International Trade Daily™ provides rapid, reliable notification of the most significant developments affecting U.S. trade and international business policy, as well as the policies of major U.S....
By Len Bracken
Nov. 16 — A congressional advisory commission Nov. 16 recommended that the U.S. ban Chinese state-owned enterprises (SOEs) from buying U.S. companies.
The statute authorizing national security screening of foreign investments in the U.S. should be amended to prevent Chinese SOEs from “acquiring or gaining effective control” of U.S. companies, the U.S.-China Economic Security Review Commission recommended in its annual report to Congress.
Chinese SOEs are “arms of the Chinese state” and act for strategic purposes, Commission Chairman Dennis Shea said at a media briefing on Capitol Hill. He added that policymakers don’t want the U.S. government purchasing companies in the U.S., so it follows that the same should hold for China.
The top recommendation in the report would require changing the statute covering the Committee on Foreign Investment in the U.S. (CFIUS), which conducts national security screening of foreign investments. In 2014, China led foreign countries in CFIUS reviews, with 24 reviewed transactions, the report said. The drive by Chinese companies to acquire U.S. technology companies “has led to growing political concern,” the report added.
Commissioner Michael Wessel said the patterns seen in Chinese investment in the U.S. give “tremendous pause,” such as gradual accretion of ownership shares that don't trigger CIFUS reviews. He cited the purchase of Lattice Semiconductor Corp. shares by Tsinghua Unigroup in separate tranches in April and May of 2016.
Panel Vice Chairman Carolyn Bartholomew said the trade and investment relationship is “unbalanced,” with the U.S. racking up a record trade deficit with China of $365.7 billion in 2015 and has reached $225 billion in the first eight months of 2016. Chinese investment in the U.S. is expected to double from about $15 billion in 2015 to $30 billion in 2016, she said, while U.S. investors have faced discrimination in China and requirements that they transfer technology.
The commission also recommended that Congress enact “legislation requiring its approval before China—either the country as a whole or individual sectors or entities—is granted status as a market economy by the United States.” China contends that Article 15 of the 2001 protocol on China's accession to the World Trade Organization requires members to stop using an alternative, nonmarket economy calculation method in antidumping investigations against China after Dec. 11, 2016, but the U.S. disagrees.
Under U.S. antidumping law, nonmarket economy status may be re-evaluated only by Commerce’s Enforcement & Compliance Division in the context of an antidumping proceeding, based on a formal request made or supported by the government, such as China. China has not made or supported such a request since 2006.
As a nonmarket economy, the “domestic price” for the allegedly dumped goods is calculated by using the domestic price in another country at a similar stage of economic development, such as India. But if market economy status is granted to China, the home market Chinese prices would have to be used. This would make it easier for Chinese companies that are targeted in antidumping cases to defend themselves.
Wessel said while the word is still out as to what the current U.S. administration will do, he predicted that no change would be made to China's nonmarket economy status and when the first U.S. antidumping case is concluded that uses the third-country method for calculating prices, China would launch at dispute settlement case in the WTO, which he said would take two to five years to resolve.
The other trade-related recommendations included:
The commission also recommended that Congress direct the U.S. Government Accountability Office to prepare a report “examining the extent to which large-scale outsourcing of manufacturing activities to China is leading to the hollowing out of the U.S. defense industrial base.”
To contact the reporter on this story: Len Bracken in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jerome Ashton at email@example.com
The report is available at http://www.uscc.gov/Annual_Reports/2016-annual-report-congress.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)