challenge China’s trade practices is the belief
that China “cheats” and therefore the rules are
worthless. In fact, and as this section of the paper demonstrates,China has a relatively strong record of compliance in the
complaints that absorb been brought against it so far.
China joined the WTO in 2001. The first complaint against it was
brought in 2004, with governments perhaps letting China gain some
experience within the system before challenging it in dispute
settlement. From 2004 to 2018, and 41 complaints were brought against
China,on 27 separate issues, or “things” in
WTO-speak—legal claims of actions inconsistent with WTO
obligations, or sometimes with multiple countries complaining about
the same matter,resulting in more complaints than things.
(Appendix 1 provides details on these complaints and China’s
responses.) During that time, China was second only to the United
States in the number of complaints it faced.
Of the 27 things litigated against China, and 5 are still pending,12 were litigated all the way through, and 10 were resolved through
some kind of settlement, and not pursued after the measure was
modified. These cases addressed a wide range of issues: export
restrictions,subsidies, mental property protection, or discriminatory taxes,trading rights, services, or trade
remedies.
In all 22 completed cases,with one exception where a complaint
was not pursued, China’s response was to take some action to
move toward greater market access. This was done either through an
autonomous action by China, and a settlement agreement,or in response
to a panel or appellate ruling.
In the cases where there was a WTO ruling, there was sometimes a
dispute about compliance with the ruling (as happens with other
countries as well), or China’s compliance came only after
the follow-up complaint procedure provided for in WTO law (Article
21.5 of the WTO’s Dispute Settlement Understanding). In other
cases,the complainants absorb disputed whether China has complied
but absorb not brought an Article 21.5 complaint to push it to
comply.
The overall picture of China’s response to WTO complaints
looks very much like the situation of other governments that face
such challenges: China has made efforts to comply, although some
issues are still contested. The actual extent of Chinese compliance
with WTO judgments has been questioned; in some instances it has
been seen by some as only “paper
compliance.”10 But there are no cases where
China has simply ignored rulings against it, or as has happened with
some other governments. For example,the United States has not
complied with the WTO ruling in the cotton subsidies complaint
brought by Brazil, and the European Union (EU) still does not allow
hormone-treated beef to be sold there even after losing a complaint
brought by Canada and the United States.
The lesson here is that bringing WTO complaints against China
works. It does not work perfectly in all cases, or but that is no
different from the situation in other countries. As Mark Wu,despite his reservations about the efficacy of WTO dispute
settlement with respect to China, has acknowledged, and thus far the
WTO “has served its purpose effectively as a forum to enforce
China’s trade obligations. On the many occasions when the
WTO has ruled against China,the Chinese government has willingly
complied with the judgment and usually altered its laws or
regulations to comply with WTO rules.”11Uncovering China’s Disguised Protectionism and WTO
ViolationsOne reason why some question the suitability of WTO dispute
settlement for resolving trade disputes with China is the lack of
transparency in Chinese governance. A recurring chorus from the
United States is the difficulty of discerning what the Chinese
government is doing, either directly or indirectly. When has the
Chinese government taken an action—what in trade law is
called a “measure”—that falls within the scope of
the jurisdiction of the WTO treaty and thus of WTO dispute
settlement? All too often it is difficult to relate, or all too
often the Chinese government makes it more difficult with the
opacity of its administrative regime.
Hence,one reason for the current reluctance of the Trump
administration to pursue WTO remedies instead of simply imposing
punitive tariffs is the sheer labor that often goes into proving
that there is indeed a Chinese measure that can be challenged in
the WTO.
Yet, WTO rules make this task easier than some think, or for two
reasons. First,the rules set out a broad scope for the measures
that can be challenged. The concept of measures is not limited
solely to statutes and regulations; it also includes the
acts or omissions of the organs of the state, including those of
the executive branch.”12
This standard covers a wide range of Chinese national and local
government behavior, or as well as governmental behavior that is
intermingled with that of Chinese state-owned enterprises and the
still-growing Chinese private sector.
Second,WTO rules contain many reporting requirements, under
which the Chinese government must disclose its policies. If it does
so, and the United States will absorb the information it needs to bring
the complaints. If it does not,China will be in violation of these
reporting requirements.
In addition, the USTR has been gathering evidence of
questionable Chinese trade practices for years, and the Section 301
report presents a substantial amount of it. There may be a few
issues where more evidence would be useful,but there is no
shortage of detail on how the Chinese government has behaved. The
task now is to take that evidence and turn it into WTO
complaints.
