When we think of free trade we typically think in terms of a trade pact with low barriers and tariffs enacted and ratified between two or more countries in an equitable manner which will benefit each signatory country.  Or, we may think of the World Trade Organization, (WTO) and all the participating nations of the world which belong to the WTO.

The WTO states on their website, that they “provide a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development”.  Keeping this in mind, let’s take a look at China for a moment.  China has been a member of the WTO since December 2001. Despite having the world’s second-largest economy, China is considered a “developing” country.  The WTO in trade agreements gives developing countries, “special rights or extra leniency—special and differential treatment”.  In exchange for entry into the WTO, China agreed to change its policy regarding foreign investors and implement the WTO requirement to abide by the   Agreement on Trade-Related Aspects of Intellectual Property Rights, (IPR).  This provision is a legal agreement between all the member nations of the WTO, obligating each county to respect each other’s Intellectual Property Rights.

Fast forward to March 22, 2018, and the release of the U.S. Trade Representatives “Findings of the Investigation into China’s Act, Policies, and Practices related to Technology Transfer”.  The report states that “prior to 2001, China often explicitly mandated technology transfer, requiring the transfer of technology as a quid pro-quo for market access. After joining the WTO, China committed not to condition the approval of investment or importation on technology transfer.   Since then, according to numerous sources, China’s technology transfer policies and practices have become more implicit, often carried out through oral instructions and “behind closed doors.”  According to the report, “China continues to restrict foreign investment while selectively granting market access to foreign investors in exchange for commitments to transfer technology”.  China’s foreign ownership restrictions, joint venture requirements, foreign equity limitations, licensing and approvals process all contribute to pressure foreign investors to transfer their technology prior to conducting business in China.

You make the call.  Is China’s information technology transfer practice consistent with the spirit of the requirements outlined by the WTO?

Next week I’ll look at other ways which the Chinese as well as other countries around the world make the so called “level playing field” not so level.