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–UNIVERSAL TRADE WAR, TPP IN LAME DUCK, SPOTTING POTENTIAL AD CASES, CUSTOMS, FALSE CLAIMS ACT, VITAMIN C ANTITRUST, IP AND 337

Lotus Garden Boat Buildings Yue Feng Pagoda Summer Palace BeijinTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 7, 2016

INTERVIEW ON WHAT US COMPANIES CAN DO IN THE PRESENT TRADE CRISIS

Just did an interview on what US companies can do to cope with the current trade crisis.  Hope you will find it of interest.  http://www.turbineagency.com/industry-insights/2016/10/25/accelerateb2b-how-do-global-trade-deals-really-impact-us-businesses

Dear Friends,

This blog post contains several new article and articles that have been posted on the Harris Moure blog, www.chinalawblog.com from the HM Trade Practice Group, including Adams Lee, Emily Lawson and myself.  The new articles also reflect my discussions during my recent three-week trip to China meeting with various Chinese companies, the Chinese Ministry of Commerce (“MOFCOM”), and Chinese trade lawyers.

The most important point is that the US China Trade War is expanding and has now become a universal trade war.  Although the US continues to bring numerous antidumping (AD) and countervailing duty (CVD) cases against China, the Chinese government is now bringing and will bring numerous AD and CVD cases against the US.

In the recent Chinese antidumping case against Distiller Grains from the US, the Chinese government has levied a 33% rate against $1.6 billion in US exports to China.  There are rumors that the Chinese government may soon bring AD and CVD cases targeting $15 billion in US exports of soybeans to China.

Meanwhile numerous countries have adopted their own AD and CVD laws modeled on the US and EU and are bringing cases not only against China, but also against the US.

The only recent trade developments that would break the retaliation cycle are the Trans Pacific Partnership (TPP) and the TTIP deal with Europe and both trade agreements are in serious trouble.

In addition, set forth below are articles on how to spot an AD and CVD trade case coming and what do when your company is a target of a trade case, magnesium and steel cases, trade cases against Europe, and Trade Adjustment Assistance by David Holbert, who heads the Northwest Trade Adjustment Assistance Center.  In addition, there are a number of articles on Customs law, False Claims Act, including an FCA case against Furniture and Customs enforcement action against Honey.  Finally, there is an article on recent Second Circuit Decision in the Vitamin C Antitrust Case and the antidumping back story, a Criminal Trade Secrets case, a new 337 case and the Section 337 article translated into Chinese.

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 POLICY AND TPP

US CHINA ANTIDUMPING TRADE WAR IS NOW A UNIVERSAL ANTIDUMPING TRADE WAR

As Donald Trump and Hilary Clinton duel during the Presidential debate about who can be more protectionist, during my recent trip to China I learned that what was once a US China Trade War has now become a universal trade war.  Country after country have adopted the US and EC Antidumping law and are filing case after case against other countries and the US.

Thus countries, 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.

Although Donald Trump, Hilary Clinton and many US politicians want to adopt a mercantilist trade policy which favors pushing exports and protecting US industries from imports, the US politicians simply do not understand retaliation.  What the US can do to other countries, those countries can do back.  President Reagan understood the retaliation danger of protectionism and a mercantilist trade policy, but many present day US politicians do not.  So all of these countries are following the US lead and implementing a mercantilist trade policy.

Free trade agreements, such as the TPP and the TTIP, which would break this cycle are now all in deep trouble as each country wants to put its industries first and make their country and industries great again.  The rise in nationalism results in trade wars in which country after country will fire trade guns against each other.  As Jack Ma of Alibaba recently mentioned on CNN, real wars start when trade stops.  See http://money.cnn.com/2016/09/02/technology/jack-ma-alibaba-g20/

During my recent trip to China, in the attached notice, ddgs-list-of-dumping-margin-of-each-company_en ddgs-preliminary-finding-summary-translation_en, on September 23, 2016, the Chinese government announced a 33% preliminary antidumping duty targeting $1.6 billion in imports from the United States of DDGS, Distiller’s Dried Grains with or without Solubles, which is used as an ingredient for animal feed.

During this trip, officials at the Chinese Ministry of Commerce (“MOFCOM”) told me that more trade cases will be coming next year against the US.  In fact, there are rumors that the Chinese government will soon bring an AD and CVD case targeting $15 billion in US soybean exports to China.  This is the number one US export to China.  Now that China is bringing more trade cases against the US, these cases will hurt US companies and the jobs that go with them.

On the US side, the election of either Donald Trump or Hilary Clinton in November will mean more US trade cases next year against not only China, but many other countries as well.

On September 22, 2016, MOFCOM in China initiated an escape clause/safeguard action against Sugar from Brazil, Cuba, Guatemala, Australia, South Korea and Thailand alleging tariffs up to 155.90%.

On September 15, 2016, India brought its own antidumping case against Polybutadiene Rubber from South Korea, Russia, South Africa, Iran and Singapore.

Taiwan has brought a Steel antidumping case against China.

More and more cases will be filed in 2017 around the World and many will target the United States, China, and numerous other countries.  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.

TPP IN THE LAME DUCK KEEPS ON TICKING

As mentioned in my last blog post, 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.  Many Congressional leaders appeared to  oppose tbringing up TPP in the Lame Duck.  But with Hilary Clinton’s resurgence in the Polls after the first debate, there is more talk about the TPP coming up in the Lame Duck, the period after the Presidential election and before the end of the year, as President Obama pushes hard for passage of the legislation.

On September 16, 2016, Ohio Governor Republican John Kasich in an interview with CNN stated that he supports passage of the TPP and will support President Obama in this legislative push in the Lame Duck.  See http://edition.cnn.com/2016/09/15/politics/john-kasich-trans-pacific-partnership/index.html

Governor Kasich made clear that he feels “it’s his “responsibility and duty as a leader” — no matter the political cost — to help President Barack Obama push the Trans-Pacific Partnership through Congress.

Kasich stated that

“I have never been an ideological supporter of free trade. The ideologues used to come to me and be frustrated with me.  But when you look at these agreements in a real sense – and this one is much different than even NAFTA.”

Kasich added that when Russian and Chinese leaders oppose the TPP, that is one reason to vote for the TPP, “We have to do this.”

Kasich further stated,

“This is the first time the candidates in both major political parties say they are opposed to free trade. It’s astounding to me.  I welcome the fact that people will criticize me for putting my country ahead of my party.”

The interview came after Kasich met with President Obama in the Oval Office with former New York City Mayor Michael Bloomberg, former George W. Bush administration Treasury Secretary Hank Paulson, Atlanta Mayor Kasim Reed and others for a meeting on the 12-nation Pacific Rim deal.

Kasich further stated:

“This is an opportunity for the Congress to carry out its responsibility. Frankly, if I have to come down here and spend some time lobbying my Republican colleagues, I’m more than glad to do that.

There’s definitely some people I can call and talk to.  This is a big deal. I mean, if we were to just walk away with this — with both candidates saying they don’t want this — we turn our backs on Asia.

He also played down the political potency of Trump’s anti-trade position in manufacturing-heavy Ohio, saying it’s not why Trump might win the state.

On September 26, 2016, Robert Samuelson, a well-known economist, published an article entitled “Will TPP Rise from the Dead”, stating:

With Obama’s term ending and his already-modest influence eroding by the day, TPP seems dead. But it may still be in intensive care.

In a speech to the Peterson Institute for International Economics, a Washington think tank, Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee whose jurisdiction includes trade agreements, said that the TPP could still be ratified in the lame-duck session after the election and before a new Congress takes office.

Samuelson went on to state that Brady gave two major reasons to approve the TPP.

First, geopolitical:  The TPP would enhance US influence in the Pacific region and offset China’s growing economic and political power. TPP would give the United States a major role in regulating global commerce in the 21s century. The trade agreement codifies rules on “intellectual property” (patents, copyrights), data flows and state-owned firms

Ratification would be a strong signal to Asia that the United States intends to remain a Pacific power.

“The second reason is economic: Asia remains a fast-growing region. TPP would eliminate most tariffs among the 12 member countries, aiding American exporters in these markets. The advantage may be particularly important in services (tourism, consulting, finance and engineering), where U.S. firms are especially strong. In 2015, the United States had a $762 billion deficit in goods trade (machinery, steel, medical equipment) and a $262 billion surplus in services trade, leaving an overall deficit of $500 billion.  According to the Peterson Institute, the 12 countries in the TPP accounted for about 36% of the world economy and 24% of global trade in 2014.”

Samuelson goes on to quote Brady on why he does not dismiss TPP’s prospects as bleak, “People change once they get into office.”

Samuelson then states:

Translation: The campaign’s anti-trade and anti-globalization rhetoric might recede before the realities of governing. Although Brady didn’t say so, one implication is that a victorious Hillary Clinton might put up only token opposition to TPP, both because the case for approval is strong and because she might feel obligated to Obama for his political support.

But Brady went on to state that getting a deal would be difficult. With many Democrats adamantly opposed to TPP, President Obama would need to rely on Republicans to approve the agreement. But if President Obama cannot round up enough Democratic votes to ensure victory, Republicans will not go out on a political limb and bring the agreement up during the Lame Duck.

“We are running out of time,” Brady told the Peterson audience. As Samuelson stated, “The TPP may yet wind up in the political morgue.”

TRADE

CHINA IMPORTS: KNOW YOUR RISKS

By Adams Lee, Harris Moure International Trade Group

Every year U.S. producers file 10-15 petitions asking the U.S. government to investigate whether certain products imported into the US are sold at unfair prices (antidumping or AD) or are unfairly subsidized (countervailing duty or CVD). Many of the AD/CVD cases target products imported from China. Odds are good that at least two new AD/CVD petitions will be filed by Halloween and as many as five by year end.

Our clients often ask our international trade lawyers how they can determine the likelihood of a AD/CVD petition that could adversely affect their ability to compete in the US market. Each AD/CVD petition is unique to the product and industry it covers, but most AD/CVD investigations fall within a handful of categories. Understanding what has led to the filing of previous AD/CVD petitions can help you as a producer, exporter, or importer, recognize if and when to expect a new AD/CVD petition that could directly affect you. The following are some of the indicators you should be checking to determine whether your imported into the USA product will be next.

The Regulars. Certain domestic industries have been frequent filers of AD/CVD actions. Companies in these industries are veterans of AD/CVD actions; they don’t ask if a new petition will be filed, only when it will be filed.

  • Steel of all types (carbon steel, stainless steel, flat products, pipe, rebar, wire rod, wire, etc.) from all over the world. The latest wave of steel AD/CVD investigations are being completed with high AD/CVD margins in most cases.
  • Softwood Lumber from Canada. The latest round of the US-Canada Lumber wars is set to begin as new AD/CVD petitions are likely to be filed in October 2016. Filing a new AD/CVD petition may be necessary to push US-Canada negotiations to a meaningful level.

The Big Box Effect. When Walmart, Lowes, or Target switch their sourcing of a product from a domestic manufacturer to a foreign (read Chinese) one, it is quite common for the jilted domestic supplier to file an AD/CVD petition in an effort to save their business. Boltless steel shelving units, wood flooring, ironing tables, and candles are all examples of this, and all involving products from China.

US Products Squeezed by Imports. It is not uncommon for an AD/CVD petition to be filed by a US producer that makes a higher quality product but is starting to lose out to foreign producers with lower quality but cheaper products. Frozen shrimp from multiple countries, garlic from China, and wooden bedroom furniture from China are some examples of this.

Pressure from Downstream Customers. Many AD/CVD petitions involve products that are material inputs used to make a downstream finished product. Petitions can be triggered by larger downstream producers switching to, or just threatening to switch to imports to pressure smaller upstream suppliers to lower prices.  Many chemical products from China, tire products from China and other countries, kitchen racks from China are examples of this.

AD/CVD Actions on Upstream ProductsSometimes AD/CVD actions filed by other domestic industries trickle down and harm downstream domestic industries. For example, US wire rod producers filed AD/CVD petitions that resulted in AD/CVD duties against imported wire rod. But these wire rod duties ended up hurting US wire producers, who in turn filed their own AD/CVD duties against imported wire.

Dying Dinosaurs/Last Survivors. Some AD/CVD petitions are filed by the remaining members of a nearly extinct domestic industry dealing with decreasing demand and increased import pressure. Sometimes the AD/CVD actions allow the surviving US producers to stay in the US market protected from import competition.  Examples of this are wooden bedroom furniture, magnesium and innersprings from China.

Other Countries’ AD/CVD actions. The US is not the only country that acts to protect its domestic industries from unfair foreign trade. AD/CVD actions filed in Canada, India, the EU, Brazil, and even China are warning signs of industries facing tight competitive pressure. Imports blocked from one market are often diverted to other available markets. A prime example of this are products from China which first had AD/CVD filed in the EU before the US took action.

All of the above scenarios are good indicators of an imminent filing of a new United States’ AD/CVD petition, so if you are seeing these market conditions in your industry, an AD/CVD petition is probably in your near future.

WHAT SHOULD YOU DO WHEN THE CUSTOMS ANTIDUMPING AND COUNTERVAILING DUTY BOGEYMAN IS COMING AFTER YOUR IMPORTED CHINA PRODUCTS

By Adams Lee, Harris Moure International Trade Group

In China Imports Know Your Risks (above), I wrote about how companies can recognize impending antidumping (AD) or countervailing duty (CVD) petitions. In this post I address what you as an importer, exporter or foreign producer should do if you see an AD/CVD storm looming.

The first thing you should do is determine whether the AD/CVD petition will directly hit your primary operations. The second thing you should do is figure out how best to defend yourself interests if the AD/CVD petition is headed directly your way. The third thing you should do if you do get hit by AD/CVD duties is to figure out damage control going forward.

  1. New AD/CVD Petition – Are my products affected? AD/CVD petitions include a proposed scope definition that identifies the products covered. AD/CVD scope definitions can be complicated and unclear. They may be broader or narrower than the Customs tariff classifications normally used to identify such imports. Even if you think your products are outside the scope of the petition, U.S. Customs may disagree. U.S. Customs commonly demands that you first pay an AD/CVD deposit, assuming that your products are within the scope of the AD/CVD petition, and then Customs will return your deposit only if you get a Department of Commerce (DOC) ruling that your products are actually outside the scope. For example, with aluminum extrusions from China, the DOC has received around a hundred scope ruling requests to clarify whether certain products are included or excluded from the scope of that order.

Once you know the scope definition, you can evaluate the degree to which the AD/CVD action could impact your business.  Sometimes you and your customer can find alternatives to replace the subject AD/CVD products with either non-subject products or by your sourcing from non-subject countries. If you have options to switch away from the products covered by the AD/CVD action, it may not be necessary to participate in the AD/CVD investigation.

  1. AD/CVD investigations – How to defend? If your product is squarely within the scope of the AD/CVD petition and the U.S. market is worth fighting for, you should determine the best way to prepare for the AD/CVD investigation. If you have enough time before a petition is filed, you theoretically can try to adjust your sales to remedy whatever is causing the dumped or subsidized sales, most commonly by raising your prices for certain products or customers or by modifying your production operations by lowering or reallocating costs. Unfortunately, most companies are not proactive about planning to avoid AD/CVD actions and instead react only after a petition is filed. We find this especially true of our clients that import from China, as opposed to Europe.

Once an AD/CVD investigation is initiated, foreign producers and exporters and US importers should try to defend their interests before the two agencies responsible for making AD/CVD determinations: The International Trade Commission (ITC) determines whether a domestic industry is injured or threatened with injury by reason of the subject imports and the Department of Commerce (DOC) determines how much the subject imports are dumped or subsidized.

In ITC investigations, the best defenses are presented when the foreign producers, US importers, and US purchasers can organize and explain why the subject imports should not be blamed for any decline in the domestic industry’s performance. Because the ITC examines a broad range of data regarding the US market for the subject product, a comprehensive explanation of relevant market conditions is necessary to a winning argument.

In DOC investigations, the foreign producer and exporters are the primary respondents to the DOC’s questionnaires. These companies must provide extensive corporate structure, sales and cost data, often through multiple rounds of questionnaires. The DOC uses the submitted data to calculate AD/CVD margins.  Unaffiliated US importers usually do not need to submit data in DOC investigations and reviews, but they often will closely monitor the DOC’s proceedings because they will ultimately be responsible for paying the AD/CVD duties. See Sourcing Product From China: You Should Know About Importer of Record Liability.

The key to any AD/CVD defense is participating fully in both the DOC’s and the ITC’s investigations. If you don’t participate, you have no chance of winning. If a party does not respond on time or with complete responses, the DOC and the ITC can apply the adverse facts available that inevitably lead to higher AD/CVD margins. US importers should at least actively monitor DOC’s proceedings because their final AD/CVD liability often depends on how well the Chinese producers and exporters are able to respond to DOC’s questionnaires. It is not uncommon for the Chinese producer or exporter to mount a weak or no defense, leaving the U.S. importer essentially “holding the bag.” There are many things you can and should do to try to prevent this from happening to you.

  1. How to Plan for Life with AD/CVD. The overwhelming majority of AD/CVD petitions lead to orders for imposing AD/CVD duties.  But depending on the scope definition of the AD/CVD order, it may be possible for you to maintain your business operations by identifying alternative out-of-scope products or by switching your product sourcing to a non-subject country. But in switching sourcing, US importers should be careful to avoid actions that could be considered schemes designed primarily to evade AD/CVD duties, as the DOC can extend orders through circumvention investigations. Customs too can conduct its own investigation of duty evasion allegations.

Also, because the United States uses a retrospective AD/CVD system, foreign suppliers and US importers have the opportunity each year to try to lower their dumping margin. Since AD/CVD duties are “remedial”, foreign producers and U.S. importers have ample opportunity to adjust their production and sales operations so that they can sell “fairly” to the U.S. market, as defined by the U.S. trade laws and with proper planning and disciplined execution, companies can sometimes make even minor adjustments to reduce or eliminate their AD/CVD duty liability.

Bottom Line: You are not without defenses when the AD/CVD bogeyman appears to be heading for you. There are things you can do both to stop it from attacking your business and things you can do to restore your business once attacked.

Editor’s Note: This post focuses on products exported from China to the United States, but its advice applies with equal force to products exported from any other country to the United States and with nearly equal force to products exported from any other country to any other country that also has AD/CVD sanctions.

CAFC MAGNESIUM METAL DECISION

On October 6, 2016, in the attached decision, cafc-magnesium, the Court of Appeals for the Federal Circuit affirmed the Commerce Department’s decision that replacement of stainless steel retorts used to produce magnesium metal was an overhead expense and not a direct cost in the Magnesium Metal from China antidumping case.

STEEL TRADE CASES

CARBON AND ALLOY STEEL CUT-TO-LENGTH PLATE FROM CHINA AND KOREA

On September 7, 2016, in the attached fact sheet, clt-plate-cvd-prelim-fs-090716, Commerce issued an affirmative preliminary CVD determination in the initial investigation of certain carbon and alloy steel cut-to-length plate from China and a negative preliminary determination in the CVD investigation of imports from Korea.

China CVD rate best on all facts available is 210.50% and Korea’s CVD rate is 0.

CARBON AND ALLOY STEEL CUT-TO-LENGTH PLATE FROM BRAZIL, SOUTH AFRICA AND TURKEY

On September 16, 2016, in the attached fact sheet, factsheet-multiple-ctl-plate-ad-prelim-091616, Commerce announced its affirmative preliminary determinations in the AD investigations of imports of certain carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.

Brazil’s antidumping rate is 74.52%.  South Africa’s antidumping rates range from 87.72% to 94.14%.  Turkey’s antidumping rates range from 42.02% to 50%.

STAINLESS STEEL SHEET AND STRIP FROM CHINA

On September 12, 2016, in the attached fact sheet, factsheet-prc-stainless-steel-sheet-strip-ad-prelim-091216, Commerce announced its affirmative preliminary determination in the AD investigation of imports of stainless steel sheet and strip from China.  The antidumping rates range from 63.86% to 76.64%.

TRADE CASES AGAINST EUROPE

EUROPEAN TARGETS IN ANTIDUMPING AND COUNTERVAILING DUTY CASES AND WHAT CAN BE DONE TO GET BACK IN THE US MARKET AGAIN

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

China is not the only target.  AD cases have been recently filed against a number of European countries, including Carbon and Alloy Steel Plate from Austria, Belgium, Germany, and Italy; Steel Flanges from Italy and Spain; and Rubber from Poland.

In addition, there are outstanding AD and CVD orders against Germany on brass sheet and strip, seamless pipe, sodium nitrite and non-oriented electrical steel.  In addition to Germany, other EU Countries have been hit on various steel products, including a number of stainless steel products, from Spain, Belgium and Italy; brass sheet and strip from France and Italy, isocyanurates from Spain, pasta from Italy, paper from Portugal and Uranium from France. The oldest US AD order in place today is pressure sensitive plastic tape from Italy, which was issued in 1977.

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 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 countries.

The real question many companies may have is how can AD and CVD rates be reduced so that the European company can start exporting to the US again.  US AD and CVD laws 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 electrical steel from Germany was issued in December 2014.   In December 2016, the German producer can request a review investigation of the electrical steel that entered, was actually imported into, the US during the period December 1, 2015 to November 31, 2016.

EU companies may ask that it is too difficult to export a 17 metric ton container of covered product to the US, requesting a nonaffiliated importer to put up an AD of 50 to over 100%, which can require a payment of $1 million USD or more.  In contrast to European law, however, 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 chemical case, we had the exporter put a metric ton of the chemical in question in a container with other products and that metric ton served as the test sale to establish the new AD rate.

EU Companies may also ask how we can make sure that we are not dumping.  The answer is dump proofing and computer programs.  In contrast to China, EU companies are considered market economy companies and, therefore, Commerce must use actual prices and costs in the European country to determine whether it is dumping or not.  Computer programs can be used to reduce the dumping margin significantly by modeling US prices and EU home market prices to eliminate or significantly reduce antidumping rates.

How successful can companies be in reviews?  In one EU Steel case, we dropped the dumping rate from over 17% in the initial investigation to 0% in the review investigation.  In a chemical from China case, we dropped a dumping rate of over 200% to 0%, allowing the Chinese company to become the exclusive exporter of the product for decades per order of the US government.

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

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES

David Holbert, who heads the Northwest Trade Adjustment Assistance Center (“NWTAAC”), is writing a series of posts on the NWTAAC website on how Trade Adjustment Assistance for Firms/Companies helps injured companies injured by imports.  This is the first post.

Imports are Like a Thousand Flash Floods Injuring US Companies That Are Not Competitive

The issue of trade competition and lost jobs is well discussed in the media.  I work with small and medium-sized enterprises (SMEs) who are negatively affected by trade competition, what is often called “trade impact” in policy lingo. It’s a big issue. According to the U.S Trade Representative, the United States’ 30 million SMEs account for nearly two-thirds of net new private sector jobs in recent decades.

For large companies or from a macro-economic perspective, import competition may seem like a rising tide – one that can be anticipated, prepared for or proactively mitigated. For small and medium-sized businesses, not equipped with diverse product lines, resources or change acumen, import competition feels more like a flash flood.

What is it like for those companies?  When trade impact hits, sales drop off, often suddenly.

  • Contract manufacturers build to specification for customers, often larger companies. For this group, trade impact could mean the loss of a major customer moving operations to a foreign country (and finding parts suppliers there), or simply an importer arriving on the scene with lower cost products.
  • For a consumer products company, trade impact will probably first arrive with falling sales to the big retail chains since they are the most sensitive to supplier prices.
  • For a commodity producer things are a little more predictable. There may be a change in currency valuation or the rise of a new industry in a foreign country. Regardless, these highly price sensitive markets will suddenly have a lower price option.
  • Commercial products producers will usually have more time. When imports arrive they will sell to generally more informed customers who usually value factors other than price. But the fall will come, just more slowly.

Sales could fall off for many reasons. How do you know its trade related? You ask or you ask around. It shouldn’t take long to find out.

Imports arrive product by product. Companies move offshore factory by factory.  A domestic company makes that product, is part of the supply chain needed to make the product or is part of that commodity industry. When the imports arrive (or the factory moves), that one company or set of suppliers or community of producers is directly in the way. All of this happens in what can seem to be a relatively normal looking manufacturing neighborhood. Across the street there might be a company making another product that is experiencing no trade competition. Next door a third company might have gone through trade impact years ago and has adjusted. For small and medium sized companies, trade impact can be surprisingly direct and specific.

Here are some examples of what I’m talking about.

  • A commercial products company makes a specialized tool. A couple of other U.S. and European companies make similar products with some parity between price and features. One year they are at the big industry trade show and see a product, similar to theirs (and the others), but priced about 40% lower. Three months later sales started slipping.
  • A contract manufacturer that machines metal parts had gravitated away from stainless steel to titanium and built for several competitors in the same industry. Foreign producers had mastered stainless steel over the last decade. But as of a recent year, those producers finally mastered titanium as well. One by one, the manufacturer’s customers started buying imports. Once one did, it had a cost advantage, so the others had to go along also.
  • A nut grower was maintaining a slim profit. Then, a certain country decided to incentivize its nut growers to achieve more efficiency and export capability. It took a while, but when the imported nuts started arriving, they were at a price point below break-even for the domestic producer.
  • A safety products producer sold through a variety of retailers. One year, seemingly out of the blue, the big box stores stopped ordering. It didn’t take long to figure out why. A similar imported product was on the shelves at about half the price.

In future posts I’ll cover the steps to recovery. They are many effective tools in the economic recovery toolbox.  In many cases, companies that employed these resources are now unrecognizable through increased scale and product changes. Interestingly, a surprising number become significant exporters.

My role at the Northwest Trade Adjustment Assistance Center is to help small and medium-sized companies that are negatively impacted by trade competition through grants of up to $75,000.  Our non-profit organization administers a federal program serving companies in Washington, Oregon, Idaho and Alaska. You can learn more about us at NWTAAC.org.

CUSTOMS LAW

IMPORTING GOODS FROM CHINA: THE RISKS ARE RISING

By Adams Lee, Harris Moure International Trade Group

Last month I wrote about how importers from China need to be on their guard since U.S. Customs and Border Protection (CBP) has implemented new regulations to investigate allegations of antidumping (AD) and countervailing duty (CVD) evasion. See Importing From China: One More (New) Thing You Need To Know.

It didn’t take long, as U.S. Customs has already begun its first wave of investigations: Wheatland Tube, a US steel pipe producer, on September 14, 2016 announced it had filed with CBP an allegation of duty evasion on imports of Chinese circular welded steel pipe.

CBP has published a timeline for conducting its investigations and a process diagram (EAPA Investigation Timeline) and this newly filed allegation will be a test case to see how CBP will conduct its new duty evasion investigations. Hopefully, CBP will soon address many of the questions raised by the new regulations. How will parties be allowed to participate? What information from the investigation will be made public? How will CBP define “reasonable suspicion” of duty evasion?

This steel pipe investigation is likely to be the first of many CBP duty evasion investigations that are to come, many (probably most) of which will target Chinese products subject to AD/CVD duties. For how to figure out the risk quotient for the products you import from China, check out China Imports: Know Your Risks.

The new antidumping and countervailing duty regulations will unquestionably require an increased number of importers and foreign manufacturers to formally respond to CBP’s questions in response to allegations. Given the strong political pressure by domestic U.S. industries calling for tougher enforcement of US trade laws (not to mention the rising opposition to free trade among the American populace), Chinese producers and exporters and US importers should be prepared for increased CBP activity. CBP is likely looking to punish someone hard to set an example of their improved enforcement.

Getting Your China Products Through U.S. Customs: The 101

By Emily Lawson, Harris Moure International Trade Group

If you are importing products from China you need to do your homework to make sure your incoming shipments into the United States comply with U.S. Customs laws and regulations. Compliance with U.S. Customs laws and regulations is critical in avoiding your shipments being detained or seized, and/or penalties assessed. Common issues importers of products from China typically face include the following:  

  Not determining proper classification and duty rate for products. If you plan to import and sell on a Delivered Duty Paid basis, you should consider customs duties in your costs and that means you should know all of your applicable duty rates before you import. Also certain products are subject to high antidumping or countervailing duties in addition to regular customs duties, which may be as high as 300%.

   Failing to mark the product with the country of origin of manufacture.  Generally goods of foreign origin for import into the U.S. or immediate containers of the goods must be marked legibly and in a conspicuous location with the country of origin in English. Failure to do so accurately  can result in civil and even possibly criminal penalties.

  Not properly marking wood packing material. All wood packing material for products imported into the U.S. must be properly  treated and marked prior to shipping. Failure to meet the treatment and marking requirements may cause shipments to be delayed and penalties issued. 

  Failing to provide complete commercial invoices. Customs regulations provide that specific data must be included on the commercial invoice for U.S. Customs purposes, including a detailed description of the merchandise, and correct value information. Omission of this information may result in improper declaration to U.S. Customs at the time of import and expose you to penalties.

  Failing to meet other U.S. Government agency requirements.  Goods imported for sale in the U.S. must satisfy the same legal requirements as those goods manufactured in the United States. U.S. Customs enforces the laws of other agencies in the U.S., including, the Food and Drug Administration, the Consumer Product Safety  Commission (CPSC), and the Environmental Protection Agency, in addition to others. Therefore, if toys, for example, are exported to the U.S., detailed CPSC requirements, including for testing, must be met prior to export.

   Distribution of many trademarked and copyrighted items. Items which are trademarked and copyrighted are restricted by contractual agreements that give exclusive rights to specific companies to distribute the product in the U.S. Imports of improperly  trademarked or copyrighted items can be seized at the U.S. border and can subject you as the importer to penalties.

 Taking the time to identify  the required U.S. Customs laws and regulations for the products to be shipped to the U.S. from China will help you maintain seamless delivery  of your merchandise to U.S. customers and avoid civil and criminal penalty  exposure.

FALSE CLAIMS HAMMER GETS BIGGER — THIRD CIRCUIT HOLDS FCA’S APPLICATION TO FALSE STATEMENTS MADE TO US CUSTOMS

On October 5, 2916, the Third Circuit Court of Appeals  in the attached decision in United States ex rel Customs Fraud Investigations, LLC. v. Vitaulic Company, us-vs-vitaulic, reversed the Federal District Court and held that a failure to label imported goods with the proper country of origin is actionable under the False Claim Act (“FCA”).  Vitaulic had imported millions of pounds of steel pipe with the wrong country of origin.

In holding that this is an actionable claim under the FCA, the Court stated:

These actions, according to CFI, give rise to the present qui tam action under the so-called “reverse false claims” provision in the False Claims Act (FCA).  Typically, a claim under the FCA alleges that a person or company submitted a bill to the government for work that was not performed or was performed improperly, resulting in an undeserved payment flowing to that person or company. The FCA was enacted as a reaction to rampant fraud and price gouging by merchants supplying the Union army during the Civil War. In this case, by contrast, the allegation is not that Victaulic is obtaining monies from the government to which it is not entitled, but rather that it is retaining money it should have paid the government in the form of marking duties. Wrongful retention cases such as these are known as “reverse false claims” actions.

The Court went on to state:

Of particular importance here, the Senate Report discussed “customs duties for mismarking country of origin,” and how such duties would be covered by the amended reverse false claims Provision. . . .

The plain text of the FCA’s reverse claims provision is clear: any individual who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” may be subject to liability. As alleged by CFI in the amended complaint, Victaulic declined to notify the Bureau of Customs and Border Protection of its pipe fittings’ non-conforming status. This failure to notify resulted in the pipe fittings being released into the stream of commerce in the United States and, consequently, marking duties being owed and not paid.

From a policy perspective, the possibility of reverse false claims liability in such circumstances makes sense in the context of the larger import/export regulatory scheme created by Congress. Because of the government’s inability to inspect every shipment entering the United States, an importer may have an incentive to decline to mention that its goods are mismarked on the assumption that the mismarking will not be discovered. In doing so, an importer avoids its obligation under 19 U.S.C. § 1484 to provide the government with such information as is necessary to enable the Bureau of Customs and Border Protection to determine whether the merchandise may be released from government custody or whether it must be properly marked, re-exported or destroyed.

HONEY AND FURNITURE

FURNITURE

On September 30, 2016, Ecologic Industries LLC and OMNI SCM LLC controlled by a Daniel Scott Goldman agreed to pay $1.525 million to settle a civil False Claims Act suit alleging it conspired to make false statements to avoid paying duties on wooden furniture imported from China to avoid the antidumping duties on Wooden Bedroom Furniture from China.  The companies sell furniture for student housing.

The case was filed by a whistleblower Matthew Bissanti, who is the former president and director of OMNI.  The Justice Department reported that Bissanti will receive $228,750 as his share of the settlement.

HONEY

On Aug 12, 2016, in the attached notice, to-bee-or-not-to-bee_-cbp-and-partners-seized-132-drums-of-hone, Customs and Border Protection announced seizure of 42 tons of illegally imported Chinese honey.  The honey was contained in 132 fifty-five gallon drums that were falsely declared as originating from Taiwan to evade antidumping duties applicable to Chinese honey. The evaded antidumping duties on this shipment of Chinese honey would be nearly $180,299.

ANTITRUST LAW

VITAMIN C ANTITRUST CASE—THE REAL ANTIDUMPING BACK STORY

On September 20, 2016, the Second Circuit Court of Appeals handed down its attached decision in the Vitamin C Antitrust case against the Chinese companies, In Re: Vitamin C Antitrust Litigation, vitamin-c-13-4791_opn-2d-cir-sept-20-2016.  In its decision, the Court of Appeals reversed the Federal District Court’s decision that the Chinese Vitamin C companies had fixed prices in violation of the US antitrust because Chinese government action, in effect, insulated the Chinese companies from US antitrust liability.

The Court of Appeals made the correct decision because as indicated below, I have personal knowledge as to the reason the Chinese government set the Vitamin C export price scheme in place to raise Chinese export prices—to deter US and other Antidumping cases.

As the Court of Appeals stated in its opinion:

the Chinese Government filed a formal statement in the district court asserting that Chinese law required Defendants to set prices and reduce quantities of vitamin C sold abroad, and because Defendants could not simultaneously comply with Chinese law and U.S. antitrust law . . .

The Court of Appeals then reversed the District Court “on international comity grounds” and ordered the District Court to dismiss the complaint with prejudice.

In effect, the Second Circuit held that based on comity grounds, that is, respect for Chinese law as evidenced by a formal statement and submission of the Chinese government that the Chinese government lawfully set up a scheme to raise Vitamin C prices, the Federal District Court should have dismissed the case.  The Court of Appeals held that the District Court should have deferred to the Chinese government and exempted the Chinese companies from the application of the US antitrust law based on the state action defense.  It should be noted that the Federal Government and State Governments through state action can insulate US domestic companies from the application of the US antitrust law.

The Court of Appeals specifically determined in the decision that:

The official statements of the Ministry should be credited and accorded deference. . . .The  2002  Notice,  inter  alia,  demonstrates  that  from  2002  to  2005,  the relevant time period alleged in the complaint, Chinese law required Defendants to participate in the PVC regime in order to export vitamin C. This regulatory regime allowed vitamin C manufacturers the export only vitamin C subject to contracts that complied with the “industry‐wide negotiated” price.

Although the 2002 Notice does not specify how the “industry‐wide negotiated” price was set, we defer to the Ministry’s reasonable interpretation that the term means what it suggests—that members of the regulated industry were required to negotiate and agree upon a price.  . . ..

In this context, we find it reasonable to view the entire PVC regime as a decentralized means by which the Ministry, through the Chamber, regulated the export of vitamin C by deferring to the manufacturers and adopting their agreed upon price as the minimum export price. In short, by directing vitamin C manufacturers to coordinate export prices and quantities and adopting those standards into the regulatory regime, the Chinese Government required Defendants to violate the Sherman Act. . . .

Because we hold that Defendants could not comply with both U.S. antitrust laws and Chinese law regulating the foreign export of vitamin C, a true conflict exists between the applicable laws of China and those of the United States.

The Court of Appeals went on to state:

Moreover, there is no evidence that Defendants acted with the express purpose or intent to affect U.S. commerce or harm U.S. businesses in particular. Rather, according to the Ministry, the regulations at issue governing Defendants’ conduct were intended to assist China in its transition from a state‐run command economy to a market‐driven economy, and the resulting price‐fixing was intended to ensure China remained a competitive participant in the global vitamin C market and to prevent harm to China’s trade relations. While it was reasonably foreseeable that China’s vitamin C policies would generally have a negative effect on Plaintiffs as participants in the international market for vitamin C, as noted above, there is no evidence that Defendants’ antitrust activities were specifically directed at Plaintiffs or other U.S. companies.

