No Plans for R&D Spending in China, Say 3 Game Console Rivals in Unusual Joint Filing
Microsoft, Nintendo and Sony Interactive Entertainment “collectively” spent more than $5.1 billion on videogame-related R&D in the U.S. in the 2016-2018 fiscal years, but nothing on R&D in China, and don't plan to do so, commented the three console makers July 2, posted Wednesday in docket USTR-2019-0004. The joint comments were to respond to questions the Section 301 committee put to the Entertainment Software Association during a June 25 hearing on the possible impact of List 4 Section 301 tariffs on console imports from China.
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That the three gaming archrivals banded together to file jointly was unusual, especially so because the submission contained “business confidential” information on console price sensitivity that was heavily redacted from the public version. International trade expert Gina Vetere, with Covington & Burling, submitted the filing on behalf of the three.
July 2 was the deadline for post-hearing rebuttals, marking the termination of the List 4 comment and testimony period. President Donald Trump delayed putting the List 4 tariffs into effect after he and Chinese President Xi Jinping agreed at the G20 summit in Osaka, Japan, to restart negotiations on a comprehensive trade package (see 1907010015).
The actual talks have been slow to resume. U.S. Trade Representative Robert Lighthizer spoke by phone Tuesday with his Chinese counterpart, Vice Premier Liu He, said a Chinese Foreign Affairs Ministry spokesperson Wednesday. “The two sides exchanged views on implementing the consensus reached by the two presidents during their meeting in Osaka,” he said. Neither the U.S. nor China gave a scheduled date for restarting the talks, which would be their 12th round of negotiations since December.
“Because our companies invest heavily in U.S.-based R&D related to our game consoles and do not undertake any such R&D in China, the tariffs would substantially harm U.S. interests,” said the makers. Tariffs “will require us to divert significant time and resources that would otherwise be spent on U.S. R&D toward supply chain restructuring,” they said.
The companies’ R&D investments “are fueling technological growth and a wide array of discoveries in the United States, even beyond the video game industries themselves,” said the three. “Given that we do not do any of this R&D in China, tariffs would jeopardize rather than advance innovation in the United States.”
Tariffs would “translate” into higher prices for U.S. consumers, sparking “marked declines” in console sales, said the three. That “in turn” will “markedly impact game sales, with a detrimental impact on thousands of U.S. game developers,” they said. The filing cited the recent CTA-commissioned Trade Partnership study that said a 25 percent tariff would spark a $56 increase in the average console priced at $294, sending sales declining by 35 percent.