When a computer somewhere in China hacks into your company's server, the Department of Justice says that's a crime. But good luck hauling an anonymous junior officer in the People's Liberation Army into court -- much less deterring future Chinese cyber-attacks through criminal prosecution.
SolarWorld Americas, a major U.S. producer of solar panels, has another idea. It has asked the Department of Commerce to impose trade sanctions against China as retaliation for cyber-attacks it has suffered. The idea is legally creative, politically risky -- and the harbinger of things to come in the emerging cool war between China and the U.S.
Start with the law, in this case the international law of trade, a regime governed by complicated interlocking treaties that ultimately fall under the auspices of the World Trade Organization. The letters WTO may put you to sleep (unless you're an anarchist with a big puppet), but among international lawyers, the trade regime has the reputation of being the most effective and enforceable type of international law. Countries impose sanctions on one another, take one another to court, and obey the trade courts' judgments.
If one private corporation's employee in China committed an act of cyber-espionage against a private company in the U.S., that would not on its face violate the trade laws -- and if the U.S. were to impose sanctions against China purely on the basis that a Chinese company had attacked an American one, the sanctions would themselves be a violation of international trade law. That means SolarWorld needs an original legal theory to explain why the attacks against it may be subject to sanctions.
The key to SolarWorld's claim must therefore be that the Chinese government or its affiliates -- not a private company -- has been hacking it. But that's not all. SolarWorld also has to convince U.S. authorities -- who would in turn eventually have to convince a WTO panel -- that the attacks amount to giving Chinese businesses an unfair trade advantage over U.S. competitors. That is, the theory would have to be that by stealing information from U.S. corporations and giving it to Chinese ones, the Chinese government was distorting the principle of free trade.
This argument is a stretch; but it's not bizarre. In response, China could deny that any government actor engaged in spying or that the government gave the information to Chinese competitors of the American company. It could, in other words, put SolarWorld to its proof. In addition, China could charge that the U.S. regularly spies on both the Chinese government and private actors in China. The material leaked by former National Security Agency contractor Edward Snowden would be helpful evidence to suggest that at various times the U.S. has tried to grab essentially every piece of information that it could. There's no reason to think strategic Chinese industries would've been excepted. If the U.S. is doing it as much as China, that would make it much harder for a WTO panel to accept the argument that China was giving its own companies an unfair advantage.
If the argument went along these lines, the U.S. in reply might have to address its own policy, which officially distinguishes between national security espionage -- which the government more or less admits to engaging in -- and espionage on behalf of private corporations, which the U.S. government claims not to do. From SolarWorld's standpoint, runs the argument, it doesn't do the company much good for the U.S. government to know about solar panel competitors in China, because the government never shares that information with SolarWorld.
If you're skeptical about whether a bright line can be drawn between national security spying and corporate spying, you're not alone. The regulations (presumably presidential intelligence directives) that guide U.S. policy are so secret that their very existence is uncertain, and their content even more so.
It's easy to imagine circumstances where in practice the N.S.A.'s knowledge could be put to use by private concerns even if the spying wasn't done on their behalf. For example, when U.S. companies are told they have been hacked, that very information would enable them to make a business response. If the American companies are doing sensitive national security work -- and many large U.S. businesses do -- then it seems logical that they would be given relevant information taken from Chinese competitors to design the best and most up-to-date weapons systems. Those systems would then be sold at a profit, not only to the U.S. government, but potentially to other clients worldwide.
But suppose the U.S. could defend a trade case against China: Should it impose tariffs in the first place? Historically, supporters of the international trade regime have worried that linking trade to other issues, such as human rights, the environment or national security, runs the risk of disrupting the regime altogether. The concern is that if China knows it can be held liable under trade law for classically nontrade violations, it may gradually withdraw from the trade regime rather than put itself at risk. That would be bad for free trade overall, rendering any victory short-term and Pyrrhic.
Yet under the conditions of cool war, where China and the U.S. are simultaneously engaged in peaceful economic cooperation and geostrategic, quasi-military competition, the pressure to use international trade law as a tool will be very great, as my colleague Mark Wu has been arguing. After its servers were hacked and it withdrew from the Chinese market in search services, Google Inc., like SolarWorld, went to the U.S. government and asked for trade sanctions on the theory that it had been discriminated against because its search services were less easy to censor than those of Chinese competitors.
The government never took final action on Google's request, and it may well choose not to pursue SolarWorld's. But instance by instance, the case for some sort of trade-based sanctions against China will continue to grow. When it appears that China is so fully integrated into the world trade regime that it cannot credibly threaten to withdraw, we can expect to see such claims advanced. They might even succeed.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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