US CHINA TRADE WAR–TRUMP’S TRADE WAR AGAINST DOWNSTREAM INDUSTRIES, SECTION 232 CASES STEEL AND ALUMINUM, SECTION 201 CASE SOLAR CELLS, BORDER ADJUSTMENT TAXES, NAFTA AND 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 26, 2017

Dear Friends,

This blog post is coming out very late because I have been very busy with so many trade cases being filed.  In fact, this is the most trade cases I have seen in my lifetime filed in such a short period.  Every day there seems to be another trade case.

For the last two weeks I have been intensely involved in an antidumping and countervailing duty case on mechanical tubing.  We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore.  The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole.  The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice.  They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts.  In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Meanwhile, Trump is increasing the trade war.  Throughout the Presidential campaign, Trump threatened to put tariffs on many different products.  With Commerce Department Secretary Wilbur Ross, President Trump has discovered Section 232 National Security cases against Steel and Aluminum.  There are no checks on the President’s power in Section 232 cases.  No check at the US International Trade Commission (“ITC”), the Courts or the WTO.  Once the Commerce Department issues a report, then Trump has the power to impose tariffs or other remedies.

If you look at the link to the Commerce Department hearing in the Section 232 Steel case, at the end of the hearing you will hear numerous downstream companies telling Commerce to exclude their products and if they cannot get the imported steel, their companies will close.

Meanwhile, numerous antidumping and countervailing duty cases have been filed against aluminum foil, tool chests, biodiesel, tooling and aircraft just to name a few.  As described below, Trump has found his Trade War, but the real victim in this trade war may be US downstream industries.

In addition to two Section 232 cases, Suniva has filed a Section 201 case against imports of solar cells from every country.  The main targets appear to be third world countries where Chinese companies have moved their production facilities and Canada and Mexico.  The ironic point of this filing is that Solar World, the company that brought the original Solar Cells and Solar products cases against China, has now become insolvent and just today announced that it is supporting the petition.  Companies that were buying solar cells from Solar World all of a sudden cannot get the solar cells they paid for because of the insolvency.

Maybe this is why Trade Adjustment Assistance to Companies is so important.  With TAA, Solar World might have been saved with no damage to the US Polysilicon industry.  But despite the fact that section 201 requires US companies to submit adjustment plans and the Trade Adjustment Assistance Centers are the real trade adjustment experts, President Trump has zeroed out the Trade Adjustment Centers in his budget.  Apparently all President Trump wants to do is to put up protectionist walls to protect US companies and industries, rather than make them more competitive.  Very short sighted.

On the Trade Policy side, with protectionist walls appear to be going up.  Lighthizer was just confirmed as USTR and immediately plunged into NAFTA negotiations.  USTR Lighthizer has pledged to protect agriculture in the negotiations.

The only good news is that when Trump released his Tax Plan, border adjustment taxes were not part of the proposal.  But in a recent hearing before the House Ways and Means, one could tell Congressmen are split, but Republicans want border adjustment taxes.  On May 23rd, however, Treasury Secretary Mnuchin told House Democrats on Ways and Means that he and President Trump are opposed to the Border Adjustment tax.

One interesting note is that Trump’s proposal to cut corporate taxes to 15% has China scared.  Chinese companies could move to the US to set up production

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRUMP’S TRADE WAR

With the number of trade cases being filed, including the Section 232 cases against Steel and Aluminum, which give President Trump carte blanche authority to issue tariffs and other import restrictions, the President truly is creating a trade war.  Trump’s threat to kill NAFTA scared Canada and Mexico to come to the table.  One of the reasons for Trump’s threat is the Canadian threat not to drop its barriers to US dairy exports.

One Canadian Parliament member threatened President Trump not to get so tough on trade.  The member should understand that such threats play right into the hands of Donald Trump and his argument that NAFTA is not truly a free trade agreement.

But all these threats and trade cases will make it very difficult to conclude trade agreements. In looking at Commerce Secretary Wilbur Ross’s plan to get to 3% GDP increase, one pillar of the plan is increased exports.  Exports, however, will not increase if there is a trade war, and it sure looks like that is going to happen.

From January 1, 2017 through March 31, 2017, the GDP was an anemic 0.7%.  Trump has to change that dramatically and deciding to have a trade war with every country is not the way to change the GDP number.

In fact, all these trade cases could be the Achilles heal of Trump’s Economic policy.  Trump’s carrots to encourage domestic industry, including lowering taxes and cutting regulations, are not the issue.  Protectionist walls to try and protect raw material industries, however, will have an opposite effect because of the collateral damage these orders will have on US downstream producers, which use these raw material inputs.  As Ronald Reagan stated, “Protectionism becomes destructionism; it costs jobs.”  But protectionism is not a partisan issue, as the only one more protectionist than President Trump may be the Democratic party.

TRUMP’S TRADE WAR ON DOWNSTREAM INDUSTRIES—COLD DRAWN MECHANICAL TUBING

To understand the real impact of the Trump Steel War on downstream industries, including the US auto parts and automobile industries, read the quotes below.  The Automobile Industry is going to be hit hard.

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. (collectively, “Petitioners”) filed an antidumping (“AD”) and countervailing duty (“CVD”) petition against imports of cold-drawn mechanical tubing from China, Germany, India, Italy, Korea and Switzerland.

Cold-drawn mechanical tubing can be sold as a commodity product to be used in the oil & gas, mining, agricultural and construction industries.  Certain types of mechanical tubing are also sold as commodity products to the auto industry to produce axles and drive shafts, but there is another segment of the auto parts industry, which produces specialized automotive products.  Because of US safety requirements, the specialized auto products companies need made to order mechanical tubing.  They cannot simply buy mechanical tubing off the shelf.  Petitioners, however, want the auto parts companies to buy their commodity products.

In order to win the antidumping and the countervailing duty case, Petitioners must establish dumping and subsidization at the Commerce Department and injury to the U.S. industry at the US International Trade Commission (“ITC”).  Once the petition was filed, the ITC immediately started up its 45 day preliminary injury investigation.   On May 10, 2017, the ITC held a hearing in Washington DC in the preliminary investigation and then we submitted a post-conference brief.

We represent in the case importers and two US auto parts companies. The importers, including these specialized auto parts companies, are very worried because the Commerce Department preliminary determinations, which will be issued very soon on September 16, 2017 (“CVD)” and November 15, 2017 (“AD”),  are when their liability begins.  With the Trump Administration and the Commerce Department’s war on steel imports, the duties are expected to be very high.  This is especially true with regard to China since Commerce does not use actual Chinese prices and costs to determine dumping.  Like many downstream customers in US AD and CVD cases, the customers are telling the ITC that they may have to close production and move offshore to get access to the higher quality competitive raw steel products.  Our hope is that the ITC will listen to these arguments, but to date the ITC has ignored them.  End users do not have standing in AD and CVD cases at the ITC.

As stated in our ITC postconference brief:

“The Petitioners/US mechanical tubing industry in this case will recover as their commodity markets in the energy, agricultural, mining and machinery markets recover.  But since antidumping and countervailing duty orders stay in place for 5 to 30 years, the impact of this case on the US downstream auto part and automobile industries will last for many years.

If the Commission goes affirmative in this case, we will see many auto parts producers close shop and move to another country where they can buy the high quality mechanical tubing that they need to compete with the loss of thousands of US jobs.  Many of these companies, including voestalpline Rotec Inc., already have operations in Canada, Mexico and through their parent company in numerous other countries and they will move their operations to obtain the high quality raw materials that they need to safely compete in the downstream auto parts market.”

As Andrew Ball, President, of voestalpine Rotec in Lafayette, Indiana stated at the Preliminary Conference:

“Our customers will not allow a change in the supply base, and this material is absolutely not available from these U.S. producers, thus making the decision to move equipment to other countries or procuring the completed components from our other global facilities in Austria, the United Kingdom, France, Spain and Poland a likely outcome.

With so much discussion surrounding trade imbalance, it is ironic that because of this case, we as a U.S. manufacturer will be forced to relocate millions of dollars of manufacturing equipment with significant loss of U.S. jobs for specialty high value, highly engineered components because several commodity U.S. producers are determined to ignore market realities.

I can say with a high degree of certainty that none of the petitioners will see one extra pound, not one single foot of material as a result of this action.  I am certain, however, that companies like ours and our customers will accelerate the relocation of domestic manufacturing to other countries, and all this business will flow in NAFTA region as semi-finished components, thus avoiding the dumping duty altogether. . . .

I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.  To highlight this point, in 2013 our facility took a direct hit from an F-3 tornado, obliterating 30 percent of our manufacturing capacity.  Within 48 hours, we had the rest of the facility fully operational and with the help of our international partners and domestic competition, we had the balance of our business sourced and supplying parts to assembly facilities throughout the world within four days. Not one single production line was affected as a result. . . .

That was a natural disaster.  This one is man-made, and I can assure you that in 45 days if this case is not dismissed, these actions will accelerate the market forces already working against our U.S. manufacturing base and will either force our hand or the hand of our customers to move business overseas in many places closer to the customer locations in Mexico, to ensure the continuity of cost, quality and service, resulting in the loss of precious U.S. manufacturing jobs, future investment and all but killing the chances of fixing the trade imbalance.”

As Andrew Ball further stated in the ITC Postconference brief:

“This petition puts at risk our factory, our jobs and the factories and jobs of our US customers and subcontractors. Increases to prices that are already considered high in the global market will result in our customers resourcing our business to other suppliers or will force them to insist that we move equipment to other locations in the world to avoid this unjustified action. I was always raised that before I ask for help it was expected that I had done everything I could to help myself. Why then have none of the petitioners made sales calls to my organization looking to reform or start a partnership ahead of this action? Unfortunately, if you vote affirmative, resource decisions will be taken well ahead of the final DOC determination for risk mitigation purposes. I trust that you will analyze all details in this case and make your determination based on clear “facts and data.”

Another auto parts company stated in the brief:

We have fixed contracts with our vendors and customers, so any increase in piece price will be countered by evaluating the region that we manufacture products in or may require that we look at bringing in the  components from other countries. If your vote is affirmative then we will be making these decisions ahead of  the determination by the DOC in September as the risk is too high to wait.

If these auto parts component companies do not move, their customers, the auto parts producers, which are multi-nationals, will move because auto parts companies cannot buy commodity products when safety issues are a concern.  Product Liability cases can bankrupt an auto parts producer.

In her statement at the Preliminary Conference, Julie Ellis, President of Tube Fabrication of Logansport, Indiana echoed Andrew Ball’s statement:

The impact of this case on downstream manufacturing operations will result in the loss of thousands of jobs, maybe even more jobs than those saved by the case.  If we are unable to provide our customers with tube components at a competitive global price, they will be forced to move production from the United States to other countries.

Most of our customers already have global operations in place and have the ability to divert the production away from the U.S. locations to remain competitive.  The loss of business would not only impact businesses like TFI, but coating facilities, plating operations, heat treating, tool and die shops, machine shops, testing facilities, transportation companies, along with our customers’ U.S. facilities, and further downstream manufacturing.

In other words, in response to this petition, we fear that U.S. automotive companies will simply shift and procure the final parts with the tubes in them from multiple overseas operations.  From our point of view, this case will not result in any more tubes being switched to U.S. producers.  Instead, it will simply be a lose-lose situation.

TFI is representative of many U.S. producers at a comparable level of U.S. production.  The inability of Tube Fabrication and other companies in similar situations to remain competitive will result in a tremendous loss of jobs in the U.S. downstream manufacturing sector.  We will be forced to either move portions of our operations to Mexico, where we currently ship 20 percent of the components that we manufacture in the United States and/or cut USW jobs and benefits.

In her statement attached to the Brief, Julie Ellis states:

This is a rural community with limited manufacturing operations. We are an asset to the local economy, pay our taxes and provide community support. Thru the years we have watched as many of the local manufacturing companies have closed up operations and moved to Mexico and overseas. The inability of Tube Fabrication and other companies in similar situations, to remain competitive, could result in a tremendous loss of jobs in the downstream US manufacturing sector. It could potentially equate to thousands of people being displaced. We must have the ability to procure our raw materials at a competitive global price or we will lose business! As I said in my statement at the hearing, 20% of the components that we manufacture ship to Mexico. Please don’t force us to be the next ones to go!

Petitioners argue that respondents are simply exaggerating the problem and that the issue is simply dumped low import prices.  But in this case, the issue is not just price; it is quality.  As one importer, Salem Steel, stated at the Preliminary Conference, the same scenario played out as a result of the Section 201 Steel case, where many steel products were shut out of the US market:

“This scenario has happened before. One widely quoted study by Dr. Joseph Francois and Laura Baughman of Trade Partnership Worldwide, LLC showed that as a result of Section 201 investigation brought at the behest of the U.S. steel industry, 200,000 Americans lost their jobs to higher steel prices in 2002.

More Americans lost their jobs to higher steel prices in 2002 than the total number employed by the entire steel industry itself in the U.S.  Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California, Texas, Ohio, Michigan, Illinois, Pennsylvania, New York and Florida.”

In the attached Trade Partnership article, STEEL USERS ARTICLE1, Dr. Joseph Francois and Laura Baughman state at page 1 and 2 of their article that as a result of the Section 201 trade restrictions on steel:

“200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002.

One out of four (50,000) of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors.

Job losses escalated steadily over 2002, peaking in November (at 202,000 jobs), and slightly declining to 197,000 jobs in December.

More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).

Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California (19,392 jobs lost), Texas (15,826 jobs lost), Ohio (10,553 jobs lost), Michigan (9,829 jobs lost), Illinois (9,621 jobs lost), Pennsylvania (8,400 jobs lost), New York (8,901 jobs lost) and Florida (8,370 jobs lost). Sixteen states lost at least 4,500 steel consuming jobs each over the course of 2002 from higher steel prices. . . .

Steel tariffs caused shortages of imported product and put U.S. manufacturers of steel-containing products at a disadvantage relative to their foreign competitors. In the absence of the tariffs, the damage to steel consuming employment would have been significantly less than it was in 2002.

The analysis shows that American steel consumers have borne heavy costs from higher steel prices caused by shortages, tariffs and trade remedy duties, among other factors. Some customers of steel consumers have moved sourcing offshore as U.S. producers of steel-containing products became less reliable and more expensive. Other customers refused to accept higher prices from their suppliers and forced them to absorb the higher steel costs, which put many in a precarious (or worse) financial condition. The impact on steel-consuming industries has been significant.”

But the remedy in the Section 201 case lasts from three to five years and in the Section 201 Steel case, President Bush lifted the restraints on Steel imports sooner because of the very damaging impact on downstream users.  Antidumping and Countervailing Duty orders stay in place for five to thirty years.

The experience of downstream users in the Mechanical Tubing case reflects the experience of many downstream users in steel cases, such as the recent AD and CVD cases against Carbon Steel Wire Rod.  There are real costs that will be borne by US downstream companies and their employees because of this Mechanical Tubing trade case and any AD and CVD orders that are issued.  The Commission should have learned the same lesson from its AD order on Magnesium from China, which has been in place for more than ten years.  This AD Order protects a one company US industry in Utah, but it has led to the demise of the entire US Magnesium dye casting industry and the movement of many light weight auto parts companies to Canada.  But since downstream industries have no standing in an AD and CVD cases and there is no part of the injury provision to take this collateral damage into account, although downstream industries can testify at the ITC, in fact, they have no voice.

As Andrew Ball of voestalpine Rotec stated at the Preliminary Conference, ”I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.”  With Antidumping and Countervailing Duty Orders staying in place for 5 to 30 years, if the Commission does not look at market realities, many, many US auto parts companies will close down and move to a third countries.  The real result of this Mechanical Tubing case brought by the Petitioners could well be to hollow out the US auto parts industry and lead to the destruction of the Petitioners’ US customers.

This is the real cost of the Trump trade war—thousands of jobs lost in downstream industries.

SECTION 232 INVESTIGATIONS  — STEEL AND ALUMINUM

In response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress.  According to the Statute, on Petroleum and Petroleum products, the Congress can disapprove the decision, but there is no reference to Steel or Aluminum so it is questionable whether Congress can overrule the President in these cases.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases, the only check is the injury determination by the independent US International Trade Commission.  There is no such determination under Section 232.

Moreover, in these Section 232 Steel and Aluminum cases, it is questionable how much weight Commerce will give to comments or testimony by downstream raw material users.  This is dangerous because tariffs on steel products may cause real harm to the downstream automobile industry, which is important for National Security too.

STEEL

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, Section 232 Investigation on the Effect of Imports of Steel on U.S, Presidential Memorandum Prioritizes Commerce Steel Investigation, COMMERCE FED REG SECTION 232 NOTICE, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.  Witnesses were given five minutes each to make their concerns known.  Written comments are due at the Commerce Department on May 31st.

At the hearing, Secretary Ross stated that a written report would go to the President by the end of June.

At the end of the hearing, several downstream users asked Commerce to exclude certain steel products from any remedy in the Section 232 case.  Counsel for the Steel Importers warned Commerce about retaliation against US exports of military products, including airplanes and agriculture products.

At the start of the hearing, Commerce Secretary Wilbur Ross said something has to be done to help the Steel producers.  In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry:

“It’s a fairly porous system and while it has accomplished some fair measure of reduction, it doesn’t solve the whole problem.  So we are groping here to see whether the facts warrant a more comprehensive solution that would deal with a very wide range of steel products and a very wide range of countries.”

At the Trump Press Conference, Ross stated:

I am proud to stand here today and say that, under your leadership, we are restoring the primacy of American national security, American workers, and American businesses.

For years, we have simply reacted to over 150 cases of improper imports of foreign steel into this country. With our investigation launched last night, the federal government will finally become proactive.

This investigation will help ensure steel import issues do not make us less safe in a world that is increasingly fraught with geopolitical tensions.

The sheer volume of steel trade cases makes it clear that global steel overcapacity has an impact on our economy, but for the first time we will examine its impact on our national security.

We will conduct this investigation thoroughly and expeditiously so that we can fully enforce our trade laws and defend this country against those who would do us harm.

I look forward to the completion of this investigation so that I can report not just the findings, but also any concrete solutions that we may deem appropriate.

Under section 232 the Commerce Department will determine whether steel imports “threaten to impair” national security.  Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

But Ross said that the investigation may move along a quicker track, citing the abundance of steel data the U.S. already has on hand from its past investigations as well as a memorandum from President Donald Trump that calls for the agency to expedite the process.  In fact, at the hearing, Secretary Ross stated that a report to the President will be issued by the end of June.

Once Commerce’s review is completed, the president has 90 days to decide whether to accept or reject its recommendations. The statute gives the administration wide latitude to act, including raising tariffs

Secretary Ross further stated in the past:

“We will conduct this investigation thoroughly and expeditiously so that, if necessary, we can take actions to defend American national security, workers, and businesses against foreign threats.  This investigation will help determine whether steel import issues are making us less safe in a world that is increasingly fraught with geopolitical tensions.”

While the use of Section 232 is rare, the actual deployment of tariffs under the 1962 law is even rarer. Commerce last conducted a Section 232 probe of iron and steel in 2001, but ultimately decided that the goods posed no national security threat, and no further action was taken.

The last time an administration forged ahead with import relief under the law was 1975, when President Gerald Ford hiked license fees and other charges on shipments of imported petroleum during the throes of the mid-70s oil crisis. President Richard Nixon also used Section 232 to impose an across-the-board 10 percent surcharge program in 1971.

But with the new protectionist outlook of the Trump Administration, the huge steel overcapacity in China, and the fact that there are no checks under section 232, this action could definitely result in tariffs, quotas and other trade remedies.

