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On July 6, 2018, retaliatory tariffs went into effect on certain U.S. imports from China. This retaliation comes in response to U.S. concerns over Chinese intellectual property practices and has inspired counter-retaliation on China’s part.
The case began on August 14, 2017, when President Donald Trump signed a presidential memorandum directing the U.S. Trade Representative (USTR) to examine whether China should be investigated for unreasonable or discriminatory policies that may harm American intellectual property rights, innovation, or technological development. The investigation was conducted under Section 301 of the Trade Act of 1974, also known as the “reciprocity” law. This law provides authority for the USTR to investigate foreign countries’ acts, policies, and practices that are alleged to violate U.S. trade rights, and to threaten or impose retaliatory actions (e.g., penalty duties on imports) if a partner country does not reform or remove laws that are found to violate these rights. This and related laws were a major instrument of U.S. trade policy from the early 1980s to the early 1990s, but the law has been very rarely invoked since the creation of the World Trade Organization and its dispute-settlement system.
The memorandum declared that “[v]iolations of intellectual property rights and other unfair technology transfers potentially threaten United States firms by undermining their ability to compete fairly in the global market,” and that “China has implemented laws, policies, and practices and has taken actions related to intellectual property, innovation, and technology that may encourage or require the transfer of American technology and intellectual property.” On August 24, 2017 U.S Trade Representative Robert Lighthizer formally initiated the investigation.
The USTR argues that the Chinese government’s technology transfer and intellectual property policies are part of its stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as “Made in China 2025.” The USTR report states that China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities. It also states that China uses administrative review and licensing procedures to require or pressure technology transfer, which undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.
On March 22, 2018 President Trump announced the actions in response to the administration's determination that China engaged in unfair trade practices. At issue was the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. The action involves three responses:
The USTR followed on April 3, 2018 by publishing a proposed list of products imported from China that could be subject to additional tariffs. The agency said that the "proposed list of products is based on extensive interagency economic analysis and would target products that benefit from China’s industrial plans while minimizing the impact on the U.S. economy." The sectors include industries such as aerospace, information and communication technology, robotics, and machinery, and include approximately 1,300 separate tariff lines. On June 15, 2018 the USTR modified this list by removing 515 product lines (thus maintaining 818 products lines from the original list) and adding 284 product lines to target products that benefit from China’s industrial policies. The 284 product lines being proposed will now undergo further review in a public notice and comment process, including a hearing. After completion of this process, USTR will issue a final determination on the products that would be subject to the additional duties.
On May 29, 2018 the White House announced a three-point plan:
The first item on that list amounted to a White House threat to take action unilaterally if Congress did not enact a pending bill entitled the Foreign Investment Risk Review Modernization Act (FIRRMA). The legislature did in fact approve that legislation, and so President Trump followed up with a June 27, 2018 announcement that -- based on the progress of that legislation up until that time -- it was not necessary for him to act on his own. On August 13, 2018 President Trump signed into law a larger bill of which the FIRRMA was a part.
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