Upcoming Special 301 Report May Expand Scrutiny Beyond China
Each year, USTR conducts an annual Special 301 review, which identifies trading partners that the agency determines do not adequately or effectively protect and enforce intellectual property (IP) rights, or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights. This year the agency will publish its Special 301 Report on or around April 26, 2019, pursuant to the Trade Act of 1974, as amended.
Last year's report identified 12 countries—Algeria, Argentina, Canada, Chile, China, Colombia, India, Indonesia, Kuwait, Russia, Ukraine, and Venezuela—on USTR's "Priority Watch List." USTR places trading partners on the Priority Watch List that present the most significant concerns regarding inadequate or ineffective IP protections. An additional 24 trading partners were on the USTR's lower-concern "Watch List."
If you are wondering whether this is merely a technical review or if there are practical implications, consider that the administration's Section 301 findings were part of the basis for the extensive tariffs now in place on imported goods from China impacting numerous industries. That is, even before USTR released the report last year, on April 6, 2018, the Trade Representative issued a determination that China's acts, policies, and practices on technology transfer, intellectual property, and innovation noted in the investigation were unreasonable or discriminatory and burdened or restricted U.S. commerce. The USTR's investigation stemmed from a memorandum issued by President Trump on August 14, 2017 that instructed USTR to investigate China on these issues. As a result of its investigation and findings, over the course of 2018 USTR imposed additional duties of 10-25 percent on thousands of Chinese products across three separate lists covering approximately $250 billion of annual imports. These tariffs are currently being negotiated in ongoing trade talks with China, and may be increased (or removed) as a result of the negotiations.
This year, businesses can expect USTR to consider further expanding its Section 301-related trade actions beyond China. An investigation along these lines would likely stem from a memorandum from the president, as was the case with China, but not necessarily. Under 19 U.S.C. 2412(b), USTR may independently initiate an investigation, if the agency determines that one is warranted. The upcoming report may give a clue to USTR's approach for the upcoming year.
The Special 301 review process promises additional scrutiny of U.S. trading partners in a U.S. presidential campaign year, where the incumbent president may be inclined to make big splashes on trade matters. It pays for companies with global supply chains to stay ahead of the curve, and continue to monitor the Trump administration, including USTR, for any possibility of increased tariffs.
USTR Currently Receiving Comments and Hearing Testimony for Its Review
In late December 2018, USTR issued a request for public comment as part of the annual Special 301 review regarding countries that deny protection of intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection.
If you have recently adjusted your supply chain to source from countries beyond China, you may wish to monitor and provide comments on this current review. USTR is requesting written comments regarding acts, policies, and practices in foreign countries that may pose problems for IPR protection, enforcement, or market access for persons who rely on IP protection. Written comments are due by February 7, 2019, and USTR will hold a hearing on February 27, 2019. If you wish to testify before USTR or provide USTR with written comments, we are available to assist.
Administration Actively Working on Additional Tariff Fronts
Section 301 is not the only front where the current administration is pushing for potential increased tariffs. President Trump is expected to include comments in his upcoming State of the Union address that will urge Congress to pass legislation that would give the president broad powers to increase U.S. tariffs if he determines the tariffs and non-tariff barriers imposed by other countries to be higher or more restrictive than those of the United States. The proposed legislation, titled the U.S. Reciprocal Trade Act, would reportedly allow the president to consider tariffs line by line for individual products. While the draft bill likely faces difficult odds of passage in Congress, it is also supported by a number of House Republicans. More importantly, it illustrates that there are no signs that this administration's consideration of additional tariffs and other trade remedy measures will slow in 2019.