ALUMINUM

On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  Attached are documents related to the Case, ALUMINUM FED REG PUBAluminum Presidential Memo Summary.  The hearing will be June 22, 2017 at the Commerce Department.  The Presidential Memorandum issued on April 27th provides:

This Presidential Memorandum (PM) directs the Secretary of Commerce to investigate, in accordance with the Trade Expansion Act of 1962, the effects on national security of aluminum imports.

During this investigation, the Secretary will consider the following:

The domestic production of aluminum needed for projected national defense requirements.

The capacity of domestic industries to meet such requirements.

The existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense.

Recognize the close relation of the Nation’s economic welfare to our national security, and consider the effect of foreign competition in the aluminum industry on the economic welfare of domestic industries.

Consider any substantial unemployment, decrease in government revenues, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive aluminum imports.

The Secretary shall conduct this investigation with speed and efficiency in order to find if aluminum is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.

If the above is deemed true, the Secretary shall recommend actions and steps that should be taken to adjust aluminum imports so that they will not threaten to impair the national security.

Although Secretary Ross wants to expedite the case, there are rumors that many investigators and other staff in Import Administration have now been moved to work on the Section 232 cases.  With an enormous number of antidumping and countervailing duty cases along with two large Section 232 cases, Commerce staff will be stretched very thin.

SOLAR AD AND CVD CASES DID NOT WORK SO LET’S TRY A SECTION 201 ESCAPE CLAUSE CASE

Just recently, Solar World, the company that brought the Solar Cells and Solar Products antidumping and countervailing duty cases against China, announced that it was going into insolvency.  The bottom line is that the antidumping and countervailing duty orders against solar cells and solar products from China did not save Solar World, but they did result in substantial damage to the upstream US Polysilicon industry.  Because of the US action, China brought its own antidumping and countervailing duty case against $2 billion in US Polysilicon exported to China.  REC Silicon in Moses Lake, Washington got hit with a 57% antidumping duty, deferred a $1 billion investment into Moses Lake, and in November 2016 laid off 70 workers in Moses Lake and cut their capacity in half.

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

By the way, in its determination to the President the ITC is to report any assistance given companies under the Trade Adjustment Assistance for Companies program, the only government program that truly saves US companies.  President Trump, however, in his recent budget proposal completely zeroed out the TAA for Companies program.  More about this below.  Directly contrary to President Reagan, President Trump does not want to make US companies more competitive so that they can compete; he wants to put up protectionist walls.

The main targets of the Petition are not imports from China, but imports from third countries.  In response to the antidumping and countervailing duty orders, many Chinese companies moved to third countries and set up production there.

SCOPE OF THE 201 INVESTIGATION

The articles covered by this investigation are CSPV cells, whether or not partially or fully assembled into other products, including, but not limited to, modules, laminates, panels, and building-integrated materials.

The investigation covers crystalline silicon photovoltaic cells of a thickness equal to or greater than 20 micrometers, having a p/n junction (or variant thereof) formed by any means, whether or not the cell has undergone other processing, including, but not limited to cleaning, etching, coating, and/or addition of materials (including, but not limited to, metallization and conductor patterns) to collect and forward the electricity that is generated by the cell.

Included in the scope of the investigation are photovoltaic cells that contain crystalline silicon in addition to other photovoltaic materials. This includes, but is not limited to, passivated emitter rear contact (“PERC”) cells, heterojunction with intrinsic thin-layer (“HIIT”) cells, and other so-called “hybrid” cells.

Excluded from the investigation are CSPV cells, whether or not partially or fully assembled into other products, if the CSPV cells were manufactured in the United States.

Also excluded from the scope of the investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.

SECTION 201 PROCEDURES IN SOLAR CELL CASE

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC are due in about three weeks from now or 21 days after publication of the notice in the Federal Register.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

REASONS FOR SECTION 201 PETITION

According to Suniva in its petition, the problem is not China.  Suniva argues that the antidumping and countervailing duty orders in the Solar Cells and Solar Products case were simply evaded:

“as the impacted producers have simply opened significant capacity in third countries not subject to those AD/CVD orders. One of the underlying principles of those prior Title VII cases was that implementing duties against the subject goods originating from the offending countries would­ create a cost basis that generates greater domestic price equity. Unfortunately, that outcome has not occurred. Rather than invest in U.S. manufacturing or charge fair market prices, Chinese and Taiwanese manufacturers, either directly through the establishment of their own facilities, or indirectly through the support of contract manufacturing operations in Southeast Asia, India, and Eastern Europe, created alternative capacity that was not subject to U.S. tariffs.  In fact, the data in this petition shows a direct correlation between:

  • The institution of tariffs against subject goods made in China or Taiwan;
  • The reduction of imports into the United States from those countries; and

The increase in imports from Vietnam, Thailand, Malaysia, and other third countries.”

The Petition also states:

“What is striking is that even with these relatively high duties against two of the world’ s largest CSPV cell and module countries, imports continue to flood into the United States. Also striking is the quantity of Chinese and Taiwanese product that continues to enter the United States -, despite these dumping and subsidy duties. What these AD/CVD cases have also done is push production into new countries – meaning that they have led to increased global production and capacity. Consider:

  • In a March 21, 2017, article in the Financial Post, it was reported about Canadian Solar that :”The company said it has also increased production from its manufacturing facilities in Southeast Asia and Taiwan to serve the U.S. market and avoid import “
  • In a January 10, 2017, article in Taiyang News, the following is stated about Chinese producer Solar Trina: “Trina Solar has begun production of solar panels at its newly opened Vietnam factory. The facility with capacity of 800 MW annually is located in Quang Chau Industrial Park in Viet Yen district, northern Ban Giang province, reported The Voice of Vietnam.” The article continues: “After Malaysia, Vietnam is now coming up as one of the most sought after locations for Chinese solar power companies to set up their manufacturing units. Some of the biggest names, including Trina Solar, Jinko Solar and the like have voluntarily withdrawn from the European Commission’s minimum import price (MIP) undertaking which slaps anti-dumping and anti-subsidy duties ori solar panels produced in China. Most of them are keen to operate from locations beyond China to be able to circumvent these duties and even more the customs in the much larger US solar market.”
  • In a March 29, 2016, article in PY Magazine, it is reported that “Trina Solar reports that it has begun production at its PY cell and module factory in Rayong Thailand, which has the capacity to produce 700 MW of cells and 500 MW of PY modules annually.” It continues “Southeast Asia has become a major destination for Chinese and Taiwanese PY cell and module makers seeking to avoid U.S. and EU import duties on their “
  • In an October 26, 2015, press release, it is announced that Chinese producer JA Solar Holdings, , Ltd. opened a 400MW cell manufacturing facility in Penang, Malaysia. As stated in the release: “These cells will primarily be used to manufacture JS Solar Modules outside of China to provide competitive product solutions to certain overseas markets.”
  • In an October 6, 2016, PV Magazine article, it was noted that JA Solar further expanded its Malaysian operations. The article further notes: “The expansion comes in the face of falling module prices around the world, as an oversupply seems to be taking hold of the “
  • In a July 24, 2016, CLEANTECHIES article, it is reported that JA Solar is planning a $1 billion dollar module factory in Vietnam. As noted in the article: “The company already operates 8 factories across the {sic} Europe, the US and Japan. JA Solar, like several other·module manufacturers, facing import restrictions and duties in developed markets like the US and Chinese {sic}. Several Chinese and Taiwanese companies have opened factories in overseas locations-to bypass these restrictions.”
  • A January 25, 2016, China Daily article discusses Chinese panel producers moving operations to Thailand because “solar panels made in the kingdom do not invite heavy duties in the US and Europe.”.

In short, an unforeseen development of the antidumping and countervailing duty cases . . . has been the proliferation of CSPV cell and module manufacturing across the globe. This further supports the use of this global safeguard action. Without global relief, the domestic industry will be playing “whack-a-mole” against CSPV cells and modules from particular countries.

In short, imports have clearly “increased” within the meaning of the statute. Indeed, the increase has been massive; and the recent surge has been highly debilitating to the market structure. The way that the world’s largest producers have reacted to antidumping and countervailing duty claims demonstrates that global relief is required.”

The petition also shows enormous increases of solar cells from Mexico and Canada and with regards to Canada states as follows:

“Transshipment of Chinese-origin CSPV cells through Canada would explain the rapid growth in imports of CSPV cells and modules from Canada in recent years.”

The Petition also states:

“Further, the U.S. industry could not have foreseen that foreign producers, in response to [the antidumping and countervailing duty cases against China would move so rapidly and drastically to open new production facilities in third-countries resulting in no relief for the U.S. industry from the application of the orders in the antidumping and countervailing duty cases. As shown by the import data presented in Exhibit 7, the surge in imports from third-countries after the imposition of the AD and CVD orders is completely unprecedented and unforeseeable.  For example, between 2014 and 2016, imports from Malaysia surged 67 percent/while overtaking China as the largest source of imports. In addition, imports from Korea surged by 827 percent while increasing to become the third largest source of imports.  Imports from Mexico, now the fourth largest source of imports, surged 77 percent. Imports from Thailand, now the fifth largest source of imports, surged over 76,000 percent. Such a rapid and significant increase in imports from third-countries is an unprecedented and completely unforeseen development.”

Between the time the Petition was filed and the ITC institution of the case, Wuxi Suntech announced it opposition to the petition because the law firm that had represented Wuxi Suntech in the antidumping and countervailing duty case against China brought the Section 201 case on behalf of Suniva.  In addition, Sunrun, an importer and user of solar cells, entered a notice of appearance to point out that Solarworld does not support the petition and that Suniva represents less than 20% of US production, but the ITC went forward anyways.  Just today, however, Solar World announced that it is supporting Suniva’s Section 201 Petition.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

TOOL CHESTS FROM CHINA AND VIETNAM

On April 11, 2017, Waterloo Industries Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam.

US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.

COLD-DRAWN MECHANICAL TUBING FROM CHINA, GERMANY, INDIA, ITALY, KOREA AND SWITZERLAND

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

As stated above, these trade cases move very quickly and many importers are blindsided because of the speed of the investigations.  In the Mechanical Tubing case, the ITC conducted its preliminary injury hearing on May 10, 2017 and briefs were filed soon after.  US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, 150 days after the petition was filed, and for Antidumping Duties will start on November 15, 2017, 210 days after the petition was filed.

Commerce has already issued quantity and value questionnaires to the Chinese producers in the AD and CVD cases with responses for both cases due June 5th.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.  Atttached are the relevant parts of the petition, INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING.

100 TO 150 SEAT CIVIL AIRCRAFT

On April 27, 2017, in the attached notice, AIRCRAFT, the Boeing Company filed an antidumping and countervailing duty case against 100 to 150 Seat Civil Aircraft from Canada.  The Canadian respondent company is Bombardier.  With all extensions, the Commerce Department’s Preliminary determination in the CVD case, which is when liability begins, is due September 24, 2017 and the Commerce Department’s preliminary AD determination, when liability begins, is due November 23, 2017.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

LIGHTHIZER CONFIRMED—NAFTA FIGHT

On May 11, 2017, Robert Lighthizer was confirmed by the Senate as the next USTR.  On May 15th he was sworn into office by Vice President Pence.

With Senators and Congressmen, especially from agricultural states, calling for new trade agreements, USTR will have a lot of work to do.

NAFTA FIGHT

On May 18, 2017, in the attached letter, nafta NOTIFICATION, USTR Lighthizer informed Congress of the President’s intention to renegotiate NAFTA.  In the letter, Lighthizer specifically stated:

In particular, we note that NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not.  Many chapters are outdated and do not reflect modern standards. For example, digital trade was in its infancy when NAFTA was enacted. In addition, and consistent with the negotiating objectives in the Trade Priorities and Accountability Act, our aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises. Moreover, establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of those agreements and should be improved in the context of NAFTA. . . .

We are committed to concluding these negotiations with timely and substantive results for U.S. consumers, businesses, farmers, ranchers, and workers, consistent with U.S. priorities and the negotiating objectives established by the Congress in statute. We look forward to continuing to work with the Congress as negotiations with the NAFTA countries begin, and we commit to working with you closely and transparently throughout the process.

On May 18, 2017, John Brinkley published an article in response to the Lighthizer letter:

White House’s NAFTA Renegotiation Letter To Congress Is Surprisingly Rational

U.S. Trade Representative Robert Lighthizer seems to be trying to inject some rationality into President Trump’s trade policies. With the White House in turmoil over the Russia investigation and FBI Director James Comey’s firing, he might just get by with it.

Lighthizer on Thursday formally notified Congress of the administration’s intention to renegotiate the North American Free Trade Agreement with Canada and Mexico. The notification started the clock ticking on the 90-day period that has to elapse before the renegotiations can start.

In a letter to congressional leaders, Lighthizer made some surprisingly sensible remarks about what needed to be done – surprising because it included none of the bluster and hostility that President Trump has directed at America’s NAFTA partners, Canada and Mexico.

The letter said NAFTA needed to be improved in the areas of intellectual property rights, digital trade, state-owned enterprises, customs procedures, food safety, workers’ rights and environmental protection.

All that is true. NAFTA doesn’t address digital trade, because it didn’t exist in 1993 when the deal was signed, but it now dominates every aspect of international commerce in goods and services.

Workers’ rights and environmental protection are addressed in side agreements that aren’t enforceable. Making those standards tougher fully enforceable would lessen the incentive for US companies to move to Mexico.

The letter also said trade rule enforcement “should be improved in the context of NAFTA.” It’s hard to imagine how that might happen.  NAFTA allows a private company from one of the three countries that has operations in one of the others to file a complaint with the NAFTA secretariat against the host country if the company believes its rights have been violated. This Investor-State Dispute Settlement (ISDS) chapter allows for a hearing before a three-judge arbitration panel. Since 1994, the United States has prevailed in every NAFTA ISDS complaint that it has filed or has been filed against it and that has proceeded to a final ruling. It’s going to be hard to improve on that.

When two governments go head-to-head in a trade dispute, they usually take it to the World Trade Organization. The trend there is that the complaining government almost always wins.  The U.S. has won 91% of the cases it has filed in the WTO and lost 84% of those filed against it. Its overall batting average is just over .500. There is nothing that can be done in NAFTA to affect that.

Maybe the best thing the administration could do for American businesses when it convenes the renegotiation with Mexico and Canada is to focus on ways to make it easier for small companies to qualify for duty-free treatment under NAFTA. Lighthizer’s letter seemed to suggest the administration was interested in doing that. It’s easy for big corporations to comply with the myriad rules and regulations that cover imports, exports and free trade agreements; they can hire armies of lawyers and trade specialists to manage compliance with them. Most small firms can’t do that and many find that compliance isn’t worth the time and money. So, they don’t export. Or they export without applying for duty-free treatment under NAFTA. They just pay the tariff. A 2015 Thomson Reuters Global Trade Management survey of small business owners found that complying with rules of origin and other regulations was the principal difficulty that they faced in exporting their products.

To qualify for duty-free treatment under NAFTA, an exporter most certify that a certain percentage of a product’s value originated in the U.S., Mexico or Canada. There are two problems with this. One is that small manufacturers don’t always know where all their parts and components came from and it can be difficult to track them all down. They have to call their suppliers, who may have to call another supplier. The other problem is that the U.S. government allows exporters to use one of two processes for determining regional content and, for most people, neither of them is easy to navigate. . . .

Making this process easier would increase imports and reduce the trade deficit, although not by  much.

If the U.S. negotiators can focus their efforts on these constructive and necessary improvements to NAFTA, rather than on the threats and ultimatums that Trump and his nationalist faction in the White House have made, they might end up with an agreement that all three countries will be happy to sign.

On May 25th, the US Pork Producers issued the attached white paper, NAFTAReport05-24-17, arguing that if NAFTA negotiations lead to the disruption of agricultural exports generally – and pork exports specifically – to Canada and Mexico, that would “have devastating consequences for our farmers and the many American processing and transportation industries and workers supported by these exports.”

The White paper cites an Iowa State economist who states that if Mexico were to respond to a US withdrawal from NAFTA with a 20% duty on pork, the US port industry would lose the entire Mexican market.

Nick Giordano for the National Pork producers went on to state:

“A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Pork producers will support updating and improving NAFTA but only if duties on U.S. pork remain at zero and pork exports are not disrupted.”

On May 24th, USTR Lighthizer pledged that boosting agricultural exports remains a top priority for the Trump administration. He added that he and Agriculture Secretary Sonny Perdue are under specific marching orders to protect current market access for U.S. farm products in the revised NAFTA.  Lighthizer specifically stated:

“The president has specifically told each of us that this is a very, very top priority.  One, not to do any damage and two, to add to the bottom line. So we expect to do that.”

BORDER ADJUSTMENT TAXES

The only good news about Border Adjustment taxes is the President Trump did not include Border Adjustment Taxes in his tax proposal to Congress.  Despite the decision not to put border adjustment taxes (“BAT”) in the Administration’s tax proposal, the House Republicans and Ways and Means Committee continue to push it.  See May 23rd Ways and Means hearing on Border Adjustment Taxes, at https://waysandmeans.house.gov/live/.

Archer Daniel Midland argued for the BAT, citing problems with Agriculture exports, but the retailers, including Target and WalMart, came out strongly against it.  One witness stated that US products are taxed twice, but imports are only taxed once and get a rebate when the product is exported to the US.

But it was also clear from the hearing that Congressmen are split on the Border Adjustment tax.

On May 23, 2017 Treasury Secretary Steven Mnuchin, however, in a closed-door meeting with Democrats on the Ways and Means stated that both he and President Trump are opposed to the Border Adjustment Tax.   One California Democrat, Judy Chu, on the Ways and Means Committee, directly asked Mnuchin if he supported  the  BAT.  As she stated Mnuchin’s concern was the impact on consumers:

“He actually said straight out that he doesn’t support it and the president doesn’t support it.  Unless he was lying to us yesterday, I really felt it was dead on arrival.”

On May 24th, Paul Ryan stated that the BAT needs to be changed and immediately imposing it in its full form would be “too disruptive”.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies.  In fact, in the ongoing Section 201 case on Solar Cells, the statute requires the industry seeking protection to provide a trade adjustment plan to the Commission to explain how the industry intends to adjust if trade relief is provided.  The problem is that the Commission is not the entity with experience on determining whether the Trade Adjustment plans are viable.  The entities with that experience in trade adjustment plans are the various trade adjustment centers throughout the US.

Donald Trump’s proposed budget, however, would 0/zero out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job in TAA for workers is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about developments in Chinese trade law.  Team’s newsletter-EN Vol.2017.16 Team’s newsletter-EN Vol.2017.17 Team’s newsletter-EN Vol.2017.18 Team’s newsletter-EN Vol.2017.19 Team’s newsletter-EN Vol.2017.20

SECTION 337 AND IP CASES

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

On April 10, 2017, in the attached ITC notice, SOCKETS MARINE ,PopSockets LLC filed a section 337 patent case against imports of Collapsible Sockets for Mobile Electronic Devices from the following Chinese companies:

Agomax Group Ltd., Hong Kong; Guangzhou Xi Xun Electronics Co., Ltd., China; Shenzhen Chuanghui Industry Co., Ltd., China; Shenzhen VVI Electronic Limited, China; Shenzhen Yright Technology Co., Ltd., China; Hangzhou Hangkai Technology Co., Ltd., China; Shenzhen Kinsen Technology Co., Limited, China; Shenzhen Enruize Technology Co., Ltd., China; Shenzhen Showerstar Industrial Co., Ltd., China; Shenzhen Lamye Technology Co., Ltd., China; Jiangmen Besnovo Electronics Co., Ltd., China; Shenzhen Belking Electronic Co., Ltd., China; Yiwu Wentou Import & Export Co., Ltd., China; and Shenzhen CEX Electronic Co., Limited, China.

