As the Trump administration implements its 2017 Trade Policy Agenda, it has initiated another investigation, bringing the tally of investigations being conducted pursuant to mostly dormant US trade remedy authorities to four. These include two Section 232 of the Trade Expansion Act investigations on steel and aluminum, one Section 201 of the Trade Act of 1974 (Section 201) often referred to as the “global safeguards action” investigation on solar cells and modules, and the latest, a Section 301 of the Trade Act of 1974 (Section 301) investigation on China’s policies regarding the transfer of technology, intellectual property and innovation. While these powers provide capacious legal authorities, it remains unclear what actions the administration will ultimately take given potentially significant boomerang effects on US manufacturers and workers of restrictions on imports of raw materials and industrial inputs needed by US industry. For example, even within the US solar industry there is debate on the merits of the Section 201 investigation and whether any such safeguard action could actually harm certain portions of the US solar industry.
The Section 301 investigation was formally initiated on August 18, 2017, with the United States Trade Representative (USTR), Robert Lighthizer, issuing a notice of initiation of investigation and a request for comments under the authority of Section 302(b)(1)(A) of the Trade Act of 1974. The purpose of the investigation is to determine whether China’s acts, policies and practices with regard to technology transfer, intellectual property and innovation are “unreasonable or discriminatory and burden or restrict U.S. commerce.” Section 301 is infrequently used since the creation in the mid-1990s of the World Trade Organization (WTO) with its highly structured procedure for dispute resolution. The Section 301 authority provides the US administration with broad power to sanction foreign country practices that are found to burden or restrict US commerce.
Growing Frustration with China’s Industrial Policies
The notice of initiation states that many US businesses operating in China have become increasingly frustrated with some of China’s “policies and practices [that] reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China.” The notice mentions China’s “strategy to become a leader in a number of industries, including advanced-technology industries, as reflected in China’s “Made in China 2025″ industrial plan.” Any eventual measures taken by the Trump administration could affect trade and investment. The measures could also conceivably result not only in tariffs on products made with technology believed to come from US companies, but also denial of Committee on Foreign Investment in the United States (CFIUS) approvals or other certain federal permits necessary for operating in the United States. Such sanctions could affect not only Chinese firms, but also US firms that rely on Chinese components and other inputs.
Comments and Hearings
As the investigation unfolds in the coming months, it will be important for businesses to weigh in on the discussion and the investigation to ensure they are not accidentally sidelined by any potential actions. The USTR has until August 18, 2018, to determine whether there is a burden or restriction on U.S. commerce and decide what action to take, if any. There is a formal procedure for providing comments, though direct engagement with the administration will be key. As for the formal process, comments may be submitted in writing through the Federal eRulemaking Portal: http://www.regulations.gov. Also, the Section 301 Committee will hold a hearing on October 10, 2017 with a follow up post-hearing rebuttal comments due on October 20, 2017.