II 115th CONGRESS 2d Session S. 2826 IN THE SENATE OF THE UNITED STATES May 10, 2018 Mr. Rubio 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.

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. 204. Surtax on certain income derived from China. 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. 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 ). I Safeguards against foreign influence in United States national and economic security by the People’s Republic of China 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: 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. . 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. 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. . 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. II Fair trade enforcement actions with respect to the People’s Republic of China 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. . 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. 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. 204. Surtax on certain income derived from China (a) In general Subpart D of part II of subchapter N of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: 899. Imposition of surtax on certain income from China (a) In general In addition to other taxes, there is imposed on the China source income of any applicable United States person a tax equal to 2 percent of such income. (b) Applicable United States person For purposes of this subsection, the term applicable United States person means any United States person who— (1) holds an investment through a partnership with a resident of the People's Republic of China, or (2) participates in a joint shareholding venture with a resident of the People's Republic of China. (c) China source income For purposes of this section, the term China source income means any amount received from sources within the People's Republic of China which is attributable to an investment described in subsection (b)(1) or a venture described in subsection (b)(2). Such amount shall be reduced so as to take into account deductions (including taxes) properly allocable to such income under rules similar to the rules of section 954(b)(5). . (b) Tax not treated as part of regular tax liability Section 26(b)(2) of such Code is amended by striking and at the end of subparagraph (X), by striking the period at the end of subparagraph (Y) and inserting , and , and by adding at the end the following new subparagraph: (Z) section 899 (relating to surtax on certain income from China). . (c) Clerical amendment The table of sections for subpart D of of part II of subchapter N of such Code is amended by adding at the end the following new item: Sec. 899. Imposition of surtax on certain income from China. . (d) Effective date The amendments made by this section shall apply to income received after the date of the enactment of this Act.