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This Week In Trade

National security threats posed by apps, semiconductors top Commerce's agenda

Posted: September 28, 2020

Commerce Department officials will be focused on national security concerns this week, defending restrictions issued earlier this month on two popular Chinese apps that have since been stayed by the courts -- and likely issuing export controls on a major Chinese semiconductor manufacturer.

And that’s not all for this busy week. Some highlights up top:

  • President Trump and Joe Biden will square off in the first of three debates on Tuesday. A broad range of issues -- including the president’s controversial trade agenda -- may come up, as moderator Chris Wallace has said the economy will be a focal point.
  • On the other side of the Atlantic, the European Union’s trade commissioner-nominee on Friday will face questions from Parliament’s International Trade Committee -- and, if history is any guide, the EU’s trade policy toward the U.S. will be a key part of the discussions.
  • In lieu of the World Trade Organization’s annual Public Forum,canceled because of the coronavirus pandemic, trade-oriented institutions this week are hosting “Geneva Trade Week,” a virtual event with policymakers and scholars to discuss pivotal global trade issues.

But to begin the week, all eyes will be focused on Commerce, which must respond to a preliminary injunction issued on Sunday blocking restrictions on TikTok, the popular video-sharing app owned by the Chinese company ByteDance. The case is emblematic of a broader trend for the administration, which often uses national security to justify curbs on U.S.-China trade and investment.

Earlier this month Commerce moved to prohibit some transactions on TikTok -- a prohibition that was set to take effect on Sunday after the department delayed the effective date one week due to what it called “positive developments.” The so-called “positive developments” -- almost certainly a reference to an announced deal that would allow U.S.-based Oracle and Walmart to obtain a 20 percent stake in TikTok, with Oracle responsible for securing personal data obtained by the app -- are being reviewed by the Chinese government, which this month issued regulations allowing it to reject the potential sale.

The administration, however, has vowed to fight the preliminary injunction blocking the TikTok restrictions. Commerce, in a Sept. 27 statement, said the Aug. 6 executive order issued by Trump labeling TikTok and Chinese messaging and electronic payment app WeChat national security threats was “fully consistent with the law and promotes legitimate national security interests. The Government will comply with the injunction and has taken immediate steps to do so, but intends to vigorously defend the E.O. and the Secretary’s implementation efforts from legal challenges.”

Commerce and TikTok lawyers must agree by Wednesday on a schedule to move forward with the TikTok’s legal challenge.

In a parallel case, WeChat successfully obtained a temporary preliminary injunction on Commerce’s Aug. 6 order. WeChat is due to file an opposition brief to Commerce’s order by Thursday. Commerce must file its response by Oct. 6 as the two sides prepare for an Oct. 15 virtual hearing.

In addition to TikTok and WeChat, Commerce has China’s state-supported Semiconductor Manufacturing International Corporation in its crosshairs. According to a Sept. 25 letter the Bureau of Industry and Security sent to U.S. companies, Commerce will mandate that U.S. businesses seek licenses from BIS to export to SMIC or any of its subsidiaries because, the department said, those materials could end up being used for Chinese military activities.

“BIS has determined that exports to SMIC or its subsidiaries … may pose an unacceptable risk of diversion to a military end use in the People’s Republic of China pending the U.S. government’s review of SMIC and its subsidiaries in relation to Section 744.21,” states the letter, obtained by Inside U.S. Trade. Commerce recently amended Section 744.12 to expand the definition of “military end user.”

Commerce is yet to officially announce restrictions on SMIC but has been considering adding it to the Entity List. SEMI, a global semiconductor manufacturers association of which SMIC is a member, earlier this month urged Commerce to consider the detrimental effects of such a designation to U.S. business.

China, as it has done in other cases where Chinese business interests are threatened by Commerce actions, suggested it could retaliate against the U.S. “As a principle, China firmly opposes the U.S. government's generalization of the concept of national security, violation of the principles of market economy and fair competition, violation of international economic and trade rules, and abuse of export controls and other restrictive measures to unreasonably suppress Chinese companies and undermine the normal international economic and trade order,” Foreign Ministry Spokesman Wang Wenbin told reporters on Monday. “China will continue to take necessary measures to safeguard the legitimate rights and interests of Chinese enterprises.”

