Welcome to Weise Wednesday! Twice a month we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. If you have questions, we encourage you to send them to This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q: Are there any updates on potential Section 301 action against China by the Trump administration? 

A: After weeks of speculation, it was announced on Monday that President Trump has directed U.S. Trade Representative (USTR) Robert Lighthizer to launch an investigation into allegations that China has violated U.S. intellectual property rights and forced technology transfers from U.S. companies.  At the heart of the matter is a Chinese requirement that forces foreign companies to share their technology with China as a condition for allowing them to invest in China.

The investigation is being launched under Section 301 of the Trade Act of 1974, which authorizes USTR to investigate any “unfair trade practices,” including any practice that is “unreasonable or discriminatory, and burdens U.S. commerce.”  If USTR makes an affirmative finding, the President could unilaterally impose corrective measures, including increased tariffs on Chinese imports or other trade penalties.  Any remedies imposed must be “proportional” to the injury suffered.

It is expected that the formal investigation will take about a year to complete.  The process will include negotiations with China, as well as ongoing consultations with Congress and the business community.  It is hoped that the process will result in an agreement with China to correct the problem without the need for the U.S. to impose unilateral sanctions.  But that will be a difficult task.

 

At a glance: Section 301 vs. the WTO dispute settlement process

Section 301 was once a powerful tool for the U.S. to address alleged foreign unfair trade practices. But it has been rarely used since the global agreements under the World Trade Organization (WTO) established a set of rules governing international trade and created a dispute settlement process for resolving disputes.  In an early attempt by the U.S. to use Section 301 in a case with Europe, a WTO dispute settlement panel ruled that the U.S. had violated WTO commitments by pursuing unilateral sanctions instead of the WTO dispute settlement process. 

Clearly, if an agreement with China to resolve this dispute is not worked out and the U.S. imposes unilateral sanctions, it is expected that China could successfully bring a challenge against the U.S. under the WTO dispute settlement process. Under such a scenario, China would be authorized to retaliate against any sanctions imposed by the U.S.

 

Bipartisan support during a sensitive time for security

This action by the President is consistent with his campaign promises to take a tougher stance on protecting U.S. trading interests, particularly with China.  It also seems to have bipartisan support in the Congress and a number of supporters in the business community, due to growing frustrations with discriminatory Chinese trade practices over the years. 

It comes at a particularly sensitive time from a security perspective, however, due to the growing tension with North Korea over nuclear weapons.  President Trump has been pushing China to play a more active role in resolving the North Korea crisis and was recently successful in having China support a UN resolution to impose sanctions on North Korea.  It remains to be seen how this trade action will impact China’s role moving forward on the North Korea issue.

These are indeed interesting and challenging times for global traders.  It is critical for all to stay tuned and stay engaged as this investigation unfolds.

 

You can also hear George discuss this topic in our latest installment of “Trade Made Simple.” Click here to watch the 5-minute video.