US CHINA TRADE WAR–TRUMP SIMPLISTIC APPROACH TO TRADE INJURES US COMPANIES, US AGRICULTURE BADLY HURT, NAFTA NOT GOING WELL, SECTION 301 AND 232 CASES, TRADE ADJUSTMENT ASSISTANCE, SOLAR, FALSE CLAIMS ACT, MORE CASES

White House Washington DC

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 30, 2017

 

Dear Friends,

As stated in many past blog posts, it is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.  Trump’s decision to push protectionism endangers his standing with a core constituency—farmers and rural America.  As stated below, Trump’s decision to tear up the Trans Pacific Partnership (“TPP”) has already had a major negative impact on farmers.

Trump’s call for an economic war with China and other countries is already having a ramification.  Trump’s threat to pull out of NAFTA is not helping the US position in the negotiations.  Trump simply does not understand the ramifications of the trade deal when he terminated the TPP or when he threatens to tear up NAFTA.

The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage.  But that fact is no longer true.  The 11 countries in the TPP have a larger market than the US.  China has a larger market than the US so the Trump Administration has to be very careful when it plays this card.

In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe.  The United States does not have that luxury.  The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is and will have major negative economic ramifications on the US economy.  The chickens will come home to roost.

Trump simply did not understand the dynamics of the Trans Pacific Partnership (“TPP”) and the ramifications of simply terminating it.  During the campaign, Candidate Trump stated that the TPP was a bad deal and if only he led the negotiating the team, it would be a better deal.  Thus, Trump argued that the TPP deal should be terminated and the US should then negotiate bilateral deals with the eleven countries in the TPP.

But two major problems with that strategy are becoming very clear.  First the United States Trade Representative (“USTR”) does not have the personnel to negotiate 11 separate trade deals with the individual countries.  It took more than five years to negotiate the TPP.  With Trump’s steep cuts to the Government bureaucracy, the government resources simply are not there.

Second, Trump did not understand the dynamics of the TPP deal.  During those negotiations, countries could give the US concessions because they would get offsets from other countries and the importance of gaining access to the markets of 11 other countries was worth the concession to the US.

But with no other countries in bilateral deals, the other countries are less willing to make the concessions the US is demanding.  In fact, as Robert Lighthizer, the USTR, has discovered, many of the countries in the TPP do not want to have a bilateral deal with the US.  They fear and rightly so that the US will demand too much.  Much easier to export and import from other countries.

The same problem is happening in the NAFTA negotiations.  Trump is threatening to leave NAFTA when he simply does not understand the dynamics of the deal and the devastating impact that such a withdrawal would have on US farmers and also US manufacturing industries, such as the US auto industry.  Trade is very complicated and running into the trade area like a bull in a China shop simply creates enormous damage.  That damage will be borne by the US agricultural industry and US manufacturers and that means the loss of 1000s if not 100s of thousands of jobs.

Labor unions and working men like the sound of being politically tough on trade and the foreigners, but when jobs are lost, those same people may not like the actual reality of a very protectionist policy.  Many American politicians, such as Donald Trump and Senators Chuck Schumer and Bernie Sanders, like to be tough on trade because foreigners do not vote.  But if the economy is hurt by Trump’s trade actions, his base will be hurt and he will not be the next President.  So there a lot riding on Trump’s trade policy and his Administration has run straight into the Wall of actual trade reality.

The only saving grace for Trump is that as evidenced by Senators Chuck Schumer and Bernie Sanders, the Democrats are even more protectionist than Trump.  But neither the Democrats nor Trump understand the true ramifications of simply walking away from trade deals that open up foreign markets.  The US agricultural industry is now learning those ramifications.

By kowtowing to the Steel industry with its 141,000 jobs, these trade actions could costs thousands, if not hundreds of thousands, of jobs in downstream industries and other industries, such as Agriculture. It is time for the United States to wake up to the benefits of trade.

It is also time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  See the article on Trade Adjustment Assistance for Companies below and how companies, including steel companies, can be saved from import competition by making them competitive again.

USTR has also initiated a section 301 case against forced technology transfers in deals with China.  But in an August 30, 2017 article by Dan Harris, my partner, entitled “China US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred deals with Chinese companies, he has not seen US companies forced to give over their Intellectual Property (“IP”) by the Chinese government.  Instead he has seen US companies make bad decisions leading them to give away their IP by their own volition.  If US companies do not protect their IP rights, they will lose them.  The US Government cannot protect against stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.  The Section 201 case against imports of Solar Cells continues with the ITC hearing being 11 hours long. The United States has intervened in a False Claims Act case against Furniture.  Commerce has also issued a circumvention determination in the Aluminum Extrusions case.

More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade beat goes on.

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

THE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—TRADE

Donald Trump’s political strategy is fight the cultural war, but win the next election because of his economic policy.  If jobs and wages are up, more companies move into the US, Trump’s firm belief is that he wins the next Presidential election.  Even Michael Moore, the Democratic gadfly, believes that Trump will win reelection by carrying the states that he already won.  See https://www.fastcompany.com/40459122/michael-moore-says-trump-is-on-track-to-win-again-in-2020.

There is only one fly in the ointment, flaw in this strategy—Trade.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.

The economic nationalist Steve Bannon, who is credited with helping get Donald Trump elected by in part pushing the American First Trump policy, was recently forced out of the White House.  Before he left, however, Bannon made his trade position crystal clear.  in an article entitled “Steve Bannon Unrepetent”, in the American Prospect” magazine on August 16, 2017, Bannon stated with regards to trade policy:

“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and  it’s gonna be them if we go down this path.  . .

Bannon went on to describe his battle inside the administration to take a harder line on China trade, and not to fall into a trap of wishful thinking in which complaints against China’s trade practices now had to take a backseat to the hope that China, as honest broker, would help restrain Kim.

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we’re five years away, I think, ten years at the most, of hitting an inflection point from which we’ll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping. “We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

From Bannon’s point of view, trade is economic war.

Although Bannon has since left the White House, President Trump and Commerce Secretary Ross apparently share Bannon’s thinking.  On August 22nd, without understanding the ramifications on his voter base, President Trump announced that he might simply cancel NAFTA.  Apparently, Trump believes that both Mexico and Canada are winning the economic war against the United States.

On August 28th, in an article entitled “Exclusive: Trump vents in Oval Office, “I want tariffs. Bring me some tariffs!”, Axios reported that in the first Oval Office meeting with Chief of Staff John Kelley and the last meeting with Steve Bannon, President Trump stated:

Trump, addressing Kelly, said, “John, you haven’t been in a trade discussion before, so I want to share with you my views. For the last six months, this same group of geniuses comes in here all the time and I tell them, ‘Tariffs. I want tariffs.’ And what do they do? They bring me IP. I can’t put a tariff on IP.”  . . .

“China is laughing at us,” Trump added. “Laughing.”

Kelly responded: “Yes sir, I understand, you want tariffs.” . . . .

Staff secretary Rob Porter, who is a key mediator in such meetings, said to the president: “Sir, do you not want to sign this?” He was referring to Trump’s memo prodding Lighthizer to investigate China — which may lead to tariffs against Beijing.

Trump replied: “No, I’ll sign it, but it’s not what I’ve asked for the last six months.” He turned to Kelly: “So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs.”

Kelly replied: “Yes sir, understood sir, I have it.” . . .

Trump made sure the meeting ended with no confusion as to what he wanted.

“John, let me tell you why they didn’t bring me any tariffs,” he said. “I know there are some people in the room right now that are upset. I know there are some globalists in the room right now. And they don’t want them, John, they don’t want the tariffs. But I’m telling you, I want tariffs.” . . . .

Emphasis in the original.

Trump’s statements in this article ring true because during the Presidential campaign, Donald Trump made it very clear that he likes tariffs.

On August 28th, however, George Will in an Op-ed article entitled “Trump, The Novice  Protectionist” in Investors Business Daily responded to the Trump trade policy stating:

“Foreigners, however, have their uses. After the president trumpeted that the Dow surpassing the 22,000 mark was evidence of America’s resurgent greatness, The Wall Street Journal rather impertinently noted this: Boeing, whose shares have gained 50% this year and which accounted for 563 of the more than 2,000 points the Dow had gained this year en route to 22,000, makes about 60% of its sales overseas. Boeing has a backlog of orders for 5,705 planes, 75% going outside North America. For Apple, the second-biggest contributor (283 points) to this year’s Dow gain at that point, foreign sales are two-thirds of its total sales. Foreign sales are also two-thirds of the sales of McDonald’s, the third-biggest contributor (239 points).

Mark Perry of the American Enterprise Institute says that in the last 20 years the inflation-adjusted value of U.S. manufacturing output has increased 40% even though — actually, partly because — U.S. factory employment decreased 5.1 million jobs (29%).  . . . Increased productivity is the reason there can be quadrupled output from the same number of workers.  According to one study, 88% of manufacturing job losses are the result of improved productivity, not rapacious Chinese.

But those Democrats who think government should fine-tune everything are natural protectionists (Sen. Charles  Schumer: “They’re  rapacious, the  Chinese”)  and probably think Trump is too fainthearted because he is not protecting Americans from competition from Americans.  . . .”

TRUMP TRADE WAR—THE SIMPLISTIC APPROACH TO TRADE COULD WELL DAMAGE THE US ECONOMY AND DOOM THE TRUMP ECONOMIC PLAN

In the above articles about Bannon’s and Trump’s approach to trade along with the below op-ed article in the Wall Street Journal by Commerce Secretary Wilbur Ross, the Trump trade team reveal the protectionist bent of the Trump Administration, which is based, in part, on blind arrogance and a simplistic approach to trade policy.

The Bannon and Trump approach reveal fatal misunderstandings:  trade is a two-way street, and US exports are critical to the wellbeing of Donald Trump’s own constituents.  In international trade, what goes around comes around.  What the US does to other countries, they can do back to the US.

Moreover, Bannon, Ross and Trump are confusing economic warfare with economic competition.  The United States has always strongly believed that economic competition is good for the economy, the country and the US consumer.  The bedrock principle of the importance of economic competition to wellbeing of the US economy is the reason the US antitrust laws were enacted. As Deputy Assistant Attorney General Roger Alford of the US Justice Department’s Antitrust Division recently stated on August 30th at a Competition Policy Forum in Shanghai China:

Our continued engagement on this topic is significant for competition enforcement. We are the guardians of strong and vigorous competition for economic prosperity. Our lodestar is to promote competition, not to give preference to specific competitors, even when individual businesses jockey for advantage.  . . .

Emphasis added.

Bill Gates believed that Microsoft had to go to war with its competition, but frankly that is why Microsoft produced such good software.  CEOs of companies are driven by competition to produce better products at lower prices, which means stronger US companies and prosperity for the US economy and US consumers.  Stronger US companies means more jobs at higher wages.

Protecting US companies from international competition does not strengthen the US companies.  It weakens them and the poster child for such a point is the US Steel industry, which has had 40 years of protection from steel imports.

This is exactly why President Ronald Reagan was so opposed to protectionism.  As President Reagan stated above in June 1986: “Protectionism is destructionism. It costs jobs.”

Moreover, Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing, and, therefore, it will lose the economic war.  Trump’s and Bannon’s combined with the Democrat’s protectionist policies mean the US will lose the economic war because of its decision to look inward and no longer compete in the international economic marketplace.

US companies do not get stronger by protecting them from international competition, which simply promotes the mentality of international trade victimhood.  US companies get stronger by looking inward and working harder to become internationally competitive.  See the article about Trade Adjustment Assistance for Companies below.

The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market.  Although that principle may have been true twenty years ago, it is simply no longer true.

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

Maybe this is a major reason US companies move to Mexico and Canada to get better access to other foreign markets.  The United States is competing with other countries too.

Also in many ways, with 1.37 billion people China has a larger market than the US.  In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set.  Now that is close to 95% of 1.37 billion.  That is a larger market than the US with its 323 million.

Also the upper class and upper middle class in China, which numbers between 250 to more than 300 million, have an income closer to the US and that segment of the China market is the same size, if not larger, than the US.  That is why in the push for the Trans Pacific Partnership (“TPP”), House Speaker Paul Ryan used to state that 75% of the World’s consumers are outside the United States.

But China is also not this overwhelming behemoth with an economic juggernaut that is going to crush the US.  Yes, it may have a larger market, but on a per capita basis, it is much smaller.  Thus, the US per capita income on average is $57,000 where the Chinese per capita income is $8,000.  China has its own problems—keeping its people happy and fed.

Along with these problems, China has major weaknesses, which can be exploited by the US.  China has a very high personal tax rate, which can be as high at 45%.  This high tax rate is why many Chinese have emigrated to the US, looking for a lower tax rate and a better opportunity to keep the money they earn.  If Trump can drive taxes lower, that may result in more entrepreneurs and businesses moving to the US, e.g. Foxconn.

Another problem is the Chinese government’s strict control of information flowing into China by its very strong control of the internet.  Strict control of the internet stops knowledge flowing into China, which especially hurts the country’s high tech sector.  When information and knowledge stop, economies do not do as well.  The free flow of knowledge and ideas is critical for the most advanced economies and yet that is not true in China.

But arrogance is one of the great sins because it blinds you to all options.  To make a better deal in trade negotiations, the Administration has to do its homework and first understand the actual American interest.  If one is going to make America great again, one must first understand what is the nature of America’s interest in trade.  This requires understanding the dynamics of the trade deal in question, which President Trump prides himself in doing.  The Trump Administration must understand the actual trade deal closely, the US leverage points and the US weaknesses, what trade deals will help the US and the what trade deals will hurt the US interest.  Donald Trump’s failure in trade negotiations is to understand the dynamics of the deal and the leverage that the US has in trade negotiations.  In other words, with regards to trade, Trump simply does not understand “The Art of the Deal”.

In ripping up the TPP without even trying to renegotiate, Trump failed his own test because he did not understand the elements of the deal.  Trump’s philosophy was to do away with multilateral deals because they fall to the lowest common denominator and do only bilateral deals because that gives the US more control over the deal and if the country does not live up to its side of the bargain cancel the deal.

The problem with that approach is first the US government does not have the personnel at USTR, which is very lean and mean, to negotiate 11 separate trade deals with all the countries in the TPP.  It took more than 5 years to negotiate the TPP.

But secondly and more important, in recent bilateral negotiations, Canada, Mexico and Japan have all told the US do not assume that in bilateral deals or NAFTA, the United States will get the same deal it would have gotten in the TPP.  In fact, as indicated below, many countries in the TPP simply do not want to do a bilateral deal with the US—too much work.  Canada, Mexico and Japan were willing to give the US a better deal because they would gain access to a much greater market, the market of 11 additional countries.  That gave countries the political ability to play one national interest against another national interest.  Thus, Canada could give in to the US on dairy products because of the potential access to the much larger TPP market, including the Japanese and US markets.  Thus, countries in the TPP could use tradeoffs with other countries to open their markets further to US exports.  Those trades offs and the market access to the markets of 12 different countries does not exist with a bilateral deal with just the US.

On August 24, 2017, in an article entitled “Revived TPP may exclude trade concessions sought by US”, Nikkei, a Japanese newspaper, stated:

TOKYO — Japan is proposing suspending trade concessions made to the U.S. as part of the Trans-Pacific Partnership in order to resurrect the pact with the 11 remaining members.

Tokyo sounded out that proposal to other nations in the “TPP 11,” as those members became known after the U.S. withdrew from the deal. Senior negotiators will cite items they wish to see shelved during three days of talks starting Monday in Australia.

Washington had secured a number of major concessions from other nations in exchange for lower American tariffs on their exports. Though President Donald Trump pulled the U.S. out of the deal, those concessions remain on the TPP’s books — to the consternation of other members.

If all the 11 participants agree unanimously, any such concession would be put on hold, and national regulations governing that element of the pact would remain in place.
But the suspensions would be lifted if and when the U.S. decides to return to the partnership.

While the remaining members are leaning toward keeping the lower tariffs agreed on among the initial group, they are likely to revisit specific trade rules.

The U.S. sided with major domestic drug companies and settled on an effective eight-year window before competitors can have access to proprietary pharmaceutical data. That moratorium exceeds international standards, and other countries think it would impede development of cheap generics. All members of the TPP 11 are expected to agree on freezing that provision.

Other provisions that may be suspended involve copyright protection periods, fair-competition policies governing state-owned enterprises and the opening of government procurement to foreign capital.

American exports would face a competitive disadvantage if an 11-member TPP goes into force. Tokyo hopes that U.S. meat industry leaders will speak up in favor of rejoining the trade deal.

Trade is the one weak link in Trump’s economic plan.  As indicated below, the decision to kill the TPP has already had a major negative impact on US agriculture and part of Trump’s base, the rural states, where agriculture is king.

SIMPLICITY IS OFTEN A GOOD TRADE POLICY BUT NOT WHEN THE POLICY IS SIMPLE MINDED AND NARROWLY FOCUSED

Trump has slowed down the Section 232 Steel and Aluminum Investigations because its “complicated”, but when Bannon and Trump take a very simplistic, black and white view of trade, it is extremely dangerous to the US economy and Donald Trump’s own constituents.

This is not a fight between Globalism and America First.  The America First strategy requires the Administration to understand deeply the interest of the United States and the interest of all the significant US industries in trade negotiations, including agriculture, not just the narrow Steel and Aluminum Industries. The Trump and  Bannon statements indicate a deep failure to analyze why Trump won the election and what the interest of the entire United States is in trade negotiations and also the interest of Donald Trump’s own constituents, the voters that elected Donald Trump President.

Bannon thinks that if we create a trade war with China and are tough on them we will win the economic trade war with China. But Bannon truly has forgotten why voters elected Donald Trump.

First, it was not just the US Steel and Aluminum industries that put Trump in the White House, it was the working man in many manufacturing plants throughout the United States.  Because of their economic, black white view of the World, Trump and Bannon want to put up barriers to steel imports to protect the US Steel industry and its 141,000 jobs without realizing the damaging impact of such an action on the millions of jobs in the downstream steel consuming industries.  Truthfully, if Donald Trump is going to be reelected, Trump himself, his trade team and Steve Bannon cannot be so simple minded.

More importantly Donald Trump also won because of farmers.  Although Trump won the States in the Blue Wall, Michigan, Ohio, Pennsylvania and Wisconsin, he was also able to win the Presidency because he won the US heartland, including the states of Iowa, Kansas, Nebraska, Wyoming, Montana, North Dakota, South Dakota, Arizona, Oklahoma, Utah and Florida.  What do those states have in common and in common with Wisconsin—Agriculture.  And the Trump trade policy is and has seriously hurt US farmers because US farmers are dependent on exports.

As the US Wheat Federation stated in the Section 232 Steel case, half of US wheat is exported.  Putting up protectionist walls invites retaliation against US agricultural exports.

Finally, one other point in direct response to Steve Bannon’s and Trumps statement, substantial trade relations prevent real shooting wars.  As indicated below in the Section 301 article, China is becoming more amenable on North Korea because of its enormous trade relationship with the United States.  The total US China trade relationship is $578.6 billion with $115.8 billion in US exports and $462.8 billion in imports from China.

In direct contrast, the US trade relationship with Russia is much, much smaller.  The total US Russia trade relationship is $38.1 billion with $11.2 in US exports and $27 billion in imports from Russia.  Truly peanuts in the global trade market.  It is better to compete with countries in the economic arena as compared to a real war, where millions die.

DEMOCRATS MORE PROTECTIONIST THAN DONALD TRUMP

The only saving grace for Donald Trump on trade is that the Democrats are even more protectionist.  On August 13th, Senator Chuck Schumer, who heads the Democrats in the Senate, told John Catsimatidis on his New York AM 970 radio show “The Cats Roundtable” that he is closer now to President Donald Trump than he ever was with former President Barack Obama on trade.  Senator Schumer stated:

“Trade is the thing [China cares] most about, and they’ve been treating us very badly on trade for a long time, frankly,.  I was closer in trade views to Donald Trump than I was to either George Bush or Barack Obama, on China anyway. I think we were much too easy on them. But if we got tough on them now, maybe they would relent, but we have to be real tough. So far, the administration has not been as tough as they should be, as far as I’m concerned.”

The Trump Administration should be very tough with China on trade, but it should carefully analyze what its true interests are and the interests of US voters that elected Donald Trump.  The US government should do everything in its power to drop barriers to US exports in China and other countries.  But protectionism for protectionism’s sake will not cure the problems of US manufacturing and right the US China trade balance

TRUMP’S TRADE WAR HURTS US AGRICULTURE AND US FARMERS

As mentioned in prior newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  On August 7, 2017, in the attached extensive article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine, Politico did its homework and described in detail the deep negative impact of the Trump trade policy on US agriculture:

EAGLE GROVE, Iowa—On a cloud-swept landscape dotted with grain elevators, a meat producer called Prestage Farms is building a 700,000-square-foot processing plant. The gleaming new factory is both the great hope of Wright County, which voted by a 2-1 margin for Donald Trump, and the victim of one of Trump’s first policy moves, his decision to pull out of the Trans-Pacific Partnership.

For much of industrial America, the TPP was a suspect deal, the successor to the North American Free Trade Agreement, which some argue led to a massive offshoring of U.S. jobs to Mexico. But for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.

“I’m scared to death,” said Ron Prestage, whose North Carolina-based family pork and poultry business made its huge investment in the plant near Eagle Grove in part to reap expected gains from the TPP. “I don’t guess I’ve gone beyond the point of no return on the new plant, but we did already start digging our wells and started moving dirt.”

He and other agricultural business people and workers have reason for concern.

On July 6, the EU, which already exports as much pork to Japan as the United States does, announced political agreement on a new deal that would give European pork farmers an advantage of up to $2 per pound over U.S. exporters under certain circumstances—a move which, if unchecked, is all but certain to create a widening gap between EU exports and those from the United States.

European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, would also see a 15 percent tariff on exports to Japan disappear while U.S. exporters would continue to face that duty at the border. For other products, the deal essentially mirrors the rates negotiated under the TPP, which the United States has surrendered, giving the EU a clear advantage over U.S. farmers.

The EU’s deal is all the more noteworthy because American farmers were relying on the TPP—to which the EU was not a member—to give them an advantage over European competitors. But in a further rebuke to the United States, Tokyo decided within a matter of weeks to offer the European nations virtually the same agricultural access to its market that United States trade officials had spent two excruciating years extracting through near-monthly meetings with their Japanese counterparts on the sidelines of the broader TPP negotiations; the United States is now left out.

The EU, which also recently inked a deal with Vietnam, is now moving forward with talks with Malaysia and is in the process of modernizing a pre-existing trade deal with Mexico.

Meanwhile, a bloc of four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance—is quickly becoming the leading force for free trade in the region, announcing near the end of June it would commence its own negotiations with New Zealand, Australia and Singapore, heedless of its neighbor to the north.

On its own, Australia, which in 2015 cut a deal to undersell the United States in beef exports to Japan, announced another round of scheduled tariff cuts with Japan. Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors. Australia is also prioritizing the conclusion of trade talks with Indonesia, the largest nation in Southeast Asia by gross domestic product.

The remaining 11 TPP countries have already met two times, with a third meeting planned, to move ahead with the revival of the deal without the United States. The so- called TPP-11 would be in direct response to Trump’s trade policy. Economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

As China, which was never a part of the TPP, senses blood in the water, it is moving quickly to assert itself, rather than the United States, as the region’s trade arbiter. China is aiming to close talks by the end of this year on its behemoth Regional Comprehensive Economic Partnership—a trade agreement involving 15 other Asia-Pacific countries.

None of these deals are yet in effect. But already there are signs that competitors are gaining market share over U.S. producers in the post-TPP landscape, as Pacific nations take a closer look at alternatives to U.S. exporters.

Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.

Japan, which saw the TPP not only as a source of economic growth but a counterweight to China, is now taking the lead in salvaging the deal. Its goal is to have some sort of agreement between the 11 other countries in place for the annual summit of Asia-Pacific leaders in November. Trump is expected to attend, creating the awkward possibility that he will witness all the handshakes and back slaps as his fellow leaders congratulate themselves on a deal.

For his part, Trump once promised a slew of “beautiful” deals to replace the TPP, but his administration has yet to lay out a detailed strategy. U.S. Trade Representative Robert Lighthizer told lawmakers that an analysis is underway to determine where it makes most sense to pursue negotiations.

In the meantime, Lighthizer, a trade attorney who pressured Japan to voluntarily restrain its steel exports when he was a trade official in the 1980s, said Tokyo should just go ahead and lower their tariffs without expecting anything in return.

“I think in the areas like beef and the others, they ought to be making some unilateral concessions, at least temporary concessions,” he told lawmakers in June. “And I don’t quite understand why that doesn’t happen.”

Lighthizer said the administration still hopes to strike bilateral trade deals—that is, separate agreements with individual countries—but he conceded that “some of the TPP countries don’t want to do bilaterals.” The value of the TPP for many countries was that they could justify giving up protective tariffs in exchange for their own access to the markets of a wide pool of countries; many are unwilling to make such concessions for the smaller gains of a bilateral deal.

Lighthizer acknowledged that even Japan, at least for the time being, may not be interested in one-on-one negotiations with the U.S. . . .

That leaves workers in 13,000-person Wright County, whose survival depends largely on agriculture, with relatively few signs of optimism. Trump’s decision to walk away from the TPP has stoked uncertainty about U.S. trade policy and, more notably, the president’s commitment to rural America.

“He fooled a lot of people,” said Sandy McGrath, mayor of Eagle Grove, who is not affiliated with any party and did not support Trump. . . .

But the plant’s success will depend largely on export opportunities. More than 26 percent of the pork produced in the U.S. in 2016 was exported to foreign markets. And more than $1.5 billion of the nearly $6 billion in U.S. pork exports in 2016 headed for Japan.

“At the time those investment decisions were made, the U.S. had never turned down a free trade opportunity,” said Dermot Hayes, an agricultural economist at Iowa State University, referring to the Prestage plant and other pork-industry investments.

Hayes said the livestock industry had in its sights a future of expansion amid soaring export growth. After Trump’s withdrawal from the TPP, “that has pretty much disappeared,” he said. . . .

In April, when Trump was on the verge of withdrawing from NAFTA, Maier said he watched corn prices plummet in anticipation of the president’s decision. Trump relented, at the request of Perdue, the agriculture secretary, who appealed to the president with colorful maps showing the president’s base was largely concentrated in states that heavily rely on agriculture.

Ultimately, Trump agreed to renegotiations with Canada and Mexico instead. But Maier remains wary that, despite pledges by the administration to “do no harm” for agriculture, the mere act of reopening the deal with Canada and Mexico, the two largest destinations for U.S. agricultural exporters, could mess up what has been a very good thing for American farmers in the Midwest.

“Farmers are willing to open up NAFTA, but if we open up NAFTA, there’s the risk of going backwards,” he said. . . .

The Obama administration, backed by a large cadre of free-trade Republicans, used that reality to grow support for the TPP among businesses and agricultural interests eager to grab a better foothold in a fast-growing area of the world where the U.S. has few formal trade deals.

But through the slow churn of negotiations, the dazzlingly complex deal among 12 countries soon fell victim to time and circumstance. After more than five years of talks, bleary-eyed trade negotiators were finally able to close the deal at an Atlanta hotel on October 5, 2015. But the agreement quickly became mired in election politics. Labor unions and blue-collar voters declared it to be a successor to NAFTA, which was blamed for the loss of factories. And while the U.S. trade commission predicted the deal would be broadly beneficial to the overall economy, some areas including food and agriculture were predicted to score more gains than others.

Even as supporters of the deal insisted it would put U.S. manufacturers on a stronger footing versus overseas competitors by enforcing higher labor and environmental standards, Trump and Bernie Sanders used anti-TPP fervor as a key plank of their campaign platforms, declaring that it would cost America jobs. Even Hillary Clinton, normally a supporter of freer trade, turned on the deal, saying she wanted to negotiate better terms.

Trump escalated his rhetoric on trade after the primaries and Congress, which has final say on trade deals, shied away from bringing TPP up for a vote. After Trump’s victory, the fate of the deal in the GOP-controlled Congress was all but sealed as Republican lawmakers put it aside to concentrate on tax reform and a bid to roll back Obamacare.

On his first full day in office, Trump signed an executive order withdrawing from the TPP, calling the action a “great thing for the American worker.”

“The Trans-Pacific Partnership is another disaster done and pushed by special interests who want to rape our country, just a continuing rape of our country,” Trump said during a campaign stop in Ohio. “That’s what it is, too. It’s a harsh word: It’s a rape of our country.” . . .

But even as Iowa was voting for Trump by 51 percent-42 percent, its farmers were looking to Asia as their savior. . . .

But despite Trump’s intense personal interest in trade, the White House has been slow to build the dream team of negotiators the president promised on the campaign trail. Lighthizer, who once served as a deputy U.S. trade representative under President Ronald Reagan, was confirmed on May 11. The people tapped to serve in the agency’s three deputy positions await confirmation, as does the administration’s pick for chief agriculture negotiator.

Iowa’s Republican Sen. Chuck Grassley says he thinks a trade deal with Japan would make up for much that was lost for agriculture by dropping TPP, but it will take “a lot more personnel, a lot more time to get it done, a lot more separate actions by Congress.”

As far as the administration’s strategy to get there, Grassley, who still owns his farm in Butler County, Iowa, said he hasn’t gotten much direction.

“I asked Lighthizer maybe a month ago in a meeting, and I didn’t get an answer,” Grassley said in a recent interview. “In a sense he answered, but not very definitively because their policy isn’t established.” . . .

Maybe the lesson of TPP demise for the protectionist firebreathers is be careful what you wish for.  The negative ramifications of not doing the TPP appear to be infinitely higher than doing the trade deal.

NAFTA NEGOTIATIONS

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.

But Trump keeps stirring the pot with his anti-NAFTA rhetoric. On August 22nd, during a speech in Phoenix President Trump announced that he might simply cancel NAFTA.

As Politico stated on August 23rd, “Trump’s  threat  of  NAFTA  withdrawal lose its edge”:

“Canada and Mexico appear to have reached a conclusion that when President Donald Trump threatens to withdraw from NAFTA, it is a negotiating ploy that is all bark and no bite. . . .

Instead, concerns were raised from within the United States government, where officials and lawmakers who support the deal see little value in the president repeatedly going to the well of harsh rhetoric in a way that makes the United States’ negotiating position more difficult.

“I don’t know a single person with a working brain cell that thinks that’s a good idea,” said one U.S. government source close to the talks, referring to renewing the threat of terminating the deal. “It’s a stupid message to send during the  negotiations.”

Part of the reason Mexico and Canada might be less intimidated by Trump’s bluster is that they have plenty of other trading partners to fall back on if the relationship with the U.S. sours. Both countries have separate deals in place with the European Union — Mexico is currently ramping up talks to update theirs — and both are part of the effort to reboot the Trans-Pacific Partnership, which the remaining 11 members are pushing toward completion even without the U.S.

But after Trump cast aside the TPP almost immediately upon taking office, the U.S. has fewer such options to fall back on — so pro-NAFTA lawmakers and those from export- dependent states have repeatedly urged him to focus on modernizing and updating NAFTA, rather than terminating it.

House Ways and Means Chairman Kevin Brady — whose home state of Texas counts Mexico as the No. 1 market for its exports, followed by Canada — cautioned Trump on Wednesday to be more aware of the effects his words have on the country’s trade relationships.

“The president’s rhetoric is red-hot, and it creates real impact,” Brady said during a town hall discussion at AT&T headquarters in Dallas. “I think the rhetoric, the words from the president matter, so I’d like to see that take a different approach in tone.”

Brady, whose powerful committee oversees trade on Capitol Hill, is one of a core group of Republicans whose support will be crucial if the administration succeeds in renegotiating a new deal with Canada and Mexico, since it will likely have to go through Congress for approval . . ..

The political question is whether Trump would discard NAFTA in the face of what certainly would be fierce resistance from Congress and industries like agriculture, which would take a significant hit in that event amid a sustained downturn in the farm economy.

Back in April, intense lobbying from the Hill and on the farm helped talk Trump down from inking a prepared executive order to withdraw from the deal. News of the planned order sparked such a public outcry and flurry of reaction in support of the deal that business and trade insiders sometimes refer to it as “Black Wednesday.” . . .”

Meanwhile, a chorus of industries are telling the Administration not to be so tough in the NAFTA negotiations because tweaks are fine, but the failure of the NAFTA deal would be disastrous to US industry and US agriculture.  On August 10th Automobile and Auto Parts makers urged the Administration to cool down the rhetoric on rules of origin for automobiles and auto parts because major changes to automobile rules of origin through NAFTA modernization could have the unintended consequence of making North America’s auto industry less competitive.  As Charles Uthus, vice president of international policy at the American Automotive Policy Council, the main lobbying arm of U.S. auto companies in Washington, stated:

“It’s the highest automotive rule of origin anywhere that you can find. It’s already extremely rigorous, very difficult to meet as it is. To actually strengthen it, there is a huge risk of unintended consequences.”

Ann Wilson, senior vice president of government affairs for MEMA, stated:

“Our members really struggle with finding a connection between changing the rules of origin and the reshoring of jobs. They do not see that connection.”

On August 17th Politico reported that Trump’s tough rhetoric has created intense hatred in Mexico, which will make it politically very difficult for Mexico to make concessions or agree to a deal that would clearly benefit the US.  Thus, Mexican President Enrique Peña Nieto is not afraid to walk away from the table if needed, potentially overturning the entire U.S.-Mexico bilateral trade relationship in the process.

Again, Trump does not understand the dynamics of the deal and the fact that since Mexico has more trade agreements than the US, it has leverage and is not afraid to walk away from the table.

Thus, both Mexico and Canada are resisting US pressure for a new “national content” provision in NAFTA’s auto trade rules to encourage more parts to be made in the United States.  As Mexican Economy Minister Ildefonso Guajardo stated:

“It will not be best practice to introduce that kind of rigidities into the industrial process.  It’s not good for American companies. It’s not good for Mexican companies.”

Canadian Foreign Minister Chrystia Freeland also stated: “Canada is not in favor of specific national content in rules of origin”.

Meanwhile, the Canadian Dairy Producers stated that they will fight any U.S. effort to duplicate in NAFTA the dairy concessions secured through TPP negotiations. As Yves Leduc, director of policy and international trade for the Dairy Farmers of Canada, stated, “Not a possibility – as far as we are concerned, we would never agree to that.”

The small amount of dairy access that Canada granted the U.S. during the TPP talks – equal to 3.25 percent of Canada’s domestic milk production – was balanced out by concessions Canada secured in negotiations involving all of the 11 other countries. Those circumstances don’t apply to NAFTA, which involves only three countries. As Leduc stated, “To ask us to open up our market to allow more subsidized goods from the U.S. to enter the Canadian market, the answer is simple: It’s no.”

Meanwhile, US famers joined with Canadian and Mexican farmers to urge US negotiators to not let specific demands undermine the market access US farmers and ranchers enjoy under the existing agreement.  Although all three groups want to lower trade barriers to exports and imports, it was their unified position to defend existing market access that was most notable, given the fear on the farm that Trump could use agriculture as a bargaining chip to satisfy his obsession with reducing America’s trade deficit in manufactured goods.

THE PHRASE “FREE BUT FAIR TRADE” IS A FRAUD BECAUSE COMMERCE HAS SO DEFINED DUMPING AS TO FIND ALMOST EVERY IMPORT DUMPED

In an article along the same lines as the Bannon article and the Trump quote, on August 1, 2017, Commerce Secretary Wibur Ross penned an article in the Wall Street Journal entitled, “Free Trade Is a Two Way Street”.  In the article, Commerce Secretary Ross argued that many countries erect barriers to US exports, but then went on to state:

“Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds, and below-market real-estate sales and leases, among other means. Comparable levels of government support do not exist in the U.S. If these countries really are free traders, why do they have such formidable tariff and nontariff barriers?

Until we make better deals with our trading partners, we will never know precisely how much of our deficit in goods is due to such trickery. But there can be no question that these barriers are responsible for a significant portion of our current trade imbalance.

China is not a market economy. The Chinese government creates national champions and takes other actions that significantly distort markets. Responding to such actions with trade remedies is not protectionist. In fact, the World Trade Organization specifically permits its members to take action when other countries are subsidizing, dumping and engaging in other unfair trade practices.

Consistent with WTO rules, the U.S. has since Jan. 20 brought 54 trade-remedy actions— antidumping and countervailing duty investigations—compared with 40 brought during the same period last year. The U.S. currently has 403 outstanding orders against 42 countries.

