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  March 27th, 2018 | Written by

USTR Launches WTO Challenge Against China

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  • USTR: China is breaking WTO rules by denying US patent holders rights.
  • USTR: China discriminates against imported foreign technology.
  • USTR: Chinese policies hurt innovators in the US and worldwide.

The United States Trade Representative has filed a request for consultations with China at the World Trade Organization to address China’s allegedly discriminatory technology licensing requirements.

The request came a day after President Donald Trump announced he was taking measures against China under Section 301 of the Trade Act, which included imposing new tariffs and directing the USTR to pursue a case in the WTO to confront China over policies that result in unfair treatment for US companies and innovators trying to do business in China.

According to the USTR, China is breaking WTO rules by denying foreign patent holders, including US companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends. China also appears to be breaking WTO rules, according to the US case against it, by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology.

“These Chinese policies hurt innovators in the United States and worldwide by interfering with the ability of foreign technology holders to set market-based terms in licensing and other technology-related contracts,” said a USTR statement.

The US consultation request identifies alleged breaches by China of WTO rules, harming the intellectual property rights of US companies and innovators. The US claims under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) relate to China’s discrimination against foreign intellectual property rights holders (Article 3) and failure to ensure patent rights for foreign patent holders (Article 28).

Consultations are the first step in the WTO dispute settlement process.  If the United States and China are not able to reach a mutually agreed solution through consultations, the United States may request the establishment of a WTO dispute settlement panel to review the matter.

Following a memorandum from Trump on August 18, 2017, the US Trade Representative initiated an investigation under Section 301 of the Trade Act of 1974 into the government of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. Following an analysis by an interagency Section 301 committee, the USTR prepared findings showing that China uses discriminatory licensing requirements to transfer technologies from US companies to Chinese companies.

China’s measures of concern include the Regulations of the People’s Republic of China on the Administration of the Import and Export of Technologies and the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures. At the core of the complaint is the contention that China’s measures provide less favorable treatment of foreign entities than the comparable treatment of domestic Chinese entities under the Contract Law of the People’s Republic of China.