Despite US-China trade pact, Washington ramps up regulatory defenses against Beijing

12 Feb 2020 12:45 pm by Kat Lucero

A new US trade accord with China won't mean the end of the Trump administration's attempts to constrain its trans-Pacific rival.

Only weeks after Chinese Vice Premier Liu Hue and US President Donald Trump affixed their names to the trade agreement in a January White House ceremony, the administration finalized rules that would strengthen the Department of Commerce's antisubsidy duty laws and Customs and Border Protection's authority to clamp down on the online sale of counterfeit goods.

New Treasury Department regulations that expand the national security review of the Committee for Foreign Investment in the US, also known as Cfius, will take effect this week.

As negotiators last year ironed out details in the agreement, Commerce and the Federal Communications Commission rolled out final rules expanding export bans on Chinese companies — including Chinese telecom giant Huawei, which faces persistent accusations of being a pawn of China's ruling Communist Party.

On the enforcement side, the Justice Department has ramped up efforts to confront national security threats posed by the Chinese government, including this week's charging of four military members over the Equifax data breach.

"The Equifax hack fits a disturbing and unacceptable pattern of state-sponsored computer intrusions and thefts by China and its citizens that have targeted personally identifiable information, trade secrets and other confidential information," Attorney General William Barr said.

The January trade accord, known as the phase-one agreement, was meant to mainly ease nearly two years of trade tensions between the world's two largest economies. It didn't address Washington's longstanding issues with Beijing, such as cyberespionage and unfair government subsidies to industries that heavily export to the US — despite those issues having prompted Trump to initiate the conflict via tariffs on billions of dollars' worth of Chinese imports.

White House officials say these issues will be covered in the next phase of negotiations, which may resume after the November election should Trump win his reelection bid.

Washington, however, has long been wary of Beijing's economic and military ambitions, which means the administration will continue to issue regulations to counter actions it sees as threats.

— Currency Rule —

Starting in April, Commerce will be able to assess the devaluation of a foreign currency as an unfair subsidy in trade remedy investigations thanks to a regulation finalized this month.

China will still be considered under the regulation, known as the currency rule, even though Treasury lifted the country's "currency manipulator" label just days before the two sides signed the January agreement.

"Two processes result from different statutes," Commerce said in a statement. "Accordingly, the absence of a particular determination by Treasury under its statutory framework regarding currency manipulation isn't legally inconsistent with a decision to countervail currency undervaluation."

US manufacturers that have petitioned Commerce to conduct trade remedy investigations championed for the rule when it was proposed last May. Critics, however, to continue to claim that the rule improperly gives Commerce authority in monetary policy, which is traditionally under Treasury's purview.

— Counterfeit imports —

Sellers on Amazon, Alibaba, eBay, Walmart.com and other e-commerce sites will be required to meet additional criteria to avoid being flagged by CBP as an importer of counterfeit goods under President Donald Trump's new executive order.

The president signed the order in January to hold e-commerce sites, carriers, hub facilities, international posts and customs brokers accountable for the online sale and distribution of counterfeit and pirated goods,

"Counterfeiting is the purest expression of intellectual property theft," Peter Navarro, White House trade policy director, said at a press briefing, linking the order to the IP protections set forth in the US-China trade agreement.

"The current situation is the ultimate whack-a-mole on steroids," Navarro said. "There's no way these counterfeit moles, operating offshore, can ever be whacked unless the Amazons and Alibabas and Shopifys of this world either voluntarily step up to the plate or are held fully accountable by the government."

— Cfius —

US law enforcement relies on Cfius to help crack down on questionable Chinese firms' attempts to access domestic companies' intellectual property and other trade secrets. In these attempts, Beijing is "exploiting American companies' openness for foreign investment and partnership," FBI Director Christopher Wray said last week.

"They're acquiring firms to gain ownership of what those firms have created," Wray said.

The same week Trump and Liu inked the trade agreement, Treasury finalized the new national security Cfius rules. The department proposed them last September as required by the 2018 Foreign Investment Risk Review Modernization Act, or FIRRMA.

The new rules would increase scrutiny of foreign firms whose potential stakes in US companies with access to critical technologies, infrastructure and sensitive data pose a security risk.

One rule also expands the Cfius review to a foreign entity's purchase of real estate near military facilities and other government buildings that house sensitive data.

Commerce has yet to define the Cfius export controls required by FIRRMA.

— Huawei, supply chains, entity list —

Huawei's access to the US market became a factor in trade discussions last year, but that didn't stop the FCC and Commerce from blacklisting the Chinese company.

In November, the commission approved rules that would ban domestic carriers from using agency subsidies to buy products or services from companies on the agency's new blacklist, which also covered ZTE, another Chinese telecom company.

A few days later, Commerce came out with a broader proposal that would establish procedures to identify and assess transactions that pose a risk to the information and communications technology supply chain. The rulemaking followed through on a May executive order that authorized the department — under the International Emergency Economic Powers Act and the National Emergencies Act — to mitigate the supply chain risks.

On the same day Trump signed the supply chain executive order, Commerce blacklisted Huawei by requiring US businesses, seeking to conduct business with the company or its affiliates, to get special licenses that are often difficult to obtain.

Commerce granted temporary licenses to existing Huawei customers in remote areas to give them time to make other arrangements. The licenses will expire later this week, but it's not clear whether the department will extend them.

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