Part Seventeen. Why study the United States Trade Representative (USTR) report on China’s Technology Transfer, Intellectual Property, and Innovation, with associations listed?

 

Previous parts explained how trade taxes, tariffs, levies or countervailing duties, are a national security matter. China’s (Appendix) Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, with associations listed, was reported by the United States Trade Representative (USTR) on March 22, 2018. Abbreviations and Acronyms may be found in Part Twelve.

OFFICE of the UNITED STATES TRADE REPRESENTATIVE EXECUTIVE OFFICE OF THE PRESIDENT  FINDINGS OF THE INVESTIGATION INTO CHINA’S ACTS, POLICIES, AND PRACTICES RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND INNOVATION UNDER SECTION 301 OF THE TRADE ACT OF 1974 March 22, 2018

https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

APPENDIX A

Federal Register/Vol. 82, No. 163/Thursday, August 24, 2017/Notices 40213

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

[Docket No. USTR–2017–0016]

Initiation of Section 301 Investigation; Hearing; and Request for Public Comments: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of initiation of investigation; hearing; and request for comments.

SUMMARY: The United States Trade Representative has initiated an investigation pursuant to the Trade Act of 1974, as amended (the Trade Act), to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are actionable under the Trade Act. The inter-agency Section 301 Committee is holding a public hearing and seeking comments in connection with this investigation.

DATES: The United States Trade Representative initiated the investigation on August 18, 2017. The schedule and due dates are as follows:

To be assured of consideration, written comments and requests to appear at the hearing must be submitted by Thursday, September 28, 2017 at 11:59 p.m. The request to appear must include a summary of testimony.

Tuesday, October 10, 2017: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, beginning at 9:30 a.m. If necessary, the hearing may continue on the next business day.

To be assured of consideration, post- hearing rebuttal comments must be submitted by Friday, October 20, 2017 at 11:59 p.m.

ADDRESSES: You should submit written comments through the Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments in section II below. For alternatives to on- line submissions, please contact Gwendolyn Diggs at (202) 395–3150 before transmitting a comment and in advance of the relevant deadline.

FOR FURTHER INFORMATION CONTACT: For procedural questions concerning written comments or participating in the public hearing, contact Gwendolyn Diggs at (202) 395–3150. Direct all other questions regarding this notice to William Busis, Deputy Assistant U.S. Trade Representative for Monitoring and Enforcement and Chair of the Section 301 Committee, or Katherine Linton and Arthur Tsao, Assistant General Counsels at (202) 395–3150. SUPPLEMENTARY INFORMATION

  1. The President’s Memorandum

On August 14, 2017, the President issued a Memorandum (82 FR 39007) to the United States Trade Representative stating inter alia:

China has implemented laws, policies, and practices and has taken actions related to intellectual property, innovation, and technology that may encourage or require the transfer of American technology and intellectual property to enterprises in China or that may otherwise negatively affect American economic interests. These laws, policies, practices, and actions may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.

The Memorandum included the following instruction:

The United States Trade Representative shall determine, consistent with section 302(b) of the Trade Act of 1974 (19 U.S.C. 2412(b)), whether to investigate any of China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.

Pursuant to the President’s Memorandum, on August 18, 2017, the United States Trade Representative initiated an investigation under section 302(b) of the Trade Act (19 U.S.C. 2412(b)) to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.

  1. The Chinese Government’s Acts, Policies and Practices

The acts, policies and practices of the Government of China directed at the transfer of U.S. and other foreign technologies and intellectual property are an important element of China’s strategy to become a leader in a number of industries, including advanced- technology industries, as reflected in China’s ‘‘Made in China 2025’’ industrial plan, and other similar industrial policy initiatives. The Chinese government’s acts, policies, and practices take many forms. The investigation initially will consider the following specific types of conduct:

First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies. Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non- transparent manner by Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non-market terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and

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40214 Federal Register/Vol. 82, No. 163/Thursday, August 24, 2017/Notices intellectual property and generate large- scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.

In addition to these four types of conduct, interested parties may submit for consideration information on other acts, policies and practices of China relating to technology transfer, intellectual property, and innovation described in the President’s Memorandum that might be included in this investigation, and/or might be addressed through other applicable mechanisms.

  1. Relevant Provisions of the Trade Act

Section 302(b)(1)(A) of the Trade Act authorizes the United States Trade Representative to initiate an investigation to determine whether conduct is actionable under section 301 of the Trade Act.

Actionable conduct under section 301(b)(1) includes, inter alia, acts, policies and practices of a foreign country that are unreasonable or discriminatory and burden or restrict U.S. commerce. Unreasonable actions are those that while not necessarily in violation of, or inconsistent with, the international legal rights of the United States are otherwise unfair and inequitable.

Pursuant to section 302(b)(1)(B), the United States Trade Representative has consulted with appropriate advisory committees. The United States Trade Representative also has consulted with members of the inter-agency Section 301 Committee. On the date of initiation, the United States Trade Representative requested consultations with the Government of China concerning the issues under investigation, pursuant to section 303(a)(1) of the Trade Act (19 U.S.C. 2413(a)(1)).

Pursuant to section 304(a)(2)(B) of the Trade Act, 19 U.S.C. 2414(a)(2)(B), the United States Trade Representative must determine within 12 months from the date of initiation of the investigation whether any act, policy, or practice described in section 301 of the Trade Acts exists and, if that determination is affirmative, what action, if any, to take.

  1. Request for Comments and To Testify at the Hearing
  2. Topics and Schedule

The Office of the U.S. Trade Representative (USTR) invites written comments on:

  1. The acts, policies, and practices of the Chinese government described in Section I.B above.
  2. Information on other acts, policies and practices of China relating to technology transfer, intellectual property, and innovation as described in the President’s Memorandum, which might be included in this investigation, and/or might be addressed through other applicable mechanisms.
  3. The nature and level of burden or restriction on U.S. commerce caused by the applicable acts, policies and practices of the Government of China, and/or any economic assessment of that burden or restriction.
  4. The determinations required under section 304 of the Trade Act, that is, whether actionable conduct exists under section 301(b) and what action, if any, should be taken.

To be assured of consideration, USTR must receive initial written comments by 11:59 p.m. on September 28, 2017, in accordance with the instructions in section II.B below.

The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW., Washington DC 20436, beginning at 9:30 a.m. on October 10, 2017. Persons wishing to appear at the hearing must provide written notification of their intention and a summary of the proposed testimony by 11:59 p.m. on September 28, 2017, in accordance with the instructions in section II.B below. Remarks at the hearing may be no longer than five minutes to allow for possible questions from the Section 301 Committee. The deadline for submission of post-hearing rebuttal comments is 11:59 p.m. on October 20, 2017.

Indicate in the ‘‘Type Comment’’ field if you are submitting a request to appear at the hearing, and include the name, address and telephone number of the person presenting the testimony. A summary of the testimony should be attached by using the ‘‘Upload File’’ field. The file name should include the name of the person who will be presenting the testimony.

  1. Requirements for Submissions

Persons submitting a notification of intent to testify, a summary of testimony, or written comments must do so in English, and must identify this matter (on the reference line of the first

page of the submission) as ‘‘Section 301 Investigation: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.’’

To be assured of consideration, you must submit written comments, requests to testify, and summaries of testimony by 11:59 p.m. on September 28, 2017. The deadline for submitting rebuttal comments is 11:59 p.m. on October 20, 2017.