The purpose of the Chinese export scheme was not to damage US customers or businesses.  In fact, just the opposite was true.  The Chinese government wanted to keep exports flowing.

What was the concern of the Chinese government?  US and other antidumping cases, which could wipe Chinese exports out of the US market for decades.  This was the true number one anticompetitive threat that the Chinese government and companies were facing.  Was this a realistic threat?  Sure was.

The period that the export price scheme was set in place was 2002-2005.  On July 11, 2002, after losing an antidumping case in the mid-90s against Saccharin from China despite very high antidumping rates because of a no injury determination by the US International Trade Commission (“ITC”), PMC, the sole US producer of saccharin, filed a second antidumping case against saccharin from China.  The Chinese Chamber of Commerce in charge of the Saccharin case was the Chamber of Commerce for Medicines, the same Chamber in charge of the Vitamin C case.

On July 2, 2003, the Commerce Department issued an antidumping order against all imports of saccharin from China with rates ranging from an individual dumping rate of 249.39% to 329.29% for all other Chinese companies, effectively blocking all Chinese saccharin from China.  The Antidumping Order was in effect for 10 years.

Although one company that I represented was after three and a half years able to reduce its dumping rate down to 0%, all other Chinese saccharin was blocked out of the US market for 10 years.  Market prices for saccharin in the US soared from a low $1.50 per pound in the investigative period to a price well over $10 a pound.

And US plaintiff companies in the Vitamin C case were complaining about the price rise in Vitamin C exports to the US??!!  I am sure the increase was not 10 times.

Since I represented the Chinese saccharin industry in the Saccharin antidumping case, the Chamber of Commerce for Medicine and I were very aware of the devastating effect a US or other antidumping case could have on Chinese companies and exports.  After the antidumping order was issued, in the Summer of 2003 the Chamber called me to a meeting with the Chinese Vitamin C producers and the Chinese Ministry of Commerce (“MOFCOM”} to discuss how to deter US and other antidumping cases.  The Chamber and MOFCOM were very worried that intense Chinese price competition would lead to a wave of antidumping cases against the Vitamin C companies.

The Vitamin C companies, the Chamber and MOFCOM asked what can we do if there is a threat of an antidumping case.  Since Commerce and all other countries treat China as a nonmarket economy country and refuse to use actual prices and costs in China to determine antidumping cases, the general practice of dump proofing where antidumping consultants use computer programs to eliminate the unfair act, dumping, is not an option for Chinese companies.

The only remedy I could think of was that the Chinese government impose an export price floor.  That approach worked in the 90s with another Chamber of Commerce when there was a threat of a US antidumping case against Silicon Carbide from China.  The US Silicon Carbide producer in the one company US industry never filed their threatened antidumping case against China because of the export price floor the Chamber with MOFCOM’s consent put in place.

After suggesting that the Chamber set up an export price floor with MOFCOM’s involvement, I went on to state that MOFCOM would have to issue a law, regulation or action to show that the Government mandated the establishment of the system to insulate the Chinese companies from attack under the US antitrust laws.

The Chamber did set up the export price system for Vitamin C exports to stop US and other antidumping cases from being filed against the Chinese companies.  No Vitamin C antidumping cases were filed because the export price system was put in place.

As indicated by the Second Circuit, MOFOM did take government action to set up the export price scheme, which, in turn, insulated the Chinese companies from US antitrust liability.

The lesson of the story is that although the purpose of US antitrust law is to protect consumers and competition in the US market, the real threat to US consumers and market competition is the US antidumping law.

CRIMINAL IP/TRADE SECRET CASE

On October 5, 2016, the Justice Department in the attached notice, chinese-national-sentenced-to-prison-for-conspiracy-to-steal-tr, announced the sentencing of Mo Hailong, a/k/a Robert Mo, a Chinese national to three years in Federal prison for a conspiracy to steal trade secrets.  Mr. Mo Hailong was the Director of International Business of the Beijing Dabeinong Technology Group Company, commonly referred to as DBN. DBN is a Chinese conglomerate with a corn seed subsidiary company, Kings Nower Seed.

According to the plea agreement, Mo Hailong admitted to participating in a long-term conspiracy to steal trade secrets from DuPont Pioneer and Monsanto. Mo Hailong participated in the theft of inbred corn seeds from fields in Iowa and elsewhere for the purpose of transporting the seeds to DBN in China. The stolen inbred, or parent, seeds were the valuable trade secrets of DuPont Pioneer and Monsanto.

U.S. Attorney Kevin E. VanderSchel stated:

“Mo Hailong stole valuable proprietary information in the form of seed corn from DuPont Pioneer and Monsanto in an effort to transport such trade secrets to China. Theft of trade secrets is a serious federal crime, as it harms victim companies that have invested millions of dollars and years of work toward the development of propriety technology. The theft of agricultural trade secrets, and other intellectual property, poses a grave threat to our national economic security. The Justice Department and federal law enforcement partners are committed to prosecuting those who in engage in conduct such as Mo Hailong.”

SECTION 337 AND IP CASES

NEW 337 CASES

On October 6, 2016, Nite Ize, Inc. filed a major 337 case against Device Holders, many of which come from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

Device Holders

Filed by:

James B. Altman

Firm/Organization:

Foster, Murphy, Altman & Nickel, PC

Behalf of:

Nite Ize, Inc.

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Device Holders, and Components Thereof. The proposed respondents are Shenzhen Youtai Trade Company Limited, d/b/a NoChoice, China; REXS LLC, Lewes, DE; Spinido, Inc., Brighton, CO; Luo, Qiden, d/b/a Lita International Shop, China; Guangzhou Kuaguoyi E-commerece co., ltd., d/b/a Kagu Culture, China; Shenzhen New Dream Technology Co., Ltd., d/b/a Newdreams, China; Shenzhen Gold South technology Co., Ltd. d/b/a Baidatong, China; Zhao Chunhui d/b/a Skyocean, China; Sunpauto Co., ltd., HK; Wang Zhi Gang d/b/a China; Dang Yuya d/b/a Sminiker, China; Shenzhen Topworld Technology Co.,    d/b/a IdeaPro, Hong Kong; Lin Zhen Mei d/b/a Anson, China; Wu Xuying d/b/a Novoland, China; Shenzhen New Dream Sailing Electronic Technology Co., Ltd., d/b/a MegaDream, China; Zhongshan Feiyu Hardware technology Co., Ltd d/b/a YouFo, China; Ninghuazian Wangfulong Chaojishichang Youxian Gongsi, Ltd., d/b/a EasybuyUS, China; Chang Lee d/b/a Frentaly, Duluth, GA; Trendbox USA LLC d/b/a Trendbox, Scottsdale, AZ; Timespa d/b/a Jia Bai Nian (Shenzhen) Electronic Commerce Trade CO., LTD., China; Tontex d/b/a Shenzhen Hetongtai Electronics Co., Ltd., China; Scotabc d/b/a ShenChuang Opto-electronics Technology Co., Ltd., China; Tenswall d/b/a Shenzhen Tenswall International Trading Co., Ltd., La Puente, CA; Luo Jieqiong d/b/a Wekin, China; Pecham d/b/a Baichen Technology Ltd., Hong Kong; Cyrift d/b/a Guangzhou Sunway E-Commerce LLC., China; Rymemo d/b/a Global Box, LLC., Dunbar, PA; Wang Guoxiang d/b/a Minse, China; Yuan I d/b/a Bestrix, China; Zhiping Zhou d/b/a Runshion, China; Funlavie, Riverside, CA; Huijukon d/b/a Shenzhen Hui Ju Kang technology Co., Ltd., China; Zhang Haujun d/b/a CeeOne, China; Easy Acc d/b/a Searay LLC., Newark, DE; Barsone d/b/a Shenzhen Senweite Electronic Commerce Ltd., China; Oumeiou d/b/a Shenzhen Oumeiou Technology Co., Ltd., China; Grando d/b/a Shenzhen Dashentai Network Technology Co., Ltd., China; Shenzhen Yingxue Technology Co., Ltd., China; Shenzhen Longwang Technology Co., Ltd., d/b/a LWANG, China; Hu Peng d/b/a AtomBud, China

CHINESE VERSION OF 337 ARTICLE

Set forth below is a Chinese version of the 337 English article published last month followed by the original English version.

阻止来自中国的侵权产品:337条款调查案

随着亚马逊和eBay加大力度引入中国卖家,以及越来越多的中国制造商另辟蹊径生产本身的产品,向我们在中国的律师咨询有关盗版产品和仿冒问题的公司数目也随之猛增。若该问题涉及到把侵权产品进口到美国,拥有美国知识产权的公司可以采取强大的补救措施进行反击。其中一个最强有力的补救措施就是337条款调查案,它可以用来阻止侵权产品进入美国,无论该产品生产自何处。

337条款调查案(该名称源自于19 U.S.C. 1337法令)可用来打击侵犯版权、商标、专利或商业秘密的进口品。但是由于注册商标和版权拥有人一般上可以采取其它的法律行动,337条款调查案对专利、未注册商标和商业秘密的拥有人尤其有效。虽然该调查案通常局限于知识产权,正在对钢铁产品进行的337调查案中,美国钢铁业试图将不公平行为的定义扩大以便将入侵计算机系统和违反反垄断行为包含在内。

首先,美国国际贸易委员会(“ITC”)会发起337条款的调查。如果ITC发现某进口货侵犯了特定的知识产权,可以发出排除令(exclusion order),美国海关就会扣留所有侵权的进口货。

大量种类各异的产品已经因337条款调查案而被禁止入口:从玩具(魔方拼图、椰菜娃娃)、鞋类(匡威运动鞋)、大型机器(造纸机)、消费类产品(首饰盒、汽车配件、电子香烟和烫发器)到高科技产品(电脑、手机和半导体芯片)等等。

337条款是知识产权和贸易的混合型法令,某个美国产业必须证明受到了伤害。伤害证明的要求很低,几乎所有的案例都符合此要求——只许一些销售损失就能证明伤害。对符合美国产业的要求可说是关键所在。美国产业通常是一家持有相关知识产权的公司。如果该知识产权是一项注册商标、版权或专利,美国产业的要求范围已扩大至凡在美国进行的工厂和设备、劳动力或资本的重大投资,以及专利权开发的实质性投资,包括工程、研发或授权许可,均可视为国内产业。然而,ITC最近提高了美国产业的要求,让专利“流氓”或非执业实体更难提出337调查案诉求。

337条款调查案由行政法官(ALJ)负责审理,诉讼过程迅速且激烈,一般上只需12至15个月来完成。ITC收到一份337调查的申请后,有30天的时间来决定是否立案。一旦确定立案,ITC会将诉状和调查通知答辩方。外国被诉方有30天的时间应诉,美国国内的被诉方则只有20天的时间应诉。如果进口商或外国被诉方没有做出回应,ITC会可认定公司放弃抗辩而发出排除令。

ITC在337调查案中所采取的是“对物”管辖权,也就是针对进口到美国的产品进行管辖。这很合理:ITC无权管制外国公司,但有权管制其进口产品。一般而言,337条款调查案和大多数的普通诉讼案不同,申诉方可以打赢一家1)不可能送达诉状、2)未能出庭聆讯,以及3)不可能被追讨款项的中国公司。

337条款调查案所采取的补救措施是颁布排除令,阻止答辩方的侵权产品进入美国。但是在某些特殊情况下,如果某个产品非常容易制造,ITC可以发布普遍排除令,不分来源地禁止所有同类侵权产品进入美国。以我处理过的魔方拼图案件为例,Ideal公司(申请人)把超过400家台湾公司列为侵犯其普通法商标的答辩人。ITC在1983年发布了普遍排除令(General Exclusion Order),阻止非Ideal公司制造的魔方产品进入美国市场,这一禁令沿用至今。除了排除令,ITC也可以发布制止令(cease and desist orders),禁止美国进口商继续售卖相关侵权产品。

337条款调查案的双方也可以选择庭外和解,但是和解协议必须经由ITC复审。我们经常协助客户尽早解决337条款调查案,以减少他们的诉讼费用。在20世纪90年代初期,RCA针对中国进口的电视提出了337条款调查。所有涉及的中国公司通过与RCA签署授权许可协议,迅速地解决了该调查案。

337条款调查案中的答辩人通常可以通过修改本身产品的设计来避开相关的侵权指责。约翰迪尔(John Deere)曾经指控把拖拉机漆成绿色和黄色的中国公司侵犯了约翰迪尔的商标,因而提出了一项著名的337条款调查案。大部分的中国答辩人与申诉人达成协议并改变拖拉机的颜色,例如蓝红色。

关键点:337条款调查案是ITC发起的强有力诉讼案,美国公司应该把它视为阻止侵权产品进入美国市场的手段。另一方面,涉及这些调查案的美国进口商和外国答辩人应该认真地对待它们,并且迅速做出回应,因为排除令发出后可延续多年有效。

 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 US trade policy, TPP, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law in general, 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

US CHINA TRADE WAR–DUELING US CHINA ANTIDUMPING CASES, CHINA’S NME STATUS, TPP, ALUMINUM AND CONGRESS FAILURE TO LET TAAF FIX THE TRADE PROBLEM

Jackson Statue Canons Lafayette Park White House After Snow PennTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER FEBRUARY 21, 2016

Dear Friends,

I have been in China for two weeks working on the Solar Cells and Steel Sinks cases.  This is an abbreviated February newsletter, which will cover trade and trade policy, including the new trade cases filed in the United States and China, the TPP, the New Trade Legislation, the China Nonmarket Economy Issue, plus developments in the Aluminum Extrusions and other cases.

If anyone has any questions or wants additional information, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR CONTINUES WITH FOUR NEW US CASES AGAINST CHINA AND ONE BIG NEW CHINA CASE AGAINST THE US

As stated at the top of this blog post, trade is a two way street, and the recent US antidumping and countervailing duty cases filed against China with the corresponding Chinese antidumping and countervailing duty case against the US illustrates that the trade war continues. The recent US cases target more than $1.2 billion of Chinese imports into the US, but the Chinese case targets about $1.5 billion of US exports, imports into China.  In trade what goes around comes around.

FOUR US CASES AGAINST CHINA

GEOGRID PRODUCTS

On January 13, 2016, in the attached complaint, AD PETITION Biaxial Integral Geogrid Products, Tensar Crop filed an antidumping and countervailing duty petition against about $10 to $20 million in imports of Certain Biaxial Integral Geogrid Products from the People‘s Republic of China alleging a dumping margin of over 200%. These Geogrid products are useful in earthwork construction, such as in roadways.

Conventional methods of road construction have been to use stone and, sometimes, a geotextile for drainage, underneath the paved or unpaved road. Geotextiles, however do not provide any structural benefit to a roadway. There is a market for geosynthetics, such as the Geogrid products,  that allow a contractor to improve not just the drainage, but also the structure and performance of a road, while using less stone.

AMORPHOUS SILICA FABRIC

On January 20, 2016, in the attached complaint, AD PETITION Amorphous Silica Fabric Scope Importers Exporters, Auburn Manufacturing filed an antidumping and countervailing duty petition alleging antidumping rates of more than 160% against more than $10 million of imports of amorphous silica fabric from China.

Auburn supplies this amorphous silica fabric to the US Navy and is competing against Chinese shipments of a high-performance fabric used to insulate and resist extreme heat in industrial applications

Because Auburn is the Navy’s leading supplier of ASF, it alleges the uptick in competing imports from China suggests violations of the Buy American Act, which requires 50 percent U.S. content for government purchases, and the Berry Amendment, which has a 100 percent domestic content requirement for textiles procured by the U.S. Defense Department.

BUS AND TRUCK TIRES

On January 29, 2016, in the attached complaint, AD PETITION Truck Bus Tires China 701-731 (3), the United Steelworkers union and Titan International Corp., a US tire manufacturer, filed an antidumping and countervailing duty case against imports of more than $1 billion truck and bus tires from China, and also India and Sri Lanka.

STAINLESS STEEL PETITION

On February 12, 2016, in the attached complaint, STAINLESS STEEL PETITION, a new antidumping and countervailing duty case was filed against Stainless Steel Sheet and Strip from China. The rumor in China is that because Commerce recently is refusing to give State Owned Companies their own dumping margin and since Commerce uses fake prices and costs based on surrogate values, Chinese stainless steel companies have decided not to fight the case because they believe the entire case is rigged and they cannot get a fair result.  When one understands the surrogate value methodology, which Commerce has used for 40 years to deny Chinese companies fair treatment in antidumping cases, one can understand why the companies would take such a position.

MAJOR CHINESE CASE AGAINST THE US–DISTILLER DRIED GRAINS

Meanwhile, the Chinese Government’s Ministry of Commerce (“MOFCOM”) filed its own antidumping and countervailing duty case against imports of $1.5 billion of distiller’s dried grains (DDGs), an animal feed product, from the United States.  By the way, it should be noted that in Chinese antidumping cases against the US, the Chinese government does use actual prices and costs in the United States to calculate antidumping rates for Chinese companies.  In the past, Commerce and the US government in one WTO case objected that the Chinese government used average US costs rather than the specific cost for the specific product in question.  At least the Chinese government uses real US costs.

According to the MOFCOM notices, the petitioner requesting the trade remedy probe is the China Alcoholic Drinks Association. DDGs are a byproduct of the production of ethanol and alcohol products that involve corn as a raw material.

After the last Chinese investigation against the US, US exports of DDGs dropped by 50%. The Chinese government later dropped the investigation in 2012 and US exports/Chinese imports neared pre-investigation levels, reaching roughly 2.1 million tons and subsequently experienced sharp growth in 2013, hitting 4.4 million tons.

Up to Nov. 2015, the U.S. exported roughly $1.5 billion worth of DDGs to China. That is about five times as much as the second-most valued export market, Mexico, which according to USDA data received about $315 million in DDG exports during the same time.

The Chinese Countervailing Duty notice alleges that U.S. DDG exporters received 10 types of countervailable subsidies, including several farm bill programs, such as Price Loss Coverage and Agriculture Risk Coverage, and also federally subsidized crop insurance and export credit guarantees. Additionally, the Chinese CVD notice also states that 42 state programs that provide benefits for biofuel production also constitute countervailable subsidies.  The AD duties on the US imports are alleged to be “significant.”

Growth Energy, a US ethanol trade group, in the attached announcement, GROWTH ENERGY CHINA ANTIDUMPING DISTILLER GRAINS, announced:

“We are disappointed to see the initiation of anti-dumping and countervailing duties cases against U.S. DDGS exports to China. The false allegations by the Chinese petitioners have the potential to seriously threaten our largest overseas market for DDGS and could have a significant impact on the supply, demand and price for DDGS in the U.S. and other foreign markets. We are working closely with our members and the U.S. Grains Council as it coordinates an industry response.”

The Us Grains Council in the attached announcement, US GRAINS COUNSEL CHINA AD, stated:

“We are disappointed to see today the initiation of antidumping and countervailing duties investigations of U.S. DDGS exports to China. We believe the allegations by the Chinese petitioners are unwarranted and unhelpful. They could have negative effects on U.S. ethanol and DDGS producers, as well as on Chinese consumers, potentially over a period of many years. We are also confident that our trading practices for DDGS, ethanol and all coarse grains and related products are fair throughout the world. We stand ready to cooperate fully with these investigations and will be working closely with our members to coordinate the U.S. industry response.”

Although many US unions and manufacturers scream that the Chinese government is retaliating against the US trade cases, one should keep in mind that in contrast to the United States, but like Canada, the EU and many other countries, China has a public interest test. Thus, when antidumping and countervailing duty complaints are filed in China, the Chinese government may not initiate them right away because of complaints by the downstream industry.  That is not true in the United States where downstream industries have no standing and there is no public interest test.

TRADE POLICY

TRANS PACIFIC PARTNERSHIP (“TPP”) CONTINUES TO RUN INTO PROBLEMS

There are ratification problems for the TPP all over the world, including the US, where election politics and other specific problems make it difficult for the TPP to pass the US Congress.

On January 21, 2016, the New Zealand government announced it would hold a ceremony on February 4th to sign the 12-nation Trans-Pacific Partnership in Auckland.  The ceremony officially gave the 12 nations a green light to begin pushing the agreement through their legislatures.  In a brief statement, New Zealand Trade Minister Todd McClay extended a formal invitation to top trade officials from each TPP country to ink the agreement, which will cover 40 percent of the global economy once it is in effect. Mr. McClay stated:

“Signature will mark the end of the TPP negotiating process. Following signature, all 12 countries will be able to begin their respective domestic ratification processes and will have up to two years to complete that before the agreement enters into force.”

McClay added that once the agreement has been signed, the New Zealand government will begin a series of “roadshows” to promote the TPP and win over public support.

A similar process is already underway in the U.S.  The U.S., however, cannot hold a vote on the agreement until the U.S. International Trade Commission (“ITC”) has issued a report on the economic effects of the TPP, which it is expected to do by the middle of May.  Around the time that report is released, the Obama administration is expected to present Congress with legislation to formally implement the TPP.

Once the TPP was signed on February 3rd by the trade ministers for the 12 TPP countries, the trade ministers all pledged to throw their weight into passing the trade deal through their legislatures.  In a Joint Statement, the 12 trade ministers stated:

“Our goal is to enhance shared prosperity, create jobs and promote sustainable economic development for all of our nations. The signing of the agreement signals an important milestone and the beginning of the next phase for TPP. Our focus now turns to the completion of our respective domestic processes.”

USTR Michael Froman, who is in a battle to sell the agreement to the U.S. Congress, stated before the signing that his office would continue to intensify its efforts to engage with lawmakers, many of whom have raised concerns about various aspects of the deal, ranging from its intellectual property rules to cross-border data flow provisions.  Although it looks that there will be no TPP vote on Capitol Hill until after the November elections, Froman stated:

“We are working with our stakeholders. … We are working with the leadership of Congress, educating everybody as to what’s in the agreements, addressing their questions and concerns. And I’m confident at the end of the day, because of the strong benefits to the U.S. economy, … that [the TPP] will have the necessary bipartisan support to be approved.”

Before the signing, USTR Froman outlined the plans to sell the TPP to the lawmakers on Capitol Hill. Froman stated that the signing in New Zealand comes at a time when “momentum for passage is growing” and reiterated his office’s commitment to smoothing out the many TPP concerns that have been voiced by the U.S. Congress.  The USTR stated:

“In the months ahead, in addition to the work that we are doing to ensure that members understand what’s in the agreement, understand the economic benefits on a state-by-state or district-by-district basis, we are going to be focusing congressional engagement in four key areas.”

The first concern, however, is the deal’s level of market exclusivity for biologic drugs, which are high-value medicines used to treat diseases like cancer and rheumatoid arthritis. While U.S. law offers 12 years of exclusivity for biologics before generics enter the market, the TPP offers between five and eight years.

Another point of contention has been the exemption of financial service providers from TPP rules barring the forced localization of data servers, a decision that came straight from the U.S. Treasury Department.  Treasury Secretary has testified in Congress that the US Treasury does not want the financial services provides covered by the TPP because of the concerns of US regulators.  Thus the US government itself is the one that exempted the financial service providers from the TPP.  This move has upset providers of the banking, insurance and electronic payment industries and their Congressional champions, who have argued that those industries are just as reliant on the free flow of data across borders as any other industry covered by the agreement.

Republicans, especially those from the South, have also taken issue with the TPP’s removal of tobacco control rules from the list of measures that can be challenged under the agreement’s investor-state dispute settlement mechanism.  The so-called tobacco carve out was meant as a gesture to public health advocates that did not want to see trade agreements used to undermine tobacco regulations. But this has faced criticism from experts who fear it could lead to a troubling trend of U.S. negotiators dropping items from trade deals if the public sentiment against them is strong enough.

At the February 3rd signing, none of the TPP trade ministers made it seem passage of the deal was imminent in their countries.  On February 3, 2016 John Brinkley of Forbes had this to say about the next steps after the TPP signing:

After Signing, TPP’s Future Is Hard To Gauge . . . .

You may ask what that means and what happens now. Probably, the agreement will fade from public view until the 12 signatories submit it to their legislatures for ratification. That could take years.

In order for the TPP to take effect, at least six of the 12 signatories, representing at least 85 percent of their combined gross domestic product, have to ratify it. They would have to include the United States, because the GDPs of the 11 other countries don’t add up to 85 percent of the total.

The Obama administration has some hope that Congress will vote on the TPP this spring. But that looks exceedingly unlikely. Senate Majority Leader Mitch McConnell, R-Ky., has told Obama that he doesn’t want to bring it up for a vote until after the November elections.

That can only mean a lame duck congressional session in November and/or December, because the next President might not submit it to Congress. All the candidates, Democratic and Republican, have said they oppose the TPP. But that doesn’t mean that whoever gets elected won’t change his or her mind after taking office. It’s happened before. . . .

The TPP is the largest free trade agreement ever negotiated. The 12 parties to it represent 40 percent of global GDP. Opposition to the deal has been intense in several of them.

In Australia, about 305,000 people have signed a petition demanding an independent assessment of the agreement before Parliament votes on it.

In Auckland, New Zealand, about 1,000 protestors Wednesday tried to block access to the Sky City Convention Centre, where the signing took place. There have also been sizeable protests in Japan, Chile and Malaysia.

A TPP without Malaysia or Vietnam or Chile or Peru would still be viable,especially considering the list of countries that hope join it after it takes effect – South Korea, Indonesia, Colombia, the Philippines and others.  But a TPP without the United States? Not possible. And the country where it faces the toughest sledding is the United States of America.

A Pew survey last June found that only 49 percent of Americans saw the agreement as “a good thing for our country.” Pew surveyed people in all 12 TPP countries and found more negativity in only one, Malaysia.

Given the enormity of the TPP, it has generated more controversy here than has any previous free trade agreement. Interest groups representing everything from gay rights to Tea Party hostility to government have taken up arms against it.  There is also a great deal of ambivalence, or downright hostility, to the deal in Congress. It’s not certain that there is enough support in the House and Senate to ratify it. . . .

Republicans, who historically have supported free trade agreements, will probably do what the president-elect wants them to do, if he or she is a Republican. At this point, that means voting no on the TPP.

That is no doubt what McConnell is hoping for. He doesn’t like the TPP’s treatment of the tobacco industry and he doesn’t like Obama. You’ll remember his famous pronouncement of 2009: he said his mission in life was to make sure Obama was a one-term president. Having failed at that, he’s determined not to give the president anything he wants during his last year in office. That could put off a ratification vote until 2017 or later.

Brinkley’s full article can be found at this link http://www.forbes.com/sites/johnbrinkley/2016/02/04/399/#110757c32c7d

The Presidential primary is also a major obstacle to the passage of the TPP. Mirroring statements by the Presidential candidates about the TPP, there is substantial divisiveness among lawmakers in Congress, even among party-line Republicans who have historically supported new trade agreements.  The combination of an unexpected level of Republican opposition and the traditional resistance from core Democrats because of union opposition suggests a substantial lag between Froman signing the TPP next month and getting the agreement approved on Capitol Hill.

But Presidential politics have substantially raised concerns that the US is entering a new protectionist era.   On January 28, 2016, the Wall Street Journal in an editorial entitled, ”The Leap of Trump As the GOP nominee or President, he would be a political ‘black swan.“ The Journal stated:

We’ve been critical of Mr. Trump on many grounds and our views have not changed. But we also respect the American public, and the brash New Yorker hasn’t stayed atop the GOP polls for six months because of his charm. Democracies sometimes elect poor leaders—see the last eight years—but their choices can’t be dismissed as mindless unless you want to give up on democracy itself. . . .

The problem is that Mr. Trump is an imperfect vessel for this populism, to say the least.

On politics and policy he is a leap into the known unknown. That so many voters seem willing to take this leap suggests how far confidence in American political leaders has fallen.

We can debate another day how the U.S. got here, but with the voting nigh it’s important to address what a Trump nomination could mean for the GOP and the country. . . .

All of which means that Mr. Trump has the widest electoral variability as a candidate. He could win, but he also could lose 60% to 40%, taking the GOP’s Senate majority down and threatening House control. A Clinton Presidency with Speaker Nancy Pelosi would usher in an era of antigrowth policies worse than even 2009-2010. This is the killer black swan.

And how would Mr. Trump govern as President? Flip a coin. . . .

But history teaches that Presidents try to do what they say they will during a campaign, and Mr. Trump is threatening a trade war with China, Mexico and Japan, among others.

He sometimes says he merely wants to start a negotiation with China that will end happily when it bows to his wishes. China may have other ideas. A bad sign is that Mr. Trump has hired as his campaign policy adviser Stephen Miller, who worked for Jeff Sessions (R., Ala.), the most antitrade, anti-immigration Senator. . . .

Republicans should look closely before they leap.

Prior to this Article on January 20, 2016, John Brinkley of Forbes wrote an article entitled, “Trump On Trade: Does He Really Believe This Stuff? Oh, Donald, what are we going to do with you?” The Article states:

During last week’s GOP presidential candidates’ debate, the front-runner Donald Trump said again that the way for the United States to end China’s treachery with regard to trade was to slap a significant tariff on it.

Earlier, he told the New York Times that the tariff rate should be 45 percent.

When Fox Business anchor Neil Cavuto asked him about this during the debate, he said, “That’s wrong. They were wrong. It’s the New York Times, they’re always wrong.

Then the Times produced a recording of Trump saying exactly what he said he didn’t say. Busted! . . .

“They (the Chinese) can’t believe how stupid the American leadership is,” he said during the debate. “I’m totally open to a tariff. If they don’t treat us fairly —hey, their whole trade thing is tariff. You can’t deal with China without tariff. They do it to us. We don’t do it. It’s not fair trade.”

He also said, “I know so much about trade with China.”

For the record, WTO members are required to give each other Most Favored Nation status. That means that member countries have to charge the same tariff rate on a particular product on all imports from other members. If China levies a 2 percent tariff on cars from Japan, it has to give the United States and all other WTO members the same treatment. China does not impose anything close to a blanket 45 percent tariff on all U.S. imports.

If the U.S. government were to do as Trump suggests, it would violate a fundamental WTO rule, lead to retaliatory tariffs by China, close the Chinese market to American exporters and start a trade war. That’ll teach ‘em!

If Trump knew as much about trade with China as he claims, he’d know that tariffs aren’t the issue. Of greater concern is China’s proclivity for breaking the rules, such as by dumping products at below cost in the U.S. market.

In addition to dumping, Brinkley went on to complain about various China problems, including counterfeiting and illegal transshipment and then went on to state:

Does Trump know about any of these things? If so, he’s never mentioned it.

Trump made another laughable trade-related vow in a speech Monday at Liberty University. He said that, as president, he would force Apple to make all its products in the U.S.

“We’re going to get Apple (NASDAQ:AAPL) to build their damn computers and things in this country instead of in other countries,” he said.

He didn’t say how he would do this, but it doesn’t matter, because he couldn’t. It isn’t possible. “There’s no legal way he could do that,” said Chris Cloutier, a trade lawyer with Schagrin Associates in Washington.

I know, I know, refuting Trump’s claims about trade (or about pretty much anything) is like shooting fish in a barrel. So why bother?

(A) Because he claims to know a lot about trade, (B) because his followers take everything he says as fact and (C) because political pundits and prognosticators have begun saying the Trump train has gathered so much speed it may be unstoppable. . . .

Stranger things than a Donald Trump presidency have happened. But I don’t know what they are.

For the full article, see http://www.forbes.com/sites/johnbrinkley/2016/01/20/trump-on-trade-does-he-believe-what-he-says/#4508a7055247.

In commenting on this Article to Mr. Brinkley, I made the point that all the arguments he throws at China, in fact, are the reason for Trump’s argument.   Brinkley never mentions that US antidumping cases against China are based on fake numbers and that the game the Commerce Department has created, in fact, has created another game—illegal transshipment. To be clear, Commerce uses fake numbers because dumping is defined as selling at the United States below prices in the home market or below the fully allocated cost of production. Commerce, however, refuses to look at actual prices and costs in China and has refused to do so for close to 40 years.

Commerce instead calculates a cost of production for Chinese companies using consumption factors in China valued by surrogate values from import statistics in 5 to 10 different countries and those countries can change from a preliminary to a final determination and from initial investigation to review after review investigation. These surrogate values have no relationship to the actual prices and costs in China, and, therefore, are fake numbers.  No rational person when he sees dumping rates go from 0 to 57 to over 400% using different surrogate values from different countries could truly believe that the nonmarket economy methodology actually reflects the cost of production in China.  See my last post and the Court of International Trade’s recent decision in the Baoding Glycine case.

On the Democratic side of the Presidential primary, however, there was a small ray of hope. On February 5, 2016, in the Democratic debate, Hillary Clinton stated that she could support the TPP if the deal is changed. Senator Bernie Sanders, however, remains adamantly opposed to the deal.

Hilary Clinton stated: that

“I waited until it had actually been negotiated because I did want to give the benefit of the doubt to the administration. Once I saw what the outcome was, I opposed it.”

But Clinton also made clear that her opposition is not set in stone. She indicated that she might support the TPP if it were to undergo certain amendments or alterations, “There are changes that I believe would make a real difference if they could be achieved, but I do not currently support it as it is written.”

Bernie Sanders, however expressed his total contempt for US trade policy, stating:

“We heard all of the people tell us how many great jobs would be created. I didn’t believe that for a second because I understood what the function of NAFTA, CAFTA, PNTR with China and the TPP is. It’s to say to American workers, ‘Hey, you are now competing against people in Vietnam who make 56 cents an hour minimum wage.’”

Meanwhile, Canada was having the same problem with the Canadian press reporting on January 25, 2016, that International Trade Minister Chrystia Freeland stated that Canada would sign on to the TPP deal at a ceremony in New Zealand on Feb. 4, but ratification is a matter for Parliament. Apparently, the Liberals in Parliament are still on the fence as to whether or not they support it.  In an open letter posted on the Department’s website, the Trade minister stated:

“Just as it is too soon to endorse the TPP, it is also too soon to close the door.  Signing does not equal ratifying…. Signing is simply a technical step in the process, allowing the TPP text to be tabled in Parliament for consideration and debate before any final decision is made.”

Canada requires a majority vote in the House of Commons to seal the deal. Freeland further stated:

“It is clear that many feel the TPP presents significant opportunities, while others have concerns. Many Canadians still have not made up their minds and many more still have questions.”

Each country, including the United States and Canada, have up to two years to ratify the TPP. Although Conservative Prime Minister Stephen Harper said he was in favor the deal, now a new government is in power in Canada.  Freeland further stated, “We are strongly in favor of free trade. Having said that, we’re not the government that negotiated the TPP.”

Meanwhile on January 14, 2015, in the attached submission, RANCHERS SUBMISSION ITC TPP, R-CALF USA, the largest trade organization exclusively representing cattle producers within the multi-segmented beef supply chain, in a submission to the ITC announced their opposition to the TPP because it will harm U.S. cattle and sheep industries.

On February 2, 2015, the American Apparel & Footwear Association announced their support of the TPP, but criticized the length of time it will take for the deal to eliminate certain tariff lines. AAFA stated:

“With the TPP covering 40 percent of the world’s GDP and reaching approximately 800 million consumers, the trade pact represents significant opportunities for the clothing, shoe, and accessories industry. For this reason, and after consultation with our members, we are expressing our strong support for the TPP.”

But the AAFA went on to express some concerns that the Agreement was not ambitious enough, stating:

“While there are some immediate opportunities for apparel, most apparel articles are constrained by extremely restrictive rules of origin and long duty phase-outs, meaning benefits will take longer to realize.”

Among the products receiving immediate tariff relief under the TPP are footwear and travel goods, such as handbags, backpacks, and laptop cases, but AAFA stated that “a more accelerated and flexible approach” for apparel and legwear would have created more immediate benefits for producers of those items.

