The EU has filed a new consultations request in the DS549 dispute. This request includes claims under Section 7(3) of China's Accession Protocol, such as the following one:
(1) The Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures ("JV Regulation") operating separately or together with other listed instruments, notably the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures ("JV Law"), is inconsistent with China's commitments under Paragraph 7.3 of Part I of the Protocol on the Accession of the People's Republic of China ("Accession Protocol") and Paragraph 1.2 of Part I of the Accession Protocol, which incorporates the commitments under Paragraph 49 and Paragraph 203 of the Report of the Working Party on the Accession of the People's Republic of China to the WTO (“Working Party Report”). This is because China conditions the right of a foreign investor to invest in China upon the transfer of certain technology to the joint venture with a Chinese partner. In particular, by imposing requirements on the type of technology to be transferred to the joint venture, China prevents or restricts the possibility for a foreign investor to freely decide or freely agree with the joint venture partner on the type of technology to be transferred to the joint venture. China makes such requirements conditional on obtaining the necessary approvals by the national or sub-national authorities.
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Pursuant to Paragraph 7.3 of its Accession Protocol, China committed to eliminate and cease to enforce performance requirements made effective through laws, regulations or other measures. Moreover, China committed not to enforce provisions of contracts imposing such requirements. China also committed to ensure that the means of approval by national and sub-national authorities of the right of investment would not be conditioned on performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China. Pursuant to Paragraph 203 of its Working Party Report, China committed that the allocation, permission or rights for importation and investment would not be conditional upon performance requirements set by national or sub-national authorities, or subject to secondary conditions covering, for example, the transfer of technology.
Section 7(3) says:
... China shall ensure that the distribution of import licences, quotas, tariff-rate quotas, or any other means of approval for importation, the right of importation or investment by national and sub-national authorities, is not conditioned on: whether competing domestic suppliers of such products exist; or performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China.
I hope this dispute goes in one of two directions.
Ideally, China would take this complaint seriously and be open to negotiating some kind of settlement. Sometimes there is domestic political value to litigating a case to the end, but given other things happening in the trade policy world, there is also value in China demonstrating that it can play a positive role in the world trading system. Adopting reforms in the face of a WTO complaint would be a good signal.
If China decides to litigate, though, other countries should support the EU's efforts here. They can do so as third parties, or by filing their own consultations requests. A coordinated effort is the most effective way to push for broader trade reform by China. It would be nice if the U.S. would participate in this way, as it has offered its own criticisms of China's technology transfer policies.
