The White House announced last Monday that it wanted the U.S. Trade Representative to initiate a Section 301 investigation against China’s “IP Theft” and technology transfer policies.  The announcement and accompanying “Fact Sheet” didn’t really lay out the specifics of which Chinese polices USTR would investigate.

On Friday, though, USTR published its own notice that it was formally initiating an investigation.  That notice explicitly lists four things that USTR will be looking at.  You can read it if you want.

The list predictably includes China’s technology transfer requirements for foreign investors and China’s commercial espionage activities.

There are two things that surprised me, though.  First, there is no mention in USTR’s announcement of the rampant infringement of U.S. companies’ IP rights in China.  The announcement from the White House did mention infringement and the costs to the U.S. economy of counterfeit goods, software piracy, and trade secrets theft.  USTR, however, left that complaint out entirely in its own notice.

USTR’s notice does call for “interested parties” to submit other complaints, so perhaps it will add that issue later.  But why not just include it at the outset?  That’s something to watch for.

The second surprising thing in USTR’s announcement is it inclusion of Chinese investment in U.S. companies as something to investigate.  This issue wasn’t included in the White House announcement, though it was mentioned in some length in an op-ed by Commerce Secretary Wilbur Ross.  Here’s how USTR describes the “problem”:

Third, the Chinese government reportedly directs and/or facilitates the systematic investment in, and/or acquisition of U.S. companies and assets by Chinese companies to obtain cutting edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

So, the complaint here is that the Chinese government is helping Chinese companies invest in innovative U.S. companies.  Apparently, U.S. companies are so good at innovating that even the architects of China’s protectionist techno-nationalism realize that their money is well spent investing in U.S. operations instead of just building competing ones.

It’s like USTR found the solution to its problems and then accidentally listed that solution in the problem column.  There’s nothing particularly bad about China’s desire to develop a high-tech economy and promote domestic innovation.  The United States has the same goal for itself.  The problem is that China pursues that goal through heavy-handed state guidance and protectionist discrimination.

Promoting investment by Chinese firms in U.S. innovation strikes me as an excellent example of how China could pursue its agenda in a way that benefits both China and the United States.  It’s not as good as China deciding to fully open its economy to inward and outward investment, but that’s not even remotely realistic.  A policy that helps Chinese companies buy American IP is immeasurably better than imposing performance requirements on U.S. investors or stealing U.S. trade secrets.

In its fight against China’s indigenous innovation policies, USTR should be careful not to indulge its own impulse toward techno-nationalism.

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