Trump’s aid ready to turn up China heat over IP transfers

Washington • President Donald Trump is stepping up pressure on China over what the US perceives to be the theft of intellectual property (IP), opening a new front of trade friction even as the world’s largest economies try to work together to contain North Korea’s nuclear threat.

Trump will sign an executive memorandum today directing US Trade Representative (USTR) Robert Lighthizer (picture) to consider investigating China over its IP policies, especially the practice of forcing US companies operating in China to transfer technological know-how, administration officials said on Saturday on a conference call with reporters.

If China is found to be flouting the rules on US IP, the administration has a range of options, including imposing import tariffs, said the administration officials, who weren’t authorised to speak publicly about the  matter. If USTR moves forward, the investigation could take as long as  a year.

The move comes amid growing tension over the threat of North Korea using nuclear weapons, and a week after the US received China’s help in the United Nations (UN) Security Council to impose tougher economic sanctions on Pyongyang. Nikki Haley, the US ambassador to the UN, said at the time that she wanted to “personally thank” the Chinese delegation.

Chinese President Xi Jinping moved to calm nerves last Friday, telling the US president during a phone call that all sides should maintain restraint and avoid inflammatory comments. While the White House said the leaders reaffirmed their commitment to rid the Korean peninsula of nuclear weapons, Trump has previously criticised China for not reining in North Korea, and threatened trade measures if Xi fails to act.

The announcement expected today comes amid sharply escalating tensions, with Trump warning that US military options are “locked and loaded” if North Korean President Kim Jong-Un acts unwisely.

It further complicates the already taut US-China relationship, which took a frosty turn last month when officials from both nations couldn’t agree on a joint statement over economic issues after high-level talks in Washington.

“This action would represent a sharp escalation of pressure on China on two fronts — the China-US bilateral trade relationship, and China’s role in managing the volatile situation on the Korean peninsula,” said Eswar Prasad, a professor in the Dyson School at Cornell University, and a senior fellow at the Brookings Institution.

Still, Trump’s actions stop short of what some analysts had been expecting him to do on IP. Rather than launching straight into a probe, USTR will merely consider whether to begin an investigation under Section 301 of the 1974 Trade Act.

US officials also sought to downplay any link between the North Korea issue and the IP action, which they called a response to the long- standing irritant of China’s lack of respect for American IP.

Section 301 allows the president to impose tariffs on foreign products in response to unfair or discriminatory restrictions on American commerce. The provision has fallen into disuse since the mid-1990s after the creation of the World Trade Organisation (WTO).

The US could file a trade complaint on IP with the WTO or take action outside the WTO process, one administration official said.

“A joint action at the WTO with allies would be the strongest position for the US,” said Robert Holleyman, who was a deputy USTR under former President Barack Obama. “A unilateral action by the US will be challenged in the WTO by China”.

In a report to lawmakers released in July, the USTR accused China of engaging in “widespread infringing activity, including trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe”.

Earlier this year, an independent commission on US IP estimated that the annual cost to the US economy in counterfeit goods, pirated software, and theft of trade secrets from all sources exceeds US$225 billion (RM967.5 billion) and could be as  high as US$600 billion. China is the world’s principal IP infringer, the commission said. — Bloomberg