US Imposes USD 50B In Tariffs On China For Forced IP/Tech Practices, Cybertheft

The United States today released a list of products imported from China to the US on which additional tariffs will be placed as a measure aimed at pressuring China to change its practices the US says force US companies to give up intellectual property and transfer technology. Some industries have been dropped from the list such as pharmaceuticals, while a second list has now been announced, officials told reporters this morning. 

[Note: story updated] A US official speaking on background as a “senior administration official” told reporters on a short-notice phone call today that China is using state-funded companies to outbid US companies, and is intruding and stealing IP from companies.

USTR last year launched a “Section 301” investigation into China’s practices on technology transfer and intellectual property and concluded that it has long been engaging in unfair practices. The Section 301 report found China guilty of pressuring US companies to partner with Chinese companies and transfer their technology and intellectual property; licence under less favourable terms than Chinese companies; is using state funding to buy US companies in order to get ahold of their IP, and engaging in intrusion and cyber theft from US commercial networks to get commercial advantage.

The United States has raised these concerns for years, and gave China the chance to take steps to resolve the concerns, the official said, but “that’s not what they did.” Instead, they went forward with new programs that will make it even harder for US companies to compete.

In the matter of unfair licensing requirements found in the report, the US brought a dispute settlement case at the World Trade Organization, and this was followed by the European Union bringing its own similar case at the WTO. The official said the US will work closely with the EU on the cases.

The other three issues are not seen as amenable to WTO cases, that is, the forced transfer of IP and technology, the use of state funding, and the cyber intrusion, he said.

The list of products being targeted for tariffs relate to those most affected by the Chinese measures, such as aerospace, next generation information technology, robotics, industrial machinery, new materials, automobiles, and power equipment. After an extensive comment period that brought some 3,200 comments and included hearings, some products were dropped, including pharmaceuticals, televisions and cell phones.

There will be a hearing in July and a comment period on the new lines facing tariffs.

Of particular concern is China’s “Made in China 2025” program, which the US says will further accentuate the already offending policies. “This is simply a dagger aimed at the hear of the US manufacturing sector,” he said.

The official pointed to the solar industry where it says China’s unfair practices resulted in making the market uncompetitive for US companies. When China targets an industry they have a tendency to create over-capacity and excess supply, he said, making it difficult for US companies, which work on market-based returns, to get the returns on capital they need.

“They’ve been attacking us, stealing our technology, making our companies do things they don’t want to do, coming in and taking over our companies,” the senior administration official said. “This is a defensive action. The action is up to them. We want that relationship to operate on market principles.”

He added that if China’s response is to go after yet more US industries, “that would be a mistake.” And it is “a misnomer to say that anything China is doing is a ‘retaliation’,” when they are the ones who have been taking the actions against the US for years. The point of the US tariffs is “not to be punitive,” but to “stop the harm they are doing to us.”

The list of products today consists of two sets of US tariff lines, USTR said in the release below. “The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6. These lines cover approximately $34 billion worth of imports from China.  USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public and advice from the appropriate trade advisory committees. Customs and Border Protection will begin to collect the additional duties on July 6, 2018.”

“The second set contains 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy,” USTR said. “These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing. After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.”

There will be opportunity for US companies to seek to exclude products from the second list, if they make the case that there is nowhere else than China for them to source that product including in the US.

The US press release is reprinted below:

USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices

Washington, DC – The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.

On May 29, 2018, President Trump stated that USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy.  Today’s action comes after an exhaustive Section 301 investigation in which USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce.

“We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer.  “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.’  Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness.”

The list of products issued today covers 1,102 separate U.S. tariff lines valued at approximately $50 billion in 2018 trade values.  This list was compiled based on extensive interagency analysis and a thorough examination of comments and testimony from interested parties.  It generally focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.  The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.

This list of products consists of two sets of U.S tariff lines.  The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6.  These lines cover approximately $34 billion worth of imports from China.  USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public and advice from the appropriate trade advisory committees.  Customs and Border Protection will begin to collect the additional duties on July 6, 2018.

The second set contains 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy.  These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing.  After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.

USTR recognizes that some U.S. companies may have an interest in importing items from China that are covered by the additional duties. Accordingly, USTR will soon provide an opportunity for the public to request the exclusion of particular products from the additional duties subject to this action.  USTR will issue a notice in the Federal Register with details regarding this process within the next few weeks.

Background

President Trump announced on March 22, 2018, that USTR shall publish a proposed list of products and any intended tariff increases in order to address the acts, policies, and practices of China that are unreasonable or discriminatory and that burden or restrict U.S. commerce.

These acts, policies and practices of China include those that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises.  They bolster China’s stated intention of seizing economic dominance of certain advanced technology sectors as set forth in its industrial plans, such as “Made in China 2025.”  (See USTR Section 301 Report here.)

On April 3, USTR announced a proposed list of 1,333 products that may be subject to an additional duty of 25 percent, and sought comments from interested persons and the appropriate trade advisory committees.

Interested persons filed approximately 3,200 written submissions.  In addition, USTR and the Section 301 Committee convened a three-day public hearing from May 15-17, 2018, during which 121 witnesses provided testimony and responded to questions. The public submissions and a transcript of the hearing are available on www.regulations.gov in docket number USTR-2018-0005.

Click here to view a fact sheet on the Section 301 product list.

Click here to view a fact sheet on the Section 301 investigation.

 

Image Credits: Wikimedia Commons