Why corporate America needs to have a code of conduct for China

Why corporate America needs to have a code of conduct for China
© Getty Images

The dispute between China and the National Basketball Association after Houston Rockets general manager Daryl Morey tweeted support for the Hong Kong protestors is the highest profile in a string of cases of the Chinese bullying American companies. China made Marriott apologize last year after a customer survey listed Taiwan, Tibet, and Hong Kong as separate countries, and China also required United States airlines to stop listing Taiwan as a separate country on their websites. This bullying fits right into a growing global practice of China demanding multinational companies toe its political line if they want to remain in its vast market.

As the United States and China enter this era of strategic competition, American companies face growing pressure from their own government over business in China. Congress and the administration are concerned that American technology may be facilitating Chinese activities that threaten United States national interests, from modernization of the Chinese military to the growing mass surveillance state and detention of more than a million Uighurs in Xinjiang province. There is increasing support across Washington for new export controls and sanctions that could sharply crimp the ability of American companies to sell their products to China, which is the second largest market in the world.

Corporate America needs to stand up to Chinese bullying and get ahead of government regulations by taking the approach that companies have successfully taken in other contexts and adopting voluntary corporate commitments to resist Chinese bullying while refraining from selling products and services to Chinese companies and government agencies that challenge the values and interests of the United States. American companies therefore need a corporate code of conduct for China.

ADVERTISEMENT

A formal corporate code of conduct would help American companies stand up to Chinese bullying by creating collective resistance. For any individual business facing heat from Beijing, the commercial incentive is typically to cave to protect corporate market share in China. Companies worry that if they do not cave and China starts to limit their market access, other companies that avoided controversy by laying low on political issues will simply step in with their competing products.

A broad corporate code of conduct in which American companies will commit upfront to stand up to bullying and to speak out in support of others, however, would give them substantial leverage to resist Chinese pressure. While China is happy to squeeze individual companies, it does not want to squeeze American companies and industries as a whole, especially at a time when the Chinese economy is slowing and Beijing is interested in striking a trade deal with President Trump. Collection action would give American companies their own leverage to resist Beijing.

Signatory companies should commit that they will not retaliate against employees, contractors, suppliers, and customers who make public statements critical of Chinese policies or the Chinese government. Every American should be confident that employer will not retaliate against them simply for speaking out. Equally importantly, the signatories to a corporate code of conduct should commit that they will jointly issue public statements in defense of any individual company that Beijing attacks, creating a meaningful collective answer to Chinese pressure.

Companies should not only commit to standing up to Chinese bullying. They should also commit to opposing Chinese human rights abuses. Federal law already generally prohibits American companies from selling their products to the Chinese military. But American companies are not currently prohibited from selling technology to many Chinese companies that may in turn support Chinese surveillance and human rights abuses.

While there are proposals in Washington to begin prohibiting such sales, new legislation is uncertain and lawmakers will have to mitigate potential unintended consequences. Meanwhile, American companies, which are best positioned to understand how they can control the sale of their products to illicit ends in China while operating successfully in the Chinese market, should stand for democratic values by committing to develop industry standards to ensure that American products sold in China are not used to facilitate surveillance and human rights abuses.

No voluntary code of conduct is a panacea. China would test signatory companies that fail to toe its political line to see if American companies will really stand up for each other. Some American companies also may not want to invest in the kinds of due diligence required to ensure that Chinese customers do not in fact use American products for nefarious purposes. But the reality is that American companies are going to face increasing pressure from both Beijing and Washington in coming years as China and the United States compete. A corporate code of conduct would give American companies greater influence over their own fates, while standing for values against a China that increasingly tries to reject them.

Peter Harrell is an adjunct senior fellow at the Center for a New American Security. He served as deputy assistant secretary for counter threat finance and sanctions at the State Department during the Obama administration.