There have been a number of developments in various litigation areas against China, including Trade, Telecom, Securities, and Antitrust. 



Today, October 10, 2012, the Commerce issued final determinations in the antidumping and countervailing duty case on Solar Cells from China and there were some surprises. 

As compared to the preliminary determinations, the Antidumping (AD) rates went down for separate rate companies to 25.96%, but the Countervailing Duty Rate (CVD) rate went up to 15.24% so the total rate appears to be 41.2%, which is higher than the preliminary determinations.  But there is a catch.

If you look at the attached Fact Statement Solar Cells PRC_AD and CVD Fact Sheets_Final, Commerce has adjusted the cash deposit rate downward in the Antidumping case to account for the Countervailing duty case. In fact, for importers from Chinese companies with separate dumping margins, that are not mandatory companies, the antidumping cash deposit rate is really 15.42%, not 25.96%. So the total cash deposit rate is the 15.42% AD plus 15.24% CVD for a total of 30.66% in Solar Cells from China case. The combined rates are lower than the rates in the Preliminary Determination.

The China Wide Rate for companies that did not get separate rates also went down to from 249.98% to 239%.

This is a very new development at Commerce starting with the Preliminary Determination in my Steel Sinks case last week. For the first time, Commerce is giving a substantial offset to the antidumping rate for the CVD rate in Chinese trade cases. This is the first major final determination where this adjustment has taken place and it has resulted in the Solar Cells rate in an antidumping case 10 points lower than under the past methodology.

For Chinese exporters and US importers, another piece of good news is that Commerce has refused to expand the scope, the products covered by the antidumping and countervailing duty cases, to include third country solar cells in Chinese modules/panels. Thus Taiwan Solar Cells, for example, in Chinese modules and panels will be completely out of the case.

My prediction, therefore, is that the Solar Cells from China will not have a dramatic impact on the US market and will not help the US industry because Chinese producers/exporters and US importers will simply go to third countries to obtain the solar cells for Chinese modules and panels. In fact, I have been told that the difference in price between Taiwan Solar Cells and Chinese Solar Cells is only a few pennies. If true, nothing really will change as a result of this case if the ITC reaches a negative critical circumstances determination in the case.


Last Wednesday, October 3, with my client, Upsolar, I attended the US International Trade Commission (“ITC”) hearing in the Solar Cells from China antidumping and countervailing duty case.  In mid-November, the ITC must determine whether the dumped and subsidized imports of solar cells from China are a cause of material injury or threat of material injury to the US solar cells industry.  The ITC must also determine whether critical circumstances exist because there was a substantial surge in imports of Chinese solar cells after the Petition was filed in October 2011 until May 2012 when the Commerce Department issued its preliminary antidumping determination.  In making this determination, the ITC must determine whether the surge in imports would “undermine the remedial effect of the antidumping and countervailing orders” which will probably be issued in November 2012.

If the ITC reaches a no injury, no threat, determination, the Solar Cells antidumping and countervailing duty case will end.  Even if the ITC reaches an affirmative injury determination, if it reaches a no critical circumstances determination, the US importers will no longer be exposed to retroactive liability for imports of solar cells since December 27, 2012.  This retroactive liability is probably at a minimum $100 million.

From the comments at the hearing, I feel we have a good chance to win the critical circumstances argument at the ITC, which would eliminate the 90 days retroactive liability for US importers.  During the hearing, ITC Commissioner Pearson specifically asked Solar World and the other Petitioners to respond to my, Upsolar’s brief, on the issue.  Commissioner Pearson stated that the facts do not appear to support Petitioners’ argument that the increased imports will undermine the remedial effect of the order.

Upsolar along with the other US importers argued that the increased imports came in after the petition was filed in response to US government programs and increased demand.  The surge in imports came into the US, but because of increased demand from the government programs, the imports then went out of inventory to the US customers. 

The ITC will reach an affirmative determination in critical circumstances when there are large inventories, stockpiles, held by the US importers that would undermine the remedial effect of the orders, which may issue in November.  According to my client, inventories, in fact, have not increased.

