China's Pursuit of Industrial Policy Objectives: Does the WTO (Really) Have an Answer?

In the year 2016, according to estimates by the Chinese Bureau of Statistics, joint ventures (JV) with foreign partners contributed over 25% of foreign investment inflows in China. To the extent these JV help emerging economies such as China become more competitive and innovative is a positive consequence that is widely welcomed by the international community. However, the alleged forced technology transfer in these ventures is the Achilles heel that has evoked various retaliatory responses from governments worldwide. The United States recently studied the issue in its section 301 investigation and subsequently implemented various measures, including tariffs worth over USD 250 billion, which led to the onset of the so-called US-China trade war. The European Union (EU), on the other hand, called for the regulation of forced technology transfer and resorted to a more restrained manner by officially filing a complaint before the World Trade Organization (WTO). The EU's complaint confirms the onerous set of conditions - such as forced technology transfer for approval of investments in strategic areas such as electric cars and the biotech sector - that stand in clear contrast to the China's commitments when it first joined the WTO. For the companies, particularly those in the high tech sector, intellectual property is a key source of competitive advantage. Knowingly sharing this source of advantage means that rational firms that seek profit maximization derive some unrivalled gains through these collaborations.

Against this mixed backdrop, using inter-disciplinary insights from law and business strategy, this article, a part of series of articles on the subject, critically assesses the contemporary debate and different approaches to China's practice of `discriminatory licensing' and `forced technology transfer'.