But unfortunately, in its annual reports, the WTO consistently casts the increase of trade enforcement cases as evidence of protectionism by the countries lodging the complaints. Apparently, the possibility never occurs to the WTO that there are more trade cases because there are more trade abuses.

The WTO should protect free and fair trade among nations, not attack those trade remedies necessary to ensure a level playing field. Defending U.S. workers and businesses against this onslaught should not be mislabeled as protectionism. Insisting on fair trade is the best way to ensure the long-term strength of the international trading system.

The Trump administration believes in free and fair trade and will use every available tool to counter the protectionism of those who pledge allegiance to free trade while violating its core principles. The U.S. is working to restore a level playing field, and under President Trump’s leadership, we will do so.

This is a true free-trade agenda.”

Let me begin by saying no one has a problem with US government actions challenging foreign, including Chinese, barriers to US exports.  Every Administration be it Republican or Democrat has taken a tough stance to drop foreign barriers to US exports.  In fact, many Senators and Congressmen are pressuring the Trump Administration for more free trade agreements because they remove barriers to US exports.  The TPP, Trans Pacific Partnership, would have dropped tariffs down to 0 on more than 18,000 products exported by US companies, many agricultural products.

Although no one doubts that the Chinese market is significantly distorted, many foreign markets and in some cases US markets are significantly distorted.  The US steel market with the many outstanding trade orders blocking steel imports is a good example of a significantly distorted market in which the US price for steel is much higher than the World market price.

Also no one doubts that many countries subsidize their exports or dump in the US market.  For many years, the Commerce Department was able to find very high dumping rates on Japanese imports in antidumping cases by using price to price comparisons, which found that Japanese prices were significantly higher, sometimes four times higher, than US prices for the same Japanese product.  That is classic dumping using higher prices in the home market to fuel lower prices to the United States.

The Japanese companies were able to use dumping because the Japanese Government erected non-tariff trade barriers to block imports from the US and other countries creating very high domestic Japanese prices.  To protect its mikan /tangerine industry, for example, for many years Japan blocked all imports of citrus fruit.  But it is also interesting to note that there are no outstanding countervailing duty/anti-subsidy orders against Japanese products.

The Chinese governments, especially the local governments, also subsidize their exports and provide low interest loans to their companies, but so does the US government, through its subsidies in the Agriculture area, and the State Governments, which will waive state income taxes or help with low interest loans, to encourage production of companies, such as Foxconn, to move to their states.

But the US Countervailing Duty law applies to China now and the Commerce Department has not been shy in finding Chinese imports into the United States to be subsidized.  It should be noted, that the WTO has overturned 28 US Countervailing Duty cases against China, in part, because the WTO has ruled that Chinese state-owned companies are not necessarily the Chinese government itself, as the Commerce Department has ruled.

The US too has state-owned companies, such as the Tennessee Valley Authority, which provides electricity to certain parts of the US.  Should foreign governments assume that all electricity from the TVA is subsidized because it is owned by the US government?

The major problem, however, is the Commerce Department’s application of the antidumping law.

In the 1980s, James Bovard authored a book called the “Fair Trade Fraud”, which outlined many of these same problems in the US antidumping law.  But nothing has changed.  Instead Commerce has just developed new methodologies to increase antidumping rates even higher.

Moreover, the same economic warfare arguments were made about Japan in the 1980s.  Although China does not have clean hands, that does not mean that every single import from China is unfairly traded.  In fact, I would argue that a significant percentage, if not the majority, of imports from China are fairly traded.  The Chinese government simply does not care about the Chinese Mushroom, Honey, Crawfish or Shrimp industries and does not set the prices for those products or any of the inputs.  Does the Chinese government really care about the price of cow manure in China, a major input for mushrooms?

Remember Commerce over decades has so distorted the US antidumping law that it finds dumping in 100% of the cases from China because it refuses to look at actual prices and costs in China.  If you have a hanging judge, does that mean every single import from China is dumped/unfairly traded?

Instead, Commerce should start easing the restrictions on the market economy status of China so as to determine which Chinese companies are truly dumping in the US market and nail them to the wall.  Commerce should make its antidumping cases against China mirror actual reality in China, not for the Chinese companies, but for US importers and downstream customers.

Right now, because of its refusal to use actual prices and costs in China, neither Donald Trump, nor Wilbur Ross nor the Commerce Department know which Chinese companies are truly dumping and which Chinese companies are not.  Until Commerce starts uses actual prices and costs in China, no one will know which Chinese company is truly dumping,

Finally, the Commerce Department decision to tilt the playing ground and find dumping in every antidumping and countervailing duty case against China and also against almost all every other foreign county has created a situation so that the public perception is that almost every import into the US is dumped.  These hanging judge decisions fuel the protectionist/isolationist political rhetoric in the United States badly damaging US industry and agriculture.  It has also led to a mentality by many US companies of international trade victimhood.  We poor US companies simply cannot compete in the international or US market because all foreign exports and US imports are subsidized or dumped.

Instead, US companies want to rely on US government issued protectionist walls to protect themselves from competition rather than finding a way to make the US companies competitive again.  See the article on Trade Adjustment Assistance for Companies below.

SECTION 232 STEEL AND ALUMINUM CASES STALLED

The Section 232 Steel and Aluminum cases continue to be stalled.  On August 21ST,  Politico reported:

“WHITHER THE NATIONAL SECURITY STEEL INVESTIGATION? White House chief strategist Steve Bannon’s departure from the White House . . tipped the balance of Trump’s economic advisers firmly toward the more centrist “globalist” wing – and that could mean that two reports examining whether to limit imports of steel and aluminum for national security reasons could be indefinitely delayed. The Commerce Department has prepared a report on its findings that is circulating among agencies, but the administration has decided to dial down the investigations as it turns its attention to tax reform . . . .

Part of the reason is the departure of Bannon, who had been a major proponent of the move. But the decision to put off the investigations was also made in part because of opposition from business groups and Republican lawmakers who were worried it would hurt steel users and the broader economy, the news report said. .

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  The major problem is that the steel industry has only 141,000 jobs at stake while downstream steel users have millions of jobs at stake.

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

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.

Under the terms of the executive order, an interagency group will present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.

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

Although Commerce Secretary Wilbur Ross pledged to get the Section 232 Steel and Aluminum reports to President Trump’s desk by the end of June, that did not happen as the Administration began to realize the impact a broad tariff on steel or aluminum raw material inputs would have on downstream steel and aluminum users, which are dependent on high quality, competitively priced steel products to produce competitive downstream products made from steel and aluminum.

In response to the delay in the Section 232 Steel case, American steel industry executives appealed directly to President Donald Trump for immediate import restrictions because steel imports have surged back to 2015 levels.  As the letter states:

“The need for action is urgent. Since the 232 investigation was announced in April, imports have continued to surge.  Immediate action must meaningfully adjust imports to restore healthy levels of capacity utilization and profitability to the domestic industry over a sustained period.”

The American Iron and Steel Institute (AISI), an industry trade group, reported on Wednesday that total steel imports through July this year were up 22 percent from the same period a year ago, with imports taking 28 percent of the U.S.  market.

In the letter, Steel company executives from Nucor Corp., U.S.  Steel, ArcelorMittal and Commercial Metals Co. said the sustained surge of steel imports into the United States had “hollowed out” much of the domestic steel industry and was threatening its ability to meet national security needs.

“Your leadership in finding a solution to the crisis facing the steel industry is badly needed now. Only you can authorize actions that can solve this crisis and we are asking for your immediate assistance.”

The collateral damage to the many US producers that produce downstream steel products created by any across the board tariffs on steel imports makes it very difficult for the Administration to use a broad brush to fix the steel problem.  That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

But does that mean the US government should simply let the US Steel industry and other manufacturing industries die?  The election of Donald Trump indicates  politically that simply is not a viable option.

Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive.  Schumpeter himself observed the collateral damage created by pure capitalism.

So what can be done for the steel and other manufacturing industries?  Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today.  Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs to stop wallowing in international trade victimhood and cure its own ills first before always blaming the foreigners.  That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

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

As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

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 on an individual basis 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.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

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.

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.  To retrain the worker for a new job, the average cost per job is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

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

But TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $13.3 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.  The press release specifically stated:

“WASHINGTON – U.S. Secretary of Commerce Wilbur Ross today announced $13.3 million in U.S. Economic Development Administration (EDA) grants to support 11 Trade Adjustment Assistance Centers (TAACs) in California, Colorado, Georgia, Illinois, Massachusetts, Michigan, Missouri, New York, Pennsylvania, Texas, and Washington that help manufacturers affected by imports adjust to increasing global competition and create jobs.

“The Trump administration is working every day to help America’s manufacturers, their workers, and their communities,” said Secretary Ross. “This funding is one element of a government-wide effort to restore American jobs and strengthen U.S. manufacturing.”

The 11 grants include:

$1.7 million to the University of Michigan, Ann Arbor, for the Great Lakes Trade Adjustment Assistance Center

$1.2 million to the Mid-Atlantic Employers’ Association, King of Prussia, Pennsylvania, for the Mid-Atlantic Trade Adjustment Assistance  Center

$978,000 to the New England Trade Adjustment Assistance Center, Inc., North Billerica, Massachusetts

$1.1 million to the Research Foundation, State University of New York Binghamton, for the New York, New Jersey and Puerto Rico Trade Adjustment Assistance Center

$1.2 million to the University of Colorado at Boulder for the Rocky Mountain Trade Adjustment Assistance Center . . .

$1 million to the University of Missouri–Columbia for the Mid-America Trade Adjustment Assistance Center …

$1.2 million to the Trade Task Group, Seattle, Washington, for the Northwest Trade Adjustment Assistance Center…

EDA’s Trade Adjustment Assistance for Firms program funds 11 Trade Adjustment Assistance Centers across the nation. The centers support a wide range of technical, planning, and business recovery projects that help companies and the communities that depend on them adapt to international competition and diversify their economies.  . . .

The mission of the U.S. Economic Development Administration (EDA) is to lead the federal economic development agenda by promoting competitiveness and preparing the nation’s regions for growth and success in the worldwide economy.”  . . .

Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries?  Of course not!!

But when the program was originally set up, the budget was much larger at $50 to $100 million.  If the program was funded to its full potential, yes steel companies and other companies could be saved.

To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan.  He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition.  But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers.  And yes companies can learn and be competitive again in the US and other markets.

In the attached article entitled “Steel Competitiveness Seriously?”, Steel Competitiveness, William J. Bujalos, the head of the Mid-Atlantic Trade Adjustment Assistance Center,  makes the proposal to expand the program to help large manufacturing companies, including steel producers.  Mr. Bujalos states:

“Current reports suggest that the nation’s steel industry is experiencing a rebound – a rebound driven by a growing collective confidence about America’s economic future.

That’s all good but irrelevant because confidence is not a strategy for growing the nation’s global competitiveness. What is relevant is the extent to which our companies are able to grow other much more important things, like metrics critical to their competitive success. Do that and the power of any confidence index won’t matter.

Let me explain. Since 1998 I have been leading the nation’s Trade Adjustment Assistance for Firms (TAAF) program in the Mid-Atlantic region. My business experience during the last 50 years has yielded insight into the kinds of things that have the highest probability for success at reversing an enterprise’s negative fortunes irrespective of the competitive battlespace that they’ve chosen to play in. Prior lives involved corporate management in both private and public sectors (large and small companies) in a wide variety of markets that included: management consulting, chemicals, plastics, medical devices, pharmaceuticals, automotive systems, battery tech and steel – and I’ve learned that there are some things that are universal …

For example, I’m a believer that, for businesses of all stripes, there is only one true asset to be quantified and listed on the Balance Sheet – knowledge. Nothing else really matters at the end of the day. And the overarching value of TAAF is that it is this nation’s singularly effective business model that injects it directly into a company’s bloodstream over an extended period of time, i.e. half a decade. That sort of holistic, long-term approach yields the biggest chance for success because it has a high probability of permanently upgrading a company’s core DNA.

In my view steel companies don’t operate in markets that are fundamentally any different from markets in general. No markets are forgiving. No customer base is loyal. Some players don’t play fair. No amount of investment is worth it if indigenous leadership is of poor quality. So as a direct consequence, all companies that are serious about permanently enhancing their global competitiveness must achieve mastery over stuff like: competitive intelligence, customer intelligence, market dynamics intelligence, costs/managerial finance, talent/leadership development, product development, planning effectiveness, etc., etc., etc.

In other words: it’s the knowledge stuff that’s critical and little else. And in my humble opinion, focusing the attributes that TAAF brings to the table on that industry on a larger scale would yield stunning results.

The TAAF business model places its nationwide network of Trade Adjustment Centers (i.e. TAACs) in the unique position of being the right catalyst at the right place at the right time. Does it always work? Certainly not. What does? But it works better than just about anything else in America’s tool kit. It is unique. And here’s the kicker, we don’t ask for equity. On behalf of the American taxpayer we simply insist on pure, unadulterated, robust, and relentless commitment from the Chief Executive Officer down to the shop floor. Absent that? Well, it’s unfortunate but some companies probably should fail.

This approach really works, without costing a great deal of money or causing economic disruption while at the same time providing our political establishment the cover it needs to smooth passage of critical treaties – and, because a company must match our injection dollar-for-dollar throughout the process, the American taxpayer is assured of management’s total and focused commitment for one simple reason … they share in the risk!

Bottom line? The long-term holistic approach is effective. The business model, stipulating unique strategies addressing each company’s unique circumstances, is effective. The program’s neutral economic impact is effective. It’s ability to support passage of trade agreements while not impeding the benefits of free trade is effective. It’s ability to lessen the costs associated with the engagement of outside expertise to reengineer critical business processes is effective.

And I firmly believe that it’s application is not limited to America’s smallest makers – only its funding is. For several decades that’s been little more than an afterthought.

Consider …

  • All manufacturing companies were at one time small ones.
  • All manufacturing companies are impacted by globalization.
  • Small ones need outside expertise to teach them basic stuff.
  • Larger ones need outside expertise to teach them sophisticated stuff.
  • Small makers, because they’re learning the basics and have little resources to tap, take a longer time to turn the corner.
  • Larger makers, because the basics are already inculcated and they have the requisite resources at hand, can turn the corner at much higher speed.
  • And if you were the Chief Executive of a tier-one domestic manufacturer, would you doubt for a minute –
    • That your supply chain probably has several thousand companies in it?
    • That extensive improvement in their performance would have a significantly positive impact on your performance?
  • Improvement in the performance of the small cohort will increase the probability that fewer will fail because a greater proportion will grow into larger ones – driving concomitant growth in good-paying manufacturing jobs and the creation of wealth. Go ahead. Beat that with a stick!”

For those who would simply dismiss the idea as impossible and too simplistic, watch the video.  The program works.  See http://mataac.org/howitworks/.

TRUMP AND CHINA

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

In an attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE Presidential Memorandum for the United States Trade Representative whitehouseg, President Trump pulled the trigger on the Section 301 Intellection property case against China.  The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer.  If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization.  Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.

The notice states that the USTR will specifically investigate the following specific types of conduct:

“First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies. Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non-transparent manner by Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non-market terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.”

The United States Trade Representative (“USTR”) will hold a hearing on October 10th at the International Trade Commission and public comments are to be submitted by September 28th.

In an August 30, 2017 article by Dan Harris, who heads my law firm, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html, entitled “China-US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred negotiations with Chinese companies, he has not seem the Chinese government demand IP rights.  What he has seen is bad negotiating:

“I have been called by reporters at least a half dozen times in the last couple of weeks regarding the Trump Administration’s planned investigation of China’s IP practices. But what I tell these reporters fits so badly with THE narrative that my name is not showing up in print. Sorry, but I can’t help it.

Here’s the situation. The Trump Administration is claiming that China’s government forces American companies to relinquish its IP to China and my problem is that despite my firm having worked on literally hundreds of China transactions that involve IP, I have very little proof of this. So no real story there.

Here though is the story as seen from my eyes and from the eyes of the China attorneys at my firm, readily conceding that we have not seen even close to everything.

We have never been involved in a China transaction where it has been clear to us that the Chinese government has forced our client to relinquish its IP to China. We have though been involved in a million transactions where the Chinese party on the other side — sometimes a State Owned Entity, but way more often not — has vigorously and aggressively sought to get our client to part with its IP for a very low price. Is the Chinese government behind this sort of pressure? Don’t know? Probably sometimes, but probably most of the time not. If the transaction involves rubber duckies, we can assume not. If it involves next generation computer chips, well that is probably a very different story.

Anyway, as we write on here so often, there are many terrible technology transfer and other sorts of IP deals to be had with Chinese companies and we have too often — even against our China attorneys’ clear counsel to our clients not to do it — seen our clients make bad deals that will involve them turning over their IP with little to no chance of receiving full value for it. But these companies have not been forced, not in the sense that any government was forcing them to do anything. These companies were simply willing to take huge risks either because they could not grasp the risks or because they felt they had no other choice for financial reasons.

In Three Myths of China Technology Transfers, we wrote about how our clients all too often forge ahead with bad deals and why, and we nowhere mention government compulsion:

A Chinese company that intends to violate a licensing agreement and run off with the foreign company’s IP will usually have a very clear plan. What the China lawyers in my office call the Standard Plan works as follows. First, the Chinese company will negotiate in a way that guarantees a weak license that cannot be enforced against them by the foreign party. The tricks used to do this are quite standardized. Second, the Chinese company will ensure that it does not make any (or else it makes very few) payments until after it has already received the technology. If the Chinese company makes any payment at all, it will make a minimal number of payments, usually late and in violation of the agreement and then once it has received enough of the technology it seeks, it will cease making any payments entirely.

When our China attorneys encounter a Chinese company clearly working on the Standard Plan, we warn our clients. However, it is also typical for our clients to nonetheless want to forge on ahead. The client will usually explain how their situation is unique and that means the Chinese could not possibly be planning to breach.

We discuss again in China Technology Transfers: The Relationship and Deal Structure Myths how it is that American companies lose their IP to Chinese companies and we again leave out government force:

Due to a partnership relationship, the foreign side often wrongly believes it is somehow better protected against IP theft. The foreign side then lets down its guard, only to learn that its China partner has appropriated its core technology. This sense of partnership is most common with SMEs and technology startups, especially those companies whose owner is directly involved in the relationship with the Chinese entity.

In China and The Internet of Things and How to Destroy Your Own Company I rant about technology companies that literally destroy themselves by failing to do enough to protect their IP from China:

Well for what it is worth, I will no longer describe technology companies as a whole as our dumbest clients when it comes to China. No, that honor now clearly belongs to a subset of technology companies: Internet of Things companies. And mind you, we love, love, love Internet of Things companies. For proof of this, just go to our recent post, China and the Internet of Things: A Love Story. Internet of Things (a/k/a IoT) companies are sprouting all over the place and they are booming. Most importantly for us, they need a ton of legal work because just about all IoT products are being made in China, more particularly, in Shenzhen. And just about all IoT products need a ton of complicated IP assistance.

So then why am I saying they are so dumb about China? Because they are relinquishing their intellectual property to Chinese companies more often, more wantonly, and more destructively than companies in any other industry I (or any of my firm’s other Chinese lawyers) have ever seen. Ever. And by a stunningly wide margin.

I then list out the following as “my prime example, taken from at least a half dozen real life examples in just the last few months”:

IoT Company: We just completed our Kickstarter (sometimes Indiegogo) campaign and we totally killed it and so now we are ready to get serious about protecting our IP in China.

One of our China Lawyers: Great. Where are you right now with China?

IoT Company: We have been working with a great company in Shenzhen. Together we are working on wrapping up the product and it should be ready in a few months.

China Lawyer: Okay. Do you have any sort of agreement with this Chinese company regarding your IP or production costs or anything else?

IoT Company: We have an MOU (Memorandum of Understanding) that talks about how we will cooperate. They’ve really been great. They have told us that they would enter into a contract with us whenever we are ready.

China Lawyer: Can you please send us the MOU? Have you talked about what that contract will say?

IoT Company: Sure, we can send the MOU. It’s one page. No, we haven’t really talked much beyond just what we need to do to get the product completed.

China Lawyer: Okay, we will look at your MOU and then get back to you with our thoughts.

Then, a day or two later we a conversation like the following ensues:

China Lawyer: We looked at your “MOU” and we have bad news for you. We think there is a very good chance a Chinese court would view that MOU as a contract. (For why we say this, check out Beware Of Being Burned By The China MOU/LOI) And the Chinese language portion of the MOU — which is all that a Chinese court will be considering — is very different from the English language portion. The Chinese language portion says that any IP the two of you develop (the IoT company and the Chinese manufacturer) belongs to the Chinese company. So what we see is that as things now stand, there is a very good chance the Chinese company owns your IP. This being the case, there is no point in our writing a Product Development Agreement because your Chinese manufacturer is not going to sign that.

IoT Company: (And I swear we get this sort of response at least 90 percent of the time) I’m not worried. I think you have it wrong. I’m sure that they will sign such an agreement because we orally agreed on this before we even started the project.

China Lawyer: That’s fine, but I still think it makes sense for you to at least make sure that the Chinese company will sign a new contract making clear that the IP associated with your product belongs to you, because if they won’t sign something that says that, there is no point in our drafting such a contract and, most importantly, there is no point in your paying us to do so.

So far not a single such IoT company has been able to come back to us with an agreement from their Chinese manufacturer to sign.

Again, no government force, just an overzealous and insufficiently careful foreign company.

Now before anyone excoriates me for ignoring reality, let me say that I have read about instances where the Chinese government has “forced” foreign companies to turn over their IP to China; high speed rail is an often cited example of that. And I do not doubt that it happens in critical industries (nuclear power would be another example). And I am also not unaware of how China is increasingly forcing foreign companies to store their data in China, which absolutely puts technology at risk. But even in these instances the foreign company has some choice. Not good choices, I know. And arguably it is no choice at all when the decision is between doing business in China or not. The last thing I want to do is get all philosophical on anyone regarding what constitutes choice so I will leave it to our individual readers to determine for themselves where on the continuum of force and choice they want to put any and all of the above.

There is plenty to complain about how China protects IP and there is plenty to complain about how China protects foreign companies that do business in China or with China, but I am just not sure complaining about forced IP transfers goes at the top of that list for most American companies. When I talk with American and European and Australian companies about China their biggest legal complaint is invariably how expensive it is for them to comply with China laws and how they resent that their Chinese competitors generally are not held to the same legal standards.

A couple of years ago, I gave the following testimony before The US-China Economic and Security Review Commission of the United States Congress:

I was introduced as an expert, and I’d like to qualify that by saying do not think of myself as an expert. I am just a private practice lawyer who represents American and Australian companies and some European and Canadian companies as well in China.

I’m going to tell you a little bit about what we do so you can get a little bit better perspective of where I’m coming from on this. The bulk of my firms’ clients are small and medium-size businesses, mostly American businesses, but some European and Australian and Canadian businesses as well. Most of them have revenues between 100 million and a billion a year. Our clients are mostly tech companies, manufacturing companies and service businesses.

About 20 percent of our work is for companies in the movie and entertainment industry. We have some clients in highly-regulated industries, like health care, senior care, banking, insurance, finance, telecom and mining, but those companies make up less than ten percent of our client base.

Most of the China work we do for our clients is relatively routine. We help them register as companies in China. We register their trademarks and copyrights in China. We draft their contracts with Chinese companies. We help them with their employment, tax and customs matters. We oversee their litigation in China, and we represent them in arbitrations in China. We help them buy Chinese companies.

For our clients, the big anti-foreign issue is whether they will be allowed to conduct business at all in China as that is certainly not always a given. Certain industries in China are shut off or limited to foreign businesses acting alone. For our clients, publishing and movies are most prominent.

Essentially anything that might allow for nongovernmental communication to or between Chinese citizens is problematic, but it is not clear to me that these limitations are intended to be anti-foreign, as China does not really want any private entities, foreign or Chinese, engaging in these activities without strict governmental oversight.

So do these limits against foreign companies arise from anti-foreign bias or just the Chinese government’s belief that it can better control Chinese companies? To our clients, that distinction doesn’t matter.

On day-to-day legal matters, our clients are almost invariably treated pursuant to law, and so long as they abide by the law, they seldom have any problems. The problem for our clients isn’t so much how the Chinese government treats them; it’s how they are treated as compared to their Chinese competitors who are less likely to abide by the laws and more likely to get away with it.

I have no statistics on this. I doubt there are any statistics on this, but I see it and I hear it all the time.

I see it when one of our clients buys a Chinese business that has half of its employees off the grid and has facilities that are not even close to being in compliance with use laws, and I know foreign companies cannot get away with that.

And I hear it from Chinese employees of our clients who insist that there is no need for our clients to follow various laws. They insist there is no need to follow various laws and to do so is stupid. Is this disparity due to anti-foreign bias or is it due to corruption? Again, for our clients, the answer is irrelevant.

Is the Trump administration’s IP investigation a negotiating ploy done as much to get at disparate treatment as it is to get at forced technology transfers? I do not think it is, but some who know more about such things tell me it may be.

CNN was the only one of the media companies that both interviewed me on the above issues and ended up quoting me and I like how it handled the issue in its article, President Trump is set to crank up the pressure on China over trade:

Beijing has other ways of getting its hands on valuable commercial information. Officials often insist on taking a close look at technology that foreign companies want to sell in China.

“Chinese government authorities jeopardize the value of trade secrets by demanding unnecessary disclosure of confidential information for product approvals,” the American Chamber of Commerce in China said in a report published in April.

Some experts say that handing over technology has effectively become a cost of doing business in China — a market too big for most companies to ignore.

“Many Chinese companies go after technology hard and the tactics they use show up again and again, leading us to believe there is some force (the government?) teaching them how to do these things,” said Dan Harris, a Seattle-based attorney who advises international companies on doing business in China.

“The thing is that the foreign companies that give up their technology usually do so at least somewhat of their own volition,” he told CNNMoney. “Yes, maybe they need to do so to get into China, but they also have the choice not to go into China, right?”

Closing the stable door?

Other analysts say that the U.S. administration is coming to the problem too late.

“Intellectual property (IP) theft is yesterday’s issue,” wrote Lewis of the Center for Strategic and International Studies.

“In part because of past technology transfer and in part because of heavy, sustained government investment in science and research, China has developed its own innovative capabilities,” he wrote.

“Creating new IP in the United States is more important than keeping IP from China.”

These are really complicated issues and I realize the above is more of a stream of consciousness “thoughts dump” than a coherent position paper. So more than ever, I’d love to hear your thoughts in the comments below.”

Dan’s point is that it is often bad negotiating tactics by the US side that leads to companies giving away their technology, not Chinese government pressure.

On August 15th, Investors Business Daily speculated that “Trump’s Trade War With China Is War On North Korea By Other Means” stating:

“But they [the Chinese government] may have underestimated Trump: He has the will, and likely the political support, for an even-more damaging war with China over trade. With the U.S. China’s largest market — in 2016, U.S. imports from China totaled nearly half a trillion dollars — a trade war is a serious threat to China, which is already showing signs of economic slowing.

That’s what’s behind Trump’s sudden decision to investigate China’s rampant theft of U.S. intellectual property. And on trade grounds only, Trump is right to investigate this, since it’s enshrined in both U.S. law and international trade treaties that egregious trade violations warrant retaliatory actions if the violations aren’t fixed.

The U.S. has been jawboning China on this for years, to no effect. China for years has seen the U.S. as a paper tiger, too feckless to act on its own behalf. Now, Trump is showing it otherwise. . .

Once again, Trump the savvy business negotiator seems to know his foe’s weak points.

Perhaps hoping to stall Trump’s trade action, China announced that it would cease North Korean imports of coal, iron and lead, and seafood, starting Sept. 5, in keeping with U.N. sanctions imposed on Kim Jong Un’s regime.

In a joint statement Monday, Secretary of State Rex Tillerson and National Security Advisor Gen. James Mattis made explicit the link between China, trade and North Korea: “China is North Korea’s neighbor, sole treaty ally and main commercial partner,” they wrote. “Chinese entities are, in one way or another, involved with roughly 90% of North Korean trade. This affords China an unparalleled opportunity to assert its influence with the regime.”

The clear message: If you support North Korea’s regime economically, we’ll hurt you economically in return. It’s a Trumpian twist on Von Clausewitz’s famous dictum about war and politics: “(A trade) war is the continuation of politics by other means.”

As we’ve said before, we take a back seat to no one in advocating on behalf of free trade. But when one side routinely and systematically steals hundreds of billions of dollars worth of intellectual property, that’s no longer free trade. It’s piracy. . . .

North Korea’s nuclear blackmail, aided by China’s patronage, is not acceptable. If it takes trade sanctions to get China’s diplomatic attention, so be it. It’s time that China’s charade over its support of North Korea comes to an end.”

On August 8th, in an article entitled “Second Thoughts on Trade with China” William Galston for the Wall Street Journal stated:

“It is China’s techno-nationalism that poses the greatest threat to our future. In 2006 the Chinese government adopted a long-term plan to promote what it called “indigenous innovation.” As James McGregor, a leading expert on the Chinese economy, writes, China’s leading-edge firms were directed to obtain technology from their multinational partners through “co-innovation and re-innovation based on the assimilation of imported technologies.”

In practice, this meant giving American firms an offer Don Corleone would have recognized—either to “share their technologies with Chinese competitors—or refuse and miss out on the world’s fastest-growing market.” China’s ultimate goal is to use forced technology transfer to replace the U.S. as the world’s leading economy. . . .

Existing legal tools may not suffice to end these discriminatory practices. Although the WTO prohibits mandatory technology transfers, the Chinese government’s position is that trading technology for market access is purely a business decision. Protectionist government purchases are a key part of China’s strategy. . . .

If turning over our technological crown jewels to a foreign power is against the national interest, then our government should have the power to prevent it. But wielding this power without blowing up the international trade regime will not be easy.”

On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily tempered its initial response on the Section 301 case stating:

“Everyone is angry at China right now, and perhaps with good reason. China’s regime often bends trade rules to its own needs, and breaks them or ignores them when it’s convenient. . . .

The U.S. shouldn’t tolerate cheating on trade, by China or anyone else. It’s a matter of jobs and income for Americans and the companies that employ them.

Even so, that doesn’t mean everything China has done has been bad for the U.S. Far from it.

A new study, ” How Did China’s WTO Entry Benefit U.S. Consumers?” from the prestigious National Bureau of Economic Research, shows why. It notes that from the time China joined the World Trade Organization in 2000 to 2006, the U.S. inflation index for factory goods fell an estimated 7.6%.

This might not sound like a lot, but it is. “The resulting savings were large,” the study says. “U.S. manufacturing sector production was valued at $4.5 trillion in 2014, so if prices had been 7.6% higher, that production would have cost $340 billion more.”

That is, profits for U.S. firms were likely billions of dollars higher over that six-year period than otherwise. And prices to American consumers fell.

How did this happen? The simple answer is freer trade. China cut its average tariff on manufacturing inputs from 15% in 2000 to 9% in 2006, a 40% reduction. Meanwhile, China’s government lifted export limits on its domestic companies, got rid of capital requirements, eased restrictions on foreign investment, raised its limits on textile exports and lowered the number of goods that required import licenses.

The result: China’s factory exports to the U.S. surged 290% from 2000 to 2006.

According to the study, “69% of the growth was driven by new exporters offering a widening variety of products, while 16% was created by incumbent firms exporting new products.”

The lower tariffs and other reductions in trade restrictions led to a Chinese   productivity boom, with an average 10% per year gain in productivity for Chinese companies that exported to the U.S. As for the price of U.S. manufactured goods, about two-thirds of the 7.6% reduction in factory prices here was due to China’s tariff cuts.

But didn’t the food of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit.

For its part, China’s communist    government in the  early  2000s  found   that taking  its hands off  the economy’s windpipe and engaging with the rest of the world through trade was  an  effective  strategy for making its economy grow. We  also  benefited  from that.

Now the Trump administration is warning an increasingly hostile China that its recent trade violations aren’t acceptable. China, in response, has blasted the U.S. for its “protectionism.”

We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”

In early 2000, China’s brilliant economic guru Premier Zhu Rongyi believed that China should join the WTO, not for the benefit of the United States or Europe, but for the benefit of China.  Premier Zhu realized that China would benefit from free trade by breaking down its own protectionist walls, which isolated China from the rest of the World.

It is somewhat ironic that the United States is apparently moving in the opposite direction, building protectionist walls to protect its companies from foreign competition.  Many US politicians have fallen into the trap of international trade victimhood because they simply do not understand the benefits of free trade to the United States.

SECTION 201 SOLAR CELLS CASE

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

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

Prehearing briefs and posthearing briefs have been filed at the ITC and the ITC hearing was held on August 15th and was reportedly 11 hours long.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017. Attached is the ITC public prehearing staff report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.  This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.

Meanwhile, sixteen US senators have urged the ITC to consider how the increased tariffs on foreign solar cells could hurt the broader domestic solar industry. The letter specifically stated:

“We respectfully request that the commission carefully consider the potential negative impact that the high tariffs and minimum prices requested would have on the tens of thousands of solar workers in our states and on the hundreds of companies that employ them.”

The letter was signed by Senators: Heinrich (D-N.M.), Tillis (R-N.C.), Bennet (D- Colo.), Feinstein (D-Calif.), Whitehouse (D-R.I.), Perdue (R-Ga.), Gardner (R-Colo.), Heller (R-Nev.), Van Hollen (D-Md.), Moran (R- Kan.), Scott (R-S.C.), Cardin (D-Md.), King (I-Maine), Collins (R-Maine), Markey (D-Mass.) and Cortez Masto (D-Nev.).

ALUMINUM EXTRUSIONS CIRCUMVENTION

On July 26, 2017, in the attached memorandum, prc-aluminum-extrusions-ar-072617, the Commerce Department published in the Federal Register a notice of affirmative final determination of circumvention of the antidumping and countervailing duty orders on aluminum extrusions from the People’s Republic of China. The Department determined that heat-treated extruded aluminum products that meet the chemical specifications for 5050 grade aluminum alloy, regardless of producer, exporter, or importer, constitute later-developed merchandise, are circumventing the orders.

As a result of the Department’s anti-circumvention determination, all heat-treated extruded aluminum products from the People’s Republic of China that meet the chemical specifications for 5050 grade aluminum alloy are considered to be in-scope merchandise and must be included in responses to the Department’s questionnaires.

FALSE CLAIMS ACT—FURNITURE

In a previous blog post,  I mentioned that the real hammer against transshipment of products to evade trade orders is not recent legislation from Congress, but the False Claims Act.  Under the False Claims Act, private parties can file suits in Federal District Court alleging fraud on the US government because of foreign exporters and US importers decision to use transshipment and other methods to evade US antidumping and countervailing duties.  Under the FCA, the relator can look back at 10 years of past imports and the antidumping duties in question can be over 100, 200 or even 300%.  Under the FCA the remedy is triple damages and when looking at imports over such a long period of time, the remedy can result in enormous payouts.

The private party files an FCA complaint as a relator on behalf of the US government.  The US government then decides whether or not to intervene in the case.  If the US government chooses to intervene, the relator is entitled to 15 to 25% of the recovery of the US government.  In one small FCA case here in Washington regarding medical bills, a clerk at a hospital received a payout of $2 to 3 million so anyone can be a relator.

More on point, In an intervention complaint, US GOVT INTERVENTION BLUE FURNITURE CASE, the US government intervened in a False Claims Act filed against evasion of millions of dollars in antidumping duties on imports of wooden bedroom furniture from China.

The lawsuit brought by University Loft Co., an Indiana-based wooden bedroom furniture company, accuses Florida-based Blue Furniture Solutions LLC, founder and president and its chief financial officer  of importing wooden bedroom furniture from China without paying the 216.01 percent anti-dumping rate by making false statements to U.S. Customs and Border Protection (“CBP”).

In doing so, Blue Furniture escaped paying millions of dollars in duties and fees owed to the federal government from 2011 through 2015, the suit says.

The complaint states:

“To avoid the payment of anti-dumping duties and fees, defendants conspired with their Chinese manufacturers and exporters to fraudulently avoid customs duties and underpay fees owed to the United States by making false representations in entry documents about the nature and value of the imported merchandise.”

Specifically, the complaint states that Blue Furniture falsely identified its entries to Customs and Border Protection with codes and descriptions for merchandise that are not subject to antidumping duties.  But the complaint states that many of the wooden chests, dressers, nightstands, wardrobes and many of the beds imported were subject to antidumping duties.

