Notice of Determination and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 14906-14954 [2018-07119]

Agencies

• Office of the United States Trade Representative

[Federal Register Volume 83, Number 67 (Friday, April 6, 2018)]
[Notices]
[Pages 14906-14954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07119]


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OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

[Docket No. USTR-2018-0005]


Notice of Determination and Request for Public Comment Concerning 
Proposed Determination of Action Pursuant to Section 301: China's Acts, 
Policies, and Practices Related to Technology Transfer, Intellectual 
Property, and Innovation

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of determination, request for comments, and notice of 
public hearing.

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SUMMARY: The U.S. Trade Representative (Trade Representative) has 
determined that the acts, policies, and practices of the Government of 
China related to technology transfer, intellectual property, and 
innovation covered in the investigation are unreasonable or 
discriminatory and burden or restrict U.S. commerce. The Office of the 
U.S. Trade Representative (USTR) is seeking public comment and will 
hold a public hearing regarding a proposed determination on appropriate 
action in response to these acts, policies, and practices. The Trade 
Representative proposes an additional duty of 25 percent on a list of 
products from China. The list of products, defined by 8-digit 
subheadings of the Harmonized Tariff Schedule of the United States 
(HTSUS), is set out in the Annex to this Notice.

DATES: To be assured of consideration, you must submit comments and 
responses in accordance with the following schedule:
    April 23, 2018: Due date for filing requests to appear and a 
summary of expected testimony at the public hearing and for filing pre-
hearing submissions.
    May 11, 2018: Due date for submission of written comments.
    May 15, 2018: The Section 301 Committee will convene a public 
hearing in the main hearing room of the U.S. International Trade 
Commission, 500 E Street SW Washington DC 20436 beginning at 10:00 a.m.
    May 22, 2018: Due date for submission of post-hearing rebuttal 
comments.

ADDRESSES: USTR strongly prefers electronic submissions made through 
the Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments in sections F and G below. The 
docket number is USTR-2018-0005. For alternatives to on-line 
submissions, please contact Sandy McKinzy at (202) 395-9483.

FOR FURTHER INFORMATION CONTACT: For questions about the ongoing 
investigation or proposed action, contact Arthur Tsao, Assistant 
General Counsel, at (202) 395-5725. For questions on customs 
classification of products identified in the Annex to this Notice, 
contact Evan Conceicao at [email protected].

SUPPLEMENTARY INFORMATION: 

A. Proceedings in the Investigation

    On August 14, 2017, the President issued a Memorandum (82 FR 39007) 
instructing the Trade Representative to determine whether to 
investigate under section 301 of the Trade Act of 1974 (Trade Act) (19 
U.S.C. 2411), laws, policies, practices, or actions of the Government 
of China that may be unreasonable or discriminatory and that may be 
harming American intellectual property rights, innovation, or 
technology development.
    On August 18, 2017, after consultation with the appropriate 
advisory committees and the inter-agency Section 301 Committee, USTR 
initiated an investigation into certain acts, policies, and practices 
of the Government of China related to technology transfer, intellectual 
property, and innovation. The notice of initiation (82 FR 40213) 
solicited written comments on, inter alia, four categories of acts, 
policies and practices of the Government of China:
    1. The Chinese government reportedly uses a variety of tools, 
including opaque and discretionary administrative approval processes, 
joint venture requirements, foreign equity limitations, procurements, 
and other mechanisms to regulate or intervene in U.S. companies' 
operations in China, in order to require or pressure the transfer of 
technologies and intellectual property to Chinese companies. Moreover, 
many U.S. companies report facing vague and unwritten rules, as well as 
local rules that diverge from national ones, which are applied in a 
selective and non-transparent manner by Chinese government officials to 
pressure technology transfer.

