At President Trump’s direction, on August 14, the United States Trade Representative (USTR) initiated an investigation under Section 301 of the Trade Act of 1974 against China’s laws, policies, or actions that could threaten U.S. intellectual property and technology development.

USTR Robert Lighthizer commenced the preliminary stages of the investigation and will convene a public hearing on October 10 at the U.S. International Trade Commission. The results of the investigation could lead to additional tariffs or restrictions on imports from China.

This is the third investigation the administration has initiated concerning foreign imports and trade practices. The U.S. Department of Commerce is currently conducting two investigations on whether U.S. imports of aluminum and steel products threaten national security.

The President’s August 14 memorandum unveiled the following four types of conduct USTR will consider during the investigation:

• Whether the Chinese government uses a variety of tools to regulate or intervene in U.S. companies’ operations in China to transfer U.S. technologies and intellectual property to Chinese companies;
• Whether the Chinese government’s policies and practices deter U.S. companies from issuing market-based terms in licensing and technology-related negotiations with Chinese companies; and
• Whether the Chinese government obtains high-technology products and intellectual property by investing in or acquiring U.S. companies pertinent to Chinese government industrial plans;
• Whether the Chinese government is breaching U.S. commercial computer networks to access and/or steal intellectual property, trade secrets, or business proprietary information.

USTR will determine whether the aforementioned four types of conduct are actionable under Section 301 of the Trade Act.  Pursuant to the Trade Act of 1974, USTR must determine within 12 months from the beginning of the initiation whether any act, policy, or practice described in Section 301 exists.

In general, the retaliatory action proposed by USTR must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if it determines that substantial progress is being made regarding removing the trade barrier. If the determination is affirmative, then USTR will decide what action, if any, to take.

Though certain company executives and politicians support the investigation as a way to help U.S. businesses access the Chinese market without conceding their intellectual property to the Chinese government, others are more reluctant to voice their opinions due to their fear of drawing retaliation from China.

The investigation comes shortly after the Chinese government unveiled a new cybersecurity law to “protect personal information and individual privacy” in late May of 2017. The law requires foreign companies operating in China to reveal intellectual property to the PRC and forces these companies to store their data to local servers. U.S. companies are now instructed to participate in a joint venture with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

There has only been one recent USTR Section 301 investigation in the past two decades. In 2010, USTR initiated a Section 301 investigation of Chinese policies and subsidies supporting its wind and solar industries. Because the issues covered involved U.S. rights under the World Trade Organization, USTR requested WTO dispute settlement consultations with the government of China. Less than a year after the initiation of the investigation, China removed the challenged acts. Thus, it is possible that this current Section 301 investigation could follow a similar timeline, whether or not WTO rights are implicated.

For more information, contact: Robert Holleyman, Dan Cannistra, Ben Caryl, Cherie Walterman