In addition, the FCA complaint accuses the Florida-based company of instructing its China-based manufacturers and exporters how to mislabel and misclassify the merchandise on documents to be shown to CBP.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

STAINLESS STEEL FLANGES FROM CHINA

On August 16, 2017, the Coalition of American Flange Producers and its individual members, Core Pipe Products, Inc., and Maass Flange Corporation filed new antidumping and countervailing duty cases against imports of Stainless Steel Flanges from China and India.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law. Team’s newsletter-EN Vol.2017.30 Team’s newsletter-EN Vol.2017.32 Team’s newsletter-EN Vol.2017.33.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

WI-FI ENABLED ELECTRONIC DEVICES

On August 29, 2017, Sharp Corporation and Sharp Electronics Corporation filed a section 337 case against imports of Wi-Fi Enabled Electronic Devices.  The respondent companies named in the complaint are:

Hisense Co., Ltd., China; Hisense Electronic, Co., Ltd., China; Hisense International (Hong Kong) Co. Ltd., Hong Kong; Hisense USA Corporation, Suwanee, Georgia; Hisense Electronics Manufacturing Company of America Corporation, Suwanee, Georgia; Hisense USA Multimedia R&D Center, Inc., Suwanee, Georgia; and Hisense Inc., Huntington Beach, California.

If you have any questions about these cases or about Trump and Trade, including the impact on agriculture, the impact on downstream industries, the Section 232 and 301 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP AND TRADE, TRADE DROP, TAA FOR COMPANIES THE ANSWER, EC NME PROBLEM, UNIVERSAL TRADE WAR, CUSTOMS AND 337

White House Fountain Snow Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NOVEMBER 14, 2016

Dear Friends,

This blog post contains several articles about trade and Trump after his victory on November 8th.  The Trump victory will have a significant impact on trade policy.  As stated below, the TPP is dead.  The Republican Congress will not oppose Trump and bring the TPP to the Congressional floor in the Lame Duck.  The TPP may only come back when and if the trade safety net, including Trade Adjustment Assistance for Firms/Companies, is fixed.

The trade impact on the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, is a major reason for the Trump victory.  Trump’s victory means that trade wars may escalate.  But with the increase in trade wars, global trade has already started falling and that means a 2015 drop of $200 billion in US exports.  Exports create US jobs too and when exports fall US jobs fall.

As Congressman Don Bonker states, trade conflicts with China and other countries will increase both from the US and the Chinese side. Trump may well self-initiate trade cases against China and China will bring cases against the US.  But Congressional Republicans will try to limit Trump’s protectionist nature.

Xi Jinping of China has already stated that the Chinese government wants to work with President Trump because of the importance of the US China economic relationship.

Complicating the situation is that last week the EC has proposed a change to its antidumping and countervailing to allow it to continue to treat China as a nonmarket economy country or as a country which distorts its market by government practices.

On the other hand, we can expect Congress to work very close with President Trump on different policy initiatives to make the United States a much more fertile ground for US manufacturing.  This will mean cuts in Corporate tax rates and the reduction in production curtailing regulations.  Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them.

Under the Universal Trade War theme, there are articles by Chinese lawyers on Chinese antidumping law, along with newsletter from an Indian lawyer about Indian trade law.  Many of these cases in other countries target the United States.

In addition, there is an article about Customs Evasion in the Aluminum Extrusions antidumping case and several recent 337 intellectual property cases against China.

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP VICTORY AND WHAT IT MEANS FOR TRADE

Donald Trump won the Presidency on November 8th, and on January 20, 2017 Trump will become the 45th President of the United States.  What does this mean for trade?

TPP IS DEAD

With the Trump victory, Republicans in the House and the Senate will not fight Trump and will not bring the Trans Pacific Partnership (“TPP”) to the floor during the Lame Duck session. According to recent press reports, Trump might try and renegotiate TPP, but as written, TPP  is dead.

Several weeks ago during the heat of the campaign, Paul Ryan, Speaker of the House of Representatives, stated that he could no longer campaign with Donald Trump.  ln a speech on November 9th, the day after the Trump victory, House Speaker Paul Ryan ate humble pie.

In his speech, Ryan made it very clear that Trump’s victory was the most “incredible political feat” of his lifetime.  For a video of Paul Ryan’s speech, see https://www.bing.com/videos/search?q=paul+ryan+speech+video+after+trump+victory&view=detail&mid=556B672FB48D720BC373556B672FB48D720BC373&FORM=VIRE

Ryan also made it clear that he was extremely grateful because Trump was the first time Republican Presidential candidate to win Wisconsin’s electoral votes, his home state, since 1984.  Ryan also stated that Trump had coat tails.  Trump’s victory allowed down ballet Republicans to win.  The most important example of that was Wisconsin Republican Senator Ron Johnson, who was in a very tough reelection campaign.  Trump’s victory helped Ron Jonson win and allowed the Republicans to hold on to the Senate by a 51 to 49 plurality.

The simple political reality is that Trump’s victory allowed the Republicans to hold a majority in the Senate and the House.

As Paul Ryan stated,

“Donald Trump heard a voice in this country that no one else heard.  He connected in ways with people that no one else did.  He turned politics on its head.  And now Donald Trump will lead a unified Republican government.”

There is no way that Paul Ryan is going to oppose Trump and bring the TPP to the floor of Congress in the face of that political feat.  Let the next Administration deal with this issue.  As explained below, the TPP will probably stay dead until Congress and the Administration fix the Trade Adjustment Assistance for Firms/Companies program and make many US companies competitive again so they can withstand competition from imports.

It should be noted that those Republicans that distanced themselves from Trump, such as Republican Senator Kelly Ayotte of New Hampshire, lost their races.  In light of the Trump victory and his opposition to Trump, Governor John Kasich will have little weight when he argues for the TPP.

TRUMP’S PROTECTIONIST ARGUMENT TO THE RUST BELT STATES DROVE HIS VICTORY

The big surprise in the Trump victory was that traditionally Democratic states, the Rust Belt, of Wisconsin, Michigan and Pennsylvania and Ohio all went for Trump.  To illustrate the shock to the Democratic party, Hilary Clinton did not even campaign in the State of Wisconsin because the Democrats assumed they had Wisconsin in the bag.  Why did these Rust Belt states go for Trump?  Trade.

The person who forecast this victory was Michael Moore, the very famous Democratic gadfly and movie producer.  In a true statement against interest, last summer Michael Moore explained why he, the Good Democrat, believed that Trump would win the election—the Rust Belt and Trade.  http://michaelmoore.com/trumpwillwin/.  Donald Trump spoke out against the US automobile companies moving their manufacturing to Mexico.  Trump threatened that if they did, a President Trump would impose a 35% tariff on all these cars coming back to the United States.  The Auto executives were stunned, but the Working Class in Michigan stood up and cheered.  See Moore’s powerful video predicting the Trump victory https://www.youtube.com/watch?v=YKeYbEOSqYc.  As Moore stated, Donald Trump is the “human Molotov cocktail” that these working people want to throw through the establishment window.

After the election, Moore also made it clear that it was not racism that allowed Trump to win.  As Moore stated, millions of Americans, who voted for Barak Hussein Obama for two terms, voted for Donald Trump.  See Moore’s video at http://dailycaller.com/2016/11/11/michael-moore-millions-of-trump-voters-elected-obama-twice-theyre-not-racist-video/.  To paraphrase Bill Clinton, the reason Trump won was “the economy stupid” and one of the major economic issues was trade.

Ohio’s Cuyahoga County Republican Party Chairman Robert S. Frost stated that he believes that Trump’s trade message had a deep and profound effect on the regional electorate in Ohio:

“The economy has been going gangbusters, the U.S. has been expanding its trade relationships … but there are people here who [were] working, at many times, very skilled jobs that they took a great deal of pride in. They felt like they were left behind in this economy, and Donald Trump spoke right to that in places like Youngstown to Detroit to Milwaukee.”

Exit polls showed that half of Michigan’s voters are of the opinion that free trade takes away jobs, and those trade skeptics broke for Trump by a 57 to 36 percent margin over Democratic nominee Hillary Clinton.  There are similar stories to be found in Ohio and Pennsylvania, where 47 percent and 53 percent of voters respectively felt that free trade hurts workers and jobs.

Trump’s arguments are the same protectionist arguments that Rust Belt Democrats have used to be elected for decades, but the Workers had seen no change.  By upending conventional Republican wisdom on trade, Trump opened the door to a whole new group of voters.  These workers in the Rust Belt are Nixon’s Silent Majority, the Reagan Democrats, that went for Trump.

As Frost further stated:

“Organized labor had thought that the Democrats had had their backs for the last 25 years, but they look around and see where they are, and they wonder why they had placed their faith there. Donald Trump went against what had been Republican orthodoxy on trade. Part of how we got there is that Hillary Clinton … began taking an internationalist position of trade for trade’s sake, as opposed to representing an American position on trade.”

Trump appealed to the emotions of workers who felt wronged by a steady pattern of trade liberalization that is, in their minds, was about to get much worse if the U.S. Congress had been able to ratify the Trans-Pacific Partnership accord,

On October 18, 2016 in an article in Real Clear Politics entitled “The Trump Trade Doctrine: A Path to Growth & Budget Balance”. Wilbur Ross & Peter Navarro explained why they believed the Trump Trade Policy would work:

Budget-deficit hawks often insist that the only way to balance the Federal budget is to raise taxes or cut spending. The far smarter path to balance the budget is simply to grow our economy faster.

From 1947 to 2001, the U.S. real gross domestic product grew at an annual rate of 3.5 percent. Since 2002, that rate has fallen to 1.9 percent — at the cost of millions of jobs and trillions of dollars of additional income and tax revenues.

Donald Trump’s economic plan will restore America’s real GDP growth rate to its historic norm.  It proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit. . . .

This new normal argument — it should more appropriately be called the “new dismal” — also ignores the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them. These bad deals include, most notably, NAFTA, China’s entry into the World Trade Organization in 2001, and, most recently, Hillary Clinton’s debilitating 2012 U.S.-Korea Free Trade Agreement.

In 2012, then Secretary of State Hillary Clinton promised that the “cutting edge” South Korean deal would create 70,000 new jobs. Instead, the US has lost 95,000 jobs and America’s trade deficit with South Korea has roughly doubled. Moreover, workers in the U.S. auto industry, particularly in states such as Michigan, Ohio, and Indiana, have been hard hit. . . .

Donald Trump has pledged to renegotiate every one of America’s bad trade deals according to the principles of the Trump Trade Doctrine. The Trump Trade Doctrine states that any new or renegotiated deal must increase the GDP growth rate, decrease the trade deficit, and strengthen the U.S. manufacturing base. . . .

Some critics will argue that reducing the flow of cheap imports from locales such as China, Mexico, and Vietnam will be inflationary and act as a regressive tax by denying lower-income households cheap imports. In reality, four decades of one-sided globalization and chronic trade deficits have shifted wealth and capital from workers to the mobile owners of capital and reduced the purchasing power of Americans.

A visit to cities like Johnstown, Pennsylvania, and Flint, Michigan, reveals quickly the falsehoods and broken promises of those who preach the gains from trade deficits — which are often financed by those who turn a profit from offshoring production. Trump’s proposals will reverse these trends, concentrate more wealth and purchasing power in the hands of domestic workers and result in substantially higher employment. This will more than offset any price increases. Moreover, as products develop a competitive advantage in America and increase their production and margins, prices per unit will go down.

To those alarmists who insist Trump’s trade policies will ignite a trade war, we say we are already engaged in a trade war — a war in which the American government has surrendered in before even engaging. Unfair trade practices and policies of our competitors are simply overlooked or ignored. As a well-documented result, America has already lost tens of thousands of factories, millions of jobs, and trillions in wages and tax revenues.

Donald Trump will simply put our government on the field in defense of American interests. As Trump pursues a policy of more balanced trade, our major trading partners are far more likely to cooperate with an America resolute about balancing its trade than they are likely to provoke a trade war.

This is true for one very simple reason: Our major trading partners and deficit counterparties are far more dependent on our markets — the largest in the world — than we are on their markets.

Consider that in 2015, we ran a trade deficit in goods of $746 billion. 76 percent of that trade deficit in goods concerned just four countries: China ($367 billion); Germany ($75 billion); Japan ($69 billion); and Mexico ($61 billion).

If we look at the bilateral relationships of America with each of these countries, improvement in our trade balance is clearly achievable through some combination of increased exports and reduced imports, albeit after some tough, smart negotiations — an obvious Trump strength.   The same possibilities exist with countries where we are running smaller, but nonetheless significant, deficits, such as Vietnam ($31 billion), South Korea ($28 billion), Italy ($28 billion), and India ($23 billion).

Such deficit reduction negotiations will not be wild-eyed, hip-shooting exercises. A key part of the Trump strategy will be to divert some of the products our deficit counterparties import to U.S. suppliers.

For example, many of our trading partners with which we run large trade deficits import substantial hydrocarbons from elsewhere. It would not be difficult for, say, China, Japan, Germany, and South Korea to buy more U.S. hydrocarbons. Trump intends to end the regulatory constraints on hydrocarbon production and hydrocarbon exports, resulting in as much as $95 billion gains for the U.S.

Our deficit counterparties also import lots of industrial equipment and supplies of plastics and other materials, some from the U.S. already. There is ample room here for them — along with countries like India, Mexico, and Vietnam — to switch vendors.

Trump’s strategic approach to trade negotiations would begin with product-by-product and country-by-country analyses. Our negotiators would set goals that are achievable and pursue them fiercely. No prior administration has ever approached trade as surgically as a Trump Administration would.

As a business person, rather than a politician, Trump understands this: There is no more reason to let our major trading partners take advantage of us than there is for a large private company to permit its vendors to do so.

You will notice we have not mentioned tariffs. They will be used if necessary against mercantilist cheating, but only in a very precise and defensive way.

Ultimately, our view is that doing nothing about unfair trade practices is the most hazardous course of action — and the results of this hazard are lived out every day by millions of displaced American workers and deteriorating communities. We simply cannot trade on their one-sided terms; they are just too destructive to the U.S. growth process.

At the end of the day — and on November 8th — voters have a very clear choice between Trump’s smart path to rapid growth and budget balance and Hillary Clinton’s new dismal world of economic stagnation. At least on the economy, this choice is clear.

Emphasis added.

The problem with the argument, however, is that it is based on the economic situation decades ago when the US was the largest market in the World.  That is no longer true.  China with its 1.2 billion population has a larger market than the US.  House Speaker Paul Ryan has cited many times that 75% of the World’s consumers are outside the United States.

The real problem with Trump’s trade policy is uncertainty.  No one knows how aggressive Trump will be in a new Administration.  Through the Commerce Department self-initiating antidumping and countervailing duty cases and bringing Section 201 Escape Clause cases against the World, a President Trump can certainly increase protectionist barriers in the US.

A President Trump can unravel NAFTA and dump the TPP, but if the US erects substantial barriers to US imports, countries around the World will respond by increasing barriers to US exports.

NOT RETALIATION RECIPROCITY

The problem with protectionism is that trade is a two-way street and what the US can do to countries, they can do back.  In my last blog post, I stated that although many US politicians, including Donald Trump, 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.  In this blog post, I want to restate this because the issue is not retaliation.  It is reciprocity.

Retaliation implies a tit for tat response.  You attack us.  We attack you.  The United States files an antidumping case targeting $4 billion in imports of Solar Cells from China, and China responds with a meritless Chinese antidumping case targeting $2 billion in imports of Polysilicon from the United States.  But that is not what truly happened.  In the Chinese polysilicon case, for example, the Chinese polysilicon industry was truly being hurt by US imports.

The real issue is reciprocity.  If the US can use its antidumping and countervailing duty laws to find dumping and subsidization in more than 90% of the cases, the Chinese governments and governments around the World can make the same finding with regards to imports from the United States.  What goes around comes around.

Free trade agreements, such as the TPP and the TTIP, which would break this cycle are now dead as the US and each country wants to put its industries first and make their country and industries great again.  The rise in economic nationalism results in trade wars in which country after country will fire trade guns against each other.

The argument that trade wars are already going on is true, but what the pundits do not realize is that under Trump the trade wars will get bigger.  The US has antidumping and countervailing duty orders covering $30 billion in imports from China.  The Chinese government has orders blocking about $10 billion in imports from the US, including polysilicon, chicken, numerous chemical products, and steel products.  Just recently, the Chinese government has issued an antidumping order blocking over $1 billion in Chinese imports from the United States of distiller grains, and now there is talk about a case targeting $15 billion of imports of US soybeans.  What goes around comes around.

In a November 11th editorial, entitled “The Message Of Donald Trump’s Stunning Victory” the International Business Daily stated that the one policy which has to be reined in by Republicans in Congress is trade:

“Republicans will also have to work hard to temper Trump’s anti-free-trade instincts.  A trade war is the one big risk Trump’s presidency represents for the economy.  Trump has repeatedly the he is all in favor of free trade, and the GOP needs to hold him to those words.”

TRADE IS FALLING AROUND THE WORLD

Moreover, on October 30, 2016, Binyamin Applebaum in an article entitledA Little-Noticed Fact About Trade: It’s No Longer Rising” found that trade around the world is dropping, including a drop of $200 billion in US exports:

“The growth of trade among nations is among the most consequential and controversial economic developments of recent decades. Yet despite the noisy debates, which have reached new heights during this Presidential campaign, it is a little-noticed fact that trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8 percent in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.

The United States is no exception to the broader trend. The total value of American imports and exports fell by more than $200 billion last year. Through the first nine months of 2016, trade fell by an additional $470 billion It is the first time since World War II that trade with other nations has declined during a period of economic growth. . ..

But there are also signs that the slowdown is becoming structural.  Developed nations appear to be backing away from globalization.

The World Trade Organization’s most recent round of global trade talks ended in failure last year. The Trans-Pacific Partnership, an attempt to forge a regional agreement among Pacific Rim nations, also is foundering. It is opposed by both major-party American presidential candidates. Meanwhile, new barriers are rising. Britain is leaving the European Union. The World Trade Organization said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.

“Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” Christine Lagarde, managing director of the International Monetary Fund, wrote in a recent call for nations to renew their commitment to trade. . . .

But even if growth rebounds, automation reduces the incentives to invest in the low- labor-cost developing world, and it reduces the benefits of such investments for the residents of developing countries.”

UNFAIR TRADE CASES DO NOT WORK; THEY DO NOT SAVE THE US COMPANIES

The problem with the potential Trump policy of bringing more unfair trade cases to solve the trade problem is that trade cases do not work.  They do not save the companies and the jobs that go with them.

Bethlehem Steel, a history that I am personally aware of, had 40 years of protection from steel imports through various antidumping and countervailing duty cases and orders.  Where is Bethlehem Steel today? Green fields.

Trying to stop a wave of low priced imports by filing an unfair trade cases is like putting finger in a dike when faced with a tidal wave engulfing the entire company and industry.

When an industry and company is faced with competition from imports it is so easy to engage in globalization/international trade victimhood.  We poor US companies cannot compete because all imports are dumped and subsidized.

For countries and companies faced with import competition, the easy solution is blame the foreigner.  The only way for a company to truly survive, however, is give up the globalization victimhood mindset and do what is necessary to make the company competitive again.

EXISTING PROGRAMS TO MAKE US MANUFACTURING COMPANIES MORE COMPETITIVE IS THE ANSWER TO THE TRADE PROBLEM — TAA FOR FIRMS/COMPANIES AND THE MEP MANUFACTURING PROGRAM– BUT THEY HAVE BEEN CUT TO THE BONE

As described in my September newsletter and uschinatradewar.com blog post, which can be found at http://uschinatradewar.com/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/, free trade requires competitive US companies and industries.  For the US government to go forward with a free trade agenda and the passage of free trade agreements, it must restore the trade safety net.

The US Government already has successful programs to make US companies injured by imports competitive again, but they have been cut to the bone. Companies and Unions that want to take advantage of these programs and survive must first change their mindset and reject the defeatism of international trade/globalization victimhood.

Those programs are:

  • Trade Adjustment Assistance for Firms (Commerce)
  • The Hollings Manufacturing Extension Partnership (Commerce)

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. These two programs make US companies injured by imports competitive again.

Free trade does not have to be abandoned resulting in a lose lose situation for all countries.  When the US Government enters into Trade Agreements, such as NAFTA, the TPP, or the TTIP, Government action changes the market place.  All of a sudden US companies can be faced with a series of flash floods of foreign competition and imports that can simply wipe out US companies.  The US Government must restore the international trade safety net.

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 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 Mid Atlantic Trade Adjustment Assistance Center in this video at http://mataac.org/howitworks/ describes in detail how the program works and saved four companies and the jobs that go with them.  The reason 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 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’ management and the Union 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 a longer proposal, taaf-2-0-white-paper, on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

UNDER TRUMP TRADE CONFLICTS WITH CHINA WILL INCREASE

As readers may remember, my deep dive on the background of this election started with a February conversation and bet with my friend, former Democratic Congressman Don Bonker.  He firmly believed that Hilary Clinton would win in a landslide and the Democrats would win the Senate and the House.

I knew people that were going to vote for Trump and believed that although Clinton would probably win, it would be a close election and the Republicans would probably keep the Senate and definitely the House.  Trump won the election and the Republicans kept the Senate and the House.

Set forth below are Congressman Bonker’s thoughts on what he believes the Trump election means for future US Trade Policy regarding China.

‘Election Results:  U.S. China Relationship

Prepared by: Congressmen Don Bonker (Democrat)

Winston Churchill’s characterization of “democracy as the worst form of government except for all the others” was on full display in America’s 2016 presidential election.   Yesterday’s torrent of election results is revealing of America’s challenges ahead, not only domestically but internationally.  This report is focused on how the election results will affect the U.S. – China relationship.

CANDIDATES WEBSITE/POSITIONS ON CHINA

Hillary Clinton

Increase cooperation in areas of common interest

Reinforce alliances in the Asia-Pacific

Ratchet up the U.S. deterrent against Chinese cyberattacks

Take a stronger stance against China’s human rights record

Donald Trump

Increase U.S. military presence in and around the South China Sea

Investigate and punish China for unfair trade practices

Designate China a currency manipulator

Ratchet up the U.S. deterrent against Chinese cyberattacks

PRESIDENTIAL ELECTION RESULTS.   U.S. presidents are not elected by the popular vote but the so-called Electoral College – each of the 50 states select “electors” equal to the number of Congressmen — that determines the outcome.  The margin is significant in that a sweeping victory with over 300 electoral votes will demonstrate a public mandate that will make the newly elected Presidents’ governing more effective.  This year, Donald Trump’s victory with 289 electoral votes [which is now with Michigan and Arizona 309 votes] is not a big margin but his party being in control of both the Senate and House of Representatives, is a sufficient mandate, something of a populist uprising not seen in recent years.

The election of Donald Trump was unexpected and shocking, even troubling to many in the U.S. and around the world.  The electoral vote is revealing of why and how he won the election – his anti-trade and immigration messages resonated in the four or five rust-belt states that were expected to vote for Hillary Clinton.   Not unlike the Brexit vote, he played to the anger and fear that was directed at Wall Street and Washington, D.C., a movement that will definitely take the country in a new and perilous direction.

Most disconcerting is how a President Trump will conduct foreign policy given that he has no experience compared to Hillary Clinton, who served as Secretary of State and was expected to continue the Obama Administration’s policies and alliances with other countries.  The U.S. China relationship is all about economics and trade, so his Seven-Step Trade Plan is an indication of what lies ahead:

Immediate withdraw from TPP and a renegotiation of NAFTA.

Appoint the “toughest and smartest trade negotiators.

Direct Department of Commerce to “identify every violation of trade agreements a foreign country is currently using to harm our worker” and direct all Federal agencies to use “every tool under American and international law” to end abuses.

Instruct the Treasury Department to label China a currency manipulator, promising that any international devaluation would be met with sharply through tariffs and taxes.

The U.S. Trade Representatives would be instructed to bring trade cases against Beijing under both U.S. laws and the WTO.

If China does not stop its illegal activities, Trump said he would invoke specific safeguards and tariff protections under Section 201 of the Trade Act of 1974.

U.S. China Relationship

In past years, presidential candidates have been known for their “tough talk on China” during campaigns but eventually succumb to the geopolitical realities once they become president.  Donald Trump has gone way beyond tough talk in that he has been relentless in his China bashing and threats to take punishing actions based on unfair trade practices.

More alarming have been his comments threatening the U.S. – China relationship, on one occasion stating that “I’d love to have a trade war with China…if we did no business with China, frankly we will save a lot of money.”  This hopefully is more about rhetoric than policy and a sitting President and his advisors will be more realistic and engage China in ways that will be mutually beneficial.

Ultimately, it’s not so much about the rhetoric and issues but the relationship between the two heads of state.  President Obama and President Xi Jinping had a “trust” working relationship that may not go as easily with Donald Trump, but he is a master negotiator who knows how to work out deals with others.  Much will also depend on who will be his cabinet ministers and senior advisors.

U.S. – International.    Donald Trump’s election has many world leaders concerned given his pledge of radical actions that will project a different America.  For the past 50 years, America has been the undisputed leader worldwide but that is about to change, partly because both Donald Trump’s election is rooted in American anxiety, placing the blame on globalization and trade deals for job losses and economic hardship.  In recent years partisanship and politicalizing of U.S. foreign policy has intensified in a way that inhibits a President’s ability maintain America’s leadership globally.

What does this mean in terms of America’s leadership internationally?  The reverberating message and new mandate that comes out of the election may be alarming to foreign leaders in that a Trump Administration’s foreign policy will be unpredictable, to be sure, on both the economic and geopolitical fronts that will lead to greater uncertainty.  It will definitely be more protectionist given Mr. Trump’s ranting that trade deals have caused job losses and economic hardship.  More perplexing is whether a Trump presidency will abandon America’s alliances and commitments and embark on a course that is more self-serving.

Regardless of who was elected, one of the realities will be China possibly surpassing America as the world’s most powerful nation, which will be a dramatic wake-up call for a country that has proudly embraced this status for the past hundred years.  A Trump presidency taking the country down the path of isolationism may have America backing away from its global responsibilities compared to China’s highly focused set of objectives and its growing presence internationally.  Indeed, China has wisely avoided involvement in geopolitical and security issues, such as the Middle East, and instead is concentrating on economic and investment development, which rapidly advances their leadership standing around the world.

CONGRESSIONAL ELECTIONS    

Two weeks before the election, the Democrats were expected to take control of the U. S. Senate hopefully gaining enough seats to be the Majority Party that would be fully supportive of a Hillary Clinton presidency.  Instead the Republicans will now control both branches of the U.S. government.  However, it will not represent a consensus or cooperation given the deep divisions within the Republican Party, particularly how the Trump candidacy shattered political convention by criticizing Congressional leaders and charting his own path

U.S. Senate.  The Constitution specifies that one-third of the Senate positions are up every election year, which worked to the advantage of Democrats since most of the ballot positions were Republicans.  Yet the election results favored the Republicans who will maintain their 51-45 advantage for the next two years.  The Senate has the Constitutional authority to approve treaties and appointments to high-level positions and ambassadors.  There should be cooperation, given that the same party controls both branches, but Donald Trump has defied the conventional approach to doing business, so this will add to the uncertainty.

House of Representatives.  For the past six years the Republicans have been in control with a significant margin, despite divisions of within the Party that inhibits their ability to be productive.  Prior to the election, the Republicans held 247 of the 435 seats that are up for election every year, a safe margin.  While the Democrats did pick up eleven of the Republican held seats they will continue as the Minority Party for the next few years.

The same party in control of the White House and Congress would normally make for a productive session, but uncertainty lingers given the troubled relationship between Donald Trump and Speaker Paul Ryan.  Prior to the elections, a fractured Republican Party has been unified only by its opposition to President Obama’s policies, like Obamacare, so many questions remain about how the Speaker will preside over his own problems as he prepares to work with a Trump Administration.

In contrast to Congressman Bonker, my belief is that the US China relationship may, in fact, work out better than people think under President Trump.  While in China last month I met many Chinese who liked Trump, despite his trade policy, which was enlightening.

Although Trump will be tough in trade negotiations, Trump is a business man and likes to do deals.  That means he is truly open to negotiations.

Also many Conservative publications, such as the Wall Street Journal and Investors Business Daily (“IBD”), believe that Republican Congressional leaders, such as House Speaker Paul Ryan, may be able to prevent Trump from starting an all-out, hot, trade war against China.

But the US China cold trade war will definitely continue as there will be more US trade actions against China, and more Chinese trade actions against the US.  Both countries will feel the pain.

But the relationship will become even more complicated as the EC in response to the WTO December 11, 2016 deadline to grant China market economy status proposed on November 9th amending its antidumping and countervailing law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, e.g., China, where prices and costs are distorted because of government intervention and not free market forces, the EC Commission can look at prices and costs outside China.

EC PROPOSES CHANGES TO ITS ANTIDUMPING AND COUNTERVAILING LAW TO IN EFFECT CONTINUE TO TREAT CHINA AS A NONMARKET ECONOMY COUNTRY

On November 9, 2016 the European Commission issued the attached proposed “Regulation of the European Parliament and Of The Council,” ec-china-market-economy-regs, on the way to calculate normal value for certain nonmarket economy countries, specifically China.

The EC Commission has proposed amending its antidumping law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, where prices and costs are distorted because of government intervention and not free market forces, e.g., China, the EC Commission can look at prices and costs outside China, stating specifically if:

domestic prices and costs would not provide a reasonable basis to determine the normal value. This could be the case, for instance, when prices or costs are not the result of free market forces because they are affected by government intervention. Relevant considerations in this respect include, for instance, the fact that the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; the state presence in firms allowing the state to interfere with respect to prices or costs; the existence of public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and the access to finance granted by institutions implementing public policy objectives.

In such circumstances, it would be inappropriate to use domestic prices and costs to determine the value at which the like product should be normally sold (“the normal value”) and a new provision (Article 2(6)a) stipulates that the normal value would instead be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used would include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.

This methodology would allow the Commission to establish and measure the actual magnitude of dumping being practised in normal market conditions absent distortions.

For the sake of transparency and efficiency, the Commission services intend to issue public reports describing the specific situation concerning the market circumstances in any given country or sector. Of importance, the EU industry would be in a position to rely on and refer to the information contained in these reports when alleging in a complaint or a request for review that the domestic prices and costs in the exporting country are unsuitable to determine the normal value. Such reports and the evidence on which it is based would also be placed on the file of any investigation relating to that country or sector so that all interested parties would be in a position to express their views and comments.  . . .

In the light of experience gained in past proceedings, it is appropriate to clarify the circumstances in which significant distortions affecting to a considerable extent free market forces may be deemed to exist. In particular, it is appropriate to clarify that this situation may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces because they are affected by government intervention. It is further appropriate to clarify that in considering whether or not such a situation exists regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing  public policy objectives. It is further appropriate to provide that the Commission services  may issue a report describing the specific situation concerning these criteria in a certain country or a certain sector; that such report and the evidence on which it is based may be placed on the file of any investigation relating to that country or sector . . . .

It is further appropriate to recall that costs should normally be calculated on the basis of records kept by the exporter or producer under investigation. However, where there are significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low, such costs may be adjusted or established on any reasonable basis, including information from other representative markets or from international prices or benchmarks. In the light of experience gained in past proceedings, it is appropriate to further clarify that, for the purposes of applying the provisions introduced by this regulation, due account should be taken of all relevant evidence, including relevant assessment reports regarding the circumstances prevailing on the domestic market of the exporting producers and the evidence on which they are based, which has been placed on the file, and upon which interested parties have had an opportunity to . . .

Article 1

Regulation (EU) 2016/1036 is amended as follows:

In Article 2 the following paragraph 6a is inserted:

‘6a. (a) In case it is determined, when applying this provision or any other relevant provision of this Regulation, that it is not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions, the normal value shall be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country, provided the relevant cost data are readily available. The constructed normal value shall include a reasonable amount for administrative, selling and general costs and for profits.

Significant distortions for the product concerned within the meaning of point (a) may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces as they are affected by government intervention. In considering whether or not significant distortions exist regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing public policy objectives.

In Article 11(4), the following subparagraph is added:

‘In the case of a transition from a normal value calculated pursuant to the former Articles 2(7)(a) or 2(7)(b) to a normal value calculated pursuant to paragraphs 1 to 6a of Article 2, any review pursuant to this paragraph shall be deferred to the date on which the first expiry review following such transition is initiated.’

STEEL TRADE CASES

CERTAIN CARBON AND ALLOY STEEL CUT TO LENGTH PLATE FROM AUSTRIA, BELGIUM, CHINA, FRANCE GERMANY, ITALY, JAPAN, KOREA AND TAIWAN

On November 7, 2016, in the attached fact sheet, factsheet-multiple-ctl-plate-ad-prelim-11082016, Commerce announced its affirmative preliminary determinations in the antidumping duty investigations of imports of certain carbon and alloy steel cut-to-length plate from Austria, Belgium, China, France, Germany, Italy, Japan, Korea, and Taiwan.

For Austria, the antidumping rate is 41.97%.  For Belgium, the antidumping rate ranges from 2.41 to 8.5%.  For China, the antidumping rate is 68.27%.  For France, the antidumping rate ranges from 4.26 to 12.97%.  For Germany, the antidumping rate ranges from 0 to 6.56%.  For Italy, the antidumping rate ranges from 6.10 to 130.63%.  For Japan, the antidumping rate ranges from 14.96 to 48.64%.  For Korea the antidumping rate is 6.82%.  For Taiwan, the antidumping rate ranges from 3.51 to 28%.

CIRCULAR WELDED CARBON-QUALITY STEEL PIPE FROM OMAN, PAKISTAN, UNITED ARAB EMIRATES, AND VIETNAM

On October 24, 2016, Commerce in the attached fact sheet, pipe, announced its affirmative final determinations in the antidumping duty (AD) investigations of imports of circular welded carbon- quality steel pipe from Oman, Pakistan, the United Arab Emirates, and Vietnam, and countervailing duty (CVD) investigation of imports of circular welded carbon-quality steel pipe from Pakistan.

For Oman, the antidumping rate is 7.24%.  For Pakistan, the antidumping rate is 11.08% and the countervailing duty rate is 64.81%.  For United Arab Emirates the antidumping rates range from 5.58% to 6.43%.  For Vietnam the antidumping rate ranges from 0 to 113%

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

With the election of Donald Trump, as stated in my last newsletter, the Universal Trade War will continue.  In addition to the US bringing antidumping and countervailing duty 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 antidumping and countervailing duty cases in other countries.

CHINA

Set forth below are two articles by Chinese trade lawyers on how to respond in Chinese trade cases against the United States and other countries.

ROLAND ZHU, ALLBRIGHT LAW FIRM

A General Description of Anti-Dumping Regulation

of the People’s Republic of China

by Roland Zhu, Allbright Law Firm

In order to maintain foreign trade order and fair competition, China’s Ministry of Commerce (hereinafter referred to as “MOFCOM”) is responsible for conducting anti-dumping investigations against foreign exporters in case that imported products enter the market of the People’s Republic of China by way of dumping, and cause material damage or constitute a threat of material damage to an already established domestic industry, or cause a material impediment to the establishment of a domestic industry in accordance with the Foreign Trade Law of the People’s Republic of China, Regulations of the People’s Republic of China on Anti-Dumping and Interim Rules on Placing Cases on File for Antidumping Investigations, which are effective and applicable law.

