TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR JUNE 7, 2016
Dear Friends,
This is the second article of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the probable demise of the Trans Pacific Partnership (“TPP”). The first article outlined the problem and why this is such a sharp attack on the TPP and some of the visceral arguments against free trade. The second article will explore in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders.
Subsequent articles will describe the weak free trade arguments to counter the protectionism, the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that the United States can return to its leadership in the Free Trade area. Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.
In addition, set forth are several developments involving steel trade litigation, antidumping and countervailing duty reviews against Chinese companies, new antidumping and countervailing duty cases, new 337 cases against Chinese companies and finally a new False Claims Act settlement against a US importer for evasion of US antidumping duties.
If anyone has any questions or wants additional information, please feel free to contact me at my new e-mail address [email protected].
Best regards,
Bill Perry
REASONS FOR THE RISE OF TRUMP SANDERS PROTECTIONISM IN THE UNITED STATES
As part two of my series of articles on how weak free trade arguments have created the rise in protectionism and the probably demise of the Trans Pacific Partnership (“TPP”), in this segment I will describe some of the reasons for the rise of Trump and Sanders and the protectionism that goes with it.
The simple truth is that when weak academic, theoretical economic arguments for free trade meet the hard visceral arguments of bombed out US factories and the loss of millions of manufacturing jobs, the free trade arguments melt away. Weak theoretical free trade arguments will not be enough to stop the wave in protectionism sweeping the United States. More has to be done.
In a recent article in Time Magazine entitled “Welcome to the Election from Hell”, Frank Luntz, a well-known pollster for Fox and CBS, stated that because there is so much anger in the focus groups and the US electorate, he has lost control of the focus groups he uses to test ideas. One Trump supporter stated that he is not mad, he is angry and then stated:
“Because anger is way more than mad. Angry is what happens when you’ve been kicked around like a dog for too long, and you’re ready to fight back.”
This explains the rise of Donald Trump and Bernie Sanders- anger in the electorate and also explains why recent polls have Donald Trump running neck in neck with Hilary Clinton. Both Trump and Sanders are political outsiders. Hilary is the symbol of the establishment and from what we are seeing from the electorate, this is definitely an outsider’s year.
But why has trade become a center of the Presidential campaign? What explains the sharp rise in protectionism?
LOSS OF JOBS EXPLAINS THE RISE IN PROTECTIONISM
Jim McDermott in a May 11th article in the New York Post entitled, “Trump, Sanders Voters Don’t Want Handouts — They Want Jobs” stated:
“A popular knock on voters who support Donald Trump or Bernie Sanders because they have been “left behind” by free trade, globalization and technological progress is that they want a handout from Uncle Sam.
But the truth is the opposite: These voters want to work. They want jobs. And that’s the key to understanding their support for Trump or Sanders. . . .
In this political season, I’ve been asking some of them and their friends, and their now-adult kids, which presidential candidates they find appealing. Only two find support: Sanders, the Vermont socialist, and Trump, the New York billionaire. Both candidates appeal to a working class that is frustrated, fed up and downright angry.
Neither can be bought.
To understand the simmering discontent of working-class folks who are attracted to one (or both) of these candidates, you need to imagine you’ve either lost a job or cannot break into the work force. Viewed from these perspectives, an academic debate about whether free trade results in net job losses or gains is mostly meaningless. These people want a good job, or at least a job no worse than the job they lost. Their economic futures seem to be on life support.
We can’t ignore the centrality of work in people’s lives. Most people want to work. Most people want to contribute to society and take care of their families. When the government adopts free-trade policies that pick winners (the better educated who gain new jobs) and losers (manufacturing workers), the government also needs to cushion the blow for the losers.
Since this hasn’t happened for the last couple of decades, anger has been building and is now finding a political outlet. Many Americans start to wonder: Our government helps rich Wall Street bankers but not Main Street homeowners? Supports elite universities but not vocational schools? Lowers taxes on the wealthiest Americans?
