Brief

President Trump is expected today to announce his determination and possible remedies regarding a Section 301 investigation into China’s Intellectual Property practices. The United States Trade Representative (USTR) conducted the investigation and is expected to issue its report detailing its findings soon as well. According to sources, the President is expected to impose tariffs of 25%, or higher, covering multiple electronic and other products produced in China, including possibly telecommunications equipment, furniture, and apparel. The effect of the tariffs is expected to range between $30 and $50 billion per year in tariffs levied. Among other possible measures, the President is also considering imposing restrictions on Chinese investments in the United States and with U.S. entities, and possibly request that USTR file a case at the World Trade Organization (WTO) regarding China’s IP violations. However, announcements on those measure may occur later. While product tariffs are expected to be applied fairly quickly, it is reported that the Administration will issue a public notice and allow for a 60-day comment period. Details on investment restrictions are expected at a later date, as well as details on any possible WTO case. USTR’s report should include procedures for the implementation of the 301, and the process for engagement on the tariff measures.

Given likely retaliation by China and the implications of the potential measures, parties that import products made in China or that do business in China or with Chinese entities should closely follow next steps. Wiley Rein has the capability to engage the Administration and assist companies affected by the U.S. actions as well as any Chinese retaliation.

Background

On August 18, 2017, USTR initiated an investigation (the Initiation Notice) pursuant to Section 301 of the Trade Act of 1974 (Section 301) into Chinese IP actions. Section 301 investigations broadly look at acts, policies, and actions by a government that unfairly burden or restrict U.S. commerce. The Initiation Notice requested comments on topics including: (i) the tools used by the Chinese government to “require or pressure the transfer of technologies and intellectual property to Chinese companies”; (ii) practices of the Chinese government that “deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China”; (iii) Chinese government direction or facilitation of “investment in, and/or acquisition of, U.S. companies and assets by Chinese companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans”; and (iv) the Chinese government’s “conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information.”

On December 27, 2017, USTR requested comments from the public and held hearings. Ultimately, 85 comments were received from companies and trade associations (USTR Notice).

Remedies

USTR’s report on its findings and recommended measures is expected to include tariffs, reported to be worth $30 billion a year or more on electronic and consumer goods imported from China. Products subject to tariffs could include smartphones, toys, and apparel (Reuters). The report is also expected to include measures for investment restrictions, possibly based on reciprocity, wherein Chinese investors and businesses would face similar restrictions to investment in the United States as U.S. businesses currently face to invest in the Chinese market. Lastly, it is possible that USTR could seek to initiate a WTO case on China’s IP practices.

Reactions

China has warned that if the U.S. enacts tariffs, it will spark a “trade war” from which “no one will emerge a winner,” (CBS). Retaliation from China could take the form of more trade cases against the U.S., like the recent investigation into U.S. sorghum imports and anticipated investigation into U.S. soybean imports (FT). Retaliation also could come in the form of tariffs on agricultural products like soybeans, dairy, and beef. It is also possible that China may hold up approvals by the Ministry of Commerce of the People’s Republic of China (MOFCOM) of U.S. investments.

While U.S. businesses have urged the U.S. government to take action regarding Chinese IP theft, they generally oppose tariffs because they are wary of the potential effect on consumers, retaliation, and their chain of production.

Next Steps

Following the issuance of USTR’s report, Wiley Rein will provide a more detailed analysis of the findings, measures, and their possible implications.