ROBOTIC VACUUM CLEANING DEVICES

On April 18, 2017, in the attached ITC notice, ROBOTIC VACUM CLEANERS, iRobot Corporation filed a section 337 patent case against imports of Robotic Vacuum Cleaning Devices from the following US and Chinese companies:

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.If you have any questions about these cases or about Trump and Trade, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

If you have any questions about these cases or about Trump’s Trade War on downstream industries, the Mechanical Tubing case, the Section 232 cases, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP TRADE AGENDA, INTERNAL TRADE BATTLES, LIGHTHIZER, BORDER ADJUSTMENT TAXES, AGRICULTURE, NAFTA, TRADE ADJUSTMENT ASSISTANCE, CFIUS, ZTE AND SECTION 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 21, 2017—MANY NEW TRADE CASES BEING FILED

The Trump trade war has escalated big time with new antidumping and countervailing duty cases against Mechanical Tubing, Tool Chests and a new Section 232 National Security case against all Steel imports.  Many importers simply do not realize how fast these trade cases move and how fast they can find themselves liable for antidumping and countervailing duties and other trade sanctions. With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed against China and numerous other countries.

In addition to the new trade cases, two section 337 patent cases has been filed against China on sockets for mobile electronic devices and robotic vacuum cleaning devices.

COLD-DRAWN MECHANICAL TUBING FROM CHINA, GERMANY, INDIA, ITALY, KOREA AND SWITZERLAND

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

As stated above, these trade cases move very quickly and many importers are blindsided because of the speed of the investigations.  In the Mechanical Tubing case, as indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, the ITC will conduct its preliminary injury hearing on May 10, 2017.  US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, 150 days after the petition was filed, and for Antidumping Duties will start on November 15, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 10, 2017, which is the part of the proceeding where importers can have a real impact.

Atttached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Indian, Chinese, Korean, German, Swiss and Italian exporters/producers and US importers, please feel free to contact me.  INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING

TOOL CHESTS FROM CHINA AND VIETNAM

On April 11, 2017, Waterloo Industries Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam.

As indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, in the Tool Chests case, the ITC will conduct its preliminary injury hearing on May 2, 2017.  US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 2, 2017, which is the part of the proceeding where importers can have a real impact.

Attached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese and Vietnamese exporters/producers and US importers, Tool chests CHN VNM petition vol 1 narrative.  If anyone has any questions, please feel free to contact me.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

NEW NATIONAL SECURITY SECTION 232 CASE AGAINST STEEL IMPORTS FROM NUMEROUS COUNTRIES, INCLUDING CHINA

On April 20, 2017, as indicated in the attached documents, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S, President Trump announced a new trade investigation of steel imports under section 232 to determine if the tariffs should be imposed because the increased steel imports pose a threat to national security.  The trade action will be conducted under Section 232 of the Trade Expansion Act since 2001.

If the Commerce Department determines that the steel imports are a threat to national security, President Trump will be empowered to levy high tariffs and quotas on imports of steel products from various countries.

Under Section 232, the Commerce Department will conduct an investigation into the potential national security threat posed by the entry of foreign steel into the U.S. market. Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

Commerce Secretary Wilbur Ross has stated, however, that the investigation may move along a faster track.  Once Commerce’s review is completed, the President has 90 days to decide whether to accept or reject its recommendations and to impose trade restraints, including tariffs or quotas on steel imports.

This may be the first attack, not just against China, but all steel imports from every country.  The problems with Commerce self-initiating antidumping and countervailing duty cases is the International Trade Commission.  The Administration does not control the ITC, but it does control Commerce.  By bringing a section 232 case, the Administration skips the injury test by the ITC and assuming the Commerce Department reaches an affirmative determination, the President is empowered to impose import relief in the form of tariffs and quotas.  From the Administration’s point of view, there is more than one way to solve the import problem.

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

On April 10, 2017, in the attached ITC notice, SOCKETS MARINE, PopSockets LLC filed a section 337 patent case against imports of Collapsible Sockets for Mobile Electronic Devices from the following Chinese companies:

Agomax Group Ltd., Hong Kong; Guangzhou Xi Xun Electronics Co., Ltd., China; Shenzhen Chuanghui Industry Co., Ltd., China; Shenzhen VVI Electronic Limited, China; Shenzhen Yright Technology Co., Ltd., China; Hangzhou Hangkai Technology Co., Ltd., China; Shenzhen Kinsen Technology Co., Limited, China; Shenzhen Enruize Technology Co., Ltd., China; Shenzhen Showerstar Industrial Co., Ltd., China; Shenzhen Lamye Technology Co., Ltd., China; Jiangmen Besnovo Electronics Co., Ltd., China; Shenzhen Belking Electronic Co., Ltd., China; Yiwu Wentou Import & Export Co., Ltd., China; and Shenzhen CEX Electronic Co., Limited, China.

ROBOTIC VACUUM CLEANING DEVICES

On April 18, 2017, in the attached ITC notice, ROBOTIC VACUM CLEANERS, iRobot Corporation filed a section 337 patent case against imports of Robotic Vacuum Cleaning Devices from the following US and Chinese companies:

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.

If you have any questions about these cases or about the antidumping and countervailing duty cases, Section 232 Steel case, Trump and Trade, US trade policy, or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR MARCH 26, 2017

Dear Friends,

Although politicians in Washington DC have been focused on Obamacare and Russian involvement in the election, trade issues lurk beneath the surface.  Trade was stirred up with the release of Trump’s Trade Agenda, Lighthizer Confirmation Hearings, rumors of internal fights in the Trump trade team and meetings with foreign leaders, including Angela Merkel of Germany.  In fact, the amount of material on trade is mountainous.

One of the pillars for Trump’s objective of hitting a 3 percent annual growth rate (Obama never got over 2%,), is increased US exports, but as indicated above, trade is a two-way street.  As Democratic Congressman Rick Larson of Washington stated recently at the Washington Council on International Trade Meeting on March 13, the Trump Administration has to choose between a trade policy of Trade Agreements or Border Adjustment Taxes.  If the Trump Administration intends to hit imports with increased Border Adjustment Taxes, it will be very difficult to negotiate trade agreements with the many countries on Trump’s list.

On March 21st, in pushing the Republicans in the House of Representatives to push for the Obamacare repeal bill, President Trump stated that without the Obamacare repeal, the Republicans cannot take up the Tax Bill.  But with the collapse of the Obamacare repeal on March 24th, Congress is pivoting to Tax Reform.  That means tax reform, including the Border Adjustment Taxes, will be front and center.  The target of Trump and the Republican Congress is to pass a tax reform bill by August.

Thus the Trump Administration will be soon at a crossroads—increased taxes/tariffs on imports or trade agreements.  It will be very difficult, if not impossible, to have both.

Meanwhile, the decision of Senate Democrats to stall on the Confirmation of Robert Lighthizer has hurt the trade debate in the Administration.  Lighthizer knows trade law.  Many of the officials, such as Steve Bannon and Peter Navarro, in the Administration, do not know trade law and the Democratic decision to stall the confirmation truly has hurt the United States.

In addition to Border Adjustment taxes, this newsletter contains several articles about Trump and Trade or the Trump Trade Report.  There are growing arguments between Administration officials and by Republican Senators and Representatives outside the Administration on the Trump Trade Policy as officials and Senators and Congressmen understand the ramifications of a protectionist trade policy on the constituents in their States and Districts.

Agriculture is waking up. During the recent March 14 Confirmation Hearing of Robert Lighthizer, one could see the concerns of Senators from Agricultural States as they realize that agricultural exports, their ox will be the one gored by the new Trump trade policy.

Meanwhile, NAFTA will be renegotiated; CFIUS may include reciprocity: China is taking a divide and conquer strategy on the Non-Market Economy Issue in Antidumping Cases; and new trade cases have been filed on Aluminum Foil and Silicon Metal.

ZTE has agreed to pay record fines because of its export control violations; and a recent section 337 patent case stated that the US production of the patent lessee can be used to meet the domestic industry requirement.

In addition, hopefully Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without curtailing imports, will expand.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRUMP TRADE REPORT

TRUMP ADMINISTRATION ISSUES ITS 2017 TRADE POLICY AGENDA AND IT CREATES CONCERNS

On March 1, 2017, the Trump Administration issued its attached National Trade Policy Agenda for 2017 pursuant to 19 U.S.C. § 2213(a)(l)(B), 2017 TRUMP Trade Agenda.  In the short summary, which was released on March 1st, Trump stated in part:

“The overarching purpose of our trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans. Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and other exports.

As a general matter, we believe that these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade deals when our goals are not being met. Finally, we reject the notion that the United States can strengthen its geopolitical position by adopting trade measures that make American workers, farmers, ranchers, and businesses less competitive in global markets.”

In other words, the Trump Administration will take a much stronger position on trade agreements and trade policy.

The most controversial part of the Trade Policy Agenda is the strict approach to the WTO.  Thus, one of the key objectives of the Agenda is”

“Resisting efforts by other countries – or international bodies like the World Trade Organization (“WTO”) – to weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.”

The Agenda then states under the section “Defending Our National Sovereignty Over Trade Policy”:

“it has been a basic principle of our country that American citizens are subject only to laws and regulations made by the U.S. government – not rulings made by foreign governments or international bodies. This principle remains true today.  Accordingly, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”

One of the key objectives, just like other Administrations, will be to reduce and eliminate foreign barriers to US exports, but the Agenda then goes on to state:

“It is time for a more aggressive approach. The Trump Administration will use all possible leverage – including, if necessary, applying the principle of reciprocity to countries that refuse to open their markets – to encourage other countries to give U.S. producers fair access to their markets. The purpose of this effort is to ensure that more markets are truly open to American goods and services and to enhance, rather than restrict, global trade and competition.”

One key principle the administration said it plans to apply is a form of trade quid pro quo called “reciprocity” to countries that refuse to open up their markets.  Lawmakers and the Trump administration are considering toughening up national-security reviews of foreign investments into the U.S. to leverage better trade terms with China. If Beijing does not open up its markets to U.S. investors or exports, for example, the administration could use its powers to block Chinese deals to buy U.S. assets, or threaten higher tariffs on  Chinese imports.

The Agenda also expresses an interest in using Section 301 of the Trade Act of 1974 to open up restraints in foreign countries to US exports.  But 301 has not been used since the WTO’s 1995 inception.  The Agenda states

“Properly used, Section 301 can be a powerful lever to encourage foreign countries to adopt more market-friendly policies.  The Trump administration believes that it is essential to both the United States and the world trading system that all U.S. trade laws be strictly and effectively enforced.”

The Agenda also singles out trade deficits with China, Mexico, Canada and Korea and calls for a renegotiation of trade agreements and a more aggressive approach to trade enforcement.  Although these policies are very aggressive on paper, the question is how will the new Trump Administration apply these policies.

In conclusion, the Agenda states:

“For more than 20 years, the United States government has been committed to trade policies that emphasized multilateral agreements and international dispute settlement mechanisms. The hope was that by giving up some of our willingness to act independently, we could obtain better treatment for U.S. workers, farmers, ranchers, and businesses, Instead, we find that in too many instances, Americans have been put at an unfair disadvantage in global markets. Under these circumstances, it is time for a new trade policy that defends American sovereignty, enforces U.S. trade laws, uses American leverage to open markets abroad, and negotiates new trade agreements that are fairer and more effective both for the United States and for the world trading system, particularly those countries committed to a market-based economy.”

The Trump Administration also stated that it intends to update the document when Congress confirms Robert Lighthizer as the next US Trade Representative.

Parts of the policy document contain arguments similar to those in a widely attached circulated memorandum Mr. Lighthizer wrote in 2010 to the US China Commission, LIGHTHIZER 2010 STATEMENT US CHINA ECONOMIC SECURITY COMMISSION. At the time, Mr. Lighthizer told a congressionally mandated China commission that the U.S. could put its WTO commitments on hold, restricting imports from China until the country changes its behavior in key areas.

When the Trump Trade Agenda came out, the Press reported that the Trump Administration will ignore adverse decisions from the WTO.  During the Obama Administration, however, although WTO decisions were not ignored, they were slow walked, especially in the antidumping and countervailing duty area, with only small changes made in response to the WTO decision.

The Trump Administration will probably follow the same procedures.  The rubber will only meet the road when in response to adverse WTO decisions, foreign countries work up retaliation lists.  Then the Administration will have to decide whether to ignore the WTO decision or not.

In fact, after the Agenda was released, Presidential spokesman Sean Spicer stated that noncompliance with the WTO was not the formal policy of the administration.

In addition, many trade experts believe that the Trade Agenda was just rhetoric and we will need to see whether in the future there truly will be a fundamental shift in actual trade policy.  As one trade expert told me, it will take years for this policy to actually work out.

Moreover, as indicated below, Agriculture is waking up.  Now that Agricultural Senators and Congressmen realize that if there is a trade war, their ox is the one that will get gored, agriculture exports will be seriously hurt, the Trump Administration will probably slow up its aggressive trade policy as the hot protectionist rhetoric meets the realities of the international trade system where trade is a two way street.

If the United States truly signals it will not comply with WTO decisions, and other countries impose retaliatory penalties against U.S. imports, it could usher in an era of economic protectionism worldwide, which could trigger a global trade war that could disrupt international business and growth.  But that also would mean that the Trump Administration will not meet its 3% GDP growth target for the entire economy.

The real issue that the Trump Administration simply does not understand is that even though there may be trade deficits, free trade rises all boats.  The US now has over $1 trillion in exports, but the Trump Administration is focused on trade deficits with countries, such as China, Mexico and Germany.  The Trump Administration ignores the trade surpluses with other countries.  More importantly, free trade agreements have caused all boats to rise, increasing economic activity in the United States and creating jobs.  Because of NAFTA, US exports have quintupled creating millions of new jobs, but the Trump Administration appears to focus only on the trade deficit, which is relatively small in comparison to the surge in US exports.

At the same time that the White House issued its trade agenda on March 1, John Brinkley of Forbes, in an article entitled,Trump’s Trade Ideas As Bad As Ever,” responded to on President Trump’s first “State of the Union” address to the Congress where Trump stated:

“I believe strongly in free trade, but it also has to be fair trade.

Fine, but how do you achieve fair trade? Is it to punish other countries whose trade policies aren’t advantageous to the United States? Or is it to work with them collegially to get them to change those policies?
The latter course is the one that all presidents since World War II have chosen. They have negotiated 14 free trade agreements with 20 countries – agreements that require parties to eliminate tariffs and give fair and equitable treatment to one another.

Previous presidents helped set up the GATT and then the World Trade Organization as a forum for ensuring that countries play by the rules of global trade. Since the WTO was created in 1994, the United States has quietly resolved hundreds of trade disputes in its favor through WTO-sponsored consultations.

When consultations don’t solve the problem, the government can file a formal complaint in the WTO’s Dispute Resolution Body. If it rules in our favor, we can impose temporary, retaliatory tariffs or demand compensation.

That is fair trade. Accusing other countries of taking advantage of us, threatening them with exorbitant tariffs, and declaring that the United States is not beholden to WTO rules, as the Trump administration did today, is not fair trade. It’s more like anarchy.

On March 8, 2017 after the Trade Policy Agenda was issued, John Brinkley of Forbes published another article entitled, “Trump’s Disdain For WTO Portends Only Trouble” stating:

After the World Trade Organization was established in 1995, the Clinton, Bush and Obama administrations made good use of its dispute settlement system. The United States is batting about .500 in cases that proceeded to a final ruling; most of them don’t. Barack Obama had a perfect record in the WTO when he left office, but some of the complaints his administration filed are still pending.

None of the three presidents said the system was unfair or tried to make an end run around it.

Then came Donald Trump. He has nothing but disdain for the WTO and for the very idea of an international organization making and enforcing rules that the United States has to obey. So, in keeping with Trump’s “America First” ideology, the White House declared last week that America doesn’t have to follow those rules.

When one country accuses another of a trade rule violation, such as dumping a product in the host country at below-market value or unfairly subsidizing a domestic industry, the first step toward resolving it is a WTO-sponsored consultation between the two governments. If that fails, the accuser can request a hearing by a dispute settlement panel. The loser of that proceeding can take its case to the WTO’s Appellate Body.

Between 1995 and 2015, the United States filed 109 complaints to the WTO’s Dispute Settlement Body and had 124 filed against it. The U.S. government has settled about two-thirds of them through consultations, thus making recourse to a hearing unnecessary. Like most diplomatic initiatives, these results are achieved out of the public eye and without fanfare.

It’s hard to know what the Trump administration finds objectionable about this system, or why he considers the WTO “a disaster.” None of the WTO’s 163 other members seem to have a problem with it.

But Trump and his merry band of protectionists think they know a better way: to ignore the WTO if it issues a ruling they don’t like.

The President’s Trade Policy Agenda for 2017 says legislation enacted in 1994 lets the administration decide arbitrarily whether to comply with a WTO dispute settlement ruling that goes against the United States.

“If a WTO dispute settlement report is adverse to the United States, [the U.S. Trade Representative shall] consult with the appropriate Congressional committees concerning whether to implement the report’s recommendation, and, if so, the manner of such implementation and the period of time needed for such implementation,” the Trade Policy Agenda says.

In other words, the United States will comply with WTO decisions – decisions based on rules that the United States helped write – if it feels like it. Incredibly, Trump, et al, seem to think this approach would have no negative consequences.

If the U.S. government refuses to comply with a dispute settlement ruling against it, the WTO can authorize retaliation by the aggrieved party. That is likely to be a tariff increase targeted at the industry whose trade practices led to the adverse ruling. If a targeted tariff increase isn’t feasible, the aggrieved country can raise tariffs against some other industry.

Presumably, Trump would then retaliate against the retaliator and off we’d go into a destructive trade war.

It’s important to understand that the United States was intimately involved in the creation of the WTO and the drafting of its rules. During previous administrations, the U.S. ambassador to the WTO was in Geneva almost every day protecting the interests of the American industries and workers. Contrary to what Trump says, the WTO is not a foreign body accountable to no one. It’s a democratic institution, accountable to its members.

As former U.S. Trade Representative Michael Froman said in the President’s Trade Agenda for 2014:

“A robust international trading system offers the greatest economic benefits when all trading partners abide by their commitments and play by the same rules.”

LIGHTHIZER CONFIRMATION HEARING

On March 14, 2017, the Senate Finance Committee held its confirmation hearing on Robert Lighthizer as United States Trade Representative.  One can see the confirmation hearing in its entirety at https://www.c-span.org/video/?425333-1/us-trade-representative-nominee-testifies-confirmation-hearing

But as of March 23, 2017, Lighthizer’s confirmation vote is being held up in the Committee and on the Senate floor because his status as an advocate more than 30 years ago for the Brazilian government in a 1985 trade case, prior to the time when I was an associate at Skadden, Arps, appears to require a waiver in order for him to assume his role at USTR.  Unfortunately, this decision has left Lighthizer, the best trade lawyer on Trump’s team, out of the internal discussions on trade policy.

The White House has itself pushed to make the waiver vote unnecessary. White House counsel Donald F. McGahn wrote to Hatch and Senate Majority Leader Mitch McConnell, R-Ky., on March 3 citing a Clinton-era Office of Legal Counsel opinion as a challenge to the waiver rule.

A week after the March 21st confirmation hearing, Senator Pat Roberts of Kansas stated:

“I think we made it clear, I think [Finance Chairman] Orrin Hatch made it very clear that it’s not needed. But I don’t know what mood our friends across the aisle are in, and I have no idea what they’re going to do.”