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    2. The Chinese government's acts, policies and practices reportedly 
deprive U.S. companies of the ability to set market-based terms in 
licensing and other technology-related negotiations with Chinese 
companies and undermine U.S. companies' control over their technology 
in China. For example, the Regulations on Technology Import and Export 
Administration mandate particular terms for indemnities and ownership 
of technology improvements for imported technology, and other measures 
also impose non-market terms in licensing and technology contracts.
    3. The Chinese government reportedly directs and/or unfairly 
facilitates the systematic investment in, and/or acquisition of, U.S. 
companies and assets by Chinese companies to obtain cutting-edge 
technologies and intellectual property and generate large-scale 
technology transfer in industries deemed important by Chinese 
government industrial plans.
    4. The investigation will consider whether the Chinese government 
is conducting or supporting unauthorized intrusions into U.S. 
commercial computer networks or cyber-enabled theft of intellectual 
property, trade secrets, or confidential business information, and 
whether this conduct harms U.S. companies or provides competitive 
advantages to Chinese companies or commercial sectors.
    Interested persons filed approximately 70 written submissions. In 
addition, USTR and the Section 301 Committee convened a public hearing 
on October 10, 2017, during which witnesses provided testimony and 
responded to questions. The public submissions and a transcript of the 
hearing are available on www.regulations.gov in docket number USTR-
2017-0016.
    Based on information obtained during the investigation, including 
the public submissions and the public hearing, USTR and the Section 301 
Committee have prepared a comprehensive report on the acts, policies, 
and practices under investigation. USTR posted the report on its 
website on March 22, 2018: https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF. The report supports findings that each of 
the four categories of acts, policies, and practices are unreasonable 
or discriminatory and burden or restrict U.S. commerce.

B. Determination on Acts, Policies, and Practices Under Investigation

    Based on the information obtained during the investigation and the 
advice of the Section 301 Committee, and as reflected in the publicly-
available report on the findings in the investigation, the Trade 
Representative has made the following determination under sections 
301(b) and 304(a) of the Trade Act (19 U.S.C. 2411(b) and 2414(a)): the 
acts, policies, and practices covered in the investigation are 
unreasonable or discriminatory and burden or restrict U.S. commerce, 
and are thus actionable under section 301(b) of the Trade Act. In 
particular:
    1. China uses foreign ownership restrictions, such as joint venture 
requirements and foreign equity limitations, and various administrative 
review and licensing processes, to require or pressure technology 
transfer from U.S. companies.
    2. China's regime of technology regulations forces U.S. companies 
seeking to license technologies to Chinese entities to do so on non-
market-based terms that favor Chinese recipients.
    3. China directs and unfairly facilitates the systematic investment 
in, and acquisition of, U.S. companies and assets by Chinese companies 
to obtain cutting-edge technologies and intellectual property and 
generate the transfer of technology to Chinese companies.
    4. China conducts and supports unauthorized intrusions into, and 
theft from, the computer networks of U.S. companies to access their 
sensitive commercial information and trade secrets.

C. Proposed Determination on Appropriate Action

    Upon determining that the acts, policies, and practices under 
investigation are actionable, section 301(b) provides that the Trade 
Representative shall take all appropriate and feasible action 
authorized under section 301(c), subject to the specific direction, if 
any, of the President regarding such action, and all other appropriate 
and feasible action within the power of the President that the 
President may direct the Trade Representative to take under section 
301(b), to obtain the elimination of that act, policy, or practice. In 
a Memorandum dated March 22, 2018 (83 FR 13099), the President directed 
the Trade Representative as follows:

    Section 1. Tariffs. (a) The Trade Representative should take all 
appropriate action under section 301 of the Act (19 U.S.C. 2411) to 
address the acts, policies, and practices of China that are 
unreasonable or discriminatory and that burden or restrict U.S. 
commerce. The Trade Representative shall consider whether such 
action should include increased tariffs on goods from China.
    (b) To advance the purposes of subsection (a) of this section, 
the Trade Representative shall publish a proposed list of products 
and any intended tariff increases within 15 days of the date of this 
memorandum. After a period of notice and comment in accordance with 
section 304(b) of the Act (19 U.S.C. 2414(b)), and after 
consultation with appropriate agencies and committees, the Trade 
Representative shall, as appropriate and consistent with law, 
publish a final list of products and tariff increases, if any, and 
implement any such tariffs.

