At WTO, US Defends Actions Against China On IPR

The World Trade Organization is heating up as the global venue for nations to air concerns about others’ increasing action to protect markets and restrict trade, including as it relates to intellectual property rights protection. Today, a committee saw WTO members questioning each others’ practices, including the new actions by the United States to investigate China for failure to protect US IP rights and unfairly disadvantaging foreign companies in China. And a new WTO case filed by the United States comes as the US had been critical of the multilateral trade body, but comments made by the US delegation today show its determination to more broadly improve WTO dispute resolution.

On 23 March, the US Trade Representative (USTR) announced that at the direction of US President Donald Trump it has filed a request for consultations with China at the WTO “to address China’s discriminatory technology licensing requirements.” The request to open the dispute settlement case came a day after Trump announced he was “directing the USTR to pursue dispute settlement in the WTO to confront China over its policies that result in unfair treatment for U.S. companies and innovators trying to do business in China.”

“China appears to be breaking WTO rules by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends,” USTR said in the 23 March statement. “China also appears to be breaking WTO rules by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology.”

“These Chinese policies hurt innovators in the United States and worldwide by interfering with the ability of foreign technology holders to set market-based terms in licensing and other technology-related contracts,” it said.

This followed the declaration on 22 March that the Trump administration is taking actions against Chinese trade at the conclusion of a six-month unilateral review of its practices, under a so-called Section 301 review. The USTR 215-page report is available here [pdf]. A fact sheet is here [pdf].

The US actions are, as summarised in a press release:

1. Tariffs – The President has instructed the Trade Representative to publish a proposed list of products and any tariff increases within 15 days of today’s announcement.  After a period of notice and comment, the Trade Representative will publish a final list of products and tariff increases.

2. WTO dispute – The President has instructed the Trade Representative to pursue dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory technology licensing practices.

3. Investment restrictions – The President has directed the Secretary of the Treasury to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.

Getting China to trade fairly “requires taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal U.S. technology and intellectual property,” USTR Robert Lighthizer said in a statement. “Years of talking about these problems with China has not worked. The United States is committed to using all available tools to respond to China’s unfair, market-distorting behavior. China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.”

The report concluded, according to the press release:

1. China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.

2. China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.

3. China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

4. China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies. These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.

Little Surprise but Still Questions?

The actions by the US appeared to be met with little surprise, but led to further questions about specifics, according to some. For instance, US House Ways and Means Ranking Member Richard Neal (D-Massachusetts), from the opposing party to Trump, said: “Whether we’ve heard the stories from individual inventors, small businesses, our largest multinational corporations, or our intelligence community, we know that China has abused its powers over a sustained period of time to extort, force, or outright steal intellectual property from American innovators.  It should not surprise anyone that the Administration has found that the Chinese policies and practices that were examined in this Section 301 investigation have been unreasonable, discriminatory and have been harmful to U.S. commerce and the U.S. economy.”

Neal noted the administration’s intent to launch a WTO case, to consider tariffs on Chinese imports, and look at investment measures through the Treasury Department. But, he said, “There is no doubt that action has been needed on these problems for a long time. Today’s announcement leaves us with more questions than answers.”

Members Question US Actions at WTO Goods Council

At today’s meeting of the Council for Trade in Goods, a range of WTO members raised concerns over US trade policies and their consistency with WTO rules, according to sources, including the action against China following the Section 301 investigation on IP rights. Concerns were also raised over US safeguard measures on solar cells and washing machines from China, and the meeting was a continuation of a 23 March meeting where last week’s US increase in tariffs on steel and aluminum were discussed.

China pointed to Article 23 of the WTO’s Dispute Settlement Understanding, which it said prohibits WTO members from unilaterally determining a trade violation such as what the US has done with its recent Section 301 action, according to a Geneva trade official. The US is setting a “very bad precedent” by breaching its commitment to WTO rules, it said. China urged WTO members to join together to prevent use of this US practice and threatened to use WTO rules and other “necessary” ways to safeguard China’s rights and interests. “The WTO is under siege and all of us should lock arms to defend it,” China asserted.

Japan and the European Union said they share the US concerns about stronger protection of IP rights and concerns over technology licensing and transfers in China,but they took the view that any trade measures taken should be consistent with WTO agreements, the trade official said.

The US responded with its summary of its new dispute case: “China appears to be denying patent holders their exclusive rights to prevent unauthorised use. China also appears to be discriminating against foreign technology holders through licensing requirements that do not apply to Chinese technology holders. Both of these appear to breach China’s obligations under the TRIPS Agreement.”

The US said China’s “forced” tech transfer policies and practices are causing “billions of dollars in losses annually to US businesses and individuals” according to the US Trade Representative report’s estimates. These policies also affect other WTO members, the US said.

Meanwhile, the official said a number of other members raised concern over the US safeguard measures against imported solar cells and residential washers announced last week. China led the discussion, calling the measures inconsistent with WTO rules and demanding to know how the US investigation was conducted.

And the EU noted that the US had not used this measure “in almost 15 years,” raising doubt that the US measures are consistent with WTO rules. It urged the US not to take other broad actions, and were joined by several countries in expressing concern, the official said.

The US said its steps are consistent with WTO rules, and that the imports are so high as to be causing serious injury or threat of injury to domestic industry. It also said it has offered and conducted consultations with other members.

The US delegate’s statement at the Council for Trade in Goods included some remarks on Section 301. It said the issue is being brought up by China under “other business” so the US will not comment on China’s intervention in substance today. The statement directed members to the USTR website for more information about the US actions under Section 301. And it restated the summarised assertion behind its request for consultations at the WTO.

Transparency Concerns

[Update] Meanwhile, in its long statement to the meeting, the US also continued to push on improvements to WTO members’ transparency and notifications. “As Members know, the United States remains focused on identifying and addressing some of the systemic and institutional questions confronting our organization, in order to reinvigorate it and put it on the path towards a more successful and sustainable future,” it said in the statement. “One such area of work that remains extremely important to my capital is addressing deficiencies and gaps in notifications and transparency.”

The US delegate specified changes it has made in a substantive proposal on transparency from last November, for instance removing inflammatory words and references to the Agreement on Technical Barriers to Trade and fisheries subsidies. The US also took aim at new tariffs by India on telecommunications and ICT products, and practices by Russia, Indonesia, and others.

The EU also discussed concerns about transparency, welcoming the US proposal and modifications. And the EU agreed that updating the Technical Cooperation Handbook on Notifications (WT/TC/NOTIF/INF/3) after 20 years “would be worthwhile.” For that the Services and TRIPS Councils would need to be involved as well, it said.

With Indonesia, the US included a concern about e-commerce restrictions. “We are also concerned by developments in the digital trade space, including Indonesia’s recent issuance of a regulation that establishes tariff lines for electronically transmitted software and digital goods,” the US statement said. “We are particularly concerned by repo1is that Indonesia plans to raise the import duty rates on these tariff lines, a move which we believe may contravene the moratorium on customs duties on electronic transmissions.” [end update]

New Goods Council Chair

The Council elected Ambassador Stephen de Boer of Canada as the new chair. He was appointed Canada’s ambassador and permanent representative to the WTO in 21 August 2017. Subsidiary body chairs were also elected. A WTO press release with background on de Boer and details of the subsidiary body chairs is available here.

The next meeting of the Council is scheduled for 3 July.

 

Image Credits: Catherine Saez