A new report recommends that Section 337 of the 1930 Tariff Act should be expanded to better address what many feel are China’s unfair trade practices when it comes to competition with domestic U.S. products.
The report argues that the hefty tariffs introduced on Chinese imports under Section 301 are not adequate. “[The tariffs] covered a wide array of products, some that presumably benefited much less, if at all, from unfair trade practices. Moreover, China responded by lowering the value of its currency, offsetting some of the tariff impact.”
The report goes on to say that a more effective way to implement a trade defense strategy would be for Congress to reform Section 337 of the Tariff Act, which prohibits “unfair methods of competition and unfair acts in the importation of articles into the United States,” if the effect is to destroy or substantially injure a U.S. industry, or where the acts relate to importation of articles infringing U.S. patents, copyrights, trademarks, or registered mask works.
Section 337 allows the U.S. International Trade Commission (USITC) to bar imports when domestic industries suffer harm due to unfair competition.
The report, which was published by the Information Technology & Innovation Foundation (ITIF), states that reforming Section 337 will “change the game” by making unfair trade practices less profitable.
The report states: “The last decade has seen a growing consensus that China’s economic, trade, and technology policies and practices pose a significant threat to U.S. economic and national security. For the most part, the debate is no longer about whether China poses such a threat, whether its practices affecting trade and investment are mostly legitimate, or whether China is getting in line with its World Trade Organization (WTO) obligations. The new Washington consensus is that China is a threat, Chinese government trade policy actions are mostly unfair and predatory, and it is moving away, rather than toward, its WTO obligations.”
Key takeaways of the massive 15,000+ word report include:
- Existing strategies to counter China’s industrial predation—including trying to make it change its policies, boosting U.S. competitiveness, or limiting China’s access to U.S. resources—are not viable or likely to be effective enough on their own.
- Reforming Section 337 can make 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 as well.
- Over the last several decades, Section 337 has been largely used to adjudicate patent disputes, often among U.S. multinationals, but it can and should be used to address other trade practices from non-market, non-rule-of-law nations.
- Congress should reform Section 337 to, among other things, make it easier to impose exclusion orders against imports from companies systematically supported by unfair trade practices in non-market, non-rule-of-law economies such as China.
- Congress should allow the Commerce Department to bring cases before USITC and provide more resources to thoroughly document and adjudicate Chinese unfair practices, and the administration should work with allies to establish similar programs.
- The reforms will not only send a clear message of support for free trade, but also enable allied-nation firms to compete more effectively with Chinese government-backed champions.
The ITIF’s recommendations for how to reform Section 337 to make it more effective are as follows:
- Beef up the unfair trade provisions component of the Section 337 statute and increase the scope of unfair trade practices that are eligible for Section 337 investigations
- Eliminate the requirement for injury in unfair trade practice claims against non-market countries when the unfair trade actions are pervasive and large
- Make it clear that any agency of government – not just companies – can file a complaint to initiate a Section 337 unfair trade investigation against innovation mercantilists from non-market, non-rule-of-law economies
- Increase funding for the departments of Commerce and Justice to file Section 337 unfair trade practices cases with USITC and increase its funding to handle these cases
- Amend Section 337 to allow broader exclusionary orders to classes of products, including digital products, which would update the current policy of having a different standard for unfairness or IP violations to tangible products than for intangible (often digital) products
- Make the use of Section 337 for IP cases between U.S. and allied multinational firms more difficult
- Reduce the legal standard for winning cases against firms in non-market, non-rule-of-law economies that benefit from unfair trade practices
- Appoint USITC commissioners who are committed to supporting 337 unfair trade practices and see all forms of innovation mercantilism as an unfair trade practice
- Narrow public interests standards for consideration before issuing an exclusion order
- Amend Section 337 to allow cases to go forward in USITC even if they are eligible under dumping or countervailing duty cases in the Department of Commerce
- Provide a tax credit to companies for the costs of bringing Section 337 unfair trade practices cases against non-market, non-rule-of-law economies
- Increase CBP funding to implement exclusion orders on unfair trade cases affecting non-market economies.
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