    Pursuant to sections 301(b) and (c) and the March 22nd Memorandum 
from the President, the Trade Representative proposes that appropriate 
action would include increased tariffs on certain goods of Chinese 
origin. In particular, the proposed action is an additional duty of 25 
percent on a list of products of Chinese origin identified in the Annex 
to this Notice. For example, if a good of Chinese origin is currently 
subject to a zero ad valorem rate of duty, the product would be subject 
to a 25 percent ad valorem rate of duty; if a good of Chinese origin 
were currently subject to a 10 percent ad valorem rate of duty, the 
product would be subject to a 35 percent ad valorem rate of duty; and 
so on.
    To ensure the effectiveness of the action, any merchandise subject 
to the increased tariffs admitted into a U.S. foreign trade zone on or 
after the effective date of the increased tariffs would have to be 
admitted as ``privileged foreign status'' as defined in 19 CFR 146.41, 
and would be subject upon entry for consumption to the additional duty.
    The list of products covered by the proposed action was developed 
using the following methodology:
    Trade analysts from several U.S. Government agencies identified 
products that benefit from Chinese industrial policies, including Made 
in China 2025. The list was refined by removing specific products 
identified by analysts as likely to cause disruptions to the U.S. 
economy, and tariff lines that are subject to legal or administrative 
constraints. The remaining products were ranked according to the likely 
impact on U.S. consumers, based on available trade data involving 
alternative country sources for each product. The proposed list was 
then compiled by selecting products from the ranked list with lowest 
consumer impact.
    The value of the list is approximately $50 billion in terms of 
estimated annual trade value for calendar year 2018. This level is 
appropriate both in light of the estimated harm to the U.S. economy, 
and to obtain elimination of China's harmful acts, policies, and 
practices.

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D. WTO Dispute on Certain Discriminatory Technology Regulations

    As noted above, the second category of acts, policies, and 
practices under investigation involve certain discriminatory technology 
regulations. The Presidential Memorandum provides the following 
regarding the Trade Representative's findings on this issue:

    Section 2. WTO Dispute Settlement. (a) The Trade Representative 
shall, as appropriate and consistent with law, pursue dispute 
settlement in the World Trade Organization (WTO) to address China's 
discriminatory licensing practices. Where appropriate and consistent 
with law, the Trade Representative should pursue this action in 
cooperation with other WTO members to address China's unfair trade 
practices.
    (b) Within 60 days of the date of this memorandum, the Trade 
Representative shall report to me his progress under subsection (a) 
of this section.

    The Trade Representative has decided that certain acts, policies, 
and practices of China considered in the investigation may be 
appropriately addressed through recourse to WTO dispute settlement. 
Accordingly, on March 23, 2018, the Trade Representative initiated a 
WTO dispute by requesting consultations with the Government of China 
regarding certain specific aspects of China's technology regulations 
considered in the investigation. You can find documents related to this 
dispute on the dispute settlement section of the WTO website under 
DS542: China--Certain Measures Concerning the Protection of 
Intellectual Property Rights. Because the Trade Representative intends 
to address these issues through recourse to WTO dispute settlement, the 
proposed tariff action does not relate to or take into account harm 
caused by these acts, policies, and practices.

E. Request for Public Comments

    In accordance with section 304(b) of the Trade Act (19 U.S.C. 
2414(b)), USTR invites comments from interested persons with respect to 
the proposed action to be taken in response to the acts, policies, and 
practices of China determined to be unreasonable or discriminatory, and 
to burden or restrict U.S. commerce. To be assured of consideration, 
you must submit written comments on the proposed action in response to 
China's acts, policies, and practices by May 11, 2018, and post-hearing 
rebuttal comments by May 22, 2018.
    USTR requests comments with respect to any aspect of the proposed 
action, including:
     The specific products to be subject to increased duties, 
including whether products listed in the Annex should be retained or 
removed, or whether products not currently on the list should be added.
     The level of the increase, if any, in the rate of duty.
     The appropriate aggregate level of trade to be covered by 
additional duties.
    In commenting on the inclusion or removal of particular products on 
the list of products subject to the proposed additional duties, USTR 
requests that commenters address specifically whether imposing 
increased duties on a particular product would be practicable or 
effective to obtain the elimination of China's acts, policies, and 
practices, and whether maintaining or imposing additional duties on a 
particular product would cause disproportionate economic harm to U.S. 
interests, including small- or medium-size businesses and consumers.