Our government has an obligation to help people adjust to seismic policy changes, like free trade. In the last couple of decades, trade agreements have resulted in, for example, the technology industry gaining ground, and the steel industry losing ground. Besides picking winners and losers, free-trade policies introduce major economic anxiety into many previously stable families. . . .
Sanders and Trump tap into this disillusionment. They’re paying attention to the working class. They appear to actually understand, on a visceral level, the challenges faced by these Americans — and at least they seem to understand these voters aren’t moochers. In different ways, they’re offering seething working-class Americans pathways to reclaiming what they’ve lost.
Until we admit that we have come precariously close to ending true social mobility in America, we’ll continue to see angry working-class voters approaching their boiling point. . . .”
The labor unions, such as the AFL-CIO, echo Mr. McDermott’s point. The Unions say they do not want Trade Adjustment Assistance (“TAA”) for workers. They want no more trade agreements. TAA for workers is not good enough. The Labor Unions want jobs for their workers.
As explained more below, it is the collateral destruction created by Trade Agreements, which puts the TPP directly at risk. It is also the failure of Congressional policy when it comes to Trade Adjustment Assistance, in part, that has created this problem. Congress gives $711 million in trade adjustment assistance to retrain workers for jobs, a very important program, but the jobs, in fact, may not exist.
But to save the companies and the jobs that go with them, Congress gives only $12.5 million total nationwide to help companies adjust to import competition and allow them to continue to exist and prosper along with jobs that go with them.
Trade Agreements, such as the TPP, do not create huge tidal waves of imports, but flash floods, which concentrate in one area and can wipe out US companies in an entire industry when they have no guidance on how to compete, survive and navigate through those flash floods.
But more on that below and in the next segment. In this segment we need to analyze the tidal wave of rising protectionism in the United States. If one combines the Trump and Sanders voters, that is a clear majority of the US voting electorate, and the one point that Trump and Sanders have in common is no more trade agreements and protecting the US workers from import competition. Too many jobs have been lost.
In an April 25, 2016 CNN article, entitled “Resetting Red and Blue in the Rust Belt,” Jeremy Moorhead describes interviews with voters in Buffalo New York, Erie, Pennsylvania and Youngstown Ohio. No Presidential candidate has ever been able to win an election without taking the state of Ohio, so it is critical to every Presidential candidate. Jeremy Moorhead states:
“The voters of the Rust Belt have shaken up the 2016 presidential campaign: Hoping to jolt a political system they see as ineffective and out of touch, they have repeatedly revolted by supporting unlikely, anti-establishment candidates.
In both Donald Trump and Bernie Sanders, these voters see a potential for change they haven’t felt in generations. They say they are willing to shed party allegiances and reimagine their priorities this year, even voting for a self-described democratic socialist, or for a flame-throwing real estate developer who has never served in government.
In doing so, they have become the engine of one of the most extraordinary elections in modern U.S. history.
Frustration with the economic and political system is especially strong in the Rust Belt, a section of the country in the Northeast and Midwest once at the heart of the United States’ manufacturing boom. Decades after the decline of heavy industries like steel production and coal mining, the region continues to struggle with decaying infrastructure, population decline and high unemployment.
Voters there are worried about economic stagnation and crime plaguing their communities. They are disappointed in Washington’s elected officials. They are calling out for swift, radical change. . . .
BUFFALO NEW YORK
Buffalo demonstrates Trump’s remarkable appeal across the country to non-traditional Republican voters. Here, there are working- and middle-class voters, former supporters of President Barack Obama and individuals who have supported Democrats in the past now drawn to Trump’s promise of dramatic change.
In the First Ward of South Buffalo on the corner of Ohio and Michigan Avenues, there is a favorite spot among locals called the Swannie House. Wiles has owned the place for 33 years and sits on a stool in the corner of the bar every day, his feet elevated on the window sill because of a bad back. It’s “the perfect corner because you hear everything,” he says.
These days, it seems everyone wants to talk about one thing: Donald Trump.
“It doesn’t matter if you’re black, you’re green, you’re white, you’re a Martian with tentacles. It doesn’t matter,” Wiles, 60, says. “They’re all talking about Trump.” . . . .
