横浜国立大学



Forced Technology Transfer (FTT) and Section 301: US Policy towards China under Trump Administration.IntroductionIn October 2017 the Trump administration started an investigation under `Section 301` rules filing against China accusing them for `forced technology transfers` and other IPRs violations. In mid-2018, the US imposes tariffs ranging from 10% to 25%, in part due to this Section 301 investigation.If China does not adjust its government stance on this issue, the US will respond with unilateral tariffs.As of this writing Phase One of the US-China deal is being concluded and China officially states that it is ceasing such practices. It remains to be seen whether or not real change will take place.But first, what IS Forced Technology Transfer and what is 301?First, let us discuss 301.What is Section 301?Section 301 is a code in the 1974 Trade Act (Law) of the US which allows the US (initiated by the President or a private firm) to impose tariffs on a country deemed to be engaged in some unfair practices which affect US business interests in that country.“This time, media reports indicate the administration may self-initiate an investigation under Section 301 of the US Trade Act of 1974, a law that allows the president to unilaterally impose tariffs on another country. This law was mostly deployed before an effective, internationally-agreed system to resolve disputes—namely the World Trade Organization (WTO)—existed. Trump will allegedly investigate whether China is unfairly stealing American companies’ trade secrets and using industrial policy to harm US interests.” Direct quote from C. Bown, 2017)President Trump is not the first president to use this Law, but it has not been used in the US since 2001 (Bown, 2017)“Congress enacted Section 301 in the 1970s as a vehicle for US exporters seeking to open foreign markets. Importantly, American companies, industry associations, and their workers could each use it to ask the government to investigate whether trading partners were unfairly limiting US exports.” (Bown, 2017)However, Section 301 is not limited to only addressing barriers to US exports.As Deardorff writes: “The provision of U.S. trade law (Section 301) that permits private parties to seek redress through the U.S. government if their commercial interests have been harmed by illegal or unfair actions of foreign governments.”So, what the Trump is doing is legal under US law, and there have long been (i.e. before President Trump) concerns that China has been engaged in Forced Technological Transfer (FTT). One can debate whether or not Section 301 was the best way to address this issue and whether, in general, The Trump Administration`s approach is the best way. (There is more than one way to resolve a Trade dispute. The WTO is another way, and the more commonly used route to settle trade disputes. The US is also pursuing this route in the WTO.)Some early cases where the US used Section 301.1975 case, US egg producers asked the Ford administration to investigate quotas shutting them out of the Canadian market. 1976, Orange producers in Florida alleged that European tariffs discriminated against US orange juice. 1979, Cigar producers in the US demanded an inquiry into what was keeping US cigars out of Japan. (annotated and edited from Bown, 2017)All three of the above 301 cases were attempts to address alleged barriers to US exports to those countries. And they were initiated by the US industry (firms) and not by the Government (i.e. not by the Administration of the President.)301 became famous (infamous?) under President Reagan in the 1980sUnder Reagan several 301 cases were brought up, not by the industries, but by the government (President Reagan administration.) Many of these cases were against Japan. At that time (and still today!) US had a large and growing deficit with Japan. Indeed, most of the US deficit at that time was with Japan. (Now its largest deficit is with China.)Perhaps the most famous 301 case against Japan in the 1980s was in semiconductors. The Reagan administration accused Japanese firms (most of whom are in Keiretsu, or conglomerates) of biased purchases of Japanese semiconductors. That is, US demanded that Japan buy more US semiconductors or else more Section 301 and ADDs (see ADD section of this course) would be filed against Japanese semiconductor exports.This trade friction in semiconductors ended with the `VIE` policy of the STA` (see VIE notes) and also with the dominance of the Intel CPU, made by US firms, which made Japanese imports of US chips soar, and made the complaint that Japan did not by enough US chips obsolete (or irrelevant.)Super 301Super 301 was a broader 301 tool that was used against Japan, but also Brazil (various import quotas) and India (restrictions in insurance markets and also restrictions on FDI (see FDI notes) into India.) 301 and/or Super 301 were also used by President Bush (the elder) and President Clinton…Both, again Japan, but also occasionally other countries.As mentioned above, the Section 301 has not been used since 2001, until the Trump Administration.(It may be no surprise that Mr. Lighthizer, an expert in Trade Law, who is the current USTR for President Trump also served under Reagan (!) in the 1980s.) Was 301 effective? This is hard to answer. In general, Japan did NOT retaliate against the aggressive trade stance of the US at this time．