Article: Technology Transfer under China’s Foreign Investment Regime: Does the WTO Provide a Solution?

“Forced” technology transfer is one of the most longstanding and significant issues in the U.S.-China trade war and international trade regulation in general.

Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre Member, Senior Lecturer of UNSW Law Dr Weihuan Zhou’s latest research paper “Technology Transfer under China’s Foreign Investment Regime: Does the WTO Provide a Solution?” contributes to the ongoing debate over this issue. 

This co-authored paper with Associate Professor Huiqin Jiang from School of Law and Politics, Zhejiang Sci-Tech University and Professor Qingjiang Kong, the Dean of the School of International Law at China University of Political Science and Law is going to be published on the forthcoming (2020) 54(3) Journal of World Trade.

This paper reviews the role of technology transfer in the evolution of China’s foreign direct investment (“FDI”) regime over the past four decades. It shows that the use of foreign investment to promote diffusion of advanced technology and know-how in the Chinese economy has long been rooted in the heart of China’s FDI policy and remains fundamental for China’s transformation to an innovative economy.

The paper highlights that the pursuit of economic upgrade and technological advancement is not illegitimate as it is common for countries to use similar policies for similar objectives at different stages of economic development. The question is whether China has done so in breach of its WTO obligations.

To answer this question, this paper examines China’s new FDI regime. It argues that while China has removed the controversial provisions in the relevant legislations, the regime leaves flexibility for China to “force” technology transfer in practice, particularly under the security review and retaliation mechanisms envisaged in the new Foreign Investment Law.

The team argues the best way to address these outstanding challenges would be through the dispute settlement mechanism of the WTO as opposed to unilateral and confrontational approaches which have proven to be counter-productive. While WTO litigation is likely to be limited to “as applied” claims in specific cases, systemic changes may result from a series of successful “piecemeal” attacks over time.

Given China’s broad WTO commitments on technology transfer, the team calls for an increasing use of the existing rules to address any laws and practices that “force” technology transfer instead of negotiating new rules.