Where there exists dumping or may exist dumping, an anti-dumping investigation may arise. A complete set of anti-dumping investigation procedure usually follows these steps:

  1. MOFCOM may place a case on file for antidumping investigations upon the application of an applicant; it may also place a case on file on its own initiative for anti-dumping investigations.
  2. MOFCOM shall, within 60 days as of its receipt of the application letter and the relevant evidence submitted by the applicant, examine whether the application is filed by the domestic industry or filed by representing the domestic industry, the contents of the application letter and the evidence attached to it, etc., and shall decide to initiate an investigation or not. Prior to the decision to initiate an investigation, the government of the exporting country (region) concerned shall be notified.
  3. MOFCOM shall publish the decision to initiate an investigation and notify the applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties (hereinafter collectively referred to as “the interested parties”). As soon as the decision to initiate an investigation is published, MOFCOM shall provide the full text of the written application to the known exporters and the government of the exporting country (region).
  4. MOFCOM may conduct an investigation and collect information from the interested parties by, among other methods, sending questionnaires, using samples, holding public hearings and making on-the-spot verification.
  5. MOFCOM shall, on the basis of its findings, make a preliminary determination on dumping and injury, as well as on whether there exists a causal link between dumping and injury. The preliminary determination shall be published by MOFCOM.
  6. In cases where a preliminary determination on dumping, injury and the causal link between the two is affirmative, MOFCOM shall conduct further investigations on dumping, the dumping margin, the injury and its degree, and, make a final determination on the basis of its findings. The final determination shall be published by MOFCOM. Before the final determination is made, MOFCOM shall inform all known interested parties of the essential facts on which the final determination is based.
  7. An anti-dumping investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months.
  8. The anti-dumping measures taken by MOFCOM shall include provisional anti-dumping measures, price undertakings and anti-dumping duties. The period for applying the provisional anti-dumping measures shall not exceed four months from the effective date set forth in the public notice regarding the decision on provisional anti-dumping measures, and, in special circumstances, may be extended to nine months. The period for the levy of an anti-dumping duty and fulfillment of a price undertaking shall not exceed five years, and may be extended if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury.
  9. The review proceedings shall be conducted with reference to the relevant provisions of Regulations of the People’s Republic of China on Anti-Dumping. Any review shall be concluded within 12 months from the date of the decision of initiation of such a review.

Answers to General Questions about Chinese Antidumping cases are listed below or you may refer to the general description of Chinese anti-dumping regulations.

  1. Information on recent cases filed in China against other countries

Answer: Please see the table below, which summarizes recent cases filed in China during the year of 2016 against other countries are:

Initiation Date  Subject Merchandise  Investigation Type  Countries

1/12/2016  Dried Distiller Grains        AD and CVD             USA

2/5/2016    Pyridine                                AD Interim Review  Japan and India

4/20/2015   Vinyldine Chloride           Initial AD Review       Japan

Vinyl Chloride Copolymer Resin

9/22/2016     Sugar                        Safeguard       Multiple Countries  including Brazil/Argentina

  1. What agency makes the AD and CVD decision? What agency makes the injury determination? How long does the initial investigation take?  Are there mandatory companies?

Answer: The Trade Remedy and Investigation Bureau of the Ministry of Commerce of the People’s Republic of China (the “Bureau”) makes the AD and CVD decisions as well as the injury determinations. An anti-dumping or countervailing investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months. There are mandatory companies in China’s AD investigation. The applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties can register to the Bureau in order to participate in this anti-dumping investigation within 20 days from the date of promulgation of the initial announcement. The Bureau selects the respondents among those who have submitted dumping sampling questionnaire by using sampling survey. For other interested parties, including those are not chosen to answer the investigation questionnaire and those don’t register to the Bureau, the Bureau may make determinations on the basis of the facts already known and the best information available.

  1. Is the Chinese antidumping and countervailing duty law prospective or retrospective, retroactive liability? Is there a public interest test? Are there annual reviews?  How long do the orders stay in place?

Answer:  For retrospective issues you mentioned above, according to the Article 93 of Legislation Law of the People’s Republic of China, Chinese antidumping and countervailing duty law shall not be retroactive, but the regulations formulated specially for the purpose of better protecting the rights and interests of citizens, legal persons and other organizations are excepted. The period for the levy of an anti-dumping duty shall not exceed 5 years, and may be extended as appropriate if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury. A midterm review may be conducted upon request by the interested parties and on the basis of examination of the relevant evidence submitted by the interested parties.

  1. Are there special rules for Non Market Economy Countries?

Answer:  There are no such special rules in China.

Attached are several weekly newsletters, teams-newsletter-en-vol-2016-38 teams-newsletter-en-vol-2016-39 teams-newsletter-en-vol-2016-40, issued by Roland Zhu and his trade group at the Allbright Law Office.

FRANK HANG, GLOBAL LAW OFFICE

How Should Foreign Companies Respond to an Antidumping Investigation in China

  1. Definition of Dumping

According to Chinese Law, dumping consists of three factors-Dumping, Injury and Causation. As for the calculation of Dumping Margin, the following shall be taken into consideration:

  • Dumping Margin= (Normal Value-Export Price)/CIF Price
  • Normal Value and Export Price shall be compared on the same level, usually ex-factory level
  • Comparison: a. weighted average Normal Value to weighted average Export Price; b. transaction-to-transaction comparison of Normal Value and Export Price; c. weighted average Normal Value to each transaction Export Price.

When calculating the Normal Value, the following methods are chosen by MOFCOM:

  • Domestic Sales Price
  • Constructed Value=Production Cost + S G & A + Reasonable Profit
  • Export Price to a Third Country (Region)

In terms of category of AD Duty, China’s normal practice is to assign antidumping rates to producers, not trading companies. And there are 3 different types of rates for the enterprises to bear:

  • Individual Rate
  • Weighted Average Rate
  • Country-wide Rate (Best Information Available, BIA)

When it comes to Injury Analysis, several factors shall be considered by MOFCOM: Imported Volume, Imported Price and other factors such as actual and potential decline of domestic industry in sales, profits, output, market share, productivity, return on investment or utilization of capacity, etc., factors affecting domestic prices; the magnitude of the margin of dumping, the actual or potential negative effects of the dumped imports on the domestic industry’s cash flow, inventories, employment, wages, growth, ability of capital raising or investment, etc.

Cumulative Assessment means that the margin of dumping established in relation to the dumped imports from each country (region) is no less than 2 percent, and the volume of such imports from each country (region) is not negligible. It is negligible if the volume of the dumped imports from a particular country (region) is found to account for less than 3 percent of the total imports of the like products, unless countries (regions) which individually account for less than 3 percent of the total imports of the like products collectively account for more than 7 percent of the total imports of the like products.

  1. AD Investigating Procedures

In China, the AD Investigating Authority is MOFCOM Trade Remedy and Investigation Bureau who is not only in charge of determination of dumping margin but also in charge of determination of injury and causation. 

Following procedures in a Chinese AD Investigation Case: Filing of the Petition are:

Filing Responding Registration, Issuing Questionnaires, Submitting Questionnaire Responses, Preliminary Determination, Public Hearing, On-site Verification, Final Determination, Price Undertaking, Administrative Reconsideration, Administrative Lawsuit, Interim Review, Sun-set Review, New Shipper Review, etc.

Within 10 working days after the deadline of filing the responding registration, the investigating authority will issue questionnaires to the registered companies. If the registered companies are numerous, the investigating authority will use sampling (usually 2 mandatory companies for each country/area).

It is important to note that foreign producers/foreign exporters must submit their responding registration documents to the investigating authority within 20 days as of the date of initiation through a PRC practicing attorney or by themselves. If they fail to do so, foreign producers will be treated as non-cooperative and MOFCOM will use the best information available (“BIA”) to make determination.

For the respondents, when submitting Questionnaire Response, they need to keep in mind that the questionnaire response must be submitted to the investigating authority within 37 days as of the date of the issuance of the questionnaires. The responding companies may apply for extension and the investigating authorities usually only give an extension of 7 days. And the questionnaire responses must be submitted through a PRC practicing attorney. After receiving the questionnaire responses, the investigating authority will review them and issue the supplementary questionnaires if certain questions require clarification or explanation further.

In an Interim Review, an application for interim review shall be filed within 30 days as of the expiration date of each year after the effective date of AD measures. The producers applying for interim reviews must have exported the subject merchandise to China within a period of 12 months prior to the application, and the export referred must have been made in sufficient quantities.

  1. Key Points of AD Defense Strategies
  • Establishing an overall responding strategy before submitting the questionnaire responses to MOFCOM;
  • Collaborating with the respondent’s department of administration, sales, production, finance, in-house counsel, foreign attorneys, PRC attorneys closely and efficiently;
  • Accountant’s role is important in the calculation of dumping margin;
  • Well-prepared for on-site verification;
  • Communicating effectively with MOFCOM officials at different levels;
  • Cooperate with other respondents on non-injury defense;
  • Leverage the exporting country (region)’s government;
  • Obtaining support from importers and down-stream companies.

INDIA

Attached is a newsletter, ls-international-trade-amicus-september-2016, from the Lakshmikumaran & Sridharan Law Firm in New Delhi on Indian antidumping law.

CUSTOMS LAW

ALUMINUM EXTRUSIONS

On October 26, 2016, the Wall Street Journal in an article entitled “Homeland Security Probes U.S. Aluminum Firms Over Chinese Imports” reported that Federal investigators had launched an investigation into whether Liu Zhongtian, a Chinese billionaire and the founder and chairman of aluminum giant China Zhongwang Holdings Ltd., was engaged in transshipment of aluminum extrusions to the United States in violation of US civil and criminal laws.

Commerce is investigating whether a New Jersey company, Aluminum Shapes LLC, imported pallets to remelt as a way to avoid a countervailing duty rate of 374%, part of a broader probe into Mr. Liu’s activities. The Commerce Department said preliminary findings would be released in coming weeks. Aluminum Shapes last month denied that the pallets were used as raw material for its plant.

Homeland Security is also investigating whether nearly one million tons of aluminum shipped to Aluminicaste Fundición de México, a factory once owned by Mr. Liu’s son, were part of an effort to evade U.S. tariffs by routing the metal through another country to disguise its origins.

SECTION 337 AND IP CASES

NEW 337 CASES

OPTICAL FIBERS

On October 31, 2016, DSM Deso Tech, Inc. and DSM IP Assets B.V. filed a 337 patent case against UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products

Filed By:
Christine E. Lehman

Firm/Organization:
Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP

Behalf Of:

DSM Deso Tech, Inc. and DSM IP Assets B.V.

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 UV Curable Coating for Optical Fibers, Coated Optional Fibers, and Products Containing Same. The proposed respondents are Momentive UV Coatings (Shanghai) Co., Ltd., China and OFS Fitel, LLC, Norcross, Georgia.

SWEETENERS

On October 27, 2016, Celanese filed a 337 patent case against High Potency Sweeteners, ACE-K, from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

High-Potency Sweeteners

Filed By:

Joshua B. Pond

Firm/Organization:

Kilpatrick Townsend & Stockton LLP

Behalf Of:
Celanese International Corporation, Celanese Sales U.S. Ltd. and Celanese IP Hungary Bt

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 High-Potency Sweeteners, Processes for Making Same, and Products Containing Same. The proposed respondents are Suzhou Hope Technology Co., Ltd., China; Anhui Jinhe Industrial Co., Ltd., China; and Vitasweet Co., Ltd.,   China.

MOBILE ELECTRONIC DEVICES

On October 14, 2016, Qualcomm filed a 337 patent case against Mobile Electronic Devices from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Received:

Friday, October 14, 2016

Commodity:

Mobile Electronic Devices

Filed By:

Blaney Harper

Firm/Organization:

Jones Day

Behalf Of:

Qualcomm Incorporated

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 Mobile Electronic Devices. The proposed respondents are Zhuhai Meizu Technology Co., Ltd., China; Zhuhai Meizu Telecom Equipment Co., Ltd., China; Dest Technology Limited, China; LGYD Limited, China; and Overseas Electronics, Inc., Chicago, IL.

If you have any questions about these cases or about Trump and Trade, 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–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–PRESIDENTIAL TRADE POLITICS, TPP, COMMERCE AND ITC PUSH PROTECTIONISM

Washington Monument US Capital Evening Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 12, 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.  The blog post contains the fourth and fifth articles 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 Partnership (“TPP”).

The first article outlined the problem and why this is such a sharp attack on the TPP and some of the visceral arguments against free trade.  The second article 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.

In this blog post, the fourth article discusses one of the most important arguments for the TPP—National Security.  The fifth article discusses why the Commerce Department’s and the US International Trade Commission’s (ITC) policy in antidumping and countervailing duty cases has led to a substantial increase in protectionism and national malaise of international trade victimhood.

Commerce finds dumping in 95% of the cases, and the ITC extends antidumping and countervailing duty orders for 20 to 30 years to protect one company US industries.  Those policies dramatically increase the perception of international trade victimhood—we US companies cannot compete because all imports are unfairly traded, a perception that is simply false.

The final article in my next blog post will be about 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.  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.

Congress must again 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.

In addition, set forth are articles on developments involving steel trade litigation, including the restart of the Section 337 Steel Trade Case, and antidumping and countervailing duty reviews in August against Chinese companies.  Just recently on this blog, I published posts on the importance of importer of record in antidumping and countervailng duty cases and the False Claims Act hammer against transshipment

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 BUT THE TPP MAY NOT DIE

Recently a reader of this blog commented that he believes electing Hilary Clinton will mean that the Trans Pacific Partnership (“TPP”) will die.  In my opinion, just the opposite is the case.  Although Hilary Clinton states that she is opposed to the TPP, President Obama is not and continues even recently to push passage of the TPP during the Lame Duck Session, that is the Congressional session after the President election.

I just returned from a trip to Washington DC, which included visits to various Congressional offices on Capitol Hill, and my opinion was confirmed by Congressional trade staff.  Many trade staff, especially in the Democratic offices, believe that TPP will come up in the Lame Duck session to take the issue off of a President Clinton’s desk and many believe it will pass.

On August 11,2016, at a campaign rally in Warren, Michigan, Clinton stated:

“My message to every worker in Michigan and across America is this: I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership. I oppose it now, I’ll oppose it after the election and I’ll oppose it as president.  As a senator, I fought to defend New York’s manufacturers and steel-makers from unfair Chinese trading practices. And I opposed the only multilateral trade deal that came before the Senate while I was there, because it didn’t meet my high bar.”

Hilary Clinton, however, is being pushed to give her approval to the TPP. On July 27, 2016, the Wall Street Journal in an editorial entitled “Clinton’s Trade Opportunism” spoke with open dismay about the protectionist trade arguments coming out of both parties in the Presidential primary.

The cause of open trade is at a low ebb amid the rise of the Sanders-Warren progressives and the Trump tariff right, plus a lack of leadership in Washington. The latest trade liberalizer to recant is Tim Kaine, who said as recently as last Thursday that the Pacific Rim trade deal is “a significant improvement over the status quo,” only to declare his opposition after becoming Mrs. Clinton’s running mate.

Mr. Trump is now assailing Mr. Kaine for Herbert Hoover-come-lately hypocrisy, and he has a point. As Secretary of State, Mrs. Clinton helped negotiate the yet-to-be-ratified Trans Pacific Partnership and gave some 45 public speeches for TPP.  Then to fend off the Sanders challenge, she renounced the final TPP text in October 2015, and getting tough on China, outsourcing and other specters became stump sta­ples. By opposing TPP, she’s running against the last major initiative of a President of her own party, and the Philadelphia Democrats don’t seem to mind.

More remarkable is that no one takes her statements at face value. Her left-right critics think she’s setting up a trade double cross, while corporate CEOs assure us that she is merely making a tactical TPP feint and after the election she’ll push it through Congress.

This perception of trade insincerity does match the Clinton record. In the 1990s her husband promoted the North American Free Trade Agreement and most-favored nation status for China, and she endorsed both in her 2003 memoir ”Living History.”

In the 2007-2008 Democratic primaries, Mrs. Clinton said she would renegotiate the “mistake” that was Nafta, promised to defeat a pending deal with Colombia, and told an AFL· CIO town hall that a U.S.-South Korea pact would “put American jobs at risk.” At Foggy Bottom, she then lobbied Congress to pass the Colombia and Korea agreements, and she deleted her Nafta do-over faster than the emails on her private server.

The Democrat is now bowing deeper than ever to protectionist forces. After Mr. Trump gave an America First speech in June, the Clinton campaign responded in a press release that his rhetoric was “reckless” and his “incoherent approach” would “throw our economy into a recession.” Except for those minor details, the campaign added that he was stealing “Hillary’s best ideas,” which “seem to have moved straight from Hillary Clinton’s policy fact sheets to his teleprompter.”

So is the inner Hilary now a junior -achievement Donald? Who knows? Maybe this time she really has rolled left along with the Democratic Party and she means what she says, in which case she enjoys no particular pro-trade or pro­growth advantage over Mr. Trump.

But if Mrs. Clinton is merely triangulating again, then please spare us the lectures about “recklessness.” Other than pacifying the Warren-Sanders wing, Mrs. Clinton’s new posture gains her little or no 2016 advantage. She can’t outbid Mr. Trump on protectionism, one of the few policy matters that has sustained his attention since the 1980s, and his subtlety-free TPP opposition has already locked down most single-issue voters.

Meanwhile, Mrs. Clinton is damaging prospects for the 12-nation Pacific deal, if only by validating the claims of its opponents. This will make it harder for her to pass it if she is elected, especially if she lacks the will to face down the anti-trade caucus she is now indulging.

Assuming Mrs. Clinton still believes as she used to claim that TPP is critical for U.S. competitiveness and to balance China’s growing influence in the Asia-Pacific, she is undercutting its already dire chances in Congress. She is also knee-capping Japanese Prime Minister Shinzo Abe, who has made TPP central to his economic reform agenda.

Nearly seven of 10 voters tell pollsters they think Mrs. Clinton is untrustworthy, and the reason is no more mysterious than her political character. She’ll say or do anything to get elected, even if means “evolving” from pro­trade first lady to anti-trade presidential candidate to pro-trade Secretary of State to anti­trade candidate back to allegedly pro-trade President.

Mrs. Clinton’s cheerleaders says she’s the responsible candidate who knows better, but the evidence for this is awfully thin.

Although Hilary Clinton is saying she is opposed to the TPP, President Obama is not.  He continues to push for passage of the TPP during the lame duck session in Congress after the Presidential election.  On August 3, 2016, the Wall Street Journal in an article about the meeting between the President and the Singapore Prime Minister entitled, “President Holds the Line on TPP”, President Obama said he is still committed to passing the TPP this year because it “levels the playing field for our workers and helps to ensure countries abide by strong labor and environmental rules.”

The President admitted that the political environment is challenging, but went on to state he has a “better argument”:

”There’s a real problem but the answer is not cutting off globalization. The answer is how do we make sure that globalization, technology, automation-those things work for us, not against us. TPP is designed to do precisely that.”

Singapore Prime Minister Lew Hsien-Loong stated at the conference that he hopes the TPP will pass this year during the lame duck session, stating that not only was the economic impact of the trade agreement at stake, but also America’s leadership:

In terms of economic benefits, the TPP is a big deal.  I think in terms of America’s engagement of the region, you have put [your] reputation on the line. It is the big thing that America is doing in the Asia Pacific [region] in the Obama administration.”

Your partners, your friends who have come to the table, who have negotiated, each one of them has overcome some domestic political objection, some sensitivity, some political cost to come to the table and make this deal. If at the end, waiting at the altar, the bride doesn’t arrive, I think that people are going to be very hurt.”

Although her campaign rhetoric is anti-TPP, in the past Hilary Clinton has stated that she is not clearly opposed to the TPP.  She is opposed to it as written.  But with President Obama pushing for its passage before the inauguration, if Clinton wins, with a wink and a nod from Clinton, Obama will try to push it through in the lame duck session to take the TPP issue off of Clinton’s desk.  Since passage in Congress requires only a majority vote, many Congressional Trade staff in Democratic offices believe the TPP would pass in a lame duck session.

But if Donald Trump wins, all bets are off.  If he wins, no Republican will buck him to pass the TPP.  During the primary when Paul Ryan, Republican Speaker of the House, faced a challenger against the TPP, he recently stated that the TPP will not pass Congress during Obama’s term, and that Ryan has “problems” with the TPP as it is currently drafted.  Ryan stated:

“Obviously I’m for trade agreements.  I wrote [the fast-track trade bill] and I got it passed. But I think they made some pretty big mistakes in how they negotiated it and they gotta fix those. And I don’t know when that’s going to happen. . . We don’t have the votes for it now, and I believe they have to fix some of these things. And I don’t know if and when they’re going to be able to fix those things.”

But Donald Trump too is being pushed on the trade issue.  On August 9, 2016 the Wall Street Journal in an Editorial “Trump on the Economy” gave Trumps’s August 8th economic speech at the Detroit Economic Club high marks, but then pointed out “the poison pill of trade protectionism.”  The Journal went on to state:

Mr. Trump believes that a trade deficit equals lost American jobs, when there is no such connection.  The U.S. tends to run bigger trade deficits when the economy is strong, and vice versa.  By that logic the fastest way to cut the trade deficit is to have a recession, but that would only cost more jobs.

Raising taxes at the border -aka tariffs—wouldn’t keep jobs in the U.S. but would reduce the standard of living for U.S. consumers.  His promise to punish U.S. companies for investing overseas could end up costing more jobs if it caused companies to relocate more of their operations overseas to avoid the punishment.  Global supply chains are crucial to preserving U.S. manufacturing jobs.

The question with Mr. Trump is how much his trade agenda would interfere with his pro-growth domestic policies.  If Republicans in Congress blocked his worst trade instincts, the damage could be small.  If he used executive powers to wage a trade war, look out.  With the mercurial New Yorker, you never know.

On August 3, 2016, the same day of the Obama/Lee Meeting, six Republican representatives came out against taking up the TPP during the lame duck session. In a letter written by Republican Candice Miller of Michigan along with five other Republican representatives, the lawmakers state:

“TPP will set the template for trade for the next generation.  It will not only impact the current 12 member nations but also countries like South Korea and China that could join in the future. A ‘lame duck’ Congress should not vote on an agreement of this consequence — it would be an end-run around the American people immediately following an election.”

The key concern of the members is currency manipulation, further stating:

“The TPP does not include enforceable rules to stop currency manipulators. Once America has given up the leverage of gaining full access to its consumer markets, the possibility of prohibiting currency manipulation — or reaching equitable agreements in many other areas — will be lost forever.”

The letter states that “a great deal more work” has to be done to bring the TPP up to standard.

One Congressman Dave Trott of Michigan issued his own statement with the letter saying that he believes the TPP can work for the U.S. economy, but Obama has run out of time to fix the agreement and the issue should be passed to the next President:

“The President should respect the voters’ choice of a new chief executive and allow his successor to work with Congress to negotiate a stronger agreement that puts Michigan workers and businesses first,”

THE KEY ISSUE MISSED IN THE TPP DEBATE IS NATIONAL SECURITY—TRADE WARS CAN LEAD TO REAL WARS

But the key issue missed in the TPP debate is illustrated by Prime Minister Lee’s statement above.  America’s reputation is on the line.  The TPP is a “big thing” that America is doing in the Asia-Pacific.

On July 10, 2014, General David Petraeus stated regarding the ongoing TPP negotiations:

“The consequences for Washington getting the TPP right are huge, opening some of the world’s fastest-growing markets to more U.S. exports, improving American competitiveness, growing the global middle class, and fostering the prosperous, open and rules-based Asia that is in everyone’s interest.

But the fate of the trade pact is also tied closely to America’s national security.

Indeed, a paralyzed or collapsed TPP process would be seen by our allies, partners and adversaries across Asia as a body blow not only to the credibility of America’s economic leadership, but to our geopolitical position more broadly, deepening doubts about Washington’s staying power and strength. And this, in turn, would carry spillover effects in the security realm, exacerbating military tensions and territorial rivalries and ultimately raising the threat of conflict.”

On May 16, 2016 in a Wall Street Journal Article entitled “Abandoning the Pacific pact will tell America’s Asian allies that the U.S. is yielding to China. They will accommodate accordingly” Robert Zoellick, the former United States Trade Representative under President Bush, stated:

“In an uncertain world, America’s future security depends on both upgrading military capabilities and expanding economic opportunities. The Trans-Pacific Partnership, a trade accord among 12 countries accounting for almost 40% of the global economy, draws together these two strands of strategy. . . .

Strategists have long recognized the interrelationship between economics and security. . . .

The TPP supplies the economic foundation for this new Asia-Pacific security network. In this region, economics, trade and investment are the coins of the diplomatic realm. TPP recognizes both America’s concrete economic interests in Asia and demonstrates U.S. steadfastness. If the U.S. abandons TPP, our Asian allies and partners will perceive America as yielding to China, and they will accommodate accordingly. . . .

The U.S. strategy is designed to shape decisions in Beijing, not contain China. The U.S. and its partners have benefited from China’s amazing growth. Over the past three decades, China’s economic reformers have imported rules of the international trading system to transform internal markets. China now needs to make more complex supply-side reforms to increase consumption and growth led by the private sector. The U.S.-led network in the Asia Pacific, of which TPP is a vital part, welcomes China’s peaceful integration while discouraging aggression.

America’s Founding Fathers, and every generation since, recognized that economic strength at home is vital for U.S. security. In the 19th century, the U.S. became a Pacific power. The 20th century demonstrated that conflicts in East Asia can threaten the U.S., but also that U.S. security can underpin Asia’s prosperity. The U.S. now needs to create an economic and security network in the Asia-Pacific for the 21st century. Historians will look back on America’s embrace of TPP—or its failure to do so—as a turning point in U.S. global strategy.”

As we look at history, including the reasons for World War 2, one cause was trade conflict.  If trade conflict is not controlled and handled correctly, it can lead to military conflict and that is a very big reason for the TPP.

When I was at the US International Trade Commission as a young attorney, Catherine Bedell a former ITC Chairman, who had been a Congresswoman from Oregon, came by to give a speech, clearly stating that we were not just involved in economic conflicts.  Our job was really dealing with war and peace.

The sharp rise of US protectionism threatens the foundation of peace that has been in place since World War 2.  If every country goes nationalistic, that is when real wars can start.

ANOTHER REASON FOR THE SHARP RISE IN TRADE PROTECTIONISM—THE COMMERCE DEPARTMENT AND THE INTERNATIONAL TRADE COMMISSION

In addition to the weak free trade arguments, described in my blog post, another reason for the sharp rise in protectionism are the Commerce Department’s (“Commerce”) and the US International Trade Commission’s (“ITC”) determinations in antidumping and countervailing duty cases.  By its own regulation, Commerce finds dumping and subsidization in almost every case, and the ITC in Sunset Review Investigation 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.  As mentioned in past newsletters, however, out of the 130 plus antidumping and countervailing duty orders against China, more than 80 of the orders are against raw materials, chemicals, metals and steel, that go directly into downstream US production.

The Magnesium Antidumping order has led to the demise of the US Magnesium Dye Casting Industry and the movement of the light weight auto parts industry to Canada.  An antidumping order against Sulfanilic Acid, which has been in place for more than 30 years to protect a one company US industry, resulted in injury to the US optical brightener industry.  An antidumping order against electrolytic manganese dioxide, in part, resulted in the closure of Panasonic’s US battery factory.

AD and CVD orders do not save the US industries.  They can save one company US industries, but only by substantially injuring, if not destroying, their customers, the downstream industries.  Antidumping and countervailing duty orders against raw material inputs provide substantial incentive for production and manufacturing companies in the downstream industries to leave the United States taking their jobs with them to find cheaper raw material inputs.  What nontariff trade barriers did to Japan, the US is now doing to itself through its AD and CVD law.

Another problem with the Commerce Department’s methodology of finding dumping in almost 100% of the cases is that it fuels the myth advocated by the Steel industry, the Union, Donald Trump himself and Hilary Clinton herself that all imports are dumped and all imports are subsidized and the general feeling of global trade victimhood.  We US companies and workers simply cannot compete because all imports are unfairly traded, dumped and subsidized, so the answer is put up the protectionist walls.

Both Hilary Clinton and Donald Trump believe that they have to crack down on all unfair trade, which has been the catch word for dumping and subsidization.  In their acceptance speeches at their respective conventions, both candidates emphasized the need to get tough on unfair trade.  During the Primary, Clinton stated:

As President, I’ll aggressively pursue trade cases and impose consequences when China breaks the rules by dumping its cheap products in our markets. And I’ll oppose efforts to grant China so-called “market economy” status, which would weaken our tools for dealing with this behavior.  I’ve gone toe-to-toe with China’s top leaders on some of the toughest issues we face. I know how they operate – and they know that if I’m President, the games are going to end.

Donald Trump has been more explicit stating in his acceptance speech at the Republican convention:

We are going to enforce all trade violations, including through the use of taxes and tariffs, against any country that cheats.

This includes stopping China’s outrageous theft of intellectual property, along with their illegal product dumping, and their devastating currency manipulation.

But the problem is that the Commerce Department has defined dumping so that 95% of the products imported into the United States are dumped.  How does Commerce do it?

19 U.S.C § 1673d(c)(5)(B) of the Antidumping Law provides:

“If the estimated weighted average dumping margins established for all exporters and producers individually investigated are zero or de minimis margins, or are [based on AFA], the administering authority may use any reasonable method to establish the estimated all-others rate for exporters and producers not individually investigated . . . .”

Thus only mandatory companies, those companies individually investigated in an antidumping 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.

For all other foreign exporters, the Commerce Department may use any other reasonable method to calculate antidumping rates.  As the Department states in numerous cases, to non-mandatory companies not individually investigated, the Department assigns “a weighted-average of the rates individually calculated for the mandatory respondents, excluding any rates that were zero, de minimis, or based entirely on facts available . . . .”

What does this dense statutory language mean in practice?

It means if a foreign company, including a Chinese company, is not selected as a mandatory company to be individually investigated in an antidumping case, it will get a positive dumping rate, which is the average of dumping rates of those few companies selected as mandatory respondents, not including 0% dumping rates.

How many companies does Commerce generally select in antidumping cases against China and other countries to individually investigate? Recently, it has been two or three companies out of 10s and 100s of respondent companies involved in the case.

So if there are more than two or three respondent companies in an antidumping 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.

So the issue is not whether the foreign company is dumping, the real issue is what is the dumping rate going to be?  Commerce has many methodologies to jack up antidumping rates.  In antidumping 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, Commerce has used zeroing to create antidumping rates.  What is zeroing?  In simple terms, dumping is first defined as selling products at prices in the United States below prices in the foreign home market.  Let’s assume a foreign producer sells the same products but at different times during the investigation.  Early in the investigation, the foreign company makes two sales at the same price in the home market and the US market of $2 per widget.  Later in the investigation period, it sells two widgets one in the home market at $4 and one in the US at $4.  No dumping right?  Wrong answer.

By zeroing, Commerce averages the prices in the foreign market and gives no credit for negative margins.  So the quote Normal Value, which is the average of the two prices, is $3 a widget.  When that Normal Value is compared to the $4 US price that is no dumping, which should result in a -1 dumping margin.  But Commerce does not give companies credit for not dumping.  Through zeroing no dumping margins just become 0s.  But when the normal value is compared to the $2 price, that is dumping and no credit is given for the negative dumping margin.  Because of zeroing, even though at the time the specific sales in question were made there was no dumping, Commerce creates a dumping margin.

The World Trade Organization has determined that zeroing is contrary to WTO Antidumping Agreement, but that has not stopped Commerce. It still uses zeroing in many cases, and recently came up with a new methodology “targeted dumping” to allow it to continue to use zeroing.  The WTO recently ruled that the “targeted dumping” methodology is contrary to the WTO Antidumping Agreement, but that will not stop Commerce.  Its duty is to find dumping margins even when they do not exist.

The impact of the Commerce Department’s artificial methodology is further exaggerated by the US International Trade Commission (“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 antidumping and countervailing duty orders in many Reviews 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 Antidumping 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.

The problem with protected industries was best stated by President Ronald Reagan himself in his June 1986 speechBETTER COPY REAGAN IT SPEECH:

“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.”

Meeting all competition is the only thing that keeps companies strong.  Protection, such as that given to the US Steel industry, simply makes the companies weaker until the companies die on their own.

But Globalization victimhood could well lead to the demise of the Trans Pacific Partnership (“TPP”) and the loss of benefits to 100s, if not, thousands of US companies and industries, including agriculture, high tech and certain manufacturing companies.  Perception is reality in the United States, and the perception created by Commerce and the ITC is that every import is dumped and subsidized, and, therefore, the US simply cannot afford to sign another trade agreement.

In my next blog post, the final article in this series is the real answer to trade problems—Trade Adjustment Assistance for Firms/Companies, and how this program can be used to save trade injured US companies and the jobs that go with them without any impact on downstream industries whatsoever.  TAA for Firms/Companies creates jobs, not destroy them.

The first step to getting into the program, however, is to reject Globalization victimhood.  Those companies that take that step succeed and they succeed very well keeping the jobs in the United States where they belong, while those companies that fail to reject the mindset will die.

STEEL TRADE CASES

ITC RESTARTS STEEL 337 CASE

On August 5, 2016, in the attached notice, ITC STEEL 337 NOTICE, the ITC reversed the Order of the Administrative Law Judge suspending the 337 Steel investigation and started the investigation moving again.  In the notice, the ITC stated it would give its reasons in a forthcoming opinion.

On May 26, 2016, the US International Trade Commission (“ITC”) initiated the section 337 case against all Chinese steel imports on the basis of three primary counts:

“(1) a conspiracy to fix prices and control output and export volumes, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) the misappropriation and use of U.S. Steel’s trade secrets; and (3) the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).”

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 5, 2016, Commerce published the attached Federal Register notice, FED REG AS PUBLISHED, 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, Passenger Vehicle and Light Truck Tires, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow Behind Lawn Groomers.   The specific countervailing duty cases are: Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Passenger Vehicle and Light Truck Tires and Sodium Nitrite,

For those US import companies that imported : Ironing Tables, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Passenger Vehicle and Light Truck Tires, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow Behind Lawn Groomers during the antidumping period August 1, 2015-July 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.

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.

While in China recently, I found so many examples of Chinese solar companies or US importers, which did not file requests for a review investigation.  In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court.  Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December 2015.

 

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

 

 

 

 

 

IMPORTERS OF RECORD AND FALSE CLAIMS ACT HAMMER AGAINST TRANSSHIPMENT

House of Representatives US Capitol North Side Night Stars WashTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 3, 2016 

Dear Friends,

Set forth below are two more articles on importer of record liability for antidumping and countervailing duties and the False Claims Act hammer against illegal transshipment around US antidumping and countervailing duties.

Best regards,

Bill Perry

IMPORTERS OF RECORD LIABILITY FOR ANTIDUMPING AND COUNTERVAILING DUTIES

The US Importer of Record is liable for antidumping and countervailing duties. The Importer of Record is the company listed in Block 26 of the U.S. Customs 7501 form. When I told a former US Senator this, he responded by saying he “thought the Chinese company was liable for the duties, not the US company.”

Under US Antidumping, Countervailing Duty and Customs laws, the Importer of Record must exercise reasonable care in importing products and in filling out Customs forms. The Importer of Record must correctly state the products’ country of origin and also whether Antidumping and Countervailing duties apply to the imported products. A knowingly false statement on a Customs form constitutes criminal fraud.

If AD or CVD rates go up in a subsequent review investigation, the Importer of Record is retroactively liable for the difference, plus interest. Retroactive liability for AD and CVD cases is a particular problem involving goods imported from China, because the Commerce Department treats China as a nonmarket economy (“NME”) country. Dumping is generally defined as selling products in the United States below their normal value, which generally means selling products in the United States below their prices in the home market or below the fully allocated cost of production.

Since China is a NME, Commerce refuses to use actual China prices and costs to determine whether a company is dumping. It instead uses complicated consumption factors for raw materials and other inputs and multiplies the factors by surrogate values from five to ten constantly changing countries to calculate a cost of production for the Chinese company. All this makes it impossible for the Chinese manufacturer/exporter to know whether it is dumping, never mind the US importer.

In the Mushrooms from China antidumping case, from the time the antidumping order was  issued in 1999 through numerous subsequent yearly review investigations, many antidumping rates were in the single digits because Commerce used India as the surrogate country. But when in 2012 Commerce switched from India to Columbia as the surrogate country, the Antidumping rates went from less than 10% to more than 200% because of surrogate values for straw and cow manure in Columbian import statistics. The Importers of Record then became liable for the difference in the duty rates, plus interest.

How can you as an importer of products from China (or from anywhere else for that matter) avoid getting hit with a massive antidumping or countervailing duty fee? Do not become the Importer of Record. The dollars saved by this can be staggering.

In the Wooden Bedroom Furniture from China initial investigation, for example, I represented a company importing from a Chinese furniture company.  Based on my advice, the importer pushed the Chinese furniture producer to become the importer of record for its own sales to the company.

In the initial investigation, the Chinese furniture company received an AD rate of 16%.  In the first review investigation, however, Commerce determined that the questionnaire data did not verify and issued the Chinese furniture company an AD rate of 216%.

