Due to information asymmetrieswhere the opportunities

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due to information asymmetries—where the opportunities of being in China are often high and more easily quantifiable, given the size of Chinese market, while the downside risks are harder to assess. There may also be a mismatch between the business assessment of the risks of technology transfer and theft and the national security costs to the U.S. Individual company decisions to transfer technology may be rational, but the collective outcome where China uses IP and know-how gained across multiple foreign investments to gain control or leadership in a particular a technology sector can create additional national security risks. The implementation of FIRRMA/ECRA is important for addressing this collective action problem and for considering the national security costs that may not be properly included in private sector decisions regarding the transfer of technology to China. 82 The export controls that ultimately result from the FIRRMA/ECRA process could also help U.S. companies push back against ongoing Chinese demands for technology transfer. The implementation of FIRRMA should be carefully targeted and not designed to stifle inbound or outbound investment by making clear that there are significant sectors where Chinese investment is welcome. This is consistent with the importance of having a targeted response to the threat that has been identified—avoiding unnecessary economic costs for the U.S. and leaving room for ongoing mutually beneficial economic relations with China. FIRRMA/ECRA also recognizes the importance of working with allies to strengthen multilateral export control regimes and prevent diversion through U.S. allies in attempts to avoid FIRRMA review. 83 The U.S. will need to convince other governments to adopt similar investment and technology export restrictions in order for these U.S. reforms to be most effective. U.S. 81 Wolf, Kevin J. et al. “The Expert Control Reform Act of 2018 and Possible New Controls on Emerging and Foundational Technologies.” Akin Gump Strauss Hauer & Feld LLP International Trade Alert. September 2018. See also: review-of-controls-for-certain-emerging-technologies. 82 Gros, Daniel. “The Myth of China’s Forced Technology Transfer.” Project Syndicate, November 2018. - forced-technology-transfer-china-by-daniel-gros-2018-11. 83 ECRA. Section 1758.
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The US-China economic relationship: A comprehensive approach 22 restrictions on access to U.S. technology will be less effective and hurt U.S. competitiveness if similar technology is available from the EU or Japan. 84 Here, progress has already begun as Germany, France, and the U.K. have also tightened review of foreign investments on national security grounds 85 and the EU has established a mechanism for cooperation and sharing and information amongst the Commission and Member States on investment from counties that may affect security or public order. 86 Trade remedy actions
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