There have been a number of developments in the trade, antitrust, patent, securities and corporate areas.
The Commerce Department issued its final attached antidumping and countervailing duty determinations Wednesday, February 20th, in the Steel Sinks case. The CVD rates ranged from 4.8 to 12.26% and the average CVD rate is 8.5%. C-570-984 Sinks from the PRC Final FR Notice A-570-983 Drawn Sinks AD FR_signed factsheet-prc-sinks-adcvd-final-20130220
In the antidumping case, the rates ranged from 27 to 39% with the Chinese separate rate companies getting 33%. All other Chinese companies received a rate of 76%.
On Thursday, February 21st, I appeared at the ITC hearing along with three importers to fight the case in the ITC injury investigation. All the Chinese companies have given up at the ITC and many have not even submitted responses to the ITC questionnaire.
I firmly believe that the decision of Chinese companies to give up at the ITC is a big mistake. Despite the fact that my three importers appeared as the only respondents at the Steel Sinks case and despite the advice from many trade attorneys in China and the US that this case is over, the ITC asked the three importers and myself questions for 2 and a half hours. If the case is a slam dunk win for the Petitioners with no reason to fight the case, why would Commissioners bother to ask the importers questions for 2 and a half hours?
The problem with the advice that the ITC injury investigation is a worthless exercise is the Chinese companies and US importers have only one place where they can completely win the case and that is at the ITC for no injury. When Chinese companies and importers give up on the ITC injury investigation, it becomes a self-fulfilling prophecy, and because it does not have the evidence, the ITC goes affirmative.
By the way, for those who say it is impossible to win the injury case at the ITC, then why did the US industry lose the injury case about a year ago in the Steel Wire and Steel Wheels from China antidumping cases?
On February 27, 2012, the Commerce Department issued its attached preliminary countervailing duty determination in the Hardwood Plywood Case and nailed a lot of Chinese companies. factsheet-prc-hdplywood-cvd-prelim-20130227 The mandatory rates range from 0% for some Chinese companies to 27.16% for a number of companies as adverse facts available because they refused to cooperate in the case. All other Chinese companies received 22%, an average of the 0 and the 27.16%.
Thus, if one Chinese company that is chosen as a mandatory company refuses to cooperate with the Commerce Department’s investigation, all the rest of the Chinese companies exporting are nailed if the other Chinese company that cooperates gets 0. Welcome to fairness Commerce style.
If the Chinese company had not received a 0, but 2% or more, the Chinese separate rate companies would have received that 2% or more.
We can expect an antidumping preliminary determination in the Hardwood Plywood case about 60 days from now.
WOOD FLOORING REVIEW INVESTIGATION
On Monday, I gave a presentation to the US importers on the Wood Flooring review investigation. Chinese companies that want to receive a low antidumping rate have to file either a certification or an application by the end of March, March 31, 2013, at the Commerce Department.
Attached is a Powerpoint on Commerce Department review investigations. REVIEW INVESTIGATIONS In the Powerpoint I describe review investigations and when a Chinese company should file a separate rate certification as opposed to a separate rate application.
MARCH REVIEW INVESTIGATIONS
Attached is the Federal Register notice giving Chinese companies the right to request an antidumping and countervailing duty review investigation for these products:
Antidumping Duty Proceedings
The People’s Republic of China:
Chloropicrin, A-570-002…………………….. 3/1/12-2/28/13
Circular Welded Austenitic Stainless Pressure 3/1/12-2/28/13
Drill Pipe, A-570-965………………………. 3/1/12-2/28/13
Glycine, A-570-836…………………………. 3/1/12-2/28/13
Sodium Hexametaphosphate, A-570-908………….. 3/1/12-2/28/13
Tissue Paper Products, A-570-894…………….. 3/1/12-2/28/13
Countervailing Duty Proceedings
The People’s Republic of China:
Circular Welded Austenitic Stainless Pressure 1/1/12-12/31/12
Drill Pipe, C-570-966………………………. 1/1/12-12/31/12
SOLAR CELLS—THIRD COUNTRY CELLS
Customs is cracking down on US importers with regard to the documents needed to prove that panels and modules from China contain solar cells from third countries.
Commerce told Customs in their instructions:
“Importers of panels/models from ANY country that does not contain subject solar cells produced in the PRC must maintain the Importers Certification in the Department of Commerce (DOC) AD/CVD Order 2153302 dated 06/01/2012 section 3(A). In addition to the Importer Certification, the importer must maintain documentation supporting the certification.”
