The main concern is that terms imposed by China in return for access to their market are unfair in that they treating foreign companies differently to Chinese domestic entities and break a number of regulations agreed upon within WTO guidelines and legislation.

The European Commission has noted that there are numerous pieces of Chinese legislation that impact foreign companies, particularly in the area of intellectual property and there are two examples contained in what is known as TIER [Technology Import and Export Regulations]. One is that any improvements to imported technology must belong to the party making the improvement and the second provides that a technology import contract cannot contain clauses restricting the transferee from improving the technology supplied by the supplying party, or restricting the receiving party from using the improved technology.

In a statement the European Commission said European companies coming to China are forced to grant ownership or usage rights of their technology to domestic Chinese entities and are deprived of the ability to freely negotiate market-based terms in technology transfer agreements.

This appears particularly relevant to intellectual property licensor ARM Ltd. which appears to have accepted the restrictions placed on it by China and is in the process of selling a majority stake in its Chinese subsidiary to Chinese and other interests (see Softbank confirms sell-off of ARM China stake). When the idea first came up a year ago, specific mention was made of the ability of Chinese entity to develop and own ARM intellectual property within China (see Reports: ARM agrees to create Chinese IP firm).

Next: European Commissioner speaks

“Technological innovation and know-how is the bedrock of our knowledge-based economy. It’s what keeps our companies competitive in the global market and supports hundreds of thousands of jobs across Europe,” said European Commissioner for Trade Cecilia Malmström, in a statement. “We cannot let any country force our companies to surrender this hard-earned knowledge at its border. This is against international rules that we have all agreed upon in the WTO. If the main players don’t stick to the rulebook, the whole system might collapse.”

The European Union is seeking a specific form of WTO-mandated mediation. If consultations with China do not reach a solution within 60 days then the European Union will be able to request the WTO sets up a panel to rule on the matter. The US has previously made a similar approach to WTO about China.

However, WTO disputes are well known for taking a long time to reach a conclusion. Even if the WTO eventually ruled against China it is not certain that China would respond to criticism or that further sanctions would be called for, or effective.

Related links and articles:

EU submission to the WTO

News articles:

Softbank confirms sell-off of ARM China stake

Reports: ARM agrees to create Chinese IP firm

China’s ARM twist underlines strategic nature of tech


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