What You Can Do In The Case Of A Trade War

On 22 March 2018, President Trump announced American trade actions against China. ECOVIS Beijing summarizes the report. The US government claims that China’s acts, policies and practices in the fields of Technology Transfer, Intellectual Property and Innovation amount to unfair trade. President Trump directed the US Trade Representative to initiate an investigation in August 2017. Further measures and enforcement of these are based on the findings of US Trade Representative Robert Lighthizer.

SECTION 301 AND U.S. TRADE ACTION

The trade action is based on Section 301 of the U.S. Trade Act of 1974. This article allows the American government to circumvent the WTO settlement mechanism and launch trade actions directly against any country that maintains unreasonable tariffs or import restrictions, discriminatory action, subsidies, or otherwise unfairly restricts market access to American companies.

 

In this case, the report (which can be downloaded here) identifies unfair trade practices in four main areas:

  • Technology transfer through ownership and investment restrictions:
    Technologies are transferred from American companies to Chinese players. This transfer is taking place through joint venture requirements in certain industry sectors, foreign investment restrictions, and administrative reviews.
  • Restrictions on technology licensing terms:
    Investments from China have the intention to transfer technology to China to achieve the objectives of “Made in China 2025”, such as modernizing the domestic industry. Corresponding foreign investments, for instance in the field of infrastructure, are restricted.
  • Hacking of US companies:
    China leads and supports cyber intrusions into computer networks of US companies to get access to secret business information
  • Technology transfer through investments in and acquisition of US companies:
    The Chinese government directs or facilitates such practices in important industries

According to the U.S., these policies of China amount to a damage to the U.S. economy of at least 50 billion dollars per year.

WHAT TRADE ACTION TO EXPECT

Following the instructions of President Trump, actions are going to be taken in three different fields: tariffs, by addressing the topic at the World Trade Organization and investment restrictions.

Within 15 days of the President’s announcement, the USTR planned to publish a list with additional tariffs on various products to compensate the mentioned loss of 50 billion US$ per year, followed by a period of comment and the publication of the final list. A list of 1300 products was published on 4 April 2018. This list will undergo a review process and is not expected to become effective before the end of May 2018.

Furthermore, the United States Trade Representative will seek a dispute settlement process at the WTO over China’s technology licensing procedures.

As a third measure, President Trump instructed his government to react to Chinese investments, which aim to obtain key U.S. technologies. Involved parties will work with the treasury department together to find appropriate measures to protect key U.S. technologies.

China has already responded by publishing its own list, which you can find in our article.

ADVICE FROM OUR CONSULTANTS

While the rhetoric is currently heating up, so far only American steel and aluminum tariffs, as well as the first list of 128 products published by the Chinese governments, are in force.

Nonetheless, foreign companies in China should stay updated and also check both the American and Chinese lists, which are expected to become effective by the End of May or early June, unless a settlement can be reached.

We recommend every foreign business to check whether your China operations or Chinese partners will be affected by the current and proposed tariffs.

ECOVIS Beijing can offer background checks and advice on how the ongoing trade conflict will affect your finances and cash flow. For further questions, please contact service@ecovis-beijing.com

 

Richard Hoffmann

Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: richard.hoffmann@ecovis-beijing.com

Ecovis Beijing

Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via service@ecovis-beijing.com.