Fair Trade with China Enforcement Act
This bill revises trade, finance, and tax provisions with respect to China.
The bill directs the Department of Commerce to prohibit the export of certain U.S. technology and intellectual property to China.
The bill places a shareholder cap on Chinese investments in certain U.S. corporations.
Federal agencies are prohibited from using or procuring telecommunications equipment or services from Huawei Technologies Company, ZTE Corporation, or any other entity reasonably believed to be owned or controlled by China.
The bill requires the U.S. Trade Representative to list certain Chinese products that receive support pursuant to China's Made in China 2025 policy. The bill expedites the countervailing duty process (i.e., the imposition of duties to offset a subsidy by a foreign government) for products on such a list.
The bill amends the Internal Revenue Code to (1) repeal certain reduced withholding rates for residents of China, and (2) tax income received by China from certain U.S. investments.
[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 2 Introduced in Senate (IS)]
<DOC>
116th CONGRESS
1st Session
S. 2
To safeguard certain technology and intellectual property in the United
States from export to or influence by the People's Republic of China
and to protect United States industry from unfair competition by the
People's Republic of China, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
January 3, 2019
Mr. Rubio (for himself and Ms. Baldwin) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To safeguard certain technology and intellectual property in the United
States from export to or influence by the People's Republic of China
and to protect United States industry from unfair competition by the
People's Republic of China, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Fair Trade with
China Enforcement Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Sense of Congress.
Sec. 3. Statement of policy.
TITLE I--SAFEGUARDS AGAINST FOREIGN INFLUENCE IN UNITED STATES NATIONAL
AND ECONOMIC SECURITY BY THE PEOPLE'S REPUBLIC OF CHINA
Sec. 101. Establishment of list of certain products receiving support
from Government of People's Republic of
China pursuant to Made in China 2025
policy.
Sec. 102. Prohibition on export to People's Republic of China of
national security sensitive technology and
intellectual property.
Sec. 103. Imposition of shareholder cap on Chinese investors in United
States corporations.
Sec. 104. Prohibition on use of certain telecommunications services or
equipment.
TITLE II--FAIR TRADE ENFORCEMENT ACTIONS WITH RESPECT TO THE PEOPLE'S
REPUBLIC OF CHINA
Sec. 201. Countervailing duties with respect to certain industries in
the People's Republic of China.
Sec. 202. Repeal of reduced withholding rates for residents of China.
Sec. 203. Taxation of obligations of the United States held by the
Government of the People's Republic of
China.
SEC. 2. SENSE OF CONGRESS.
It is the Sense of Congress that--
(1) since joining the World Trade Organization in 2001, the
People's Republic of China has offered the United States a
contradictory bargain, which promised openness in the global
trade order, but through state mercantilism delivered a
severely imbalanced trading relationship;
(2) it was erroneous for the United States Government to
have ignored the contradictions and risks of free trade with
the People's Republic of China on the assumption that the
People's Republic of China would liberalize economically and
politically;
(3) benefiting enormously from a more open global economy
to drive its own industries, the Government of the People's
Republic of China and the Communist Party of the People's
Republic of China have only tightened their grip on power,
brutally suppressing dissent at home and pursuing policies
abroad that are a far cry from being a responsible global
stakeholder;
(4) malevolent economic behavior by persons in the People's
Republic of China is made clear by the theft of intellectual
property from the United States, as Chinese theft of United
States intellectual property alone costs the United States
nearly $600,000,000,000 annually, according to the United
States Trade Representative;
(5) stealing United States intellectual property advances
the Made in China 2025 initiative of the Government of the
People's Republic of China to eventually dominate global
exports in 10 critical sectors, namely artificial intelligence
and next-generation information technology, robotics, new-
energy vehicles, biotechnology, energy and power generation,
aerospace, high-tech shipping, advanced railway, new materials,
and agricultural machinery, among others;
(6) the targets of the Made in China 2025 initiative reveal
the goal of the People's Republic of China for the near-total
displacement of advanced manufacturing in the United States;
and
(7) the United States Government should act to strengthen
the position of the United States in its policy toward the
People's Republic of China in order to create a more balanced
economic relationship by safeguarding strategic assets from
Chinese influence, reducing Chinese involvement in the United
States economy, and encouraging United States companies to
produce domestically, instead of in the People's Republic of
China.
