China Amends Law to Ban Theft of Foreign Trade Secrets

Last week, China amended a draft of a proposed foreign-investment law in an effort to address global concern over forced technology transfers.  The new law, which bans officials from divulging corporate secrets, was approved by the Chinese legislature on Friday.  The amendments were made shortly before the law was put to a vote and are seen as a concession to the U.S. as part of the ongoing trade negotiations.

Chinese forced technology transfers are one of three main unfair trade practices enumerated in the Section 301 Report that formed the basis for “301 tariffs” aimed at Chinese imports.

While the amendments to the foreign investment law appear to be a step in the right direction, it remains unclear what their impact will be given that Chinese law already banned the sharing of trade secrets.  The new law is set to go into effect next January.

On Tuesday, before the U.S. Senate Finance Committee, U.S. Trade Representative Lighthizer expressed hope that U.S. and Chinese negotiators are in the final stages of trade negotiations.  It remains to be seen what kinds of enforcement provisions will be incorporated into any U.S.-China agreement concerning forced technology transfers.

Bipartisan Legislation Introduced to Delay Section 232 Tariffs on Autos

U.S. Reps. Terri Sewell (D-AL) and Fred Upton (R-MI) on Wednesday introduced legislation (H.R. 1710) that would preclude President Trump from imposing  Section 232 tariffs on imported automobiles and automotive parts until the U.S. International Trade Commission (USITC) conducts “a study of the economic well-being, health, and vitality of the United States auto-motive industry.”  The bill seeks to require the USITC to analyze a number of specific factors including the “effect an increase in automotive manufacturing costs would have on jobs in the United States.”  The bill would also require the USITC to submit a report of its findings to the White House and Congress along with any “appropriate” recommendations.

The proposed legislation mirrors the “Automotive Jobs Act of 2019” that was introduced in the U.S. Senate (S. 121) in January by Sens. Doug Jones (D-AL), Lamar Alexander (R-TN), and Marsha Blackburn (R-TN).   Sen. Jones introduced the first iteration of the “Automotive Jobs Act” in the Senate in July, 2018 (S. 3266).

Last month, the Department of Commerce concluded its report on the national security impact of imported cars, which has not yet been made public.  The White House has 90 days from the submission of the Department’s report to decide whether to act on the recommendation in the report.  The President’s decision is currently due by May 18, 2019.  Under the proposed legislation, the report from the Department of Commerce would be deemed as not submitted until the USITC’s report is submitted to the President and Congress and the report is reviewed by the President.

Presently there is no indication of immediate action on either bill, which would need to be supported by two-thirds of Congress to override a Presidential veto.

Senate Finance Committee Asks USTR Lighthizer:  What is the Future of the WTO?

On Tuesday, U.S. Trade Representative Robert Lighthizer testified before the Senate Finance Committee to discuss a question that is central to the Trump Administration’s trade policy agenda:  What is the future of the World Trade Organization (WTO)?  As the 25th anniversary of the 1994 creation of the WTO (in its current form) approaches, the Trump Administration has been vocal in its criticism of the WTO’s shortcomings and failure to abide by the text of the agreements as written in 1994.  The Administration has pledged, as part of its overall trade policy, to seek critical reforms that will improve and reform the WTO’s functions going forward.  And, as Senator Wyden put it, trade issues including WTO challenges are one of the least known and biggest problems facing the United States’ ability to create good paying jobs and to expand our markets.

Ambassador Lighthizer answered questions on a number of topics relating to the WTO and, more generally, current U.S. trade policies: Continue Reading

European Commission Pushes Ahead with Preliminary EU-U.S. Trade Talks

European Commissioner for Trade Cecilia Malmström was in Washington, D.C. last week for exploratory trade talks with U.S. officials.  Although Malmström does not yet have a mandate to move ahead on EU-U.S. trade negotiations, which requires authorization by the European Council, both sides surely had plenty to discuss at this stage.

Two months ago, both the EU and the United States released their respective negotiating directives that highlight a disagreement over whether to include agriculture within the scope of any trade talks. While the European Commission intends to limit negotiations to industrial goods and conformity assessment, the United States is pushing for a more far-reaching trade deal that also covers agricultural goods.  The EU also wants to include discussions regarding automotive products within the scope of any trade negotiations on industrial goods, which it argues is required under World Trade Organization (WTO) rules on preferential trade agreements (i.e., these must cover “substantially all trade” between members).  Malmström is likely to also seek clarification on whether the Trump Administration intends to impose tariffs on certain EU automotive products.  If it does, the EU has indicated the possibility that it will suspend any trade talks and retaliate.  If the two sides can find common ground on these issues, however, the European Commission has stated that it hopes to conclude trade talks with the U.S. by November 2019. Continue Reading

Duty Preferences for India and Turkey to Be Revoked

On Monday, March 4th, President Trump announced that India and Turkey will no longer benefit from the United States’ Generalized System of Preferences (“GSP”) program.  The GSP program, established by the Trade Act of 1974, is designed to promote economic development by eliminating duties on certain eligible products when imported from a beneficiary country or territory.  On March 23, 2018, President Trump signed a law renewing the GSP program through December 31, 2020.

