Updated April 8, 2019
Enforcing U.S. Trade Laws: Section 301 and China
Overview
threatened to impose increased tariffs against China over its
Concerns over China’s policies on intellectual property
IPR policies. In 1992, the United States threatened
(IP), technology, and innovation policies led the Trump
increased tariffs on $3.9 billion worth of Chinese goods
Administration in August 2017 to launch a Section 301
over market access issues. These cases resulted in bilateral
investigation of those policies. Since then, the United States
agreements before tariff hikes were implemented. In
has implemented three rounds of tariff increases under
October 2010, the USTR launched a Section 301
Section 301 on a total of $250 billion worth of Chinese
investigation into Chinese policies affecting trade and
products, while China has increased tariffs on $110 billion
investment in green technologies and in December 2010,
worth of U.S. products. Several rounds of talks have been
brought a WTO dispute settlement case against China, but
held to resolve the trade dispute.
only in regards to its wind power subsidies. In March 2012,
the USTR initiated a WTO dispute case against China’s
What Is Section 301 and How Does It Work?
export restrictions on rare earth elements (used in a number
Sections 301 through 310 of the Trade Act of 1974, as
of green technology products). The United States largely
amended, are commonly referred to as “Section 301.” It is
prevailed in both cases.
one of the principal statutory means by which the United
New U.S. Section 301 Measures against China
States enforces U.S. rights under trade agreements and
On March 22, 2018, President Trump signed a
addresses “unfair” foreign barriers to U.S. exports.
Memorandum on Actions by the United States Related to
Since 1974, the USTR has initiated 125 Section 301
the Section 301 Investigation. Described by the White
cases, retaliating in 17 instances.
House as a targeting of China’s “economic aggression,” the
memorandum identified four broad policies that justified
Section 301 procedures apply to foreign acts, policies, and
U.S. action against China under Section 301. It said China
practices that the USTR determines either (1) violates, or is
Uses joint venture requirements, foreign investment
inconsistent with, a trade agreement; or (2) is unjustifiable
restrictions, and administrative review and licensing
and burdens or restricts U.S. commerce. The measure sets
procedures and timetables for actions based on the type of
processes to force or pressure technology transfers from
U.S. companies to a Chinese entity;
trade barrier(s) addressed. Section 301 cases can be
initiated as a result of a petition filed by an interested party
Maintains unfair licensing practices that prevent U.S.
with the USTR or initiated by the USTR. Once the USTR
firms from getting market-based returns for their IP;
begins a Section 301 investigation, it must seek a negotiated
Directs and facilitates investments and acquisitions
settlement with the foreign country concerned, either
which generate large-scale technology and IP transfer to
through compensation or an elimination of the particular
support China’s industrial policy goals, such as the
barrier or practice. For cases involving trade agreements,
Made in China 2025 (MIC 2025) initiative); and
such as those under the Uruguay Round agreements in the
Conducts and supports cyber intrusions into U.S.
World Trade Organization (WTO), the USTR is required to
computer networks to gain access to valuable business
use the formal dispute proceedings specified by the
information.
agreement. For Section 301 cases (except those involving a
In response to these policies, the Administration proposed
trade agreement or an IPR issue) the USTR has 12 to 18
to (1) direct the USTR to consider implementing tariff
months to seek a negotiated resolution. If one is not
increases on imports from China; (2) initiate a WTO
obtained, the USTR determines whether or not to retaliate
dispute settlement case against China’s “discriminatory”
(which usually takes the form of increased tariffs on
technology licensing (which it did on March 23); and (3)
selected imports) at a level equivalent to the estimated
propose new investment restrictions on Chinese efforts to
economic losses incurred by U.S. firms from the foreign
acquire sensitive U.S. technology In announcing these
barrier or practice
measures, President Trump also stated that he had asked
After the United States implemented the UR agreements
China to “reduce the trade deficit immediately by $100
and joined the WTO is 1995, the USTR still sometimes
billion” (later raised to $200 billion over two years), and
began Section 301 investigations but then brought the
emphasized that trade should be “reciprocal.” On April 3,
issues at hand to the WTO for dispute resolution. After
the USTR released a list of proposed 25% tariff hikes on
2010, the USTR brought all trade disputes involving WTO
$50 billion worth of imports from China (a level the USTR
members directly to the WTO for adjudication. The Trump
estimated was comparable to annual U.S. economic losses
Administration’s use of Section 301, rather than solely
stemming from China’s IP and technology policies). China
utilizing the WTO dispute settlement process to address the
warned of retaliation and initiated a WTO dispute
issues of concern, is a departure from past U.S. practices.
settlement case against the United States on April 4.
