Trade Compliance

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USTR’s Updated Section 301 Report Says China Hasn’t ‘Fundamentally Altered’ Unfair Trade Practices

Posted November 29, 2018

In a move widely seen as paving the way for a possible further escalation of trade tensions between the United States and China in the near future, the Office of the U.S. Trade Representative last week published an update to its investigation into Beijing’s “unfair” intellectual property practices under Section 301 of the 1974 Trade Act.
China and the U.S. Wrecking Ball
Following up “as part of its ongoing monitoring and enforcement effort” on the March 2018 report which provided the legal basis for the Trump administration to impose tariffs on $250 billion worth of Chinese goods, USTR Robert Lighthizer said the update “shows that China has not fundamentally altered its unfair, unreasonable, and market-distorting practices.”

In the new 53-page report, USTR argued that China had not responded “constructively” to the initial section 301 findings and has to date failed to take any substantive actions to address Washington’s concerns about its “deplorable” trade practices related to technology transfer and intellectual property.

As evidence of China’s unwillingness to take its complaints seriously, USTR noted that Beijing had made clear – both in public and in official discussions – that it had no intention of altering its policies in response to American pressure, even going so far as to have published an extensive white paper in September that brushed off USTR’s Section 301 findings while denouncing what it called America’s “trade bullyism.”

The USTR report charges that despite punitive U.S. tariffs and diplomatic efforts over the past several months, China has continued its policy and practice of conducting and supporting “cyber-enabled theft” of U.S. intellectual property, and has kept the country’s discriminatory technology licensing restrictions in place.

While conceding that some “incremental improvements” in foreign ownership rules have been made, USTR says “the Chinese government has persisted in using foreign investment restrictions to require or pressure the transfer of technology from U.S. companies to Chinese entities.”

Citing the conclusions of civilian cybersecurity firms, the report also alleges that Chinese hacking efforts have continued unabated, with state-sponsored entities targeting “cloud computing, Internet of Things, artificial intelligence, biomedicines, civilian space, alternative energy, robotics, rail, agricultural machinery, and high-end medical devices sectors.”

Unsurprisingly, Chinese officials reacted angrily to the report, saying its claims were “groundless” and “totally unacceptable.” Speaking to reporters, Chinese Commerce Ministry spokesman Gao Feng said “China is deeply concerned with the new accusations, and urges the U.S. side to stop making statements or moves that are destructive to bilateral economic and trade ties.”

“We hope the United States will drop the words and behaviours that damage bilateral economic and trade relations and adopt a constructive attitude,” Gao said.