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China vows to take actions against US trade investigation of China
China’s Ministry of Commerce (Mofcom) responded to the US trade chief’s formal initiation of Section 301 investigation this Monday, pledging China will take all proper measures to defend its rights. The spokesman of Mofcom denounced the US move based on its domestic law to be “irresponsible” and “biased”. While many worry the situation may lead to trade war between the two biggest economies in the world, Chinese analysts say there is a big change the US would put a stop to its work after reaching agreement with China.

The US Trade Representative Robert Lighthizer officially initiated trade probes into China’s intellectual property policies and practices on August 18, less than a week after President Donald Trump gave him the directive to do so. The move is regarded as a signal that the Trump administration begins to formally take tough lines against China.

Before this, US companies have reportedly faced challenges related to Counterfeiting and unauthorized technology transfers in China, which has prompted some industry groups and Washington think tanks to support Trump’s investigation.

The spokesman of Mofcom said since President Xi and Trump met at the Mar-a-Lago resort this April, progress and concrete results have been gained under the framework of the China-US Comprehensive Economic Dialogue. He stressed the now Section 301 investigation would send wrong signals, which echoes with concerns of analysts that the unilateral move would once again trigger tension between the US and China.

Chinese analysts say the unilateral move taken by the US has bypassed the rules-based WTO trading system, China is suggested to turn to the WTO mechanism for settling disputes and come up with countermeasures.

Yang Chen, senior partner of Jincheng Tongda & Neal told Economic Information Daily, based on Section 301 provisions, the USTR would make decisions in 12 months since it kicked off the probes.

“The previous practices show the USTR could inflict tariffs on the commodities and services from the investigated countries, or adopt other import restriction. It could also sign binding agreement to make sure the investigated country remove or phase out regulations or policies the US side determines to be discriminatory,” Yang said.

Liang Guoyong, the economic affairs official with the UN Conference on Trade and Development (UNCTAD) told Economic Information Daily “target of the investigation would be Chinese government’s strategies and policies related to foreign technology introduction and self-dependent innovation.” So, Chinese hi-tech industries and enterprises may be affected especially companies dealing with core technologies like communication apparatus and integrated semiconductor.

“Superficially, the investigation is targeting China’s system of IP protection. Basically, the US government intends to protect business secrets concerning national security, while it also worries China’s rising prominence in high-tech industries may overshadow its dominating players,” said Yang Chen.

Several analysts surveyed by the national media all agree China should act proactively and resort to WTO’s multilateral framework for addressing current disputes.

Su Qingyi, researcher with the Institute of World Economics and Politics, Chinese Academy of Social Sciences told the 21st Century Business Herald the US may reach agreement with China during the one-year-long investigation. “Even if the two parties failed to reach any agreement, the US still could choose negotiation with China. Its aim is to force China improve on IP protection and open market to foreign businesses in related fields,” he said.

In the 1980s, the US has initiated a series of Section 301 probes into Japan to determine if the country is inflicting import restrictions in semi-conductor industry. One year later, the two countries reached agreement for Japan to further open its domestic market while limiting Japanese companies dump in the US.

Su analyzed although previously the US could usually got its way through the 301 investigations in the 1980s. With WTO multilateral framework constituting in mid 1990s, situation has changed. On the other hand, Japan was very dependent on the US economy back then, while China and the US are now mutually dependent on each other, so China would have stronger bargaining strength. 

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