“If an exporter of panels/models not containing subject solar cells produced in the PRC is located in the PRC, BOTH the importer and the exporter must maintain the Exporter Certification in DOC AD/CVD order 2153302 dated 06/01/2012 section 3(B). In addition to the Exporter Certification, the importer and exporter must maintain documentation supporting the certification.”
In a recent notice of action issued to a US importer, Customs stated the following:
“We note the lack of any documents between the supposed maker of the solar cells and the Chinese manufacturer. All documents lack any traceable and/or verifiable references such as lot numbers, serial numbers, and/or production records. We find the Purchase Order, Invoice, and the Bill of Materials (BOM) to be inadequate support for the certification of third-country made solar cells.”
Customs is going to be very tough in this area so importers have to watch this situation very closely.
PRESIDENT OBAMA’S TRADE AGENDA FOR 2013
As the complex trade and economic relationship between the United States and China continues to mature and evolve, President Obama is committed to ensuring U.S. trade with China provides American exporters with a level playing field to compete in China’s large and growing market. The United States has welcomed China’s growing leadership role at both the regional and multilateral levels; moving forward, we will seek to enhance cooperation toward common objectives on the basis of our shared responsibility to sustain global economic growth and stability in support of trade-related jobs.”
“In 2013, the United States will address trade objectives with China using all available tools including dialogue, negotiation, and enforcement when appropriate. We will seek to increase transparency and eliminate market access barriers across all sectors. We will advance BIT negotiations with China to secure improved market access, important investor protections, and increased certainty for US investors. We will continue to work to obtain a comprehensive offer from China, commensurate with other Parties’ coverage, to join the WTO Government Procurement Agreement, as this would provide substantial access for U.S. and international exporters to one of the world’s largest government procurement markets. We will closely monitor implementation of China’s bilateral and WTO commitments to respect and protect U.S. intellectual property, and will work with China to improve intellectual property protection and enforcement, recognizing that strong rule of law is essential to encourage and support continued innovation. As stated, we will also continue to hold China accountable for its other WTO commitments through appropriate enforcement efforts that aim to end discriminatory policies wherever they are discovered in China.”
“Our 2013 efforts to promote healthy and equitable trade with China will build on recent progress in several areas. Bilateral engagement in 2012 – through the Joint Commission on Commerce and Trade and the Strategic and Economic Dialogue, as well as the Innovation Dialogue and other key working groups and bilateral fora – produced meaningful results on key trade and investment issues, though there is more work to do. In 2013, we will continue to work proactively through bilateral venues to address new and ongoing challenges, as well as seeking timely and thorough implementation of China’s past commitments, including but not limited to: addressing U.S. concerns regarding various measures impeding imports of U.S. goods, such as food and agricultural products, information technology and telecommunications equipment, medical devices, and an array of manufactured products into China; and not discriminating in favor of China’s state-owned enterprises and national champions in providing credit, taxation incentives, and in regulatory policies.”
“To preserve and support American jobs and innovation, the United States will rigorously monitor China’s 2012 commitment to treat intellectual property rights owned or developed in other countries the same as intellectual property rights owned or developed by the Chinese, along with China’s commitments not to interfere with businesses’ technology transfer decisions, and to promptly correct any measures inconsistent with this commitment. In addition, we will seek prompt implementation of China’s 2012 commitments on intellectual property, including the commitments regarding the use of legal software by Chinese enterprises, as well as audits of software on computers used by the Chinese government. We will also closely monitor implementation of China’s February 2012 agreement, which followed the United States’ win in a WTO dispute, to increase market access significantly for U.S. movies being imported and shown in China’s theaters.”
ANTITRUST—VITAMIN C CASE
The Vitamin C antitrust jury trial has started and there are a lot of fireworks.
The Jury trial started on Monday, February 25, with allegations that the price fixing cost US businesses $54.1 million. The allegation is that China’s largest vitamin C makers voluntarily entered into a series of agreements that limited supply and artificially inflated prices U.S. purchasers paid for Vitamin C between 2002 and March 2006. About 80 percent of vitamin C used in the U.S. is produced in China.
The trial is historic because Chinese companies have never before been forced to defend themselves in US court. A key question jurors are being asked to consider is whether Chinese businesses conspired to set prices in response to market forces driving down the product’s cost, or if the Chinese government, as the companies contend, compelled them to enter into the agreements as part of its regulation of the industry.
