China Must Play by the Rules
Peter Singer Associate Editor -- Semiconductor International, 2/1/2000
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Peter Singer
Associate Editor
Purchasing by State-Invested Enterprises -- The Chinese government has agreed to push its state-invested enterprises to make purchases on the basis of commercial considerations. This is important since state-invested enterprises have controlled a significant share of the trade in electronics goods into and out of China. Without such an agreement, there would be a risk that other state-invested enterprises (i.e., those making PCs) would be encouraged by Chinese officials to buy from domestic chip suppliers. (Such discrimination is not disciplined by current WTO rules.)
Elimination of Investment Restrictions-- China has agreed to eliminate Chinese foreign investment restrictions, including restrictions on 100 percent foreign ownership, export targets and local content requirements that often have been imposed as quid pro quos for granting market access. These measures often have been used as levers to force technology transfer. China must refrain from taking any measure that requires a foreign enterprise to invest, enter into any form of joint venture arrangement with a Chinese entity, or transfer any technology or intellectual property to a domestic entity.
Trading and Distribution Rights-- Restrictions on "trading rights" (the ability to import and export from China) will be eliminated. This is good news, since they tend to undermine the benefit of other trade liberalization measures agreed to by China. The current system forces outside producers to sell through Chinese distributors and provide after-sales service through a domestic Chinese entity. The inability to deal directly with end-users has been a particular problem in the chip industry, where the design and development of application-specific chips requires extensive contact between chipmakers and the ultimate end-users of the chips.
Protection of Intellectual Property Rights-- China has agreed to abide by the obligations of the WTO Agreement on Trade-Related Intellectual Property Rights (see www.wto.org for more information). Already, China has enacted patent, copyright and trademark laws, but their credibility requires strengthened enforcement.
Antidumping Rules-- It may be too much to hope that China will completely avoid "dumping" semiconductor devices on the rest of the world, but it has at least agreed to be subject to the same anti-dumping regulations as other countries. ("Dumping" is selling products at less than fair market value.)
Leaders in China should be congratulated heartily for realizing they need to make changes in order to foster a high-tech industry. But they also must realize their biggest challenge has yet to come -- enforcing the rules to which they recently have agreed.
To make entry into the WTO possible, China has agreed (to the surprise of many) to abide by a fairly long list of rules. Here's a list of those "rules" (according to the Semiconductor Industry Association), most of which mark a significant change in the way business is practiced in China.
Peter Singer, Editor-in-Chief
