Rising Tensions as Trump Administration Prepares to Announce Results of Section 301 Trade Investigation into China’s Alleged Intellectual Property Rights Violations

3 minute read | January.20.2018

As we previously reported, on August 14, 2017, President Trump signed an executive memo asking U.S. Trade Representative Robert Lighthizer to determine whether to launch an investigation into China’s alleged theft of intellectual property under Section 301 of the Trade Act of 1974. Later that week, after a review of Chinese laws, policies, and practices relating to IP, Lighthizer recommended and launched an investigation “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

Though the investigation had a one-year completion deadline, a draft report was already reportedly being shared with the interagency committee overseeing the investigation. Sources close to the investigation have disclosed that the USTR will announce an affirmative finding and make remedy recommendations sometime this month, likely prior to President Trump’s State of the Union address. Many predict broad retaliatory tariffs and other measures with serious foreign relations implications.

China sees the use of Section 301 as both an act of aggression and a regressive act against the new trade system because it allows the American President to act against China without deference to the World Trade Organization. The U.S. hasn’t implemented a Section 301 investigation in about seven years, and started moving away from them since world leaders began to see the WTO as the legitimate forum for such disputes. The WTO requires member countries to defer to the WTO for international trade disputes. If the U.S. unilaterally implements sanctions or other punitive action against China through the Section 301 investigation without consulting the WTO, the WTO would likely consider the U.S. in breach of its rules.

The 301 investigation has led to some posturing by China. For example, China’s Commerce Ministry Spokesman, Gao Feng, warned that “[i]f the United States insists on unilateral and protectionist practices that will undermine the interests of China, we will take all necessary measures and resolutely safeguard the legitimate rights and interests of China.”

What does this mean for U.S. intellectual property owners? Time will tell, as it depends on the Trump administration’s continued course of action. Around the time the Section 301 investigation launched, China reported an intent to boost IP rights protection to improve the business environment for U.S. companies in China, but it is unclear what changes were made and their impact. And while the investigation has increased international attention on China’s alleged intellectual property right violations, the U.S. may risk the support of its allies in the WTO if it takes unilateral action against China. Still, regardless of the 301 investigation, positive change may be expected from China’s efforts to protect IP rights, particularly among recent calls by the International Monetary Fund that to become a globalization leader, China needs to address its own shortcomings with regards to trade and intellectual property rights.