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Chinese Policies, IPR, Tariffs, Import Restrictions Highlighted in Annual Trade Barriers Report

Tuesday, April 03, 2018
Sandler, Travis & Rosenberg Trade Report

The Office of the U.S. Trade Representative has issued its annual National Trade Estimate report, which describes significant foreign barriers to U.S. exports of goods and services, foreign direct investment, and intellectual property rights protection as well as the actions being taken to address those barriers. The NTE report covers the most important barriers, including those that may be consistent with international trade rules (e.g., very high tariffs), affecting U.S. exports to 60 countries, the European Union, Taiwan, Hong Kong, and one regional body.

This year’s report again includes technical barriers, such as product standards and testing, labeling, and certification requirements; sanitary and phytosanitary barriers, which include measures used to ensure that foods and beverages are safe for consumers and to protect animals and plants from pests and diseases; and barriers to exports of telecommunication goods and services. In addition, to highlight the growing and evolving trade using or enabled by electronic networks and information and communications technology, relevant country chapters include a dedicated section on barriers to digital trade.  

USTR states that among the notable changes concerning barriers to U.S. exports in 2017, both positive and negative, are the following.

Argentina. Argentinean authorities undertook significant enforcement actions last year against the sale of counterfeit goods. Authorities seized millions of dollars’ worth of illicit goods and made key arrests to dismantle organized crime operations in La Salada, one South America’s largest black markets for counterfeit and pirated goods.

Canada. In June 2017, the Supreme Court of Canada rejected lower Canadian courts’ rulings that if a patent promised more than it could provide it could be invalidated for lack of utility. Canadian courts had used this “utility” or “promise doctrine” to invalidate a number of patents held by U.S. pharmaceutical companies but the Supreme Court of Canada struck down this doctrine as “unsound,” ruling that it is inconsistent with Canada’s Patent Act.

China. China uses a range of measures, including industrial plans such as “Made in China 2025,” to engineer the transfer of foreign technology to China. To accomplish its industrial policy goals, for example, China denies certain financial or regulatory incentives to companies that do not own their intellectual property in China, do not conduct large amounts of research and development in China, and/or do not manufacture products in China. Beijing also conditions foreign investment approvals on technology transfers to Chinese entities, mandates adverse licensing terms on foreign IP licensors, uses anti-monopoly enforcement to extract technology on unreasonable terms, and subsidizes acquisitions of foreign high-tech firms to bring technology to Chinese parent companies. Additionally, structural gaps and inconsistencies in IPR protection and enforcement allow Chinese entities to appropriate foreign IP. For example, misappropriation of trade secrets for the benefit of Chinese companies has occurred both within China and outside of China.

Chinese government industrial policies and financial support have contributed to massive excess capacity in China, with the resulting over-production and increased exports distorting global markets and hurting U.S. producers and workers in both the U.S. market and third country markets where U.S. exports compete with Chinese exports. This excess capacity has led to lower global prices and a glut of supply that undermine the viability of even the most competitive manufacturers, and policies like Made in China 2025 call for this pattern of distortion to continue.

U.S. and global partners continue to have serious concerns regarding a series of Chinese cybersecurity measures that would impose severe restrictions on a wide range of U.S. and other foreign information and communications technology products and services to replace such products and services with Chinese-made ICT products and services in China’s market. Concerns center on requirements in sectors that China deems “critical” to ensure that ICT equipment and other ICT products and services be “secure and controllable.” In addition, China would impose severe restrictions on cross-border data flows and requirements for data localization. Notwithstanding the negative U.S. and international reaction, China continues to move forward with its cybersecurity regime and problems continue to arise.

Colombia. Following U.S. engagement, Colombia’s Superintendency of Industry and Trade (SIC) in August 2017 added the U.S. to the list of countries that provide an adequate level of data protection. This corrected the original circular that did not include the U.S. and would have posed a significant impediment to digital trade.

Guatemala. The U.S. gained immediate tariff elimination for U.S. exports of fresh, frozen, and chilled chicken leg quarters, zeroing out tariffs five years earlier than planned and creating market opening benefits for U.S. poultry exporters. El Salvador, Honduras, and Nicaragua also established duty-free tariff-rate quota volumes through 2023, when U.S. poultry will have unlimited duty-free access.

India. India implemented in 2017 price controls on coronary stents and knee implants that do not fully differentiate for advanced technologies within a product class. U.S. companies have applied to withdraw technologically advanced products from the market but the requests have been rejected, forcing the U.S. to sell certain products at a loss. India has indicated it may apply similar price controls on additional medical devices.