CHINA IS NOT HAPPY WITH THE TPP RHETORIC

While ratification is a problem in the United States Congress, China is not happy with the US government arguments in favor of the TPP that it allows the U.S. to “write the rules of trade” in the Asia-Pacific region offsetting Beijing’s policies.  On February 5, 2015, Chinese Foreign Ministry Spokesman Lu Kang, speaking at his daily press briefing, in response to a question about the TPP’s role as a China containment device, sharply responded:

“We never believe that world trade rules can be made by any specific country alone. We always maintain that the World Trade Organization play a leading role in making global trade rules, and hope that major trading powers and economies would stay committed to upholding the role of the WTO.”

“There is no need to politicize the economic issue. Don’t make people feel that the U.S. is pursuing some political ends throughout the process of promoting the TPP. Remarks as such will mislead the public and do harm to state-to-state relations.”

Most recently, President Barack Obama himself declared in his State of the Union address that with the agreement in place, “China does not set the rules in that region; we do.”

The ironic point is that the Doha Round WTO negotiations collapsed in large part because of the intransigence of the developing countries, led by India, and yes China. Killing the WTO round when there is a TPP alternative was not a good strategy for the developing countries, and yet that is just what they did.  Many scholars have argued that the biggest winners in trade deals are developing countries, and yet India in particular is the country with China’s help that stopped the Doha Round in its tracks.

TPP TEXT AND TRADE ADVISORY REPORTS

As stated in prior blog posts, on November 5, 2015, the United States Trade Representative Office (“USTR”) released the text of the Trans Pacific Partnership Agreement (“TPP”).  This is an enormous trade agreement covering 12 countries, including the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, and covers 40% of the World’s economy. To read more about the TPP and the political negotiations behind the Agreement see past blog posts on www.uschinatradewar.com.

The attached text of the Agreement is over 6,000 pages,  Chapters 1 – 2 – Bates 1 – 4115 Annex 1 – 4 – Bates A-1-1074 Chapters 3 – 30 – Bates 4116 – 5135 Press Release – Joint Declaration Fact Sheet.

On November 5th, the Treasury Department released the text of the Currency Manipulation side deal, Press Release – 12 Nation Statement on Joint Declaration Press Release – Joint Declaration Fact Sheet TPP_Currency_November 2015.

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas. All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP and many of the reports can be found here. ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-5-Distribution-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-6-Energy-and-Energy-Services ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-12-Steel ITAC-11-Small-and-Minority-Business ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-15-Intellectual-Property ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE. Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

On February 11, 2016, the new trade and customs enforcement bill passed the Senate and is on its way to the President for signature. In an announcement, House Ways and Means Chairman Kevin Brady (R-TX) praised the Senate for passing the Trade Facilitation and Trade Enforcement Act of 2015, stating:

“We are now sending to the President a bipartisan bill to establish a 21st century customs and border protection system that facilitates trade and strengthens enforcement. This pro-growth bill will make it easier for our workers to compete in global marketplaces and level the playing field.

“By using a Conference Committee to reconcile our differences, this bill also marks a return to regular order. I congratulate the Senate, especially my partners Chairman Hatch and Ranking Member Wyden, and I urge President Obama to sign this bill into law as soon as
possible.”

On December 9, 2015, in an announcement, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.  A copy of the bill, the conference report and summary of the bill are attached, Trade-and-Environment-Policy-Advisory-Committee.pdf Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

As mentioned in the prior blog postlast newsletter, interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status in US antidumping and countervailing duty cases. On December 11, 2016, pursuant to the China – World Trade Organization (“WTO”) Accession Agreement, the 15 year provision, expires.

More specifically, with regards to the application of the US antidumping non-market methodology to the Chinese imports, the United States faces a looming deadline under the WTO Agreement. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  1. Price Comparability in Determining Subsidies and Dumping . . .

(a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules: . . .

(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product. . . .

(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to us a nonmarket economy methodology “shall expire 15 years after the date of accession”. China acceded to the WTO on December 11, 2001 so Section 15(d) should kick in on December 11, 2016.

The question that is now being debated is whether Section 15(d) automatically ends the possibility of using a non-market economy methodology to China or if it can still be applied if petitioners can show that market conditions do not prevail for producers of the product under investigation.

If the Commerce Department is the decision maker, nothing would happen on December 11, 2016, but as USTR Froman states below, the US government has not yet made a determination.

As also mentioned in previous blog posts, the Europeans appear to be leaning to giving China market economy status in December 2016, but the US government is opposed.

On January 21, 2016, the US China Business Council (“USCBC”), which represents many companies doing business in China, such as Boeing, called on the United States to grant China market economy status under the antidumping law as required by the WTO. In its 2016 Board of Directors’ Statement of Priorities in the U.S.-China Commercial Relationship, the USCBC stated that the U.S. should take this step as a way of building “confidence in the bilateral relationship” with China, and solidify the foundation for “mutually beneficial commercial relations.” The USCBC is the first major U.S. business group to weigh in on the issue.

In a conference call with reporters on Jan. 19, USCBC President John Frisbie stated that while the issue is “not on the radar” for a lot of companies because it deals with the minutiae of trade remedy law, there is the potential for a “big problem” in U.S.-China relations if Washington does not grant market economy status to Beijing.  He argued that the U.S. is obligated to automatically grant market economy to China under the terms of the WTO accession protocol and that “attempts to find legal wiggle room in this are pretty thinly supported at best.”

Although the Commerce Department’s position of opposing market economy for China is clear, the USTR has stated that it still has not made a decision on the matter. In Jan. 13 comments at the Wilson Center, USTR Michael Froman said the U.S. government has “not made any decision” with regard to whether the United States should grant market economy status to China.  Froman also denied reports that the U.S. has pushed the European Commission not to grant China market economy status. “We are not encouraging the EU to take any particular position.”

On January 29th, however, it was reported that the European Parliament’s International Trade Committee, known as INTA, stated that economic leaders in Brussels should not recognize China as a market economy under the World Trade Organization’s rules, as Beijing has not taken the necessary steps to curtail the government’s influence on commercial activities.  INTA stated:

“It should be clear that EU should speak with a single voice stating that China is not fulfilling, for the time being, the EU five technical criteria for defining a market economy, and the importance to define a common strategy to reinvigorate and apply our anti-dumping procedures on various products suffering from the strong trade distortion caused by Chinese exporting companies.”

On January 29, 2016, European Union Trade Commissioner Cecilia Malmstrom stated that the Commission plans to conduct an impact assessment on granting China market economy status (MES) in antidumping cases that will weigh not only the legal and economic implications, but any potential geopolitical fallout as well.

In a Jan. 28 speech in Brussels to the European Chamber Of Commerce In China (ECCC), and in a Jan. 27 letter to members of the European Parliament, Malmstrom left no doubt that a major part of this analysis will involve an assessment of how failing to grant MES to China might impact relations with Beijing stating, “The Commission is now examining the implications of this [expiration], including the economic impact of any change to our anti-dumping rules,”  Malmstrom further stated in her ECCC prepared remarks. “But let me be clear that the overall economic importance of our close relationship with China is also an important part of our analysis.”

In response to a December letter from two members of the center-right European People’s Party, Malmstrom stated:

“I take good note of the concerns you express in your letter and I appreciate the points you raise, given in particular that this is a very complex issue and one which demands that we take full account of all the legal, economic and political ramifications. The Commission is carefully analyzing the legal implications of the expiry of certain provisions of China’s WTO accession protocol and carrying out an impact assessment.”

Several sources said Malmstrom is personally in favor of granting China MES, and one insisted this view is shared by the commission’s director-general for trade, Jean-Luc Demarty.

On February 5, 2016, it was reported that the European Commission is considering at least four changes to the way it enforces its trade remedy law that it believes would blunt the impact of extending market economy status to China in antidumping cases and thereby make that change more politically palatable to affected domestic industries.

The first of these measures is the so-called “cost adjustment” methodology, which the EU has previously used in AD cases to offset what it considers to be the artificially low price of Russian gas. But the cost adjustment methodology has been challenged at the WTO by Russia and Argentina, and its legal soundness is therefore in question.

Second, sources say the commission has suggested it could eliminate the EU’s “lesser duty rule,” which generally imposes AD duties only in the amount necessary to offset the injury to the domestic industry.

A third mitigating measure the Commission has floated is “strengthening” the antisubsidy enforcement, most likely by devoting greater resources to investigating the web of subsidy programs provided at different levels of government in China.

Fourth, it has proposed “grandfathering” in the dozens of existing AD orders against Chinese imports that are already on the books in the EU.

EU Trade Commissioner Cecilia Malmstrom this week said that it would be “politically unrealistic” to simply grant MES to China in the context of AD cases without taking some form of mitigating steps. She spoke on Feb. 1 at the European Parliament’s plenary session in Strasbourg, France.

Both Lange and Malmstrom said they would be discussing the issue with Beijing, and the commissioner underscored that not granting China MES at all “might have an impact on our trade and investment relations” with China, which could have a cost for EU business. “These effects are very difficult, if not impossible, to estimate in advance,” she warned.

But it was also reported on February 5th, that a European Commission analysis projects that granting market economy status (MES) to China in antidumping (AD) cases without mitigating measures could directly cost as much as 188,300 jobs in affected European Union industries.

On February 10, 2016, the European Commission issued a notice requesting public comment by April 20 on whether the Commission should make China a market economy pursuant to the WTO Agreement. In the Notice the European Commission stated:

“This public consultation is part of an in-depth impact assessment that will include a careful study of the economic effects of any potential change broken down by member states, with a particular focus on jobs”

While the Commerce Department may make its decision within the context of a specific case, an EU policy shift would require a change to the law. The European Commission was very clear about the impact of the legal change in the notice:

“Should an amendment of the anti-dumping legislation be deemed necessary, this may result in lower anti-dumping duties which may not offset the negative effects of dumping and may further increase dumped imports causing further injury to the EU industries concerned.  This in turn may result in putting a number of jobs in the EU at risk.”

CRISIS IN US TRADE POLICY WITH ALUMINUM FACTORIES CLOSING, NEW RAW ALUMINUM TRADE CASES COMING, AND THE FAILURE OF TAA FOR COMPANIES TO HELP LARGER COMPANIES

As indicated in my last blog post, in light of the impact of the aluminum extrusions case on the US market, the import problem has now moved upstream. The next round of antidumping and countervailing duty cases against China looks like it will be on raw aluminum products.   But the aluminum story will probably parallel the steel story over the last 40 years.

The US Aluminum Industry will probably bring many antidumping and countervailing duty cases against China aimed at Chinese aluminum imports based on nonmarket economy methodology with fake numbers resulting in high antidumping rates shutting out the Chinese product.  But the Chinese imports will be simply replaced by imports from other countries, such as Korea, where the Commerce Department will use normal market economy antidumping methodology resulting in low, if not 0%, antidumping rates against those countries.  So in the long run antidumping and countervailing duty cases cannot save the US manufacturing companies, only slow the decline.

On February 6, 2016, in an e-mail to his constituents, however, Congressman Dave Reichert, Chairman of the Subcommittee on Trade, House Ways and Means, illustrated the real human costs of the trade war. In the attached e-mail he mentioned the impact of aluminum imports on aluminum manufacturing companies in Washington State and the loss of jobs in his district, stating:

Support for Local Workers

In November of last year, the aluminum manufacturing company, Alcoa, announced its plans to idle its smelting operations in Ferndale and Malaga, Washington, resulting in the loss of 880 local jobs. Many of these employees had worked at the plant for years and depended on that employment to provide for their families.

I am pleased to say that the U.S. Department of Labor (DOL) approved assistance for these workers in the form of Trade Adjustment Assistance (TAA) after several members of the Washington Delegation and I requested support for them.

Now these workers will have the opportunity to receive job training, assistance in finding new employment, and aid as they reenter the workforce.

Retraining under the TAA for Workers program may be a nice idea for the aluminum workers from these factories, but retraining means nothing if the jobs do not exist. That is why the labor unions are so adamantly opposed to Trade Agreements, such as the Trans Pacific Partnership, and at least on the face opposed to TAA for Workers because the retraining does not result in employment at comparable wages. Thus when it comes to the Trans Pacific Partnership (“TPP”), the labor unions have been very clear that they want to “kill the rotten” and that is why so many Democratic Congressmen and Senators oppose the TPP and other Trade Agreements.

But there is now a much bigger problem created by this trade crisis, which could result in the United States moving into a much more protectionist era with high tariffs on imports from many different countries, including China and Mexico. The loss of jobs by manufacturing industries and for the lower middle class, in truth, is a major reason for the rise of Donald Trump and Senator Bernie Saunders in the Presidential primary.  The outsiders are the ones surging in the Presidential primary in New Hampshire because many of their supporters are blue collar workers in the lower middle class, who strongly believe that the US Government has forgotten about them and simply does not care about them.  If Donald Trump or Bernie Saunders becomes President, based on their statements in the primaries, they would reject the Trans Pacific Partnership and could literally tear up past trade agreements, such as NAFTA.  US Trade Policy is facing a crisis and the possible move into a much more protectionist era created by a major failure in Trade Policy.

On February 11, Dan Henniger for the Wall Street Journal in an article entitled “Donald Trump Among the Canaries” compared Trump to the canary in the Coal Mine that warns miners if there are toxic gases in the mine stating:

Just as dying canaries warned coal workers that the shaft was filling with toxic gases, New Hampshire’s voters have told the political status quo, to coin a phrase, you are killing us.

As Henniger goes on to state, however, the core of Trump’s argument is his attack on Trade:

At the core of the Trump campaign is one policy idea: imposing a 45% tariff on goods imported from China. In his shouted, red-faced victory speech Tuesday, he extended the trade offensive to Japan and Mexico.

Some detail: Combining the value of goods we sell to them and they to us, China, Mexico and Japan are the U.S’s Nos. 1, 3 and 4 trading partners (Canada is No. 2). They are 35% of the U.S.’s trade activity with the world. The total annual value of what U.S. producers—and of course the workers they employ—sell to those three countries is $415 billion. . . .

Mr. Trump says the threat alone of a tariff will cause China to cave. Someone should ask: What happens if they don’t cave? Incidentally, unlike Mexico, China has between 200 and 300 nuclear warheads and 2.4 million active-duty forces. Irrelevant?

In contrast to Japan and Taiwan, which are dependent upon the United States for their national security, what these nuclear warheads mean is that if the United States throws a trade rock at China, China will throw a trade rock back. That is just what is happening in the US China Trade War today.

That failure in US Trade Policy, however, is the US failure of Congress to support the only trade program that works and saves import injured manufacturing companies—the Trade Adjustment Assistance (TAA) for Firms/Companies program. As stated in prior blog posts, because of ideological purity among many Republican conservatives in Congress and the Senate, the TAA for Companies program has been cut to $12.5 million nationwide.  This cut is despite the fact that since 1984 here in the Northwest, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80% of the companies that entered the program.

To understand the transformative power of TAA for Companies, see the TAA video from Mid-Atlantic TAAC at http://mataac.org/howitworks/, which describes in detail how four import injured companies used the program to change and turn their company around and make it profitable.  One of the companies was using steel as an input, and was getting smashed by Chinese imports.  After getting into the program, not only did the company become prosperous and profitable, it is now exporting products to China.

This cut back to $12. 5 million nationwide makes it impossible for the TAA for Companies program to work with larger US companies, which have been injured by imports. The TAA for Companies program simply does not have the resources to do the job, and hard right conservatives see any Government support as anathema to their ideology of no interference in the marketplace.  Their position is no government help despite the fact that government actions, the trade agreements, have caused the problem.

Thus a large Alcoa Aluminum factory is not a company that can take advantage of the program. Alcoa would not submit themselves to a petition process for a mere $75,000.   TAA for Companies simply cannot do much when a factory closes.  Working with a factory the size of Alcoa’s, however, would be working with an entity that vastly exceeds anything in the $12.5 million TAA for Companies program.

TAA for Companies is hamstrung by neglect with a maximum technical assistance per firm level that has not changed in at least 30 years. This forces the TAA Centers in the United States to focus on small and medium size enterprises (under $50M in sales) while the big job creators are the larger Medium Size Enterprise, which account for most of the sector’s well-known job creation performance.

In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade. The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition.

The program is amazingly effective.   Between 2010 and 2014, 896 companies with more than 90,000 employees in the program increased average sales by 40% and employment by 20%, achieving impressive double-digit productivity gains.   Essentially, all of the 15,090 jobs lost to imports before company participation in the TAAF program were regained.

To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million. The TAA for Worker (TAAW) Program spends roughly $53,000 per year to retrain a single employee AFTER a job has been lost due to trade.   The mission for each program is very different – TAAF’s primary mission is to save the company AND the jobs, while TAAW’s mission is to retrain workers after the jobs have already been lost.   Now you should ask which is the smarter investment?

Moreover, when the company is saved, it and its workers pay Federal and State taxes so the program essentially pays for itself. The more stunning fact – if the TAAF program saves just 300 jobs per year on a national basis for which TAA for Worker resources of $53,000 aren’t required for retraining efforts, the program easily pays for itself up to its $16 million authorization level.

Global trade has evolved over the past 40 years and perhaps it’s time for trade policy to adapt to those changes.   The original mission for TAA was more concerned with the impact of increased imports on US workers, and the vast majority of funds have been dedicated to the TAA for Workers program.   The landscape has changed as more than 5 million manufacturing jobs have been lost in the last 40 years, and the mission for TAA must now shift to maintaining a robust core of manufacturing companies and jobs. Without a vibrant core of manufacturing firms, the US won’t have the capacity or capabilities to achieve growth through export expansion no matter how many free trade agreements are passed, and all the training in the world is not going to bring back those manufacturing jobs.

TRADE

ALUMINUM EXTRUSIONS – THE COURT OF INTERNATIONAL TRADE STRIKES BACK

On November 20, 2015, the Commerce Department issued its final determination in the 2013-2014 antidumping review investigation of aluminum extrusions from China.  Based on surrogate values, Commerce issued antidumping rates of 86.01%, but for companies that did not cooperate, Commerce issued antidumping rates of only 33.28%.

In addition, in the Countervailing Final Determination for 2013, Commerce issued a countervailing duty rate ranging from 3.59% to 222.82% with most companies receiving a rate of 61.36% rate.  See CVD Aluminum Extrusions 2013 Final Review Notice.3424528-01 CVD Aluminum Extrusions 2013 Decision Memo.3424530-01 CVD FINAL DECISION MEMO

As mentioned in prior blog posts, the Commerce Department has been expanding the scope of the antidumping and countervailing duty orders to include multiple products, such as curtain walls, the sides of buildings, auto parts, refrigerator handles, geodesic domes and multiple other products. In two recent decisions, the Court of International Trade has struck back.

But on February 10th in the Court of International Trade case, Shenyang Yuanda Aluminum Industry Engineering Co. Ltd., Jango Curtain Wall Americas Co. and Permasteelisa North America Corp. v. United States case, SHENYANG CURTAIN WALL CASEJudge Pogue reversed and remanded the Commerce Department/s determination that curtain wall units are covered the aluminum extrusions from China antidumping order.  In that decision, Senior Judge Pogue stated:

Because Commerce’s scope ruling redefines key terms contrary to the plain language of the AD&CVD Orders, it is not in accordance with law; because it does not reasonably consider the characteristics of Plaintiffs’ merchandise and the evidence that weighs against the agency’s determination, it is unsupported by substantial evidence; because it offers insufficient reasons for treating similar products differently, it is arbitrary and capricious. Accordingly, the court remands to Commerce for further consideration in accordance with this opinion.

Judge Pogue then describes the Curtain Wall Units in question:

Because “complete curtain wall units form part of a larger curtain wall system specifically designed for a building,” unassembled curtain wall units “are sold and delivered to the job site in segments pursuant to the schedule stipulated in the contract to supply the larger system. If that system is “for a multi-story skyscraper,” then it may require shipments of curtain wall units and installation hardware “over a period of months,” with “[e]ach entry dovetail[ing] with the contractor’s construction schedule so that complete curtain wall units can be immediately installed onto the building when the container arrives at the job site.”

Judge Pogue pointed to subassemblies stating:

While Commerce “enjoys substantial freedom to interpret and clarify its antidumping duty orders, it can neither change them, nor interpret them in a way contrary to their terms.” Here, Commerce has changed and expanded the terms of the AD&CVD Orders by redefining “subassembly” and ignoring the scope language that limits products covered.

Accordingly, Commerce’s Redetermination is not in accordance with law. . . .

In contrast, Commerce does not consider the ample evidence on the administrative record defining and explaining the product at issue here. Commerce does not consider whether a single-entry, unitized curtain wall is a real product, outside the realm of its own ungainly semantic gymnastics, that is imported with any regularity into the United States.

On February 1, 2016, in Whirlpool Corp. v. United States, WHIRLPOOL ALUMINUM EXTRUSIONS SCOPE, the CIT ruled that certain refrigerator door handles should not be included in the Aluminum Extrusions case, while also ruling that other handles should have been included in the case.

THE ONGOING STEEL CASES

On February 9, 2016, the US Steel Companies urged the Obama Administration to use all channels to obtain details from China regarding its promise to cut steel production capacity.  Thomas Gibson, the president and CEO of the American Iron and Steel Institute (AISI), stated in a press conference made clear that there has been no official information on China’s promised capacity cuts, just Chinese press reports stating that the State Council has announced it will begin this year to cut 100-150 million tons of overcapacity over five years.

Many pundits, however, are questioning the Chinese government’s economic data making it hard to discern what’s really happening in the economy. China has a glut of old-line factories that make products like steel, glass and cement. That industrial overcapacity stems from years of debt financed investment in industries that now show little sign that they can repay those loans.

According to Chinese statistics, China produced 804 million tons of steel last year, even as demand faltered. Over all, China’s steel-making capacity was set to reach 1.17 billion tons last year.

The Chinese government’s State Council, or cabinet recently announced that it would close 100 million to 150 million tons of steel-making capacity. That would mean cutting capacity by an amount similar to the total annual steel output of Japan, the world’s No. 2 steel maker.

But it is a balancing act for the Chinese authorities. Li Xinchuang, the head of the China Metallurgical Industry Planning and Research Institute, recently told the official Xinhua news agency that the planned steel mill closings could cost 400,000 jobs. “Large-scale redundancies in the steel sector could threaten social stability,” he warned.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE POLICY, TRADE, PRODUCTS LIABILITY, 337/IP ANTITRUST AND SECURITIES

Shanghai Bund at Night China Flags Cars with Trademarks obscuredTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 13, 2016

Dear Friends,

This January newsletter will cover trade policy, trade, general litigation, 337/patents, antitrust and securities .

If anyone has any questions or wants additional information, please feel free to contact me.

Best regards,

Bill Perry

TRADE POLICY

TPP RUNS INTO HEADWINDS

As predicted in past blog posts, on December 28, 2015, the Wall Street Journal reported that the US Election Debate was complicating the passage of the Trans Pacific Partnership (“TPP”) in Congress. The Wall Street Journal specifically stated:

The trade agreement is expected to lead to some job losses and boost competition for some companies—including labor-intensive manufacturers and Detroit auto makers.

Still, many economists say it would generate overall gains to U.S. gross domestic product and increase incomes for many Americans in ways that improve the overall economy.

The TPP’s potential to create vocal middle-class losers makes the agreement harder to pass in an election year, since the winners, even if more numerous, are likely to be less motivated.

GOP lawmakers and officials, backed by big businesses, have more reliably supported trade agreements than Democrats, who tend to be closer to the labor movement. Among the broad electorate, blue-collar workers of both parties are skeptical of freer trade.

Recently Republican voters have emerged as bigger opponents, a shift not lost on the tea-party movement and Mr. Trump. In a recent Wall Street Journal/NBC News poll, 56% of Democrats said free trade is good for America, compared with 48% of Republicans.

Trade experts say Mr. Trump’s policies would make him, if elected, the biggest fan of tariffs since the late 19th century presidency of William McKinley. . . .

For Mr. Cruz or another GOP president, White House policy on trade would likely depend on whether the party is controlled by the pro-business wing that has dominated the party since World War II or shifts toward protectionist ideas espoused by Mr. Trump.

Meanwhile on December 10, 2015, Senate Majority Leader Mitch McConnell (R-Ky.) announced that there would be no vote on the TPP until after the election.  McConnell indicated that he was undecided on the vote, but he was sure that the TPP would be defeated if it were sent to Capitol Hill next spring or summer.  McConnell further stated:

“It certainly shouldn’t come before the election. I don’t think so, and I have some serious problems with what I think it is. But I think the President would be making a big mistake to try to have that voted on during the election. There’s significant pushback all over the place.

Yeah, I think it would be a big mistake to send it up before the election.

The next president, whoever that is, will have the authority to either revisit this one, if it doesn’t pass, or finish the European deal or other deals, and give Congress a chance to weigh in on it,”

McConnell who opposes the tobacco provisions in the TPP, has joined with Sen. Orrin G. Hatch (R-Utah), the Senate Finance Committee chairman, who was also a key supporter of the fast-track legislation, but has raised particular concerns about provisions related to pharmaceutical companies. Utah has a growing pharmaceutical industry.

McConnell’s and Hatch’s concerns have reduced the enthusiasm among the Republicans as the debate over trade policies on the 2016 campaign trail has become entangled in Presidential politics. Several top contenders for the GOP presidential nomination, including Donald Trump and Sen. Ted Cruz (Tex.), have denounced the pact, and all of the Democratic candidates, including Hillary Clinton and Bernie Saunders, oppose it.

On January 7, 2016, however, the White House pushed for a TPP vote sooner rather than later, arguing for a quick vote warning that a delay of the vote to the lame-duck session of Congress or into the next administration would be a significant lost opportunity. White House Press Secretary Josh Earnest said in a press briefing that Congress should act quickly to ratify the plan amid recent turbulence in the China stock market, which some media reports have said is in its worst shape since the global financial crisis.  He further stated that the best way for the U.S. economy to weather volatility in international markets is through the TPP:

“I’m not suggesting that Congress should fast-forward through that process and vote today.  But I am suggesting that we should move expeditiously through this process and that Congress should not wait until the end of the year or even next year to approve the Trans-Pacific Partnership agreement.”

One point in favor of TPP is that on January 4, 2016 the National Association of Manufacturers announced that they were in support of the TPP. NAM President and CEO Jay Timmons stated:

“After careful analysis, the NAM will support the TPP as it will open markets and put manufacturers in a much stronger position to compete in an important and growing region of the world.

We recognize this agreement is not perfect, and there are some principled objections to the TPP, so the NAM will continue to work closely with its members to address remaining barriers.

Importantly, we encourage the administration to work closely with the industry, Congressional leaders and the other TPP governments to address these key issues.”

Subsequently, a coalition of top U.S. CEOs from the Business Roundtable gave the TPP a firm endorsement, but urged the Obama administration to quickly alter portions of the deal that are not up to par. As the Business Round Table International Engagement Committee stated:

“We want Congress to approve the TPP this year. To that end, we are urging the administration to quickly address the remaining issues that impact certain business sectors in order to ensure the broadest possible benefits to all sectors of U.S. business, which will enable the broadest support possible for the TPP.”

But in addition to tobacco and pharmaceutical problems in the TPP, another issue is banking and data flows. On January 12, 2016, in a letter to three Cabinet Secretaries, a bipartisan group of 63 Congressional representatives urged the Obama administration officials to correct the Trans-Pacific Partnership’s exclusion of financial services from the agreement’s e-commerce chapter, warning that the current text of the deal leaves banks exposed to risky data storage rules. The letter stated:

“Omission of these disciplines in the TPP is a missed opportunity to ensure that all U.S. companies benefit from strong rules prohibiting localization requirements. We note that such disciplines can be included in trade agreements while maintaining the ability of U.S. regulators to protect consumers through prudential regulation.”

The TPP’s e-commerce chapter contains a general ban on the localization of data through the establishment of expensive in-country servers. But the lawmakers argued that the banking, insurance and securities industries are not different from other sectors that depend on the unimpeded flow of data to keep their businesses running in the World marketplace.  The letter further states:

“These types of requirements not only impair the competitiveness of U.S. companies but also reduce overall data security and create inefficiencies. We request that your agencies use all available measures to address the existing gaps in the TPP. In addition, going forward, we request that there be a single approach that prohibits localization requirements in future trade and investment agreements.”

Recently, John Brinkley writing for Forbes rebutted many of the Arguments against the TPP.  See http://www.forbes.com/sites/johnbrinkley/2016/01/13/for-trans-pacific-partnership-opponents-noting-short-of-perfect-will-suffice/#29e99cb6563d433c578b563d

TPP TEXT AND TRADE ADVISORY REPORTS

On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text of the Trans Pacific Partnership Agreement (“TPP”).  This is an enormous trade agreement covering 12 countries, including the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, and covers 40% of the World’s economy. To read more about the TPP and the political negotiations behind the Agreement see past blog posts.

The attached text of the Agreement is over 6,000 pages, Chapters 3 – 30 – Bates 4116 – 5135 Chapters 1 – 2 – Bates 1 – 4115 Annex 1 – 4 – Bates A-1-1074.

On November 5th, the Treasury Department released the attached text of the Currency Manipulation side deal, Press Release – 12 Nation Statement on Joint Declaration Press Release – Joint Declaration Fact Sheet TPP_Currency_November 2015,

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas. All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP and many of the reports are attached here, ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy ITAC-15-Intellectual-Property ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-12-Steel ITAC-11-Small-and-Minority-Business ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-6-Energy-and-Energy-Services ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services Intergovernmental-Policy-Advisory-Committee-on-Trade ATAC-Sweeteners-and-Sweetener-Products ATAC-Grains-Feed-Oilseed-and-Planting-Seeds ATAC-Processed-Foods ATAC-Fruits-and-Vegetables ATAC-Animals-and-Animal-Products Agricultural-Policy-Advisory-Committee. Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

On December 9, 2015, in the attached announcement, Trade-and-Environment-Policy-Advisory-Committee.pdf, Senate Finance Chairman Orrin Hatch, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.

A copy of the bill, the conference report and summary of the bill are attached, Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE. The bill has not yet passed the Senate.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

Interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status. On December 11, 2016, pursuant to the WTO Agreement, the 15 year provision, expires.

More specifically, the United States faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  1. Price Comparability in Determining Subsidies and Dumping . . .

(a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules: . . .

(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product. . . .

(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to us a nonmarket economy methodology “shall expire 15 years after the date of accession”. China acceded to the WTO on December 11, 2001 so Section 15(d) should kick in on December 11, 2016.

That provision specifies that an importing WTO member may use a methodology that is not based on a strict comparison with domestic prices and costs in China to determine normal value in an AD case, if producers of a given product under investigation cannot clearly show that market economy conditions prevail in their industry.

The question that is now being debated is whether Section 15(d) automatically ends the possibility of using a non-market economy methodology to China or if it can still be applied if petitioners can show that market conditions do not prevail for producers of the product under investigation.

In November 2015 European Union Industry Commissioner Elzbieta Bienkowska told the European Parliament that geopolitical considerations must be weighed against the industrial interests of the EU in the evaluation of extending market economy status (NME) to China.

On October 30, 2015, it was reported that during a visit to China, German Chancellor Angela Merkel backs more ‘market economy status’ for China – with certain conditions. More specifically, German Chancellor Angela Merkel stated:

“Germany supports, in general, China’s claim to get the market economy status. At the same time China has to do some homework, for example in the area of public procurement. But we want to advance the process – as we want to do that with the EU-China investment agreement.”

Under the NME methodology, administering authorities in countries administering antidumping laws, such as the US Commerce Department, do not use actual costs and prices in China to determine antidumping rates. Instead the administering authorities use values in various surrogate countries, which in the Commerce Department’s case, can change between preliminary and final determinations and various review investigations to determine the foreign value.  As a result, neither the Commerce Department nor other foreign countries can know whether China is truly dumping.

The European Union Industry commission is seen as strongly favoring a change to market economy status for China, but the European parliament has not taken such a strong stand.

In the U.S., the Commerce Department has taken the position that it will not automatically bestow market economy status on China, but will consider if it meets the statutory criteria for doing so in the context of a specific case if it receives a properly filed petition.

Other countries that are not likely to bestow automatic market economy status to China at the end of 2016 are Japan, Canada, Brazil and India.

On Dec. 30, Chinese Foreign Ministry Spokesperson Lu Kang made clear that China is pushing for the granting of market economy status, stating:

“We hope that the EU can set a good example in obeying the WTO rules and take substantive actions to meet its obligations under Article 15 of the Protocol, which will also facilitate the development of China-EU economic and trade ties.”

Steel industries and unions in both the US and EU are fighting hard against giving China market economy status. As indicated below, steel experts have been pointing to the large overcapacity of the Chinese steel industry.  But with almost all Chinese steel blocked from entry into the US by large antidumping and countervailing duties, it is questionable how much weight such arguments will be given.

The only two major Chinese steel products still coming into the US are galvanized and cold-rolled steel, and based on surrogate values, Commerce just issued very high antidumping and countervailing duty rates against both products, wiping them out of the US market. Currently, if not all, almost all, steel products from China are covered by an AD order and often also a CVD order, including carbon steel plate, hot rolled carbon steel flat products, circular welded carbon quality steel pipe, light walled rectangular pipe and tube, circular welded carbon quality steel line pipe, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, prestressed concrete steel wire strand, seamless carbon and alloy steel standard line and pressure pipe, high pressure steel cylinders, prestreessed concrete steel rail tire wire, non-oriented electrical steel, and carbon and certain alloy steel wire rod.

On Dec. 22, the United Steelworkers (“USW”) union, according to a USW press release, held a private meeting in Minnesota with White House Chief of Staff Denis McDonough, as well as Senators Amy Klobuchar (D-MN) and Al Franken (D-MN), at which they discussed the “urgency of federal, state and local government authorities to provide more immediate relief against the global onslaught of steel imports that have shut down half of the region’s steel sector mining jobs,”  Emil Ramirez, director for USW District 11 — which covers Midwestern states including Minnesota, Missouri and Montana — said at the meeting that the union is “at war with China’s illegal steel imports flooding into our market.” He added that China had in some months in 2015 dumped more than 100,000 tons of cold-rolled steel into the U.S. market, contributing to mining job losses in Northern Minnesota’s so-called “Iron Range” A day later, the union welcomed what it called a “whopping” 255.8% preliminary AD rate on Chinese corrosion-resistant steel based on surrogate values, despite the fact that all the other antidumping rates against other countries based on actual prices and costs were in the single digits or 0s.

On October 26, 2015, Leo Gerard, who heads the Steel Union, sent the following attached letter,USW CHINA NME , to USTR Michael Froman about steel imports and China’s market economy status:

Dear Ambassador Froman:

I am writing to you regarding the Transatlantic Trade and Investment Partnership (TTIP) and the potential for U.S manufacturing interests to be adversely affected by how the European Union (EU) may change its current treatment of the People’s Republic of China (China) as a non-market economy.

As you well know, under the terms of China’s Protocol of Access to the World Trade Organization, other WTO members had the right to treat the PRC as a non-market economy (NME) for purposes of antidumping and countervailing duty laws. One clause regarding the treatment of China expires on December 11, 2016, but the remaining language continues to operate. This has led to an active effort by China to end its treatment as a non-market economy by those countries which continue to treat it as such so as to gain preferential treatment. The media has suggested that while the EU has not decided how it will proceed, an internal EU memo argues for granting market economy treatment. This memo is not yet public. How China is treated under U.S. and EU antidumping laws is critical to workers and companies in both countries. With massive distortions in most aspects of the Chinese economy, changing China’s status before their economy in fact operates on market principles on a sustained and verifiable basis will have far reaching consequences for workers, companies and communities across the U.S. and the EU. If the EU makes a change in treatment of China under its antidumping law when China has not in fact truly engaged in comprehensive reform of its economy, there will be broad repercussions for how fair market conditions will be assessed in Europe and, in terms of U.S. exports to the EU, could result in dramatically lower opportunities for the export of America’s manufactured products.

As noted, press reports indicate that the EU is considering granting China market economy status in the near future, despite overwhelming evidence of the continued state-led direction, intervention, subsidization and control of that country’s economy and its firms. If the EU chooses to grant China this preferential status, either for the country as a whole or for individual sectors or firms, it will subject U.S. products to a potential risk of having to compete against unfairly traded products in the EU and, potentially, as components in products shipped to the U.S. or to third country markets. Thus, the EU’s decisions in this area must be addressed as part of the ongoing TTIP negotiations and that any alterations in their treatment of China as a NME be subject to dispute resolution and potential compensation for any adverse effects it may have on the U.S., producers and workers

The TPP negotiations have overshadowed the TTIP negotiations and, as a result, many important issues are receiving limited attention. The EU’s potential actions in this area must not be viewed simply as a matter for the EU Commission to consider but, rather, must be addressed in terms of their potential impact on the U.S. manufacturing sector and its employees.

