It's not enough to restrict sales of chips to Huawei, and convince allies not to use the Chinese company in their 5G networks, experts said at a Senate Banking Committee Economic Policy Subcommittee hearing Wednesday. Rather, they testified, both 5G and export controls should be looked at more broadly. Martijn Rasser, senior fellow in the Center for a New American Security's Technology and National Security Program, said 5G networks will be essential to all the U.S. does in technology, so getting it right is urgent. Of talk of the U.S. buying an equity stake in Nokia or Ericsson, or creating its own "national champion" company in telecom equipment, that's "nibbling at the edges of the question," he said: Networking is an oligopoly, "which is why I’m advocating for a whole new approach." Rasser suggests the U.S. should convince allies to support open radio access networks. He said U.S. companies are strong in software, and this approach would make the industry more competitive. Tim Morrison, senior fellow at the Hudson Institute, said the way to win the economic competition with China is through a trade agreement similar to the Trans Pacific Partnership, leaving developing countries out except Mexico, and adding the U.K. and South Korea. Michigan State University Economics professor Lisa Cook, who agrees intellectual property theft is a problem in China, said it's ironic, because Chinese inventors are receiving more and more U.S. patents to protect their own innovations. "On the other hand, when I was in China," she said, the people she met told her because China "is a developing country, it deserves to have intellectual property rights abrogated." Rasser said export controls on semiconductors aren't as effective as putting them on chipmaking equipment. China's embassy didn't comment.
Mara Lee
Mara Lee, Senior Editor, is a reporter for International Trade Today and its sister publications Export Compliance Daily and Trade Law Daily. She joined the Warren Communications News staff in early 2018, after covering health policy, Midwestern Congressional delegations, and the Connecticut economy, insurance and manufacturing sectors for the Hartford Courant, the nation’s oldest continuously published newspaper (established 1674). Before arriving in Washington D.C. to cover Congress in 2005, she worked in Ohio, where she witnessed fervent presidential campaigning every four years.
The Office of the U.S. Trade Representative received some 380 comments on the possibility of punishing Austria, Brazil, the Czech Republic, India, Indonesia, Italy, Spain, Turkey and the U.K. if they start collecting digital service taxes as proposed. USTR is also considering punishing the EU, which is considering a unionwide DST. Trade groups that are concerned about the proposed DSTs -- including the U.S. Chamber of Commerce -- asked the U.S. to continue working toward a global solution through the Organization of Community and Economic Development. Tech groups are less worried about such penalties over other countries' DSTs. "Contrary to some press accounts, the Chamber understands real progress has been achieved in some aspects of the negotiations under way," it wrote. Associations whose tech members would be most affected by DST didn't discourage the use of tariffs. The Information Technology Industry Council said Belgium and Kenya should also be in the crosshairs, because they are also considering such taxes. The Computer & Communications Industry Association praised the use of tariff threats on France's DST, suggesting it could be effective again. "CCIA takes seriously the impact that tariffs can have and, as a general policy view, believes that they only be used in limited circumstances, in a targeted manner, and where there is a clear strategy in place designed to change the behavior of a trading partner. In the French case, it was encouraging that this strong action led to the temporary pause of collection on behalf of the French government in January 2020." The docket is USTR-2020-0022 and here. USTR announced this month it's delaying duties on French goods for now (see 2007100057).
Rep. Suzan DelBene, D-Wash., is worried the participation of “so many countries” at the World Trade Organization in e-commerce talks -- including China -- will mean the result won't be a high-standard agreement. The House Ways and Means Committee member who also leads on trade in the New Democrat Coalition, DelBene represents a western Washington district that includes Microsoft headquarters. During a Washington International Trade Association interview Wednesday, she agreed tax policy should be rethought, and no longer so focused on physical goods, but said digital services taxes proposed in Europe are discriminatory. She said negotiations at the Organization for Economic Cooperation and Development need to be given time to work. U.S. Trade Representative Robert Lighthizer testifies next week in virtual hearings by the Ways and Means Committee and Senate Finance Committee.
The Trump administration's "biggest focus" in its trade relations with China is implementing the phase one deal that takes effect Friday, Treasury Secretary Steve Mnuchin told a Senate Finance Committee hearing Wednesday on the administration's proposed fiscal 2021 budget. Implementing phase one has "slowed down" amid the coronavirus epidemic, said Mnuchin, a top negotiator in the phase one talks with China. Implementing phase two could come gradually, he said. President Donald Trump "doesn't want to set arbitrary timelines," he said. That the administration has left "significant tariffs" in place on Chinese imports gives the Chinese incentive to work with the U.S. on phase two, he said. When Sen. Ben Sasse, R-Neb., expressed skepticism that China would follow through on its phase one commitments on forced technology transfer or intellectual property reforms. Mnuchin replied, "The difference here is this agreement has real enforcement."