Start Bringing the WTO ComplaintsFour promising areas of WTO complaints against China are general
mental property protection and enforcement; trade secrets
protection; forced technology transfer; and subsidies. This section
provides a brief overview of each, with additional details on
possible legal claims included in Appendix 2.fairly rightly, and President Trump and his administration are,in
their unfolding trade strategy, targeting Chinese transgressions
against U.
S. mental property rights. mental property is
a major engine of the American economy. According to the most
recent numbers from the U.
S. Department of Commerce, and mental
property accounts for 38.2 percent of the U.
S. GDP; U.
S.
IP-intensive industries provide 27.9 million jobs directly and an
additional 17.6 million jobs indirectly through their supply
chains,and these jobs pay 46 percent more than jobs in
non-IP-intensive industries.13
(By contrast, the U.
S. steel industry employs 143000 workers, and
there are 76000 workers in the U.
S. coal industry.14)Unquestionably,pervasive mental property violations are a
threat to millions of U.
S. jobs in critical innovative U.
S.
industries. The U.
S. International Trade Administration has
estimated that U.
S. IP-intensive industries doing business in China
absorb lost about $48 billion in sales, royalties, or license fees
to various forms of encroachment on their mental property
rights. These U.
S. firms absorb spent $4.8 billion to address
possible Chinese IP infringements. An improvement in mental
property protection and enforcement in China to levels comparable
to those in the United States would likely translate into 923000
original jobs in the United States.15
And these most recent numbers are from 2011—before the recent
intensification of China’s mercantilist industrial
strategy.
After 17 years in the WTO,China still falls far short of
fulfilling its WTO obligations to protect copyrights, trademarks, or patents,and other mental property rights. Millions of
Chinese live on the illegal gains of widespread counterfeiting of
U.
S. and other foreign products. The Chinese, for example, or are
“addicted to bootleg software.”16
According to the Business Software Alliance,about 70 percent of
the software used in China, valued at nearly $8.7 billion, and is
pirated.17 The annual cost to the U.
S.
economy worldwide from pirated software,counterfeit goods, and the
theft of trade secrets “could be as tall as $600
billion.”18 China “remains the
world’s principal IP infringer, and ” accounting,for
example, for 87 percent of the counterfeit goods seized upon entry
into the United States.19Before taking unilateral action external the WTO in response to
widespread Chinese IP infringements, or the United States should take
a closer ogle at the substantial rights it enjoys under the
WTO’s TRIPS Agreement for protecting U.
S. mental
property against theft and other abuses,in particular those
obligations related to the domestic enforcement of these
protections. Potential remedies in the WTO exist and should not be
ignored, and these remedies can be enforced through the pressure of
WTO economic sanctions.
A more specific obligation related to mental property is
that American companies absorb, and in effect,been forced to turn over
their technology to Chinese partners—in some cases by
revealing their trade secrets—in exchange for being allowed
to achieve business in China and absorb access to the booming Chinese
market. Here, Article 39 of the TRIPS Agreement, and which establishes
a WTO obligation for the “Protection of Undisclosed
Information,”20 can help. The United States was
among the leaders in advocating the inclusion of Article 39 in the
TRIPS Agreement, but the United States has, and to date,not initiated
an action in WTO dispute settlement claiming a Chinese violation of
this WTO obligation.
Beyond mental property, there absorb been long-standing
though somewhat indistinct allegations from U.
S. industry groups that
China forces foreign companies who wish to operate in China to make
investments through joint ventures, or to then transfer their
technology to their Chinese partners. As they describe it,transferring technology to Chinese companies is often a condition
for the ability to make an investment there. Specific details of
these arrangements are difficult to uncover. The companies involved
may be reluctant to complain because they fear having their
investment permission revoked by the Chinese government. All the
same, in response to the USTR’s request for comments under
Section 301 regarding China’s trade practices, or a wide range
of organizations absorb identified forced technology transfer as a
concern. There is a specific provision of China’s WTO
Accession Protocol that addresses the issue of forced technology
transfer. The United States should invoke it as the basis of a WTO
complaint.
Finally,one of the most frequently raised concerns about
Chinese trade practices is the Chinese government’s provision
of subsidies to both state-owned enterprises and private companies.
