- The Washington Times - Tuesday, March 28, 2000

Companies facing the prospect of having to part with valuable trade secrets to gain access to the Chinese market will have a new tool if China joins the World Trade Organization.

The Clinton administration hopes but organized labor doubts that companies will be able to resist a practice known as forced technology transfer if Congress approves a landmark agreement to bring China into the WTO.

"The WTO agreement gives companies that want to resist it a legal basis to do so," said Kevin Dempsey, a lawyer for the Semiconductor Industry Association, which has closely followed Chinese technology policies.

But organized labor fiercely opposes normalized trade relations with China, arguing that China's promises can't be believed and doubting that American companies will quit sharing their secrets.

"The companies are not exactly unwilling participants in these [technology transfer] deals," said Steve Beckman, a trade analyst for the United Auto Workers.

The WTO agreement is designed to curb these practices by getting at the dominant role of the state in China. It forbids the Chinese government from conditioning investments on technology transfer, a rule American officials insist also applies to state-owned companies.

The forced transfer of technology stems from official Chinese policies that foster the development of nascent industries.

Chinese companies typically demand that investors in an array of sectors automotive, electronics, aerospace bring new technology into China as part of joint venture agreements. Since it controls the vast majority of companies, the Chinese government can use its companies as surrogates to carry out official policy.

Eager to crack the 1.3 billion-strong Chinese market, many American companies have complied at least in part with Chinese requirements.

The automotive industry is a case in point.

According to a 1999 study by the Commerce Department, General Motors and Ford both jumped into the Chinese market despite requirements that they bring their new technology with them. By contrast, Chrysler Corp. stormed away from the bargaining table in the face of Chinese demands it considered excessive.

Stories like these have conjured up nightmare scenarios in which American companies help create their own Chinese competitors, who first learn from the American technology giants and then challenge their dominance in the world market.

The WTO agreement, as U.S. Trade Representative Charlene Barshefsky hastens to point out, has no effect on stringent American regulations that control trade in goods with military applications. These laws have been the subject of bitter battles between the administration and Congress because China also wants to beef up its military capabilities, but the WTO has nothing to do with them.

"We change none of our laws that control the export of sensitive technology," Mrs. Barshefsky said in a recent speech.

The agreement, most observers agree, will be a weapon in the arsenal of companies that want to do business in China without having to give up the jewels in their technological crown.

But enforcing WTO rules, if it comes to that, will be very difficult, according to a senior U.S. trade official. The official, who asked not to be identified, said the Chinese could still demand technology in subtle ways that would be difficult to prove in a WTO dispute.

For example, Chinese authorities could simply reject all investment applications that do not include an offer of technology, the official said.

In that case, the U.S. government would have to look for a "pattern of behavior" that it could demonstrate in a WTO case, the official said.

This strategy will not be easy, the official conceded, but the United States hopes that WTO membership will function as a deterrent by exposing China's practices to more scrutiny.

For Mr. Beckman, an agreement that cannot be explicitly enforced is as good as no agreement at all. He points out that the machinists union asked the Clinton administration in 1995 to demand changes to Chinese technology policies, but without success.

"The U.S. government's inaction on this problem does not inspire confidence that things will change," he said.

Mr. Beckman also said U.S. companies have seldom been willing to complain about Chinese pressure to share technology, and the industry concedes that many American firms will still do so voluntarily.

"In practical terms, there will always be arrangements between two parties," said Stephen Collins, president of the Automotive Trade Policy Council.

But the improved access that American firms will have to the Chinese market could prove the most important lever for prying changes out of China on technology transfer. It currently takes place in large part because high tariff walls have led foreign companies to make direct investments in China in the form of joint ventures with Chinese partners.

The WTO agreement reduces the size of those walls, and gives foreign companies the right to import and distribute their products without Chinese interference.

So, the current "absolute necessity" of having a Chinese partner will be dramatically diminished, the trade official said.

That crucial change, she said, will help U.S. companies avoid the prying eyes of potential Chinese competitors in the first place, provided they want to do so in the first place.

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