Past Section 301 Use and China
Prior to the UR agreements, China was a major target of
Section 301 actions. In 1992 and 1994, the United States
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Enforcing U.S. Trade Laws: Section 301 and China
U.S.-China Negotiations
Figure 1. Three Rounds of Tariffs Hikes in 2018
On May 3-4, 2018, the two sides held high-level talks in
Total Products Affected ($ in bil ions) and Effective Dates
Beijing. The U.S. side released a draft Framework for
Discussion. It included calls for China to reduce the
bilateral trade imbalance by $200 billion over two years;
address each of the four practices identified in the Section
301 findings; halt subsidies for the Made in China 2025
initiative; remove foreign investment restrictions, make
China’s tariff levels comparable to U.S. tariff rates and
remove certain nontariff barriers; improve market access
for U.S. service providers and agricultural products; and
agree not to oppose, challenge, or take any other action
against the United States’ action, including in the WTO, if
China failed to live up to a framework agreement. On May
Source: USTR and Chinese Ministry of Commerce.
19, the United States and China released a joint statement
Note: Tariff rates vary.
outlining progress on a number of trade issues. China
Issues for Congress
agreed that it would “significantly increase purchases of
While many business representatives and Members of
United States goods and services,” including U.S.
Congress have expressed support for the Administration’s
agricultural and energy products, and would strengthen its
goals of improving China’s IP and technology practices,
IPR laws and regulations. On May 21, 2018, U.S. Secretary
some question whether tariff hikes are the best strategy.
of the Treasury Steven Mnuchin stated that because of the
They warn that the trade conflict with China will hurt U.S.
agreement, the “trade war had been put on hold.”
firms and consumers because of resulting higher import
However, on May 29, the White House announced that it
prices and decreased U.S. exports to China. The USTR
planned to move ahead with Section 301 action against
created an exclusion process for Stage 1 and Stage 2 tariffs
China by: imposing 25% ad valorem tariffs on $50 billion
but not for Stage 3, that enable U.S. stakeholders to request
worth of imports from China; (2) implementing new
an exclusion for particular products covered by the tariff
investment restrictions and enhanced export controls on
hikes. In the 116th Congress, S. 577 (Lankford) would
Chinese entities and persons in regards to the acquisition of
require the USTR to establish a Stage 3 exclusion process.
“industrially significant technology” for national security
purposes (legislation was later enacted addressing these
A Trade Cease-fire?
issues); and (3) continuing to pursue the WTO case against
On December 1, 2018, President’s Trump and Xi met at a
China’s licensing policies. The White House further stated
private dinner during the G20 Summit in Argentina.
that it would request China to remove “all of its many trade
According to a White House statement, the two leaders
barriers” and make taxes and tariffs between the two
agreed to immediately begin negotiations on “structural
countries “reciprocal in nature and value.” A subsequent
changes” in regards to IP and technology issues (related to
statement by the Chinese government said that the White
the Section 301 case), along with agriculture and services,
House actions were “clearly contrary to the recent
with the goal of achieving an agreement in 90 days.
agreement between the two sides,” and said it would not
President Trump agreed to suspend the planned Stage 3
implement the market-opening measures it had pledged to
Section 301 tariff rate increases that were planned to take
make while being threatened with tariff hikes.
effect on January 1, 2019, but stated that the increases
Punitive Tariffs Are Implemented
would be implemented if no agreement was reached in 90
On June 15, 2018, the USTR announced a two-stage plan to
days by March 1, 2019). After several rounds on bilateral
impose 25% ad valorem tariffs on $50 billion worth of
negotiations, President Trump on February 24, 2019,
Chinese imports. When China on June 16 issued its own
announced on Twitter that he would delay the tariff hikes
two-stage retaliation plan against the United States,
because of progress in trade talks, which remain ongoing.
President Trump directed the USTR on June 18 to propose
Prospects for a bilateral deal are complicated by the
a new list of products worth $200 billion that would be
Administration’s demands that, in addition to addressing IP
subject to increased 10% tariffs if China retaliated against
and technology issues, China should take steps to reduce
U.S. tariffs hikes, and he warned of additional tariffs if
the bilateral trade imbalance, make large purchases of U.S.
China retaliated a second time. The first two rounds of U.S.
goods and service, implement structural reforms to its
25% tariff hike measures went into effect on July 6
economy, and agree to verification and enforcement
(covering $34 billion worth of products) and on August 23
provisions. Many analysts have expressed concerns that a
(on $16 billion worth of products). China implemented
protracted trade dispute between the United States and
comparable countermeasures on U.S. products.
China could cause sharply diminish bilateral commercial
On September 17, 2018, the Trump Administration
ties, disrupt international supply chains, and slow global
announced 10% increased tariffs on $200 billion worth of
economic growth.
Chinese products (stage 3), effective September 24
(increasing to 25% on January 1, 2019), and warned of
Wayne M. Morrison, Specialist in Asian Trade and
additional tariffs on $267 worth of Chinese goods if China
Finance
retaliated. On September 24, China raised tariffs (by 5%
IF10708
and 10%) on $60 billion worth of imports from the United
States and reportedly cancelled high-level trade talks.
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Enforcing U.S. Trade Laws: Section 301 and China
Disclaimer
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https://crsreports.congress.gov | IF10708 · VERSION 42 · UPDATED