Sybase CEO Chen: Bilateral Investment Treaties Are Essential To the Future Of U.S. Innovation
Bilateral investment treaties, or BITs, are usually portrayed, along with free-trade agreements, by the mainstream media as being ruinous to the U.S. economy. In fact, such pacts between the U.S. and emerging economic powerhouses such as China, India and Korea are key to maintaining our place as the world’s economic leader.
In lieu of an increase in the working-age population or the discovery of natural resources, national GDP generally only increases due to technology-based efficiency gains. That comes from innovation. While we still remain the world’s overall R&D leader, many countries are closing the gap or passing us.
For instance, by 2007, China had more scientific researchers than all the EU nations combinedand almost as many as the U.S., according to the National Science Board. Based on trends, China has likely passed us since then.
Or take patent filings as a measure of innovation.
As of 2006, South Korean and Chinese residents ranked third and fourth in terms of the number of patent filings, behind only Japanese and U.S. residents, according to WIPO data.
While our universities continue to remain beacons attracting the world’s best and brightest future scientists and engineers, our arduous immigration policies do their best to drive them away.
Those engineers and scientists were being pulled back, anyway, by rising standards of living and, even more crucially, the many opportunities created by their governments’ embrace of high-tech innovation.
South Korea, for instance, now outspends both the U.S. and Japan on R&D as a percentage of GDP, according to the National Science Foundation. That includes $167 billion the country plans to invest publicly and privately by 2013 in software, Internet and telecommunications. China is no slouch, either. It is spending $60 billion, or 10%, of this year’s economic stimulus package explicitly on innovation.
Meanwhile, U.S. R&D spending as a % of GDP growth has remained flat – a true indicator, says the NSF, of the actual priority given to science and technology in this country.
Besides the ‘reverse brain drain’ of Ph.D. graduates back to countries like China or India, foreign universities are getting much more adept at producing scientists at home. By 2006, Chinese universities already ranked second behind U.S. institutionsfor the number of science and engineering Ph.D.s granted.
Clearly, innovation is now happening elsewhere. Whereas we could once count on attracting the best and the brightest to our shores, now we have to go to the source. That will be vital to aid the U.S.’s efforts to remain the world leader.
This is where BITs come in. These agreements ensure that individuals and companies from one country get fair treatment when they buy stakes in foreign companies or innovative startups.
Without BITs, you end up with friction and barriers. For instance, Chinese networking vendor Huawei appeared to lose a nearly-finalized dealto buy Motorola’s wireless division after it was unable to mitigate fears that the federal Committee on Foreign Investment in US (CFIUS) would step in to scuttle the deal on national security grounds.
"Opening doors, not shutting them, is the key to maintaining our competitiveness. And that’s what BITs provide."
Contrary to perception, this doesn’t just hurt foreign firms coming here. Coca-Cola’splan to acquire Huiyuan Juice business for $2.4 billion last yearwas blocked by China’s Ministry of Commerce. This was despite Coca-Cola’s plans to invest US $2 billion over the next three years on a new manufacturing plant and distribution in China.
The U.S. is involved in 40 BITs worldwide. However, all are with countries that are, at least economically, firmly in the second tier. Our largest agreement is with Turkey, which ranked 17th by nominal GDP in 2009.
Agreements with important partners such as Russia and South Korea remain in paralysis, due to nationalistic rhetoric on both sides. In my former role as a Member of the President's Export Council, I helped push for a free trade agreement between the U.S. and South Korea. More than 3 years after a deal was struck, it remains unsigned by both governments.