The US company estimated that the Chinese producer exported $100 million, which created $200 million in retroactive liability for US importers.  The Chinese company then decided not to do the second review investigation creating another $200 million in retroactive liability for a total of $400 million in retroactive liability created by just one Chinese company.

My client, however, escaped liability because it was not the importer of record on the sales from that Chinese company, but many US import companies were not so lucky and went bankrupt.

If your company is the Importer of Record and its antidumping or countervailng duty rates go up, you need to realize that U.S. antidumping and countervailing duty laws are remedial, not penal statutes. This means requesting review investigations at the Commerce Department, appealing adverse rulings to the Courts and working with Customs can often substantially reduce your duties or even eliminate them entirely. Chinese exporters also can (and often do) use the Commerce review process to reduce their antidumping and countervailing duty rates so that they can export to the US again.

BEWARE THE FALSE CLAIMS ACT HAMMER WHEN IMPORTING PRODUCTS FROM CHINA

Chinese companies and the U.S. importers of their products often tell me that they are not concerned about U.S. Antidumping (“AD”) and Countervailing Duty (“CVD”) orders because they can “just get around those orders by transshipping the products to Malaysia, Vietnam, Philippines, Sri Lanka, India, or some country before sending them on to the United States.” Their plan is to relabel the products with a new country of origin and then export the products to the US free of AD and CVD duties, without US Customs and Border Protection (“CBP”) ever being the wiser.

Wrong.

Not only has CBP become expert at discovering such evasions, but the penalties — both civil and criminal — when caught have become very harsh. Importers that knowingly falsely label the country of origin on their imports are subject to significant fines and penalties under 19 USC 1592 and to criminal prosecution under 18 USC 542 (import by using false statement) and 18 USC 545 (smuggling). Lying about a product’s country of origin can subject you, the importer, to 20 years in Federal prison.

Immigration and Customs Enforcement (“ICE”) has conducted criminal investigations against a number of products under AD and CVD orders, including honey, saccharin, citric acid, lined paper products, pasta, polyethylene bags, shrimp, catfish, crawfish, garlic, steel, magnesium, pencils, wooden bedroom furniture, wire clothing hangers, ball bearings and nails. Many of these investigations have led to criminal convictions and large fines and penalties.

US importers have also been prosecuted and sentenced to prison for bringing in Chinese products, such as honey, garlic, wooden bedroom furniture and wire clothing hangers, by means of false Country of Origin statements so as to evade US AD and CVD orders.

Many Chinese companies do not realize that U.S. Customs laws can be used to go after not only US importers that have filed the false documents at Customs, but through a conspiracy charge against Chinese (and other foreign exporters) involved in setting up the transshipment. In one case, a Chinese seafood executive was arrested at a seafood show in Belgium based on a US extradition warrant for evasion of a US AD order and ending up spending six months in a Belgian prison before he was released.

US Customs, ICE and the Justice Department can be very tough investigators and prosecutors.

The real hammer against evasion of US AD and CVD orders, however, is the False Claims Act (“FCA”).  The FCA ( 31 U.S.C. § 3729) allows people or companies, designated a “Relator”, to file what are termed “qui tam” lawsuits against individuals or companies that directly or indirectly defrauded the Federal government.  Through qui tam lawsuits, the informants or “whistleblowers” may recover triple damages on the government’s behalf.  Anyone who knows of the fraud, including a competitor company, may file a qui tam lawsuit, and they do.

Relators can be competing companies in the United States, China or elsewhere or even individual employees working at those companies.  Relators file these qui tam actions to attack competitors and to get 15 to 30 percent of whatever the triple damages the U.S. Government recovers as a result of the lawsuit.

The most likely to file these lawsuits are your foreign competitors, Chinese competitor, U.S. competitors, U.S. importers, your employee at your Chinese exporting company, your employee at your U.S. importing company.  But sometimes they are brought by someone who simply learned of what you are doing.  Because the person or company that brings such an action can be awarded millions and even tens of millions of dollars, the incentive to file is huge. If you want to get a better idea of just how lucrative these lawsuits can be, do a Google search for lawyers looking to take on qui tam lawsuits. There are hundreds, if not thousands of lawyers, willing and eager to take such suits.  Reportedly the most lucrative Google keyword search is “qui tam”.

The qui tam relator’s lawsuit is filed confidentially and is not served on the defendants, but on the US Government.  The US Government then determines whether to intervene and pursue the action or settle the matter with the defendant. If the U.S. Government intervenes, it takes on primary responsibility for the case. If the U.S. Government decides not to intervene, the relator may dismiss the lawsuit or pursue the lawsuit on its own.

Under the False Claims Act, relators and the government can look backward as much as ten years after the date on which the violation was committed. When looking at imports over 10 years subject to antidumping orders with very high rates of over 50 to over 300%, the amounts being evaded are usually enormous. In one False Claims Act we handled, the antidumping duties evaded were over $80 million. When those duties were tripled, and additional penalty sums were added for false statements and attorneys’ fees, the complaint against numerous importers exceeded $300 million. Our original complaint has resulted in an ongoing penalty action for $80 million against one U.S. importer, with the relator entitled potentially to $12 to $24 million of this sum.

Both the U.S. Government and private companies and individuals have huge incentives to bring more False Claims Act cases against those who transship and seek to evade U.S. antidumping and countervailing duties.

If you are exporting to the United States or importing into the United States, you need to be wary of the hammer against transshipment—the False Claims Act.

US China Trade War–Rise in Trump/Sanders Protectionism, Steel Cases, New AD and 337 Cases, False Claims Act

 New York City Skyline East River Empire State Building NightTRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR JUNE 7, 2016 

Dear Friends,

This is the second article of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the probable demise of the Trans Pacific Partnership (“TPP”).  The first article outlined the problem and why this is such a sharp attack on the TPP and some of the visceral arguments against free trade.  The second article will explore in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders.

Subsequent articles will describe the weak free trade arguments to counter the protectionism, the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that the United States can return to its leadership in the Free Trade area.  Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.

In addition, set forth are several developments involving steel trade litigation, antidumping and countervailing duty reviews against Chinese companies, new antidumping and countervailing duty cases, new 337 cases against Chinese companies and finally a new False Claims Act settlement against a US importer for evasion of US antidumping duties.

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

Best regards,

Bill Perry

REASONS FOR THE RISE OF TRUMP SANDERS PROTECTIONISM IN THE UNITED STATES

As part two of my series of articles on how weak free trade arguments have created the rise in protectionism and the probably demise of the Trans Pacific Partnership (“TPP”), in this segment I will describe some of the reasons for the rise of Trump and Sanders and the protectionism that goes with it.

The simple truth is that when weak academic, theoretical economic arguments for free trade meet the hard visceral arguments of bombed out US factories and the loss of millions of manufacturing jobs, the free trade arguments melt away.  Weak theoretical free trade arguments will not be enough to stop the wave in protectionism sweeping the United States.  More has to be done.

In a recent article in Time Magazine entitled “Welcome to the Election from Hell”, Frank Luntz, a well-known pollster for Fox and CBS, stated that because there is so much anger in the focus groups and the US electorate, he has lost control of the focus groups he uses to test ideas.  One Trump supporter stated that he is not mad, he is angry and then stated:

“Because anger is way more than mad.  Angry is what happens when you’ve been kicked around like a dog for too long, and you’re ready to fight back.”

This explains the rise of Donald Trump and Bernie Sanders- anger in the electorate and also explains why recent polls have Donald Trump running neck in neck with Hilary Clinton.  Both Trump and Sanders are political outsiders.  Hilary is the symbol of the establishment and from what we are seeing from the electorate, this is definitely an outsider’s year.

But why has trade become a center of the Presidential campaign?  What explains the sharp rise in protectionism?

LOSS OF JOBS EXPLAINS THE RISE IN PROTECTIONISM

Jim McDermott in a May 11th article in the New York Post entitled, “Trump, Sanders Voters Don’t Want Handouts — They Want Jobs” stated:

“A popular knock on voters who support Donald Trump or Bernie Sanders because they have been “left behind” by free trade, globalization and technological progress is that they want a handout from Uncle Sam.

But the truth is the opposite: These voters want to work. They want jobs. And that’s the key to understanding their support for Trump or Sanders. . . .

In this political season, I’ve been asking some of them and their friends, and their now-adult kids, which presidential candidates they find appealing. Only two find support:  Sanders, the Vermont socialist, and Trump, the New York billionaire. Both candidates appeal to a working class that is frustrated, fed up and downright angry.

Neither can be bought.

To understand the simmering discontent of working-class folks who are attracted to  one (or both) of these candidates, you need to imagine you’ve either lost a job or  cannot break into the work force. Viewed from these perspectives, an academic debate about whether free trade results in net job losses or gains is mostly meaningless. These people want a good job, or at least a job no worse than the job they lost. Their economic futures seem to be on life support.

We can’t ignore the centrality of work in people’s lives. Most people want to work. Most people want to contribute to society and take care of their families. When the government adopts free-trade policies that pick winners (the better educated who gain new jobs) and losers (manufacturing workers), the government also needs to cushion the blow for the losers.

Since this hasn’t happened for the last couple of decades, anger has been building and is now finding a political outlet. Many Americans start to wonder: Our government helps rich Wall Street bankers but not Main Street homeowners? Supports elite universities but not vocational schools? Lowers taxes on the wealthiest Americans?

Our government has an obligation to help people adjust to seismic policy changes, like free trade. In the last couple of decades, trade agreements have resulted in, for example, the technology industry gaining ground, and the steel industry losing ground.  Besides picking winners and losers, free-trade policies introduce major economic anxiety into many previously stable families. . . .

Sanders and Trump tap into this disillusionment. They’re paying attention to the working class. They appear to actually understand, on a visceral level, the challenges faced by these Americans — and at least they seem to understand these voters aren’t moochers.  In different ways, they’re offering seething working-class Americans pathways to reclaiming what they’ve lost.

Until we admit that we have come precariously close to ending true social mobility in America, we’ll continue to see angry working-class voters approaching their boiling point. . . .”

The labor unions, such as the AFL-CIO, echo Mr. McDermott’s point.  The Unions say they do not want Trade Adjustment Assistance (“TAA”) for workers.  They want no more trade agreements.  TAA for workers is not good enough.  The Labor Unions want jobs for their workers.

As explained more below, it is the collateral destruction created by Trade Agreements, which puts the TPP directly at risk.  It is also the failure of Congressional policy when it comes to Trade Adjustment Assistance, in part, that has created this problem.  Congress gives $711 million in trade adjustment assistance to retrain workers for jobs, a very important program, but the jobs, in fact, may not exist.

But to save the companies and the jobs that go with them, Congress gives only $12.5 million total nationwide to help companies adjust to import competition and allow them to continue to exist and prosper along with jobs that go with them.

Trade Agreements, such as the TPP, do not create huge tidal waves of imports, but flash floods, which concentrate in one area and can wipe out US companies in an entire industry when they have no guidance on how to compete, survive and navigate through those flash floods.

But more on that below and in the next segment.  In this segment we need to analyze the tidal wave of rising protectionism in the United States.  If one combines the Trump and Sanders voters, that is a clear majority of the US voting electorate, and the one point that Trump and Sanders have in common is no more trade agreements and protecting the US workers from import competition.  Too many jobs have been lost.

In an April 25, 2016 CNN article, entitled “Resetting Red and Blue in the Rust Belt,” Jeremy Moorhead describes interviews with voters in Buffalo New York, Erie, Pennsylvania and Youngstown Ohio.  No Presidential candidate has ever been able to win an election without taking the state of Ohio, so it is critical to every Presidential candidate.  Jeremy Moorhead states:

“The voters of the Rust Belt have shaken up the 2016 presidential campaign: Hoping to jolt a political system they see as ineffective and out of touch, they have repeatedly revolted by supporting unlikely, anti-establishment candidates.

In both Donald Trump and Bernie Sanders, these voters see a potential for change they haven’t felt in generations. They say they are willing to shed party allegiances and reimagine their priorities this year, even voting for a self-described democratic socialist, or for a flame-throwing real estate developer who has never served in government.

In doing so, they have become the engine of one of the most extraordinary elections in modern U.S. history.

Frustration with the economic and political system is especially strong in the Rust Belt, a section of the country in the Northeast and Midwest once at the heart of the United States’ manufacturing boom. Decades after the decline of heavy industries like steel production and coal mining, the region continues to struggle with decaying infrastructure, population decline and high unemployment.

Voters there are worried about economic stagnation and crime plaguing their communities.  They are disappointed in Washington’s elected officials. They are calling out for swift, radical change. . . .

BUFFALO NEW YORK

Buffalo demonstrates Trump’s remarkable appeal across the country to non-traditional Republican voters. Here, there are working- and middle-class voters, former supporters of President Barack Obama and individuals who have supported Democrats in the past now drawn to Trump’s promise of dramatic change.

In the First Ward of South Buffalo on the corner of Ohio and Michigan Avenues, there is a favorite spot among locals called the Swannie House. Wiles has owned the place for 33 years and sits on a stool in the corner of the bar every day, his feet elevated on the window sill because of a bad back. It’s “the perfect corner because you hear everything,” he says.

These days, it seems everyone wants to talk about one thing: Donald Trump.

“It doesn’t matter if you’re black, you’re green, you’re white, you’re a Martian with tentacles. It doesn’t matter,” Wiles, 60, says. “They’re all talking about Trump.” . . . .

YOUNGSTOWN OHIO

Downtown Youngstown looks like a booming college town.  . . .

But away from the center of downtown, things get bleak — fast.

Along the former industrial corridor of Steel Valley, giant structures that used to be steel mills are now rusting and vacant. There are abandoned homes all across the city, a reminder of the thousands of residents who fled the area in the 1970s and ’80s when the mills shut down.

Although Ohio’s unemployment rate mirrors the national figure of 5%, it is much higher in Youngstown: 8.2%.  . .  .

ERIE PENNSYLVANIA

Spend a day talking to the residents of Erie — some 90 miles southwest of Buffalo — and you’re likely to learn two things. First, the General Electric plant in Lawrence Park is laying off 1,500 workers. Second, Presque Isle was recently voted in USA Today as the number one freshwater beach in the country.

Erie bled thousands of jobs over the years as manufacturing-based companies left the area, moving to the South or overseas in search of cheaper labor. . . . .”

On April 4, 2016, David Goldstein for the Portland Press Herald in an article entitled, “Blue Collar Voters: Trade is Killing Us,” stated:

“Establishment voices of economists, government and business officials argue that trade deals are critical in a global economy, and great for America. But critics such as organized labor call them “death warrants.”

And in blue collar communities in Wisconsin and across the industrial Midwest, that economic angst, coupled with some sense of betrayal, helps explain the roiling politics of 2016. . . . .

Wisconsin has lost more than 68,000 manufacturing jobs since the mid-1990s when the first of several controversial trade pacts with Mexico, China and others took hold. . …

That’s the case here in South Milwaukee, a community of more than 20,000 people whose economy is built around the sprawling Caterpillar plant, which builds huge steam shovels and other mining equipment. Its predecessor, Bucyrus International, built shovels that were used to dig the Panama Canal.

Now, Caterpillar has laid off about 600 of its 800-plus workers over the past two years because of a business slowdown.

“It’s had a pretty large impact,” said Brad Dorff, an assembler at Caterpillar and the local Steelworkers Union president. “Whether it’s small grocery stores, a hardware store down the street, local taverns; they used to get a lot of business from the people that live in this community who were making a good living, a good wage working here.”

Wisconsin’s heavy manufacturing sector, once one of the country’s strongest, has been taking a lot of punches in recent years. General Motors, General Electric, Chrysler, Joy Global Surface Mining and Manitowoc Cranes have all cut jobs or closed operations in recent years for a variety of reasons.

Hometown companies such as Kohler, the plumbing supply manufacturer; and Trek Bicycles have offshored jobs to India, China and Taiwan.

Meanwhile, Madison, the state capital, will lose 1,000 jobs over the next two years as the 100-year-old iconic Oscar Mayer meat processing plant shuts down. And just east on I-94 in Jefferson, Tyson Foods will cease operations at its pepperoni processing plant, cutting 400 jobs. . . .

The turmoil feeds into a debate over trade that’s playing out in the 2016 campaign. . . .

In Wisconsin, voters are about evenly split on whether free trade agreements have helped or hurt, according to a recent Marquette University Law School poll.

In Michigan and Ohio, a majority of primary voters in both parties believed trade kills jobs in the U.S. rather than creates them.

That’s the feeling inside union halls and communities that lie in the shadow of shuttered factories. Trade deals like NAFTA (North American Free Trade Agreement) and TPP (Trans-Pacific Partnership) spell only uncertainty and distress.

“We’ve watched a lot of our friends lose their jobs,” said Dorff, inside the local steelworkers union hall just blocks from the Caterpillar plant. “They have homes that now they can’t afford. They have families they have to support. They lost their insurance. Their kids have diabetes and they’re trying to get medication. It literally breaks your heart.”

The Business Roundtable, an association of corporate executives of major companies, say that international trade supports 1 in 5 Wisconsin jobs, and that cheaper manufacturing costs overseas lowers prices for consumers in this country.

“It is an economic fact of life that both businesses and their employees benefit when we sell more products overseas, and consumers enjoy a wider range of products at lower prices,” Jerry Jasinowski, former president of the National Association of Manufacturers, said in a recent statement.

But since NAFTA, which removed tariff barriers between the U.S. Canada and Mexico, went into effect in 1994, and Congress’ granting of permanent normal trade status to China in 2000, a key question has been how much have those decisions contributed to job losses at home.

Economists generally say that overall, trade creates more prosperity, and that displaced workers will find other work. But competition from China has meant the loss of 2.4 million jobs, according to a recent report by the National Bureau of Economic Research, a private nonprofit research group.

It pointed out that industries are often concentrated in certain parts of the country – the Midwest, for instance – and that local economies have not had the capacity to absorb those workers the Chinese competition has displaced.

Julie Granger, senior vice president of the Metropolitan Milwaukee Association of Commerce, said that in a global economy, the notion that “free trade encourages the loss of local jobs … is not always the most responsible way to look at it. If we are not engaged in the global economy, we will lose more jobs.

There’s no going back. It’s the same story in Milwaukee as it in other cities: many of lowest skilled jobs simply were disappearing.”

So is organized labor, long the backbone of the working class, a force in Wisconsin politics and a persistent critic of the trade deals. From 2014-2015, union membership as a percentage of the Wisconsin workforce fell to 8.3 percent from nearly 12 percent, according to the U.S. Bureau of Labor Statistics.

But organized labor has been under siege in Wisconsin for a while.  Take the General Motors plant in Janesville, Wis. GM wrung significant concessions out of the United Autoworkers to help keep the plant open. But the automaker closed it eventually anyway in 2009, putting 850 people out of work.”

The article quotes Roger Hinkle, Wisconsin AFL-CIO employment training specialist:

“Free traders always point to free trade being good for everybody.  There’s a mountain of victims who don’t have to look at some theoretical report to feel, Yes.  I was directly affected by this.“

The ironic point in this article, however, is the closure of Caterpillar.  Caterpillar is dependent on cheap steel as a raw material input, and they have been a major opponent of all the steel trade cases brought by the Union and US Steel because high prices for steel, their raw material input, makes them less competitive with companies, such as Komatsu, which have access to the lower cost steel.

As explained in more detail below, the recent decisions of the Commerce Department to impose large antidumping and countervailing duties on imports of steel from China and other countries has had an extremely negative impact on downstream US industries that use steel as a raw material input.

In fact, of the 130 outstanding antidumping and countervailing duty orders against China, over 80 of them are directed at raw material inputs—chemicals, metals and steel, which go directly into downstream US production and have a direct impact on their cost.  Raw Material trade cases rob Peter to pay Paul.

Although Congressional representatives and Senators do not care if trade protectionism causes consumer products to go up by a few dollars at Wal Mart, what happens if these higher duties on imports means that companies in their Districts and States have to close and the jobs are lost because the companies cannot compete in the downstream markets.

STEEL TRADE CASES

COLD ROLLED STEEL

On May 17, 2016, in the attached fact sheet, cold rolled, Commerce made a final dumping and countervailing duty determinations in the Cold-Rolled Steel Flat Products case from China and Japan cases.  Because the Chinese companies refused to cooperate in the investigation, they received an antidumping rate of 265.79% and a countervailing duty rate of 256.44%.  Japanese Steel was hit with an antidumping rate of 71.35 percent.

Commerce was able to hand down such high margins because the Chinese and Japanese respondents refused to cooperate with the Department allowing it to very high impose duties on the basis of adverse facts available on an expedited basis.  Chinese companies refused to cooperate because since the Commerce Department considers China a nonmarket economy country and refuses to use actual prices and costs in China to determine dumping, it is impossible to win the case.

On May 20, 2016, the Wall Street Journal issued an editorial entitled, “Obama Front-Runs Trump on China” stating:

“The Obama Administration may not sound like Donald Trump when talking about trade with China, but it isn’t above using protectionism for political gain.  On Tuesday the U.S. Commerce Department increased a tariff on “dumped” Chinese cold-rolled steel to 522%, a move that will hurt American manufacturers who need the steel to remain competitive.

The tariff may score some populist points with voters in an election year.  It also may be a ploy to get lawmakers to ratify the Trans-Pacific Partnership trade agreement before President Obama leaves office.  But past experience suggests that such gambits inflame protectionist sentiment rather than tamp it down.

President George W. Bush imposed tariffs of up to 30% on a broad range of Chinese steel products in 2002.  The Consuming Industries Trade Action Coalition says the tariffs cost the US economy 200,000 jobs and $4 billion in lost wages. . . . .

[Low Chinese steel prices are] good news for the U.S. Since steel is an important raw material for many industries, China’s trade partners benefit from its wasteful policies.  Lower prices make companies that use steel more competitive and bring down prices for consumers.

Daniel Pearson for the CATO Institute conservatively estimates that that American companies using steel produce $990 billion in value added, more than 16 times the output of the U.S. steel industry, and also employ 16 times more workers.  If tariffs on Chinese imports raise the U.S. price of steel, these companies’ costs will be higher than foreign competitors,’ hurting their ability to grow and provide more jobs for Americans.

The article goes on to complain that US Steel companies do not make the same range of products as Chinese companies and that the Cold Rolled determination “is a warm up for the fight over granting China market economy status in December.”

The Editorial concludes:

“The larger question is whether the steel tariffs herald a new and more bitter era of trade retaliation.  Previous skirmishes have been damaging but stopped short of full escalation.  But Mr. Trump and Hilary Clinton have run for President as protectionists, and Mr. Obama’s surrender to steel interests is a bad omen.”

CORROSION RESISTANT STEEL

On May 25, 2016, in the attached factsheet, factsheet-multiple-corrosion-resistant-steel-products-ad-cvd-final-052516, Commerce announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of corrosion-resistant steel products (CORE) from China, India, Italy, Korea; its affirmative final determination in the AD investigation of imports of CORE from Taiwan; and its negative final determination in the CVD investigation of imports of CORE from Taiwan.

Again, since the Chinese companies refused to cooperate because of the nonmarket economy status of China, Chinese companies received an antidumping rate of 209.97% and a countervailing duty rate of 241.07%.

Antidumping and Countervailing duty rates for market economy countries, however, were much lower with India dumping rates between 3 to 4% and countervailing duty rates between 8 to 29%.  Italy received rates of between 12 to 92%, Korea 8 to 47%, and Taiwan antidumping rate of 3.77% and 0% countervailing duty rate.  As market economy companies, Commerce must use actual prices and costs in those countries to calculated antidumping rates and to value subsidies.

On June 1, 2016, the Wall Street Journal in an article entitled “Steel Tariffs Create a Double-Edged Sword” reported that there is already an impact on downstream US production:

New tariffs on imports are boosting steel prices in the U.S., offering a lifeline to beleaguered American steelmakers but raising costs for manufacturers of goods ranging from oil pipes to factory equipment to cars. . . .

The Article goes on to state that the U.S. benchmark for “hot rolled coil index has risen more than 60% per ton” and that:

is creating problems for some steel buyers . . .

Steelcase Inc. Chief Executive James Keane said a tariff on a special kind of Japanese steel could cost one of its subsidiaries [Polyvision] $4 to $5 million a year . . . where it employs 200 people.  If nothing changes, we would have to close our Oklahoma plant.

The Article also reports that US “Car companies have been lobbying against steel tariffs.”

The problem with the Wall Street Journal Editorial and Article is that they assume President Obama has discretion not to impose the tariffs.  These cases were not brought under Section 201, the Escape Clause, which provides for Presidential approval or disapproval of the duties, but under the US antidumping and countervailing law where there is no discretion.  In contrast to most countries around the World, including Europe, Canada and yes China, the US antidumping and countervailing duty law do not have a public interest test.  Since the Chinese and Japanese companies did not cooperate, pursuant to the US antidumping and countervailing duty law, the Administration had no choice but to impose very high antidumping and countervailing duties on those imports.

If the US International Trade Commission (“ITC”) goes affirmative in its injury determination and by statute it cannot give any weight to arguments by downstream producers, antidumping and countervailing duty orders will be issued and those orders can stay in place for 5 to 30 years.

STEEL 337 STEEL CASE

On May 26, 2016, the ITC instituted the section 337 case against Chinese steel import.  In the attached notice, USITC Institutes 337 Steel Case, the ITC stated:

The investigation is based on a complaint filed by U.S. Steel Corporation of Pittsburgh, PA, on April 26, 2016.  The complaint alleges violations of section 337 of the Tariff Act of 1930 in the importation into the United States and sale of certain carbon and alloy steel products through one or more of the following unfair acts:  (1) a conspiracy to fix prices and control output and export volumes, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) the misappropriation and use of U.S. Steel’s trade secrets; and (3) the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).  The complainants request that the USITC issue a general exclusion order, a limited exclusion order, and cease and desist orders.

The last two counts of the notice are traditional issues subject to section 337 cases.  It is count 1 that raises the interesting issues.

The last time the ITC found a Section 337 violation based on an antitrust cause of action was in 1978 in Certain Welded Steel Pipe &Tube, No. 337-TA-29.  Although the ITC found a violation, the President vetoed the determination, in part, because of pressure from the Justice Department, antitrust division.

The antitrust cause of action, however, has not been eliminated from section 337.  Section 337 does not specifically define what is an antitrust violation, but presumably it should overlap the Sherman Act.  The US Steel compliant specifically references the Sherman Act.

Recently former U.S. International Trade Commission Chairman Daniel Pearson stated that this is the widest 337 complaint he has ever seen, but went on to state that a sudden closure of the U.S. market to foreign steel would have dire consequences for the domestic economy.  Pearson specifically stated:

“I don’t believe I’ve ever seen a 337 petition that is this broad. To me, it sounds a lot like overreach. There’s no way that I could see someone closing off all imports of steel into the U.S. and not have enormous effects on consumer welfare and other factors that are specified in the statute. I’m flummoxed by this.”

337 is broadly tailored to address “unfair methods of competition or unfair acts.” Still, Pearson speculated that the ITC may well reject the petition and informally advise U.S. Steel to more squarely focus its arguments on the trade secret prong.

The ITC, however, did not reject the petition and instituted the case.

Pearson’s concern about the case is the broad nature of the company’s desired remedy, the general exclusion order. He stated:

“U.S. Steel is not happy with imports, and they may have decided to just take this shot and see what happens.  I have no idea whether or not they think they will be successful; I would rather guess not.”

But to date US Steel has been successful.

My fear, however, is that Chinese steel companies will think that this is like an antidumping and countervailing duty case and they can choose not to cooperate.  Failure to cooperate in a 337 case could lead to a total exclusion order against every steel product produced by every single Chinese steel company that does not participate in the case and that exclusion order from the US market could be in place for up to 30 years.

The antitrust claim in the 337 case by its conspiracy claim has already expanded and brought every single Chinese steel company into the case and a refusal to cooperate in the investigation could well lead to their exclusion from the US market for years to come.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

On May 25, 2016, in the attached relevant pages of the attached petition, REVISED AMONIUM SULFATE PETITION, PCI Nitrogen, LLC filed an antidumping and countervailing duty case against ammonium sulfate from China.

JUNE ANTIDUMPING ADMINISTRATIVE REVIEWS

On June 2, 2016, Commerce published the attached Federal Register notice, JUNE REVIEW INVESTIGATIONS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of June. The specific antidumping cases against China are:  Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Rail Tie Wire, Prestressed Concrete Steel Wire Strand, Silicon Metal, and Tapered Roller Bearings.

The specific countervailing duty case is: High Pressure Steel Cylinders.

For those US import companies that imported :  Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Rail Tie Wire, Prestressed Concrete Steel Wire Strand, Silicon Metal, or Tapered Roller Bearings during the antidumping period June 1, 2015-May 31, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over.  Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.

While in China recently, I found so many examples of Chinese solar companies or US importers, which did not file requests for a review investigation.  In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court and through a Court determination the Chinese companies lost their separate rates.  Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December.

CUSTOMS

FALSE CLAIMS ACT

On April 27, 2016, in the attached news release, california-based-z-gallerie-llc-, the Justice Department announced that Z Gallerie LLC agreed to pay $15 million to resolve allegations that the company engaged in a scheme to evade antidumping duties on imports of wooden bedroom furniture from the People’s Republic of China (PRC), in violation of the False Claims Act.  The relator , the private company that reported the fraud, will obtain $2.4 million of the $15 million.  As the Justice Department stated in its release:

“This settlement reflects the Department of Justice’s commitment to ensure that those who import and sell foreign-made goods in the United States comply with the law, including laws meant to protect domestic companies and American workers from unfair competition abroad,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will zealously pursue those who seek an unfair advantage in U.S. markets by evading the duties owed on goods imported into this country.” . . .

The particular duties at issue in this case are antidumping duties, which protect domestic manufacturers against foreign companies “dumping” products on U.S. markets at prices below cost.  Imports of wooden bedroom furniture manufactured in the PRC have been subject to antidumping duties since 2004.

The settlement announced today resolved allegations that Z Gallerie evaded antidumping duties on wooden bedroom furniture imported from the PRC from 2007 to 2014, by misclassifying, or conspiring with others to misclassify, the imported furniture as pieces intended for non-bedroom use on documents presented to CBP.  For example, Z Gallerie allegedly sold certain Bassett Mirror Company products, including a six-drawer dresser and three-drawer chest, as part of a bedroom collection; however, these goods were misidentified on CBP documents, using descriptions such as “grand chests” and “hall chests,” in order to avoid paying antidumping duties on wooden bedroom furniture. . . .

“Under the new Trade Facilitation and Trade Enforcement Act, CBP will likely see an increase in these types of settlements as the streamlined processes take effect concerning allegations of duty evasion,” said CBP Commissioner R. Gil Kerlikowske. “The Act reinforces CBP’s existing authorities and tools to collect and investigate public allegations of duty evasion improving the overall effectiveness and enforcement of CBP law enforcement actions concerning illicit trade activity, specifically in the area of antidumping and countervailing duty evasion schemes.”

“Companies that intentionally mislabel shipments or misrepresent the value of goods being imported into the United States to avoid paying the appropriate duties do so in an attempt to create an unfair advantage over businesses that play by the rules,” said Special Agent in Charge Nick S. Annan of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE HSI) in Atlanta.  “This type of activity hurts legitimate U.S. businesses and, by extension, our overall national economy.  Uncovering these types of schemes will continue to be a major investigative priority for ICE HSI.”

The allegations resolved by the settlement were originally brought by whistleblower Kelly Wells, an e-commerce retailer of furniture, under the qui tam provisions of the False Claims Act.  The act permits private parties to sue on behalf of the United States those who falsely claim federal funds or, as in this case, those who avoid paying funds owed to the government or cause or conspire in such conduct.  The act also allows the whistleblower to receive a share of any funds recovered.  Wells will receive $2.4 million as her share of the settlement.

IP/PATENT AND 337 CASES

NEW SECTION 337 CASES FILED AGAINST CHINA

On May 5, 2016, Aspen Aerogels Inc. filed a Section 337 case against Composite Aerogel Insulation Materials and Methods for Manufacturing from China.  The proposed respondents are: Nano Tech Co., Ltd.,  China and Guangdong Alison Hi-Tech Co., Ltd., China.

On May 19, 2016, Intex Recreation Corp. and Intex Marketing Ltd. filed a new section 337 case against imports of Inflatable Products and Processes for Making the Same from China.  The respondent companies in China and Hong Kong are Bestway (USA) Inc., Phoenix, Arizona; Bestway Global Holdings Inc., China; Bestway (Hong Kong) International Ltd., Hong Kong; Bestway Inflatables & Materials Corporation, China; and Bestway (Nantong) Recreation Corp., China.

Complaints are available upon request

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

Best regards,

Bill Perry

US CHINA TRADE WAR–WEAK FREE TRADE ARGUMENTS CREATE PROTECTIONISM AND PROBABLE DEMISE OF TPP, STEEL, ANTIDUMPING REVIEWS AND NEW 337 CASE

White House Night Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 19, 2016 UPDATE

Dear Friends,

The ITC has released its report on the Trans Pacific Partnership and a new 337 cases have been filed against US importers and Chinese companies on inflatable devices.

Best regards,

Bill Perry

ITC RELEASES TPP REPORT

On May 18, 2016, The US International Trade Commission (“ITC”) released its attached report on the Trans Pacific Partnership Agreement (“TPP”), ITC TPP REPORT.  The Main Findings of the ITC Report are set forth below.  The Report was a mixed bag finding that the overall US economy would grow by 0.23% by $57.23 billion by year 15 of the Agreement (2032) with agriculture being the biggest winner followed by services with a modest increase in employment.  But the ITC report also found that manufacturing, natural resources and the energy sectors would lose business by $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

But the major gains with the TPP are in the other areas with the ITC finding that “the two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services.  . . .”

Outside Parties emphasized:

“the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.”

With the release of the ITC TPP Report, the Congress is free to take up the passage of the TPP.  U.S. Trade Representative Michael Froman stated that the ITC’s report will be just one of the arguments the Administration will use to push Congress to vote on the ratification of the agreement before President Barack Obama leaves office.  Froman specifically stated:

“The ITC report provides another strong argument for why TPP should be passed this year. It is part of a growing body of evidence that shows that TPP will benefit our economy at home and allow the U.S. to help set the rules of the road for trade in the Asia Pacific.”

Although Congressional experts originally indicated a possibility of taking the TPP up during the summer, the strong protectionist tide in the Presidential Election has prompted many experts both in and out of Congress to predict that the lame-duck session of Congress following the November elections as the first real opportunity for Congress to consider the TPP.

In a conference call with reporters, however, Froman revealed that USTR is moving forward with an expedited implementation of the TPP to make sure that the 11 other nations in the agreement are ready to comply with its terms as soon as the Agreement takes effect.  Usually the implementation process does not begin until the deal is ratified, but as USTR Froman states:

“We’ve begun an accelerated implementation process to be sure that we can give members of Congress the confidence they need that by the time the agreement enters into force that our trading partners will have fully complied with the terms of the agreement and that their constituents will get the full benefit of the deal.”

The ITC’s Report Main Findings are:

“The Commission used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP. The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy. By year 15 (2032), U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, and employment would be 0.07 percent higher (128,000 full-time equivalents). U.S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections. U.S. exports to new FTA partners would grow by $34.6 billion (18.7 percent); U.S. imports from those countries would grow by $23.4 billion (10.4 percent).

Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections; output would be $10.0 billion, or 0.5 percent, higher by year 15. The services sector would benefit, with a gain of $42.3 billion (0.1 percent) in output. Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

Many stakeholders consider two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services, and vital to optimizing the global operations of large and small U.S. companies in all sectors.

TPP would generally establish trade-related disciplines that strengthen and harmonize regulations, increase certainty, and decrease trade costs for firms that trade and invest in the TPP region. Interested parties particularly emphasized the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.

NEW SECTION 337 CASE FILED AGAINST CHINA

On May 19, 2016, Intex Recreation Corp. and Intex Marketing Ltd. filed a new section 337 case against imports of Inflatable Products and Processes for Making the Same from China.  The respondent companies are in China and Hong Kong.  Please see relevant notice below:

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 Inflatable Products and Processes for Making the Same. The proposed respondents are: Bestway (USA) Inc., Phoenix, Arizona; Bestway Global Holdings Inc., China; Bestway (Hong Kong) International Ltd., Hong Kong; Bestway Inflatables & Materials Corporation, China; and Bestway (Nantong) Recreation Corp., China.

If anyone wants a copy of the complaint, please feel free to contact me.