YOUNGSTOWN OHIO
Downtown Youngstown looks like a booming college town. . . .
But away from the center of downtown, things get bleak — fast.
Along the former industrial corridor of Steel Valley, giant structures that used to be steel mills are now rusting and vacant. There are abandoned homes all across the city, a reminder of the thousands of residents who fled the area in the 1970s and ’80s when the mills shut down.
Although Ohio’s unemployment rate mirrors the national figure of 5%, it is much higher in Youngstown: 8.2%. . . .
ERIE PENNSYLVANIA
Spend a day talking to the residents of Erie — some 90 miles southwest of Buffalo — and you’re likely to learn two things. First, the General Electric plant in Lawrence Park is laying off 1,500 workers. Second, Presque Isle was recently voted in USA Today as the number one freshwater beach in the country.
Erie bled thousands of jobs over the years as manufacturing-based companies left the area, moving to the South or overseas in search of cheaper labor. . . . .”
On April 4, 2016, David Goldstein for the Portland Press Herald in an article entitled, “Blue Collar Voters: Trade is Killing Us,” stated:
“Establishment voices of economists, government and business officials argue that trade deals are critical in a global economy, and great for America. But critics such as organized labor call them “death warrants.”
And in blue collar communities in Wisconsin and across the industrial Midwest, that economic angst, coupled with some sense of betrayal, helps explain the roiling politics of 2016. . . . .
Wisconsin has lost more than 68,000 manufacturing jobs since the mid-1990s when the first of several controversial trade pacts with Mexico, China and others took hold. . …
That’s the case here in South Milwaukee, a community of more than 20,000 people whose economy is built around the sprawling Caterpillar plant, which builds huge steam shovels and other mining equipment. Its predecessor, Bucyrus International, built shovels that were used to dig the Panama Canal.
Now, Caterpillar has laid off about 600 of its 800-plus workers over the past two years because of a business slowdown.
“It’s had a pretty large impact,” said Brad Dorff, an assembler at Caterpillar and the local Steelworkers Union president. “Whether it’s small grocery stores, a hardware store down the street, local taverns; they used to get a lot of business from the people that live in this community who were making a good living, a good wage working here.”
Wisconsin’s heavy manufacturing sector, once one of the country’s strongest, has been taking a lot of punches in recent years. General Motors, General Electric, Chrysler, Joy Global Surface Mining and Manitowoc Cranes have all cut jobs or closed operations in recent years for a variety of reasons.
Hometown companies such as Kohler, the plumbing supply manufacturer; and Trek Bicycles have offshored jobs to India, China and Taiwan.
Meanwhile, Madison, the state capital, will lose 1,000 jobs over the next two years as the 100-year-old iconic Oscar Mayer meat processing plant shuts down. And just east on I-94 in Jefferson, Tyson Foods will cease operations at its pepperoni processing plant, cutting 400 jobs. . . .
The turmoil feeds into a debate over trade that’s playing out in the 2016 campaign. . . .
In Wisconsin, voters are about evenly split on whether free trade agreements have helped or hurt, according to a recent Marquette University Law School poll.
In Michigan and Ohio, a majority of primary voters in both parties believed trade kills jobs in the U.S. rather than creates them.
That’s the feeling inside union halls and communities that lie in the shadow of shuttered factories. Trade deals like NAFTA (North American Free Trade Agreement) and TPP (Trans-Pacific Partnership) spell only uncertainty and distress.
“We’ve watched a lot of our friends lose their jobs,” said Dorff, inside the local steelworkers union hall just blocks from the Caterpillar plant. “They have homes that now they can’t afford. They have families they have to support. They lost their insurance. Their kids have diabetes and they’re trying to get medication. It literally breaks your heart.”
The Business Roundtable, an association of corporate executives of major companies, say that international trade supports 1 in 5 Wisconsin jobs, and that cheaper manufacturing costs overseas lowers prices for consumers in this country.
“It is an economic fact of life that both businesses and their employees benefit when we sell more products overseas, and consumers enjoy a wider range of products at lower prices,” Jerry Jasinowski, former president of the National Association of Manufacturers, said in a recent statement.
