Trade dispute could lead to others

By Ray Chung 鍾秉霖  / 

Wed, Jun 12, 2019 - Page 8

The disputes between the US and China keep getting worse. Various international organizations, including the Wi-Fi Alliance and the SD Association, have either barred or restricted the membership of China’s Huawei Technologies, which has also voluntarily withdrawn from the JEDEC Solid State Technology Association.

Purely from the point of view of trade disputes, Taiwan, Japan, South Korea and Germany all had big trade surpluses with the US in the mid-1980s, when their domestic investment regimes and markets were to varying degrees closed to outsiders.

Due to those issues, plus intellectual property rights (IPR) infringements and so on, the US imposed severe sanctions on these countries.

Just like China now, these countries met the conditions for measures to be taken against them under the terms of US laws such as Section 301 of the Trade Act, Section 337 of the Tariff Act and the Special 301 Report.

Pressure from the US, plus the terms of the 1985 Plaza Accord, led Taiwan, Japan and South Korea to open their markets to imports, cut import tariffs and allow their currencies to greatly rise in value relative to the US dollar.

In the current trade dispute between the US and China, the US is likewise defending fair trade and calling on China to open up its market.

It is imposing punitive tariffs on China in response to Beijing’s government subsidies, dumping and IPR infringements.

The WTO has defined China as a non-market economy and accused it of infringing international free-trade relations, which gives WTO member states grounds for imposing sanctions on China.

However, what is different about current US policy regarding China is that the US already made a policy adjustment two years ago, changing its view of China from a strategic partner to a strategic competitor.

The disputes between the US and China therefore cannot be discussed solely in terms of trade relations.

In response to China’s infiltration and theft of cutting-edge technology, the US has instituted the International Emergency Economic Powers Act, which authorizes the president to impose sanctions in response to any matters that harm US national security or its foreign policy interests.

The US has imposed restrictions on exports of US-related products, technology and services to China under the Export Administration Act and Export Administration Regulations, and even before that the Committee on Foreign Investment in the United States imposed strict regulations on Chinese investment and acquisitions in the US.

These measures are quite distinct from purely economic issues, since they start out from the most crucial issues of national defense and security strategic orientation.

Furthermore, the technologies in question are dual-use in that they have both military and civilian applications.

If related investments and exports are not strictly regulated, they could be used for developing weapons.

This is especially true considering that China is continually using things like its Belt and Road Initiative, its military expansion in the South China Sea and backdoors in electronic devices to further its ambition to achieve worldwide military and economic hegemony.

China’s behavior these days is quite different from the low-profile stance it adopted in the early years of reform and opening up, and this is what has triggered the US’ bans against technological warfare by companies such as Huawei and ZTE.

As time goes by, such bans might be extended to include manufacturers of surveillance equipment and drones, facial recognition technology such as Apple’s Face ID and so on.

Under the Export Administration Act’s rules on banned items, products manufactured abroad whose software originates from the US are also banned from being sold to Huawei.

Consequently, Taiwan’s electronics and related industries must be careful. Even if they think that they are not being affected at present, if they wait until the US requirements regarding percentage of “US technological content” are lowered, like the percentage of terrorism or totalitarian countries, it might be too late.

It might not really matter whether Taiwan Semiconductor Manufacturing Co is banned from supplying Huawei subsidiary HiSilicon Technologies, because when companies like ARM, Qualcomm and Quorvo have already been banned from selling their products to Huawei, it means that Huawei’s brain, heart, nerves and arteries are already being choked off, so what kind of supplies could it still really need?

Taiwan’s government, business and industry must understand that what is going on between the US and China is not just a trade dispute, and it might go on for a very long time.

Their trade “war” could be followed by a technology war, financial war (freezing assets), diplomatic war, strategic blockades and so on.

Given the risks that lie ahead, Taiwan must take precautions so that we are ready to respond at any time.

Ray Chung is manager of Honeywell Taiwan’s contract and law department.

Translated by Julian Clegg