Ah, the 1980s: the decade of big hair, skinny ties*, Sony Walkman and Section 301 of the Trade Act of 1974. While the first three are now the stuff of nostalgia (though I wouldn’t mind seeing a Smiths reunions tour), Section 301 has made a dramatic return. The Trump Administration has just launched a new investigation covering “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation”, more on which below. We’ll see whether it turns out to be the first shot in a trade war with China or simply a negotiating tool.
Section 301, the Unilateralist’s Dream
First , some background about Section 301, codified as 19 U.S.C. § 2411. It was originally passed as part of the Trade Act of 1974 and has been amended several times. The statute authorizes the United States Trade Representative to investigate “an act, policy, or practice of a foreign country” that is inconsistent with trade agreements or otherwise “unjustifiable”, or else “is unreasonable or discriminatory and burdens or restricts United States commerce.”
If such a “violation” is found, USTR has a broad array of remedies it can adopt in response: suspend the benefits provided to the offending country under trade agreements, impose duties or other restrictions on imports from that country and conduct negotiations to terminate the offensive behavior. A Section 301 case may be conducted in conjunction with dispute settlement proceedings at the World Trade Organization, in the event there is an alleged violation of WTO agreements.
For the most part, Section 301 provides USTR with unreviewable discretion to determine both violations and remedies therefor, subject only to Presidential oversight. Such unilateral action is antithetical to the World Trade Organization’s dispute resolution process, which goes a long way to explaining why it fell into disuse after the WTO agreement’s adoption.
The statute’s heyday was during the 1980s and early 90s, before and soon after the WTO was established. The timing was not coincidental. The WTO agreements brought expanded rules governing trade in goods, subsidies and government procurement, as well as coverage of intellectual property and services, to name but a few areas. Many Section 301 cases addressed issues that were outside the scope of the old General Agreement on Tariffs and Trade but were later enveloped by WTO rules.
With that expansion, plus the more effective WTO dispute resolution procedures, Section 301’s unilateralist approach seemed as obsolete as a Commodore 64 computer. Instead, trade disagreements could be resolved largely by reference to WTO requirements through the established dispute resolution process. After the last case was filed in 1997, the statute appeared to be an anachronism.
Now It’s Back, Bigger than Ever
The Administration has resurrected Section 301(among other statutes) to serve its more aggressive approach toward trade with China. The new investigation, ordered up by El Jefe himself, will address Chinese government measures relating to intellectual property protection and technology transfer. Specifically, it will consider whether the Chinese government attempts “to require or pressure the transfer of technologies and intellectual property to Chinese companies” by U.S. firms operating there. It also will evaluate government obstruction “of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China.”
In addition, the new investigation will look at whether “the Chinese government . . . directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate largescale technology transfer in industries deemed important by Chinese government industrial plans.” As a fourth point, it “will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.”
USTR also invited information on “other acts, policies and practices of China relating to technology transfer, intellectual property, and innovation described in the President’s Memorandum that might be included in this investigation, and/or might be addressed through other applicable mechanisms.”
The new case is noteworthy for two reasons. First, it marks the first use of Section 301 in two decades, according to USTR’s own summary of cases brought under the statute. For at least some of the investment and intellectual property matters covered, it may be a prelude to WTO dispute resolution proceedings, though there is no mention of this in the initiation notice. Thus, at this point, the new case should be considered a return to unilateral remedies for alleged trade infractions.
Second, the investigation’s scope is immense, encompassing allegations of intellectual property theft, industrial espionage and Chinese government coercion among other misdeeds. Previous Section 301 cases tended to be more focused on a particular industry or foreign government practice; this one is far more extensive.
USTR has set an ambitious schedule for the investigation. Initial public comments and requests to appear at the hearing are due by September 28, 2017. The hearing will be held on October 10, 2017, and the deadline for rebuttal comments is October 20.
* Hat tip to “DJ Ed” Fishman