On Monday, August 14, 2017, President Trump issued an executive memorandum directing the United States Trade Representative (USTR) to determine whether to initiate a "Section 301" investigation into Chinese laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technological development. The executive memorandum directs the USTR to scrutinize China's intellectual property laws and policies, specifically those that encourage or require U.S. companies to transfer technology and intellectual property to China. While use of Section 301 investigations has been nearly non-existent over the last few decades, the executive memorandum signals the current administration's renewed interest in the trade enforcement tool.
The USTR has broad latitude to initiate a Section 301 investigation into any act, policy, or practice of a foreign country that may be unreasonable or discriminatory and that burdens or restricts U.S. commerce pursuant to the Trade Act of 1974, as codified at 19 U.S.C. § 2411. If the USTR determines this is the case and action by the United States is appropriate, the USTR can take "all appropriate and feasible action," subject to the President's direction, to compel the foreign country to halt the act, policy, or practice. Actions available to the USTR include: suspension or withdrawal of trade agreement concessions with the foreign country; imposition of duties or other import restrictions on the foreign country's goods; suspension or withdrawal of duty-free treatment for goods otherwise duty-free; or, entry into binding agreements with the foreign country to rectify the issue.
If the Trump administration initiates such an investigation against China, the USTR will have a lengthy period in which to conduct its review, to include holding a public hearing and providing an opportunity to testify or submit written comments, and then to render its determination. As part of the process, the United States will be required to consult China to attempt to resolve the issues. If these consultations are not successful, and the investigation involves a trade agreement, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreed to by member nations of the World Trade Organization (WTO), Section 301 requires the USTR to follow the consultation and dispute settlement procedures set out in the agreement. (If, however, the Trump administration interprets conduct by China as not covered by WTO rules, then the USTR could conceivably investigate the discriminatory policy or practice without bringing a challenge before the WTO.) The length of the review period and the administrative hurdles that must be met mean that any concrete actions against Chinese policies and practices as a result of such an investigation are likely still many months away.
During his White House address prior to signing the executive memorandum, President Trump ordered the USTR to "consider all available options"—not only a Section 301 investigation—in the Trade Representative's pursuit to end illegal or unfair intellectual property practices in China. Trump noted in his remarks that "this is just the beginning" of the administration's efforts to pressure China on its IPR (intellectual property rights) enforcement. As such, additional action may follow.
The executive memorandum requests a supplement to the annual "Special 301" Report that the USTR prepares by congressional mandate on the global state of IPR protection and enforcement. The "Special 301" Report for 2017 has again identified serious and ongoing challenges in China with respect to adequate and effective protections for IPR and fair equitable market access for U.S. persons who rely on IPR protection.
If your company faces challenges to its IPR as a result of possible unfair industrial policies or unlawful practices in China as in other foreign countries, you should understand the implications of a potential upcoming Section 301 investigation by USTR on your business. To explore this topic, or to discuss other intellectual property-related questions due to changes in trade policy under the new administration, please contact Venable's International Trade and Customs Group and Intellectual Property Group for advice and assistance.