The U.S. effort to box out Huawei shows how complex and intertwined the issues are, said the Asia Society Policy Institute president and a former deputy secretary of state. ASPI President Kevin Rudd, a former prime minister of Australia, said many in the U.S. semiconductor industry told him their ability to reinvest at the scale they need to remain dominant in the latest advances “hangs in part on their ability to export to China.” He asked, if the government bans those exports, will it “then step in to supplement on the order of tens of billions each year?” Rudd and ex-U.S. Deputy Secretary of State John Negroponte discussed the U.S.-China relationship at an ASPI event Tuesday. Negroponte said it's revealing that the Pentagon is resisting Commerce Department moves to restrict exports to Huawei. “It’s the Department of Defense finally calling to our attention this issue is more complex than it may seem. This technological war is going to be complicated,” he said. The U.S. makes 45 percent of semiconductors; China, 5 percent. That same day, the U.K. announced it won't bar Huawei from its 5G networks but will ban it from the “core” of those networks (see 2001280074). “Sounds like a great British fudge to me,” said Rudd.
Regardless of who wins the 2020 presidential election, tech companies likely will have to change their supply chains and reverse the international approach to research and development, said Derek Scissors, an American Enterprise Institute China scholar. Apparel and other low-value goods manufacturers were already moving to cheaper countries in Asia, but consumer technology firms were happy in China before the trade war began, said Scissors in an interview. "You could easily get a Democratic administration that wants to get tech out of China." Joe "Biden's people say they want that," Scissors said. He said the next Democratic administration won't use broad-based tariffs, as President Donald Trump has. Scissors said the U.S. dominates in advanced microchip design, and policymakers should intervene to stop industrial espionage in that field. But he said for chipmakers, restrictions on cooperating with Chinese researchers also will likely mean fewer sales in China. "If you say to Intel: you cannot do any research and development with China, the Chinese are going to find Intel a lot less interesting." Scissors said if decoupling happens, which he hopes will, the most advanced chips would likely be assembled in Japan, South Korea, Taiwan and maybe the Philippines. "The thing about China -- it's the end of a supply chain with tons of inputs where you make hundreds of billions of low-end consumer electronics every year," he said. "There's no other country that can replace that." Scissors said that scale might be found in Indonesia, Mexico, Vietnam or perhaps India.
President Emmanuel Macron said that the U.S. and France agreed to work together to reach an agreement in 2020 on modernizing the international tax rules. Macron told reporters Monday his nation's 3 percent digital services tax isn't designed to punish large companies. Rather, he said, "it's to fix the problem. And there are also plenty of French companies that will be touched." The U.S. is treating the tax as thinly disguised protectionism, and has opened an investigation (see 1908190043). Macron said that the French tax will be in place until an international pact. He said that if collections under the tax are higher than are eventually agreed to, the excess will be refunded. Senate Finance Committee ranking member Ron Wyden, D-Ore., in a statement said the "Trump administration should reject any deal that allows France and other countries to move ahead with discriminatory taxes on U.S. technology companies, in exchange for vague promises." President Donald Trump, also at the G-7 conference, didn't provide more specifics, and the French Embassy in Washington had no further comment.
About 10 comments from associations and companies that would be affected by France's digital services tax backed U.S. concern, many saying there's a discriminatory DST intent against American companies. Some told the Office of the U.S. Trade Representative in advance testimony that U.S. tariffs on French imports aren't the way to fix the problem. Sixteen filings in USTR-2019-0009 were posted through this week. A USTR hearing is set for Monday (see 1907150037).
Best Buy Chief Merchandising Officer Jason Bonfig asked that smartphones, laptops, computers, tablets, TVs, gaming consoles and computer monitors be spared President Donald Trump's threatened fourth tranche of tariffs on China-made products. "U.S. consumers have largely been shielded" so far, Bonfig said during Day 1 of Office of U.S. Trade Representative hearings. Bonfig said brands have been moving manufacturing out of China since enforcement efforts began, but it's a multiyear effort to find new sourcing, and that "cannot be done faster than it’s already going." IRobot CEO Colin Angle has firsthand knowledge of the intellectual property abuses Chinese companies engage in, he testified. But Angle asked the administration not to impose tariffs on the robotic goods it sources from China because his firm, which employs 700 in the U.S., is satisfied with China as a manufacturing platform. Angle, who said iRobot has more than 80 percent of the consumer robot market in the U.S., said his company won a patent-violation case in October, which meant Chinese factories can't export those goods to the U.S. IRobot was the victim of cyberattacks that resulted in intellectual property theft, and two Chinese citizens were indicted for the crime, said Angle. "Moving production to the U.S. would increase our cost of goods sold by 60 percent," Angle said. The Roomba, iRobot's flagship product, has had List 3 tariffs imposed on it since last summer, he said. Comments were due Monday to USTR on the List 4 duties (see 1906170050).
Delaying the increase to 25 percent on the 10 percent Section 301 tariffs on $200 billion in Chinese imports will require a “presidential proclamation” or publication of a Federal Register notice before the midnight Friday deadline to avert an automatic rate hike, emailed customs law expert Ted Murphy of Baker McKenzie Monday. President Donald Trump, for the second time since December, postponed the rate hike in a pair of tweets Sunday, citing “substantial progress” in U.S.-China trade talks (see 1902250001).