In this second of our three segments excerpting key elements of the U.S.-China Economic and Security Review Commission Report, Beijing’s inappropriate treatment of U.S. companies is examined. In addition to currency manipulation and unfair trade practices, massive theft of intellectual property through cyber espionage has had a damaging effect on the American economy.
China’s unfair treatment of U.S. companies exporting to or investing in China and Beijing’s failure to uphold its World Trade Organization commitments continue to trouble the bilateral relationship.
Despite China’s manufacturing slowdown, a substantial Chinese trade surplus continues to sour the U.S. trade relationship with China. In 2014, the U.S. goods trade deficit with China increased by 7.5 percent year-on-year to $342.6 billion, a record. In the first eight months of 2015, the U.S.-China trade deficit in goods was $237.3 billion, 9.7 percent increase over the same period in 2014. China’s surprise devaluation of the RMB in August also raised concerns among some observers and policymakers that China was once again trying to boost its exports by manipulating the RMB to make exports cheaper. The devaluation came amid China’s efforts to promote a greater international role for the RMB, including making it one of the reserve currencies used by the International Monetary Fund. China’s aspirations for the RMB as an international currency conflict with its practice of limiting the currency’s convertibility and exposure to international currency markets….
COMMERCIAL CYBER ESPIONAGE AND BARRIERS TO DIGITAL TRADE IN CHINA
China causes increasing harm to the U.S. economy and security through two deliberate policies targeting the United States: coordinated, government-backed theft of information from a wide variety of U.S.-based commercial enterprises and widespread restrictions on content, standards, and commercial opportunities for U.S. businesses. Hackers working for the Chinese government—or with the government’s support and encouragement—have infiltrated the computer networks of U.S. government agencies, contractors, and private companies, and stolen personal information and trade secrets. The targets of the Chinese hackers include patented material, manufacturing processes, business and negotiating strategies, and other proprietary information. The Chinese government has in turn provided that purloined information to Chinese companies, including SOEs.
The United States is ill prepared to defend itself from cyber espionage when its adversary is determined, centrally coordinated, and technically sophisticated, as is the CCP and China’s government. The design of the Internet—developed in the United States to facilitate open communication between academia and government, and eventually expanded to include commercial opportunities—leaves it particularly vulnerable to spies and thieves. As the largest and most web-dependent economy in the world, the United States is also the largest target for cyber espionage of commercial IP. The Chinese government also imposes heavy-handed censorship on Internet content and social media. These restrictions on free expression and access to information and news have driven from the Chinese market those U.S. companies unwilling to follow the authoritarian dictates of Beijing. The Chinese government has also begun to censor material originating outside its borders by directly attacking U.S.-based information providers.
The Chinese government has infiltrated a wide swath of U.S. government computer networks; the U.S. government response to the challenge has been inadequate. Federal agencies are not governed by a uniform system for defense against cyber intrusions. Other than to acknowledge an unrelenting series of assaults on its networks, the Federal Government has yet to devise adequate defenses, while top U.S. intelligence officials have grudgingly praised Chinese hackers for their bold ingenuity.
The Commission recommends:
- Congress assess the ability of, and if necessary amend, existing U.S. trade laws to address China’s industrial policies, abusive legal or administrative processes, and discriminatory treatment of foreign investors, and to determine the consistency of these practices with China’s World Trade Organization commitments.
- Congress consider legislation requiring the President to submit a request to Congress for approval before any change occurs, either for the country as a whole or for individual sectors or entities, in China’s status as a non-market economy. Under such legislation, any change to the designation of China could not proceed without the consent of both Houses of Congress.
- Congress consider legislation conditioning the provision of market access to Chinese investors in the United States on a reciprocal, sector-by-sector basis to provide a level playing field for U.S. investors in China.
- Congress direct U.S. antitrust enforcement agencies to conduct an analysis and legal assessment of alleged anticompetitive behavior by Chinese antitrust enforcers, and report in full on enforcement activities.
- Congress expand the guidelines for consultation and transparency relating to trade negotiations covered by Trade Promotion Authority to include negotiations on a Bilateral Investment Treaty between the United States and China.
- Congress require the Administration to provide a comprehensive, publicly-available assessment of Chinese foreign direct investments in the United States prior to completion of negotiations on a Bilateral Investment Treaty. This assessment should include an identification of the nature of investments, whether investments received support of any kind from the Chinese government and at which level (national, provincial, or municipal), and the sector in which the investment was made
- Congress urge the U.S. Trade Representative to initiate consultations with China’s Ministry of Commerce to identify the extent to which China’s policy regarding subsidies and other incentives for purchases of domestically-produced new energy vehicles may violate its World Trade Organization commitments and what steps should be taken to address any inconsistencies with those commitments
- Congress assess the coverage of U.S. law to determine whether U.S.-based companies that have been hacked should be allowed to engage in counterintrusions for the purpose of recovering, erasing, or altering stolen data in offending computer networks.
- In addition, Congress should study the feasibility of a foreign intelligence cyber court to hear evidence from U.S. victims of cyber attacks and decide whether the U.S. government might undertake counterintrusions on a victim’s behalf…
- Congress require the Administration to prepare an annual classified report on foreign government-sponsored cyber attacks against all Federal Government agencies, including but not limited to an assessment of the damage and the affected agencies’ plans to secure their networks against further attacks…
- Congress consider legislation amending the Federal Information Security Modernization Act of 2014 to require an annual review by the U.S. Department of Homeland Security of the steps taken by all federal agencies to ensure that adequate systems are in place to protect cyber assets…
- Congress pass legislation to require the Securities and Exchange Commission (SEC) to make clear to publicly traded companies and their investors the circumstances under which the theft of intellectual property through a computer network intrusion may be a material fact that might affect a company’s revenues and should therefore be required to be disclosed to the SEC.
- …Congress evaluate existing consumer right-to-know laws to determine whether a cloud-based computing company has an affirmative duty to identify the physical location of its cloudbased assets.
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