American Trade & Manufacturing Blog

UPDATE: President Signs Memorandum Penalizing China IP Violations

Posted in Trade Policy

Today, President Trump signed a Memorandum regarding the Section 301 investigation into China’s IP practices. In response to the U.S. Trade Representative’s (USTR) findings that the Chinese government’s practices and policies related to technology transfer, IP, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce, the Memorandum instructs USTR to publish, within 15 days, a proposed list of products subject to additional tariffs. By value, these tariffs are expected to range from $30 to $60 billion annually, and focused on Chinese technology products. The Memorandum also instructs USTR to pursue a WTO case on China’s discriminatory technology licensing practices. Further, the Memorandum directs the U.S. Department of the Treasury to propose restrictions on Chinese investments in sensitive U.S. technologies.

The President’s actions are based on USTR’s Section 301 investigation and findings, which are detailed in its report that was released today.

According to the White House fact sheet and the President’s statements, tariffs of 25% are to be imposed on products in the aerospace, information and communication technology, and machinery sectors, and may also cover products on China’s 2025 list, including:

  • Advanced information technology;
  • High-end numerical control machinery and robotics;
  • Aerospace and aeronautics equipment;
  • Maritime engineering equipment and high tech maritime vessel manufacturing;
  • Modern rail transportation equipment;
  • Energy-saving and new energy vehicles and equipment;
  • Electrical equipment;
  • New materials;
  • Agriculture machinery and equipment; and
  • Biomedicine and high-performance medical devices.

USTR will provide for a public notice and comment period on its proposed product list prior to the imposition of tariffs. In addition, Treasury will have 60 days within which to consult with other agencies and make recommendations on Chinese investment restrictions to the President.

President Expected to Issue Billions in Tariffs on Chinese Goods, Investment Restrictions, and Possible WTO Case Due to China IP Violations

Posted in Trade Remedies

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.

U.S. Ratchets Up Venezuela Sanctions, Targets Digital Currency

Posted in Economic Sanctions, Export Controls

The Trump administration issued a new Executive Order (EO) yesterday prohibiting all transactions related to and other dealings in any digital currency, digital coin, or digital token issued by, for, or on behalf of the Government of Venezuela after January 9, 2018.

The U.S. government previously imposed targeted restrictions on dealings in new debt, new equity, bonds, dividend payments/distributions of profits, and securities involving the Government of Venezuela, including agencies or instrumentalities thereof (e.g., Petroleos de Venezuela, S.A.). The latest move to ban U.S. trade in Venezuelan government digital currencies is in response to President Nicolas Maduro’s pronouncements regarding the issuance of the petro (a digital currency backed by oil) and petro gold (a digital currency backed by precious metals) as means to avoid U.S. financial sanctions. U.S. persons who participated in a pre-sale for covered Government of Venezuela-issued digital currency are out of luck and now require U.S. government authorization to sell, trade, or use such currency.

Concurrently with the EO, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) also issued broader guidance on virtual currency. The agency reminded U.S. persons that their compliance obligations for transactions involving digital currency—which the agency defines as sovereign cryptocurrency, virtual currency (non-fiat), and a digital representation of fiat currency—are the same as those for transactions denominated in traditional fiat currency. In other words, regardless of the currency involved, U.S. persons are required to ensure that they do not engage in unauthorized transactions, such as dealings with individuals or entities on OFAC’s Specially Designated Nationals (SDN) List or entities 50% or more owned by SDNs. This requires digital currency users, technology companies, and payment processors to adopt risk-based compliance measures, including screening against U.S. government sanctions lists. To aid the digital currency community, OFAC stated that it may add digital currency addresses to its SDN List, although it warned that the address listings likely will not be exhaustive, placing the onus on U.S. companies and individuals to conduct due diligence to make sure that they are not engaging in prohibited transactions.

OFAC Sanctions Russians for Election Interference and Malicious Cyberattacks

Posted in Economic Sanctions, Export Controls

Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated several Russian individuals and entities as Specially Designated Nationals (SDNs) pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and a cyber-related Executive Order. The new sanctions are retaliation for Russia’s interference in the most recent presidential election as well as cyberattacks linked to Russia, including the NotPetya cyberattack and other intrusions targeting U.S. government entities and critical U.S. infrastructure.

Many of the newly designated persons also have been charged by Special Counsel Robert Mueller for crimes related to the 2016 presidential election. One such entity—the Internet Research Agency—allegedly was founded for the specific purpose of meddling in the U.S. election. This entity allegedly created fictitious online users posing as Americans and infiltrated social media sites. Other designees, including Russia’s Federal Security Service and its Main Intelligence Directorate, were already subject to U.S. sanctions broadly prohibiting most dealings with these entities.

This marks the first major action the Trump administration has taken against Russia to address election interference. And, there may be more to come. Earlier this year, the administration submitted a report to Congress, as required under CAATSA, identifying Russian oligarchs, senior political figures, and parastatal entities. The report itself is not a sanctions list, although it potentially could serve as a starting point for additional Russian designations.