According to the Office of the U.S. Trade Representative (“USTR”), neither India nor Turkey meet the statutory eligibility criteria to continue as beneficiary countries under the GSP program.  USTR has found that Turkey is “sufficiently economically developed and should no longer benefit from preferential market access to the United States market.”  With respect to India, USTR concluded that the country failed to provide “equitable and reasonable access to its markets in numerous sectors.”  India is the largest single beneficiary of the GSP program, with GSP-eligible imports worth $5-6 billion.

The Indian GSP eligibility determination was the result of a review of India’s GSP eligibility initiated in April 2018.  Six months earlier, USTR announced new enforcement measures for GSP, including a triennial review process for each beneficiary country examining that country’s compliance with the 15 eligibility criteria established by Congress.  One of those criteria is that the GSP beneficiary country must provide the United States with equitable and reasonable market access.  In its latest pronouncement, USTR explained that “intensive” discussions with India regarding its trade barriers, particularly in the dairy and medical device industries, had been unsuccessful.  In a statement from the Ministry of Commerce and Industry on Tuesday, India rejected the United States’ characterization of the negotiations, claiming that it was “agreeable to a very meaningful, mutual acceptable package.”

Monday’s notice to Congress marks the beginning of a 60-day waiting period before duty-free treatment of the GSP-eligible imports from Turkey and India will end.

Third Wave of Section 301 Tariff Increases Officially Delayed

On March 5, 2019, the Office of the United States Trade Representative (“USTR”) published a notice in the Federal Register officially postponing the date on which the rate of Section 301 duties on $200 billion of Chinese goods (i.e., List 3 items) will increase from 10% to 25%.

USTR’s notice follows President Trump’s announcement of his decision to delay the March 2, 2019 deadline for increasing tariffs on List 3 items due to “substantial progress” in his administration’s talks with China, as well as Ambassador Lighthizer’s testimony before the House Ways and Means Committee concerning the same issue.

The 10% percent duties, which took effect on September 24, 2018, were initially set to increase to 25% on January 1, 2019, but that deadline was delayed to March 2, 2019 pursuant to a December 19, 2018 Federal Register notice.  USTR’s March 5, 2019 notice does not establish a new deadline for an increase in duties, but instead leaves the possibility of an increase open.

As Ambassador Lighthizer indicated in his testimony to the House Ways and Means Committee, there has been no agreement to remove the current 10% tariff on List 3 items, though the removal of such tariffs is a negotiating objective of the Government of China.  We will continue to monitor further developments regarding the Trump Administration’s Section 301 tariffs and trade negotiations with China.

Food Labels May Be Sticking Point in U.S.-U.K. Trade Deal  

On Thursday, the Office of the US Trade Representative (USTR) released the summary of specific negotiating objectives for a trade deal between the UK and US.   Among the USTR’s goals are to increase market access in the UK for US agricultural products, and ensure that “geographical indications” (GIs) do not undermine market access for US products in the UK market.   In its 2018 Special 301 Report, the USTR voiced concern that the EU’s protections of GIs for commonly used product names are a contributing factor to the US trade deficit in food and agricultural trade with the EU.

The European Union and its members, including the UK, currently provide protections for a variety of largely agricultural products such as spirits, wines, cheeses, baked goods, spices, oils, fruits, vegetables, furs, meats, and beers as GIs.  These protections represent a fundamental disagreement between the US and our European trading partners regarding consumer expectations.  While the EU and its member states interpret some names of products, e.g. feta, as indicating a place of origin, the US perceives the terms as generic and thus allows producers outside of a particular geographic region to use the terms to describe their products.   The EU and its member states have also provided for a large number of geographical indication protections in their recent trade deals and negotiations with Japan, Australia, New Zealand, Mexico, Canada, and China.

While claims of geographic origin are commonly protected by trademark, certification marks, or collective marks, the protection of generic terms by geographical indications could undermine trademark protections and limit American producers in foreign markets.  In the markets of trading partners that have agreed to protect European GIs and within the EU itself, American imports are hindered and products must don terms such as “imitation feta.”  The renaming of goods to conform with European protections can be costly and reduce consumer demand.

Trump Issues 2019 Trade Agenda:  China, USMCA, WTO Reform, and More

The Trump Administration has issued its 2019 trade policy agenda in a several hundred page report to the Congress.  The report covers a broad range of trade topics, many of which have been at the forefront of the Administration’s agenda for the past couple of years.  These include renegotiating the NAFTA into the USMCA, WTO reform, use of legal tools such as Sections 232 and 301 to impose tariffs on a variety of global imports, and robust enforcement of trade remedies laws.