Chinese manufacturers began discussing ways to protect vitamin-C prices and limit exports after the cost for the product plummeted to $3 per kilogram by the end of 2001. The companies entered into written pricing agreements during meetings of a vitamin-C subgroup of the government-controlled China Chamber of Commerce for Import & Export of Medicine & Health Products.
The Chinese companies received help from the Chamber in coordinating their pact, but each of the manufacturers voluntarily agreed to enter into the price-fixing agreement. Membership in the Chamber is voluntary, and each of the companies is allowed to set the organization’s rules and elect its officers. Jurors will be shown numerous internal documents demonstrating that the companies acted independently of the Chinese government
Attorneys representing CPG, Weisheng, Hebei Welcome and NCPG described the organization in stark terms, saying the Chamber operated under the government’s thumb and stressed to the jury that it’s not comparable to the U.S. Chamber of Commerce or similar trade groups. China considered vitamin C one of its key exports and controlled the industry.
On Tuesday, testimony started at the trial in the Eastern District of New York. Jurors were shown an internal memo from an alleged co-conspirator urging employees to “be smart” and conceal their actions.
On day two of the trial in Brooklyn federal court, the jury was told that China-based Aland (Jiangsu) Nutraceutical Co. Ltd. — which avoided trial by settling last year for $10.5 million — sought to conceal its involvement in the price-fixing ring after it was named in the suit along with other defendants.
“We need to do things in a more hidden and smart way,” the memo said in part; it was written after the lawsuit was filed in January 2005 by a superior of Wang Qi, Aland’s former head of vitamin C marketing and sales.
Qi took notes of numerous meetings between executives of other Chinese companies, including defendants Weisheng Pharmaceutical Co. Ltd. and Hebei Welcome Pharmaceutical Co. Ltd., where they determined what prices they would quote U.S. businesses, according to documents shown Tuesday during his testimony. The notes described meetings from 2001 through 2005 convened by the China Chamber of Commerce for Import & Export of Medicine & Health Products.
In one email from April 2004, Qi revealed to a customer based in India that members of Commerce’s vitamin C group had agreed to stop production of the nutrient in the coming months — a move that was intended to stabilize prices. Qi said the information was used to build trust with the customer and entice them to purchase more vitamin C.
Under questioning by plaintiffs’ attorney Bill Isaacson of Boies Schiller & Flexner LLP, Qi denied that Aland attempted to mask its dealings with other Chinese vitamin C producers after the lawsuit was filed, saying through a translator that despite what the memo said the company continued to follow its normal procedures. That included submitting monthly reports on China’s vitamin C market, he said.
Qi was asked throughout the day whether he recalled anything from the meetings but said repeatedly he couldn’t remember details about them that weren’t included in the notes he took, noting that some of the meetings took place more than a decade ago.
The notes showed that price controls China’s vitamin C producers agreed on came in response to changes in the market. One meeting was convened on Dec. 26, 2003, in Beijing after purchasing activity for vitamin C slowed down in the weeks leading up to Christmas, which sent the price for the nutrient tumbling. At the meeting, companies pushed for the establishment of a $9 per kilo ceiling floor.
Qi said he threw away the laptop he used to record what happened at the meetings in 2005 — shortly after the lawsuit was filed. He denied that he disposed of the laptop in response to the litigation, and said through a translator that it went “kaput.” Aland at the time didn’t have rules about preserving documents, he said.
On Wednesday, witnesses told a New York federal jury that Chinese trade regulators could impose penalties against vitamin C manufacturers, including blocking them from selling to foreign customers, if they refused to participate in an industry group that allegedly forced them to fix prices and limit supply
Two executives of Aland (Jiangsu) Nutraceutical Co. Ltd., which avoided trial by settling last year for $10.5 million, described how China’s Ministry of Commerce, known as MOFCOM, exerted its influence over the industry through a commerce chamber. The four companies on trial claim they can’t be held liable for violating U.S. antitrust laws because the Chinese government compelled them to collude through the group.
On his second day on the witness stand, Aland’s former head of vitamin C sales Wang Qi said the chamber had the authority to impose sanctions on companies that didn’t participate in meetings where competitors discussed pricing, quotas and market conditions.
