Intellectual property protection is a key element in resolving the trade dispute between the U.S. and China, however, remedy of the underlying issues remain undefined.

While the recent government shutdown took some focus away from trade war headlines over the last month, the buzz is back after President Trump announced a postponement to the March 1 deadline due to “substantial progress” being made in trade talks with Chinese President, XI Jinping.

Yet many are left questioning whether a deal can be reached, and if the U.S. President will act on the White House’s warning to raise tariff rates if one is not. The proposed tariff hike originally slated for January 1 was set to increase rates from 10 to 25 percent on $200 billion worth of Chinese goods.

The 90-day truce that followed saw a series of trade talks that included concessions made by the Chinese government to roll back most of their recent tariffs and pledge to increase purchases of American products. Among these concessions was a promise to rewrite laws that would better regulate the protection of foreign intellectual property (IP) and ban the forced transfer of foreign technology to Chinese business partners.

Special 301 Report 

The basis of contention for the retaliatory trade tariffs comes from the determination in the 2017 Section 301 Investigation – which verified claims that the actionable conduct by the Government of China was unreasonable or discriminatory and harmful to American IP rights and technology development.

In addition to the new 301 tariff provisions, and billions imposed in supplemental trade actions, another very important trade topic to consider is the expansion of the Section 321 informal de minimis value from $200 to $800 – implemented in March of 2016. This provision allows for the duty- and tax-free treatment of merchandise that falls under the $800 de minimis value, which opened the floodgates for low value shipments – including rising e-commerce transactions – to pass without entry into the U.S. market.

How does this relate to the Section 301 tariffs and IP protection?

Counterfeit merchandise 

It’s easy to glaze over the term intellectual property and lose sight of what it means for the American economy. Findings in the 2017 Special 301 Report suggest that, „an appreciable share of Chinese manufacturing may be dedicated to the production of counterfeit goods, as one estimate holds that counterfeits may account for over 12 percent of Chinese merchandise exports.“

Allowances under the Section 321 de minimis rule increase the probability of counterfeit goods entering the U.S. from China via e-commerce sales. China’s continued position on the United States Trade Representative’s Priority Watch List can be attributed to loose IP regulations and weak enforcement by the Chinese government that result in unfair trade acts favoring Chinese companies.

Following the increase to the Section 321 thresholds by the Trade Facilitation and Trade Enforcement Act of 2015, there has been a significant increase in e-commerce imports, spurring the Commercial Customs Operations Advisory Committee to form a dedicated working group focused on supporting the resulting challenges to the trade community. Additional enforcement activities have been outlined by the U.S. Government Accountability Office and “broadly” include:

  • Detecting imports of potentially IPR-infringing goods
  • Conducting special operations at U.S. ports
  • Engaging with international partners
  • And undertaking localized pilot programs or port-led initiatives by the U.S. Customs and Border Protection agency.

Non-government consumer advocates and industry watchdogs – like IPWatchdog.com and The Counterfeit Report® – have joined the fray to battle counterfeit products that plague the U.S. market. Joining the efforts of news media, organizations like these aim to educate consumers on better buying practices and aid manufacturers in detecting and eradicating fraudulent products.

Safety has become a major concern as many pharmaceuticals and medical devices fall under the de minimis value. Typically, knock-off designer apparel comes to the forefront when imagining counterfeit products, but falsified or substandard versions of prescription drugs are becoming a global pandemic and are putting many unsuspecting patients at risk with dangerous and deadly counterfeits.

The torrent of counterfeit products entering the market extends through all industries and often supplant the genuine article. These infringements of intellectual property rights through the illegal importation and distribution of counterfeit goods not only harms the U.S. economy, but can threaten the health and safety of U.S. consumers.

The recent extension to the 90-day reprieve has shown progress in the intense trade talks, but details of the emerging deal are still unclear. Negotiations are set to continue through an extensive series of meetings at various government levels as both leaders set to establish best practices that harmonize American-Chinese trade relations.

 

By Michelle Frennier, Director, Solutions Consulting in Sales at BluJay Solutions.

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