Title: Fair Trade with China Enforcement Act
Policy area: Foreign Trade and International Finance

Summary:
Fair Trade with China Enforcement Act
This bill revises trade, finance, and tax provisions with respect to China.
The bill directs the Department of Commerce to prohibit the export of certain U.S. technology and intellectual property to China.
The bill places a shareholder cap on Chinese investments in certain U.S. corporations.
Federal agencies are prohibited from using or procuring telecommunications equipment or services from Huawei Technologies Company, ZTE Corporation, or any other entity reasonably believed to be owned or controlled by China.
The bill requires the U.S. Trade Representative to list certain Chinese products that receive support pursuant to China's Made in China 2025 policy. The bill expedites the countervailing duty process (i.e., the imposition of duties to offset a subsidy by a foreign government) for products on such a list.
The bill amends the Internal Revenue Code to (1) repeal certain reduced withholding rates for residents of China, and (2) tax income received by China from certain U.S. investments.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 2 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  1st Session
                                  S. 2

To safeguard certain technology and intellectual property in the United 
 States from export to or influence by the People's Republic of China 
 and to protect United States industry from unfair competition by the 
          People's Republic of China, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 3, 2019

Mr. Rubio (for himself and Ms. Baldwin) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To safeguard certain technology and intellectual property in the United 
 States from export to or influence by the People's Republic of China 
 and to protect United States industry from unfair competition by the 
          People's Republic of China, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Fair Trade with 
China Enforcement Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Sense of Congress.
Sec. 3. Statement of policy.
TITLE I--SAFEGUARDS AGAINST FOREIGN INFLUENCE IN UNITED STATES NATIONAL 
        AND ECONOMIC SECURITY BY THE PEOPLE'S REPUBLIC OF CHINA

Sec. 101. Establishment of list of certain products receiving support 
                            from Government of People's Republic of 
                            China pursuant to Made in China 2025 
                            policy.
Sec. 102. Prohibition on export to People's Republic of China of 
                            national security sensitive technology and 
                            intellectual property.
Sec. 103. Imposition of shareholder cap on Chinese investors in United 
                            States corporations.
Sec. 104. Prohibition on use of certain telecommunications services or 
                            equipment.
 TITLE II--FAIR TRADE ENFORCEMENT ACTIONS WITH RESPECT TO THE PEOPLE'S 
                           REPUBLIC OF CHINA

Sec. 201. Countervailing duties with respect to certain industries in 
                            the People's Republic of China.
Sec. 202. Repeal of reduced withholding rates for residents of China.
Sec. 203. Taxation of obligations of the United States held by the 
                            Government of the People's Republic of 
                            China.

SEC. 2. SENSE OF CONGRESS.

    It is the Sense of Congress that--
            (1) since joining the World Trade Organization in 2001, the 
        People's Republic of China has offered the United States a 
        contradictory bargain, which promised openness in the global 
        trade order, but through state mercantilism delivered a 
        severely imbalanced trading relationship;
            (2) it was erroneous for the United States Government to 
        have ignored the contradictions and risks of free trade with 
        the People's Republic of China on the assumption that the 
        People's Republic of China would liberalize economically and 
        politically;
            (3) benefiting enormously from a more open global economy 
        to drive its own industries, the Government of the People's 
        Republic of China and the Communist Party of the People's 
        Republic of China have only tightened their grip on power, 
        brutally suppressing dissent at home and pursuing policies 
        abroad that are a far cry from being a responsible global 
        stakeholder;
            (4) malevolent economic behavior by persons in the People's 
        Republic of China is made clear by the theft of intellectual 
        property from the United States, as Chinese theft of United 
        States intellectual property alone costs the United States 
        nearly $600,000,000,000 annually, according to the United 
        States Trade Representative;
            (5) stealing United States intellectual property advances 
        the Made in China 2025 initiative of the Government of the 
        People's Republic of China to eventually dominate global 
        exports in 10 critical sectors, namely artificial intelligence 
        and next-generation information technology, robotics, new-
        energy vehicles, biotechnology, energy and power generation, 
        aerospace, high-tech shipping, advanced railway, new materials, 
        and agricultural machinery, among others;
            (6) the targets of the Made in China 2025 initiative reveal 
        the goal of the People's Republic of China for the near-total 
        displacement of advanced manufacturing in the United States; 
        and
            (7) the United States Government should act to strengthen 
        the position of the United States in its policy toward the 
        People's Republic of China in order to create a more balanced 
        economic relationship by safeguarding strategic assets from 
        Chinese influence, reducing Chinese involvement in the United 
        States economy, and encouraging United States companies to 
        produce domestically, instead of in the People's Republic of 
        China.

