The President signed an executive memorandum earlier today that all companies that (i) import anything from China, (ii) do business in China, or (iii) export anything to China, should be aware of. A copy of the memorandum is attached.
The memorandum was issued in response to an investigation the U.S. Trade Representative (USTR) conducted into whether “China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development” under section 301 of the Trade Act of 1974, as amended. Based on the USTR’s investigation, the President has concluded that:
“First, 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.
Second, 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.
Third, 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.
Fourth, 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.”
Based on this, the President has directed the USTR to:
(1) Publish a list of products imported from China to subject to increased duties by Friday, April 6, 2018;
(2) Pursue WTO challenges to China’s “discriminatory licensing practices”; and
(3) Report back to the President on progress on (1) and (2) within 60 days.
The President also directed the Secretary of the Treasury to propose appropriate actions to “address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States” and to report back within 60 days.
It is being widely-reported that the list of products to be targeted with increased duties represents approximately $60 billion in Chinese imports and impacts a range of industries, including high tech products, consumer electronics, apparel, footwear, etc. The draft list is reported to include approximately 1,300 tariff lines. Once published, the public will have 15 days to provide comments on the USTR’s proposal. Any duties ultimately imposed will be in addition to any other duties currently payable (e.g., normal duties, AD/CVD, etc.).
On the investment front, there are underway efforts in Congress to update/strengthen the Committee on Foreign Investment (CFIUS) process, but this signals a desire by the President to not wait and, possibly, go further than what Congress is currently contemplating.
Finally, it is expected that China will impose retaliatory measures on articles imported from the United States in response to today’s announcement. It is expected that a range of U.S. exports will be impacted, but most notably, agricultural exports.
We hope that this update is helpful. We will continue to monitor and provide updates on developments as they arise. In the meantime, if you would like to discuss the issues involved here further, just let us know.