More on ‘Indigenous Innovation’ as an Excuse for Protectionism

From Kiplinger, a good review of the “indigenous innovation” issue, “China Restricting Entry by U.S. Firms“:

Doing business in China will keep getting harder for foreign companies. Beijing is leveraging its huge government purchasing power to encourage homegrown firms to develop import substitutes, with the aim of creating national champions to compete against multinationals both in China and worldwide.

“Japanese, European and American companies … used to think that China welcomes foreign technology, welcomes our presence to help develop,” says Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. “Increasingly, they don’t feel that way anymore. They feel they are being discriminated against, being shut out of certain market segments.”

Treasury Secretary Geithner highlighted the issue in remarks Tuesday at the Port of Tacoma:

[As] part of a program they call “indigenous innovation,” China recently proposed a program where the government would compile a list of what qualifies as innovative products, and provide advantages to the companies that make them. Those benefits would include preferential treatment in government purchases. Products exported to China from the United States might not be eligible for those benefits. And even products produced by American firms that operate within China may not make the cut.

American companies are very concerned that this approach has the potential to discriminate against foreign-made products and could disadvantage American exporters and investors as they compete with Chinese firms. We share those concerns. The Chinese government has taken some steps to address these concerns, but we have some more work to do in this area.

Our challenge is to help make sure that China does more to protect intellectual property rights and reduces subsidies and other preferences to domestic companies. We want China to give American firms the same opportunities to compete in China that Chinese firms face in the United States. This is a simple principle of fairness.

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