When an attorney for the defense asked whether Aland was aware the chamber could restrict it’s vitamin C exports, Qi said through a translator “we were very clear about that.”
Qi’s testimony was consistent with statements made by former Aland General Manager Kong Tai, who said China wouldn’t allow manufacturers to export vitamin C if they withdrew from the chamber. Vitamin C export contracts require a seal from the China Chamber of Commerce for Import & Export of Medicine & Health
Products, Tai said.
Tai’s statements were made during a deposition in 2008 that was shown on video to the jury. While vitamin C producers could discuss their views on what the appropriate price for the nutrient should be, ultimate approval of the controls came from the head of the commerce group, he said.
Throughout Qi’s testimony, an attorney for vitamin C purchasers pointed out that internal documents chronicling group meetings held before the suit was filed did not mention MOFCOM or any alleged pressure placed on the companies by the Chinese government.
U.S. purchasers contend the manufacturers acted independent of the Chinese government when it agreed on pricing and other product controls.
On Wednesday, a former executive who worked for both NCPG and Hebei was questioned about how the two companies are connected. Their relation is important because U.S. purchasers claim NCPG, which does not manufacture vitamin C on its own, was involved in the price-fixing conspiracy.
Huang Pinqi, former NCPG general manager and Hebei chairman, was elusive when asked by the plaintiffs’ counsel to describe the companies’ corporate relationship.
Another patent case was filed against Huawei. Attached is the complaint. HUAWEI PATENT CASE
SECURITIES AND CORPORATE LAW
As a follow up to the article, I sent out last week about the decision by the Delaware Court in In Re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013), Peter Corne and Robin Weir in Dorsey’s Shanghai office have written an article about the decision. See below:
Delaware Court Ruling: A Cautionary Tale for Independent Directors March 1, 2013
“Independent directors of companies with substantial assets outside the U.S. should carefully consider whether they have the genuine ability to discharge their duties, given a recent ruling from the Delaware Chancery Court.
On February 6, Chancellor Leo Strine, Jr., of the Delaware Court of Chancery refused to dismiss a claim for breach of fiduciary duty against independent directors of Puda Coal Inc., a Delaware corporation whose primary assets and operations are in China. Plaintiffs alleged that the independent directors had failed to detect the unauthorized sale of the company’s assets by its chairman. “
“In In Re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013) (Bench Ruling), Chancellor Strine bluntly reminded independent directors that they must be capable of fulfilling their fiduciary duty of oversight, no matter where the company’s assets or operations are located. Among his many forthright comments”:
“[I]f you’re going to have a company domiciled for purposes of its relations with its investors in Delaware and the assets and operations of that company
are situated in China … in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot. You better
have in place a system of controls to make sure that you know that you actually own the assets. You better have the language skills to navigate the
environment in which the company is operating. You better have retained accountants and lawyers who are fit to the task of maintaining a system of
controls over a public company.”
“Independent directors who step into these situations involving essentially the fiduciary oversight of assets in other parts of the world have a duty not
to be dummy directors … [I]f the assets are in Russia, if they’re in Nigeria, if they’re in the Middle East, if they’re in China, that you’re not going to
be able to sit in your home in the U.S. and do a conference call four times a year and discharge your duty of loyalty. That won’t cut it.”
“There’s no such thing as being a dummy director in Delaware, a shill, someone who just puts themselves up and represents to the investing public that
they’re a monitor.”
Strine stressed that the only reason to have independent directors is because of their independence and their ability to monitor the company’s management. He commented that if the flow of information was in a language that the director doesn’t understand, in a culture where the legal and ethical standards may be different from in the U.S., this could be “very difficult… You better be careful there. You have a duty to think. You can’t just go on this [board] and act like this was an S&L regulated by the federal government in Iowa and you live in Iowa”.
Strine also had a message for independent directors who, like the independent directors of Puda Coal, thought they could avoid responsibility by resigning. He suggested that the act of resignation itself could be a breach of fiduciary duty. “And that’s another reason for sustaining the complaint.”
NEW SEC SECURITIES CASE AGAINST CHINESE COMPANY FOR FRAUD
The SEC has filed a new securities fraud case against a Chinese company, Keyuan Pharmaceuticals. See the attached complaint. KEYUAN PHARMACEUTICALS Like many of the Securities fraud cases against Chinese companies, this case involves a reverse merger through a US shell company.
If you have any questions about these cases or legal areas, please feel free to contact me.