AUTO PARTS TRADE, ANTITRUST AND SECURITIES LAW DEVELOPMENTS

There are major developments in the Trade, Antitrust and Securities Litigation areas.

AUTO PARTS–WTO–Countervailing Duty and Antidumping

On September 17th, the United States Trade Representative Office (“USTR”) on behalf of the US government filed a complaint with the World Trade Organization over Chinese government export subsidies on cars and auto parts. 

Attached are the documents released by USTR on Sept 17th regarding the request to the WTO, including the request for consultations to the Chinese government USTR REQUEST CONSULTATIONS AUTO PARTS, the USTR press release USTR PRESS RELEASE and the USTR fact sheet USTR FACT SHEET AUTO PARTS.

Keep in mind that the USTR enforcement unit is only targeting export subsidies, those subsidies contingent on export.  Those are red light subsidies, specifically prohibited by the WTO, and the US government can go straight to the WTO for this.  Domestic subsidies, such as bank loans for low interest rates, are not per se countervailable.  To countervail those subsidies, a countervailing duty case has to be filed and  there has to be a case and an injury determination by the ITC.

The US WTO complaint specifically points to Chinese national, provincial and local subsidy programs that provide government assistance to producers of automobiles and auto parts in designated regions, known as “export bases.”  The subsidies are contingent on producers meeting certain export targets.  Export subsidies, that is government assistance contingent on export, are clear violations of the WTO Subsidies and Countervailing Duty Agreement.

My suspicion is that this WTO case could be a precursor to antidumping and countervailing duty cases against China on automobiles and auto parts.  Some of the newspaper articles have referenced a study on Chinese government subsidies to the Chinese auto parts industry by the Washington law firm, Stewart and Stewart. 

Please note that in February 2002. I represented Xinyi and US importers in the Automobile Windshields from China antidumping case, obtaining the lowest antidumping rate of only 3.7% for Xinyi in that case.  Who brought the antidumping case against China?  Stewart & Stewart so this WTO case could very well be a signal of a new round of antidumping and countervailing duty cases against China targeting automobiles and auto parts.

In fact, a US government senior administration official was quoted yesterday as stating that the Auto Part WTO action does not preclude an antidumping and countervailing duty case against China on automobiles and auto parts.  The official stated that Commerce could still bring such an action, but it would be separate from the WTO action by USTR. 

Commerce could self-initiate a countervailing duty (“CVD”) or antidumping (“AD”) case against various automobiles and auto parts, but that is very unlikely.  Commerce has self-initiated only a few cases since the 1980s so the chances of that happening are very low.

US automobile and auto parts companies, however, may be reluctant to bring AD and CVD cases because of the potential adverse impact on their operations in China.  But that does not stop the Labor Unions from filing such a case.   Labor unions, unions of workers, have standing to file antidumping and countervailing duty cases.  Thus the Section 421 Tires case against China was filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USW”).

Stewart and Stewart, the DC law firm that produced the Auto Parts Subsidy report in January 2012, represents Labor Unions.  It was his report for the labor unions on renewable energy subsidies in China that led to the Solar Cells and the Wind Tower antidumping and countervailing duty cases.

The real issue in any Automobile and Auto Parts AD and CVD case is proving injury at the US International Trade Commission (“ITC”).  That may be hard to do, but if a case can be brought, it will be much wider than the WTO Auto Parts case that targets only export subsidies.

Please also see my quote in the China Daily about the WTO Auto Parts case.  Follow the link here–http://usa.chinadaily.com.cn/2012-09/18/content_15765242.htm

In response to this action, the Chinese government has filed its own WTO case against double counting on US antidumping and countervailing duty cases covering $7.2 billion dollars of Chinese products, including Solar Cells, Wind Towers and Steel Sinks.

 Meanwhile, this summer USTR filed a separate WTO complaint against China asking for consultations on unfair antidumping and countervailing duties levied by the Chinese government on more than $3 billion of US exports to China of certain automobiles by US car producers.

Thus both the US and China are firing shots in the Trade War.

