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On August 18, 2017, the Office of the United States Trade Representative (USTR) launched a formal investigation pursuant to Section 301 of the Tariff Act of 1974 on the People’s Republic of China (PRC). The probe sought to determine whether the acts, policies, and practices of the PRC related to technology transfer, intellectual property, trade secrets, and innovation were discriminatory towards U.S. firms and undermined the United States’ ability to compete fairly in the global market. Section 301 allows the President to seek removal of any act, policy, or practice of a foreign government that violates an international agreement or that unfairly burdens or restricts U.S. commerce.

On March 22, President Trump issued a Memorandum stating the USTR found PRC actions do undermine U.S. firms’ ability to compete fairly in the global market by (1) requiring or pressuring U.S. companies to transfer technology to Chinese companies; (2) imposing restrictions on, and intervening in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms; (3) obtaining cutting-edge technology by directing and facilitating the investment and acquisition of U.S. companies by Chinese companies; and (4) conducting and supporting intrusions and theft from the computer networks of U.S. companies.

In response, the President has directed the USTR to address these violations via a combination of retaliatory tariffs, World Trade Organization (WTO) dispute settlement, and the Department of the Treasury to address via investment restrictions. Continue Reading USTR: China Discriminates Against U.S. Firms Related to Tech Transfer, IP, and Trade Secrets

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer initiated an investigation on August 18, 2017 pursuant to Section 301 of the Trade Act of 1974. The probe will determine whether acts, policies, and practices of the People’s Republic of China (PRC) related to technology transfer, intellectual property, trade secrets, and innovation are discriminatory towards U.S. firms by undermining the United States’ ability to compete fairly in the global market. Section 301 allows the President to retaliate by removing any act, policy, or practice of a foreign government that violates an international agreement.

The investigation began after PRC President Xi Jinping unveiled a cybersecurity law to “protect personal information and individual privacy,” as reflected in China’s Made in China 2025 initiative. The law requires foreign companies operating in China to store their data on local servers. U.S. companies are now also being instructed to participate in joint ventures with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

USTR allegedly finalized its report in December 2017, and the remedies are undergoing vetting in the interagency process. However, the U.S. may partner with the European Union and Japan to seek consultations through the WTO, rather than solve the issue unilaterally.

Pursuant to the Trade Act, Ambassador Lighthizer must determine within 12 months from the date of the initiation whether the Chinese government violated U.S. intellectual property laws. The retaliatory action proposed by USTR, if any, must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if the agency determines that substantial progress could be made by the foreign government. If the determination is affirmative, then USTR will decide what action to take.

If Ambassador Lighthizer recommends retaliation under Section 301, the President could impose sanctions on certain Chinese industries, specifically steel. The current administration has demonstrated a tough stance on overcapacity by imposing a 25 percent global tariff on imported steel products, and a 10 percent global tariff on imported aluminum products.

As expected, the Chinese government is already demonstrating “tit for tat” retaliation by self-initiating anti-dumping (AD) and countervailing (CVD) investigations on imports of sorghum from the United States. In addition, China is already among one of the countries that has requested consultations from the WTO regarding the safeguard measures on solar cells and residential washing machines.

The USTR is expected to release its findings to the President within the coming months.