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Legal Update

Section 301 Report by U.S. Trade Representative: Chinese Trade Practices and U.S. Measures in Response

22 March 2018
Mayer Brown Legal Update

On March 22, 2018, the Office of the U.S. Trade Representative (“USTR”) released an extensive report detailing the results of its “Investigation Into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974.” The United States relies on investigations conducted under Section 301, as the legal provision is widely known, to justify taking broad retaliatory action against trading partners that are found to be violating their commitments.

This was the first Section 301 investigation since 2013. The results of this investigation by the Trump administration against China have been highly anticipated. In its report, USTR found that China uses foreign ownership restrictions, including joint ventures, licensing processes and other means, to pressure or force U.S. companies to transfer technology and other intellectual property to Chinese entities; imposes non-market-based restrictions on U.S. companies seeking to license technologies in China; directs and unfairly facilitates predatory investments and acquisitions in the United States to generate large-scale technology transfers to Chinese companies; and conducts and authorizes cyber intrusions into U.S. companies to access their sensitive commercial information, such as trade secrets. According to the White House, China’s unfair acts, policies and practices cause tens of billions of dollars in damages to the U.S. economy each year.

President Trump took immediate action in response to USTR’s findings, targeting what he described as “China’s economic aggression.” The president announced a range of measures that the United States will take in response. These actions include imposing a new 25 percent tariff against imports of Chinese products supported by China’s allegedly unfair practices. The sectors subject to the proposed tariffs will include aerospace, information communication technology, and machinery. Up to 1,300 Chinese products may be targeted. USTR will publish a proposed list of products subject to additional tariffs within 15 days and take public comment on the proposals. Administration officials stated that $50 billion in Chinese imports could be affected by the tariffs, although President Trump put the number at $60 billion. The president also committed the United States to confront China’s technology licensing practices by initiating a dispute proceeding at the World Trade Organization (WTO). To make Chinese investment in the United States more difficult, the Treasury Department will also lead an inter-agency effort to propose new rules restricting investment, particularly by Chinese state-run companies in sensitive U.S. technology.

Some members of Congress, including high-ranking Republicans, have urged a more selective response. In the signing ceremony announcing the new restrictions, however, President Trump promised more Section 301 investigations against China, insisting that the present action “is the first of many.” Vice President Pence added that Trump’s resolve “makes it clear that the era of economic surrender is over.”

Links to relevant documents concerning this Section 301 action can be found at Section 301 report and White House Fact Sheet.

Authors

  • Duane W. Layton
    T +1 202 263 3811
  • Jeffery C. Lowe
    T +1 202 263 3821

Related People

  • Duane W. Layton
    T +1 202 263 3811
  • Paulette Vander Schueren
    T +32 2 551 5950
  • Eduardo Molan Gaban
    T +55 11 2504 4639
  • Cecil Leong
    Chief Executive Officer, Asia Pacific, Mayer Brown Consulting
    T +65 6327 0254
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