Senator Ron Wyden ranking Democrat on the Senate Finance Committee, however, stated:

“We’ve made it clear we’re going to insist on the waiver. There’s this quaint idea that the law should actually matter, and the law says a person in his position has got to get a waiver.”

Thus Lighthizer’s nomination has been held up “for what feels like eons” according to Wyden, but at this point in time it is still not moving.

Meanwhile on March 22, 2017, the U.S. Chamber of Commerce in the attached letter, chamber_letter, pushed for a quick vote Lighthizer for USTR stating:

“Mr. Lighthizer has led a distinguished career as a trade policy practitioner and has a reputation as a staunch advocate for American industry. The Chamber believes he will represent the nation’s interests well as he works with international partners and addresses trade challenges at the negotiating table and before the World Trade Organization. The Chamber encourages a swift vote on his nomination and looks forward to working with him as the next U.S. Trade Representative.”

During the Confirmation hearing, Lighthizer had bipartisan support with many Democratic and Republican Senators vouching support for his candidacy.  One of the two issues of primary importance was the decision to break mega deals, such as the TPP, into bilateral deals with individual countries.

The problem, however, is that trade deals take a lot of time to negotiate.  The TPP took almost 10 years to negotiate with the 12 countries involved.  But by abandoning the TPP, with an objective of creating individual trade deals with the TPP member companies, the US Government has probably quintupled its work load, if not increased it twelve fold.

Although Lighthizer indicated that USTR would use the TPP draft agreement as a basis to negotiate a number of bilateral agreements, negotiating that many trade deals will take an enormous amount of work by a very small agency – USTR—with only just over 200 employees at offices in Brussels Belgium, Geneva Switzerland and Washington DC.  Trump’s budget is not clear whether USTR will get an increase in budget or whether its budget will be cut.

The second point is the importance of Trade Deals to US Agriculture exports.  In the Lighthizer confirmation hearing, all of a sudden Senators from agriculture states started to wake up.  If the TPP had passed, the biggest winner would have been US agriculture exports with tariffs dropping on more than 18,000 different products, many being agricultural products.  Now the TPP is gone and countries are racing into those overseas markets to replace US agricultural products.

Agriculture Senators and Congressmen want trade deals now because the United States is exporting billions of dollars in agricultural products to the rest of the World.  Mexican government officials recently declared that since Trump wants to be tough on trade with Mexico, they will cut $2.4 billion in imports of corn from the United States and replace the US corn with corn from Brazil and Argentina.  Congressman Newhouse at a recent Washington Council on International Trade stated that after the Korea FTA, exports of Washington State cherries doubled and Washington State French fries increased by 52%.  Increased exports means more jobs.

With a decision not to do the TPP, Senators and Congressmen from agricultural states fear that other countries will replace the United States and get those benefits.  As indicated below, that is a real and justified fear.

TRUMP TRADE AGENDA—OPPOSITION TO THE TRUMP TRADE POLICY IN THE ADMINISTRATION AND IN CONGRESS

Part of the Trump trade problem is the perception by Trump and many on his internal trade staff, such as Peter Navarro, that trade is a one-way street.  The Administration apparently believes it can simply issue an executive order raising tariffs, taxes or barriers to imports with no reaction by foreign countries.

But the Trump Administration is now in the international arena.  Although Trump won the Presidency, he has no political power over foreign countries.  Trade is a two-way street and as stated in several past newsletters, Mexico, Canada, China, and Germany have all threatened retaliation if the US imposes trade restraints, including Border Adjustment Taxes.  Deals have to be negotiated, but most countries, including the US, will not negotiate a deal when a gun is pointed at their head.

INTERNAL ADMINISTRATION TRADE FIGHTS—NAVARRO CREATES AN INTERNAL TRADE WAR

On March 10th the Financial Times reported that a trade war had broken out in White House in what was called “a fiery meeting” in the Oval Office pitting economic nationalists close to Donald Trump against pro­trade moderates in Treasury and the Economic Council from Wall Street.

Navarro is the ultra-nationalist economist who has angered Berlin and other European allies by accusing Germany of currency manipulation and exploiting a “grossly undervalued” euro and calling for bilateral discussions with Angela Merkel’s government over ways to reduce the US trade deficit with Germany.

The fight was between trade hardliners, such as Steve Bannon and Peter Narvarro, against the free trade economic faction led by Gary Cohn, the executive from Goldman Sachs, who heads the National Economic Council.  Note that since Lighthizer has not been confirmed, he could not be part of the discussion.  Bannon and Navarro support the Border Adjustment Tax while Cohn and Treasury Secretary Mnuchin oppose it.

During the last several weeks, Navarro appeared to be losing influence. But during the recent Oval Office fight, Mr Trump appeared to side with the economic nationalists.

Mr Navarro’s case has angered Republicans in Congress because he was criticized for being ill­prepared and vague at a closed­door briefing he held with Senators in February.

Reports have been made that Mr Navarro is becoming increasingly isolated in the administration. He has been operating with a very small staff out of an office in the Old Executive Office Building adjacent to the White House, while Mr Cohn has been adding staff to his NEC base inside the West Wing of the White House.

On March 5th, Navarro published an op-ed in the Wall Street Journal on why trade deficits matter:

Do  trade  deficits matter? The question is important because America’s trade deficit in goods is large and persistent, about $2 billion every day. . . .

Reducing a trade deficit through tough, smart negotiations is a way to increase net exports—and boost the rate of economic growth. . . .

Similarly, if the U.S. uses its leverage as the world’s largest market to persuade India to reduce its notoriously high tariffs and Japan to lower its formidable nontariff barriers, America will surely sell more Washington apples, Florida oranges, California wine, Wisconsin cheese and Harley-Davidson motorcycles. Just as surely, the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee. . . .

But running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore. . .

Might we lose a broader hot war because America has sent its defense-industrial base abroad on the wings of a persistent trade deficit?

Today, after decades of trade deficits and a mass migration of factories offshore, there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles. Meanwhile, America’s steel industry is on the ropes, its aluminum industry is flat on its back, and its shipbuilding industry is gathering barnacles. The U.S. has begun to lose control of its food-supply chain, and foreign firms are eager to purchase large swaths of Silicon Valley’s treasures.

Much of Wall Street and most economists simply don’t care. But to paraphrase Mike Pence on the 2016 campaign trail, the people of Fort Wayne know better. The analysts at the Pentagon know better, too. That’s why, for both economic and national-security reasons, it is important to bring America’s trade back into balance—through free, fair and reciprocal trade.

As indicated below, however, do trade deficits justify increased US barriers to imports?  Wouldn’t a policy of making companies more competitive with imports, such as Trade Adjustment Assistance for Companies, explained below be a better option.  TAA does not risk retaliation from other countries.

Moreover, as stated above, focusing on trade deficits ignores the enormous increase in US exports to those countries.  Navarro focuses on a trade deficit and ignores the fact that US exports are over $1 trillion and support millions of jobs.  A trade war will cut those exports and jobs in half.  That will not make America great again.

Recently Navarro attempted to intervene in an antidumping duty case at the Commerce Department on Oil Country Tubular Goods from Korea sparking outrage from the trade lawyers representing the Korean steel mills.  Navarro should keep in mind that the Commerce Department in antidumping cases makes its decision based on the facts on the administrative record and the Commerce Department’s determinations are subject to Court review by the Court of International Trade and the Court of Appeals for the Federal Circuit.  In the past, Courts have made clear that when a Government agency, such as the Commerce Department, makes a decision based on politics, that is a reason for depositions of the government official.  Navarro might be deposed in any appeal of the OCTG case to the Court.

On March 13, John Brinkley of Forbes in an article entitled, “Commerce Secretary Ross Thinks U.S. Is In A Trade War”, which also addressed Navarro’s thinking, stated:

Commerce Secretary Wilbur Ross, responding to concerns that the Trump administration is pushing the United States toward a trade war, said we were already in one.

“We’ve been in a trade war for decades,” he said last week in an interview with Bloomberg News. “That’s why we have the (trade) deficits.”

But not to worry, Ross said. “It’s not going to be a shooting war. If people know you have the big bazooka, you probably don’t have to use it.”

That’s the Luca Brasi negotiating method: bend to our will or we’ll blow you to smithereens. Peter Navarro, the head of the White House National Trade Council, recently suggested that future trade agreements include a rule stating that they can be renegotiated any time the U.S. runs a trade deficit with the partner country. That is, to put it mildly, a non-starter.

Ross’s and Navarro’s remarks are symptomatic of the Trump administration’s singular obsession with trade deficits. However, the fact that the United States has a global trade deficit does not mean we’re in a trade war. It doesn’t mean our trading partners are cheating us any more than that we’re cheating Canada and the United Kingdom by running trade surpluses with them. It means we import more than we export. One of the reasons for that is the strength of the dollar in foreign exchange markets. A strong dollar makes imports less expensive and exports more expensive. That, in turn, leads to more choices and lower prices for American consumers.

Navarro said in a recent speech that trade surpluses were synonymous with economic growth. History suggests otherwise. The U.S. economy added 235,000 jobs in February and the unemployment rate fell to 4.7%. The trade deficit in January (February not available yet) was $48.5 billion, the highest it’s been since March  2012.

The trade deficit decreased during the recession of 2008-09. The United States ran a trade surplus through most of the Great Depression.

Ross didn’t say who the enemy was in this supposed trade war, but President Trump has made it clear that he has it in for China and Mexico, our second and third largest trading partners, respectively. Our largest bilateral trade deficits are with those countries.

So, Trump intends to renegotiate NAFTA. And, he has threatened China with punitive tariffs. He has said doing these things would erase the U.S. trade deficit, cause a renaissance of American manufacturing jobs and bring the 3% GDP growth he promised.

They would do none of those things.

“Withdrawal from the Trans-Pacific Partnership, renegotiation of the North American Free Trade Agreement, and launching trade actions against China ensure political headlines, but they will not make much difference to the global U.S. trade deficit. Nor will they bring more jobs and higher wages to U.S. workers,” said Gary Clyde Hufbauer and Euijin Jung of the Peterson Institute of International Economics in an article published in February.

They also noted that the trade deficit is financed in part by foreign direct investment, which is unquestionably beneficial to the U.S. economy. Foreign-owned companies operating in the United States directly employ 6.1 million Americans, according to the U.S. Commerce Department. FDI stock in the U.S. stands at almost $3 trillion.

One way to reduce the trade deficit would be to devalue the dollar against the Chinese yuan and other currencies.  That would be politically difficult because it’s what Trump (wrongly) accuses China of doing on a regular basis. It would also raise the prices of imported food and manufactured goods and, possibly, cause inflation. That would hurt low-income Americans the most.

A better idea would be for the Trump trade triumvirate to calculate America’s balance of trade with its 20 free trade agreement partners. They would find that we have an aggregate trade surplus with them. Maybe then they’d reconsider their plans to renegotiate or withdraw from those agreements.

If Ross thinks we’re in a trade war now, let him propose raising tariffs against Mexico and China over and above the World Trade Organization’s Most Favored Nation rates. Then, we’d be in a trade war for real.

NAVARRO’S STANDING WITH CONGRESS DROPS

On March 16th, senior trade officials from the administration, minus Robert Lighthizer, headed up to Capitol Hill to talk with members of the House Ways and Means Committee about NAFTA, among other trade topics – marking the latest step in what one administration official described as a series of ongoing consultations between the administration and Congress before the White House formally moves to reopen the agreement.

The next step will be for the administration to formally notify Congress that its NAFTA  plans to begin talks, triggering a congressionally mandated 90-day consultation period before the renegotiation can start.

Commerce Secretary Wilbur Ross stated that the White House hopes to send that notification letter “sometime in the next couple of weeks,” meaning formal talks are likely to begin around early summer. Ross is expected attended the March 16th meeting, as did senior members of the Office of the U.S. Trade Representative including general counsel and acting USTR Stephen Vaughn, and deputy general counsel Maria Pagan.

Peter Navarro, however, did not go to the Capital Hill meeting. After a meeting with the Senate Finance Committee in February – which was described as “a disaster” – Navarro made such a poor impression that Senators viewed it as a reason for why they need to get USTR nominee Robert Lighthizer confirmed as soon as possible.  That meeting also spurred additional questions about who is really in charge on trade and led to strong reminders that USTR holds the statutory authority.

G-20 BECOMES MORE PROTECTIONIST

On March 18th, the trade protectionist rhetoric increased as it was reported that the G-20 member states dropped the no-protectionism pledge, which indicates more trade storms to come.  The G­20 is an informal forum on economic cooperation made up of 19 countries plus the European Union.  Finance ministers from the Group of 20 countries met in the southern German town of Baden­Baden and issued a statement saying only that countries “are working to strengthen the contribution of trade” to their economies.  In last yearʹs meeting under the Obama Administration, called on countries to resist “all forms” of protectionism, which can include border tariffs and rules that keep out imports to shield domestic companies from competition.

During the press conference, I was told that U.S. Treasury Secretary Steven Mnuchin, was peppered with questions about the border adjustment tax.  Munchin did state that trade deals need to offer a win-win scenario and went on to state:

“We believe in free trade: we are one of the largest markets in the world, we are one of the largest trading partners in the world.  Having said that, we want to re­examine certain agreements… And to the extent that agreements are old agreements and need to be renegotiated weʹll consider that as well.”

AGRICULTURE WAKES UP BECAUSE IT REALIZES HOW MUCH IT WILL LOSE WITH A PROTECTIONIST ANTI TRADE POLICY

In the past, many reporters have asked me what could China or other countries retaliate against.  The United States does not export much.  US exports are simply too small.  In the face of large trade deficits with China, Mexico and other countries in the manufacturing area, what is the US exporting that can be a retaliation target?

US trade data indicate that US exports for 2016 were over $1 trillion.  In the Robert Lighthizer confirmation hearings, you could hear the real concern of many Senators, especially from the agriculture states, that products from their states could be retaliation targets.  Their worry is certainly justified.

As Senator Pat Roberts stated at the Lighthizer Confirmation hearings:

“I’m going to try and demonstrate that we are going through a pretty rough patch in agriculture.  If Trump makes good on his promises to turn U.S. trade policy into a war against imports, “we are going to get into a very difficult situation.”

During the Confirmation Hearing, Roberts, Grassley and other Agriculture Senators extracted a pledge from Lighthizer that in negotiating trade agreements he would push agriculture interests to the top of the list. Senators and Congressmen from Agriculture states fear that if no new trade agreements are negotiated, US agriculture will lose market share and will become the retaliation target of other countries.

Mexico, in fact, is one of the largest buyers of US corn, much of which comes from Kansas and Iowa.  US exports about $2.4 billion in corn to Mexico.  Now Mexico is talking about retaliation and buying its corn from Brazil and Argentina.  What goes around comes around.

U.S. Senators and Congressmen noticed when a Mexican lawmaker introduced legislation favoring Latin American products over American- exported corn, a key winner in Nafta. That move followed warnings from Mr. Trump that Nafta would be renegotiated and Mexico would have to pay for a new border wall.  In response, Republican Senator Joni Ernst of Iowa stated:

“I have been worried because other countries have pushed back: ‘You want us to build a wall, well we’re not going to take your corn.’  If we’re talking about renegotiating Nafta, we actually stand to lose ground in agriculture—so we would really have to work that very, very carefully.”

On March 6th, leaders of the US Dairy industry were in Mexico to attempt and protect their exports from uncertainty over the future of NAFTA. After NAFTA was signed in 1994, American dairy exports to Mexico more than quadrupled to $1.2 billion, accounting for nearly one-fourth of all U.S. dairy exports last year. Because of Trump’s attacks on Mexico, it has encouraged Mexican importers to find other suppliers in the European Union and New Zealand, which are eager to get into the market, and in New Zealand’s case are part of the TPP.

In response to the criticism that Trump is putting his trade focus on the plight of the U.S. manufacturing sector at the expense of the export-dependent agriculture sector, on March 21st Trump pivoted to agriculture.  Sean Spicer, the President’s press secretary stated:

“While our farmers are the most efficient in the world, margins have been tightening, regulations have been multiplying, and exports, which has historically counted for over one- fifth of the U.S. farm production, have been declining due to unwise trade policies.  The President promised the many people in the agriculture industry and throughout rural America that he would not allow this to continue and he will continue to pursue policy changes that will reverse this disturbing trend.”

John Bode, president and CEO of the Corn Refiners Association praised the statement saying that Trump’s proclamation recognizes that “improved trade balances and a successful agriculture sector are inextricably linked.”  He further stated:

“Our industry’s exports not only deliver jobs at home, they are among America’s fundamental strengths abroad.  We are heartened to know that this White House agrees and that they will seek to increase agricultural exports as they examine existing and future trade agreements.”

Ray Starling, special assistant to the president for agriculture on the National Economic Council, recently stated at a National Ag Day event in Washington:

“The President has talked a lot about our manufacturing imbalance on trade, but that is not meant to neglect ag. That is essentially to say we know ag is doing a good job, we are making strides there, we need to do more.”

Now we have to wait and see if Trump truly means what he says or whether he wants a trade war, which will hurt US exports, especially in the agriculture area.

SENATORS AND CONGRESSMEN WANT MORE TRADE DEALS–BILATERAL VERSUS MULTILATERAL DEALS

Back on January 26, 2017 in an interview with Sean Hannity on Fox News, Trump explained that he did not like multilateral trade deals, such as the TPP, because they are a mosh pit and fall to the lowest common denominator.

During his confirmation hearing, Commerce Secretary Wilbur Ross stated that it easy to negotiate bilateral deals than multilateral deals.  But the question is, will it be easier to negotiate 12 bilateral deals with 12 different countries when one deal, the TPP, would have done it.  More importantly, although the US will renegotiate NAFTA and start trade deals with Japan and eventually Britain, is it truly realistic for the very small USTR to have continual negotiations with dozens of countries at the same time.  The TPP took 10 years to negotiate.  Maybe Ross is just playing a game and does not want more trade deals.

At a recent trade conference on March 13th here in Seattle held by the Washington Council on International Trade, however, it was very apparent that Washington State Congressmen, both Democrats and Republicans, want more trade deals.

At the Conference Congressman Dave Reichert, WA Republican, and Chairman of the Subcommittee on Trade, House Ways and Means, stated that the Trump Administration intends to do more bilateral deals.  He also stated that since NAFTA is a trilateral agreement, all three countries, Mexico, Canada and the US need to be at the table.

Reichert also stated that we cannot give up trade agreements because the cost would be too high.  China will benefit.  He also stated that the United States needs to set the international trade standards through trade agreements or China will do so and 95% of the World’s population and markets are outside US.

Reichert stated that the longer we wait to do trade deals, the more market shares we lose.  He pointed to the FTA with Korea, which dramatically reduced the 24% Korean tariff on cherries, and Washington State cheery exports doubled and Washington French Fries went up 53%.

When NAFTA took place US exports to Mexico doubled reaching $180 billion.  There is now over $500 billion in trade between US and Mexico

Following Reichert, Republican Congressman Dan Newhouse, who represents large Agricultural interests in the Center of Washington stated, “We cannot afford to waste any time as we create opportunities for local producers and exporters to gain access to new markets.”

Congressman Rick Larsen stated that the Administration has to decide whether it will do Border Adjustment taxes or trade deals.  Larsen went on to state that trade is much bigger than just agreements. It is soft power.  Asian countries see the US leading with military power, but the US relationship with the other Asian countries is less secure if the only relationship is military and not trade.

Democratic Congressman Denny Heck stated that TPP went too far too fast and was not politically possible.  Echoing Donald Trump, Heck stated that the white working man has seen no increase in income in 40 years.