State Department Adds South Sudan to the ITAR’s “Prohibited Countries” List

Posted in Export Controls

The U.S. Department of State today issued an amendment to the International Traffic in Arms Regulations (ITAR) to include South Sudan in its regulations on prohibited exports, imports, and sales to and from certain countries, and to update its defense trade policy toward South Sudan by applying a policy of denial on the export of defense articles and defense services to South Sudan. The action follows a February 2 press release from the State Department announcing this intended action, which noted the continuing violence in South Sudan and discussed the extent of the humanitarian crisis in the country.

South Sudan now joins countries including Afghanistan, Belarus, Burma, China, the Central African Republic, Cuba, Cyprus, the Democratic Republic of Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, Syria, Venezuela and Zimbabwe, as well as the separate country of Sudan, on the ITAR’s list of section 126.1 “prohibited countries.”

There are certain exceptions to the State Department’s policy of denial for export licenses to South Sudan. Licenses or other approvals may be issued, on a case-by-case basis, for:

(1) Defense articles and defense services for certain monitoring, verification, or peacekeeping support operations;

(2) Defense articles and defense services intended solely for the support of, or use by, African Union Regional Task Force (AU–RTF) or United Nations entities operating in South Sudan;

(3) Defense articles and defense services intended solely for the support of or use by non-governmental organizations in furtherance of conventional weapons destruction or humanitarian demining activities;

(4) Non-lethal defense articles intended solely for humanitarian or protective use and related technical training and assistance;

(5) Personal protective equipment temporarily exported to South Sudan by certain United Nations personnel, human rights monitors, media representatives, and humanitarian and development workers, for personal use; or

(6) Any defense articles and defense services provided in support of implementation of the Comprehensive Peace Agreement, the Agreement on the Resolution of the Conflict in the Republic of South Sudan, or any successor agreement.

For more information, please contact Dan or Laura.

State Department Adds South Sudan to List of Prohibited Countries

Posted in Export Controls

Last week, the Department of State’s Directorate of Defense Trade Controls (DDTC) announced that it has added South Sudan to its list of prohibited countries under the U.S. International Traffic in Arms Regulations (ITAR). This designation means that with certain limited exceptions, export licenses for ITAR-controlled munitions items and related services are now subject to a policy of denial, and most ITAR exemptions no longer can be used for South Sudan.

Additionally, no proposals or presentations related to ITAR-controlled items, regardless of whether or not such proposals or presentations contain ITAR technical data, may be made to South Sudan or to any person acting on its behalf without first obtaining a license or written approval from DDTC. Exporters also have a duty to immediately notify DDTC if they know or have reason to know of a proposed, final, or actual sale, export, transfer, reexport, or retransfer of ITAR-controlled items to South Sudan or another Section 126.1 ITAR-prohibited country. At present, the other ITAR-prohibited countries include: Afghanistan, Belarus, Burma (Myanmar), the Central African Republic, China, Cuba, Cyprus, Democratic Republic of the Congo (DRC), Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, the Republic of the Sudan, Syria, Venezuela, and Zimbabwe.

U.S. Trade Representative Announces Safeguard Tariffs on Solar Cell and Module Imports

Posted in Trade Remedies

On Monday, the Trump Administration announced that President Trump had approved the imposition of new tariffs on imports of solar cells and modules, as well as a tariff-rate quota on imports of washing machines. The government will impose a 30% tariff on all imported cells and modules in the first year, which will drop to 25% in the second year, 20% in the third year, and 15% in the fourth year, before being removed.

Monday’s remedy announcement follows a unanimous September 2017 decision by the U.S. International Trade Commission that domestic solar panel manufacturers have been seriously injured by a surge of imports from China and other countries, as well as prior successful antidumping and countervailing duty investigations on behalf of the U.S. solar industry.

The Presidential Proclamation is expected later today. The U.S. Trade Representative’s press release on the solar cells and modules and washing machine cases is available here, and its Fact Sheet on the cases is available here.

The new trade measures were imposed under Section 201 of the Trade Act of 1974 (global safeguard investigations), under which domestic industries seriously injured or threatened with serious injury by increased imports may petition the U.S. government for import relief. Wiley Rein client SolarWorld Americas Inc. was a petitioner in the investigation, together with co-petitioner Suniva Inc.

Section 201 had not previously been utilized in more than 15 years, and it can provide an important tool for other U.S. industries facing unfair import competition from foreign producers worldwide.

The decision also has been covered extensively by major media including feature stories in BloombergThe New York Times, and The Washington Post.

USTR Releases Reports Identifying Problematic Trade Practices by Chinese and Russian Governments

Posted in Trade Agreement Compliance, World Trade Organization

On January 19, 2018, the U.S. Trade Representative (USTR) released its annual reports on China’s and Russia’s compliance with their World Trade Organization (WTO) obligations.

