U.S. Steel’s costly battle against China’s cyber-hacking

America cannot be a great power without a vibrant steel industry. Steel is the lifeblood of a healthy, wealth-creating manufacturing economy. That’s why every major industrial country goes to great lengths to support its steel sector — except perhaps the United States.

There a gaping crevice between government attitudes and industry needs largely because of our traditional laissez-faire, hands-off approach to business, which is in fact both outdated and short-sighted given the globalization of our economy.  

{mosads}Case in point: U.S. Steel, a 116-year-old company that is one of the nation’s premier manufacturers.  U.S. Steel is a highly efficient, high-tech operation — not your grandfather’s smokestack company.  It runs four top-notch R&D centers whose job is to produce breakthroughs in new steel types and process for future needs.  

Among other advances, U.S. Steel spent millions of dollars in recent years to pioneer a new, lighter, higher-grade steel product for use in automobiles and elsewhere — just what competitive American companies are supposed to do.  But there’s a kicker.  As is increasingly the case, the Chinese hacked the firm’s computers and stole the advanced formula.  And now, surprise, a Chinese firm, Baosteel, is selling a similar high-tech steel in the U.S. — and at such a cut-rate price that U.S. Steel can’t match it.

It’s a pretty galling situation for U.S. Steel and its employees, especially when the rival product retails so cheaply thanks to billions of dollars in subsidies that Beijing funnels to its steelmakers.  These subsidies are illegal under world trade law — so Beijing should be prohibited from engaging in such practices.

How does U.S. Steel remedy the situation? Turns out that it is not so easy.  Even as a big U.S. multinational company, U.S. Steel is essentially David fighting the Chinese Goliath, given all the illegal support China provides its steel companies.  That means that the U.S. government has to come into play.  But it does so only through specialized “trade courts.”  U.S. Steel, like so many other companies and industries fighting foreign predatory trade practices, has little recourse but to file a time-consuming, money-draining trade case at the U.S. International Trade Commission (ITC) — while continuing to lose market share to foreign competitors.

So off to the ITC with a Section 337 complaint — in which the company seeks relief in three areas: the theft of trade secrets, antitrust violations (the Chinese steel industry colluding illegally to fix steel prices), and false designation (transshipping Chinese steel through third countries to hide its origin).  The trade case asks that the ITC to put a halt to illegal Chinese practices through various sanctions.

The most complex part of the case is U.S. Steel’s assertion that the Chinese stole proprietary technology, because the likely actor is not Baosteel but the Chinese government itself, which is not named as a party to the case.  U.S. trade law does not contemplate collusion between a foreign government and its industry in cyber-hacking commercial trade secrets.  The phase of U.S. Steel’s case known as “discovery” could, if allowed by the ITC, provide unprecedented access and insights into the operations of the Chinese government and its interactions with Chinese companies to win market share worldwide through illegal practices.   

U.S. Steel is trying to push the envelope of existing trade law to cover this very modern form of theft. What hampers the case is the fact that it must use statutes that were enacted long before the Internet age and haven’t been updated to consider cyber espionage.

Russia’s JV-level hacking is nothing compared to China’s https://t.co/huteW9q4ZJ

— Washington DC News (@washdcnews) January 19, 2017

As things currently stand, this bold, inventive legal strategy to cover 21st century practices with aging laws led to a “bridge too far.”  U.S. Steel decided to withdraw the trade secrets portion of the 337 case, and preserve its right to continue at a later time, rather than have the ITC dismiss it due to antiquated U.S. trade law.  The company noted in a statement that Section 337 is a “decades old law” that “never contemplated the technological advancements over the past 50 years that have led to the proliferation of cyber theft and other cyber-crimes committed against American companies.”

U.S. Steel will continue to pursue its case related to antitrust and false designation.  But much damage has already been done, and the burden continues to be borne by the injured company, with consequences for tens of thousands of livelihoods.  Where U.S. Steel and other industries are concerned, there is simply not adequate government help at present to address the unfair competition posed by cyber-hacking.

Congress has not done its job to keep U.S. trade law current. This means both the Trump administration and Congress should now scramble to address current, unfair global business practices, especially when involving foreign governments and cyber-hacking. In particular, it’s time for Washington to cooperate fully with the private sector to confront malicious cybercrimes and to provide reasonable, expeditious legal remedies. The future of many American companies and jobs is on the line.

Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.

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