SEC. 3. STATEMENT OF POLICY.
It is the policy of the United States--
(1) to impose restrictions on Chinese investment in the
United States in strategic industries targeted by the Made in
China 2025 initiative set forth by the Government of the
People's Republic of China;
(2) to tax Chinese investment in the United States due to
its negative effect on the United States trade deficit and
wages of workers in the United States;
(3) to increase the cost of transnational production
operations in the People's Republic of China in a manner
consistent with the economic cost of the risk of loss of unique
access by the United States to intellectual property,
technology, and industrial base; and
(4) to support democratization in and the human rights of
the people of Hong Kong, including the findings and
declarations set forth under section 2 of the United States-
Hong Kong Policy Act of 1992 (22 U.S.C. 5701).
TITLE I--SAFEGUARDS AGAINST FOREIGN INFLUENCE IN UNITED STATES NATIONAL
AND ECONOMIC SECURITY BY THE PEOPLE'S REPUBLIC OF CHINA
SEC. 101. ESTABLISHMENT OF LIST OF CERTAIN PRODUCTS RECEIVING SUPPORT
FROM GOVERNMENT OF PEOPLE'S REPUBLIC OF CHINA PURSUANT TO
MADE IN CHINA 2025 POLICY.
(a) In General.--Chapter 8 of title I of the Trade Act of 1974 (19
U.S.C. 2241 et seq.) is amended by adding at the end the following:
``SEC. 183. LIST OF CERTAIN PRODUCTS RECEIVING SUPPORT FROM GOVERNMENT
OF PEOPLE'S REPUBLIC OF CHINA.
``(a) In General.--Not later than 120 days after the date of the
enactment of the Fair Trade with China Enforcement Act, and every year
thereafter, the United States Trade Representative shall set forth a
list of products manufactured or produced in, or exported from, the
People's Republic of China that are determined by the Trade
Representative to receive support from the Government of the People's
Republic of China pursuant to the Made in China 2025 industrial policy
of that Government.
``(b) Criteria for List.--
``(1) In general.--The Trade Representative shall include
in the list required by subsection (a) the following products:
``(A) Any product specified in the following
documents set forth by the Government of the People's
Republic of China:
``(i) Notice on Issuing Made in China 2025.
``(ii) China Manufacturing 2025.
``(iii) Notice on Issuing the 13th Five-
year National Strategic Emerging Industries
Development Plan.
``(iv) Guiding Opinion on Promoting
International Industrial Capacity and Equipment
Manufacturing Cooperation.
``(v) Any other document that expresses a
national strategy or stated goal in connection
with the Made in China 2025 industrial policy
set forth by the Government of the People's
Republic of China, the Communist Party of
China, or another entity or individual capable
of impacting the national strategy of the
People's Republic of China.
``(B) Any product receiving support from the
Government of the People's Republic of China that has
or will in the future displace net exports of like
products by the United States, as determined by the
Trade Representative.
``(2) Included products.--In addition to such products as
the Trade Representative shall include pursuant to paragraph
(1) in the list required by subsection (a), the Trade
Representative shall include products in the following
industries:
``(A) Civil aircraft.
``(B) Motor car and vehicle.
``(C) Advanced medical equipment.
``(D) Advanced construction equipment.
``(E) Agricultural machinery.
``(F) Railway equipment.
``(G) Diesel locomotive.
``(H) Moving freight.
``(I) Semiconductor.
``(J) Lithium battery manufacturing.
``(K) Artificial intelligence.
``(L) High-capacity computing.
``(M) Quantum computing.
``(N) Robotics.
``(O) Biotechnology.''.
(b) Clerical Amendment.--The table of contents for the Trade Act of
1974 is amended by inserting after the item relating to section 182 the
following:
``Sec. 183. List of certain products receiving support from Government
of People's Republic of China.''.
