Tuesday, 18 Dec 2018

China-US The drug deal is a palliative, not a cure

If you were hoping that the United States and China would sign a major pact in the coming months to avoid a new round of tariff wars, their speed to put an end to the repression of the modern opium trade at Buenos Aires seems to be good news, right?

False. The White House's triumphant declaration that President Xi Jinping "in a wonderful humanitarian gesture, agreed to designate fentanyl as a controlled substance" ignores the fact that several varieties of the drug have been controlled in China for more than three years. years.

In the United States, more than half of deaths from fentanyl and other synthetic opioids in the past two decades have occurred since Beijing banned exports of the drug and 115 other pharmaceuticals as part of the crackdown in 2015. In 2017, 25 different drugs related to fentanyl were on the list of controlled substances in China, more than one in seven of the register. The problem is that as soon as a new formula is designated, Chinese chemists propose another variant to circumvent the regulation.

This problem at the head of the hydra will be familiar to anyone who will try to enforce its intellectual property rights in China. In spite of all that Beijing can promise to quell a question – and, who knows, may actually want to do it – the change takes place much more slowly at the ground level.

As a result, if it is possible to reach a final agreement between the United States and China, it will probably not be enough to dispel the friction in this relationship.

Examine intellectual property issues, arguably the most substantial complaint on the US side. Washington wants to stop the theft of trade secrets and forced technology transfers, but it is far from clear that China can offer considerable help on this front.

Take technology transfers. China's legal codes that provide for "forced technology transfers" that can be repealed by the government's decision are unlimited. The term is rather a way for foreign companies to characterize the complex of circumstances that gives them the impression of not operating on an equal footing.

It is difficult to say how much these circumstances would change enough for the two parties to agree that such transfers no longer exist. A significant change that is already occurring is that the list of industries in which foreign companies must operate through minority stakes in joint ventures is becoming increasingly small. This is important because most forced technology transfers occur when a foreign company transfers its intellectual property to a Chinese-controlled joint venture.

Then there are problems on which progress has been slower, but still possible. China is asking foreigners to show their intellectual property to government agencies in order to obtain technology licenses, a major problem given the fear that the bureaucracy will be used to transmit information to local competitors. It also requires licensors to compensate licensees for third-party offenses, a seemingly obscure subject that remains one of the most important irritants.

Finally, you have areas where Beijing can not reasonably offer any comfort. While China may promise tougher penalties for intellectual property theft, it can not promise that such acts will not happen, nor can the US government promise that Waymo of Alphabet Inc. will not pursue Uber Technologies Inc. is suing on similar activities. The Chinese government's entanglement in the business sector makes such cases more alarming – but asking China to stop supporting state-owned champions may go as far as asking the US United to abolish its bankruptcy code or dismantle its code. the biggest companies.

The problem here is ultimately the same as the problem of addictive drug control. At the highest level, China has done everything necessary to solve the problem. However, at the provincial and municipal levels, where enforcement is effective, people are so innovative with respect to non-compliance and sanctions can be so light that Beijing's best intentions are going badly.

The question is why this disconnect occurs. According to one point of view, a government capable of spying on its 1.4 billion inhabitants and imprisoning hundreds of thousands of Uyghurs allows the continuation of this activity because, despite all its promises, it does not really care about fuel an opioid epidemic in the US Midwest. The other is that, according to this old scathing proverb about "the mountains are high and the emperor is far away," law enforcement in China is difficult for long-standing structural reasons.

In truth, no matter what view is correct. Unless this disconnect changes and Beijing begins to intervene much more aggressively in commercial life at the grassroots level, it is difficult to see how a future agreement between China and the United States will resolve the tensions in China. That relation. Strange as it may seem, Washington's policy is such that the Chinese government becomes even more interventionist than it already is.

To contact the author of this story: David Fickling at dfickling@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

It should be noted that China has announced the signing of an agreement on strengthening the supervision and revision of the rules applicable to the drug.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is an editorialist with Bloomberg Opinion, specializing in commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

© 2018 Bloomberg L.P.


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