On August 18, 2017, the United States Trade Representative (USTR) initiated an investigation pursuant to Section 302(b)(1)(A) of the Trade Act of 1974 (Section 301) on certain technology transfer and IP practices of the Government of China (GOC). USTR’s action followed President Trump’s August 14 Memorandum instructing the USTR to consider the possible initiation of an investigation. The purpose of the investigation is to determine whether the GOC’s policies are unreasonable or discriminatory and burden or restrict the commerce of the United States. USTR conducted the first hearing of this Section 301 investigation on October 10.

A common message from U.S. industry witnesses included the viewpoint that the GOC either pressures foreign companies to hand over technology to gain access to China’s market or has promulgated rules laying out such conditions. For example, Stephen Ezell, Director of Global Innovation Policy at the Information Technology and Innovation Foundation, testified that “China remains the world's leading purveyor of ‘innovation mercantilism,’ fielding every mercantilist policy imaginable—from forced technology or IP transfer as a condition of market access, IP theft, and production and export subsidies to currency and standards manipulation—in sectors from solar panels to steel and automobiles.”

Likewise, Erin Ennis, Senior Vice-President of the U.S.-China Business Council, testified that the “transfer technology as a condition to gain market access in China is an acute concern of American companies in key sectors, who often must make difficult choices about managing the tradeoff of technology sharing and access to the world's second largest economy.” Ms. Ennis, however, emphasized that the goal of Section 301 should be the elimination of those discriminatory policies “rather than simply seeking to impose penalties or restrict trade.”

Chinese business representatives, including chambers of commerce, also testified at the hearing and attempted to rebut the claims of U.S. industry. USTR also challenged the Chinese government position, however, with Acting Assistant USTR for China Affairs Terry McCartin stating that the Chinese “position conflicts with other testimony that we’ve heard today and it also conflicts with numerous submissions that we’ve received in this proceeding.” USTR also instructed interested parties that any post-hearing rebuttal comments must be filed by October 20, 2017. We will continue to monitor this Section 301 investigation.