Technology transfer has been one of the major issues in the US-China trade frictions and perhaps a general concern of developed economies. The main complaint has centred on China's "forcing" technology transfer from foreign companies to their Chinese local partners as part of China's FDI policy and laws - so that China has been “stealing” foreign advanced technology. However, we know that China has been paying tons of money for foreign technology. In 2017, for example, the licensing fees and royalties that China paid for the use of foreign technology reached almost $30 billion. It is therefore at least debatable whether any acquisition of technology has been undertaken by private negotiations with fair compensation.
Under the WTO, the question is whether there are any Chinese measures that do mandate technology transfer in a way that violates WTO rules, and if so, whether a WTO dispute may change the situation. Recently, the US and the EU sued China on this matter respectively in DS542 (US) and DS549 (EU), both focusing on various provisions of the existing Chinese laws on foreign investment. Now, the most interesting part of these disputes may no longer be the legality of the challenged Chinese measures, as China is in the process of revamping its foreign investment law.
The draft new foreign investment law contains two relevant provisions:
- Clause 22: Technology cooperation between foreign and Chinese entities shall be undertaken voluntarily based on commercial rules. The terms and conditions for such cooperation shall be negotiated by the entities themselves. All levels of government and their officials are prohibited from forcing technology transfer through administrative means.
- Clause 39: From the effective date of the law, the existing foreign investment laws are abolished.
If everything progresses smoothly, it is expected that the new law will be adopted in 2019 and take effect shortly after the adoption. Given the time that the WTO adjudication process may take, it is very likely that China will have already removed the WTO-inconsistencies challenged by the US and the EU before panel decisions. However, if, as many believe, the core of the technology transfer problem lies in practice rather than in law, it remains to be seen to what extent the new law may provide a solution to these disputes.
