How does the US Section 301 law affect the China-US dynamic?
Section 301 of the U.S.
Trade Act of 1974
, authorizes the President to take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.
Section 301 cases can be self-initiated by the
United States Trade Representative
(USTR) or as the result of a petition filed by a firm or industry group. If USTR initiates a Section 301 investigation, it must seek to negotiate a
settlement
with the foreign country in the form of compensation or elimination of the trade barrier. For cases involving trade agreements, the USTR is required to request formal dispute proceedings as provided by the trade agreements.
The law does not require that the U.S. government wait until it receives authorization from the
World Trade Organization
(WTO) to take enforcement actions, and the President is increasingly focused on enforcing
intellectual property
(IP) rights under the
“Special” 301 amendments
.
but the U.S. has committed itself to pursuing the resolution of disputes under WTO agreements through the WTO dispute settlement mechanism, which has its own timetable.
The main allegations in the 301 findings are that the Chinese government, at the national and sub- national levels, effectively compels foreign investors in China to transfer technology to domestic joint venture partners as a condition of approving inward investments, or in other contexts such as conditioning regulatory approvals. The Office of the USTR argues that to avoid complaints from foreign governments, the Chinese government pursues these practices largely in ways that do not leave a “paper trail,” much in the nature of colluding co-conspirators in antitrust cases. Identifiable US corporate victims of the Chinese practices are unwilling to go on record with specific instances in which they have been affected by these practices, leaving it to industry group representatives to make the case without company-specific details, or at least company-specific details USTR maintains in confidence.
Another broad set of allegations in the 301 findings concerns allegations that China subsidises R&D in various key sectors, though this does not find its way into the RFC as a complaint against prohibited subsidisation. Since a substantial proportion of Chinese companies are state owned, this also potentially raises issues regarding state trading rules.
Finally, the Section 301 findings identify Chinese cyber piracy practices against US industry as unreasonable or discriminatory practices. The Office of the USTR says that these practices, though perhaps scaled back, continue notwithstanding Chinese government assurances they would cease. Such practices, at least in part, are undertaken through Chinese government agencies, which presumably make the pirated technology available to local Chinese companies.
A significant element of the US 301 findings is a critique of China’s strategic industrial and R&D policies as set out in a number of official documents, including most recently “Notice of the State Council on Issuing ‘Made in China 2025’.”[7] These documents, according to USTR, target a number of key sectors regarding which China commits to devoting resources towards achieving technological leadership, local production, and global export capacity. These include, for example, artificial intelligence, advanced electric vehicles, aerospace, and biotechnology.
At one level, the dispute involves a basic confrontation between politico-economic ideologies. China is a top-down managed economy and political system which includes detailed planning and implementation of industrial policy. The US is at least nominally a “free market” economy in which the preponderance of business decisions is made by autonomous private entities.
The USTR 301 findings are plain in stating that the main complaint of US-based multinational companies is that they should not be deprived of access to the large and growing Chinese market based on Chinese government regulatory policies and practices. The US companies implicitly acknowledge that they could choose to stay away from China, and that decisions to transfer technology in that regard involve exercise of “free will.” China is not forcing these companies to choose China as an investment destination.