US CHINA TRADE WAR MAY 12, 2016 BLOG POST

Dear Friends,

As mentioned in my last blog post, as of May 1, 2016, I am no longer at the Dorsey law firm.  The transition is complete and my new law firm is Harris Moure, here in Seattle and my new e-mail address is bill@harrismoure.com.  The US China Trade War blog and newsletter are now coming from Harris Moure.

As also mentioned, Dan Harris, my partner, has a very famous blog, www.chinalawblog.com, which is followed by many companies that are interested in doing business in and with China.  Dan is determined to enlarge my readership so he is pushing me to write more smaller articles and take long articles, such as those on the TPP and the rise of protectionism in the US, and make them a series.

In that light, set forth below is the first of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the probable demise of the TPP.  The first article will outline the problem and why this is such a sharp attack on the Trans Pacific Partnership and some of the visceral arguments against free trade.  The second article will explore in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders and the weak free trade arguments to counter the protectionism.  The final article will focus on the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that the United States can return to its leadership in the Free Trade area.

The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.

In addition, set forth are several developments involving steel trade litigation, antidumping and countervailing duty reviews against Chinese companies and a new 337 patent case against Chinese companies.

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

Best regards,

Bill Perry

WEAK FREE TRADE ARGUMENTS CREATE THE RISE OF TRUMP/SANDERS PROTECTIONISM AND PROBABLE DEMISE OF TRANS PACIFIC PARTNERSHIP (“TPP”)

Three weeks ago former Democratic Congressman Don Bonker, a good friend, told me “The TPP is dead”.  Don has always been very skeptical that the Trans Pacific Partnership (“TPP”) would pass Congress.

Don also believes Hilary Clinton will beat Trump in a landslide, and the Democrats will take both the Senate and the House.  Although Clinton may win, I do not believe that it will be a blowout and do not believe the Republicans will lose both the Senate and especially the House.

Don told me he did not know one person voting for Trump.  My 95 old mother voted for Trump in the Massachusetts primary because as a former Republican state committeewomen, she saw a groundswell of Trump support from Democrats, with many, such as her hairdresser, asking “how do I become a Republican to vote for Trump”.  The last time she saw that was 1980 when Reagan won the Presidency and took Massachusetts.  In fact, the Massachusetts Registry of Voters has reported 100s of thousands of Democrats switching parties to vote for Trump.  Massachusetts is a very, very Blue Democratic state.

Another good friend, a Oregon factory owner, told me he is voting for Trump and all of his friends are voting for Trump.  A recent Quinnipac poll has Trump and Clinton in a dead heat in the three crucial swing states—Florida, Ohio and Pennsylvania.

This is momentum and the momentum at the present time is with Trump.  With momentum Trump will be able to expand his base, but it is questionable whether Clinton can do so.

But it is the second point of Don’s argument that is of interest to this audience.  If the Democrats take the Congress, he firmly believes the US will become much more protectionist because of the Democratic relationship to the labor unions.  All the labor unions are opposed to the TPP.

So the Democrats are becoming even more protectionist as well as the Republicans under Donald Trump.  This is a huge groundswell of US protectionism on both sides of the political equation, which could very well kill the TPP and move the United States down a very protectionist path.

On the Republican side, Trump himself has condemned the TPP and in Cosa Mesa, California and subsequent speeches stated that in a Trump Administration there will be no free trade agreements.  In fact, in an April 28, 2016 editorial on Trump’s recent Foreign Policy speech, the Wall Street Journal’s one sharp disagreement with Trump is his trade policy:

“Mr. Trump’s threats of trade wars with China, Mexico and Japan may please nationalists, but such brinkmanship could well provoke another global recession.  American interests must come first but the trade-offs are inevitably complex Republican and Democratic Presidents since the 1930s have concluded that trade is a net benefit to the economy. . . .”

In an April 27, 2016 article in the Wall Street Journal entitled “How Trump Killed Reaganism”, William Galston states:

Economic issues were secondary, which permitted business-oriented Republican elites to dominate their party’s economic agenda with free trade, a welcoming immigration policy and efforts to “reform”—that is, cut—major entitlement programs. As late as George W. Bush’s second term, these concerns remained paramount.

With the onset of the Great Recession, however, the alliance between the white working class and business elites began to fray. Workers blamed trade for the loss of millions of manufacturing jobs, and blamed immigrants for declining wages as well as for rising welfare expenditures and social disorder. Amid rising economic uncertainty, these voters were in no mood to put their remaining sources of economic reassurance—Social Security and Medicare—on the chopping block. “Limited government” meant cutting programs for the undeserving poor, not for working- and middle-class households.

Enter Donald Trump, who proposes to turn Reaganism on its head.  . . . Mr. Trump rejects current trade treaties as bad bargains struck by inept U.S. negotiators and paints immigration as an assault on American workers and society itself.

So it has come to this: A mercantilist isolationist is the odds-on favorite to win the Republican presidential nomination. Whether or not he goes on to win the general election, the Republican Party cannot return to what it once was.

The Reagan era has ended, and what comes next is anyone’s guess.

With the Indiana primary, Trump consolidated his position as the nominee for the Republican party, but what about Bernie Sanders on the Democratic side?  He won the Indiana primary and recently the West Virginia primary.  In response to my last article on the Trump Impact on Trade Policy, one Canadian exporter/US importer contacted me to say that Trump’s position on international trade is why it is better to support Senator Bernie Sanders:

I read your interview on LinkedIn about the Trump effect on International trade if he becomes President.  It was short, and sweet and pretty well summed up most people’s feelings who are in business.  We debate both him and Bernie Sanders up here in Canada and find it all fascinating.  The people who are supporting Trump would actually be better served supporting Sanders for his beliefs, with his policies better serving the “less” educated.  Trumps policies will bury his followers and they don’t seem to grasp it at all.  Protectionism is SO PASSE it’s scary they are even discussing it.

The e-mail illustrates an important problem with the Bernie Sanders alternative.  When it comes to international trade, Donald Trump and Bernie Sanders are two peas in a pod.  Frankly, on trade Bernie Sanders may be more protectionist than Donald Trump.  Why??

Trump has said that when he talks about high tariffs on Chinese imports, that is only a threat, a bargaining ploy to get better leverage in any negotiation with China and other countries.  Thus during the Florida debate Donald Trump clarified his stance on increased tariffs for foreign goods, stating that he would consider massive hikes as “threats” designed to force China and other countries to “behave.”

In the Florida debate, Trump specifically called the 45 percent “tax” on Chinese imports a threat:

It was not a tax, it was a threat. It will be a tax if they don’t behave. Take China as an example. I have many friends, great manufacturers, they want to go into China. They can’t. China won’t let them. We talk about free trade. It’s not true free trade, it’s stupid trade.

Trump went on to state that China is dumping its goods into the US market with “no tax, no nothing, no problems.” Trump further argued that U.S. manufacturers cannot get into the Chinese market:

I have the best people, manufacturers, they can’t get in. When they get in, they have to pay a tremendous tax.  If [China and other countries] don’t follow the rules and regulations so that we can have it equal on both sides, we will tax you. It doesn’t have to be 45, it could be less. But it has to be something because our country and our trade and our deals and most importantly our jobs are going to hell.

On the Democratic side, Bernie, who wants to keep labor union support, is not making threats.  In fact, Bernie Sanders on trade is just as protectionist, if not more protectionist than Donald Trump as illustrated on his Presidential website, which states, in part:

Bernie Sanders believes that the top priority of any trade deal should be to help American workers. Unfortunately, as Bernie has warned year after year, American trade policy over the last 30 years has done just the opposite. Multinational corporations – who have helped to write most of these trade deals – have benefited greatly while millions of American jobs have been shipped overseas.

American trade policy should place the needs of American workers and small businesses first.

Bernie’s strong opposition to destructive “free trade” deals began with NAFTA in 1993. . . .    As with NAFTA, Bernie warned in 2000 that Permanent Normal Trade Relations with China would help multinational corporations at the expense of workers and the environment. ….

The TPP follows in the footsteps of the previous pro-corporate trade deals. It lacks safeguards to protect American jobs and the environment while giving massive benefits to large multinational corporations. . . .

Bernie has stated repeatedly that his top priority is making sure that all Americans have access to good paying jobs. For this reason he has been a leader in Congress in the fight against the free trade agreements that have been negotiated over the past three decades. Bernie’s passionate warnings against these deals have, unfortunately for American workers, all been proven right as these trade deals have offshored a massive amount of decent paying jobs and have closed tens of thousands of factories across our country. . . .

Why is Bernie against most trade agreements?

He believes that free trade agreements like NAFTA, Permanent Normal Trade Relations with China, and the U.S.-Korea Free Trade Agreement have allowed too many American jobs to move overseas. . . .

As he said in 1993 on the House floor before voting against it, “NAFTA may be a good deal for the people who own our corporations, but it is a bad deal for American workers, for our family farmers, and it is bad for the environment.”

And Bernie is nothing if not consistent. Here he is over 20 years later warning against the Trans-Pacific Partnership:

“Let’s be clear: the TPP is much more than a “free trade” agreement. It is part of a global race to the bottom to boost the profits of large corporations and Wall Street by outsourcing jobs; undercutting worker rights; dismantling labor, environmental, health, food safety and financial laws; and allowing corporations to challenge our laws in international tribunals rather than our own court system.

With regard to trade with China, Bernie Sanders states on his Presidential website:

Bernie firmly believes that current trade relations with China are detrimental to job growth and wealth equality in the United States. Referring specifically to the 2015 Trans-Pacific Partnership [which does not include China], Bernie has decried trade deals with China as being “designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy.” . . .

Time and time again, Bernie has voted against free trade deals with China. In 1999, Bernie voted in the House against granting China “Most Favored Nation” status. In 2000, Bernie voted against Permanent Normal Trade Relations with China which aimed to create jobs, but instead lead to the loss of more than 3 million jobs for Americans.

“Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider is due to our disastrous unfettered free trade policy.” . . .

With these statements, Bernie Sanders sounds just like Donald Trump.  To see Bernie Sanders in action on trade, see his statements on the Senate floor against the Trans Pacific Partnership and China.  See http://feelthebern.org/bernie-sanders-on-trade/ and http://feelthebern.org/bernie-sanders-on-china/.

In his China speech, just like Senator Sessions, who advises Donald Trump on trade, Sanders confuses normal trade relations with China with a Free Trade Agreement, stating that PNTR was a free trade agreement with China.  When the US gave normal trade relations with China, it did not set up a Free Trade Agreement with China.  Permanent Normal Trade Relations (“PNTR”) only means that China is treated like all other countries, such as Iran, Syria, Russia, Ukraine and many other countries.  There is no unfettered free trade agreement with China.

Both the Democrats and the Republicans have now made international trade and free trade agreements one of the burning issues in the Presidential election.  On March 10, 2016, CNN Reporter Stephen Collinson in an article entitled, “How Trump and Sanders tapped America’s Economic Rage” stated:

Finally, somebody is listening. Donald Trump and Bernie Sanders might be poles apart in their politics and temperament, but they are voicing visceral feelings of economic disenfranchisement and alienation among pessimistic voters who feel they’ve been ignored for years.

The billionaire and the democratic socialist are in different ways speaking for vast populations of Americans who feel threatened by globalization, who question the benefits of “free trade” that political leaders have peddled for decades and who believe distant elites control the economy in ways detrimental to their lives and prospects.

It is turning out to be a potent electoral brew –which has lifted insurgent candidates like Trump and Sanders throughout the 2016 cycle and challenged foes like Hillary Clinton and establishment Republicans who have found it tougher to reconcile the grass-roots anger. . . .

Trump’s message is explosive, identifying culprits in what he sees as the corrupt cabal of Washington politicians and supposedly sinister outsiders, like illegal immigrants, job-stealing Chinese firms or tough negotiators who run rings around effete U.S. officials in places like Vietnam and Japan. To his backers, he is the fiercest shark in a global pool who, if nothing else, will have the rest of the world again fearing America’s bite. . . .

The story was similar on the Democratic side, where 57% of Democratic voters in Michigan said trade takes away U.S. jobs. Among people who thought so, Sanders was the most popular candidate.

“I think the key to him winning in Michigan was his clear message on the trade policies,” Sanders campaign manager Jeff Weaver told CNN . . . . “Michigan is a state that has been devastated by bad trade deals. He has opposed every one and Secretary Clinton has supported almost every one. People in Michigan know what the real impact of that is.”

But Sanders has established a narrative difficult to counter. His approach to Americans’ anxieties is to offer a “political revolution,” one that would rewrite the rules of the American economy — and the global one — according to a much more progressive blueprint.

His denunciations of Wall Street “oligarchs” and complaints of a “rigged” economy and a “corrupt” campaign finance system play into the feelings of his supporters that they are powerless to address the worsening conditions of their lives.

He hammers NAFTA and pacts with China, that have boosted global trade flows, fed America’s addiction for cheap goods from abroad, but also left a trail of victims in industrial states where the manufacturing base just could not compete with the low-wage rising economies of Asia and elsewhere.

And Clinton has also yet to come up with an effective riposte to assaults by Sanders on her paid speeches to Wall Street firms after she stepped down as secretary of state.

The Sanders win in Michigan has some of his supporters sensing that a campaign that seems inexorably trending away from him may at least thrive through the journey through primaries in Rust Belt states like Pennsylvania, Illinois and Wisconsin that often turn on blue-collar issues.

And even if he cannot catch Clinton, Sanders can take credit for dragging her to her left on economic questions, as she now speaks in her stump speech about the need to make hollowed out American communities “whole” again. . . .

To see the entire article, see http://www.cnn.com/2016/03/09/politics/sanders-trump-econom… 3/11/2016

Although it is certain that Hilary Clinton will win the Democratic nomination, Bernie Sanders has forced Clinton to move to the left and take a much tougher stance on international trade.  There is talk that Hilary may take Senator Sherrod Brown of Ohio, as her Vice President, a  very strong protectionist, who is viscerally opposed to the TPP.

The hot protectionist rhetoric of Donald Trump and Bernie Sanders have made international trade one of the center points of the election.  The simple truth is that when weak academic, theoretical economic arguments for free trade meet the hard visceral arguments of bombed out US factories and the loss of millions of manufacturing jobs, the free trade arguments melt away.

On March 15, 2016, the New York Times in an article entitled, “On Trade, Angry Voters Have a Point” stated:

Were the experts wrong about the benefits of trade for the American economy? . . .

Voters’ anger and frustration, driven in part by relentless globalization and technological change, may not propel either candidate to the presidency. But it is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true:  The benefits from trade to the American economy may not always justify its costs. . . .

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs. . . .

The Chinese export onslaught, however, left a scar on the American working class that has not healed. That disproportionate impact suggests Washington officialdom might do well to reassess its approach to future trade liberalization. . . .

Perhaps most important, the new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue-collar workers if they are not going to provide a stronger safety net.

That might have been justified if the distributional costs of trade were indeed small and short-lived. But now that we know they are big and persistent, it looks unconscionable.  (emphasis added.)

One of the reasons for the sharp rise in protectionism is the weak safety net, trade adjustment assistance, especially trade adjustment assistance for companies, which will be discussed in follow-up articles on this topic,

On March 15, 2016, Phyllis Schafly, a well-known Republican pundit, stated on Invstors.com that the Republican candidates are turning against trade deals, stating:

The first question asked of the presidential candidates at the most recent Republican debate, hosted by CNN in Miami on March 10, was “whether trade deals have been good for the American workers.”

Moderator Jake Tapper observed that one of Donald Trump’s “signature issues” has been his criticism of “disastrous trade deals” that have destroyed many good middle-class jobs that existed a generation ago. . . .

Ohio Gov. John Kasich likes to remind everyone that he “grew up in a blue collar family,” but votes he cast during his 18 years in Congress helped to decimate the manufacturing base of his home state. Kasich voted for the North American Free Trade Agreement in 1994, and in 2000 he voted to grant the “normal” trading privileges, which allowed China to enter the World Trade Organization. . . .

Sen. Ted Cruz once voted in favor of presidential trade authority before reversing himself on the subsequent vote last year. Cruz now says he opposes the TPP, but Congress has never rejected a trade deal after giving the president the authority to negotiate it.

“I am different in one primary respect, and that’s trade,” Trump insisted in the debate, explaining that “trade deals are absolutely killing our country.” He has proposed tariffs to offset abusive practices such as currency devaluation by “certain countries that are taking advantage of the United States and laughing at our stupidity.” . . . .

According to the 200-year-old theory of free trade, workers who lose manufacturing jobs to China should be able to find new jobs in other industries that benefit from a trade surplus, such as the pharmaceutical industry, or in non-tradable industries such as medicine and legal services. But millions of these workers, many of whom are men struggling to support their families, have not found adequate replacement jobs.

Some settle for lower-paying jobs, while others give up entirely, creating a social issue as well as an economic one. The percentage of men between 25 and 54 years old who are not employed has tripled in the last half century, and many who had been working at $40-per-hour manufacturing jobs are now receiving only $10-per-hour jobs at Wal-Mart or fast-food joints. . . .

In the general election in November, there will be millions of voters ready to cast their ballots for a candidate who stands up for American workers rather than catering to lobbyists who seek free-trade deals.

Pat Buchanan, a well-known Republican conservative, who also ran for the Presidency, stated in an April 4, 2016 commentary entitled  “What Trump has Wrought,” states:

But this city of self-delusion should realize there is no going back for America. For, whatever his stumbles of the last two weeks, Trump has helped to unleash the mightiest force of the 21st century: nationalism. Transnationalism and globalism are moribund.

Buchanan further states that Trump’s first issue is illegal immigration and building a wall along the Southern border to keep illegal immigrants out, but then goes on to state:

If immigration is the first issue where Trump connected with the people, the second is trade.  Republicans are at last learning that trade deficits do matter, that free trade is not free. The cost comes in dead factories, lost jobs, dying towns and the rising rage of an abandoned Middle America whose country this is and whose wages have stagnated for decades.

Economists who swoon over figures on consumption forget what America’s 19th-century meteoric rise to self-sufficiency teaches, and what all four presidents on Mount Rushmore understood.

Production comes before consumption. Who owns the orchard is more essential than who eats the apples. We have exported the economic independence Hamilton taught was indispensable to our political independence. We have forgotten what made us great.

China, Japan, Germany – the second, third and fourth largest economies on earth – all owe their prosperity to trade surpluses run for decades at the expense of the Americans. . . .

Patriotism, preserving and protecting the unique character of our nation and people, economic nationalism, America First, staying out of other nation’s wars – these are as much the propellants of Trumpism as is the decline of the American working and middle class.

Trump’s presence in the race has produced the largest turnout ever in the primaries of either party. He has won the most votes, most delegates, most states. Wisconsin aside, he will likely come to Cleveland in that position.

If, through rules changes, subterfuge and faithless delegates, party elites swindle him out of the nomination, do they think that the millions who came out to vote for Trump will go home and say: We lost it fair and square?

Do they think they can then go back to open borders, amnesty, a path to citizenship, the Trans-Pacific Partnership and nation building?

Whatever happens to Trump, the country has spoken. And if the establishment refuses to heed its voice, and returns to the policies the people have repudiated, it should take heed of John F. Kennedy’s warning: “Those who make peaceful revolution impossible, make violent revolution inevitable.”

For full article, see http://www.wnd.com/2016/04/what-trump-has-wrought/

The point is that both political wings of the the United States are becoming very protectionist in response to strong pressure from US voters.  On the right, Donald Trump, who is now the presumptive nominee of the Republican party, is firmly against all trade agreements, including the TPP.  On the left, Bernie Sanders in many ways is more protectionist than Trump and has succeeded in pulling Clinton to a much more protectionist position.

Understand that one reason newspapers, such as the Wall Street Journal, are attacking Trump on trade is that the Republican party traditionally has been very free trade, while the Democratic party, which relies on labor union support, has been much more protectionist.  The only reason that the TPP was completed is because Trade Promotion Authority was enacted into law last summer in 2015.  The only reason TPA passed the Congress is that the Republicans won both the Senate and the House.

Prior to the election, Senator Harry Reid, who heads the Democrats in the Senate, blocked all the trade bills, including the TPA, from coming to the Floor of Congress.

So to my liberal friends who think that Bernie Sanders would be more free trade than Donald Trump and the Republicans, that is simply not the fact.

Sanders has succeeded in pushing Hilary to be more protectionist and that is not good for the passage of the TPP. As John Brinkely of Forbes predicted several months ago, in a Presidential year with regards to the TPP, anything can happen and it has.  The United States is becoming much more protectionist.

Bill Reinsch, president of the National Foreign Trade Council, which has been a driving force for trade liberalization for over 100 years, recently stated:

There are always winners and losers in trade deals, but the losses tend to be short-term and specific while the gains are usually long-term and diffuse.  So you’ve got a growing mass of cranky, alienated voters.

Daniel Ikenson, director of the free market oriented Cato Institute’s Center for Trade Studies, recently stated:

It’s almost like there’s a reckoning coming due here.  The base of the Republican party is really growing increasingly skeptical of trade and Trump is the perfect demagogue to tap into that sentiment and magnify the concerns.

The next article in this series will deal first with the visceral gut wrenching arguments against free trade and the weak free trade arguments in response.  The article after that will deal with the probable demise of the TPP and finally the solution to the trade crisis, truly creating a safety net to help companies and workers adjust to import competition.  Only when there is a true safety net will the dialogue on free trade change.

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.

NEW STEEL ANTIDUMPING AND COUNTERVAILING DUTY CASE

On April 8, 2016 Arcelormittal USA LLC, Nucor Corp., and SSAB Enterprises LLC filed a new antidumping and countervailing duty case against imports of Certain Carbon and Alloy Steel-Cut-To-Length Plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, Korea, South Africa, Taiwan and Turkey.

APRIL 12 AND 13 USTR COMMERCE HEARINGS ON STEEL

On April 12, 2016, at a hearing in Washington DC members of Congress, union representatives and steel executives pushed the United States Trade Representative (“USTR”) to initiate antidumping proceedings at the Commerce Department against huge imports of subsidized and antidumping Chinese steel imports arguing that the administration needs to step in to protect domestic industry.

At the present time, however, there are very few major Chinese steel products not blocked by US antidumping and countervailing duty measures.  Preliminary determinations have been issued against galvanized and cold-rolled steel from China with very high antidumping and countervailing duty rates against both products, wiping them out of the US market.  Many, many Chinese steel products from China are currently covered by an antidumping (“AD”) order and often also a countervailing duty (“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.

Despite 100s of outstanding AD and CVD orders against steel imports from China and other countries, the American steel market has shrunk to 86 million tons of production, competing against the more than 100 million tons China exports, out of 1.2 billion tons of total production.  But most of that Chinese steel was exported to other countries and third country imports from countries, such as Korea, Taiwan, India, and other countries, with low if not 0%, antidumping and countervailing duty rates are entering the United States.

Leo Gerard, president of the United Steelworkers, said the best way to save the American steel industry is for the Obama administration to step out publicly and get involved in initiating antidumping proceedings.

Although transshipment has been a substantial problem, if legitimate importers are involved, they expose themselves to criminal prosecution for Customs fraud.  US Customs law is certainly not a toothless as it is portrayed.

Sen. Amy Klobuchar, D-Minn., also urged the Commerce Department and Department of Homeland Security to step up enforcement at the nation’s ports, including increased inspections and possibly turning away ships carrying illegally subsidized steel.

U.S. Trade Representative Michael Froman, in opening statements as well as questions to the panelists, pointed to more than $1 billion in recent U.S. exports of steel products and touted the 149 current AD and CVD orders against imported steel, $900,000 in seizures for flouting those duty orders and a 10 percent increase in Commerce Department staff to work on unfair trade practice proceedings.

Democratic Senator Sherrod Brown of Ohio, Hilary Clinton’s possible running mate, urged the administration to support a section 201 petition if brought by a segment of the steel industry, which he said should lead to quick imposition of “appropriate” tariffs.  Steel pipe and tube producers seem to be most interested in the section 201 option. Other steel industry segments see it as too uncertain, given that the World Trade Organization has overturned all but one global safeguard the U.S. imposed in the past, including the 2001 section 201 steel case.

Senator Brown raised another option: WTO cases against China’s overcapacity, which appears to refer to a challenge claiming that the exports of its excess capacity driven by subsidies are undercutting or depressing the price of steel in the World market. “The only way to address this is with a WTO case,” Brown said. “China is in violation of its WTO obligations.”

NEW SECTION 337 UNFAIR TRADE CASE AGAINST ALL CHINESE CARBON ALLOY STEEL COMPANIES AND ALL STEEL PRODUCTS FROM CHINA

As mentioned in the last newsletter, on April 26, 2016, US Steel Corp filed a major 337 unfair trade case against all the Chinese steel companies seeking an exclusion order to bar all imports of carbon and alloy steel from China.

U.S. Steel Corp. is accusing Chinese steel producers and their distributors of conspiring to fix prices, stealing trade secrets and false labeling to avoid trade duties.  It is asking the U.S. International Trade Commission (“ITC”) to issue an exclusion order excluding all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported steel that has already been imported into the United States.

Having worked at the ITC on 337 cases and later in private practice, section 337 is generally aimed at imports that infringe intellectual property rights, such as patents, trademarks or copyrights.  Moreover, one provision of section 337(b)(3) provides that when any aspect of a section 337 case relates to questions of dumping or subsidization, the Commission is to terminate the case immediately and refer the question to Commerce.

Also in the past when section 337 was used to bring antitrust cases, there was intense push back by the Justice Department.  Customs and Border Protection also may not be happy with the use of section 337 to enforce US Custom law.

But section 337 cases are not antidumping and countervailing duty cases.  There are no mandatory companies and lesser targets.  All the Chinese steel companies are targets, and this will be intense litigation with very tight deadlines.  If the individual Chinese steel companies do not respond to the complaint, their steel exports could be excluded in 70 days to six months.  Section 337 cases are hard- nosed litigation on a very fast track.

If you are interested in a copy of the complaint, please feel free to contact me.

On April 27, 2016, the Chinese Ministry of Commerce (“MOFCOM”) urged the ITC and US government to reject U.S. Steel’s request to ban all imports from China’s biggest steel mills over allegations of price-fixing and trade-secret theft.

MOFCOM stated that U.S. Steel’s request for an investigation under Section 337 of the Tariff Act was better suited for intellectual property disputes than for commodities like steel. The country said the complaint should be dismissed in favor of “dialogue, communication and joint efforts to address the problem of excess capacity” in the steel market.

UNION FILES SECTION 201 CASE ON ALUMINUM, BUT THEN WITHDRAWS IT 

As mentioned in my last blog post, on April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against aluminum imports from all countries at the US International Trade Commission (“ITC”).

But after intense pressure from the US Aluminum producers, on April 22nd the Union withdrew the petition.  Apparently, the US Aluminum producers have production facilities in Canada and also part of the Union was in Canada and not happy with the case.

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 2, 2016, Commerce published the attached Federal Register notice, REVIEWS MAY 2016, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. The specific antidumping cases against China are:  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents.

The specific countervailing duty cases are: Aluminum Extrusions and Citric Acid and Citrate Salt.

For those US import companies that imported :  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents during the antidumping period May 1, 2015-April 30, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over.  Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.

Recently, there are many examples of Chinese solar companies or US importers, which did not file requests for a review investigation.  In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court.  Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December 2015.

NEW 337 CASE AGAINST CHINA

On May 5, 2016, Aspen Aerogels Inc. filed a 337 patent case at the ITC against imports of Composite Aerogel Insulation Materials and Methods for Manufacturing from China against Nano Tech Co., Ltd. and Guangdong Alison Hi-Tech Co., Ltd. In China.

If anyone wants a copy of the complaint, please feel free to contact me.

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

Best regards,

Bill Perry

William E. Perry

Attorney

600 Stewart Street, Suite 1200
Seattle, Washington  98101
tel: 206.224.5657 – fax: 206.224.5659
cell: 206.235.4175
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US CHINA TRADE WAR–Trump, Trade Policy, NME, TPP, Trade, Customs, False Claims, Products Liability, Antitrust and Securities

Jefferson Memorial and Tidal Basin Evening at Cherry Blossom TimTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MARCH 11, 2016

MOVING TO NEW LAW FIRM, HARRIS MOURE

Dear Friends,

Have not been able to send out a new newsletter in April because we are in the process of moving to a new law firm.  As of May 1, 2016, I will no longer be at the Dorsey law firm. Dorsey will continue to represent clients in international trade and customs matters but will no longer be handling antidumping, countervailing duty, section 201, escape clause and other similar trade regulation cases.

My new law firm is Harris Moure, here in Seattle and my new e-mail address is bill@harrismoure.com.  The US China Trade War blog and newsletter will be coming with me, but coming from my new firm.

Although will miss my Dorsey friends, I am looking forward to Harris Moure, which can be found at http://www.harrismoure.com/.  With a Beijing office and lawyers that can speak fluent Chinese, the Harris firm is well known for helping US and other foreign companies move to China to set up manufacturing operations.  Dan Harris has a very famous blog, http://www.chinalawblog.com/, which is followed by many companies that are interested in doing business in and with China.

In addition, set forth are two major developments involving trade litigation against Chinese companies.

If anyone has any questions or wants additional information, please feel free to contact me at this Dorsey e-mail address until April 30th and then after that at bill@harrismoure.com.

Bill Perry

TRADE UPDATES

NEW SECTION 337 UNFAIR TRADE CASE AGAINST ALL CHINESE CARBON ALLOY STEEL COMPANIES AND ALL STEEL PRODUCTS FROM CHINA

On April 26, 2016, US Steel Corp filed a major 337 unfair trade case against all the Chinese steel companies seeking an exclusion order to bar all imports of carbon and alloy steel from China.  See the ITC notice below. U.S. Steel Corp. is accusing Chinese steel producers and their distributors of conspiring to fix prices, stealing trade secrets and false labeling to avoid trade duties.  It is asking the U.S. International Trade Commission (“ITC”) to issue an exclusion order baring all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported Chinese steel that has already been imported into the United States.

The petition alleges that the Chinese companies:

work together to injure U.S. competitors, including U.S. Steel. Through their cartel, the China Iron and Steel Association (“CISA”), Proposed Manufacturer Respondents conspire to control raw material input prices, share cost and capacity information, and regulate production and prices for steel products exported to the United States. Proposed Manufacturer Respondents also share production schedules and time the release of products across multiple companies. This enables them to coordinate exports of new products to flood the U.S. market and destroy competitors.

4. Some of the Proposed Manufacturer Respondents have used valuable trade secrets stolen from U.S. Steel to produce advanced high-strength steel that no Chinese manufacturer had been able to commercialize before the theft. In January 2011, the Chinese government hacked U.S. Steel’s research computers and equipment, stealing proprietary methods for manufacturing these products. Soon thereafter, the Baosteel Respondents began producing and exporting the very highest grades of advanced high-strength steel, even though they had previously been unable to do so. Chinese imports created with U.S. Steel’s stolen trade secrets compete against and undercut U.S. Steel’s own products.

5.        Proposed Respondents create documentation showing false countries of origin and false manufacturers for Chinese steel products. They also transship them through third countries to disguise their country of origin, circumvent anti-dumping and countervailing duty orders, and deceive steel consumers about the origin of Chinese steel.

Having worked at the ITC on 337 cases and later in private practice, section 337 is generally aimed at imports that infringe intellectual property rights, such as patents, trademarks or copyrights.  Moreover, one provision of section 337(b)(3) provides that when any aspect of a section 337 case relates to questions of dumping or subsidization, the Commission is to terminate the case immediately and refer the question to Commerce.

Also in the past when section 337 was used to bring antitrust cases, there was intense push back by the Justice Department.  Customs and Border Protection also may not be happy with the use of section 337 to enforce US Custom law.

But section 337 cases are not antidumping and countervailing duty cases.  There are no mandatory companies and lesser targets.  All the Chinese steel companies are targets, and this will be intense litigation with very tight deadlines.  If the individual Chinese steel companies do not respond to the complaint, their steel exports could be excluded in 70 days to six months.  Section 337 cases are hard- nosed litigation on a very fast track.

If you are interested in a copy of the complaint, please feel free to contact me.

The ITC notice is as follows:

Tuesday, April 26, 2016

Commodity: Carbon and Alloy Steel Products

Pending Institution

Filed By: Paul F. Brinkman

Firm/Organization: Quinn Emanuel Urrquhart & Sullivan LLP

Behalf Of: United States Steel Corporation

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 Carbon and Alloy Steel Products. The proposed respondents are: Hebei Iron and Steel Co., Ltd., China; Hebei Iron & Steel Group Hengshui Strip Rolling Co., Ltd., China; Hebei Iron & Steel (Hong Kong) International Trade Co., Ltd., China; Shanghai Baosteel Group Corporation,China; Baoshan Iron & Steel Co., Ltd., China; Baosteel America Inc., Montvale, New Jersey; Jiangsu Shagang Group, China; Jiangsu Shagang International Trade Co, Ltd., China; Anshan Iron and Steel Group, China; Angang Group International Trade Corporation, China; Angang Group Hong Kong Co., Ltd., China; Wuhan Iron and Steel Group Corp., China; Wuhan Iron and Steel Co., Ltd., China; WISCO America Co., Ltd., Newport Beach, California; Shougang Group, China; China Shougang International Trade & Engineering Corporation, China; Shandong Iron and Steel Group Co., Ltd, China; Shandong Iron and Steel Co., Ltd., China; Jigang Hong Kong Holdings Co., Ltd., China; Jinan Steel International Trade Co., Ltd., China; Magang Group Holding Co. Ltd, China; Maanshan Iron and Steel Co., Ltd., China; Bohai Iron and Steel Group, China; Tianjin Pipe (Group) Corporation, China; Tianjin Pipe International Economic & Trading Corporation, China; TPCO Enterprise Inc., Houston, Texas; TPCO America Corporation, Gregory, Texas; Benxi Steel (Group) Co., Ltd., China; Benxi Iron and Steel (Group) International Economic and Trading Co., Ltd., China; Hunan Valin Steel Co., Ltd., China; Hunan Valin Xiangtan Iron and Steel Co., Ltd., China; Tianjin Tiangang Guanye Co., Ltd., China; Wuxi Sunny Xin Rui Science and Technology Co., Ltd., China; Taian JNC Industrial Co., Ltd., China; EQ Metal (Shanghai) Co., Ltd., China; Kunshan Xinbei International Trade Co., Ltd, China; Tianjin Xinhai Trade Co., Ltd., China; Tianjin Xinlianxin Steel Pipe Co. Ltd, China; Tianjin Xinyue Industrial and Trade Co., Ltd., China; and Xian Linkun Materials (Steel Pipe Supplies) Co., Ltd., China.

UNION FILES SECTION 201 CASE ON ALUMINUM, BUT THEN WITHDRAWS IT

On April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against imports of aluminum from all countries at the US International Trade Commission (“ITC”). Although the target appeared to be China because its overcapacity has affected the World aluminum market, in fact, not so much.   China has an export tax in place to prevent exports of primary aluminum.  The real targets were Canada and Russia.  Canada exports about $4 billion in aluminum to the US, and Russia exports about $1 billion.

But after intense pressure from the US Aluminum producers, on April 22th the Union withdrew the petition.  Apparently, the US Aluminum producers have production facilities in Canada and also part of the Union was in Canada and not happy with the case.

Moreover, at the request of Congress, the ITC is conducting a fact-finding investigation on the US aluminum industry. The report is due out June 24, 2017.  The Union may have decided to wait until the ITC issues the fact-finding report in June and then it will refile the 201 case.

But there are reports that as a result of the case the Canadian and US governments are discussing the aluminum trade problem, which may result in a settlement down the road.

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

Best regards,

Bill Perry

Dear Friends,

On March 21, 2016 and March 17, 2016, after this post was sent out, I was interviewed on Donald Trump and the US China Trade War by the World Finance, a bi-monthly print and web outlet on the financial industry.

To see the video on the impact of Donald Trump on International Trade policy, please see  Could Trump Take the US Back to the Great Depression, http://www.worldfinance.com/inward-investment/asia-and-australasia/could-trump-take-the-us-back-to-the-great-depression

To see the video on the US China Trade War, click on the following link

http://www.worldfinance.com/inward-investment/asia-and-australasia/the-us-china-trade-war-explained

For more information on the specific points made in the two videos on the US China Trade War and Donald Trump, please see the lead article below on the Trump Impact on International Trade policy.