SEC. 3. STATEMENT OF POLICY.

    It is the policy of the United States--
            (1) to impose restrictions on Chinese investment in the 
        United States in strategic industries targeted by the Made in 
        China 2025 initiative set forth by the Government of the 
        People's Republic of China;
            (2) to tax Chinese investment in the United States due to 
        its negative effect on the United States trade deficit and 
        wages of workers in the United States;
            (3) to increase the cost of transnational production 
        operations in the People's Republic of China in a manner 
        consistent with the economic cost of the risk of loss of unique 
        access by the United States to intellectual property, 
        technology, and industrial base; and
            (4) to support democratization in and the human rights of 
        the people of Hong Kong, including the findings and 
        declarations set forth under section 2 of the United States-
        Hong Kong Policy Act of 1992 (22 U.S.C. 5701).

TITLE I--SAFEGUARDS AGAINST FOREIGN INFLUENCE IN UNITED STATES NATIONAL 
        AND ECONOMIC SECURITY BY THE PEOPLE'S REPUBLIC OF CHINA

SEC. 101. ESTABLISHMENT OF LIST OF CERTAIN PRODUCTS RECEIVING SUPPORT 
              FROM GOVERNMENT OF PEOPLE'S REPUBLIC OF CHINA PURSUANT TO 
              MADE IN CHINA 2025 POLICY.

    (a) In General.--Chapter 8 of title I of the Trade Act of 1974 (19 
U.S.C. 2241 et seq.) is amended by adding at the end the following:

``SEC. 183. LIST OF CERTAIN PRODUCTS RECEIVING SUPPORT FROM GOVERNMENT 
              OF PEOPLE'S REPUBLIC OF CHINA.

    ``(a) In General.--Not later than 120 days after the date of the 
enactment of the Fair Trade with China Enforcement Act, and every year 
thereafter, the United States Trade Representative shall set forth a 
list of products manufactured or produced in, or exported from, the 
People's Republic of China that are determined by the Trade 
Representative to receive support from the Government of the People's 
Republic of China pursuant to the Made in China 2025 industrial policy 
of that Government.
    ``(b) Criteria for List.--
            ``(1) In general.--The Trade Representative shall include 
        in the list required by subsection (a) the following products:
                    ``(A) Any product specified in the following 
                documents set forth by the Government of the People's 
                Republic of China:
                            ``(i) Notice on Issuing Made in China 2025.
                            ``(ii) China Manufacturing 2025.
                            ``(iii) Notice on Issuing the 13th Five-
                        year National Strategic Emerging Industries 
                        Development Plan.
                            ``(iv) Guiding Opinion on Promoting 
                        International Industrial Capacity and Equipment 
                        Manufacturing Cooperation.
                            ``(v) Any other document that expresses a 
                        national strategy or stated goal in connection 
                        with the Made in China 2025 industrial policy 
                        set forth by the Government of the People's 
                        Republic of China, the Communist Party of 
                        China, or another entity or individual capable 
                        of impacting the national strategy of the 
                        People's Republic of China.
                    ``(B) Any product receiving support from the 
                Government of the People's Republic of China that has 
                or will in the future displace net exports of like 
                products by the United States, as determined by the 
                Trade Representative.
            ``(2) Included products.--In addition to such products as 
        the Trade Representative shall include pursuant to paragraph 
        (1) in the list required by subsection (a), the Trade 
        Representative shall include products in the following 
        industries:
                    ``(A) Civil aircraft.
                    ``(B) Motor car and vehicle.
                    ``(C) Advanced medical equipment.
                    ``(D) Advanced construction equipment.
                    ``(E) Agricultural machinery.
                    ``(F) Railway equipment.
                    ``(G) Diesel locomotive.
                    ``(H) Moving freight.
                    ``(I) Semiconductor.
                    ``(J) Lithium battery manufacturing.
                    ``(K) Artificial intelligence.
                    ``(L) High-capacity computing.
                    ``(M) Quantum computing.
                    ``(N) Robotics.
                    ``(O) Biotechnology.''.
    (b) Clerical Amendment.--The table of contents for the Trade Act of 
1974 is amended by inserting after the item relating to section 182 the 
following:

``Sec. 183. List of certain products receiving support from Government 
                            of People's Republic of China.''.

