Securing Global Standards for Innovation and Growth

Standards are indispensable to innovation, providing shared platforms for industry participants to work together to bring new technological solutions to the marketplace. Securing the integrity of fair and broad-based frameworks that establish accurate and workable standards for technology adoption and interoperability is therefore critical for accelerating innovation and promoting fair global competition in all fields essential to commerce.

At the same time, the development and adoption of one set of standards over another can confer advantages to particular firms and national economies. For some technologies, the selection of a given standard often determines whose product will succeed in global markets. As explained in a recent Wall Street Journal article, “whoever has control of industrial norms for telecommunications, electricity transmission and artificial intelligence is in a position to dominate.” Alternatively, doubts about the fairness and quality of standards—or a bifurcation in the framework within which standards are developed—can disrupt technological development and negatively impact economic growth and innovation-driven improvements in consumer welfare.

In this regard, statements and actions by the People’s Republic of China over the past decade are concerning. They signal a determined intention to strengthen China’s participation in global standardization organizations with an eye to gaining a competitive advantage for Chinese companies in a broad range of emerging technologies. Such plans may disadvantage China’s commercial and strategic competitors, but they will also damage networks of cooperation spanning national and global innovation ecosystems, creating a negative-sum game. A recent report from the Office of the U.S. Trade Representative (USTR) on unfair trade practices identifies China’s priorities to acquire foreign technology and intellectual property—focusing on next-generation artificial intelligence, information and communications technologies, electronics, advanced manufacturing, and industrial robotics.

Standards are indispensable to innovation, providing shared platforms for industry participants to work together to bring new technological solutions to the marketplace.

To sustain the broad benefits of innovation, the United States should take active steps to maintain a unified, global, and rules-based system for standards. First, the United States should consistently promote strong and coherent policies that uphold the integrity of intellectual property rights. Second, it should bolster its own public- and private-sector participation in international standards-setting bodies. Third, the United States should foster cooperation with its allies and strategic partners in governing the flow of knowledge and sensitive technologies. Fourth, it should coordinate standardization strategy more effectively between the private and public sectors, prepare the next generation of standards leaders, and incentivize private-sector investment in standardization in order to benefit the U.S. economy and trade.

The Importance of International Standards for Innovation

Innovation is a complex process requiring coordination across numerous actors. For scientists and engineers, being able to understand a common technical vocabulary and system of measurement facilitates teamwork in research across industry and academia. For firms, following established practices and shared standards helps them save on development and production costs. Furthermore, the presence of clear and technically coherent international standards increases the interoperability and market size of these firms’ products, creating potentially higher returns on new technologies. Standards enable entrepreneurial firms to introduce their products into markets dominated by legacy providers. Industries use standardized processes and specifications to ensure that firms can work together seamlessly across technological platforms and national borders. By allowing platform technologies developed by one firm to interface with products designed by other companies, standards mean products can be designed and produced at scale in different locations and marketed worldwide. And for consumers, standards help make products user-friendly, safe, and trustworthy. Moreover, as new service providers or manufacturers enter a defined market with innovative products, standards can stimulate beneficial price and quality competition.

Standards emerge from a variety of sources. In some cases, private companies propose standards to participants of international standards-development organizations (SDOs), hoping to gain significant economic benefits from developing, owning, and licensing the rights to a standard. Firms collaborate internationally with industry players to develop and ultimately adopt standards created through the coordinated technical efforts of national and international SDOs.

A universal rules-based framework for standards provides the coordination essential for firms to participate in the networks of cooperation and competition related to the research, development, production, and marketing of innovative products and services. They facilitate access to global markets, providing firms the advantages of scale economies. In turn, these advantages encourage firms to participate in and align their technology with international standards—creating a virtuous cycle. A case in point is the positive contributions of standards to the development of the wireless industry, as documented in a recent Information Technology and Innovation Foundation report.

Coherent international standards also encourage regulators and governments to improve trade policies and develop better regulations. Standards developed in a process consistent with the World Trade Organization’s Technical Barriers to Trade Agreement, for example, foster trade by assuring firms across the global manufacturing chain that product and testing requirements have global relevance and are accepted worldwide.

With U.S. companies enjoying a strong lead as technology innovators through much of the twentieth century and beyond, the United States has led the way in creating and setting international standards for a variety of modern technologies. Active participation in international SDOs allowed the United States to promote a private sector–led and consensus-driven process for creating and promulgating new standards that set an active pace for innovation—one that has benefited the United States and the rest of the world. U.S. policy regarding the role of government in the standards process is outlined in the Office of Management and Budget (OMB) Circular A-119.

