Unilateral Tariffs vs. The Rule of Trade Law: The Case of Trade Secrets

President Trump is seeking to apply tariffs to $50 billion of imports of some 1,300 products from China. He is targeting telecommunications and other high-technology sectors where he and others contend that American companies have, in effect, been forced to turn over their technology to Chinese partners – in some cases by revealing their trade secrets – in exchange for being allowed to do business in China and have access to the booming Chinese market. These tariffs are to be imposed outside the legal bounds of the WTO treaty through unilateral actions taken under Section 301 of the US Trade Act of 1974.

For many of these U.S. allegations about China, however, WTO obligations apply, and could provide more effective recourse.  The various options under the WTO treaty for challenging Chinese trade practices will be explored in more detail in a forthcoming paper. This blog post focuses on one particular WTO obligation, covering trade secrets.

The Trump administration has been raising concerns about China’s failure to protect trade secrets, but evidently ignored so far is Article 39 of the TRIPS Agreement in the WTO treaty, which establishes a WTO obligation for the “Protection of Undisclosed Information.”[1] The United States was among the leaders in advocating the inclusion of Article 39 in the TRIPS Agreement as part of the WTO treaty, but the United States has, to date, not initiated an action in WTO dispute settlement claiming a violation by China of this WTO obligation.

Article 39 is a major innovation in intellectual property protection under international law. It is “the first multilateral acknowledgement of the essential role that trade secrets play in industry”[2] and “the first multilateral agreement to explicitly require member countries to provide protection for… ‘trade secrets.’”[3] One of the accomplishments of the Uruguay Round of multilateral trade negotiations that concluded the WTO treaty and established the WTO, “’[t]he inclusion of trade secrets under the TRIPS has been hailed as a major innovation.”[4]

This innovative WTO obligation offers an opportunity for challenging both the sufficiency of Chinese law and its application as part of a WTO complaint that China has not fulfilled its responsibility to enforce the protection of “undisclosed information.”

A specific focus of any WTO complaint by the United States relating to the failure of China to enforce the protection of trade secrets will be the continuing legal shortcomings of the Anti-Unfair Competition Law of China, which, as the Office of the United States Trade Representative has pointed out in its Special 301 Report for 2018, include “the overly narrow scope of covered actions and actors, the failure to address obstacles to injunctive relief, and the need to allow for evidentiary burden shifting in appropriate circumstances, in addition to other concerns.”[5] As USTR observes, in the 2017 update of the Anti-Unfair Competition Law, “despite long-term engagement from the United States and others – including from within China – China chose not to establish a stand-alone trade secrets law, and instead continued to seat important trade secrets provisions in the AUCL, an arrangement which contributes to definitional, conceptual, and practical shortcomings relating to trade secrets protection.”[6]

Those who would rather apply the broad illegal brush of unilateral tariffs instead of the sharp legal stiletto of a precise claim in WTO dispute settlement will protest that Article 39 has never been tested in a WTO dispute. This is true. Yet similar protests were heard ten and fifteen years ago against bringing legal claims in WTO dispute settlement under the Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures, which have both since been proven to be reliable tools for upholding and enforcing WTO obligations. Not having been tested is not the same as having been tried and found wanting. Until proven otherwise, a legal claim of a failure to protect “undisclosed information” under the novel obligation in Article 39 of the TRIPS Agreement must be seen as a potentially positive means to the end of protecting trade secrets.

It will certainly be said as well that proving a legal claim of illegal infringement of undisclosed information under Article 39 in WTO dispute settlement will not be easily accomplished. This also is true. As the complainant, the United States will have the burden of proving this and all its legal claims against China in  WTO dispute settlement. In challenging the enforcement of the Chinese law, the United States, with respect to each alleged infringement of a trade secret, will have to show to the satisfaction of a WTO panel that there is in fact “undisclosed information” comprising a trade secret. Moreover, the United States will have to prove to the panel each particular instance of the illegal infringement of specific trade secrets.

All of this will necessarily involve the accumulation and the submission of a veritable mountain of evidence – not easy in any case and certainly not easy in a case against a WTO Member with such an opaque and elusive economic and administrative system. Without question, China presents a formidable climb in the necessary fact gathering for winning a WTO case. But the United States has climbed this mountain successfully before in a series of complicated WTO complaints it has brought and won against China. Why is there so little confidence that the world-class legal advocates at USTR can climb it again?

Lastly, it will doubtless be insisted by those busy imposing unilateral tariffs that pursuing this claim and others in the WTO will take much time and much trouble and that, even if the United States prevails, a remedy is at best several years away. This likewise is true. But how much time and how much trouble are likely to result from the retaliatory legal actions and the retaliatory trade actions that are the certain consequence of tariffs imposed by the United States unilaterally and outside the legal framework of the WTO? Will US trade secrets be any better protected during the time it would take instead to seek and implement a WTO judgment under Article 39? And what other untold and untoward consequences will there be from an abandonment by the United States of America of the international rule of law?

[1] Article 39, TRIPS Agreement.

[2] Francois Dessemontet, “Protection of Trade Secrets and Confidential Information,” para. 3, at https://www.unil.ch/files/live/sites/cedidac/files/Articles/Protection%20Trade%20Secrets.pdf .

[3] Douglas C. Lippoldt and Mark F. Schulttz, “Trade Secrets, Innovation and the WTO,” Think Piece, E15 Expert Group on Trade and Innovation, E15 Initiative (Geneva: International Centre for Trade and Sustainable Development and World Economic Forum, August 2014), 1.

[4] Francois Dessemontet, “Protection of Trade Secrets and Confidential Information,” para. 2.

[5] Office of the United States Trade Representative, “2018 Special 301 Report” (April 27, 2018), 40.

[6] Ibid.