SEC. 102. PROHIBITION ON EXPORT TO PEOPLE'S REPUBLIC OF CHINA OF 
              NATIONAL SECURITY SENSITIVE TECHNOLOGY AND INTELLECTUAL 
              PROPERTY.

    (a) In General.--The Secretary of Commerce shall prohibit the 
export to the People's Republic of China of any national security 
sensitive technology or intellectual property subject to the 
jurisdiction of the United States or exported by any person subject to 
the jurisdiction of the United States.
    (b) Definitions.--In this section:
            (1) Intellectual property.--The term ``intellectual 
        property'' includes patents, copyrights, trademarks, or trade 
        secrets.
            (2) National security sensitive technology or intellectual 
        property.--The term ``national security sensitive technology or 
        intellectual property'' includes the following:
                    (A) Technology or intellectual property that would 
                make a significant contribution to the military 
                potential of the People's Republic of China that would 
                prove detrimental to the national security of the 
                United States.
                    (B) Technology or intellectual property necessary 
                to protect the economy of the United States from the 
                excessive drain of scarce materials and to reduce the 
                serious inflationary impact of demand from the People's 
                Republic of China.
                    (C) Technology or intellectual property that is a 
                component of the production of products included in the 
                most recent list required under section 183 of the 
                Trade Act of 1974, as added by section 101(a), 
                determined in consultation with the United States Trade 
                Representative.
            (3) Technology.--The term ``technology'' includes goods or 
        services relating to information systems, Internet-based 
        services, production-enhancing logistics, robotics, artificial 
        intelligence, biotechnology, or computing.

SEC. 103. IMPOSITION OF SHAREHOLDER CAP ON CHINESE INVESTORS IN UNITED 
              STATES CORPORATIONS.

    Section 13(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78m(d)) is amended by adding at the end the following:
    ``(7)(A) In this paragraph, the term `covered issuer' means any 
issuer that produces components that may be used in the production of 
goods manufactured or produced in, or exported from, the People's 
Republic of China and included in the most recent list required under 
section 183 of the Trade Act of 1974, determined in consultation with 
the United States Trade Representative.
    ``(B) No covered issuer that is incorporated under the laws of a 
State, or whose principal place of business is within a State, may be 
majority-owned by a person whose principal place of business is in the 
People's Republic of China.
    ``(C) The prohibition in subparagraph (B) shall apply to any 
acquisition on or after the date of enactment of this paragraph.''.

SEC. 104. PROHIBITION ON USE OF CERTAIN TELECOMMUNICATIONS SERVICES OR 
              EQUIPMENT.