But since NAFTA, which removed tariff barriers between the U.S. Canada and Mexico, went into effect in 1994, and Congress’ granting of permanent normal trade status to China in 2000, a key question has been how much have those decisions contributed to job losses at home.
Economists generally say that overall, trade creates more prosperity, and that displaced workers will find other work. But competition from China has meant the loss of 2.4 million jobs, according to a recent report by the National Bureau of Economic Research, a private nonprofit research group.
It pointed out that industries are often concentrated in certain parts of the country – the Midwest, for instance – and that local economies have not had the capacity to absorb those workers the Chinese competition has displaced.
Julie Granger, senior vice president of the Metropolitan Milwaukee Association of Commerce, said that in a global economy, the notion that “free trade encourages the loss of local jobs … is not always the most responsible way to look at it. If we are not engaged in the global economy, we will lose more jobs.
There’s no going back. It’s the same story in Milwaukee as it in other cities: many of lowest skilled jobs simply were disappearing.”
So is organized labor, long the backbone of the working class, a force in Wisconsin politics and a persistent critic of the trade deals. From 2014-2015, union membership as a percentage of the Wisconsin workforce fell to 8.3 percent from nearly 12 percent, according to the U.S. Bureau of Labor Statistics.
But organized labor has been under siege in Wisconsin for a while. Take the General Motors plant in Janesville, Wis. GM wrung significant concessions out of the United Autoworkers to help keep the plant open. But the automaker closed it eventually anyway in 2009, putting 850 people out of work.”
The article quotes Roger Hinkle, Wisconsin AFL-CIO employment training specialist:
“Free traders always point to free trade being good for everybody. There’s a mountain of victims who don’t have to look at some theoretical report to feel, Yes. I was directly affected by this.“
The ironic point in this article, however, is the closure of Caterpillar. Caterpillar is dependent on cheap steel as a raw material input, and they have been a major opponent of all the steel trade cases brought by the Union and US Steel because high prices for steel, their raw material input, makes them less competitive with companies, such as Komatsu, which have access to the lower cost steel.
As explained in more detail below, the recent decisions of the Commerce Department to impose large antidumping and countervailing duties on imports of steel from China and other countries has had an extremely negative impact on downstream US industries that use steel as a raw material input.
In fact, of the 130 outstanding antidumping and countervailing duty orders against China, over 80 of them are directed at raw material inputs—chemicals, metals and steel, which go directly into downstream US production and have a direct impact on their cost. Raw Material trade cases rob Peter to pay Paul.
Although Congressional representatives and Senators do not care if trade protectionism causes consumer products to go up by a few dollars at Wal Mart, what happens if these higher duties on imports means that companies in their Districts and States have to close and the jobs are lost because the companies cannot compete in the downstream markets.
STEEL TRADE CASES
COLD ROLLED STEEL
On May 17, 2016, in the attached fact sheet, cold rolled, Commerce made a final dumping and countervailing duty determinations in the Cold-Rolled Steel Flat Products case from China and Japan cases. Because the Chinese companies refused to cooperate in the investigation, they received an antidumping rate of 265.79% and a countervailing duty rate of 256.44%. Japanese Steel was hit with an antidumping rate of 71.35 percent.
Commerce was able to hand down such high margins because the Chinese and Japanese respondents refused to cooperate with the Department allowing it to very high impose duties on the basis of adverse facts available on an expedited basis. Chinese companies refused to cooperate because since the Commerce Department considers China a nonmarket economy country and refuses to use actual prices and costs in China to determine dumping, it is impossible to win the case.
On May 20, 2016, the Wall Street Journal issued an editorial entitled, “Obama Front-Runs Trump on China” stating:
“The Obama Administration may not sound like Donald Trump when talking about trade with China, but it isn’t above using protectionism for political gain. On Tuesday the U.S. Commerce Department increased a tariff on “dumped” Chinese cold-rolled steel to 522%, a move that will hurt American manufacturers who need the steel to remain competitive.