SEC. 102. PROHIBITION ON EXPORT TO PEOPLE'S REPUBLIC OF CHINA OF
NATIONAL SECURITY SENSITIVE TECHNOLOGY AND INTELLECTUAL
PROPERTY.
(a) In General.--The Secretary of Commerce shall prohibit the
export to the People's Republic of China of any national security
sensitive technology or intellectual property subject to the
jurisdiction of the United States or exported by any person subject to
the jurisdiction of the United States.
(b) Definitions.--In this section:
(1) Intellectual property.--The term ``intellectual
property'' includes patents, copyrights, trademarks, or trade
secrets.
(2) National security sensitive technology or intellectual
property.--The term ``national security sensitive technology or
intellectual property'' includes the following:
(A) Technology or intellectual property that would
make a significant contribution to the military
potential of the People's Republic of China that would
prove detrimental to the national security of the
United States.
(B) Technology or intellectual property necessary
to protect the economy of the United States from the
excessive drain of scarce materials and to reduce the
serious inflationary impact of demand from the People's
Republic of China.
(C) Technology or intellectual property that is a
component of the production of products included in the
most recent list required under section 183 of the
Trade Act of 1974, as added by section 101(a),
determined in consultation with the United States Trade
Representative.
(3) Technology.--The term ``technology'' includes goods or
services relating to information systems, Internet-based
services, production-enhancing logistics, robotics, artificial
intelligence, biotechnology, or computing.
SEC. 103. IMPOSITION OF SHAREHOLDER CAP ON CHINESE INVESTORS IN UNITED
STATES CORPORATIONS.
Section 13(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(d)) is amended by adding at the end the following:
``(7)(A) In this paragraph, the term `covered issuer' means any
issuer that produces components that may be used in the production of
goods manufactured or produced in, or exported from, the People's
Republic of China and included in the most recent list required under
section 183 of the Trade Act of 1974, determined in consultation with
the United States Trade Representative.
``(B) No covered issuer that is incorporated under the laws of a
State, or whose principal place of business is within a State, may be
majority-owned by a person whose principal place of business is in the
People's Republic of China.
``(C) The prohibition in subparagraph (B) shall apply to any
acquisition on or after the date of enactment of this paragraph.''.
SEC. 104. PROHIBITION ON USE OF CERTAIN TELECOMMUNICATIONS SERVICES OR
EQUIPMENT.
(a) Findings.--Congress makes the following findings:
(1) In its 2011 ``Annual Report to Congress on Military and
Security Developments Involving the People's Republic of
China'', the Department of Defense stated, ``China's defense
industry has benefited from integration with a rapidly
expanding civilian economy and science and technology sector,
particularly elements that have access to foreign technology.
Progress within individual defense sectors appears linked to
the relative integration of each, through China's civilian
economy, into the global production and R&D chain . . .
Information technology companies in particular, including
Huawei, Datang, and Zhongxing, maintain close ties to the
PLA.''.
(2) In a 2011 report titled ``The National Security
Implications of Investments and Products from the People's
Republic of China in the Telecommunications Sector'', the
United States China Economic and Security Review Commission
stated that ``[n]ational security concerns have accompanied the
dramatic growth of China's telecom sector. . . . Additionally,
large Chinese companies--particularly those `national
champions' prominent in China's `going out' strategy of
overseas expansion--are directly subject to direction by the
Chinese Communist Party, to include support for PRC state
policies and goals.''.
(3) The Commission further stated in its report that
``[f]rom this point of view, the clear economic benefits of
foreign investment in the U.S. must be weighed against the
potential security concerns related to infrastructure
components coming under the control of foreign entities. This
seems particularly applicable in the telecommunications
industry, as Chinese companies continue systematically to
acquire significant holdings in prominent global and U.S.
telecommunications and information technology companies.''.
(4) In its 2011 Annual Report to Congress, the United
States China Economic and Security Review Commission stated
that ``[t]he extent of the state's control of the Chinese
economy is difficult to quantify. . . . There is also a
category of companies that, though claiming to be private, are
subject to state influence. Such companies are often in new
markets with no established SOE leaders and enjoy favorable
government policies that support their development while posing
obstacles to foreign competition. Examples include Chinese
telecoms giant Huawei and such automotive companies as battery
maker BYD and vehicle manufacturers Geely and Chery.''.
