13 April 2018
USTR Highlights Mainland Chinese Policies, Other Concerns in Annual Trade Barrier Reports
USTR has issued its annual National Trade Estimate report, which describes significant foreign barriers to U.S. exports of goods and services, foreign direct investment and intellectual property rights protection as well as the actions being taken to address those barriers. The NTE report covers the most important barriers, including those that may be consistent with international trade rules (e.g., very high tariffs), affecting U.S. exports to 60 economies, the European Union, Hong Kong, Taiwan and one regional body.
This year’s report again includes technical barriers, such as product standards and testing, labelling and certification requirements; sanitary and phytosanitary barriers, which include measures used to ensure that foods and beverages are safe for consumers and to protect animals and plants from pests and diseases; and barriers to exports of telecommunication goods and services. In addition, to highlight the growing and evolving trade using or enabled by electronic networks and information and communications technology, relevant country chapters include a dedicated section on barriers to digital trade.
Some of the more notable highlights of the NTE report related to mainland China and Hong Kong are outlined below. A copy of the report is available at https://ustr.gov/sites/default/files/files/Press/Reports/2018%20National%20Trade%20Estimate%20Report.pdf.
Mainland China uses a range of measures, including industrial plans such as “Made in China 2025,” to engineer the transfer of foreign technology to the mainland. To accomplish its industrial policy goals, for example, mainland China denies certain financial or regulatory incentives to companies that do not own their intellectual property, do not conduct large amounts of research and development, and/or do not manufacture products in the mainland. Beijing also conditions foreign investment approvals on technology transfers to mainland Chinese entities, mandates adverse licencing terms on foreign IP licensors, uses anti-monopoly enforcement to extract technology on unreasonable terms, and subsidises acquisitions of foreign high-tech firms to bring technology to mainland Chinese parent companies. Additionally, structural gaps and inconsistencies in IPR protection and enforcement allow mainland Chinese entities to appropriate foreign IP. For example, misappropriation of trade secrets for the benefit of mainland Chinese companies has occurred both within and outside of the mainland.
Mainland Chinese government industrial policies and financial support have contributed to massive excess capacity in the mainland, with the resulting over-production and increased exports distorting global markets and hurting U.S. producers and workers in both the U.S. market and third country markets where U.S. exports compete with mainland Chinese exports. This excess capacity has led to lower global prices and a glut of supply that undermine the viability of even the most competitive manufacturers, and policies like Made in China 2025 call for this pattern of distortion to continue.
U.S. and global partners continue to have serious concerns regarding a series of mainland Chinese cybersecurity measures that would impose severe restrictions on a wide range of U.S. and other foreign information and communications technology products and services to replace such products and services with mainland Chinese-made ICT products and services in mainland China’s market. Concerns centre on requirements in sectors that mainland China deems “critical” to ensure that ICT equipment and other ICT products and services be “secure and controllable.” In addition, mainland China would impose severe restrictions on cross-border data flows and requirements for data localisation. Notwithstanding the negative U.S. and international reaction, mainland China continues to move forward with its cybersecurity regime and problems continue to arise.
The report again describes Hong Kong as a “duty-free port, with few barriers to trade in goods and services and few restrictions on foreign capital flows and investment,” and indicates that the Hong Kong government “pursues a market-oriented approach to commerce.”
While the United States continues to believe that Hong Kong generally provides robust IPR protection and enforcement and maintains a dedicated and effective enforcement capacity, a judicial system that supports enforcement efforts with deterrent fines and criminal sentences, and youth education programmes that discourage IPR-infringing activities, the report again points out that Hong Kong’s failure to update its copyright system has made it vulnerable to digital copyright piracy. As a result, industry groups are making efforts to develop an Infringing Website List to raise awareness of websites offering pirated content among advertisers. The report adds that devices enabling illegal streaming of digital content are also available in Hong Kong. An additional concern is that, although the Hong Kong Customs and Excise Department routinely seizes IPR infringing products arriving from mainland China and elsewhere, stakeholders report that counterfeit pharmaceuticals, luxury goods and other infringing products continue to transit Hong Kong in significant quantities destined for both the local market and places outside of Hong Kong.
U.S. authorities also believe despite assurances to the contrary from Hong Kong authorities that the standards for infant formula under the Hong Kong Code of Marketing of Formula Milk and Related Products and Food Products for Infants and Young Children will become de facto mandatory if the Hong Kong Hospital Authority requires it as part of any tender.