Section 301 Investigation

Although details were released earlier this week, on April 6 the Office of the U.S. Trade Representative (USTR) published the official Federal Register Notice concerning China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (otherwise known as the Section 301 investigation).

On March 22, President Trump issued a Memorandum stating USTR determined that the acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation covered in the investigation are unreasonable or discriminatory and burden or restrict U.S. commerce.

USTR is proposing an additional duty of 25 percent on a list of products from China. The list of products, defined by 8-digit subheadings of the Harmonized Tariff Schedule of the United States (HTSUS), is set out in the Annex to the Federal Register Notice.

USTR is now seeking public comment and will hold a public hearing regarding a proposed determination on appropriate action in response to these acts, policies, and practices.

To be assured of consideration, you must submit comments and responses in accordance with the following schedule:

  • April 23, 2018: Due date for filing requests to appear and a summary of expected testimony at the public hearing and for filing pre-hearing submissions.
  • May 11, 2018: Due date for submission of written comments.
  • May 15, 2018: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW Washington DC 20436 beginning at 10:00 a.m.
  • May 22, 2018: Due date for submission of post-hearing rebuttal comments.

USTR strongly prefers electronic submissions made through the Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments in sections F and G of this Notice. The docket number is USTR-2018-0005. For alternatives to on-line submissions, please contact Sandy McKinzy at (202) 395-9483.

For questions about the ongoing investigation or proposed action, contact Arthur Tsao, Assistant General Counsel, at (202) 395-5725. For questions on customs classification of products identified in the Annex to this Notice, contact Evan Conceicao at Evan.M.Conceicao@cbp.dhs.gov.

On April 3, 2018, the Office of the U.S. Trade Representative (USTR) released the proposed list of Chinese products that could be subject to an additional 25 percent tariff as part of the Section 301 probe into Chinese IP practices.

USTR recommended that a 25 percent tariff be applied to $50 billion worth of Chinese goods, covering nearly 1,300 HTS codes. Products within the scope of the proposed duty include engines, agricultural and textile machinery, semiconductors, batteries, tires, medical products, and instruments used in aeronautical and space navigation.

In addition, China unveiled another retaliation list of U.S. goods worth $50 billion that could be subject to an additional 25 percent tariff. China’s list of 106 products includes soybeans, airplanes, automobiles, beef, and chemicals.

The Section 301 Committee will convene a public hearing on May 15, 2018 to discuss the proposed action in response to China’s IP acts, policies, and practices. Requests to appear at the hearing must be submitted by April 23, 2018. The request must also include a summary of testimony, along with the pre-hearing submission. Interested parties may submit written comments by May 11, 2018, and post-rebuttal comments by May 22, 2018.

USTR requests that public comments include the following:

  • The specific products to be subject to increased duties, including whether products listed in the Annex should be retained or removed, or whether products not currently on the list should be added.
  • The level of increase in the rate of duty, if any.
  • The appropriate aggregate level of trade to be covered by additional duties.USTR also requests that commenters specify whether maintaining or imposing additional tariffs on the product would cause economic harm to U.S. interests.
  • If a party is commenting on the inclusion or removal of a product already listed as a proposed item to be subject to additional tariffs, USTR requests that commenters address whether imposing increased tariffs on the product would be practicable or effective in eliminating China’s IP acts, policies, and practices.

On August 18, 2017, the Office of the United States Trade Representative (USTR) launched a formal investigation pursuant to Section 301 of the Tariff Act of 1974 on the People’s Republic of China (PRC). The probe sought to determine whether the acts, policies, and practices of the PRC related to technology transfer, intellectual property, trade secrets, and innovation were discriminatory towards U.S. firms and undermined the United States’ ability to compete fairly in the global market. Section 301 allows the President to seek removal of any act, policy, or practice of a foreign government that violates an international agreement or that unfairly burdens or restricts U.S. commerce.

On March 22, President Trump issued a Memorandum stating the USTR found PRC actions do undermine U.S. firms’ ability to compete fairly in the global market by (1) requiring or pressuring U.S. companies to transfer technology to Chinese companies; (2) imposing restrictions on, and intervening in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms; (3) obtaining cutting-edge technology by directing and facilitating the investment and acquisition of U.S. companies by Chinese companies; and (4) conducting and supporting intrusions and theft from the computer networks of U.S. companies.

In response, the President has directed the USTR to address these violations via a combination of retaliatory tariffs, World Trade Organization (WTO) dispute settlement, and the Department of the Treasury to address via investment restrictions.

For complete details, please see Crowell’s Client Alert.

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer initiated an investigation on August 18, 2017 pursuant to Section 301 of the Trade Act of 1974. The probe will determine whether acts, policies, and practices of the People’s Republic of China (PRC) related to technology transfer, intellectual property, trade secrets, and innovation are discriminatory towards U.S. firms by undermining the United States’ ability to compete fairly in the global market. Section 301 allows the President to retaliate by removing any act, policy, or practice of a foreign government that violates an international agreement.

The investigation began after PRC President Xi Jinping unveiled a cybersecurity law to “protect personal information and individual privacy,” as reflected in China’s Made in China 2025 initiative. The law requires foreign companies operating in China to store their data on local servers. U.S. companies are now also being instructed to participate in joint ventures with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

USTR allegedly finalized its report in December 2017, and the remedies are undergoing vetting in the interagency process. However, the U.S. may partner with the European Union and Japan to seek consultations through the WTO, rather than solve the issue unilaterally.

Pursuant to the Trade Act, Ambassador Lighthizer must determine within 12 months from the date of the initiation whether the Chinese government violated U.S. intellectual property laws. The retaliatory action proposed by USTR, if any, must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if the agency determines that substantial progress could be made by the foreign government. If the determination is affirmative, then USTR will decide what action to take.

If Ambassador Lighthizer recommends retaliation under Section 301, the President could impose sanctions on certain Chinese industries, specifically steel. The current administration has demonstrated a tough stance on overcapacity by imposing a 25 percent global tariff on imported steel products, and a 10 percent global tariff on imported aluminum products.

As expected, the Chinese government is already demonstrating “tit for tat” retaliation by self-initiating anti-dumping (AD) and countervailing (CVD) investigations on imports of sorghum from the United States. In addition, China is already among one of the countries that has requested consultations from the WTO regarding the safeguard measures on solar cells and residential washing machines.

The USTR is expected to release its findings to the President within the coming months.