The tariff may score some populist points with voters in an election year. It also may be a ploy to get lawmakers to ratify the Trans-Pacific Partnership trade agreement before President Obama leaves office. But past experience suggests that such gambits inflame protectionist sentiment rather than tamp it down.
President George W. Bush imposed tariffs of up to 30% on a broad range of Chinese steel products in 2002. The Consuming Industries Trade Action Coalition says the tariffs cost the US economy 200,000 jobs and $4 billion in lost wages. . . . .
[Low Chinese steel prices are] good news for the U.S. Since steel is an important raw material for many industries, China’s trade partners benefit from its wasteful policies. Lower prices make companies that use steel more competitive and bring down prices for consumers.
Daniel Pearson for the CATO Institute conservatively estimates that that American companies using steel produce $990 billion in value added, more than 16 times the output of the U.S. steel industry, and also employ 16 times more workers. If tariffs on Chinese imports raise the U.S. price of steel, these companies’ costs will be higher than foreign competitors,’ hurting their ability to grow and provide more jobs for Americans.
The article goes on to complain that US Steel companies do not make the same range of products as Chinese companies and that the Cold Rolled determination “is a warm up for the fight over granting China market economy status in December.”
The Editorial concludes:
“The larger question is whether the steel tariffs herald a new and more bitter era of trade retaliation. Previous skirmishes have been damaging but stopped short of full escalation. But Mr. Trump and Hilary Clinton have run for President as protectionists, and Mr. Obama’s surrender to steel interests is a bad omen.”
CORROSION RESISTANT STEEL
On May 25, 2016, in the attached factsheet, factsheet-multiple-corrosion-resistant-steel-products-ad-cvd-final-052516, Commerce announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of corrosion-resistant steel products (CORE) from China, India, Italy, Korea; its affirmative final determination in the AD investigation of imports of CORE from Taiwan; and its negative final determination in the CVD investigation of imports of CORE from Taiwan.
Again, since the Chinese companies refused to cooperate because of the nonmarket economy status of China, Chinese companies received an antidumping rate of 209.97% and a countervailing duty rate of 241.07%.
Antidumping and Countervailing duty rates for market economy countries, however, were much lower with India dumping rates between 3 to 4% and countervailing duty rates between 8 to 29%. Italy received rates of between 12 to 92%, Korea 8 to 47%, and Taiwan antidumping rate of 3.77% and 0% countervailing duty rate. As market economy companies, Commerce must use actual prices and costs in those countries to calculated antidumping rates and to value subsidies.
On June 1, 2016, the Wall Street Journal in an article entitled “Steel Tariffs Create a Double-Edged Sword” reported that there is already an impact on downstream US production:
New tariffs on imports are boosting steel prices in the U.S., offering a lifeline to beleaguered American steelmakers but raising costs for manufacturers of goods ranging from oil pipes to factory equipment to cars. . . .
The Article goes on to state that the U.S. benchmark for “hot rolled coil index has risen more than 60% per ton” and that:
is creating problems for some steel buyers . . .
Steelcase Inc. Chief Executive James Keane said a tariff on a special kind of Japanese steel could cost one of its subsidiaries [Polyvision] $4 to $5 million a year . . . where it employs 200 people. If nothing changes, we would have to close our Oklahoma plant.
The Article also reports that US “Car companies have been lobbying against steel tariffs.”
The problem with the Wall Street Journal Editorial and Article is that they assume President Obama has discretion not to impose the tariffs. These cases were not brought under Section 201, the Escape Clause, which provides for Presidential approval or disapproval of the duties, but under the US antidumping and countervailing law where there is no discretion. In contrast to most countries around the World, including Europe, Canada and yes China, the US antidumping and countervailing duty law do not have a public interest test. Since the Chinese and Japanese companies did not cooperate, pursuant to the US antidumping and countervailing duty law, the Administration had no choice but to impose very high antidumping and countervailing duties on those imports.
If the US International Trade Commission (“ITC”) goes affirmative in its injury determination and by statute it cannot give any weight to arguments by downstream producers, antidumping and countervailing duty orders will be issued and those orders can stay in place for 5 to 30 years.