Earlier this month Beijing issued regulations for its unreliable entities list, which could serve to ban U.S. companies from operating in China.

According to the Global Times, a Chinese state-run publication, Commerce’s restrictions indicate that Beijing must prepare for “a new long march” as the U.S. and China continue to battle for technological supremacy. “This is the new battleground of the U.S. after its all-out siege against Huawei to paralyze China's high-tech industry,” a Global Times editorial states. “The entire information industry is built on the foundation of the semiconductor industry. And the U.S. is firmly in control of it. It therefore has controlled the commanding heights of the technological war against China. There is no doubt that the U.S. will abuse this advantage further.”

Beijing will have to “rid itself of being dependent on the U.S.,” the article says, and prepare for other countries to follow the U.S. lead and restructure supply chains away from China. “From Huawei to SMIC, the Chinese people should see for themselves that we are facing a protracted battle against high-tech suppression being led by the U.S. This is almost the key process for the great rejuvenation of the Chinese nation.”

Into INTA

EU Executive Vice Commissioner Valdis Dombrovskis will appear before EU Parliament’s INTA Committee as he prepares to take over the trade portfolio from former Commissioner Phil Hogan, who resigned after public outrage over his breaking of pandemic protocols. U.S.-EU relations have been rocky during the Trump administration, but the two sides recently struck a deal on lobster and some industrial tariffs. The major U.S.-EU trade issue remains the Boeing-Airbus dispute. The EU is expected to soon be permitted by the WTO to impose tariffs on the U.S., which itself has been imposing tariffs on the EU for the better part of a year.

Another day in court

The administration also must defend itself against thousands of legal challenges to Section 301 tariffs on Chinese goods. As of Monday, more than 3,500 cases had been filed in the Court of International Trade arguing the tariffs are illegal and hoping to force the government to pay back the tariffs with interest.

Administration lawyers last week recommended the court establish a “Plaintiffs’ Steering Committee” to “enhance coordination and reduce duplication.” The administration lawyers said they anticipate more complaints will be filed in the coming days. Accordingly, they recommended a blanket stay of all related cases upon filings until management procedures are decided. Lawyers for HMTX, the Connecticut-based flooring company that first filed suit, and its affiliates in response said they “embrace” the government’s case management proposal and contended they should be the “test case” or the lead case in the proceedings because they were first. HMTX also suggested the case be assigned to a three-judge panel instead of just one judge because “the deluge of filings” demonstrates broad and significant implications.

Two other complainants on Friday, however, said the government improperly filed its motion by only placing it on the record of HMTX and not on those of the other plaintiffs, as required by the CIT’s rules; accordingly, they said, the court should deny the defendant's motion. Further, the two companies said “it is premature to select which attorneys should be on any steering committee” and “any conference on these matters should not be scheduled until at least 10 days from today in order to give counsel sufficient time to review and analyze all of the issues in the complaints in an organized fashion, so that counsel can have a fruitful and fact-based discussion of the appropriate procedures for managing this group of cases.”