    (a) Findings.--Congress makes the following findings:
            (1) In its 2011 ``Annual Report to Congress on Military and 
        Security Developments Involving the People's Republic of 
        China'', the Department of Defense stated, ``China's defense 
        industry has benefited from integration with a rapidly 
        expanding civilian economy and science and technology sector, 
        particularly elements that have access to foreign technology. 
        Progress within individual defense sectors appears linked to 
        the relative integration of each, through China's civilian 
        economy, into the global production and R&D chain . . . 
        Information technology companies in particular, including 
        Huawei, Datang, and Zhongxing, maintain close ties to the 
        PLA.''.
            (2) In a 2011 report titled ``The National Security 
        Implications of Investments and Products from the People's 
        Republic of China in the Telecommunications Sector'', the 
        United States China Economic and Security Review Commission 
        stated that ``[n]ational security concerns have accompanied the 
        dramatic growth of China's telecom sector. . . . Additionally, 
        large Chinese companies--particularly those `national 
        champions' prominent in China's `going out' strategy of 
        overseas expansion--are directly subject to direction by the 
        Chinese Communist Party, to include support for PRC state 
        policies and goals.''.
            (3) The Commission further stated in its report that 
        ``[f]rom this point of view, the clear economic benefits of 
        foreign investment in the U.S. must be weighed against the 
        potential security concerns related to infrastructure 
        components coming under the control of foreign entities. This 
        seems particularly applicable in the telecommunications 
        industry, as Chinese companies continue systematically to 
        acquire significant holdings in prominent global and U.S. 
        telecommunications and information technology companies.''.
            (4) In its 2011 Annual Report to Congress, the United 
        States China Economic and Security Review Commission stated 
        that ``[t]he extent of the state's control of the Chinese 
        economy is difficult to quantify. . . . There is also a 
        category of companies that, though claiming to be private, are 
        subject to state influence. Such companies are often in new 
        markets with no established SOE leaders and enjoy favorable 
        government policies that support their development while posing 
        obstacles to foreign competition. Examples include Chinese 
        telecoms giant Huawei and such automotive companies as battery 
        maker BYD and vehicle manufacturers Geely and Chery.''.
            (5) In the bipartisan ``Investigative Report on the United 
        States National Security Issues Posed by Chinese 
        Telecommunication Companies Huawei and ZTE'' released in 2012 
        by the Permanent Select Committee on Intelligence of the House 
        of Representatives, it was recommended that ``U.S. government 
        systems, particularly sensitive systems, should not include 
        Huawei or ZTE equipment, including in component parts. 
        Similarly, government contractors--particularly those working 
        on contracts for sensitive U.S. programs--should exclude ZTE or 
        Huawei equipment in their systems.''.
            (6) General Michael Hayden, who served as Director of the 
        Central Intelligence Agency and Director of the National 
        Security Agency, stated in July 2013 that Huawei had ``shared 
        with the Chinese state intimate and extensive knowledge of 
        foreign telecommunications systems it is involved with''.
            (7) The Federal Bureau of Investigation, in a February 2015 
        Counterintelligence Strategy Partnership Intelligence Note 
        stated that, ``[w]ith the expanded use of Huawei Technologies 
        Inc. equipment and services in U.S. telecommunications service 
        provider networks, the Chinese Government's potential access to 
        U.S. business communications is dramatically increasing. 
        Chinese Government-supported telecommunications equipment on 
        U.S. networks may be exploited through Chinese cyber activity, 
        with China's intelligence services operating as an advanced 
        persistent threat to U.S. networks.''.
            (8) The Federal Bureau of Investigation further stated in 
        its February 2015 counterintelligence note that ``China makes 
        no secret that its cyber warfare strategy is predicated on 
        controlling global communications network infrastructure''.
            (9) At a hearing before the Committee on Armed Services of 
        the House of Representatives on September 30, 2015, Deputy 
        Secretary of Defense Robert Work, responding to a question 
        about the use of Huawei telecommunications equipment, stated, 
        ``In the Office of the Secretary of Defense, absolutely not. 
        And I know of no other--I don't believe we operate in the 
        Pentagon, any [Huawei] systems in the Pentagon.''.
            (10) At that hearing, the Commander of the United States 
        Cyber Command, Admiral Mike Rogers, responding to a question 
        about why such Huawei telecommunications equipment is not used, 
        stated, ``As we look at supply chain and we look at potential 
        vulnerabilities within the system, that it is a risk we felt 
        was unacceptable.''.
            (11) In March 2017, ZTE Corporation pled guilty to 
        conspiring to violate the International Emergency Economic 
        Powers Act by illegally shipping United States-origin items to 
        Iran, paying the United States Government a penalty of 
        $892,360,064 for activity between January 2010 and January 
        2016.
            (12) The Office of Foreign Assets Control of the Department 
        of the Treasury issued a subpoena to Huawei as part of a 
        Federal investigation of alleged violations of trade 
        restrictions on Cuba, Iran, and Sudan.
    (b) Prohibition on Agency Use or Procurement.--The head of an 
agency may not procure or obtain, may not extend or renew a contract to 
procure or obtain, and may not enter into a contract (or extend or 
renew a contract) with an entity that uses, or contracts with any other 
entity that uses, any equipment, system, or service that uses covered 
telecommunications equipment or services as a substantial or essential 
component of any system, or as critical technology as part of any 
system.
    (c) Report.--Not later than one year after the date of the 
enactment of this Act, and annually thereafter, the Secretary of 
Commerce, in consultation with the Secretary of Defense and the United 
States Trade Representative, shall submit to Congress a report on sales 
by the Government of the People's Republic of China of covered 
telecommunications equipment or services through partial ownership or 
any other methods.
    (d) Definitions.--In this section:
            (1) Agency.--The term ``agency'' has the meaning given that 
        term in section 551 of title 5, United States Code.
            (2) Covered telecommunications equipment or services.--The 
        term ``covered telecommunications equipment or services'' means 
        any of the following:
                    (A) Telecommunications equipment produced by Huawei 
                Technologies Company, ZTE Corporation, or any other 
                Chinese telecom entity identified by the Director of 
                National Intelligence, the Secretary of Defense, or the 
                Director of the Federal Bureau of Investigation as a 
                security concern (or any subsidiary or affiliate of any 
                such entity).
                    (B) Telecommunications services provided by such 
                entities or using such equipment.
                    (C) Telecommunications equipment or services 
                produced or provided by an entity that the head of the 
                relevant agency reasonably believes to be an entity 
                owned or controlled by, or otherwise connected to, the 
                Government of the People's Republic of China.