STEEL 337 STEEL CASE
On May 26, 2016, the ITC instituted the section 337 case against Chinese steel import. In the attached notice, USITC Institutes 337 Steel Case, the ITC stated:
The investigation is based on a complaint filed by U.S. Steel Corporation of Pittsburgh, PA, on April 26, 2016. The complaint alleges violations of section 337 of the Tariff Act of 1930 in the importation into the United States and sale of certain carbon and alloy steel products through one or more of the following unfair acts: (1) a conspiracy to fix prices and control output and export volumes, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) the misappropriation and use of U.S. Steel’s trade secrets; and (3) the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a). The complainants request that the USITC issue a general exclusion order, a limited exclusion order, and cease and desist orders.
The last two counts of the notice are traditional issues subject to section 337 cases. It is count 1 that raises the interesting issues.
The last time the ITC found a Section 337 violation based on an antitrust cause of action was in 1978 in Certain Welded Steel Pipe &Tube, No. 337-TA-29. Although the ITC found a violation, the President vetoed the determination, in part, because of pressure from the Justice Department, antitrust division.
The antitrust cause of action, however, has not been eliminated from section 337. Section 337 does not specifically define what is an antitrust violation, but presumably it should overlap the Sherman Act. The US Steel compliant specifically references the Sherman Act.
Recently former U.S. International Trade Commission Chairman Daniel Pearson stated that this is the widest 337 complaint he has ever seen, but went on to state that a sudden closure of the U.S. market to foreign steel would have dire consequences for the domestic economy. Pearson specifically stated:
“I don’t believe I’ve ever seen a 337 petition that is this broad. To me, it sounds a lot like overreach. There’s no way that I could see someone closing off all imports of steel into the U.S. and not have enormous effects on consumer welfare and other factors that are specified in the statute. I’m flummoxed by this.”
337 is broadly tailored to address “unfair methods of competition or unfair acts.” Still, Pearson speculated that the ITC may well reject the petition and informally advise U.S. Steel to more squarely focus its arguments on the trade secret prong.
The ITC, however, did not reject the petition and instituted the case.
Pearson’s concern about the case is the broad nature of the company’s desired remedy, the general exclusion order. He stated:
“U.S. Steel is not happy with imports, and they may have decided to just take this shot and see what happens. I have no idea whether or not they think they will be successful; I would rather guess not.”
But to date US Steel has been successful.
My fear, however, is that Chinese steel companies will think that this is like an antidumping and countervailing duty case and they can choose not to cooperate. Failure to cooperate in a 337 case could lead to a total exclusion order against every steel product produced by every single Chinese steel company that does not participate in the case and that exclusion order from the US market could be in place for up to 30 years.
The antitrust claim in the 337 case by its conspiracy claim has already expanded and brought every single Chinese steel company into the case and a refusal to cooperate in the investigation could well lead to their exclusion from the US market for years to come.
NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA
On May 25, 2016, in the attached relevant pages of the attached petition, REVISED AMONIUM SULFATE PETITION, PCI Nitrogen, LLC filed an antidumping and countervailing duty case against ammonium sulfate from China.
JUNE ANTIDUMPING ADMINISTRATIVE REVIEWS
On June 2, 2016, Commerce published the attached Federal Register notice, JUNE REVIEW INVESTIGATIONS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of June. The specific antidumping cases against China are: Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Rail Tie Wire, Prestressed Concrete Steel Wire Strand, Silicon Metal, and Tapered Roller Bearings.
The specific countervailing duty case is: High Pressure Steel Cylinders.
For those US import companies that imported : Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Rail Tie Wire, Prestressed Concrete Steel Wire Strand, Silicon Metal, or Tapered Roller Bearings during the antidumping period June 1, 2015-May 31, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.
This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.
In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.
While in China recently, I found so many examples of Chinese solar companies or US importers, which did not file requests for a review investigation. In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court and through a Court determination the Chinese companies lost their separate rates. Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December.