But Newhouse stated that after the Korea FTA, Washington State potato growers saw an increase in exports of 670,000 tons of French Fries to Korea.  That is jobs.

On March 22nd, John Brinkley in an article entitled, Trump’s “Trade Policies Would Take From the Many and Give To a Few” points out the problem of relying only on bilateral agreements as compared to multilateral agreements:

“Politics can be defined as taking something from someone and giving it to someone else. Done right, the winners outnumber the losers and the sacrifice will have been worthwhile.

This seems lost on the Trump administration, whose trade proposals are likely to create a lot more losers than winners.

Let’s start with his plan to eschew multilateral trade agreements and negotiate only bilateral ones. With a multilateral agreement, like the Trans-Pacific Partnership, all parties play by the same rules. That means exporters don’t have to figure out what the rules of origin are country-by- country. They’re all the same.

Deciphering and complying with rules of origin under a free trade agreement are among the most difficult and time-consuming chores that exporting companies have to perform. If the rule says 70 percent of a truck’s parts have to have been made in the United States, the company has to go to its suppliers and say, where did the door handles come from? Where did the tires come from?

A lot of smaller companies find it isn’t worth the time and expense, so they ship the product and pay the tariff. Or they don’t export at  all.

Having a series of bilateral agreements makes it even harder, because each agreement would have its own rules of origin. American manufacturers were looking forward to ratification of the TPP, because it was to be a 12-country trading bloc with one set of rules. But Trump withdrew the United States from it.

Renegotiating NAFTA is another idea that would take from the many for the benefit of a few.

Breaking up NAFTA and negotiating separate bilateral agreements with Mexico and Canada would be even worse. U.S. Trade Representative nominee Robert Lighthizer said during his Senate confirmation hearing that the administration might take that course.

NAFTA has been in effect for 23 years. Whatever impacts it had on American employment and economic growth are well in the past. If you look under NAFTA’s hood, you see a complex network of supply chains crossing the three countries’ borders. They make it easy and cost-effective for American manufacturers to buy parts from Mexico or Canada and have them delivered quickly and duty-free.

About half of Mexico’s exports to the United States are parts for products that are built here – car parts, electronic components and so  on.

Making those parts more expensive would make the products they go into more expensive and would reduce the importing companies’ revenues, leading to lay-offs or worse. That is basic economics.

Trump said yesterday that renegotiating NAFTA was “going to be an easy one.” Everyone who has ever been a trade negotiator probably got a chuckle out of that. . .. .

“The United States has been treated very, very unfairly by many countries over the years, and that’s going to stop,” he said last week during a joint press conference with German Chancellor Angela Merkel.

Poor little us. We’re being pushed around by those mean bullies from South Korea and Mexico.

Nonetheless, the U.S. and global economies have been growing at a healthy pace. The U.S. unemployment rate is 4.7 percent, about as low as it can go, and median wages have finally started to increase for the first time since the recession of 2008.

This seems to call for an economic policy of caution and restraint to keep the recovery going rather than taking a machete to our trade agreements and punishing our trading partners for transgressions they have not committed.

That would harm vastly more Americans than it would help.

On February 28th, however, it was reported that the EU expects the Trump Administration to negotiate with the entire block as EU countries pushed back on Trump’s bilateral dreams.  European countries in the EU bloc have been unified against the Trump administration’s reported attempts to bring individual EU countries into direct, bilateral trade deals with the U.S. The EU ambassador at a recent National Press Club meeting stated that bilateral deals are “nonsense”.  David O’ Sullivan stated:

“It’s nonsense to talk about bilateral deals with countries that are part of a single market.  Would American companies really want 28 separate FTAs?”

In Germany, Martin Schäfer, spokesperson for the German foreign ministry, stated:

“The [European] Commission carries out trade negotiations and concludes trade agreements for Europe and for us. This is the legal status, about which we have nothing critical to say.  The new political constellation in the U.S. and elsewhere should not tempt anybody to take up a different position.”

European Trade Commissioner Cecilia Malmstrom also stated recently:

“The U.S. administration seems to favor bilateral relations over multilateralism. And some of the proposals we have seen floated, such as a border adjustment tax, could be at odds with WTO rules. Countries should be able to protect themselves from distortions and unfair trade practices. But that has to be done within the framework of the WTO. Global rules mean everyone playing fair, by a consistent, predictable and transparent rulebook.

In an age when some want to rebuild walls, re-impose barriers, restrict people’s freedom to move … we stand open to progressive trade with the world.”

On March 6th, a top European official stated that U.S. President Donald Trump’s protectionist stance may propel Asian, Middle Eastern and Latin American economic powers into market-opening alliances with the European Union.  Jyrki Katainen, a vice president of the European Commission, the EU’s executive arm, said Trump’s rejection of multilateral commercial deals and border-tax threat are giving impetus to the 28-nation bloc’s push for free- trade or investment pacts with countries including Japan, China, India, Saudi Arabia, the United Arab Emirates, Mexico, Brazil and Argentina.

Katainen stated that:

“When there has been some signals to raise protectionism, especially from the U.S. side, the rest of the world seems to be fighting back and saying that this is not our line, this is something which we don’t want. This is music to our ears.”

The comments signal that Trump’s “America First” approach that seeks to reduce the U.S.’s $502 billion trade deficit may be as much an opportunity as a threat to the EU.

Recently, the US equipment manufacturing industry, which supports more than 1.3 million jobs, expressed its concern about exports.  A report by the Association of Equipment Manufacturers stated that about 30 percent of the construction equipment and about 30 percent of the agricultural equipment manufactured in the United States is designated for export – and would therefore be hit hardest by any slowdown in global trade:

“Slow international growth combined with uncertainty about trading rules under the Trump administration could act as a drag on the equipment manufacturing industry’s overall performance.  Any steps the Trump administration might take to revisit or exit existing trade agreements could further complicate the challenging economic environment outside the United States.

It is difficult to precisely forecast how the Trump administration might rewrite existing trading rules, but any steps that make it more difficult for manufacturers to export their products could hinder growth in the industry.”

TPP CONTINUES WITHOUT THE US

On March 14th Government officials from the 12 Trans-Pacific Partnership nations minus the United States held a two-day summit in Chile to discuss a path forward on trade following the US decision to withdraw from the TPP.

New Zealand Trade Minister Todd McClay stated:

“I have recently visited Australia, Japan, Singapore and Mexico, met with ministers from Brunei and Malaysia and talked directly with trade ministers from all other TPP countries.  It is clear our partners remain committed to the benefits high quality trade agreements provide.”

Even though the TPP requires that at least six countries composing at least 85 percent of the entire TPP’s collective economic production, with the US withdrawal, the other 11 countries have decided to move forward with the TPP.  As Wendy Cutler, a former trade negotiator at USTR, stated:

“A TPP agreement without the U.S. is still relevant and would have significant economic value.  You’d still have four of the world’s 20 largest economies — Japan, Canada, Australia, and Mexico — alongside significant emerging economies, like Vietnam and Malaysia.”

In other words, other countries will replace US exports in those markets because they will have the benefit of the TPP.

After the meeting in Chile, Australian Trade Minister Steven Ciobo stated:

“I was particularly pleased there was continuing movement on the TPP.  Countries remain committed to exploring all the avenues and opportunities in relation to the TPP. There was broad agreement on the high level of ambition in the TPP being a benchmark and something we shouldn’t just let slip away.”

Japanese State Minister Takao Ochi stated:

“As long as Japan is concerned we don’t want to exclude any possible ways and we would like to take initiative in discussing with each of the member countries.”

The 11 countries will now work to preserve the trade deal’s innovations, which included new rules on digital trade, disciplines for state-owned companies and what have been touted as the toughest labor and environment protections of any modern trade agreement. The innovations also include new market access that countries negotiated on everything from milk powder to insurance services.

BORDER ADJUSTMENT TAXES

As stated in my last newsletters, the big issue in the trade area right now is border adjustment taxes and tax reform.  New Treasury Secretary Mnuchin says tax reform will take place in August 2017 and it is a priority for the Trump Administration.  Part of that reform is Border Adjustment Taxes (“BAT”).  See http://www.foxbusiness.com/politics/2017/02/23/treasury-secretary-mnuchin-lays-out-aggressive-timeline-for-tax-reform.html.  As Mnuchin states, a US deficit of $20 trillion, which was doubled by President Obama, is a concern, but more important is economic growth, which will result in more tax revenue.  To get economic growth, taxes and regulations have to be cut.

But with the failure of Obamacare in the House, taxes, including border adjustment taxes, move to the front of the Congressional calendar.  Trump and Republicans in the Congress, especially the House, appear to be moving ahead with an alternative to tariffs to spur US manufacturing and that is taxes.  There is now an attempt in Congress to give American-made products a big tax advantage over their foreign competitors through border adjustment taxes, and, in effect, counter the value added taxes used in other countries to deter imports.  As Kevin Brady, Chairman of House Ways and Means, argues, almost 80% of countries border adjust their taxes.  That includes Mexico, Canada, China, and the European countries, putting US exports at a substantial disadvantage.  For Brady’s argument, see videos at the following links, https://www.youtube.com/watch?v=1yYHGoFmNEk&feature=youtu.be and

https://waysandmeans.house.gov/icymi-chairman-brady-cnbc-makes-case-ending-made-america-export-tax/.

Under a border adjustment tax (“BAT”), a 20% tax would be applied against all domestic products and imported products.  But the domestic producer would be allowed to deduct all the domestic costs associated with producing that product.  Thus if a $100 product was produced in the US, the domestic producer could deduct $70 in costs, resulting in a 20% tax on $30 or a $6 tax.  But there would be no deduction of domestic costs for a $100 import resulting in a 20% tax on the full $100 or a $20 tax, giving the domestic product a 14% tax advantage.  The BAT would not apply to exports.

This proposal has welled up from the House of Representatives and is strongly supported by House Speaker Paul Ryan and the Chairman of House Ways and Means, Kevin Brady.  Their argument is that border adjustment tax is needed to offset value added taxes in other countries.  Brady argues that the BAT is the only way to end the “Made in America” tax.

One example given is that if an automobile is produced in the US and exported to Mexico, a 35% corporate tax is levied on the profits of the US automaker and then the US automobile is hit with a 16% value added tax when it comes into Mexico.  On the other hand, when an automobile is produced in Mexico for shipment to the US, there is no corporate tax on the export and no corresponding tax in the US on the Mexican export to the US.  In effect, Ryan and Brady argue that this is a tremendous incentive to move manufacturing out of the United States to countries with value added taxes, such as Mexico, China, Canada, EU and many other countries.

Border adjustments serve as a way to level the playing field and alter value-added consumption taxes many countries, including European countries, Mexico, Canada and China, impose on each stage of production, as products are sold internationally.  Proponents argue that the BAT is not trade policy and does not favor exports over imports.  To see the companies that have VAT taxes in place, see the Ways and Means website at https://waysandmeans.house.gov/ending-made-america-tax-three-major- wins-american-people/.

The Trade War in the Administration on border adjustment taxes has become clear as Bannon, Navarro and others are in favor, but Cohn and Treasury Secretary Mnuchin are opposed.  Wilbur Ross is on the fence.  Trump himself has not taken a position.

On March 25th During a morning interview, Mnuchin said he had been overseeing work on the administration’s tax bill over the past two months and it would be introduced soon. He said the goal was still to win Congressional approval of the tax measure by August. But if the timeline is delayed, he said he expected the proposal to pass by the fall.  Mnuchin did not reveal whether the administration will include the Border Adjustment tax.

On March 9th Bloomberg reported that the BAT is in deep trouble.  The BAT is important because it is expected to raise more than $1 trillion in revenue, which would offset the cut to corporate tax rates:

Companies that rely heavily on exports, such as Boeing Co. and Oracle Corp., love the plan—for obvious reasons. Beyond profits, they also say a BAT would make American manufacturers more competitive by putting them on equal footing with foreign competitors around the world.

Importers hate the BAT. Big retailers such as Walmart Stores Inc. and Best Buy Co. contend that border adjustments will dent profit margins and force them to raise prices on everything from avocados and furniture to Nike shoes and French cheese. In a Feb. 28 letter to congressional leaders, the Americans for Affordable Products coalition said the tax would raise consumer costs “by as much as $1,700” in the first year. . . .

Companies are taking their message to consumers. In late February the National Retail Federation, which opposes the BAT, started airing TV commercials that parody an OxiClean infomercial, telling shoppers that “the all-new BAT tax is specially designed to make your disposable income—disappear!” Proponents, through the American Made Coalition that includes Johnson & Johnson and Pfizer Inc., launched a Twitter feed to support the tax. Both sides have created Facebook pages and websites with auto-form letters that viewers can send to Congress. Both, too, routinely pepper media outlets with press releases citing prominent people in the private sector and academia who either love or hate it.

As Bloomberg further states in Congress the BAT is running into opposition from Republicans:

A core group of House Republicans has come out in recent weeks against the BAT, citing the higher prices they’d inflict on consumers. Republican Senate support is in doubt, too. Tom Cotton, a Republican from Walmart’s home state of Arkansas, told a Senate floor session on Feb. 15 that border adjustments are “a theory wrapped in speculation inside a guess.” The next day, Senate Majority Whip John Cornyn, a Texas Republican, said, “The hard reality is the border tax is on life support.”

But as Bloomberg further states:

“Ryan and Brady aren’t backing down. Without border adjustments, they say, their plan to rewrite the tax code can’t happen. That $1.1 trillion in revenue is crucial to the politics of the BAT, since it helps keep it deficit- neutral, a prerequisite for passing a tax bill through the Senate without Democratic votes. “What it boils down to is that it’s a way to pay for the rest of the tax plan,” says Veronique de Rugy, an economist at George Mason University. “Only revenue comes from this feature—economic growth doesn’t.” That $1 trillion is also crucial to how the BAT might affect the economy. Says Ross, “That is way too big a number to get wrong.”

EUROPE, THE WTO AND CHINA

Meanwhile, other countries are lining up to retaliate if the BAT is passed.  On February 28th, it was reported that the EU is preparing a legal challenge against Donald Trump’s US border tax plan in what could be biggest trade dispute in a century.  Jyrki Katainen, the European Commission’s Vice President, told the newspaper: “If someone is behaving against our interests or against international rules in trade then we have our own mechanisms to react.”  He said the EU was seeking to avoid a potential trade war with the US as it would be “disastrous” for the world economy.

“We have all the legal arrangements within the EU but we are also part of global arrangements like the WTO and we want to respect the global rule base when it comes to trade.”

One WTO trade dispute expert estimated that a defeat in such a case could see around $385bn a year in trade retaliation against the US.  Volker Kauder, parliamentary floor leader of Merkel’s conservatives, also recently stated:

“If Donald Trump imposes punitive tariffs on German and European products, then Europe should also impose punitive tariffs on U.S. products.”

Meanwhile, the Chinese government has been seeking advice from think tanks and policy advisers on how to retaliate against trade penalties imposed by the US.  China’s strongest responses would likely include finding alternative suppliers of agricultural products, machinery and manufactured goods, and reducing the number of consumer goods like cellphones and laptops that it exports to the United States. Other possibilities could include levying a tax or other penalty on major U.S. companies that do business in China or restricting access to the country’s services sector.

NAFTA RENEGOTIATION

The first trade agreement, which the Trump Administration will negotiate is NAFTA.  President Trump has already formally notified both Canada and Mexico that he intends to renegotiate NAFTA.  The negotiations will probably start sometime this summer.

On March 12, 2017, Commerce Secretary Wilbur Ross stated that the Trump administration has yet to determine what the trade agreement replacing NAFTA will look like.  As Ross stated:

“One size doesn’t fit all.  The issues of automotive are not the same as the issues of agriculture; they’re not the same as the issues of electronics, or steel. It’s a very, very complicated situation. So it’s very hard to paint just with one big broad brush.”

On March 16, 2017, Canadian Prime Minister Trudeau stated:

“NAFTA’s been … improved a dozen times over the past 20 years. There’s always opportunities to talk about how we can make it better. It has led to a lot of great jobs for a whole lot of people on both sides of the border and I very much take him [Trump] at his word when he talks about just making a few tweaks. Because that’s what we’re always happy to do.

“We’ve got auto parts crisscrossing the border six times before they end up in a finished product. You’ve got over $2 billion a day going back and forth. So, making sure that the border is … secure but also smooth in its flow of goods and people is essential to good jobs on both sides of the border.”

Meanwhile, there are a number of meetings between US, Canadian and Mexican officials preparing for the NAFTA negotiations.

On March 21st, the Trump administration created the attached list, KEY ELEMENTS, of more than 20 foreign trade practices it would like to address in a renegotiation of NAFTA and in any bilateral trade deal it might pursue.  The list includes relatively new areas like foreign currency manipulation, where achieving agreement could be difficult, but also a host of others like intellectual protection that have long been mainstays in U.S. trade agreements.  Payne Griffin, deputy chief of staff at the Office of U.S. Trade Representative, stated:

“These are market problems that the administration has identified either through vigorous consultations with Congress or their own internal research.  It is a non-exhaustive list of things that may be addressed in these bilateral trade agreements.”

CHINA NONMARKET ECONOMY

China has initiated a mandatory 60-day consultation period with both economies before deciding to request a dispute settlement panel to hear its complaint.  China has now decided to only target the EU, which is in the process of trying to change antidumping methodology. Brussels is trying to come up with a new way of treating China under its trade remedy law while still recognizing that Beijing intervenes heavily in its economy.

The United States has said it would only consider a change in response to a formal request from China to be treated as a market economy, something it has not done since 2006.

Apparently, China is trying a strategy of ‘divide and conquer’.  Take on the EU first, because it is already revising its law and they might get a good WTO decision, then face the tougher battle against the U.S.”

MORE TRADE CASES COMING

A law firm that specializes in bringing antidumping (“AD”) and countervailing duty (“CVD”) trade cases recently told me that they are in the process of preparing a number of new cases against China and other countries.  With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed.

ALUMINUM FOIL FROM CHINA

On March 9, 2017, the US Aluminum Foil Trade Enforcement Working Group, including Aleris Inc., Alpha Aluminum, Golden Aluminum, Granges Americas Inc., JW Aluminum Company, Novelis Corporation, Republic Foil Inc., Reynolds Consumer Products, and United Aluminum Corporation, filed major AD and CVD cases against more than $658 million of aluminum foil imports from China in 2016.

The petition alleges duties ranging from at a minimum of 38 percent to a high of 134 percent and targets 232 Chinese exporters and producers of aluminum foil.  The aluminum foil covered by the complaint covers household aluminum foil as well as aluminum foil used in cookware, product packaging and heat exchangers found in cars and HVAC systems.

US importers can be liable for CVD duties on aluminum foil imports from China as soon as August 6, 2017 and AD duties on October 5, 2017.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, 2017.03.08 CHN-ALUMINUM FOIL Petition Vol I 1Narrative IMPORTERNAMES.  If anyone has any questions, please feel free to contact me.

SILICON METAL FROM AUSTRALIA, BRAZIL, KAZAKHSTAN AND NORWAY

Although the US industry may believe AD and CVD petitions will move the Chinese imports share to the US industry, that is not necessarily the case.  Case in point, on March 8, 2016, Globe Specialty Metals Inc. filed major AD and CVD cases against imports of Silicon Metal from Australia, Brazil, Kazakhstan and Norway.  Chinese silicon metal has been under an AD order with shut out rates since 1991.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted foreign exporters/producers and US importers, SMALL SILICON METAL PETITION.

The first hearing at the ITC is March 29th.  Commerce will issue questionnaires probably in the first week of April.  Commerce Department preliminary determinations in the Countervailing Duty cases, which is when liability for importers begins, can happen as soon as August.