Commissioner Pearson, in fact, questioned how an ITC finding of critical circumstances would help the US industry.

Although it appears that US importers and Chinese producers, exporters, have a good chance of winning critical circumstances at the ITC, the overall injury case from the Chinese point of view does not look good.  Imports are up and the industry is injured.  At the ITC hearing, the US subsidiaries of Chinese companies made strong arguments that the reason for the low Chinese prices is “grid parity”, that solar cells are being sold at low prices, not because of Chinese dumping or subsidization, but because of customer demands and demands by the State Public Utility Commissions that the solar energy be competitive with other forms of energy, such as coal and natural gas.

Although the respondents made some good arguments, the US antidumping and countervailing duty law is a very protectionist statute, and if the industry is injured and substantial imports at lower prices are entering the US market, it is very difficult to win the injury case.

Another problem is the substantial number of articles talking about the overcapacity in China for solar cell production.  On October 4th the attached article appeared in the New York Times, the day after the ITC hearing, about the overcapacity of the Chinese solar cells industry.  October 4 NYT Article Capacity and the ability to increase low priced Chinese exports to the United States is a factor that the ITC looks at in determining whether the Chinese imports are a threat of material injury.  The Article does not help the Chinese case.


Attached is a letter from a number of US Senators complaining about the subsidies that China is providing its paper industry and the fact that the US paper industry is being injured by imports from China.  PAPER SUBSIDIES CONG LETTER PAPER PRESS RELEASE  This may be the next battlefield in the Trade War.


Attached is the report issued October 8 by the House Intelligence Committee along with a Press Release released by Huawei in response to the Report.  In the report the House Intellegence Committee is telling US companies not to do business with Huawei and ZTE and asks US regulators to block any U.S. mergers and acquisitions because of concerns over close ties with the Chinese government.

The report also states that Huawei and ZTE have failed to cooperate with the House investigation. 

In talking with one consultant, who has been working with the Chinese companies, he mentioned that the problem is that the head of this House  Committee is on a “crusade” against the Chinese companies.  This is just one indication that the political situation in Washington DC is not healthy, and thus Chinese companies have to be very careful.



Attached is the September 11, 2012 Justice Department sentencing memorandum against Taiwan AU Optronics  in the LCDS antitrust case.  LCD SENTENCING MEMO  As indicated in the memorandum, the LCDs conspiracy involving the Taiwan companies is the largest cartel in history.

In the memorandum, the Justice Department argued that the Court should sentence AU Optronics Corporation (“AUO”) to pay a $1 billion fine and its top executives, H.B. Chen and Hui Hsiung, to serve ten years in prison and pay $1 million fines. The Memorandum states:

“These defendants and AUO’s subsidiary, AU Optronics Corporation America (“AUOA”), were central figures in the most serious price-fixing cartel ever prosecuted by the United States. Only these sentences could possibly reflect the seriousness of this offense or provide adequate deterrence. The correctly and conservatively calculated Sentencing Guidelines (“Guidelines”) ranges—a corporate fine of $936 million to $1.872 billion and prison terms from 121 to 151 months—suggest that these sentences are lenient ones for the offense in this case.

Defendants’ offense was no regulatory violation, nor a momentary lapse soon regretted. Rather, fully conscious of the wrongfulness of their actions, AUO and its executives conspired with the other major makers of TFT-LCD panels to systematically fix prices. The conspiracy lasted five years, ending only when the FBI raided their offices and a federal grand jury subpoenaed the conspirators’ records. . . .

The conspiracy’s breadth and its pernicious effect can hardly be overstated. The conspirators sold $71.9 billion in price-fixed panels worldwide. Even conservatively estimated, the conspirators sold $23.5 billion—AUO alone sold $2.34 billion—in price-fixed panels destined for the United States. The conspiracy particularly targeted the United States and its hitech companies: Apple, HP, and Dell. But the harm extended beyond these pillars of America’s hi-tech economy. The conspiracy affected every family, school, business, charity, and government agency that paid more to purchase notebook computers, computer monitors, and LCD televisions during the conspiracy.”

In the end of the Court fined AU Optronics $500 million and sentenced the executives to three years in prison.


