On March 22, 2018, the United States Trade Representative (USTR) released the results of its extensive investigation under Section 301 of the Trade Act of 1974, focusing on China's actions that are "unreasonable or discriminatory and that burden or restrict U.S. Commerce" in relation to technology transfers, intellectual property, and innovation.
The USTR's Section 301 Report identifies numerous measures taken by China that the USTR, along with its interagency Section 301 committee, has determined to be discriminatory or unreasonable and burdensome to U.S. commerce. Particular focus was given to: (1) China's technology transfer regime, including its administrative review and licensing procedures, and its foreign ownership restrictions; (2) China's restrictions on technology licensing terms, including mandatory contract terms that discriminate against imported foreign technology and deny foreign technology owners the ability to enforce the time limitations of licensing agreements; (3) China's involvement in strategic investment in and acquisitions of U.S. companies and assets to obtain sensitive technologies and intellectual property; and, (4) China's cyber intrusions into U.S. commercial computer networks, resulting in unauthorized access to and theft of U.S. intellectual property, trade secrets, and other proprietary information.
In response to the USTR's findings, the White House issued a Presidential Memorandum directing the imposition of tariffs, the initiation of a World Trade Organization (WTO) dispute settlement, and the restriction of Chinese investment in U.S. companies and assets, as described below.
The President directed the USTR to propose additional tariffs on Chinese goods in an amount that approximates the alleged harm to the United States caused by China's actions. According to reports, the proposed tariffs are slated to cover as much as $60 billion worth of Chinese goods and about 1,300 tariff lines. The USTR's Section 301 Fact Sheet reports that aerospace, information and communication technology, and machinery will be among the products on the proposed list, with additional products and industries anticipated to be included.
The USTR will publish the proposed list of products in the Federal Register no later than April 6. Once the list is published, there will be a 30-day notice and comment period for interested parties. Tariffs will not be imposed until the comment period concludes and the USTR publishes the final list of affected products.
In addition, the President has directed the Treasury Secretary to propose investment restrictions that will respond to concerns about investment directed or facilitated by China in sensitive U.S. technologies and intellectual property. This is consistent with anticipated changes, such as proposed in bill S. 2098/H.R. 4311, Foreign Investment Risk Review Modernization Act (FIRRMA), for implementation by the Committee on Foreign Investment in the United States or CFIUS.
Finally, the President has directed the USTR to initiate a WTO dispute to challenge China's discriminatory technology licensing practices. The USTR filed a request for consultations with China at the WTO, which made claims under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) relating to China's discrimination against foreign intellectual property owners and its failure to protect the exclusive rights of foreign patent holders.
We are monitoring the administration's actions in connection with this important Section 301 investigation.