If anyone has any questions, please feel free to contact me.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

Previous newsletters stated Wilbur Ross has made it very clear to reach the 3% plus growth rate, the US must increase exports.  Yet, at the same time, the Trump Administrations keeps concentrating on deficits and accusing foreign governments of treating US companies unfairly.  Trump and his Administration do not look internally and try to find ways to make the US companies more competitive, which will not create a trade war.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

As stated in my last blog post, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

With the election of Donald Trump, as stated in my last blog post, the Universal Trade War will continue.  In addition to the US bringing AD and CVD cases, countries around the World, such as EC, Canada, Mexico, Brazil, Argentina, India, Turkey, Ukraine, Russia, China, Indonesia, Malaysia, Korea, Japan, Taiwan, Australia, Thailand, South Africa, and Vietnam, all are filing antidumping and countervailing duty cases against each other and the United States.  These countries have adopted the US law which finds dumping in 90% of the cases.  The US and the EC have created a Frankenstein in the antidumping law and the whole World has adopted it.

Compromise is the best way to settle trade disputes, but it is very difficult, if not impossible, to settle US antidumping and other trade cases.  What is “fair” trade for the United States is “fair” trade for every other country.  Many countries want to make their industries Great again.

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.  It will also discuss potential US exports that can be retaliation targets.

MEXICO

On March 6, 2017, Alexandro N. Gomez-Stozzi, a Mexican trade lawyer, at the Gardere firm in Mexico City sent me the following summary of Antidumping and Countervailing Duty Investigations in Mexico:

Mexican Antidumping and Countervailing (AD/CVD) Investigation Procedures Factsheet

  • AD/CVD investigations in Mexico may take from 12 to 18 months as of the publication in the Diario Oficial regarding the initiation of investigation. Terms within the investigative process may be extended with cause, at the discretion of the authority. Investigations are generally conducted as follows (variation of a chart created by Mexican authorities):
  • There is a single investigating authority, the Ministry of Economy´s International Trade Practices Unit (known by its Spanish acronym UPCI, for Unidad de Prácticas Comerciales Internacionales). UPCI makes all relevant findings: (i) dumping or countervailing, (ii) material injury or threat thereof and (iii) causation. Final AD/CVD orders are signed by the Minister of Economy; although informally, trade policy considerations in other sectors come into play before deciding to issue an AD/CVD order. UPCI is also in charge of safeguard investigations.  
  • Investigations are usually requested by Mexican producers representing at least 25% of the total production, although UPCI may initiate investigations if it deems so appropriate.
  • Exporters and importers of affected goods are strongly encouraged to retain Mexican counsel, as all appearances have to be made in Spanish and a domestic service address has to be designated.
  • When issuing a preliminary determination, the authority may: (1) impose a preliminary AD/CVD duty and continue with investigation, (2) continue the investigation without an AD/CVD duty, or (3) terminate the investigation on insufficient evidence grounds.
  • In its final determination, the authority may (i) confirm or modify its preliminary determination to impose an AD/CVD duty, or (2) declare the investigation concluded without imposing an AD/CVD duty. Under stringent circumstances, final determinations may impose retroactive duties for up to three months from date of publication of the preliminary determination.
  • During the course of an investigation, Mexican law allows for interested parties to ask UPCI to convene conciliatory meetings, at which proposals may be presented to resolve the case and terminate the investigation. These proceedings coexist with Antidumping Agreement´s price undertakings.
  • AD/CVD orders remain in effect for 5 years. They may be renewed for similar periods when warranted after a sunset review which covers both dumping (or countervailing) and injury.  Circumvention, actual coverage of AD/CVD orders, and similar proceedings can also be initiated as long as orders are in effect.
  • World Trade Organization (WTO)´s Antidumping and Subsidies Agreements are applied as is in Mexican investigation proceedings. Mexican trade-remedy law and regulations may sometimes be contradictory with WTO agreements; in case of conflict, the WTO Agreements would prevail in court.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.09.

CFIUS—WILL INVESTMENT RECIPROCITY BE A NEW REQUIREMENT??

There is movement within the United States to establish investment reciprocity as a criteria in investigations by the Committee on Foreign Investment in the United States into its national security reviews of inbound transactions, a policy shift that would weigh the heaviest on Chinese buyers if enacted.

Investment reciprocity — the idea that the U.S. should block a foreign entity’s investment in a particular industry when a U.S. buyer would be similarly blocked in that entity’s country — has been on politicians’ radar since before Donald Trump took office.

Trump made no secret of his leanings on the campaign trail, criticizing in particular a Chinese investment group’s acquisition of the 130-year-old Chicago Stock Exchange, a deal that has since been cleared by CFIUS.

If the U.S. does decide to go this route, there are at least a couple ways the government could go about it. The President could direct CFIUS to focus more heavily on particular industries or use a broader definition of national security, as long as those directives don’t stray too far from the regulations dictated by the Foreign Investment and National Security Act of 2007, or FINSA. Congress can also amend FINSA to expand either the range of industries susceptible to national security review, or even expand the review itself from one focused solely on national security to a review that more broadly considers foreign investments in the U.S.

CHINESE MILITARY BUILDUP TO PROTECT ITS TRADE INTERESTS???

As mentioned in prior blog posts, there is a close relationship between defense/security and trade.  The Japanese attack on Pearl Harbor was created, in part, by the US naval embargo of Japan.

One of the strongest arguments for the Trans Pacific Partnership was the geo-political argument that the TPP would bring us closer to the Asian countries.  Former defense secretary Ash Carter stated at one point that the TPP was equivalent to another US aircraft carrier.

On March 15, 2017, Malia Zimmerman for Fox News in an article entitled “China next US threat? Beijing beefs up military to protect trade”, stated:

With a laser-like focus on protecting its lifeblood – trade – China is dramatically altering its military operations, creating specialized teams that can protect its maritime resources, routes and territorial expansion plans. . . .

Harry Kazianis, director of the Washington, D.C.-based Defense Studies for The Center for the National Interest, stated:

“The great Achilles heel of China is trade—especially natural resources that come via sea and into its ports—and a big reason it will inevitably become a globally deployed military power. Beijing’s armed forces are working to slowly but surely reinforce and protect its overseas hubs as well as trade routes that move from Europe, the Middle East and Africa and into China’s territorial waters.”

ZTE HIT WITH SANCTIONS FOR VIOLATING EXPORT CONTROLS ACT

On March 7, 2007, in a notice and judgement, which will be attached to my blog, judgment 3-22ZTE Corporation Agrees to Plead Guilty and Pay Over $430, the US Justice Department announced that ZTE Corp, has agreed to plead guilty and pay a combined a penalty of $1.1.9 billion for violating U.S. sanctions by sending U.S.-origin items to Iran.  As the Justice Department notice states:

ZTE Corporation has agreed to enter a guilty plea and to pay a $430,488,798 penalty to the U.S. for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement. ZTE simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300,000,000, which ZTE will pay if it violates its settlement agreement with the BIS. . . .

“ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s – they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts,” said Attorney General Sessions. “This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws, obstruct justice and jeopardize our national security.  . . .”

“ZTE engaged in an elaborate scheme to acquire U.S.-origin items, send the items to Iran and mask its involvement in those exports. The plea agreement alleges that the highest levels of management within the company approved the scheme. ZTE then repeatedly lied to and misled federal investigators, its own attorneys and internal investigators. Its actions were egregious and warranted a significant penalty,” said Acting Assistant Attorney General McCord. “The enforcement of U.S. export control and sanctions laws is a major component of the National Security Division’s commitment to protecting the national security of the United States. Companies that violate these laws – including foreign companies – will be investigated and held to answer for their actions.”

“ZTE Corporation not only violated our export control laws but, once caught, shockingly resumed illegal shipments to Iran during the course of our investigation,” said U.S. Attorney Parker. “ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers.”

“The plea agreement in this case shows ZTE repeatedly violated export controls and illegally shipped U.S. technology to Iran,” said Assistant Director Priestap. “The company also took extensive measures to hide what it was doing from U.S. authorities. This case is an excellent example of cooperation among multiple

U.S. agencies to uncover illegal technology transfers and make those responsible pay for their actions.”

The plea agreement, which is contingent on the court’s approval, also requires ZTE to submit to a three- year period of corporate probation, during which time an independent corporate compliance monitor will review and report on ZTE’s export compliance program. ZTE is also required to cooperate fully with the Department of Justice (DOJ) regarding any criminal investigation by U.S. law enforcement authorities.  . . .”

According to David Laufman, chief of the counterintelligence and export control section at the DOJ’s National Security Division, it was “extraordinarily difficult” to obtain key documents and witnesses located in China until on March 7, 2016, the Commerce decision to add ZTE to the so-called Entity List.  According to Laufman, “The game-changing event in this case, was the Commerce Department’s decision to pursue an entity listing of ZTE, demonstrating the efficacy of the whole-of- government approach” to national security.

Companies end up on the Entity List after Commerce determines they are tied to illicit weapons programs, terrorism or other national security threats, and thereafter can’t trade with U.S. companies without a special dispensation from the agency.

This may be the first case in which the Commerce Department has used an Entity List designation to force a foreign company to cooperate in a probe.  Commerce will probably start using this strategy in future investigations.

SECTION 337 AND IP CASES

DOMESTIC INDUSTRY FROM PATENT LICENSEE

On March 8, 2017, the US International Trade Commission (“ITC”) issued the attached interesting decision, 2 PAGE ONE PAGE DI, in the Section 337 case Certain Silicon-On-Insulator Wafers.  In that decision, the ITC Administrative Law Judge determined that it could find a domestic industry in a Section 337 if the US patent licensee’s activities show domestic activity.  Even though the patent holder was a non-practicing entity, the ALJ determined:

Silicon Genesis Corporation (“SiGen”), has established contingently a domestic industry in the United States through the activities of its licensee, SunEdison Semiconductor Limited (“SunEdison”) . . . through its licensee, SunEdison, SiGen has proven by a preponderance of evidence that it has made a significant domestic investment in plant and equipment, in capital and labor, and a substantial investment in research and development to produce certain silicon-on-insulator (“SOI”) products at issue in this Investigation.

The decision did not break new ground, but it reminds nonpracticing entities, (“NPEs”) that one way to meet the domestic industry requirement under Section 337 is through the actions of patent licensee in the United States.

NEW 337 CASES AGAINST CHINA

On March 10, 2017, in the attached ITC notice, Intravascular Sets, Curlin Medical, Inc., Moog, Inc., and Zevex, Inc. filed a section 337 case against imports of Intravascular Administration Sets from Yangzhou WeiDeLi Trade Co., Ltd., China.

If you have any questions about these cases or about Trump and Trade, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TPP POLITICS, TAAF THE ANSWER, $2 BILLION MISSING DUMPING DUTIES AS CASES RISE, CUSTOMS LAW CHANGES, SOLAR CELLS, 337 CUSTOMS STOP INFRINGING IMPORTS

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

In mid-August, Adams Lee, a well- known Trade and Customs lawyer from White & Case in Washington DC, has joined us here at Harris Moure in Seattle.  Adams has handled well over 100 antidumping and countervailing duty cases.  Attached is Adams’ bio, adams-lee-resume-aug-16, and his article is below on the new Customs Regulations against Evasion of US Antidumping and Countervailing Duty Orders.

Adams and I will both be in China from Sept 11th to October 1st in Beijing, Shanghai and Nanjing.  If anyone would like to talk to us about these issues, please feel free to contact me at my e-mail, bill@harrismoure.com.

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

Trade continues to be at the center of the Presidential primary with a possible passage of the Trans Pacific Partnership during the Lame Duck Session.  This blog post contains the sixth, and maybe the most important, article on Trade Adjustment Assistance for Companies 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 now possible demise of the Trans Pacific Partner (“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 explored in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders.  The third article explored the weak and strong arguments against protectionism.  The fourth article discussed one of the most important arguments for the TPP—National Security.  The fifth article discussed why the Commerce Department’s and the US International Trade Commission’s (ITC) policy in antidumping (“AD”) and countervailing duty (“CVD”) cases has led to a substantial increase in protectionism and national malaise of international trade victimhood.

The sixth article provides an answer with the only trade program that works and saves the companies and the jobs that go with them—The Trade Adjustment Assistance for Firms/Companies program along with MEP, another US manufacturing program.  The Article will describe the attempts by both Congress and the Obama Administration to kill the program, which may, in fact, have resulted in the sharp rise in protectionism in the US.

To pass the TPP, Congress must also provide assistance to make US companies competitive in the new free trade market created by the TPP.  Congress must restore the trade safety net so that Congress can again vote for free trade agreements, and the United States can return to its leadership in the Free Trade area.  The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s and the rise of nationalism, which can lead to military conflict.

In addition, set forth below are articles on a possible new antidumping case on Aluminum Foil from China and the rise of AD and CVD cases, the $2 billion in missing AD and CVD duties, the new Customs regulations to stop Transshipment in AD and CVD cases, the upcoming deadlines in the Solar Cells case in both English and Chinese, recent decisions in Steel cases,  antidumping and countervailing duty reviews in September against Chinese companies, and finally an article about how to stop imports that infringe US intellectual property rights, either using US Customs law or Section 337 at the US International Trade Commission (“ITC”).

If anyone has any questions or wants additional information, please feel free to contact me at my new e-mail address bill@harrismoure.com.

Best regards,

Bill Perry

TRADE PROTECTIONISM IS STILL A VERY BIG TOPIC OF THE PRESIDENTIAL ELECTION; THE TPP PROBABLY IS NOT COMING UP IN THE LAME DUCK

As mentioned in my last newsletter, I believe that if Hilary Clinton is elected, President Obama will push for the Trans Pacific Partnership (“TPP”) to come up for a vote during the Lame Duck Session.  The Congress, however, has other ideas.

In early August, U.S. House Speaker Paul Ryan stated that he saw no reason to bring up the TPP in the Lame Duck because “we don’t have the votes.”  Ryan went on to state:

“As long as we don’t have the votes, I see no point in bringing up an agreement only to defeat it.  They have to fix this agreement and renegotiate some pieces of it if they have any hope or chance of passing it. I don’t see how they’ll ever get the votes for it.”

Democratic Senator Ron Wyden stated in late August that he will not take a position on the TPP until Senate Majority Leader Mitch McConnell brings the TPP up for a vote.  But on August 26th, Mitch McConnell stated that passage of the Trans-Pacific Partnership will be the next president’s problem, saying that the Senate will not vote on the treaty this year:

“The current agreement, the Trans-Pacific [Partnership], which has some serious flaws, will not be acted upon this year.  It will still be around. It can be massaged, changed, worked on during the next administration.”

With this statement, McConnell appears to have killed passage during the Obama Administration.

But businesses continue to push for the TPP.  On Sept 6th, the California Chamber of Commerce urged its Congressional delegation to pass the TPP.  In the attached Sept 7th letter, 9-7finaltppletter, the Washington State Council on International Trade also urged its Congressional delegation to pass TPP, stating:

“with 40 percent of Washington jobs dependent upon trade, it is paramount that we prioritize policies and investments that increase our state’s international competitiveness. That is why it is so important that you join us in calling for an immediate vote on the TPP; according to a newly released Washington Council on International Trade-Association of Washington Business study, Washington could have already increased our exports by up to $8.7 billion and directly created 26,000 new jobs had the TPP been implemented in 2015.

While the U.S. has some of the lowest import duties in the world on most goods, our local Washington exporters are faced with thousands of tariffs that artificially inflate the cost of American-made goods. TPP will help eliminate these barriers . . ..

TPP aligns with Washington’s high standards, setting 21st century standards for digital trade, environmental protections, and labor rules .  . . .  If we want to increase our competitiveness and set American standards for global trade, we must act now with the TPP.

This election season’s rhetoric has been hostile toward trade, but the TPP’s benefits for our state are undeniable. It is imperative that our state steps up to advocate for the family wage jobs and economic opportunities created by trade, and the time to do so is now.”

Despite the Congressional opposition, ever the optimist, President Obama keeps pushing for passage during the Lame Duck.  On August 30th, the White House Press Office stated:

“The president is going to make a strong case that we have made progress and there is a path for us to get this done before the president leaves office.”

On September 1, 2016, at a Press Conference in Hangzhou, China for the G20 meeting, President Obama said he is still optimistic about passage of the Trans-Pacific Partnership trade agreement. Obama argued that the economic benefits of the pact would win out once the “noise” of the election season subsides.

The President said he plans to assure the leaders of the other countries that signed the TPP that the U.S. will eventually approve the deal despite the very vocal opposition from Democratic and Republican lawmakers and Presidential candidates.

President Obama went to state:

“And it’s my intention to get this one done, because, on the merits, it is smart for America to do it. And I have yet to hear a persuasive argument from the left or the right as to why we wouldn’t want to create a trade framework that raises labor standards, raising environmental standards, protects intellectual property, levels the playing field for U.S. businesses, brings down tariffs.”

Obama stated that although other countries, such as Japan, have troubles passing the TPP, the other countries:

“are ready to go.  And what I’ll be telling them is that the United States has never had a smooth, uncontroversial path to ratifying trade deals, but they eventually get done”

“And so I intend to be making that argument. I will have to be less persuasive here because most people already understand that. Back home, we’ll have to cut through the noise once election season is over.  It’s always a little noisy there.”

As mentioned in the last blog post, one of the strongest arguments for the TPP is National Security.  Trade agreements help stop trade wars and military conflict.  But despite that very strong point, the impact of free trade on the average manufacturing worker has not been beneficial.

In a recent e-mail blast, the Steel Workers make the point:

“Because of unfair trade, 1,500 of my colleagues at U.S. Steel Granite City Works in Granite City, Illinois are still laid-off. It’s been more than six months since our mill shut down.

Worker unemployment benefits are running out. Food banks are emptying out. People are losing their homes. City services might even shut down.

But there’s finally reason for hope. The Commerce Department recently took action to enforce our trade laws by placing duties on unfairly traded imports from countries like China. That will help ensure steel imports are priced fairly — and allow us to compete . . . .

All told, nearly 19,000 Americans have faced layoffs across the country because of the steel imports crisis.

China is making far more steel than it needs. China knows this is a problem, and repeatedly has pledged to cut down on steel production. But nothing has changed . . . .

China’s steel industry is heavily subsidized by its government, and it also doesn’t need to follow serious labor or environmental rules. But China has to do something with all that steel, so it dumps it into the United States far below market value.”

In a recent Business Week article, Four Myths about Trade, Robert Atkinson, the president of the Information Technology and Innovation Foundation, made the same point stating:

The Washington trade establishment’s second core belief is that trade is an unalloyed good, even if other nations engage in mercantilism. . . . it doesn’t matter if other nations massively subsidize their exporters, require U.S. companies to hand over the keys to their technology in exchange for market access, or engage in other forms of mercantilist behavior.  . . .

But China and others are proving that this is folly. In industry after industry, including the advanced innovation-based industries that are America’s future, they are gaming the rules of global trade to hold others back while they leap forward. . ..

It’s a reflection of having lost competitive advantage to other nations in many higher-value-added industries, in part because of foreign mercantilist policies and domestic economic-policy failures.

The Author then goes on to state the US must be tough in fighting mercantilism and “vigilantly enforce trade rules, such as by bringing many more trade-enforcement cases to the WTO, pressuring global aid organizations to cut funding to mercantilist nations, limiting the ability of companies in mercantilist nations to buy U.S. firms, and more.”