March 11 Blog Post

After returning from a two week trip to China to work on the Solar Cells case, this March blog post will cover trade policy, including Trump’s impact on Trade Policy, trade, Customs, False Claims Act, the recent ZTE Export Control debacle, 337, patents/IP, criminal IP cases, products liability, antitrust and securities. There are significant developments in the US antitrust area.

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

Best regards,

Bill Perry

THE TRUMP IMPACT ON US TRADE POLICY

As stated in numerous past blog posts, one of the major reasons the Trans Pacific Partnership is running into problems in Congress along with a number of other trade issues, such as market economy for China, is the impact of the Presidential elections, especially the rise of Donald Trump. After Super Tuesday on March 1, 2016 and the Trump victories in seven different states many Republican pundits believe the game is over and Trump has won the Republican primary and will be the party’s nominee.

Thus Ed Rollins, who worked in the Reagan Administration and is a highly respected expert on the Republican party, published an article on March 2, 2016 on the Fox News website stating, “Trump is now unstoppable. It’s game over for Cruz, Rubio, Kasich and Carson.” Rollins goes on to state:

Game over! This was a rout, America. Winning seven states and the vast majority of delegates is a landslide. Donald Trump and the millions of his supporters have changed American politics and the Republican Party for the foreseeable future. . . .

Trump, who is an unconventional candidate, to say the least, has tapped into the anger and frustration across America and has mobilized voters to turn out in record numbers.

Love him or hate him, be inspired by him or be appalled by him, Trump has totally dominated a political cycle like no other politician I’ve seen in decades.

I admit I was a total skeptic, like many others. At first, I didn’t think he would run. Then I thought there was no way he could beat the all-star cast of elected officials running against him.

Then I underestimated his lack of substance and trite answers in the debates. Then I underestimated his lack of a real campaign.

Then I was convinced the political establishment was going to spend millions and take him out. And like the Energizer bunny he just keeps going and winning!

Trump is getting stronger by the day and his supporters are locked in and not going away. And no one has mastered the media like this since Teddy Roosevelt and his rough riders.

What’s ahead is a Republican Party that either becomes part of his movement or splinters into many pieces. No matter what Trump does or says, the nomination is his for the taking.

For the full article, see http://www.foxnews.com/opinion/2016/03/02/trump-is-now-unstoppable-its-game-over-for-cruz-rubio-kasich-and-carson.html?intcmp=hpbt2#

At most, there is only a 30% chance that some other Republican candidate can beat Trump, but with a 70% chance that Trump will be the Republican nominee, the question is can Trump beat Hilary Clinton? Many facts indicate that Trump could win and become the next President.

On February 29, 2016, the Boston Herald reported that my childhood state, Massachusetts, which is very liberal and very Democratic, is seeing a surge in Democratic voters switching parties to vote Republican for Trump. As the Boston Herald reported on February 29, 2016, “Amid Trump surge, nearly 20,000 Mass. voters quit Democratic party”. The Article goes on to state:

The primary reason? [Secretary of State Galvin said his “guess” is simple: “The Trump phenomenon” . . . . Galvin said the state could see as many as 700,000 voting in tomorrow’s Republican primary, a significant number given just 468,000 people are actually registered Republicans. In Massachusetts. unenrolled — otherwise known as independent — voters can cast a ballot in the primary of any party.

For full article see http://www.bostonherald.com/news/us_politics/2016/02/amid_tru… 3/1/2016

On February 29, 2016, Buck Fox in Investors Business Daily, one of the more well- known financial newspapers in the US, predicted that Trump would win the Presidency:

Let’s take a rare journalistic moment to answer definitively: Will Donald Trump win the presidency? Yes.

Good. Got that out of the way. No dialing a focus group. Tell it straight. … Answers. Trump rattles them off fearlessly. He doesn’t consult pollsters. He goes with his gut.

Which is one reason he’s wildly popular — dominating the Drudge debate poll with 57% — and on the way to delivering the inaugural address on Jan. 20, 2017, as the 45th president.

As Ann Coulter says, President Trump will be halfway through that speech as the Republican Party keeps debating his viability.

Don’t limit that hedge to GOP bureaucrats. Throw in 99% of TV pundits: Karl Rove, Brit Hume, George Will, Bill Kristol, Rich Lowry, Steve Hayes, Charles Krauthammer, S.E. Cupp, Mike Smerconish, Ben Ferguson, Jeff Toobin.

They share a maddening trait — smug, glib and handsomely paid while belittling Trump’s odds of winning. Even though that’s all he’s done while building a titanic real estate empire. . . .

The smart ones see a runaway Trump Train, with Los Angeles radio host Doug McIntyre —hardly a Don fan — conceding after Nevada’s rout, “Donald Trump will win the Republican nomination.”

No “maybe.” No “very well could.” Trump will claim the GOP trophy in July in Cleveland. And win it all in November. Why?

  1. Issues. Trump owns immigration, trade, Muslim terror, self-funding his campaign to ignore special interests. . . . .

For full article, see http://www.investors.com/politics/capital-hill/trump-towers-over-the-presidential-field/[2/29/2016 12:29:13 PM]

On March 1, 2016, Politico published an article “The media’s Trump reckoning: ‘Everyone was wrong’ From the New Yorker to FiveThirtyEight, outlets across the spectrum failed to grasp the Trump phenomenon.”

In a March 3, 2016 article, John Brinkley of Forbes asks “Why Is Trade Such A Big Deal In The Election Campaign?”, stating in part:

Did you ever think you’d see a day when international trade was a central issue in a U.S. presidential election?

That’s where we are in 2016. For one reason or another, all the presidential candidates have felt the need to stake out positions on trade.

Let’s look at the last half-century. Issues that animated presidential campaigns were the Cold War, civil rights, the Vietnam War, Watergate, nuclear weapons, inflation, budget deficits, health care costs, terrorism, national security, wars in Iraq and Afghanistan, a financial crisis, illegal immigration. But never trade.

Well, almost never. While running for president in 1992, Ross Perot warned that NAFTA would cause “a giant sucking sound” from Mexico, but he wasn’t able to elevate NAFTA to a prominent position in that year’s election debates.

This year the Republican front-runner Donald Trump, who says he knows a lot about trade, but has proven that he doesn’t, says he’ll repeal NAFTA and the Trans-Pacific Partnership if it takes effect before he becomes president.

He also says he wants to slap a 45 percent tariff on Chinese imports. It’s been pointed out that this would get us into a trade war. The Trump camp’s fatuous response is that we’re already in a trade war with China. That’s like saying your house is in fire, so let’s spray gasoline on it.

Sen. Bernie Sanders, who had a realistic shot at the Democratic nomination until Super Tuesday, has ranted and raved about free trade agreements throughout his campaign. He says they have cost millions of Americans their jobs, although there is no empirical evidence of that.

In her inimical please-all-the-people-all-the-time style, Democratic frontrunner Hilary Clinton says she doesn’t like the Trans-Pacific Partnership in its present form, but might change her mind if certain changes are made. She obviously thinks trade is important enough as a political issue that she has to bob and weave rather than take an unambiguous yes-or-no position. . . .

Why is trade such a volatile issue this year?

An obvious reason is that the Obama administration has negotiated and signed the most mammoth trade agreement in the history of the universe.

The TPP encompasses 12 countries and 40 percent of the world’s economy. . . .

And a third we can call The Trump Factor: the other GOP candidates are so scared of Trump that they feel they have to respond to everything he says, just to show that they’re not like him (which hardly seems necessary). . . .

Keeler said the prominence of trade in the 2016 presidential campaign “is surprising in the same way that everything about Donald Trump is surprising.”

For the full article, see

http://www.forbes.com/sites/johnbrinkley/2016/03/03/why-is-trade-such-a-big-deal-in-the-election-campaign/print/.

Why is trade policy so important in this election? It is not because Trump says it is so.  Instead, it is the reason Trump is doing so well in the Republican primary—his appeal to a large constituency that is being hammered by illegal immigration, hurt by trade and afraid of losing their jobs.  Several pundits have tried to explain what this election is really about and the reason for Trump’s rise:

Hundreds of workers in Indiana, who just saw their jobs heading to Mexico;

Disney employees being fired and forced to retrain foreign replacements;

and finally the systematic invasion of the country by illegal immigrants, who take American jobs away.

Middle class and lower middle class people are afraid of losing their jobs and their livelihood and are flocking to Trump.

In two word, this is economic nationalism.

One central core of Donald Trump’s strategy is the argument that the United States has been soft on trade and “does not win any more.” Trump specifically points to China as one of the biggest winners saying that China, Mexico and Japan all beat the US in trade.

Moreover, the Core Constituency of Trump, his followers, are blue collar workers, many without a college education, so-called Reagan Democrats, that work in companies, factories, service industries and often are in labor unions. These workers are in regular 9 to 5 jobs on a set salary, in the lower middle and middle class, who are not privileged and not protected, feel their livelihoods threatened by illegal immigration and trade deals that give other countries access to US markets.  These blue collar workers are white, black, and Hispanic, such as in the Nevada primary where many Hispanics voted for Trump.  These workers would normally vote Democratic, but they firmly believe that no party be it Democratic or Republican truly represents their interests and are willing to protect their jobs and way of life.  Along comes Donald Trump stating that he will stop illegal immigrants at the border, do away with trade agreements and stop imports from China saving their jobs.  He will make America great again.  For many, many workers this argument makes them solid Trump supporters.

In a March 2 article entitled Eight Reasons we need to start preparing for President Trump, Geoff Earle writing for the NY Post states

Reason 5:

Trump’s main demographic strength — working-class men and white voters — matches up well against one of Hillary Clinton’s chief weaknesses. He could go after Clinton in must-win Ohio, where “Trump’s rhetoric appeals to those blue-collar Democrats,” said GOP strategist Brian Walsh.

For full article, see http://nypost.com/2016/03/02/8-reasons-we-need-to-start-preparing-for-president-trump.

In listening to Donald Trump’s victory speech on Super Tuesday, he stated that he wants to be a unifier and that he will reduce corporate taxes and make it easier for US companies to repatriate profits and set up manufacturing in the US. No one has problems with Trump’s idea of using carrots to bring back US manufacturing.  The problem is with Trump’s idea of using trade sticks to force manufacturing back to the US by setting up high protectionist walls.

On February 29, 2016, The Wall Street Journal in an editorial entitled, “Making Depressions Great Again — The U.S. may renounce its trade leadership at a dangerous economic moment,” expressed its real concern that by using the Trade/Tariff sticks Trump could take the United States back to the 1930s and the Smoot Hawley Tariff that created the Great Depression:

Reviving trade is crucial to driving faster growth, yet the paradox of trade politics is that it is least popular when economic anxiety is high and thus trade is most crucial.

And so it is now: Four of the remaining U.S. candidates claim to oppose the Trans-Pacific Partnership, and Congress now lacks the votes to pass it.

The loudest voice of America’s new antitrade populism is Mr. Trump, who has endorsed 45% tariffs on Chinese and Japanese imports and promises to punish U.S. companies that make cookies and cars in Mexico. When Mr. Trump visited the Journal in November, he couldn’t name a single trade deal he supported, including the North American Free Trade Agreement (Nafta).

He says he’s a free trader but that recent Administrations have been staffed by pathetic losers, so as President he would make deals more favorable to the U.S., and foreigners would bow before his threats. “I don’t mind trade wars,” he said at Thursday’s debate.

He should be careful what he wishes. Trade brinksmanship is always hazardous, especially when the world economy is so weak. A trade crash could trigger a new recession that would take years to repair, and these conflicts are unpredictable and can escalate into far greater damage.

The tragic historic precedent is the Smoot-Hawley tariff of 1930, signed reluctantly by Herbert Hoover. In that era the GOP was the party of tariffs, which economist Joseph Schumpeter called the Republican “household remedy.” Smoot-Hawley was intended to protect U.S. jobs and farmers from foreign competition, but it enraged U.S. trading partners like Canada, Britain and France.

As economic historian Charles Kindleberger shows in his classic, “The World in Depression, 1929-1939,” the U.S. tariff cascaded into a global war of beggar-thy-neighbor tariff reprisals and currency devaluation to gain a trading advantage. Each country’s search for a protectionist advantage became a disaster for all as trade volumes shrank and deepened the Great Depression.

Kindleberger blames the Depression in large part on a failure of leadership, especially by a U.S. that was unwilling to defend open markets in a period of distress. “For the world economy to be stabilized, there has to be a stabilizer—one stabilizer,” he wrote. Britain had played that role for two centuries but was then too weak. The U.S. failed to pick up the mantle. . . .

Once the President recovered his trade bearings, Mitt Romney promised in 2012 to sanction China for currency manipulation and even ran TV ads claiming that “for the first time, China is beating us.”

Mr. Trump is now escalating this line into the centerpiece of his economic agenda—protectionism you can believe in. And what markets and the public should understand is that as President he would have enormous unilateral power to follow through. Congress has handed the President more power over the years to impose punitive tariffs, in large part so Members can blame someone else when antitrade populism runs hot. . . .

In an exchange with Bill O’Reilly on Feb. 10, Mr. Trump said that’s exactly what he plans to do. The Fox News host suggested a trade war is “going to be bloody.” Mr. Trump replied that Americans needn’t worry because the Chinese “will crash their economy,” adding that “they will have a depression, the likes of which you have never seen” in a trade war. He might be right about China, but the U.S. wouldn’t be spared.

The Trump candidacy thus introduces a new and dangerous element of economic risk to a world still struggling to emerge from the 2008 panic and the failed progressive policy response. A trade war would compound the potential to make depressions great again.

For the full editorial see http://www.wsj.com/articles/making-depressions-great-again-1456790200 3/1/2016.

President Ronald Reagan, who lived through the Great Depression and knew about the impact of the Smoot Hawley tariff on his generation, was a solid free trader stating on June 28, 1986 in the attached speech on international trade, BETTER COPY REAGAN IT SPEECH:

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.

Ronald Reagan was a true free trader; Donald Trump is not.

But Trump’s rhetoric along with the strong positions of Bernie Sanders, have already had an impact on US trade policy.

Trans Pacific Partnership (“TPP”)

On February 22, 2016, despite strong opposition from Republican lawmakers and many Democratic Senators and Congressmen, in a speech before the National Governors Association, President Obama stated that he was cautiously optimistic that Congress would pass the TPP before he leaves office. President Obama specifically stated:

“I am cautiously optimistic that we can still get it done. Leader McConnell and Speaker Ryan both have been supportive of this trade deal.  We’re going to … enter this agreement, present it formally with some sort of implementation documents to Congress at some point this year and my hope is that we can get votes.”

But President Obama admitted that selling the TPP is not easy with the opposition of four of the top five candidates for the presidency — Donald Trump, Hillary Clinton and Sens. Bernie Sanders, I-Vt., and Ted Cruz, R-Texas. He further stated:

“The presidential campaigns have created some noise within and roiled things a little bit within the Republican Party, as well as the Democratic Party around this issue. I think we should just have a good, solid, healthy debate about it.  What all of you can do to help is to talk to your Congressional delegations and let them know this is really important.  All of you, though, can really lift up the benefits for your states, and talk to your congressional delegations directly.”

Obama can only submit legislation to implement the TPP to Congress after the U.S. International Trade Commission releases an extensive report on the agreement’s economic impact in mid-May.

As reported in my last newsletter, on February 5, 2016, in the Democratic debate, Hillary Clinton stated that she could support the TPP if the deal is changed, but also stated afterwards that she opposes the deal as currently written.  Meanwhile there is intense pressure on Clinton to stay opposed to the TPP as the labor unions have increased pressure on those Democratic Congressmen and Senators that voted in favor of the Trade Promotion Authority and were put on labor’s hit list.  On February 29, 2016, it was reported that labor unions were now targeting 28 moderate Democrats who supported “fast-track” trade promotion legislation.

California Rep. Scott Peters estimates his reelection campaign is likely to see a $200,000 to $300,000 drop in labor donations — about a seventh of his total contributions so far — and fewer ground volunteers knocking on doors unless he changes his trade stance. The two-term lawmaker, who won reelection by 3 percent of the vote, is likely to face ad buys, call-in campaigns and protests outside his office. As Peters further stated:

“We’ve lost some pretty important labor support as a result on the vote on TPA, and that’s painful … There’s no doubt there has been a political price.”

Labor’s attacks on the free traders could also be decisive in the reelection bids of California Rep. Ami Bera and New York Rep. Kathleen Rice. The White House has sought to counter the labor attacks by early endorsements, raised campaign funds and deployed Cabinet officials to praise members in their districts.

This makes passage of the TPP very doubtful in Congress. As Texas Rep Eddie Bernice Johnson said of the loss of the AFL-CIO backing:

“It gets your attention,” adding that trade is an “economic engine” for her Dallas district. “But I cannot neglect the stance and conditions of my district that I pledged heartily to represent.”

There’s a chance a TPP vote could get delayed until the Lame Duck session or the next administration and the next Congress, but AFL-CIO President Richard Trumka has stated:

“So they want to put it after the election because they think we’ll forget. Well, we’re not going to forget, and we’re not going to let the American worker forget, and we think they’ll have a tough time explaining their vote to workers who have lost jobs”

During a meeting with labor and trade protectionists, Oregon Congressman Earl Blumenauer reportedly slammed a notepad down on a table at the height of the debate, telling the group he was frustrated with the constant calls and picketing outside his home and district office. Blumenauer went on to state:

“I have a community that is very trade-dependent, but we also have people who are trade skeptics. So I’m just going to let the chips fall where they may.”

On March 7, 2016, former Congressman Don Bonker wrote the following article for the Seattle Times about the developments in the Trade area:

Trump’s trade rhetoric threatens U.S. economy, global standing, Trump’s fear tactics combined with viral protectionism spreading across the country is a monkey wrench for passage of Trans-Pacific Partnership.

Donald Trump’s political rhetoric, however absurd, is boastfully driving the debate among Republicans on issues such as immigration, but it’s his relentless jabs at U.S. trade policy that is more alarming.

Threatening to slap a 35 percent tariff on all imports from China definitely resonates with his support base, but it could undermine America’s leadership globally and also prove harmful in the Puget Sound area, given that such arbitrary tariffs are imposed on American importers, not Chinese suppliers, then passed on to distributors and ultimately result in higher consumer prices.

Trump, ever boastful of his business savvy, should also expect the Chinese to retaliate, as they predictably will, to restrict U.S. exports from Washington state and beyond.

Not surprisingly, Trump wants it both ways, asserting that free trade is terrible because we have “stupid” officials doing the negotiating, yet it could be wonderful if he calls the shots and has the final word (someone should inform him about the Constitution, which clearly states that “Congress shall regulate interstate and foreign commerce.”)

This may be how he cuts backroom business deals, but Trump’s approach would be unacceptable as leader of the world’s No. 1 economy.

Such fear tactics combined with viral protectionism spreading across the country, tapped into by Bernie Sanders and now Hillary Clinton switching her position on Trans-Pacific Partnership (TPP), is alarming to other nations who depend on America leadership in today’s global economy.

Using Trump’s words, “to make America great again,” our president must be a strong leader in today’s global economy, which Barack Obama has attempted to do with initiatives such as TPP. The partnership would give the U.S. a stronger presence in the Pacific Rim and provide a protective shield for Asian countries threatened by China’s enormous growth and influence in the region.

The TPP is destined for burial thanks to Trump’ rhetoric and growing protectionism among Democrats in Congress. It will be to China’s advantage given their own trade negotiations with the same countries.

If Trump is elected, will it put us in a trade war with China? In the 1928 presidential election, Herbert Hoover was less pompous than Trump but nonetheless called for higher tariffs that set the stage for a Republican Congress poised to run amok on limiting imports.

Shortly after the elections, hundreds of trade associations were formed that triggered an unbridled frenzy of logrolling, jockeying for maximum protection for commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over 20,000 imported products.

On the Senate side, another 1,200 amendments were added that proved so egregious, prompting Democrat Senator Thaedeus H. Caraway of Arkansas to declare that, “I might suggest that we have taxed everything in this bill except gall,” to which Senator Carter Glass of Virginia responded, “Yes, and a tax on that would bring considerable revenue.”

What Congress sent to the president proved so alarming it prompted 1,000 of nation’s leading economists to sign a petition urging President Hoover to veto the Smoot-Hawley Act, while The New York Times printed an ad that listed 46 states and 179 universities warning that signing the bill may prompt a fierce reaction.

Indeed within a few months, America’s leading trade partners — Canada, France, Mexico, Italy, 26 countries in all — 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.

Based on his campaign rhetoric, a Trump presidency would have plenty of gall, to be sure but it is certainly not what is needed to make America great again.

On March 9, I attended a reception here in Seattle with Congressman Dave Reichert, Chairman Subcommittee on Trade, House Ways and Means. Congressman Reichert stated that he is the first Washington State Congressman to become Chairman of the Trade Subcommittee.  He also stated that he is dedicated and personally committed to passing the TPP through Congress no matter how long it takes because of its importance for the economies of Washington State and the entire United States.

On March 10, 2016, however, the Wall Street Journal had a front page headline entitled, “Free Trade Loses Political Favor, Republican backing fades as voters voice surprising skepticism; Pacific pact seen at risk”. The Article states in part:

After decades in which successive Republican and Democratic presidents have pushed to open U.S. and global markets, resentment toward free trade now appears to have the upper hand in both parties, making passage this year of a sweeping Pacific trade deal far less likely and clouding the longer-term outlook for international economic exchange.

Many Democrats have long blamed free-trade deals for big job losses and depressed wages, especially in the industrialized Midwest, which has been battered over the years by competition from lower-cost manufacturing centers in countries like Japan, Mexico and China. . . .

But one big surprise Tuesday was how loudly trade fears reverberated among Republican voters in the primary contests in Michigan and Mississippi—evidence, many observers say, of a widening undercurrent of skepticism on the right about who reaps the benefits from loosened trade restrictions.

CHINA

Despite arguments by the Federalist Society in the attached article, Everything Trump Says About Trade With China Is Wrong, that Donald Trump’s arguments against China are simply wrong, Trump’s strong position and Hilary Clinton’s desire to keep Union support has forced her to take a much tougher stand on trade with China and the TPP. On February 23rd, 2016 in the attached commentary to the  Maine Press Herald, CLINTON ARTICLE CHINA, entitled “If elected president, I’ll level the playing field on global trade,” Hilary Clinton stated:

At the same time, China and other countries are using underhanded and unfair trade practices to tilt the playing field against American workers and businesses.

When they dump cheap products in our markets, subsidize state-owned enterprises, manipulate currencies and discriminate against American companies, our middle class pays the price. That has to stop.

Ninety-five percent of America’s potential customers live overseas, so closing ourselves off to trade is not a solution. . . .

As President, my goal will be to win the global competition for the good-paying manufacturing jobs of the future.

  • First, we have to strongly enforce trade rules to ensure American workers aren’t being cheated. Too often, the federal government has put the burden of initiating trade cases on workers and unions, and failed to take action until after the damage is done and workers have been laid off.

That’s backward: The government should be enforcing the law from the beginning, and workers should be able to focus on doing their jobs. To make sure it gets done, we should establish and empower a new chief trade prosecutor reporting directly to the president, triple the number of trade enforcement officers and build new early-warning systems so we can intervene before trade violations cost American jobs.

We should also hold other countries accountable for meeting internationally sanctioned labor standards – fighting against child and slave labor and for the basic rights of workers to organize around the world.

Second, we have to stand up to Chinese abuses. Right now, Washington is considering Beijing’s request for “market economy” status. That sounds pretty obscure. But here’s the rub – if they get market economy status, it would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.;

With thousands of state-owned enterprises; massive subsidies for domestic industry; systematic, state-sponsored efforts to steal business secrets; and blatant refusal to play by the rules, China is far from a market economy. If China wants to be treated like a market economy, it needs to act like one.

Third, we need to crack down on currency manipulation – which can be destructive for American workers. China, Japan and other Asian economies kept their goods artificially cheap for years by holding down the value of their currencies.;

I’ve fought against these unfair practices before, and I will do it again. Tough new surveillance, transparency and monitoring regimes are part of the answer – but only part. We need to expand our toolbox to include effective new remedies, such as duties or tariffs and other measures.

Fourth, we need to stop rewarding U.S. companies for shipping jobs overseas by closing loopholes and ending tax write-offs – and encouraging “in-sourcing” here in America instead. Two HVAC plants in Indiana recently decided to move abroad, costing 2,100 jobs – and likely pocketing a tax deduction.

They’re not just turning their back on the workers and community that supported them for years, they’re turning their back on America. As President, I’ll also end so-called “inversions” that allow multinational businesses to avoid paying U.S. taxes by moving overseas in name only.

Fifth, we have to set a high bar for any new trade agreements, and only support them if they will create good jobs, raise wages and advance our national security. I opposed the Trans-Pacific Partnership when it failed to meet those tests, and would oppose future agreements if they failed to meet that bar.;

America spent generations working with partners to develop strong and fair rules of the road for the global economy – but those rules only work if we enforce them. Tough enforcement and other smart policies to support a manufacturing renaissance are the only way we can ensure that trade helps American workers. If I’m elected President, that’s what I’ll do.

THE REASON TRADE IS AT THE CENTER OF THE DEBATE AND THE REAL TRADE ANSWER—TAA FOR COMPANIES

THE REASON

What is the reason that trade is the center of the Presidential debate? I believe at its core there are two fundamental reasons—failure to educate the general populace on the benefits of trade so that they understand how manufacturing in the US is connected in global supply chain with raw material inputs from abroad.

The second reason is the toxic domestic raw material heavy industry/Labor Union attack based on false arguments that all trade competition is caused by unfair trade and that companies can be saved by bringing trade remedy cases. This rhetoric has generated a Globalization victimhood way of thinking that all imports are unfairly traded, especially from China. This is despite the fact that 80 of the outstanding 120 antidumping orders against China are directed at raw materials, chemicals, metal and steel, which goes directly into downstream US production. Restrictions on raw material inputs hurts downstream US industries, which have no standing under US antidumping and countervailing duty laws to argue against the restrictions and have their arguments have any weight in the determination.

Years ago a United States Trade Representative (“USTR”) in the W Bush Administration spoke in Seattle and said that in the Trade area the major failure has been to educate the American public on the benefits of trade. Washington State, which is dependent on imports and exports, certainly knows the benefits of trade. The Ports in Washington State are incredibly important for the economic health of the State. Our largest trading partner is China to which Washington exports $20 billion every year. Thus the Washington Council for International Trade is pushing hard for the Trans Pacific Partnership. See http://wcit.freeenterpriseaction.com/v9xpssZ

But that is not true in many other states, especially in the Midwest and on the East Coast, which have adopted the trade victimization ideology. In addition, the Steel Industry and Labor Unions make three attacks against China—currency manipulation, cyber hacking and antidumping. When one looks deeper at these arguments, however, they fall apart.

CURRENCY MANIPULATION

Donald Trump and Hilary Clinton have been screaming about currency manipulation. But on May 22, 2015, on the Senate floor during the debate on Trade Promotion Authority (“TPA”) Senator Hatch made a very strong argument against the Stabenow and Portman Currency Amendment, which would have included tough provisions and sanctions, against currency manipulation. Senator Hatch clearly stated that the reason he opposed the Amendment was because President Obama under pressure from Treasury Secretary Lew stated that if the currency amendment was included, he would veto the TPA bill.

Why were President Obama and Treasury Secretary Lew opposed to tough sanctions against currency manipulation? Because those sanctions could be used against the United States. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live. As Senator Hatch stated:

I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

I’m not just saying that, Mr. President. It is, at this point, a verifiable fact.

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. . . . most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

That’s pretty clear, Mr. President. It doesn’t leave much room for interpretation or speculation. No TPA bill that contains the language of the Portman-Stabenow Amendment stands a chance of becoming law. . . .

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. . . .

Second, the Portman-Stabenow Amendment would put at risk the Federal Reserve’s independence in its ability to formulate and execute monetary policies designed to protect and stabilize the U.S. economy. While some in this chamber have made decrees that our domestic monetary policies do not constitute currency manipulation, we know that not all of our trading partners see it that way. . . .

If the Portman-Stabenow language is adopted into TPA and these rules become part of our trade agreements, how long do you think it will take for our trading partners to enter disputes and seek remedies against Federal Reserve quantitative easing policies? Not long, I’d imagine.

If the Portman-Stabenow objective becomes part of our trade agreements, we will undoubtedly see formal actions to impose sanctions on U.S. trade, under the guise that the Federal Reserve has manipulated our currency for trade advantage. We’ll also be hearing from other countries that Fed policy is causing instability in their financial markets and economies and, unless the Fed takes a different path, those countries could argue for relief or justify their own exchange-rate policies to gain some trade advantage for themselves.

CYBER HACKING

The trade critics also attack China for Cyber Hacking, but on September 29, 2015, in response to specific questions from Senator Manchin in the Senate Armed Services Committee, James R. Clapper, Director of National Intelligence, testified that China cyber- attacks to obtain information on weapon systems are not cyber- crime. It is cyber espionage, which the United States itself engages in.  As Dr. Clapper stated, both countries, including the United States, engage in cyber espionage and “we are pretty good at it.”  Dr. Clapper went on to state that “people in glass houses” shouldn’t throw stones.  See http://www.armed-services.senate.gov/hearings/15-09-29-united-states-cybersecurity-policy-and-threats at 1hour 8 minutes to 10 minutes.

In response to a specific question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes.  

Thus, the United States itself does not want to clearly define Cyber Hacking as unacceptable because it is state espionage and we the United States do it too and are pretty good at it.

DUMPING

As indicated in numerous past blog posts, more dumping and countervailing duty cases, some against China based on faked numbers, does not solve the trade problem. For over 40 years the Commerce Department has refused to use actual prices and costs in China to determine dumping resulting in antidumping and countervailing duty orders blocking about $30 billion in Chinese imports.  In doing so, however, China is treated worse the Iran, Russia, Syria and many other countries under the US antidumping law.

As indicated below, that issue comes to a boil on December 11, 2016 when pursuant to the China WTO Agreement, China is supposed to be treated as a market economy country. But Hilary Clinton states that if market economy treatment were given to China so they could be treated like Iran, we would “defang our antidumping laws.”  Nothing could be further from the truth.  Having worked at the Commerce Department, I am convinced that if China were to become a market economy, Commerce would still find very large dumping rates against China.

More importantly, the antidumping, countervailing duty and other trade laws do not work. They do not save US companies and industries.  We have a poster child to prove this point—The US Steel Industry.  After forty years of trade cases and protection from steel imports, where is the US steel industry today?

Many of the major steel companies, such as Bethlehem Steel, Lone Star Steel and Jones & Laughlin, have become green fields. The total employment of the US Steel industry now is less than one high tech company. A failure caused not because of the lack of  antidumping and countervailing duty protection covering billions of dollars in imports, but because as President Reagan stated back in 1986, protectionism does not work.  It does not save the companies, because these cases do not get at the root causes of the company’s and industry’s decline.

Donald Trump and Hilary Clinton have pointed to the closure of manufacturing plants in the US and their move to Mexico. But why did the factories close?

On March 4, 2016, the Wall Street Journal in an editorial entitled Trump on Ford and Nabisco The real reasons the companies left the U.S. for Mexico” clearly set out the reasons some of these companies left the United State to move to Mexico—Wages demands as high as $60 an hour from the Labor Unions coupled with sky high taxes to support public workers in Illinois.  As the Journal stated:

“Last summer, Deerfield, Illinois-based Mondelez, which owns Nabisco, announced that it would close nine production lines at its plant in Chicago—the largest bakery in the world—while investing in new technology at a facility in Salinas, Mexico. Mondelez made the decision after asking its unions for $46 million in concessions to match the annual savings it would achieve from shifting production to Mexico. . . .

Operating in Chicago is particularly expensive since Illinois has among the nation’s highest corporate and property taxes—which are soaring to pay for city employee pensions—and workers’ compensation premiums. Last year Illinois lost 56 manufacturing jobs per work day while employment increased in most other Midwest states including Wisconsin (18 a day), Indiana (20), Ohio (58) and Michigan (74).

As for Ford, Mr. Trump flogged the auto maker’s $2.5 billion investment in two new engine and transmission plants in Mexico. . . . One impetus behind Detroit’s Mexico expansion is the United Auto Workers new collective-bargaining agreement, which raises hourly labor and benefit costs to $60 in 2019—about $10 more than foreign auto makers with plants in the U.S.—from the current $57 for Ford and $55 for GM. The increasing wages make it less economical to produce low-margin cars.

Foreign car manufacturers including BMW, Honda, Volkswagen, Kia, Nissan and Mazda have also recently announced new investments in Mexico. Besides lower labor costs, one reason they give is Mexico’s free-trade agreements, which allow access to 60% of world markets. Mexico has 10 free-trade agreements with 45 countries including Japan and the European Union whereas the U.S. has only 14 deals with 20 countries.”

Companies have to be competitive with foreign competition, and labor unions must work with management to stay competitive with the rest of the World. The “More” statement of the famous US labor leader John L. Lewis no longer works if the labor union’s more leads to the closure of the US manufacturing company, which employs the workers in question.

THE ANSWER

Not only must US Companies be competitive, but countries, including the United States, must also be competitive and be willing to meet the competition from other countries. A major reason for the rise of Donald Trump is the failure of the US Congress to formulate a trade policy that works and promote the only US trade program that truly saves import injured manufacturing companies by helping them adjust to import competition—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 the bone 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 from $50 million makes it impossible for the TAA for Companies program to work with medium or larger US companies, which have been injured by imports. TAA for Companies is hamstrung by neglect with a maximum technical assistance per firm level that has not changed in at least 30 years.

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.   To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million to retrain workers for jobs that may not exist after the company has closed.

Congress needs to find a cure to the trade problem, and it is not more trade cases, which do not save US companies and the jobs that go with them. TAA for Companies works, but because of politics, ideology and the resulting Congressional cuts, TAA has been so reduced it is now marginalized and cannot do the job it was set up to do.

Both Republicans and Democrats have failed to formulate a trade policy that will help US companies injured by imports truly adjust to import competition and become competitive in the World again. This failure has created Donald Trump and possibly a new dangerous protectionist era in US politics, which could have a disastrous impact on the US economy.

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 newsletters and my blog, www.uschinatradewar.com.

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 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 attached are many of the reports, ITAC-2-Automobile-Equipment-and-Capital-Goods, ITAC-12-Steel ITAC-11-Small-and-Minority-Business, ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries 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 ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce.  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

President Obama signed the bipartisan Trade Facilitation and Trade Enforcement Act of 2015 (TFTE) on February 24. A copy of the bill, the conference report and summary of the bill are attached,  JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 Trade-and-Environment-Policy-Advisory-Committee.pdf.

The bill makes many changes to the Customs and Trade laws with a specific focus on enforcement, particularly of the Trade laws. One of the provisions focuses on concerns surrounding non-resident, small “fly-by-night” importers of record.  The TFTE authorizes the Customs and Border Protection (“CBP”) to set up an importer-of-record program.  Through the program, CBP must establish criteria that importers must meet to obtain an importer-of-record number.

In addition, CBP is to establish an importer risk assessment program to review the risk associated with certain importers, particularly new importers and nonresident importers, to determine whether to adjust an importer’s bond or increase screening for an importer’s entries.   Specifically, Section 115(a) of the law provides:

Not later than the date that is 180 days after the date of the enactment of this Act, the Commissioner shall establish a program that directs U.S. Customs and Border Protection to adjust bond amounts for importers, including new importers and nonresident importers, based on risk assessments of such importers conducted by U.S. Customs and Border Protection, in order to protect the revenue of the Federal Government.

Title IV of the Act, Prevention of Evasion of Antidumping and Countervailing Duty Orders, sets up a new remedy for companies that believe that antidumping and countervailing duty orders are being evaded by shipping through a third country or misclassification or some other means.  The Act creates the Trade Remedy Enforcement Division within Department of Homeland Security, which is charged with developing and administering policies to prevent evasion of US antidumping and countervailing duty orders. The Secretary of Treasury is also authorized to enter into agreements with foreign nations to enforce the trade remedy laws.

On Aug. 23, 2016, CBP must begin investigating allegations of trade remedy evasion according to established procedures.   Those procedures include that CBP must initiate an investigation within 15 business days of receiving an allegation from an interested party and then has 300 days to determine whether the merchandise was entered through evasion. If CBP finds that there is a reasonable suspicion that merchandise entered the U.S. through evasion, CBP is directed to suspend the liquidation of each unliquidated entry of such covered merchandise.

