China 301 & Other Trade Investigations

The President’s 2017 trade agenda declared strict enforcement of U.S. trade laws as a major priority, citing Sections 201 and 301 of the Trade Act of 1974. The past several months have seen action under both laws. This post examines the Trump Administration’s first investigation under Section 301, directed at China, and two Section 201 global safeguard investigations that will provide the President with the authority to fashion remedies for U.S. industries injured by increased imports, as well as the Administration’s national security investigations of steel and aluminum.

Section 301 Investigation of China: Trump’s trade agenda cited Section 301 as “a powerful lever to encourage foreign countries to adopt more market-friendly policies”. On August 14, the President directed the U.S. Trade Representative (USTR) to consider an investigation under Section 301 to determine whether China may be harming American intellectual property rights (IPR), innovation or technology development. Within the week, the USTR self-initiated a Section 301 investigation to determine whether China’s practices related to technology transfer, intellectual property [IP] and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce. Under Section 301, USTR could find an action to be unreasonable even if it does not violate any trade agreement; it need only be “unfair and inequitable”.

In instructing the USTR to consider a 301 investigation, the President pointed to the U.S. position as a world leader in R&D-intensive, high-technology goods and the potential threats to U.S. firms from violations of their IPR and other unfair technology transfers. He further noted that China has implemented laws and policies and taken actions that may encourage or require the transfer of American technology and intellectual property to enterprises in China, and that such conduct may inhibit U.S. exports, deprive U.S. citizens of fair remuneration for their innovations, divert jobs to China and contribute to the U.S. trade deficit with China.

USTR detailed the scope of its investigation in a Federal Register notice, in which it solicited public comments and set a public hearing. It cites four types of conduct that it will investigate: (i) tools China uses to require or pressure firms to transfer technology or IP to Chinese companies; (ii) Chinese government actions that undermine U.S. companies’ control over their technology in China; (iii) China’s use of investment in, or acquisition of, U.S. companies to enable its companies to obtain technologies and IP and the transfer of technology; and (iv) any unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of IP, trade secrets, or confidential business information. USTR has requested consultations with China as required by the law.

USTR has 12 months in which to conduct its investigation. If it makes an affirmative determination, it must decide what action to take. The potential remedies are broad and include imposing tariffs or other import restrictions, suspending trade concessions or negotiating trade agreements to address the issues.

This investigation has revived a trade law that has been largely dormant for the past 20 years. U.S. trading partners are concerned that it could lead to presidential action, such as increased tariffs, that would be inconsistent with U.S. obligations under the WTO and could prompt retaliation by China.

Section 201 Global Safeguard Investigations: Earlier in the year, two U.S. industries petitioned the U.S. International Trade Commission (ITC) for relief from increased imports that they alleged were seriously injuring them. The ITC conducted global safeguard investigations under Section 201 and, in each case, made an affirmative injury determination. It found that increased imports of solar cells and large residential washers are a substantial cause of serious injury to the respective domestic industry.

The Commission must submit a report, including its injury determination and recommendations of a safeguard measure to remedy the injury, to the President — by November 13 in the solar case and December 4 in the residential washer case. Based on the ITC’s affirmative determinations, the President will have the first opportunity in 15 years to impose remedies on imports under Section 201. It will make a public report on each investigation available after it reports to the President.

Section 201 authorizes the President, within 60 days of receiving an USITC report, to “take all appropriate and feasible action within his power [to] facilitate efforts by the domestic industry to make a positive adjustment to import competition”. The relief available includes a tariff increase, a tariff-rate quota, quantitative restrictions and negotiation of agreements to limit imports. Any relief is limited to four years, but may be extended to a maximum of eight years.

To assist the President in determining what, if any, remedies to impose in the solar case, USTR, on behalf of the Trade Policy Staff Committee (TPSC), invited comments from domestic producers, importers, exporters and others, and set a public hearing for December 6, on the appropriateness of the safeguard measure recommended by the ITC, and on whether it would be in the public interest. (As the Trade Act requires a TPSC recommendation, a similar process would be expected in the residential washer case.)

Section 232 National Security Investigations: In April, the Commerce Department launched separate investigations to determine whether imports of steel and aluminum are threatening the national security of the United States, under Section 232 of the Trade Expansion Act of 1962, a law that has not been used for 15 years. If the Department finds that steel or aluminum is being imported into the U.S. in such quantities or under such circumstances as to threaten to impair the nation’s security, the Secretary must recommend actions to the President to remove the threat.

Although the Department has 270 days to report to the President (until January 2018), it had indicated it would submit its reports by the end of June, but it missed the self-imposed deadlines. Once he receives Commerce’s reports, the President has 90 days to decide what, if any, action to take. He has broad power to impose remedies such as tariffs and quotas or request negotiations of an agreement to limit or restrict imports into the U.S.

Jean Heilman Grier

October 27, 2017

Related Posts

Trump’s Trade Agenda: Background

Trump Trade: National Security Investigations

Trump Trade Policy: Section 301

USITC Finds Imports Injure Industry

USITC Launches Global Safeguard Investigation