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On December 1, 2018, US President Trump and Chinese Leader Xi Jin Ping held a 150-minute dinner meeting at Buenos Aires, Argentina where the 13th G20 took place. The meeting was highly anticipated and hyped in the media to world attention. At the end, the two sides reached an understanding by announcing a 90-day truce stopping the escalating trade war. Both sides will not increase any tariff rate nor add new items onto the current tariff list. Within the 90 days,both sides will negotiate and tro to reach an agreement. The caveat is, if a satisfactory agreement could not be reached, they would be back to the trade war. This transnational conclusion is certainly better than no conclusion. The question is: will they reach a final agreement? Let’s make a fair analysis on each side’s demands and see whether a satisfactory agreement can be reached in 90 days.

This trade war was initiated by the U.S. China was on the defensive firmly stating that she would rigorously defend her rights. The most important matter to China is her right to maintain her economic development and to continue pursuing the China Manufacture 2025 plan which is designed to elevate her manufacturing and product technologies. The U.S. had made more accusations and demands in asking China to cease or correct her trade practices in addition to objecting to the China’s 2025 manufacturer plan. Apparently, the U.S. had realized that it is unfair to forbid anyone to have its own development plan unless the plan contained measures violating international law and damaging to the U.S. economy. Thus the U.S. did not mention ‘China manufacturer 2025’ but focused on the specific practices that were deemed damaging to the U.S., such as deploying predatory tactics in its tech drive, including stealing trade secrets and forcing American firms to hand over technology in exchange for access to the Chinese market.

According to the White House announcement, Trump agreed to hold off raising tariffs on Jan. 1, 2019 on $200 billion in Chinese goods and China agreed to buy a very substantial amount of agricultural goods, energy, industrial and other products from the United States to reduce the huge trade deficit with China. The media (Times) noted that the White House appeared to be reversing course on its previous threats to tie trade matters to security concerns (like China’s construction activities in the South China Sea). Out of humanitarian reasons, China agreed to label fentanyl, the deadly synthetic opium causing the death of tens of thousands of American drug users annually, as a controlled substance (making seller of fantenyl to the U.S. subject to maximum punishment). 

The G20 downgraded their outlook for global economic growth next year to 3.5 percent from a previous 3.7 percent citing the trade conflict as well as political uncertainty as the causes. The U.S. stock market has been jittering downward worrying about the outcome of the US-China trade war. Will this 90-day truce bring us an agreement that will stop the trade war for good? Based on the events including rhetoric, actions and counter-actions happened in the past eight months and the above truce statement, one may be cautiously optimistic about the future. First of all, the rise of China and her economic power was not by steeling from anyone, it has its logical reasons. China’s focusing on manufacturing and the U.S. transforming her economy from agriculture and manufacturing industries to finance and service industries are all their voluntary choices. The success of China’s goal of lifting her significant number of citizens from poverty line to middle income is commendable and can be credited to her government’s right economic policies and her people’s work ethics.

China started with low level labor intensive manufacturing which most advanced or developed nations were willingly to transfer for profit and/or to get cheap goods in return. Then China, like all market places on earth in the past history, offered her market place for technology products, from low, medium and high tech with the condition that China would benefit with technology infusion while the foreign firms could rip tremendous profits. The Chinese government might have a concerted plan coercing foreign companies to participate, but in reality no one was forced under a gunboat (thinking of the British forcing opium trade to China under her gunboat power). The foreign corporations voluntarily signed their cooperation ventures. Did they make money, sure they did. Did the Chinese learn from the transferred technology, yes they did with more innovation on her own. Hindsight to cry foul seems to be just sour grape attitude. As for invasion of intellectual property, it has been a sad history since industrial revolution. There was no shortage of stealing, copying and cheating on intellectual properties in all developed countries. China is a late comer and she like other developed nations will soon face the same problem as she has now become the biggest annual patent holder surpassing the U.S., Japan and Germany.

China certainly has the right to have her Manufacturer 2025 plan to upgrade her technologies. China has been shutoff from high tech participation when national security threat from China was a joke. But with 24 neighbors, a number of them technologically and militarily powerful, out of necessity  she has to develop her own defense technology. She succeeded in nuclear power but she was the only country declaring that she would never use it first against anyone. She developed her space technology, not only the satellites, space shuttles even her own space station despite of being shut out from the world’s space-station research club. Yes, China has risen but she has done it with her people’s sweat, body and soul. Is China a threat to the world? Looking back in history, it is safe to bet that China might be the least threatening nation among the major powers in the world.Will China bring competition to the world? Yes, more likely to be beneficially and peacefully.