CUSTOMS
FALSE CLAIMS ACT
On April 27, 2016, in the attached news release, california-based-z-gallerie-llc-, the Justice Department announced that Z Gallerie LLC agreed to pay $15 million to resolve allegations that the company engaged in a scheme to evade antidumping duties on imports of wooden bedroom furniture from the People’s Republic of China (PRC), in violation of the False Claims Act. The relator , the private company that reported the fraud, will obtain $2.4 million of the $15 million. As the Justice Department stated in its release:
“This settlement reflects the Department of Justice’s commitment to ensure that those who import and sell foreign-made goods in the United States comply with the law, including laws meant to protect domestic companies and American workers from unfair competition abroad,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Department of Justice will zealously pursue those who seek an unfair advantage in U.S. markets by evading the duties owed on goods imported into this country.” . . .
The particular duties at issue in this case are antidumping duties, which protect domestic manufacturers against foreign companies “dumping” products on U.S. markets at prices below cost. Imports of wooden bedroom furniture manufactured in the PRC have been subject to antidumping duties since 2004.
The settlement announced today resolved allegations that Z Gallerie evaded antidumping duties on wooden bedroom furniture imported from the PRC from 2007 to 2014, by misclassifying, or conspiring with others to misclassify, the imported furniture as pieces intended for non-bedroom use on documents presented to CBP. For example, Z Gallerie allegedly sold certain Bassett Mirror Company products, including a six-drawer dresser and three-drawer chest, as part of a bedroom collection; however, these goods were misidentified on CBP documents, using descriptions such as “grand chests” and “hall chests,” in order to avoid paying antidumping duties on wooden bedroom furniture. . . .
“Under the new Trade Facilitation and Trade Enforcement Act, CBP will likely see an increase in these types of settlements as the streamlined processes take effect concerning allegations of duty evasion,” said CBP Commissioner R. Gil Kerlikowske. “The Act reinforces CBP’s existing authorities and tools to collect and investigate public allegations of duty evasion improving the overall effectiveness and enforcement of CBP law enforcement actions concerning illicit trade activity, specifically in the area of antidumping and countervailing duty evasion schemes.”
“Companies that intentionally mislabel shipments or misrepresent the value of goods being imported into the United States to avoid paying the appropriate duties do so in an attempt to create an unfair advantage over businesses that play by the rules,” said Special Agent in Charge Nick S. Annan of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE HSI) in Atlanta. “This type of activity hurts legitimate U.S. businesses and, by extension, our overall national economy. Uncovering these types of schemes will continue to be a major investigative priority for ICE HSI.”
The allegations resolved by the settlement were originally brought by whistleblower Kelly Wells, an e-commerce retailer of furniture, under the qui tam provisions of the False Claims Act. The act permits private parties to sue on behalf of the United States those who falsely claim federal funds or, as in this case, those who avoid paying funds owed to the government or cause or conspire in such conduct. The act also allows the whistleblower to receive a share of any funds recovered. Wells will receive $2.4 million as her share of the settlement.
IP/PATENT AND 337 CASES
NEW SECTION 337 CASES FILED AGAINST CHINA
On May 5, 2016, Aspen Aerogels Inc. filed a Section 337 case against Composite Aerogel Insulation Materials and Methods for Manufacturing from China. The proposed respondents are: Nano Tech Co., Ltd., China and Guangdong Alison Hi-Tech Co., Ltd., China.
On May 19, 2016, Intex Recreation Corp. and Intex Marketing Ltd. filed a new section 337 case against imports of Inflatable Products and Processes for Making the Same from China. The respondent companies in China and Hong Kong are Bestway (USA) Inc., Phoenix, Arizona; Bestway Global Holdings Inc., China; Bestway (Hong Kong) International Ltd., Hong Kong; Bestway Inflatables & Materials Corporation, China; and Bestway (Nantong) Recreation Corp., China.
Complaints are available upon request
If you have any questions about these cases or about the US trade policy, trade adjustment assistance, customs, 337, IP/patent, products liability, US/China antitrust or securities law in general, please feel free to contact me.
Best regards,
Bill Perry
Hey Bill,
I am a Boston high school debater and I’m really interested in knowing how this case is related to trade war with china.I would appreciate it if you can get back to me at [email protected]
Thank you.