But this argument then runs into reality.  As indicated below, Commerce finds dumping in about 95% of the cases.  Thus, there are more than 130 AD and CVD orders against China blocking about $30 billion in imports.  Presently more than 80 AD and CVD orders are against raw materials from China, chemicals, metals and various steel products, used in downstream US production.  In the Steel area, there are AD and CVD orders against the following Chinese steel products:

carbon steel plate, hot rolled carbon steel flat products, circular welded and seamless carbon quality steel pipe, rectangular pipe and tube, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, steel wire strand and wire, high pressure steel cylinders, non-oriented electrical steel, and carbon and certain alloy steel wire rod.

There are ongoing investigations against cold-rolled steel and corrosion resistant/galvanized steel so many Chinese steel products from China are already blocked by US AD and CVD orders with very high rates well over 100%.

AD and CVD orders stay in place for 5 to 30 years and yet the companies, such as the Steel Industry, still decline.  After 40 years of protection from Steel imports by AD and CVD orders, where is Bethlehem Steel today?  The Argument seems to be that if industries simply bring more cases, the Commerce Department is even tougher and the orders are enforced, all US companies will be saved, wages will go up and jobs will be everywhere.

The reality, however, is quite different.  In fact, many of these orders have led to the destruction of US downstream industries so does hitting the Chinese with more trade cases really solve the trade problem?

More importantly, although Commerce does not use real numbers in antidumping cases against China, it does use actual prices and costs in antidumping steel cases against Korea, India, Taiwan, and many other countries.  In a recent antidumping case against Off the Road Tires from India, where China faces dumping rates of between 11 and 105%, the only two Indian exporters, which were both mandatory respondents, received 0% dumping rates and the Commerce Department in a highly unusual preliminary determination reached a negative no dumping determination on the entire case.

Market economy countries, such as Korea and India, can run computer programs to make sure that they are not dumping.  This is not gaming the system.  This is doing exactly what the antidumping law is trying to remedy—elimination of the unfair act, dumping.

Antidumping and countervailing duty laws are not penal statutes, they are remedial statutes and that is why US importers, who pay the duties, and the foreign producers/exporters are not entitled to full due process rights in AD and CVD cases, including application of the Administrative Procedures Act, decision by a neutral Administrative Law Judge and a full trial type hearing before Commerce and the ITC, such as Section 337 Intellectual Property cases, described below.

In fact, when industries, such as the steel industry, companies and workers along with Government officials see dumping and subsidization in every import into the United States, this mindset creates a disease—Globalization/International Trade victimhood.  We American workers and companies simply cannot compete because all imports are dumped and subsidized.

That simply is not true and to win the trade battles and war a change in mindset is required.

In his Article, Mr. Atkinson’s second argument may point to the real answer.  The US government needs to make US manufacturing companies competitive again:

It must begin with reducing the effective tax rate on corporations. To believe that America can thrive in the global economy with the world’s highest statutory corporate-tax rates and among the highest effective corporate-tax rates, especially for manufacturers, is to ignore the intense global competitive realities of the 21st century. Tax reform then needs to be complemented with two other key items: a regulatory-reform strategy particularly aimed at reducing burdens on industries that compete globally, and increased funding for programs that help exporters, such as the Export-Import Bank, the new National Network for Manufacturing Innovation, and a robust apprenticeship program for manufacturing workers. . . .

if Congress and the next administration develop a credible new globalization doctrine for the 21st century — melding tough trade enforcement with a robust national competitiveness agenda — then necessary trade-opening steps like the Trans-Pacific Partnership will once again be on the table and the U.S. economy will begin to thrive once again.

When it comes to Trade Adjustment Assistance, however, as Congressman Jim McDermott recently stated in an article, workers do not want handouts and training.  They want jobs.  The only trade remedy that actually provides jobs is the Trade Adjustment Assistance for Firms/Companies program and MEP, another manufacturing program.

FREE TRADE REQUIRES COMPETITIVE US COMPANIES— TAA FOR FIRMS/COMPANIES AND THE MEP MANUFACTURING PROGRAM ARE THE ANSWER

On August 17th, in a letter to the Wall Street Journal, the author referred to “the longstanding Republican promotion of trade as an engine of growth.” The author then goes on to state:

But what Donald Trump sees and the Republican elites have long missed is that for trade to be a winner for Americans, our government must provide policies for our industries to be the most competitive in the world. Mr. Zoellick and others promoted trade without promoting American competitiveness.  . . .

Mr. Zoellick should take a lesson from the American gymnasts in Rio and see how competitiveness leads to winning.

Although Donald Trump might agree with that point, there are Government programs already in effect that increase the competitiveness of US companies injured by imports, but they have been cut to the bone.

This is despite the fact that some of the highest paying American jobs have routinely been in the nation’s manufacturing sector. And some of the highest prices paid for the nation’s free trade deals have been paid by the folks who work in it. What’s shocking is the fact that that isn’t shocking anymore. And what’s really shocking is that we seem to have accepted it as the “new normal.” Now where did that ever come from?

How did we get here? How did we fall from the summit? Was it inexorable? Did we get soft? Did we get lazy? Did we stop caring? Well perhaps to some extent. But my sense of it is that too many of us have bought into the idea of globalization victimhood and a sort of paralysis has been allowed to set in.

Now in my opinion that’s simply not in America’s DNA. It’s about time that this nation decided not to participate in that mind set any longer. Economists and policy makers of all persuasions are now beginning to recognize the requirement for a robust response by this nation to foreign imports – irrespective of party affiliation or the particular free trade agreement under consideration at any given moment.  Companies, workers and Government officials need to stop blaming the foreigner and figure out what they can do to compete with the foreign imports.

There is no doubt in my mind that open and free trade benefits the overall U.S. economy in the long run. However, companies and the families that depend on the employment therein, indeed whole communities, are adversely affected in the short run (some for extended periods) resulting in significant expenditures in public welfare and health programs, deteriorated communities and the overall lowering of America’s industrial output.

But here’s the kicker: programs that can respond effectively already exist. Three of them are domiciled in our Department of Commerce and one in our Department of Labor:

  • Trade Adjustment Assistance for Firms (Commerce)
  • The Hollings Manufacturing Extension Partnership (Commerce)
  • Economic Adjustment for Communities (Commerce)
  • Trade Adjustment Assistance for Displaced Workers (Labor)

This Article, however, is focused on making US companies competitive again and the first two programs do just that, especially for smaller companies.  Specific federal support for trade adjustment programs, however, has been legislatively restrictive, bureaucratically hampered, organizationally disjointed, and substantially under-funded.

The lessons of history are clear. In the 1990’s, after the end of the Cold War and the fall of the Soviet Union, the federal government reduced defense industry procurements and closed military facilities. In response, a multi-agency, multi-year effort to assist adversely affected defense industries, their workers, and communities facing base closures were activated. Although successes usually required years of effort and follow on funding from agencies of proven approaches (for example the reinvention of the Philadelphia Naval Shipyard into a center for innovation and vibrant commercial activities), there was a general sense that the federal government was actively responding to a felt need at the local level.

A similar multi-agency response has been developed in the event of natural disasters, i.e., floods, hurricanes, tornadoes and earthquakes. Dimensions of the problem are identified, an appropriate expenditure level for a fixed period of time is authorized and the funds are deployed as needed through FEMA, SBA and other relevant agencies such as EDA.

The analogy to trade policy is powerful.  When the US Government enters into Trade Agreements, such as the TPP, Government action changes the market place.  All of a sudden US companies can be faced, not with a Tidal Wave, but a series of flash floods of foreign competition and imports that can simply wipe out US companies.

A starting point for a trade adjustment strategy would be for a combined Commerce-Labor approach building upon existing authorities and proven programs, that can be upgraded and executed forthwith.

Commerce’s Trade Adjustment Assistance for Firms (TAAF) has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. The amount of matching funds for US companies has not changed since the 1980s. The system has the band-width to increase to a run rate of $50 million.  Projecting a four-year ramp up of $90 million (FY18-FY21), the TAA program could serve an additional 2,150 companies.

Foreign competitors may argue that TAA for Firms/Companies is a subsidy, but the money does not go directly to the companies themselves, but to consultants to work with the companies through a series of knowledge-based projects to make the companies competitive again.  Moreover, the program does not affect the US market or block imports in any way.

Does the program work?  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center has been able to save 80% of the companies that entered the program since 1984.  The MidAtlantic Trade Adjustment Assistance Center in this video at http://mataac.org/howitworks/ describes in detail how the program works and why it is so successful—Its flexibility in working with companies on an individual basis to come up with specific adjustment plans for each company to make the companies competitive again in the US market as it exists today.

Increasing funding will allow the TAA for Firms/Companies program to expand its bandwidth and provide relief to larger US companies, including possibly even steel producers.  If companies that use steel can be saved by the program, why can’t the steel producers themselves?

But it will take a tough love approach to trade problems.  Working with the companies to forget about Globalization victimhood and start trying to actually solve the Company’s problems that hinder its competitiveness in the market as it exists today.

In addition to TAA for Firms/Companies, another important remedy needed to increase competitiveness is Commerce’s Manufacturing Extension Partnership (MEP), which has a Center in each State and Puerto Rico.  MEP provides high quality management and technical assistance to the country’s small manufacturers with an annual budget of $130 million. MEP, in fact, is one the remedies suggested by the TAA Centers along with other projects to make the companies competitive again.

As a consequence of a nation-wide re-invention of the system, MEP is positioned to serve even more companies. A commitment of $100 million over four years would serve an additional 8,400 firms. These funds could be targeted to the small manufacturing firms that are the base of our supply chain threatened by foreign imports.

Each of these programs requires significant non-federal match or cost share from the companies themselves, to assure that the local participants have significant skin in the game and to amplify taxpayer investment.  A $250 million commitment from the U.S. government would be a tangible although modest first step in visibly addressing the local consequences of our trade policies. The Department of Commerce would operate these programs in a coordinated fashion, working in collaboration with the Department of Labor’s existing Trade Adjustment Assistance for Displaced Workers program.

TAA for Workers is funded at the $711 million level, but retraining workers should be the last remedy in the US government’s bag.  If all else fails, retrain workers, but before that retrain the company so that the jobs and the companies are saved.  That is what TAA for Firms/Companies and the MEP program do.  Teach companies how to swim in the new market currents created by trade agreements and the US government

In short – this serious and multi-pronged approach will begin the process of stopping globalization victimhood in its tracks.

Attached is White Paper, taaf-2-0-white-paper, prepares to show to expand TAA for Firms/Companies and take it to the next level above $50 million, which can be used to help larger companies adjust to import competition.  The White Paper also rebuts the common arguments against TAA for Firms/Companies.

ALUMINUM FOIL FROM CHINA, RISE IN ANTIDUMPING CASES PUSHED BY COMMERCE AND ITC

On August 22, 2016, the Wall Street Journal published an article on how the sharp rise of aluminum foil imports, mostly from China, has led to the shutdown of US U.S. aluminum foil producers.  Articles, such as this one, often signal that an antidumping case is coming in the near future.

Recently, there have been several articles about the sharp rise in antidumping and countervailing duty/trade remedy cases in the last year.  By the second half of 2016, the US Government has reported that twice as many antidumping (“AD”) and countervailing duty (“CVD”) case have been initiated in 2015-2016 as in 2009.

China is not the only target.  AD cases have been recently filed against steel imports from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, South Korea, South Africa, Taiwan, and Turkey; Steel Flanges from India, Italy and Spain; Chemicals from Korea and China, and Rubber from Brazil, Korea, Mexico and Poland.

The potential Aluminum Foil case may not be filed only against China.  In addition to China, the case could also be filed against a number of foreign exporters of aluminum foil to the United States.

Under US law Commerce determines whether dumping is taking place.  Dumping is defined as selling imported goods at less than fair value or less than normal value, which in general terms means lower than prices in the home/foreign market or below the fully allocated cost of production.  Antidumping duties are levied to remedy the unfair act by raising the US price so that the products are fairly traded.

Commerce also imposes Countervailing Duties to offset any foreign subsidies provided by foreign governments so as to raise the price of the subsidized imports.

AD and CVD duties can only be imposed if there is injury to the US industry, which is determined by the US International Trade Commission (“ITC”).  But in determining injury, the law directs the ITC to cumulate, that is add together all the imports of the same product from the various foreign exporters.  Thus if a number of countries are exporting aluminum foil in addition to China, there is a real incentive for the US aluminum foil industry to file a case against all the other countries too.

There are several reasons for the sharp rise in AD and CVD cases.  One is the state of the economy and the sharp rise in imports.  In bad economic times, the two lawyers that do the best are bankruptcy and international trade lawyers.  Chinese overcapacity can also result in numerous AD and CVD cases being filed not only in the United States but around the World.

Although the recent passage of the Trade Preferences Extension Act of 2015 has made it marginally better to bring an injury case at the ITC, a major reason for the continued rise in AD and CVD cases is the Commerce and ITC determinations in these cases.  Bringing an AD case, especially against China, is like the old country saying, shooting fish in a barrel.

By its own regulation, Commerce finds dumping and subsidization in almost every case, and the ITC in Sunset Review Investigations leaves antidumping and countervailing duty orders in place for as long as 20 to 30 years, often to protect single company US industries, resulting in permanent barriers to imports and the creation of monopolies.

Many readers may ask why should people care if prices go up a few dollars at WalMart for US consumers?  Jobs remain.  Out of the 130 plus AD and CVD orders against China, more than 80 of the orders are against raw materials, chemicals, metals and steel, that go directly into downstream US production.  AD orders have led to the closure of downstream US factories.

Commerce has defined dumping so that 95% of the products imported into the United States are dumped.  Pursuant to the US Antidumping Law, Commerce chooses mandatory respondent companies to individually respond to the AD questionnaire.  Commerce generally picks only two or three companies out of tens, if not hundreds, of respondent companies.

Only mandatory companies in an AD case have the right to get zero, no dumping margins.  Only those mandatory respondent companies have the right to show that they are not dumping.  If a company gets a 0 percent, no dumping determination, in the initial investigation, the antidumping order does not apply to that company.

Pursuant to the AD law, for the non-mandatory companies, the Commerce Department may use any other reasonable method to calculate antidumping rates, which means weight averaging the rates individually calculated for the mandatory respondents, not including 0 rates.  If all mandatory companies receive a 0% rate, Commerce will use any other reasonable method to determine a positive AD rate, not including 0% rates.

So if there are more than two or three respondent companies in an AD case, which is the reality in most cases, by its own law and practice, Commerce will reach an affirmative dumping determination.  All three mandatory companies may get 0% dumping rates, but all other companies get a positive dumping rate.  Thus almost all imports are by the Commerce Department’s definition dumped.

Under the Commerce Department’s methodology all foreign companies are guilty of dumping and subsidization until they prove their innocence, and almost all foreign companies never have the chance to prove their innocence.

Commerce also has a number of other methodologies to increase antidumping rates.  In AD cases against China, Commerce treats China as a nonmarket economy country and, therefore, refuses to use actual prices and costs in China to determine dumping, which makes it very easy for Commerce to find very high dumping rates.

In market economy cases, such as cases against EU and South American countries, Commerce has used zeroing or targeted dumping to create antidumping rates, even though the WTO has found such practices to be contrary to the AD Agreement.

The impact of the Commerce Department’s artificial methodology is further exaggerated by the ITC.  Although in the initial investigation, the ITC will go negative, no injury, in 30 to 40% of the cases, once the antidumping order is in place it is almost impossible to persuade the ITC to lift the antidumping order in Sunset Review investigations.

So antidumping orders, such as Pressure Sensitive Tape from Italy (1977), Prestressed Concrete Steel Wire Strand from Japan (1978), Potassium Permanganate from China (1984), Cholopicrin from China (1984), and Porcelain on Steel Cookware from China (1986), have been in place for more than 30 years.  In 1987 when I was at the Commerce Department, an antidumping case was filed against Urea from the entire Soviet Union.  Antidumping orders from that case against Russia and Ukraine are still in place today.

In addition, many of these antidumping orders, such as Potassium Permanganate, Magnesium, Porcelain on Steel Cookware, and Sulfanilic Acid, are in place to protect one company US industries, creating little monopolies in the United States.

Under the Sunset Review methodology, the ITC never sunsets AD and CVD orders unless the US industry no longer exists.

By defining dumping the way it does, both Commerce and the ITC perpetuate the myth of Globalization victimhood.  We US companies and workers simply cannot compete against imports because all imports are dumped or subsidized.  But is strangling downstream industries to protect one company US industries truly good trade policy?  Does keeping AD orders in place for 20 to 30 years really save the US industry and make the US companies more competitive?  The answer simply is no.

Protectionism does not work but it does destroy downstream industries and jobs.  Protectionism is destructionism. It costs jobs.

US MISSING $2 BILLION IN ANTIDUMPING DUTIES, MANY ON CHINESE PRODUCTS

According to the attached recent report by the General Accounting Office, gao-report-ad-cvd-missing-duties, the US government is missing about $2.3 billion in unpaid anti-dumping and countervailing duties, two-thirds of which will probably never be paid.

The United States is the only country in the World that has retroactive liability for US importers.  When rates go up, US importers are liable for the difference plus interest.  But the actual determination of the amount owed by the US imports can take place many years after the import was actually made into the US.

The GAO found that billing errors and delays in final duty assessments were major factors in the unpaid bills, with many of the importers with the largest debts leaving the import business before they received their bill.

“U.S. Customs and Border Protection reported that it does not expect to collect most of that debt”.  Customs and Border Protection (“CBP”) anticipates that about $1.6 billion of the total will never be paid.

As the GAO report states:

elements of the U.S. system for determining and collecting AD/CV duties create an inherent risk that some importers will not pay the full amount they owe in AD/CV duties. . . . three related factors create a heightened risk of AD/CV duty nonpayment: (1) The U.S. system for determining such duties involves the setting of an initial estimated duty rate upon the entry of goods, followed by the retrospective assessment of a final duty rate; (2) the amount of AD/CV duties for which an importer may be ultimately billed can significantly exceed what the importer pays when the goods enter the country; and (3) the assessment of final AD/CV duties can occur up to several years after an importer enters goods into the United States, during which time the importer may cease operations or become unable to pay additional duties.

The vast majority of the missing duties, 89%, were clustered around the following products from China: Fresh Garlic ($577 million), Wooden Bedroom Furniture ($505 million), Preserved Mushrooms ($459 million), crawfish tail meat ($210 million), Pure Magnesium ($170 million), and Honey ($158 million).

The GAO Report concludes at page 56-47:

We estimate the amount of uncollected duties on entries from fiscal year 2001 through 2014 to be $2.3 billion. While CBP collects on most AD/CV duty bills it issues, it only collects, on average, about 31 percent of the dollar amount owed. The large amount of uncollected duties is due in part to the long lag time between entry and billing in the U.S. retrospective AD/CV duty collection system, with an average of about 2-and-a-half years between the time goods enter the United States and the date a bill may be issued. Large differences between the initial estimated duty rate and the final duty rate assessed also contribute to unpaid bills, as importers receiving a large bill long after an entry is made may be unwilling or unable to pay. In 2015, CBP estimated that about $1.6 billion in duties owed was uncollectible. By not fully collecting unpaid AD/CV duty bills, the U.S. government loses a substantial amount of revenue and compromises its efforts to deter and remedy unfair and injurious trade practices.

But with all these missing duties, why doesn’t the US simply move to a prospective methodology, where the importer pays the dumping rate calculated by Commerce and the rate only goes up for future imports after the new rate is published.

Simple answer—the In Terrorem, trade chilling, effect of the antidumping and countervailing duty orders—the legal threat that the US importers will owe millions in the future, which could jeopardize the entire import company.  As a result, over time imports from China and other countries covered by AD and CVD order often decline to 0 because established importers are simply too scared to take the risk of importing under an AD and CVD order.