Facing the ill-initiated trade war, China decided to stay firm to defend her rights. With the 90-day truce, China will likely agree to open up more her markets, modify her investment control process, enhance protection of intellectual properties in a gradual pace as she probably would without the trade war. In addition, China will purchase more substantial American products, perhaps slightly at the expense of other countries. But the sanction of selling high-tech products to China is most likely the obstacle for reaching a trade agreement. The US hi-tech sanction policy places China as a competitive enemy directly hindering her strategy of upgrading her industrial technology base to sustain her economic growth. Yet removing such sanction is the most effective means for reducing the US-China trade imbalance. 

For example, an advanced hi-tech Jet plane is priced from $100-500 million, three hundred planes can value up to $150 billion. The US-China trade imbalance is only about $3000-4000 billion. Thus with China’s enormous purchasing power, reaching a trade balance between the two countries is an achievable goal. What about China will begin to make her own planes? Just like cars we could not stop the Japanese, Koreans, … we just have to move on and upward in this competitive world. So the key is to make Americans competitive like the Germans, Japanese and Chinese. Regarding IP protection, China also has her concern of outflow of her advanced technologies in the areas of high-speed rail, electric vehicle, robotics, renewable energy resources, transport and storage of energy, etc. So the positions of The U.S. and China on IP protection should quickly converge. 

Regarding other structural changes related to trade, finance and investment, it would seem to be more productive for the U.S. and China to begin working together on WTO reform (rather than litigation against each other). China is very concerned with the stability and sustainability of her economic growth, so should the U.S. China will not entertain any drastic changes on her working economic system or any new idea without experimentation nor will she (and the rest of the world) give up current WTO easily. The U.S. should have understood China’s concerns and issues discussed above. Therefore, in the 90 days of negotiation, we may optimistically say that the U.S. and China can reach a trade agreement barring any gunboat attitude messing up the negotiation.

‘Legal Corruption’ in this article means corruptions protected by law under a politically correct banner. This type of corruption often involves the legal system in the U.S. with lawyers, legal professionals and judges corrupting the legal system and vice versa. Therefore, legal corruption may be interpreted in a narrower sense as corruptions happening in the legal system, applying law to protect corruption. In either definition, the legal corruption in the U.S. is growing tremendously hurting individual citizens, corporations, foreign nations and the U.S. reputation. This type of corruptions is usually well protected by law and cleverly executed by the legal system from law enforcement to court system involving lawyers, consultants, law enforcement agencies and courts. These people involved in the corruptions generally keep a low profile and hide behind laws.

We may start with a small case to illustrate a ‘legal corruption’. First example is the traffic law which has been used by law enforcement and court system to generate revenues for the government, court system and law enforcement benefits. Speed traps are well known in certain areas and certain times being set up mainly to catch out of jurisdiction travelers. The travelers often cannot come to the local courts to defend their cases thus willingly paying a fine which can be an unreasonable amount. Many citizens had this type of experience which might be blamed on the speeders’ own fault. But when certain small towns with highways passing through their township use speed traps to generate income to fund their entire police department or paying overtime or bonuses to their court system and law enforcement force, this borders to corruption. When electronic device is used to catch speeder, it is very easy to catch them even just with a fraction of mile per hour over the speed limit, say, 40 miles/hr. When the speed trap is overused or eagerly applied to generate money for the benefit of a small number of people, it is legal corruption. Similarly, when the law enforcement is given right to confiscate valuables and large amount of cash from a traveler under suspicion of drug or illegal activity, possible corruption may occur. The out of town owner often gives up the confiscated money out of fear or inconvenience to go through a lengthy legal process. Then the confiscated money benefits the court or a small number of individuals. These types of laws give incentive to corruptions and they do happen indeed in our country.

The U.S. passed a law, called Foreign Corruption Prevention Act (FCPA), which is meant to punish American corporations doing business with foreign country involving bribery or receiving kickback. This is a Law well-intended to discourage American companies to commit corruption. However, under this law, many foreign corporations having branches in the U.S. are subject to the jurisdiction of this law, thus the Economist magazine termed it “the American Law with a long arm”. Foreign companies having business branches have become the major targets of the FCPA law. A recent case is revealed because the victim, Frederic Pierucci, an executive of Alston (French Company) was arrested while on a business trip to the U.S. and jailed for many months in cells for serious criminals simply because Alston had committed bribery when doing business with Indonesia. Pierucci was not involved in the Indonesia business but his name appeared as a recipient on one of the corporate emails discussing the Indonesian deal. The U.S. court under FCPA pursued him and others relentlessly seeking a huge fine. He was released after reluctantly admitted wrong doing. Then, Alston sold its natural gas burning turbine to GE along with this legal hot potato hoping GE will take care of this mess, but FCPA court demanded a fine of $0.775B from Alston, refused GE intervention and rearrested Pierucci again. The case was finally terminated after Alston agreed to the fine. Of course this fine does not include tons of money paid to lawyers, consultants and court fees and the misery Mr. Pierucci endured. He wrote a book in French to vent his grief.

