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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

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AGENCY:

Office of the United States Trade Representative.

ACTION:

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

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: http://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.

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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 Evan.M.Conceicao@cbp.dhs.gov.

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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.Start Printed Page 14907

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.Start Printed Page 14908

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 301investigation@ustr.eop.gov. 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 Start Printed Page 14909in 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.

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Robert Lighthizer,

United States Trade Representative.

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BILLING CODE 3290-F8-P

[FR Doc. 2018-07119 Filed 4-5-18; 8:45 am]

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