The European Union is initiating a legal action against China in the World Trade Organization (WTO) for the practices that make European companies give up sensitive technology and know-how as a prerequisite for doing business in China. The legal action builds on a case first started in June 2018 that significantly broadened the scope of WTO action against Chinese measures on forced technology transfers. The European Commission says the action is being taken “in the light of additional findings concerning the incompatibility of the Chinese measures on the approval of investments and the protection of foreign companies’ intellectual property rights with the agreed multilateral rules”.
“We cannot tolerate that EU companies have to give away valuable technology as a price to pay for investing in China,” commented the Trade Commission Cecilia Malmstroem and added that “this clearly goes against the rules that China committed itself to when it joined the WTO.” Ms. Malmstroem also stressed that “today, we launch a broader and more systemic legal challenge against this illegal practice, as we believe that it is a major issue affecting European companies doing business in China. This is a matter that can and should be solved within the international, multilateral framework.”
The EU now seeks to challenge the Chinese laws that introduce the approval of investments in the areas of electric vehicles and biotechnology and the approval of joint ventures across sectors as well as impose performance requirements on foreign companies operating in China. The so-called performance requirements force European businesses to transfer technology to their Chinese partnering companies in exchange for the needed administrative approvals by the Chinese authorities. Foreign firms also have to do research and development activities in China.