BEIJING China's "indigenous innovation" regulations are one of the top concerns for U.S. officials meeting their Chinese counterparts in Beijing on Monday and Tuesday for the Strategic and Economic Dialogue.
WHAT IS "INDIGENOUS INNOVATION?"
The Chinese government has long pushed its companies to move higher on the value chain and develop their own technology and brands, rather than simply manufacturing cheaply on behalf of foreigners.
The Ministry of Science originally developed "indigenous innovation" protocols to encourage Chinese government bodies to buy technology developed in China. Those guidelines clashed with other government directives saying that government purchasers should not discriminate between foreign and Chinese goods.
The issue came to a head in 2009, when regulations were issued setting up a catalog of products recommended for government purchase. Items with "indigenous innovation" would be prioritized in that catalog, disadvantaging foreign products which are already often more expensive than Chinese goods.
The European and American Chambers of Commerce, and the Japanese, American and various European governments, have all pressed the issue in discussions with China.
WHY ARE FOREIGN FIRMS UP IN ARMS?
Foreigners are concerned that by prioritizing products developed in China, Beijing is excluding products made overseas or products manufactured in China using technology developed overseas.
They are also concerned about Chinese standards regulations that came into effect May 1, covering a number of technical standards including encryption, that some worry could effectively create separate protocols for China.
China has agreed to classify foreign products made in China by joint ventures as "Chinese" for the purposes of government procurement, thereby satisfying another long-standing demand of foreign manufacturers.
HOW DOES THIS RELATE TO CHINESE PATENT LAW?
Some lawyers advise foreign firms to register more patents with China to get protection under Chinese law, a move that Chinese commentators say would grant their judicial and patent systems the same respect given those of developed countries.
Many foreign firms worry about poor enforcement of intellectual property in China. They worry that registering patents and proprietary information in China, or moving more development operations to China, would open the door to theft and competition from lower-cost manufacturers.
HOW DOES IT FIT INTO INTERNATIONAL TRADE LAW?
China is not yet a party to the Government Procurement Agreement, through which some World Trade Organization members commit not to discriminate against other members in government purchases and services.
It pledged last year to submit a revised offer to the WTO in 2010, after its initial offer was rejected by other members as inadequate.
China's government procurement market is estimated at $82 billion. One area of contention could be how to treat state-owned enterprises, which have a hybrid nature as competitive corporations and government entities.
As long as China does not belong to the GPA, its firms can be excluded from bidding for lucrative contracts by developed nations, including those under the "Buy America" program. But many Chinese contractors are most competitive in tenders in developing nations, which would be unaffected by the GPA talks.
(Editing by Paul Tait)