F. Hearing Participation

    The Section 301 Committee will convene a public hearing in the main 
hearing room of the U.S. International Trade Commission, 500 E Street 
SW, Washington, DC 20436, beginning at 10:00 a.m. on May 15, 2018. You 
must submit requests to appear at the hearing by April 23, 2018. The 
request to appear must include a summary of testimony, and may be 
accompanied by a pre-hearing submission. Remarks at the hearing may be 
no longer than five minutes to allow for possible questions from the 
Section 301 Committee.
    All submissions must be in English and sent electronically via 
www.regulations.gov. To submit a request to appear at the hearing via 
www.regulations.gov, enter docket number USTR-2018-0005. In the ``Type 
Comment'' field, include the name, address, email address, and 
telephone number of the person presenting the testimony. Attach a 
summary of the testimony, and a pre-hearing submission if provided, by 
using the ``Upload File'' field. The file name should include the name 
of the person who will be presenting the testimony. In addition, please 
submit a request to appear by email to [email protected]. 
In the subject line of the email, please include the name of the person 
who will be presenting the testimony, followed by ``Request to 
Appear''. Please also include the name, address, email address, and 
telephone number of the person presenting testimony in the body of the 
email message.

G. Procedures for Written Submissions

    To assist in review of public comments submitted pursuant to 
Section E, the Section 301 Committee has prepared a public comment form 
that will be posted on the USTR website under ``Enforcement/Section 301 
investigations'' and on the www.regulations.gov docket. USTR strongly 
encourages commenters to use the form to submit comments pursuant to 
Section E, though use of the form is not required. Please identify the 
specific good in question by the applicable HTSUS subheading.
    All submissions must be in English and sent electronically via 
www.regulations.gov. To submit comments via www.regulations.gov, enter 
docket number USTR-2018-0005 on the home page and click ``search.'' The 
site will provide a search-results page listing all documents 
associated with this docket. Find a reference to this notice and click 
on the link entitled ``Comment Now!'' For further information on using 
the www.regulations.gov website, please consult the resources provided 
on the website by clicking on ``How to Use Regulations.gov'' on the 
bottom of the home page. We will not accept hand-delivered submissions.
    The www.regulations.gov website allows users to submit comments by 
filling in a ``Type Comment'' field or by attaching a document using an 
``Upload File'' field. USTR prefers that you submit comments in an 
attached document. If you attach a document, it is sufficient to type 
``see attached'' in the ``Type Comment'' field. USTR prefers 
submissions in Microsoft Word (.doc) or Adobe Acrobat (.pdf). If you 
use an application other than those two, please indicate the name of 
the application in the ``Type Comment'' field.
    File names should reflect the name of the person or entity 
submitting the comments. Please do not attach separate cover letters to 
electronic submissions; rather, include any information that might 
appear in a cover letter in the comments themselves. Similarly, to the 
extent possible, please include any exhibits, annexes, or other 
attachments in the same file as the comment itself, rather than 
submitting them as separate files.
    For any comments submitted electronically containing business 
confidential information, the file name of the business confidential 
version should begin with the characters ``BC''. Any page containing 
business confidential information must be clearly marked ``BUSINESS 
CONFIDENTIAL'' on the top of that page and the submission should 
clearly indicate, via brackets, highlighting, or other means, the 
specific information that is business confidential. If you request 
business confidential treatment, you must certify

[[Page 14909]]

in writing that disclosure of the information would endanger trade 
secrets or profitability, and that the information would not 
customarily be released to the public. Filers of submissions containing 
business confidential information also must submit a public version of 
their comments. The file name of the public version should begin with 
the character ``P''. The ``BC'' and ``P'' should be followed by the 
name of the person or entity submitting the comments or rebuttal 
comments. If these procedures are not sufficient to protect business 
confidential information or otherwise protect business interests, 
please contact the USTR Tech Transfer Section 301 line at (202) 395-
5725 to discuss whether alternative arrangements are possible.
    USTR will post submissions in the docket for public inspection, 
except business confidential information. You can view submissions on 
the https://www.regulations.gov website by entering docket number USTR-
2018-0005 in the search field on the home page.

Robert Lighthizer,
United States Trade Representative.
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[FR Doc. 2018-07119 Filed 4-5-18; 8:45 am]
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