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US companies call for deep look into Chinese trade practices

A panel of business leaders urged U.S. trade officials on Oct. 10 to deeply probe the Chinese trade practices now under investigation by the Trump administration to determine whether they are infringing upon the protection of U.S. intellectual property and technologies and harming U.S. companies.

The Trump administration launched a "Section 301" investigation into Chinese trade practices in August, seeking to determine whether Chinese laws, policies and practices discriminate against U.S. companies and "burden or restrict U.S. commerce."

Speaking at the first public hearing related to the administration's investigation, a panel of business officials raised concerns about China's practices and charged that companies are frequently punished for not sharing technology.

The Trump administration has alleged that the Chinese government uses "opaque" administrative approval processes, joint venture requirements and foreign equity limitations for U.S. companies operating in China to pressure them into transferring technologies and intellectual property to Chinese companies. The investigation will also look at whether the Chinese government is supporting cyberattacks in order to obtain intellectual property or U.S. trade secrets. The administration said the practices may adversely affect U.S. exports and contribute to the U.S. trade deficit with China.

"China has implemented laws, policies, and practices and has taken actions related to intellectual property, innovation, and technology that may encourage or require the transfer of American technology and intellectual property to enterprises in China or that may otherwise negatively affect American economic interests," President Donald Trump wrote in an Aug. 14 memorandum to the Office of the U.S. Trade Representative, or USTR.

At the hearing Oct. 10, Erin Ennis, senior vice president of the US-China Business Council, said that roughly one-third of American companies have been asked to transfer their technology, adding that there are "significant problems" with China in certain areas.

"Protecting intellectual property …. is a top priority for our membership," Ennis said. "The ultimate goal is eliminating policies that harm U.S. companies. It is essential that any related trade actions taken by the U.S. address concerns of American companies of their intellectual property. "

Several panel members said companies often can be punished for not sharing technology, including retaliation by the Chinese government, which make some companies hesitant to speak up at panels probing China's policies.

The panel fielded questions from government officials across a number of agencies, including the USTR and the U.S. departments of Commerce and Treasury.

Owen Herrnstadt, chief of staff at the International Association of Machinists and Aerospace Workers, told the committee that companies are too willing to transfer technology to China.

"It is incumbent to probe deeply into companies transferring work to China," he said.

The USTR announced the investigation Aug. 18 and accepted public comment on the matter through Sept. 28. The Section 301 committee will consider the written and oral comments before it makes recommendations to the trade agency.

A total of 58 comments were received, including one submission from the American Apparel & Footwear Association, or AAFA, which said the transfer of intellectual property in China has led to "millions and millions" of counterfeit products being sold online.

Retail has a particular stake in any potential disruptions to the supply chains that exists between the U.S. and China, the top source for U.S. apparel since 2004.

Still, AAFA Executive Vice President Stephen Lamar said in his four-page submission that China is a crucial partner for the retail industry as 40% of apparel imports, 70% of footwear imports and 80% of travel goods imports are made in China. He pushed for protection against the theft of U.S. intellectual property but warned against any stronger measures that could affect retail.

"At the same time, we also stress the importance of the rules-based trading system to our industry," Lamar wrote. "It is our hope that the outcome of this investigation can identify areas where China is falling short in its intellectual property rights commitments, and that our efforts can help move China toward greater compliance."

According to U.S. Customs and Border Protection, U.S. authorities made 16,417 intellectual property rights seizures from China in fiscal 2016, roughly 52% of the total seizures made in that period.

"Given the huge growth of e-commerce, we strongly urge that any effort to strengthen our IP partnership in China including increased disciplines that help control this growing problem," Lamar wrote.

Chen Zhou, vice president of the China Chamber of International Commerce, noted that any technology transfer by U.S. companies to Chinese enterprises is strictly voluntary and that the organization is very concerned about any retaliatory actions by the U.S., according to a transcript of his testimony.

"We are quite confused and greatly concerned about initiation of this Section 301 investigation," Zhou said. "We are particularly concerned about the potential unilateral determinations and unilateral actions after the investigations, which may trigger a 'trade war' between the United States and China."

"It has not been established that the Chinese government has forced foreign companies to transfer technologies to Chinese enterprises," Zhou added.