These reports highlight areas in which these countries continue to pursue policies that run afoul of global trade rules. In its reports, USTR concluded that both “China and Russia have failed to embrace the market-oriented economic policies championed by the {WTO} and are not living up to certain key commitments they made when they joined the WTO.”

USTR expressed significant concerns with recent policies pursued by the Chinese Government.  The report states that, “over the past five years, despite Chinese pronouncements to the contrary, the state’s role in the economy has increased, as have the seriousness and breadth of concerns facing U.S. and other foreign companies seeking to do business in China or attempting to compete with favored Chinese companies in their home markets.”  The report identified “priority issues” of particular concern for the United States and U.S. stakeholders, including industrial policies, inadequate intellectual property rights protections, barriers to providing services in and agricultural exports to China, and a lack of transparency and other concerns with China’s legal framework.  Among the industrial policies USTR emphasized as problematic, the report identifies:

  • Technology transfer requirements;
  • The pursuit of industrial plans;
  • Indigenous innovation policies;
  • Investment restrictions;
  • Restrictions on information and communications technology products and services;
  • The provision of substantial subsidies to domestic industries;
  • Policies contributing to excess capacity situations in various industries;
  • The continued implementation of export restrictions;
  • The imposition or retraction export duties to manage exports;
  • Prohibitions and limitations on the importation of remanufactured products and recoverable materials;
  • The use of standards to limit market access and promote domestic companies’ interests;
  • The failure to adequately open the government procurement market; and
  • The use of trade remedy laws as retaliation against trading partners that have exercised their rights under the WTO.

With respect to Russia, USTR noted that a “few positive steps” have been made, but said that these “are the exception, not the rule.”  Among troubling policies and practices implemented by the Russian Government, USTR highlighted that Russia:

  • Has an opaque import licensing regime and customs legal regime;
  • Imposes export restrictions;
  • Maintains a ban on nearly all agricultural products from the United States and continues to erect other barriers to U.S. agricultural exports;
  • Provides subsidies to many producers;
  • Has expanded import substitution policies and localization requirements;
  • Has failed to reliably and effectively protect intellectual property rights; and
  • Needs to be more transparent in notifying the WTO about draft measures.

USTR has stated that it will pursue all avenues, including WTO dispute resolution, to address these policies and promote market-oriented practices in China and Russia.

The full text of USTR’s reports on China and Russia are available here and here.

United States and South Korea to Begin Negotiations on KORUS FTA

Posted in Trade Negotiations

On January 5, 2018, the United States and the Republic of Korea will meet in Washington, D.C. to discuss amendments and modifications to the United States-Korea Free Trade Agreement (KORUS FTA).  Michael Beeman, the Assistant U.S. Trade Representative for Japan, Korea, and APEC, will lead the United States delegation. The South Korean delegation will be led by Myung-hee Yoo, Director General from the Republic of Korea’s Ministry of Trade, Industry and Energy.

These formal negotiations follow two special sessions of the KORUS Joint Committee, held on August 22, 2017 and October 4, 2017.  United States Trade Representative Robert Lighthizer initiated these discussions at the direction of President Trump in July 2017.  In the letter to the Republic of Korea formally calling for a special Joint Committee meeting, Ambassador Lighthizer emphasized the United States’ significant trade deficit with Korea, which has increased since the KORUS FTA’s March 2012 implementation.  According to USTR, the U.S. trade deficit in goods with Korea more than doubled from 2011 to 2016, rising from $13.2 billion to $27.6 billion. USTR has also raised market access concerns, emphasizing that burdensome Korean government regulations often exclude U.S. firms or artificially set prices for American intellectual property.  The South Korean government has emphasized that it will prioritize expanding national interest during the negotiations.  South Korea’s negotiating objectives are expected to cover the agriculture and livestock sectors.

 

President Releases National Security Strategy

Posted in Trade Negotiations, Trade Policy, Trade Remedies

On Monday, the President released the Administration’s National Security Strategy.  Organized into four pillars – the protection of the American public, the promotion of American prosperity, the preservation of peace, and the advancement of American influence – the National Security Strategy reflects the Administration’s goals to “revitalize the American economy, rebuild {the} military, defend {the country’s} borders, protect {its} sovereignty, and advance {the nation’s} values.”

With regard to trade, the Strategy sets out an overarching goal to engage in “fair and reciprocal” economic relationships with other countries, while also announcing that the United States “will pursue enforcement actions when countries violate the rules to gain unfair advantage.”  The Strategy also discusses threats posed by China and Russia in the areas of trade, economics, and intelligence.  In particular, it takes on the expansion of unfair trade practices by China and offensive cyber efforts by Russia.  Moreover, echoing the objectives of the recent section 232 investigations, the Administration’s Strategy calls for a strengthening of American manufacturing for purposes of national security.  According to the Strategy, “{s}upport for a vibrant domestic manufacturing sector, a solid defense industrial base, and resilient supply chains is a national priority.”

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