Mara Lee

IP theft is why this administration levied tariffs on nearly $250 billion in Chinese goods, Assistant Attorney General John Demers told the Senate Judiciary Committee Wednesday. “China’s strategy is the same: rob, replicate, and replace. Rob the American company of its intellectual property, replicate the technology, and replace the American company.” Chairman Chuck Grassley, R-Iowa, noted Huawei Chief Financial Officer Meng Wanzhou was arrested on suspicion of breaking Iranian sanctions (see 1812060042), and that a Chinese firm allegedly tried to avoid export controls for Boeing satellite technology. With the two nations in a 90-day negotiating period, President Donald Trump this week told Reuters he would intervene in the case if its prosecution would prevent a U.S.-China deal. The suggestion “is extremely disturbing,” said Sen. Richard Blumenthal, D-Conn., asking Demers if it disturbed him as well. There is precedence for such action, as the president told the Commerce Department to roll back its “death penalty” for ZTE after it lied about punishing officials who had violated North Korea sanctions (see 1805240064). Demers declined to comment on Wanzhou’s case. “What we do at the Justice Department is law enforcement. We don’t do trade,” he said. Sen. Kamala Harris, D-Calif., told Demers she introduced a bill that would extend the extraterritorial authority of U.S. prosecutors for cyber espionage. Demers said that could be helpful. Peter Harrell, a Center for a New American Security senior fellow, suggested the government should expand bans on imports that use stolen IP; give more funding to the International Trade Commission so it can identify those cases; and create a better private right of action for companies whose property was stolen.

Calling it "win for digital trade," BSA|The Software Alliance CEO Victoria Espinel, noted the U.S.-Mexico-Canada Agreement has a default rule that data can move across borders. Ratification of the North America Free Trade Agreement replacement could be "one of the steps toward ... an international consensus on data," she said Thursday at the Washington International Trade Association. Espinel described USMCA as a great template for future negotiations with Japan and with the EU but "the next version could be better." She would like to see stronger language on encryption, with explicit language not allowing back doors for encrypted messages. She wants language to prohibit governments from using "cybersecurity as a pretext for protectionism" and from requiring disclosure of algorithms or source codes to get market access.

It's odd to be talking about blockchain in terms of regulatory policy, said Aaron Arnold, a fellow at Harvard University who studies trade controls to prevent proliferation of weapons of mass destruction. The technology is designed to remove the intermediary and decentralize authority, said panelists on blockchain and trade security at the Stimson Center, a Washington think tank on security. A government blockchain verification system is inherently centralized, said Jonathan Tame, manager in Deloitte's technology practice. Arnold gave an example of an instance in which a Massachusetts supplier sent pressure transducers to its Chinese subsidiary, and then an employee there falsified documents about the package's contents and sent the equipment -- used to enrich uranium -- to Iran. If these transactions were on a distributed ledger, “would this have stopped the transshipment to Iran? No," he said. That’s not “to imply that blockchain or distributed ledger technologies have zero applications" here, he said. For a system with items subject to export controls tagged in an unalterable way that goes to a country where it's not allowed, the seller wouldn't be paid.

Canada won't sign a free trade deal that would allow U.S. firms to buy Canadian newspapers or TV stations, Canadian Prime Minister Justin Trudeau told reporters Monday. Meanwhile, “There’s good will on all sides,” said Foreign Minister Chrystia Freeland regarding negotiations on the North American Free Trade Agreement. But she noted negotiators will stand up for “national identity,” and there are cultural exemptions for Canadian radio, TV, newspaper and film.

President Donald Trump directed U.S. Trade Representative Robert Lighthizer to consider raising the third round of Trade Act Section 301 tariffs to 25 percent from 10 percent, the USTR and others confirmed Wednesday afternoon.

U.S. Trade Representative Robert Lighthizer said the effort to get China to change its industrial policy and intellectual property practices will take years. “That’s not to say what we’re doing now will be in place for years,” Lighthizer said Thursday, testifying at a Senate Appropriations Subcommittee hearing on the Trump administration’s trade policy, including its proposed or implemented Trade Act Section 301 tariffs on imports from China. He was repeatedly pressed on how long the administration will keep the tariffs in place or threaten new ones, amid criticism from many sectors that the duties will disproportionately increase costs on American businesses and consumers without punishing the Chinese for allegedly unfair trade practices. Only Sen. Joe Manchin, D-W.Va., gave unalloyed support to the USTR on the North American Free Trade Agreement and tariffs. Other senators from both parties hammered Lighthizer with stories about how their constituents are losing money because of tariffs. The most heated exchange was between Rep. Brian Schatz, D-Hawaii, and Lighthizer. Schatz said because of the pressure from constituents when retaliatory tariffs and ordinary tariffs bite, the U.S. can't win a game of chicken with China. “They can wait us out,” he said. “They can endure more pain over time than we can.” When Lighthizer suggested Schatz doesn’t believe China is a threat to America’s economic future, Schatz cut him off. “It just means you don’t pick stupid fights!” he said. Lighthizer, his voice rising, said, “I don’t think it’s a stupid fight!”

