Comprehensive Mainland China Legislation Introduced in Senate

Senate Majority Leader Chuck Schumer (Democrat-New York) on 19 May introduced comprehensive legislation aimed at boosting U.S. competitiveness while addressing the challenges posed by mainland China. The legislation includes an amended version of the mainland China-focused Endless Frontier Act as well as various other provisions, but it could still be significantly amended prior to passage. Approval by the Senate could potentially occur within the next couple of weeks.

According to a press release by Sen. Schumer’s office, the United States Innovation and Competition Act of 2021 (S. 1260) includes US$52 billion in emergency supplemental appropriations to implement the semiconductor-related manufacturing and research and development programmes authorised in last year’s National Defense Authorization Act as well as a programme to support legacy chip production that is critical to the U.S. automotive industry. An additional US$1.5 billion is provided to implement the USA Telecommunications Act, which is aimed at fostering U.S. innovation in the race for 5G.

The press release adds that the Endless Frontier Act within the U.S. Innovation and Competition Act of 2021 is intended to maintain and build on U.S. science and technology leadership through investments in R&D and strengthening regional economic development, manufacturing and supply chains. It would authorise some US$120 billion over five years for activities at the National Science Foundation, the U.S. Department of Commerce, the U.S. Department of Energy, and the National Aeronautics and Space Administration.

Concurrently, Senate Finance Committee Chair Ron Wyden (Democrat-Oregon) unveiled an amendment to the Endless Frontier Act, known as the “Combating Oppressive and Manipulative Policies that Endanger Trade and Economic Security (COMPETES) Act of 2021”. Wyden is seeking to incorporate this amendment into the broader mainland China package but it is uncertain whether that effort will ultimately succeed, as other lawmakers could offer competing amendments.  

Section 3005 of the U.S. Innovation and Competition Act of 2021 describes mainland China as the “greatest geopolitical and geoeconomic challenge for United States foreign policy” and calls on the heads of every federal department and agency to designate a senior official at no lower than the undersecretary level to co-ordinate that department’s or agency’s policies with respect to strategic competition with mainland China. Mainland China-related provisions of particular relevance included in Schumer’s U.S. Innovation and Competition Act of 2021 and Wyden’s COMPETES Act are summarised below.

U.S. Innovation and Competition Act of 2021

Sanctions and Other Restrictions

• the president would be urged to implement all statutorily available sanctions to address malign behaviour and incentivise behaviour change by individuals and entities in mainland China, including intellectual property theft, cyber-related economic espionage, abuses of the international trading system, the use of forced labour and other human rights abuses, illicit assistance to and trade with the North Korean government, and so forth; 

• the Uyghur Human Rights Policy Act of 2020 would be amended to allow for the imposition of sanctions for serious human rights abuses in connection with forced labour in mainland China’s Xinjiang Uyghur Autonomous Region; 

• sanctions would be required against persons or entities in mainland China determined to be knowingly involved in or benefitting from significant acts of intellectual property theft from U.S. persons or firms; 

• a determination would have to be made as to whether optical transmission equipment manufactured, produced or distributed by an entity owned, controlled or supported by mainland China poses an unacceptable risk to U.S. national security or the security and safety of U.S. persons; 

• the Federal Communications Commission would be required to prohibit the transfer, assignment or disposition of construction permits and station licences to an entity that is subject to undue influence by the Chinese Communist Party or the mainland Chinese government; 

• U.S. government agencies would be barred from procuring unmanned aircraft systems from mainland Chinese entities, subject to certain exceptions; 

• the use of the TikTok app on U.S. government devices would be barred; 

• nuclear and space co-operation with the mainland Chinese government or any company owned by the mainland Chinese government or incorporated under the laws of mainland China would be restricted; 

• unless a waiver is obtained, funding to institutions of higher education that maintain a contract or agreement with a Confucius Institute would be restricted; and 

• mainland Chinese companies would be precluded from participating in the Manufacturing USA Program or the Manufacturing USA Network without a waiver. 

Hong Kong 

• within 180 days from the date of enactment of the legislation, the U.S. State Department would be required to prepare a report on the manner and extent to which the mainland Chinese government uses the status of Hong Kong to circumvent U.S. laws and protections, including U.S. export controls, U.S. sanctions, and duties on goods exported to the U.S. 

Intellectual Property

• a plan would be required to ensure that intellectual property is not being used by foreign business entities that are majority owned or controlled, or minority owned greater than 25 percent, by any governmental organisation of mainland China or any other entity that is known to be owned or controlled by any governmental organisation of mainland China or organised or otherwise subject to the laws of mainland China; and 

• a new intellectual property violator list would be created to identify (i) all centrally administered state-owned enterprises incorporated in mainland China that have benefitted from a significant act or series of acts of intellectual property theft that subjected a U.S. economic sector or particular company incorporated in the U.S. to harm, or an act or government policy of involuntary or coerced technology transfer of intellectual property ultimately owned by a company incorporated in the U.S.; and (ii) any corporate officer of, or principal shareholder with controlling interests in, a previously described entity. 

