Can other countries adopt the EU’s tech transfer mandate?

The European Union is planning to force Chinese companies to transfer intellectual property (IP) to European businesses in return for EU subsidies, setting the cat among the pigeons in the growing trade war between the 27-member bloc and the world’s second-largest economy.

The new criteria, reported by the Financial Times, require Chinese businesses to share technological know-how and will be introduced when Brussels invites bids for €1 billion in battery development grants this December.

The move comes amid broader concerns about protecting European companies from being undercut by cheaper imports. Brussels has already introduced tariffs of up to 35 percent on Chinese electric vehicles and restricted Chinese components in hydrogen production equipment to 25 percent last month.

While Beijing has yet to officially respond to the EU's requirements, this unprecedented move sparked a debate among experts about whether other nations could—or should—adopt similar strategies to advance their technological capabilities.

Learning from history

"What is often lost in the debate is that such requirements did not yield the intended results in the case of China's automotive industry," said Tobias Wuttke, Research Fellow at Bard College Berlin, in a letter to Financial Times. He noted that foreign companies primarily shared outdated technology while preventing meaningful transfers to local partners.

Yet, historical records show a more contradictory image.

Rajah Rasiah, a professor of Economics at the Asia Europe Institute, University of Malaya, who has extensively studied technology transfers in Asian economies, points to significant successes in China's development.

"China enjoyed huge technology transfers this way, particularly from Germany in the automobile industry where Volkswagen and its subsidiary of Audi enjoyed strong access to the China market," he tells TRT World.

"The emergence of China's automobile industry owes very much to the operations of German firms in China."

These partnerships, initially focused on traditional combustion engines, paved the way for a broader transformation of China’s automotive sector.

The country’s manufacturers have leveraged decades of accumulated expertise to emerge as frontrunners in the global automotive race, with a particular edge in EVs.

European policymakers are now attempting similar strategies, but questions remain about whether such policies can deliver equally transformative results in the current geopolitical and economic climate.

Challenges for the Global South

While the EU's approach might appear promising for developing nations seeking technological advancement, implementation poses significant obstacles for them.

"This is a good direction to follow but difficult to implement in the global South as the capabilities in most of these countries are too underdeveloped to evaluate, monitor, and appraise the processes involved," Rasiah says.

Financial constraints present another major obstacle. Many nations, "including the poorest countries, such as South Sudan, Mali, and Mauritania, lack the capital reserves to offer subsidies," he notes. Despite these challenges, he argues that "all developed countries should be required to pursue this framework."

Economic nationalism vs. global collaboration

The push for IP transfer requirements also highlights the challenge of balancing national interests with the need for global cooperation.

"If such a framework is targeted to build economic nationalism where the emphasis is bilateral between two countries rather than multilateral, it might result in counterproductive divergence in innovation capabilities between countries," Prof. Rasiah warns.

He emphasises the importance of broader collaboration. "Bilateral collaborations can benefit the two parties involved in the short run, but undermine the synergies that come from multilateral collaboration in the long run."

This perspective is particularly relevant given the potential for economic convergence between developed and developing nations.

"If the South countries gain traction from such a framework and if governments involved seriously adhere to its effective implementation, we can expect gradual economic convergence between the North and South," Prof. Rasiah explains.

Future implications

The EU's technology transfer strategy comes at a pivotal moment in global trade relations, as President-elect Donald Trump's administration signals intentions to pressure the EU to impose additional barriers on Chinese goods and investments.

Trump's threat of 60 percent tariffs on Chinese exports could push Beijing to divert trade to other regions, including the EU.

However, Wuttke argued that mandated technology transfers alone are insufficient for technological advancement.

"It requires industrial policy in a broad sense, including creating demand conditions and providing patient capital, but especially technological learning efforts at the level of the companies," he wrote.

Chinese companies are already adapting to increased scrutiny. In a closed-door meeting earlier this year, China's commerce ministry warned domestic carmakers against heavy investments in Europe, advising them to limit their presence to final assembly operations due to political uncertainty in Brussels.

Looking ahead, the success of technology transfer requirements may depend on finding the right balance between protecting domestic industries and maintaining productive international relationships.

As Prof. Rasiah suggests, revisiting multilateral collaboration could be key to averting trade tensions, particularly given the ongoing tech trade wars between China and the United States.

The EU's experiment with mandatory technology transfers could serve as a valuable lesson for other nations considering similar policies. However, as experts emphasise, success will likely depend on more than just regulatory requirements; it will require building domestic capabilities, ensuring effective implementation, and maintaining constructive international dialogue.