(Yicai Global) May 4 -- The US initiated its trade spat with China based on Section 301 investigation report. This report has caused the US government, Congress, and the two parties to believe that China has forced technology transfers, violated intellectual property rights and conducted unfair trade with the country.
The report's viewpoints have misled US political and business circles, and even some experts and the public. It is downright fraudulent.
The Three Key Supporting Arguments of the Report are Outright Lies
1. The report used more than 1,200 footnotes and five attachments to indicate that after China’s reform and opening up, all US companies with cooperation in China must hand over their proprietary technologies and original operating systems before they are allowed to conduct business in the country. The report called it "mandatory technology transfer", which is an outright lie.
At the beginning of the reform and opening up, when China conducted cooperation with Japan and South Korea, and with Taiwan and Hong Kong regions, it never required mandatory technology transfer. The US Chamber of Commerce in China, the European Union Chamber of Commerce in China, the South Korean Chamber of Commerce in China, and the Japanese Chamber of Commerce and Industry in China among other organizations have operated in the country for 40 years with more than 90,000 member companies and no company has so far filed a lawsuit related to this. Cooperation between these multinational companies and Chinese firms was voluntary and they reached commercial arrangements through legally protected negotiations. These multinational corporations have achieved rapid business growth in China. The Chinese government has never asked or stipulated that they must transfer technology when they make products in China. Representatives of these chambers of commerce felt the US report was ridiculous because the Chinese government has never had such a technology transfer requirements and it was totally groundless accusation against China.
2. China highly respects the intellectual property rights and technology transfer of foreign companies. In 2017, China’s trade deficit in services was USD255.4 billion, and a large part of which was paid by China for patent and technology transfer fees. Whether it is a Samsung’s smartphone or an Apple Inc’s iPhone, Chinese consumers must pay about 5 percent of the technology transfer fee at the time of purchase. When Chinese companies use video camera, camera and automotive technologies, they have signed technology transfer agreements with fees linked to the amount of sales. In 2017, China paid USD37.6 billion for technology transfer fees. China is a good student and observant who respects the World Trade Organization and intellectual property in the world today. Before the China-US trade spat, only the US believed that China violated the relevant provisions of intellectual property rights.
3. Many people in China believe that China has given up the market without receiving the technology, and the country has suffered a loss in China-US trade. U.S.’s sanctions against Chinese major telecom equipment ZTE Corp fully demonstrate that the United States has not given China its core technologies. Every year, China needs to import more than USD100 billion worth of chips from the US. This is a hard lesson learned during the 40 years of reform and opening up.
These three points indicate that the Section 301 investigation report is a fabricated accusation.
In History, All Developed Countries Have Developed Industrial Subsidy Schemes
The second major accusation of the Section 301 investigation report accused the Made in China 2025 as a state-led, highly subsidized industrial policy to offer subsidies for information technology, new materials, new processes, smart manufacturing, biopharmaceuticals, precision instruments and new energy industries, so American companies have been treated unfairly.
This is another lie.
Historically, all governments of developed countries (including Germany and Japan) have formulated core plans and objectives in the industrial development process. For instance, Japan used state subsidized interest credits as well as other measures such as tariffs in the past century which made its industrial development to have taken a leap forward.
As the German government adopted a favorable subsidy scheme for its small and medium-sized enterprises, its SMEs are now so developed because they are fully benefited from the strong policy support of the German government.
The United States is no exception. From the 1960s onwards, its strong military system, including breakthroughs in semiconductor technology, Star Wars, the Internet, nuclear power and pharmaceutical innovations, has all received special support of US government through its federal defense and fiscal budget.
Throughout history, Japan, Germany, and even the US itself have had industrial supporting policies. The US spent more than USD1 trillion to support its Internet technology development and Star Wars technology which support is more than the combined budget of all countries in the world.
The US Trade Representative Robert Lighthizer inexplicably identified Made in China 2025 as a target, accusing China of adopting industrial subsidy policies to achieve the strategic goal of promoting industrial development in the short-term, causing panic in the US industrial community. This is all the media’s hype and malicious attack. People with good sense know that it has no credibility.
US Section 301 Investigation Report Replaces Multilateralism with Unilateralism
The Section 301 investigation report discredited China's foreign investment and the Belt and Road Initiative into a national special target goal, calling the Belt and Road purpose to further suppress American emerging companies and their technology as well as the global market. This is a blatant fraud.
On the contrary, China has welcomed the United States to join the Belt and Road Initiative and the Asian Infrastructure Investment Bank (AIIB) from the very beginning. However, the U.S. government was opposed to China’s invitation and was reluctant to join. Therefore, the investigation report's accusation of China's Belt and Road initiative encroaching on the interests of US transnational corporations is a blatant lie.
What is even worse is that the investigation report has raised a paradox in the United States which will mislead for China's next step development, especially the cooperative attitude of "mutual benefit with China."
More importantly, the Section 301 investigation report is a notorious report that has repeatedly been defeated. It applies the rules in the United States and does not apply to the multilateralism rules under the WTO.
The trade dispute between the two countries can be resolved through the dispute settlement mechanism of the WTO. However, the United States did not use this settlement mechanism, but used its own laws and fabricated lies to impose on another country. This is something that has never happened before.
This has exposed the panic of the United States and also exposed its hypocrisy. More and more people are now seeing that the US Section 301 investigation report does not work globally. Using unilateralism to replace multilateralism, especially trade protectionism against globalization, will not work.
More and more people with vision in the US are studying the report. Over time, I believe that the US Section 301 investigation report will be seen through by US entrepreneurs, multinational corporations and experts and scholars and they will see clearly the hypocrisy and fraud of the US government so-called elites.
Therefore, I believe that letting American scholars and the media themselves expose the fraudulent Section 301 investigation report will have a greater impact on the cooperation between China and the United States.
[The author is former vice minister of commerce and currently vice chairman of Beijing-based think tank China Centre for International Economic Exchanges.]
Editor: William Clegg