Writing in the Harvard Business Review, Laura D'Andrea Tyson is concerned about trade related investment measures (TRIMs) in the high-tech sector:
Too often foreign governments committed to building their own high-tech economies pressure American companies to outsource their activities. They do this in two ways: by enticing them with generous subsidies or by requiring them to comply with local-content and technology-transfer policies in order to gain access to their markets. In many cases, these policies are inconsistent with their obligations to the World Trade Organization.
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Under President Obama, the Office of the U.S. Trade Representative (USTR) and the Department of Commerce are committed to using the WTO more energetically to enforce existing trade agreements. One way to deliver on this commitment is to bring WTO cases against violations of the TRIMS agreement in technology-intensive industries. The USTR should also review this agreement and develop proposals for strengthening it, particularly in these industries where temporary "infant industry" policies to shift production and research activities to emerging market locations can have long-term effects on the U.S. innovation base.
She also warns about trade conflict in the renewable energy sector:
The potential for conflict over trade-related measures to influence patterns of cross-border investment and sourcing is mounting in the technology-intensive area of renewable energy. Both the U.S. and China, along with many other countries, want to nurture domestic suppliers of renewable energy to serve demand at home and abroad. Renewable energy is the new target for a variety of industrial policies, ranging from R&D support, tax credits, and grants for domestic producers to local content requirements on foreign investors. Many of these policies might violate WTO commitments.
For example, all wind farms in China must use wind turbines that meet a local content requirement of 70%, and China is considering whether to require wind turbines to contain mandated shares of Chinese-owned intellectual property. Even Canada has made the use of local content a factor in government selection and approval of wind-power projects.
According to the Harvard Business School's Gary Pisano and Willy Shih, the U.S. has already lost parts of the industrial commons to support manufacturing and innovation in wind turbines, solar panels, and other renewable energy products. Thus, it should not come as a surprise that about 80% of the stimulus money spent on wind farms in the U.S. has gone to the purchase of wind-turbine equipment from foreign companies. The U.S. should use WTO cases to stem the use of local content and other WTO-violating policies in the renewable energy sector.
The U.S. should also try to negotiate a trade and foreign-investment agreement in renewable-energy products. A sectoral trade agreement in IT products negotiated in the mid 1990s fostered rapid trade growth and contained trade conflicts in these products. A sectoral trade agreement that covered trade-related investment measures could do the same for renewable energy products.In the absence of such an agreement, if other countries use preferential industrial policies for domestic producers and local content restrictions on foreign producers to build their renewable energy sector, the U.S. is likely to do the same. That would clearly be a step backward in open trade and investment flows and a second-best outcome from an efficiency perspective. But it could prove to be a justifiable one.
The key points seem to be: (1) an international agreement in this area would be useful; and (2) in the absence of an agreement, the U.S. should consider matching the trade advantages handed out by other governments.
Not quite "Who's Bashing Whom," perhaps, but it does bring back memories of the early 1990s.