Attached is a Class Action Securities Case filed October 4 against China Agritech, Inc. and a number of Chinese individuals for false and misleading financial statement and 10-Ks filed at the SEC. CHINA AGRITECH CLASS ACTION SECURITIES The Complaint alleges fraud.


Attached are two Articles by Tom Gorman, a Dorsey Partner, on Securities Actions Against Chinese companies.  Tom used to work in the Enforcement Division in the Securities and Exchange Commission (“SEC”) in Washington DC.

In the first article, Mr. Gorman gives an overview of SEC and other Securities actions against Chinese companies, stating:

“Chinese issuers, their executives and their auditors have been the subject of a series SEC
investigations and actions. Those companies and/or their executives have also been involved
in a series of securities class actions and at least one criminal case.

Beginning in 2010, and continuing through 2011, a series of securities class action damage
suits were brought against Chinese issuers, many of whom went public through a reverse
merger. In 2010 for example, 15 class actions were file involving Chinese issuers according to
a report by NERA Economic Consulting. That same report notes that over 30 securities class
actions were filed against Chinese issues in 2011 although in 2012 the number of filings
appears to be dwindling. Sinay v. CNOOC Limited, 12 CV 1513 (S.D.N.Y. filed Feb. 29, 2012),
a securities class action against a Chinese issuer and its officers alleging false statements
regarding its financial results, is an example of these cases.

To date at least one criminal case has been brought, U.S. v. Singhal, Case No. 1:11-cr-00142
(D.D.C.). The indictment charges conspiracy and wire fraud against corporate officials for
defrauding the SEC and U.S. investors.

The SEC has also brought a series of cases involving companies based in the Peoples Republic
of China or PRC and/or their officials and China based individuals. Those cases focus on six
key areas:

1. Failure to file periodic reports with the SEC such as annual and quarterly reports as
required the Securities Exchange Act of 1934 (“Exchange Act”) and other related actions

2. Questions regarding the audited financial statements included in annual reports filed with
the SEC

3. The refusal of the outside audit firm to produce its work papers from its audit of a PRC
based issuer on request of the SEC

4. Corporate governance issues

5. Foreign Corrupt Practices Act cases (“FCPA”).

6. Insider trading

This series will examine the actions brought by the SEC.”

The second article describes SEC actions against Chinese companies for failure to file annual reports and other documents. One of the companies, Yingxia, is headquartered in Harbin, China. As Mr. Gorman states in part:

“The SEC has revoked the registration statements of over a dozen Chinese issuers. At least 27
other revocation cases pending. In the Matter of Longtop Financial Technologies Ltd., Adm.
Proc. File No. 3-14622 (Nov. 10, 2011) is an example of an action brought under Exchange
Act Section 12(j) to revoke the registration statement of the company. Longtop is a Cayman
Island company based in Shanghai whose ADRs have been traded in New York since its IPO
in October 2007. On May 17, 2011 the Exchange halted trading and subsequently delisted the
shares of the company. Longtop failed to file its annual report with the Commission for the
fiscal year ended March 31, 2011. It also failed to provide investors with annual reports for
2008 – 2010. On December 14, 2011 an order was entered revoking the registration
statement of the issuer by default.

Another China based company which went public through a reverse merger and had its
registration statement revoked under Exchange Act Section 12(j) also spawned five other
Commission enforcement actions. China Yingxia International, Inc. was a Florida corporation
headquartered in Harbin, China. The company entered the U.S. capital markets through a
reverse merger in May 2006. Its shares were quoted on OTC Link which was formerly the
“pink sheets.”

From 2006 through 2009 the company purported to be in the health food business. On
February 2, 2012 the Commission instituted an administrative proceeding against the
company alleging violations of Section 12(j) since it had failed to file any periodic reports
since late 2008. In an order dated March 7, 2012 each class of China Yingxia’s registered
securities was revoked. In the Matter of China Yingxia International, Inc., Adm. Proc. File No.
34-66304 (February 2, 2012).

The full versions of the two articles are attached.GORMAN ARTICLE 1  GORMAN ARTICLE 2