If General Motors wants success when it begins delivering Volts to China this year, it may have to bow to a pending Chinese law insisting GM agree to give up a related core trade secret to its Chinese joint venture (JV) partner, just as Ford already has.

The pressure to give in is substantial although negotiations are ongoing. As the tentative rule stands, Chinese Volt buyers could be eligible for government subsidies equal to almost half the Volt’s selling price, and this carrot is being dangled despite likely violation of World Trade Organization (WTO) rules, and western trade officials’ protests.

As we have reported before, China is aggressively pursuing a policy favoring “new energy” vehicles, and it is using the fact that since 2009 it has been the world’s largest auto market to lever billions in intellectual property away from western companies.

In the Volt’s case, China wants GM to fork over complete details on one of three technologies – some of which were developed with taxpayer dollars – according to a story written from China by the New York Times.

GM China Group President and Managing Director Kevin Wale drives the Chevrolet Volt on its unplugged journey.

Already big industries like wind turbines, high-speed trains and water purification have been built in China due to policies that force technology transfers from non-Chinese companies.

Now the budding Western advanced-tech automotive industry is being threatened to capitulate and follow others before it.

The $19,300 per buyer in potential subsidies and tax breaks GM needs for the Volt to compete on even footing hinge on delivering trade secrets. These would pertain to either electric motors, complex electronic controls or power storage devices – which for the Volt means its battery pack.

Presently China’s incentives are available only for Chinese vehicles such as the BYD e6.

GM has been credited for leading the way with the Volt. Now on its shoulders falls the dubious honor of being a test case that has the Office of the United States Trade Representative involved, although its spokesperson was careful not to issue any inflammatory remarks at this yet delicate stage.

Spokeswoman Nkenge Harmon benignly said U.S. trade officials will need to review the details of the availability of Chinese car subsidies.

She added that, “while the United States shares China’s desire to support the development and deployment of electric vehicles, we have been clear that it is important that we and other trading partners employ policies that do not discriminate against foreign enterprises and foreign products.”

But discriminating they are.

The Times reports at least five trade experts say that if made law, Chinese policies would violate WTO rules that forbid making it uneconomical to do business unless trade secrets are divulged.

“The rules do not allow a country to impose a requirement affecting the internal sale, distribution or purchase of a product in a way that favors its own product over imports,” said Carolyn B. Gleason, a partner at McDermott Will & Emery in Washington and longtime specialist in W.T.O. cases.

In contrast, the U.S. does not withhold subsidies from importers of electric vehicles, but this does not seem to be swaying Chinese officials.

Finding itself at a pivotal moment, General Motors is petitioning the Chinese to the degree that it thinks it can to allow breaks for the Volt without being made to fork over its vital secrets.

No mention was given by the Times of the also well-documented predilection of some in China to sidestep intellectual property rights, and merely clone what they want regardless of official agreements.

Nonetheless, the continuing official story between GM and China is focused on coming to an agreement in the light of day.

“We’ll bring it up in every conversation we have,” said Raymond Bierzynski, the executive director of electrification strategy at GM China.

As GM-Volt readers know, GM already has a few joint venture partnerships with China, and its former head, Rick Wagoner had foresight to go to China years ago, so GM is already heavily invested – and poised to reap a harvest.

Last year 17 million cars – almost all petrol powered – were sold in the still-growing Chinese market. The Chinese are now anxiously rushing ahead with plans to replace these with advanced-tech vehicles that GM could easily (teach them to) make.

Although China is eager to publish its ambitious plans as long as they are spun in a self-flattering way, the Times reports that after repeated requests for comments on the subsidy issue, China’s commerce ministry gave no answer.

Tell us how to make this, say the Chinese. (Volt concept powertrain and chassis shown).

Speaking on condition of anonymity, a “Western official” said American and European Union officials have made a series of informal protests, but apparently to no avail.

Where things stand now is China has circulated its pending policy to Chinese and multinational automakers. A final release is expected by the end of the month, after which, the official said it would be even harder to change.

The U.S. Energy Department has helped GM for many years on electric car research, but David Sandalow, the assistant secretary of energy for policy and international affairs, said the department “has no comment at this time.”

Incentives in question would not apply to vehicles like the Prius, which gets most of its propulsion from gasoline power.

On the other hand, electric vehicles made by Ford – which is doing tech demonstrations in China but otherwise somewhat lagging behind GM – would be eligible.

And for its part, Ford has already agreed to transfer at least one core technology with its JV partner, said Nancy Gioia, director of Ford’s global electrification strategy.

The JV company that Ford is teamed up with is the civilian automotive affiliate of a large contractor for the People’s Liberation Army, China Weaponry Equipment.

The Times reports that Ford also has access to U.S. defense-related transportation secrets. Ford has been working with the U.S Energy and Defense departments to develop advanced military hybrid and electric vehicles that can operate far from gasoline or diesel supplies.

But Ford said it sees no conflict of interest.

Providing mastery of a core electric vehicle technology is a good thing, Gioia said, because it helps improve global environmental sustainability for the auto industry. Nor are there any legal restrictions against Ford sharing potential military transportation technology, she said.

Another strong argument, Gioia said, is that Ford’s best interest is to to manufacture in its local market, as this avoids trade frictions and currency fluctuation. So Ford is taking what it sees as the best course of action.

Plans are for Ford to introduce its Focus Electric in China by the end of this year, about when Chevrolet plans to begin offering the Volt there.

As for Nissan, which already is selling the Leaf in the U.S. and Japan, the company’s senior vice president of technology development, Minoru Shinohara, said China will not get its intellectual property.

Without elaborating, he merely said the Leaf is not “suitable” for the Chinese market. Instead Nissan will manufacture a Chinese-branded car by 2015 with its JV partner, Dongfeng Motor.

On the road to Shanghai.

Japanese and European automakers have held back for fear of losing trade secrets, the Times said, because they are loathe to share their newest technologies with Chinese companies.

GM has the same choice to make as it stands caught in a sticky wicket between potential profits versus divulging the workings of the Volt as well as other advanced technology that would follow.

The Times reports the Volt dispute threatens another trade dispute with the West and could affect the quality of a visit to China this month by American energy secretary, Steven Chu.

When he goes there, it appears he will encounter recalcitrant Chinese officials who are determined to bring to their country greater international prominence, and technology that would take years to get without the likes of Ford and GM handing it over.

“We have to break through and master the core technologies,” said Chen Jiachang, a deputy director of the ministry of science and technology in a conference speech Saturday.

And that pretty well sums up the posture being dogmatically pursued by those in control of one of GM’s most promising markets.

New York Times