This is, of course, entirely different that the current situation where China is, in general, retaliating against US exports with equal measures.301, VERs and VIEs all create various losses and distortions. There is a huge body of empirical work assessing the costs and benefits of these policies.However, it can be said, that in response to such 301 and other pressure by the US, that Japan did open up many markets. e.g. tariffs on tobacco imports fell and US exports of tobacco/cigarettes increased ten-fold.e.g. restriction on import quotas (and local content) of oranges was lifted. (Previously all foreign `OJ` had to contain 50% mikan!)e.g. restrictions (quotas and tariff) were eased on beef.However, many sectors were not affected, or even had adverse or unintended effects.e.g. The STA caused semiconductors to become MORE expensive due to the STA…And did not increase Market Share (though Intel did.)e.q. an agreement to try and increase Auto and Auto Imports (Under Bush, then Clinton) was also seen as largely ineffective. (See ACCJ , 1997 and elsewhere)Forced Technological Transfer and the Current Use of 301 against ChinaFrom website last accessed Sept 15, 2020. USTR held a public hearing on October 10, 2017, consulted with the private sector advisory committees, and received “approximately 70 written submissions from trade associations, U.S. companies and workers, academics, think tanks, and law firms.”After examination of the various reports, a special committee working with the USTR found that (allegedly):“China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.”“China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.”“China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.”“China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially-valuable business information.”Damage/loss to US firms from these practices was estimated to be $50 billion annually.Is $50 billion a lot? Compare $50 billion per year to US total imports from China which amount to over $500 billion/year. Another comparison: `s total revenue in 2018 was over $200 billion. In any event, $50 billion is still a lot of money. One year`s GDP for the state of Hawaii is about $80 billion. Kanagawa`s GDP is about $340 billion.)Based on its investigation, the USTR determined that the US should do the following to address the above alleged actions:25 Percent Ad Valorem Duties: “In accordance with the President’s direction, USTR has determined to impose an additional 25 percent tariff on approximately $50 billion of products from China that are strategically important to, and benefit from, the “Made in China 2025” program and other Chinese industrial policies.”“USTR is pursuing dispute settlement at the World Trade Organization (WTO) to address China’s discriminatory licensing practices. The United States hopes to work with other like-minded countries (i.e. ‘Europe` and ‘Japan’ too, added by Parsons) in pursuing this case.”Side Note: Is Europe (and the Japan) a `free-rider`?Definition of free-rider: free-rider ただ乗り ”someone who enjoys a good or service without paying for it.” Parsons comment: as was also the case in the trade frictions between US and Japan in the 1980s and 1990s, the US is `leading the charge`, while Europe (and now Japan) share similar views towards China (or Japan in the 1980s), but are far less than vocal and active. Some see this as Europe being a `free-rider` by allowing the US take on the role of the `mean` guy, while Europe gains from whatever increased access, or protection for IPRs that the US may achieve through its aggressive trade stance.In this case, the US is using or sacrificing some of its `political capital` or `diplomatic capital` by trying to force China to adopt more strict protection of IPRs. The EU and Japan are standing by quietly, but will likely benefit from any gains the US obtains.Did the US actually use Section 301 against China?In mid-2018, the US levied tariffs on various imported goods from China from between 10% and 25%. Many of these tariffs were part of the Section 301 `response`. (Source: accessed Sept 15, 2020.)US is currently levying additional tariffs against China and other countries under different methods of `administrative protection` (Section 232 in steel for National Security reasons, for example.)End of FTT by China? Did 301 actions by the US stop Chinese firms from engaging in FTT? On January 15, 2020 US and China signed the `US-China Phase One Trade Deal`. In this agreement, both sides agree to lower (or repeal) recent, temporary tariffs on each other, and promise to address FTT concerns, as well as many other intellectual property rights issues (counterfeit goods, patent protection for pharmaceuticals, etc.)In the agreement (see for actual text of the agreement):“The Parties agree to ensure effective protection for trade secrets and confidential business information and effective enforcement against the misappropriation of such information.”However, the question remains as to whether China will actually enforce intellectual property rights as agreed to. This is, of course, not just a problem in US-China trade agreements, but a problem in many, if not all, international agreements. Signing an agreement does not guarantee that either side will actually abide by the agreement.For example, 184 countries (basically every country in the world) signed the Paris Agreement on reducing pollution in 2015, but `most` countries are falling short of their targets.Source: (Side note: President Obama signed the Paris Agreement. President Trump withdrew the US from the Agreement in 2017.) So, as the US-China Trade war continues, it remains to be seen whether or not there will actually be stricter enforcement and protection of IPR by China (and many other countries in the world.)Also, it is important to remember (recall the FTT continuum Figure) that exactly WHAT is Forced TT or not, is very difficult to determine. And this issue has been around since at least the 1980s. Only now, under Pres. Trump`s administration, has this issue been dealt with head-on.(See an official report written in 1987 on Technology Transfers and China by the US Congress entitled `Technology Transfer to China` At )ReferencesAmerican Chamber of Commerce in Japan (ACCJ) 1997, “Making Trade Talks Work” . Book published by the ACCJ and Sato Printing.Bown, Chad (2017) “Rogue 301: Trump to Dust Off another Outdated US Trade Law?” working paper available online at Deardorff, A. “Deardorff`s Glossary of International Economics,” ................
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