(5) In the bipartisan ``Investigative Report on the United
States National Security Issues Posed by Chinese
Telecommunication Companies Huawei and ZTE'' released in 2012
by the Permanent Select Committee on Intelligence of the House
of Representatives, it was recommended that ``U.S. government
systems, particularly sensitive systems, should not include
Huawei or ZTE equipment, including in component parts.
Similarly, government contractors--particularly those working
on contracts for sensitive U.S. programs--should exclude ZTE or
Huawei equipment in their systems.''.
(6) General Michael Hayden, who served as Director of the
Central Intelligence Agency and Director of the National
Security Agency, stated in July 2013 that Huawei had ``shared
with the Chinese state intimate and extensive knowledge of
foreign telecommunications systems it is involved with''.
(7) The Federal Bureau of Investigation, in a February 2015
Counterintelligence Strategy Partnership Intelligence Note
stated that, ``[w]ith the expanded use of Huawei Technologies
Inc. equipment and services in U.S. telecommunications service
provider networks, the Chinese Government's potential access to
U.S. business communications is dramatically increasing.
Chinese Government-supported telecommunications equipment on
U.S. networks may be exploited through Chinese cyber activity,
with China's intelligence services operating as an advanced
persistent threat to U.S. networks.''.
(8) The Federal Bureau of Investigation further stated in
its February 2015 counterintelligence note that ``China makes
no secret that its cyber warfare strategy is predicated on
controlling global communications network infrastructure''.
(9) At a hearing before the Committee on Armed Services of
the House of Representatives on September 30, 2015, Deputy
Secretary of Defense Robert Work, responding to a question
about the use of Huawei telecommunications equipment, stated,
``In the Office of the Secretary of Defense, absolutely not.
And I know of no other--I don't believe we operate in the
Pentagon, any [Huawei] systems in the Pentagon.''.
(10) At that hearing, the Commander of the United States
Cyber Command, Admiral Mike Rogers, responding to a question
about why such Huawei telecommunications equipment is not used,
stated, ``As we look at supply chain and we look at potential
vulnerabilities within the system, that it is a risk we felt
was unacceptable.''.
(11) In March 2017, ZTE Corporation pled guilty to
conspiring to violate the International Emergency Economic
Powers Act by illegally shipping United States-origin items to
Iran, paying the United States Government a penalty of
$892,360,064 for activity between January 2010 and January
2016.
(12) The Office of Foreign Assets Control of the Department
of the Treasury issued a subpoena to Huawei as part of a
Federal investigation of alleged violations of trade
restrictions on Cuba, Iran, and Sudan.
(b) Prohibition on Agency Use or Procurement.--The head of an
agency may not procure or obtain, may not extend or renew a contract to
procure or obtain, and may not enter into a contract (or extend or
renew a contract) with an entity that uses, or contracts with any other
entity that uses, any equipment, system, or service that uses covered
telecommunications equipment or services as a substantial or essential
component of any system, or as critical technology as part of any
system.
(c) Report.--Not later than one year after the date of the
enactment of this Act, and annually thereafter, the Secretary of
Commerce, in consultation with the Secretary of Defense and the United
States Trade Representative, shall submit to Congress a report on sales
by the Government of the People's Republic of China of covered
telecommunications equipment or services through partial ownership or
any other methods.
(d) Definitions.--In this section:
(1) Agency.--The term ``agency'' has the meaning given that
term in section 551 of title 5, United States Code.
(2) Covered telecommunications equipment or services.--The
term ``covered telecommunications equipment or services'' means
any of the following:
(A) Telecommunications equipment produced by Huawei
Technologies Company, ZTE Corporation, or any other
Chinese telecom entity identified by the Director of
National Intelligence, the Secretary of Defense, or the
Director of the Federal Bureau of Investigation as a
security concern (or any subsidiary or affiliate of any
such entity).
(B) Telecommunications services provided by such
entities or using such equipment.