According to the Office of the U.S. Trade Representative (USTR), the trade policy agenda underscores three main points.  First, the agenda notes that this Administration inherited a “deeply flawed global trading system” that it is striving to improve.  The agenda calls out the primary targets of the Administration’s trade efforts to date:  overhauling the North American Free Trade Agreement (NAFTA) into the United States-Mexico-Canada Agreement (USMCA), the overreach of the World Trade Organization’s (WTO) Appellate Body, and unfair trade practices from U.S. trading partners, such as China’s non-market policies.

Second, the Administration continues efforts to improve domestic trade policies to better serve U.S. workers.  While the agenda reviews a number of the Administration’s recent achievements, it highlights that a primary goal of 2019 is to obtain Congressional approval of the USMCA, which the President has touted as better serving the interests of U.S. workers, farmers, and businesses than NAFTA.  Trade issues with China are unsurprisingly a significant focus, with USTR highlighting its negotiations with China to eliminate a range of unfair trade policies and practices.  The Administration’s concern that the WTO Appellate Body’s decisions are overreaching is well-known, and the agenda promises a commitment to WTO reform efforts.

Third, the Administration intends to pursue new trade deals and to continue its enforcement of current trade laws.  Here, the Administration highlights its focus on efforts to preserve U.S. national security and national defense, a nod to its current use of Sections 232 and 301 to impose tariffs on a broad range of global imports.  The agenda also notes USTR’s intent to pursue new trade deals with Japan, the European Union, and the United Kingdom, as well as to concentrate on trade and investment with Kenya.

In sum, the 2019 agenda focuses on the ongoing goals of the Administration to improve conditions for American workers, to strictly enforce U.S. trade laws, and to encourage U.S. economic growth.   We continue to monitor the Administration’s efforts and initiatives as they unfold in 2019.  Please contact the international trade group with any questions.

Ambassador Lighthizer Offers Insights Into Negotiations With China on 301 Tariffs

Following President Trump’s announcement of his decision to delay the March 1, 2019 deadline to increase tariffs from 10% to 25% on $200 billion of Chinese goods (i.e., List 3 items), Ambassador Lighthizer testified before the House Ways and Means Committee about the progress that has been made on concluding a binding executive agreement with China.

Some key takeaways from the Ambassador’s testimony are:

1. The negotiations are concerned with settling the section 301 tariffs, which were first imposed in July 2018.

2. An agreement, if reached, would be a binding executive agreement and would not be submitted to Congress for approval.

3. Any agreement will be enforced through a unique mechanism that will require continued and sustained interactions between U.S. and Chinese trade negotiators at three levels to address issues of concern as they arise:

o Monthly meetings will take place at the office director level;

o Quarterly meetings will take place at the Vice-Ministerial level; and

o Bi-annual meetings will take place at the Ministerial level.

4. If issues are not resolved through this process, the United States will be forced to take proportional and unilateral action to address them.

5. Currency manipulation has been a central topic in the negotiations.

6. There has been no agreement to remove the current 10% tariff on $200 billion of Chinese goods, but this is a negotiating objective of the Chinese Government.

7. If the List 3 Section 301 tariffs are indeed raised to 25%, an exclusion process will be established.

8. The Ambassador sees these negotiations as “turning a corner” in the U.S.-China trade relationship, but acknowledges that significant work remains to address U.S. concerns.

Ambassador Lighthizer’s testimony can be characterized as tempered optimism that an enforceable agreement can be completed. He cautioned, however, that even with an agreement the 10% tariffs on List 3 items may not be removed.

Return back to the Trade Monitor for updates on further developments in these negotiations as well as tariffs on List 3 items.

United Kingdom Legislating to Avoid a Legal Gap after Brexit but Warns UK Persons to Confirm the Details

With or without a deal and unless there is a last minute extension, the United Kingdom will leave the European Union (EU) at 11 pm London time on 29 March 2019.  Since triggering the exit process, the UK has worked towards having a deal in place that would ensure a smooth departure, including a transition period that would largely preserve the status quo until the end of 2020 or even beyond.   At the same time, however, both the UK and the EU have engaged in contingency planning in the event a deal could not be agreed or failed to be ratified.  For the UK, this has included efforts to revise legislation to remove references to the EU and its agencies to ensure that UK law could function on Day One after leaving the EU.  This process has involved the review of hundreds of legislative acts to create new statutory instruments, many of which have yet to be passed into law.  The legislative backlog means that necessary legislation may not be in place before 29 March 2019.  To avoid a legal gap, the UK adopted the EU (Withdrawal) Act 2018 and provided therein a catch all provision to ensure that EU law that is not addressed elsewhere is retained.

Should the UK leave the EU without a deal, the UK will impose, update and lift sanctions as of 30 March pursuant to regulations issued under the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). Sanctions regimes that are not covered would continue to apply, as retained EU law under the EU (Withdrawal) Act.   Sanctions laws apply to actions taken by UK persons, which includes companies and individuals, in the UK or anywhere else. Continue Reading

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