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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.

Thomas Barwick | Digital Vision | Getty Images

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." -Chairman & CEO, Sybase, John Chen

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.

This limbo is what I fear could happen with the U.S.-China BIT.

First started in June 2008, both sides promised last November to “expedite” negotiations.

Which is why observers eagerly watched the U.S.-China Strategic and Economic Dialogue meeting in Beijing this May for signs of progress.

The outcome was not encouraging.

Both sides “reaffirmed their commitment to the ongoing BIT negotiations” but otherwise said nothing. In the meantime, how many more situations like Huawei-Motorola or Coca-Cola-Huiyuan Juice will we have?

The pace of commerce is fast. The pace of innovation is even faster. A U.S.-China BIT would bring transparency to the black box process that arbitrarily quashes international business deals and creates a climate of fear for innovative companies seeking to reach out and partner with their international brothers. Opening doors, not shutting them, is the key to maintaining our competitiveness. And that’s what BITs provide.

Look for extensive coverage from Techonomy online and on-air throughout the week on CNBC.

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John Chen has served as chairman, chief executive officer and president of Sybase, Inc. since 1998. Under his leadership, Sybase has become the recognized industry leader in enterprise mobility infrastructure. In addition, the company has significantly strengthened its position in data management, and has a long track record of increasing revenue and profitability. In acknowledging his business leadership, Forbes magazine named Mr. Chen one of the Top 25 Notable Chinese-Americans in Business. He was named 2007 Ernst & Young Entrepreneur of the Year in Northern California.

Mr. Chen is actively involved in international relations. He has testified before Congress on U.S.–China trade relations. In 2005, U.S. President George W. Bush appointed him to serve on the President’s Export Council. In 2006, he was appointed co-chair of the Secure Borders and Open Doors Advisory Committee. In addition, Mr. Chen has been a longtime member of the Committee of 100 and currently serves as its chairman. In recognition of his leadership in building U.S.-Asia relations, he received awards from the US-Asia Institute in 2009 and California-Asia Business Council in 2007.

Sybase is an SAP company