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USTR to Consider Possible Section 301 Investigation of China

Wednesday, August 16, 2017
Sandler, Travis & Rosenberg Trade Report

President Trump has directed the Office of the U.S. Trade Representative to determine whether to conduct a Section 301 investigation of any of China's laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming U.S. intellectual property rights, innovation, or technology development. Any such investigation could ultimately result in additional tariffs or restrictions on imports from China or other measures.

In directing this action the president asserted that China has taken measures that may encourage or require the transfer of U.S. technology and intellectual property to enterprises in China and may thus inhibit U.S. exports, deprive U.S. citizens of fair remuneration for their innovations, divert U.S. jobs to workers in China, contribute to the U.S. trade deficit with China, and otherwise undermine U.S. manufacturing, services, and innovation. A White House fact sheet adds that China has gained unauthorized access to the computer networks of U.S. businesses for commercial purposes and, on a number of occasions, has stolen their commercial information. The annual cost of IP theft to the U.S. economy could be as high as $600 billion, the fact sheet states, and China is estimated to be responsible for 50-80 percent of all IP theft costs that harm the U.S. economy.

Despite these assertions, this new initiative appears to reflect a less confrontational approach to resolving longstanding trade complaints with China than this administration has previously pursued. The fact sheet states that President Trump “is not prejudging the inquiry” and that it will be up to USTR to decide whether to launch a formal investigation and, if so, whether action should be taken and what that action would be. In addition, the president did not direct USTR to expedite its review, a tactic he has used in some previous instances. USTR Robert Lighthizer said he would report back to the president “as soon as possible” but added that USTR “will engage in a thorough investigation,” which will include consulting with government agencies and advisory committees. If USTR does decide to launch a formal Section 301 investigation it could take up to a year to conclude it.

The leaders of the House Ways and Means and Senate Finance committees welcomed the directive but raised some concerns. Ways and Means Trade Subcommittee Ranking Member Bill Pascrell, D-N.J., said the Trump administration “has called for report after report on the detrimental practices of our trading partners but hasn’t actually done anything about it” and worried that USTR’s review could yield the same result. Ways and Means Ranking Member Richard Neal, D-Mass., urged the president to “fully consult interested parties and stakeholders that could benefit from and be affected by any investigation … before taking any further steps in this matter.” Ways and Means Chairman Orrin Hatch, R-Utah, said any U.S. action should be consistent with World Trade Organization rules, highlighting an ongoing concern that Trump administration trade officials have openly discussed taking enforcement action outside the scope of the WTO.

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