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Explainer: China changes laws in trade war with U.S., enforcement a concern

(Reuters) - China has been changing laws to address U.S. concerns about fair treatment of foreign companies, but with some vague wording and persistent concerns about enforcement, it is unclear if this will leave Washington satisfied.

Chinese and U.S. flags are set up for a meeting during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee/Files

In a sharp deterioration in negotiations between the world’s two largest economies, top U.S. trade officials said on Monday that China had backtracked on substantial commitments it made during trade talks with the United States.

The concerns prompted U.S. President Donald Trump to say he would raise tariffs on $200 billion of Chinese goods imported into the United States. However, trade talks will continue this week.

Washington has demanded China change its economic policies by changing its laws, to better protect U.S. intellectual property, end forced technology transfers from U.S. companies, and stop cyber theft of U.S. trade secrets.


In March, China fast-tracked legislation for its first foreign investment law, which comes into effect on Jan. 1, 2020.

Premier Li Keqiang pledged that the government would follow through and do what the legislation promised in protecting foreign firms.

The law would ban forced technology transfer and illegal government “interference” in foreign business practices, according to the latest draft.

Previous drafts stipulated criminal punishment for officials who violated the law and a last-minute revision has strengthened those clauses.

Foreign business groups have in principle welcomed the law, but the big concern is about enforcement, especially when the judicial system takes its orders from the ruling Communist Party.

One Beijing-based Western executive told Reuters the law was probably best viewed as a “PR exercise” to try and head off some U.S. accusations of unfair treatment for American companies that, in part, led to the trade war.

“It’s all smoke and mirrors,” the executive said, referring to whether the law will actually make a difference.


At a regular law-making session last month, parliament’s standing committee amended three existing laws to try to improve the business environment. These included strengthening trade secret protections, further measures to stop forced technology transfers and increases in the punishment of those who infringe trademarks.

“Bad faith” trademarks, or “trademark squatting”, where an entity registers a brand in anticipation of its entry into China, is a major irritant for foreign investors.

“We believe there needs to be more attention paid to this,” said Nicholas Holt, chairman of the British Chamber of Commerce in China.

“There needs to be more efforts to clamp down on the bad faith trademarks.”

The changes to the Trademark Law take effect on Nov. 1, while amendments to the Administrative Licensing Law, and Law Against Unfair Competition have already come into force.

Getting proper licences to operate in China has been a lengthy process fraught with uncertainty due to unspecified documentation demanded by various levels of government.

Requiring all administrative licensing criteria to be made public and holding Chinese officials accountable for violating laws have been welcomed by western businesses. But they say implementation would still vary across provinces and cities due to differing interpretations of the law.


The Trump administration says China has repeatedly failed to follow through on pledges to implement reforms sought by the United States.

Washington often cites as an example the difficulties still faced by foreign payment card operators in entering China’s market despite a 2012 World Trade Organization ruling that Beijing was discriminating against them.

Also breeding mistrust was the failure of what would have been the world’s largest-ever semiconductor sector takeover last year in the thick of the Sino-U.S. trade war.

In July last year, China’s antitrust regulator quietly allowed a key approval deadline to lapse, leading to the collapse of Qualcomm Inc’s $44 billion planned takeover of NXP Semiconductors.

Reporting by Ben Blanchard, Ryan Woo and Michael Martina; editing by Neil Fullick