U.S.-China Economic and Security Review Commission Calls for Action Against Chinese State-Owned Enterprises and Unfair Trade Practices

The U.S.-China Economic and Security Review Commission released its annual report on November 20, emphasizing the need for Congress, the Commerce Department, and other U.S. Government agencies to help U.S. firms affected by China’s “anticompetitive” actions and policies.

The issues raised by the Commission, including, state-owned enterprises, cyberhacking, subsidies, and others, are at the forefront of the debate over U.S.-China trade relations.   As trade becomes one area of potential cooperation between the Obama Administration and Congress, the Commission’s recommendations may take on added significance for policymakers.

Among other highlights, the Commission’s nearly 600-page report makes the following conclusions:

  • “China’s chronic overcapacity, especially in sectors such as steel and solar panels, continued to harm U.S. manufacturing and exports by dumping excess supply into global markets” (page 2).
  • “Unfair Chinese trade practices, including market protections, subsidization, and favoritism toward certain domestic players, as well as provisions for limiting foreign investment in certain manufacturing operations, have also contributed indirectly to the ongoing decline in U.S. manufacturing employment. Although China committed to sweeping reforms when it joined the WTO, Chinese efforts to honor these commitments have slackened in the last 10 years” (page 5).
  • “The dominance of state-owned enterprises in the Chinese economy is one of the reasons the United States has not designated China as a market economy, despite China’s active pursuit of such a designation for many years” (page 5).

The Commission also made specific (and at times provocative) recommendations on how to begin addressing some of these problems, including:

  • Legislation that creates a remedy, including treble damages, to domestic firms that have been injured from the anticompetitive actions of foreign state-owned companies (page 29).
  • Creation of a rebuttable presumption in antidumping and countervailing duty case that Chinese state-owned enterprises with facilities in the United States are operating at the direction of the state (page 30).
  • A Congressional directive that the U.S. Trade Representative, Commerce, and the International Trade Commission issue a report and recommendations on how to impose sanctions against entities that benefit from trade secrets or other information obtained through cyberhacking or other illegal means provided by a national government (page 30).

Note:  Wiley Rein represents U.S. clients in the steel and solar industries.