Today is the last day of term and my brain is thoroughly fried. In honour of this occasion, above is a graphic from the Doom 3 expansion pack, The Resurrection of Evil. (This is not the first time I've mentioned this admittedly mindless though classic video game.) For, try as I might to get away from trade spats exploding all over the place, there is no relief as they keep being, ah, resurrected. To put this new trade spat into context, let us recall some recent history.Many countries, especially China, have been critical about US insertion of "Buy American" clauses in the $787 billion stimulus bill of 2009. Now, the United States is a signatory to the WTO's General Procurement Agreement (GPA) that self-explanatorily encourages non-discrimination against other countries in government procurement. As the WTO's principal architect, it is no surprise that the United States has signed on to this agreement. It believes that it must honour its commitments to fellow signatories. However, China is not a signatory and is thus more subject to discriminatory measures from the American POV. Here's an excerpt from a Reuters factbox dated 13 February 2009:
The bill stipulates that the Buy American provision be "applied in a manner consistent with United States obligations under international agreements." That is further explained in separate report language on the bill to clarify that it requires the United States to comply with obligations under the World Trade Organization's government procurement agreement and under the North American Free Trade Agreement and other U.S. free trade accords...China has always been of the opinion that "Buy Chinese" is perfectly legitimate in response. After all, China is not a signatory to the GPA. That's the first bit of history. The next one concerns the recent row over the PRC requiring computer sellers in the country--including Western ones--to install censorship software. While officials always claimed they were filth-fighting (read: pornography) wares, Westerners read more sinister intentions in the proliferation of these pieces of code. In any event, pressure from Western firms especially has resulted in a PRC climbdown.
The trade compliance language gives members of the WTO's government pact such as the European Union, Japan, Canada, South Korea and Taiwan comfort they could provide material for a public works project funded by the stimulus bill. But countries such as China, Brazil, Russia and India which are not members of the government procurement accord or do not have free trade pacts with the United States are not protected by that clause.
Or has it? Today's bit of news melds these two items. First, the Chinese are keen on slapping requirements that tech-related products sold to the government must have a certain amount of domestic content. Yes, it's "Buy Chinese" all over again. Second, giants of Western industry such as various chambers of commerce, the Business Roundtable, and tech industry associations are again applying pressure on Beijing to rescind these requirements. The Wall Street Journal notes that public procurement in China is now pretty big business--especially after the PRC government launched its own stimulus package. Interesting stuff. What follows below is the letter sent by the various bodies mentioned above to the burghers of Beijing. You can view the entire missive from the China Briefing website together with a brief writeup:-------------------------------------------------------------
December 10, 2009
The Honorable Wan Gang
Minister of Science and Technology
The Honorable Xie Xuren
Minister of Finance
The Honorable Zhang Ping
Chairman of the National Development and Reform Commission
Dear Minister Wan, Minister Xie and Chairman Zhang:
As heads of associations representing a wide array of companies and industries around the world, we are committed to fostering strong ties with China as it continues its more than 30-year path of economic reform. We are, therefore, deeply troubled by the joint circular (Notice No. 618) posted November 15, 2009 that would implement an Indigenous Innovation Product Accreditation system. Implementation of this system will restrict China’s capacity for innovation, impose onerous and discriminatory requirements on companies seeking to sell into the Chinese government procurement market, and contravene multiple commitments of China’s leadership to resist trade and investment protectionism and promote open government procurement policies.
We strongly believe that implementation of this program will undermine the more positive relationship that our countries have been working so hard to achieve with China.
The Indigenous Innovation Product Accreditation Program will hinder, rather than promote, China’s own goals of advancing its science and technology capabilities. Access to the best products and services from around the world is critical to spurring technological progress in all sectors of the economy, overall economic growth and higher living standards. Not only is the compressed application deadline of December 10, 2009 unworkable, but the very restrictive and discriminatory program criteria would make it virtually impossible for any non-Chinese supplier to participate—even those non-Chinese companies that have made a substantial and long-term investments in China, employ Chinese citizens, and pay taxes to the Chinese government. The result will be less efficient and more costly purchases of innovative products and services by the Chinese government and a slowing of the very technological development that China is pursuing.
Further, the criteria of Notice 618 diverge markedly from global practices and include unique requirements that the product’s intellectual property be developed and owned in China, and that any trademarks be originally registered in China. By contrast, quality, performance and value are given only a minimal role. China and the international community have a common interest in ensuring robust protection of intellectual property rights as we forge a closer economic agenda. China’s new criteria fail to recognize the truly collaborative, cross-border and global nature of R&D that produces innovation and that few if any products are developed in a single national territory. Establishing local intellectual property ownership as a market access condition would run counter to free and open trade and to fostering collaborative innovation.
The Accreditation Program also runs directly counter to the commitment of President Hu and other world leaders to pursue open trade and investment policies and avoid protectionism. Additionally, it would dilute, if not effectively nullify China’s commitment at the July 2009 U.S.-China Strategic and Economic Dialogue in which China clarified that its procurement policies were open to foreign invested enterprises (FIEs) and recognized the importance of non-discriminatory procurement policies.
For all of these reasons, we strongly urge the Chinese government not to proceed with the requirements of the joint circular. We would very much appreciate the opportunity to exchange views and share our experiences with your government on how best to advance your science and technology goals and to promote innovation through a fair and transparent selection process.
-------------------------------------------------------------
It's me again. Will the Chinese buckle again? My colleague from the Chinese foreign ministry think it's much ado about nothing which he always does say. Also, the trade litigation route is not readily available as the PRC is not a signatory to the General Procurement Agreement. So there you are. Peace on Earth is not an option in a world of continuous trade strife. Ho-ho-ho, etc.