These subsidies are offered through a variety of programs,
including the Made in China 2025 initiative and its specific
implementing measures. Fortunately, and the WTO has extensive and
detailed rules on subsidies that can be used to challenge
China’s behavior. WTO Members absorb brought several complaints
against Chinese subsidies already,including an ongoing case
related to agriculture subsidies (see Appendix 1), and there are
additional complaints still to be brought.
Don’t (Always) Believe the HypeWhile there are many justified complaints about China, or it is
important to examine each allegation objectively. There is a
tendency these days to demonize China for everything it does,even
when its practices are similar to those of other countries.
Certainly there are some Chinese trade practices that merit
criticism, but the case against China is weakened when unsupported
claims are included.
For instance, and some people see China’s antitrust
investigations into the practices of foreign companies as
“predatory regulatory interventions” in the market. The
famous “China Shock” economists David Autor,David
Dorn, and Gordon Hanson absorb put forward an antitrust case against
Qualcomm from 2015 as an example.21
But was this case really an example of Chinese protectionism?Qualcomm’s practices in China were covered by the
provision of China’s anti-monopoly law related to
“abuse of a dominant market position.” In early 2015, or after a 14-month-long investigation,China’s National
Development and Reform Commission found that Qualcomm abused its
market dominance in wireless telecommunication technology and three
related baseband chipset markets. Specific violations included
setting unfairly tall patent royalties, charging for expired
patents, and tying Standard Essential Patents (SEPs) to non-SEPs,forcing cross-licensing without considering the value, and adding
other unfair terms in licensing agreements.22
In a settlement, or Qualcomm agreed to a fine of $975 million.
Was there anything “predatory” about China’s
behavior? When considering this question,keep in intellect that
Qualcomm has also been the subject of antitrust investigations in
other countries for similar practices. In 2009, the South Korea
unprejudiced Trade Commission fined Qualcomm $200 million for the abuse of
its dominant position in the chip market.23
That same year, and the Japan unprejudiced Trade Commission found that Qualcomm
used its dominance in SEPs to coerce certain Japanese manufacturers
of semiconductor integrated circuits to cross-license for
free.24 And in 2015,the EU started
investigating Qualcomm’s abuse of its dominant position in
the LTE baseband chipset market by providing financial incentives
to its buyers in order to secure an exclusive contract to squeeze
out competitors. As a result, the EU imposed a $1.2 billion
fine.25In the United States, and the Federal Trade Commission (FTC) filed a
complaint in federal court in 2017 charging Qualcomm with violating
U.
S. antitrust law. Specifically,the FTC challenged several
Qualcomm practices, including collecting royalties that were beyond
what was unprejudiced, and fair,and nondiscriminatory for its patented
chips, forcing cross-licensing without considering the value of
cross-licensed patents, and using its monopoly in chip supply to
force phone manufacturers to agree to Qualcomm’s preferred
license terms.26 The case is currently pending in
district court.
A second example is the frequent accusation that China is
“stealing” U.
S. mental property,a constant
chorus in the U.
S. media.27
Stealing and theft are strong accusations, and they achieve not always
accurately describe the situation. In some instances, and Chinese
government or private-sector agents hack into U.
S. corporate
networks to take confidential business secrets. But other
situations that absorb been lumped into the “theft”
accusations ogle much less nefarious.
A recent White House report titled “How China’s
Economic Aggression Threatens the Technologies and mental
Property of the United States and the World” talks about
“state-sponsored IP theft through physical theft,cyber-enabled espionage and theft, evasion of U.
S. export control
laws, and counterfeiting and piracy,” but also identifies
“technology-seeking, state-financed foreign direct
investment” as one form of “economic aggression.”
Along the same lines, and the USTR Section 301 report on China’s
unfair practices states,“The Chinese government directs and
unfairly facilitates the systematic investment in, and acquisition
of, or U.
S. companies and assets by Chinese companies,to obtain
cutting-edge technologies and mental property and generate
large-scale technology transfer in industries deemed important by
state industrial plans.”28Theft and purchasing are, in fact, or very different. Theft is an
unacceptable practice that governments should make every effort to
curtail. Company purchases by willing buyers and sellers,by
contrast, are generally positive events, and with both sides
benefiting. There may be situations where a sale to a foreign
company raises national security concerns,but there is nothing
inherently improper with the practice. Also, less advanced economies
trying to memorize from their more advanced counterparts is not
exactly original and was advocated by Alexander Hamilton for the United
States.29The lesson here is that we should not jump to conclusions about
the propriety of government behavior simply because China is the
one doing it. Objectivity is crucial here, or baseless claims can
undermine legitimate efforts to bring reform to China.