Any CBP evasion decision is subject to judicial review by the Court of International Trade. The act also provides an expanded range of penalties where evasion is found to have occurred, including the imposition of additional duties and referrals to other agencies for other civil or criminal investigations.

Section 433 of the Act also eliminates the ability of an importer of a new shipper’s merchandise to post a bond or security instead of a cash deposit. This provision will prevent a company from importing substantial quantities of merchandise covered by an antidumping and/or countervailing duty order and then fail to pay the appropriate duty.

Finally, section 701 of the act, Enhancement of Engagement on Currency Exchange Rate and Economic Policies with Certain Major Trading Partners of the United States, establishes a procedure for identifying trade partners that are suspected of currency manipulation and conducting a macroeconomic analysis of those partners. The key finding is under section 701(2)(B), where the Treasury Secretary is to publicly describe the factors used to assess under paragraph (2)(A)(ii) whether a country has a significant bilateral trade surplus with the United States, has a material current account surplus, and has engaged in persistent one-sided intervention in the foreign exchange market.

If the Treasury Secretary is unable to address currency manipulation issues with a trading partner, the act authorizes the President to take additional steps to prevent and remedy further manipulation. For instance, the president may prohibit the approval of new financing products, which can be waived only upon a finding of adverse impact on the U.S. economy or serious harm to national security.

ZTE EXPORT LAW VIOLATIONS—MORE FUEL ON THE FIRE OF THE US CHINA TRADE WAR

On March 8, 2015, the Commerce Department’s Bureau of Industry and Security (“BIS”) published the attached Federal Register notice, ZTE FED REG NOTICE, announcing that China based mega corporation ZTE and three of its affiliated companies have been added to the Entity List, which requires an export license before US made products can be exported to those companies. As China’s second largest telecommunications company, ZTE is also the world’s seventh largest producer of smartphones and has operations in the US and more than 160 other countries.

The Federal Register notice states:

The End-User Review Committee (“ERC”) composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy, and, where appropriate, the Treasury has determined:

to add four entities—three in China and one in Iran—to the Entity List under the authority of § 744.11 (License requirements that apply to entities acting contrary to the national security or foreign policy interests of the United States) of the EAR. . . .

The ERC reviewed § 744.11(b) (Criteria for revising the Entity List) in making the determination to list these four entities. Under that paragraph, entities and other persons for which there is reasonable cause to believe, based on specific and articulable facts, have been involved, are involved, or pose a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States . . . .

Pursuant to § 744.11 of the EAR, the ERC determined that Zhongxing Telecommunications Equipment Corporation (‘‘ZTE Corporation’’) . . . be added to the Entity List under the destination of China for actions contrary to the national security and foreign policy interests of the United States. Specifically, the ZTE Corporation document ‘‘Report Regarding Comprehensive Reorganization and Standardization of the Company Export Control Related Matters’’ (available at http://www.bis.doc.gov) indicates that ZTE Corporation has reexported controlled items to sanctioned countries contrary to United States law. The ZTE Corporation document ‘‘Proposal for Import and Export Control Risk Avoidance’’ (available at http://www.bis.doc.gov) describes how ZTE Corporation also planned and organized a scheme to establish, control, and use a series of ‘‘detached’’ (i.e., shell) companies to illicitly re-export controlled items to Iran in violation of U.S. export control laws.

Having looked at the internal confidential ZTE report, which Commerce in a very unusual situation has published as a public document on its website, ZTE truly has been caught red handed. The ZTE Report lays out a detailed scheme to evade US Export Control laws.  No country, including the United States or China, would tolerate such a scheme to systematically evade a country’s laws.

For more on the ZTE Action along with a link to the confidential ZTE document now posted on the Commerce Department website, see http://ftalphaville.ft.com/2016/03/08/2155724/has-the-cold-us-sino-trade-war-just-got-piping-hot/.

From the Chinese point of view, however, the Commerce Department has no credibility because its antidumping laws presently block about $30 billion in imports based on fake numbers. Because the US Government’s Import and Export Control Administration are both located in the Commerce Department, the Chinese government looks at all the Department’s decisions as US based protectionism.

The problem is that through its nonmarket economy methodology, which does not use actual costs and prices to determine dumping, Commerce has created a game, and the Chinese will play it. Sometimes Chinese companies talk to me about using the “houmen” back door and shipping products through different countries to evade US antidumping laws.  I always tell the Chinese companies that this is Customs fraud and they risk civil and criminal prosecution under US Customs and trade laws.

In fact, in the past Chinese honey suppliers that used transshipment to get around the US antidumping law were caught in the United States and hauled in front of Federal Court on criminal charges for evasion of US antidumping laws. I have heard of one Chinese company seafood executive arrested in Belgium and sent to Belgian jail on an extradition warrant for evasion of US antidumping laws.

With the enactment of the New Trade and Customs Enforcement Act, described above, the US government now has more ways of catching Chinese companies and US importers that try to evade US trade laws. As one Chinese friend told me, such actions are “too damned dangerous”.

Although US judgments are not enforceable in China, Chinese companies have to also realize, that like ZTE, they have grown up and have subsidiaries all around the World. US judgments may not be enforceable in China, but they are enforceable in Hong Kong and other countries, and every Chinese company I have ever dealt with has a Hong Kong bank account.  Through its scheme to evade US export control laws, ZTE now has major problems and those problems may now multiply worldwide.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

As stated in prior newsletters, interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status. On February 23, 2016, under intense pressure from the labor unions, Hilary Clinton stated that to give market economy status to China:

“would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.”

To summarize the issue, 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.

Under Nonmarket economy methodology, Commerce does not use actual prices and costs in China to determine dumping, but constructs a cost from consumption factors in China multiplied by surrogate values from import statistics in 5 to 10 different countries and those values can change from preliminary to final determination and review to review. Because of this methodology no Chinese company and certainly no US importer that is liable for the duties, knows whether the Chinese company is truly dumping.  Fake numbers lead to fake results.

Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  • 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 use 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.

As stated above, Hilary Clinton is under enormous pressure to be tough on China. On February 12th,The American Iron and Steel Industry made it clear that it wants China’s non-market economy status in antidumping cases to be at the forefront of the public debate.  Thus Thomas Gibson, AISI president and CEO, stated:

“We want to keep the issue in front of decision makers and in the public debate because there will be a new government a year from now. “

He further stated that the Obama administration has not shown any sign that it is considering treating China as a market economy in AD cases as a result of an expiring provision in the country’s accession protocol to the World Trade Organization. As Gibson further stated:

“We have not heard anyone in the administration say that they agree with China’s assertion that it is to be given market economy status automatically at the end of the year. I think the administration has heard our concerns.”

Deputy U.S. Trade Representative Michael Punke also reportedly stated in early February in Geneva that there was little administration interest in treating China as a market economy:

“The issue of China’s status is not automatic. The mere change of date at the end of the year does not automatically result in a change of status for China.”

Other US government officials have informally conceded that the administration has arrived at the conclusion that no automatic change of U.S. AD methodology is needed, a position clearly articulated by the Commerce Department.

In the attached February 24, 2016 statement to the US China Economic and Security Review Commission, HUFBAUER STATE, however, Gary Clyde Hufbauer, a well-known international trade expert at the Peterson Institute for International Economics, made the opposite argument noting first that the following countries have granted China market economy status in antidumping cases: New Zealand, Singapore, Malaysia and Australia. Hufbauer went on to state:

Some lawyers read the text differently. While they agree that Article 15(a)(ii) effectively disappears on December 11, 2016, they do not agree that the Protocol confines WTO members to a binary choice between MES (strict comparison of export prices with Chinese prices or costs) and NME (comparison with surrogate prices or costs). They point to the opening language in Article 15(a), which states:

…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….

To be sure, under Article 15(d), the whole of Article 15(a) disappears:

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….

The United States might well argue, come December 11, 2016, that China has not established that it has become, in all important respects, a market economy. The Commerce Department could modify its current surrogate practices and instead use a “mix-and-match” approach—claiming on a case-by-case basis that some Chinese prices or costs reflect market conditions and others do not. For the prices or costs that do not reflect market conditions, the Commerce Department could use surrogate prices or costs. This seems most likely in industries, such as steel, dominated by state-owned enterprises, with large losses financed by state-controlled banks.

Whether the United States takes a “mix-and-match” approach, rather than granting China blanket market economy status, will turn primarily on policy considerations, not legal parsing. The policy decision may reflect the general atmosphere of commercial relations with China late in 2016, including the evolution of the renminbi exchange rate (manipulated devaluation would inspire a harder line) and the outcome of US-China bilateral investment treaty (BIT) negotiations (success would have the opposite effect).

Assuming the United States adopts a “mix-and-match” approach, the stage will be set for China to initiate WTO litigation. In this scenario, the year 2018 seems the earliest date for a final decision by the WTO Appellate Body. My guess is that the Appellate Body would rule against the “mix-and-match” approach. Even so, China would not receive retroactive refunds for antidumping duties collected prior to the ruling.

Moreover, within China, the US denial of full-fledged MES would resonate strongly, in a negative way. Antagonism would be particularly strong if, as I expect, the European Union and other major countries accord MES in December 2016. Consequently, China would likely retaliate in opaque ways against US exporters and investors.

On balance, the United States would lose more than it gains from withholding full-fledged MES. A very large irritant would be thrown into US-China commercial relations, with a modest benefit to US industries that initiate AD proceedings. Even without the use of surrogate costs and prices, AD margins are typically high. Adding an extra 20 percent penalty, through the use of surrogate cost and price methodologies, will not do a great deal more to restrain injurious imports.

On February 25, 2016, Cecilia Malmström, the EU Commissioner for Trade, stated at a China Association Event in London that China is:

a major investment partner too. The EU has stocks of 117 billion pound sterling in the Chinese economy. And China is a growing source of foreign investment for the EU. Chinese investment in EU in 2014 is four times what it was in 2008.

And, if we just look at our exports alone, over 3 million jobs here in Europe depend on our sales in China. . . .

The second issue I want to raise is the question of changing the methodology in anti-dumping investigations concerning Chinese products, the so-called market economy status.

This is a sensitive issue. And it’s become even more so with the steel situation. That’s why the EU is conducting a thorough impact assessment and public consultation before we make up our minds on where to go.

But what is clear is that certain provisions of China’s protocol of accession to the WTO related to this issue will expire in December.

We need to be very careful how we approach this and we need to work cooperatively. We will need the constructive engagement of all Member States, including the UK.

On March 3, 2016, the executive council of the AFL-CIO labor union called on the US government to end the trade agreement TTIP negotiations if the EU makes China a market economy country.

TRADE

RAW ALUMINUM PROBLEMS

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.

On February 24, 2016, in a letter to the US International Trade Commission (“ITC”), WAYS MEANS LETTER ALUMINUM, House Ways and Means Committee Chairman Kevin Brady requested that the Commission conduct a section 332 fact finding investigation of the US aluminum industry. The letter specifically states:

The Committee on Ways and Means is interested in obtaining current information on relevant factors affecting the global competitiveness of the U.S. aluminum industry. The U.S. aluminum industry remains a globally successful producer of aluminum products. A healthy and growing aluminum industry is not only important to our economy, but is also vital for our national defense. ·

In order to better assess the current market conditions confronting the U.S. industry, we request that the U.S. International Trade Commission conduct an investigation under section 332(g) of the Tariff Act of 1930 ( 19 U.S.C. !332(g)), and provide a report setting forth the results of the investigation. The investigation should cover unwrought (e.g., primary and secondary) and wrought (e.g., semi-finished) aluminum products

To the extent that information is available, the report should contain:

  • an overview of the aluminum industry in the United States and other major global producing and exporting countries, including production, production capacity, capacity utilization, employment, wages, inventories, supply chains, domestic demand, and exports;

information on recent trade trends and developments in the global market for aluminum, including U.S. and other major foreign producer imports and exports, and trade flows through third countries for further processing and subsequent exports;

  • a comparison of the competitive strengths and weaknesses of aluminum production and exports in the United States and other major producing and exporting countries, including such factors as producer revenue and production costs, industry structure, input prices and availability, energy costs and sources, production technology, product in novation, exchange rates, and pricing, as well as government policies and programs that directly or indirectly affect aluminum production and exporting in these countries;
  • in countries where unwrought aluminum capacity has significantly increased, identify factors driving those capacity and related production changes; and
  • a qualitative and, to the extent possible, quantitative assessment of the impact of government policies and programs in major foreign aluminum producing and exporting countries on their aluminum production, exports, consumption, and domestic prices, as well as on the U.S. aluminum industry and on aluminum markets worldwide.

The report should focus primarily on the 2011-2015 time period, but examine longer term trends since 2011. To develop detailed information on the domestic aluminum market and industry, it is anticipated that the Commission will need to collect primary data from market participants through questionnaires. The Committee requests that the Commission transmit its report to Congress no later than 16 months following the receipt of this request. . . .

One major purpose of the investigation is to assess how China policies have affected the US aluminum industry.

President Heidi Brock of the US Aluminum Association, which represents the US aluminum industry, applauded the Ways and Means request for an ITC investigation:

“An investigation by the [ITC] will help us address ongoing issues in the global aluminum industry that are hurting the domestic market and leading to curtailments, closures and job losses. I am pleased that the Congress recognizes the continued economic importance of this vital industry and I applaud Chairman Brady’s leadership to move this issue forward.”

Recently, the U.S. industry has curtailed or closed 65 percent of U.S. aluminum capacity with many job losses for U.S. workers

The information collected by the ITC could be used as the basis for trade cases against China and other countries.

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 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% and now under the Antidumping Law rates of over 200%.

COLD ROLLED STEEL FROM CHINA, BRAZIL, KOREA, INDIA AND RUSSIA—PRELIMINARY COUNTERVAILING DUTY AND ANTIDUMPING DETERMINATIONS

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%.

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.

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.

On March 1, 2016 Commerce issued its attached preliminary antidumping determination mirroring the rates in the preliminary CVD determination. Specifically, in a factsheet, factsheet-multiple-cold-rolled-steel-flat-products-ad-prelim-030116, Commerce announced its affirmative preliminary determinations in the antidumping duty  investigations of imports of certain cold rolled steel flat products from Brazil, China, India, Japan, Korea, Russia, and the United Kingdom.

As predicted, China’s antidumping rate was 265.79% as the Chinese companies simply gave up and did not participate because they believed that it would be impossible to get a good antidumping rate using nonmarket economy methodology.

For the other market economy countries, the results were mixed. Brazil received antidumping rates of 38.93% and Japan was 71.35%.

But India’s rate was only 6.78% and Korea had rates ranging from 2.17 to 6.85%. For Russia, the rates ranged from 12.62 to 16.89% and the United Kingdom rates were between 5.79 to 31.39%.

What does this mean? China is wiped out along with Japan and probably Brazil, but Korea, India, Russia and UK will continue to export steel to the US and simply take the Chinese market share.

Antidumping and countervailing duty cases do not save US industries.

CUSTOMS NEW “LIVE ENTRY” PROCEDURES FOR STEEL IMPORTS

On March 3, 2016, Customs announced a new effort to enforce trade rules against steel shipments at risk for evasion of antidumping and countervailing duty orders. It requires importers of record to provide the paperwork and pay the necessary duties before a given shipment is released into the U.S. market.

This live-entry requirement is already being applied to cut-to-length steel plate from China. Customs is considering requiring live-entry procedures for other high-risk steel imports subject to the 100 plus AD/CVD cases, but sidestepped a question on whether these procedures would apply to products other than steel.

This new live entry requirement slows up imports from entering the US commerce to that Customs can make sure everything in the shipment is correct before releasing it into the Commerce of the United States.

SOLAR CELLS REVIEW DETERMINATION

On December 18, 2015, in an attached decision, SOLAR CELLS AD PRELIM, the Commerce Department issued its preliminary determination in the 2013-2014 Solar Cells antidumping review investigation.  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.

Meanwhile, requests for antidumping and countervailing duty review investigations in the Solar Cells case were due in December 2015 and in February 2016 for the Solar Products. While in China in February, I ran into many Chinese solar companies that were in serious trouble because they failed to request a review investigation.

MARCH ANTIDUMPING ADMINISTRATIVE REVIEWS

On March 1, 2015, Commerce published the attached Federal Register notice, MARCH REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of March. The specific antidumping cases against China are: Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, and Tissue Paper Products.

The specific countervailing duty case is: Circular Welded Austenitic Stainless Pressure Pipe

For those US import companies that imported : Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, or Tissue Paper Products during the antidumping period March 1, 2015-February28, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.

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

CUSTOMS

RICO ACTION AGAINST CHINESE GARLIC EXPORTERS

In the attached complaint, GARLIC COMPLAINT, on January 28, 2016, Chinese garlic exporter Zhengzhou Harmoni Spice Co. Ltd. and its parent company sued a group of Chinese competitors in California federal court accusing them of deliberately defrauding the U.S. government in order to acquire preferential duty rates.

Zhengzhou Harmoni claimed the exporters, which the company says are affiliated to Chinese businessman Wenxuan Bai, are defrauding the system by lying and submitting falsified documents to Customs and Commerce in violation of the Racketeer Influenced and Corrupt Organizations Act. The company said their competitors’ allegedly unlawful conduct is unfairly eroding Harmoni’s market share because Harmoni rightly earned favorable rates from the federal government through the antidumping review process,

Zhengzhou Harmoni told the court that its parent company and exclusive importer enjoys a similar advantage in the U.S. marketplace, but accused the Bai-affiliated garlic exporters of unlawfully forming new corporate entities and revitalizing old ones in order to obtain coveted “new shipper” designations to garner preferential treatment.

Meanwhile, in a decision, CIT PREMIER GARLIC, in late January Premier Trading, Inc. v. United States, Premier, a U.S. garlic  importer of garlic from Qingdao Tiantaixing Foods Co. Ltd., one of the companies named in Harmoni’s RICO suit, sued Customs and Commerce in the U.S. Court of International Trade (“CIT”). Premier Trading Inc. alleged CBP’s enhanced bond requirements for shipments from QTF are resulting in delays and leaving fresh garlic to spoil.

On February 11, 2016, Judge Gordon of the CIT denied Premier’s motion for a preliminary injunction, stating at the outset that there was no likelihood of success on the merits:

It is apparent that QTF may potentially be subject to the higher PRC-wide rate as a consequence of Commerce’s preliminary determination in the 20th administrative review. Furthermore, there has been a long and documented pattern of non-payment and underpayment of antidumping duties subject to the Garlic Order (amounting to several hundred million dollars). . . . Customs, here, has also provided confidential documents regarding Plaintiff’s connection to other importers that mirror a pattern of non-payment and underpayment, which suggests, as Customs claims, that Plaintiff poses a similar risk to the revenue. . . . In light of these facts, it is hard to see merit in Plaintiff’s claim that Customs failed to provide an adequate explanation for the enhanced bonding requirement for Plaintiff’s entries. Accordingly, Customs’ imposition of a heightened bonding requirement on imports from QTF does not appear arbitrary or capricious. . . . Plaintiff has therefore failed to establish a likelihood of success on the merits.

Judge Gordon then found that there was no irreparable injury and that the balance of equities favored the Government. Judge Gordon then stated that Public Interest lies in favor of the Government:

Here, the public has an interest in protecting the revenue of the United States and in assuring compliance with the trade laws. See 19 U.S.C. § 1623. Enhanced bonding pending litigation serves both these interests. Additional security covers potential liabilities and protects against default, ensuring the correct antidumping duty is paid.

CUSTOMS PROTEST RULE APPEALED TO SUPREME COURT

Meanwhile, International Custom Products Inc. has filed an attached writ of certiorari on January 19, SUPREME COURT CERT PROTEST ISSUE, and asked the U.S. Supreme Court to review the constitutionality of a Customs rule requiring the full payment of duties by an importer before a court case can proceed, challenging the Federal Circuit’s conclusion that the policy meets due process requirements. The importer argues that the CPB rule requiring importers to fully pay imposed duties before bringing a court case is unconstitutional because it deprives the company of due process. The company has been disputing $28 million in tariffs it claims have been erroneously applied to its imports of white sauce due to the agency’s reclassification of the product.

FALSE CLAIMS ACT

GRAPHITE ELECTRODES

On February 22, 2016 in a settlement agreement, SETTLEMENT FCA GRAPHITE, Ameri-Source International Inc., a graphite electrodes company, paid $3 million to settle a false claims act case that it schemed to avoid antidumping duties on imports of graphite electrodes from China in violation of the False Claims Act. The complaint alleges that the importer misclassified the merchandise and lied about the country of origin to avoid paying anti-dumping duties on shipments of small-diameter graphite electrodes use for manufacturing.

Ameri-Source reportedly established a shell company in India to accept the imports of graphite rods from China for “jobwork,” and to re-export the materials to the U.S. to circumvent stateside customs regulations. The settlement resolves claims that Ameri-Source evaded anti-dumping duties on 15 shipments.

IP/PATENT AND 337 CASES

NEW 337 CASES

On January 21, 2016, Edgewell Personal Care Brands, LLC and International Refills Company Ltd. filed a new 337 patent case on Certain Diaper Disposal Systems and Components Thereof, Including Diaper Refill Cassettes against Munchkin, Inc., Van Nuys, CA; Munchkin Baby Canada Ltd., Canada; and Lianyungang Brilliant Daily Products Co. Ltd., in China.

On February 5, 2016, Simple Wishes, LLC filed a new section 337 on Pumping Bras against Tanzky, China; Baby Preg, China; Deal Perfect, China; and Buywish, China.

CRIMINAL PATENT CASES

On January 26, 2016, the US Justice Department announced that Chinese National Mo Hailong, Robert Mo, pled guilty to conspiring to steal trade secrets from Dupont, Pioneer and Monsanto. In a notice, Chinese National Pleads Guilty to Conspiring to Steal Trade Secrets _ OPA _, the Justice Department stated:

Specifically, Hailong admitted to participating in the theft of inbred – or parent – corn seeds from fields in the Southern District of Iowa for the purpose of transporting those seeds to China. The stolen inbred seeds constitute the valuable intellectual property of DuPont Pioneer and Monsanto.

During the conspiracy, Hailong was employed as director of international business of the Beijing Dabeinong Technology Group Company, a Chinese conglomerate with a corn seed subsidiary company, Kings Nower Seed. Hailong is a Chinese national who became a lawful permanent resident of the United States pursuant to an H-1B visa.

Hailong is scheduled to be sentenced at a date to be determined later in Des Moines, Iowa. Conspiracy to steal trade secrets is a felony that carries a maximum sentence of 10 years in prison and a maximum fine of $250,000. As part of Hailong’s plea agreement, the government has agreed not to seek a prison sentence exceeding five years.

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

On January 13, 2016, in the attached complaint, SHENZHEN PATENT CASE, PS Products Inc and Bill Pennington filed a patent case against Global Sources, Ltd. and affiliated parties, and Jiangsu Rayi Security Products, Co., Ltd. and Shenzhen Rose Industrial Co., Ltd.

On January 21, 2016, in the attached complaint, STAHLS PATENT CASEStahls’ Inc. filed a patent case against Vevor Corp., Shanghai Sishun Machinery Equipment Co., Ltd. and Saven Corp.

On January 25, 2016, in the attached complaint, UNICOLORS COPYRIGHT, Unicolors, Inc. filed a copyright infringement case against Jiangsu Global Development, Inc., T. Milano Ross Stores Inc., DD’s Discounts, Phool Fashion Ltd., the Vermont Country Store, Inc. and Trends Inc.

On January 26, 2016, in the attached complaint, BLUE RHINO PATENT CASE, Blue Rhino Global Sourcing filed a patent case against Guangdong Chant Group Co., Ltd.

On February 1, 2016, in the attached complaint, ZHEJIANG PATENT CASE, Otsuka Pharmaceutical Co., Ltd. filed a patent case against Stason Industrial Corp., Stason Pharmaceuticals Inc., Zhejiang Jinhua Conba Bio-Pharm Co., Ltd., Tai Heng Industry Co., Ltd, and Breckenridge Pharmaceutical Inc.

On February 5, 2016, in the attached complaint, VACCUUM TRADE SECRET CASE, IMIG, Inc., Nationwide Sales and Services Inc, Gumwand Inc. and Perfect Products Services and Supply Inc. filed a trade secrets and unfair competition case against Omi Electric Appliance Company Co., Ltd., Beijing China Base Startrade Co., Ltd. and Xi Shihui, a Chinese citizen.

On February 10, 2016, in the attached complaint, HUAWEI PATENT CASE, Blue Spike LLC filed a patent case against Huawei Technologies.

PRODUCTS LIABILITY CASES AND LACY ACT VIOLATIONS

THE RISE OF CHINESE PRODUCTS LIABILITY INSURANCE

While in China last month working on various cases, I learned that the People’s Insurance Company (“PICC”) is offering Chinese companies products liability insurance. Every US importer should demand that his Chinese supplier obtain product’s liability insurance.  Otherwise when something goes wrong, the US importer is on the hook for damages, not the Chinese company that created the problem.

PRODUCT LIABILITY COMPLAINTS

On January 26, 2016, in the attached complaint, CHINA FIREWORKS CASE, the Reynolds Family filed a products liability/wrongful death case on behalf of Russell Reynolds, who was killed when Chinese fireworks went off by mistake. The respondent companies are Pyro Shows of Texas, Inc., Pyro Shows, Inc., Czech International Trading, Jiangxi Lidu Fireworks Group Co., Ltd., Jiangxi Province Lidu Fireworks Corp., Ltd., Fireworks Corp., Ltd., Icon Pyrotechnic International Co., Ltd., Oriental Fireworks Co., Ltd. and Glorious Company.

On January 26, 2016, in the attached complaint, CHINA REFRIGERATOR, Allstate Insurance Company on behalf of Miguel Bejarno filed a products liability case against Electrolux Home Products Inc., Midea Group Co., Ltd. and Guangzhou Refrigeration Co., Ltd. because a Chinese produced refrigerator blew up and burned down a house causing extensive damage.

LARGEST LACEY ACT FINE IN HISTORY AGAINST LUMBER LIQUIDATORS FOR CHINESE HARDWOOD IMPORTS

On February 1, 2016, the Justice Department in the attached statement, Lumber Liquidators Inc. Sentenced for Illegal Importation of Hardwood and Re, announced that Lumber Liquidators Inc. was sentenced for illegal Importation of hardwood from China and related environmental crimes and agreed to pay 13 million, one of the largest penalties ever issued under the Lacey Act. The announcement states:

Virginia-based hardwood flooring retailer Lumber Liquidators Inc. was sentenced today in federal court in Norfolk, Virginia, and will pay more than $13 million in criminal fines, community service and forfeited assets related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world . . . .

In total, the company will pay $13.15 million, including $7.8 million in criminal fines, $969,175 in criminal forfeiture and more than $1.23 million in community service payments. Lumber Liquidators has also agreed to a five-year term of organizational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits. In addition, the company will pay more than $3.15 million in cash through a related civil forfeiture. The more than $13.15 million dollar penalty is the largest financial penalty for timber trafficking under the Lacey Act and one of the largest Lacey Act penalties ever.

Lumber Liquidators pleaded guilty and was charged in October 2015 in the Eastern District of Virginia with one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act, which makes it a crime to import timber that was taken in violation of the laws of a foreign country and to transport falsely-labeled timber across international borders into the United States. . . . This is the first felony conviction related to the import or use of illegal timber and the largest criminal fine ever under the Lacey Act.

“The case against Lumber Liquidators shows the true cost of turning a blind eye to the environmental laws that protect endangered wildlife,” said Assistant Attorney General John C. Cruden for the Department of Justice’s Environment and Natural Resources Division. “This company left a trail of corrupt transactions and habitat destruction. Now they will pay a price for this callous and careless pursuit of profit.” . . .

“By knowingly and illegally sourcing timber from vulnerable forests in Asia and other parts of the world, Lumber Liquidators made American consumers unwittingly complicit in the ongoing destruction of some of the world’s last remaining intact forests,” said Director Dan Ashe of the U.S. Fish and Wildlife Service. “Along with hastening the extinction of the highly endangered Siberian tiger and many other native species, illegal logging driven by the company’s greed threatens the many people who depend on sustainable use of these forests for food, clean water, shelter and legitimate jobs. These unprecedented sanctions show how seriously we take illegal trade, and I am grateful to the Service special agents and wildlife inspectors, Homeland Security agents, and Justice Department attorneys who halted Lumber Liquidators’ criminal acts and held the company accountable under the law.”

According to a joint statement of facts filed with the court, from 2010 to 2013, Lumber Liquidators repeatedly failed to follow its own internal procedures and failed to take action on self-identified “red flags.” Those red flags included imports from high risk countries, imports of high risk species, imports from suppliers who were unable to provide documentation of legal harvest and imports from suppliers who provided false information about their products. Despite internal warnings of risk and noncompliance, very little changed at Lumber Liquidators.

ANTITRUST

There have been developments in the antitrust area.

CHINESE BAUXITE EXPORTERS WIN ANTITRUST CASE

On January 25, 2016, in the attached opinion in Resco Products, Inc. v. Bosai Minerals Group Co., Ltd. and CMP Tianjin Co., Ltd., BAUXITE OPINION, Chief District Judge Conti in the Western District of Pennsylvania granted summary judgment for the Chinese companies and dismissed the antitrust case. Resco brought the claim individually and as a class representative, against Bosai and CMP alleging a conspiracy in China to fix the price and limit the supply of refractory grade bauxite in violation of the Sherman Act, 15 U.S.C. § 1.

The Court concluded that any price floor or quota was set by the Chinese government’s Ministry of Commerce, not by the individual Chinese Bauxite companies. In its discussion of the facts, the Court stated:

In his declaration for the China Chamber of Commerce for Metals and Chemicals (“CCCMC”), Liu Jian (“Jian”), a CCCMC employee since 1995 and deputy director of the Bidding Office since 2006, . . . explained that “[a]t Bauxite Branch meetings, Bidding Office staff asked the Bauxite Branch members for their opinions about specific proposed quota amounts, quota bidding minimum prices, and other matters relating to quota bidding.” . . . but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM, not the members or the CCCMC. MOFCOM could, and often did, set the quotas and minimum bidding prices at levels different than those favored by members. . . .

The Judge went on to state:

Here, plaintiff’s § 1 claim is based on its assertion that “[d]efendants and their co-conspirators colluded to fix export prices and quotas for bauxite from 2003 to 2009. . . .

In a per se case, “‘the plaintiff need only prove that the defendants conspired among each other and that this conspiracy was the proximate cause of the plaintiff’s injury.’”  . . .

In a vacuum, proposals to set bauxite quotas at specified levels being voted on at Bauxite Branch meetings appear to indicate explicit member participation in a conspiracy to limit output. However, the Bauxite Branch’s demonstrated lack of authority with respect to quotas invalidates such a finding. Since at least 2001, MOFCOM has been “responsible for deciding and announcing the types and the total quota quantity of commodities subject to bidding,” not the CCCMC or its Branches. . . . The quota announced by the Bidding Committee during each of the years of the alleged conspiracy never corresponded to a resolution of the Bauxite Branch. At its 2004 through 2006 meetings, the Bauxite Branch failed to pass any resolution related to quota amount, yet the Bidding Committee, an instrumentality of MOFCOM, still announced quotas in each of those years. . . . Any conspiracy to establish a limit equal to or higher than that imposed by the government could have no effect.

Consistent with the undisputed Declaration of the CCCMC, Bauxite Branch member votes for proposals concerning the yearly bauxite quota amount can only be construed as opinions offered to MOFCOM. .   . . These opinions were not that limits should be placed on bauxite output. The implementation of quotas was mandated by the Chinese government, not agreed to by private entities. . . .

Bauxite Branch members were asked for their opinions pertaining to the bauxite quota during meetings, “but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM.” . . .

As discussed previously, the evidence adduced with respect to the quotas cannot support a § 1 claim, because the Chinese government – and not defendants – set the quotas.

Resco has appealed the District’s Court’s determination to the Court of Appeals.

CHINESE COMPANIES SETTLE SOLYNDRA SOLAR CASE

On February 26, 2016, in the attached settlement agreement, SOLYNDRA SETTLEMENT, Yingli Green Energy Holding Company Ltd. agreed to settle for $7.5 million a US antitrust case alleging that Chinese companies conspired to set prices with the objective of destroying Solyndra.

Solyndra previously settled the litigation against two other Chinese companies, Trina Solar Ltd. and Suntech Power Holdings Co. Ltd, for a total of $51 million, with Trina Solar paying $45 million and Suntech paying $6 million.

CHINA ANTI-MONOPOLY CASES

On February 3, 2016, T&D sent us their attached January report on Chinese competition law, T&D Monthly Antitrust Report of January 2016.  The main contents of the January report are:

(1) NDRC: Guideline on Leniency Policies in Horizontal Monopoly Agreement Cases has Begun to Seek for Opinions; (2) SAIC Held a Forum to Seek for Opinions and Comments on the Guideline on Prohibiting the Behavior of Abusing Intellectual Property Rights to Restrict or Eliminate Competition (the Sixth Draft); (3) MOFCOM Year-End Review: Positively Promoting Anti-monopoly Enforcement and Protecting Fair Competition of the Market; (4) SAIC: Anti-monopoly Law Enforcement Treats All Market Players the Same, etc. . . .

On February 5, 2016, T&D sent us the latest attached draft of Guideline on Undertakings’ Commitments in Anti-Monopoly Cases on February 3rd, 2015, Guideline on Undertakings’ Commitments in Anti-Monopoly Cases-EN-T&D.

SECURITIES

US LISTED CHINESE COMPANIES MOVING BACK TO CHINA TO RAISE MONEY

On February 29, 2016, it was reported that many U.S.-listed Chinese companies are leaving the United States and moving back to China as the easing of Chinese securities regulations has renewed the possibility of finding stronger valuations domestically.

Although there has been market volatility in China, US too has had volatility. Apparently, there is a perception that a stronger valuation can be found in Chinese domestic stock markets, where investors have a stronger understanding of the companies and the role they play.  In November, the China Securities Regulatory Commission began greenlighting IPO-bound companies and promised to take measures to help reform the country’s system for initial public offerings.

FOREIGN CORRUPT PRACTICES ACT

In February Dorsey& Whitney LLP issued its January February 2016 Anti-Corruption Digest, TIANJIN INVESTMENT COMPANY. The Digest states with regards to China:

China

Wang Qishan, the Secretary of the Central Commission for Discipline Inspection has given assurances that China’s anti-corruption efforts will continue in 2016. In a recent speech, Mr. Wang stressed that, “the strength of our anti-corruption efforts will not be lessened”.

This sentiment was echoed by the recent sentencing of two former officials:

According to state media, Li Dongsheng, China’s former deputy national police chief, has been sentenced to 15 years in prison for corruption. Reports state that Mr. Li stood accused of taking bribes totally ¥22 million ($3.3 million/£2.3 million) and abusing his power. It is said that Mr. Li will not appeal the verdict.

A former top official in the city of Guangzhou has reportedly admitted to taking ¥111 million ($17 million/£11.5 million) in bribes between 2000 and 2014. Wan Qingliang’s alleged corruption is said to have included taking bribes of more than ¥50 million ($7.6 million/£5.2 million) from a company that he had helped to win a government development project.

In a written statement the Nanning Intermediate People’s Court said that Mr. Wan raised no objection to the charge of corruption and that he showed remorse during the trial. It is said that Mr. Wan told the court that, “I have hurt the Party, the people and my family and I hope that the court can give me another chance.”  

Recently, Dorsey& Whitney LLP issued its attached February 2016 Anti-Corruption Digest, Anti_Corruption_Digest_Feb2016. The Digest states with regards to China:

China

China’s army has not been immune from President Xi Jinping’s anti-corruption drive and has seen a number of its officers investigated, including two former vice chairmen of the Central Military Commission.

To continue this drive, it has been reported that the military’s anti-corruption discipline inspection committee has established a hotline as a means for reports to be made regarding allegations of corruption in the People’s Liberation Army. It is said that the hotline will “fully utilize supervision by the masses” and complaints will be addressed in a “timely and earnest” fashion.

SECURITIES COMPLAINTS.

On March 8, 2016 Jacob Sheiner filed the attached class action securities complaint, TIANJIN INVESTMENT COMPANY, against a number of individuals and also Tianjin Tianhai Investment Co., Ltd. as well as GCL Acquisition, Inc.

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

Best regards,

Bill Perry

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

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