International Engagement 

• the administration would be urged to, among other things, complete a joint analysis with ASEAN on risks of overreliance on mainland Chinese equipment critical to strategic technologies and critical infrastructure, share information about and collaborate on screening mainland Chinese investments in strategic technology sectors and critical infrastructure, and work together on appropriate import restriction regimes regarding mainland Chinese exports of surveillance technologies; 

• substantial funds would be authorised to step up U.S. engagement with the Indo-Pacific region to counter mainland China’s influence; 

• the U.S. would be required to undertake efforts aimed at enhancing co-operation with Canada, the European Union, Oceania, and South and Central Asia to address a range of challenges posed by mainland China, and pursue separate efforts to address mainland China’s growing influence in Africa, the Middle East, Latin America and the Caribbean; and 

• the president would have to work with European counterparts to establish a formal U.S.-European Commission working group to develop a comprehensive strategy with alternatives to mainland China’s Belt and Road Initiative for development finance. 

Other 

• within 180 days from the date of enactment of the legislation, a review would have to be conducted of export controls on items that could be used to facilitate human rights abuses in mainland China, and a determination would have to be made on whether further crime control or end-use/end-user export controls are necessary to mitigate the risks of such abuses; 

• US$15 million per year during fiscal years 2022 through 2026 would be provided to contract the services of qualified experts to help U.S. companies exit from the mainland Chinese market, relocate their production facilities outside the mainland, or otherwise diversify supply chains away from mainland China; 

• US$300 million would be appropriated annually during fiscal years 2022 through 2026 to “counter the malign influence of the Chinese Communist Party globally” and a report would be required to examine malign activities involving mainland Chinese state-owned enterprises; 

• in consultation with the private sector, a comprehensive, multi-year, whole of government effort would have to be undertaken to counter predatory lending and financing by the mainland Chinese government, including support to companies incorporated in mainland China that engage in such activities, in the energy sectors of developing countries; 

• a joint interagency task force would have to be established to investigate allegations of systemic market manipulation and other potential violations of antitrust and competition laws in the U.S. by companies established in mainland China, including allegations of efforts to illegally capture market share, fix or manipulate prices, and control the supply of goods in critical U.S. industries, including the pharmaceutical and medical devices industry, the renewable energy industry, and the steel and aluminium industries; 

• a study would be required to identify the ten most critical emerging science and technology challenges facing the United States – including an assessment of the current relative balance in leadership in addressing the identified challenges between the U.S., U.S. allies or key partners, and mainland China – and recommendations would have to be developed for legislative or administrative action to ensure U.S. leadership in matters relating to such challenges; 

• a report would be required detailing U.S. government efforts to gain a commitment from the mainland Chinese government to submit unregulated fentanyl precursors such as 4–AP to controls and setting forth a plan for future steps the U.S. government will take to urge mainland China to combat illicit fentanyl production and trafficking originating in the mainland; 

• the administration would have to investigate “corruption and corrupt activities” of senior mainland Chinese government officials; 

• the administration would be required to publish on an annual basis a report with a list of subsidies provided by the mainland Chinese government to enterprises in the mainland as well as discriminatory treatment favouring mainland Chinese enterprises over foreign market participants; 

• Buy American requirements would be modernised to address the practice of using mainland Chinese- or Russian-made steel and other products; 

• greater domestic production of personal protective equipment would be encouraged; 

• firms would be urged to adopt a corporate code of conduct for operating in mainland China; and 

• reports would be required on various additional matters, including mainland China’s currency practices, mainland Chinese influence in international organisations, the development and utilisation of dual-use technologies by the mainland Chinese government, U.S. exposure to mainland China’s financial system, investment reciprocity between the U.S. and mainland China, the risks posed by the presence in U.S. capital markets of companies incorporated in mainland China, and the origin of the COVID-19 pandemic, including the contention that the virus potentially originated from the Wuhan Institute of Virology.

COMPETES Act

• U.S. Customs and Border Protection’s efforts to enforce the prohibition on imports of goods made with forced labour, including from the XUAR, would be strengthened, including through the establishment of a forced labour division to receive and investigate allegations of goods, wares, articles or merchandise mined, produced or manufactured using forced labour and to co-ordinate enforcement efforts with other agencies; 

• increased CBP inspection of goods from countries identified to be significant sources of counterfeit goods would be required; 

• CBP would be required to issue regulations within one year regarding the verification of seafood imports to ensure that no seafood or seafood product harvested or produced using forced labour is entered into the U.S.;

• modernised trade enforcement tools would be provided to the Office of the U.S. Trade Representative to address anti-competitive digital trade and censorship practices, including by requiring USTR to identify trading partners that disrupt digital trade;

• the investigation of unreasonable digital trade measures that are detrimental to U.S. persons would be allowed and a review of discriminatory digital trade proposals would have to be conducted; and

• a report would be required on overcapacity of mainland Chinese industries.