Announcing that China’s unfair trade practices in the areas of technology transfers and intellectual property result in harm to the U.S. economy of at least $50 billion per year, President Trump issued a Presidential Memorandum announcing the findings of his administration’s Section 301 investigation into these practices by the People’s Republic of China. This trade action is the result of a Section 301 investigation initiated on August 18, 2017 pursuant to the Trade Act of 1974 to determine whether acts, policies and practices of the Government of China related to technology transfer, intellectual property, and innovation are actionable under that statute. The Office of the U.S. Trade Representative (USTR) has prepared a report on the findings of its investigation detailing the acts, policies and practices undertaken by China that are harmful to the United States. According to the report:
- China uses joint venture requirements, foreign ownership/investment restrictions, equity limitations, and administrative review and licensing processes to force or pressure technology transfers from American companies.
- China uses discriminatory technology licensing processes and restrictions to transfer technologies from U.S. companies to Chinese companies.
- China directs and facilitates systematic investments and acquisitions in U.S. companies and assets that result in large-scale technology transfers in industries deemed important to China’s industrial plans.
- China conducts and supports cyber intrusions into U.S. computer networks to gain access to valuable business information, such as intellectual property, trade secrets or other confidential business information.
According to the USTR, these unfair technology transfers and intellectual property policies are part of China’s intentional efforts to seize economic leadership in advanced technology as described in its industrial plans, such as “Made in China 2025.” In making the announcement, USTR Robert Lighthizer stated, “President Trump has made it clear we must insist on fair and reciprocal trade with China and strictly enforce our laws against unfair trade. This requires taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal U.S. technology and intellectual property. Years of talking about these problems with China has not worked. The United States is committed to using all available tools to respond to China’s unfair, market-distorting behavior. China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.”
In the Presidential Memorandum, President Trump directed his administration to take the following actions to respond to China’s acts, policies and practices involving the unfair and harmful acquisition of U.S. technology:
- WTO Case: At the direction of the president, the USTR will file a complaint regarding China’s discriminatory technology licensing practices through a World Trade Organization (WTO) dispute settlement proceeding.
- 25 Percent Ad Valorem Duties: The USTR will propose additional tariffs on certain products of China, with an annual trade value commensurate with the harm caused to the U.S. economy resulting from China’s unfair policies. The proposed product list subject to the tariffs will include aerospace, information and communication technology, and machinery.
- Investment Restrictions: The president also has directed his administration to respond to Chinese investment aimed at obtaining key U.S. technologies. Relevant departments and agencies will work with the Treasury Department to propose measures addressing China’s investment practices involving the acquisition of sensitive technologies.
Regarding the 25 percent duties, the USTR will publish a proposed list of products subject to these additional tariffs within the next 15 days. Once published in the Federal Register, the public will have 30 days to comment on the proposed tariff action. Further, the USTR will hold a public hearing at a date yet to be determined. Once the USTR has conducted its review and analysis, a final determination on the products to be covered under any additional tariffs will be published and go into effect.
For more details on the initiation of the investigation, see Thompson Hine LLP’s International Trade & Intellectual Property Update.