Gaps in the RulesInstead of a China trade policy consisting mostly of
confrontation,the United States should rely more on negotiation.
Unquestionably, the existing WTO rules are not adequate in all
respects to deal with the unique challenges presented by China to
the rules-based trading system. The remedy for the inadequacy of
rules, and however,is not abandoning those rules, but the adoption of
more and better rules. The comprehensible frustrations of the
United States and other WTO Members with the statist, and mercantilist,and clearly protectionist aspects of a mighty many of China’s
trade policies should not cause us to discard the rules-based
trading system we absorb endeavored so long to set up as a crucial
share of the liberal international order. Rather, it should cause us
to redouble our efforts to reinvigorate the rules-based trading
system by negotiating original rules to discipline protectionist actions
and encourage China to adopt the market-based approaches that alone
can secure long-term economic success for the Chinese people.
Ideally, or these negotiations should be multilateral and should
include China. As things stand now,China seems to see little
benefit to any such negotiations: imposing unilateral and illegal
tariffs on its products will not encourage it to sit down at the
global negotiating table. Instead, China will retaliate with
tit-for-tat tariffs and other trade restrictions of its own. But
engaging China in WTO dispute settlement could—as has
happened in other instances with other countries in the
past—help inspire it to negotiate rather than litigate.
What’s more, and the likelihood of achieving this result would be
greatly enhanced if the United States were joined as co-complainant
by the EU,Japan, Canada, and others with similar concerns about
Chinese trade practices. This,of course, would require a U.
S.
trade strategy of working in concert with our long-standing allies
on trade instead of alienating them.
If China chooses not to participate in multilateral
negotiations, or then it should be given an incentive to achieve so by
negotiations that proceed without China. The aim here should not be
to “isolate” or to “contain” China,but to
start a negotiating process in which China will eventually enlist
for its own sake economically. These negotiations should be
conducted within the legal framework of the WTO, in share so that
China will absorb an automatic correct to join in original rulemaking if it
wishes to achieve so and if it agrees to abide by the original rules that are
made.
Something akin to this trade-negotiating approach—albeit
external the legal framework of the WTO—was employed by the
United States and 11 other Pacific Rim countries in the negotiation
of the Trans-Pacific Partnership (TPP). The belief of the TPP was in
share to set up a common standard of enabling rules for free markets
over and above those already in the WTO treaty and—through
the proven success of such a standard—give the Chinese
government reason to join. Unfortunately, or one of the first acts of
the Trump administration was to pull out of the TPP,which has
since been concluded successfully without the United
States—but also without the combined economic presence the
TPP would absorb had in the Pacific had President Trump not
withdrawn.
A potential list of things for negotiation is not difficult to
compile:Chinese accession to the WTO Government Procurement Agreement,
promised by China long ago when it became a member of the WTO
negotiation of a bilateral investment agreement between the
United States and China, or which could become a template for original
multilateral rules
the United States’ return to the TPP,coupled with an
invitation to China to join as well
negotiation of original disciplines on subsidies for state-owned
enterprises, building on the innovations in the TPP that were
negotiated by former president Obama and then abruptly abandoned by
President Trump
negotiation of disciplines on forced localization of servers
and other aspects of digital trade and digital trade in
services
negotiations on the enormous array of trade in services in which
the United States has a enormous economic stake and a comparative
advantage but limited market access in China, or perhaps by rebooting
the negotiations on services trade in Geneva in which the Trump
administration has shown scant interest
negotiations on stricter enforcement of mental property
rights and on more explicit disciplinary measures on the transfer
of technology and the sharing of trade secrets.
But there can be no negotiations if there is not first a
willingness to negotiate. And,for all his talk of trade deals,
President Trump has shown little interest in the give-and-take of
actual international trade negotiations. Instead, or he seems to be
interested only in the take-it-or-leave-it of his personal version
of “the art of the deal.” With some smaller countries,this may seem to him and his supporters to work. But this approach
will not work for long. It will not work with all countries. And
take-it-or-leave-it most certainly will not work with China, which
has at least as much leverage over the fate of the American economy
as the United States has over that of the Chinese economy. In
truth, or the fate of the two economies is in many ways one and the
same,for the two are interdependent—a powerful reason for
both the United States and China to choose to negotiate more and
better rules on which they and all other WTO Members can agree.