CUTSOMS NEW LAW AGAINST TRANSSHIPMENT AROUND AD AND CVD ORDERS; ONE MORE LEGAL PROCEDURE FOR US IMPORTERS AND FOREIGN EXPORTERS TO BE WARY OF

By Adams Lee, Trade and Customs Partner, Harris Moure.

U.S. Customs and Border Protection (CBP) issued new attached regulations, customs-regs-antidumping, that establish a new administrative procedure for CBP to investigate AD and CVD duty evasion.  81 FR 56477 (Aug. 22, 2016). Importers of any product that could remotely be considered merchandise subject to an AD/CVD order now face an increased likelihood of being investigated for AD/CVD duty evasion. The new CBP AD/CVD duty evasion investigations are the latest legal procedure, together with CBP Section 1592 penalty actions (19 USC 1592), CBP criminal prosecutions (18 USC 542, 545), and “qui tam” actions under the False Claims Act, aimed at ensnaring US importers and their foreign suppliers in burdensome and time-consuming proceedings that can result in significant financial expense or even criminal charges.

The following are key points from these new regulations:

  • CBP now has a new option to pursue and shut down AD/CVD duty evasion schemes.
  • CBP will have broad discretion to issue questions and conduct on-site verifications.
  • CBP investigations may result in interim measures that could significantly affect importers.
  • CBP’s interim measures may effectively establish a presumption of the importer’s guilt until proven innocent.
  • Other interested parties, including competing importers, can chime in to support CBP investigations against accused importers.
  • Both petitioners and respondents will have the opportunity to submit information and arguments.
  • Failure to cooperate and comply with CBP requests may result in CBP applying an adverse inference against the accused party.
  • Failing to respond adequately may result in CBP determining AD/CVD evasion has occurred.

The new CBP regulations (19 CFR Part 165) establish a formal process for how it will consider allegations of AD/CVD evasion. These new regulations are intended to address complaints from US manufacturers that CBP was not doing enough to address AD/CVD evasion schemes and that their investigations were neither transparent nor effective.

AD/CVD duty evasion schemes typically involve falsely declaring the country of origin or misclassifying the product (e.g., “widget from China” could be misreported as “widget from Malaysia” or “wadget from China”).

Petitions filed by domestic manufacturers trigger concurrent investigations by the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to determine whether AD/CVD orders should be issued to impose duties on covered imports. The DOC determines if imports have been dumped or subsidized and sets the initial AD/CVD rates.  CBP then has the responsibility to collect AD/CVD duty deposits and to assess the final amount of AD/CVD duties owed at the rates determined by DOC.

US petitioners have decried U.S. Customs and Border Protection (CBP) as the weak link in enforcing US trade laws, not just because of it often being unable to collect the full amount of AD/CVD duties owed, but also because how CBP responds to allegations of AD/CVD evasion. Parties that provided CBP with information regarding evasion schemes were not allowed to participate in CBP’s investigations and were not notified of whether CBP had initiated an investigation or the results of any investigation.

CBP’s new regulations address many complaints regarding CBP’s lack of transparency in handling AD/CVD evasion allegations. The new regulations provide more details on how CBP procedures are to be conducted, the types of information that will be considered and made available to the public, and the specific timelines and deadlines in CBP investigations:

  • “Interested parties” for CBP investigations now includes not just the accused importers, but also competing importers that submit the allegations.
  • Interested parties now have access to public versions of information submitted in CBP’s investigation of AD/CVD evasion allegations.
  • After submission and receipt of a properly filed allegation, CBP has 15 business day to determine whether to initiate an investigation and 95 days to notify all interested parties of its decision. If CBP does not proceed with an investigation, CBP has five business days to notify the alleging party of that determination.
  • Within 90 days of initiating an investigation, CBP can impose interim measures if it has a “reasonable suspicion” that the importer used evasion to get products into the U.S.

Many questions remain as to how CBP will apply these regulations to actual investigations.  How exactly will parties participate in CBP investigations and what kind of comments will be accepted?  How much of the information in the investigations will be made public? How is “reasonable suspicion” defined and what kind of evidence will be considered? Is it really the case that accused Importers may be subject to interim measures (within 90 days of initiation) even before they receive notice of an investigation (within 95 days of initiation)?

These new AD/CVD duty evasion regulations further evidence the government’s plans to step up its efforts to enforce US trade laws more effectively and importers must – in turn – step up their vigilance to avoid being caught in one of these new traps.

UPCOMING DEADLINES IN SOLAR CELLS FROM CHINA ANTIDUMPING CASE—CHANCE TO GET BACK INTO THE US MARKET AGAIN

There are looming deadlines in the Solar Cells from China Antidumping (“AD”) and Countervailing Duty (“CVD”) case.  In December 2016, US producers, Chinese companies and US importers can request a review investigation in the Solar Cells case of the sales and imports that entered the United States during the review period, December 1, 2015 to November 31, 2016.

December 2016 will be a very important month for US importers because administrative reviews determine how much US importers actually owe in AD and CVD 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 AD and CVD 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 AD and CVD 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.

In February 2016, while in China I found many examples of Chinese solar companies or US importers, which did not file requests for a review investigation in December 2015.  In one instance, although the Chinese company obtained a separate rate during the Solar Cells initial investigation, the Petitioner appealed to the Court.  The Chinese company did not know the case was appealed, and the importer now owe millions in antidumping duties because they failed to file a review request in December 2015.

In another instance, in the Solar Products case, the Chinese company requested a review investigation in the CVD case but then did not respond to the Commerce quantity and value questionnaire.   That could well result in a determination of All Facts Available giving the Chinese company the highest CVD China rate of more than 50%.

The worst catastrophe in CVD cases was Aluminum Extrusions from China where the failure of mandatory companies to respond led to a CVD rate of 374%.  In the first review investigation, a Chinese company came to us because Customs had just ruled their auto part to be covered by the Aluminum Extrusions order.  To make matters worse, an importer requested a CVD review of the Chinese company, but did not tell the company and they did not realize that a quantity and value questionnaire had been sent to them.  We immediately filed a QV response just the day before Commerce’s preliminary determination.

Too late and Commerce gave the Chinese company an AFA rate of 121% by literally assigning the Chinese company every single subsidy in every single province and city in China, even though the Chinese company was located in Guangzhou.  Through a Court appeal, we reduced the rate to 79%, but it was still a high rate, so it is very important for companies to keep close watch on review investigations.

The real question many Chinese solar companies may have is how can AD and CVD rates be reduced so that we can start exporting to the US again.  In the Solar Cells case, the CVD China wide rate is only 15%.  The real barrier to entry is the China wide AD rate of 249%

US AD and CVD laws, however, are considered remedial, not punitive statutes.  Thus, every year in the month in which the AD or CVD order was issued, Commerce gives the parties, including the domestic producers, foreign producers and US importers, the right to request a review investigation based on sales of imports that entered the US in the preceding year.

Thus, the AD order on Solar Cells from China was issued in December 2012.   In December 2016, a Chinese producer and/or US importer can request a review investigation of the Chinese solar cells that were entered, actually imported into, the US during the period December 1, 2015 to November 31, 2016.

Chinese companies may ask that it is too difficult and too expensive to export may solar cells to the US, requesting a nonaffiliated importer to put up an AD of 298%, which can require a payment of well over $1 million USD.  The US AD and CVD law is retrospective.  Thus the importer posts a cash deposit when it imports products under an AD or CVD order, and the importer will get back the difference plus interest at the end of the review investigation.

More importantly, through a series of cases, Commerce has let foreign producers export smaller quantities of the product to use as a test sale in a review investigation if all other aspects of the sale are normal.  Thus in a Solar Cells review investigation, we had the exporter make a small sale of several panels along with other products and that small sale served as the test sale to establish the new AD rate.

How successful can companies be in reviews?  In a recent Solar Cells review investigation, we dropped a dumping rate of 249% to 8.52%, allowing the Chinese Solar Cell companies to begin to export to the US again.

Playing the AD and CVD game in review investigations can significantly reduce AD and CVD rates and get the Chinese company back in the US market again

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

针对原产自中国的太阳能电池反倾销(“AD”)和反补贴税(“CVD”)案的期限迫在眉睫。2016年12月,美国制造商、中国公司和美国进口商可以要求当局复审调查于2015年12月1日至2016年11月31日的审查期间进口并在美国销售的太阳能电池案例。

2016年12月将会是美国进口商的一个重要月份,因为行政复审将决定美国进口商在AD和CVD案中的实际欠款。一般上,美国业者会要求当局对所有中国公司进行复审。如果一家中国公司没有对商务部的行政复审做出回应,它很可能被征收最高的AD和CVD税率,美国进口商也将被追溯征收特定进口产品的差额及利息。

就我的经验而言,许多美国进口商并没有意识到行政复审调查的重要性。他们认为初步调查结束后,AD和CVD案也就此结束。许多进口商因为其中国供应商没有对行政复审做出回应,导致他们本身背负数百万美元的追溯性责任而因此措手不及。

2016年2月,我在中国期间发现很多中国太阳能公司或美国进口商没有在2015年12月提出复审调查请求。在其中一个例子中,某中国公司虽然在太阳能电池初步调查期间获得了单独税率,但是申请人向法庭提出了上诉。该中国公司并不知道有关的上诉案,结果进口商由于无法在2015年12月提出复审要求,现在欠下了数百万美元的反倾销税。

在另一个与太阳能产品有关的案例中,某中国公司针对CVD案提出了复审调查的要求,却没有对商务部的数量和价值问卷做出回应。这很可能导致当局根据“所有可得的事实”(All Facts Available)来向该中国公司征收超过50%的最高对华CVD税率。

在众多的CVD案例中,中国进口的铝合金型材所面对的局面最糟糕,受强制调查的公司若无法做出相关回应可被征收374%的CVD税率。一家中国公司在首个复审调查时联系上我们,因为海关刚裁定他们的汽车零部件属于铝合金型材生产项目。更糟的是,一家进口商在没有通知该中国公司的情况下,要求当局对其进行CVD审查,而他们也不晓得当局已经向他们发出一份数量和价值问卷。我们立即在初审的前一天提交了QV做出了回应。

可是这一切都已经太迟了,虽然该中国公司位于广州,商务部却逐一地根据中国的每一个省份和城市的补贴,向该中国公司征收了121%的AFA税率。我们通过向法庭提出上诉,将税率减少到了79%,可是这一税率还是很高,因此所有公司都有必要仔细地关注复审调查。

很多中国太阳能产品企业最想知道的,是如何降低AD和CVD税率,好让我们能再次将产品进口到美国。以太阳能电池的案例来看,当局向中国征收的统一性CVD税率仅为15%。当局向中国征收的统一性AD税率高达249%,这才是真正的入市门槛。

不过,美国的AD和CVD法律被认为是补救性而不是惩罚性法规,所以商务部每年在颁布AD或CVD令后,会在该月份允许包括美国国内生厂商、外国生厂商和美国进口商在内的各方,对上一年在美国销售的进口产品提出复审调查的要求。

因此,针对中国进口的太阳能电池的AD令是在2012年12月颁布的。一家中国生厂商和/或美国进口商可以在2016年12月,要求当局对从2015年12月1日至2016年11月31日期间进口到美国的中国太阳能电池进行复审调查。

中国公司或许会问,要求一家无关联的进口商承担298%的AD税,也就是支付超过1百万美元的费用,以便进口大批的太阳能电池到美国,是否太困难也太贵了。美国的AD和CVD法律是有追溯力的。因此,在AD或CVD令下,进口商在进口产品时会支付现款押金,并在复审调查结束后取回差额加上利息。

更重要的是,在一系列的案例中,商务部已经允许外国生厂商在其它销售方面都正常的情况下,出口少量产品作为试销用途。所以在一宗太阳能电池的复审调查案中,我们让出口商在销售其它产品的同时,出售少量的电池板作为试销用途以建立新的AD税率。

公司在复审案中的成功率有多大?在最近的一宗太阳能电池复审调查案中,我们将倾销率从249%下降到8.52%,协助中国太阳能电池公司重新进口产品到美国。

在复审调查期间了解如何应对并采取正确的策略,可以大幅度降低AD和CVD税率,并让中国公司重返美国市场。

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

On August 5, 2016, in the attached fact sheet, factsheet-multiple-hot-rolled-steel-flat-products-ad-cvd-final-080816, Commerce issued final dumping determinations in Hot-Rolled Steel Flat Products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom cases, and a final countervailing duty determination of Hot-Rolled Steel Flat Products from Brazil, Korea, and Turkey.

Other than Brazil, Australia and the United Kingdom, most antidumping rates were in the single digits.

In the Countervailing duty case, most companies got rates in single digits, except for POSCO in Korea, which received a CVD rate of 57%.

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On September 8, 2016, Commerce published the attached Federal Register notice, pdf-published-fed-reg-notice-oppty, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of September. The specific antidumping cases against China are: Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products, Magnesia Carbon Bricks, Narrow Woven Ribbons, Off the Road Tires, Flexible Magnets, and Steel Concrete Reinforcing Bars.   The specific countervailing duty cases are: Kitchen Appliance Shelving and Racks, Narrow Woven Ribbons, Off the Road Tires, Flexible Magnets, and Magnesia Carbon Bricks.

For those US import companies that imported : Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products, Magnesia Carbon Bricks, Narrow Woven Ribbons, Off the Road Tires, Flexible Magnets, and Steel Concrete Reinforcing Bars during the antidumping period September 1, 2015-August 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 AD and CVD 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.

STOP IP INFRINGING PRODUCTS FROM CHINA AND OTHER COUNTRIES USING CUSTOMS AND SECTION 337 CASES

With Amazon and Ebay having increased their efforts at bringing in Chinese sellers and with more and more Chinese manufacturers branching out and making their own products, the number of companies contacting our China lawyers here at Harris Moure about problems with counterfeit products and knockoffs has soared. If the problem involves infringing products being imported into the United States, powerful remedies are available to companies with US IP rights if the infringing imports are products coming across the US border.

If the IP holder has a registered trademark or copyright, the individual or company holding the trademark or copyright can go directly to Customs and record the trademark under 19 CFR 133.1 or the copyright under 19 CFR 133.31.  See https://iprr.cbp.gov/.

Many years ago a US floor tile company was having massive problems with imports infringing its copyrights on its tile designs.  Initially, we looked at a Section 337 case as described below, but the more we dug down into the facts, we discovered that the company simply failed to register its copyrights with US Customs.

Once the trademarks and copyrights are registered, however, it is very important for the company to continually police the situation and educate the various Customs ports in the United States about the registered trademarks and copyrights and the infringing imports coming into the US.  Such a campaign can help educate the Customs officers as to what they should be looking out for when it comes to identifying which imports infringe the trademarks and copyrights in question.  The US recording industry many years ago had a very successful campaign at US Customs to stop infringing imports.

For those companies with problems from Chinese infringing imports, another alternative is to go to Chinese Customs to stop the export of infringing products from China.  The owner of Beanie Babies did this very successfully having Chinese Customs stop the export of the infringing Beanie Babies out of China.

One of the most powerful remedies is a Section 337 case, which can block infringing products, regardless of their origin, from entering the U.S.  A Section 337 action (the name comes from the implementing statute, 19 U.S.C. 1337) is available against imported goods that infringe a copyright, trademark, patent, or trade secret. But because other actions are usually readily available to owners of registered trademarks and copyrights, Section 337 actions are particularly effective for owners of patents, unregistered trademarks, and trade secrets. Although generally limited to IP rights, in the ongoing Section 337 steel case, US Steel has been attempting to expand the definition of unfair acts to include hacking into computer systems and antitrust violations.

The starting point is a section 337 investigation at the US International Trade Commission (“ITC”).  If the ITC finds certain imports infringe a specific intellectual property right, it can issue an exclusion order and U.S. Customs will then keep out all the infringing imports at the border.

Section 337 cases have been brought and exclusion orders issued against a vast range of different products: from toys (Rubik’s Cube Puzzles, Cabbage Patch Dolls) to footwear (Converse sneakers) to large machinery (paper-making machines) to consumer products (caskets, auto parts, electronic cigarettes and hair irons) to high tech products (computers, cell phones, and semiconductor chips).

Section 337 is a hybrid IP and trade statute, which requires a showing of injury to a US industry. The injury requirement is very low and can nearly always be met–a few lost sales will suffice to show injury. The US industry requirement can be a sticking point. The US industry is usually the one company that holds the intellectual property right in question. If the IP right is a registered trademark, copyright or patent, the US industry requirement has been expanded to not only include significant US investment in plant and equipment, labor or capital to substantial investment in the exploitation of the IP right, including engineering, research and development or licensing.  Recently, however, the ITC has raised the US industry requirement to make it harder for patent “trolls” or Non Practicing Entities to bring 337 cases.

Section 337 cases, however, are directed at truly unfair acts.  Patents and Copyrights are protected by the US Constitution so in contrast to antidumping and countervailing duty cases, respondents in these cases get more due process protection.  The Administrative Procedures Act is applied to Section 337 cases with a full trial before an Administrative Law Judge (“ALJ”), extended full discovery, a long trial type hearing, but on a very expedited time frame.

Section 337 actions, in fact, are the bullet train of IP litigation, fast, intense litigation in front of an ALJ.  The typical section 337 case takes only 12-15 months. Once a 337 petition is filed, the ITC has 30 days to determine whether or not to institute the case. After institution, the ITC will serve the complaint and notice of investigation on the respondents. Foreign respondents have 30 days to respond to the complaint; US respondents have only 20 days. If the importers or foreign respondents do not respond to the complaint, the ITC can find the companies in default and issue an exclusion order.

The ITC’s jurisdiction in 337 cases is “in rem,” which means it is over the product being imported into the US. This makes sense: the ITC has no power over the foreign companies themselves, but it does have power over the imports. What this means in everyday terms is that unlike most regular litigation, a Section 337 case can be effectively won against a Chinese company that 1) is impossible to serve, 2) fails to show up at the hearing, and 3) is impossible to collect any money from.

The remedy in section 337 cases is an exclusion order excluding the respondent’s infringing products from entering the United States. In special situations, however, where it is very easy to manufacture a product, the ITC can issue a general exclusion order against the World.  In the Rubik’s Cube puzzle case, which was my case at the ITC, Ideal (the claimant) named over 400 Taiwan companies as respondents infringing its common law trademark. The ITC issued a General Exclusion Order in 1983 and it is still in force today, blocking Rubik’s Cube not made by Ideal from entering the United States. In addition to exclusion orders, the ITC can issue cease and desist orders prohibiting US importers from selling products in inventory that infringe the IP rights in question

Section 337 cases can also be privately settled, but the settlement agreement is subject to ITC review. We frequently work with our respondent clients to settle 337 cases early to minimize their legal fees. In the early 1990s, RCA filed a section 337 case against TVs from China. The Chinese companies all quickly settled the case by signing a license agreement with RCA.

Respondents caught in section 337 cases often can modify their designs to avoid the IP right in question. John Deere brought a famous 337 case aimed at Chinese companies that painted their tractors green and yellow infringing John Deere’s trademark. Most of the Chinese respondents settled the case and painted their tractors different colors, such as blue and red.

Bottom Line: Section 337 cases are intense litigation before the ITC, and should be considered by U.S. companies as a tool for fighting against infringing products entering the United States. On the flip side, US importers and foreign respondents named in these cases should take them very seriously and respond quickly because exclusion orders can stay in place for years.

 

If you have any questions about these cases or about the antidumping or countervailing duty law, US trade policy, trade adjustment assistance, customs, or 337 IP/patent law in general, please feel free to contact me.

Best regards,

Bill Perry

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