 TITLE II--FAIR TRADE ENFORCEMENT ACTIONS WITH RESPECT TO THE PEOPLE'S 
                           REPUBLIC OF CHINA

SEC. 201. COUNTERVAILING DUTIES WITH RESPECT TO CERTAIN INDUSTRIES IN 
              THE PEOPLE'S REPUBLIC OF CHINA.

    (a) Policy.--It is the policy of the United States--
            (1) to reduce the import of finished goods from the 
        People's Republic of China relating to the Made in China 2025 
        plan set forth by the Government of the People's Republic of 
        China; and
            (2) to encourage allies of the United States to reduce the 
        import of finished goods from the People's Republic of China 
        relating to the Made in China 2025 plan.
    (b) Inclusion of Made in China 2025 Products in Definition of 
Countervailable Subsidy.--Paragraph (5) of section 771 of the Tariff 
Act of 1930 (19 U.S.C. 1677) is amended by adding at the end the 
following:
                    ``(G) Treatment of certain chinese merchandise.--
                Notwithstanding any other provision of this title, if a 
                person presents evidence in a petition filed under 
                section 702(b) that merchandise covered by the petition 
                is manufactured or produced in, or exported from, the 
                People's Republic of China and included in the most 
                recent list required under section 183 of the Trade Act 
                of 1974, determined in consultation with the United 
                States Trade Representative, the administrating 
                authority shall determine that a countervailable 
                subsidy is being provided with respect to that 
                merchandise.''.
    (c) Inclusion of Made in China 2025 Products in Definition of 
Material Injury.--Paragraph (7)(F) of such section is amended by adding 
at the end the following:
                            ``(iv) Treatment of certain chinese 
                        merchandise.--Notwithstanding any other 
                        provision of this title, if a petition filed 
                        under section 702(b) alleges that an industry 
                        in the United States is materially injured or 
                        threatened with material injury or that the 
                        establishment of an industry in the United 
                        States is materially retarded by reason of 
                        imports of merchandise manufactured or produced 
                        in, or exported from, the People's Republic of 
                        China and included in the most recent list 
                        required under section 183 of the Trade Act of 
                        1974, determined in consultation with the 
                        United States Trade Representative, the 
                        Commission shall determine that material injury 
                        or such a threat exists.''.

SEC. 202. REPEAL OF REDUCED WITHHOLDING RATES FOR RESIDENTS OF CHINA.

    (a) In General.--Section 894 of the Internal Revenue Code of 1986 
is amended--
            (1) by striking ``The provisions of'' in subsection (a) and 
        inserting ``Except as otherwise provided in this section, the 
        provisions of''; and
            (2) by adding at the end the following new subsection:
    ``(d) Exception for People's Republic of China.--
            ``(1) In general.--The rates of tax imposed under sections 
        871 and 881, and the rates of withholding tax imposed under 
        chapter 3, with respect to any resident of the People's 
        Republic of China shall be determined without regard to any 
        provision of the Agreement between the Government of the United 
        States of America and the Government of the People's Republic 
        of China for the Avoidance of Double Taxation and the 
        Prevention of Tax Evasion with Respect to Taxes on Income, 
        signed at Beijing on April 30, 1984.
            ``(2) Regulations.--The Secretary shall promulgate 
        regulations to prevent the avoidance of the purposes of this 
        subsection through the use of foreign entities.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to income received after the date of the enactment of this Act.

SEC. 203. TAXATION OF OBLIGATIONS OF THE UNITED STATES HELD BY THE 
              GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA.

    (a) In General.--Section 892 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (c) as subsection (d) and by 
inserting after subsection (b) the following new subsection:
    ``(c) Exception.--This section shall not apply to the Government of 
the People's Republic of China.''.
    (b) Central Bank.--Section 895 of the Internal Revenue Code of 1986 
is amended--
            (1) by striking ``Income'' and inserting the following:
    ``(a) In General.--Income''; and
            (2) by adding at the end the following new subsection:
    ``(b) Exception.--This section shall not apply to the any central 
bank of the People's Republic of China.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to income received or derived after the date of the enactment of 
this Act.
                                 <all>