I look forward to working with you on this important matter.

Sincerely,

Leo W. Gerard

International President

CHINA CURRENCY APPROVED BY THE INTERENATIONAL MONETARY FUND AS A MAIN WORLD CURRENCY

In the past, one of the arguments that Commerce has used to deny China market economy status is that the Chinese yuan/RMB is not convertible.   On November 30, 2015, however, in the attached announcement, IMF PRESS RELEASE, the International Monetary Fund (“IMF”) announced that the Chinese renminbi will become the fifth currency to be included in the organization’s international reserve asset that supplements member countries’ official reserves.

As the IMF stated the renminbi, or RMB, will join the U.S. dollar, the euro, the Japanese yen and the British pound on Oct. 1, 2016, in a basket of currencies known as the Special Drawing Right, which plays a critical role in providing liquidity to the global economic system, especially during financial crises, the IMF said.

IMF managing director Christine Lagarde stated that the executive board’s decision is “an important milestone” recognizing China’s integration in the international financial system:

“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

Lagarde’s decision was based on a paper prepared by IMF staff, which determined that the RMB is a “freely usable” currency.

The IMF. designation, an accounting unit known as the special drawing rights, bestows global importance. Many central banks follow this benchmark in building their reserves, which countries hold to help protect their economies in times of trouble. By adding the renminbi to this group, the IMF effectively considers a currency to be safe and reliable.

EXIM BANK RISES FROM THE DEAD BUT THEN RUNS INTO A NEW ROADBLOCK

Congress let the Export-Import (“EXIM”) Bank’s lending authority expire after June 30, but a number of Republicans in the House of Representatives, including Congressman Dave Reichert, currently Chairman Subcommittee on Trade, House Ways and Means,  joined Democrats to force a vote in October to resurrect the Bank. The House attached Ex-Im to a highway funding bill and stopped ten amendments that would have limited the bank’s scope. This highway/Ex-Im bill passed the House 363 to 64.  In December negotiators from both chambers of Congress reached an agreement that revived the bank’s lending authority through Sept. 30, 2019.

On December 3, 2015, the Senate passed the Transportation Bill with the Reauthorization of the EX-IM Bank, and on December 4, 2015, President Obama signed the bill into law.

The arguments for the EX-IM Bank are many, as Steve Myrow, who used to work at the EXIM Bank, stated in an Article in The Hill on July 9, 2014:

The debate over reauthorizing the Export-Import Bank has become the latest proxy battle between the conservative and establishment wings of the Republican Party. However, this issue should not be used as an ideological litmus test. Instead, it should evoke a practical and constructive dialogue about how best to level the playing field for American businesses overseas while protecting taxpayers here at home.

Founded in 1934, the Export-Import Bank’s mission has not changed throughout its 80-year history. Its raison d’être has always been to create jobs at home by financing the sale of American goods and services abroad. Ex-Im Bank does not compete with private-sector lenders, but rather seeks to match the foreign government support that U.S. firms’ foreign competitors enjoy.

When I served in the bank’s leadership in President George W. Bush’s administration, our overarching goal was to steer the bank between two beacons — one focused on creating jobs and the other on protecting the taxpayers.

We believed, as did members of Congress on both sides of the aisle, that an ideal way to navigate these two beacons was to convert the bank into one of the only truly self-sustaining government agencies.

By making the bank stand on its own two feet and rely solely on its revenue stream to fund its operations, we not only made it possible for companies to grow high-quality domestic jobs, but we earned a profit for the taxpayers.

Few government agencies can claim to have reduced the deficit, a fact that should be especially welcome during the current era of austerity.

Nevertheless, some of the bank’s Congressional detractors argue that it distorts the market by providing a subsidy. It’s true that in a perfect market, subsidies should not exist. But unfortunately, the real world is not a perfect market. Most countries that meaningfully benefit from international trade provide varying degrees of export subsidies.

Some identify specific firms as their national champions and others, like China, even provide financing on terms more akin to development assistance.

To put it another way, should the U.S. unilaterally disarm just because atomic weapons are undesirable? Of course not. We need a nuclear arsenal because other countries have them. The same is true for maintaining an export credit agency. Ex-Im Bank’s role is to ensure that U.S. exporters get a fair chance to compete based on quality, price and service, rather than on the basis of financing assistance.

For the full article, see http://thehill.com/blogs/pundits-blog/international/211664-congress-should-bank-on-success

But despite the many arguments in favor of the EXIM bank and the passage of the reauthorization, EXIM is not out of the woods yet. Senator Shelby, Chairman of the Senate Banking Committee, has held up nominations for the EXIM bank Board of Directors.  Because there is no quorum, the failure to appoint a new director means that no large projects, such as the sale of Boeing airplanes or sales of GE products, can be approved.

EXIM’s board of directors has only two of the five members it is supposed to have, including Chairman Fred Hochberg. That means it cannot approve loans above $10 million, which make up about a third, value-wise, of EXIM’s transactions.

More specifically, Democrats have sought consent for the nomination of Patricia Loui-Schmicker to the EXIM Bank board of directors, despite the fact that the White House sought a second term for her in March 2015. Loui-Schmicker is needed to give the Ex-Im bank five-member board a quorum. The panel reviews Ex-Im Bank loans above $10 million.

On January 11th, President Obama withdrew the nomination of Democrat Loui-Schmicker and nominated John Mark Mcwatters, a former staffer to House Financial Services Chairman Jeb Hensarling, to fill one of the vacant Republican seats on the Export-Import Bank’s board of directors. McWatters’ former boss, Hensarling, chairman of the House’s Financial Services Committee, has led efforts to shut down the Export-Import Bank.

Senate Banking Committee Chairman Richard Shelby, who opposed Ex-Im’s reauthorization last year, however, has expressed little interest in acting on any nominees to fill its board openings. On January 11, 2016, Senator Shelby indicated that clearing the panel’s backlog of nominees might not see much progress before his March 1 primary in Alabama, stating, “I’m in the primary now.  That’s what’s going to eat a lot of my time up – always does.”

When asked about the McWatters nomination, to fill one of the vacant Republican seats on the Export-Import Bank’s board of directors, Shelby stated, “I’m in a primary right now. We’re in no hurry to hold hearings.”

As Democratic Senator Sherrod Brown stated, “The Ex-Im Bank can’t operate because the Senate Banking Committee won’t do its job.”

No wonder Boeing is going to manufacture airplanes in China.

TRADE

ALUMINUM EXTRUSIONS FINAL 2013-2014 REVIEW INVESTIGATION

On November 20, 2015, the Commerce Department issued the attached final determination in the 2013-2014 antidumping review investigation of aluminum extrusions from China, ALUMINUM EXTRUSIONS FINAL. Based on surrogate values, Commerce issued antidumping rates of 86.01%, but for companies that did not cooperate, Commerce issued antidumping rates of only 33.28%.

In addition, in the attached Countervailing Final Determination for 2013, CVD Aluminum Extrusions 2013 Final Review Notice.3424528-01 CVD Aluminum Extrusions 2013 Decision Memo.3424530-01, Commerce issued a countervailing duty rate ranging from 3.59% to 222.82% with most companies receiving a rate of 61.36% rate.

MEXICO ALUMINUM EXTRUSIONS PROBLEM

Meanwhile, US producers are growing concerned over a large stockpile of aluminum extrusions at a casting facility in Mexico. Aluminicaste Fundición de México S. de RL de CV, a producer of secondary billet, slab and forging billet, is storing around 850,000 tonnes of aluminum extrusions at its San José Iturbide, Mexico, facility.

It was reported that the extrusions had been shipped directly from extrusion plants in China and were being remelted into billet at the Mexico facility. The source told the American Metals Market:

“Yes, it’s about 850,000 (tonnes) on the ground. The quality of the metal is very good. It’s coming from billets that are extruded in China, shipped to Mexico, and made back into billet. They are currently casting at full capacity, which is about 100,000 (tonnes) per year.”

“It’s a lot of metal. Even me, I have not seen that much metal before. It was 300,000 (tonnes) about a year ago and quickly grew to 850,000 (tonnes).”

The practice of importing extrusions from China and remelting them into billet is not illegal or known to violate any law.

NEW TRADE CASES COMING—RAW ALUMINUM

In light of the impact of the aluminum extrusions case on the US market, the import problem has now moved upstream. The next round of antidumping and countervailing duty cases against China looks like it will be on raw aluminum products.

As indicated in the attached letter, NEW ALUMINUM CASES COMING, on November 24, 2015, the US Aluminum Association and the Canadian Aluminum Producers complained about Chinese aluminum production and the subsidies they receive:

Dear Secretary Kerry and Minister McKenna,

We write to you representing aluminum producers in the United States and Canada. We are concerned about China’s state-planned and carbon intensive aluminum industry which has amassed considerable overproduction. This not only leads to a distortion of international trade impacting our entire value chain, but also undermines global efforts to decarbonize the economy. . .  .

Only ten years ago China supplied 24% of the world’s primary aluminum. Today, spurred by energy subsidies, Chinese manufacturers have more than doubled their output and supply 52% of all primary aluminum produced globally. At the same time, this massive increase in production entails a significant environmental consequence.

Aluminum production in China is the most carbon intensive in the world, with its coal-based smelters emitting significantly more greenhouse gases per ton of aluminum than its North American counterparts. In fact, a ton of aluminum produced in China is at least twice as carbon-intensive as that same metal produced in North America. Given the rapid expansion of high-carbon aluminum production in China, many of the efficiency and emission reduction gains made by the global aluminum industry over the last several decades are being offset. . . .

The U.S. and Canadian aluminum industry is concerned that overproduction in China will continue unabated and is insufficiently regulated. These commitments represent a critical opportunity for China to advance energy efficiency and emissions reductions targets in support of global commitments to address climate change.

We appreciate your support to help us to reestablish fair trade conditions and to make a significant contribution to advancing a low-carbon global economy. . . .

Letters, like this, are usually a sign that an antidumping/countervailing duty case is coming. In addition, US aluminum producers have launched a new China Trade Task Force with their target being “illegal” Chinese government subsidies. In a letter to USTR Michael Froman, the US producers asked USTR to intervene on behalf of an industry that supports thousands of jobs:

“Illegal Chinese subsidies — such as direct grants, interest free loans, transfers of low cost state owned land, and preferential regulatory treatment — have collapsed the global price of aluminum.

This price drop has forced aluminum smelters across the United States to close while Chinese government continues to prop-up its producers through these unfair and illegal subsidies.”

THE ONGOING STEEL CASES

Many companies have been asking me about the ongoing Steel antidumping and countervailing duty cases so this section will address the Steel cases in more detail.

As happened in the OCTG cases, where Chinese OCTG was simply replaced by imports from Korea, India, Taiwan, Philippines, Saudi Arabia, Ukraine, Thailand and Turkey, the same scenario is happening in other steel cases, such as the recent cold-rolled and corrosion-resistant/galvanized steel cases.

Based on the nonmarket economy antidumping methodology, which does not use actual prices and costs in China, in the two recent cases Chinese steel companies were smashed with high antidumping rates of 200 to 300 percent. In the Cold Rolled Steel countervailing duty case, the Chinese companies and Chinese government simply gave up and received a rate over 200%.

But all the other countries, including Russia, which has market economy status, received antidumping rates in the single digits or 0s for no dumping. Steel will continue to flow into the United States in large amounts because such small antidumping and countervailing duty rates simply will have no effect.

The decisions also indicate why the Unions and the Steel industry will fight very hard in Congress and before the Administration to push the Commerce Department to continue using the nonmarket economy methodology against China. It easy for Commerce to find dumping when it uses fake numbers/surrogate values from third countries, which have no relationship to actual prices and costs in China.

COLD ROLLED STEEL FROM CHINA, BRAZIL, KOREA, INDIA AND RUSSIA

On December 16, 2015, Commerce issued its attached preliminary countervailing duty determination, factsheet-multiple-cold-rolled-steel-flat-products-cvd-prelim-121615, in Certain Cold-Rolled Steel Flat Products from Brazil, China, India, and Russia and No Countervailable Subsidization of Imports of Certain Cold-Rolled Steel Flat Products from Korea. The effect of the case is to wipe all Chinese cold rolled steel out of the United States with a countervailing duty (CVD) rate of 227.29%.

The 227.29% CVD rate for all the Chinese companies was based on all facts available as the Chinese government and the Chinese steel companies simply refused to cooperate realizing that it was a futile exercise to fight the case at Commerce because of the surrogate value methodology and refusal to use actual prices and costs in China.

As also predicted, the countervailing duty rates for all the other countries were very low, if not nonexistent: Brazil 7.42% for all companies, India 4.45% for all companies, Korea 0 for all companies and Russia 0 to 6.33% for all companies.

CORROSION RESISTANT STEEEL PRODUCTS—GALVANIZED STEEL PRODUCTS FROM CHINA, INDIA, ITALY, KOREA AND TAIWAN

On December 22, 2015, in the attached factsheet, factsheet-multiple-corrosion-resistant-steel-products-122215, Commerce announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of corrosion-resistant steel products from China, India, Italy, and Korea, and its negative preliminary determination in the AD investigation of imports of corrosion-resistant steel products from Taiwan.

China received antidumping rates of 255.8%, but antidumping rates from the other countries were very low.

India received rates ranging from 6.64 to 6.92%.  Italy received rates from 0 to 3.11%.  Korea received rates from 2.99 to 3.51%.  Taiwan’s antidumping rates were all 0s.

Although the US industry was pleased with the rate against China, AK Steel Corp. stated, “we are disappointed that the preliminary dumping margins for India, Italy, South Korea and Taiwan were not higher as they do not appear to adequately address the dumping that we believe is occurring in the U.S. market.”

Because Commerce uses market economy methodology in antidumping cases against these countries, companies in those countries can use computer programs to eliminate or reduce significantly their antidumping rates. Foreign steel companies know they will be targeted by US antidumping and countervailing duty cases, and, therefore, prepare for such suits by eliminating the unfair acts.

The fact that the antidumping and countervailing duty rates in these cases are so low strongly indicate that the US Steel Industry’s problem is not steel imports. The problem is the US steel industry’s failure to modernize their facilities and remain competitive with the rest of the world.

In the parallel countervailing duty investigation, certain Chinese companies earned margins exceeding 235 percent while Taiwanese producers were given no CVD rates at all.

HOW NME METHODOLOGY IN ANTIDUMPING CASES LEADS TO OVER CAPACITY IN CHINESE STEEL AND ALUMINUM INDUSTRIES

Meanwhile, US experts complain about Chinese overcapacity in the Steel and Aluminum industries. In a December 1, 2015 article, one expert, Terence P. Stewart, Law Offices of Stewart and Stewart, which represents the Unions and various steel companies in US antidumping and countervailing cases against China, including the recent Off the Road Tires case against China, complained about Chinese overcapacity in the Steel and Aluminum industries and their distortive impact on the World steel and aluminum markets stating:

In the United States, the domestic steel industry is in the midst of a major crisis as they try to deal with waves of imports that seem to flow directly (i.e., imports from China) and indirectly (i.e., from other countries facing import challenges from China in their home markets and hence expanding their exports) from massive excess capacity in China and in other countries. . . .

The story is being repeated in the aluminum sector as well with many unwrought aluminum facilities being closed in the US and other western countries in recent years and some trade cases being filed. Indeed, Alcoa recently announced the idling of three facilities in the U.S. (New York and Washington) with a capacity of more than a half million tons —a significant portion of the remaining capacity in the United States. The problem again flows from massive excess capacity in China.

In both sectors, the underlying facts are similar. In the late 1990s, Chinese capacity amounted to 10-15 percent of global capacity. With massive government incentives, state ownership and support, by 2014 each industry had ballooned to have more than half of global capacity having accounted for nearly 80 percent of global capacity expansions. . . .

Without concerted efforts by China itself and its trading partners, the balance will be achieved only at the expense of countries that had nothing to do with the creation of the problem — a grossly inequitable and economically and politically unacceptable outcome. . . .

The Article goes on to complain that China should do this and do that, such as establishing “voluntary export restraints on all product sectors where it has serious excess capacity to reduce the problems it has created for its trading partners” and “China could implement the many remaining reforms needed to have its economy actually operate on market forces.” It should be noted that voluntary export restraints and prices floors are export restraints, which are specifically prohibited in the China-WTO Agreement.  In fact, when in the past the Chinese government tried to set price floors to deter dumping, the US government took the Chinese government to the WTO and US antitrust cases were filed against the Chinese companies.

The Article goes on to state:

All of China’s major trading partners need to encourage China to solve its internal problem quickly. Trading partners need to be prepared to act quickly to apply such pressure as will enable China to overcome any internal reluctance to face the significant challenges. This means using the tools that currently exist, including WTO disputes, to make clear the enormous damage being done to others by China’s subsidy practices. . . .

Finally, the U.S., EU and other trading partners with trade remedy laws that have found China to be a nonmarket economy, should ensure that their industries and workers can obtain the full measure of trade remedy relief existing laws, regulations and practices provide until such time as China has in fact achieved the serious reforms still needed for its economy to work on market principles.

Unfortunately, US industries and domestic experts never ask the real question. Why should the Chinese government and Chinese companies listen to these complaints when the US government and governments in other countries continue to attack China using antidumping and countervailing duty cases based on fake numbers?

As indicated above, US antidumping and countervailing duty orders and ongoing cases have the effect of blocking almost 100% of Chinese steel from the US market. Since the US steel industry, the Unions and their representatives have declared a trade war with China, why should the Chinese government and companies listen to the United States?

In talking with Chinese Government officials in the past, they told me that US antidumping cases could be ok because they could be used to regulate Chinese production. Some Chinese companies undoubtedly are truly dumping.  If Chinese companies get hit with real very high antidumping rates based on actual prices and costs in China, that could cause the company to shut down.

But when antidumping cases are based on phony numbers/surrogate values, which have no relationship to the actual situation in China, the US government creates a game and the Chinese government and the Chinese companies will simply play or not play the game. But they will not listen to sanctimonious arguments from US experts, who do not want the Chinese to compete on a level playing field with the US and other countries, such as Russia and Iran, and instead want to continue a trade war with China based on fake numbers.

SOLAR CELLS REVIEW DETERMINATION

On December 18, 2015, in the attached decision, the Commerce Department issued its preliminary determination in the 2013-2014 Solar Cells antidumping review investigation, SOLAR CELLS AD PRELIM. The antidumping rates range from 4.53% for Trina to 11.47% for Yingli.  The average dumping rate for the Chinese separate rate companies is 7.27%.

On December 31, 2015, Commerce issued its attached preliminary determination in the 2013 Countervailing duty case, DOC SOLAR CVD 2013, and the rates went up to 19.62% for three Chinese companies–JA Solar Technology Yangzhou Co., Ltd., Changzhou Trina Solar Energy Co., Ltd. and Wuxi Suntech Power Co., Ltd.

DRAWN STAINLESS STEEL SINKS FINAL

In the attached decision, on November 10, 2015, Commerce issued its final determination in the first 2012-2014 review in the Drawn Stainless Steel Sinks case with antidumping rates ranging from 2.82 to 9.83%, AD STEEL SINKS 2012-2014FED REG., AD DECISION MEMO 2012-2014

In addition, the countervailing duty rate for one company, Guangdong Dongyuan Kitchenware Industrial Co., Ltd. is  9.83%.  SeeCVD SINKS 2012-2013FEDREG

CIT REMANDS GLYCINE CASE BACK TO COMMERCE BECAUSE OF ITS PUNITIVE 453% ANTIDUMPING RATE.

On November 3, 2015, in Baoding Mantong Fine Chemistry Co., Ltd. v. United States, the Court of International Trade in the attached decision, BAODING VS US PUNITIVE CALCULATION, reversed the Commerce Department’ s determination in Glycine from China, holding that Commerce had issued a 453% punitive tariff against Baoding in violation of the remedial purpose of the statute. As the CIT stated:

“The court rules that Commerce failed to fulfill its obligation to determine the most accurate margin possible when it assigned Baoding a weighted average dumping margin of 453.79%, which on the record of this case was not realistic in any commercial or economic sense and punitive in its effect. The court directs Commerce to determine a new margin for Baoding that is the most accurate margin possible, that is grounded in the commercial and economic reality surrounding the production and sale of Baoding’s subject merchandise, and that is fair, equitable, and not so large as to be punitive.”

As Judge Stanceu further stated:

“In assigning Baoding such a huge margin, Commerce has lost sight of the purpose of the antidumping duty statute, which is remedial, not punitive. The 453.79 percent margin is undeniably punitive in effect, regardless of the department’s intent, and it violates the department’s obligation to treat every party before it fairly and equitably as well as the obligation to arrive at the most accurate margin possible.”

Judge Stanceu said the agency was misstating the law, and that the facts demonstrate that the margin assigned is “commercially impossible.”

ROLLR BEARINGS PRODUCED IN THAILAND FROM CHINA SUBPARTS CANNOT BE COVERED BY BEARINGS ORDER AGAINST CHINA

On December 22, 2015 in the attached decision, Peer Bearing Company-Changshan v. United States,PEER BEARING CASE, the Court of International Trade held that roller bearings made in Thailand from Chinese parts were not subject to an anti-dumping duty order against Chinese bearings because the production process in Thailand had the effect of substantially transforming the roller bearings into a product of Thailand, not China.

MELAMINE FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On December 1, 2015, Commerce issued the attached antidumping and countervailing duty orders against Melamine from China, MELAMINE AD ORDERS. The Antidumping rate for China is 363.31% and the Countervailing Duties range from 154 to 156.9%.

LARGE RESIDENTIAL WASHERS FROM CHINA

On December 16, 2015, Whirlpool filed a major antidumping and countervailing duty case against Large Residential Washers from China. According to the Petition, the real target companies are the Korean companies, Samsung and LG, and their production facilities in China.

The specific products covered by the petition are:

the term “large residential washers” denotes all automatic clothes washing machines, regardless of the orientation of the rotational axis, with a cabinet width (measured from its widest point) of at least 24.5 inches (62.23 em) and no more than 32.0 inches (81.28 em), except as noted below.

Also covered are certain parts used in large residential washers, namely: (1) all cabinets, or portions thereof, designed for use in large residential washers; (2) all assembled tubs designed for use in large residential washers which incorporate, at a minimum: (a) a tub; and (b) a seal; (3) all assembled baskets 11 designed for use in large residential washers which incorporate, at a minimum: (a) a side wrapper; 12 (b) a base; and (c) a drive hub; 13 and (4) any combination of the foregoing parts or subassemblies.

Excluded from the scope are stacked washer-dryers and commercial washers. The term “stacked washer-dryers” denotes distinct washing and drying machines that are built on a unitary frame and share a common console that controls both the washer and the dryer. The term “commercial washer” denotes an automatic clothes washing machine designed for the “pay per use” segment . . .

The relevant pages of the petition, including the full scope, the list of Chinese exporters and US importers, are attached, Whirlpool Petition Scope Exporters Importers 121615.

NEW OFF THE REOAD TIRES CASE

On January 8, 2016, Titan Tire Corporation (Titan) and the United Steel, Paper, and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, ALF-CIO (USW) filed a new antidumping and countervailing duty case against Pneumatic Off-the-Road Tires from India, China and Sri Lanka.  The relevant parts of the petition, including the scope and the list of Chinese exporters and US importers, are attached, US Importers Pneumatic Tires Petition Volume I General Issues Injury Cover Scope 1-8-16 Chinese Exporters Pneumatic Tires .

The specific products covered by this antidumping and countervailing duty case are:

New pneumatic tires designed for off-the-road (OTR) and off-highway use, subject to exceptions identified below. Certain OTR tires are generally designed, manufactured and offered for sale for use on off-road or off-highway surfaces, including but not limited to, agricultural fields, forests, construction sites, factory and warehouse interiors, airport tarmacs, ports and harbors, mines, quarries, gravel yards, and steel mills. . . . .

While the physical characteristics of certain OTR tires will vary depending on·the specific applications and conditions for which the tires are designed (e.g., tread pattern and depth), all of the tires within the scope have in common that they are designed for off-road and off-highway use.

Except as discussed below, OTR tires included in the scope of the proceeding range in size (rim diameter) generally but not exclusively from 8 inches to 54 inches. The tires may be either tube-type40 or tubeless, radial or non-radial, and intended for sale either to original equipment manufacturers or the replacement market.

Certain OTR tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope. Subject merchandise includes certain OTR tires produced in the subject countries whether attached to wheels or rims in a subject country or in a third country. . . .

This is the second antidumping and countervailing duty case the USW has filed against off-the-road tires from China. The USW stated that un-mounted off-the-road tires from China are already covered by antidumping and countervailing duty orders, but that mounted tires from China are not subject to those duties. Thus, this second case has been brought to close the loophole.

Some of the Chinese companies named in the complaint are: BDP Intl Ltd (China), Betel Holding Group, Lizhong Group, Qingdao Huifuxin Tyre, Qingdao J & G International Trading Co., Qingdao Keter Tyre, Qingdao Milestone Tyres Co., Ltd., Qingdao Rhino International Co., Ltd., Qingdao STW Tire Co., Ltd., Qingdao Tide Tire, Shandong Hawk International Rubber Industry Co., Ltd., Shandong Taishan Tyre Co., Ltd. Shandong Zhaoyuan Shengrun Wheel Assembly Co., Ltd. Shandong guanxian Cartwheel Co., Ltd., Shenzhen CJG Model Products, THI Group Ltd., Trans Knight Inc., relleborg China/Trelleborg Wheel Systems (Xingtai) Ltd. , Weifang Jintongda Tyre Co., Ltd., Weifang Lutong Rubber Co., Ltd., Weihai Zhongwei Rubber Co., Ltd., Wendeng Sanfeng Tyre Co., Ltd., Wenling Yaoding Machinery Co., Ltd., Wuxi Kinetic Machinery Co., Ltd., Wuxi Superior Wheel Company LLC, Xingyuan Tire Group, Yantai Wonray Rubber Tire Co. Ltd.

JANUARY ANTIDUMPING ADMINISTRATIVE REVIEWS

On January 4, 2015, Commerce published the attached Federal Register notice, DOC JAN 2016 REVOEW INVESTIGATIONS AD AND CVD OPPTY, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of January . The specific antidumping cases against China are: Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Crepe Paper Products, Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture.

The specific countervailing duty cases are: Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Certain Oil Country Tubular Goods, Circular Welded Carbon Quality Steel Line Pipe.

For those US import companies that imported Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Crepe Paper Products, Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture from China during the antidumping period January 1, 2015-December 31, 2015 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.  In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 298:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech Nanchang Co., Ltd.

GENERAL LITIGATION AND ARIBITRATION

DORSEY VICTORY IN SUPREME COURT HELPS FOREIGN COMPANIES

On December 1, 2015 the United States Supreme Court unanimously held that Dorsey’s client, OBB Personenverkehr AG (“OBB”), the national railway of the Republic of Austria, is entitled to foreign sovereign immunity in a lawsuit filed against it in federal court by a United States resident who was injured while boarding OBB’s train in Innsbruck, Austria.

The decision, authored by Chief Justice Roberts, has broad application and is significant in confirming that there are limits to the reach of American courts. It establishes that, in the commercial context, in order for a United States court to exercise jurisdiction over a foreign state, or an agency or instrumentality of a foreign state, the claims must be “based upon” commercial activity that occurred within the territorial limits of the United States. In reversing the Ninth Circuit Court of Appeals, the Supreme Court rejected the notion that a foreign state-owned railway could be sued in the United States, simply based upon the purchase of a Eurail pass on the Internet from a United State travel agency, curtailing the impact of the Internet on the jurisdictional reach of United States courts.  Instead, the Supreme Court held that courts must focus on what is “the ‘particular conduct’ that constitutes the ‘gravamen’ of the suit,” or its “essentials,” which here, was the accident that took place in Austria. In this case, the injured passenger could have sued in Austria instead, which forum afforded adequate legal remedies.

Dorsey lawyer Juan Basombrio, who argued the case before the Supreme Court on behalf of OBB, notes that the decision is significant from an international business and legal perspective: “Whereas the Ninth Circuit’s decision would have dragged foreign states and their agencies into United States court, the Supreme Court’s decision recognizes the importance of international comity; that is, the respect that nations afford to the courts of other nations with respect to matters that occur within their territory.”

Juan further notes that, “In a world that has become increasingly connected by international commercial transactions, and where there is also increasing friction in the relations between the United States and other nations, this is a seminal and important decision that will foster harmony between the United States and other nations at least in the commercial context.” Juan  explains that, “From the perspective of American business, this decision also will incentivize other nations to adopt similar rulings, which will protect American businesses from being dragged into court overseas.”

Finally, “The unanimous decision of the Supreme Court,” according to Juan, “also underscores that the Supreme Court is not a fractured Court, as it has been recently criticized, but instead can and has spoken with one voice in this important area of the law, which involves the foreign relations of the United States.”

Dorsey represented OBB at all stages of the litigation. Juan was lead counsel on the case from the trial court through the Supreme Court argument.

UKRAINE ATTACKS RUSSIA USING ARBITRATION

Ukrainian companies have initiated five arbitration proceedings against Russia that range from approximately $20 million to $1 billion.  The cases have been brought by a number of Ukrainian businesses including Ukraine’s largest bank, a real estate investment company, several petrol stations and a private airport.

The claims have been brought under a 1998 bilateral investment treaty meant to encourage economic cooperation and expansion between Ukraine and Russia and are to recover for alleged losses incurred after Russian troops invaded Crimea in 2014 and shut down or nationalized Ukrainian businesses without paying for them.

The claims were lodged at various times in the first half of 2015 in the Permanent Court of Arbitration in The Hague, an intergovernmental organization with approximately 115 member states. The parties that launched the claims include PrivatBank & Finance Co. Finilon LLC, or PrivatBank; and PJSC Ukrnafta, which is both publicly and privately owned and is one of Ukraine’s largest oil and gas companies.

The lawyer representing the Ukrainian companies stated:

Apparently, the bilateral investment treaty permits the investors of one country whose property has been appropriated by the other country to launch private arbitration proceedings either under the rules governing the Stockholm Chamber of Commerce or the United Nations Commission on International Trade Law.

IP/PATENT AND 337 CASES

337

On November 10, 2015, the Court of Appeals for the Federal Circuit (“CAFC”) in the attached Clear Correct v. ITC, CLEAR CORRECT V ITC, held that the International Trade Commission (“ITC”)  does not have the authority to expand the scope of Section 337 Intellectual property (“IP”) investigations to cover electronic transmissions of digital data imported into the United States.  In a 2-1 decision, the Court determined that such an expansion would:

run counter to the “unambiguously expressed intent of Congress.” . . . . Here, it is clear that “articles” means “material things,” whether when looking to the literal text or when read in context “with a view to [the term’s] place in the overall statutory scheme.” . . . . We recognize, of course, that electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but common sense dictates that there is a fundamental difference between electronic transmissions and “material things.” . .  .

NEW 337 CASES

On November 5, 2015, Hydor USA, Inc. filed a section 337 case against imports for certain aquarium fittings and parts thereof from a Chinese company, Jebao Co., Ltd in Zhongshan City, Guangdong province, China.

On November 12, 2015, Belkin International, Inc. filed a section 337 case against imports of Computer Cables, Chargers, Adapters, Peripheral Devices and Packaging from China. The proposed respondents are: Dongguan Pinte Electronic Co., Ltd., China; and Dongguan Shijie Fresh Electronic Products Factory, China.

On November 17, 2015, FeraDyne Outdoors, LLC and Out RAGE, LLC filed a section 337 case against Arrowheads With Deploying Blades against the following Chinese respondents: Linyi Junxing Sports Equipment Co., Ltd., China; Ningbo Faith Sports Co., Ltd., China; Ningbo Forever Best Import & Export Co. Ltd., China; Ningbo Linkboy Outdoor Sports Co, Ltd., China; Shenzhen Zowaysoon Trading Company Ltd., China; Xiamen Xinhongyou Industrial Trade Co., Ltd., China; Xiamen Zhongxinyuan Industry & Trade Ltd., China; Zhengzhou IRQ Trading Limited Company, China; and Zhenghou Paiao Trade Co., Ltd., China.

On January 8, 2016, Covidien LP filed a section 337 case against imports of Surgical Stapler Devices from Chongqing QMI Surgical Co., Ltd., China.

CRIMINAL PATENT CASES

On January 5th, in U.S. v. Pangang Group Co. Ltd., the US government brought the attached criminal indictment, CHINA INDICTMENT, against Pangang Group Co. Ltd., a state-owned Chinese steel company, alleging that Pangang engaged in economic spying and stole manufacturing trade secrets from DuPont Co. through a California businessman and a former DuPont engineer, who have been sent to prison for their crimes.

Prosecutors claim Pangang stole trade secrets held by DuPont covering its proprietary method of manufacturing titanium dioxide, which is used to make cars, paper and other items appear whiter.

NEW PATENT AND TRADEMARK COMPLAINTS AGAINST CHINESE, HONG KONG AND TAIWAN COMPANIES

On November 4, 2015, SATA GmbH & Co. KG, a German corporation, filed a counterfeit trademark case against Zhejiang Refine Wufu Airt Tools Co., Ltd. and Prona Tools Inc. COUNTERFEIT SPRAY PAINT GUNS

On November 23, 2015, Penn Engineering & Manufacturing Corp. filed, a patent, trademark infringement and counterfeit case against Pemco Hardware, Inc., Dongguan Fenggang Pemco Hardware Factory, and Shenzhen Pemco Fastening Systems :Co., Ltd. PENN DONGGUAN

On December 3, 2015, Fellowship Filtering Technologies filed a patent case against Alibaba and Taobao Holding Ltd. and other Alibaba and Taobao companies. ALIBABA PATENT CASE

PRODUCTS LIABILITY CASES

On November 9, 2015, Neoteric Solution Inc. d/b/a Wowparts filed a products liability case against batteries supplied by Dongguan Hosowell Technology Co., Ltd, and Hosowell (HK) Technology Co., Ltd.DONGGUAN HOUSEWELL

On November 12, 2015, Momo Ren and Miao Xin Hu filed a class action products liability case for misbranding egg roll packages against Domega NY International Ltd., Dongguan City Tongxin Food Co., Ltd. and Net A Generation Food Stuffs Co., Ltd. EGG ROLL CASE

On November 23, 2015, Stephen and Diane Brooke filed a class action products liability case in the drywall area against The State-Owned Assets Supervision and Administration Commission of the State Council; Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd.; Tai’an Taishan Plasterboard Co., Ltd.; Beijing New Building Materials Public Limited Co.; China National Building Material Co., Ltd.; Beijing New Building Materials (Group) Co., Ltd.; and China National Building Materials Group Corporation. BROOKE TAISHAN SAC

ANTITRUST

There have been developments in the antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D NOVEMBER AND DECEMBER REPORT

In December and January T&D sent us their attached November and December reports on Chinese competition law. T&D Monthly Antitrust Report of November 2015 T&D Monthly Antitrust Report of December 2015

In early January 2016, T&D also sent us the latest attached draft translated into English of IPR Anti-monopoly Guideline from the National Development and Reform Commission of China (NDRC) released on the last day of 2015, i.e. December 31, 2015. IPR Guideline (draft) 20151231-EN

SECURITIES

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey& Whitney LLP issued its attached December 2015 Anti-Corruption Digest,AntiCorruptionDigestDec2015. The Digest states with regards to China:

China: Setback in the Anti-Corruption Campaign

It has been reported that President Xi Jinping’s ongoing anti-corruption campaign has suffered a setback after a prominent official of the inspection team in charge of the government’s anti-corruption efforts, Liu Xiangdong, was removed from his post after allegedly being in possession of more than $31 million (£20 million) in cash.

Mr. Liu was accused of “violating inspection rules and leaking related secrets” and accepting large bribes. He was also stripped of his Communist Party membership and removed from his position, the Central Commission for Discipline Inspection, the party’s top anti- corruption committee, said in a statement on its website.

