On March 22, 2018, President Donald Trump signed a presidential memorandum directing his administration to take several trade-related actions aimed at China, including the imposition of tariffs on approximately $50 billion worth of Chinese products. The memorandum also directed the Secretary of the Treasury to address Chinese investment concerning the acquisition of key U.S. technologies.
The presidential action followed a seven-month investigation by the U.S. Trade Representative (USTR) into China’s acts, policies and practices related to technology transfer, intellectual property and innovation.1 USTR subsequently prepared a report on its findings, namely that it found certain Chinese acts and policies to be “unreasonable, unjustifiable, or discriminatory” and to “burden or restrict U.S. commerce.” This report was also published on March 22.
On April 3, USTR published a proposed list of products imported from China that could be subject to additional tariffs, including products in the aerospace, information and communication technology, robotics and machinery sectors.2 Written comments on the proposed products list are due on May 11, and USTR plans to hold a public hearing on the proposed measures on May 15.3 Posthearing comments are due by May 22. USTR will then issue a final determination on the products subject to the additional duties.
Section 301 Investigation and Findings
On August 18, 2017, USTR formally initiated an investigation into certain acts, policies and practices of the Government of China related to technology transfer, intellectual property and innovation at the direction of President Trump, under the authority of Section 301 of the Trade Act of 1974.4 Section 301, as amended, gives the USTR broad authority to respond to a foreign country’s unfair trade practices. If USTR makes an affirmative determination of actionable conduct, it has the authority to take all appropriate and feasible action to obtain the elimination of the act, policy or practice, subject to the direction of the President.5
During its investigation, USTR consulted with advisory committees and requested consultations with the Government of China. USTR also held a public hearing on October 10 and received approximately 70 written submissions from academics, think tanks, law firms, trade associations and companies.
Following this investigation, the USTR reported its findings that the acts, policies and practices of the Chinese government related to technology transfer, intellectual property and innovation “are unreasonable or discriminatory and burden or restrict U.S. commerce.”6 An interagency team of subject matter experts and economists further estimated that “these policies result in harm to the U.S. economy of at least $50 billion per year.”7 In particular, the USTR report highlighted four categories of acts, policies and practices “that unfairly result in the transfer of technologies and intellectual property from U.S. companies to China”8:
“China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.”9 “China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.”10 “China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.”11 “China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies. These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and also support China’s strategic development goals, including science and technology advancement, military modernization, and economic development.”12
Section 301 Measures
The USTR report identified the measures it deemed to burden U.S. commerce, but did not make any explicit suggestions about potential remedies. However, based on USTR’s findings, President Trump directed his administration to take a range of actions responding to China’s acts, policies and practices “harming American intellectual property rights, innovation, or technology development.”13 In particular, the March 22 memorandum directed the relevant agencies (i) to impose “increased tariffs on goods from China,” (ii) “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States,” and (iii) “to address China’s discriminatory licensing practices” through a dispute settlement proceeding before the World Trade Organization (WTO).
Increased tariffs: Pursuant to President Trump’s directive, USTR plans to impose additional ad valorem duties of 25 percent on approximately $50 billion worth of Chinese products.14 On April 3, USTR published a proposed list of products imported from China that could be subject to additional tariffs.15 The proposed list covers approximately 1,300 separate tariff lines and will undergo further review in a public notice and comment process, including a hearing.16 After completion of this process, USTR will announce its final determination on the products subject to the additional duties and publish the final product list in the Federal Register. In response, on April 4, China announced that it planned to impose its own tariffs on $50 billion of U.S. imports into China. The proposed list of products subject to additional duties covers 106 different tariff lines, including soybeans, cars, and chemicals.17 Following China’s announcement, on April 5, the Trump administration threatened to impose tariffs on an additional $100 billion of Chinese imports.18 Investment restrictions: The March 22 memorandum also directed the Secretary of the Treasury to propose restrictions on Chinese investment involving industries or technologies deemed important to the United States. Some sources say Treasury may propose investment restrictions based on reciprocity.19 That is, the United States would restrict Chinese foreign investment in the United States to the same extent that China restricts U.S. foreign investment in China. The administration may attempt to implement the investment restrictions measures under the authority of the 1977 International Emergency Economic Powers Act, under which the President has broad authority to regulate commerce “to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared.”20 There is no set timeframe for implementation of the investment-related actions, but per the March 22 memorandum, the Treasury Secretary must report his progress on this matter to the President within 60 days. WTO dispute settlement: The actions taken pursuant to the President’s authority under Section 301 do not preclude the United States from taking action at the WTO and, in fact, the March 22 memorandum explicitly directed USTR to pursue WTO dispute settlement “to address China’s discriminatory licensing practices.” Accordingly, on March 23, USTR initiated a WTO dispute by requesting consultations with the Government of China regarding certain specific aspects of China’s technology regulations considered in the investigation. China has also appealed to the WTO to contest the recent U.S. actions.
Potential for Additional Section 301 Measures
While there is no express expiration of the measures proposed in the March 22 memorandum, President Trump noted in the memorandum signing ceremony that his administration was “in the midst of a very large negotiation, we’ll see where it takes us, but in the meantime we’re sending a Section 301 action.”21 However, President Trump also indicated that the Section 301 action against Chinese intellectual property practices was only “the first of many” Section 301 actions.22 In his testimony before the Senate Finance Committee on March 22, USTR Robert Lighthizer echoed this sentiment, stating, “We expect to bring additional [Section 301 actions] in other areas where we don’t have reciprocal response and where we’re competing against states or against people who operated in noneconomic ways.”23