The landscape of standardization is now challenged. China has invested heavily and incentivized engagement in standards-setting processes, seeking to exert more influence over the development and use of technology standards—raising important questions about its impact on the broader networks of innovation, competition, trade, and security.

China has invested heavily and incentivized engagement in standards-setting processes, seeking to exert more influence over the development and use of technology standards—raising important questions about its impact on the broader networks of innovation, competition, trade, and security.

China’s Growing Influence in Technology Standards

Chinese policymakers often invoke the perspective that third-tier companies make products, second-tier companies design technology, and first-tier companies set standards. They understand the strategic importance of foundational standards and are working to influence the development and deployment of standards in key economic and trade sectors. A 2015 article in China’s Zhejiang Daily states, “Standards are the commanding heights, discourse power, and the power to control. The one who obtains the standards gains the world.” This rhetoric emphasizes the value placed on standards for establishing China’s technological position in a variety of emerging domains.

China’s determination to dominate standards extends to controlling communications and discourse. Linking internet governance and standards, Chinese president Xi Jinping has stated that in cybersecurity and telecommunications, the “game of great powers is not only a game of technology but also a game of ideas and discourse power.” Developing standards for the digital economy therefore also requires reference to standards for political expression.

These ambitions are reflected in the proposed China Standards 2035 plan. This plan complements the earlier Made in China 2025 strategy, which invested heavily in developing and manufacturing technologies such as fifth-generation (5G) wireless networks, connected devices, and industrial automation. It also sought to establish China’s lead in areas such as autonomous systems, batteries, solar cells, and other green technologies.

China’s standards strategy also seeks to influence the direction of licensing fees. At present, China is the world’s second-largest payer of licensing fees in the world, since most proprietary standards in the technology industry are currently created by foreign companies. China Standards 2035 seeks to reverse this relationship and make China a net recipient of licensing fees for standard essential patents (SEPs).

To ensure that China will be positioned to dominate the market for emerging technologies, the 2035 standards strategy seeks to increase the quantity of Chinese-owned intellectual properties that are identified as SEPs and to have Chinese technical inputs influence the setting of international standards so they favor the commercial interests of Chinese enterprises. The plan calls for creating new domestic standardization research institutes, certification centers, and more than 50 “standards innovation bases.” The strategy also features new prizes and subsidies to encourage Chinese researchers and companies to cooperate in developing new China-based standards.

China has also sought to increase Chinese representation in leadership and rapporteur positions at top SDOs such as the International Telecommunication Union (ITU), raising concerns about the integrity of standards setting. CSIS experts have pointed out that “China sends the largest delegation to the ITU’s various study groups and is also represented by Huawei and other state-owned enterprises that are members. Working through these study groups, with the support of high-level ITU leadership, Huawei has introduced some 2,000 new standard proposals to ITU study groups on topics including 5G, cybersecurity, and artificial intelligence.”

However, the broader evidence to date shows that despite the rapidly rising influence of Chinese firms, the United States continues to maintain its leadership position in international SDOs. The Atlantic Council reports that the United States holds “at least 50 percent of votes in eleven of the thirty-nine standards development organizations.” In the Institute of Electrical and Electronics Engineers (IEEE) Standards Association, for instance, Americans comprise 67 percent of the standards board members, who ultimately approve IEEE standards. The Atlantic Council also found that these SDOs are structurally sound and have been able to withstand pressure from individual governments in the past.

Although the United States continues to exert influence within international SDOs, recent assertive actions by China provide cause for concern. While it is reasonable to expect technology leaders to be active in setting standards, China’s standards strategy does not appear to be designed to enhance the innovation commons, but rather to privilege domestic companies such as Huawei over its global competitors. By politicizing SDOs, China may further damage the bodies’ role in establishing fair and credible standards that serve as reliable platforms for further technological advances and market competition.

Given the scale and ambitions of China Standards 2035, the United States should respond to its potential effects on the development and promulgation of technical standards. Yet the full implications of China’s standards strategy—much less a comprehensive response to it—have yet to be mapped out in full. Simply attempting to limit Chinese participation in global standards-setting organizations may accelerate the rise of China-led and China-only standards, which could set back progress in technological innovation, limit the welfare of consumers, and unfairly disadvantage the competitive position of U.S. firms.

