China trade deal wins guarded praise from U.S. semi industry

President Donald Trump gives a speech on HRAs
President Trump signed a first phase China trade deal that includes protections for intellectual property and forced technology transfer. (White House)

Semiconductor industry officials praised the signing of the phase one U.S.-China trade agreement on Wednesday after more than a year of economic tension between the two countries.

The 94-page agreement “helps ease uncertainty in the semiconductor industry, and we hope it provides a steppingstone to a more comprehensive deal between the world’s two largest economies,” said Semiconductor Industry Association CEO John Neuffer in a statement. The SIA represents members that account for about 95% of U.S. semi sales.

Neuffer urged both sides to continue negotiations to reach a phase two agreement “that ensures a level playing field in China and tackles some of the thornier issues, such as state subsidies that can massively distort the marketplace.”

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U.S. chipmakers and electronics producers have worried that China’s government bolsters industry segments especially where U.S. producers are falling behind or are especially vulnerable. 

The phase one deal was signed by U.S. President Trump in a White House ceremony. China’s President Xi Jinping said in a letter that the deal is “good for China, the U.S. and the whole world.”

The signed deal has eight major parts and addresses two key concerns of the U.S. semiconductor industry regarding protections of intellectual property and requirements of forced technology transfer some U.S. companies have faced in attempting to do business in China. 

In addition, there are agreements on agricultural trade and financial services and a chapter on a dispute resolution process should either country feel the terms of the agreement have not been met.

A big agricultural pledge calls for China to more than double purchases from American farmers in the first year, totaling at least $80 billion over the next two years. The U.S. has also agreed to cut tariffs on $120 billion in Chinese goods by half to 7.5% and to forgo other planned tariffs.

China will also import more U.S. manufactured goods, totaling at least $120 billion in 2020 and $131 billion in 2021. The category covers a wide array of goods including integrated circuits, but also electrical equipment and machinery and industrial machines. 

The phase one agreement commits China to import no less than $200 billion in U.S. goods and services atop the amount imported in 2017.

Regarding technology transfer, the parties agreed to prohibit pressuring foreign companies to transfer their technology as a condition for market access. Any transfers or licensing of technology must be based on market terms that are voluntary and reflect mutual agreement. An earlier draft of the agreement required changes in Chinese law, but fell apart last year, according to reports.

The provision also prohibits state supported investment that is aimed at acquiring foreign technology in sectors and industries targeted by a country’s industrial policies. 

A much longer section on intellectual property is included in the deal. It requires China to expand the scope of civil liability for theft of trade secrets beyond manufacturers and to include individual former employees and cyberhackers. It also shifts the burden of proof in civil cases to the defendants if a trade secret owner has a reasonable indication of trade secret theft.

In addition, holders of trade secrets should find it easier to obtain preliminary injunctions against the use of stolen trade secrets before they lose their value.

In a statement, the U.S. Trade Representative said that existing penalties “have not been sufficient to deter the significant volume of IP theft in China,” adding that aspects of Chinese judicial system “have created barriers with respect to the ability of U.S. IP owners to effectively enforce their rights.”

As potential remedies, China is obligated to provide civil and criminal penalties for IP theft, including increasing the range of minimum and maximum damages, imprisonment sentences and monetary fines. IP theft cases would also be transferred to criminal authorities from administrative authorities if a criminal violation is suspected. A provision for presenting witnesses and cross-examining opposing witnesses in civil proceedings is also provided.

RELATED: 2019 semi sales down 11.9% from year before, says Gartner

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