All submissions must be in English and sent electronically via www.regulations.gov using docket number USTR–2017–0016. You must make any alternative arrangements in advance of the relevant deadline and before transmitting a comment by contacting Gwendolyn Diggs at (202) 395–3150.

To make a submission via www.regulations.gov, enter Docket Number USTR–2017–0016 on the home page and click ‘‘Search.’’ The site will provide a search-results page listing all documents associated with this docket. Find the reference to this notice and click on the button labeled ‘‘Comment Now.’’ For further information on using the www.regulations.gov Web site, please consult the resources provided on the Web site by clicking on ‘‘How to Use Regulations.gov’’ on the bottom of the home page.

The www.regulations.gov Web site allows users to provide comments by filling in a ‘‘Type Comment’’ field, or by attaching a document using an ‘‘Upload File’’ field. USTR prefers that you provide submissions as an attached document. If a document is attached, it is sufficient to type ‘‘see attached’’ in the ‘‘Type Comment’’ field. USTR prefers submissions in Microsoft Word (.doc) or Adobe Acrobat (.pdf) format. If the submission is in another file format, please indicate the name of the software application in the ‘‘Type Comment’’ field. File names should reflect the name of the person or entity submitting the comments.

Indicate in the ‘‘Type Comment’’ field if you are submitting a request to appear at the hearing, and include the name, address and telephone number of the person presenting the testimony. The file name should include who will be presenting the testimony.

Please do not attach separate cover letters to electronic submissions; rather, include any information that might appear in a cover letter in the comments themselves. Similarly, to the extent possible, please include any exhibits, annexes, or other attachments in the same file as the comment itself, rather than submitting them as separate files.

Federal Register/Vol. 82, No. 163/Thursday, August 24, 2017/Notices 40215

 

For any comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters ‘‘BC’’. Any page containing business confidential information must be clearly marked ‘‘BUSINESS CONFIDENTIAL’’ on the top of that page and the submission should clearly indicate, via brackets, highlighting, or other means, the specific information that is business confidential. If you request business confidential treatment, you must certify that the information is business confidential and would not customarily be released to the public. Filers of submissions containing business confidential information also must submit a public version of their comments. The file name of the public version should begin with the character ‘‘P’’. The ‘‘BC’’ and ‘‘P’’ should be followed by the name of the person or entity submitting the comments or rebuttal comments. If these procedures are not sufficient to protect business confidential information or otherwise protect business interests, please contact Katherine Linton at 202–395–3150 to discuss whether alternative arrangements are possible.

We will post comments in the docket for public inspection, except business confidential information. You can view comments on the https:// www.regulations.gov Web site by entering docket number USTR–2017– 0016 in the search field on the home page.

William L. Busis,

Chair, Section 301 Committee, Office of the United States Trade Representative.

[FR Doc. 2017–17931 Filed 8–23–17; 8:45 am]

BILLING CODE 3290–F7–P

 

APPENDIX B

https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

Section 301 Investigation: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
Off-Camera Hearing to be held at the U.S. International Trade Commission
500 E Street SW., Washington DC 20436
October 10, 2017, 9:30 a.m.

Panel One

  1. Richard Ellings, Commission on the Theft of American Intellectual Property
  2. Stephen Ezell, Information Technology and Innovation Foundation
  3. Erin Ennis, U.S. China Business Council
  4. Owen Herrnstadt, International Association of Machinists and Aerospace Workers

Panel Two

  1. Juergen Stein, SolarWorld Americas
  2. Daniel Patrick McGahn, American Superconductor Corporation
  3. William Mansfield, ABRO Industries

Panel Three

  1. Scott Partridge, American Bar Association, Intellectual Property Law Section
  2. Scott Kennedy, Center for Strategic & International Studies
  3. JIN, Haijun, China Intellectual Property Law Society

Panel Four

  1. CHEN, Zhou and LIU, Chao, China Chamber of International Commerce
  2. XU, Chen and LIU, Xinze, China General Chamber of Commerce
  3. John Tang, Esq. and JIANG, Qi, DHH Law Office
  4. WANG, Guiqing, Chamber of Commerce, Import and Export of Machinery

 

APPENDIX C

https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

Section 301 Investigation of China’s Technology Transfer, Intellectual Property, and Innovation-Related Acts, Practices, and Policies: Summary of Public Submissions

American Apparel and Footwear Association (AAFA)

AAFA is a national trade association that represents companies and suppliers in the apparel, footwear, and other sewn products industries competing in the global market. AAFA indicates that the Section 301 investigation should identify areas where China has fallen short of its IPR commitments, and it underscores that the sale of counterfeit products on Chinese e- commerce sites is widespread. AAFA draws attention to parasite brands, which it describes as “counterfeit variants” and which imitate brands and sell counterfeit versions of products in China. AAFA states that China’s first-to-file trademark system leads to inadequate protections that exacerbate the problem. AAFA submits that Chinese laws and policies largely ignore the rights of patent owners by allowing or even requiring them to transfer knowledge to competitors, SOEs, or other parties.

American Bar Association Intellectual Property Law (APA IPL) Section

The ABA IPL Section provided comments in writing and at the hearing, indicating that IPR protections in China had improved in recent years but that widespread deficiencies remain. A major concern is that the Chinese government effectively forces technology transfer via the imposition of mandatory licensing terms, which may include terms on ownership in improvements, indemnifications and others. The ABA IPL Section adds that a lack of trade secret protections in China is a longstanding concern of U.S. companies, citing instances in which U.S. companies brought trade secret actions in Chinese courts and at the U.S. International Trade Commission based on allegations of trade secret misappropriations occurring in China.

Furthermore, the IPL section also identifies a range of issues with respect to trademark, copyright, and patent protections. According to the IPL section, these issues have received inadequate attention and resources from the Chinese government, and are exacerbated by Chinese copyright laws that fall short of international norms. Although several important laws and regulations have been passed by the Chinese government to enhance patent protection, additional improvements must be made to meaningfully protect the rights of patent holders. The IPL Section identifies various obstacles to U.S. patent holders attempting to pursue patent infringement actions in China.

American Bridal & Prom Industry Association, Inc. (ABPIA)

ABPIA is a non-profit, nationwide trade-association that represents members of the formalwear industry, including designers, manufacturers, retailers, and trade publications. ABPIA submits that its members are seriously harmed by the sale of counterfeit goods on “thousands” of e-commerce websites largely based in China, which target U.S. customers, including by using U.S. manufacturers’ trademarks, and original and proprietary marketing

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images. ABPIA also states that counterfeit goods circumvent customs duties by being falsely designed as “gifts.” ABPIA recommends that USTR widen the scope of its 301 review to examine new legislation, more effective border controls, and restricting flows to the Chinese bank accounts of counterfeiters.

ABRO Industries

ABRO provided comments in writing and at the hearing, and is a small American company affected by counterfeits emanating from China. The company manufactures non- electronic consumer goods in the United States and China and sells third country markets. ABRO submits that China has received insufficient acknowledgment for its anti-counterfeiting efforts, adding that ABRO was ultimately successful in combatting the theft of its IP by adapting to the Chinese system and working closely with regional and provincial governments in China.