Meanwhile, India continues to maintain some of the highest average tariff rates in the world. The large gap between India’s WTO bound and applied tariff rates allows the country to make frequent adjustments to the level of protection provided to domestic producers by modifying tariff rates. For example, in 2017 India increased tariffs on pulses from zero to 30 and 50 percent. India has also raised tariffs on certain high-tech ICT products from zero to between 10 and 20 percent.

Israel. Israel required U.S. exporters seeking to claim preferential treatment under the U.S.-Israel FTA to provide an original, consularized form (Form A or UNCTAD green form). For many years, U.S. exporters shipping to Israel wishing to take advantage of these tariff preferences struggled to locate and obtain a hard copy “Form A.” To eliminate this barrier to U.S. exports, USTR negotiated an approach with Israel, reflected in a decision of the Joint Committee under the FTA, that would allow Israel to accept self-declarations of origin for U.S. exports and to dispense with the use of the UNCTAD green form. The new simplified procedure went into effect on Jan. 10.

Japan. Japan recognized a number of U.S. automotive safety standards in January 2018, including frontal and rear crash standards, thereby reducing the cost and burden for U.S. auto exports. Additionally, in September 2017 Japan agreed to expand market access for U.S. chipping potatoes by adding Idaho to the list of U.S. states listed as eligible to export to Japan starting with the 2018 season.

Kenya. In June 2016, Kenya doubled the duty rate on used clothing to 35 percent or $0.40/kg, whichever is higher, as a first step toward implementing a March 2016 decision by East African Community governments to eliminate imports of used clothing and footwear within three years. In response to U.S. concerns, however, in July 2017 Kenya changed the duty rate back to the pre-June 2016 rate of 35 percent or $0.20/kg, whichever is higher.

Korea. USTR called for a special session under the U.S.-Korea FTA in July 2017 to seek changes to rebalance the agreement in ways that will be more favorable to American workers and businesses. An agreement in principle was announced March 28 and the agreement is now being finalized. In its discussions to improve KORUS, the U.S. achieved steps to improve the large trade deficit in industrial goods with Korea and to address KORUS implementation concerns that have hindered U.S. export growth.

Peru. In 2017, the U.S. worked closely with Peruvian prosecutors and members of the Peruvian National Police to coordinate IPR enforcement, including a September 2017 seizure of the domain for pelis24.com, a prolific pirate site, and arrested its administrators in Lima. The site infringed on more than 5,000 properties belonging to U.S. copyright holders and attracted more than 25 million monthly visitors from Latin America.

South Africa. South African authorities require conformity assessment that demonstrates that imported IT products meet the relevant South African standard. The National Regulator for Compulsory Specifications had been taking nearly a year to issue the required documentation but after the U.S. engaged directly with South African authorities the timeframe required to issue the letters has dropped to about 80 days.

Prior to January 2018, South African authorities required that exports of U.S. poultry meat to South Africa be produced from U.S. birds hatched and raised within the U.S. This requirement restricted exports of U.S. turkey from meat produced from Canadian poults. In January 2018, USDA and South African authorities reached agreement on an amendment to the USDA export health certificate for poultry to allow the importation of U.S. turkey meat produced from turkeys grown from Canadian poults under certain conditions.

Taiwan. There continues to be a need for greater transparency and predictability in Taiwan’s pricing and reimbursement policies for pharmaceuticals, including innovative pharmaceuticals, in Taiwan’s health care system. In December 2017, Taiwan’s Legislative Yuan passed an amendment to the Pharmaceutical Affairs Act establishing a patent-linkage system that should address patent issues expeditiously in connection with applications to market pharmaceutical products. However, implementation remains incomplete.

Vietnam. Vietnam is implementing a plan to develop its own local electronic payments industry by requiring that all credit and debit payment transactions be processed by a government-owned monopoly, the National Payments Corporation of Vietnam. Implementation of the new system has been postponed until January 2019. The U.S. continues to urge Vietnam to adopt a competitive approach in which U.S. electronic payment companies are able to supply services without disruption or harm to commercial arrangements that have been in place for many years.

In October 2017, Vietnam issued Decree 116 imposing onerous new requirements on imports, including new certification and testing requirements. The decree has resulted in significant trade disruptions since it entered into force on Jan. 1. The U.S. continues to engage Vietnam for a solution to these concerns that allows trade to resume for the benefit of both countries.

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