According to a Chinese language blogger, this type of legal pursuant has grown bigger and bigger in penalty size and more and more in frequency on foreign companies because the process generates such a huge monetary reward benefitting the few specialized lawyers, consultants and court judges involved with FCPA. The blogger was afraid of reprimand from the people in this FCPA “business chain”, he never published anything in English and never wanted to be named. He also claimed that a small number of people in the FCPA “business chain” always keep a low profile not wishing to be in the limelight to spoil their good business but their zest for FCPA target is growing with the size of the fines they have succeeded in obtaining. According to a list of FCPA cases the Stanford Law School tabulated, eight of the ten top cases were all foreign companies having business in the U.S. The ten with their final fine are shown as follows: Petrobas (Brazil, $1B), Siemens (Germany, $0.8B), Alston (France, $0.775B), KBR (US, $0.58B), Society General (France, $0.57B), Teva Pharmaceutical (Israel, $0.51B), Telia ($0.47B), Dch-Zeffirelli’s (US, $0.4B), BAE Systems (Britain, $0.4B), and Total (France, $0.4B). These huge fines of course do not include the costs of hiring and paying lawyers, consultants and court fees.

The U.S. Congress enacted the Iran and Libya Sanction Act in 1996 (ILSA, effective August, 5th). Apparently, an “ILSA business chain” had formed closely patterning the “FCPA business chain” behavior seeking foreign targets to pay huge fines using a long legal arm. The recent case of Chinese companies ZTE and Huawei smell like the same cookie came out of the same cookie cutter and baking oven used by FCPA, except it is a different team wearing ILSA chef hat. Interestingly, these ‘legal’ people associated with the U.S. justice system armed with politically correct banners, such as anti-corruption under FCPA and endangering national security under ILSA, can extend their arms extremely long to target foreign companies. They can successfully evade the executive branch’s notice, because they are shielded by the ‘political correct’ banners. Therefore, it was not surprising, the ZTE and Huawei cases occurred during the US-China trade negotiation appearing totally uncoordinated even astonished the White House trade negotiation team and the President himself.
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The arrest of Huawei CFO, Ms Meng Wanzhou, draws such similarity with the Alston case except this time the ILSA business chain extended its arm even longer invoking extradition agreement with Canada. The Canadians probably acted hastily without investigating the facts or studying the practices of the FCPA and ILSA legal terms, thus aroused the diplomatic objection from China and the White House’s attention. Was the Economist correct in characterizing these legal teams having too long arms in handling their cases? Very recently, countries (for example, Vietnam) have announced that they shall use other currencies rather than the US dollars to settle their trades, obviously designed to avoid the U.S. long legal arms. Applying the U.S. laws to foreign countries and foreign companies beyond their branches and personnel in the U.S. is definitely stretching our legal arms too long. When our legal procedure uses coercion, threat, and illegal procedures such as jailing foreign executives excessively (for unproven crime and for purpose of extracting big fine) while American executives are rarely putting in jail (for real white-collar crime committed), it makes our legal system and nation looking very unfair and bad.
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It is time for us to pay attention and to clean up ‘Legal Corruptions’ in our country!

 
Comments on Robert William’s article:
Is Huawei a Pawn in the Trade War?
The Politics of the Global Tech Race
Snap, Foreign Affairs, January 30, 2019
Author Info
ROBERT WILLIAMS: A senior research scholar and lecturer at Yale Law School, where
he serves as executive director of the Paul Tsai China Center.
 
 
Dr. Robert William’s article on Huawei is a factual description of what happened and reported in the U.S. media, hence it carried a political significance which may not be the author’s intended view but nevertheless carry a message echoing the U.S. media and government’s view. That view is ONE that Huawei’s subsidiary company may have violated the U.S. law of sanction against Iran and TWO that Huawei’s telecommunication equipment used by the U.S. military and government may pose a “national security” concern which the author highlighted as: China’s one party controlled government may exercise a control over Huawei even though Huawei is a private company, thus it may pose the above “national security” concern which the U.S. is worried about and is urging all her allies to boycott Huawei equipment as she does.

What the U.S.media and William’s article does not emphasize is that no one has presented any evidence that Huawei has built anything into its telecommunication equipment to facilitate “national security“ exploitation. Judging on Edward Snowden’s exposure on the U.S. spying on many countries including her allies through telecommunication and internet communication, it is understandable that the U.S. may have a suspicious mind on the successful Chinese telecommunication company Huawei (it has passed Ericsson as the world’s number one telecommunication company) However, punitive legal action based on suspicion (that we have done it before you May
​do it) does not stand well with the U.S. democratic honorable justice system. The arrest of Huawei’s CFO, Ms Meng Wanzhou, by Canada upon an extradition order from the U.S. applying a US sanction law with no equivalent Canadian law and having no concrete evidence plus treating her as a criminal detaining her more than a week without giving her due legal procedure to defend and free herself from custody gives the world, particularly the developing world a shocking impression and a bad taste about injustice.
 