American Foundry Society (AFS)

AFS is a trade and technical association for the North American metal-casting industry, with more than 8,000 members representing nearly 2,000 metal-casting firms, suppliers, and customers. Many AFS members have been harmed by Chinese governmental practices in the broader metal-casting industry. China is the largest producer of all types of metal-castings, and many Chinese foundries are SOEs, which receive significant levels of both direct and indirect financial support from the Chinese government. Furthermore, the Chinese government both directly and indirectly influences commercial decisions by SOEs. Collectively, these government actions have enabled Chinese foundries to produce metal-castings at significantly lower prices than can be produced by AFS members. AFS members are additionally concerned by the implementation and localization targets published in the Made In China 2025 industrial plan. AFS submits that Chinese policies and financial supports to MIC 2025 target industries will benefit Chinese manufacturers over foreign firms, making it increasingly difficult for AFS firms to compete. Finally, AFS states that its members have suffered from investment caps in China pursuant to the Catalogue Guiding Foreign Investment, which forces U.S. companies to engage in joint ventures with Chinese companies in the agricultural processing, automotive, and telecom industries. These requirements create opportunities for both the Chinese government and Chinese stakeholders to request concessions like technology transfer from foreign companies during negotiations.

American Chamber of Commerce in Shanghai (AmCham)

AmCham is an independent business chamber with more than 3,000 members from over 1,500 companies, including 75 percent of American Fortune 500 companies with operations in China, along with hundreds of smaller companies. AmCham reports that its members face a difficult policy environment in China, with forced technology transfer, limited market access, and basic fairness issues increasingly shifting the local market in favor of Chinese companies. AmCham states that the Chinese government uses both implicit and explicit actions to create an unequal playing field for U.S. companies. Member companies have complained of insufficient IP protections and tech transfer pressures in the form of product approval regulations and joint venture requirements, as well as pressure to demonstrate “Good Corporate Citizenship” by

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transferring new business models and technologies to Chinese entities. AmCham submits that China uses its considerable resources and influence to create an unfair advantage for its domestic companies, and these practices have made it more difficult to both operate in China and grow American companies.

American Chemistry Council (ACC)

ACC is an organization that represents the leading companies engaged in the business of chemistry. Many of ACCs members have complained of significant difficulties in bringing their products to the Chinese markets. When exporting chemicals to China, companies have been required to disclose an amount of proprietary information sufficient for product duplication. As a result, ACC members’ IP has been stolen by Chinese companies, who then recreate the products and sell them at lower prices. Additionally, ACC submits that the Chinese government has engaged in both unreasonable and discriminatory practices. These include discriminatory patenting laws and the failure to pursue criminal prosecution of Chinese companies that steal IP.

American Superconductor Corporation (AMSC)

AMSC submitted comments in writing and testified at the hearing, and is an American energy technologies company that provides wind turbine designs, systems, and engineering services to reduce the cost of wind energy. AMSC experienced the theft of its intellectual property by a Chinese SOE, Sinovel Wind Group. AMSC explains that in 2007 it began supplying core electrical components and software to Sinovel. Over the course of their relationship, AMSC discovered that Sinovel had bribed an AMSC employee to steal technology from a U.S. server. AMSC submits that the theft is substantiated by emails and Skype messages that demonstrate the actual IP transfer and involvement in the cyber-theft by senior-level Sinovel officials. As a result, AMSC believes that over 8,000 wind turbines amounting to 20 percent of China’s turbines are running on stolen AMSC software; and importantly, most of the wind turbines operating on stolen software are owned by large state-owned enterprises. In response to the theft, the U.S. Department of Justice brought still-pending criminal actions in the United States, while AMSC has pursued various civil legal actions in China. AMSC expresses concern that it has received fair and equitable consideration in China, as Chinese courts dismissed several of its actions for an asserted lack of evidence. AMSC states that it has lost over $1.6 billion in company value, along with 70 percent of its workforce since March 2011 as a direct consequence of the stolen technology.

Biotechnology Innovation Organization (BIO)

BIO is a non-profit organization comprised of 1,000 biotechnology companies, academic institutions, state biotechnology centers, and related organizations in almost all 50 states and a number of foreign countries. BIO members have suffered from IP theft by Chinese companies, resulting in the production of copycat products sold in China. BIO members generally share concerns in China over IPR protection and enforcement; market access challenges; innovation policies that discriminate against foreign companies; lack of transparency in rule administration; lack of meaningful industry engagement in the rules-making process; regulatory requirements

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and technical standards that are more trade restrictive than necessary; and restrictive pharmaceutical pricing policies that blunt innovation in the global bioscience industry.

Bonumose Biochem LLC

Bonumose Biochem is a small, start-up business in the biochemical industry. Bonumose describes an instance of IP theft it experienced after it purchased 100 percent of the IP rights to the production of a chemical compound. According to Bonumose, an individual with ties to the Chinese government illegally revealed confidential information to the Tianjin Institute of Industrial Biotechnology (TIIB), a division of the Chinese government-owned Chinese Academy of Sciences. Bonumose submits that it is now unable to obtain a patent in China for its lawfully acquired intellectual property.

Lee Branstetter

Lee Branstetter is a Professor of Economics and Public Policy at Carnegie Mellon University. According to Prof. Branstetter, the Chinese government and its state-owned enterprises have over the past few decades extracted technology from foreign companies in a premeditated and systematic fashion, with the aim of displacing leading multinational firms with Chinese firms in global markets. He adds that technology transfer in China is neither voluntary nor market driven, but occurs under duress. Prof. Branstetter posits that foreign firms must transfer technology or be excluded from the world’s largest market and multinationals that complain likely retribution. He adds that China is adept at playing foreign companies against one another, as a firm’s refusal to transfer technology may lead to a market opportunity for a foreign competitor. He states further that numerous studies demonstrate that China’s enforcement of its intellectual property laws is uneven and biased against foreign firms. To combat these problems, Branstetter proposes a number of legal and policy initiatives to discourage the Chinese government from engaging in these practices.

BSA | The Software Alliance (BSA)

BSA is the leading trade association representing the global software industry before governments and in the international marketplace. Both BSA and its members have significant concerns about Chinese policies and practices that limit Chinese market access and reduce the competitiveness of BSA members operating in China. Four primary areas of concern are foreign direct investment restrictions, including policies relating to Value-Added Telecommunications Services (VATS); restrictions on cross-border data transfers; disclosure requirements for source code and enterprise standards; and the development and imposition of China-specific technical standards. BSA additionally states that market access barriers work in tandem with pressures to transfer technology or intellectual property. As a result, many companies may only access the Chinese market in exchange for putting their intellectual property at risk. This amounts to U.S. businesses being forced to choose between protecting their IP or being closed out of the world’s largest market for technology products.

Jack Chang

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Jack Chang is an attorney with years of professional experience working in China. He serves as the Chairman of the Quality Brands Protection Committee and is presently Special Counsel to L Brands International. Previously, he served as Senior IP Counsel for Asia for General Electric from 2006 to 2014, and prior to that was in the in-house legal department of Johnson & Johnson where he helped set up the company’s Asia/Shanghai Office. In his submission, Mr. Chang indicates that trademark counterfeiting, bad faith trademark registrations, copyright piracy, and the theft of trade secrets remain challenging for some businesses in China, but outlines ways in which the Chinese government has attempted to improve the IP landscape. Furthermore, Chang asserts that he has not encountered laws, policies, or practices that force technology transfer and that such transfer occur based on business considerations.

China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME)

CCCME submitted comments in writing and at the hearing, and is an independent, non- profit membership-based industry association based in China. CCCME and its members believe that Chinese and U.S. companies have experienced improved IP protections in China in recent years. CCCME characterizes assertions of Chinese government-driven tech transfer, forced licensing arrangements, and acquisitions as unfounded. CCCME contends that any joint ventures and transfers of technology are done free of government interference and based on market conditions. CCCME asserts that Chinese laws are not unreasonable or discriminatory because they apply equally to U.S. and Chinese companies. CCCME adds that because Chinese firms are also targeted by cyber-attacks, it is improper to blame the Chinese government for those attacks. CCCME encourages the USTR to avoid undertaking unilateral action against China and to discontinue the Section 301 investigation.

China Chamber of International Commerce (CCOIC)

CCOIC submitted comments in writing and at the hearing, and is a national chamber of commerce representing enterprises, associations, and organizations that engage in international commercial activities in China. CCOIC expresses concern that the Section 301 investigation is unilateral in nature, and cautions that action pursuant to the investigation may trigger a trade war harming businesses and individuals in both countries. CCOIC contends that there is no evidence that Chinese acts, policies, or practices are discriminatory or unreasonable, as IP protections and the overall business environment in China have substantially improved, and the Chinese government treats Chinese and foreign firms equally. CCOIC states there is no evidence that the Chinese government pressures foreign companies to transfer their technology to Chinese companies. The Chinese central government has specifically prohibited local governments from forcing technology transfer and CCOIC therefore believes that any decision to transfer or license technologies to Chinese parties is done freely pursuant to market considerations. CCOIC submits that there is no evidence that a Chinese measure governing inbound technology licensing conflicts with market-oriented principles. CCOIC contends that Chinese investment and acquisition in U.S. companies is done pursuant to normal commercial behavior without government directives. CCOIC maintains that there is no evidence that either the Chinese government or Chinese military deployed hackers to invade U.S. commercial networks for commercial interests.

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China Enterprise Confederation (CEC)

CEC is a national Chinese economic organization that functions as a link between the Chinese government and Chinese businesses, with membership that consists of enterprises, entrepreneurs, and business associations. CEC maintains that China’s acts, practices, and policies are neither unreasonable nor discriminatory. CEC indicates that U.S. companies are not forced to transfer technologies to Chinese companies, and that even when faced with investment restrictions, they can instead license their technologies to Chinese companies. CEC adds that China’s policies and practices are consistent with international standards, and that China has significantly improved the broader business climate through better IP protections and increased market access.

China General Chamber of Commerce (CGCC)

CGCC submitted comments both in writing and at the hearing. CGCC is a U.S. non- profit organization that represents Chinese enterprises operating within the United States. CGCC contends that the Section 301 investigation is misguided because the acts, policies, and practices of the Chinese government are neither unreasonable nor discriminatory. CGCC outlines legal and policy reforms that strengthen IP protections in China and adds that the government has undertaken additional measures for IP protection, including the establishment of specialized IP courts and an action plan joined by 12 governmental bodies titled “The Action Plan for Protecting Foreign Companies’ Intellectual Property Rights”. This plan is the first of its kind, and chief amongst its goals is the implementation of harsh punishments for violations of IP rights and piracy laws.

CGCC states that U.S. companies are overwhelmingly treated as equals to Chinese domestic companies. CGCC contends that China’s preferential procurement standards are not uncommon at the international level and it adds that any technology transfers or joint ventures are undertaken in good faith and free of Chinese government pressure. CGCC adds that Chinese firms operate independently of government influence, and make decisions—including those relating to acquisitions—consistent with management structures comparable to those found in U.S. firms. CGCC concludes that it is unable to comment about cyber-theft and the role that the Chinese government may play because none of CGCC’s member companies have been affected.

China Intellectual Property Law Society (CIPL)

CIPL commented in writing and at the hearing, submitting that there is no basis for a determination that Chinese laws or regulations are either unreasonable or discriminatory for purposes of the Section 301 investigations. CIPL emphasizes that China’s legal system is profoundly transformed, accompanied by strengthened IPR protections for both Chinese and foreign firms. CIPL provides a detailed outline of the evolution of China’s IP laws and reforms beginning in the 1980s. CIPL acknowledges that further steps to strengthen IPR enforcement should be taken and it addresses a number of U.S. concerns reflected in the Section 301 investigation. CIPL also submits that there is no direct evidence of adverse impacts caused by

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TIER on cross border technology transactions, and that Article 24 of TIER is consistent with free market standards of fairness.

Computing Technology Industry Association (CompTIA)

CompTIA is a non-profit trade association that represents the information technology industry. CompTIA submits that U.S. companies confront significant challenges when trying to sell IT products in China. China is implementing a number of high-level programs in an opaque fashion, which in some cases amount to discriminatory import substitution plans. CompTIA identifies a number of other protectionist policies that harm U.S. IT companies including the forced transfer of technology and IP to Chinese joint venture partners, weak enforcement against widespread IP theft, discrimination against foreign IP under the guise of national security, barriers imposed via China-specific standards, cloud computing and telecommunications market access barriers, and massive funding and subsidy programs for the development and acquisition of information and communications technologies.

Coalition of Service Industries (CSI)

CSI is the leading industry association devoted exclusively to helping a broad spectrum of America’s service businesses and workers compete in world markets. CSI submits that U.S. firms face increasingly difficult competitive circumstances in China, which uses opaque rules, licensing requirements, discriminatory practices, selective regulatory enforcement, and other barriers to support Chinese firms at the expense of foreign competition. CSI adds that in spite of various commitments by China’s government, the Chinese business environment continues to present significant challenges for U.S. services suppliers including in the form of localization requirements, equity caps that trigger technology transfer, and the forced submission of proprietary source code and encryption measures to Chinese officials. Affected sectors include data and technology, telecommunications, banking and securities, insurance, and express delivery.

Consumer Technology Association (CTA)

CTA represents entrepreneurs, technologists, and innovators operating within the consumer technology industry. Their membership includes companies from every facet of the consumer technology industry, including manufacturers, distributors, developers, retailers, and integrators. CTA states that its members have encountered a range of market barriers that have negatively impacted business operations in China. CTA members suffer from inadequate IPR protections in China, which contribute to rampant trademark counterfeiting and copyright piracy. Additionally, members have reported that technology transfer or IP transfer to Chinese parties is necessary in exchange for market access. CTA acknowledges that it is unaware of official laws “on the books” that require technology transfer, it reports that officials pressure foreign companies to transfer technology through oral communications to limit the creation of written evidence. CTA adds that “secure and controllable” standards discriminate against foreign technology; and although CTA acknowledges that some “secure and controllable” laws have been repealed, it submits that others still are simply re-named or re-implemented at the provincial or local levels. CTA states that it has received “numerous” reports of individuals

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with ties to the Chinese government who have hacked U.S. companies’ computer networks to steal proprietary data and IP with the intent of assisting Chinese industry.

Dais Analytic Corporation (Dais)

Dais creates nanotechnology-based applications for heating and cooling, water treatment, and energy storage. It commends China for improvements in IPR protections and enforcement, but identifies key areas for improvement, including IPR protections embodied in employment agreements and the need for public disclosure of all rules and regulations governing joint ventures. Dais explains that a potential Chinese joint venture partner cited the requirements JV rules and regulations that were not clearly and publicly outlined to pressure Dais to disclose its sensitive IP, which the Chinese company used improperly.

DHH Washington DC Law Office (DHH)

DHH provided comments in writing and at the hearing, and is the Washington, D.C. branch of the Beijing DHH law firm, which focuses primarily on servicing U.S. and Chinese clients on international trade matters and cross-border investment. DHH provides background on provision of China’s patent, copyright, and trademark laws, and notes the creation of specialized intellectual property courts in China. DHH asserts that Chinese practices related to tech transfer, IP protections, and innovation are not unreasonable or discriminatory and do not burden or restrict U.S. commerce. DHH submits that IP protections have significantly improved over the last few decades. DHH also contends that Chinese acquisitions of U.S. companies are market driven and are not directed by the Chinese government.

International Association of Machinists and Aerospace Workers, (IAM) AFL-CIO

IAM, which provided comments in writing and at the hearing, represents several hundred thousand active and retired workers throughout North America. IAM contends that the U.S. transfer of technology to China has negatively affected U.S. aerospace workers. China has relied on transferred production and other technology from Western companies to develop its domestic aerospace industry, and in the process, China has pitted Western competitors against one another for access to China’s growing aviation market. This dynamic negatively impacts the U.S. industrial base in different, but related ways, including the loss of jobs and skills associated with the transferred technology and production, additional job losses occurring as China uses transferred technologies to develop its own aerospace companies that will compete directly with U.S. aerospace firms and their suppliers, and job losses in technological production.

Commission on the Theft of Intellectual Property (IP Commission)

The IP Commission provided comments in writing and at the hearing, and is an independent and bipartisan initiative of American leaders in both the private and public sectors formed in 2012 to document and assess the causes, scale, and dimensions of international intellectual property theft. The IP Commission finds China to be the worst infringer of American IP, stemming primarily from Chinese policies and laws. While the IP Commission identifies recent improvements including specialized IP courts and a new IP enforcement “Action Plan,” IP

8

Commission data and other studies show a strong link between China’s stated industrial priorities and IP theft.

Additionally, the Commission cites examples of “brazen” Chinese attempts to steal American intellectual property, including the targeting of American industrial tradeshows to elicit sensitive information from firm representatives; the systematic tracking of the National Science Foundation grantees and research of scientists at universities across the nation; the attempted theft of Medrobotics intellectual property; the theft and attempted sale of IBM’s source code by a former IBM software engineer to China’s National Health and Family Planning Commission; the attempted acquisition of U.S. nuclear secrets from the Tennessee Valley Authority by a Chinese national and China Nuclear Power, an SOE; and the hacking of the computer networks of major U.S. defense contractors resulting in the theft of sensitive military and export controlled data by a Chinese national. In the view of the IP Commission, these examples collectively suggest rampant Chinese theft of American IP and sensitive information.

The Commission indicates that China effectuates forced technology transfer and theft including via industrial espionage, conditioning market access on technology transfer, tactical employment of vague regulations and laws to pressure U.S. firms into transferring their IP to avoid litigation, and localization requirements that force U.S. firms to house sensitive data on the Chinese mainland. According to the IP Commission, these practices inflict significant damage to every sector of the U.S. economy. While precise quantification of these damages is difficult, the Commission draws on a variety of data sources, proxies, and economic models to estimate that Chinese theft of American IP currently costs between $225 billion and $600 billion annually.

Information Technology Industry Council (ITI)

ITI is a policy and advocacy organization for innovation companies. ITI submits that China is a crucial, yet difficult market for companies in the technology sector. ITI points to restrictions on cross-border data flows, requirements for disclosure of IP, and discrimination against U.S. cloud services providers as creating significant negative impacts on U.S. technology companies. ITI adds that the Cybersecurity Law, along with subsequent guidance and regulations, is particularly problematic for U.S. technology companies. In particular, ITI states that firms in the cloud services industry may be forced to transfer valuable IP, surrender use of their brand names, and hand over operation and control of their businesses to Chinese companies in order to participate in the Chinese market. ITI provides that initiation of a JV may be valuable under certain circumstances, but that JV requirements in China are problematic when required and when the Chinese partner’s control over the JV is non-negotiable. ITI raises concerns over Chinese standard setting that is inconsistent with pre-established international standards, along with “secure and controllable” standards that discriminate against foreign technologies.

Information Technology & Innovation Foundation (ITIF)

ITIF provided comments in writing and at the hearing, and submits that China has systematically ignored the spirit—and often the letter—of its commitments under its WTO obligations. According to ITIF, in China’s quest to become a global innovation leader, it assimilates foreign technologies through tech transfer inducements, mandates joint ventures, and

9

conditions market access in exchange for transfer of important IP. ITIF further submits that the Chinese state directs M&A and FDI activity to target and acquire foreign enterprises with leading technologies in key industrial sectors, ranging from semiconductors to manufacturing. ITIF adds that these acquisitions and investment in foreign companies are often orchestrated by SOEs to serve strategic state goals. ITIF states that Chinese acquisitions are complemented by aggressive cyber-theft programs to steal key foreign technologies and knowledge. ITIF provides that together, these mercantilist policies pose a direct and existential threat to the U.S. advanced technology industry as a whole, and have caused an estimated 3.4 million American job losses from 2001 to 2015.

Scott Kennedy, Center for Strategic & International Studies

Scott Kennedy commented in writing and at the hearing, and is the Deputy Director, Freeman Chair in China Studies and the Director for the Project on Chinese Business and Political Economy at CSIS. In his submission, Kennedy stresses the widespread impact that Chinese IP policies and practices have on the structure of supply chains and the health of business models. China’s broad industrial policy is to drive its economy up the value-added chain and toward advanced technologies. To effectuate these industrial goals, China has developed policies that foster technological creation and innovation, and encourage foreign acquisitions through both cooperative and coercive means. While Mr. Kennedy acknowledges that unilateral penalties may be appropriate, he maintains that any action undertaken by the United States should be accompanied by: 1) long-term engagement with stakeholders in China; 2) support for international fora like the WTO, that develop IP standards and adjudicate disputes; 3) collaboration with U.S. allies and other nations harmed by Chinese practices; and 4) strengthening of the legal, educational, and commercial environment for IP protection and development within the United States.

Dr. Catherine Lin-Hendel

Dr. Lin-Hendel is a small business owner who has experienced patent infringement by Chinese SOEs. Dr. Lin-Hendel submits that the value of her intellectual property which has been stolen is upwards of hundreds of millions of dollars. She further states that all of the infringing entities’ websites—which utilize her intellectual property—are accessible from the United States. Dr. Lin-Hendel also states that she has attempted to resolve the dispute with the infringing entities, but has been unable to do so in China. In addition to her written submission, Dr. Lin-Hendel provides a number of letters, emails, and tables outlining her various patents which have been infringed.

The Los Angeles Area Chamber of Commerce (LACC)

LACC is a business association representing companies in the greater Los Angeles area. LACC recommends that the USTR drop the 301 investigation, and instead address IP concerns in a “more precise and effective” manner that will not negatively affect the positive aspects of the U.S. relationship with China.

James Lewis, Center for Strategic and International Studies

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CSIS is a bipartisan, non-profit policy research organization. James Lewis submits on behalf of CSIS that the central issue with respect to the 301 investigation is not IP theft, but the unfair treatment of U.S. companies in China. Mr. Lewis outlines the range of policy tools utilized by the Chinese government to build “national champions” and drive economic growth. These include the licit and illicit acquisition of foreign technologies, generous subsidies and non- tariff barriers, abuse of power by the Chinese government to extract concessions or block foreign competition in the Chinese market, forcible coproduction policies, and IP theft and cyber espionage. According to Mr. Lewis, IP theft and cyber-espionage are of particular concern because they play an important role in the acquisition of technologies necessary to drive the broader Chinese industrial policy. Additionally, Mr. Lewis provides that many companies have been complacent in pushing back against illicit Chinese activity for fear of retribution; and many do not believe the U.S. will take action to support them against Chinese retaliation.

Motor & Equipment Manufacturers Association (MEMA)

MEMA represents 1,000 vehicle suppliers that manufacture and remanufacture new original equipment and aftermarket components and systems for use in passenger cars and heavy trucks. MEMA submits that China is a large and important trading partner for its member companies but that the China market remains a challenge for motor vehicle suppliers. MEMA states that policies and practices that place IPR at risk include technology localization requirements stemming from with government industrial planning; a pending ban on the use of Virtual Private Networks; China’s cybersecurity laws; its system of duties and value added taxes that is increase usage of counterfeit products; and the inadequate enforcement of IP laws.

Michelman

Michelman is a family-owned small business that develops and manufactures materials for coatings used in printing, food and medical packaging, advanced composite materials, and industrial manufacturing. Michelman states that the IPR landscape in China has improved, and that violations of IP laws in China no longer take place with impunity. Michelman adds that, a number of challenges remain in IP protection in China. In 2016, Michelman discovered that four Chinese companies were selling primer for digital printers with strikingly similar profiles to the primer that Michelman had sold in China for several years. After conducting an analysis of the primers, Michelman suspects that the products sold by the Chinese companies are in fact relabeled Michelman primers. At this stage, Michelman has only consulted with outside legal counsel, but believes that to take even low-level action (e.g. a cease and desist letter) against the suspected companies could result in crippling retaliatory legal action.

National Association of Manufacturers (NAM)

NAM is the largest manufacturing association in the United States, representing more than 14,000 businesses of all sizes in every industrial sector and in all 50 states. NAM submits that the Chinese market is a consistent trouble spot for U.S. manufacturers, as they face a range of market-distorting and harmful industrial policies. These including investment restrictions, licensing and approval processes, localization requirements, measures that encourage technology

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transfer and restrict cross-border data flows, weaknesses in trade secrets protections, and policies and enforcement practices in IP-related areas such as standards-setting and competition law.

National Foreign Trade Council (NFTC)

NFTC represents more than 200 companies, with membership spanning the U.S. economy. NFTC states that overall IP landscape in China is improved, but that foreign firms and investors continue to face innovation-related difficulties in China. NFTC outlines challenges that disadvantage foreign firms including the indigenous innovation product accreditation system, measures that preclude U.S. companies from offering cloud services in China except by transferring valuable IP and control of operations to Chinese companies, poor trade secrets protections, disclosure requirements in standards creating processes, technology licensing measures, and others.

Congressman Bill Pascrell

Congressman Pascrell is the Ranking Member of the House of Representatives Ways and Means Subcommittee on Trade. He expresses the concern that a number of Chinese policies and practices diminish IP rights in China, including burdensome approval requirements for the import and export of clinical investigational materials, and discrimination against innovators lacking localized manufacturing capacities. Congressman Pascrell calls on the Chinese Food and Drug Administration to establish an a patent dispute resolution mechanism prior to the marketing of generic competition and spotlights increasing sales of falsified and counterfeit medicines in China that not only violate intellectual property rights but pose health and safety risks.

Pharmaceutical Research and Manufacturers of America (PhRMA)

PhRMA represents companies that invent, manufacture, and distribute valuable medicines globally. In its submission, PhRMA states that the pharmaceuticals industry holds longstanding concerns over lack of regulatory data protection, ineffective patent enforcement, and inconsistent patent examination guidelines. PhRMA outlines a series of proposed Chinese policies and reforms in regulatory data protection, patent enforcement, and patent examination that may address its member companies’ longstanding concerns. It contends that continued engagement by the U.S. and other stakeholders will help ensure the full implementation of these necessary reforms.

Rhodium Group

Rhodium is an economic research firm that combines policy experience, quantitative economic tools and on-the-ground research to analyze disruptive global trends. Rhodium outlines key findings from its long-term study of Chinese FDI in the United States. Rhodium notes that Chinese investment has significantly increased in the U.S., and has spread to all sectors of the U.S. economy, and it adds that while data do not support any definitive conclusions about causality between industrial policy and Chinese investment patterns in general, the relationship between industrial policy and targeted investment in individual sectors is readily apparent. Rhodium cites the example of the semiconductor industry, where both

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private investors and Chinese government funds have embarked on an unprecedented buying spree of assets along the semiconductor production chain in Asia, Europe, and North America. Rhodium also states that further analysis of drivers of Chinese FDI must be undertaken to better understand the relationship between the recent and extraordinary deployment of state financing with “traditional” FDI transactions.

Semiconductor Industry Association (SIA)

SIA represents the U.S. semiconductor industry, which is one of America’s top export industries. SIA asserts that China pressures U.S. semiconductor companies to develop their IP within China, or transfer their IP to Chinese entities. This practice has long concerned U.S. firms across sectors, and has continued to plague the semiconductor industry in spite of a decade of dialogue on this issue. SIA provides that China has made progress in conforming to the rules- based trading system since its WTO accession, however SIA’s member companies continue to experience challenges in China. SIA states that Chinese state directed subsidies in the form of investment funds, credit lines, and grants target companies and technologies at all levels of the semiconductor development and fabrication lifecycle. SIA adds that semiconductor companies face pressure to disclose or transfer their IP. This pressure is exhibited in a variety of laws, rules, and policies that may induce or force the localization of semiconductor design or manufacturing processes to achieve compliance and induce technology transfer as a condition of market access. SIA points to further challenges semiconductor firms have experienced, including secure and controllable requirements, the imposition of non-market terms in licensing and technology contracts, widespread counterfeiting, and the theft or misappropriation of trade secrets and other IP.

Skadden, Arps, Slate, Meagher & Flom, LLP (Skadden)

Skadden’s submission is on behalf of a client that has operated in China and has suffered from intellectual property theft. The theft caused a loss of millions of dollars of sales, market share, good will, and reputation. The submission contains extensive business confidential information and thus has received confidential treatment.

SolarWorld

SolarWorld submitted comments in writing and at the hearing. SolarWorld is one of a group of U.S. entities targeted by five Chinese military hackers in May 2014. SolarWorld submits that the Chinese government-backed theft of its intellectual property inflicted a particularly acute injury to the company, along with other U.S. solar manufacturers. SolarWorld provides that government-subsidized Chinese solar cells and panels that benefitted from the stolen trade secrets have flooded the U.S. market since 2012. According to SolarWorld, this has driven nearly 30 U.S. manufacturing firms out of business and has left the U.S. solar manufacturing industry on the brink of collapse. SolarWorld adds that the DOJ indictment against Chinese military hackers outlines the scope of the hack, along with the degree of involvement of Chinese SOEs, and the orchestrated timing of the hack with the dumping of solar panels into the U.S. market.

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Stewart and Stewart

Terence P. Stewart is the managing partner of Stewart and Stewart, a firm that has represented various U.S. manufacturing and agricultural industries in trade proceedings and negotiations. Stewart submits that the United States should be deeply concerned about China’s laws, regulations, and practices that distort trade flows and restrict foreign technology leaders, leading to unsustainable trade imbalances. Stewart describes industries that have been subject to technology transfer requirements, including in the automotive, semiconductor, and high speed rail sectors. Technology transfer requirements are imposed on firms in these industries through forced joint venture requirements and the imposition of technology licensing terms. Stewart notes the elimination of explicit technology transfer requirements in the Chinese automotive sector, but submits that subsequently enacted policies achieve technology transfer using less explicit means. Stewart provides a detailed outline of China’s WTO accession obligations, and reiterates concerns laid out in previous USTR reports on China.

Telecommunications Industry Association (TIA)

TIA represents approximately 250 manufacturers and suppliers of high-tech telecommunications networks and services in the U.S. and around the world. TIA members are concerned over China’s growing slate of security rules that disadvantage U.S. exporters. In its submission, TIA outlines specific policies and their attendant authorizing legislation,that are harmful to its members. These include: security testing of ICT products by the Chinese government as a requirement for market entry; equity caps and operational restrictions on cloud computing; restrictions on cross-border data flows; standards-setting approaches that depart from global norms; and the implementation of its competition policy. TIA adds that China is increasingly excluding foreign ICT equipment from many Chinese information networks in a variety of industries.

US-China Business Council (USCBC)

USCBC, which testified at the hearing, represents 200 American companies engaged in business across all industries and sectors in China. In its submission, USCBC references a number of surveys it conducted with its member companies that demonstrate significant concerns over technology transfer and IP protections in China. USBC firms report slow improvement in Chinese IP protections, and many also face acute tech transfer pressure.
USCBC firms view China’s IP protections as slowly improving. To effectuate tech transfer, USCBC firms cited the use of opaque and discretionary administrative approval processes, mandatory joint venture requirements, foreign equity limitations, discriminatory government procurement programs, and preferences for localization and domestic IP. USCBC adds that U.S. companies seeking to operate in China face an unbalanced negotiating environment. Although negotiations involving tech transfer or other equity restrictions are generally part of normal business negotiations, USCBC states that Chinese companies have an inherently stronger position relative to their foreign negotiating partners. USCBC recommends that the U.S. should pursue improved IP protections for American firms through reforms of harmful Chinese policies, but urges the USTR to avoid protectionism and seek reforms consistent with market-driven principles.

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U.S. Chamber of Commerce

The U.S. Chamber is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, in all sectors and regions, as well as state and local chambers and industry associations. The Chamber submits that insufficient IP protections is consistently one of the top regulatory challenges facing Chamber members. The Chamber outlines a number of core elements of China’s regulatory regime that are both restrictive and burden U.S. companies. These include: equity caps that create investment barriers; state sponsored acquisitions of R&D intensive products; administrative licensing procedures which enables the state to influence negotiations between Chinese and foreign companies, resulting in non-market based terms; discriminatory technology licensing policies; discriminatory standards- setting practices; forced security reviews that expose source code and other sensitive IP; and localization requirements that discriminate against foreign companies and make IP vulnerable to exposure. The Chamber further emphasizes that there is a fundamentally asymmetric playing field, where foreign companies face immensely restrictive policies and barriers when trying to operate in China, while Chinese companies face few to no reciprocal barriers when operating in global markets.

United States Council for International Business (USCIB)

USCIB members include top U.S. based global companies and professional services firms from every sector of the economy, with operations in every region of the world. USCIB identifies a range of Chinese government policies and practices that disadvantage U.S. firms relative to their Chinese competitors. Specifically, USCIB submits that China is utilizing its Anti-Monopoly Law in a discriminatory manner to target foreign companies’ intellectual property, and as a policy tool to support its national industrial policy objectives. The discriminatory application of this law is aided by procedural inadequacies that make it difficult for companies to mount an effective defense. USCIB additionally points to FDI limitations and joint venture requirements in a number of sectors, which limit competition and encourage the transfer of technology to Chinese companies. USCIB also describes how the Cybersecurity Law and related measures disadvantage U.S. companies in the Chinese market.

United States Steel Corporation (U.S. Steel)

U.S. Steel asserts that the Chinese government has been conducting cyber-theft operations in the United States against American companies for years and that U.S. Steel was the subject of Chinese cyber-hacking attacks on the company’s network, and another attack involving phishing that resulted in the exfiltration and exploitation of its confidential business information. While U.S. Steel notes that the United States indicted five Chinese military officials for computer hacking and economic espionage in connection with the hacks of U.S. Steel and others, it states that no further action was taken on behalf of the victims. U.S. Steel recommends that the scope of the investigation include how to improve procedures and perhaps trade laws such that victims of cyber-theft can obtain redress.

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Wiley Rein, LLP

Wiley Rein is a law firm based in Washington, D.C. Wiley submits that a web of industrial policies is designed to absorb, assimilate, and re-innovate foreign technology and IP to help Chinese firms gain a global advantage across a broad spectrum of industries. Wiley outlines a variety of Chinese policies designed to provide competitive advantages to Chinese firms, including via industrial policy and state support for technology acquisitions, overbroad national security laws and regulations; state-supported theft of trade secrets and other IP, and biased enforcement of the competition law. Wiley concludes that the Chinese government engages in a wide variety of unreasonable and discriminatory policies and practices that significantly burden U.S. commerce by causing U.S. companies to suffer direct harm. Wiley submits that these policies and practices ultimately inhibit companies’ ability to invest in future growth and innovation.

YANG Gouhua

Yang Gouhua is a Professor of Law at Tsinghua University in Beijing, China. Prof. Yang submits that the transfer of technology to a Chinese enterprise, and the terms of those transfers are a product of voluntary agreements undertaken by the parties. He further asserts that there is no external intervention which forcibly pressures firms to transfer technology. Prof. Yang also states that non-market based licensing schemes merely safeguard the legitimate rights and interests of licensees, who he asserts hold a weak position in international technology transfer negotiations. Prof. Yang also submits that Chinese acquisitions in the United States are normal commercial activities not subject to the central government’s direction, and that both the United States and China should work to strengthen cooperation to combat cybercrime.

Stephen Zirschky

Stephen Zirschky is an attorney with over 30 years of experience working in-house in multinational corporations, and has been engaged in extensive business transactions with Chinese companies since 1994. He states that there is a clear system of discretionary administrative approval processes, along with other restrictions, adopted by China that pressure transfer of IP to Chinese companies and/or SOEs. Mr. Zirschky states that often the language in Chinese licensing and business registration forms are unclear on technology transfer requirements, but officials within regional Chinese centers clarify in person that transfer of technology is expected. Subsequent to the induced technology transfer, governmental agencies or SOEs obtain the technology “for review”, and U.S. companies then discover their product has been copied and sold by different Chinese companies. Mr. Zirschky explains that many companies do not come forward to comment on this practice ou

 

t of fear that they will lose access to the Chinese market.

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APPENDIX D

2017 Catalogue Guiding Foreign Investment “Restricted” Category Industries

2017 Catalogue Guiding Foreign Investment “Restricted” Category Industries

Sector

Chinese co-investor Chinese investor Specific foreign ownership caps (if specified) and other req.? control req.? restrictions

1

production of seeds

XX

Selection and breeding of new types of agricultural goods, and

Agriculture, Forestry, Animal Husbandry, Fishery and Related Industries

Mining

2 Exploration and development of oil and natural gas (including coalbed X methane, oil shale, oil sands and shale gas) (CJVs/EJVs only)

3 Surveying and mining of special and rare coal X X

4 Surveying and mining of graphite

Manufacturing

5 Publications printing X X

6 Rare earth smelting, separation, and tungsten smelting X (CJVs/EJVs only)

7 Manufacture of whole vehicles and special vehicles Chinese parties shall hold no less than 50% of shares. Each foreign party can have max. 2 JVs manufacturing the same type of

X vehicles (passenger/ commercial/ motorcycle). If foreign co.’s Chinese partner merges with another domestic auto manufacturer,

foreign company not bound by the “2 JV” limit

8 Design, manufacture and repair of ships (including subparts) X X

9

and above helicopter design and manufacturing, ground, surface effect
of aircraft manufacturing and unmanned aerial vehicles, manufacture X X of aircraft for ground or water surface effects; design and manufacture
of unmanned aerial vehicle and aerostatics

Trunk, regional aircraft design, manufacturing and maintenance, 3-ton

10 General aircraft design, manufacture, and maintenance X (CJVs/EJVs only)

11 Production of satellite television receiving and broadcasting equipment and key parts

Electricity, Gas, and Water Production and Supplies

12 Construction and operation of nuclear power plants X X

13 Construction and operation of electricity grids X X

14

networks in cities with a population of more than 500,000

XX

Construction and operation of gas, heat supply, and water drainage

Transportation, Shipping, Storage, and Postal Industries

15

Construction and operation of main line railroad networks

X

X

16 Passenger train transportation companies X X

17 Domestic water transport companies / international maritime transport companies

X
(Int’l maritime transport cos. are CJVs/EJVs only)

X (Domestic water transport cos.)

18 Construction and operation of civil airports X X

19 Public air transport company X X Foreign and affiliated enterprise investment not to exceed 25% and the legal representative shall have Chinese nationality

20

related general aviation companies fisheries-related general X (Other general aviation cos. must be aviation cos.)

JVs)

General aviation companies – agricultural, forestry, and fisheries-

X (Ag. / forestry /

Information Transmission, Software, and IT Services
21 Telecommunications companies Value-added telecom services: foreign investment ratio no more X X than 50%, except e-commerce; basic telecom business: Chinese

majority control

Wholesale and Retail Trade
  1. 22   Procurement and wholesale of rice, wheat, and corn
  2. 23  Shipping agents
  3. 24  Construction and operation of gas stations

X

X

X

Retail operations over 30 chain stores established by the same
X foreign investor that sell different types and brands from multiple

Finance and Insurance 25 Banks

Individual Chinese commercial banks: no one foreign financial institution or the affiliates it controls or jointly controls as a founder or a strategic investor shall own more than 20%; no combination of foreign financial institutions or the affiliates they control or jointly control as a founder or strategic investor shall own more than 25%

XX

  1. 26  Insurance companies
  2. 27  Securities companies
  3. 28   Future trading companies X

suppliers must have majority Chinese control

Foreign stake in life insurance companies must not exceed 50%

X

X

X

X

Leasing and Business Services 29 Market research

X (Radio/TV listener/viewership market research must be Chinese majority controlled)

X (Generally CJVs/EJVs only)

Scientific Research, Technology Services, and Geological Survey Industries 30 Survey and mapping companiesXXEducation 31 Pre-school, general, high school, and higher education institutions – X (CJVs only) X Pre-schools, ordinary senior high schools, and higher learning institutions are limited to Chinese parties playing the leading roleHealthcare and Social Work Services 32 Medical institutions X (CJVs/EJVs only)Cultural, Sports, and Entertainment Companies 33 Radio and television program production and film production X (CJVs only)34 Construction and management of movie theaters X X35 Performance agency companies X X

Source: Catalogue of Industries for Guiding Foreign Investment (2017Amendment) (NDRC and

MOFCOM, Order No. 4, issued June 28, 2017).

Note that the above list reflects all the industries in the “restricted” category. Not all of “restricted” industries are subject to JV requirements. Some “restricted” industries are also included in the “encouraged” list

Company’s legal representative must have Chinese nationally

 

 

APPENDIX E

Appendix E: Statement of the Office of IP and Industry Research Alliances (IPIRA) at the University of California, Berkeley

The Office of IP and Industry Research Alliances (IPIRA) at the University of California, Berkeley, licenses its inventions and other IP rights around the world for various purposes, including humanitarian purposes. Companies in China sometimes inform IPIRA that TIER imposes mandatory terms to all entities licensing or importing technologies into China. For the following three reasons the Regents of the University of California (through UC Berkeley) is unable to accept the following terms:

(1) TIER requires the University (the licensor) to guarantee that the University’s IP rights do not infringe other IP rights, including those that are owned by third parties. It is not feasible for the University to make this determination. It is the company’s own due diligence to perform. Even if the University were to perform a relevant search and analysis in an attempt to meet the requirement, the search and analysis result would immediately become obsolete due to the issuance of patents and/or creation of new IP rights anywhere around the world. In a typical license the search and analysis, i.e., a “freedom to operate analysis” and/or an “infringement analysis” is a duty that falls to the licensee (based on the products it intends to commercialize), not the licensor. The University’s license states that it makes no representation that practice of the licensed rights do not infringe other IP rights.

(2) TIER requires the University to guarantee or warrant that a given IP right is suitable for, or must work for, a particular commercial purpose. This requirement goes beyond what the University can accept or state in an IP license. Instead, the University in all of its licensing transactions states the opposite, that the IP rights are provided without warranty or guarantee or suitability for a particular commercial purpose. That is, put simply, the provided rights are merely IP rights that were invented in the course of performing research, not a product.

(3) TIER’s mandatory provision on improvements is similarly unacceptable to the University. The University always reserves the right to practice the licensed invention for its own educational and research purposes. It also extends that right to others in the nonprofit sector. The University needs the freedom to continue to practice the invention and to make improvements for and on its own behalf (and for the global nonprofit research community). If the University were to agree on the future disposition of yet-to-be invented improvements, that agreement could stifle research, academic freedom, and could sweep in the rights of future inventors (or authors of copyrights) without their knowledge or consent. Typical university IP licenses limit the scope to a stated priority patent application and claims in continuing (and/or corresponding foreign patents) that are entitled to the priority filing date of that application. Since the University is unable to accept the TIER terms stated above, in order to mitigate and minimize risks, the University has to identify a licensee that can accept standard terms in these areas – for example, a U.S. affiliate of a Chinese company. The University has been informed that Chinese IP law is in a state of flux and that the former demands may not be required in every license in every situation. The University is submitting the items above, with the hope that changes to Chinese IP law will give Chinese licensees more latitude in obtaining IP rights that arise from academic research.