China: Corruption in the Education Sector

China’s anti-corruption campaign has already touched many of the country’s sectors and has now extended to the education sector with a number of officials at the Communication University of China being targeted.

The president of the university, Su Wuzhi, was reportedly removed from his post for having an office that was “severely beyond the official standards, using university funds to hold banquets in public venues and putting gifts sent to the university on display in his own office without registering them.”

Lv Zhisheng, the vice president of the university, was also removed from office for allegedly failing to enforce frugality rules, leading to “chaos in financial management” of the institution, such as expenditures in “fancy cars” which exceeded budgets.

An official announcement from the Education Ministry is said to have called for increased monitoring of the education sector to ensure that “the high aims” of the party were upheld.

SECURITIES COMPLAINTS

On November 24, 2015, the Securities and Exchange Commission filed an insider trading case against two Chinese individuals, Yue Han and Wei Han, who presently reside in China. SEC VERSUS HAN

On November 24, 2015, Amy Liu and a number of individuals filed a class action securities case for fraud against China North East Petroleum Holdings Ltd. (“CNEP”). Defendant CNEP is a Nevada corporation with its sole asset being ownership of Song Yrun North East Petroleum Technical Services Co., Ltd, a subsidiary operating in China. On September 5, 2013 CNEP transferred all CNEP assets and all CNEP liabilities to Ju Guizhi, a CNEP director and mother of CNEP CEO Wang Hongiun, for the purpose of effecting a merger into CLP Huaxing Equity Changchun City Investment Limited (“CLP”), a limited liability chinese corporation majority owned and controlled by Ju Guizhi and Wang Hongiun, NEVEDA SHAREHOLDERS SUIT.

On December 10, 2015, Shouming Zhang, a Chinese individual, filed the attached fraud case against several US companies and a Chinese individual alleging three Los Angeles-area companies and an attorney of swindling her into investing in an $8 million business deal with promises that she would obtain an EB-5 visa, CHINA NATIONAL COMPLAINT EB5.

Shoumin Zhang — whose visa application was denied — accuses Arcadia, California-based Americana One LLC of committing fraud and breach of contract by luring her into paying $500,000 for the supposed renovation of a commercial building. Zhang says that after she discovered the $8 million investment was a fraud, she visited the U.S. to personally ask AFRC and Americana One to seek a refund of her money.

Through the Immigrant Investor Pilot Program, the U.S. government offers EB-5 visas to foreigners who make certain business investments in the country. A website for AFRC offers consultations for the program, which allegedly requires only $500,000 of investment in exchange for permanent resident status in the U.S.

On December 14, 2015 Sally Mogle filed a class action securities case against Mattson Technology, Inc., Beijing E-Town Dragon Semiconductor Industry Investment Center and Dragon Acquisition Sub, Inc. and a number of individuals. BLOCK SEMICONDUCTOR ACQUISITION

On December 22, 2015, Philip Durgin filed a class action securities case against Mattson Technology, Inc., Beijing E-Town Dragon Semiconductor Industry Investment Center and Dragon Acquisition Sub, Inc. and a number of individuals. BEIJING DRAGON

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

Best regards,

Bill Perry

 

US China Trade War — Stock Market Crash, Presidential Trade Politics, Trade Policy, Customs, Antitrust and Securities

New York City Skyline East River Chrysler Building NightTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

The Chinese stock market crash and world- wide effect on stock markets around the World has created a crisis with day to day developments.  The World Stock market crash stated on August 24, 2015 and went through to August 27th and 28th, when World markets recovered. This blog post follows the day to day developments during this period.

The July and early August stock market crash in China was followed by a slight devaluation of the Chinese yuan, which, in turn, created panic as many investors feared that a substantial slow-down in the Chinese market would affect economies world-wide. That in turn triggered more falls in the Chinese stock market and subsequent crashes in stock markets around the World.

The real issue now is what is the real state of the Chinese economy and how that will affect Chinese and US companies in the future.

The parallel story was the US Presidential Primary in which the main contenders as a result of the crash pounded free trade and China in particular provoking a question will the real loser in the 2016 US election be free trade? Although many US politicians may be happy that China is falling economically, the direct impact on the US stock market and other stock markets around the World indicates how the World economy is very interconnected. The more the US pounds China, the more it hurts itself.

As predicted, the Trans Pacific Partnership (“TPP”) did not conclude at the Hawaii meeting, but it continues forward. In addition, the EXIM bank has problems and there have been slight technical changes to the US antidumping and countervailing law, which were passed in the African Growth and Opportunity Act.  In addition to the China and World Stock Market Crash and Trade Policy, this blog post will cover Trade, Customs, 337, including the Suprema case, IP/patent, antitrust and securities.

I will also be in Hong Kong, Shanghai and Beijing, China from September 7 to 26, first in Hong Kong from Sept 7 to 12, Shanghai 12 to 18th and Beijing from 18th to the 26th. If anyone would like to talk to me about developments in trade and customs law, please feel free to contact me.

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

After my last post at the end of July on the Chinese stock market crash, on August 24, 2015, despite assurances from Secretary of Treasury Jack Lew, https://grabien.com/story.php?id=32165&from=allstories, that the fall in the Chinese stock market would not affect world markets, there was a sharp fall in stock exchanges around the World as China’s stock exchange started the day off by falling another 8.5% to put the Chinese exchanges in negative territory for 2015.

On August 24th, the New York Post yelled out, “Wall Street Really Freaked Out This Morning” and went on to state:

An enormous shudder swept through Wall Street on Monday as the Dow Jones industrial average cratered more than 1,000 points, or about 6.2 percent, in early trading — before leveling off at a decline of about 450 points, or 2.7 percent, as fears of a global economic slowdown once again spooked US investors.

The plunge was a wake-up call to Main Street and Wall Street alike. . . .

The huge Dow sell-off follows an 8.5 percent decline in Asia markets. In Europe, markets were down as much a 6 percent. . . . The global market sell-off began earlier this month when China — the world’s No. 2 economy behind the US — devalued its currency twice in a bid to jumpstart its economy.

China’s GDP, which was in the mid- to upper-single digits, had slowed to the lower-single digits. “Nobody really knows for sure, from fundamental perspective, will we go into recession, will China go into recession,” Stovall said. . . .

In fact, at the end of trading on August 24th, Dow Jones lost 588 points, a drop of 3.58%. to close at 15,871.

On August 24th, the Wall Street Journal also reported:

U.S. stocks pared most of Monday’s steep losses after a rocky morning during which the Dow Jones Industrial Average briefly plummeted more than 1,000 points. . . .

The Dow industrials plunged as much as 1,089 points shortly after the open, marking the index’s largest one-day point decline ever on an intraday basis, amid a selloff that has hammered stock markets from Beijing to London to New York. . . .

Fears that China’s economy is slowing dramatically sparked the heavy selling in stocks around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second largest economy may be in worse shape than many had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown. . . .

The Wall Street Journal also stated in the August 24th edition:

Beijing’s struggles this summer have spooked many investors into viewing China as a threat to, rather than a rescuer of, global growth. During the financial crisis of 2008 and early 2009, China, with a colossal stimulus plan, acted as a shock absorber. Lately, It Is China that Is providing the shocks.

Over the past week, it has grown clear how dependent a growth-starved world is on China, which accounts for 15% of global output but has contributed up to half of global growth in recent years.

Given this dependency one reason markets have been so unnerved is that China’s economy remains something of a black box. For starters, analysts have long wondered about the accuracy of government economic statistics. And levers pulled by Chinese policy makers can be unconventional.

This is seen in Beijing’s desire to micromanage the yuan’s value, which undercuts its ability to pursue an independent monetary policy because of spillover effects on domestic liquidity.

On the same day, the Washington Post reported:

China’s ‘Black Monday’ spreads stock market fears worldwide….

Stock market jitters spread throughout Asia and the rest of the world, and Wall Street sustained a major plunge, after Chinese stocks recorded their biggest slump in eight years during what China’s state media dubbed “Black Monday.”

The collapse in Chinese stocks was fueled by mounting concerns about an economic slowdown here, but it has fed into a wider sell-off in emerging markets. . . ..

“A lot of questions are being asked by investors,” said Chris Weston, chief markets strategist at IG in Melbourne. “This is a confidence game, and when you don’t have confidence, you press the sell button.” . . ..

“Markets are panicking,” Takako Masai, head of research at Shinsei Bank in Tokyo, told the Reuters news agency. “Things are starting to look like the Asian financial crisis in the late 1990s.

See also following article from Bloomberg on how the slide in the Chinese market has hit global markets– http://www.bloomberg.com/news/articles/2015-08-21/these-charts-show-how-hard-china-has-hit-global-markets.

What are the lessons to be learned from the Chinese stock market drop? There are lessons for China and the United States.

The lesson for China is that accurate economic and corporate data, including economic data from village, city and Provincial governments and corporate earnings of listed companies, are incredibly important. Many countries and investors question the accuracy of the Chinese government economic statistics. In fact, one Chinese has told me that based on electricity consumption numbers, the real China growth number is 4%. Other commentators have argued that the real number is a negative number.

The problem is that the 7% economic growth number is not based on hard economic data because Chinese governments at the village, city and the provincial level play with their economic data to make themselves look good.

In addition, as stated in my last newsletter, there is no market regulator in China to protect the integrity of the Chinese stock market, as there is in the US, Europe, Hong Kong and other countries. The market regulators, such as the US Securities and Exchange Commission (“SEC”), make sure that earnings and financial statements issued by listed companies, in fact, are accurate. There is no such assurance in the Chinese market.

Many experts in China have told me that I simply “do not understand the Chinese way.” If the “Chinese way” means having different sets of accounting books and providing different corporate data or economic data depending upon what the government authority wants, the problem with that Chinese way is that it deprives the Chinese government of accurate data it needs to manage its own economy. The Chinese way also encourages wild swings in the Chinese stock market as investors in China and abroad simply do not know what numbers are accurate.

The “Chinese way” of not having a governmental authority to ensure the accuracy of economic data from villages, cities and provinces and corporate data from listed companies has contributed to the sharp fall in the Chinese stock market and the loss of trillions of dollars. China is no longer a developing company. Economic decisions in China impact the rest of the World. Neither the World nor China can afford acting as if China is a developing country. As a modern advanced country, China needs to ensure the accuracy of its economic and corporate data.

For the United States, the lesson is that the World economy is very interrelated and interconnected, and what happens in China affects the US market. It is simply impossible for the US to cut or delink itself from China.

The US market cannot be isolated from China and the rest of the World. When one hits China and other foreign countries, as many politicians do, such as Donald Trump, that in turn can hurt the US. Ira Stoll who writes for the NY Sun blames the US market crash in part on Donald Trump http://www.nysun.com/national/the-trump-recession-markets-start-to-react-to/89263/. See also New York Sun Editorial on Donald Trump at http://www.nysun.com/editorials/an-economic-imbecile/89259/.

Trump reacted by stating that he was not to blame for just pointing out the problems and that the US should delink from China. See http://video.foxnews.com/v/4441195997001/trump-talks-stock-market-slide-biden-and-border-security/?intcmp=hpvid1#sp=show-clips. So that means, as described below, that the US should stop shipping its $123 billion plus in exports to China because it should delink from China. Correct?

Sometimes when you jump up and down on China, you end up hurting the United States. Always blaming China for the US economic problems may feel good and be good election politics, but it is not good economic policy. When Hank Paulson was the Secretary of Treasury under President George W. Bush, he firmly believed that the economic relationship between the US and China was the most important economic relationship in the World. US politicians should understand this important point.

For Republicans, the inconvenient truth is that President Ronald Reagan was a free trader. As President Ronald Reagan stated on June 28, 1986 in a speech from his California ranch, Protectionism becomes destructionism; it costs jobs.”

CHINA STOCK MARKET CRASH – STAGE 3 MOST WORLD MARKETS RECOVER BUT CHINESE STOCK MARKET CONTINUES TO FALL

On August 25, 2015, World markets, including the US, rebounded, but then fell again as the Chinese stock market continued a straight line fall. After surging through most of the trading day, the Dow Jones Industrial Average shed 205 points, or 1.29% to drop to 15,666.

On August 26, 2015, Wall Street recovered as the Dow Jones average went up 620 points to 16,285, but the Shanghai stock market fell again by 1.37% as well as Hong Kong.

After the Chinese government cut its interest rate the fifth time in nine months, on August 25th stocks went up around the World, but then fell back. But in China it continued to be a straight line decline. Shares in Shanghai closed 7.6% lower as the index fell below 3000 for the first time since December, following the worst one-day loss in more than eight years on Monday. China’s stock plunge has wiped out more than $1 trillion in value from equities over the past four days.

The Chinese government apparently has stopped trying to stop the market plunge because it simply costs too much money. As mentioned in prior newsletters, stock market bubbles get so big that no government can control the situation. The Chinese government now appears powerless to prevent a further slide in the country’s stock market, as the country’s main share index plunged for a fourth straight day.

As Wei Wei, an analyst at Huaxi Securities in Shanghai:

“At the moment there’s panic in the market, because we have lots of retail investors. We’ve never experienced anything like this in China’s stock market, the speed of the decline and the scale of it.”

Global markets have lost trillions of dollars in market value over the last few weeks, erasing all gains for the entire year and creating fears of an ever deepening loss.

When the Chinese market first started its drop, authorities unleashed a series of measures to stop the slide, establishing a $400 billion fund to buy stocks, ordering state-owned companies to buy shares, banning large shareholders from selling and even launching criminal investigations into short sellers.

Aside from the central bank’s action, however, the Chinese government authorities appear to be largely standing aside this time, partly because they know they cannot stem a global slide in equity markets, and partly because government intervention to buy shares was simply becoming too expensive.

As Li Jiange, vice chairman of state-owned investment company Central Huijin, stated:

“The trade volume of the market can reach 2 trillion yuan ($300 billion) a day, which means if it collapsed no one could save it. The issues of the market should be handled by the market itself.”

As another Chinese analyst stated:

“The authorities stepped in and tried to save the stock market once. And you can see it is not working. The authorities might step in but probably not in as high profile a way as they did last time. It’s not helpful for them to interfere like that.”

On August 26, 2015, CAIXIN, a well-known newspaper/magazine in China, issued an editorial stating:

Counting the Cost of Gov’t Intervention in Stock Market

Regulators should take a long look at their recent behavior because the bourses’ future depends on government doing its job the right way

Two months into the government’s unprecedented efforts to save the stock market – which had its most turbulent week starting on August 18 since state-backed investors intervened to end volatility in early July – it is time we consider what comes next.

On August 14, the China Securities Regulatory Commission announced that the China Securities Finance Corp. (CSF), which has played a central role in the government’s campaign to bail out the market, sold an unspecified amount of stocks it recently bought to Central Huijin Investment Ltd.

It would be wishful thinking to believe that this means the CSF has more money to continue buying stocks. Rather, the deal marked an end to operations that have plowed nearly 2 trillion yuan into the A share market since it took a nosedive in mid-June.

The sheer volume of the capital involved and the consequences that may follow over a long period demand that we seriously reflect on what was done and what should have been learned.

The money the CSF used to buy the shares primarily came from commercial banks. It will need to repay those loans quickly with the funds it received from Central Huijin, which raised the funds it needed for its purchase by issuing bonds. Costs aside, Central Huijin’s mandate is to hold stakes in financial institutions on behalf of the state. Supporting the stock market is not its job.

When announcing the share transfer, the securities regulator also said “the stock market goes up and down according to its own laws and the government will not intervene under normal circumstances.” Perhaps this statement is intended to signal that the government’s intervention has concluded.

The announcement also said that the CSF “will continue to play a stabilizing role in many ways should the market experience severe and abnormal fluctuations and possibly trigger systemic risk.” The emphasis here should fall on how the government defines “abnormal fluctuations” and “systemic risk.” Ambiguity on these two important questions will have grave consequences.

It is still too early for a thorough review of the costs and benefits of the government’s involvement in the stock market, but some judgments can be made. To start, the regulator should not have tried to get the stock index to go up. Also, the CSF seemed to have picked stocks randomly, pouring capital into valuable and worthless companies indiscriminately. Critics have questioned the wisdom of these actions, and some voiced concerns about insider trading.

Many other issues remain to be resolved. The first is defining the role of the CSF. The institution has become a de facto stock market stabilization fund in that it snaps up shares few others want, and the government has said this will remain its mission for years. Critics say the very existence of the fund distorts the market, not to mention that trillions of yuan are at stake. Deciding what the CSF can do with the money – now that its main job has changed – should be done according to the law. . . .

Also at risk is the sense of rationality that the government has tried for years to instill in stock investors.

Ever since the CSF stepped into the market, speculators have started gambling again, to the detriment of the market. The message some investors took away from the intervention is that the government will always ride to the rescue when the market collapses. The moral hazard this created backtracks on progress that has been made over many years on investor education. . . .

The capital market cannot grow in a healthy manner with the CSF playing the role of savior. It should end this role sooner rather than later. . . .

The regulator must learn the right lessons this time. Reflecting on what it did wrong would be a start. The future of the market depends upon it doing its job right.

For the full editorial, see http://english.caixin.com/2015-08-26/100843837.html.

Pointing to the factory and consumer price data, Mr. Yu Yongding, a prominent Chinese economist and a former adviser to the central bank, stated:

China’s economy will get worse before it gets better. Chinese companies are struggling with high debt loads and low prices. China has entered a stage of deflation.

Although the fundamentals are driving stock prices around the World, no one knows what the fundamentals are in China and that fuels the panic, when it comes to the Chinese stock market. As the Wall Street Journal reported on August 25th:

For All Its Heft, China’s Economy Is a Black Box

For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making.

This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.

Economists widely doubt that China grew at a robust 7% pace in the second quarter, as the country’s official statistics say. Citing other data, such as power generation and passenger travel, some think the rate might be as little as half that.

Similarly, when the People’s Bank of China devalued its currency two weeks ago, a step that sparked much of the recent market upheaval, officials couched the move as part of a long-term effort to align the yuan’s value more closely with market forces. Some outside analysts, noting that the PBOC isn’t independent, saw a more political motive: to boost exports and thus bolster the Communist Party’s credibility and hold on power. . . .

“With my G-7 and many G-20 counterparts there were frank, honest conversations, you were on the phone pretty frequently, often weekly,” recalls one former Treasury official who still deals extensively with China for the financial industry. “With China, you don’t know who to call. It’s hard to know where decision making occurs or who’s calling the shots.” . . . .

no major advanced country’s statistics are viewed as skeptically as China’s.

In 2007 Li Keqiang, now China’s premier, told the U.S. ambassador, according to a memo released by WikiLeaks, that GDP is “man-made” and therefore unreliable.

Mr. Li, who was then Communist Party chief of Liaoning province, said he looked at data on electricity, rail cargo and loans to get a better gauge on economic activity. Several analysts have since come up with indexes based on Mr. Li’s favorite stats.

In London, Capital Economics looks at freight activity, electricity, property development, passenger travel and sea shipments, and concludes China’s economy expanded much more slowly in the second quarter than China reported. Lombard Street Research, another London research outfit, uses another approach, including a different measure of inflation, and comes up with just a 3.7% growth rate.

Chinese statistics are “spookily stable from quarter to quarter,” says Capital Economics analyst Mark Williams. For instance, China’s unemployment rate registers 4.1% nearly every quarter. . . .

China’s leaders are heir to a tradition of secrecy. In 1971, when Mao Zedong’s anointed successor died, the public wasn’t told for nearly two months. In the current corruption crackdown, it can still be weeks or months after senior or retired leaders disappear before their detention is announced. . . .

Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, in the August 25th Washington Post stated that the real scary part of the stock market crash was the reaction of the US Presidential candidates:

The truly scary thing about Black Monday

The global sell-off of stocks yesterday was a little worrying. The reaction from some candidates for president was a lot worrying. . . .

China’s Black Monday reveals something useful: how potential U.S. presidents are reacting to the market sell-off. . . .

One Republican candidate, Gov. Scott Walker of Wisconsin, called on President Obama on Monday to cancel his plans to meet in Washington next month with President Xi Jinping of China on what will be his first state visit to the United States. Mr. Walker accused Beijing of a range of offenses that have harmed American interests, including manipulating its economy and currency, carrying out cyberattacks and persecuting Christians.

Wait. What?

Frankly, at this point both U.S. and Chinese officials wish China could actively manipulate their economy. What’s happening this month is evidence, in fact, that market forces can easily override Chinese government manipulation. To be sure, Walker lists legitimate beefs with the People’s Republic, but I’m pretty sure canceling the state visit would not help at all on any of them. . . .

In response to Trump’s argument that the United States should delink from “China, Mr. Drezner stated:

Oh, for the love of –. Look, I’ll keep this simple. If American voters really want any market volatility to metastasize into an actual Great Depression, then by all means break ties with China and Asia. But the only reason the 2008 financial crisis wasn’t worse was precisely because that didn’t happen. . . .

The same is true for Sanders, who also seized on the market moment in a tweet from the populist left: “For the past 40 years, Wall Street and the billionaire class have rigged the rules to redistribute wealth to the richest among us.”….

and it would be foolish for any of the establishment candidates to go down this rabbit hole.” Except that’s what Scott Walker did. Oh, and then there’s Chris Christie:

“. . .17:08:24 Lots and lots of money from the Chinese and remember that when the Chinese hold this much of our debt, if the Chinese get a cough, we get the flu and that’s what’s happening now right now in my opinion in our financial markets.”

Let’s be clear: China owning lots of U.S. government debt has exactly zero to do with what’s happening right now. If anything, the gyrating Chinese stock market and depreciating yuan, combined with general developing country malaise, will trigger a massive surge of interest in U.S. government debt. So Christie is simply wrong here.

The scariest thing about Black Monday wasn’t the stock market fluctuations. Those will hopefully be temporary enough in the United States. No, the scariest thing was how one day of financial volatility was enough to make four presidential candidates — Christie, Sanders, Trump, and Walker — say really stupid things about the Chinese economy and the Sino-American relationship.

See https://www.washingtonpost.com/posteverything/wp/2015/08/25/the-truly-scary-thing-about-black-monday/?hpid=z3 for the full article.

From an international trade point of view, although China is important, the really scary part is not China, but the global drop in trade. On August 25, 2015 the Financial Times reported that “This year is worst for trade since crisis” of 2009

The volume of global trade fell 0.5 per cent in the three months to June compared to the first quarter . . . also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organization, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise down that estimate in the coming weeks.

Much of the slowdown in global trade this year has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

In other words, instead of bashing China and trade in general, maybe the Presidential candidates should talk about boosting trade.

But one interesting point, on August 25, 2015, the New York Times had an article by Joe Nocera entitled The Man Who Got China Right. In the Article, Mr Nocera described Jim Chanos of Kynikos Associates, a $3 billion hedge fund that specializes in short-selling. Mr. Nocera goes on to state:

In the fall of 2009, Jim Chanos began to ask questions about the Chinese economy. What sparked his curiosity was the realization that commodity producers had been largely unaffected by the financial crisis; indeed, they had recorded big profits even as other sectors found themselves reeling in the aftermath of the crisis.

When he looked into why, he discovered that the critical factor was China’s voracious appetite for commodities: The Chinese, who had largely sidestepped the financial crisis themselves, were buying 40 percent of all copper exports; 50 percent of the available iron ore; and eye-popping quantities of just about everything else.

That insight soon led Chanos to make an audacious call: China was in the midst of an unsustainable credit bubble. . . .

Chanos and his crew at Kynikos don’t make big “macro” bets on economies; their style is more “micro”: looking at the fundamentals of individual companies or sectors. And so it was with China. “I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial,”

Chanos told me the other day.

“I said, ‘You must mean 5.6 billion square feet.’ ”

The man replied that he hadn’t misspoken; it really was 5.6 billion square meters, which amounted to over 60 billion square feet.

For Chanos, that is when the light bulb went on. The fast-growing Chinese economy was being sustained not just by its export prowess, but by a property bubble propelled by mountains of debt, and encouraged by the government as part of an infrastructure spending strategy designed to keep the economy humming. (According to the McKinsey Global Institute, China’s debt load today is an unfathomable $28 trillion.)

Chanos soon went public with his thesis, giving interviews to CNBC and Charlie Rose, and making a speech at Oxford University. He told Rose that property speculation in China was rampant, and that because so much of the economy depended on construction — in most cases building properties that had no chance of generating enough income to pay down the debt — China was on “the treadmill to hell.”

He also pointed out that much of the construction was for high-end condos that cost over $100,000, yet the average Chinese household made less than $10,000 a year.

Can you guess how the financial establishment, convinced that the Chinese juggernaut was unstoppable, reacted to Chanos’s contrarian thesis? It scoffed. . . .

As it turns out, China’s economy began to slow right around the time Chanos first made his call. No matter: Most China experts remained bullish. Chanos, meanwhile, was shorting the stocks of a number of companies that depended on the Chinese market. . .

These days, with the markets in free-fall, it certainly looks like Chanos has been vindicated. . . . This loss of confidence in China and its leaders has spooked stock markets around the world.

The moral of today’s story is a simple one. Listen to the skeptics and the contrarians. You dismiss them at your peril.

For the full article, see http://www.nytimes.com/2015/08/25/opinion/joe-nocera-the-man-who-got-china-right.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=19479910.

CHINA STOCK MARKET CRASH – STAGE 4—MARKETS RECOVER BUT CHINA IS NO LONGER A SURE BET

On August 27 and 28, 2015, World Markets recovered and the Chinese stock exchanges even went up on suspicion of Chinese government buying programs, but the new reality is that China is no longer a sure bet. The focus now is on the true state of China’s economy. As the New York Times stated on August 27th:

China Falters, and the Global Economy Is Forced to Adapt

With deepening economic fears about China, multinational corporations and countries are having to respond to a new reality as a once sure bet becomes uncertain.

China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.

Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer. . . .

The trouble is, the true strength of the Chinese economy — and the policies the leadership will adopt to address any weaknesses — is becoming more difficult to discern.

China’s growth, which the government puts at 7 percent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture. . . ..

For entire article, see http://www.nytimes.com/2015/08/27/business/international/china-falters-and-the-global-economy-is-forced-to-adapt.html?emc=edit_th_20150827&nl=todaysheadlines&nlid=19479910&_r=0.

 TRADE POLICY

WILL THE REAL LOSER IN THE 2016 US ELECTION BE FREE TRADE?

In my first July newsletter on Trade Policy, Trans Pacific Partnership (“TPP”) and Trade Promotion Authority (“TPA”), I asked whether the US Congress will follow the siren call of protectionism and take the US backwards or move forward with the Trans Pacific Partnership (“TPP”) to resume its free trade leadership? Truly a question.

As an observer of the Presidential primary right now, free trade and the trade agreements appear to be the latest punching bag, especially among the populist front runners, such as Donald Trump and Bernie Saunders. Using the euphemism of putting America first and protecting workers and US factories at all costs from import competition created by free trade agreements, many candidates apparently are simply engaged in protectionism.

Although the establishment Republicans, such as Jeb Bush, Marco Rubio and John Kasich, have all indicated that they are for Free but “Fair” Trade, Donald Trump, the front runner, is a different story.

When asked how the United States could create new jobs in the first Republican debate, Donald Trump, who presently leads the Republican primary field, stated during the first Republican debate, “Well for starters I would negotiate better trade deals. The Chinese are killing us.”  Trump further stated:

“This country is in big trouble. We don’t win anymore. We lose to China. We lose to Mexico both in trade and at the border. We lose to everybody,”

On August 24th, Trump warned that because of the Chinese stock market fall, China would bring the US down and the US should delink from China. See https://instagram.com/p/6xT08ZGhQc/

Trump has decreed that he will build a wall to stop illegal immigrants coming in from Mexico and the Mexican government will pay for it. Trump has stated that if the Mexican government does not pay for it, he will raise tariffs on Mexican products. But that would be a violation of the North American Free Trade Agreement (“NAFTA”).

Trump has also threatened that if China takes actions, such as cyber-attacks, on the US, he will raise tariffs on Chinese products, but that would be a violation of the World Trade Organization (“WTO”) Agreement and the WTO Agreement between the US and China.

In other words, it sounds like Trump Administration would create a trade war or trade wars with a number of different countries.

Although Trump and Republican Senator Sessions of Alabama have argued that the US has a free trade agreement with China, it does not. All the US has with China is PNTR, which means permanent normal trade relations with China, just like the normal trade relations the United States has with Russia, Ukraine, Syria, Iran and many other countries.

Although Trump has been bashing China and trade in general, most people thought he could not be elected, but in mid-August, Bloomberg Politics Managing Editor Mark Halperin stated on MSNBC that Trump has “reached a turning point” at which “establishment candidates” think he can win Iowa and added that “most” believe he can win the nomination, and “a significant number think he could win the White House.” As Halpern further stated, “Trump may not end up as the nominee, but right now, he’s changed the race.” The latest Fox News poll shows that Trump is in first place with 25 percent support nationally, more than double the support for Ben Carson who is in second place with 12 percent. The findings mirror recent polls in Iowa.

An August 20, 2015, Rasmussen Report telephone Poll has 57% of Republican voters stating Trump is the likely to be the Republican Presidential Nominee. See http://m.rasmussenreports.com/public_content/politics/elections/election_2016/trump_change.

On August 27, 2015, Peggy Noonan, a former speechwriter for President Ronald Reagan and a committed Republican, in an article entitled “America Is So in Play” published in the Wall Street Journal stated that she was discovering a distinct change in the electorate towards Donald Trump and the Republican party because the Hispanics and  other lower income people that she knows are for Donald Trump:

Second, Mr. Trump’s support is not limited to Republicans, not by any means. . . .

Since Mr. Trump announced I’ve worked or traveled in, among other places, Southern California, Connecticut, Georgia, Virginia, New Jersey and New York’s Long Island. In all places I just talked to people. My biggest sense is that political professionals are going to have to rethink “the base,” reimagine it when they see it in their minds. . . .

Something is going on, some tectonic plates are moving in interesting ways. My friend Cesar works the deli counter at my neighborhood grocery store. He is Dominican, an immigrant, early 50s, and listens most mornings to a local Hispanic radio station, La Mega, on 97.9 FM. Their morning show is the popular “El Vacilón de la Mañana,” and after the first GOP debate, Cesar told me, they opened the lines to call-ins, asking listeners (mostly Puerto Rican, Dominican, Mexican) for their impressions. More than half called in to say they were for Mr. Trump. Their praise, Cesar told me a few weeks ago, dumbfounded the hosts. I later spoke to one of them, who identified himself as D.J. New Era. He backed Cesar’s story. “We were very surprised,” at the Trump support, he said. Why? “It’s a Latin-based market!”

“He’s the man,” Cesar said of Mr. Trump. This week I went by and Cesar told me that after Mr. Trump threw Univision’s well-known anchor and immigration activist, Jorge Ramos, out of an Iowa news conference on Tuesday evening, the “El Vacilón” hosts again threw open the phone lines the following morning and were again surprised that the majority of callers backed not Mr. Ramos but Mr. Trump. Cesar, who I should probably note sees me, I sense, as a very nice establishment person who needs to get with the new reality, was delighted.

I said: Cesar, you’re supposed to be offended by Trump, he said Mexico is sending over criminals, he has been unfriendly, you’re an immigrant. Cesar shook his head: No, you have it wrong.

Immigrants, he said, don’t like illegal immigration, and they’re with Mr. Trump on anchor babies. “They are coming in from other countries to give birth to take advantage of the system. We are saying that! When you come to this country, you pledge loyalty to the country that opened the doors to help you.”

He added, “We don’t bloc vote anymore.” The idea of a “Latin vote” is “disparate,” which he said generally translates as nonsense, but which he means as “bull—-.”

He finished, on the subject of Jorge Ramos: “The elite have different notions from the grass-roots working people.”

Old style: Jorge Ramos speaks for Hispanic America. New style: Jorge Ramos speaks for Jorge Ramos. . . .

I will throw in here that almost wherever I’ve been this summer, I kept meeting immigrants who are or have grown conservative—more men than women, but women too. America is so in play. . . .

Both sides, the elites and the non-elites, sense that things are stuck. The people hate the elites, which is not new, and very American. The elites have no faith in the people, which, actually, is new. Everything is stasis. Then Donald Trump comes, like a rock thrown through a showroom window, and the molecules start to move.

For the entire article, see http://www.wsj.com/articles/america-is-so-in-play-1440715262.

In early August at a Bellevue, Washington Republican event, I heard Congressman Dave Reichert, a former Washington State policeman and sheriff, state that he believes the major issue in the next 2016 election will be “control versus chaos”. He argues that the average American voter is looking for someone who can control the situation in the United States as compared to the chaos we see in the US with illegal immigration, foreign policy and other domestic issues. That may be a reason for Trump’s appeal to the Republican voter.

But what about Democrats? Although Hilary Clinton may be in the lead, as many political experts know, she is wounded because of a number of issues, including e-mail problems she had while Secretary of State that have morphed into a potential FBI criminal investigation. See Reuters report at http://mobile.reuters.com/article/idUSKCN0QQ0BW20150821. But Hilary has not come out in favor of the trade agreements. Why? The labor unions, which are a significant part of the Democratic base and very anti-trade.

The next candidate behind Hilary is Senator Bernie Sanders. Many Democrats are saying that Hilary is “feeling the Bern.” Sanders, however, is very close to the labor unions and, therefore, is vehemently against the Trade Agreements, China and Free Trade in general. See the June 23rd statement by Senator Bernie Sanders in which he denounced Trade Promotion Authority and the Trans Pacific Partnership on the floor of the US Senate at http://www.c-span.org/video/?c4541798/sen-bernie-sanders-tpa-disaster-america.

Bashing international trade and China in particular and blaming trade and China for all the ills in the US economy is common in US elections and may feel good. But reality soon intrudes. In 2014, total US exports, including manufactured products, agricultural products and services to other countries were $2.35 trillion, an increase over the last few years, with exports of US manufactured goods reaching $1.64 trillion. Under NAFTA in 2014 goods exported to Mexico were $240 billion and to China were $123 billion. US exports means US jobs. See https://www.census.gov/foreign-trade/balance/c5700.html.

The reality is that the United States is exporting many products to Mexico and China, including manufactured goods, agricultural products and services. What this means is that the United States is vulnerable to retaliation if it takes trade actions against other countries. Retaliation that will shut down US exports and cost US jobs.

As described above, China right now is going through an economic slowdown. As the New York Times stated on August 18th:

When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda. The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes. . . . .

Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop. . . .Millions of Chinese are looking for work.

See http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=19479910&_r=0.

China’s slower economy will affect US companies and US jobs. Qualcomm, for example, is about to layoff thousands from its global workforce, many in San Diego, California. See http://www.sandiegouniontribune.com/news/2015/aug/17/Qualcomm-broadcom-nokia-layoffs-foreign-workers/.

But as people who read this newsletter know, Qualcomm was fined almost $1 billion for violations of China’s Antimonopoly law. Qualcomm also makes more than $9 billion every year, but half of that income comes from China. As people also know from this newsletter, China is going through an economic slowdown so right now a weak China market can hurt US exports. In international trade, what goes around, comes around.

The problem with protectionism is that trade is not a one way street. As Senator Marco Rubio stated on August 10th at a Republican reception in Bellevue, Washington, US consumers represent only 5% of the World Economy. 95% of consumers are outside of the US so if a US company wants to increase sales and increase jobs, it has to export.  In an August 28, 2015 opinion piece in the Wall Street Journal, entitled “How My Presidency Would Deal With China”, Senator Rubio made one of the more thoughtful points on China, stating:

My second goal is protecting the U.S. economy. For years, China has subsidized exports, devalued its currency, restricted imports and stolen technology on a massive scale. As president, I would respond not through aggressive retaliation, which would hurt the U.S. as much as China, but by greater commitment and firmer insistence on free markets and free trade. This means immediately moving forward with the Trans-Pacific Partnership and other trade agreements.

For the full opinion piece, see http://www.wsj.com/articles/how-my-presidency-would-deal-with-china-1440717685.

Republican and Democratic Senators, such as Orin Hatch, Marco Rubio and Ron Wyden, and Republican representatives, such as Paul Ryan, Dave Reichert and Pete Sessions, and free trade Democratic representatives, such as Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene, make the same argument and, therefore, understand the trade situation.