One may recall a national uproar many years ago about citizen surveillance in the U.S. PRISM is an information monitor program, which has been used beginning in 2007 in the wake of the passage of the protect America Act under the Bush Administration after the 9-11 terrorists attack to gather information on citizens. The program is operated under the supervision of the U.S. Foreign Intelligence Surveillance Court (FISA Court, or FISC) allowed by the Foreign Intelligence Surveillance Act (FISA). Its existence and national and international impact was bravely leaked six years later by NSA contractor Edward Snowden, now in exile, who warned that the extent of mass data collection (done by the U.S. authority) was far greater than the public knew and included what he characterized as "dangerous" and "criminal" activities.
 
One recalls that the U.S. Administration (her security agencies FBI the like) opposed the Congress legislating laws to protect the U.S. citizens from eavesdropping, phone tapping and monitoring as well as scooping data from Internet service providers’ servers such as by the Prism program. Finally, the Congress legislated a protection law leaving a window open that the government authority on legitimate legal ground can demand telecommunication and internet service providers to yield the data they collected on customers (citizens) to the administrative authority for investigation. I am not sure that China has similar laws to protect her citizens’ privacy, but even that the U.S. succeeded in forcing China to legislate the above similar law, can “national security” concern be eliminated? It is doubtful, just like in the U.S., a window will be open for the national intelligence agencies. We may extrapolate, if the U.S. law enforcement can track and prevent terrorists and international spies under the U.S. laws, wouldn’t the Chinese government want to do the same?
 
When the U.S. has the rationale that spy work or any information gathering made on an ally is not a “national security” concern for the ally, but a possibility of an equipment being used by an ‘enemy state’ to gather information on the U.S. poses a “national security “ concern to the U.S., it is obvious that we have an obscured viewpoint and we may justify the above tactics against Huawei. But Huawei is a legitimate private company doing business with nearly hundred countries including signing up 50 contracts for its 5G telecommunication equipment. The U.S. is applying pressure to her allies not to use a Huawei equipment but I am not sure we will win many friends this way. In the trade war with China, we protest Chinese government put its hands in corporations and interfere with their business or help their business, aren’t the tactics and actions placed on Huawei by the U.S. government on behalf of our telecommunication industry a clear interference under a ‘national security’ disguise.
 
In decades ago when the U.S. telecommunication industry was leading the world, the U.S. companies dominated the world’s telecommunication business, would we accept anyone’s refusal of buying our equipment for national security concern at that time?
 
China has risen up like many developed countries through embracing industrialization and absorbing and upgrading technologies. Every developed country including the U.S. had gone through that process; nearly everyone (UK, France, Germany, Japan, the U.S.) invoked war or aggression against another country (or colony) except China. China’s rising has not induced any war against any neighbor or colonize any territory.  The crucial question for the U.S. to ponder is why is China being labeled as an ‘enemy state’ not as a competing trading partner?
 
China is in the process of accelerating “open and reform”; the U.S. should be observing and encouraging China’s effort but refrain from interfering or dominating China’s domestic affairs. The Issue we must face is how can we compete with a 1.4 billion people diligently work to elevate themselves to middle class. How do we exploit that population and huge market to apply our technologies.
 
Whether or not the U.S.-China relation should be a collaborative one or confrontational one should not depend on competition in technology development. Technology comes with competition, without competition, it will become obsolete and die. Even though Huawei is a major player in the 5G technology, the U.S. and many developed countries should be still capable to compete. Every developed or developing nation has stolen technologies from another advanced developed country; Asian countries, European countries and the U.S. are no exceptions. (Stolen technologies are just like spilled milk) So it is not honorable to charge China when China is now the highest patent recipient. The U.S. is still leading in many technologies but some are facing serious competitions such as airplanes, medicines etc. Technologies need to be developed into applications and exported to markets to generate returns, then they can sustain further innovation and evolve into new technologies.
 
Unfortunately in the past and luckily now, China has a large population (burden before vibrant today) and a huge market (invaded by world powers before now envious by others today). It is so obvious that the U.S. and China should collaborate for mutual benefits rather than take defensive technology sanction measures against each other preventing technology advances and upgrades. The U.S. would be better off to pump up “American Can Do” spirit to remain competitive in the world rather than retreat to a defensive position, worse yet, using devious means to thwart competition.
 
Dr. Wordman: Columnist, US-China Forum, author of four books on US-China Relations.