Trade tensions between the U.S. and China are likely to increase with the announcement that President Donald Trump has ordered an investigation into Beijing’s intellectual property rules, which oblige foreign investors to share technologies. U.S. business has long complained about the way IP is handled in China. The investigation will be led by US Trade Representative Robert Lighthizer. If the investigation finds against China, import tariffs are the likeliest form of sanction.
Bill Edwards, CEO of Edwards Global Services, Inc, has been involved with China since late 1982, and thinks franchisors to China have little to fear. “I have watched the pubic diplomatic relationship between China and the US go from good to bad and back again many times,” he said. “This does not usually directly impact US franchise companies as they are not typically transferring technology to a Chinese licensee. The US franchise – and other foreign franchises – is using their manuals and systems in China through their licensees. There has always been concerns about Chinese employees of US franchise brands taking the manuals and other business systems and creating copycats. This is not new and remains a concern. I am aware of several US franchisors being in negotiations with companies in China and do not feel this latest action by the US government will stop this process given the above.”
“Trade wars can hurt both sides,” said Toronto barrister Paul Jones, “and the key to winning is usually very careful targeting of the relevant goods. In this case, despite the rhetoric about theft, the focus is on China’s restrictions on foreign entry to selected industries, such as nuclear power plants and airplanes, unless the foreign party enters into a joint-venture with a Chinese party and shares technology. These are not sectors or areas in which franchisors usually operate. And following the same principle about a targeted response, if China chooses to retaliate against some future U.S. action, other than by making a complaint to the WTO, it is likely not to use a broad sanction, such restricting Chinese buyers of U.S. franchise rights. However, words have meaning, and the President’s threats do set a tone. Potential Chinese buyers of U.S. franchise rights may well choose to exercise more caution in the future.”