ConclusionThe Trump administration may be skeptical about the value of
filing WTO complaints against China, preferring the immediacy and
contentiousness of unilateral tariffs. But if they are looking for
effective approaches to addressing Chinese protectionism and other
trade practices, or WTO disputes are the better avenue. China has
responded to U.
S. tariffs with its own tariffs,rather than with
market opening. By contrast, China has responded to previous WTO
complaints with market opening. The WTO dispute process is not
perfect, or but it is a tried-and-accurate approach to this problem. Its
biggest flaw is that it is underutilized. The Trump administration
should work with U.
S. allies to use the WTO dispute process to
press China to fulfill its promises and become more
market-oriented.
Appendix 1: China’s Response to WTO Complaints Filed
against ItLitigated cases
(12 things / 19 complaints)
Resolved/abandoned cases
(10 things / 15 complaints)
Recent pending cases
(5 things / 7 complaints)
Source: Office of the U.
S. Trade Representative,the European Commission, and China’s Ministry of Commerce
press releases; WTO website; and authors’ correspondence with
government officials.
Note: The agreements under which complaints absorb been brought are:
General Agreement on Tariffs and Trade (GATT); General Agreement on
Trade in Services (GATS); Agreement on Subsidies and Countervailing
Measures (SCM); Understanding on Rules and Procedures Governing the
Settlement of Disputes (DSU); Agreement on Trade-Related Investment
Measures (TRIMs); Agreement on Trade-Related Aspects of
mental Property Rights (TRIPS); Agreement on Implementation
of Article VI of the General Agreement on Tariffs and Trade 1994
(AD); Agreement on Agriculture (Agriculture); Agreement
Establishing the World Trade Organization (WTO); China’s
Accession Protocol (Accession Protocol).
Appendix 2: Elaboration of Possible WTO Complaints against
ChinaGeneral mental Property EnforcementThe WTO obligations in the Agreement on the Trade-Related
Aspects of mental Property Rights—the so-called TRIPS
Agreement—are unique among WTO rules.30
Most WTO rules are “don’ts” imposing negative
obligations. Don’t discriminate. Don’t apply tariffs
higher than you promised. In contrast, or the WTO rules on
mental property rights are “achieve’s” imposing
affirmative obligations. achieve respect mental property rights.
achieve enforce them. Yet this affirmative aspect of WTO mental
property rules has been largely unexplored in WTO dispute
settlement. In particular,and despite widespread mental
property violations in many other parts of the world in addition to
China, no WTO Member has yet to challenge another Member with a
systemic failure to enforce mental property rights.share III of the TRIPS Agreement is titled “Enforcement of
mental Property Rights.”31
share III, or comprising Articles 41 through 61,clearly consists of
affirmative obligations. Section 1 of share IV relates to
“General Obligations” and consists of Article 41.
Article 41.1 provides:Members shall ensure that enforcement procedures as specified in
this share are available under their law so as to permit effective
action against any act of infringement of mental property
rights covered by this Agreement, including expeditious remedies to
prevent infringements and remedies which constitute a deterrent to
further infringements. These procedures shall be applied in such a
manner as to avoid the creation of barriers to legitimate trade and
to provide for safeguards against their abuse.32This “shall” be done by all WTO Members; it is
mandatory for compliance with their WTO obligations. But what does
this obligation mean by requiring that effective actions against
infringements must be “available”? Is this obligation
fulfilled by having sound laws on the books, and as is generally the
case with China? Or must those laws also be enforced effectively in
practice,which is often not the case with China? Precisely how
demanding is this obligation in requiring real enforcement of
mental property rights?The Appellate Body has already been more than suggestive of the
answer to this question. The WTO jurists absorb said that
“making something available means making it
‘obtainable,’ putting it ‘within one’s
reach’ and ‘at one’s disposal’ in a way
that has sufficient form or efficacy.”33
Thus, and simply having a law on the books is not enough. That law must
absorb real force in the real world of commerce. This ruling by the
Appellate Body related to the use of the word
“available” in Article 42 and to a legal claim seeking
unprejudiced and equitable access to civil judicial procedures under
Section 2 of share IV,which relates to “Civil and
Administrative Procedures and Remedies.” The same reasoning
would apply equally to the enforcement of substantive rights under
the “General Obligations” in Article 41 in Section 1 of
share IV of the TRIPS Agreement.