On August 19th, I met with the New Democratic Coalition of moderate Congressional Democrats, many from Washington State, who are pro-trade and pro-growth. 40% of the jobs in Washington State are tied to trade. See the Politico article, which describes the New Democrat Coalition in detail at  http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

All the Democratic Representatives in the New Dem Coalition that I talked with were very concerned about the anti-trade rhetoric in the Presidential Primary, not only from Donald Trump but also Bernie Sanders. One Representative surprised me by talking well of Republican Senator Marco Rubio, who is pro free trade. The Democratic Representatives in the New Democratic Coalition understand how important international trade is to the economy, the companies and jobs in their states.

All of international trade is based on reciprocity. What the United States does to one country, that country can do back. If the US raises tariffs to keep imports out or puts in place trade restrictions, that country, in turn, can retaliate, raise tariffs and keep US exports out.

Several years ago, the United States determined to stop Mexican trucks from carrying freight into the United States. In return, Mexico stopped all imports of potatoes from Washington and other US states.

Just like Donald Trump, Bernie Sanders and other present day politicians, in the 1930s, as a candidate for President, Herbert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports, and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to US exports. Exports, imports and trade stopped and the World was plunged into the Great Depression.

As indicated below, the World economy is at a tipping point and starting a trade war with the rest of the World could hurt the United States and its economy big time. As the recent drop in the US stock market because of the China slow down indicates, the United States is no longer the big kid on the block, the only and biggest market in the World. The US, therefore, can be a target of trade actions, which will hurt US companies, US jobs and the US economy as a whole.

TPP NEGOTIATING ROUND ENDS IN HAWAII WITH NO FINAL AGREEMENT—CANADA AND JAPAN CONTINUE TO BE STICKING POINTS

In late July, after a week of negotiations in Hawaii to close the Trans-Pacific Partnership (“TPP”), negotiators were not able to close the gaps on the TPP’s most controversial provisions, including pharmaceutical patents and rules governing dairy trade. USTR Michael Froman stated that although the negotiations had resulted in “substantial progress in certain areas, final agreement remains out of reach”.

At the conclusion, trade ministers spoke optimistically:

“In this last stage of negotiations, we are more confident than ever that TPP is within reach and will support jobs and economic growth. The progress made this week reflects our longstanding commitment to deliver an ambitious, comprehensive and high-standard TPP agreement that will support jobs and economic growth across the Asia Pacific region.”

On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.

Among the major obstacles are pharmaceuticals and in particular biologic drugs. The U.S. has long held that those high-value medicines, which are used to treat diseases like cancer and rheumatoid arthritis, should be given 12 years on the market before the entry of generic alternatives. But every other TPP partner has consistently pressed for a much shorter exclusivity window, with positions varying from eight years of exclusivity to no exclusivity period whatsoever.

A major problem is Canada’s barriers to agricultural goods, including its dairy and poultry market. New Zealand wants more access to the US market, but the US has stated that it will only open its market if Canada will open its market for more US dairy imports. With Parliamentary elections on October 16th, it is very difficult for Canada to give in now. Trade ministers vowed to keep working closely together to resolve their differences but did not give any details about the timing of the next official negotiating session.

By the way, which group in Canada opposes the giving in to dairy imports from the United States? The Teamsters labor union. Recently Teamsters Canada reiterated its opposition to any changes to Canada’s controversial supply management system for its dairy industry warning Canada’s political class over giving into the United States and other countries in the TPP talks.

In other words, the Teamsters and AFL-CIO in the United States oppose the TPP, but their brother union in Canada opposes lifting restrictions on dairy imports from the US. Apparently the Union’s position is let’s drive worldwide economics back decades and put all the protectionist walls back in place.

The TPP talks are at a delicate stage where much of the technical underbrush has been cleared, but parties are still faced with making calls on politically charged sectors of their economies that could make or break the deal. As Warren Maruyama, former USTR general counsel, stated:

“A lot of the issues that they had going into Maui still appear to be wide open. They are definitely in the endgame, and this is when all the hard issues have to get resolved, and I have yet to see a major trade negotiation that was resolved in one ministerial meeting.”

Another issue is the rules of origin for automobiles and auto parts, which were at the center of bilateral talks between the U.S. and Japan. Although the two countries appear to have forged a compromise on the regional content rule issue, Mexico has taken issue with that arrangement. In addition, rice is a big problem for Japan, and sugar is a big problem for the United States.

The passage of the Trade Promotion Authority (“TPA”) bill revealed a Congress still sharply divided on trade, a factor that Maruyama said USTR Froman will have to keep in mind as they bring the deal to completion. As Maruyama stated:

“USTR has to keep a close eye on the Congress. If it does something that costs votes or gets them seriously crosswise with the Republican House or Senate leadership, TPP is in big trouble. TPA is a good proxy for TPP, and it passed Congress by a very narrow margin and with mostly Republican votes.”

But any delay to TPP threatens to move such a vote deeper into the 2016 election season, where meaningful legislative action often reaches a standstill. In talking to pro-trade Democratic Representatives on August 19th in the New Dem Coalition, they are concerned that the TPP could become an election issue if the Agreement is not concluded soon. Pursuant to the TPA bill that was signed into law, once the final agreement is approved, President Obama must publish the Agreement for 60 days before he can sign it, and then the Congress must take at a minimum 30 days before they can ratify it. If the Agreement is concluded in late Fall or after October 16th, the Canadian election, for example, then that means President Obama could not sign the agreement until the end of December, and Congress would have to deal with the Agreement at the end of January, February 2016, just as the Presidential primaries are starting up in an election year.

If the TPP isn’t ratified by the end of this year, the chances of its being ratified before Obama leaves office will be slim. Congress is highly unlikely to pass a gigantic free trade agreement like the TPP during an election year. It would almost have to happen after the November Presidential election in a December lame-duck session.

Meanwhile, on August 14th, Senator Sherrod Brown, an outspoken critics on US trade policy, stated that he will block the nomination of Marisa Lago to serve as a deputy U.S. trade representative, citing the office’s failure to fully open Trans-Pacific Partnership text for viewing by congressional staff. When USTR rejected Senator Brown’s request, he stated:

“The administration would rather sacrifice a nominee for a key post than improve transparency of the largest trade agreement ever negotiated. This deal could affect more the 40 percent of our global economy, but even seasoned policy advisers with the requisite security clearance can’t review text without being accompanied by a member of Congress.”

EXIM BANK PROBLEMS

There is a major battle in the US Congress now on the Ex-Im Bank. In a victory for free market ideology over pragmatism and simple common sense, conservative members of Congress have let the charter of the EX-IM Bank expire hurting many US companies.

More specifically, Congress let federal authorization for the Ex-Im Bank expire July 1, to the cheers of conservative lawmakers who view it as a tool for crony capitalism.   As a result, credit insurance policies are starting to run out for 3,000 small businesses that rely on them to be able to export along with a number of large companies, such as Boeing. According to National Association of Manufacturers Vice President Linda Dempsey, some U.S. companies continue to compete for overseas bids that will ultimately require Ex-Im backing, in the hopes that the agency will be renewed before the deals fall through.

What is the Ex-Im Bank? According to the Export-Import Bank itself, the EXIM Bank:

is an independent, self-sustaining agency with an 80-year record of supporting U.S. jobs by financing the export of American goods and services. . . .

By financing the export of American goods and services, EXIM Bank has supported 1.3 million private-sector, American jobs since 2009, supporting 164,000 jobs in FY 2014 alone. . . .

Small business exporters need certainty and protection to tackle new markets, expand and create jobs. In FY 2014, nearly 90 percent of EXIM Bank’s transactions—more than 3,340—directly supported American small businesses. . . .

Over the past two decades, the Bank has generated nearly $7 billion more than the cost of its operations. That’s money EXIM Bank generates for the American taxpayer, to help reduce the federal deficit.

EXIM Bank argues that it:

“is vital to countering aggressive foreign competition. With nearly 60 other export credit agencies around the world trying to win jobs for their own countries, EXIM Bank helps level the playing field for American businesses. “Made in America” is still the best brand in the world, and EXIM Bank ensures that U.S. companies never lose out on a sale because of attractive financing from foreign governments.

EXIM Bank further states:

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

Finally, the EXIM Bank argues that it has a long history of bipartisan support:

President Dwight D. Eisenhower, February 12, 1959: “[EXIM Bank’s] record of repaid loans and repayable loans, your infinitesimal portion of written-off loans is one that I can do nothing except to say congratulations to your Directors, the President, and to all of you.”

President John F. Kennedy, July 18, 1963: “…the Export-Import Bank has created a wholly new program of export financing which now provides U.S. business with credit facilities equal to any in the world.”

President Gerald Ford, November 18, 1974: “In order for the United States to maintain its strong position in foreign markets, it is important that the Congress pass the Export-Import Bank bill and avoid attaching unnecessary encumbrances.”

President Ronald Reagan, January 30, 1984: “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export-Import Bank contributes in a significant way to our nation’s export sales.”

President William J. Clinton, May 6, 1993: “Export expansion obviously encourages our most advanced industries. I am committed to promoting these exports, and what’s where the EXIM Bank plays an important role.”

President George W. Bush, June 14, 2002: “I have today signed into law S. 1372, the Export-Import Bank Reauthorization Act of 2002. This legislation will ensure the continued effective operation of the Export-Import Bank, which helps advance U.S. trade policy, facilitate the sale of U.S. goods and services abroad, and create jobs here at home.”

See http://www.exim.gov/about/facts-about-ex-im-bank

The decision to let the EXIM Bank expire on July 1st forces many large and small companies to make drastic changes. Despite the rhetoric of pure free market ideology, the reality is that the real winner of this decision is China, Europe and other countries. Gary Mendell, president of trade financier Meridian Finance Group, said export credit agencies in other countries are already taking advantage of EXIM’s expiration to lure away business from U.S. companies. Mendell stated:

“They’re gleeful about it, and I don’t blame them. Those foreign competitors are going to customers in other countries and saying, ‘Hey, you don’t know if your U.S. supplier is even going to be able to ship to you and give you the payment terms they’re promising in their quote, because look what’s happening with Ex-Im Bank.’”

Some companies are not going to wait for Congress. Boeing Chairman Jim McNerney has stated that the giant plane manufacturer and defense contractor is considering moving parts of its operations to other countries, where they could take advantage of those nations’ equivalents to Ex-Im to continue selling products overseas:

“We’re actively considering now moving key pieces of our company to other countries, and we would’ve never considered that before this craziness on Ex-Im.

McNerney further stated that he might have “made the wrong decision” years ago in trying to keep production in the U.S., given the newly uncertain politics surrounding export financing in Washington. “People just playing politics — they’re not connected to the real world anymore,”

But Rep. Jim Jordan (R-Ohio), a leading conservative critic of the bank, sees even a prolonged expiration for the bank as a victory, stating:

“This is great news for families and taxpayers. Every day that goes by without the Ex-Im Bank being resurrected means it is more likely that it permanently ends. … This is the kind of example of good governance that I am excited to tell my constituents about during the August recess.”

But in Ohio, a state where manufacturing is the key economic issue, the failure to keep the EXIM bank open means a loss of companies and a loss of jobs. Although politicians love to blame China, the real problem is the United States, and politicians should look at themselves in the mirror. The failure of the United States to be competitive with other countries, including China, is not China’s fault.

AGOA PASSES WITH TECHNICAL CHANGES TO THE ANTIDUMPING AND COUNTERVAILING DUTY LAW

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   The AGOA includes the attached technical changes to the US Antidumping and Countervailing duty law, BILL CHANGED LAW.  See also attached explanation of the changes to the law, trade_bills_fact_sheet.

Although most of the proposed changes to the Customs and Trade law are still at Conference Committee, Congress put certain attached technical changes to the Antidumping and Countervailing Duty law, including changes to the All Facts Available and the ITC injury standard, into AGOA, which passed both Senate and the House and has been signed into law by President Obama.

With regards to the ITC, a provision was added to clarify that even though an industry is profitable, it can still be materially injured. The ITC, however, has always been able to find an industry to be injured if profits were declining.

At Commerce, the new change waters down the requirement that Commerce corroborate the rate it uses as an All Facts Available (“AFA”) rate and the requirement that Commerce show that the AFA rate represents commercial reality when determining antidumping rates for foreign companies that do not cooperate in the antidumping or countervailing duty investigation.

Commerce has issued the attached Federal Register notice, DOC FED REG EFFECTIVE DATE TRADE LAW stating that the change in law applies to determinations after the effective date of the law, August 6, 2015, as published in the Commerce notice.  But in a remand determination, which came out recently in the Aluminum Extrusions case, Commerce indicated that it could apply the new law change to remand determinations made on or after August 6, 2015.

But to further complicate the issue today, the Court of Appeals for the Federal Circuit (“CAFC”) issued the attached order on August 11th in the Ad Hoc Shrimp case, CAFC SHRIMP TRADE BILL APPLICATION, asking for further argument on whether the new law applies to future Commerce determinations or retroactively back to entries that were made prior to August 6th.  The CAFC appears to be stating that the new law does not apply to old entries, in effect, that are on appeal to the Courts because the actual determinations on appeal were made prior to August 6th

CUSTOMS AND TRADE ENFORCEMENT BILL

All the Senators emphasized during the final Trade Promotion Authority (“TPA”) debate the importance of the Customs and Trade Enforcement bill formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015 and the House. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.

Because of the differences in the Senate and House Bills, the bills have gone to Conference Committee to reconcile the differences.  But since some of the most pressing provisions went through Congress attached to AGOA, there is not the same pressure on Congress to work through the differences in the two bills.

TRADE

CHINA’S WTO CASE AGAINST US COUNTERVAILING DUTY DECISIONS RESULTS IN LOWER DUTIES IN A NUMBER OF DIFFERENT ANTIDUMPING CASES FOR CHINESE EXPORTERS

On July 22, 2015, Commerce issued the attached Federal Register notice,   ,as a result of China’s victory in the World Trade Organization (“WTO”) case against Commerce Department’s antidumping duty determinations, which did not adequately reduce antidumping rates to account for export subsidies found in the companion Countervailing duty case. This WTO case and Commerce Department notice have had the effect of reducing slightly cash deposits and assessment rates in the following antidumping cases against China: Aluminum Extrusions from the People’s Republic of China; Certain Circular Welded Carbon Quality Steel Line Pipe from the People’s Republic of China; Certain Kitchen Appliance Shelving and Racks from the People’s Republic of China; Certain Magnesia Carbon Bricks from the People’s Republic of China; Certain New Pneumatic Off-The-Road Tires from the People’s Republic of China; Certain Oil Country Tubular Goods from the People’s Republic of China; Certain Potassium Phosphate Salts from the People’s Republic of China; Certain Steel Grating from the People’s Republic of China; Certain Tow Behind Lawn Groomers and Certain Parts Thereof from the People’s Republic of China; Circular Welded Austenitic Stainless Pressure Pipe from the People’s Republic of China; Citric Acid and Certain Citrate Salts from the People’s Republic of China; Lightweight Thermal Paper from the People’s Republic of China; Narrow Woven Ribbons with Woven Selvedge from the People’s Republic of China; Prestressed Concrete Steel Wire Strand from the People’s Republic of China; Raw Flexible Magnets from the People’s Republic of China; and Sodium Nitrite from the People’s Republic of China.

TIRES AD AND CVD ORDERS

On August 10, 2015, in the attached notice, TIRES AD CVD ORDER, the Commerce Department issued antidumping and countervailing duty orders against Passenger Tires from China. The Antidumping Rates range from 14.35 to 30.74% with the Chinese separate rate companies receiving 25.84%. The PRC wide rate is 87.99%. The Countervailing duty rates range from 20 to 116% with the average rate for all other Chinese companies being 30.61%.

BOLTLESS STEEL SHELVES

On August 17, 2015, in the attached decision,factsheet-prc-boltless-steel-shelving-ad-cvd-final-081715, the Commerce Department announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of boltless steel shelving units prepackaged for sale from China. The antidumping rates range from 17.55% to 112.68%, but the cash deposits in the AD case are only 1.49 to 96.62% because of the countervailing duty rates ranging from 12.40 to 80.45%, which are set off in part against the antidumping rates.

UNCOATED PAPER

On August 20, 2015, in the attached decision, factsheet-multiple-uncoated-paper-ad-prelim-082015, the Commerce Department announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of certain uncoated paper from Australia, Brazil, China, Indonesia, and Portugal. For China, the antidumping rates are very high from 97.48% to 193.30% with all Chinese companies but one getting the 193% rate.

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

After the July 28, 2015 steel case that was filed against Cold-Rolled Steel Flat Products from China, Brazil, India, Japan, Korea, Netherlands, Russia, and the United Kingdom, on August 11, 2015, a new antidumping and countervailing duty case was filed against Hot-Rolled Steel Flat Products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom.

In briefs to the ITC, the domestic steel industry in the Cold-Rolled Steel case argue that the Commission should apply the new injury provisions in the statute and find that the domestic industry is materially injured.

There are also rumors in the market that US antidumping and countervailing duty cases will be filed against stainless steel imports from a number of countries, including China. On August 26, 2015, in the attached decision, EU STAINLESS STEEL, the EC imposed antidumping on imports of stainless steel cold-rolled flat products originating in the People’s Republic of China and Taiwan.

SOLAR CELLS

CIT AFFIRMS ITC

On August 7, 2015, in the attached Changzhou Trina Solar Energy Co., Ltd. et al v. US International Trade Commission (“ITC”),CIT AFFIRMS ITC INJURY , the Court of International Trade (“CIT”) affirmed the ITC’s injury determination in the original Solar Cells antidumping case.

SOLAR CELLS—EUROPE

On August 14, 2015, Chinese exporters of specialized glass for solar panels were hit with stiffer antidumping duties by the European Union on Friday after regulators determined that a decrease in export prices had failed to protect their domestic industry. An eight-month European Commission investigation found that dipping export prices allowed Chinese solar glass producers to “absorb” the duties imposed on their products in 2009, which demands increased duties to stop the surge of cheap imports that continue to flow into the EU. The EC then stated:

“[T]he Commission concluded that the sampled exporting producers absorbed the anti-dumping duty in force. Hence, anti-dumping measures imposed on imports of solar glass originating in the [People’s Republic of China] should be amended.”

The antidumping duties in place since 2009 ranged from 0.4 percent to 36.1 percent. Under the new regulation, those numbers go up to range from 17.5 percent to 75.4 percent, with Xinyi PV Products Anhui Holdings Ltd. hit with the highest duties.

The product subject to investigation is solar glass consisting of tempered soda lime flat glass, with an iron content of less than 300 parts per million and a solar transmittance of more than 88 percent, among other technical characteristics.

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

On August 18, 2015, in the attached notice,BLANKETS REVOCATION AD ORDER, the Commerce Department revoked the antidumping order on Certain Woven Electric Blankets From the People’s Republic of China because of lack of interest by the US industry.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 3, 2015, Commerce published the attached Federal Register notice, AUGUST OPPTY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are: Ironing Tables,     Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof. The specific countervailing duty cases are: Laminated Woven Sacks,     Light-Walled Rectangular Pipe and Tube, Sodium Nitrite.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof and the other products listed above from China during the antidumping period August 1, 2014-July 31, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech (Nanchang Co., Ltd.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China.

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

See the Import Alliance website at http://www.importallianceforamerica.com.

We will be targeting two major issues—working for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of importers and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

On November 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. If you are interested in this effort, please contact the Import Alliance through its website or myself directly.

For your additional information, in the attached notice, 9-14 Kilmer Save-the-Date (3), pro-trade Democratic Congressman Derek Kilmer of Tacoma, Washington will be having a reception in Seattle, Washington on September 14, 2015. Congressmen Kilmer would be interested in talking to any importers that attend the reception.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

JUSTICE DEPARTMENT — IMPORTER EXECUTIVE SHOULD GO TO PRISON FOR EVADING US ANTIDUMPING LAWS

On August 21, 2015 the Justice Department requested prison time of four to five years for an executive for illegally importing magnesium from China that was later sold to the military knowing that the Chinese magnesium was covered by an antidumping order. As the US Attorney stated in its response to the Defendant’s sentencing request:

“Based on the defendant’s intentional undervaluing [of the magnesium] for his own profit, it is the position of the government that the defendant was not a minor participant in the offense.”

Prosecutors alleged that the Executive received the powder from a Chinese export dealer named Qian Chen after it was mixed with quarter-inch aluminum nuggets. Nehill then mislabeled the powder as magnesium reagent, or nonpure magnesium, which carried only a 5 percent duty, rather than the 100% plus in antidumping duties.

PRODUCTS LIABILITY

LUMBER LIQUIDATORS IS HAMMERED BY PRODUCTS LIABILITY PROBLEM CAUSED BY CHINESE IMPORTS

On August 5, 2015, it was reported that Lumber Liquidators stock continued to fall by 14 percent, despite the fact that the stock was already down 72 percent this year. The fall in the stock price was caused by a surprise quarterly loss of $23 million. Numerous executives have left the company as it faces criminal and civil investigations by several regulators as a result of the charges, as well as consumer and shareholder class action suits.

Legal costs continue to smash the company as it has already spent $9.7 million to address legal problems associated with both consumer and shareholder lawsuits and ongoing probes by the Justice Department, SEC, the Consumer Product Safety Commission and the California Air Resources Board.

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

On August 25, 2015, Juan Pruneda and Maria Ana Pruneda filed the attached products liability complaint, for a defective metal grate that led to the death of Matias Uriel Pruneda against Honghua International Co. Ltd., Chuanyou Guanghan Honghua Co., Ltd., Sichuan Honghua Petroleum Equipment Co., Ltd., Nabors Industries, Ltd., Nabors Drilling International Ltd., and Nabors Drilling International II Ltd.

IP/PATENT AND 337 CASES

SUPREMA—CAFC AFFIRMS ITC’S AUTHORITY IN INDUCED INFRINGEMENT IN SECTION 337 CASES

On August 10, 2015 in the attached en banc decision in Suprema, Inc. v. International Trade Commission, SUPREMA CAFC, a majority of the judges in the Court of Appeal for the Federal Circuit (“CAFC”) by a 6-4 vote affirmed the ITC finding that the Commission has the authority to exclude the importation of materials that induce patent infringement even if the products are not infringing when they cross the border.

The Federal Circuit found that because Section 337 does not directly address the issue of whether the ITC can exclude articles that infringe only after importation, the ITC’s interpretation of the statute as giving it jurisdiction over such post-importation infringement should be given deference.

The case involved fingerprint scanners from Korea which at the time of importation into the United States did not infringe the patent, but when the fingerprint scanners after importation were combined with software in the United States, they did infringe the US patent.

In the original CAFC decision, the 3 judge panel held on a 2-1 basis that since the scanners did not infringe the patent at the time of importation into the United States, their importation was not a violation of section 337. The En Banc panel based on a 6-4 determination reversed the ruling of the initial 3 judge panel finding that since the statute itself does not answer the question of whether the ITC has jurisdiction over goods that infringe only after importation, deference should be given to the Commission’s reasonable interpretation of Section 337 as giving the Commission authority over goods that infringe.

As the CAFC majority stated:

We conclude that because Section 337 does not answer the question before us, the Commission’s interpretation of Section 337 is entitled to Chevron deference. We hold that the Commission’s interpretation is reasonable because it is consistent with Section 337 and Congress’ mandate to the Commission to safeguard United States commercial interests at the border. Accordingly, we return the case to the panel for further proceedings consistent with this opinion. . . .

Reading the statute unambiguously to require that infringement occur at the time of importation would have produced absurd results under the pre-1994 version of § 271(a). Such a reading would mean that Congress, when it enacted the language at issue in 1988, excluded even the ordinary case of direct infringement. . . .

For nearly 35 years, the Commission has embraced its Congressional grant as bestowing authority to investigate and take action under Section 337 based on induced infringement. At least as early as 1980, the Commission was making determinations that inducement to infringe a valid U.S. patent under 35 U.S.C. § 271(b) constituted an unfair trade act under Section 337 that could be remedied by an exclusion order. . . . The Commission has persisted in its interpretation of Section 337 to the present day. . . .

The technical interpretation adopted by the panel weakens the Commission’s overall ability to prevent unfair trade acts involving infringement of a U.S. patent. The panel’s interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement.

There is no basis for curtailing the Commission’s gap-filling authority in that way. Indeed, the practical consequence would be an open invitation to foreign entities (which might for various reasons not be subject to a district court injunction) to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.

The Commission reasonably determined that its interpretation would further the purpose of the statute. . . .

We note that our deference to the Commission’s statutory interpretation in this case is hardly momentous. The court has consistently deferred to the Commission, recognizing the Commission’s technical expertise in deciding issues arising under Section 337, a statute Congress has entrusted the agency to administer.

The Suprema case, however, is followed by Clear Correct v. ITC, which reached the CAFC after the ITC declared that the agency has the authority to stop the importation of digital files, not just physical goods. This case is presently on appeal at the CAFC, which has specifically asked the litigants to brief the issue of the impact of the Suprema decision on “the issues in this appeal.”

NEW PATENT AND TRADEMARK COMPLAINTS AGAINST CHINESE, HONG KONG AND TAIWAN COMPANIES

On July 31, 2015, Kiss Nail Products, Inc. filed the attached patent complaint KISS TIANJIN PATENT CASE, against Tianjin Shuangrong Paper Products Co., Ltd. and Shuang Rong America LLC.

On August 4, 2015, Boehringer Ingelheim Pharmaceuticals Inc., Boehringer Ingelheim International Gmbh, Boehringer Ingelheim Corporation, and Boehringer Ingelheim Pharma GmbH & Co. Kg filed the attached patent complaint,  SMALL HEP PATENT CASE, against Chinese companies Hec Pharm Group, Hec Pharm Co., Ltd., Hec Pharm USA, Mylan Pharmaceuticals Inc., Mylan Inc., Mylan Laboratories Limited, Intas Pharmaceuticals Limited, Accord Healthcare, Inc., Aurobindo Pharma Limited, Aurobindo Pharma Usa, Inc., Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Zydus Pharmaceuticals USA, Inc., Cadila Healthcare Ltd., MSN Laboratories Private Limited, MSN Pharmaceuticals, Inc., Prinston Pharmaceutical Inc., Solco Healthcare U.S., LLC, Huahai US Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Invagen Pharmaceuticals Inc., Sun Pharmaceutical Industries Ltd., Sun Pharma Global Fze, and Sun Pharmaceutical Industries, Inc.

On August 10, 2015, Hitek Software LLC filed the attached copyright complaint FOXCONN COPYRIGHT CASEagainst Foxconn Corp., Foxconn Interconnect Technology (USA), Inc., Foxconn Electronics, Inc. and Foxconn EMS Inc.

On August 18, 2015, Foshan Naibo Electric Product Co., Ltd., a Chinese company, and Xpower Manufacture, Inc. filed the attached patent case CHINA COMPAY SUING CHINA COMPANY, against another Chinese company, Ningbo A-One Industrial Co., Ltd.

CHINA IP AND PATENT LAW

Recently, AFD China Intellectual Property Law office in China issued the attached Newsletter, News August 2015 fr AFD, about developments in Chinese patent law.

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

As the Vitamin C case is on appeal to the Second Circuit, the Plaintiffs in the case seek to vigorously enforce their $160 million judgment against Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp. On August 14, 2015, the Federal judge stated that he was tempted to place the Chinese companies, judgment debtors, into receivership because they are in contempt in contrast to continuing to beat up the US Chinese bank branches so as to get the companies’ assets in China and elsewhere.

Plaintiffs argue that the two Chinese defendants have frustrated all collection efforts to date and added that banks have used sleights of hand and hidden behind a recently strengthened “separate entity rule” to stymie subpoenas. Plaintiffs’ attorney said that the money appears to sit inside of China and pressed for a receivership as a potential new avenue to press for collection:

A receivership is materially better than sending subpoenas out [to banks] and having these fights.

In response to the Chinese argument that the two Chinese companies would face prosecution in China if the complied, the Federal judge was not willing to consider the argument:

“It is more a question of what people want at any particular time in China” and stated that it appeared the companies and the Chinese government were working together with “a nod and a wink” to frustrate collection.

The judge further stated “It’s almost like instant nationalization of a company for the protection of the local economy.”

Attached is a full transcript of the hearing, 2ND CIRCUIT LETTER THREE, before the Federal Judge, which was filed with the Second Circuit.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In August T&D also sent us their attached July report, T&D Monthly Antitrust Report of July 2015, on Chinese competition law.

SECURITIES

On August 17, 2015, a class action securities case was filed against Chinese Mobile Co, NQ Mobile, Inc., with allegations of mismanagement and investor fraud. The allegations are that the company has hid information from investors, diluted the stock through overvalued equity purchases and refused good faith offers to buy the business. The suit said, in particular, the company has taken to buying out small Chinese Internet firms for tens of millions of dollars in equity to expand the business and dilute shareholders without further offerings.

“This company has a few mobile applications available on iTunes with no ratings or reviews, and only 100 to 500 downloads on Google Play. No independent analysis of similar companies would value such an entity, with such a small number of product purchases, anywhere near $54 million.”

According to the complaint, NQ parted ways with its prior auditor, Price Water House Coopers China, over access to documents detailing those transactions.

“NQ Mobile has not explained why the acquisitions were made in the first place, and there is no evidence that the costs were justified and in the best interest of NQ Mobile and its shareholders.”

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey & Whitney LLP issued its attached August 2015 Anti-Corruption Digest, Anti-Corruption-Digest-Aug2015.

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

The Illinois-based maker of Enfamil and other infant formula products, Mead Johnson Nutrition Co., has settled civil charges of FCPA violations related to its China operations. Under the terms of the settlement with the SEC, which has been entered in an administrative order, Mead Johnson disgorged $7.77 million (£4.95 million) plus $1.26 million (£800,000) prejudgment interest, and paid a $3 million (£1.9 million) penalty. The company neither admitted nor denied the charges.

According to the SEC, Mead China, Mead Johnson’s Chinese subsidiary, paid $2 million (£1.3 million) in bribes to healthcare professionals employed by state-owned hospitals in exchange for the healthcare professionals’ recommendations of its products, and for contact information for new and expectant mothers. According to the administrative order, Mead Johnson violated the books and records provisions of the FCPA by inaccurately recording these bribes as “distributor allowances”. The SEC alleges that Mead China gave steep discounts to distributors and directed the distributors to pay the state employed health care professionals.

In its order, the SEC also alleges that Mead Johnson violated the internal controls provisions by failing to have an adequate internal accounting control system. The SEC did not allege that the U.S. parent or any U.S. person knew about or coordinated the bribes, and none of the conduct was alleged to have taken place in the U.S. This lack of U.S. nexus to the alleged violations may explain why the U.S. Department of Justice (DOJ) has informed Mead Johnson that it has closed its parallel investigation into the bribery activity.

The SEC noted in its order that Mead Johnson had conducted but not reported an internal investigation into these allegations in 2011. When the SEC approached Mead Johnson in 2013 regarding these allegations, Mead Johnson initially failed to report its internal investigation, which had not confirmed the illegal payments.

Plaintiffs Request $62 million Avon Settlement

A group of investors have reportedly requested that a federal judge in New York approve a $62 million (£40 million) settlement in a lawsuit. The shareholders allege that Avon along with its former CEO, Andrea Jung, and former CFO, Charles Cramb, misled them about the company’s compliance with the FCPA in China.

The Chinese subsidiary in question allegedly made $8 million (£5 million) worth of payments in cash, gifts, travel, and entertainment to various Chinese officials, according to the DOJ. Avon needed the approval of the officials in order to undertake direct sales in China. The matter is ongoing.

China

It has been reported that, since President Xi Jinping initiated his anti-corruption campaign in 2012, Chinese authorities have returned Rmb38.7 billion ($6.2 billion/£4 billion) of funds involved in corruption matters to the state.

The Central Commission for Discipline Inspection (the “CCDI”), China’s anti-corruption body, stated that the money had been returned to the state, without specifying which government entity received it. The sums recovered are said to include confiscated bribes in the form of cash, land, gifts and fines that have been levied.

According to Han Jinping, director-general of the CCDI’s case co-ordination department, “submitting illegally obtained money to the national coffers and recovering economic losses will help correct the economic incentives distorted through corruption”.

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

In an August issue on his securities blog, Tom Gorman, a partner in Dorsey’s Washington DC office and formerly with the SEC Enforcement division, states:

The SEC has been investigating sovereign wealth funds and issues relating to the hiring of friends and family of foreign officials for some time. Now it has filed a settled action centered on both of those issues which contains a cautionary note for those who have not updated their compliance procedures in view of these inquiries. . . .

The Commission acknowledged the cooperation of BNY Mellon and its remedial acts which, prior to the SEC’s investigation, included initiating reforms to its anticorruption policy to address the hiring of government officials’ relatives.

To resolve the case Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order.

In addition, BNY Mellon agreed to pay disgorgement of $8.3 million, prejudgment interest and a civil money penalty of $5 million. BNY Mellon acknowledged that a penalty of over $5 million was not imposed based on its cooperation.

For the full article, see http://www.secactions.com/sec-bny-mellon-settle-fcpa-charges-tied-to-hiring-relatives-of-officials.

SECURITIES COMPLAINTS

On August 14, 2015, Daniel Finocchiaro filed the attached class action securities case, Complaint (7), against NQ Mobile, Inc., Henry Yu Lin, Omar Sharif Khan, Vincent Wenyong Shi, Xu Zhou, James Ding, Jun Zhang, Roland Wu, Chun Ding, William Tiewei Li, Xiuming Tao, Max Yao, Justin Chen, Ying Han, Zemin Xu, Matthew Mathison, and Bingshi Zhang.

If you have any questions about these cases or about the US trade, trade adjustment assistance, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

 

US CHINA TRADE WAR JULY 2015 TPA, TPP, TRADE POLICY, TRADE AND CUSTOMS

US Capitol North Side Construction Night Washington DC ReflectioTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JULY 15, 2015

 

Dear Friends,

Because of the substantial activity in May, June and July with the passage of Trade Promotion Authority (“TPA”) and the ongoing Trans Pacific Partnership (“TPP”) negotiations, this blog post is being split into two parts.  The first part will cover trade policy, trade and Customs.  The second part will cover products liability, Patent/IP, antitrust and securities.

In May and June, Congress, both the House of Representatives and Senate,  twisted and turned itself into knots to pass TPA for the President and to keep the trade negotiations on track.

But TPA is not the end of the story.  In passing TPA through the Senate and House, Congress laid down a number of stiff negotiating objectives.  Essentially, it raised the bar for the negotiations for the Trans Pacific Partnership (“TPP”) and European negotiations of the Transatlantic Trade and Investment Partnership (“TTIP”).  Congressmen and Senators indicated that they intend to be very involved personally in the negotiations so to assume that TPP negotiations will be finished in a month, as predicted by the Austrian Trade Minister and even the United States Trade Representative (“USTR”), is simply wishful thinking.

On July 9th, however, Chairman Paul Ryan stated that an agreement could be finalized by late fall.  USTR also recently announced that there will be a major TPP negotiating round between July 24-30th in Hawaii.

Now the heavy lift begins.  Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

As Senators Hatch and Wyden stated on June 24th on the Senate Floor and below and Representatives Ryan, Levin and Sessions stated on the House floor on June 25th, this is just the beginning of the process and this process has a very long way to go.

The first half of this blog post will set out the twists and turns of the TPA negotiations in the House and the Senate, along with developments in the TPP negotiations and also developments in trade and Customs law.  The second half of the blog post will cover products liability, IP/Patent, China antidumping cases, antitrust and securities.

Best regards,

Bill Perry

TRADE POLICY

TPP NEGOTIATIONS FORGE AHEAD BUT CANADA IS A STICKING POINT

On July 7th and 9th, it was reported that TPP negotiations are into their final round, but other commentators have stated that there is still a ways to go.  On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.  There appears to be a very strong push to conclude the TPP Agreement by the end of Year so it does not bleed into 2016, an election year.  If TPP becomes an election issue, it could pose a very difficult political issue, especially for the Democrats and Hilary Clinton, in particular, because much of the Democratic base, such as the Unions, strongly oppose the Trade Agreements.

On July 1st, at a Politico Playbook Discussion, USTR Michael Froman stated that they hope to complete the TPP “as soon as we possibly can,” and deliver it to Congress by the end of the year.  Froman further stated:

We’re in the final stages of negotiating the Trans-Pacific Partnership.  We’re down to a reasonable number of outstanding issues, but by definition, those issues tend to be the most difficult, whether it’s on market access or on rules like intellectual property.

