Has Russia awakened democracies to cooperate vis-a-vis China's economic aggression?

By Robert D. Atkinson

The Russian invasion of Ukraine is a horrific violation of international norms and human rights. Putin's actions have sent a wake-up call to much of the world.

And rightly, many countries and companies are taking steps to penalize Russia for its aggressive actions, including economic sanctions. This includes a number of major technology companies, including ones in the United States and Korea.

Perhaps the most important question related to these sanctions besides whether they will deter Putin, is whether this kind of economic cooperation to punish global norm transgressors can and will continue, and will it be applied to China?

The Biden administration made clear before the Russian invasion that it would impose severe economic sanctions on Russia if it invaded Ukraine. To carry this out, the United States, as well as the European Union, has imposed a wide array of sanctions on Russia, including its banking system.

In addition, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) issued six new export control rules affecting Russia. One imposes new license requirements for Russia based on the Commerce Control List (CCL), which expand the list of already controlled products to include microelectronics, telecommunications items, sensors, navigation equipment, avionics, marine equipment, and aircraft components.

In order to limit Russian imports of these covered products from other countries, BIS creates a new Foreign Direct Product Rule to establish control over foreign-produced items that use certain U.S.-origin software or technology subject or produced by certain plants or major components thereof which are the direct product of certain U.S.-origin software or technology subject.

In other words, companies in other nations that make products on the BIS export control list with U.S. software or technology cannot export these products to Russia. If they do, they will be subject to U.S. legal action. However, Korea, as well as at least 30 other nations, have received exemptions from this rule, in part because the Korean government has stated that would impose its own export controls on Russia.

However, the rule excludes many consumer items used by the Russian people, such as cell phones, washing machines and cars. That exemption has not stopped many companies around the world taking their own actions to impose pain on Russia and Putin.

Most notably, in response to the Russian invasion, Apple has halted iPhone and other product sales in Russia, days after it removed Sputnik and RT News from the App Store, and disabled some Apple Pay services and Apple Maps features. Samsung Electronics quickly joined these efforts.

The amount of economic pain Russia will face because of these, and likely further, government and industry sanctions will be massive. If enough nations ― governments and industry ― stand together and remain steadfast, it is possible that Russia will have to change course.

The lesson hopefully is that coordinated economic sanctions can play a major role in deterring government actions that violate freedom and the global order. But the power of this tool will only be more viable if more nations and companies stand up for freedom and choose not to free-ride on the sacrifice of others.

Putin's aggression has demonstrated that democratic, rule-abiding nations can overcome the prisoner's dilemma and cooperate in ways that inflict domestic economic pain on global transgressors. Before the Russia invasion, it was not clear that this was possible.

Building on the cooperation against Russian aggression, can democratic nations now find the will to cooperate against China's economic aggression? Clearly if China invades Taiwan, it's likely that allied, democratic nations will once again cooperate to impose economic and technology sanctions.

But what about in the absence of an invasion? Will allied nations continue to largely sit by and let China economically attack individual nations when they do something that displeases Beijing, as China did to Korea in the Terminal High Altitude Area Defense (THAAD) case?

Will allied nations continue to sit by and watch their domestic advanced industry firms continue to lose market share because of forced technology transfers and intellectual property theft, and massive Chinese government subsidies to Chinese national champions.

All nations, including Korea and the United States, have had industrial policies. The issue is not about punishing China for putting in place its own legitimate industrial policies; it is about limiting the global competitive advantage it gets from unprecedented unfair and distortionary policies.

It is clear that if most developed nations agreed to limit imports of any Chinese advanced product ― like memory chips or electric vehicles ― that can be shown to be based on purloined foreign intellectual property or significant subsidies (subsidies that violate OECD standards) that, while the Chinese Communist Party (CCP) might not change its policies, its predatory policies would be less effective.

Of course, the response to a proposal like this is for nations to work through the World Trade Organization (WTO). But as currently structured, the WTO is not suited to effectively address these challenges.

Many of China's practices are hard to prosecute at the WTO because they are surreptitious and not encoded into law. Winning cases is difficult because the WTO is a political body. And even if cases against China are won, by then the damage to foreign competitors is often irreversible and any countervailing duties allowed are deficient.

It is time to treat China's unfair policies as acts of economic aggression that violate the global order, and as such, it's time for nations to cooperate to limit China's ability to profit from such aggression.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy.