ITIF Wants Major Revision of Section 337 to Wield Against Chinese Non-Market Practices

The Information Technology and Innovation Foundation says the Section 301 tariffs on Chinese imports have been fruitless, and antidumping and countervailing duty laws also are inadequate to counter the wide variety of abuses from China -- industrial espionage, forced technology transfer, discrimination against foreign sales in China, as well as enormous subsidies. "It is time for the U.S. government, ideally working with allies, to craft and implement a new set of trade defense instruments," ITIF Founder Robert Atkinson wrote in a white paper released Nov. 21.

Atkinson said ramped-up export controls, investment screening and growing domestic industrial policy also are not effective to "counter China’s industrial predation."

So Atkinson proposes changes to Section 337 of the 1930 Tariff Act, so that the cases at the International Trade Commission no longer focus heavily on patent disputes, but rather stop the import of items such as commercial airplanes, Chinese rail cars or electric vehicles.

"Reforming Section 337 can change the game by making unfair trade practices less profitable: When China violates global rules or norms to benefit particular firms, they would be denied access to U.S. and (ideally) allied markets," he wrote.

With regard to commercial airplanes, Atkinson said that if the U.S. and its allies do not protect their domestic markets from COMAC, the Chinese aircraft builder, Airbus and Boeing will be diminished. (Boeing is the No. 1 exporter in America). "COMAC is economically illegitimate. Only massive government subsidies, forced technology transfer, and guarantees of domestic sales have enabled it. As such, allied nations should agree that they will not allow any of their domestic airlines to purchase COMAC planes," he wrote.

He said that patent cases that involve two U.S. firms or two foreign multinationals should move to federal court.

"One of the largest failings of Section 337 is it requires firms to bring cases," he wrote. "This is usually a financially costly undertaking, in which the odds of success are anything but assured."

He recommends that Congress rewrite the law so that the Commerce Department and Justice Department could bring cases under Section 337 that tackle "systematically unfair trade practices" in non-market economies. He said the International Trade Administration should have an assistant secretary for non-market economy analysis, to document the extent of unfair trade practices in non-market economies, and to work with DOJ to file Section 337 cases. "To do that, Commerce should hire staff fully proficient in Mandarin, with some based in China," he wrote.

He acknowledged: "Any reformed section 337 would need to adequately define 'unfair.' All nations engage in some kind of 'unfair' practices that give some or all of their exporting firms an advantage beyond what the firms could achieve acting legally on their own. Some free traders will argue that since all nations are 'sinners,' allied nations have no right to hold out mercantilist nations such as China for special treatment. In reality, it is the Chinese government that holds itself out for special treatment because of the unprecedented scope and size of its unfair practices -- and their difficulty in being adjudicated."

He said the ITC should no longer bar Section 337 relief where countervailing duties are also an issue. "CVD cases cannot cover practices such as IP theft, IP infringement, closed foreign markets, or threats of retribution from the government," he wrote. He said CVD also should be allowed within the Section 337 case.

Atkinson said that cases should not be limited to 15 months, and that complainants should not have to prove substantial injury to a domestic industry. "It should be irrelevant if the domestic company is harmed in the here and now. The point is that the unfair practices should not be rewarded, period," he wrote. "The other point is that all too often, especially in technologically complex industries, by the time harm is determined it is too late: The company has suffered irreversible decline in its competitive position."

He suggested that Congress should build in a rebuttable presumption that there are unfair trade practices by non-market, non-rule-of-law countries, but said that, unlike in the Uyghur Forced Labor Prevention Act, that should not lead immediately to an import ban. Instead, he said, it would shift the burden of proof to the Chinese firm. "In such instances, if U.S. companies or U.S. agencies bringing cases can show with a reasonable level of assurance that Chinese companies are unfairly benefiting from unfair trade policies and practices, and the relevant Chinese companies cannot definitively disprove the claims of unfair benefit, an USITC exclusion order would not be able to be overturned by the courts," he wrote.

Atkinson dismissed criticisms he expected to receive about his proposals, such as that it is protectionist, or that trade is a win-win. The only criticism he said is legitimate is the one that says "that it would lead China to retaliate against U.S. firms, in turn hurting U.S. workers and the U.S. national interest. The fact that most people know that this is a real risk should give pause to anyone who thinks that the Chinese government plays by the rules. While retaliation is a risk, it should be noted that China’s policies are inflicting tremendous damage on U.S. and allied firms already.

"The most effective way to address this issue is to work with allies to encourage and help them implement a similar program. Clearly, such a shared program would be in the interest of all allies that face Chinese economic predation against firms in their nation. Whether enough of a critical mass can be assembled remains to be seen. But we won’t know until we try."