Froman also stated that with Japan good progress had been made on agriculture and automobiles, and “I don’t really see that as an obstacle to other progress at the moment.”  He went on to state that other issues include access to the Canadian agricultural markets and rules on intellectual property rights, investment and state-owned enterprises.

More importantly, Froman stated that the major achievement of the TPP is that there are no product-area exemptions—all product areas will be covered.  He stated that the negotiators were committed “to ensure that our exporters have commercially meaningful market access to foreign markets.”

On July 7th USTR announced that the chief negotiators and ministers of the 12 countries engaged in the TPP trade talks will meet in Maui, Hawaii at the Westin Maui Resort and Spa, with the chief negotiators meeting July 24-27 and the ministers meeting July 28-31. USTR stated that “The upcoming ministerial provides an important opportunity to build on this progress as we work to conclude the negotiation.”

With U.S. trade promotion authority (TPA) now in place, the stage is set for the U.S. and Japan to finalize their talks on nontariff barriers to U.S. autos, which includes an auto-specific dispute settlement mechanism, and for the U.S. and Canada to begin negotiating in earnest on the roughly 100 Canadian tariff lines containing dairy, poultry and eggs—items administered by a supply management system that restricts imports to protect the domestic industry.

Japanese and Canadian government officials were waiting for TPA to pass before making final offers.

One Commentator stated, however, that she does not believe that the Maui meeting will be the final TPP negotiating round.  Lori Wallach of Public Citizen stated

“There have been seven rounds since the ‘final’ TPP negotiating round and at least three ‘final’ TPP ministerials and there are many outstanding sensitive issues and now it’s clear to the other countries just how split Congress is on TPP, so whether this really is it remains to be seen.”

Wide chasms remain within several sectors potentially impacted in the 31 negotiation areas. For example, the U.S. is demanding the quota for Japan’s food-use rice imports be increased to about 175,000 tons while Japan is insisting 50,000 tons. Japan is demanding that the U.S. eliminate tariffs on Japanese auto parts manufactured in the Southeast Asian countries with which Tokyo has an economic partnership agreement. The two countries also have yet to agree on Japanese beef and pork import tariffs, though the issue is almost settled. There are still wide gaps between the 12 countries on intellectual property rights protection of pharmaceuticals data and dispute settlement on cross-border trade and investment.

In a July 14th trade publication, former USTR general counsel Warren Maruyama reinforced the skepticism about the potential conclusion of the TPP in Hawaii, stating:

I think it’s a bit of a stretch; my understanding is there are a lot of brackets.  There’s a whole bunch of difficult things.”

Moreover, a swift conclusion of the TPP would not go well with Congress.  As Maruyama further stated:

One of the expectations coming out of TPA is there’s going to be a much better process of consultations, and it’s not necessarily going to go over well if there’s some sort of a rush to agreement without adequate consultation with the Congress, particularly when you get into these sensitive sectors.

On July 7th, at the time of the announcement of the Hawaii TPA meeting, President Obama was meeting Nguyen Phu Trong, the general secretary of Vietnam, another TPP country.   President Obama noted that the TPP talks “was an excellent opportunity for us to deepen our discussion” and the trade deal has “enormous potential” for economic growth for both countries. Trong stated that U.S. and Vietnam have been able to “rise above the past.” “What is of utmost importance is we have transformed from former enemies to friends.”

Meanwhile, the New York Times reported on July 7th:

Outstanding controversies include access to Canada’s agriculture market, Australian concerns over American pharmaceutical patent rules, Peru’s rain forest management, Chinese components in Vietnamese textile exports and labor organizing rights in Vietnam and Mexico. The dispute over access to Canada’s protected dairy and poultry markets is so fierce that some participants say they believe Canada could drop out of the talks. . . .

United States officials feel confident enough a deal is at hand that they have scheduled a meeting among the chief negotiators at the Westin Maui Resort & Spa in Hawaii during the last four days in July and have notified Congress that they expect this to be the last one.

But on July 7th, the Canadian government restated its support for the TPP deal, with Finance Minister Joe Oliver saying increased trade and investment will benefit the economy.  Oliver further stated that Canada has “come a long way from the free trade bogeyman” era of the 1980s, when the North American Free Trade Agreement was negotiated.”  The TPP deal “will unlock the Pacific powerhouse” and create jobs in Canada.  Canada is under pressure to open up its dairy and poultry sectors, where production is controlled through quotas and imports are restricted with high tariffs. Dismantling that system, known as supply management, may become an election issue in rural districts for Conservatives in the hard fought fall election.

Oliver further stated, “Free trade is at the heart of the Canadian advantage. It is the heart of Canada’s future.  Canada must build on the free trade empire we have forged.”

But on July 13th the Huffington Post reported that US Congressmen and Senators are pressuring the Administration to push Canada out of the TPP if it does not agree to deregulate its dairy and poultry industries and open them up to import competition.  This point, however, is not new.  Several months ago while discussing the TPP negotiations with Congressional trade staff on Capitol Hill, they made the same point.  If Canada does not give in on dairy and poultry, they will be dropped from the negotiations.

To stay in the TPP, the Canadian government must agree to dismantle the supply management system that protects Canada’s dairy and poultry industry.  In addition to the US, Australia and probably New Zealand are pushing Canada to open up.  In the past the Canadian government has broken up supply management system for certain products, dismantling the Canadian Wheat Board in 2011.  But it is reluctant to do so with the dairy industry because of the upcoming Canadian elections.

In addition to dairy and poultry, lumber is also a target.  Another target should be the Canadian Provincial restrictions on wine imports.  British Columbia, for example, levies an 89% tariff, higher than China, on US wine imports.

But Canada’s National elections are also an issue.  They take place on October 19, 2015 so the present Canadian government may want to wait to make major concessions until after the National election in Canada.

Because of these problems, many Trade Commentators, including John Brinkley of Forbes, believe that TPP still have a long way to go.  As John Brinkley stated in his column on July 7th:

Negotiations over the TPP among and between the 12 parties to it are not as close to completion as Obama and U.S. Trade Representative Michael Froman would like you to believe. There are enough unresolved issues in the text to keep the negotiators at the table for a long time.

To be fair, the 11 other TPP parties know they need to finish it and get it to the U.S. Congress for a vote by the end of the year. If it drags into the 2016 election year, all bets are off. That fact, along with Congress having given Obama fast-track authority, may soften their negotiating positions on some issues.

For the full article, see http://www.forbes.com/sites/johnbrinkley/2015/07/07/tpp-still-has-a-long-way-to-go/.

TPP NEGOTIATIONS BECOME MORE TRANSPARENT

As promised on the House and Senate floors the passage of TPA has led to more transparency. On July 9, 2015, the United States Trade Representative’s office (“USTR”) announced that members of its various advisory committees, including labor unions, industry experts and environmental groups, can now see the negotiating text of the TPP.

USTR specifically stated:

This week, a diverse group of trade advisers — including labor unions, industry experts, environmental groups and public advocates — will begin viewing draft TPP negotiating text as part of the congressionally established trade advisory process.  These advisors will receive full and equal access to the draft negotiation text in an effort to ensure that they can adequately prepare congressionally mandated reports on TPP.

The Obama administration firmly believes that the input of a wide array of voices is integral to trade negotiations, which is why we have grown the size and membership of our trade advisory committees.

TPA AND TAA NOW LAW—THE HEAVY LIFTING NOW BEGINS AS NEGOTIATIONS CONTINUE ON TPP

On June 25, 2015, the House of Representatives passed the African Growth and Opportunity Act (“AGO”) by a vote of 286 to 138, which includes Trade Adjustment Assistance (“TAA”), and the bill, was sent to President Obama.  See House Debate on TPA at http://www.c-span.org/video/?326582-4/house-debate-trade-promotion-authority.  On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 for President Obama’s signature.  See the Senate debates at http://www.c-span.org/video/?326681-5/senate-debate-trade-promotion-authority.  As the Senate and House leadership promised, both TPA and TAA were on President’s Obama’s desk at the same time.  To see President Obama sign the Trade Bills, watch CSPAN at http://www.c-span.org/video/?326821-2/president-obama-bill-signing-ceremony.

Now the heavy lift begins.  On June 23, 2015, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month.  That simply is not going to happen. With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and possibly into 2016, an election year.

In light of numerous Congressional negotiating objectives, the TPP negotiations are going to take time and will not be an easy lift.  Congress will be involved in the negotiations every step of the way so this will not be simple.

As Paul Ryan, Chairman of the House Ways and Means, stated on President Obama’s signature of TPA:

“With TPA in place, our attention shifts to the trade agreements currently being negotiated with our friends in the Asia-Pacific region and Europe. Just as TPA allows greater oversight of the process, it requires the administration to follow Congress’s priorities and achieve high-standard agreements. We have a great opportunity ahead of us, and Congress and the administration both must do their parts to seize it.”

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking.  This will be a difficult set of negotiations.  As the Wall Street Journal stated on its June 25th front page:

The White House and Republican leaders notched a significant victory Wednesday with the Senate’s passage of divisive trade legislation, but the win kicks off a grueling, months long process to complete a Pacific trade pact that still faces domestic opposition and must win final congressional approval.

As Democratic Congressman Sander Levin, ranking Democratic member of House Ways and Means, stated on June 25th on the House Floor, the battle now switches from TPA to the actual negotiations and words in the TPP itself:

The debate these last weeks and months has been about how do we get a strong and effective trade policy and trade agreement. That debate only intensifies now.  . . . The argument about the process of T.P.A. is now behind us. And the challenge of the substance of T.P.P. smack in front of us. Automatic embrace of centuries’ old doctrines does not meet the challenges of intensifying globalization. So we will continue to shine a bright light on the critical issues like market access, state-owned enterprises, intellectual property and access to medicines, worker rights, environment, currency manipulation and investment provisions that could put at risk domestic regulations.

Our calls for improvements to the negotiations will only grow louder. In order for T.P.P. to gain the support of the American people, it will need to gain the votes of a much broader coalition of members of Congress than voted for T.P.A. the issue is not pro-trade versus anti-trade, but whether we shape trade agreements to spread the benefits broadly, including the middle class of Americans.  . . .

As Republican Congressman Pete Sessions stated on June 25th on the House Floor, Congressional Representatives will have their chance and these negotiations are going to take time:

But I would respond and say to the gentleman, you’re going to have an opportunity and I can’t wait to get you invited to every single round of these and have you find time to go do exactly what you think members of Congress ought to be doing. Because in fact that’s the way the T.P.A. is written.  . . . But this whole process — as soon as that takes place, the gentleman will have all the opportunity he wants to go and take part of every round of the discussions. . . . As soon as it’s signed by the President, he can go at it.  . . . he will have that opportunity and every member of this body will have that same chance. He and every member will have a chance to go and negotiate, be in the room, be a part of the discussion . . . but he will be allowed as a member of Congress.

So, Mr. Speaker, the things which are being talked about most as negative points about this bill, there’s already an answer to it. That’s what Republicans did. This is a Republican bill. This is about the authority of the House of Representatives, the United States Congress, to make sure we are involved. That has never been allowed before. Fast track is what we used to have. That’s what we did have. We now have a bill before us today which will help us complete the entire process, to make sure members of Congress are involved, not just the United States negotiators, but all the world will know . . . the parts about how we’re going to negotiate the trade deal and if it doesn’t come back that way, we’ll vote it down. Do we need to second guess them now today? I don’t think so. But if any member wants to be involved in this, they can just get on their plane and go wherever they want and get it done. And by law they’ll be allowed that opportunity.

All those pundits that say the TPP negotiations will be concluded in a month simply have not listened to the arguments on the House and Senate Floor.  To get a TPP, which will pass Congress, will require much more negotiation and a much longer time.  The TPP negotiations will not conclude until the end of the year at the earliest and possibly 2016, an election year.

HOUSE VOTES TO PASS AGOA AND TAA ON JUNE 25, 2015 AND BILL GOES TO THE PRESIDENT

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   As promised by House Speaker John Boehner and House Ways and Means Chairman Paul Ryan, TAA was brought to the floor of the House and passed.  As Republican Congressman Dave Reichert, a co-sponsor of the TAA bill, stated on the House Floor:

Also included in this legislation is a renewal of trade adjustment assistance and I’m proud as Mr. Ryan said, to sponsor the House legislation to renew it because there is a need for this program. I believe increased trade is good for all Americans and it creates jobs. It makes America stronger. But I also understand that among and along the way, as we create jobs and trade and our jobs change over the next few years, along the way, some workers may need extra assistance and additional training. That’s why T.A.A. is so important. We’ve made great strides this past week by sending T.P.A. to the President’s desk . . . So now, Mr. Speaker, we must move forward, pass T.A.A. and AGOA today.

As Democratic Congressman Earl Blumenauer on the House Floor stated today, the Republican leaders kept their promise on TPA and TAA:

It’s at times trust is in short supply in this institution for a whole host of reasons but we were given ironclad assurances from the Speaker, from the President, from the Chairman, from Senator Wyden, Senator Hatch, Leader McConnell that T.A.A. would come back to this floor to be voted on. And I think it’s important that that has in fact occurred. Because to adapt, respond and grow a 21st century work force we need trade adjustment assistance. And what we have before us is an improvement over current law. It’s not as good as what we had in 2009, and I hope that we will be able to build on this and move forward, but this program has helped more than 100,000 Americans, including 3,000 of my fellow Oregonians who received job training and financial support. And there will continue to be winners and losers in the global economy. Whether we have trade agreements with countries or not like with pressures from China, it’s important that we provide this for our workers. With our vote today we do so.

The funding for TAA for companies, however, remains very low.  As one TAAC director told me:

Due to the Appropriations error of funding the program at $12.5M, our TAAC will have a budget of less than $3,000.00 per company this next year.   Obviously, we can’t provide much serious technical assistance for $3,000 per company, and worse, it disrupts the momentum we’ve established for facilitating their recovery.   Worse yet, this happens at a time when we should be building the program in anticipation of TPP and TTIP!

 It’s frustrating to know that the TAA for Worker’s program net cost annually per individual worker is $53,802.00* – just think what we could do if we had that kind of budget annually for companies!

* A 2012 cost-benefit evaluation commissioned by the Department of Labor found a net cost to society of $53,802 for each person who enrolled in the program between November 2005 and October 2006.

At that rate, if the TAA for Firms program prevented just 300 workers per year from enrolling in TAA for Workers because we saved their jobs instead (what a concept!), we would have generated more than enough cost savings to fund the TAAF program’s national annual budget of $16M (300 workers x $53,802 = $16,140,600).   That’s an incredibly low bar to meet on a national basis – it’s one that each of the 11 regional TAAF Centers could meet quite easily, resulting in net cost savings of more than $175M!

 When you look at it from that perspective, it shows the kind of  “no brainer” decision it is to fund the TAA for Companies program.  It’s really hard to understand why we can’t gain some traction with that elementary logic.

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE—THE INS AND OUTS OF THE NEGOTIATIONS

After jumping over a major procedural hurdle on June 23rd, on June 24th the Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and the House sent the bill to President Obama for his signature. Set forth below are some of the major statements by the proponents and one opponent of the bill. To see the entire debate, watch CSPAN.org at http://www.c-span.org/video/?326775-1/us-senate-advances-taa-passes-tpa&live.

Trade Adjustment Assistance (“TAA”) also passed the Senate by an overwhelming vote of 77 to 23 votes, which then went to the House for final passage on June 25th.

To recap, after passing the Senate on May 22nd, the linked TPA and Trade Adjustment Assistance (“TAA”) bills went to the House of Representatives. Despite Herculean efforts by House Ways and Means Chairman Paul Ryan, on June 12th progressive Democrats and tea party protectionist conservative Republicans joined together to defeat Trade Adjustment Assistance and pursuant to the procedural rules kill TPA. But pro-trade Republicans and Democrats in the Senate and the House worked with President Obama over the weekend to come up with an alternative strategy and delink TAA from TPA.

On June 18th, the House passed the TPA as a stand-alone bill. See Paul Ryan’s statement on the House Floor at http://waysandmeans.house.gov/.

On June 23, 2015, in a key procedural vote in the Senate, which required a minimum of 60 votes to pass, the Senate passed cloture 60-37 for Trade Promotion Authority (“TPA”) and essentially agreed to move forward with the stand alone House TPA Bill, which had passed on June 18th.  One can see the Senate vote and the entire speeches up to and after the vote on Cspan at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority.

All the Senators emphasized during the final TPA debate the importance of the Customs and Trade Enforcement bill going through Congress. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders. That bill has now gone to conference where representatives of the House of Representatives and Senate will reconcile differences between the House and Senate bills.

Before the TPA final vote on June 24th, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. [procedural] vote [was a] long overdue victory for the American worker and the American middle class. It wasn’t easy. Many thought it would never happen. We even saw corks pop in the facts optional lobby a few weeks ago, but that proved to be premature because here’s what we’ve always known about the legislation we’ll vote to send to the President today. It’s underpinned by a simple but powerful idea, for American workers to have a fair shot in the 21st century economy, it just makes sense to remove the unfair barriers that discriminate against them and the products that they make. Some may disagree. They certainly weren’t quiet in voicing their opinions. It’s okay if they don’t share our passion for ending this unfair discrimination against American workers. It’s okay if they would rather rail against tomorrow.

But a bipartisan coalition in the House and the Senate thought it was time for forward progress instead. We were really pleased to see President Obama pursue an idea we’ve long believed in. We thank him for his efforts to help us advance this measure. We thank all of our friends across the aisle for their efforts too. Senator Wyden, most of all. Over in the house, I commend Speaker Boehner and Chairman Ryan for everything they’ve done. It hasn’t been easy, and without them it wouldn’t have been possible. And of course let me thank Chairman Orrin Hatch for demonstrating such patience, persistence and determination throughout this process. He never lost sight of the goal, never gave up. The people of Utah are lucky to have him.

The Senate’s work on trade doesn’t end today. I said the Senate would finish pursuing the rest of the full trade package, and it will. . . That process continues. But the key victory for American workers and products stamped “Made in the U.S.A.” comes today. The bill we’re about to pass will assert Congress’s authority throughout the trade negotiation process. It will ensure we have the tools we need to properly scrutinize whatever trade agreements are ultimately negotiated and it will make clear that the final say rests with us. We had plenty of bumps along the road. Frankly, a few big potholes too. But we worked across the aisle to get through all of them. That’s an example of how a new Congress is back to work for the American people. I thank everyone who helped us get where we are. Now let’s vote again to support the American worker and American middle class by approving the bipartisan T.P.A. bill.

Before the final TPA vote, ranking Democratic Senator Ron Wyden of the Senate Finance Committee emphasized that the TPA bill would go through along with a Customs and Trade Enforcement bill, which includes major changes to the US Customs and Trade laws, including a sharp crack down on transshipment around US antidumping and countervailing duty laws. As I have stated many times on this blog, the transshipment issue is a burning issue in Washington DC and now it has resulted in legislation, which has gone to Conference Committee with the House of Representatives. Senator Wyden stated today on the Floor:

Mr. President, today the Senate is taking major steps towards a new, more progressive trade policy that will shut the door on the 1990’s North American Free Trade Agreement once and for all. One of the major ways this overall package accomplishes this goal is by kicking in place a tough new regime of enforcing our trade laws. . . . And it has long been my view, Mr. President, that vigorous enforcement of our trade laws must be at the forefront of any modern approach to trade at this unique time in history. One of the first questions many citizens ask is, I hear there’s talk in Washington, D.C. about passing a new trade law. How about first enforcing the laws that are on the books? And this has been an area that I long have sought to change, and we’re beginning to do this with this legislation, and I want to describe it. And for me, Mr. President, this goes back to the days when I chaired the Senate Finance Subcommittee on International Trade and Competitiveness, and we saw such widespread cheating, such widespread flouting of our trade laws, my staff and I set up a sting operation. We set up a sting operation to catch the cheats. In effect, almost inviting these people to try to use a web site to evade the laws. And they came out of nowhere because they said cheating has gotten pretty easy, let’s sign up. And we caught a lot of people. So we said from that point on that we were going to make sure that any new trade legislation took right at the center an approach that would protect hardworking Americans from the misdeeds of trade cheats.

And in fact, the core of the bipartisan legislation that heads into conference is a jobs bill, a jobs bill that will protect American workers and our exporters from those kind of rip-offs by those who would flout the trade laws. And the fact is, Mr. President, when you finally get tough enforcement of our trade laws, it is a jobs bill. A true jobs bill, because you are doing a better job of enforcing the laws that protect the jobs, the good-paying jobs of American workers. And I guess some people think that you’re going to get that tougher enforcement by osmosis. We’re going to get it because we’re going to pass a law starting today with the Conference Agreement that’s going to have real teeth in it. Real teeth in it to enforce our trade laws. Foreign companies and nations employ a whole host of complicated schemes and shadowy tactics to break the trade rules. And they bully American businesses and undercut our workers.

So what we said in the Finance Committee on a bipartisan basis, that the name of the game would be to stay out in front of these unfair trade practices that cost our workers good-paying jobs. My colleagues and I believe that the Senate has offered now the right plan to fight back against the trade cheats and protect American jobs and protect our companies from abuse. It really starts with what’s called the Enforce Act, which is a proposal I first offered years ago that will give our customs agency more tools to crack down on the cheaters. Then we have a bipartisan, bicameral agreement on the need for an unfair trade alert.  . . .

And it’s been too hard, too hard in the past for our businesses, particularly our small businesses, to get the enforcement that matters, the enforcement with teeth, the enforcement that serves as a real deterrent to cheating. So this legislation is our chance to demonstrate that strengthening trade enforcement, enforcement of the trade laws, will now be an integral part of a new modern approach to trade, an approach that says, we’re not part of the 1990’s on trade where nobody had web sites and iPhones and the like; we’ve got a modern trade policy with the centerpiece enforcing our trade laws. Our policies are going to give America’s trade enforcers the tools they need to fight on behalf of American jobs and American workers and stop the trade cheats who seek to undercut them. I strongly urge my colleagues to vote “yes” later today on the motion to send the enforcement bill to conference and work on a bipartisan basis, as we did in the Finance Committee, to put strong trade enforcement legislation on the President’s desk. . . .

The three programs — the trade adjustment assistance program, the health coverage tax credit, Senator Brown’s leveling the playing field act — are now moving through the Senate alongside legislation that creates new economic opportunities for impoverished countries in Africa and other places around the world. . . . I urge all of my colleagues to vote yes to support these important programs when we vote later today.

Senator Sherrod Brown of Ohio speaking against the final TPA vote pounded on the enforcement bill:

Its authority to amend trade agreements, should not pave the way for a trade deal that looks like it’s going to be more of the same. Corporate handouts, worker sellouts. We’ve seen it with NAFTA. We saw a similar kind of move on PNTR with China where the trade deficit, our bilateral trade deficit has almost literally exploded since 2000, when this body and the other body moved forward on PNTR. . . . . We also have a responsibility to look out for the American worker who we know will be hurt by this deal. . . . Last, Mr. President, we have an opportunity in this bill today to once again support the level the playing field act to make sure it gets to the President’s desk. This will be the vote after this — after the T.P.A. vote. This vote is essential to protecting our manufacturers from illegal foreign competition. We can’t have trade promotion without trade enforcement. It shouldn’t be bipartisan, regardless of how you vote on T.A.A. we need to make sure our deals are enforced. Level the playing field to against unfair trade practices, it’s critical for our businesses, our workers who drown in the flood of illegally subsidized import. It has the full support of business and workers, Republicans and Democrats. . . . No matter where you stand on T.P.A. we should be able to come together to have enforce — enforceable laws. We have trade. We know these agreements cause wages to stagnate, we know these agreements cause factories to close . . . This is a terrible mistake we will make which we’ve made over and over and over and over if we pass this today. If we pass T.P.A. it’s the same mistake we made with NAFTA. Big promises, job increases, wages going up, bad results. We did it when we passed PNTR, when we passed CAFTA, the Central American Free Trade Agreement, with the Korean Free Trade Agreement, we’re about to do it again, shame on us. At least take care of workers if we’re going to pass this legislation.

Prior to the final TPA vote, Senator Orrin Hatch, Chairman of the Senate Finance Committee, called the TPA bill and accompanying trade legislation the most important bill to pass in the Senate this year. Senator Hatch stated:

This is a critical day for our country. In fact I’d call it an historic day. It’s taken us awhile to get there, longer than many of us would have liked but we all know anything worth having takes effort and this bill is worth the effort. This is perhaps the most important bill we’ll pass in the Senate this year. It will help reassert Congress’s role over U.S. trade negotiations and reestablish the United States as a strong player in international trade.

Renewing T.P.A. has been a top priority for me for many years and as Chairman of the Senate Finance Committee, I am pleased that with the help of ranking member Wyden, we’ve been able to deliver a robust and bipartisan bill. It’s also been a high priority for the Senate Majority Leader. And thanks to his strong support and leadership, we’re one step away from completing this important task. This bill will help farmers, ranchers, manufacturers and entrepreneurs throughout our country get better access to foreign markets and allow them to compete on a level playing field. This bill will help give these job creators and the workers they employ greater opportunities to grow their businesses which will help create a healthier American economy. The business and agricultural communities understand the importance of strong trade agreements. That is why they came together in strong support of this important legislation. We’ve heard from all of them throughout this debate, and I appreciate their enthusiasm and support.

This has from the outset been a bipartisan effort, and I’m glad it remained that way.  . . .

But let’s be clear, passing T.P.A. is not the end of the story. It’s just the beginning. As Chairman of the Finance Committee, I intend to remain vigilant in our oversight as the administration pursues the negotiating objectives that Congress has set with this legislation. And if they fall short, I will be among the first to hold them accountable. But that is for another day. Today I urge my colleagues to help us finalize this historic achievement and join me in voting in favor of this bipartisan T.P.A. bill. If the vote goes the way I think it will today, today will be remembered as a good day for the Senate, the President, and the American people.

Finally, also included in this bill is an extension of the Trade Adjustment Assistance, or T.A.A. program. I think I’ve said enough about my opposition to this program here on the floor over the past several weeks. . . . However, I do understand that for many of my colleagues who want to support T.P.A. and free trade, passage of T.A.A. is a prerequisite. From the outset of this debate over trade promotion authority, I’ve committed to my colleagues to working to ensure that both T.A.A. and T.P.A. move on parallel tracks. I plan to make good on this commitment and today will show that. That is why despite my misgivings about T.A.A. and with the entire picture in view, I plan to vote for this latest version of the trade preferences bill.

WILL CONGRESS FOLLOW THE SIREN CALL OF PROTECTIONISM AND TAKE THE US BACKWARDS OR MOVE FORWARD WITH TPP TO RESUME ITS FREE TRADE LEADERSHIP

In light of the Congressional votes for TPA, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote in the Senate on June 23rd, when 60 votes were required, nothing can be taken for granted. Listening to the anti-trade rhetoric in the US Senate and House of Representatives one is reminded of the original Greek tale in which Ulysses on his way back home had to pass the Siren rocks. The Greek Sirens would cry so sweetly they lured sailors and ships to their doom.

Many Democrats and some Republicans are now listening to the Sirens of protectionism from the labor unions and other activists that the US should move inward, put America first and protect workers and US factories at all costs from import competition created by free trade agreements. Although trade pundits acknowledge that TPA has passed, they argue that the Agreements, the TPP and TTIP Agreement with the EC, will die because the United States simply cannot withstand the protectionist attacks. If that is true, the US will give up trade leadership and could well return back to the 1930s. See the statement by Senator Bernie Sanders on June 23rd on the floor of the US Senate at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority&live.

As John Brinkley, a Forbes commentator, stated on June 22, 2015, the day before the vote in the Senate on TPA:

Whether the Trans-Pacific Partnership lives or dies, it will probably be America’s last free trade agreement for a very long time.

No future Congress will want to walk into a war zone like the one now extant to pass a trade deal based on nebulous benefits. You may have noticed that the Obama administration has offered no estimate of how many jobs the TPP would create. Rather, its strategy has been to say that ratifying the TPP would empower the United States to write the rules of global trade and not ratifying it would cede that power to China. . . .

If the administration and Congress can’t convince people that free trade will facilitate those things – and they can’t – why should people care?

The next free trade agreement in the queue is the Trans-Atlantic Trade and Investment Partnership, or TTIP, which would connect the economies of the United States and the European Union. Given the amount of combat that’s been waged over the TPP, you wouldn’t want to bet on ratification of the TTIP.

Congressional leaders don’t want to put their members through another grueling trade fight like they one they’re in now, and they have no doubt made that clear to Obama. If the next president is a Democrat, he or she won’t touch the TTIP with a ten foot pole. A Republican president might ignore the opposition and try to get it done, but he’d probably lose. . . .

The TPP’s detractors have been louder and more prolific in attacking it than its proponents have been in defending it. And most of what they’ve been saying is exaggerated or wrong. They’ll probably fail to derail the TPP. But they’ve probably already succeeded in killing the TTIP and any future trade agreement that the next president or two might envision.

For Mr. Brinkley’s entire article see http://www.forbes.com/sites/johnbrinkley/2015/06/22/farewell-free-trade.

Another commentator predicted that the real impact of the Trade fight will be on the Democratic Party stating:

Just as the tea party wing of the Republican Party has pulled the entire GOP to the right and hampered attempts at compromise on Capitol Hill, some now fear a similar dynamic is taking shape on the left. . . .

The revival of the trade package inflamed labor unions and liberal groups that had fought ferociously to block it, including by running ads against otherwise friendly House Democrats and threatening to mount primary campaigns against them. Unions say past trade deals bled American jobs and tanked wages. They argue that granting Obama the power to finalize trade deals that Congress can accept or reject, but not amend, would lead to more of the same, including the 12-nation Trans-Pacific Partnership the White House has worked on for years.

“Democrats who allowed the passage of fast-track authority for the job-killing TPP, should know that we will not lift a finger or raise a penny to protect you when you’re attacked in 2016, we will encourage our progressive allies to join us in leaving you to rot, and we will actively search for opportunities to primary you with a real Democrat,” Jim Dean, head of Democracy for America, said in a statement following Thursday’s House vote. . . .

http://apnews.myway.com/article/20150620/us–congress-democrats-ad8fbb804c.html or http://tiny.iavian.net/5mkd.

To illustrate the pressure on Congressional lawmakers, in discussing the situation with knowledgeable trade professionals, they mentioned that a Union sent demonstrators to the school where one Democratic Congressman placed his kids.

Why is the protectionist America first trade policy wrong policy? Because all of “international/WTO” trade law is based on reciprocity. What the United States can do to other countries, those countries can do back to the United States. In effect, the United States can be hoisted by its own petard, killed by its own knife.

That is the reason Senator Orrin Hatch, Chairman of the Senate Finance Committee, and Congressman Paul Ryan, Chairman of the House Ways and Means Committee, are so concerned about currency manipulation. Yes, currency manipulation is now a negotiating objective as set forth in the TPA. But enforcing currency manipulation is a problem because there is no internationally accepted definition of currency manipulation. When the US Federal Reserve used quantitative easing in the last financial crisis, was that currency manipulation? Could other countries retaliate against the US for using quantitative easing? That is the fear of free traders. In international trade what goes around comes around.

The Siren Call of protectionism of putting America first by protecting companies and worker job from imports, the vast majority of which “must be unfairly traded”, however, has echoed throughout American history. Many politicians apparently have not learned the lessons of history. In the 1930s, President Hubert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to imports from the United States. Exports and imports stopped and the World was plunged in the depression, which, in turn, was one of reasons for the rise of Adolf Hitler and the cause of the Second World War.

As one article on Capitalism states:

What was the end-result of the Smoot-Hawley Tariff Act? As other countries placed tariffs on American exports in retaliation, these tariffs actually led to the reduction of American exports and thus jobs: With the reduction of American exports came also the destruction of American jobs, as unemployment levels which were 6.3% (June 1930) jumped to 11.6% a few months later (November 1930). As farmers were unable to pay back their loans to banks, their loan defaults led to increasing bank crashes, particularly in the West and Mid-West.

See http://capitalism.org/free-trade/what-was-the-end-result-of-the-smoot-hawley-tariff-act/

The State Department itself states on its website:

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports. . . . During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the 20th century. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, American commercial policy generally emphasized trade liberalization over protectionism. The United States generally assumed the mantle of champion of freer international trade . . . .

See http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html.  It should be noted that the US antidumping and countervailing duty laws are in the Tariff Act of 1930 today.

In fact, it is the political impact and the security implications of the trade agreements, that has caused Secretary of Defense Carter and on May 8th, a bipartisan collection of 7 former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, and Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, to call for the passage of TPA, stating:

By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power. In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements.

In a June 28, 1986 speech President Ronald Reagan indicated that he had learned the Smoot Hawley lesson stating:

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake. That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. . . .

As many famous statesmen have stated in the past, those who do not learn from history are doomed to repeat it.

With the extreme rhetoric in the international trade area, however, the question is whether the United States truly has learned its lesson or whether it will raise the protectionist walls, and give up on free trade. So the question is does the United States give up on Free Trade and ignore the historical lesson or does it move forward with these free trade agreements, open up markets around the World, and retake its leadership position in international trade?.

WASHINGTON CONGRESSIONAL DELEGATION SPLITS ON TPA BILL

To see the powerful impact of Union and protectionist arguments on Congress, one need look no further than my state of Washington where the Washington Congressional delegation was split.  Although Senators Patty Murray and Maria Cantwell voted for TPA, along with Republicans in the House, the Washington State Democrats in the House were split.

Congressmen Rick Larson and Derek Kilmer along with Congresswoman Susan delBene voted in favor of TPA,  but Democratic Congressmen Adam Smith, Denny Heck and Jim McDermott wilted under substantial pressure from the Unions and voted against TPA.

In voting for TPA, in the attached statement, Larsen_ TPA Is Right For Pacific Northwest Economy _ Congressman Rick Larsen, Congressman Rick Larson sets forth his arguments in favor of TPA, stating in part:

I understand many people want the content of trade negotiations to be public. But opening up negotiations would give other countries a clear view of U.S. positions and lessen our ability to push for the best deal for our workers, environment and economy. I think the transparency provisions in the TPA bill will enable the public to have more and better information about the content of trade agreements. . . .

The North American Free Trade Agreement (NAFTA) is a 20-year-old agreement, and our country has learned a lot about trade agreements since then. The TPP negotiations are much stronger than NAFTA for several reasons. TPP includes strong requirements that other countries involved in the negotiations live up to high standards for workers, the environment and human rights. NAFTA did not. And TPP puts in place penalties, so if other countries involved in the agreement do not live up to these high standards, they will be sanctioned. NAFTA did not include sanctions for violating the terms of the agreement.

TPP is not yet finalized. I have been reviewing the sections on labor, the environment, and investor-state dispute settlement as negotiations have progressed, and I will continue to do so.

Another reason TPP is much stronger than NAFTA is that Congress is working to hold the President to higher standards for all trade agreements. The 2015 Trade Promotion Authority (TPA) bill that the House is set to vote on as soon as this week provides Congressional direction to the Administration for trade agreements the President is seeking to finalize. The 2015 TPA bill is much more stringent than its predecessor, which Congress passed in 2002. Let me explain why.

The 2015 TPA bill (which you can read here: http://1.usa.gov/1T1afiY) directs trading partners to adopt and maintain core international labor standards and multilateral environmental agreements, and calls for sanctions if they do not comply. The 2002 TPA law did not require compliance or provide enforcement tools with core international labor and environmental standards. The 2015 bill requires several levels of transparency for the public . . . The 2002 bill required no transparency. The 2015 bill makes clear that trade agreements cannot change U.S. law without Congressional approval. The 2002 law did not include this level of Congressional oversight.

In the attached letter, KILMER STATEMENT ON TPA, Congressman Derek Kilmer sets forth his arguments in favor of TPA, stating in part:

This is a particularly hot topic as the Administration continues negotiations of the Trans-Pacific Partnership, a 12-nation trade agreement that would involve 40% of the world’s economy.  Suffice it to say, it’s important that America gets this right.

Trade is an essential part of Washington state’s economy. Generally, our state does well when we’re able to sell our apples, our wood products, our airplanes, our software, and other products overseas. Exports from just Washington’s Sixth Congressional District, which I represent, totaled more than $2.2 billion in 2013, supporting more than 67,000 jobs.

