The Senate Subcommittee on Economics and Security’s inaugural hearing Thursday focused on the impact of China’s economic practices on intellectual property and standards setting.
The newly formed Senate Subcommittee on Economics and Security held its inaugural hearing Thursday and received testimony about how China’s economic practices influence competitiveness, intellectual property, standards setting and cybersecurity.
Subcommittee Chairman Sen. Dan Sullivan, R-Alaska, said it is imperative for China to commit to structural changes in its economy, including curbing industrial subsidies, bolstering intellectual property protection and ending forced technology transfers. U.S. trade representatives estimate Chinese theft of American intellectual property costs the United States $600 billion per year, he said.
“The United States must insist that the bilateral trade agreement with China be defined by something understood by every American citizen: reciprocity and fairness,” Sullivan (pictured above) said in his opening statement. “For too long the U.S. has accepted unfulfilled Chinese promises of greater market access even as we open up our economy to a Chinese company. The demand for fairness and reciprocity should not undermine China’s success.”
American tech companies face “significant challenges” in doing business in China, said Josh Kallmer, executive vice president of policy for the Information Technology Industry Council. China coerces foreign companies into disclosing proprietary technology, subsidizes the domestic manufacture of products and restricts cross-border data flows, he said.
Nevertheless, American companies need to continue doing business in China, he said, because business engagements there strengthen the U.S. economically and technologically and prevent China from violating international trade norms more substantially.
“By pressing for increased market access, participation in standard setting and fairer treatment overall, U.S. companies help keep a spotlight on Chinese practices that preclude it from rewriting the rules of trade,” Kallmer said.
But China has issued more than 300 cybersecurity standards since 2015, said Samm Sacks, cybersecurity policy fellow and China digital economy fellow with New America. Those standards could be used to pressure companies into undergoing reviews in which information and source code may be exposed; create a competitive advantage for Chinese companies if regulators deem them superior; and force firms to redesign products for the Chinese market, she explained.
To combat the challenges, she recommended the U.S. be selective about what technologies are vital to national security and be aggressive about protecting them and to work with China on setting norms for emerging technologies. She also said the U.S. should make targeted demands of China in trade talks.
“As China’s standards regime is still taking shape, the Chinese government should commit to revise those standards that pressure U.S. companies to disclose source code, encryption keys and sensitive information,” Sacks said.
Sacks and Kallmer both said investing in research and development, STEM education and improving physical and digital infrastructure is necessary.
Subcommittee ranking member Edward Markey, D-Mass., agreed.
“To be clear, tariffs and tweets alone are not sufficient to address these threats to commerce, nor is any bilateral deal that does not address the underlying structural problems in our economic relationship,” Markey said. “We must be willing to make the domestic investments needed to ensure our workers, our manufacturers and our innovators have the tools and resources they need to compete in this globalized economy.”
A national data security and privacy law needs to be passed to promote the competitiveness of American firms, said Eric Rosenbach, co-director of the Belfer Center for Science and International Affairs at the Harvard Kennedy School.
“In the absence of a national strategy to protect Americans’ data, promote competitiveness of American firms and secure our information technology and infrastructure, the U.S. risks ceding its leadership role in the information age,” Rosenbach said.
