Despite warnings and tariffs implemented by the Trump administration, China has failed to change its unfair trade practices, like forced technology transfers, according to an updated section 301 report.
The updated report, released by the office of U.S. Trade Representative Robert Lighthizer November 20, details what the administration describes as inadequate actions taken to address unfair trade practices, as well as the ongoing discussions between the United States, China, and other stakeholders.
“We completed this update as part of this administration’s strengthened monitoring and enforcement effort,” Lighthizer said in a statement. “This update shows that China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our section 301 investigation.”
The report’s release comes just ahead of expected trade discussions between President Trump and Chinese President Xi Jinping at the G-20 summit in Buenos Aires beginning November 30.
The report says China has not responded constructively to the March report and notes that despite section 301 tariffs on roughly $50 billion worth of Chinese imports, China has indicated that it does not plan to change its policies. The report says the United States engaged China in bilateral communications, as well as trilateral discussions involving the EU, in an attempt to persuade the country to change its practices.
“China, however, made clear — both in public statements and in government-to-government communications — that it would not change its policies in response to the initial section 301 action. Indeed, China largely denied there were problems with respect to its policies involving technology transfer and intellectual property,” the report says. The report adds that China’s unwillingness to compromise led the Trump administration to implement additional tariffs on approximately $200 billion of Chinese imports in September.
The report describes in detail how China has continued its policies and practices that support cyber-enabled theft of IP from U.S. companies, as well as other practices the administration believes help China illegally obtain information. “This conduct provides the Chinese government with unauthorized access to intellectual property, including trade secrets, or confidential business information, as well as technical data, negotiating positions, and sensitive and proprietary internal business communications,” the report says.
According to the report, China’s cyber-enabled theft of information has increased in frequency and sophistication over the last five years, with a noticeable increase since 2017. The report highlights research that indicates Chinese state-sponsored entities have attacked firms in cloud computing, artificial intelligence, biomedicine, civilian space, firms producing products considered part of the internet of things, and numerous others. The report cites private research and research from the Department of Homeland Security, noting that China’s cyber-espionage has targeted several major IT service providers that include U.S. companies. The report goes on to discuss several specific industries and U.S. firms that China has targeted, notably in the semiconductor industry.
Chinese Foreign Ministry spokesperson Geng Shuang said in a November 21 press briefing that the United States’ claim that China has failed to stop its unfair trade practices is incorrect, and that the United States should review the white paper that the Chinese government provided it.
“This white paper gives a very detailed and authoritative description and response to China's [IP rights] protection and the so-called issues of China stealing U.S. technology and forced technological transfer,” Geng said. “I want to reiterate that the China-U.S. economic and trade cooperation is in its nature for mutual benefit and win-win results. It is quite normal to have economic and trade frictions. The key is to resolve them through dialogue and consultation on the basis of mutual respect, equality, and good faith,” he added.
The updated section 301 report does note that China has relaxed some foreign ownership restrictions and made some other incremental changes in 2018, but it goes on to say that China has continued many of the investment restrictions or requirements for technology transfers before investment authorization from the government.
The report also discusses discriminatory Chinese licensing restrictions and the related WTO consultations taking place, as well as an increase in Chinese government support for Chinese entities that purchase or invest in U.S. tech companies to obtain IP.