Vote for a bill from Sen. Bob Corker, R-Tenn., that would amend a 1962 law to constrain President Donald Trump’s ability to impose Trade Expansion Act Section 232 tariffs, more than 60 national business groups and more than 200 local chambers of commerce and similar organizations urged the Senate in a Tuesday letter. Though the president should retain the authority to impose tariffs on national security grounds, “the current circumstances highlight the need for Congress to ensure that the authority will be used, as intended by the Congress, in the overall national interest," it said. Among signers were the Computer & Communications Industry Association, Internet Association and National Retail Federation. S-3013 "is designed to accomplish this limited objective. The President will retain the power to impose tariffs to protect the national security subject only to confirmation by the Congress that the power is being properly used," the letter said. CTA didn’t comment on why it didn’t sign.

The Senate-passed defense authorization bill includes an amendment to retain ZTE's seven-year export ban (see 1806070040), though the Commerce Department keeps discretion to let the company continue importing semiconductors from U.S. sources, leading to some skepticism. Senate Majority Whip John Cornyn, R-Texas, is to meet Wednesday with administration officials and other lawmakers on Capitol Hill's battle with the White House over Commerce's decision to lift its ban on U.S. companies selling telecom software and equipment to ZTE. Secretary of Commerce Wilbur Ross and Sen. Tom Cotton, R-Ark., will attend, Capitol Hill officials told us.

An amendment that would stop the deal to lift an export ban on ZTE is to be considered by the Senate Monday as part of the defense authorization bill. Since the House didn't include such an amendment in its version, passed in May, conference committee members would have to agree to include it in the final version. House Speaker Paul Ryan, R-Wis., who won't be a conferee, said he doesn't know what position the House negotiators will take. "I'm going to leave it to our conferees," he said at a news conference Thursday. House Minority Leader Nancy Pelosi, D-Calif., in response to our question, said it's baffling President Donald Trump sought to intervene in the Commerce Department's enforcement case. Initially, Commerce before Trump weighed in said the company deserved a seven-year export ban because of lies about complying with earlier penalties. "The president is saying we can't act against them because we have to save jobs in China," Pelosi said. "Really? ZTE should not be getting this gift." Wednesday, a White House spokesman defended the revised penalty (see 1806130070), saying it gives the government "complete oversight of their future activity without undue harm to American suppliers and their workers." Senate Minority Leader Chuck Schumer, D-N.Y., called that an attempt to derail the bipartisan agreement to restore the export ban. "Both parties in Congress must be resolute in blocking the president's bad, pro-China ZTE deal," he said. "Congress should have the ability to have leverage in that discussion," Pelosi said: "You can't be frivolous about using the national security waiver" on tariffs. Comparing ZTE to steel and aluminum tariffs, she said that "to say you're instituting a tariff because of national security reasons, and at the same time, you're saying to ZTE, 'It's OK if you're a cybersecurity threat, it's OK if you violated the sanctions' -- how can this make sense?"

Proposed new 25 percent tariffs on products from China will be put "on hold" while the Trump administration tries to "execute the framework" of a trade deal with China, Treasury Secretary Steven Mnuchin said in an interview on Fox News Sunday. "I'm pleased to report that we've made very meaningful progress and we've agreed on a framework, which is important to understand, and the framework includes their agreement to substantially reduce the trade deficit by increasing their purchasing of goods," he said of the talks with the Chinese. China and the U.S. released a joint statement Saturday saying both sides are aligned on the "importance of intellectual property protections, and agreed to strengthen cooperation," among other terms. Comments are due Tuesday in docket USTR-2018-0005 to rebut statements made in three days of hearings the U.S. Trade Representative's office held last week on the proposed tariffs (see 1805160067 or 1805160020). USTR Robert Lighthizer wants "real work" for "changes in a Chinese system that facilitates forced technology transfers in order to do business in China and the theft of our companies’ intellectual property and business know how," he said in a statement his office emailed us Monday. "Getting China to open its market to more U.S. exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation. As this process continues the U.S. may use all of its legal tools to protect our technology through tariffs, investment restrictions and export regulations. Real structural change is necessary." Despite the Trump administration's pause in adding tariffs on goods from China, it's too early to end efforts on product exemptions, Baker McKenzie lawyer Ted Murphy blogged. "While this is a positive development, it is also subject to change," he said. "For now, we are recommending that companies continue to pursue exclusions just in case."