by Dennis Crouch
The White House is following through with its promise of adding a 10% tariff to $200 billion in goods imported into the US from China — set to begin on September 24, 2018. On January 1, 2018, the tariffs are set to be raised to 25% on January 1, 2019. This is in addition to the 25% tariff applied earlier this summer on $50 billion in imports. The President also issued statement that “if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”
Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”
— Donald J. Trump (@realDonaldTrump) September 17, 2018
Note – the tariffs are calculated based upon a valuation of the goods at the point of entry into the US. The Trade Agreements Act of 1979 provides six different ways methods of customs valuations in ranked order: (A) transaction value; (B) transaction value of identical merchandise; (C) transaction value of similar merchandise; (D) deductive value; (E) computed value; and (F) reasonable value. 19 U.S.C. 1401a.
Earlier in 2018, the United States Trade Representative (USTR) released its Section 301 Report concluding that China is engaged in unfair policies and practices relating to United States technology and intellectual property. The report highlighted:
- “China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
- China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
- China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
- China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.”
According to the USTR release, the new tariffs follow because “China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property.”
Trade Act of 1974 authorizes the USTR to take action to address these conclusions — via tariffs and exclusion orders.
In addition to US unilateral action, the WTO Dispute Settlement System is designed to help countries resolve this exact type of dispute the US and China have filed competing complaints that are now in process. The key underlying dispute is DS542 filed by the US against China for “Certain Measures Concerning the Protection of Intellectual Property Rights” in violation of Articles 3, 28.1(a) and (b) and 28.2 of the TRIPS Agreement. In the complaint (“request for consultations”) document, the USTR explained the basis for WTO action:
China denies foreign patent holders the ability to enforce their patent rights against a Chinese joint-venture party after a technology transfer contract ends. China also imposes mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology. Therefore, China deprives foreign intellectual property rights holders of the ability to protect their intellectual property rights in China as well as freely negotiate market-based terms in licensing and other technology-related contracts.