With that in mind, I appreciate President Obama’s suggestion that trade agreements – if done right – could expand opportunities to export our goods to growing markets like those in Asia and benefit Washington state’s employers and workers.

In addition, it’s worth acknowledging that global trade is a reality. The United States makes up just 4% of the world population – so global trade is going to happen regardless of whether Congress passes trade legislation. In making his case to Congress, the President has asked a key question: do we want America to sit back as China negotiates trade agreements around the world and seeks to set the rules of trade (leading to a race to the bottom on worker standards, environmental standards, and consumer protections) or do we want the United States to be involved in setting the rules and establishing high standards?

It’s a reasonable concern.   Earlier this year, I spoke with a manufacturer in Tacoma whose company makes American products made by American workers. But when that company tries to sell goods to Asia, their products consistently face high tariffs. The owner explained to me that he’s been told numerous times that he could avoid tariffs if he would only move his jobs to China. If we can see more American products made by American workers have the opportunity to enter new markets without these barriers, it could lead to economic opportunities.

Trade agreements with adequate protections for American companies could help reduce those tariffs, and boost sales –enabling American companies like this to expand production or hire more workers. But only if they are done right.

With that in mind, I believe that we need better trade deals than the ones we’ve had in the past. I do not want –nor would I support – an agreement that I believe would lead to American jobs going overseas or that would put corporate profits above the rights of workers or the health of our environment.

It’s critically important that we have a trade policy that reflects our region’s priorities and values. Above all, it is important to me that any trade agreement that Congress considers must ensure that we are exporting our products – not exporting our jobs.

That also means that any trade agreement needs to meet high labor standards that must be enforced. . . .

Unlike NAFTA – which failed to include labor or environmental standards as a core, enforceable part of the agreement – future agreements must have high standards that must be enforced.

Sens. Orrin Hatch (Utah) and Ron Wyden (Ore.), along with Rep. Paul Ryan (Wis.) jointly introduced the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. This legislation would establish congressional trade negotiating objectives and enhanced consultation requirements for trade negotiations as well as allow for trade deals to be submitted to Congress for an up-or-down vote should they meet the United States’ objectives and Congress be sufficiently consulted.

This bill represents a departure from so-called “fast track” laws of the past. For example, it includes greater transparency, accountability, and Congressional oversight.   …This bill also includes stronger labor and environmental standards and unlike previous so-called “fast track” legislation, this bill demands that before countries can expand their trading relationship with the U.S., they have to maintain a core set of international labor and environmental standards.  . . .

Finally, it also would make clear that trade agreements cannot by themselves change U.S. law. Under the U.S. Constitution, Congress has to have a say regarding how our nation’s laws are changed, and I think it’s important that any legislation related to trade agreements makes that very clear. . . .

With or without trade agreements, global competition is a reality in today’s economy. And when companies and workers need to adapt to a changing marketplace, we need to make sure that they can get the resources that they need to get back to work and keep our economy growing. That’s why I support strong Trade Adjustment Assistance. I’m also pushing for Congress to reauthorize the Export-Import Bank, which helps finance U.S. exports of manufactured goods and services and create jobs through direct loans, loan guarantees, working capital finance, and export credit insurance.

While I will continue to fight to improve the Hatch-Wyden TPA bill as it moves through Congress, I support these bills because I believe that, together, they have the potential to expand jobs and economic opportunities here in America while at the same time fostering the development of higher environmental, worker safety, and consumer protection standards abroad. . . .

In the attached statement, DelBene Statement on Trade Promotion Authority _ Congresswoman Suzan DelBene, Congresswoman Suzan DelBene states why she is voting for TPA:

The reason to pass Trade Promotion Authority is to require negotiators to develop the strongest and most progressive trade deal possible. This TPA bill is the best Congress has ever had in terms of setting high and enforceable environmental and labor standards, as well as bringing more transparency to trade negotiations.  This bipartisan bill directs the administration to meet nearly 150 congressionally mandated negotiating objectives, including standards on labor protections, the environment, human rights, congressional consultation and transparency.

I’ve talked to large and small businesses, I’ve talked to labor and I’ve talked to environmentalists. It’s my job to weigh the concerns and needs on all sides and then do what’s best for Washington’s First District, which is why I supported the TPA legislation. I didn’t come to the decision lightly – Washington is the most trade dependent state in the nation and 40 percent of our jobs depend on trade. However, I will not hesitate to vote against a trade deal if it fails to meet the needs of our region and the high standards described in this TPA.

In voting against TPA, in the attached statement, ADAM SMITH NO TPA, Congressman Adam Smith sets forth his arguments against TPA, stating in part:

“Trade Promotion Authority (TPA) and the Trans Pacific Partnership (TPP), as they are currently being discussed, do not do enough to protect workers and the environment at home and abroad “The biggest problem facing our economy is a vanishing middle class. Corporations are incentivized to value customers, shareholders, and executives over their workers resulting in less take home pay and benefits. This is evidenced by the bottom 90 percent of Americans owning just 23 percent of total U.S. wealth. TPA and TPP are far from the only or even largest contributors, but they provide the wrong incentives allowing corporations to grow and benefit from undervaluing workers both here and abroad. . . .

“I often hear an argument in support of TPA and TPP that if we don’t set the rules in Asia and the Pacific, China will do so. Although clearly better than China’s, our record is not stellar either. . . .

“Currency manipulation is another problem that remains unaddressed. . . .

“These concerns aside, I would be more inclined to support a trade deal if I believed that American and global corporate culture was committed to paying workers fairly and ensuring their safety in the workplace. However, skyrocketing executive pay and huge stock buybacks at the expense of worker compensation convince me that there is an insufficient commitment to preserving the middle class. . . .

“Trade agreements should create sound incentives and reinforce business cultures that value workers, as they have the ability to help spread these practices worldwide. We must do more to support the companies in the 9th District and around the country that are doing so already.

Unfortunately, Wall Street and trade deals too often reward these companies’ competitors that improve their bottom line by shortchanging their employees–many of whom are not being adequately compensated for their work.

In voting against TPA, it is my hope the Administration will take a step back and better engage on strengthening compliance with worker and environmental protections through trade agreements. . . .

In the attached statement, Congressman Denny Heck announces decision on trade promotion authority _ Con, Congressman Denny Heck sets forth his argument opposing TPA:

Trade is a vital part of Washington’s economy. There is no doubt about that. Trade does not, however, exist in a vacuum, and for any agreement to be successful, we need to think bigger picture. Investing in our infrastructure, implementing comprehensive immigration reform, and reauthorizing the Export-Import Bank are some of the priorities that are being ignored during this debate. If we want to build an economy ready to compete with the rest of the world, we need to broaden this trade effort to include a commitment to actions that will bolster our economy back home.

“Accordingly, and after a great amount of input from constituents in the 10th District, I will vote no on trade promotion authority, known as fast track. I am open to trade legislation that enhances our ability to better compete in a global economy, but this approach is piecemeal and does not do enough to advance the interests and potential of the hard-working Americans I represent. We can do better.

FORMER DEMOCRATIC CONGRESSMAN DON BONKER’S ARTICLE ON THE TRADE DEBACLE IN THE HOUSE

On June 16, 2015, former Democratic Congressman Don Bonker described the initial trade defeat for President Obama on the TPA Bill in the House of Representatives in the China Daily:

Trade deal defeat, a form of Protectionism

By Don Bonker (China Daily)Updated: 2015-06-16 05:20

The scene in Washington, DC this week was not unlike a House of Cards episode that typically portrays high drama, political mischief and irony, involving the White House and Capitol Hill. The issue, the Trans-Pacific Partnership (TPP), is key to President Obama’s Asia strategy to strengthen economic relations and provide a shield from China’s growing influence in the region.

But like the House of Cards series, it’s more about politics than the merits of the issue. Here we saw President Obama’s usual adversaries, Republican and business leaders rallying support for his trade deal while his own party and traditional allies were fiercely opposing it.

Signs of this were played out at the annual Congressional baseball game, when the President was greeted by Democrats, chanting “O-ba-ma!, O-ba-ma!” then unexpectedly Republicans responded with “TPA, TPA!” that flipped what was intended to demonstrate unity.

The following day, President Obama met with his chief ally in Congress, Minority Leader Nancy Pelosi, who hinted that she would support the measure only to march onto the House floor and declare that “I will be voting to slow down fast-track,” a fatal setback for the president.

Most TV narratives are complex and full of suspense. Vote on June 12 in the House of Representatives was not a simple up or down vote but a bundling of related issues called TAA, TPA and TPP. One was voted down, a second narrowly passed and no action on the third. The result was a stunning defeat for President Obama, yet House Speaker John Boehner allows it will be taken up again.

Despite all the political rhetoric about saving American jobs or Obama’s weak leadership, what it comes down to is old fashion protectionism.  Protectionism is an attempt to prevent foreign imports from threatening US jobs, often by increasing tariffs and limiting market access in a variety of ways, including anti-dumping and countervailing duties even if they aren’t warranted.

Today the battleground is the Trans-Pacific Partnership (TPP), a trade pact involving 12 countries that has been enduring negotiations for two years. Bilateral and multi-lateral trade pacts have always prompted strong opposition, especially from Democrats given their close ties to labor unions. It is a populist issue that resonates at the grassroot level, therefore a difficult vote for most Congressmen.

As former US Trade Representative, Robert Zoellick, who presided over five bilateral trade agreements, once noted, these “trade agreements are more about politics than economics”. While his successors may put in a star performance as Chief Negotiators, they can only initial the final document since the US Constitution makes clear that Congress “regulates interstate and foreign commerce” and has the final say.

What gets lost in the debate is the greater significance of the issue, which is America’s leadership in today’s global economy. The Obama Administration earlier portrayed the TPP as a geopolitical strategy that would give the US a stronger presence in Asia and provide a protective shield for Asian countries feeling threatened by China’s enormous growth and influence in the region. Now this initiative and America’s leadership in achieving these goals, plus the mutual benefits that come with trade deals, are at risk not because of China or the lack of effective negotiations but the political forces in play on Capitol Hill.

America is also being challenged by China in today’s global economy. If Congress disapproves either the fast-track legislation or TPP, guess who will step in and become the mighty economic power in Southeast Asia? Another sign of America’s declining influence as it becomes preoccupied with the escalating conflicts and chaos in the Middle East.

Protectionism has consequences. In the 1928 presidential election, Herbert Hoover campaigned on advocating higher tariffs that set the stage for an eager Republican Congress to indulge as never before, triggering an unbridled frenzy of log-rolling — jockeying for maximum protection of commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over twenty thousand imported products.

After President Hoover signed the monumental tariff bill, within months America’s leading trade partners – Canada, France, Mexico, Italy, in all 26 countries – retaliated causing the world trade to plummet by more than half of the pre-1929 totals, one of several factors that precipitated the Great Depression.

Today the call for protectionism is not coming from the Chamber of Commerce and business advocates but the nation’s most powerful union leaders. The Democrats, abandoning their own president, are running for cover, fearful of losing support of union leaders who have made it clear that any Congressman who dares to vote for fast track (Trade Promotion Authority) legislation that “we will cut the spigot off on future donations to your campaign”.

As in any House of Cards program, the drama continues with no certainty about the outcome. Yet failure to approve the Trans-Pacific Partnerships puts in jeopardy the next trade agreement (Transatlantic Trade & Investment Partnership) and the upcoming US-China Bilateral Investment Treaty, as well as undermining America’s leadership internationally.

The author is former US congressman and chaired House Foreign Affairs Subcommittee on International Economy.

AUSTRALIA FTA WITH CHINA

On June 17, 2015, Australia and China signed a free trade agreement.  See https://www.austrade.gov.au/Export/Free-Trade-Agreements/chafta.  As Paul Ryan stated in the House, if the United States does not lead on trade, China will.

TRADE

SED TALKS

On June 23, 2015, the attached remarks, BIDEN REMARKS SED, were made by Vice President  Joe Biden and Vice Premier Liu Yandong in the U.S.-China Strategic & Economic Dialogue  in Washington DC.  

Vice President Joe Biden stated in part:

And there’s an urgent need to agree on a rule-based system for rapidly evolving areas ranging from cyber space to outer space – a new set of rules. Together, collaboratively, we have an obligation –China and the United States – to shape these rules. And let me be clear: The United States believes strongly that whenever possible, China needs to be at the table as these new rules are written.  Responsible competition, adhering to these common rules – both old and new – in my view will be the essential ingredient necessary to manage areas of disagreement, and to build the long-term sustainable U.S.-China relationship.

As President Xi has said, “There’s competition in cooperation.” Yet such competition is healthy, based on mutual learning and mutual reinforcement. It’s a fundamental sense. It is conducive to our common development.  . . .

Responsible competitors help to sustain the system where research and development are rewarded, where intellectual property is protected, and the rule of law is upheld, because nations that use cyber technology as an economic weapon or profits from the theft of intellectual property are sacrificing tomorrow’s gains for short-term gains today. They diminish the innovative drive and determination of their own people when they do not reward and protect intellectual property. . . .

And let me be crystal clear . . .: We do not fear China’s rise. We want to see China rise, to continue to rise in a responsible way that will benefit you most, China, because you have an important role to play. A rising China can be a significant asset for the region and the world, and selfishly, for the United States.

China, like all nations in Asia, benefits from stability and prosperity – a stability and prosperity that, quite frankly, has been maintained over – since the end of the World War II by the United States of America for 60 years. We’re going to continue to play a role for decades to come, but don’t misunderstand it: We are a Pacific nation. 7,632 miles of our shoreline breaks on the Pacific Ocean.

We are a Pacific nation. What happens anywhere in the Pacific affects the United States as much as – more than any other portion of the world. And now we are a Pacific power, and we’re going to continue to remain a Pacific power. To respond to the changing world, the Administration has set in motion an institutionalized rebalance policy of the Asian Pacific region, not to contain but to expand all of our opportunities.

We believe this is important because the Pacific and every nation along its shore from Chile to China will form the economic engine that drives the economies of the 21st century. That’s where the action will be. As part of that rebalanced strategy, we’ve strengthened and modernized our alliances and our partnerships throughout the region. As part of that strategy, we have deepened our support for important regional institutions like ASEAN, and we’re continuing to work on the Trans-Pacific Partnership, which I predict we will succeed in getting done – the most progressive trade agreement in American history, and history, period. It boosts economic growth at home and abroad.

And as part of that strategy, we’re working to build more constructive and productive ties with China. But we all know this relationship is complicated and consequential, to say the least. And we all know, like a good marriage, it requires an awful lot of hard, hard work, an awful lot of attention.  . . .

There will be intense competition. We will have intense disagreements. That’s the nature of international relations. But there are important issues where we don’t see eye to eye, but it doesn’t mean we should stop working hand in hand because we don’t see eye to eye.  . . . I believe that all politics, especially international politics, is personal. It’s all personal. And – because only by building a personal relationship – that’s the only vehicle by which you can build trust.

VICE PREMIER LIU: . . .

President Xi Jinping takes this S&ED and CPE very close to his heart . . . . He believes that the new model of major country relations featuring mutual benefits, win-win cooperation, non- confrontation is the priority of China’s foreign policy. Facing complicated and volatile international situation, China and the United States should work together. They can work together in a wide range of areas. The two sides should keep the bilateral ties on the right track. As long as our two countries adopt an overall perspective, respect and accommodate each other’s core interests and be committed to a constructive approach to reduce misunderstanding and miscalculations, we can manage our differences and maintain our common interests. . . .

VICE PREMIER WANG:

Today more than 10,000 Chinese and Americans travel across the Pacific every day, and the number keeps growing at a double-digit rate. Two-way trade has exceeded U.S. $550 billion, and China has become one of the fastest-growing export markets for the United States. U.S. exports to China have helped to create nearly 1 million jobs in the U.S. Accumulated mutual investment topped U.S. $120 billion. And Chinese businesses have so far made investment in 44 states of America, with total investment reaching U.S. $46 billion and creating 80,000 jobs for America, and the numbers are still growing. . . .

Some people believe that the Thucydides trap between major countries is insurmountable. Some even want China and the United States to confront each other. In any case, decision-makers of both countries must always remember that confrontation is a negative sum game in which both sides will pay heavy prices and the world will suffer too.

Talking to each other does not create win-win all the time, but both sides will lose in a case of confrontation. Our dialogue mechanism may not be perfect, but it is an indispensable platform for the two countries to increase mutual trust, deepen cooperation, and manage differences.

History teaches us that China and the United States must not follow the old path of confrontation and conflict between major countries. Building a new model of major country relations is an effort to explore a new path towards peaceful coexistence. This path may not be smooth and the journey could be bumpy, but as a great Chinese writer said: “Originally there is no path – but as people walk down the same track and again, a path appears.” I’m convinced that we are on the right track.

INTERNATIONAL MONETARY FUND (“IMF”)— THE CHINESE YUAN IS NOT UNDERVALUED

On May 26, 2015, in the attached report, IMF CHINA CURRENCY NOT UNDERVALUED, the International Monetary Fund (“IMF”) determined that China’s currency is no longer unvalued.  The IMF specifically stated:

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves.

Nevertheless, staff projections for 2015 suggest that China’s external position is still moderately stronger than consistent with medium term fundamentals and desirable policies. There are several factors influencing a country’s external position, with the exchange rate being one of them. While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective  appreciation over the past year has brought the exchange rate to a level that is no longer undervalued. However, the still too strong external position highlights the need for other policy reforms—which are indeed part of the authorities’ agenda—to reduce excess savings and achieve sustained external balance. This will also require that, going forward, the exchange rate adjusts with changes in fundamentals and, for example, appreciates in line with faster productivity growth in China (relative to its trading partners).

On the exchange rate system, we urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China’s that strives for market based pricing and is integrating rapidly in global financial markets.  Greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility, will also be key to prevent the exchange rate from moving away from equilibrium in the future. We believe that China should aim to achieve an effectively floating exchange rate within 2–3 years.

On June 10, 2015, Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) urged the IMF to not recognize the Chinese yuan as a global reserve currency.  They argued that the fact that Chinese hackers had gained access to the personal records of at least 4 million U.S. government workers, and months earlier that hackers in China had broken into the computer systems of two U.S. healthcare giants are:

just the latest in a litany of egregious actions, or inactions, that reflect the government’s lack of an ability to participate in an honest and transparent manner on the global stage. This behavior cannot be rewarded by the international community, but more importantly, the Chinese government cannot be trusted to uphold international market standards without demonstrated evidence of a commitment to reform.”

In addition to the cyber attacks, Schumer and Graham claim that Beijing continues to undervalue its currency and lacks the necessary regulatory protections that are necessary to:

ensure the security of global financial markets.  While we support China’s efforts to modernize its currency and agree that its efforts to be eligible for the SDR basket are in line with financial liberalization standards that prevent currency manipulation, we do not believe that China’s efforts have been substantial enough, nor do we believe that their commitment has been demonstrated in a way that can be counted on consistently, especially when market pressure for the yuan to be strengthened increases.

SOLAR CELLS—EC AGREEMENT GOES DOWN FOR THREE COMPANIES, COMMERCE ISSUED FINAL SOLAR CELLS AD AND CVD REVIEW DETERMINATIONS AND CANADA FINDS INJURY FROM DUMPED/SUBSIDIZED CHINESE SOLAR PANELS

EC ABROGATES AGREEMENT ON SOLAR CELLS FOR THREE CHINESE COMPANIES

On June 4, 2015, in the attached notice, EC WITHDRAWS UNDERTAKING GO TO DUTIES, the European Union (“EU”) announced that it was cancelling its agreement with China in the Solar Cells antidumping and countervailing duty case with regard to three Chinese exporting producers companies: Canadian Solar, ET Solar, and ReneSola.  In the notice, the EU stated:

COMMISSION IMPLEMENTING REGULATION (EU)  . . . of 4 June 2015 withdrawing the acceptance of the undertaking for three exporting producers under Implementing Decision . . . confirming the acceptance of an undertaking offered in connection with the anti-dumping and anti-subsidy proceedings concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells) originating in or consigned from  . . . China . .  . .

Following the notification of an amended version of the price undertaking by a group of exporting producers (‘the exporting producers’) together with the CCCME, the Commission confirmed . . . (1) the acceptance of the price undertaking as amended (‘the undertaking’) for the period of application of definitive measures. The Annex to this Decision lists the exporting producers for whom the undertaking was accepted, including: (a) CSI Solar Power (China) Inc., Canadian Solar Manufacturing (Changshu) Inc., Canadian Solar Manufacturing (Luoyang) Inc., and CSI Cells Co. Ltd together with their related company in the European Union  . . .(‘Canadian Solar’); (b) ET Solar Industry Limited and ET Energy Co. Ltd together with their related companies in the European Union . . . (‘ET Solar’); and (c) Renesola Zhejiang Ltd and Renesola Jiangsu Ltd  . . .(‘ReneSola’). ….

The findings of breaches of the undertaking and its impracticability established for Canadian Solar, ET Solar, and ReneSola require the withdrawal of the acceptances of the undertaking for those three exporting producers  . . . In addition, the Commission analyzed the implications of actions by Canadian Solar, ET Solar, and ReneSola listed  . . . above on their relationships of trust established with the Commission at the acceptance of the undertaking. The Commission concluded that the combination of these actions harmed the relationship of trust with these three exporting producers. Therefore, this accumulation of breaches also justifies the withdrawal of acceptances of the undertaking for those three exporting producers . . . .

The undertaking stipulates that any breach by an individual exporting producer does not automatically lead to the withdrawal of the acceptance of the undertaking for all exporting producers.  In such a case, the Commission shall assess the impact of that particular breach on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The Commission has accordingly assessed the impact of the breaches by Canadian Solar, ET Solar, and ReneSola on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The responsibility for those breaches lies alone with the three exporting producers in question; the monitoring and the verifications have not revealed any systematic breaches by a major number of exporting producers or the CCCME.  . . . The Commission therefore concludes that the overall functioning of the undertaking is not affected and that there are no grounds for withdrawal of the acceptance of the undertaking for all exporting producers and the CCCME.

FINAL SOLAR CELLS REVIEW DETERMINATION BY COMMERCE

On July 7, 2015, in the attached Federal Register notices and decision memos, SOLAR CELLS FINAL DECISION MEMO SOLAR CELLS AD FINAL FED FINAL CVD FED REG SOLAR CELLS C-570-980 Final Results Notice 7-8-15 (3) Final CVD Decision Memo SOLAR CELLS 7-8-15, the Commerce Department issued final Solar Cells AD and CVD Review determinations in the May 25, 2012 to Nov 30, 2013 AD review period and the 2012 CVD Review period.  In the AD review determination, the AD rates ranged from 0.79% to 33.08% with the average separate rate being 9.67% and in the CVD review determination the CVD rates ranging from 15.43 to 23.28% and the non-reviewed companies receiving 20.94%.

CANADA FINDS INJURY IN ITS SOLAR CELLS CASE

ON July 7, 2014, in the attached statement, SOLAR CELLS CANADA, the Canadian International Trade Tribunal announced its final determination that imports of dumped and subsidized Chinese solar energy equipment exports are a threat of injury to Canadian producers.  AD and CVD orders will now be issued in Canada with AD rates ranging from 9.14 percent to 202.5 percent for the nine exporters who responded to its questionnaire and at 286.1 percent for all other Chinese exporters and an estimated subsidy amount of 84.1 percent.

TIRES FINAL DETERMINATION

COMMERCE DEPARTMENT FINAL DETERMINATION AND ITC FINAL THREAT OF MATERIAL INJURY DETERMINATION

On June 12, 2015, in the attached fact sheet, ITA FINAL FACT TIRES, and Federal Register notices, FINAL DOC FED REG CVD TIRES FINAL DOC FED REG AD TIRES, Commerce announced its affirmative final antidumping (AD) and countervailing duty (CVD) determinations regarding imports of certain passenger vehicle and light truck tires from the China.  The AD rates ranged from 14.35 to 87.99% and the CVD rates from 20.73% to 100.77%.

In response to the Commerce Department final determination, on June 17, 2015 in the attached statement, MOFCOM TIRES, the Chinese Ministry of Commerce (“MOFCOM”) stated:

The Head of the Trade Remedy and Investigation Bureau of the Ministry of Commerce said that the Department of Commerce of the United States launched the antidumping and anti-subsidy investigation against Chinese tire products,  adopted a lot of unfair and discriminatory practice during the investigation, especially refused to give Chinese state owned enterprises the separate rates, and deliberately raised the dumping and subsidy tax rates of Chinese products. Chinese government is paying close attention to it.

On July 14, 2015, in the attached announcement, Certain Passenger Vehicle and Light Truck Tires from China Injure U.S. Indus, the US International Trade Commission (“ITC”) reached an affirmative injury determination in a 3-3 tie vote in the Tires case.  The ITC reached a negative critical circumstances decision.  As a result of the ITC decision, antidumping and countervailing duty orders will be issued.

CAFC DISMISSES AN ACTIVATED CARBON APPEAL BECAUSE IMPORTER DID NOT PROTEST IN TIME

On June 26, 2015, in the attached Carbon Activated Carbon v. United States, CAFC ACTIVATED CARBON, the Court of Appeals for the Federal Circuit (“CAFC”) dismissed an antidumping appeal by importer because of failure to file protest in time.

CAFC AFFIRMS ITC INJURY DETERMINATION IN WOODFLOORING CASE

On July 15, 2015, in Swiff-Train Co. v. United States, in the attached decision, the CAFC affirmed the US International Trade Commission’s injury decision in the Wood Flooring from China antidumping and countervailing duty case.

COMMERCE DEPARTMENT FINAL CVD AND AD REVIEW DETERMINATION IN WOOD FLOORING CASE

On July 6, 2015, in the attached final determination, CVD FINAL WOODFLOORING, Commerce announced a CVD rate of only 0.99% in the 2012 Countervailing Duty review investigation on Multilayered Wood Flooring From China.

On July 8, 2015, in the attached final determination, WOODFLOORING AD FED REG, Commerce  announced its final AD rate of 0 to 58.84, with the separate rate companies receiving 13.74% for the administrative review period December 1, 2012 to November 30, 2013.

FIRST STEEL TRADE CASE FILED

As mentioned in prior newsletters, Steel Trade cases are coming, and on June 3, 2015 the first Steel Antidumping and Countervailing Duty case was filed against Corrosion-Resistant (Galvanized) Steel Products from China, India, Italy, Korea and Taiwan.  The details of the filing are set forth below in the ITC Filing notice:

Docket Number DN 3069

Received: Wednesday, June 3, 2015

Commodity: Certain Corrosion-Resistant Steel Products from China, India, Italy, Korea and Taiwan

Investigation Number: 701-TA-534-538 and 731-TA-1274-1278

Filed By: Alan H. Price, Jeffrey D. Gerrish, Robert B. Schagrin, Paul C. Rosenthal and Joseph W. Dorn Firm/Organization: Wiley Rein LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Schagrin Associates; Kelley Drye & Warren LLP and King & Spalding LLP

Behalf Of: United States Steel Corporation, Nucor Corporation, Steel Dynamics Inc., California Steel Industries, ArcelorMittal USA LLC and AK Steel Corporation

Country: China, Korea, India, Italy, and Taiwan

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and anti-dumping duties on Certain Corrosion-Resistant Steel Products from China, India, Italy Korea and Taiwan.

NEW ANTIDUMPING CASE HYDROFLUROCARBONS FROM CHINA

On June 25th, a new antidumping petition was filed against hydrofluorocarbon blends from China.  The alleged antidumping rate is more than 200%.  See ITC Notice below:

Docket Number 3073

Received: Thursday, June 25, 2015

Commodity:  Hydrofluorocarbon Blends

Investigation Number: 731-TA-1279

Filed By: James R. Cannon, Jr.

Firm/Organization: Cassidy Levy Kent (USA) LLP

Behalf Of: The American HFC Coalition

Country: China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under section 731 of the Tariff Act of 1930 regarding the Imposition of Antidumping Duties on Imports of Hydrofluorocarbon Blends and Components Thereof from the People’s Republic of China.

JULY ANTIDUMPING ADMINISTRATIVE REVIEWS

On July 1, 2015, Commerce published the attached Federal Register notice, REQUEST REVIEW JULY, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of July. The specific antidumping cases against China are: Carbon Steel Butt-Weld Pipe Fittings, Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum.  The specific countervailing duty cases are: Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, and Prestressed Concrete Steel Wire Strand.

For those US import companies that imported Carbon Steel Butt-Weld Pipe Fittings, Potassium Phosphate Salts, Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum and the other products listed above from China during the antidumping period July 1, 2014-June 30, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over.  Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.  In the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

TRANSFORMATIVE POWER OF TRADE ADJUSTMENT ASSISTANCE (“TAA”) FOR COMPANIES

A major part of the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) was the merits of Trade Adjustment Assistance (“TAA”). Many Republican Senators and Representatives oppose TAA. On the Senate Floor, Senate Finance Committee (“SFC”) Chairman Orrin Hatch stated that he was “generally opposed” to TAA, but realized that his Democratic colleagues, led by SFC Ranking member Senator Ron Wyden, needed TAA to support TPA.

In the House, however, many Republican Representatives opposed TAA because they see TAA as an entitlement. But in talking to Republican staff in the House, it soon becomes apparent that many Representatives do not understand that there are two TAA programs. The first TAA program is TAA for Workers (“TAAW”), which is a $450 million job retraining program for workers that have been displaced by international trade. That is the program, Democratic Senators and Representatives need to support, to help the Unions, their constituents.

The second TAA program, however, is TAA for Companies (also called TAA for Firms or TAAF).  In the Bill signed by the President into law  TAA for Companies is set at only $15 million.  TAA for Companies targets small and medium size business (SMEs) and helps them adjust to import competition. The irony is that SMEs are the Republican sweet spot. These companies are Republican constituents.

What are the Republican arguments against TAA for Companies? The first argument is that the program does not work. To the contrary, the Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984. In other words, NWTAAC has saved 80% of the companies that got into the program since 1984..

The transformative power of TAA for Companies is illustrated by this video from the Mid-Atlantic TAA Center with statements from four small business owners on how TAA For Companies has saved their business– http://mataac.org/media. See also the video at https://www.youtube.com/watch?v=tCef23LqDVs&feature=youtu.be&a.  In that video, the director of MATAAC directly asks whether US companies are ready to give up on international trade victimhood.

If you save the company, you save the jobs that go with the company and all the tax revenue paid into the Federal, State and Local governments. This is the Transformative Power of TAA for Companies. TAA for Companies does not cost the government money. It makes money for the government.

In fact, I truly believe that President Ronald Reagan himself endorsed the TAA for Companies program. Why? Jim Munn. I started working with NWTAAC because Ronald Reagan himself asked Jim Munn to look into the program in the early 80’s. Who was Jim Munn? He was a Republican organizer, a criminal lawyer in Seattle who won every case that he handled, and yes a personal friend of Ronald Reagan.

What did Jim Munn find out when he investigated the program? Lo and behold the program works. Companies are saved, and Jim Munn stayed around as the NWTAAC board chairman for 22 years.

TAA for Companies will be a very important program that Congress can use to help their constituent businesses that will be hurt in the future by trade agreements. The Trans Pacific Partnership will create many winners, such as agriculture, but losers too, and those losing companies will need help adjusting to the trade tsunami of imports created by the TPP.

The other Republican argument against TAAF is that this program is another Solyndra and picks winners and losers. Nothing could be further from the truth. First, TAA for Companies does not provide money directly to companies. TAA provides matching funds to consultants to work with companies to help them create and implement strategic plans to compete effectively in a trade intensive environment.

Second, there is no picking winners and losers. Companies have to meet certain statutory criteria (including a decline in business). Company plans are then vetted by business experts at regional TAAF centers, which helps create a business recovery or adjustment plan. TAAF then provides a matching fund for outside expertise to help implement that adjustment plan. When companies are helped at the local level with an adjustment plan created specifically for that company, even companies facing severe import competition can survive and can prosper.

The only limitation on TAA for Companies is the low level of financial support in the Congress. Many companies wait for long periods of time to get into the program because there simply is no funding. In five states in the Pacific Northwest, for example, only about 10 companies begin the program each year, which is only a small fraction of the companies facing strong import competition.

Another argument made by Senator Hatch’s Legislative staff is that TAAF is duplicative of other Federal business programs. That again is not true. Helping companies that have been injured by imports is an entirely different objective from other business programs.

In the first place, Trade injured companies must change their business significantly to adapt to the new intensive trade environment in order to survive and grow. While there are other programs that offer business planning help, such as SBDC, they generally focus on very small business (often retail or services). TAAF specializes in helping larger trade injured companies, often manufacturers (as well as agricultural and some services companies).

Whereas other programs offer a fixed set of services or specific solutions (e.g. manufacturing technology or lean practices), a one size fits all, from a narrow pool of consultants, TAAF offers a highly flexible solution linking a consultant to a company to solve its specific import problem. Often the consultant hired by TAAF is one that the company already knows but simply does not have the resources to hire.

Today’s SMEs are lean operations, which rely on a network of project based specialists to keep them competitive. TAAF’s strength is the flexibility of linking a specific service provider with a specific skill, matched to the individual needs of the company facing immediate threat from import competition. TAAF does not compete with the private consulting industry, but facilitates access to it. This is the power of the market working to cure the disease and is perfectly in line with Republican principles.

The Transformative Power of TAA for Companies is illustrated by companies in Senator Hatch’s Utah saved by the program. Today there are 19 Utah companies active in TAAF, including a medical device, a precision metals, a furniture and an aluminum extrusions manufacturer. Because of TAAF, these 19 companies with a total of more $2 billion in sales have retained 1000s of high paid manufacturing jobs and added 1000s more jobs. Total cost to the US tax payer for these 19 companies – $1.2 million over a five year period. But saving those 19 companies and the jobs associated with them has resulted in substantial tax revenue at the Federal, state and local level. What TAAF has done in Utah, it has also done throughout the United States.

In addition to TAA for Companies, there are a number of other amendments to the trade laws going through the US Congress with TPA, including changes to the US antidumping law to make it easier to bring trade cases. As stated in past newsletters and as Ronald Reagan predicted in the attached 1986 speech, the problem with antidumping and countervailing duty cases is that they do not work. The Steel Industry has had protection from steel imports under US antidumping and countervailing duty laws for 40 years. Have the cases worked? Is the US Steel Industry prospering today?

All US antidumping and other trade cases can do is slow the decline in an industry. The only program that cures the disease is the TAA for Companies program and with the trade tsunami created by the TPP, this program will be needed to teach companies how to swim in the new competitive environment. That is why this program should be supported by both Republicans and Democrats in the upcoming votes in Congress. TAAF is better targeted and more effective than any other trade remedy available today.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies.  The real targets of antidumping and countervailing duty laws are not Chinese companies.  The real targets are US companies, which import products into the United States from China.

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America.  The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

See the Import Alliance website at http://www.importallianceforamerica.com.

We will be targeting two major issues—working for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of importers and working against retroactive liability for US importers.  The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

We are now in the process of trying to gather importers to meet with various Congressional trade staff as soon as possible to discuss these issues.  If you are interested, please contact the Import Alliance through its website or myself directly.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which will be attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014.  Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

CUSTOMS CRACKS DOWN ON CHINESE HONG KONG SMUGGLING RING

On July 7, 2015, US Customs and Border Protection announced that four persons have been indicted for criminal violations in smuggling thousands of counterfeit Sony Corp. and Apple Inc. products, including iPhones and iPads, into the U.S. from China.  U.S. Immigration and Customs Enforcement stated that Andreina Beccerra of Venezuela, Roberto Volpe of Italy, Jianhua Li of China and Rosario La Marca, also of Italy, stand accused of a nearly five-year conspiracy to smuggle more than 40,000 phony electronic gadgets past U.S. customs officials, with most of the devices marked with false Apple and Sony trademarks. Most of the counterfeit products were made by Hong Kong-based Dream Digitals Technology (HK) Co. Ltd., where Li served as a sales manager.

CUSTOMS AND TRADE ENFORCEMENT BILL

There are significant changes to Customs law in the Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”),  which passed the Senate on May 11, 2015 and the House and have now gone to Conference Committee to smooth out differences between the Senate and House bills.  Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws.

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