Responding to the U.S. Trade Representative (USTR) promise to make investigating China's trade policies one of its highest priorities, China sent the USTR a bit of a warning Tuesday.

"We hope the U.S. Trade Representative could respect the facts and act prudently," a spokesman for China's Ministry of Commerce said. "If the U.S. damages the bilateral economic and trade relations by ignoring basic facts and disrespecting multilateral trading rules, we will take all proper actions to safeguard our legitimate rights."

The USTR's announcement this week followed a directive from President Donald Trump asking the agency to determine whether an investigation was called for. (See BioWorld Today, Aug. 16, 2017.)

In its statement, the Commerce Ministry noted China's actions in recent years to open its markets to foreign companies and to create a better investment and operation environment for such firms. The spokesman pointed to the country's efforts to protect intellectual property rights by improving legislation and providing better administrative and judicial protection.

In addition, China actively cooperates and communicates with the international community on intellectual property rights, the spokesman said, adding that "our progress and achievements have been seen and recognized at home and abroad."

The ministry also criticized the U.S. 301 system, which it said has been opposed by other countries as a unilateral trade feature that may tread on the multilateral rules of the World Trade Organization (WTO). As part of the 301 name-and-shame approach, the USTR issues an annual report listing trading partners the U.S. deems to have harmful records on intellectual property protection, enforcement or market access for U.S. innovators.

The Special 301 Report ranks the countries based on USTR investigations and feedback from U.S.-based industry, including the drug and device sectors. The worst-of-the-worst partners are identified as a priority foreign country, a label that hasn't been used for a few years, although it has been slapped on India in the past. (See BioWorld Today, March 12, 2014.)

Other rankings on the 301 Report are the priority watch list and watch list. Placement on either of the lists indicates problems. A trading partner is moved from the priority list to the watch list if it shows progress in resolving the issues. When the problems are fully resolved, the partner is delisted.

For the past several years, the USTR has included China on the 301 priority watch list due to the country's handling of intellectual property rights and its forcing of technology transfers to Chinese partners. China is one of 11 countries on the priority watch list this year. Others on the list are Algeria, Argentina, Chile, India, Indonesia, Kuwait, Russia, Thailand, Ukraine and Venezuela. In addition, 23 countries, including Canada and Switzerland, were named to the watch list. (See BioWorld Today, May 3, 2017.)

Driving the investigation

The 2017 report went to special lengths to highlight concerns regarding market access barriers in India and Algeria that affect the U.S. biopharma and medical device industries, citing India's high tariffs on drugs and devices and Algeria's ban on many imported drugs and devices in favor of domestic products.

But what's driving the new investigation into China's trade policies is allegations of forced technology transfers that could have an impact on the U.S. economy and threaten its national security. "Since China joined the WTO in 2001, 2.4 million U.S. jobs have been lost and 60,000 U.S. manufacturing firms have been forced out of business. Entire regions of the country have been hollowed out. Intellectual property theft – 70 percent by China – now costs the U.S. some $600 billion a year," said Stefan Halper, a foreign policy expert and professor at the University of Cambridge. "A thorough review of this problem, and a rebalancing of the trade relationship, is urgent."

Several national security experts and defense contractors were quoted, along with Halper, this week in a White House news release supporting an investigation into China's trade policies. But it's hard to say whether the effort will have much of an impact on the drug and device sectors. The Biotechnology Innovation Organization and Pharmaceutical Research and Manufacturers Association told BioWorld that they are reviewing Trump's directive, which is slated for publication in Thursday's Federal Register.

Michael Lin, a health care intellectual property lawyer and a partner at Marks & Clerk in Hong Kong and Beijing, said, "It's going to be hard to predict how [the USTR] investigations will go at this point, what industry they will look at and what actions will be taken. It's still early days into the probe, so we'll just have to wait and see."

– Cornelia Zou, Staff Writer, contributed to this report.