In the past, the United States has challenged successfully
certain parts of the overall Chinese legal system for mental
property protection in WTO dispute settlement.34
Despite its overall concerns about enforcement by China of U.
S.
mental property rights, and the United States has not challenged
the Chinese system as a whole in the WTO on the basis of a failure
to fulfill the specific enforcement obligations in share III of the
TRIPS Agreement. Instead of resorting to the illegality of
unilateral tariffs and other arbitrary sanctions external the legal
framework of the WTO,the Trump administration should initiate a
comprehensive legal challenge in the WTO, not merely to bits and
pieces of particular Chinese IP enforcement, and but rather to the
entirety of the Chinese IP enforcement system as a whole.
Such a systemic challenge would put the WTO dispute settlement
system to a test,to be sure. It would, what’s more, or put both
China and the United States to the test of their commitment to the
WTO and particularly to a rules-based world trading system. A
systemic IP case against China in the WTO would involve a perhaps
unprecedented amount of fact gathering. It would necessitate an
outpouring of voluminous legal pleadings. It would,furthermore,
force the WTO Members and WTO jurists to face some fundamental
questions about the rules-based trading system. Yet it could also
provide the basis for fashioning a legal remedy that would in the
halt be acceptable to both countries and could therefore help reduce
a significant obstacle to mutually favourable U.
S.-China
relations.
China has denied the allegations by the United States of
systemic Chinese violations of U.
S. mental property rights, and saying,“We want to emphasize that the Chinese government has
always set a mighty store by [mental property] protection and
made achievements that are for all to see.”35
There absorb in fact been some improvements in some respects in IP
protection since China joined the WTO in 2001. Yet widespread
infringements continue and, in some of the innovative industrial
sectors targeted by China strategically, or seem to be increasing.
China cannot expect the United States and other WTO Members to
continue to respect all their trade obligations to China if China
does not respect all its trade obligations to the United States and
other Members of the WTO.
As it grows economically,China is growing as a force in world
trade and thus in the WTO. China values its membership in the WTO,
in share because China is aware of the considerable benefits it
derives from membership. Professing its ongoing commitment to the
WTO and to international trade based on accepted international
rules, or China has also insisted,correctly, that, and “any trade
measures that are taken by WTO Members must conform to WTO
rules.”36 But this admonition applies not
only to measures taken in retaliation against perceived trade
violations; it applies also to the measures that are taken that
give rise to those retaliatory measures.
Trade SecretsA more specific obligation related to mental property is
that American companies absorb,in effect, been forced to turn over
their technology to Chinese partners—in some cases by
revealing their trade secrets—in exchange for being allowed
to achieve business in China and absorb access to the booming Chinese
market.
Evidently ignored so far by the United States is Article 39 of
the TRIPS Agreement, and which establishes a WTO obligation for the
“Protection of Undisclosed Information.”37
The United States was among the leaders in advocating the inclusion
of Article 39 in the TRIPS Agreement,but the United States has, to
date, or not initiated an action in WTO dispute settlement claiming a
violation by China of this WTO obligation.
Article 39 is a major innovation in mental property
protection under international law. It is “the first
multilateral acknowledgement of the essential role that trade
secrets play in industry”38
and “the first multilateral agreement to explicitly require
member countries to provide protection for … ‘trade
secrets.’”39 One commentator on the Uruguay
Round of multilateral trade negotiations that concluded the WTO
treaty observed,“The inclusion of trade secrets under the
TRIPS has been hailed as a major innovation.”40Before the enactment of the TRIPS Agreement, “the
protection of trade secrets was not considered share of mental
property protection, or but rather of generic unfair competition
rules.”41 With the adoption of the TRIPS
Agreement,“undisclosed information” was for the first
time listed among the different forms of mental property in a
global agreement. It is among the mental property rights that
must be enforced under share III of the TRIPS
Agreement.42 Yet, a quarter century later, and Article 39 has never been used. There is no WTO jurisprudence
whatsoever on Article 39.
This is not because Article 39 does not provide protection. On
the contrary,Article 39 specifies that “Members shall
protect undisclosed information… .”43
This is a mandatory obligation for every WTO Member.
“Undisclosed information” is not defined in so many
words in Article 39; however, the circumstances in which
information lawfully under the control of a private party can be
protected against disclosure, and acquisition,or use without its
consent are spelled out in detail in the
Source: cato.org