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China-US relations

Donald Trump’s trade chief starts investigation into China’s ‘unreasonable’ practices

Analysts say it won’t be easy for US investigators looking into Chinese intellectual property policies

PUBLISHED : Saturday, 19 August, 2017, 1:40pm
UPDATED : Sunday, 20 August, 2017, 2:31am

US Trade Representative Robert Lighthizer has begun a formal investigation into whether China’s intellectual property policies are “unreasonable or discriminatory”, but Chinese analysts say the US will have its work cut out.

“On Monday, President Trump instructed me to look into Chinese laws, policies and practices which may be harming American intellectual property rights, innovation or technology development,” Lighthizer said in an official announcement.

“After consulting with stakeholders and other government agencies, I have determined that these critical issues merit a thorough investigation. I notified the president that today I am beginning an investigation.”

Little appetite for US-China trade war

Lu Xiang, a researcher with the Chinese Academy of Social Sciences, said it could be difficult for the US investigators to prove that China took advantage of its laws and policies to force US companies to transfer their technology given that, legally speaking, the definition of “coercive transfer” was vague.

“Of course there have been technology transfers between China and the US. But how do you determine whether they were voluntary or coerced? They will need US companies to provide proof,” Lu said, adding that if the US did find evidence it would pose a “new challenge” for China.

US companies from Zippo, a maker of pocket lighters, to General Motors and Lockheed Martin have faced challenges related to counterfeiting and unauthorised technology transfers in China, which has prompted some industry groups and Washington think tanks to support Trump’s investigation.

“The coercive transfer and theft of intellectual property may be the single biggest economic harm China inflicts on the US,” Derek Scissors, a resident scholar at the American Enterprise Institute, said in a report issued after Trump’s directive to the trade representative.

On Thursday, Chinese foreign ministry spokeswoman Hua Chunying said China would not “sit by” if the US took measures to harm bilateral trade ties. Her remark came after Steve Bannon declared in an interview that the US was at “economic war with China” – two days before his time as White House chief strategist came to an end.

Lighthizer’s investigation could take up to a year. Last week, senior White House officials said possible outcomes included a negotiated agreement with China, unilateral US remedies or a dispute settlement process in the World Trade Organisation.

Some have questioned the effectiveness of any trade sanctions outside the WTO framework.

“Now that there is a functioning rules-based trading system – unlike in the 1980s [when the US used the law to fight Japanese trade practices] – there is much more to lose,” according to a report this month by the Washington-based Peterson Institute for International Economics.

“A Trump decision to operate outside of the rules will spur China to follow suit.”

It added: “Beijing’s current approach has been to challenge its grievance with American trade policy at the WTO. At the WTO, China frequently loses.

“If Trump acts unilaterally, what is to stop Chinese policymakers from enacting their own unilateral Section 301 process?”

Trump launches US probe into ‘unlawful’ China trade practices, raising spectre of trade war

Section 301 of the Trade Act of 1974 authorises the US president to retaliate against any action “that violates an international trade agreement or is unjustified, unreasonable or discriminatory, and that burdens or restricts US commerce”.

Lu, with the academy in Beijing, agreed that operating outside the WTO would be a backward step.

“If the US decides to bypass the WTO to solve its trade disputes with China, it will set back Sino-US relations for years, and it will also make it more complicated and challenging for the rest of the world to deal with the United States,” Lu said.

Jin Baisong, an independent economist who has worked for the Chinese Ministry of Commerce, said the ministry should be proactive and pitch areas for cooperation at the early stage of the investigation.

Both Jin and Lu said Beijing had learnt from the trade probe carried out during the Clinton administration and it would not be easy for the US to pin down China.

Jin added that Beijing should have pushed harder during the US-China Comprehensive Economic Dialogue, which was hailed a success but did not result in any concrete progress.

Additional reporting by Zhenhua Lu