Policy Recommendations

The United States should continue to play an active leadership role in international standards-setting organizations to ensure the effective and fair functioning of the global standardization system. This role should focus on the following pillars:

1. Promote strong intellectual property rights. Clear and enforceable intellectual property rights incentivize corporations and entrepreneurs to invest in research and development, participate in standardization activities, and contribute their advanced technologies to the process of defining global standards. They are critical for avoiding potential misuse of information obtained during the technical-exchange process, an essential part of standards-development negotiations. The Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments—issued in December 2019 by the U.S. Patent and Trademark Office, the National Institute of Standards and Technology (NIST), and the Department of Justice’s Antitrust Division—clarified the U.S. position on the importance of balancing intellectual property rights with the availability of injunctive relief, which can provide economic opportunities for the owners of SEPs to gain a return on investment from their research and development. This 2019 policy statement should be maintained.

Further, the United States will need to maintain a coherent policy regarding intellectual property rights. For example, President Joe Biden’s Executive Order on Promoting Competition in the American Economy, despite its very good intentions, includes provisions that would increase ambiguity regarding intellectual property protections, reduce the value of intellectual property and SEP rights for U.S. entrepreneurs and innovators, and reduce incentives for U.S. corporations and other inventors to invest and participate in international technology standardization.

2. Advance and enforce sound governance principles. The global principles of standards-development governance have been well defined by the American National Standards Institute (ANSI) on behalf of the U.S. private sector–led standardization process. It is essential to maintain a rules-based ecosystem in all standards bodies around the world, through which U.S. corporations can compete on a fair and level playing field with companies and government bodies of other nations. By maintaining transparent and fair governance principles, attempted manipulations of standards-setting processes by the Chinese government and Chinese corporations will be exposed—allowing them to be held accountable in international forums.

The United States should continue to play an active leadership role in international standards-setting organizations to ensure the effective and fair functioning of the global standardization system.

3. Maintain multilateral cooperation. The United States and other nations are increasingly aware of China’s intent—and the actions it is taking—to seek dominance in standards. China has been able to increase its leadership representation in SDOs, provide technical contributions, and flood them with submissions for standard-essential patents. The data available to the United States and its trading partners, including China, should inform ongoing bilateral and multilateral cooperation in crafting trade policies that keep China’s manipulative standards practices in check.
4. Ensure effective coordination. Together with the private sector, the NIST has a pivotal role to play in coordinating U.S. government agencies’ participation in standardization. The active involvement of NIST and U.S. government representatives in preparing for standards negotiations—as well as in standards committees and working groups—is welcomed by U.S. and international industry collaborators. However, NIST’s indispensable role in standards coordination should be accompanied by appropriate funding for technical preparation, coordination, and participation so the United States can continue to receive the benefits of effective, technologically sound representation and coordinated public-private engagement. The National Science and Technology Council (NSTC) Subcommittee on Standards should encourage strong leadership by NIST and the active engagement of all federal agencies. In addition, this subcommittee should further expand effective communications, planning, and coordination with all U.S. private-sector participants in standardization.
5. Build U.S. capacity for standards leadership. The United States provides essentially no support for standards literacy in higher education. Since 2010, NIST has disbursed less than $500,000 per year toward standards education and capacity development. By contrast, over the past decade, China has invested substantially in its educational system to assure public- and private-sector preparedness in standards-setting processes, becoming a role model in this regard. China has come to understand that a nation both educated and equipped for standards excellence can ultimately secure technological advances and win trade advantages. The United States should also come to this realization. It should invest strategically in the future leaders that will advance curriculum, prepare a standards-savvy workforce, and conduct standards-related research and leadership development at universities across the country. Investment in standards leadership is an investment in U.S. competitiveness. Furthermore, permitting recipients of federal research grants to use a portion of these funds for participating in standards activities, including committee assignments and technical contributions, would benefit U.S. competitiveness.
6. Incentivize U.S. industry investment in standards leadership. The research and experimentation (R&E) tax credit needs to be revised to address systemic barriers to innovation and standards leadership in the twenty-first-century economy. Because U.S. industry will not invest in standardization aligned with the U.S. national interests without direct incentives and opportunities to do so, the R&E tax credit should encourage greater participation in standards development by all sectors relevant to the global economy and to U.S. competitiveness.

Sujai Shivakumar is director and senior fellow of the Renewing American Innovation at the Center for Strategic and International Studies in Washington, D.C.

This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.

This report is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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