“Indigenous Innovation” Can’t Be Wrong
Protectionists are amazingly inventive people. The cadres in Beijing – the same ones who shout “unfair!” whenever anyone curbs Chinese exports or even hints at criticism of Chinese exchange rate policy – have come up with a new twist to create a “Buy China” policy.
The whole thrust of international agreements on government procurement is to get rid of, or at least limit, buy national rules – the laws and regulations that require or permit government officials to favor products from their own countries. The reasons are to promote competition, open foreign markets, reduce opportunity for corruption in the procurement process, and – oh, yes – to get better prices so that taxpayers don’t have to pay as much. The GATT/WTO code of conduct on government procurement has done a lot to limit “buy national” practices among its signatories. The infamous “buy America” laws in the United States are a shadow of what they used to be, though Congress often thinks they can bring the bad old days back. I’ve run into “buy local” rules worldwide, but they are fewer now than before. That said, protectionists have shown amazing ingenuity in using product standards, health and safety requirements and other such things to achieve the same nefarious goals of preserving official markets for local producers.
Will Beijing Buy It?
Now China may have launched a new round of protectionism, one that could easily rebound against Chinese companies trying to export high tech products. Beijing has dreamed up a requirement that would favor – not local products – but products that use locally-produced technology. Seems they are creating a catalog of products that Chinese government agencies can buy, but to get your product in the catalog you must first demonstrate that you are using “indigenous innovation“. This new rule, quietly announced but not publicized in October, seems aimed at procurements of computers and other high tech systems by Chinese government agencies. But the extent of the rule isn’t clear: does it apply to the entire $88 billion government procurement market in China? Do state-owned companies have to comply? We don’t know and the Chinese aren’t saying. One assumes that Beijing is trying to encourage innovation by Chinese companies and may be trying to force tech transfer from foreign firms, but it isn’t clear. Can Lenovo, a Chinese company, sell a made-in-China laptop to the Chinese government if that laptop uses technology that Lenovo bought from IBM? Is Taiwan’s Acer sufficiently “indigenous” if they load their laptops with Mainland-developed software? We don’t know.
In an unprecedented move last Thursday, 34 business organizations from the United States, the European Union, Japan, Canada and Korea issued an open letter to the Chinese government protesting the new “indigenous innovation” requirements. Companies dare not protest openly because they can’t risk an adverse reaction from the government agencies they want to sell to. But Beijing would be wise to listen to the protests. One hesitates to guess what will happen if the new rule is enforced and “mirror image” advocates in other countries start thinking about it. Does Beijing really want to kill Lenovo’s sales to foreign governments?