ANTITRUST–AU OPTRONICS LCDS

 One minor correction, the Justice Department in March 2012 proposed a $1 billion fine for Au Optronics.  Today, Taiwan company, AU Optronics, was fined $500 million and two of its former top executives sentenced to three years in prison for their roles in the global LCD price-fixing conspiracy.  These are among the harshest penalties ever issued in an antitrust criminal case.

The US Justice Department had demanded a $1 billion fine and 10 year prison sentences for the executives.  The US District Judge Susan Illston rejected Justice Department proposals because A.U. Optronics has already paid out millions to settle a class-action lawsuit and still faces other lawsuits around the world.

The Judge also refused to give the two executives 10 year prison sentences because she found they acted not for personal gain but from their sincere belief that they were helping a troubled industry that has over-production and plummeting prices.

DOJ is ending a several year investigation of the global price-fixing cartel that artificially increased the price of LCD screens used in televisions, computers and other electronic products made by Apple Inc., Dell Computers and many of the largest high-tech companies in the United States.

“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,” prosecutors concluded in arguing for the criminal penalties.

AU Optronics and the other co-conspirators are also the targets of class action lawsuits filed by customers, retailers and consumers.

In July, the company, along with Toshiba and LG, agreed to pay a combined $571 million to settle one of the lawsuits. Other manufactures, including Hitachi, Sharp and Samsung, agreed in December to pay $538 million to settle.

Seven other Asian manufacturers and 22 of their executives have previously pleaded guilty and agreed to pay a combined $890 million in fines. The 10 executives who have been sentenced so far received prison terms ranging from six months to a little more than year in prison.

It’s the largest criminal antitrust case ever prosecuted by the DOJ, surpassing the breakup of a vitamin cartel in the late 1990’s that netted $875 million in criminal fines.

For more information, see article at http://www.businessweek.com/news/2012-09-20/au-optronics-fined-500-million-in-u-dot-s-dot-for-price-fixing

US SECURITIES LAW—CHINA HYDROELECTRIC

In a very interesting development, a Chinese company has used the US Securities law as a sword to attack and prevent a takeover attempt. This may be one of the first US Securities cases in which a Chinese management has used US Securities law as an offensive tool.

On September 10, 2012, China Hydroelectric Corp., the largest independent power producer involved with small hydroelectric projects in China, filed the attached complaint in New York federal court in the Southern District, accusing a group of minority shareholders headed by private equity firm NewQuest Asia Fund I (G.P.) Ltd. of trying to take over the company in a secret plot, which violates US securities law.China Hydroelectric complaint  China Hydroelectric Corp. is a listed company on the New York Stock Exchange.

The lawsuit accuses more than a dozen entities of banding together to expel China Hydroelectric’s founders, senior executives and board members located outside of China and claims the group omitted material facts about their planned takeover in disclosures it made to investors and the U.S. Securities and Exchange Commission.

Earlier this month, China Hydroelectric, which owns and operates hydroelectric power projects in China, said the group of minority shareholders was attempting to take advantage of the company’s recent low stock prices by seeking to take control of the company without having to pay a so-called control premium or putting further an alternative business plan. The takeover, China Hydroelectric claims, would cause a significant drop in the company’s value.

The complaint seeks an injunction that would enjoin/stop the defendants from voting or soliciting proxies until they comply with certain noticing requirements of the US Exchange Act that China Hydroelectric claims the minority shareholders have violated.

The defendants in the case are NewQuest Asia Fund I (G.P.) Ltd., NewQuest Asia Fund I LP, CPI Ballpark Investments Ltd, Swiss Re Financial Products Corp., China Environment Fund III LP, China Environment Fund III Management LP, China Environment Fund III Holdings Ltd., Donald C. Ye, Shelby Chen, Michael Li, Larry Zhang, Ian Zhu, Aqua Resources Asia Holdings Limited, Aqua Resources Fund Limited, Four Winds Capital Management, Abrax, Abrax Limited and IWU International Ltd.