(C) Telecommunications equipment or services
produced or provided by an entity that the head of the
relevant agency reasonably believes to be an entity
owned or controlled by, or otherwise connected to, the
Government of the People's Republic of China.
TITLE II--FAIR TRADE ENFORCEMENT ACTIONS WITH RESPECT TO THE PEOPLE'S
REPUBLIC OF CHINA
SEC. 201. COUNTERVAILING DUTIES WITH RESPECT TO CERTAIN INDUSTRIES IN
THE PEOPLE'S REPUBLIC OF CHINA.
(a) Policy.--It is the policy of the United States--
(1) to reduce the import of finished goods from the
People's Republic of China relating to the Made in China 2025
plan set forth by the Government of the People's Republic of
China; and
(2) to encourage allies of the United States to reduce the
import of finished goods from the People's Republic of China
relating to the Made in China 2025 plan.
(b) Inclusion of Made in China 2025 Products in Definition of
Countervailable Subsidy.--Paragraph (5) of section 771 of the Tariff
Act of 1930 (19 U.S.C. 1677) is amended by adding at the end the
following:
``(G) Treatment of certain chinese merchandise.--
Notwithstanding any other provision of this title, if a
person presents evidence in a petition filed under
section 702(b) that merchandise covered by the petition
is manufactured or produced in, or exported from, the
People's Republic of China and included in the most
recent list required under section 183 of the Trade Act
of 1974, determined in consultation with the United
States Trade Representative, the administrating
authority shall determine that a countervailable
subsidy is being provided with respect to that
merchandise.''.
(c) Inclusion of Made in China 2025 Products in Definition of
Material Injury.--Paragraph (7)(F) of such section is amended by adding
at the end the following:
``(iv) Treatment of certain chinese
merchandise.--Notwithstanding any other
provision of this title, if a petition filed
under section 702(b) alleges that an industry
in the United States is materially injured or
threatened with material injury or that the
establishment of an industry in the United
States is materially retarded by reason of
imports of merchandise manufactured or produced
in, or exported from, the People's Republic of
China and included in the most recent list
required under section 183 of the Trade Act of
1974, determined in consultation with the
United States Trade Representative, the
Commission shall determine that material injury
or such a threat exists.''.
SEC. 202. REPEAL OF REDUCED WITHHOLDING RATES FOR RESIDENTS OF CHINA.
(a) In General.--Section 894 of the Internal Revenue Code of 1986
is amended--
(1) by striking ``The provisions of'' in subsection (a) and
inserting ``Except as otherwise provided in this section, the
provisions of''; and
(2) by adding at the end the following new subsection:
``(d) Exception for People's Republic of China.--
``(1) In general.--The rates of tax imposed under sections
871 and 881, and the rates of withholding tax imposed under
chapter 3, with respect to any resident of the People's
Republic of China shall be determined without regard to any
provision of the Agreement between the Government of the United
States of America and the Government of the People's Republic
of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on Income,
signed at Beijing on April 30, 1984.
``(2) Regulations.--The Secretary shall promulgate
regulations to prevent the avoidance of the purposes of this
subsection through the use of foreign entities.''.
(b) Effective Date.--The amendments made by this section shall
apply to income received after the date of the enactment of this Act.
SEC. 203. TAXATION OF OBLIGATIONS OF THE UNITED STATES HELD BY THE
GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA.
(a) In General.--Section 892 of the Internal Revenue Code of 1986
is amended by redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
``(c) Exception.--This section shall not apply to the Government of
the People's Republic of China.''.
(b) Central Bank.--Section 895 of the Internal Revenue Code of 1986
is amended--
(1) by striking ``Income'' and inserting the following:
``(a) In General.--Income''; and
(2) by adding at the end the following new subsection:
``(b) Exception.--This section shall not apply to the any central
bank of the People's Republic of China.''.
(c) Effective Date.--The amendments made by this section shall
apply to income received or derived after the date of the enactment of
this Act.
<all>
Introduced in Senate
Introduced in Senate
Read twice and referred to the Committee on Finance.
Committee on Small Business and Entrepreneurship. Hearings held. Hearings printed: S.Hrg. 116-22.
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