Events

  • Geneva Trade Week kicked off on Monday and will include panels featuring a slew of WTO and government officials and stakeholders. A full overview of the event is available here.
  • The University of Nebraska’s Yeutter Institute hosts a Tuesday discussion on whether the phased approach to U.S. trade negotiations is here to stay. Washington International Trade Association Executive Director Ken Levinson will moderate a discussion between Asia Society Policy Institute Vice President and former acting deputy U.S. Trade Representative Wendy Cutler and former White House trade adviser Clete Willems.
  • Mexican Economy Secretary Graciela Márquez and Labor Secretary Luisa María Alcalde on Tuesday will discuss their government’s views on the labor reforms required by the U.S.-Mexico-Canada Agreement in a discussion hosted by the Wilson Center’s Mexico Institute.
  • The Export-Import Bank on Tuesday will hold a teleconference for its board of directors to discussion the extension of special delegated authority and actions the bank can take to address the under-supply of medical supplies.
  • French Ambassador to the U.S. Philippe Etienne on Tuesday will give remarks at the Brookings Institution on rehabilitating the trans-Atlantic economies post-pandemic. His remarks will be followed by a discussion with Laurence Boone, chief economist and head of the Organization for Economic Cooperation and Development's Economics Department; Jason Furman, senior fellow at the Peterson Institute for International Economics and former chairman of the Council on Economic Advisers; and Douglas Rediker, nonresident senior fellow for the global economy and development at Brookings.
  • Georgetown University's Center for the Advancement of the Rule of Law in the Americas on Tuesday will host a discussion on the future of trade with former Rep. James Jones, (D-OK), chairman of Monarch Global Strategies LLC and former U.S. ambassador to Mexico; Harlan Grant Cohen, professor in international law at the University of Georgia; Lori Wallach, director of Public Citizen's Global Trade Watch; Mark Wu, vice dean for the graduate program and international legal studies at Harvard Law School; and Alvaro Santos, law professor and faculty director at Georgetown University's CAROLA.
  • WITA and ASPI on Wednesday will host a discussion to outline the next administration’s approach to the Trans-Pacific Partnership. Cutler, who helped negotiate the pact and penned a report for ASPI on the topic, will be joined by Australian Ambassador to the U.S. Arthur Sinodinos, former Singaporean Ambassador to the U.S. Chan Heng Chee, Rep. Rick Larsen (D-WA), and former Congressman (R-LA) Charles Boustany.
  • The Hudson Institute and Indiana University's Manufacturing Policy Initiative on Wednesday will host a webinar on spurring innovation in the U.S. with former Commerce Undersecretary Gil Kaplan, a senior fellow at MPI; Taffy Kingscott, vice president for strategic partnerships at IBM Research; Ralph Gomory, former president of the Sloane Foundation; John Neuffer, president and CEO of the Semiconductor Industry Association; and Stephen Ezell, director of global innovation policy at the Information Technology and Innovation Foundation.
  • The National Association of Foreign-Trade Zones on Wednesday will host a virtual event on supporting the apparel industry with Robert Yoder, senior FTZ manager at Adidas; Nate Herman, manager of brand protection and manufacturing initiatives at the American Apparel and Footwear Association; and Julia Hughes, president of the U.S. Fashion Industry Association.
  • The U.S. International Trade Commission will review the effects of the Canada-EU trade agreement on U.S.-Canada lobster trade during a Thursday hearing. The hearing, held via teleconference, follows a July request from USTR to examine the issue.
  • The Hudson Institute on Thursday will host a discussion on strengthening U.S. manufacturing with Steve Gold, president and CEO of the Manufacturers Alliance for Productivity and Innovation; Keith Belton, principal at Pareto Policy Solutions LLC; Gary Johnson, chief manufacturing and labor affairs officer at the Ford Motor Company; Rosemary Gibson, author of "China Rx: Exposing the Risks of America's Dependence on China for Medicine"; Robert Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute; and Tom Duesterberg, senior fellow at the Hudson Institute.
  • Center for Strategic and International Studies International Business Chair William Reinsch on Friday will host a webcast on how to prepare the workforce for trade leadership. The event will feature Byron Auguste, CEO and co-founder of Opportunity@Work; former Deputy Assistant Labor Secretary for Employment and Training Gerri Fiala, of counsel at Capitol Hill Partners; and former Boeing CEO W. James McNerney, senior adviser at Clayton, Dubilier & Rice.
  • CSIS will also host a Friday webcast on the status of modernizing the Committee on Foreign Investment in the U.S. with Assistant Treasury Secretary for Investment Security Thomas Feddo, Arent Fox partner David Hanke and Wiley Rein senior public policy adviser Nova Daly. -- Brett Fortnam (bfortnam@iwpnews.com)

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