Info Service on WTO and Trade Issues (Mar19/10)
Geneva, 15 Mar (D. Ravi Kanth) – Despite extending an olive branch to the United States and the European Union by enacting a new foreign investment law to provide liberal treatment to foreign companies, Beijing is unlikely to secure any firm assurances from Washington over the lifting of blanket restrictions on Chinese telecom giant Huawei providing 5G mobile-internet infrastructure in various countries.
The US is ratcheting up its pressure on Germany and several other Western governments not to allow Huawei to provide 5G mobile-internet infrastructure.
The entire US establishment seems united against Huawei providing 5G infrastructure in other countries even though the Chinese company is far ahead of other rivals in this technology.
Huawei has launched a legal dispute in the US courts last week against the restrictions.
In lockstep with the escalating US actions against the Chinese companies, the European Union too has unveiled a blueprint on 12 March to stop its member governments from joining hands with the Chinese government and companies in pursuing projects.
The EU Commission has called China a “systemic” rival and threatened to impose tighter rules on Chinese investments in EU member countries.
It called for a more balanced and reciprocal economic relationship with China, saying that Beijing “preserves its domestic market for its champions” by restricting access to its market for foreign enterprises, subsidizing local competitors and failing to protect intellectual property rights.
Notwithstanding Brussels’ policy statement against Chinese investments, the new Italian government said on 14 March that it will go ahead with China’s Belt and Road Initiative (BRI), and enable investments for BRI projects.
Against this backdrop, the new Chinese law, adopted by its National People’s Congress (NPC) on Friday, aims to treat foreign companies on the same footing as the state-owned companies and also removes restrictions on forced transfer of technologies by the foreign companies.
It will provide stronger intellectual property protection and a better business environment for overseas investors.
The law, which will become effective on 1 January 2020, contains unified provisions for the entry, promotion, protection, and management of foreign investment, according to a Xinhua news agency report on 15 March.
The new law allows the Chinese government to manage “foreign direct investment according to the system of pre-established national treatment plus a negative list.”
Enacted ahead of the high-profile meeting of US President Donald Trump and the Chinese President Xi Jinping in Mar-a-Logo, Florida (with dates yet to be agreed upon and announced), the new Chinese law provides a “negative list” of areas/sectors where foreign companies can freely operate on par with the domestic companies except those that are excluded from the list.
It also bans “forced technology” transfers and removes other restrictions so as to enable foreign companies to function in a liberal framework.
According to the new law, foreign companies will equally enjoy government policies supporting enterprise development, and be able to participate in standard-setting and in government procurement through fair competition (China is yet to submit its revised market access offer to the World Trade Organization’s Committee on Government Procurement).
The Chinese state shall protect the intellectual property rights of foreign investors, according to the new law.
“If we make a promise on opening up, we will certainly deliver,” China’s Prime Minister Li Keqiang told reporters on Friday (15 March). “Going ahead we will continue to listen closely [the] view from various parties and we’ll keep China open,” he said.
“It is a full testament to China’s determination and confidence in opening wider to the outside world and promoting foreign investment in the new era,” said Wang Chen, vice-chairman of the NPC standing committee.
Clearly, the new law is aimed at attracting foreign investments on a grand scale but the US and the EU are placing massive restrictions on investments by the Chinese companies in high-tech areas, especially in advanced chips and artificial intelligence.
Last year, the US Congress had passed laws for scrutinizing Chinese investments in the start-ups and other small and medium sized Silicon Valley companies. American financial giants are welcoming the new Chinese law that would enable the US asset-management companies and rating companies like the Standard & Poor to operate in China.
According to a report in Financial Times on 15 March, “the American Chamber of Commerce in China said it welcomed the change “in principle” but raised concerns at the lack of international business input.”
But China’s drive to open the floodgates for foreign companies in its domestic market is not being reciprocated by the US or the European Union in same measure. For example, the US administration has now raised the bar for bloc king the Chinese telecoms giant Huawei from gaining entry into Germany and several other countries.
According to a report in the Wall Street Journal on 11 March, the Trump administration has threatened the German government that Washington would limit intelligence sharing with Berlin if Huawei Technologies Co. is allowed to build Germany’s next-generation mobile-internet infrastructure.
The WSJ cited a letter by the American ambassador in Berlin to Germany’s economics minister on 8 March in which the US threatened that “allowing the participation of Huawei or other Chinese equipment vendors in the 5G (fifth generation) project would mean the US won’t be able to maintain the same level of cooperation with the German security agencies.”
The US letter to Germany “marks the first known time the US has explicitly warned an ally that refusing to ostracize Huawei could lessen security cooperation with Washington,” according to the WSJ’s report.
The US is exerting unprecedented pressure on its allies, including Japan, to ban Huawei on grounds that the Chinese company would share data with the Chinese government. Australia recently banned Huawei’s 5G equipment while Japan has toughened its rules.
So far, the US has however failed to provide any concrete evidence that the Huawei’s 5G infrastructure includes the ability of the equipment at its customers to spy for China.
Germany has said it has seen nothing to indicate that Huawei would use its customer’s equipment to spy for Beijing. It asked the US to bid for the 5G contract if it satisfies basic security criteria.
Clearly, the lines between what the US is asking China to do in terms of removing all the restrictions on foreign companies and protect intellectual property provisions, and what Washington is doing to stop China and its leading tele coms companies in foreign markets is getting blurred by the day.
The exclusion of Huawei “on the say-so of American officials, without evidence of spying, would set a dangerous precedent,” The Economist warned in its editorial on 31 January.
“The same precautionary logic would justify banning all hardware made in China or keeping Chinese firms out of industries like e-commerce or finance,” The Economist wrote.
Early this week (12 March), the US Trade Representative Ambassador Robert Lighthizer informed the US Senate Finance Committee that the US wants to impose retaliatory tariffs on Chinese goods in case Beijing fails to implement the commitments that are now being negotiated with the Chinese negotiators.
The US, however, does not want China to be able to impose any retaliatory measures in response to the US measures, suggesting that Beijing cannot have equal rights with Washington in areas of trade policy actions.
Ambassador Lighthizer has also indicated that China will not be able to avail of special and differential treatment flexibilities at the WTO.
In short, China seems to be extending more concessions without securing cast-iron guarantees that the US will refrain from its restrictive actions against the Chinese telecoms and other hi-tech companies.
Ironically, China is actively pursuing the plurilateral e-commerce initiative at the WTO without any guarantee that it would reduce the level of barriers on Huawei.